P U T T I N G K N O W L E D G E T O W O R K F O R D E V E L O P M E N T � J U L Y 2 0 0 3

OutreachD E V E L O P M E N T

W O R L D B A N K I N S T I T U T EPromoting knowledge and learning for a bet ter world

TRADE FOR DEVELOPMENT

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www.worldbank.org/wbiwww.worldbank.org/devoutreachdevoutreach@worldbank.org

World Bank InstituteFrannie Léautier, Vice PresidentThe World Bank1818 H Street NWWashington, DC 20433, USA

Editorial BoardSWAMINATHAN S. AIYARECONOMIC TIMES OF INDIA, NEW DELHI, INDIA

MICHAEL COHENNEW SCHOOL UNIVERSITY, NEW YORK, USA

PAUL COLLIERTHE WORLD BANK, WASHINGTON, DC, USA

JOHN GAGESUN MICROSYSTEMS, PALO ALTO, CALIFORNIA, USA

JOSEPH K. INGRAMTHE WORLD BANK, SARAJEVO, BOSNIA

KWAME KARIKARISCHOOL OF JOURNALISM AND COMMUNICATIONS,THE UNIVERSITY OF GHANA, LEGON, GHANA

VIRA NANIVSKAINTERNATIONAL CENTER FOR POLICY STUDIES, KIEV, UKRAINE

PEPI PATRONCATHOLIC UNIVERSITY, LIMA, PERU

J. ROBERT S. PRICHARDTORSTAR, TORONTO, CANADA

RAFAEL RANGEL SOSTMANNMONTERREY TECH UNIVERSITY SYSTEM, MONTERREY, MEXICO

ADELE SIMMONSCHICAGO METROPOLIS, CHICAGO, IL, USA

VIVIENNE WEECENTRE FOR ENVIRONMENT, GENDER AND DEVELOPMENT, SINGAPORE

Development OUTREACH is published three times a year by the WorldBank Institute and reflects issues arising from the World Bank’s manylearning programs. Articles are solicited that offer a range ofviewpoints from a variety of authors worldwide and do not representofficial positions of the World Bank or the views of its management.

MARY MCNEILEXECUTIVE EDITOR

SUNETRA PURICONTRIBUTING EDITOR

ANNA LAWTONMANAGING EDITOR

MOIRA RATCHFORDPUBLICATION DESIGN

PHOTO CREDITS Cover: Bill Heinsohn/Getty Images; Page 5: AgenceFrance Presse/Greg Wood; Page 7: Reuters/Gary Way; Page 11:Reuters/Luc Grago; Page 13: Reuters Photo Archive/STR; Page 15:Reuters Photo Archive/STR; Page 17: The World Bank/Anonymous;Page 19: Reuters/Mark Baker; Page 22: Agence FrancePresse/Frederic J. Brown; Page 27: The World Bank/Curt Carnemark;Page 29: Agence France Presse/STR.

ISSN 1020-797X © 2003 The World Bank Institute

This magazine is printed on recycled paper, with soy-based inks.

W O R L D B A N K I N S T I T U T EPromoting knowledge and learning for a bet ter world

he Doha Development Agenda, whichemerged from the WTO ministerial confer-ence in 2001, acknowledges the need to

focus on developing country concerns regardingglobal trade and its effect on poverty reduction anddevelopment.

On the eve of the WTO ministerial meeting inCancun, major challenges remain and several issuesneed to be revisited. Our Special Report provides aforum where prominent trade specialists canexpress their views, present their research findings,and make recommendations. We intend this collec-tion of essays to serve as background reading for thedevelopment community at large, to acquire a betterunderstanding of the issues that will be discussed inCancun.

The Special Report opens with an article by T.Ademola Oyejide, who examines the linkagesbetween trade reform and growth. Sok Siphana pres-ents a successful experiment in Cambodia, where"mainstreaming" trade contributed to alleviatingpoverty. Kevin Watkins warns us that agriculturalsupport in the form of subsidies and tariffs in indus-trial countries is adversely affecting poor farmers indeveloping countries. Julio Nogués, too, focuses onagriculture, and points out that lack of coherencebetween the trading system and the internationalfinancial system hurts agricultural exporters indeveloping countries; he refers in particular toArgentina. Kennedy Mbekeani traces the positiveimpact that reforms in infrastructure will have oneconomic growth. Bernard Hoekman offers his viewon the controversial concept of more favorable treat-ment for developing countries. Richard Newfarmerdiscusses the prospect of an international invest-ment agreement to expand trade and promote devel-opment. John S. Wilson examines the role of tradefacilitation in the global context. Finally, Will Martinexplains how China used the WTO as an instrumentto tailor its own successful trade policies.

We welcome our readers to join the debate, andsend us their opinions on the topic of trade fordevelopment.

A B O U T T H I S I S S U E

Sunetra PuriC O N T R I B U T I N G E D I T O R

T

2 Development News

SPECIAL REPORT: TRADE FOR DEVELOPMENT

3 Toward a Pro-Poor Trade AgendaURI B. DADUSH

4 Trade Reform for Economic Growth andPoverty ReductionT. ADEMOLA OYEJIDE

Trade reform can stimulate growth in low-income countries ifsupply constraints are eliminated and market access barriersare removed.

7 Mainstreaming Trade for PovertyAlleviation: A Cambodian ExperienceSOK SIPHANA

In Cambodia, thanks to the mainstreaming strategy, tradebecame part of key government policies and has contributed tothe country’s vibrant economy.

10 Farm Fallacies That Hurt the PoorKEVIN WATKINS

Agricultural subsidies in industrialized countries aredetrimental to poor farmers in developing countries. The Doharound provides an opportunity to establish new rules of thegame in agricultural trade.

13 Agricultural Protectionism: Debt Problemsand the Doha RoundJULIO J . NOGUÉS

Argentina is an example of how agricultural protectionism canhave sizable negative macro-economic and poverty effects, andlead to debt problems.

16 GATS Negotiations Must Focus onServices Liberalization: The Case of SADCKENNEDY K. MBEKEANI

To make a difference in the SADC region, it is important thatservices liberalization keep pace with trade liberalization. The article focuses on key issues to be discussed at GATS.

19 More Favorable Treatment of DevelopingCountries: Toward a New Grand BargainBERNARD HOEKMAN

Special and differential treatment should be seen in thecontext of trade and development. The new "grand bargain"must involve actions by developed countries as well asdeveloping countries.

22 An International Investment Agreement:Promise and Potential PitfallRICHARD NEWFARMER

Trade liberalization, together with clear investment rules, holdsthe largest potential for increasing investment in developingcountries.

26 Trade Facilitation, WTO Rules, andCapacity Building: What’s at Stake? JOHN S. WILSON

To serve as an engine for trade facilitation, WTO must designspecific measures best suited for the target country along withits commitment and agreement.

29 China and the WTO: Policy Reform andPoverty ReductionWILL MARTIN

Since joining WTO, China has implemented most of therequired trade liberalization, becoming one the world’s biggesttrading countries. But substantial work will be needed oncomplementary financial and social policies.

35 KNOWLEDGE RESOURCES

38 BOOKSHELF

40 CALENDAR OF EVENTS

OutreachD E V E L O P M E N T

V O L U M E F I V E , N U M B E R T W O � J U L Y 2 0 0 3

P A G E 1 0 P A G E 1 3 P A G E 2 2

China, Egypt join WTO'sInformation Technology Agreement

C H I N A A N D E G Y P T, O N 2 4 A P R I L 2 0 0 3 , joined a WTOagreement on removing all tariff barriers to informationtechnology products such as personal computers and tele-com equipment. The Committee of Participants on theExpansion of Trade in Information Technology Productsapproved the participation of the two countries, whichbecame the 58th and the 59th members of the WTO'sInformation Technology Agreement (ITA). From the 29participants that negotiated the ITA during WTO’s FirstMinisterial Conference in Singapore in December 1996,membership has now risen to 59 that account for 95 per-cent of world trade in IT products.

This WTO agreement is helping push the informationtechnology revolution forward. Beginning in 2000, most ofthe world trade in information technology products (worth$828 billion in 2001 for office and telecom equipment, alarge part of which are IT products) became completelyfree of tariffs under ITA. Participation in the ITA meansthat the country must eliminate tariffs and all other dutiesand charges on covered IT imports from all WTO members.For more information visit: www.wto.org

Emission reduction initiative gets new donor

T H E C O M M U N I T Y D E V E L O P M E N T C A R B O N F U N D

(CDCF) was advanced in May with an agreement betweenthe Ministry for the Environment and Territory of Italy andthe World Bank. According to the terms of the agreement,Italy will contribute $7.7 million to the Bank's newly estab-lished Community Development Carbon Fund (CDCF) andreceive in return certified emission reductions from smallprojects in least developed countries and poor communi-ties in all developing countries. These projects will meas-urably improve the quality of life of the communitiesinvolved. The CDCF is focusing on a flexibility mechanismof the Kyoto Protocol, the Clean Development Mechanism,which will allow OECD countries to fulfill some of theirgreenhouse gas emission reduction commitments throughprojects in the developing world.The Italian signing follows aCanadian government commitmentof $2.5 million to the CDCF. Carbonfinance activities have taken on anew sense of urgency as evidence

continues to mount that the Earth is getting significantlywarmer, and that some changes in climate are inevitable. For more on the Prototype Carbon Fund visit: www.prototypecarbonfund.org/splash_noflash.html

Horn of Africa gets first CountryInnovation Day

AT T H E E N D O F F E B R U A RY, a mix of civil society repre-sentatives met in Addis Ababa to compete for award fund-ing and share knowledge in the first DevelopmentMarketplace Country Innovation Day in the Horn of Africa.Bringing together social entrepreneurs from Ethiopia,Sudan, and New South Sudan, the three-day forum focusedon empowerment of community-based organizations,strengthening NGO networks, and establishing a bridgeamong these communities. The integrated package ofpeace building and civil society empowerment was sup-ported by approximately $500,000 in awards. Award fund-ing came from the World Bank, Canada’s bilateral aidagency, CIDA, Ethiopia and Global HIV/AIDS Program,Ireland Aid, UNDP, and Oxfam UK. Additional CountryInnovation Days are scheduled in the upcoming months inEgypt, Central Asia, Belarus-Ukraine-Moldova, Peru,Guatemala, Brazil, and Vietnam, as well as a global compe-

tition currently open to all in thedevelopment community.

For more information, visitwww.worldbank.org (click onOpportunities, click on Grants, clickon Development Marketplace).

2 Development Outreach W O R L D B A N K I N S T I T U T E

News highlights on development issues from around the world

DEVELOPMENT NEWS

Visit us on the web at:www.worldbank.org/devoutreach

BY URI B. DADUSH

A S T H I S I S S U E of Development Outreach goes to press, thefate of the Doha Development Agenda hangs in the balance.Most of the important deadlines Ministers set for them-selves in November of 2001 in Doha Qatar—on agriculture,TRIPS and health, implementation issues (including tex-tiles), special and differential treatment, and dispute set-tlement—have come and gone without agreement. Thoughsome progress has been made (for example on facilitatingWTO accession for the Least Developed Countries), themissed deadlines reflect the struggles of the internationalcommunity in reforming the trading system to make it moresupportive of development and poverty reduction.

This issue of Development Outreach touches upon all ofthe controversial issues in the Doha Development Agenda.We are pleased that such a distinguished panel of interna-tional experts has taken up the challenge to write concisepapers that highlight pro-poor development outcomes ofthe Doha Development Agenda. Not everyone will agreewith the positions taken by the authors on the difficulttrade issues they analyze–but all aspire to search for pro-poor development results.

Several common themes stand out. First, market accessfor developing countries is essential to promote pro-poordevelopment. However, benefits from trade reforms andliberalization would be more effective if combined withappropriate complementary policies. For example,Ademola Oyejide underscores the importance of a stablemacroeconomic framework as well as sound infrastructur-al and institutional support, and argues that these can helpmitigate any short-term costs. John Wilson emphasizesmeasures to increase transparency, streamline trade pro-cedures, and build capacity that would facilitate trade andreduce transaction costs.

Second, reforming agriculture is central to develop-ment. Kevin Watkins highlights the costs inflicted upondeveloping country markets from rich country protectionof agriculture. Measures such as subsidies, high tariffs andexport dumping seek to undermine poverty reductionefforts. Julio Nogués shows how agricultural protectionism

can result in increased financial costs and aggravate debtproblems, with reference to Argentina.

Third, any agreement in the Doha round is not neces-sarily a pro-poor development outcome. Some authorspoint to possible pitfalls in the system. Bernard Hoekmanpoints out that trade preferences without MFN access forthe products produced by other developing countries willnot benefit the majority of the world’s poor, since most ofthe world’s poor live outside the LDCs. RichardNewfarmer, for example, finds that an international agree-ment on investment would be beneficial for developingcountries only if an agreement leverages market access inproducts of concern to developing countries and if com-panion domestic policy reforms are undertaken.

