User Tools

Site Tools


fair_trade_for_all

Differences

This shows you the differences between two versions of the page.

Link to this comparison view

fair_trade_for_all [2010/05/28 13:28]
will
fair_trade_for_all [2011/11/16 12:00] (current)
Line 1: Line 1:
-**[[wp>​Joseph Stiglitz]] and Andrew Charlton, 2005, //Fair Trade for All: How Trade Can Promote Development//,​ Oxford: Oxford University Press**+**[[wp>​Joseph Stiglitz]] and Andrew Charlton, 2005, //Fair Trade for All: How Trade Can Promote Development//,​ Oxford: ​[[wp>Oxford University Press]]**
  
 ====== Introduction ====== ====== Introduction ======
 +
  
 ===== Recent WTO History ===== ===== Recent WTO History =====
  
-The Uruguay Round completed in 1994, establishing the World Trade Organisation (WTO) and drastically expanding the scope of multilateral law concerning global trading rules. ​ In the decade since its completion, consensus has emerged that the round heavily favoured developed countries and many developing countries have suffered unexpected costs in the implementation of its provisions. ​ The collapse of the WTO ministerial conference in Seattle in 1999 --- where a new round of negotiations had been due to be launched --- brought the rich world into this consensus and convinced developed countries that the WTO would have to move in a distinctly new direction if it were to convince its developing members that a new agreement was in their interests.+The Uruguay Round completed in 1994, establishing the [[wp>World Trade Organisation]] (WTO) and drastically expanding the scope of multilateral law concerning global trading rules. ​ In the decade since its completion, consensus has emerged that the round heavily favoured developed countries and many developing countries have suffered unexpected costs in the implementation of its provisions. ​ The collapse of the WTO ministerial conference in Seattle in 1999 --- where a new round of negotiations had been due to be launched --- brought the rich world into this consensus and convinced developed countries that the WTO would have to move in a distinctly new direction if it were to convince its developing members that a new agreement was in their interests.
  
-That consensus was formally announced at the next ministerial conference in Doha in 2001 in the form of the Doha Declaration. ​ This conference launched the so-called '​Development Round',​ with developed countries promising to prioritise a rebalancing of the interests of developed and developing countries. ​ However, developed countries as a bloc have reneged on those commitments,​ setting an agenda for Doha negotiations with only minimal concessions to development. ​ This agenda focused particularly on the 'Singapore ​Issues'​, three subjects on which the WTO established working groups, and one which the WTO Goods Council was mandated to examine at the Singapore ministerial conference in 1996:+That consensus was formally announced at the next ministerial conference in Doha in 2001 in the form of the [[wp>Doha Declaration]].  This conference launched the so-called '​Development Round',​ with developed countries promising to prioritise a rebalancing of the interests of developed and developing countries. ​ However, developed countries as a bloc have reneged on those commitments,​ setting an agenda for Doha negotiations with only minimal concessions to development. ​ This agenda focused particularly on the "​[[wp>​Singapore ​issues]]"​, three subjects on which the WTO established working groups, and one which the WTO Goods Council was mandated to examine at the Singapore ministerial conference in 1996:
   * trade and investment   * trade and investment
   * competition policy   * competition policy
Line 13: Line 14:
   * trade facilitation.   * trade facilitation.
  
-Developing countries, wary of entering another bad agreement after the failures of Doha, have blocked progress on developed countries'​ target areas. ​ The US has largely responded to the stalemate by switching its attention to bilateral agreements with individual developing partners, a process which developing countries recognise ​maximise ​the US' power advantage.+Developing countries, wary of entering another bad agreement after the failures of Uruguay, have blocked progress on developed countries'​ target areas. ​ The US has largely responded to the stalemate by switching its attention to bilateral agreements with individual developing partners, a process which developing countries recognise ​maximises ​the US' power advantage.
  
 ===== Outline of the Book ===== ===== Outline of the Book =====
Line 49: Line 50:
   * high rates of investment in physical and human capital   * high rates of investment in physical and human capital
   * rapid growth in agricultural productivity   * rapid growth in agricultural productivity
-  * declining fertility.+  * declining fertility
  
 Most controversial has been the role of the state in the East Asian miracle. ​ These countries followed some orthodox prescriptions and ignored others, leading both orthodox and unorthodox commentators to claim that their success hinged on policies that they advocate. Most controversial has been the role of the state in the East Asian miracle. ​ These countries followed some orthodox prescriptions and ignored others, leading both orthodox and unorthodox commentators to claim that their success hinged on policies that they advocate.
Line 123: Line 124:
   * Mexico'​s loss of tariff revenue prevented it from investing in infrastructure and education, whereas China was able to invest heavily in these and so was able to take jobs from Mexico   * Mexico'​s loss of tariff revenue prevented it from investing in infrastructure and education, whereas China was able to invest heavily in these and so was able to take jobs from Mexico
   * NAFTA was not really a free trade agreement, as it did not eliminate US agricultural subsidies, enabling the US to export below the cost of production. ​ The human implications are bleak: 80 per cent of the rural Mexican population lives in poverty, more than half in extreme poverty.   * NAFTA was not really a free trade agreement, as it did not eliminate US agricultural subsidies, enabling the US to export below the cost of production. ​ The human implications are bleak: 80 per cent of the rural Mexican population lives in poverty, more than half in extreme poverty.
 +
  
 ===== Theory: Liberalisation,​ Welfare and Growth ===== ===== Theory: Liberalisation,​ Welfare and Growth =====
  
 Aside from the traditional argument that trade brings a welfare gain through comparative advantage, there are four further channels through which liberalisation can bring costs and benefits: Aside from the traditional argument that trade brings a welfare gain through comparative advantage, there are four further channels through which liberalisation can bring costs and benefits:
-  * the creation of economies of scale through opening foreign ​market+  * the creation of economies of scale through opening foreign ​markets
   * reduction of the price of inputs, lowering production costs   * reduction of the price of inputs, lowering production costs
   * increase in competition from foreign firms, and   * increase in competition from foreign firms, and
Line 134: Line 136:
 Traditional arguments for liberalisation usually focus on welfare rather than growth --- ie the long-run rate of growth will not be affected. Traditional arguments for liberalisation usually focus on welfare rather than growth --- ie the long-run rate of growth will not be affected.
  
-However, the assumptions which yield the result that free trade is superior to any intermediate range of trade restrictions (Samuelson, ​2962) are restrictive and often inapplicable to developing countries. ​ The standard argument is that liberalisation improves efficiency: it drives inefficient local producers out of business, and these resources are absorbed by efficient industries. ​ However, this assumes that the economy is initially operating at full capacity --- extremely rare in developing countries. ​ If there is spare unused capacity, then rather than transfer resources from low- to high-efficiency industries, instead previously used resources will become unemployed. ​ On the contrary, it is not necessary to shift resources in order to build export industry, merely to mobilise unused resources. ​ Concern about increased unemployment is one of the greatest concerns in practice, particularly understandable where safety nets are weak.  It's problematic,​ therefore, that the models that predict welfare gains blithely assume full employment.+However, the assumptions which yield the result that free trade is superior to any intermediate range of trade restrictions (Samuelson, ​1962) are restrictive and often inapplicable to developing countries. ​ The standard argument is that liberalisation improves efficiency: it drives inefficient local producers out of business, and these resources are absorbed by efficient industries. ​ However, this assumes that the economy is initially operating at full capacity --- extremely rare in developing countries. ​ If there is spare unused capacity, then rather than transfer resources from low- to high-efficiency industries, instead previously used resources will become unemployed. ​ On the contrary, it is not necessary to shift resources in order to build export industry, merely to mobilise unused resources. ​ Concern about increased unemployment is one of the greatest concerns in practice, particularly understandable where safety nets are weak.  It's problematic,​ therefore, that the models that predict welfare gains blithely assume full employment.
  
-The second key assumption is the existence of perfect risk markets. ​ However, international markets are highly risky, and liberal trade policy increases exposure to that risk.  For instance, in a closed domestic market, if some shock reduces production of a certain good, the price will rise (due to scarcity), mitigating the loss of revenue of that producer. ​ If the market is global, prices will not be affected by domestic production --- they are likely to remain constant, they may even fall for unconnected reasons. ​ Under free trade, risk-averse firms may prefer low-efficiency production if it protects them from the risk of higher-efficiency ​activities.+The second key assumption is the existence of perfect risk markets. ​ However, international markets are highly risky, and liberal trade policy increases exposure to that risk.  For instance, in a closed domestic market, if some shock reduces production of a certain good, the price will rise (due to scarcity), mitigating the loss of revenue of that producer. ​ If the market is global, prices will not be affected by domestic production --- they are likely to remain constant, they may even fall for unconnected reasons. ​ Under free trade, risk-averse firms may prefer low-efficiency production if it protects them from the higher ​risk of more efficient ​activities.
  
 > Under quite plausible conditions, one can show that free trade is Pareto-inferior to autarky --- everyone is worse off --- which is just the opposite result to that of the conventional wisdom. ---p26 > Under quite plausible conditions, one can show that free trade is Pareto-inferior to autarky --- everyone is worse off --- which is just the opposite result to that of the conventional wisdom. ---p26
Line 148: Line 150:
 Another type of market failure is based on information externalities. ​ Market information is scarce and highly costly in developing countries --- for instance, it is normal that the only means of determining whether a certain business model is profitable is to try it (with one's own capital, given the failure of capital markets). ​ The potential value of demonstrating a business model is profitable can be enormous, but very often it is impossible for the entrepreneur to capture more than a fraction of this value. ​ If the model fails, the entrepreneur pays all of the costs; if it succeeds, copy-cat firms capture some if not most of the gains. ​ There are compelling real-world examples: cut flowers in Colombia, apparel in Bangladesh, software in India --- in each case the entrepreneur that demonstrated the profitability of the model received a miniscule fraction of industry profits. Another type of market failure is based on information externalities. ​ Market information is scarce and highly costly in developing countries --- for instance, it is normal that the only means of determining whether a certain business model is profitable is to try it (with one's own capital, given the failure of capital markets). ​ The potential value of demonstrating a business model is profitable can be enormous, but very often it is impossible for the entrepreneur to capture more than a fraction of this value. ​ If the model fails, the entrepreneur pays all of the costs; if it succeeds, copy-cat firms capture some if not most of the gains. ​ There are compelling real-world examples: cut flowers in Colombia, apparel in Bangladesh, software in India --- in each case the entrepreneur that demonstrated the profitability of the model received a miniscule fraction of industry profits.
  
