Context

Despite the reductions and elimination of tariffs and quotas that are a decisive element in the trade liberalization process, the growth of developing country exports to developed country markets and the associated developmental impact has been limited. The marginalization of developing countries from global trade is a major concern today. The problem arises from two related weaknesses specific to developing countries. The first is the lack of a competitive supply capability of industrial goods to be traded. The second is related to the serious technical problems faced by developing countries in actually accessing international markets. Products have to comply with a myriad of technical standards and health, safety and environmental requirements set by importing countries. These problems are addressed in the two key WTO agreements on technical barriers to trade (TBT) and sanitary and phyto-sanitary measures (SPS).

Developing countries need to comply with the requirements of the TBT and SPS agreements, and must have the ability both to produce according to the standards and technical regulations set by the client countries, and to prove conformity. Furthermore, their products must prevail in highly competitive markets. Standards and conformity procedures often effectively restrict market entry, even in the absence of tariffs and quotas. Developing countries therefore need to ensure that potential exporters have the necessary supply capacity in place, and that they are provided with critical support services (particularly in the area of standards, metrology, testing certification and conformity assessment) to meet the export criteria. In this way, failures in markets and at the level support institutions can be overcome.

Moreover, in the context of globalization, enterprises in almost all sectors of industry and related services are looking for worldwide outsourcing and supply opportunities in a continuous quest for increased competitiveness. In this environment, only the most efficient and productive businesses can survive. The enhancement of competitiveness though restructuring, upgrading, and continuous improvements thus constitute the foundations for success. Additionally, developing countries have to achieve higher levels of productivity through the use of modern management techniques and technologies and exploit economies of scale or identify targeted niches. Productivity gains in their various manifestations are the ultimate gauge of the impact of such interventions. In line with this, enterprises in developing countries and economies in transition need to be assisted further to gain access to value chains or production systems, and to encourage and support the use of modern industrial linkages as a means of promoting further economic development on a global basis.

Over the past two decades the industrial system has shifted from a model of production based on highly vertically integrated firms implementing mass production and maintaining a limited role for suppliers to a pattern of production based on flexible and interacting networks of firms and organizations. The adoption of this new model of production emphasizes cost competitiveness and high quality levels to be achieved through growing cooperation with suppliers within the global value chain through subcontracting and manufacturing partnerships. Productivity growth for sustainable economic progress is now based on flexibility and specialization, with higher inter-firm interaction. At the same time, firms are becoming increasingly global and are establishing international networks of production. Within this scenario the development of international supply networks represents a critical issue for developing countries.

Further, a major development debate has emerged around the trade capacity constraints facing developing countries, and on how best to assist the LDCs in particular so that they may become active partners in global trade. The issues are complex and the approaches to solutions are just evolving. Significant research interventions and awareness creation through global stakeholder conferences are required at the policy level. At the institutional level, developing countries require tools, manuals and software support to overcome these constraints. Additionally, the development of networks and partnerships, which could be facilitated by UNIDO, would yield tangible benefits.

The overall objective of this service module is to strengthen the capacity of developing countries to raise their productivity so that they can compete in the global market and benefit from the trade opportunities presented to them under the open rule-based trading system. To this end, the service module pursues two broad categories of interventions:

• Capacity building in the area of standards, metrology, testing and accreditation to overcome TBT/SPS constraints; and
• Enhancing the competitiveness of developing country enterprises through quality and productivity improvements, and supporting the development of mechanisms to assist them in accessing global subcontracting and supply chains and networks.

In implementing technical assistance projects under this service module, it is necessary to co-operate and develop links with other relevant UNIDO service modules. For instance, this service module is linked to Service Module 2, as a domestic capacity for metrology and testing is a prerequisite for attracting investment and facilitating technology transfer. Similarly, promoting private sector development (as provided for in Service Module 4) requires national capacities to overcome the constraints imposed by TBT/SPS. The development of testing laboratories and capacity for the ISO 14000 environmental standards set by the International Standards Organization (ISO) is linked to the services provided under Service Module 8. Further, a major sector focus of most developing countries is the Agro/food sector and the intervention would link closely with the interventions under Service Module 5. Access to global markets and supply chains, meanwhile, can be promoted most effectively in conjunction with the business partnership and clusters development programmes of Service Module 4.

Services provided and expected outputs

(a) Strengthening the regulatory framework for conformity

A principal precondition for compliance with the TBT/SPS requirements is to have the necessary regulatory framework in place. Some developing countries (particularly the LDCs) have yet to develop such a framework. Since trade is a sensitive issue and much of the trade potential of these countries is in the area of industry, UNIDO as an impartial and competent organization can provide vital support services in this field. This service therefore provides assistance to Governments with the development and effective application of a regulatory regime for standards, metrology, testing, accreditation and quality, and support for the development of an operational framework for the implementation of these regulations. This regulatory regime might encompass a number of measures, including import/export inspections, market surveillance, the promotion of consumer safety (i.e. traceability) and protection of health, and the protection of the environment through voluntary and mandatory means, as may be deemed appropriate.
(b) Strengthening the operational components of the conformity infrastructure

The full implementation of the TBT/SPS agreements demands a functional standards setting organization, supported by calibration and testing capabilities. A key issue today is the growing marginalization of the developing countries from the global standard setting process. At present there are more than 100,000 standards in the world, with more than one thousand new standards being added every year. In addition, voluntary standards such as the ISO 9000 quality management system, the ISO 14000 environmental management system, and the hazard analysis and critical control point (HACCP) food safety system are increasingly becoming mandatory requirements for trade.