Other authors write eloquently on these same themesthrough the lens of quite diverse country experiences. SokSiphana points out that lessons can be learnt fromCambodia’s experience in implementing its trade policy.Kennedy Mbekeani presents the case of Southern AfricaDevelopment Committee (SADC) countries, which high-lights the need for greater liberalization of the servicessectors and a more favorable outcome from the GATS forthe less developed regions of the world. Will Martin showshow the Chinese experience of accession to the WTO can behelpful for many other developing countries seeking togain membership in the WTO.

Negotiators are dealing with hard issues, many left overfrom earlier rounds–tariff peaks and escalation that haveprotected particular interests at the expense of development,agricultural barriers that have protected powerful and rela-tively wealthy farm voices while denying market access to theworld’s poor farmers, and closed services markets–includ-ing labor services–that have not realized their developmentpotential. These are also the issues that affect developingcountries most profoundly. A trade round that makesprogress in these areas can improve the lives of the world’spoor. We hope this issue of Development Outreach contributesto an understanding of possible pro-poor outcomes.

Uri B. Dadush is Director, International Trade Department,

The World Bank

J U L Y 2 0 0 3 3

S P E C I A L R E P O RT

Toward a Pro-Poor Trade Agenda

4 Development Outreach W O R L D B A N K I N S T I T U T E

BY T. ADEMOLA OYEJIDE

W I D E S P R E A D P O V E R T Y is clearly the major challenge forlow-income developing countries. It is characterized not onlyby insufficient incomes, but also by limited access to land andcapital, poor health and education, and the scarcity of eco-nomic and social infrastructure. Given the pervasive nature ofpoverty in these cases, rapid and sustainable economic growthis generally viewed as the primary vehicle for poverty reduc-tion. The basic proposition is that if the economies of low-income countries grow rapidly enough and their income dis-tributions are not unusually skewed against the poor, povertyreduction should occur. If, in turn, trade reform stimulatesgrowth, this should promote poverty alleviation. In my note, Iwill bring the issue of trade and development into focus byexamining the linkages between trade reform and growth, andthe mechanisms through which growth impacts upon poverty.

Trade reforms and economic growth

I N C O N C E P T U A L T E R M S , T R A D E P O L I C Y W O R K S by inducingsubstitution effects in the production and consumption ofgoods and services through changes in prices. These effects,in turn, change the level and composition of exports andimports. In particular, the changing relative prices induced bytrade reform cause a re-allocation of resources from less effi-cient to more efficient uses. In addition trade reform expandsthe set of economic opportunities by enlarging market sizeand increasing the effects of knowledge spillovers. These arethe key components of the effects of trade reform, whichtogether induce growth of output.

The full efficiency, output and associated welfare gains oftrade reform tend to accrue in the long run. The substitutioneffects and the more efficient re-allocation and use of resourcesresulting from relative price changes take time to work them-selves out. The time taken may vary by sector (in a given econo-my) and across countries due to differences in the efficiencywith which particular markets function and the extent to whichsupply response capacity constraints may be binding.

The realization of the growth effect of trade reform in a low-income country is contingent on two sets of conditions, oneinternal and the other external. Internally, trade reform is mosteffective when it is combined with the maintenance of macro-economic stability and sound institutions. In addition, the lib-eralizing country must have the appropriate infrastructural andinstitutional support for generating adequate supply responses.The growth benefits of trade reform are likely to be limited orelusive in low-income countries which lack a supportive policyenvironment and whose entrepreneurs are constrained byweaknesses in the institutional and market infrastructure forproduction and trade. On the external front, a supportive envi-ronment may also be crucial. In particular, external marketaccess constraints may deny a low-income country the fullgrowth benefits of its trade reform.

Since developed countries constitute the main export mar-kets of low-income countries, developed-country marketaccess barriers limit their export opportunities. Currently,global market access barriers penalize low-income countriesbecause their exports are concentrated in products character-ized by highly restrictive market access conditions. Externalmarket access barriers are especially high in agriculture andlabor intensive manufactures with tariff peaks (i.e. tariffs in

SPECIAL REPORT

Trade Reformfor Economic Growth

and Poverty Reduction

excess of 15 percent) and tariff escala-tion constituting special problems.With tariff escalation, tariffs rise withthe level of processing; this has theeffect of reducing the demand forprocessed imports from low-incomecountries, preventing appropriatestructural adjustment in developedcountries and frustrating the diversifi-cation of low-income countries intohigh value-added exports. In addition,production-related support for agri-culture in developed countries booststheir own output and this displaceslow-income country exports in devel-oped-country markets. Furthermore,the unwanted production surpluses ofdeveloped countries are typicallydumped into world markets, with theaid of export subsidies, where theydepress prices.

A coherent program for enhancingthe growth benefits of trade reform inlow-income countries consists of atleast two components. One is toexpand external market access oppor-tunities for the exports of low-incomecountries. Another is to help relaxtheir supply response capacity con-straints so that they can take fulleradvantage of the new opportunities. By

J U L Y 2 0 0 3 5

reducing or eliminating biases against the exports of low-income countries in developed country markets, part of thefirst component would be achieved. By extending multilateralduty-free and quota-free market access, with generous andflexible rules of origin, to all exports of low-income countries,the developed countries would help to achieve the remainingpart of the first component. This would help to eliminate thedeficiencies of existing preferential market access schemesand significantly increase the export growth of low-incomecounties. As for the second component, low-income coun-tries need assistance to address their export supply responsecapacity constraints through investment in the building ofappropriate economic and social infrastructure.

Trade-led growth and povertyalleviation

E C O N O M I C G R O W T H that is induced by trade reform has aspecial feature, which may be important for poverty allevia-tion. This derives from the observation that trade reformshave costs that have to be incurred well before the relatedstream of benefits can be realized. The resource reallocation,which is an integral part of the reform process, is not costless.As workers are displaced from less efficient enterprises, someamount of transitional unemployment and output loss may beexperienced. There is also an inherent distributional problem.The economic agents that have to bear the "burden" of thereform may not necessarily be the ones who reap its benefits orthe sharing of the cost may not occur in the same proportion asthe sharing of benefits. In effect, while trade reform tends gen-erally to promote economic growth, it is also likely to generateboth winners and losers; hence the impact of trade-led growthon poverty reduction may not necessarily be unambiguous.

Conceptually, growth induced by trade reform may affectthe poor through the associated changes in the prices of theirconsumption baskets, changes in their wages and employ-ment, as well as changes in government taxing and spendingbehavior. For instance, a reform which benefits poor farmersby increasing their producer prices may hurt the urban poorby raising their food prices; whereas a reform which lowersthe domestic prices of imported food would be beneficial topoor consumers while penalizing the local poor food produc-ers with low prices. When trade reform leads to the growth ofeconomic sectors that employ more of the poor and pays themhigher wages, it tends to promote poverty alleviation. But ifthe same reform results in retrenchment in a previously pro-tected economic activity that employs many of the poor, theirpoverty status may worsen. Finally, if a trade reform leads tothe reduction of government revenue, social expenditure mayfall with a negative impact on the poor.

These are examples of some of the possible short-term

costs and trade-offs implicit in a growth strategy that is driv-en by trade reform. In the long run, however, evidence sug-gests that in countries, which have experienced trade-ledgrowth, the income growth of the poor has, on average, keptpace with the overall average income growth. More specifical-ly, trade-led growth can reduce rural poverty when it expandsemployment in small-holder agriculture and can lower urbanpoverty when it is associated with increased output and exportof labor-intensive manufactures such as textile and clothing.

The existence of possible negative, though short-term,effects of trade reform implies that while trade-led growthshould eventually reduce poverty, it may not do so from thestart. Because some of the poor may suffer and some of thenon-poor may fall into poverty in the transitional period,trade reform is typically part of a comprehensive reform pro-gram, which also includes appropriate compensatory andmitigating measures. These would offer social safety nets,including retraining opportunities, targeted specifically ataddressing the short-term costs of trade reform.

Conclusion

T R A D E R E F O R M C A N S T I M U L AT E G R O W T H in low-incomecountries if their supply response capacity constraints are elim-inated and the external market access barriers, which they face,particularly in the developed countries, are removed. Trade-ledgrowth can, in turn, aid poverty reduction in low-income coun-tries if the associated trade reform is part of a comprehensiveprogram, which incorporates appropriate complementary andmitigating measures for addressing its short-term costs. �

T. Ademola Oyejide is Professor of Economics, Department of

Economics, University of Ibadan, Nigeria, and Executive Director,

Development Policy Center.

References:

Bhagwati, J. and T.N. Srinivasan (2001), "Trade and Poverty in PoorCountries", mimeo. Columbia University.

Helleiner, G. K (ed) (1992), Trade Policy, Industrialization and Development:New Perspectives, Oxford University Press, New York.

Krueger, A. and A. Berg (2002), "Trade, Growth and Poverty", Annual BankConference on Development Economics, Washington, April 29–30.

Oyejide, T. A. (2002), "The Mechanics of Trade Policy Reform in DevelopingCountries: a Literature Survey", mimeo, University of Ibadan.

Rodrik, D. (2001), "Globalisation, Growth and Poverty: Is the World BankBeginning to Get It?" mimeo, Harvard University.

Winters, L. A. (2002), "Trade Policies for Poverty Alleviation" mimeo,University of Sussex.

6 Development Outreach W O R L D B A N K I N S T I T U T E

TRADE REFORM IS TYPICALLY PART OF A COMPREHENSIVE REFORM PROGRAM, WHICH ALSO INCLUDES

APPROPRIATE COMPENSATORY AND MITIGATING MEASURES.

J U L Y 2 0 0 3 7

BY SOK SIPHANA

T H E R E I S A M P L E E V I D E N C E that trade and investmentreform and deeper integration with the global economy,undertaken within a comprehensive development strategy,are key strategic elements for achieving higher economicgrowth, a necessary condition for poverty reduction. The link-ages between trade policies and poverty have been addressedrecently at length by several papers (World Bank, McCulloch,Winters and Ciero 2001). These are convincing argumentsthat trade may facilitate international diffusion of knowledge,thereby speeding up growth, and may complement or occa-

sionally substitute for aid in the development process.Nonetheless, trade liberalization and reform cannot work andhave never worked as stand-alone policies or measures. Inother words undertaking trade reforms and developing tradepolicies in isolation without the presence of mutually sup-portive policies will not bring about the full benefits resultingfrom trade reform and liberalization. Trade needs to be main-streamed into the development plan of the country.

For a Least Developed Country (LDC) like Cambodia whereone third of its population live below the poverty line, tradepriority areas of action need to be reflected in poverty reduc-tion and national development plans and strategies.

Mainstreaming Tradefor Poverty Alleviation

A Cambodian Experience

SPECIAL REPORT

8 Development Outreach W O R L D B A N K I N S T I T U T E

Preliminary government studies suggestthat economic growth has helped reducepoverty, but that the proportional bene-fits to the rich have been greater thanthe benefits to the poor (RGC 2000a).Concern has also been expressed thateconomic growth has yet to impact onmany of those living far below thepoverty line. In that respect, Cambodiahas worked arduously for the last fewyears with its development partners tobetter understand the potential impactsof trade reforms on the poor, and todevelop mechanisms, which truly sup-port pro-poor growth.

Here, I will highlight the main fea-tures of Cambodia’s trade policies whileputting into perspective its implement-ing aspects focusing on the povertyreduction linkage as well as the develop-ment dimension. It will attempt to sharesome experiences of the trade main-streaming process, including positiveand negative moments, the lessonslearned and obstacles encountered andmeasures taken to overcome them.

Why Cambodian peopleare poor

T H E F O U N DAT I O N S of the Cambodianeconomy are household economic units,which employ and provide incomes forthe majority of the population. Cambodiais an agrarian economy with 80 percentof the workforce employed in the agricul-ture sector. The production of rice, forhousehold consumption and trade, is themajor economic output for most of the 84percent of households located in ruralareas. Households supplement rice pro-duction with other economic activitiessuch as fishing, production of vegetables,fruit and other cash crops, the gatheringof forest products, and off farm employ-ment. The landless depend on gatheringactivities, on communal or State land,and paid employment.

About 36 percent of the populationlives in poverty. Poverty incidence ishighest (44 percent) in householdswhere agriculture is the primary sourceof income. Some 90 percent of the poorlive in rural areas, and there is a strongcorrelation between poverty andremoteness from urban locations.About three quarters of the poor are

self-employed. The Government’sNational Poverty Reduction Strategynotes that people are poor because ofinadequate human and physicalresources, or the opportunity to gener-ate income and/or accumulateresources. Cambodia’s recent violenthistory has resulted in many disadvan-taged groups, including internally dis-placed people, returning refugees, dis-abled people, widows, and orphans. Thepoor generally are disadvantaged byinadequate food supplies, poor health,physical disabilities, lack of access toland, insecure land titles, lack of skills,inadequate information, and pooraccess to input and product markets.