-> [I]t is no great surprise that low-income countries are not teeming with entrepreneurs engaged in self-discovery. --Dani Rodrik, 2004, cited p29+> [I]t is no great surprise that low-income countries are not teeming with entrepreneurs engaged in self-discovery. ​---Dani Rodrik, 2004, cited p29
  
 Perhaps more important than the impact on welfare is liberalisation'​s impact on long-term economic growth. ​ Perhaps liberalisation will increase growth: Perhaps more important than the impact on welfare is liberalisation'​s impact on long-term economic growth. ​ Perhaps liberalisation will increase growth:
Line 156: Line 158:
 These tend to emphasise the importance of knowledge, learning and human capital, but these are areas that often require extensive government intervention to push an economy towards comparative advantages that can capitalise on this long-term development. These tend to emphasise the importance of knowledge, learning and human capital, but these are areas that often require extensive government intervention to push an economy towards comparative advantages that can capitalise on this long-term development.
  
-The infant industry argument states that a new industry requires a period of 'learning' ​during which it cannot compete efficiently. ​ It attempts to justify limited protection by government until firms in a new industry have completed this learning. ​ Its critics argue that if the long-term profitability of the industry is larger than the short-term losses, then those firms should be able to finance their learning by borrowing.+The infant industry argument states that a new industry requires a period of "learning" ​during which it cannot compete efficiently. ​ It attempts to justify limited protection by government until firms in a new industry have completed this learning. ​ Its critics argue that if the long-term profitability of the industry is larger than the short-term losses, then those firms should be able to finance their learning by borrowing.
  
 There are two reasons that this criticism may be flawed. ​ Firstly, asymmetric information leads to capital market failure. There are two reasons that this criticism may be flawed. ​ Firstly, asymmetric information leads to capital market failure.
Line 170: Line 172:
 ===== Empirical Evidence ===== ===== Empirical Evidence =====
  
-> The economic growth literature has been successful in demonstrating the importance of some variables for economic development,​ including education, institutions,​ health and geography. ​ However, the relationship between trade liberalisation and growth is much more controversial. --32+> The economic growth literature has been successful in demonstrating the importance of some variables for economic development,​ including education, institutions,​ health and geography. ​ However, the relationship between trade liberalisation and growth is much more controversial. ---p32
  
 Many authors have attempted to establish a reliable relationship between greater openness and higher growth. ​ A few studies in the early nineties claimed to have established the relationship,​ but they themselves contained careful qualifications,​ and subsequent scrutiny has persuasively shown that they should be interpreted with extreme caution. Many authors have attempted to establish a reliable relationship between greater openness and higher growth. ​ A few studies in the early nineties claimed to have established the relationship,​ but they themselves contained careful qualifications,​ and subsequent scrutiny has persuasively shown that they should be interpreted with extreme caution.
Line 182: Line 184:
 ===== Policy Implications ===== ===== Policy Implications =====
  
-On the right, claims that forthright unilateral liberalisation by developing countries will lead to welfare gains and economic growth are not supported by empirical evidence and often contrary to historical experience. ​ The reforms they recommend, and in some cases coerce, "might in fact set development programmes back."​((p36.))+On the right, claims that forthright unilateral liberalisation by developing countries will lead to welfare gains and economic growth are not supported by empirical evidence and often run contrary to historical experience. ​ The reforms they recommend, and in some cases coerce, "might in fact set development programmes back."​((p36.))
  
 On the left, a resistance to all calls for reform and an attempt to seek a complete answer to developing countries'​ economic problems in reform by developed countries may also be counterproductive. On the left, a resistance to all calls for reform and an attempt to seek a complete answer to developing countries'​ economic problems in reform by developed countries may also be counterproductive.
  
-Many in the left interpret the right'​s focus on liberalisation despite the lack of empirical evidence to support their case as evidence of the right'​s malevolence. ​ This is unfair. ​ The prescriptions are based more on the belief amongst right-wing economists that developing country governments are incapable of implementing anything but the simplest trade policy successfully.((But are, of course, able to implement highly complex VAT-based taxation schemes and even more complex IP regimes.)) ​ More complex regimes are also more likely to be corruptly implemented.+Many in the left interpret the right'​s focus on liberalisation despite the lack of empirical evidence to support their case as evidence of the right'​s malevolence. ​ This is unfair. ​ The prescriptions are based more on the belief amongst right-wing economists that developing country governments are incapable of implementing anything but the simplest trade policy successfully.((But are, of course, ​perfectly ​able to implement highly complex VAT-based taxation schemes and even more complex IP regimes.)) ​ More complex regimes are also more likely to be corruptly implemented.
  
 Alan Winters, Director of the Development Research Group at the World Bank: Alan Winters, Director of the Development Research Group at the World Bank:
Line 194: Line 196:
 In the authors'​ view such concerns are real but overemphasised:​ look in particular to East Asia, where government officials proved highly competent in implementing effective and innovative activist policies. ​ Instead of assuming government constraints to be unassailable,​ these constraints can be combated through good institutional design and international technical assistance. In the authors'​ view such concerns are real but overemphasised:​ look in particular to East Asia, where government officials proved highly competent in implementing effective and innovative activist policies. ​ Instead of assuming government constraints to be unassailable,​ these constraints can be combated through good institutional design and international technical assistance.
  
-The historical evidence that activist trade policy has always ​almost been used during the 'take-off period' ​of industrialisation,​ which Ha-Joon Chang has documented for all developed countries, still applies to the most recent industrialisers (although the timelines are a little more compressed than in historical examples). ​ China began to grow rapidly in the large 1970s, but did not begin tentative trade liberalisation until the late 1980s; Indian growth increased in the early 1980s while tariffs were still rising in some areas and did not fall significantly until the early 1990s.+The historical evidence that activist trade policy has almost ​always ​been used during the "take-off period" ​of industrialisation,​ which Ha-Joon Chang has documented for all developed countries, still applies to the most recent industrialisers (although the timelines are a little more compressed than in historical examples). ​ China began to grow rapidly in the late 1970s, but did not begin tentative trade liberalisation until the late 1980s; Indian growth increased in the early 1980s while tariffs were still rising in some areas and did not fall significantly until the early 1990s.
  
 ====== The Need for a Development Round ====== ====== The Need for a Development Round ======
Line 200: Line 202:
 ===== Developing Countries and World Trade ===== ===== Developing Countries and World Trade =====
  
-The General Agreement on Tariffs and Trade (GATT) came into force in 1948 between 23 developed countries. ​ It was largely a response to the spiral of trade policies adopted by major economies during the Great Depression. ​ Countries raised tariffs against their neighbours in a 'beggar-thy-neighbour' ​cycle. ​ Each policy was rational in the absence of a cooperative agreement, but all policies together left all countries worse off.  GATT sought to establish a transparent,​ reciprocal system of tariff limits, which would benefit all parties and help to protect the global economy from depression (assisted by the Bretton Woods institutions).+The General Agreement on Tariffs and Trade (GATT) came into force in 1948 between 23 developed countries. ​ It was largely a response to the spiral of trade policies adopted by major economies during the Great Depression. ​ Countries raised tariffs against their neighbours in a "beggar-thy-neighbour" ​cycle. ​ Each policy was rational in the absence of a cooperative agreement, but all policies together left all countries worse off.  ​The GATT sought to establish a transparent,​ reciprocal system of tariff limits, which would benefit all parties and help to protect the global economy from depression (assisted by the Bretton Woods institutions).
  
-At its inception, the needs of developing countries were not considered. ​ The agenda of GATT negotiations focused entirely on issues of relevance to trade between developed countries. ​ The GATT underwent further rounds of negotiations (the most recent to complete was Uruguay in 1994), but up until the end of the 1970s there was little expansion in scope beyond goods trade between developed countries; instead, negotiations merely focused on agreed reductions in tariff levels by all parties. ​ In the 1960s and 1970s, this tariff reduction was largely forced by the US in response to progressing European integration that threatened to cut the US out of European markets in favour of other European producers. ​ Goods trade of interest to developing countries was mostly excluded (in particular, agricultural products and textiles fell outside of the GATT). ​ As more developing countries gained independence it became possible for them to participate,​ but there was little motivation for them to do so:+At its inception, the needs of developing countries were not considered. ​ The agenda of GATT negotiations focused entirely on issues of relevance to trade between developed countries. ​ The GATT underwent further rounds of negotiations (the most recent to complete was Uruguay in 1994), but up until the end of the 1970s there was little expansion in scope beyond goods trade between developed countries; instead, negotiations merely focused on agreed reductions in tariff levels by all parties. ​ In the 1960s and 1970s, this tariff reduction was largely forced by the US in response to progressing European integration that threatened to cut the US out of European markets in favour of European producers. ​ Goods trade of interest to developing countries was mostly excluded (in particular, agricultural products and textiles fell outside of the GATT). ​ As more developing countries gained independence it became possible for them to participate,​ but there was little motivation for them to do so:
   * products of interest to them (agricultural products and textiles) had already been excluded from the agenda   * products of interest to them (agricultural products and textiles) had already been excluded from the agenda
   * their markets were not of particular value to the developed countries (who were more interested in other developed markets), so they had little bargaining power   * their markets were not of particular value to the developed countries (who were more interested in other developed markets), so they had little bargaining power
-  * developing countries obtained exemptions from GATT rules: Article XVIII permits them to use tariff protection in the interests of development,​ and the Generalised System of Preferences formalised tariff preferences into developed markets --- by gaining these valuable exemptions any commitments they made came to be seen as meaningless,​ further undermining their bargaining power+  * developing countries obtained exemptions from GATT rules: ​[[http://​www.wto.org/​english/​docs_e/​legal_e/​gatt47_02_e.htm#​articleXVIII|Article XVIII]] permits them to use tariff protection in the interests of development,​ and the [[wp>Generalised System of Preferences]] formalised tariff preferences into developed markets --- by gaining these valuable exemptions any commitments they made came to be seen as meaningless,​ further undermining their bargaining power
   * many countries including China, Brazil and India were still pursuing import substitution policies, and therefore had little interest in multilateral tariff reduction.   * many countries including China, Brazil and India were still pursuing import substitution policies, and therefore had little interest in multilateral tariff reduction.
  
-Agriculture and textiles were covered by separate agreements, whose provisions were starkly different to those of the GATT.  Under the Multifibre Arrangement (MFA) developing countries bargained bilaterally for textiles quotas. ​ Developing countries ​as a bloc were actively discriminated against, as developed countries could export to one another without restriction. ​ Massive tariff protection and subsidies of agriculture remained throughout the developed world.+Agriculture and textiles were covered by separate agreements, whose provisions were starkly different to those of the GATT.  Under the Multifibre Arrangement (MFA) developing countries bargained bilaterally for textiles quotas. ​ Developing countries were actively discriminated against, as developed countries could export to one another without restriction. ​ Massive tariff protection and subsidies of agriculture remained throughout the developed world.
  
