Transcript Document

Fair Trade for All:
How Trade Can Promote Development
Beijing
March 2008
Joseph E. Stiglitz
1
Outline
• The need for a development round
• Trade liberalization has not lived up to its promise
– The failures in practice
– Theory
• The Development Round is not a True
Development Round
– The Dangers of a “false” development Round
– The Dangers of a failed development round
• The growth of bilateral and regional trade agreements
2
The need for a development round
(I) Past rounds have been unfair
• The Uruguay Round agenda focussed on the interests of
rich countries; it included
– Services - but not unskilled labor intensive services;
– Subsidies - but not agricultural subsidies;
– Intellectual property rights;
• Most of its projected benefits accrued to the rich countries
– 70% of gains to developed countries
– The 48 Least Developed Countries were actually left worse off
3
• Past rounds have been unfair
– Underlying it was a grand bargain
• Developed countries wanted IP, services
– Especially important with declining role of manufacturing
– But from beginning, thought about issue from their perspective
» Services are, in general, labor intensive
• Developing countries wanted textiles, agriculture
• Developed countries got what they wanted
• Developing countries got almost nothing in agriculture
– Promised further action
– In fact, U.S. raised subsidies
• Developing countries were asked to wait ten years on textiles
– After which the developed countries said they were still unpreparedf
4
The need for a development round
(II) The trading system is unbalanced
• The system is stacked against poor countries
– The average OECD tariff on goods from poor countries is 4 times higher
than on goods from other OECD countries
– Rich countries cost poor countries three times more in trade restrictions
than their total development assistance to them.
• There has been little progress on agricultural issues
– OECD countries continue to subsidise agriculture by 48% of total farm
production, just 3% lower than 1986; and maintain high tariffs
• Intellectual property rights disadvantage poor countries
– Exacerbate north-south knowledge gap; and restrict technology transfer
– Do not protect indigenous knowledge
5
Trade liberalization has not …
… produced the expected benefits in
practice, even when specifically
directed at helping developing
countries
• EU’s Everything But Arms (EBA) initiative
– Did not lead to significant increases in exports from poor countries,
partly because of low export capacity/weak infrastructure and
complex rules of origin
• US AGOA initiative
– Only benefited a few countries and those will diminish after
restrictions (e.g. use of US cotton) come into force
Developing country share of global trade shrinking
6
Trade Frameworks: Old and New
• Old framework:
– Trade liberalization led to more trade
– More trade led to more growth
•
Trade liberalization necessary and almost sufficient for growth and
development
– Growth led everyone to be better off
•
•
Provided resources to fight poverty
Trickle down economics
7
New Trade Framework (I)
• Trade liberalization often does not lead to
increased trade
– Experiences with EBA
– Share of least developed countries in global
trade declining
8
• Trade liberalization may not lead to increased
growth and well-being
– Growth related to technological progress (Solow, 1957)
• Even more important for developing countries—closing
knowledge gap
• Central question is how does liberalization affect diffusion of
knowledge
• Trade liberalization may have adverse effects
• Analogous to patents: short run distortion for long term
growth
• Historically, most successful countries developed behind some
protectionist barriers
9
The Infant Economy Argument for
Protection
• Two sector two country model; large efficient
developed country; small developing country with
comparative advantage in agriculture
• Without protection, it specializes in agriculture,
remains stagnant, falling increasing behind
developed country
• Protection results in short run losses, but long run
gains
• Model robust
– Results strengthened if there are interindustry cross
border technology flows in the industrial sector
10
•
•
•
•
Argues for broad based protection
Generates revenue to finance education, research
Avoids special interest protectionism
Consistent with south-south regional trade
agreements
• From Bruce Greenwald and Joseph E. Stiglitz,
“Helping Infant Economies Grow: The
Foundations of Trade Policies for Developing
Countries” American Economic Review, May,
2006 (forthcoming)
11
Other reasons that trade liberalization may not
lead to increased welfare
• High adjustment costs
– Some of which are not just temporary (increased exposure to risk, lower
tariff revenues)
• With imperfect risk markets, trade liberalization may be Pareto Inferior
(Newbery-Stiglitz, 1982)
• Much larger for many developing countries than for advanced
industrial countries
– Developing countries are vulnerable to policy shocks because their export
industries are least diversified
– Developing countries need to make the largest changes to comply with
regulations
– The trade structure is most distorted in the industries of importance for
developing countries, so reform will impact on them disproportionately
– Developing countries have weaker markets and suffer from greater
imperfections
– Developing countries have weaker social safety net
12
1. Fiscal losses
– Trade liberalisation reduces tariff revenue
– Tariff revenue is around 1% of government budgets in rich
countries, and around 30% in LDCs
– Shifting to VATs will have adjustment costs
• And may be administratively inefficient
• May increase economic distortions
• And have regressive distributional impacts
2. Net Food Importing Countries
– Will suffer as the world price of food rises following the
elimination of export subsidies
– Urban poor people (net consumers of food) will be the hardest
affected
13
3. Preference Erosion
– Net losses from MFN liberalisation for preference recipients
depend on the difference between lost trade diversion, and gained
trade creation as global tariffs come down
– Will severely affect a small number of industries in a small number
of products
4. Implementation Costs
– For poor countries, trade liberalisation involves large costs which
should be weighed among other development expenditure
priorities--taking away resources needed elsewhere
– The Uruguay Round imposed large implementation costs on
developing countries
– New trade facilitation regimes will be expensive
14
Absence of relationship between
trade and growth
– Consistent with empirical study focusing on
relationship of trade liberalization (not trade) on
growth
• Most often cited studies flawed, problems of
causality, focus on wrong question
15
Distributive Consequences
• Trade liberalization may lead to increased
inequality
– Distributive effects are inherent (Samuelson-Stolper)
– Adverse effects even in developing countries
• Especially with asymmetric trade liberalizatoin
– Standard analysis only said that with trade
liberalization, gainers could offset losses of losers, not
that they would
– In fact, globalization has resulted in pressures to
weaken safety nets, compounding problems
16
Case Study: NAFTA
• NAFTA—if there was ever an agreement that
should have worked
• it was NAFTA, with Mexico so close to huge U.S.