Implementing the TradeMainstreaming Strategy

C A M B O D I A WA S V E RY S U C C E S S F U L inits mainstreaming efforts. Trade, oncean obscure section in national policydocuments, found its preeminence inkey government policies like the SecondSocio-Economic Development Plan(SEDP II, 2001-2005), the NationalPoverty Reduction Strategy (NPRS), theGovernance Action Plan (GAP), andeven in the Legal and Judicial ReformStrategy paper. Externally the main-streaming efforts focused on encourag-ing broad-based economic cooperationand resource mobilization throughregional and global economic linkages.The United Nations DevelopmentAssistance Framework (UNDAF 2001-2005), the UNDP Country Co-operationFramework (2001-2005), and the ADBand World Bank's Country AssistanceStrategies all have the trade agendaembedded in them.

Now mainstreamed into the NRSP,the role of trade will be firmly situatedwithin Cambodia’s coherent nationalpolicy context and its trade-related tech-nical assistance needs will be betteridentified, prioritized and sequenced, onthe basis of sound policy diagnosis, andtherefore stand a much better chance ofbeing financed by donors and agencies.

Impact on export

O N E O F T H E M O S T R E C E N T newcomersin the international trade of garments

While the challenges for

Cambodia to bring

economic growth and

reduce poverty seem

enormous, so are also

the hope and the

possibilities that have

been generated from the

Integration Framework

success. Cambodia’s

success will mean

liberation: liberation from

hunger, poverty and

income constraints,

liberation from

ignorance, and liberation

from fear, especially from

the fear of dying when

still young. In

the words of Nobel

laureate Amartya Sen

"….economic growth,

which brings about

a high standard of living,

is interpreted too often in

materialistic terms. But

we need to pay attention

to its human aspect too.

For developing countries

and LDCs alike, economic

growth should be looked

at as an effective force of

liberation."

H.E. Cham Prasidh,Minister of Commerce,

Cambodia

has been Cambodia–a non-WTO member country and anLDC. It has been one of the fastest growing garment exportersover the past 8 years—in 1995 the exports of garments wereabout $26 million and in the years 2000 to 2002 the corre-sponding annual figure exceeded $1 billion. In early 2002Cambodia ranked number 16 amongst the top suppliers ofgarments into the U.S. market.

Cambodia is today an established supplier of low price,medium quality garments, employing around 220,000 workersin 185 factories, out of which only 23 are Cambodian-owned.Almost 90 percent of the garment manufacturers are foreign-owned, coming from Hong Kong (China), P. R. China,Singapore, Taipei, South Korea, Malaysia, Thailand, Indonesia,Bangladesh, England, Germany, Australia, Canada and theUnited States.

Foreign trade wise exports of garments dominate the sec-tor (nearly $1,303 million in 2002 out of the total foreign tradeof $1,467 million) followed by three or four products and

services—tourism, sawn timber, remittances of expatriateCambodian workers, and rubber. Other exports are small,though a number show strong promises (e.g. shoe manufac-turing, rice, fish, specialty agriculture and agro processing,handicraft. See Tables 1 and 2).

Bearing in mind its narrow export base, Cambodia hasworked hard both to boost the productivity of its currentexports and to move up the value-chain. For example,improvements in rice seeds, irrigation, and farming methodswould go a long way in increasing both labor and land produc-tivity and strengthening Cambodia’s export capacity in thisproduct. Likewise, Cambodia has begun making a shift tohigher value agricultural production (spices, nuts and seeds,fruits, etc.) and more processing (e.g. milling of exportedrice, extraction of essential oils, processing of wood, etc.)which would also bring more value from exports to the coun-try. In this regard, bringing the country trade regime in linewith the WTO rules and disciplines, lowering the costs of trade

facilitation, strengthening thetrade promotion capacity,improving the investmentenvironment are some of theareas Cambodia needs to lookat carefully to implementingits pro-poor export ledgrowth strategy.

Concretely, the Govern-ments of Cambodia andThailand are working on jointdevelopment strategies,which are sector specific, i.e.,tourism, agricultural andindustrial sectors. They aredefined through the assess-ment of comparative andcompetitive advantages of thetwo countries. Through thisbilateral economic coopera-tion Cambodia can secureanother source of regionaldevelopment support to helpsustain overall economicgrowth. Using Cambodia’sGAP and taking advantage ofexisting infrastructure facili-ties in neighboring countries,Cambodia is envisaging set-ting up 3 Export Processingzones as soon as possible nextto Thailand’s border inPoipet, Koh Kong, and Pailinwith the potential to create100,000 jobs and approxi-mately $60 million of annualwages.

J U L Y 2 0 0 3 9

CAMBODIA FOREIGN TRADE 1996–2002

1995 1996 1998 1999 2000 2001 20021997

1400

1200

26.5

26.0

0.5

1000

800

600

400

0

80.1

74.8

1.5

223.

9

112.

3

355.

2

62.9

287.

9

650.

0

137.

851

2.2

964.

8

220.

972

9.9

1119

.8

308.

879

2.6

1308

.8

358.

292

3.1

106.

8

1996 1997 1999 2000 2001 20021998

3500

3000

1354

378

2500

2000

1500

500

1000

-500

0

-1000

1323

411

1922

1887

735

2473

1194

2649

1226

3082

1467

.4

795

c o n t i n u e d o n p a g e 3 2

200

TABLE 1

TABLE 2 TOTAL USA EU OTHERS

TOTAL EXPORTS IMPORTS BALANCE

10 Development Outreach W O R L D B A N K I N S T I T U T E

BY KEVIN WATKINS

A PA R T F R O M W R I N G I N G their hands,endorsing human development goals,and promising more aid, what can gov-ernments in rich countries do aboutpoverty in poor ones? Answer: get seri-ous about reforming their farm policies.Industrial country agricultural supportis destroying the livelihoods of poorfarmers across the developing world,reinforcing an unequal pattern of glob-alization in the process.

Two years ago developing countriesjoined the Doha round of World TradeOrganization (WTO) negotiations on theclear understanding that it would createthe conditions for agricultural tradereform. Northern governments solemn-ly promised to improve access to theirown markets, cut support to agriculture,and stop the subsidized dumping of agri-cultural surpluses. Keeping that promiseis vital if the WTO talks are to live up totheir billing as a ‘development round’.Unfortunately, one of two less benignoutcomes now looks likely: no deal at all,or a deal that perpetuates the presentdistortions and inequalities.

Why does this matter to the world’spoor? Partly because three-quarters ofthem—about 900 million people—liveand work in rural areas, most of them assmall farmers. And partly becausenorthern agricultural policies aredestroying the markets on which theydepend.

Devastating subsidies

T H E U N D E R L Y I N G P R O B L E M is this.Each year, industrialized countries pro-vide over $300 billion in support toagricultural producers–roughly sixtimes the amount they spend on aid. Toput this figure in context, it is more thanthe total income of the 1.2 billion peoplein the world living on less than $1 a day.

High levels of agricultural supporttranslate into increased output, fewerimports, and more exports than wouldotherwise be the case. Small farmers indeveloping countries suffer damagethrough various channels. Subsidizedexports undercut them in global, andeven local, markets, driving downhousehold incomes. Meanwhile, thoseseeking access to northern marketshave to negotiate some of the world’shighest trade barriers.

The US and the EU are the ‘subsidysuperpowers’, accounting for over 60percent of rich country agriculturalsupport spending. Europe spends morein absolute terms—and its subsidiesrepresent a larger share of the value offarm output. However, the US spendsmore per farmer. It also concentratessubsidies on a narrower range of com-modities. EU and US subsidies matterto the rest of the world because of theirdominant position in global markets.

Whatever their wider differences,the U.S. and the EU have one thing incommon: political leaders that like tojustify agricultural support by reference

to worthy social objectives. PresidentBush signed the controversial 2002Farm Act claiming that it would protectsmall family farmers. The French min-ister for agriculture, Henri Gaymard,has made even more grandiose claimson behalf of the Common AgriculturalPolicy (CAP). He recently declared it anintegral part of the ‘European model’ fora social market.

All of which is abject nonsense. In thereal world, farm subsidies are tightlylinked to output and the size of land-

Farm Fallacies thatHurt the Poor

SPECIAL REPORT

INCOMEDISTRIBUTION

FARMSUBSIDIES

< US 79< EU 77< Britain 71< France 69

Brazil 60 >

100

0

UK 36 >France 32 >

GINI COEFFICIENTS FOR AGRICULTURAL SUPPORT AND NATIONAL INCOME (SELECTED COUNTRIES)

Source: World Bank, World DevelopmentIndicators (2002); Oxfam calculations

holdings, not to social need. That iswhy the biggest 7 per cent of farmsreceive over 50 per cent of farmsubsidies, both in the US and theEU. Subsidy distribution to agricul-tural producers in Europe andAmerica is more unequal thanincome distribution in Brazil, oneof the world’s most unequal coun-tries. To make matters worse, manyof the benefits end up with corpo-rate exporters or get capitalized intorising land values and input prices.

If industrial country farm subsi-dies were purely of domestic con-cern they could be written-off as anact of reckless extravagance guidedby perverse economics. Sadly, thesubsidy fest for the world’s richestagricultural producers hurts someof its poorest.

Take the case of cotton. When itcomes to harvesting subsidies,America’s 25,000 cotton baronsare first among equals. In 2001 theyreceived $3.6 billion in govern-ment support—three times US aidto Africa. Because the US is theworld’s largest cotton exporter,accounting for 40 percent of theworld market, these subsidies low-ered world prices: by around onequarter according to theInternational Cotton AdvisoryCommittee. Farmers in Africa havesuffered the consequences.

In West Africa alone 10-11 mil-lion people depend on cotton culti-vation as a source of income. Thecrop is also a major source of for-eign exchange and governmentrevenue. Lower world prices causedby American subsidies mean thatdesperately poor households haveseen their incomes fall, with atten-dant consequences for poverty. InBenin, the price decline associatedwith American subsidies translatesinto a 4 percent increase in theincidence of poverty, or 250,000people falling below the povertyline. Meanwhile, foreign exchangelosses have eroded the benefits ofdevelopment assistance: BurkinaFaso loses more because of US sub-sidies than it gets in debt relief.

What makes the cotton case so

J U L Y 2 0 0 3 11

12 Development Outreach W O R L D B A N K I N S T I T U T E

egregious is that West Africa is a far more efficient producerthan the US. Fewer than 10 per cent of America’s producerswould be competitive on world markets without support. Butin 2001/2002 the subsidy provided to American cotton farm-ers exceeded the total national income of countries likeBurkina Faso and Mali. In a bizarre throwback to the princi-ples of Bolshevik state planning, it also exceeded the value ofcotton output. In cotton, as in other areas of agricultural trade,market outcomes owe less to comparative advantage than tocomparative access to subsidies.

To be fair, even the US is hard-pressed to match the EU’scapacity for double standards in agriculture. Consider the CAPsugar regime. Europe is among the world’s highest cost pro-ducers of sugar. It is also the world’s biggest exporter of whitesugar. The reason: subsidies and tariffs. EU farmers are paidthree times the world price for sugar, and EU taxpayers andconsumers then foot the bill for dumping the resulting surplus–7 million tons of it—on world markets. Non-subsidizingexporters such as Malawi and Thailand suffer the twin conse-quences of lower prices and lost market shares. Meanwhile,high tariffs keep the EU’s own market firmly out of bounds.

Unfair tariffs and export dumping

I M P O R T R E S T R I C T I O N S I N A G R I C U LT U R E D E N Y developingcountries an opportunity to exploit an obvious area of com-parative advantage. Average agricultural tariffs in the EU andthe US are some five times higher for agricultural goods thanfor manufactured goods. And tariff peaks in excess of 100 percent are common, notably in tariff lines such as sugar, beef,dairy produce and processed fruit.

Escalating tariffs—duties that rise with each stage of pro-cessing—are another standard feature of the agricultural poli-cy landscape. If Latin American tomato exporters make themistake of processing the vegetable into sauce, the tariff theyface rises by a factor of six percent. Average EU tariffs on fullyprocessed foods are twice as high as on products in the firststage of processing. Tariff escalation serves the deeply perni-cious purpose of keeping poor countries trapped in low value-added segments of the agricultural trading system.

Excluded from rich country markets, small farmers alsosuffer in domestic markets. In their development rhetoric,most northern governments recognize that smallholder agri-culture is vital to poverty reduction. Yet the same governmentssystematically undermine the local markets of food producersthrough subsidized export dumping.

In Africa, farmers are being pushed out of urban marketsby heavily subsidized EU wheat and dairy exports, undermin-ing incentives for production and creating a dangerousdependence on imports. But the problems are not confined tothe world’s poorest countries. Mexico has some 2 millionmaize farmers working on land in rain-fed areas, many onecologically fragile hillsides. Regional integration is exposingthee farmers to competition for US maize imports. Many arelosing their livelihoods. This outcome owes less to marketrealities than to market subsidies. Last year, US maize farmersreceived $3.2 billion in government support—more than dou-

ble the total agricultural budget for Mexico.