 In the 1980s, many developing countries began to take a more active role in trade negotiations,​ with the launch of the Uruguay Round in 1986, for several reasons: In the 1980s, many developing countries began to take a more active role in trade negotiations,​ with the launch of the Uruguay Round in 1986, for several reasons:
Line 220: Line 222:
   * investment (TRIMs)   * investment (TRIMs)
  
-These issues were all of interest primarily to developed countries, although their offensive interests were now both developed and developing markets. ​ As manufacturing ​falls to only 14 per cent of US GDP, there had been a danger that in the long term the GATT might have proved to have been more use to China than to its original authors. ​ In return, the developing countries were promised greater goods access in areas of interest to them (again, particularly agriculture and textiles).+These issues were all of interest primarily to developed countries, although their offensive interests were now both developed and developing markets. ​ As manufacturing ​has fallen ​to only 14 per cent of US GDP, there had been a danger that in the long term the GATT might have proved to have been more use to China than to its original authors. ​ In return, the developing countries were promised greater goods access in areas of interest to them (again, particularly agriculture and textiles).
  
 As the Uruguay Round was nearing completion, many developing countries were convinced that it was in their interests to complete because of the ambitious predictions of welfare gains made by international institutions:​ As the Uruguay Round was nearing completion, many developing countries were convinced that it was in their interests to complete because of the ambitious predictions of welfare gains made by international institutions:​
Line 233: Line 235:
 Sub-Saharan Africa is estimated to have lost around $1.2 billion --- many of the net losers are amongst the poorest countries in the world. Sub-Saharan Africa is estimated to have lost around $1.2 billion --- many of the net losers are amongst the poorest countries in the world.
  
-One reason for the predictions'​ failures is that they didn't correctly model the implementation and detail of the agreement. ​ They failed to predict the way in which the US would backload textiles commitments to reduce their value. ​ Market access improvements,​ once again, reflected the priorities and interest ​of developed countries, with the following result:+One reason for the predictions'​ failures is that they didn't correctly model the implementation and detail of the agreement. ​ They failed to predict the way in which the US would backload textiles commitments to reduce their value. ​ Market access improvements,​ once again, reflected the priorities and interests ​of developed countries, with the following result:
  
 > [A]fter the implementation of Uruguay Round commitments,​ the average OECD tariff on imports from developing countries is four times higher than on imports originating in the OECD. ---p47 > [A]fter the implementation of Uruguay Round commitments,​ the average OECD tariff on imports from developing countries is four times higher than on imports originating in the OECD. ---p47
Line 266: Line 268:
 ====== What Has Doha Achieved? ====== ====== What Has Doha Achieved? ======
  
-The Doha Round began in 2001 with the Doha Declaration laying out an ambitious developmental work programme ahead. ​ However, progress in the two years to the next ministerial meeting (Cancún, 2003) was minimal. ​ US and EU offers on agricultural tariffs and subsidies fell far short of developing countries expectations;​ meanwhile, the US passed the 2002 Farm Bill, further increasing support to American farmers, seemingly a demonstration of America'​s total lack of commitment to the spirit of agricultural liberalisation. ​ The US and EU pushed the Singapore Issues hard, despite their clear lack of development benefits. ​ The EU and US both unilaterally introduced new tariff preferences for least developing countries (LDCs, a UN classification distinct from developing countries, which covers approximately 50 of the poorest countries in the world) --- respectively ​'Everything but Arms' ​(EBA) and the 'African Growth and Opportunity Act' ​(AGOA). ​ However, despite the rhetoric, the tangible results of these schemes has been negligible at best: "​Brenton (2003) concludes that trade in goods given preferences for the first time under the EBA in 2001 amounted to just two hundredths of one per cent of LDC exports to the EU in 2001."​((p61.))+The Doha Round began in 2001 with the Doha Declaration laying out an ambitious developmental work programme ahead. ​ However, progress in the two years to the next ministerial meeting (Cancún, 2003) was minimal. ​ US and EU offers on agricultural tariffs and subsidies fell far short of developing countries expectations;​ meanwhile, the US passed the 2002 Farm Bill, further increasing support to American farmers, seemingly a demonstration of America'​s total lack of commitment to the spirit of agricultural liberalisation. ​ The US and EU pushed the Singapore Issues hard, despite their clear lack of development benefits. ​ The EU and US both unilaterally introduced new tariff preferences for least developing countries (LDCs, a UN classification distinct from developing countries, which covers approximately 50 of the poorest countries in the world) --- respectively ​"Everything but Arms" ​(EBA) and the "African Growth and Opportunity Act" ​(AGOA). ​ However, despite the rhetoric, the tangible results of these schemes has been negligible at best: "​Brenton (2003) concludes that trade in goods given preferences for the first time under the EBA in 2001 amounted to just two hundredths of one per cent of LDC exports to the EU in 2001."​((p61.))
  
-The failure to make progress and strong feelings that the US had reneged on its Doha Declaration and earlier commitments were exacerbated by the negative public reaction to US-WTO attempts to use TRIPS provisions to prevent African governments from sourcing cheap generic drugs to combat the AIDS pandemic. ​ The effects of increasing US subsidies on West African cotton farmers drew further public attention.+The failure to make progress and strong feelings that the US had reneged on the Doha Declaration and its earlier commitments were exacerbated by the negative public reaction to US-WTO attempts to use TRIPS provisions to prevent African governments from sourcing cheap generic drugs to combat the AIDS pandemic. ​ The effects of increasing US subsidies on West African cotton farmers drew further public attention.
  
 > In 2001, rich countries provided subsidies to their farmers which amounted to six times the amount of their development aid, respectively $311 billion and $55 billion... The African countries'​ demands, including that the subsidies be reduced and compensation be paid to African farmers, were swiftly rejected by the US. ---p62 > In 2001, rich countries provided subsidies to their farmers which amounted to six times the amount of their development aid, respectively $311 billion and $55 billion... The African countries'​ demands, including that the subsidies be reduced and compensation be paid to African farmers, were swiftly rejected by the US. ---p62
  
-One consequence was the formation of unprecedentedly strong ​new negotiating blocs amongst developing WTO members: the G20 leading negotiations on agriculture,​ the G90 united in opposition to Singapore Issues and the G33 pressing for the ability of developing countries to protect their agricultural ​issues.  Greater coordination brought greater strength, and the Cancún ministerial ended in failure when developing countries refused to accept further discussion of Singapore Issues or EU-US proposals on modalities for agricultural liberalisation.+One consequence was the formation of unprecedentedly strong negotiating blocs amongst developing WTO members: the G20 leading negotiations on agriculture,​ the G90 united in opposition to Singapore Issues and the G33 pressing for the ability of developing countries to protect their agricultural ​sectors.  Greater coordination brought greater strength, and the Cancún ministerial ended in failure when developing countries refused to accept further discussion of Singapore Issues or EU-US proposals on modalities for agricultural liberalisation.
  
 In mid-2004, the EU and US were ready to make limited concessions in the hope of salvaging the round, and all Singapore Issues apart from trade facilitation were dropped: the round would focus on core issues in agriculture,​ services and goods. ​ However, by the end of 2004, the Doha Round has made little progress, and has failed to live up to the ambition contained in the Doha Declaration. In mid-2004, the EU and US were ready to make limited concessions in the hope of salvaging the round, and all Singapore Issues apart from trade facilitation were dropped: the round would focus on core issues in agriculture,​ services and goods. ​ However, by the end of 2004, the Doha Round has made little progress, and has failed to live up to the ambition contained in the Doha Declaration.
Line 278: Line 280:
 ====== Founding Principles: The Basis of a Fair Agreement ====== ====== Founding Principles: The Basis of a Fair Agreement ======
  
-The concept of a 'Development Round' ​poses a fundamental challenge to the GATT-WTO system. ​ Throughout its history, the GATT negotiation process was motivated purely by self-interested bargaining. ​ Each party participated only because it saw a benefit to itself, and lobbied only in favour of provisions that it saw as in its interests.+The concept of a "Development Round" ​poses a fundamental challenge to the GATT-WTO system. ​ Throughout its history, the GATT negotiation process was motivated purely by self-interested bargaining. ​ Each party participated only because it saw a benefit to itself, and lobbied only in favour of provisions that it saw as in its interests.
  
-The concept of a 'Development Round' ​requires a fundamental departure from this approach. ​ It requires the adoption of shared principles that can be used to judge whether any given provision is in the interests of "​development",​ whether or not it is in the individual interests of any party. ​ As yet the WTO has made no serious attempt to address this issue --- it has barely been discussed, and certainly no progress has been made towards agreeing a set of principles. ​ But without such principles motivating a new approach it seems unlikely that the US-EU will be able to negotiate a 'Development Round' ​that also satisfies their concept of their rational self-interest --- particularly if the Round also seeks to redress the unbalanced outcome of Uruguay. ​ Following the historical GATT approach, the US-EU will refuse any genuine development agreement.+The concept of a "Development Round" ​requires a fundamental departure from this approach. ​ It requires the adoption of shared principles that can be used to judge whether any given provision is in the interests of "​development",​ whether or not it is in the individual interests of any party. ​ As yet the WTO has made no serious attempt to address this issue --- it has barely been discussed, and certainly no progress has been made towards agreeing a set of principles. ​ But without such principles motivating a new approach it seems unlikely that the US-EU will be able to negotiate a "Development Round" ​that also satisfies their concept of their rational self-interest --- particularly if the Round also seeks to redress the unbalanced outcome of Uruguay. ​ Following the historical GATT approach, the US-EU will refuse any genuine development agreement.
  
-The authors propose four criteria by which to just a development round:+The authors propose four criteria by which to judge a development round:
  
 >  * Any agreement should be assessed in terms of its impact on development;​ items with a negative effect on development should not be on the agenda. >  * Any agreement should be assessed in terms of its impact on development;​ items with a negative effect on development should not be on the agenda.
Line 293: Line 295:
 Present and historical negotiations have not been lead by impact assessment. ​ Where they are done, they are done by individual parties to inform their own negotiating positions only. Present and historical negotiations have not been lead by impact assessment. ​ Where they are done, they are done by individual parties to inform their own negotiating positions only.
  
-The WTO Secretariat should take on the function of providing impact ​assessment ​of proposals before they are negotiated, to determine whether they are development-friendly. ​ Assessments should be done on a country basis, and should also take into account differential impacts on groups within each country, particularly vulnerable groups.+The WTO Secretariat should take on the function of providing impact ​assessments ​of proposals before they are negotiated, to determine whether they are development-friendly. ​ Assessments should be done on a country basis, and should also take into account differential impacts on groups within each country, particularly vulnerable groups.
  
