A trade deal that addresses the concerns of developing nations
could spur growth and reduce poverty by as much as 144 million
people by 2015, says a new World Bank report published on the eve
of a meeting of the world's trade ministers in Cancun that will
review progress on WTO negotiations on the Doha Development
Agenda.?
The report "Global Economic Prospects 2004: Realizing the
Development Promise of the Doha Agenda" projects anemic growth of
1.5 percent in 2003 in the industrialized world, well below
potential. It foresees better performance next year, as industrial
countries' growth rises to 2.5 percent. Developing countries are
somewhat more buoyant than industrial countries, growing at 4.0
percent in 2003, and, if the recovery stays on track, will grow at
4.9 percent in 2004.? World trade is projected to grow by 4.6
percent, slightly more than last year, but still less than half the
rate in 2000.
Although countries in East Asia lost some momentum due to SARS
and saw growth decline from 6.7 percent in 2002 to 6.1 percent in
2003, the report predicts that East Asian growth will rebound later
in the year and reach 6.7 percent in 2004.? Growth is expected
to be spurred on by the continued strength of China, especially as
an export market to regional economies; the expected pickup in
world growth, higher prices for agricultural primary commodities
like rice, rubber, palm oil, coconut products and lumber from late
2001; and improved emerging market sentiment benefiting countries
like the Philippines and Indonesia, the report notes.
Officially, the Cancun meetings are an interim stocktaking for
the negotiations, which are scheduled for completion by January 1,
2005. But the meetings occur at a time when the global economy and
international trade are languishing.? As the report notes, the
trade talks are stalled over disagreements on issues of particular
importance to developing countries, such as agriculture, tariff
reductions in manufactures, special treatment for developing
countries, and drug patents in poor countries. Progress in Cancun
could bolster investor confidence, and create momentum towards a
more significant WTO agreement that would spur trade, and
eventually raise incomes around the world, leading over time to a
substantial reduction in global poverty, according to the
Bank.?
World Bank Chief Economist Nicholas Stern believes it is
important for the rich countries to take the lead in negotiating a
fair outcome to the Cancun negotiations.
"They are the dominant players and account for two-thirds of the
global market," says Stern.? "They could show leadership by
reducing agricultural protection, cutting high tariffs, and
ensuring that the poorest countries have access to affordable
medicines on the same terms as bigger developing countries." The
report also notes that developing countries, especially the dynamic
middle-income ones, could contribute to a good "Doha deal" by
agreeing to undertake trade liberalization measures that would help
boost global trade and that are in their own interests as well.
"The talks are approaching a critical juncture," says Uri
Dadush, director of the Trade Department at the World Bank. "If
ministers can reach an agreement? to reduce trade barriers
affecting the products that poor people produce, especially farm
products and labor-intensive manufactures, it would help raise
their standard of living. If not, an opportunity will be lost.
"
In East Asia, Homi Kharas, chief economist for East Asia and the
Pacific, adds "the development agenda is becoming increasingly
entwined with the trade policy agenda and its focus on market
access and competitiveness.? To take full advantage of growing
economic integration, the Region needs to implement the necessary
policies in agriculture, services, logistics, and trade
facilitation -- while ensuring that benefits from increased
integration can be broadly shared by poorer countries and the poor
within countries."?
Removing barriers to developing countries' exports would
accelerate their growth
The report points to inequities in the world trading system that
drag down export growth of? developing countries. In
agriculture, for example, Japanese support to rice amounts to 700
percent? of production cost, which effectively shuts out
exports from Thailand and other producers. Direct budget subsidies
to producers by the EU cost around US$100 billion annually, and
depress world market prices in sugar, dairy, and wheat, while
indirect support through high tariff walls further raises prices to
consumers. The US spends US$50 billion annually on direct support
to agriculture. Annual cotton subsidies to US farmers of more than
US$3 billion (three times US foreign aid to Africa) depress world
cotton prices and crowd out poor but otherwise efficient farmers in
West Africa.?
"Exporters from developing countries generally have to pay more
to get into foreign markets than exporters in rich countries," says
Richard Newfarmer, economic adviser in the World Bank's Trade
Department and Development Prospects Group, and lead author of the
report.? "Industrial countries on average charge each other
tariffs of about 1 percent on their imported manufactures, but
collect 5 percent from East Asia, 6 percent from the Middle East,
and 8 percent from South Asia.? Mongolia, for example, pays
nearly the same dollar amount in tariffs to the US government as
Norway, even though it sells only three percent of what Norway
sells in the US," Newfarmer says.? "Can anyone argue this
system is living up to its development potential?"