The Doha round opportunity

T H E D O H A R O U N D P R O V I D E S A R E A L O P P O R T U N I T Y toestablish new rules of the game in agricultural trade. There arefour basic requirements: a prohibition on export dumping,deep cuts in production subsidies, improved market access,and a provision allowing developing countries to protect theiragricultural systems for food security reasons.

Prohibiting export dumping ought to be the most straight-forward objective. Unfortunately, the EU’s lamentable pro-posals for a 45 percent export subsidy cut would leave it withsome $4 billion in the dumping arsenal. For its part, the UShas refused to bring either its $7 billion-plus subsidizedexport credit program, or the commercial dumping compo-nents of its food aid program, under WTO export disciplines.

The EU has single-handedly dashed hopes for early progresstowards improved market access. It has proposed that tariff cutsbe based on the failed formula adopted in the Uruguay Round,with average tariffs cut by 36 per cent. Applied to a sector withmany tariff peaks exceeding 100 percent, it is hard to see howthis will facilitate the "substantial improvement in marketaccess" promised at Doha.

On the question of subsidy cuts there is every prospect of aEU-US deal–but not one that will benefit developing countries.Efforts to reform the CAP have been stymied by political differ-ences between member states. Meanwhile, the 2002 US FarmAct not only increases budget support for agriculture, but alsostrengthens the links between farm support and production.

Instead of cutting support, both the EU and the US arerepackaging subsidies into payments permitted under WTOrules (which they wrote). Nominally, these payments have to be‘non-trade distorting’, or decoupled from production deci-sions. But these multi-billion programs will generate produc-tion by providing farmers with three key benefits: liquidity,capital, and guarantees against risk.

Another source of Trans-Atlantic consensus is the view thatdeveloping countries should have only limited rights to protecttheir farmers through import controls. Both sides want to seeany special WTO provisions in this area restricted to the poor-est countries, and to a narrow range of specified ‘food security’crops. The problem here is that the EU and the US continue tosee the WTO as a useful vehicle for prizing open developingcountry markets, providing outlets for export dumping.

So where does this all leave us? One possible outcome isthat the latest bout of EU-US brinkmanship in agriculture willblock any deal, jeopardizing the entire Doha round. Thiswould have devastating consequences for poverty reductionefforts—not to mention the future of the rules-based multilat-eral system. The other, more likely, scenario is a deal that failsto address the real problems facing poor farmers in develop-ing countries. It all calls to mind the old Swahili proverb:‘When the elephants fight, the grass gets crushed; when theelephants make love, the grass gets crushed’. �

Kevin Watkins is Head of Research at Oxfam

J U L Y 2 0 0 3 13

SPECIAL REPORT

BY JULIO J. NOGUÉS

T H R O U G H F I N A N C I A L C H A N N E L S , agricultural protection-ism imposes costs on efficient producers that are higher thanthose associated with negative allocative effects and exportlosses usually estimated. The link between protectionism andfinance has a direct relationship with the WTO MarrakechAgreement of establishing coherence between internationaltrade and financial matters (WTO 1995). Here, I will callattention to the fact that for efficient agricultural exportersthere is little if any coherence between the trading system andthe international financial system that they face. I will alsopresent some numbers on the export losses from agriculturalprotectionism; describe the channels through which this pro-

tectionism increases financial costs; and analyze dynamic andpoverty effects. Although this article draws on the experienceof Argentina, I believe the analysis applies to other indebtedcountries, particularly in Latin America, which are also netagricultural exporters. In conclusion, I will offer one sugges-tion for the Doha negotiations.

Agricultural protectionism and exports

A R G E N T I N A I S A N E X A M P L E of how agricultural protection-ism can have sizable negative macro-economic and povertyeffects. The reason is that its exports are still composed pre-dominantly of primary agricultural goods and agro-basedmanufactures (around 20 and 30 percent of total exports

Agricultural ProtectionismDebt Problems and the Doha Round

SPECIAL REPORT

14 Development Outreach W O R L D B A N K I N S T I T U T E

respectively). Clearly, under a well functioning multilateraltrading system, Argentina would proceed with its develop-ment and growth through exports of these products and, later,would move into other types of exports. But agricultural pro-tectionism implies increasing difficulties and uncertaintiesfor efficient exporters who continue to see their access to for-eign markets reduced and/or their terms of trade decline.

What is the magnitude of these losses? Let me start with thetraditional estimates and then move to financial considera-tions. Keeping in mind the well-known limitations of generalequilibrium models, recent estimates by van der Mensbrugghe(2002) presented in the following table, simulate the effects onexports of alternative liberalization scenarios for trade in goods.From other estimates such as those presented in Porto (2003),approximately three-quarters of the changes are explained byhigher exports of agricultural and agro-based products.

These estimates indicate not surprisingly, that theincrease in exports would be the greatest under a dismantlingof trade barriers agreed in the WTO. The simulations alsoindicate that a free trade agreement with the EU would have animpact on exports that is not that different than the impact ofa global agreement; this increase is approximately equal to 50percent of 2002 exports. This is an indication of the hugedamage inflicted upon Argentina by the EU´s protectionistagricultural policies.

The literature has also stressed the negative impact of agri-cultural protectionism on the instability of internationalprices. A pioneering article by Sampson and Snape (1980)showed how Europe’s variable import levies destabilized inter-national agricultural prices. More recently Gardner (2002) hasalso addressed this issue and supported the conclusion that animportant liberalization of agricultural trade would and reducethe variability of international agricultural prices perhaps by asmuch as 50 percent (see also Nogués 2003).

In spite of the Uruguay Round Agreement on Agriculture(URAA), protectionism has continued to increase since the

early 90s. First, implementation of the URAA has been miredwith protectionist effects that go beyond what negotiators hadin mind (OECD 2001, and Diakossavas 2001). Second, manyregional trade agreements have diverted exports and robbedefficient exporters of important export and growth opportuni-ties (Nogués 2003). Unfortunately, the prospects that this sit-uation will change any time soon are rapidly vanishing (WTO2003). Let me now turn to a discussion of the financial costs ofagricultural protectionism.

Agricultural protectionism and financial costs

I N O R D E R T O S E E how agricultural protectionism leads to debtproblems, recall that in economies with open capital accountsthe market clearing interest rate for sovereign bonds, isapproximately equal to the risk free international interest rateplus the premium for country risk. On the margin at this rate,foreign investors are willing to lend. Therefore, if protection-ism increases risk, the cost to efficient country producers fromhigh agricultural trade barriers are higher than what has usual-ly been claimed by the literature.

There are two main channels through which agriculturalprotectionism can increase financial costs and worsen debtproblems. First, to the extent that this protectionism reducesexports, the trade-output ratio of the efficient exporters isalso reduced. Lower exports reduce the capacity to repayexternal debt, and this increases interest rates. Second, highinternational price variability and an excessive concentrationof exports in a few commodities increase vulnerability.

I will concentrate here on the first of these channels. Agrowing number of analytical and econometric studies haveanalyzed the determinants of country risk. The following aresome of the explanatory variables that have been uncovered bythese studies: a) growth expectations: the higher the growthexpectations, the lower the risk of investing in an economy; b)

degree of solvency: the higher the burden of the debtand the lower the capacity to generate exports, thehigher the degree of perceived insolvency; c) struc-tural problems: the more serious the structuralproblems such as systematic fiscal deficits, the high-er the country risk; d) contagion: risk is increasedwhen other emerging markets face financial difficul-ties, and lenders "fly to quality"; and, e) politicaluncertainty: when there are important differenceson economic policies among leading politicians, orwhen different forms of corruption including politi-cal corruption are rampant, risk is increased.

By how much does agricultural protectionismincrease risks? Nogués and Grandes(2001) studiedthe determinants of Argentina’s risk with theexplanatory variables discussed above, and foundthat all of them had contributed in a statistically sig-nificant way to the widening of the spread of sover-eign bonds (in this case the floating rate bond overthe U.S. treasury bond of the same maturity). Here Iwant to focus on the role played by the solvency vari-

ARGENTINA: Export Impact of Alternative Trade Agreements

Change from base (million dollars)

Brazil -3,400 800 -1,700 -5,600NAFTA 2,400 2,800 -800 900Rest of LAC 4,800 500 -200 2,800

European Union 900 600 23,200 10,200

Rest of World 1,400 1,000 -3,000 9,700

Total 6,200 5,800 16,300 81,000

Source: van der Mensbrugghe (2002)

FTAA NAFTA EU GLOBAL

J U L Y 2 0 0 3 15

able, which we measured as the ratio ofdebt service to exports. We found that theelasticity of country risk with respect tothis variable is 0.68. With this estimate,the impact of agricultural protectionismon financial costs can be simulated. Forexample, assuming that agricultural pro-tectionism results in foregone exportsequivalent to 25 percent of currentexports, from earlier comments a con-servative estimate, then country risk canincrease between 10 percent and 20 per-cent depending on whether we assume anelasticity with respect to the solvencyvariable of 0.5 percent or 1.0 percent.This impact of agricultural protectionismon country risk and financial costs is siz-able. For example, the average countryrisk during 2000 was 672 basis points butaccording to our estimate, with higherexports, it could have been at least 10percent lower. When this difference ismultiplied by the stock of debt, the addedinterest costs can be very high. Just togive an idea, at the end of 2000, the totalstock of debt (private and public) was inthe order of $280 billion dollars.

Agriculturalprotectionism, slowergrowth and increasingpoverty

T W O A D D I T I O N A L C O N S E Q U E N C E S

can be linked to agricultural protection-ism: slower and more unstable GDPgrowth, and increased poverty.■ Slower and more unstable growth.Higher interest rates slow growth ratesand this is precisely what happens whenagricultural protectionism increases thedegree of insolvency in the countriesthat are efficient producers. Nogués andGrandes (2001) show a clear and statis-tically significant negative correlationbetween the level of country risk and theGDP growth rate. Clearly, the disman-tling of agricultural protectionismwould improve export performance andtherefore, expected GDP growth; both ofthese effects would lower country risk.

Regarding price instability, I recallthat between 1997 and 2000 Argentina’sthe export prices of its agricultural andagro-based manufacturers declined by25 percent and 24 percent respectively.Not coincidentally these years also wit-

nessed a massive increase of agriculturalsubsidies by OECD countries; between1997 and 1999 this assistance increasedfrom $329 billion dollars to $362 billiondollars. Much of this assistance was pro-vided to compensate OECD countryfarmers from the negative incomeeffects of declining international agri-cultural prices (OECD, 2000). Obviouslythis counter-cyclical protectionism ledto further increases in measured risk ofefficient country producers. ■ Impact on poverty. Paradoxically, thereis very little knowledge on the impactthat agricultural protectionism has onthe poverty rate of the countries that areefficient producers. This lack of knowl-edge is a handicap and illustrates theweak negotiating ability of Argentinaand other indebted countries in bilater-al and multilateral forums. Recently,Porto (2003) has estimated the impactthat the elimination of agricultural pro-tectionism by the U.S. and the EU wouldhave on Argentina’s poverty rate. Theestimates include the elimination of all

support granted to agriculture includingborder measures, export subsidies anddomestic assistance, as well as the elim-ination of tariffs on manufacturedexports.

As his measure of poverty, Porto chosethe proportion of people living below thepoverty line. His conclusion is that: "for-eign trade reforms would cause a declinein poverty of up to 11 percent from an ini-tial head count of 25.7 percent to a postpolicy rate of 22.8 percent" or around100,000 persons. For reasons explainedabove, this is a lower bound estimate.

Suggestions for the Doha Round

C L E A R L Y , agricultural protectionismhas had significant negative effects onArgentina that go beyond the static wel-fare losses that have been traditionallyestimated by general equilibrium mod-els. My analysis has been focused on the

c o n t i n u e d o n p a g e 3 3

BY KENNEDY K. MBEKEANI

T H E C O U N T R I E S T H A T C O M P R I S E the Southern AfricaDevelopment Community (SADC) countries have recognizedthe economic benefits to be derived from autonomousreforms in sectors such as financial services, telecommunica-tions and transport, which may be viewed as infrastructuralbackbones of any economy. These sectors have a significantimpact on growth and efficiency across a wide range of userindustries and overall economic performance. Availability ofinfrastructure services may lead to export capacity building inother sectors, including the attraction of private investment.For example, improved transport services will contribute tothe efficient distribution of goods within the SADC region,and has a significant impact on the region’s ability to partici-pate in global trade. Improvements in social services, such aseducation and health, are necessary in building human capi-tal, which is key to long run economic growth.

In the absence of services liberalization, the implementa-tion of the SADC Trade Protocol, which aims at creating aSADC free trade area, could result in negative effective pro-tection for goods. The SADC countries include Angola,Botswana, Democratic Republic of Congo, Lesotho, Malawi,Mauritius, Mozambique, Namibia, Seychelles, South Africa,Swaziland, Tanzania, Zambia and Zimbabwe. These memberstates, in 2001, started implementing a free trade agreementand are about to start negotiations on services liberalization.For trade liberalization in the SADC region to have any mean-ing it is important that services liberalization keep pace withtrade liberalization.