 This assessment cannot be based on neoclassical models, which are pathologically ill-suited to developing economies: This assessment cannot be based on neoclassical models, which are pathologically ill-suited to developing economies:
Line 300: Line 302:
   * **risk and uncertainty** must be assumed non-zero and their effects taken into account: there are first-order welfare effects arising from risk in developing countries, for instance a quota (whilst inefficient in a risk-free environment) may be superior to a tariff because it will reduce price uncertainty (provided there is little domestic volatility)   * **risk and uncertainty** must be assumed non-zero and their effects taken into account: there are first-order welfare effects arising from risk in developing countries, for instance a quota (whilst inefficient in a risk-free environment) may be superior to a tariff because it will reduce price uncertainty (provided there is little domestic volatility)
   * analysis should take into account **pre-existing distortions**,​ such as distortions favouring the informal sector generated by VAT-based tax policies (which often hit the same groups as are hit by developed country agricultural subsidies)   * analysis should take into account **pre-existing distortions**,​ such as distortions favouring the informal sector generated by VAT-based tax policies (which often hit the same groups as are hit by developed country agricultural subsidies)
-  * **global general equilibrium** must be considered, ie the effect that policies such as agricultural subsidies in large producers (the US and EU) has on world prices (these can only be safely ignored for small producers)+  * **global general equilibrium** must be considered, ie the effect that policies such as agricultural subsidies in large producers (the US and EU) have on world prices (these can only be safely ignored for small producers)
   * features of developing countries that are different to the developed economies for which most models have been built:   * features of developing countries that are different to the developed economies for which most models have been built:
     * higher unemployment     * higher unemployment
Line 320: Line 322:
 Opponents of the principle argue that trade negotiations are voluntary, and therefore beneficial for all --- if developing countries lost out from participation in the WTO, they would leave. ​ There are problems with this argument: Opponents of the principle argue that trade negotiations are voluntary, and therefore beneficial for all --- if developing countries lost out from participation in the WTO, they would leave. ​ There are problems with this argument:
   * the threat of withholding aid is a powerful lever through which developed countries can gain compliance from developing countries   * the threat of withholding aid is a powerful lever through which developed countries can gain compliance from developing countries
-  * developing countries may benefit from the 'rule of law' ​that the WTO provides without that law being fair (unfair law being better than total lawlessness)+  * developing countries may benefit from the "rule of law" ​that the WTO provides without that law being fair (unfair law being better than total lawlessness)
   * it may be rational for an individual country to remain a part of the WTO even if it would be rational for the same country, as part of a larger bloc, to withdraw/​pursue a non-cooperative course --- "The prisoner'​s dilemma arises not only in the case of prisoners, but also in the case of poor countries engaged in bargaining with the rich."​((p75))   * it may be rational for an individual country to remain a part of the WTO even if it would be rational for the same country, as part of a larger bloc, to withdraw/​pursue a non-cooperative course --- "The prisoner'​s dilemma arises not only in the case of prisoners, but also in the case of poor countries engaged in bargaining with the rich."​((p75))
  
Line 331: Line 333:
 Fairness also requires that two failures of the dispute settlement system be rectified: Fairness also requires that two failures of the dispute settlement system be rectified:
   * the WTO system needs an equivalent of legal aid to cover the cost of disputes for developing countries --- whilst imperfect this would go some way to address the problem that developing countries can often not afford to bring disputes, whereas the costs are trivial for larger countries   * the WTO system needs an equivalent of legal aid to cover the cost of disputes for developing countries --- whilst imperfect this would go some way to address the problem that developing countries can often not afford to bring disputes, whereas the costs are trivial for larger countries
-  * sanctions permitted to redress wrongdoing are crippling when imposed by large economies and trivial when imposed by small ones --- no solution is proposed but it is noted that global action against a large economy can be effective, as when the world responded as a bloc to increased protection of the US steel industry, forcing America to back down.+  * sanctions permitted to redress wrongdoing are crippling when imposed by large economies and trivial when imposed by small ones --- no solution is proposed ​at this point in the text (see later) ​but it is noted that global action against a large economy can be effective, as when the world responded as a bloc to increased protection of the US steel industry, forcing America to back down.
  
 > The EC, Japan and the US were complainants in almost half (143 of 305) of all bilateral disputes... between 1995 and 2002.  By contrast the 49 members classified by the UN as Less [sic] Developed Countries did not bring a single challenge in that period. > The EC, Japan and the US were complainants in almost half (143 of 305) of all bilateral disputes... between 1995 and 2002.  By contrast the 49 members classified by the UN as Less [sic] Developed Countries did not bring a single challenge in that period.
  
-A further difficulty in the application of fairness is whether to view WTO agreements in isolation from the actions of other multilateral institutions (asking that WTO agreements, in isolation, be 'fair'/​progressive) or whether to attempt to ensure, through WTO agreements, that developing countries are treated fairly by 'the system' ​as a whole. ​ For instance, if a certain developing country commits to a fair level of liberalisation under Doha and then, in the course of an IMF bailout, is forced into a further round of liberalisation at the insistence of the IMF, should the WTO be held responsible for the overall unfairness of the country'​s treatment? ​ A more concrete example is the imposition of capital market liberalisation by the US through bilateral treaties. ​ Capital market liberalisation increases economic volatility, which in turn raises the risk premium demanded by foreign investors. ​ The IMF may also insist on "​usurious"​((p80.)) interest rates. ​ If a government subsidises credit in order to bring interest rates down to a little over global market levels (in violation of WTO rules), should the government be held culpable and be subject to countervailing duties, or should it be regarded as simply correcting a distortion imposed by another part of the international system?+A further difficulty in the application of fairness is whether to view WTO agreements in isolation from the actions of other multilateral institutions (asking that WTO agreements, in isolation, be "fair"/​progressive) or whether to attempt to ensure, through WTO agreements, that developing countries are treated fairly by "the system" ​as a whole. ​ For instance, if a certain developing country commits to a fair level of liberalisation under Doha and then, in the course of an IMF bailout, is forced into a further round of liberalisation at the insistence of the IMF, should the WTO be held responsible for the overall unfairness of the country'​s treatment? ​ A more concrete example is the imposition of capital market liberalisation by the US through bilateral treaties. ​ Capital market liberalisation increases economic volatility, which in turn raises the risk premium demanded by foreign investors. ​ The IMF may also insist on "​usurious"​((p80.)) interest rates. ​ If a government subsidises credit in order to bring interest rates down to a little over global market levels (in violation of WTO rules), should the government be held culpable and be subject to countervailing duties, or should it be regarded as simply correcting a distortion imposed by another part of the international system?
  
 In the South, there is a tendency to view such multi-pronged attack as coordinated. ​ Whilst such coordination may not exist, nevertheless the impact is often much the same as it would be if they were coordinated. In the South, there is a tendency to view such multi-pronged attack as coordinated. ​ Whilst such coordination may not exist, nevertheless the impact is often much the same as it would be if they were coordinated.
Line 343: Line 345:
 ===== Any Agreement Should Be Arrived At Fairly ===== ===== Any Agreement Should Be Arrived At Fairly =====
  
-Procedural fairness is particularly important when there is disagreement about exactly what constitutes a fair agreement. ​ Its main components are transparency and the way in which negotiations are conducted. ​ Historical GATT negotiations have been unduly secretive, particularly the 'Green Room' ​process used in the Uruguay Round, in which developed countries would hold substantive negotiating sessions to which only a handful of key developing countries were invited. ​ Developing countries begin at an informational disadvantage compared to other members --- this should be diminished to the extent possible by the open provision of information about ongoing negotiations.+Procedural fairness is particularly important when there is disagreement about exactly what constitutes a fair agreement. ​ Its main components are transparency and the way in which negotiations are conducted. ​ Historical GATT negotiations have been unduly secretive, particularly the "Green Room" ​process used in the Uruguay Round, in which developed countries would hold substantive negotiating sessions to which only a handful of key developing countries were invited. ​ Developing countries begin at an informational disadvantage compared to other members --- this should be diminished to the extent possible by the open provision of information about ongoing negotiations.
  
 ===== Scope of the WTO's Mandate ===== ===== Scope of the WTO's Mandate =====
Line 358: Line 360:
  
 > [M]odern trade agreements have been extended into areas which intrude into national sovereignty with no justification based on the need for collective action and without clearly identified and fairly distributed global benefits. ​ The presumption of consumer sovereignty is based on the premise that society should only interfere with individual choices when those choices have consequences for others, when there is a need for collective action, and the same is true in trade. ---p86 > [M]odern trade agreements have been extended into areas which intrude into national sovereignty with no justification based on the need for collective action and without clearly identified and fairly distributed global benefits. ​ The presumption of consumer sovereignty is based on the premise that society should only interfere with individual choices when those choices have consequences for others, when there is a need for collective action, and the same is true in trade. ---p86
 +
  
 ====== Special Treatment for Developing Countries ====== ====== Special Treatment for Developing Countries ======
Line 369: Line 372:
 SDT is controversial. ​ Whilst developing countries argue that SDT is necessary to permit them to pursue appropriate trade policies, opponents argue that: SDT is controversial. ​ Whilst developing countries argue that SDT is necessary to permit them to pursue appropriate trade policies, opponents argue that:
   * it breaks the principle of reciprocity on which the WTO is based   * it breaks the principle of reciprocity on which the WTO is based
-  * according to neoliberal theory, protectionism that SDT encourages is inefficient and bad for developing countries themselves: they'd be better off if forced to liberalise completely (the problems with neoliberal assumptions ​was discussed in chapter 2)+  * according to neoliberal theory, protectionism that SDT encourages is inefficient and bad for developing countries themselves: they'd be better off if forced to liberalise completely (the problems with neoliberal assumptions ​were discussed in chapter 2) 
  
 ===== SDT in Doha ===== ===== SDT in Doha =====
  
-SDT has always been an important demand of the developing countries in Doha, with the G33 its main proponent. ​ After the Cancún ministerial walk-out, in 2004 the EU Trade Commissioner wrote to trade ministers ​he proposed ​that LDCs((The UN classification recognised by the WTO: 32 of the 50 LDCs are WTO-members;​ eight more are in accession.)) and "other weak or vulnerable developing countries"​ should not have to undertake further tariff reductions during Doha, whilst still benefiting from other members'​ reductions. ​ These countries would have the "round for free" (RFF).+SDT has always been an important demand of the developing countries in Doha, with the G33 its main proponent. ​ After the Cancún ministerial walk-out, in 2004 the EU Trade Commissioner wrote to trade ministers ​to propose ​that LDCs((The UN classification recognised by the WTO: 32 of the 50 LDCs are WTO-members;​ eight more are in accession.)) and "other weak or vulnerable developing countries"​((Which later became the "small vulnerable economies"​ (SVEs).)) ​should not have to undertake further tariff reductions during Doha, whilst still benefiting from other members'​ reductions. ​ These countries would have the "round for free" (RFF).
  
