Trade and Human Development

1
Trade and Human Development

• HD Course 2004
• Kate Raworth, Oxfam

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Overview

• Why trade? And how freely?
• The theory and the tools
• 2. Current global agenda on trade rules
• Whats going on at the WTO?

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Why trade? Ricardo (1817) said
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5
corn
corn
3
clothes
clothes
2
X
Y
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Even if X has an absolute advantage in both
products
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5
Absolute advantage
Xs Comparative advantage
Ys Comparative advantage
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Absolute advantage
2
X
Y
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Each should specialize in its comparative
advantage and trade.Both countries will be
better off.
2
5
corn
3
2
clothes
X
Y
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Factor endowments determine comparative advantage
2
corn
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Lots of capital Lots of land Little labour
Little capital Little land Lots of labour
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2
clothes
X
Y
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So trade is good for HD?

• Cheaper products clothes, food
• New products medicines, computers
• Creates jobs in export sectors call centres
• Stimulates economic growth

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But beware trade theory!

• Even if countries gains overall
• who gains and who loses within?
• Does the theory reflect reality?

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Who gains and who loses?
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5
producers consumers producers consumers
producers consumers producers consumers
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5
X
Y
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Does the theory reflect reality?

• Assumptions of the model
• Perfect competition in all sectors
• Full employment
• Factors can move smoothly between sectors but not
  between countries
• In reality
• Factor endowments are dynamic not static

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What factor endowments are linked to development?

• The more developed countries have
• Highly educated labour force
• Efficient technologies
• Capacity to innovate
• Financing for investment
• None of these are innate endowments
• they are dynamic, achieved through policy.

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Tools for trade policy

• Protecting industry from import competition
• Tariffs
• Non Tariff Barriers (NTBs)
• Bans and quotas
• Product specification
• Customs delays

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Tools for trade policy

• Promoting export-oriented growth
• State investment in key industries
• Providing export subsidies to key sectors
• Lobbying other countries to open up their market
  access

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So how open to trade should a country be?

• Competing ideologies
• Protection and import substitution
• vs
• Openness and export orientation

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Protection and import substitution

• Tariffs give temporary protection until infant
• industries become competitive
• 1960-1973 42 dcs grew 2.5 pa.
• 33 used import substitution
• So why such a bad reputation?
• Some infants never grow up
• And mid 70s collapse
• End of gold standard, oil crisis, commodity
  crash.

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Openness and export orientation

• Washington Consensus
• Let the market guide investment
• East Asian Tigers Korea, Taiwan
• But are they good examples of openness?
• In 1960s, they used tariffs, domestic and export
  subsidies, reverse engineering.
• Opened up only once growth was established.

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2. The current global agenda on trade rules

• General Agreement on Tariffs and Trade
• Created in 1947 by 24 countries
• Aim negotiations to reduce trade barriers
• Turn NTBs into tariffs, then cut tariffs
• 1986-94 Uruguay Round of negotiations
• GATT turns into the WTO in 1995

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From GATT to WTO

• Scale by 2004, 147 members
• Links trade with investment (TRIMS) and
  intellectual property rights (TRIPS)
• Single undertaking mandate
• Punitive dispute resolution mechanism
• Puts strong limits on domestic policy choices

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WTO Ministerial Meetings

• Singapore 1996
• Rich countries try to add 4 new issues to
  agenda
• Seattle 1999
• Mass public demonstrations and talks collapse
• Doha 2001
• Launch of The Doha Development Round
• Cancun 2003
• Rise of the G20 negotiating bloc, and talks
  collapse
• (Geneva July 2004 deadline for a framework)
• No breakdown - but dcs forced to compromise.
• Round due to end 2006 or 2007

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The Doha Development Agenda

• End agricultural export subsidies
• Stop rich country dumping
• 2. TRIPS implement for public health
• Flexibility in patent law for medicines
• 3. Special Differential Treatment for dcs
• More time, more exceptions

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End rich country agricultural dumping

• US cotton, rice EU sugar, milk, poultry
• Dumping exporting below cost of production
• How? Export credits, export subsidies
• Impacts in developing countries?
• Depresses local prices, undermines farmers
• Depresses world market price for exporters
• Displaces 3rd country exports

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Challenges at the WTO

• Brazil vs. US on cotton dumping
• US export related subsidies 3bn a year
• June 2004 Brazil won but what will the US
• do and when?
• Brazil vs. EU on sugar dumping
• EU sugar regime excessive exports
• September 2004 Brazil won how will the EU
• now reform its regime?

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Will the EU and US really reform ?

• EU wont eliminate subsidies until 2013 at
  earliest.
• US Farm Bill 2002 100bn over 6 years
• Both effectively hiding illegal subsidies in
  other boxes permitted at the WTO
• Stand-off both refusing to take unilateral
  leadership in ending dumping

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Implement TRIPS for public health

• Trade Related Aspects of Intellectual
• Property Rights (1994)
• Grant 20 year patents for processes AND products
• LDCs given more time to comply
• Undermines the generics drugs industry -
  massively limits access to medicines in
  developing countries
• Safeguards
• Permit compulsory licencing for public health,
  government use, anti-trust action
• But can developing countries actually use it?

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3. Special and Differential Treatment

• More time to implement agreements
• But hardly equivalent to the pre-WTO policy
  choices on timing for now industrial countries
• Special products exempt from tariff cuts
• Especially important for food security and rural
  livelihoods, eg in rice
• But rich countries now pushing for their own set
  of sensitive products
• Most important areas for dcs always left fuzzy
  in negotiations

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And new issues being pushed

• Singapore Ministerial 1996
• Rich countries tried to get their interests into
• the agenda
• Competition policy
• Government procurement
• Investment
• Trade facilitation

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2004 July Framework

• After 3 years of negotiations and breakdown at
  Cancun a deadline for agreeing a framework.
• It sets modalities framework for negotiations
• Achieved at the 11th Hour. But
• dcs pressured into being reasonable
• Minimal agreement, keeps WTO afloat
• Wont deliver the development promised

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Developing country wins

• Stronger language on ending agricultural export
  subsidies (but still no timetable)
• 3 out of 4 Singapore Issues dropped only
  trade facilitation left
• But
• Agricultural subsidies hidden under new names
• Rich countries stall on opening market
• access for developing countries

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Towards Hong Kong 2005

• End agricultural dumping
• EU and US implement sugar and cotton rulings
• Ensure dcs are not forced to cut tariffs in key
  sectors for food security and rural livelihoods
• Ensure that negotiations are inclusive and
  transparent - not a power group of 5
• Can the WTO deliver development ?...

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But beyond multilateralism
NGO
WTO
NGO
NGO
NGO
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WTO as pest management
NGO
FTAA !!
WTO
NGO
WTO plus
NGO
US-Jordan !!
NGO
CAFTA !!
WTO plus
US-Chile !!
WTO plus
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Ongoing debates

• Are rich countries kicking away the ladder to
  development by limiting trade policy?
• Is the rise of the G20 good for LDCs?