The low number of proposals in GATS negotiations bySADC countries reflects the difficulty the countries face toclearly identify negotiating objectives on services—a problemthat has to be addressed. On the other hand, the main concernof SADC countries in most sectors is capacity-building andtechnology transfer rather than access to markets. This articleattempts to identify key issues of interest to SADC countriesin the GATS negotiations and how the countries can ensure afavorable outcome.

Key issues for SADC countries

T H E C H A L L E N G E F O R S A D C C O U N T R I E S is how to establishtheir specific needs in the framework of GATS Article IV,leading to transfer of technology and capacity building.Experience shows that in some areas, like construction serv-ices, developing country suppliers maximize their capacitybuilding when engaging in joint ventures and partnershipswith foreign firms in the delivery of service. This measure—the requirement to establish joint ventures—is considered alimitation on trade liberalization.

Implementation of Article IV provisions at the horizontallevel appears to be difficult. Developing countries seem to bebetter positioned to make progress in negotiations onincreasing participation in the trade of services when theyfocus on how to implement GATS Article IV in the sectors oftheir interest, and in articulating the associated sector-spe-cific issues and measures of their immediate concern.

Areas of interest to SADC countries include movement ofnatural persons, construction, tourism and energy services.

Movement of Persons. A number of SADC countries areinterested in a further liberalization of movement of persons(mode 4) on a sectoral basis, and in addressing issues that areimpeding market access—including issuance of visas, admin-istrative procedures, lack of transparency and economicneeds tests. A new approach is necessary to make progress inthe negotiations on mode 4. This approach should be handledat a level of detail, so that the negotiations would not be over-taken by non-trade concerns. Some of the issues include set-ting minimum sufficient international rules that would limitnegative trade impact on the movement of natural persons,and would be compatible with the overall development objec-tives of developing countries, and sectors or categories of pro-fessions where liberalization of the movement of persons iscritical for the export of services from developing countries.

Tourism. The tourism sector constitutes one of the mostimportant sources of foreign exchange. For many SADC coun-tries, in particular the least developed SADC countries(Malawi, Mozambique, Tanzania and Zambia), tourism isprobably the only economic sector which provides concrete

GATS Negotiations Must Focuson Services Liberalization

The Case of SADC

SPECIAL REPORT

16 Development Outreach W O R L D B A N K I N S T I T U T E

and quantified growing trading opportunities. It is one of thefundamental pillars of their economic development.

Most countries in the region have already liberalized thetourism sector. However, to ensure that trade is taking placein a fair and competitive environment, other multilateralmeasures may be necessary for disciplining anti-competitivepractices in the tourist originating countries. The competitionissue and the treatment of anti-competitive behavior are atthe core of the problems of efficiency, viability and sustain-ability of tourism in SADC countries. Ability to deal with thoseaspects and to counter their effects is of decisive importance.Moreover, the inadequacy or absence of a domestic legalframework on competition in SADC countries, and the lack ofmultilateral disciplines and mechanisms within the GATSframework, affect the ability of SADC countries to deal with or

prevent anti-competitive practices in their tourism sectors. The predatory practices and anti-competitive behavior in

international tourism produce two main effects on the eco-nomic sustainability of the tourism of SAD countries: unbal-anced trade benefits, and the deepening of the leakage effect.Their combined impact minimize the positive impacts ofspillover and multiplier effects inherent to tourism, andundermine the financial capacity of enterprises and the abili-ty of countries to earmark necessary resources to maintainand upgrade basic infrastructure and quality standards inorder to satisfy in an adequate way competitive conditions andinternational demand.

SADC countries may need to ensure the following: ■ adequate coverage and consistency commitments in all

tourism activities; ■ prevention of predatory behavior

with anti-competitive practices bydominant integrated suppliers inthe originating markets;

■ effective access to and use of dis-tribution systems and informationnetworks on a non-discriminatorybasis; and

■ the implementation of an adequateframework for sustainable develop-ment in tourism.

Energy Services. The countries ofthe region can expect to find them-selves under pressure to liberalize inmany sub-sectors of energy services,and it may be necessary to gain a betterunderstanding of the implications andopportunities of the liberalization ofenergy markets for energy producingcountries. Energy is central to achiev-ing the interrelated economic, socialand environmental aims of sustainablehuman development, and energy serv-ices play a crucial role in providingefficient access to energy in support ofdevelopment. SADC countries are thusfaced with the challenge of achievingmore reliable and efficient access toenergy through the enhanced availabil-ity of energy services. To ensure thatthe link between market access anddevelopment is clearly established,access to the region’s energy marketsshould be made conditional on: ■ transfer of technology and manage-

rial know-how; ■ acceptance by foreign suppliers of

public services obligations; and ■ setting up of alliances between for-

eign and domestic firms, includingSMEs.

J U L Y 2 0 0 3 17

These principles could be included as negotiated addition-al commitments in the sector. On the other hand, developingcountries should create a favorable environment for foreignand domestic suppliers by setting up a transparent regulatoryframework, which ensures fair competitive conditions for alloperators, especially access to the network.

Construction. SADC countries view the construction serv-ices sector not only as a key infrastructure service but also as atool for upgrading welfare. Development of this sector direct-ly contributes to the attainment of the development goals. Thestrengthening of domestic and export supply capacity reliesupon the ability of SADC countries to upgrade continuouslytheir technological capacity.

SADC countries may seek to attach the requirements ofassociations and joint ventures, so as to include local compa-nies in the design and implementation of construction proj-ects. This has proved to be the most effective way of obtainingaccess to transfer of technology.

Construction is one sector that SADC countries can requestfor sector liberalization of movement of natural persons inexchange for market access. The movement of foreign nation-als in developed countries is often subject to visa and residen-cy requirements, and economic needs tests, even for projectrelated work of short duration, and frequently with littletransparency with regard to the criteria applied in theissuance of visas and work permits, which often appear topenalize nationals of developing countries.

Conclusion

S U S TA I N A B L E A N D E F F E C T I V E I N T E G R AT I O N of the SADCcountries into the processes of liberalization of the worldeconomy rests upon creating a supportive domestic and inter-national policy and regulatory environments. Fair trade willnot be achieved in the imperfect markets, where informationwill not be equally available to all, where dominant players willimpose their own terms of doing business and where the restwill have no tools to address the anti-competitive practices.Among all these concerns, asymmetries in the level of devel-opment and the weak position of the SADC countries in theglobal services trade are the most essential problems to beaddressed. As a minimum, the assessment should demon-strate conditions under which SADC countries could expect toachieve a balanced growth and the specific obligations, whichthey will be able to sustain.

Domestic environment is predominantly open in SADCcountries but suppliers of services are not benefiting from thesame opportunities as in the developed country markets.Further liberalization along the traditional lines is not likelyto bring the net benefits to developing countries and con-tribute to their balanced growth, unless issues such as move-ment of natural persons, technology transfer and capacitybuilding are properly addressed in the negotiations. �

Kennedy K. Mbekeani is Senior Research Fellow, Botswana Institute

for Development Policy Analysis

18 Development Outreach W O R L D B A N K I N S T I T U T E

BY BERNARD HOEKMAN

A LT H O U G H T H E P R I N C I P L E of more favorable treatment fordeveloping countries is firmly embedded in the WTO, there isconsiderable dissatisfaction with the existing provisionsregarding differential treatment, by both developed anddeveloping countries alike. In terms of the current Doha tradenegotiations, it is among the more important issues to be

resolved. The medium-term viability of the global tradingsystem is dependent on an effective mechanism that allows alldeveloping countries (that is, the majority of the WTO mem-bership) to integrate more fully and benefit from increasedinternational trade—this is vital for economic growth, devel-opment and poverty alleviation.

Currently, special and differential treatment (SDT) provi-sions in the WTO call for preferential access to markets for all

J U L Y 2 0 0 3 19

More FavorableTreatment of Developing

Countries Toward a New Grand Bargain

SPECIAL REPORT

developing countries, exemptions (transitory and perma-nent) from certain rules, and promises of technical andfinancial assistance. There are good reasons for SDT—verysmall or low income economies lack the institutional develop-ment or minimum scale to manage the full panoply of WTOrules or, at least, might find the returns to creating the insti-tutions to apply them effectively outweighed by the costs. Theymay also lack the resources to overcome natural obstacles totrade, giving rise to a case for preferential access to marketsand development assistance.

The Doha Ministerial Declaration called for a review of allSDT provisions in the WTO, with a view to “strengtheningthem and making them more precise,effective and operational.” In the courseof 2002, developing countries made 88specific suggestions to do so, calling forimproved preferential access to devel-oped country markets, exemptions fromspecific WTO rules, and making the pro-vision of technical and financial assis-tance a binding commitment. Despiteintensive talks and numerous meetings,no agreement proved possible onstrengthening SDT provisions. One rea-son for this was that many proposalssought to convert non-binding (unen-forceable) language—so-called best-endeavors provisions—into bindingobligations that could be enforcedthrough WTO dispute settlement proce-dures. Another reason for lack of agree-ment is a difference in views on whattypes of exemptions make economicsense.

The issues that were brought forwardin the SDT context are very difficult, ifnot impossible, to separate from thebroader question of making the WTOmore supportive of development. Thepremise of this article is that the debateon SDT should be seen in the broadercontext of trade and development. What is needed is a new‘grand bargain’, involving actions by developed countries anddeveloping countries. This bargain must encompass greatlyimproved market access for all developing countries, mecha-nisms to ensure that the huge differences in the level of devel-opment among WTO members are recognized in the imple-mentation of agreements, and increased development assis-tance ("aid for trade"). What follows sketches the outlines of apossible package.

Market access for disadvantagedcountries

T R A D E P R E F E R E N C E S have been a mainstay of SDT since thelate 1960s. Unfortunately, practice suggests that preferencesgenerally deliver little. In many cases, developing countries

do not receive significant tariff preferences in products forwhich they tend to have a comparative advantage. Preferencesoften exclude important items such as textiles or agriculturalproducts and are subject to binding limits on the value ofexports that benefit from lower tariffs, including so-called‘competitive needs’ tests. Combined with complex adminis-trative requirements and red tape, including documentationof origin, the effect is to reduce the value of preferences.While recent programs such as the EU Everything but Armsinitiative give duty and quota free access to Least DevelopedCountries (LDCs) for virtually all products, this does notextend to larger countries —such as Brazil, China, Indonesia,

India, Malaysia, Pakistan and Thailand—which tend to be granted only limitedpreferences, if any.

An obvious way to strengthen SDTwould be for developed countries toextend duty- and quota-free marketaccess to all developing countries.However, this is not feasible politically—the most that may be possible is toextend such treatment to LDCs and sim-ilarly small and poor countries. Thiswould be beneficial in helping targetSDT on those who need it most, but froma global poverty reduction point ofview—which must be taken in light of theMillennium Development Goals—a goodcase can be made that preferencesshould focus on the poor, wherever theyare geographically located, and not on alimited set of countries. In absoluteterms, most poor people live in coun-tries that are not LDCs—e.g., China andIndia. Research suggests that the poorconfront tariffs on world markets thatare more than twice as high as thoseconfronting non-poor producers(World Bank, 2002). Reversing this sit-uation would not only be very beneficialto developing countries, but also to

developed country consumers. Given that unilateral deep trade preferences are unlikely to

be extended to larger economies, action is required to liberal-ize trade in goods and services in which developing countrieshave a comparative advantage on a nondiscriminatory basis. Abinding commitment by developed countries to abolishexport subsidies, decouple agricultural support and signifi-cantly reduce—ideally abolish—tariffs on labor-intensiveproducts of export interest to developing countries on anondiscriminatory basis should therefore be a key element ofan improved SDT regime. Such an approach is generally notregarded as SDT in the WTO—the focus has been mostly onpreferential, "better-than-MFN" access—but from a develop-ment viewpoint, acceptance of ambitious liberalizationbenchmarks would provide a strong signal of commitment topoverty alleviation by developed countries.

THE DEBATE ON

SPECIAL AND

DIFFERENTIAL

TREATMENT SHOULD

BE SEEN IN THE BROADER

CONTEXT OF TRADE

AND DEVELOPMENT.