-The danger of the RFF approach is that it would reduce the participation of the RFF countries in the round --- indeed, its intention was surely to overcome opposition to developed country proposals by the RFF countries by reducing their incentive to get involved. ​ The result might be that Doha came to mimic early GATT rounds in which the "GATT operated as a club for the advancement of rich-country interests."​((p93.)) ​ Whilst it would enable poorer economies to benefit from new tariff reductions, these reductions are more likely to be on goods of interest to exporters in other developed countries, of limited relevance and benefit to RFF economies. ​ An additional problem with the approach is that it allows RFF countries to retain a veto over a round in which they are contributing little --- this could hold up negotiations,​ further encouraging the proliferation of bilateral agreements outside the WTO.+The danger of the RFF approach is that it would reduce the participation of the RFF countries in the round --- indeed, its intention was surely to overcome opposition to developed country proposals by the RFF countries by reducing their incentive to get involved. ​ The result might be that Doha would come to mimic early GATT rounds in which the "GATT operated as a club for the advancement of rich-country interests."​((p93.)) ​ Whilst it would enable poorer economies to benefit from new tariff reductions, these reductions are more likely to be on goods of interest to exporters in other developed countries, of limited relevance and benefit to RFF economies. ​ An additional problem with the approach is that it allows RFF countries to retain a veto over a round in which they are contributing little --- this could hold up negotiations,​ further encouraging the proliferation of bilateral agreements outside the WTO.
  
 More importantly,​ the RFF approach neglects the opportunity for South-South liberalisation,​ which could bring developing countries real gains. ​ South-South tariffs are currently a significant problem: Latin American manufacturers face tariffs seven times higher in other LA countries than in industrialised countries; East Asian exporters face tariffs 60 per cent higher in other EA economies than in rich nations. ​ The World Bank estimates there could be welfare gains of $30 billion in //each// of agriculture and industrial goods from total South-South liberalisation. More importantly,​ the RFF approach neglects the opportunity for South-South liberalisation,​ which could bring developing countries real gains. ​ South-South tariffs are currently a significant problem: Latin American manufacturers face tariffs seven times higher in other LA countries than in industrialised countries; East Asian exporters face tariffs 60 per cent higher in other EA economies than in rich nations. ​ The World Bank estimates there could be welfare gains of $30 billion in //each// of agriculture and industrial goods from total South-South liberalisation.
Line 381: Line 385:
 ===== Doha Market Access Proposal ===== ===== Doha Market Access Proposal =====
  
-In order to capture some of these gains, the authors set out a Doha market access proposal (MAP). ​ This, conceptually,​ is very simple. ​ Countries are ranked according to economic size (raw GDP) and wealth (per capita GDP): all members fully liberalise((ie zero tariffs on all goods.)) with respect to economies that are //both// smaller and poorer than themselves. ​ For instance, Egypt would gain full market access to the US (which is both larger and richer) but would have to give full market access to Uganda (both smaller and poorer), whilst retaining MFN tariffs in both directions with Antigua (which is smaller but richer).+In order to capture some of these gains, the authors set out a Doha market access proposal (MAP). ​ This, conceptually,​ is very simple. ​ Countries are ranked according to economic size (raw GDP) and wealth (per capita GDP): all members fully liberalise((ie zero tariffs on all goods.)) with respect to economies that are //both// smaller ​//and// poorer than themselves. ​ For instance, Egypt would gain full market access to the US (which is both larger and richer) but would have to give full market access to Uganda (both smaller and poorer), whilst retaining MFN tariffs in both directions with Antigua (which is smaller but richer).
  
 The principle is of a rules-based system based on objective criteria that is nevertheless progressive. ​ Economic size (GDP) is used as a measure of economic scale, recognising that large economies (like China) benefit from economies of scale relative to smaller countries. ​ Wealth (GDP per capita) is used as a measure of advancement (in technological and organisational terms), recognising that developing countries may find it difficult to compete in the short-to-medium term with more advanced competitors. ​ All countries retain the ability to use trade policy against countries that are either larger or richer, but open up to those both smaller and poorer. ​ The scheme has many advantages: The principle is of a rules-based system based on objective criteria that is nevertheless progressive. ​ Economic size (GDP) is used as a measure of economic scale, recognising that large economies (like China) benefit from economies of scale relative to smaller countries. ​ Wealth (GDP per capita) is used as a measure of advancement (in technological and organisational terms), recognising that developing countries may find it difficult to compete in the short-to-medium term with more advanced competitors. ​ All countries retain the ability to use trade policy against countries that are either larger or richer, but open up to those both smaller and poorer. ​ The scheme has many advantages:
Line 389: Line 393:
   * obligations are distributed progressively,​ and all developing country members benefit. ​ The median ratio of market access rights to obligations under MAP is 303:1, and of imports is 113:1 --- in other words, the median developing country receives free market access to countries whose total imports are 113 times the size of imports of countries to which it is required to give access   * obligations are distributed progressively,​ and all developing country members benefit. ​ The median ratio of market access rights to obligations under MAP is 303:1, and of imports is 113:1 --- in other words, the median developing country receives free market access to countries whose total imports are 113 times the size of imports of countries to which it is required to give access
   * countries retain the ability to manage major import threats (from larger or richer countries), so they can pursue infant industry or avoid heavy adjustment costs of removing barriers until appropriate safety nets are in place   * countries retain the ability to manage major import threats (from larger or richer countries), so they can pursue infant industry or avoid heavy adjustment costs of removing barriers until appropriate safety nets are in place
-  * MAP is consistent with the existing MFN system: existing MFN tariffs remain in all trading relations not affected by MAP, and can be subject to negotiated reduction as usual (it should be noted that the scheme does reduce the bargaining power of poorer countries in future rounds, but on the other hand by removing preferences between classes of developing countries, it destroys the incentive for some developing countries to oppose rich-country liberalisation for fear of preference erosion((Actually,​ this "​solves"​ the problem by completing all preference erosion "​immediately",​ which is what the poorest countries with the best market access oppose. ​ For instance, an LDC exporting certain types of fish to the EU currently pays no duty, whilst competing developing countries must pay around 24 per cent.  Under this scheme both would pay zero duty, so the LDC must "​instantly"​ become 24 per cent more efficient in order to continue to compete with exporters in more advanced, and larger, economies. ​ This development is opposed by LDCs, and is the main reason that many LDCs stand to be net losers from the completion of Doha, even though they are not being asked to make any further commitments. ​ (In practice the transition would not be instant as the pace of adjustment would be negotiated.))) +  * MAP is consistent with the existing MFN system: existing MFN tariffs remain in all trading relations not affected by MAP, and can be subject to negotiated reduction as usual (it should be noted that the scheme does reduce the bargaining power of poorer countries in future rounds, but on the other hand by removing preferences between classes of developing countries, it destroys the incentive for some developing countries to oppose rich-country liberalisation for fear of preference erosion((Actually,​ this "​solves"​ the problem by completing all preference erosion "​immediately",​ which is what the poorest countries with the best market access oppose. ​ For instance, an LDC exporting certain types of fish to the EU currently pays no duty, whilst competing developing countries must pay around 24 per cent.  Under this scheme both would pay zero duty, so the LDC must "​instantly"​ become 24 per cent more efficient in order to continue to compete with exporters in more advanced, and larger, economies. ​ This development is opposed by LDCs, and is the main reason that many LDCs stand to be net losers from the completion of Doha, even though they are not being asked to make any further commitments. ​ (In practice the transition would not be instant as the pace of adjustment would be negotiated.)) ) 
-  * it creates well-defined obligations to replace discretionary preferential schemes, giving commitments greater certainty and value. ​ One of the biggest problems with historical SDT (such as GSP) is that they can be unilaterally withdrawn at any time: for instance, the US withdrew $60 million worth of pharmaceutical products from its preferential scheme to punish India for its supposedly weak patent protection policy+  * it creates well-defined obligations to replace discretionary preferential schemes, giving commitments greater certainty and value. ​ One of the biggest problems with historical SDT (such as the GSP) is that they can be unilaterally withdrawn at any time: for instance, the US withdrew $60 million worth of pharmaceutical products from its preferential scheme to punish India for its supposedly weak patent protection policy
   * it is simple, whilst effectively differentiating:​ it would make the "​spaghetti bowl" of GSP preferences redundant (and would "save the EU the bother of negotiating"​ EPAs)((p101.))   * it is simple, whilst effectively differentiating:​ it would make the "​spaghetti bowl" of GSP preferences redundant (and would "save the EU the bother of negotiating"​ EPAs)((p101.))
  
Line 404: Line 408:
  
 > A blanket proscription against government subsidies to technology (industrial policies) is likely to have an adverse effect on developing countries and, indeed, it is likely in practice to be unfair: the United States conducts its industrial policy largely through the military, which supports a wide variety of technological developments that eventually have important civilian applications. ​ And it is hard to conceive of a trade agreement that would prohibit the development of such technologies through defence programmes. ​ (Even the EU has complained about America'​s use of defence expenditures as a hidden subsidy for its aerospace industry.) ---p105 > A blanket proscription against government subsidies to technology (industrial policies) is likely to have an adverse effect on developing countries and, indeed, it is likely in practice to be unfair: the United States conducts its industrial policy largely through the military, which supports a wide variety of technological developments that eventually have important civilian applications. ​ And it is hard to conceive of a trade agreement that would prohibit the development of such technologies through defence programmes. ​ (Even the EU has complained about America'​s use of defence expenditures as a hidden subsidy for its aerospace industry.) ---p105
 +
  
 ====== Priorities for a Development Round ====== ====== Priorities for a Development Round ======
  
-> The problem, of course, is that political globalisation has not kept pace with economic globalisation:​ issues of international trade agreements are seldom looked at through... the same kind of lens through which we look at domestic legislation ​ In national economic debates, we do not demand that the poor give up and amount commensurate with what they get.  Rather, we talk about social justice and equity. ---p107+> The problem, of course, is that political globalisation has not kept pace with economic globalisation:​ issues of international trade agreements are seldom looked at through... the same kind of lens through which we look at domestic legislation In national economic debates, we do not demand that the poor give up an amount commensurate with what they get.  Rather, we talk about social justice and equity. ---p107
  
 The current focus of Doha, on areas of dubious benefit to developing countries and neglecting important developmental areas, is inappropriate for a development round, and ignores the historical context in which developed countries have accrued far greater benefits from the multilateral system than the poor.  There is an important asymmetry of power in the negotiations:​ the impact of concessions in developed countries will be small and easily manageable, whereas the impact of opening up markets in developing countries is large and will place significant strain on their governments. The current focus of Doha, on areas of dubious benefit to developing countries and neglecting important developmental areas, is inappropriate for a development round, and ignores the historical context in which developed countries have accrued far greater benefits from the multilateral system than the poor.  There is an important asymmetry of power in the negotiations:​ the impact of concessions in developed countries will be small and easily manageable, whereas the impact of opening up markets in developing countries is large and will place significant strain on their governments.
Line 426: Line 431:
   * restriction of the non-tariff barriers that developed countries have developed as an alternative to tariffs   * restriction of the non-tariff barriers that developed countries have developed as an alternative to tariffs
  