The report argues that a "good" WTO agreement could produce
about US$290-520 billion in income gains to both rich and poor
countries,? lifting an additional 144 million people out of
poverty by 2015 (see box). For East Asia alone, earlier research
suggests that if the right policies were put in place on
agriculture, services, logistics, and trade facilitation by the
countries in the region, annual benefits amounting to roughly
US$300 billion or 10 percent of GDP could be realized within a
decade -- and that these benefits could be even higher if a global
trade agreement is reached.? If properly shared, this would
mean over 50 million fewer poor people in East Asia. (www.worldbank.org/eaptrade)
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How much would tariff cuts raise incomes?
GEP 2004 presents a simple scenario that shows how lower trade
barriers in agriculture and smaller tariff peaks could promote
growth and poverty reduction.?
Under this scenario:
·?Rich countries cut tariffs to 10 percent in agriculture, and
to five percent in manufacturing;
·?Developing countries reciprocate with tariff cuts to 15 and
10 percent in agriculture and manufacturing, respectively;
·?All countries eliminate agricultural export subsidies,
averages, "decouple" domestic subsidies to minimize the trade
distortions, and eliminate specific tariffs,quotas, and
anti-dumping duties.
This formula generates gains which amount to about three
quarters of? those from full liberalization. If these reforms
were implemented progressively over five years to 2010 and
accompanied by a realistic productivity response, developing
countries would gain nearly US$350 billion in additional income by
2015. Rich countries would benefit, too, with gains on the order of
US$170 billion.
All of this would mean that there would be 144 million fewer
people living below US$2 per day by 2015.
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The international community has to work together to get
a positive outcome
Stern emphasizes that realizing these gains requires all
countries take responsibility for the outcome.
"Rich countries have to lead -- by reducing agricultural
protection, by cutting high manufacturing tariffs, and by expanding
access to affordable medicines," says Stern.? "It makes no
sense for rich countries to encourage developing countries to adopt
policies that will promote growth, and then adopt trade policies
that reduce the growth prospects of those same developing
countries."
The GEP notes that developing countries, especially dynamic
middle income countries, could contribute to a good "Doha deal" by
putting on the table measures in their own interests. By opening to
trade they can lower the cost of imported inputs, and become more
competitive internationally. This creates new opportunities for
small farms, and for small and medium-sized businesses, which means
more jobs for poor people.
"High protection in middle-income countries hurt their poor
neighbors in the same way as trade barriers in rich countries,"
says Dadush.? Latin American exporters of manufactures face
average tariffs in Latin America that are seven times higher than
tariffs in industrial countries.? East Asian exporters face
tariffs in other East Asian countries that are 60 percent higher
than in industrial countries.?
The report challenges all segments of the international
community to offer "concessions" that will in the end benefit
themselves as well as trading partners.
Industrialized countries will benefit by cutting protection and
agricultural subsidies-most of which go to large farmers who
already make more than the average family in the EU, Japan and
US.? Slashing agricultural protection would result in cheaper
food and labor-intensive manufactures for consumers in those
countries. At the same time, it would help raise incomes of poor
farmers in developing countries. In return, rich countries might
get greater access to still protected services markets in
middle-income countries.
Middle-income countries will have better telephone and financial
services if more foreign competitors were allowed to enter services
markets-and, at the same time, they would get access on better
terms to the rich countries and the dynamic markets of other
developing countries. Middle-income agricultural exporters would be
among the biggest winners from agricultural liberalization, as the
reduced subsidies and over-production by industrial countries would
create new opportunities.
In East Asia, certain policy actions relating to the service
industry can help make firms more competitive by helping to reduce
business costs-such as through competitive producer services like
logistics and accounting-and by lowering the costs of cross-border
business operations and trade through policy actions on efficient
customs, paper-less clearance, electronic processing, safety
measures.? All of these can create more dynamic regional trade
and investment flows to generate greater economic growth.?
Donors and multilateral agencies have to do more in the World
Bank's view.? "Just because a foreign market lowers its trade
barriers, it doesn't mean a country can suddenly export," says
Newfarmer.? "It takes investments in ports, roads, and
education, and improvements in local institutions like the customs
and tax authorities.? International donors can provide
resources -- financial and human -- to? undertake these
critical investments."
The GEP notes that improvement in ports, customs, and other
trade-related infrastructure could raise global trade by some
US$380 billion over time.? "Moreover, the development agencies
have a responsibility to help poor countries as they adopt policies
to cope with erosion of preferential access, rising prices on food
imports, or lower tariff income due to domestic reforms," Newfarmer
adds.