WHAT IS NEEDED IS A NEW

"GRAND BARGAIN,"

INVOLVING ACTIONS

BY DEVELOPED

COUNTRIES AND

DEVELOPING COUNTRIES

20 Development Outreach W O R L D B A N K I N S T I T U T E

J U L Y 2 0 0 3 21

Implementation of WTO rules

I N A D D I T I O N T O M A R K E T A C C E S S , SDT in the WTO has tra-ditionally included derogations from some WTO rules for alldeveloping countries, with application determined throughself-declaration by members that they are a developing coun-try. Given that some WTO disciplines may not be appropriatefor very small or poor countries—the regulatory institutionsthat are required may be unduly costly or not a developmentpriority—there is a need for ‘differentiation’ between devel-oping countries in determining the reach of those WTO rules,especially if implementation requires investment of substan-tial resources. There are broadly two options that could beused to operationalize greater country differentiation:■ More narrowly defining eligibility for rule-related SDT

provisions that are broadly applicable across all agree-ments to those that need it most—e.g., the poorest/smallestcountries; or

■ Setting objective country criteria on an agreement-by-agreement basis that link implementation by countries tothe attainment of preconditions and the availability oftechnical assistance. The first of these options has the advantage of simplicity

and transparency, but requires renegotiating the current clas-sifications used in the WTO—which distinguish between theLDCs and all other developing countries. A good case can bemade for greater differentiation, given that many countriesthat define themselves as developing have per capita incomesthat are many multiples of the poorest countries. However,this has been a politically sensitive issue in the WTO. The sec-ond option would allow the issue of defining general eligibili-ty to be avoided, but is likely to involve significant transactioncosts as it would be country-agreement-specific. Whateverapproach is chosen, substantial thought and discussion isneeded to assess the implications of alternative approaches.

Renegotiation of certain WTOdisciplines

M A N Y O F T H E P R O P O S A L S that have been made on SDTimplicitly, if not explicitly, reflect a perception by developingcountries that some WTO agreements—e.g., agriculture,TRIPS—are not supportive of development. Rather than seekopt-outs under the guise of SDT, a preferable approach is torenegotiate these agreements. A clear signal that such renego-tiation can be considered would help move the SDT debateforward.

Aid for trade

T H E T H I R D C O M P O N E N T of SDT in the WTO is developmentassistance. Market access and better rules are necessary butnot sufficient. Greater technical and financial assistance isneeded to strengthen the institutional and trade capacity oflow-income countries to increase the benefits of better accessto markets. Post-Monterrey, high-income countries havepledged to provide additional aid. The key need now is

twofold: action at the national level to determine trade-relat-ed technical assistance needs in the context of domestic pri-ority-setting processes—e.g., the Poverty Reduction StrategyPaper (PRSP); and a commitment by developed countries tofund the priorities that are identified.

The quid pro quo

A W I L L I N G N E S S BY D E V E L O P I N G C O U N T R I E S to make lib-eralization commitments will be necessary to move forwardon the three elements of the SDT "package" sketched outabove. Such reciprocity is needed in particular on the marketaccess side as far as large or middle-income countries areconcerned, for reasons noted previously. This can be done ina way so that negotiating credit is granted to countries thathave already implemented significant unilateral, autonomousreforms—e.g., through the adoption of a formula approach totariff negotiations that uses the level and extent of reductionin tariff bindings as the focal point of liberalization commit-ments. Given that many developing countries either have notbound tariffs at all or have relatively high tariff bindings, thiswill automatically imply that credit is given for past reductionsin applied tariffs.

Conclusion

T H E H E A R T O F M O V I N G F O RWA R D O N S D T is to put in placea mechanism that will effectively promote the interests ofdeveloping countries, with an emphasis (priority) on theneeds of the poorest countries. Greater differentiation mustbe part of a new grand bargain—the existing two-fold develop-ing country classification system of LDCs (UN-defined) andother developing countries (self-declared) has resulted in anineffective mechanism for all.

All three major dimensions of SDT—improved access toexport markets for developing countries, greater differentia-tion in the implementation and enforcement of WTO rules,especially those requiring significant institutional capacityand investments; and expanded development assistance (“aidfor trade”)—can be brought together in a package that alsoincludes commitments by developing countries to make mar-ket access concessions. SDT cannot be a one-way street.Differentiation implies acceptance on the part of the moreadvanced countries that they are not eligible for exemptionsfrom implementing negotiated agreements, and a willingnessby all developing countries—both low and middle-income—toengage in the exchange of trade policy commitments. Thelonger-term viability of the trading system requires that itscore principles and rules apply to all members. �

Bernard Hoekman is Research Manager, International Trade

Department, The World Bank. The views expressed in this paper

are personal and should not be attributed to the World Bank.

This article draws on joint work with Caglar Ozden, Costas

Michalopoulos, Susan Prowse and Alan Winters.

BY RICHARD NEWFARMER

Among the many questions that WTO ministers will take upin their September meeting in Cancun, Mexico, is the issue ofan international investment agreement. Ministers in theDoha declaration chose to launch negotiations on a multilat-eral framework covering investment, "subject to a decision tobe taken by explicit consensus on modalities at the CancunMinisterial in 2003". Its purpose was "to secure transparent,stable and predictable conditions for long-term cross border

investment" that will expand trade. Can new multilateral ini-tiatives on investment policy promote more—and more pro-ductive—investment and hence more rapid development?And, can a negotiation that includes this area lead to reciproc-ity that will expand developing countries’ opportunities?

The drive to include an international investment agree-ment in the WTO accords comes against a backdrop of one ofthe most impressive waves of foreign direct investment inhistory. Foreign direct investment to developing countriesgrew from less than $30 billion in 1990 to nearly $180 billion

An InternationalInvestment Agreement

Promise and Potential Pitfalls

SPECIAL REPORT

22 Development Outreach W O R L D B A N K I N S T I T U T E

in 1999, and since then have levelled off to about $160 bil-lion (see chart at right).

Whether an international investment agreement con-tributes to achieving the goal of increasing investmentdepends on its additive effects to existing internationalrules through two main channels: increasing market access forinvestors to enhance competition; and augmenting protectionof investors’ rights to reduce risk and thereby raise relativerisk adjusted returns.

Increasing market access for investors

A S W I T H T R A D E B A R R I E R S , countries around the worldhave progressively dismantled restrictions on incomingforeign investment, as nationalist fears of many govern-ments have given way to aggressive pursuit of foreigninvestment. Countries as diverse as China, Mexico, andmost recently, Korea have progressively lowered policy bar-riers to entry in sector after sector to bring in new sources ofcapital, increase competition to spur productivity growth,and accelerate the pace of technological progress. UNCTADhas shown that between 1991 and 2001 roughly 95 percent ofthe 1393 regulatory changes that were made to national FDIregimes served to create a more favourable environment forFDI (Figure 1). The vast majority of these changes wereintroduced autonomously rather than in the context ofinternational negotiations.

Today, nearly all countries have removed entry restric-tions and limitations on foreign equity shares in manufac-turing. The main restrictions on FDI are centered in servic-es—that is, in finance, telecommunications, power, trans-port, ports, wholesale and retail trade, real estate, and busi-ness and legal services (Hoekman and Saggi, 2000).

The potential benefits to unilateral reductions in thesepolicy barriers to entry are substantial. Allowing foreigninvestors to compete in telecommunications, for example,has revolutionized service in developing countries. TheWorld Bank’s Global Economic Prospects 2002, using conser-vative assumptions about the effects reforms of trade andtransportation, communications, financial services, andother private services, showed that broad and simultaneousservices reforms could produce income gains for develop-ing countries of more than 9 percent (World Bank, 2001:171-172). Realizing this high potential requires more thanliberalization of entry; it requires a regulatory frameworkthat, to the extent possible, actively fosters competition anddisciplines natural monopolies in network industries; andit requires pro-poor regulation that ensures, where appro-priate, universal access and cross-subsidies to the poor ordisadvantaged regions (see World Bank, 2001: pp 77 ff).

Including these reforms to national investment regimesin a new international investment agreement has twopotential benefits that may lead to greater investment. First,much as with the logic of a trade negotiation, the negotiation

S P R I N G 2 0 0 2 23

250

200

150

100

50

0

FDI grew rapidly until late 1990s, and then leveled off...

In part because regulatory changes become more favorable

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Portfolio equity

FDI inflows before and after signing BITs

Net inward FDI

250

200

150

100

50

0

1991

1992

1993

1994

1996

1998

1997

1995

1999

2000

2001

More favorable to FDI

Num

ber

of r

egul

ator

y ch

ange

s Less favorable to FDI

However, BITs do not add much

0.3

0.2

0.1

0

Years beforesigning

Shar

e of

ann

ual

FDIf

low

US$

bill

ions

US$

bill

ions

FDI and debt flows to developing countries

Inward FDI to developing countries

Source: World Bank Global Economic Prospects 2003Note: Share of home country FDI flowing to host country with BIT

Source: UNCTAD, 2002

Source: World Bank Global Development Finance 2003

Source: World Bank Global Development Finance 2003

Years aftersigning

Yearsigned

200

150

100

50

0

-50

...and held up after 1999 in spite of falling debt flows

1995

-3 -2 -1 0 1 2 3

1996 1997 1998 1999 2000 2001 2002

DebtInward FDI

process may lead to greater liberalization of investmentregimes than can be accomplished unilaterally. Second, ifinvestment is not negotiated in isolation, but as part of abroader set of trade negotiations, then the traditional mecha-nism of reciprocal access concessions can help generate sup-port for greater openness at home and abroad. For example,exporters in developing countries who obtain improvedaccess to foreign agricultural markets can be a countervailingforce against those who resist the elimination of investmentbarriers in telecommunications. At the same time, the need tofight these domestic political economy battles makes a coun-try a credible negotiator for improved access. The process, if itworks, can produce a double benefit: liberalizing countrieswould benefit from increased competition associated withforeign direct investment, and their firms would haveimproved access to foreign markets.

A pre-requisite for entering into an investment agreementis that each country is to ensure that any domestic policy com-mitment make sense through the lens of promoting nationaldevelopment. While the upside benefit to autonomous liber-alization in services (among other areas) is usually high, itmay not be for a particular country. Fortunately, the modalityunder discussion is a GATS-like positive list that would letpolicymakers set their own pace for liberalization and avoidcommitments in any sector where it felt uncomfortable. Thisprovides an unusual degree of flexibility to all governments—even if it slows the pace of multilaterally agreed liberalization.

From the narrow perspective of market access forinvestors, an international agreement is less urgent. Sincemost restrictions on pre-establishment market access are inservices, a multilateral vehicle for realizing the twin benefitsfrom an international agreement already exists for services,namely the General Agreement on Trade in Services (GATS).The agreement allows countries to designate those sectors itwishes to liberalize and maintain entry restrictions in othersectors a government feels is important. In any case, the factthat market access could be widened under the GATS in pre-cisely the area where most restrictions remain limits the addi-tive value of any new investment agreement—save for thereciprocal access it leverages in other sectors.

A key issue—which can only be determined during thenegotiation process—is the value of an investment agreementin leveraging reciprocal commitments among trading part-ners. If an investment agreement is reciprocated with newmarket access in markets of importance to developing coun-tries—in agriculture, labor-intensive manufacturers and evenservices—it may produce the much sought-after double bene-fit (World Bank 2002). If not, its benefits to developing coun-tries in market access provisions will not add much to existingagreements and to unilateral actions to open markets.

Increasing investor protections

A S E C O N D P O S S I B L E C H A N N E L to increase investmentflows—distinct from wider market access—is through increas-ing investor protections. A multilateral set of disciplines oninvestment protection would arguably help participating

developing countries send a positive signal to potential foreigninvestors that policy changes are locked in, that investmentsenjoy protection in an international agreement, and thatinvestors have recourse to WTO rules in event of a dispute.

Would an international investment agreement increaseinvestment? One way to test this proposition is to look at theconsequences of enhancing investor protections throughbilateral investment treaties for flows of FDI among signatorycountries. BITs customarily provide a definition of invest-ment coverage, provide investor protections such as againstexpropriation, require national treatment for post-entryestablishments, stipulate compensation for the expropriationof their investments, and provide for a dispute resolutionmechanism. In some cases, treaties proscribe any govern-ment action that would reduce the value of the private invest-ment, even if it were environmental or other regulations, andestablish grounds for compensation. BITs are usually strongerthan the international agreement contemplated in the WTObecause they allow investors to sue governments in front of aninternational arbitration panel (see World Bank, 2003).Hallward-Dreimeier (2002) analyzed bilateral flows of OECDmembers to 31 developing countries over two decades. Heranalysis found that, controlling for a time trend, BITs had vir-tually no independent effect in increasing FDI to a signatorycountry from a home country. Said differently, countriessigning a BIT were no more likely to receive additional FDIthan countries without such a pact. Even comparing flows inthe 3 years after a BIT was signed to the 3 years prior, there wasno significant increase in FDI (see charts on page 23, bottompanel). This evidence suggests that protections resulting froma multilateral investment agreement will, by itself, have littleimpact in achieving the objective of increasing investmentflows.

It is worth asking whether enhanced investor protections,in combination with reductions in trade reforms that permitliberalized investment access and more open flows of goods,would lead to increases in foreign direct investment. Oneexample is NAFTA. NAFTA is a comprehensive arrangementthat includes significant investor protections in combinationwith broad-based tariff reductions and border liberalizations.Chapter 11 of the NAFTA agreement allows investors to sue thegovernment in event of regulatory or other actions that mightdiminish the value of a foreign investment. Lederman, et al(2003) found that NAFTA did increase foreign investment,but their study does not attempt to distinguish the role ofenhanced investor protections from access to the Mexicanmarket and its other resources in increasing the flow of FDI.To the extent that Chapter 11 provided investors with addi-tional comfort over and above the existing investment cli-mate, its protections would have offset these disadvantages.

