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fair_trade_for_all [2010/05/31 12:48]
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fair_trade_for_all [2019/11/08 10:39] (current)
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| ====== Introduction ====== | ====== Introduction ====== |
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| ===== Recent WTO History ===== | ===== Recent WTO History ===== |
| 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. | 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. |
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| 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 '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 |
| * trade facilitation. | * trade facilitation. |
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| 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. |
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| ===== Outline of the Book ===== | ===== Outline of the Book ===== |
| * 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. |
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| ===== Theory: Liberalisation, Welfare and Growth ===== | ===== Theory: Liberalisation, Welfare and Growth ===== |
| 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. |
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| > [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 |
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| 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: |
| 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. |
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| > 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. |
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| > [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 |
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| ====== Special Treatment for Developing Countries ====== | ====== Special Treatment for Developing Countries ====== |
| 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) |
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| ===== SDT in Doha ===== | ===== SDT in Doha ===== |
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| 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). |
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| 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. |
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| 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. |
| ===== Doha Market Access Proposal ===== | ===== Doha Market Access Proposal ===== |
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| 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). |
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| 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: |
| * 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.)) |
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| > 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 |
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| ====== Priorities for a Development Round ====== | ====== Priorities for a Development Round ====== |
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| > 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 |
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| 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. |
| * 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 |
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| 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 |
| * 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) |
| ===== Agriculture ===== | ===== Agriculture ===== |
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| 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 a 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). |
| > 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. |
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| 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. |
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| 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. |
| * **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. |
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| 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: |
| * 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 |
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| 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.)) |
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| 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. |
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| > 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. |
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| 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. |
| * 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. |
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| > 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 |
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| 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 ===== |
| * 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 |
| |
| 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 |
| |
| |
| 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 |
| |
| * 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: |
| * 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 ====== |
| |
| 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 |
| |
| * 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 |
| * 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 |
| * 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. |
| 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 |