An issue of key interest to East Asia is the mobility of
labor markets?-- and its impact on growth
According to the GEP, increased service delivery through
increased labor migration, particularly the temporary movement of
unskilled labor (Mode 4), has advantages for both developed and
developing countries, notwithstanding tensions surrounding
migration. To date, however, even with the liberalization of trade
in services during the Uruguay Round, little has been done to
loosen conditions governing the temporary movement of labor
supplying services. Present commitments refer almost exclusively to
higher level personnel, of less significance for many of the
developing countries of East Asia whose comparative advantage lies
in the export of medium and low-skilled, labor-intensive services.
If a system were introduced that permitted movement of labor up to
3 percent of the total labor force in rich countries, developing
countries would stand to gain as much as US$200 billion in
additional income. To encourage this, developing countries could
actively expand their requests and offers in the Doha Round under
Mode 4.
The global recovery is tentative, but headed in the
right direction
For the third year in a row, the global economy is growing well
below its potential, at an expected rate of 2 percent in 2003 (see
table).? The pace of activity faltered at the end of 2002 and
early 2003 in response to events that undermined confidence:?
the build up to war in Iraq, trans-Atlantic tensions, and concerns
about Severe Acute Respiratory Syndrome (SARS).?
Global growth is projected to pick up to 3 percent in
2004.? Early signs of renewed economic activity are appearing
in the United States, yet although conditions in Europe and Japan
continue to be weaker. Improvement in confidence will prove the key
to a revival in capital spending and growth.
As for East Asia, "The years since the 1997 financial crisis
have been ones of extraordinary volatility and uncertainty in the
world economy -- but East Asian economies have actually come
through this period reasonably well," said Kharas. He noted that
simple average growth in the five crisis countries was 4.6 percent
in the four years 1999-2002; including China and Vietnam it reached
5.1 percent. "Contributing to this reasonably positive experience
has been a broad array of efforts at policy reform-albeit often
gradual and incomplete-accompanied by a gradual strengthening of
domestic demand.? Financial sector restructuring has assisted
the emergence of new consumer credit markets, a positive
development from a long run development standpoint, although bank
management and regulators will need to ensure it does not become a
new source of vulnerability."?
Furthermore, he commented that East Asia has been generating
strong trade momentum on its own account, led by China. Chinese
nominal imports (excluding oil) have grown at a compound rate of
12.2 percent since 1995, with much of the demand being met by
regional producers. China's share in the merchandise exports of
East Asia (Korea, Taiwan, China, Malaysia, Thailand, and Indonesia)
has doubled over the last two years and quadrupled over the last
ten.? "This should bode well for future growth, and we expect
that East Asia will remain the fastest growing region in the world
in 2003 and 2004, with growth rates above 5 percent each year."
Global GDP projections, 2003-2005
| Pecentage change |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
| World |
4.0 |
1.3 |
1.9 |
2.0 |
3.0 |
2.9 |
| High income countries |
3.7 |
0.9 |
1.6 |
1.5 |
2.5 |
2.4 |
| OECD countries |
3.6 |
1.0 |
1.6 |
1.5 |
2.5 |
2.3 |
| United States |
3.8 |
0.3 |
2.4 |
2.2 |
3.4 |
2.8 |
| Japan |
2.8 |
0.4 |
0.1 |
0.8 |
1.3 |
1.3 |
| Euro Area |
3.5 |
1.5 |
0.8 |
0.7 |
1.7 |
2.1 |
| Non-OECD countries |
6.6 |
-1.1 |
2.4 |
2.1 |
4.1 |
4.4 |
| All developing countries |
5.1 |
2.9 |
3.3 |
4.0 |
4.9 |
4.8 |
| East Aisa and Pacific |
7.2 |
5.5 |
6.7 |
6.1 |
6.7 |
6.6 |
| Europe and Central Asia |
6.6 |
2.2 |
4.6 |
4.3 |
4.5 |
4.1 |
| Latin American/Caribbean |
3.5 |
0.3 |
-0.8 |
1.8 |
3.7 |
3.8 |
| Middle East/North Africa |
4.1 |
3.2 |
3.1 |
3.3 |
3.9 |
3.5 |
| South Asia |
4.2 |
4.9 |
4.2 |
5.4 |
5.4 |
5.4 |
| Sub-Saharan Africa |
3.2 |
3.2 |
2.8 |
2.8 |
3.5 |
3.8 |
| Memo |
|
|
|
|
|
|
| Developing excl China/India |
4.6 |
1.7 |
2.0 |
3.1 |
4.1 |
4.1 |
Source: World Bank, Development Prospects Group.
Note: GDP in constant 1995 US dollars.
(China.org.cn September 5, 2003)