Setting the agenda for trade policy reform: what roles for economists

1
Setting the agenda for trade policy reform what
roles for economists?

• Kym Anderson
• World Bank, University of Adelaide and CEPR

2
Outline

• Past contributions of economists at the global,
  regional and national levels
• What difference have we made?
• How can we contribute more in the future?

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Three levels of agenda-setting

• Global
• Establishing/reforming rules, disciplines and
  procedures, as well as negotiating market access
• Regional
• National
• More intervention, or more openness?
• If more openness, which pathway?
• Multilateral
• preferential
• unilateral

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The multilateral agenda

• Meade and others pushed for a non-discriminatory
  rules-based system at Bretton Woods in 1944,
  drawing among others on Viner
• But agriculture was sidelined, despite pleas from
  a 1957 Expert Panel chaired by Haberler and
  myriad subsequent analysts
• Also sidelined was textiles
• And developing countries (DCs) were poorly
  integrated into the GATT/WTO
• Non-reciprocal tariff preferences
• Special and differential treatment

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Non-reciprocaltariff preferences for DCs

• They clash with MFN and reciprocity rules
• Theyve been shown from the mid-1960s to be an
  inefficient way to assist developing countries
• They led to DCs not engaging in the GATT process
  of multilateral trade reform
• until WTO, whose single undertaking required
  DCs to become subject to most disciplines
• which led to a call by LDCs for duty- and
  quota-free access to OECD markets (led to EBA,
  AGOA, etc.)

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Problems with non-reciprocal duty-free access for
LDCs

• Non-recipient poor countries (e.g. China, India,
  Vietnam) are harmed by trade diversion
• Leads to investment in industries that may be
  uncompetitive when OECD tariffs fall
• Which encourages LDCs to support rather than
  oppose those high tariffs on e.g. clothes
• And, being non-reciprocal, these schemes give no
  encouragement for LCDs to lower their own trade
  barriers

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Special and differentialtreatment for DCs

• Current WTO agreements contain no less than 155
  SDT provisions, and ministers have declared Doha
  will have plenty too
• When it involves smaller and slower tariff cuts
  for DCs (and none for LDCs), under reciprocity
  that means developed countries are less inclined
  to open up to DC products
• which together increases the chance that DCs will
  lose from Doha

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The reciprocal preferential agenda

• Regional and other RPTAs are tolerated under
  GATTs Article XXIV
• even though they typically fall far short of
  involving substantially all trade, as hundreds
  of exceptions get written into such agreements
• The idea of non-preferential or open
  regionalism has not taken hold, except in a loose
  way in the Asia Pacific region the APEC forum

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The national agenda

• Since national governments determine not only
  national trade policy but also whether to
  participate in international negotiations, this
  is where economists have most impact
• Their influence has been in two ways
• macro, via paradigm promotion, as well as
• micro, e.g. via disseminating results from
  quantitative analysis

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The national agenda paradigm peddling

• History of thought on trade policy in rich
  countries
• Laissez faire (Smith 1776, Ricardo 1817)
• Proposed examples where exceptions be made
• terms of trade (Torrens 1844)
• infant industry (Mill 1848)
• increasing returns (Graham 1923)
• population size (Brigden et al. 1929 re.
  Australia)
• unemployment (Keynes 1930)
• imperfect competition (Brander 1985)
• Theory of distortions and ranking of policy
  instruments showed trade policy to be not the
  first-best way of dealing with such concerns
  (Bhagwati 1971)

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The national agenda paradigm peddling
(continued)

• For agrarian developing countries post-WWII
  import substituting industrialization
• (Prebisch and Singer 1964)
• Gradually discredited over next 2 decades
• Evidence that MPL in agric is positive (Schultz
  1964)
• Theory of domestic divergences (Bhagwati 1971)
• Evidence of wasteful rent seeking (Krueger 1974)
• East Asias growth experience from export
  promotion
• Chinas spectacular growth from opening up
• Moving away from a 2 x 2 model to a 3 x n model
  (Jones 1971, Krueger 1977, Leamer 1987)

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The national agenda quantifying the extent of
trade distortions

• In both rich and poor countries, industry
  differences in the extent of protection were
  exposed more starkly by the effective rate of
  protection concept
• Canada (Barber 1955), Australia (Corden 1963),
  others (Balassa 1965)
• Manufacturing in developing countries (Little et
  al. 1970, Balassa 1971)
• PSE/CSE for farm products (Josling/FAO 1973)
• Trade restrictiveness index (J. Anderson 1992)
• Indirect distortions against agric (KSV 1992)

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The national agenda quantifying the effects of
trade distortions

• Cost of protection calculations (PE GE)
• PE global modelling of agricultural markets
• ex ante analysis for Uruguay Round
• CGE national and global economy-wide models,
  especially GTAP
• ex post analysis for Uruguay Round, and now ex
  ante analysis for Doha Agenda
• Some analysis of adjustment costs, and of effects
  on tariff revenue for developing countries

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How can economists contribute more to agenda
setting?

• Counter the next wave of calls for intervention
• Anti-globalization forces
• Better-quality empirical analysis
• Improved specification of policy measures
• Cut bound, not applied tariffs and subsidies
• Incorporate tariff preferences
• Include TRQs, technical barriers where feasible
• Incorporate services trade and investment reform
• Specify correct counterfactual (rising
  protectionism?)
• Compare reform-induced structural adjustment with
  that accompanying normal economic growth

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How can economists contribute more to agenda
setting? (cont.)

• Better-quality empirical analysis (cont.)
• Specify presence of other domestic distortions
• Imperfect competition and scale economies
• Dynamics of trade liberalization
• Effects on wages and employment
• Effects on household and regional income
  disparities and poverty alleviation
• Effects of domestic policy responses to trade
  reform
• Contribute more to dispute settlement procedures
• Especially on WTO-sanctioned retaliation measures
  

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Conclusions

• Economists have contributed greatly to the trade
  policy agenda at various levels
• But there is much room for improvement
• Understand the political economy better
• Build relations with policymakers and advisors
• Address the empirical questions in the minds of
  policy makers/advisors (not just net welfare!)
• Become more effective advocates for free trade