World Bank Book to Teach Developing Countries about Trade

Development, Trade, and the WTO: a Handbook

Responding to the launch of multilateral trade negotiations at the 2001 WTO ministerial meeting (the Doha Development Agenda), the World Bank is today releasing Development, Trade, and the WTO: a Handbook. The handbook contains contributions by more than 60 leading trade and economic experts from across the world, representing a broad spectrum of opinion. It is a comprehensive resource for all who wish to understand better the trade policy and regulatory challenges confronting developing countries. It offers a summary of the economics of sound trade policy, and a guide to many of the "behind-the-border" policy issues, including services regulation and intellectual property protection, that governments today confront in the context of trade negotiations.

The publication is being launched at a time when policy makers are attempting to overcome roadblocks such as disputes over steel and agricultural policies, while also preparing for the next crucial ministerial meeting of the WTO in Mexico in September 2003.

Effective participation in trade negotiations is a particularly significant challenge for developing countries given their capacity and resource constraints. The goal of the Handbook is to provide information on the options offered by international trade agreements for developing countries hoping to use trade as a vehicle for development.

"The Handbook aims to enable developing countries to participate more fully in the international trading system and to make use of the WTO [World Trade Organization] to help them attain their poverty reduction goals," said World Bank President James Wolfensohn. "It also underscores how vital it is for poverty reduction that rich countries reduce their barriers to exports from the developing world."

The Handbook reflects this perspective; it is the product of a collaborative program to build the capacity of researchers in developing countries, and many of the chapters were written by contributors from this group. It will be an important element of the World Bank Institute's trade capacity-building program, and will be widely distributed to policymakers, their advisors and researchers through WBI's [World Bank Institute] partner institutions and research networks.

Making Global Trade A Tool For Development

Five significant conclusions can be drawn from the Handbook:

First, border restrictions on goods trade matter importantly, but effective market access has a wider dimension. The market access agenda in industrial countries extends to trade-impeding regulations such as environmental and health standards and restrictive rules of origin, as well as restrictions and regulations that limit the ability of developing countries to sell services abroad, especially through the temporary movement of workers.

The Handbook summarizes the results of recent research on the magnitude of remaining border barriers such as tariff peaks, which tend to have a disproportional effect on the exports of low-income nations.

In its examination of tariff peaks, defined as duty rates of more than 15%, the Handbook notes that tariff structures in industrialized countries still contain rates above 100%, particularly in categories crucial to developing country exporters such as agricultural products, clothing, and footwear. In 1999, for example, the U.S. European Union, Canada and Japan applied tariff peaks of 15% or above to 1,077 imported products, including 364 agricultural products.

Although much attention has recently been devoted to the negative effects of tariff peaks, subsidies and tariff escalation on developing country exports, addressing the non-tariff side of the market access agenda is critical for developing countries to fully benefit from trade liberalization. Various chapters discuss the effects and appropriate design of policies such as rules of origin, customs valuation, product standards and emergency protection to safeguard domestic industries, as well as new issues such as electronic commerce.

Second, reciprocal liberalization through the WTO is needed for developing countries to achieve improved access to markets abroad and greater openness at home. But there are major political economy constraints to be overcome. For reciprocity to work, major industries seeking better access to developing country markets, particularly in services such as finance and telecommunications, must do more to counter protectionism at home, in sectors such as agriculture and clothing.

Many of the Hcandbook's chapters emphasize that, in order to use the WTO effectively in reducing market access barriers, developing countries must themselves be willing to make deeper and wider commitments. These countries have much to bring to the table, including the promise to lock in reforms they have already made unilaterally-in tariffs and service sector liberalization in particular. A major challenge for developing countries is to identify what to demand from trading partners, and what they could put on the table as a quid pro quo.

With imagination and political courage, there are bargains waiting to be struck, especially in the area of services. An example is the temporary cross-border movement of workers into industrial economies, where not much has been achieved in international negotiations to ate, and where the gains from market opening could exceed those associated with traditional trade liberalization.

Third, the handbook emphasizes that trade liberalization is only a small part of the comprehensive domestic reforms that are needed to deliver poverty-reducing growth. A large number of complementary policies must support trade liberalization. These include sound macroeconomic management, effective regulation of financial and telecommunications services, and improved customs and tax administration. They also include policies and institutions to support social objectives and safeguard the interests of the poorest in society, such as universal access to services.

Fourth, global trade rules must be defined from a developmental perspective if they are to serve as tools for poverty reduction. For example, there is a need for a more careful analysis of the costs and benefits for developing countries of the current agreement on intellectual property rights (known as TRIPS). The Handbook devotes several chapters to this issue, exploring various ways in which the existing TRIPS framework might be broadened to support the interests of developing countries trying to benefit from their genetic resources, traditional knowledge and cultural industries.

But this is not the only example. The process of WTO accession requires a fresh look to see if it cannot be made more "user-friendly". New topics currently on the agenda, such as environmental standards, investment or competition policy, must be addressed from a developmental framework if new rules are not to impose extra costs and questionable returns for poor countries.

"Views and approaches to many of the issues that are dealt with in this volume differ substantially, and these differences are reflected here," says World Bank Chief Economist Nicholas Stern. "All are motivated by the question of how the global trade architecture might be made more supportive of development."

Fifth, integrating developing countries more effectively into the global economy and the WTO process will require external assistance. "Aid for trade" must complement appropriately designed multilateral rules. In addition to infrastructure and institutional development, such aid should include capacity-building to bolster the ability of stakeholders in developing countries to participate in the development and implementation of trade-related policies and global trading rules. Informed decision-making in turn requires a national capacity for policy research and analysis to identify priorities, and to estimate the costs and benefits of proposed reforms.

Washington, D.C.
June 26, 2002