market
• NAFTA ten years later …
– Mexico has lower growth than ten years before
– High inequality, low innovation, low wages growth and
some of the poorest worse off as a consequence of US
agricultural subsidies
– Shows at the very least dream has not been realized
17
Problems
• NAFTA was not really a free and fair trade agreement
– With massive US agricultural subsidies
– With retention of non-tariff barriers
• Which were used when Mexico made inroads into America’s market
• NAFTA intruded into basic areas of national sovereignty
– Chapter 11 made environmental regulations more difficult
– Not really intended for basic investor protection
• Trade is important, but trade isn’t everything
• Trade liberalization is important, but it isn’t everything
–
–
–
–
–
Difficulties in competing with China
Making Mexico more dependent on US
Significant loss of revenue from loss of tariffs
Revenue needed for public investments in infrastructure and education
Major impediment to economic success
18
Explaining the Failures
• While economic theory has more nuanced
message about benefits of trade
liberalization
• We have not really tried true liberalization
• Trade liberalization has not been
asymmetric
19
Explaining Failures (ii)
• Internal barriers to trade more important for
developing countries
– Market access affected by trade infrastructure
• Supply constraints
- Any agenda promoting trade for developing
countries must address these problems
• Necessary if developing countries are to be
able to take advantage of new opportunities
– Trade can be important component of
development strategy
– Needs to be complemented by aid (aid-for-trade)
20
Development Round as it has evolved
is not true development round
• Central message of our book Fair Trade for All How
Trade Can Promote Development
• Lays out a comprehensive agenda of trade liberalization
that would promote development
• That agenda is very different from that set out in Doha
• And even more different from what has evolved since
– With the current agenda, the Development Round does not deserve
that name
– Hong Kong avoided a disaster—but only by lowering expectations
• And even then exposed the advanced industrial countries to charges
of hypocrisy
• And of reneging on the promises of Doha
• But showed new and diverging interests of developing countries
21
The Dangers
• An agreement that would make many developing
countries worse off
• An agreement that would be treated as a true
development round, so that efforts at redressing
imbalances of past would be diminished
• The U.S. bilateral strategy—moving away from
multilateralism and the multilateral trade system
22
The dangers of bilateral and regional
trade agreements
• Not just undermining multilateral system
• And making progress towards a more liberal global trade regime more
difficult
– In spite of fact that they are sometimes sold to the contrary
– Those with preferences will see any multilateral agreement as
hurting them
– Putting up obstacles for global liberalization
• But a move towards a trade regime which is even more unfair to
developing countries
– Need for TRIPs minus, instead TRIPs plus
• Morocco
– Going into areas which should not be on agenda and may make
development more difficult
• CML (Chile: ironic, especially given role it played in
protecting Chile from global financial crisis)
• Bubble gum (Singapore)
• Environmental regulations (Chapter 11)
23
Bilateral agreements undermine
principles of the market economy
• Principle of single price at core of
efficiency of market economy
• Underlays MFN principle (most favored
nation)
• Which underlay global trade system for past
fifty years
• Rules of origin added costly new
complexity to global trading system
24
Bilateral trade agreements have been
based on a dream
• That signing an agreement with the U.S.—a
“good housekeeping” seal of approval—
would bring untold investment and growth
• But the reality has been far different
25
Bilateral agreements undermine
global efficiency
• Much of gain based on trade diversion, rather than
trade creation
– Should be enforcement of WTO regulations, assessing
overall impact
• And in long run may increase costs of adjustment
– Especially important for developing countries
– Movement into advantaged area, only to lead to a
movement out, when advantage is eliminated
26
Road to the Hong Kong WTO meeting:
• Seattle ’99
• Clinton attempts to launch
‘Millennium Round’, but the meeting
fails amid street riots
• Doha ’01
• Launches the ‘Development Round’
with the goal of completion in Jan 05
• Cancun ’03
• Supposed to ‘evaluate progress’ but
no progress was made in key areas,
so the developing countries walked
out
• Attempt to put the round back on
track by reducing the ambition of the
agreements
• July mini ‘04
27
‘Development’ Round: Is it only rhetoric?