In a multilateral context, the aspiration of Doha is precise-ly to combine global reductions in border barriers for goodsand services with increases in investor protections. To besure, the experience of regional arrangements is less relevantto the extent that the preferential trade access diverts invest-ment into the preferential market and/or to the extent thattrade openness dominate the effects of additional investor

24 Development Outreach W O R L D B A N K I N S T I T U T E

J U L Y 2 0 0 3 25

protections. Nonetheless, the potential for some as yetunquantified synergy between more open markets and agreedinvestment protections exist. Much as with our conclusionsabove on the anticipated benefits for liberalizing marketaccess, this section leads us to conclude that the benefits todeveloping countries of a multilateral set of disciplines forinvestment rest largely on whether the process of negotiationssecures commitments for new market access in agricultureand other goods of interest to developing countries.

Dispute resolution merits carefulscrutiny

B E N E F I T S F L O W I N G F R O M a multilateral investment agree-ment also can entail costs if a contractual agreement is broken—as it should. It is important that parties to an agreementunderstand the contractual liabilities they assume when theysign onto commitments. The Working Group on Trade andInvestment has reached consensus that, in contrast to theprovisions in bilateral investment treaties, individual foreigninvestors will not be allowed to sue foreign governments forabrogation of protections; rather the home government of theinvestor would file an appeal under normal WTO dispute res-olution procedures.

Important differences notwithstanding, the rising numberof suits under bilateral investment treaties argues that coun-tries should thoroughly discuss remedies in advance. Forexample, the a tribunal in Stockholm required the govern-ment of the Czech Republic to pay one company, CentralEuropean Media (CME), $350 million for violation of a bilat-eral investment treaty that deprived CME from a stake in anEnglish language TV station in Prague (see Peterson, 2003 aand b). Several separate cases under NAFTA similarly haveprompted investor suits against all three governments—Canada, U.S., and Mexico; unrelated cases in each of the threecountries, for example, have contended that environmentalregulations reduced the value of their companies; and in somecases judgments awarded hefty damages to investors.

WTO remedies are different. A WTO panel could "instructthe offending member to bring the inconsistent measure tinconformity with its WTO obligations"; and, failing that, "pre-vailing states is free to resort to…unilateral counter-meas-ures…suspension of the treaty…and temporary compensa-tion or suspension of concessions (WTO 2002: 20). Whatwould be the appropriate remedy for a government thatimposed a regulation that effectively expropriated an enter-prise? This question has received too little attention to date.

Conclusions

T H E B E N E F I T S O F A M U LT I L AT E R A L investment agreementfor developing countries hinge critically on the increasedmarket access an investment agreement might leverage fortheir exporters and on the additional domestic reforms that itspurs at home. If reciprocal concessions in areas of interest todeveloping countries are not forthcoming, the value of aninvestment agreement to developing countries is likely to be

negligible in terms of new investment flows—even as it poten-tially exposes them to state-state investment dispute resolu-tion procedures. If, however, negotiating partners, particu-larly OECD countries, see a multilateral investment agree-ment as worthy of concessions that reduce their barriers totrade in agriculture, textiles, and other areas of importance todeveloping countries, an investment agreement with careful-ly delimited dispute settlement provisions might well con-tribute to a pro-poor Doha outcome. �

Richard Newfarmer is Economic Advisor, International Trade

Department and Development Prospects Group, The World Bank.

References

Gestrin, Michael, and Alan M. Rugman. 1993. "The NAFTA's Impact on theNorth American Investment Regime." C.D. Howe Commentary No. 42,Toronto: C.D. Howe Institute. March.

Hallward-Driemeier, M. 2002. "Bilateral Investment Treaties: Do They IncreaseFDI Flows?" Background Paper for Global Economic Prospects 2003: Investingto Unlock Global Opportunities. The World Bank. Washington D.C.

Hoekman, Bernard M., and K. Saggi. 1999. "Multilateral Disciplines forInvestment-Related Policies." Policy Research Working Paper No. 2138.World Bank, Development Research Group. Washington, D.C.

Lederman, D.W. Maloney, W.and L. Serven. 2003. Lessons from NAFTA forLatin America and Caribbean. The World Bank. Washington D.C. April (draft).

Mattoo, Aaditya. "Developing Countries in the New Round of GATS Negotiations:Towards a Pro-Active Role." World Economy, Vol. 23, No. 4, 471-489.

Peterson, Luke. 2003a. "Research Note: Emerging Bilateral InvestmentTreaty Arbitration and Sustainable Development." International Institute forSustainable Development (IISD) Invest New Bulletin, April.

Peterson, Luke. 2003b. "Czech Republic Hit With Massive Compensation Billin Investment Treaty Dispute." Invest New Bulletin, March 21

Rugman, Alan M., and Michael Gestrin. 1994. "NAFTA's Treatment ofForeign Investment." In Alan M. Rugman, ed., Foreign Investment andNAFTA, pp. 47-79. Columbia: University of South Carolina Press.

Sauvé, Pierre, and Christopher Wilkie. 2000. "Investment Liberalisation inGATS." in Sauvé, Pierre and Robert M. Stern, eds., GATS 2000: NewDirections in Services Trade Liberalisation, pp. 331-363. Washington, D.C.:Centre for Business and Government, Harvard University and the BrookingsInstitution Press.

Stein, Ernesto and Christian Daude. 2001. "Institutions, Integration andLocation of Foreign Direct Investment." New Horizons for Foreign DirectInvestment, pp. 101 –128. Paris : OECD.

Stern, Robert M. 2002. "Quantifying Barriers to Trade in Services," in BernardM. Hoekman, Philip English, and Aaditya Mattoo, eds., Development, Tradeand the WTO: A Handbook. Washington, D.C : The World Bank.

World Bank. 2001. Global Economic Prospects 2002 Investing to UnlockGlobal Opportunities. Washington: World Bank

World Bank. 2002. Global Development Finance. Washington, D.C.

World Trade Organization. 2002. Report (2002) of the World Group on theRelation ship Between Trade and Investment to the General Council, 9December 2002. Geneva: WTO.

UNCTAD. 1998. Bilateral Investment Treaties in the mid-1990s. New York:United Nations.

UNCTAD. 2002. World Investment Report. New York: United Nations.

26 Development Outreach W O R L D B A N K I N S T I T U T E

BY JOHN S. WILSON

T H E R E L AT I O N S H I P B E T W E E N E C O N O M I C G R O W T H , tradefacilitation, and development is relatively simple in theory.Measuring the benefits of trade facilitation based on empiri-cal evidence, particularly in relation to capacity building pri-orities, is much more challenging. Economic theory suggeststhat development is enhanced through income growth—whichis driven through increased trade. Expansion of trade isachieved, at least in part, through programs to lower transac-tion costs in goods and services crossing borders. This mightinvolve streamlined administrative procedures at ports andcustoms posts, for example. Expansion of trade may also beachieved through modernized transport services and infra-structure brought about through privatization. A broader def-inition of trade facilitation that aligns most directly with mod-ern commerce also includes regulatory reform, harmoniza-tion of standards, and conformance to international regula-tions (Woo and Wilson 2000).

Trade facilitation is increasingly part of a trade policydebate in both "behind and at the border" issues. During theSingapore Ministerial of the World Trade Organization (WTO)(1996) the subject in a broad context was added as a new issuefor possible negotiation. Decisions on the modalities for suchnegotiations, including talks on measures to increase trans-parency, streamline administrative requirements, amongother subjects, must be made at the Ministerial Conference ofthe WTO in Mexico in September 2003. At the center of dis-cussions is the role of trade disciplines in promoting tradefacilitation goals. In reaching decisions on negotiations, whatcan be expected from expanded trade disciplines and how willcountries determine priorities for capacity building?

Trade facilitation in a modern context

A L I M I T E D N U M B E R O F E M P I R I C A L S T U D I E S of trade facili-tation exist to inform policy decision making (see references).Recent work at the World Bank (Wilson, Mann and Otsuki2003) examines the relationship between trade facilitationand trade flows in the Asia-Pacific region. The study defines

and measures trade facilitation using four broad indicators.Each one is constructed using country-specific data for 19members of the Asia Pacific Economic Cooperation (APEC) tobuild the following measures: 1) port efficiency; 2) customsenvironment; 3) regulatory environment; and 4) e-businessusage. The relationship between these indicators and tradeflows is estimated using a gravity model. The findings suggestthat enhanced port efficiency among these countries has alarge and positive effect on trade and that regulatory barriersreduce trade prospects. Improvements in customs and greatere-business use significantly also improve trade, however, to alesser degree than the effect of increased efficiency of ports orstreamlined regulations. For APEC as a whole, it is estimatedthat a program to raise capacity "half-way" to the APEC aver-age in all areas among those below average would yield anincrease in intra-APEC trade of about $254 billion dollars.This is about a 21 percent rise in total intra-APEC manufac-tures trade. About $117 billion of the gain (and 10 percent ofthe increase in trade) comes from the improvement in portefficiency. About $139 billion of the total gain comes from theimprovements "at the border" in port efficiency and customsenvironment. An additional $116 gain might come fromimprovements "inside the border" in regulatory harmoniza-tion and e-business usage.

The large increase in trade with improved ‘port efficiency’is due in part to the strong correlation found between tradeand port logistics. In addition, countries such as Mexico andChina are very large intra-APEC traders. They have muchroom for improvement in port logistics and related infra-structure. Large exporters such as the U.S., Japan, and Koreawould see the greatest increase ($38 billion, $22 billion, and$9 billion, respectively). Many developing countries (Russia,Hong Kong, Chile, and Chinese Taipei) would also experiencelarge double-digit increases in exports to the Asia Pacificregion (36 percent, 28percent, 20 percent and 15 percent,respectively) with capacity building efforts. These results sug-gest that attention to improvements in port efficiency appearsmost productive in the Asia Pacific. Moreover, the study sug-gests that unilateral action to raise capacity can also boostexports. Country priorities and impact of various measures

SPECIAL REPORT

Trade Facilitation, WTORules, and Capacity Building

What’s at Stake?

J U L Y 2 0 0 3 27

can be examined, as one way of informing development goals.For example, Thailand’s port efficiency indicator is near

the APEC average. A small improvement to the APEC averagewould increase Thailand’s efficiency through imports by some$4.4 billion. Thailand’s customs capacity and e-businessusage are much further away from the APEC average. Animprovement halfway to the APEC average in customs envi-ronment would increase Thailand’s imports by $2.4 billion. Ifthe cost of improving customs is less than improving portefficiency, then the net gain of focussing effort on customsmight be preferable to capacity building programs exclusivelyaimed at port efficiency. On the other hand, an improvementhalfway to the APEC average in e-business usage wouldincrease Thailand’s imports by $7.9 billion, about 50 percentmore than the ‘border’ measures taken together. New analysis

at the Bank in a data set covering 75 countries is under prepa-ration to further refine this analysis. In sum, these resultsshould clearly be considered alongside other analytical toolsand factors, but can provide one new measure to inform deci-sion making—including development goals aligned with pos-sible new WTO obligations in trade facilitation.

Trade Facilitation and the WTO: What role?

T R A D E FA C I L I TAT I O N I N C L U D E S a range of issues related tomultilateral rules and was included in the work program of theWTO in 1996 at the Singapore Ministerial. The scope of pos-sible negotiations is relatively wide and includes subjects suchas; documentation requirements, transparency in adminis-

28 Development Outreach W O R L D B A N K I N S T I T U T E

trative and customs procedures, valuation of goods, and feesimposed on imports, among others. The Doha Declaration ofthe WTO in 2001 stated that decisions on the "modalities" fornegotiation would be decided at the fifth Ministerial of theWTO in 2003. There continues disagreement on the meritsand scope for possible talks on trade facilitation. Some devel-oped countries, including the U.S. and European Union,believe there is merit in negotiations to tighten WTO disci-plines. Proposals on how to improve and clarify trade rulesmight include improved transparency such as the creation ofenquiry points, more systematic consultation between cus-toms administrations and traders, and the establishment ofharmonized appeal procedures in disputes over import fees,for example. There has also been discussions of simplified,standardized, and streamlined import/export procedures,new commitments on harmonized fees and charges onimports, reduction of data requirements at customs, expand-ing pre-arrival processing and post-auditing procedures.These are all associated with current GATT Articles VIII (feesand formalities), Article X (publication and administration ofregulations), and Article V (freedom of transit)(www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm).

Supporters of negotiations also suggest a parallel programof technical assistance to developing countries alongside newobligations undertaken. In contrast, some countries, such asIndia, Brazil, and several in Africa nations have expressedstrong reservations about launching new negotiations. They

question the value of new legal commitments in the WTO.Concerns expressed center on the idea that additional ruleswill exceed implementation capacities and increase the likeli-hood of dispute settlement action for failure to follow new WTOobligations. Some developing countries also suggest that prob-lems in implementing current obligations must be addressedbefore expanding the scope of WTO rules in other areas.Finally, improving infrastructure, administrative reform, andrelated technical training to upgrade skills to facilitate trade iscostly. Many developing countries will require assistance incovering capacity building costs over the long-term.