-The chapter contains a detailed table of further proposals (table 7.1, p112--4), which itself summarises the analysis presented in the appendices. ​ Some highlights (particularly those not discussed elsewhere):+The chapter contains a detailed table of further proposals (table 7.1, p112--4), which itself summarises the analysis presented in the appendices. ​ Some highlights (particularly those not yet discussed elsewhere):
   * non-tariff barriers:   * non-tariff barriers:
     * eliminate dumping duties and replace with a single fair competition regime     * eliminate dumping duties and replace with a single fair competition regime
Line 449: Line 454:
     * multilateral enforcement (non-injured parties can also retaliate against an offending member)     * multilateral enforcement (non-injured parties can also retaliate against an offending member)
     * monetisation of sanctions (developing countries can sell the right to sanction to other members for whom the sanction would be more valuable, eg if Nicaragua won a dispute against the US, it could sell the right to impose duties to China or the EU)     * monetisation of sanctions (developing countries can sell the right to sanction to other members for whom the sanction would be more valuable, eg if Nicaragua won a dispute against the US, it could sell the right to impose duties to China or the EU)
-  * institutional reform+  * institutional reform:
     * creation of evaluation unit within the WTO to assess likely impact of measures on developing countries     * creation of evaluation unit within the WTO to assess likely impact of measures on developing countries
     * greater transparency (elimination of the Green Room, etc)     * greater transparency (elimination of the Green Room, etc)
Line 478: Line 483:
 ===== Agriculture ===== ===== Agriculture =====
  
-Chapter 3 discussed the high levels of agricultural protection in the OECD and the negative effects on developing country production. ​ However, the effects are ambiguous: by lowering commodity prices the subsidies hurt producers (often poor farmers) whilst benefiting net consumers (often better off urban classes). ​ But the balance varies from one product to another --- so reductions should be targeted to prioritise the most development friendly, and proceed more gradually (with substantial adjustment assistance) in areas that will have large impact on poor, vulnerable net-importing countries. ​ Liberalisation should proceed thus: +Chapter 3 discussed the high levels of agricultural protection in the OECD and the negative effects on developing country production. ​ However, the effects are ambiguous: by lowering commodity prices the subsidies hurt producers (often poor farmers) whilst benefiting net consumers (often better off urban classes). ​ But the balance varies from one product to another --- so reductions should be targeted to prioritise the most development friendly, and proceed more gradually (with substantial adjustment assistance) in areas that will have large impact on poor, vulnerable net-importing countries. ​ Liberalisation should proceed thus: 
- - Begin by reducing border protection (tariffs and export subsidies), with reduction most rapid on goods produced primarily in developing countries and those consumed primarily in developed countries (eg sugar, tropical products, cotton). +  - Begin by reducing border protection (tariffs and export subsidies), with reduction most rapid on goods produced primarily in developing countries and those consumed primarily in developed countries (eg sugar, tropical products, cotton). 
- - Production subsidies on price-sensitive necessities consumed widely in developing countries should be reduced gradually, with part of the savings in subsidy budgets committed to developing countries to cover adjustment costs (North Africa, Sub-Saharan Africa and Latin America (except Brazil, Argentina, Mexico) rely on imports of grains and oilseeds subsidised in the OECD). +  - Production subsidies on price-sensitive necessities consumed widely in developing countries should be reduced gradually, with part of the savings in subsidy budgets committed to developing countries to cover adjustment costs (North Africa, Sub-Saharan Africa and Latin America (except Brazil, Argentina, Mexico) rely on imports of grains and oilseeds subsidised in the OECD). 
- - Domestic support should switch to payment systems that do not encourage production (such as land-based payments). ​ It's important to recognise that most "​non-trade distorting"​ subsidies actually encourage export. ​ Where domestic demand is price inelastic, subsidies that encourage production will also encourage export (the WTO presently makes too much of the difference). ​ Additionally,​ where farmers face credit constraints,​ even income support can provide additional finance that farmers can use to expand production, which they could not have sourced elsewhere.+  - Domestic support should switch to payment systems that do not encourage production (such as land-based payments). ​ It's important to recognise that most "​non-trade distorting"​ subsidies actually encourage export. ​ Where domestic demand is price inelastic, subsidies that encourage production will also encourage export (the WTO presently makes too much of the difference). ​ Additionally,​ where farmers face credit constraints,​ even income support can provide additional finance that farmers can use to expand production, which they could not have sourced elsewhere.
  
 ===== Industrial Goods ===== ===== Industrial Goods =====
Line 491: Line 496:
 > For example, in 2001, clothes and shoes accounted for only 6.5 per cent of US imports in value terms but they brought nearly half of the $20 billion of US tariff revenue. > For example, in 2001, clothes and shoes accounted for only 6.5 per cent of US imports in value terms but they brought nearly half of the $20 billion of US tariff revenue.
  
-In analysing the impact of escalation, it is important to calculate the effective tariff rate on value adding; analysis based only on nominal rates will not reveal the true development impact. ​ Effective tariff rates on value added in food processing, for instance, ​is very high.+In analysing the impact of escalation, it is important to calculate the effective tariff rate on value adding; analysis based only on nominal rates will not reveal the true development impact. ​ Effective tariff rates on value added in food processing, for instance, ​are very high.
  
 Additionally,​ the liberalisation of South-South tariffs could bring large welfare gains, as discussed in Chapter 6. Additionally,​ the liberalisation of South-South tariffs could bring large welfare gains, as discussed in Chapter 6.
Line 501: Line 506:
   * **countervailing duties** can be applied to counteract the effects of a subsidy received by a foreign exporter   * **countervailing duties** can be applied to counteract the effects of a subsidy received by a foreign exporter
   * **safeguards** can be applied temporarily to protect a domestic industry from a surge in imports, and   * **safeguards** can be applied temporarily to protect a domestic industry from a surge in imports, and
-  * safety standards can be applied to protect food security, prevent the movement of pests, etc.+  ​* **safety standards** can be applied to protect food security, prevent the movement of pests, etc.
  
 The general problem is that non-tariff barriers can be applied too easily by developed countries: The general problem is that non-tariff barriers can be applied too easily by developed countries:
Line 511: Line 516:
   * the uncertainty in the duty to be paid will discourage importing firms from using that supplier   * the uncertainty in the duty to be paid will discourage importing firms from using that supplier
  
-The calculation of "​cost"​ used to determine whether a firm is dumping is also inappropriate. ​ Many countries use average costs, whereas economists agree that the relevant measure is marginal cost --- a firm with high fixed costs, selling below marginal costs during a downturn should not be considered to be dumping. ​ Secondly, the use of a "​similar"​ comparator country in order to approximate production costs can be misused --- for instance, "the US used Canada as the country most similar to Poland."​((p128.))+The calculation of "​cost"​ used to determine whether a firm is dumping is also inappropriate. ​ Many countries use average costs, whereas economists agree that the relevant measure is marginal cost --- for a firm with high fixed costs, selling below marginal costs during a downturn should not be considered to be dumping. ​ Secondly, the use of a "​similar"​ comparator country in order to approximate production costs can be misused --- for instance, "the US used Canada as the country most similar to Poland."​((p128.))
  
 Safeguards are overused by the United States and probably underused by developing countries. Safeguards are overused by the United States and probably underused by developing countries.
  
-> If the richest country in the world, the United States, ​which a strong safety net, relatively high employment level, etc, has to resort to safety measures to protect itself against a surge of imports, how much more justified are developing countries in imposing such measures. ​ Indeed, it is hard to conceive of many important liberalisation measures against which safeguard protections could not justifiably be invoked by developing countries.+> If the richest country in the world, the United States, ​with a strong safety net, relatively high employment level, etc, has to resort to safety measures to protect itself against a surge of imports, how much more justified are developing countries in imposing such measures. ​ Indeed, it is hard to conceive of many important liberalisation measures against which safeguard protections could not justifiably be invoked by developing countries.
  
 Clearer standards are required at the international level to determine when safeguards can be applied, and these should include SDT for developing countries. ​ For instance, a member should have to show that the loss must be of at least 1 per cent of all employment and that the country'​s social safety net will struggle to absorb it, with lower thresholds for developing countries. Clearer standards are required at the international level to determine when safeguards can be applied, and these should include SDT for developing countries. ​ For instance, a member should have to show that the loss must be of at least 1 per cent of all employment and that the country'​s social safety net will struggle to absorb it, with lower thresholds for developing countries.
Line 533: Line 538:
 Development-friendly behind-the-border measures that should be included in a Doha agreement: Development-friendly behind-the-border measures that should be included in a Doha agreement:
   * **Restrictions on tax and incentive competition**,​ following similar agreements in the OECD and especially the EU, could prevent deleterious race-to-the-bottom competition between developing country governments to attract investment. ​ Three options, in order of ascending ambition:   * **Restrictions on tax and incentive competition**,​ following similar agreements in the OECD and especially the EU, could prevent deleterious race-to-the-bottom competition between developing country governments to attract investment. ​ Three options, in order of ascending ambition:
-   - disclosure/​transparency requirements for firms and governments +    ​- disclosure/​transparency requirements for firms and governments 
-   ​- cooperation between governments +    - cooperation between governments 
-   ​- enforceable international rules+    - enforceable international rules
   * **Anti-corruption policies** could adopt rules laid out in, for example, America'​s Foreign Corrupt Practices Act:   * **Anti-corruption policies** could adopt rules laid out in, for example, America'​s Foreign Corrupt Practices Act:
     * full disclosure of payments made to foreign companies     * full disclosure of payments made to foreign companies
Line 548: Line 553:
     * developing countries should be given assistance in abandoning subsidies on fossil-fuel-derived energy     * developing countries should be given assistance in abandoning subsidies on fossil-fuel-derived energy
   * Part of the original motivation for the establishment of the GATT was to ensure a **cooperative response to crises**, despite the various (rarely used) safeguards that the WTO agreements contain for the use of trade policy during crises. ​ However, rather than establish temporary barriers, a more effective response to local financial crises (such as the Argentine crisis) would be for trading partners to temporarily liberalise imports of strategic commodities   * Part of the original motivation for the establishment of the GATT was to ensure a **cooperative response to crises**, despite the various (rarely used) safeguards that the WTO agreements contain for the use of trade policy during crises. ​ However, rather than establish temporary barriers, a more effective response to local financial crises (such as the Argentine crisis) would be for trading partners to temporarily liberalise imports of strategic commodities
-    * An international panel within the WTO could make recommendations in such cases. +    * an international panel within the WTO could make recommendations in such cases. 
-    * The Agreement on Subsidies and Countervailing Measures (SCM) should be clarified to ensure that it does not prohibit the provision of trade finance during crises (which could currently be considered a subsidy) +    * the Agreement on Subsidies and Countervailing Measures (SCM) should be clarified to ensure that it does not prohibit the provision of trade finance during crises (which could currently be considered a subsidy) 
-    * Multilateral ​mechanisms to provide trade finance, especially during crises, could be improved+    * multilateral ​mechanisms to provide trade finance, especially during crises, could be improved
   * Developing countries should be given greater assistance to address adjustment and implementation costs.   * Developing countries should be given greater assistance to address adjustment and implementation costs.
  