• The Doha declaration made bold but vague promises to
developing countries
– But did the agenda reflect the real concerns and interests of developing
countries?
– Or was the agenda hijacked, with the proposed agreements actually
making the developing countries worse off
• What would a development agenda really look like?
• Conclusion:
The agenda as it evolved was not pro-development
28
‘Development’ Round: Is it only rhetoric?
• The agenda of the ‘Development Round’ as it evolved did
little for the developing countries
–
–
–
–
–
It did little to address concerns in agriculture
It did little to address problems posed by non-tariff barriers
It went only a little way in addressing concerns about intellectual property
It did little to advance a developing country service sector agenda
There were no reforms in basic procedures
• The proposed agenda’s new issues were not those of
central concern to the developing world
– Procurement—developing countries unlikely to be successful in
procurement (e.g. defense) in advanced industrial countries, but
– US wanted capital market liberalization
– Competition policy which restricted development and socially oriented
preferences
29
Trade can promote development..
• We argue that there is a rich agenda of trade
reform, going well beyond agriculture
• If developed countries are serious about helping
developed countries through aid
• They should be even more serious about helping
them through trade
– A hand up rather than a hand-out
– It costs developed countries nothing
– But aid will be needed to complement new
opportunities
30
Principles of a Development Round
1. A trade agreement should be assessed in
terms of its impact on development
2. An agreement should be fair
- it should have fair outcomes
31
Principles of a Development Round
3. An agreement should be fairly arrived at
–
–
–
–
Current procedures put developing countries at a
disadvantage
Developed countries have resisted more
fundamental reforms
Increase openness and transparency of
negotiations
Symmetric enforcement system
32
Principles of a Development Round
4. It should be limited in scope
–
Expansive negotiations put developing countries at
a disadvantage
–
Principle of conservatism. Only issues that 1) are
relevant to trade flows, 2) are developmentfriendly, 3) involve a rationale for collective action
–
Since decision process not democratic, and there
is some loss of sovereignty, there should be
positive benefits for developing countries: should
focus on areas that are of essential concern e.g.
where cooperative action is necessary
33
11 Priorities of a Development Round
1. Liberalization and protection of labor flows and
labor intensive services
– More important for global efficiency than capital
market liberalization
– Without imposition of adverse risk effects
– Improves living standards through remittances
•
$32 Billion in remittances in 2002 in Caribbean and
Latin America far greater than total ODI and only
slightly less than FDI
34
11 Priorities of a Development Round
2. Liberalization of agricultural market,
- especially of those goods for which there will be limited
adverse consumption effects
3. Liberalization of industrial goods
- elimination of tariff peaks, and tariff escalation
35
11 Priorities of a Development Round
4. National treatment of anti-competitive
practices
–
–
Eliminating discriminatory treatment against foreign
producers through dumping duties
Single regime for anti-competitive practices for both
foreign and domestic firms
5. Explicit recognition of rights to use industrial
and other development policies
–
–
Including government’s right to provide to capital at
“reasonable” interest rates
Including use of “CRA” requirements to ensure access
36
to finance
11 Priorities of a Development Round
6. Restrictions on tax competition to
attract investments
7. TRIPS minus—rebalance intellectual
property rights
– Foster the transfer and dissemination of
technology
– Protection of traditional knowledge
37
11 Priorities of a Development Round
8. Fairer mechanism for enforcement
–
–
Threat of small, LDCs imposing trade sanctions against
US not very effective
Trade losses compensated with financial payments or
from international auction of retaliatory rights
9. Expanding agenda to concerns of developing
countries: Anti-corruption policies and arms
sales restrictions
–
International non-bribery legislation
10. Extend “unilateral disarmament”
–
i.e. Everything But Arms agreement, but make it
meaningful — rules of origin—and broader
38
11 Priorities of a Development Round
11. Institutional reforms
–
More transparency in negotiating process
–
Principle of representativeness
–
Independent office for the assessment of the
impact of proposed trade provisions on
development and developing countries
–
and assessment of ‘trade diversion’ vs. ‘trade
creation’ affects of bilateral and regional
agreements
39
Conclusion
• The round of trade negotiations that began in Doha
does not deserve epithet of a “Development Round”
• In present set-up, for developing countries, no
agreement may be better than a bad agreement
• International community should resolve to have a true
development round
• International community needs to provide the
assistance both to help developing countries to adjust
and to take advantage of new opportunities
40
Conclusion
• International community should reform procedures of
negotiations
• Such reforms are likely to lead to a reform in
outcomes—to outcomes that are fairer to developing
countries and more likely to promote rather than
hinder their development
• A true development round would lead to an increase
in global economic efficiency and greater global
equality
• And is necessary for Making Globalization Work
(forthcoming book, Fall, 2006)—to make globalization
live up to its potential.
41
New book: Fair Trade For All
FAIR TRADE FOR ALL:
How Trade Can Promote
Development
8th December 2005
Oxford University Press
42