Trade and investment law and policy hold great potential to trigger economic development and lift millions out of poverty. However, unlocking this potential – particularly in a way that creates diverse, inclusive markets for small and medium-scale enterprises (SMEs), farmers, and entrepreneurs – will require a new approach that links opportunity at the grassroots level with systemic policy change.
Currently, efforts tend to focus exclusively at either the individual enterprise level or the policy level, with little interaction between the two. At the enterprise level, adequate legal services are difficult to access, particularly for small farmers and SMEs, and interventions help one enterprise at a time without pressing for broader change in the system.
At the policy level, efforts focus mainly on negotiating agreements and developing high-level regulatory frameworks. These include the comprehensive rules and standards of the World Trade Organization (WTO), trade preference programs, free trade and regional trade agreements, and bilateral investment treaties. While critically important, these macro-level frameworks do not automatically lead to inclusive and sustainable economic activity. Not only do they often fail to be implemented effectively, they are also inadequate in addressing the many barriers obstructing trade and investment opportunities in developing countries that impact the smaller economic stakeholders the most. As a result, many economies fail to diversify, and a number of products, including food needed to sustain poor families, do not reach local and regional markets in an efficient manner, let alone get to ports for export. These challenges make it difficult for some to benefit from trade and generate the income needed to enjoy dignified, sustainable livelihoods.
Three main gaps weaken the link between legal and policy systems on the one hand and the entrepreneurs, SMEs and smallholder farmers on the other: an information gap, a capacity gap, and a process gap.
1. Information Gap: Regardless of size, all entrepreneurs and enterprises have to navigate a complex system of law and regulation to get products and services to markets near and far. While many of these laws and regulations are publicly available, they can be very hard to find and may require consulting multiple sources or ministries in order to better understand and comply with the requirements on the books (e.g. often overlapping licenses, registration requirements, standards, etc.). This problem is magnified when regional or international regulation is involved. Despite numerous free trade agreements that attempt to streamline these processes and remove market barriers, the gap between the laws and regulations on paper and actual implementation remains significant. Smaller entrepreneurs may also not know of the new market access these agreements can bring, so many are left unaware of both the opportunities and requirements of the market.
These information gaps exist not only at the enterprise level; policymakers face information gaps as well. When a new trade agreement is negotiated, for example, SMEs and farmers at the grassroots level will rarely be consulted, leaving policymakers with very little information about potentially transformational opportunities for innovation and entrepreneurship on the ground.
2. Capacity Gap: SMEs and other grassroots actors often lack the resources and capacity to navigate complex legal and regulatory systems. Many of these enterprises cannot access or afford legal counsel, and smaller entrepreneurs will not have the experience larger companies may have and/or the capacity in dealing with technically complex legal requirements such as product quality standards.
Similarly, policymakers often lack the capacity to develop regulations that are technically sound, commercially effective, and tailored to the needs of all stakeholders, including SMEs and farmers. This makes it difficult to develop and implement effective policies in a number of areas, including agriculture, financial services, and energy.
3. Process Gap: While macro-level policy engagement is essential to create sustainable development, many SMEs, farmers and other stakeholders tend to have little way to participate in these processes. As a result, policymakers have little ability to understand opportunities for – and barriers to – entrepreneurship and innovation at the grassroots level. This can cause misaligned priorities and a growing divide between law and policy and the needs on the ground.
Similarly, policymakers may lack the capacity and technical experience to develop regulations that are technically sound, commercially effective, and tailored to the needs of all stakeholders, including SMEs and farmers. This weakens the process for developing and implementing policy within the public sector.