Line 567: Line 572:
 > Before NAFTA, Canada routinely granted compulsory licenses on pharmaceutical products for the purpose of reducing health costs through widely available generic drugs. ​ Canada assigned royalties to the patent holders, usually of 4 per cent of the generic competitor'​s sales price. ​ In sharp contrast, and despite the HIV/AIDS public health crisis, no African country has issued a compulsory license for any medicine. ---p143 > Before NAFTA, Canada routinely granted compulsory licenses on pharmaceutical products for the purpose of reducing health costs through widely available generic drugs. ​ Canada assigned royalties to the patent holders, usually of 4 per cent of the generic competitor'​s sales price. ​ In sharp contrast, and despite the HIV/AIDS public health crisis, no African country has issued a compulsory license for any medicine. ---p143
  
-The authors believe that TRIPS causes such comprehensive harm that it should be rolled back.  Because of the principle of conservatism discussed in chapter 5, IP should not be discussed within the WTO; governments should be represented by scientists in any discussion of IP, not trade ministers. ​ Any new agreement should recognised that developing countries are disadvantaged in any legal dispute process.+The authors believe that //TRIPS causes such comprehensive harm that it should be rolled back//.  Because of the principle of conservatism discussed in chapter 5, IP should not be discussed within the WTO; governments should be represented by scientists in any discussion of IP, not trade ministers. ​ Any new agreement should recognised that developing countries are disadvantaged in any legal dispute process.
  
 If TRIPS is not to be eliminated, then it needs to be revised in various areas, and developing countries need further support to fully exploit its provisions. ​ Particularly:​ If TRIPS is not to be eliminated, then it needs to be revised in various areas, and developing countries need further support to fully exploit its provisions. ​ Particularly:​
   * TRIPS permits governments to authorise manufacturers to produce drugs without the consent of the patent owner: developing countries need assistance in creating administrative procedures to do so that are immune from (expensive) legal challenges by the drug companies ("the median cost of US patent litigation in 1998 was $1.2 million for each party."​((p144.)))   * TRIPS permits governments to authorise manufacturers to produce drugs without the consent of the patent owner: developing countries need assistance in creating administrative procedures to do so that are immune from (expensive) legal challenges by the drug companies ("the median cost of US patent litigation in 1998 was $1.2 million for each party."​((p144.)))
   * TRIPS should be extended to permit compulsory licensing beyond national emergencies to "​refusal to deal" scenarios, in which drug companies regard developing markets as too small to bother with.   * TRIPS should be extended to permit compulsory licensing beyond national emergencies to "​refusal to deal" scenarios, in which drug companies regard developing markets as too small to bother with.
-  * Article 40 should permit members to prevent anticompetitive licensing practices by patent-holders. +  * [[http://​www.wto.org/​english/​docs_e/​legal_e/​27-trips_04d_e.htm#​8|Article 40]] should permit members to prevent anticompetitive licensing practices by patent-holders. 
-  * Pursuant to Article 66.2, tangible measures need to be created to facilitate technology transfer to developing countries, such as incentive schemes for transferring firms in developed countries.+  * Pursuant to [[http://​www.wto.org/​english/​docs_e/​legal_e/​27-trips_08_e.htm|Article 66.2]], tangible measures need to be created to facilitate technology transfer to developing countries, such as incentive schemes for transferring firms in developed countries.
   * Any revision to current WTO IP law should make it as quick and easy as possible for generic drugs to enter the market on the expiration of a patent (the US has been attempting to make it more difficult through recent bilateral agreements)   * Any revision to current WTO IP law should make it as quick and easy as possible for generic drugs to enter the market on the expiration of a patent (the US has been attempting to make it more difficult through recent bilateral agreements)
-  * Article 27.1 should be strengthened to protect traditional knowledge from biopiracy, perhaps incorporating the UN Convention on Biodiversity,​ signed by 170 countries in 1993.  There should be a change in the presumptive ownership of traditional medicine, with patenting firms bearing the burden of proof that medicinal properties hadn't previously been recognised before an international tribunal.+  * [[http://​www.wto.org/​english/​docs_e/​legal_e/​27-trips_04c_e.htm#​5|Article 27.1]] should be strengthened to protect traditional knowledge from biopiracy, perhaps incorporating the UN Convention on Biodiversity,​ signed by 170 countries in 1993.  There should be a change in the presumptive ownership of traditional medicine, with patenting firms bearing the burden of proof that medicinal properties hadn't previously been recognised before an international tribunal.
  
 ===== Competition ===== ===== Competition =====
Line 583: Line 588:
   * better application of antitrust law across jurisdictions:​   * better application of antitrust law across jurisdictions:​
     * domestic antitrust regulators should look at the effects on foreign markets     * domestic antitrust regulators should look at the effects on foreign markets
-    * foreign consumers should have the right to take action ​in foreign courts +    * foreign consumers should have the right to take action 
-    * cross-border class action suits should be enabled ​to enable ​consumers in multiple jurisdictions ​to impose sanctions enforceable in the corporation'​s home country+    * cross-border class action suits should be enabled ​so that consumers in multiple jurisdictions ​can impose sanctions enforceable in the corporation'​s home country
     * consumers and governments should be able to take action (including class action) against international cartels, including those involving governments or government sanctions (ie OPEC)     * consumers and governments should be able to take action (including class action) against international cartels, including those involving governments or government sanctions (ie OPEC)
   * development policies such as affirmative action and preferences for small businesses should be permitted, even when they have a differential impact on foreign firms   * development policies such as affirmative action and preferences for small businesses should be permitted, even when they have a differential impact on foreign firms
Line 624: Line 629:
  
 The US has recently attacked China for allegedly manipulating its exchange rate.  The situation is so complex that in almost all cases it is impossible to definitively determine whether this is truly a deliberate government policy. ​ The threshold for action should be very high, at the least that only high multilateral surpluses be admissible as evidence. The US has recently attacked China for allegedly manipulating its exchange rate.  The situation is so complex that in almost all cases it is impossible to definitively determine whether this is truly a deliberate government policy. ​ The threshold for action should be very high, at the least that only high multilateral surpluses be admissible as evidence.
 +
  
 ====== Joining the Trading System ====== ====== Joining the Trading System ======
  
-Article XII of the Marrakech ​Agreement provides for the possibility that non-members may join the WTO, but "for an organisation which prides itself on being '​rules-based',​ the accession process is remarkably vague."​((p159.)) ​ In practice, ​developing ​countries as a bloc retain a veto on the accession package, and use this power to demand much greater concessions from acceding countries than have been made by existing members. ​ As part of the Doha Round, in December 2002 the General Council adopted new guidelines for LDC accession: the process would be streamlined and simplified, and acceding LDCs would not be required to make commitments beyond existing LDC members. ​ In practice these guidelines have been ignored. ​ Empirical studies show that, over time, accession is becoming slower and more costly (in terms of commitments). ​ Acceding members have been forced to accept the following:+[[http://​www.wto.org/​english/​docs_e/​legal_e/​04-wto_e.htm|Article XII]] of the [[wp>​Marrakesh ​Agreement]] provides for the possibility that non-members may join the WTO, but "for an organisation which prides itself on being '​rules-based',​ the accession process is remarkably vague."​((p159.)) ​ In practice, ​developed ​countries as a bloc retain a veto on the accession package, and use this power to demand much greater concessions from acceding countries than have been made by existing members. ​ As part of the Doha Round, in December 2002 the General Council adopted new guidelines for LDC accession: the process would be streamlined and simplified, and acceding LDCs would not be required to make commitments beyond existing LDC members. ​ In practice these guidelines have been ignored. ​ Empirical studies show that, over time, accession is becoming slower and more costly (in terms of commitments). ​ Acceding members have been forced to accept the following:
   * greater binding coverage than existing members (some LDCs have accepted greater binding coverage than Australia, a developed member)   * greater binding coverage than existing members (some LDCs have accepted greater binding coverage than Australia, a developed member)
   * lower bound rates (LDCs have bound at much lower maximum rates than the US)   * lower bound rates (LDCs have bound at much lower maximum rates than the US)
   * waiver of SDT, including shorter transition times on the TBT, SPS and customs valuation agreements, as well as TRIPS, including immediately eliminating "the use of affordable new generic drugs"​((p163.))   * waiver of SDT, including shorter transition times on the TBT, SPS and customs valuation agreements, as well as TRIPS, including immediately eliminating "the use of affordable new generic drugs"​((p163.))
-  * China had to accept an extraordinary right of other members to use safeguards against it (beyond GATT Article XIX and in violation of MFN)+  * China had to accept an extraordinary right of other members to use safeguards against it (beyond GATT [[http://​www.wto.org/​english/​docs_e/​legal_e/​gatt47_02_e.htm#​articleXIX|Article XIX]] and in violation of MFN)
   * some LDCs have bound export subsidies at zero (far beyond many developed countries'​ commitments)   * some LDCs have bound export subsidies at zero (far beyond many developed countries'​ commitments)
- +
 > It seems strange that the WTO's developed country members should force acceding countries, particularly small and poor countries like Cambodia and Nepal, into such strong concessions. ​ Grynberg and Joy (2000) suggest that the motivation lies in the developed countries'​ desire to create a precedent that can be applied to future negotiations. ---p161 > It seems strange that the WTO's developed country members should force acceding countries, particularly small and poor countries like Cambodia and Nepal, into such strong concessions. ​ Grynberg and Joy (2000) suggest that the motivation lies in the developed countries'​ desire to create a precedent that can be applied to future negotiations. ---p161
  
Line 639: Line 645:
  
 Whilst Doha has floundered, the US has been aggressively pursuing bilateral treaties. ​ These are bad for development because Whilst Doha has floundered, the US has been aggressively pursuing bilateral treaties. ​ These are bad for development because
-  * they //​temporarily//​ divert trade (and the double-adjustment involved will be particularly painful for developing countries, and+  * they //​temporarily//​ divert trade (and the double-adjustment involved will be particularly painful for developing countries), and
   * the US has greater power in these negotiations,​ but the results will be used as a precedent in multilateral negotiations,​ probably leading to an even less balanced agreement in the WTO   * the US has greater power in these negotiations,​ but the results will be used as a precedent in multilateral negotiations,​ probably leading to an even less balanced agreement in the WTO
  