To access global markets, exporters must show compliance with the myriad of international standards. Compliance requires calibration and testing capabilities. A national metrology facility and chemical and microbiology testing laboratories are the absolute minimum, even for trade in processed foods. Further, sectoral laboratories for such leading sectors as textiles and leather are increasingly needed in developing countries. The third requirement is to show that the tests conducted and the certificates issued are credible and can be relied upon. This requires a national accreditation institution that has obtained mutual recognition status from the respective international bodies.

To assist developing countries and countries with economies in transition meet these requirements, this service module provides the following specific services:

Standards

• The establishment or strengthening of existing standardization bodies through the provision of training, setting up of sub-sectoral technical committees, and pilot standards development exercises.
• Promotion of the adoption of standards at national and regional level, and assistance for the country's participation in regional and international standards-setting forums and networks.
• Assistance for the development of product conformity mark schemes.
• Pilot projects for capacity building related to both product standards and systems standards such as ISO 9000, ISO 14000 and HACCP.

Metrology (Measurement)

• The establishment or strengthening of laboratory capacities for industrial and legal metrology capabilities covering measurement and calibration requirements in accordance with the manufacturing and export needs of the country. This implies assisting in the physical set-up and start-up of laboratories, including upgrading measurement equipment, training technicians, providing assistance in networking, participating in inter laboratory comparisons, as well as providing support for accreditation.
• Implementation of the UNIDO software "Measurement and Control-Chart Toolkit" (MCCT) to meet the requirements related to metrological control of the ISO 9000:2000 standards.

Testing Laboratories

• The establishment or strengthening of laboratory capacities for material and product testing, primarily for microbiological and chemical analysis, and secondarily for specialist laboratories for industrial sub-sectors with export potential.
• Assistance in specifying testing and equipment requirements, technical support for the harmonization of testing procedures, training of staff including assistance in networking, participating in inter-laboratory comparisons, as well as providing support for accreditation.
  

Accreditation

• The establishment or strengthening of accreditation bodies for the accreditation of system certifiers and laboratories.
• Assistance to national accreditation bodies to obtain international recognition from the International Accreditation Forum (IAF) and the International Laboratory Accreditation Cooperation (ILAC) through pre-peer evaluation mechanisms to achieve the signing of multilateral recognition agreements so that the national accreditation has global acceptance and can facilitate market access.

(c) Competitiveness enhancement through quality and productivity improvements

In the present global trade setting, competitiveness is the key to market entry. Quality, cost and delivery capability are the determinants of success. Developing countries require significant assistance in improving quality and productivity, as well as the utilization of computer based decision tools. The concept of benchmarking is now used to strategically place a country's capabilities against the potential competition, and develop appropriate intervention strategies. UNIDO has acquired extensive experience in promoting continuous improvement concepts and has developed a number of specialized software tools for the purpose, which have been applied successfully in many developing countries.

The specific services offered by UNIDO in this context include:

Quality and Productivity

• Assisting capacity development at the level of Governments, institutions and enterprises for implementing continuous improvement, quality management and productivity improvement methodologies through pilot demonstration projects.
• Promoting the establishment of quality and productivity centres for quality improvement and benchmarking.

Business Excellence Software

• Assistance in improving the capability to monitor, benchmark and increase business performance through the implementation of UNIDO business excellence software packages suitable for SMEs. These comprise the business navigator PHAROS for strategic management, PRODUCE-Plus for production management and productivity measurement, the business environment strategic toolkit BEST, the financial improvement toolkit FIT, and the database management software OUTSOURCING.

d) Accessing global subcontracting and supply chain networks

The UNIDO Supply Chain Development Programme (SCDP) is at the forefront in assisting developing countries to connect to the global subcontracting and supply chain networks. SCDP aims at increasing productivity and sustainable economic progress by enabling institutions in the public and/or private sectors to establish or strengthen linkages with national and international production systems and global value chains in order to promote global partnerships and the integration of developing countries into the world economy.

The services offered by UNIDO in this connection include both Subcontracting and Partnership Exchanges (SPXs) and support with the establishment of supply chain partnerships, as described below.

Building Up the Supply: SPX Development and Networks

• Establishing and reinforcing Subcontracting and Partnership Exchanges (SPXs) as technical information and matchmaking centres for industrial subcontracting and partnerships between buyers and suppliers. These SPXs are designed to facilitate production linkages between small, medium-sized and large manufacturing firms, and to link up with global markets and value chains in order to assist in optimizing the manufacturing capacities of the affiliated industries.
• The SPX development and networking programme currently comprises more than 56 SPXs based in over 30 countries, and thereby helps to improve the efficiency of the global outsourcing and the development of suppliers' networks. This unique UNIDO methodology and the well-established global network have now emerged as a vital support mechanism for industrial subcontracting and partnership promotion. In the past 20 years, some 65 SPXs have been established of which 56 are still operating on a self-financing basis.

Linking-up with the Demand: Supply Chain Partnerships

• Organizing, jointly with SPXs, which act as facilitators or brokers, "Supply Development and Upgrading Programmes" to provide assistance to clusters of small-scale suppliers and subcontractors, in order to upgrade their technical and commercial skills and their capability to meet the quality requirements of the international buyers and main contractors.
  

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