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 [2010/05/31 15:11]
dan
fair_trade_for_all [2011/11/16 12:00] (current)
Line 2: Line 2:
  
 ====== Introduction ====== ====== Introduction ======
 +
  
 ===== Recent WTO History ===== ===== Recent WTO History =====
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 maximises 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 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 =====
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 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 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).+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 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. 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.
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 ======
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 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 ======
Line 633: Line 639:
   * 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)   * 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 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 699: Line 706:
   * 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 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.1275315081.txt.gz · Last modified: 2010/05/31 13:00 (external edit)