Line 655: Line 661:
   * a new (secretarial) body or bodies should be created within the WTO to:   * a new (secretarial) body or bodies should be created within the WTO to:
     * supply impact assessments to developing countries, to mitigate their informational disadvantage     * supply impact assessments to developing countries, to mitigate their informational disadvantage
-    * assess whether proposed trade agreements are consistent with the principle that trade diversion should be limited and less than trade creation+    * assess whether proposed ​bilateral ​trade agreements are consistent with the principle that trade diversion should be limited and less than trade creation
     * assess countries in crisis and approve safeguard and other emergency measures     * assess countries in crisis and approve safeguard and other emergency measures
   * assistance provided through the WTO system should be reassessed:   * assistance provided through the WTO system should be reassessed:
Line 661: Line 667:
     * adjustment costs are not merely institutional but in many developing countries sizeable additional financial assistance will be required     * adjustment costs are not merely institutional but in many developing countries sizeable additional financial assistance will be required
     * legal assistance will be required to supplement an overhaul of dispute settlement to make it fairer to developing countries     * legal assistance will be required to supplement an overhaul of dispute settlement to make it fairer to developing countries
 +
  
 ====== Trade Liberalisation and the Costs of Adjustment ====== ====== Trade Liberalisation and the Costs of Adjustment ======
Line 667: Line 674:
  
 Understanding of adjustment costs is important because: Understanding of adjustment costs is important because:
-  * the Development Round'​s cognisance of equity requires that poor and vulnerable groups be compensated significant adjustment costs fall to them, and+  * the Development Round'​s cognisance of equity requires that poor and vulnerable groups be compensated ​whenever ​significant adjustment costs fall to them, and
   * opposition to liberalisation often comes from groups who will face the largest costs: compensating these groups may be necessary to enable liberalisation   * opposition to liberalisation often comes from groups who will face the largest costs: compensating these groups may be necessary to enable liberalisation
  
Line 673: Line 680:
   * workers and capital in previously protected industries become unemployed in the short run   * workers and capital in previously protected industries become unemployed in the short run
   * government or workers face adaptation costs, such as training, benefits, search costs   * government or workers face adaptation costs, such as training, benefits, search costs
-  * government bears implementation and enforcement costs, which are particularly high in the case of Singapore ​Issues ​(in many cases the cost of implementation may be higher than the country'​s entire development budget)((Finger (2000) points out that the implementation of regulatory agreements will often draw money from the development budgets of poor countries. ​ For this reason such agreements should be analysed in terms of their rate of return and compared to the alternative development priorities on which the same money could be spent. ​ Finger estimated the implementation of three of the Uruguay Round'​s six agreements that required regulatory change... His analysis suggests that the average cost of restructuring domestic regulations in the twelve developing countries considered could be as much as $150 million. ​ In eight of these countries this figure is larger than the entire annual development budget. ---p192))+  * government bears implementation and enforcement costs, which are particularly high in the case of Singapore ​issues ​(in many cases the cost of implementation may be higher than the country'​s entire development budget)((Finger (2000) points out that the implementation of regulatory agreements will often draw money from the development budgets of poor countries. ​ For this reason such agreements should be analysed in terms of their rate of return and compared to the alternative development priorities on which the same money could be spent. ​ Finger estimated the implementation of three of the Uruguay Round'​s six agreements that required regulatory change... His analysis suggests that the average cost of restructuring domestic regulations in the twelve developing countries considered could be as much as $150 million. ​ In eight of these countries this figure is larger than the entire annual development budget. ---p192))
   * investment is required to take advantage of new opportunities:​   * investment is required to take advantage of new opportunities:​
     * by government: infrastructure such as transport and standards and conformance institutions     * by government: infrastructure such as transport and standards and conformance institutions
Line 694: Line 701:
   * weak access to credit   * weak access to credit
     * firms can't finance adjustment in production     * firms can't finance adjustment in production
-    * workers can'​t ​finance ​retraining or search for new employment+    * workers can'​t ​afford ​retraining or their own search for new employment
   * high unemployment:​ workers find it harder to get new employment, meaning longer unemployment and probably settling for a worse job than previously held   * high unemployment:​ workers find it harder to get new employment, meaning longer unemployment and probably settling for a worse job than previously held
   * low education: studies show that costs are lower for better educated (therefore more mobile) workers   * low education: studies show that costs are lower for better educated (therefore more mobile) workers
   * reduction in tariff preferences for the poorest countries   * reduction in tariff preferences for the poorest countries
  
-The authors present a range of evidence suggesting that the benefits of non-reciprocal tariff preferences (both GSP and especially LDC schemes such as EBA and AGOA) are small, and more than offset by the likely benefits in MFN tariffs, especially by developing countries who don't have GSP schemes but do currently have higher tariffs than developed countries. ​ One reason for this is restrictive rules of origin, particularly in the EU, which undermine the value of such benefits (the American scheme has much lower coverage but a higher rate of take-up --- this probably reflects the costs of meeting the EU's RoO).  However, the authors'​ analysis underestimates the value of EBA preferences as it uses Cotonou preferences as its counterfactual,​ not MFN tariffs (and Cotonou preferences expired in 2008). ​ One reason that the GSP is ineffective is that it fails to compensate for a tariff regime that discriminates against products exported by developing countries --- thus for the EU, Canada and Japan the (weighted) average duty paid under the GSP is still //larger// than the average duty paid under MFN.+The authors present a range of evidence suggesting that the benefits of non-reciprocal tariff preferences (both GSP and especially LDC schemes such as EBA and AGOA) are small, and more than offset by the likely benefits ​from reductions ​in MFN tariffs, especially by developing countries who don't have GSP schemes but do currently have higher tariffs than developed countries. ​ One reason for this is restrictive rules of origin, particularly in the EU, which undermine the value of such benefits (the American scheme has much lower coverage but a higher rate of take-up --- this probably reflects the costs of meeting the EU's RoO).  However, the authors'​ analysis underestimates the value of EBA preferences as it uses Cotonou preferences as its counterfactual,​ not MFN tariffs (and Cotonou preferences expired in 2008). ​ One reason that the GSP is ineffective is that it fails to compensate for a tariff regime that discriminates against products exported by developing countries --- thus for the EU, Canada and Japan the (weighted) average duty paid under the GSP is still //larger// than the average duty paid under MFN.
  
 > In a sense the GSP only partially compensates for the discrimination by developed countries against the goods produced by developing countries. ---p183 > In a sense the GSP only partially compensates for the discrimination by developed countries against the goods produced by developing countries. ---p183
Line 708: Line 715:
   * goods prices   * goods prices
  
-Fiscal effects also vary a lot between countries. ​ "​Senegal pursued trade liberalisation in the mid-1980s, following which there were large revenue shortfalls. ​ Lost tariff revenue combined with slow growth in trade volumes and weaknesses in economic management led to dire fiscal consequences." ​ The process had to be abandoned. ​ Other countries have been fairly successful in replacing lost revenue. ​ Institutions such as the IMF believe that switching from trade tax to VAT is welfare-enhancing,​ but recent theoretical research shows that in a country with an untaxable informal sector it is desirable to retain some trade taxes.+Fiscal effects also vary a lot between countries. ​ "​Senegal pursued trade liberalisation in the mid-1980s, following which there were large revenue shortfalls. ​ Lost tariff revenue combined with slow growth in trade volumes and weaknesses in economic management led to dire fiscal consequences."​((p189--90.)) ​ The process had to be abandoned. ​ Other countries have been fairly successful in replacing lost revenue. ​ Institutions such as the IMF believe that switching from trade tax to VAT is welfare-enhancing,​ but recent theoretical research shows that in a country with an untaxable informal sector it is desirable to retain some trade taxes.
  
 On the basis of proper per-country analysis, assistance must be provided to governments to improve safety nets for workers and to improve credit markets for firms (if necessary to counteract misguided IMF policy artificially inflating interest rates). ​ Evidence suggests that even if firms' average cash flows improve, if credit markets are weak the adverse effects on losers can more than offset gains leading to overall losses. ​ Technical assistance is currently inadequate and must be expanded and improved. ​ Programmes must support countries in developing their own policies, unfettered by IMF conditionality,​ and new tax structures that undermine long-term growth based on an inadequate understanding of developing economies should not be pushed on governments. ​ Assistance for LDCs must also help them to capture new (and existing) opportunities for export, by addressing supply constraints (often linked to capital markets and infrastructure) and product standards through participation in standard-setting and assistance for national programmes to measure and improve conformance. On the basis of proper per-country analysis, assistance must be provided to governments to improve safety nets for workers and to improve credit markets for firms (if necessary to counteract misguided IMF policy artificially inflating interest rates). ​ Evidence suggests that even if firms' average cash flows improve, if credit markets are weak the adverse effects on losers can more than offset gains leading to overall losses. ​ Technical assistance is currently inadequate and must be expanded and improved. ​ Programmes must support countries in developing their own policies, unfettered by IMF conditionality,​ and new tax structures that undermine long-term growth based on an inadequate understanding of developing economies should not be pushed on governments. ​ Assistance for LDCs must also help them to capture new (and existing) opportunities for export, by addressing supply constraints (often linked to capital markets and infrastructure) and product standards through participation in standard-setting and assistance for national programmes to measure and improve conformance.
Line 716: Line 723:
 Two appendices contain empirical reviews of market access and Singapore issues. Two appendices contain empirical reviews of market access and Singapore issues.
  
 +====== Selected Bibliography ======
 +
 +The following works are mentioned in this abridgement:​
 +
 +  * **Baldwin**,​ Robert E, John **Mutti** and J David **Richardson**,​ 1980, "​Welfare Effects on the United States of a Significant Multilateral Tariff Reduction",​ //Journal of International Economics//,​ 10, 405--23
 +  * **Brenton**,​ P, 2003, "​Integrating the Least Developed Countries into the World Trading System: The Current Impact of EU Preferences under Everythign But Arms", mimeo, World Bank
 +  * **Grynberg**,​ R, and R M **Joy**, 2000, "The Accession of Vanuatu to the WTO: Lessons for the Multilateral Trading System",​ //Journal of World Trade//, 34:6, 159--73
 +  * **Kuznets**,​ S, 1955, "​Economic Growth and Income Inequality, //American Economic Review// 45, 1--28
 +  * **Lewis**, W A, 1955, //The Theory of Economic Growth//, London: George Allen & Unwin
 +  * **Samuelson**,​ Paul A, 1962, "The Gains from International Trade Once Again",​ //Economic Journal// 72, 820--9
 +  * **Rodrik**, Dani, 2004, "​Industrial Policy for the 21st Century",​ mimeo, Harvard University
fair_trade_for_all.1275053337.txt.gz · Last modified: 2010/05/28 12:00 (external edit)