UNCTAD’s Rebecca Grynspan: Bridging the trade gap in challenging times

When the UN Conference on Trade and Development (UNCTAD) was set up in 1964, its goal was to assist the fair integration of developing countries into the global economy. That mission is more critical than ever as the impact of the Covid pandemic, the supply chain crunch and the drive for decarbonization threaten to widen the divide between the world’s richest and poorest countries.

As the first woman and the first Central American to be secretary general, Rebecca Grynspan exemplifies the equitable change that the organization aims to facilitate. She is well aware of the heavy task facing UNCTAD as it aims to ensure that global crises and recovery do not have a disproportionate impact on developing states.

Grynspan stresses the particularly difficult situation affecting Small Island Developing States (SIDS), and this disproportionate effect is partly due to historical limited connectivity: “While most countries see annual improvements in their Liner Shipping Connectivity Index [UNCTAD LSCI], most SIDS are stuck at the bottom, with no improvements recorded. They are confronted with a vicious cycle, where low trade volumes do not justify carriers to invest in more, bigger, or better services, and with today’s demands for fast and frequent regular services, trade from and to the islands becomes less and less competitive.

UNCTAD’s work advances a wide range of practical solutions to improve trade logistics including customs automation, port reform, trade facilitation and connectivity. Its annual Review of Maritime Transport is a benchmark for statistical analysis of the maritime sector.

Furthermore, in cooperation with IMO last year, it delivered an invaluable assessment of the economic impact of proposed decarbonisation measures. UNCTAD’s analysis shows an upward average increase in maritime logistics costs across all three GHG reduction scenarios outlined in the assessment. These stand at 1.6%, 3.1% and 7.6% for the EEXI-Only scenario, the LOW-GHG reduction scenario and the HIGH-GHG reduction scenario, respectively. Grynspan adds that decarbonisation of maritime transport is one of UNCTAD’s most important policy recommendations in its latest annual review, stating we must all “prepare for the biggest challenge maritime transport is facing over the next decades”.

Supply chain inequity

Supply chain disruption during the pandemic provides a potent reminder of the inherent inequity in global trade. While UNCTAD accurately projected that supply challenges – manifested in higher freight rates – would increase consumer prices by 1.5 percentage points as a global average, among small island developing states (SIDS) the average figure is five times higher.

Supply chain disruption and the boom in demand that has driven up freight rates represent a “double shock” to developing countries. Their wide role in manufacturing places exposes them to high transport costs over and over, whether exporting low-value consumer goods or contributing components to globalised supply chains for technology products.

Part of the solution could be to strengthen regional value chains through trade pacts, which can ensure that small firms cooperate to reduce transaction costs and benefit from economies of scale. Recent UNCTAD research also shows that trade within trade agreements has been relatively more resilient against the COVID-19 global trade downturn.

Manufacturing in developing economies also needs long-term financing, says Grynspan. Without it, firms may be unable to tap into value chain opportunities or scale up production when demand rises, because of lack of funding at affordable prices. National and regional development banks should play a stronger role in this to build up resilience.

The Russian invasion of Ukraine is also causing a big impact on global supply chains and businesses in developing countries. UNCTAD describes Ukraine and Russia as ‘a key sector of the Eurasian land bridge’. Any disruption makes trade difficult and more costly for many small economies that trade through this route.

Food security is another concern, driven by the destruction of ports and infrastructure in Ukraine, rising congestion and the rising costs of shipping. UNCTAD suggests that current market disturbances may be felt through 2023. Countries with a large share of small-scale farmers will be particularly exposed to any trade disruption around agricultural products.

Devastating though they may be, current supply issues merely hint at what could come.

Climate catastrophe

“A global climate catastrophe will dwarf the impacts of the pandemic,” says Grynspan. “Its consequences will be felt especially by developing economies that are already suffering relative economic losses three times greater than high-income countries due to climate-related disasters.”

Developing countries also find themselves in a difficult position regarding climate change. The same countries that are most affected are also likely to be those most negatively affected by mitigation measures, which again could lead to higher transport costs and lower connectivity.

Costing emissions into economic activity – including negative external impacts – will be crucial in minimizing inequity caused by climate change and measures to abate it. Grynspan is encouraged by ICS’ global carbon levy proposal, and by the support for a levy expressed by signatories to the Dhaka-Glasgow Declaration, including more than 50 SIDS and least developed countries.

“Such a mechanism can be an important step to channel support to these most vulnerable economies,” says Grynspan. “The container shipping industry is expected to generate a combined profit of up to US$200 billion in 2022. This money needs to be invested wisely into the long-term sustainability of maritime transport, including in the most vulnerable economies, and in the energy transition.”

Decisive action is critical. Grynspan worries that uncertainty will lead to delayed investment from shipping companies, leading to continued capacity constraints and thus greater delays and high freight rates.

Efficient ports and trade facilitation can help build resilience to supply shocks. In its latest Review of Maritime Transport, UNCTAD quantifies how higher shipping connectivity, lower customs clearance times and better port infrastructure have a direct impact on lower transport costs.

For smaller economies such investments are costly, a factor which can again increase the gap between developed and developing countries. Whether you look to the current global situation or the challenges facing trade in the future, much remains to be done if the global economy is to live up to UNCTAD’s motto: “Prosperity for all”.