Conclusion

I N S U M , TA L K S O N WAY S to increase transparency, pre-dictability, and streamline trade transactions could providebenefit to the international trading system. Negotiations are abeginning point – not an endgame with predetermined out-comes. Lowered transaction costs and capacity buildingimprovements, as noted in the new research above and otherempirical studies, can provide large gains to trade. Talks onstreamlined trade procedures, customs rules, and adminis-trative transparency are also timely and important, given theneed to bolster security after the tragedy of September 11,2001. Rapid implementation of new national security bordercontrols around the world is already underway. What is atstake in trade facilitation is most certainly centered on adevelopment dynamic—not inside the context of elaboratenew trade rules. Institutional change and reform is complexand priorities differ across countries. Creative ways to managedispute settlement in this area are critical. There is a uniqueopportunity in 2003, however, to discuss a classic win-winsituation in which trade disciplines are strengthened, securi-ty is enhanced, and developing countries gain the commit-ment of assistance to raise capacity in areas that matter moreand more to success in modern international commerce. �

John S. Wilson is Lead Economist, Development Research Group,

The World Bank.

This article draws in part upon "Trade Facilitation and Economic andEconomic Development," John S. Wilson, Catherine Mann, and TsunehiroOtsuki, World Bank Policy Research Working Paper #2988, World Bank,Washington, DC, 2003. The findings, interpretations, and conclusionsexpressed in this article are entirely those of the author. They do not neces-sarily represent the view of the World Bank, its Executive Directors, or thecountries they represent. Comments by Yvonne Tsikata and RichardNewfarmer are gratefully acknowledged.

WHAT IS AT STAKE IN TRADE FACILITATION IS MOST CERTAINLYCENTERED ON A DEVELOPMENT DYNAMIC—NOT INSIDE THE CONTEXT

OF ELABORATE NEW TRADE RULES.

R e f e r e n c e s c o n t i n u e d o n p a g e 3 4

OVERVIEW OF SIMULATION

BRING BELOW-AVERAGE COUNTRIES HALF-WAY UP TO THE GLOBAL AVERAGE

$88.2 billion(+7.3%)

$27.7 billion(+2.3%)

$116.9 billion(+9.7%)

$21.6 billion(+1.8%)

Port Efficiency

Customs Environment

E-business

Regulatory Environment

Source: Wilson, Mann, Otsuki 2003

28 Development Outreach W O R L D B A N K I N S T I T U T E

trative and customs procedures, valuation of goods, and feesimposed on imports, among others. The Doha Declaration ofthe WTO in 2001 stated that decisions on the "modalities" fornegotiation would be decided at the fifth Ministerial of theWTO in 2003. There continues disagreement on the meritsand scope for possible talks on trade facilitation. Some devel-oped countries, including the U.S. and European Union,believe there is merit in negotiations to tighten WTO disci-plines. Proposals on how to improve and clarify trade rulesmight include improved transparency such as the creation ofenquiry points, more systematic consultation between cus-toms administrations and traders, and the establishment ofharmonized appeal procedures in disputes over import fees,for example. There has also been discussions of simplified,standardized, and streamlined import/export procedures,new commitments on harmonized fees and charges onimports, reduction of data requirements at customs, expand-ing pre-arrival processing and post-auditing procedures.These are all associated with current GATT Articles VIII (feesand formalities), Article X (publication and administration ofregulations), and Article V (freedom of transit)(www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm).

Supporters of negotiations also suggest a parallel programof technical assistance to developing countries alongside newobligations undertaken. In contrast, some countries, such asIndia, Brazil, and several in Africa nations have expressedstrong reservations about launching new negotiations. They

question the value of new legal commitments in the WTO.Concerns expressed center on the idea that additional ruleswill exceed implementation capacities and increase the likeli-hood of dispute settlement action for failure to follow new WTOobligations. Some developing countries also suggest that prob-lems in implementing current obligations must be addressedbefore expanding the scope of WTO rules in other areas.Finally, improving infrastructure, administrative reform, andrelated technical training to upgrade skills to facilitate trade iscostly. Many developing countries will require assistance incovering capacity building costs over the long-term.

Conclusion

I N S U M , TA L K S O N WAY S to increase transparency, pre-dictability, and streamline trade transactions could providebenefit to the international trading system. Negotiations are abeginning point – not an endgame with predetermined out-comes. Lowered transaction costs and capacity buildingimprovements, as noted in the new research above and otherempirical studies, can provide large gains to trade. Talks onstreamlined trade procedures, customs rules, and adminis-trative transparency are also timely and important, given theneed to bolster security after the tragedy of September 11,2001. Rapid implementation of new national security bordercontrols around the world is already underway. What is atstake in trade facilitation is most certainly centered on adevelopment dynamic—not inside the context of elaboratenew trade rules. Institutional change and reform is complexand priorities differ across countries. Creative ways to managedispute settlement in this area are critical. There is a uniqueopportunity in 2003, however, to discuss a classic win-winsituation in which trade disciplines are strengthened, securi-ty is enhanced, and developing countries gain the commit-ment of assistance to raise capacity in areas that matter moreand more to success in modern international commerce. �

John S. Wilson is Lead Economist, Development Research Group,

The World Bank.

This article draws in part upon "Trade Facilitation and Economic andEconomic Development," John S. Wilson, Catherine Mann, and TsunehiroOtsuki, World Bank Policy Research Working Paper #2988, World Bank,Washington, DC, 2003. The findings, interpretations, and conclusionsexpressed in this article are entirely those of the author. They do not neces-sarily represent the view of the World Bank, its Executive Directors, or thecountries they represent. Comments by Yvonne Tsikata and RichardNewfarmer are gratefully acknowledged.

WHAT IS AT STAKE IN TRADE FACILITATION IS MOST CERTAINLYCENTERED ON A DEVELOPMENT DYNAMIC—NOT INSIDE THE CONTEXT

OF ELABORATE NEW TRADE RULES.

R e f e r e n c e s c o n t i n u e d o n p a g e 3 4

OVERVIEW OF SIMULATION

BRING BELOW-AVERAGE COUNTRIES HALF-WAY UP TO THE GLOBAL AVERAGE

$88.2 billion(+7.3%)

$27.7 billion(+2.3%)

$116.9 billion(+9.7%)

$21.6 billion(+1.8%)

Port Efficiency

Customs Environment

E-business

Regulatory Environment

Source: Wilson, Mann, Otsuki 2003

BY WILL MARTIN

A F T E R A M A R A T H O N , F I F T E E N - Y E A R S T R U G G L E Chinajoined the WTO at the Doha Ministerial Meeting in November2001. Clearly, China’s entry was important simply by bringinga fifth of the world’s population into the "world" trading sys-tem. By the time of accession, China had also become a majorplayer in world trade. When the process of (re)joining theworld trading system began in 1986, China’s share of worldtrade was only 0.7 percent, but this had risen to almost 5 per-cent in 2001, when China was the fifth largest exporter in theworld, and is expected to rise to at least 7 percent followingaccession, making China one of the world’s biggest trading

countries (Ianchovichina and Martin 2002). Since joining theWTO, China has become a major player in the WTO, and par-ticularly in the negotiations on the Doha Development Agenda.

The reform process

W H E N C H I N A I N I T I AT E D T H E P R O C E S S of joining the worldtrading system, it had seven years of experience with the"open door" policy under its economic reform program. Ithad made major progress in increasing exports of raw materi-als and manufactured products, and the use of foreign directinvestment. As the World Bank (1988) noted, the open doorpolicy, along with rural reforms and partial enterprise and price

J U L Y 2 0 0 3 29

China and the WTOPolicy Reform and Poverty Reduction

SPECIAL REPORT

reforms, had contributed to a dramaticimprovement in the performance of theChinese economy. However, many prob-lems remained: the Foreign TradeCorporations created an air-lockbetween domestic and foreign markets;export patterns were inefficient; infor-mation flows between producers andmarkets were poor; and foreign exchangemarkets were heavily distorted.

During the process of accession tothe WTO, there was a dramatic improve-ment in the performance of China’strade regime, and in economic per-formance generally. A recent studyundertaken by the World Bank and theDevelopment Research Center ofChina’s State Council (DRC) has docu-mented the extent of the reforms, andpointed to some of the priorities forpolicy reform if trade is to play a positiverole in improving people’s livelihoodsand particularly in reducing poverty(Bhattasali, Li and Martin 2003).

A key feature of the reform processsince 1986, and particularly during the1990s has been replacement of direct,quantitative policy instruments withindirect, price-based instruments moresuited to a market economy. In the late1980s, around two thirds of China’simports were subject to licenses or quo-tas, foreign trading rights were restrict-ed, foreign exchange was subject to sig-nificant controls, and exports were par-tially planned. As late as 1992, averagetariffs were over 40 percent.

By the time of its accession to the

WTO, China had made enormousprogress in reforming its foreign traderegime (Lardy 2002). As is shown inFigure 1, tariffs declined continuouslyafter 1992. Weighted average tariffs fellfrom 41 percent in 1992 to 12 percent ataccession, and will fall to just 6.8 percentafter implementation of the WTO com-mitments. The coverage of nontariff bar-riers fell from two thirds, to one-third in1996 and 22 percent in 2001. All nontariffbarriers except for state trading, which isnow subject to WTO rules, and is likely tocover less than 10 percent of imports, willbe phased out. The dual exchange ratesystem was abolished in 1994, removingthe formerly substantial trade barriersimplicit in this regime. Ianchovichinaand Martin (2002) estimate the globalwelfare gains from China’s accession at$74 billion per year, of which around $40billion accrues to China.

Substantial progress was made notjust in foreign trade policies, but also incritical behind-the-border areas need-ed to support trade, including develop-ment of the legal system; enterpriserestructuring; strengthening of servicesector regulation; and agricultural andrural reforms. Many of these reformswere undertaken as part of the ongoingprocess of making the changes neededto ensure China’s development.However, it is clear that the process ofWTO accession influenced the timing ofmany of the reforms. In fact, the needsof WTO accession may have helpedreformers to push through reforms

much earlier than would oth-erwise have been feasible.Certainly, the reform processinitiated by WTO accessionrequirements in areas such aslegal reform was taken muchfurther with the objective ofdeveloping the legal structuresneeded to promote China’sdevelopment (Long 2000).

Future expansion

Q U A N T I T A T I V E A N A L Y S I S

undertaken as part of theBank/DRC project found thatthe trade reforms required byChina’s accession will greatlyexpand China’s trade. A key

element in this will be a dramatic expan-sion in China’s exports of textiles andclothing after the abolition of quotas onthese exports in January 2005.Ianchovichina and Martin (2002) esti-mate that exports of clothing will expandby over 100 percent as a result of acces-sion. Had she not joined the WTO, Chinaalmost alone would have remained sub-ject indefinitely to quotas on exports ofthese goods. Most of the reductions intariffs and abolition of nontariff barriersrequired under the agreement hadalready occurred by the time of acces-sion. However, there are some majorreductions still to be implemented in themotor vehicle industry, and on the for-merly highly protected beverage andtobacco sector. The key for the motorvehicle sector will be major restructur-ing to increase efficiency, improveproduct quality, and reap economies ofscale. If this is done successfully, outputand both imports and exports of motorvehicles and components are likely toexpand substantially (Francois 2003).

There are likely to be some substan-tial adjustments in agriculture, andthese are likely to have important impli-cations for poverty. The reductions inagricultural protection required byaccession are likely to be much smallerthan was predicted by many commenta-tors. This is partly because China’s agri-culture was only quite lightly protected(Huang and Rozelle 2003), and becauseChina negotiated moderately high tar-iffs on some key products, such as rice,wheat and maize. However, export sub-sidies that were formerly important formaize and cotton had to be abolished,and tariffs fell on products such asoilseeds, sugar and dairy products. As akey member of the WTO, China also hasthe opportunity to press for reduction ofthe barriers against her exports of (pri-marily labor-intensive) agriculturalexports. This is particularly importantbecause of the need to create ruralemployment in China. Martin (2001)estimates that the weighted average bar-riers facing China’s exports of agricul-tural products are four times as high asthose facing her nonagriculturalexports—and this estimate that isundoubtedly conservative because of thewidespread presence of prohibitive tar-

1992 1994 1996 2001 WTO

45

40

10

35

30

25

20

15

5

0

China’s Weighted Average Tariff

%

THE EVOLUTION OF CHINA’S TARIFF RATESSINCE 1992

30 Development Outreach W O R L D B A N K I N S T I T U T E

J U L Y 2 0 0 3 31

iffs, whose effects are not captured. Overall, there is likely to be some downward pressure on

rural wages and incomes, with some—albeit small—adversepoverty impacts (Chen and Ravallion 2003). Attempts to dealwith these problems by slowing down or reversing tradereforms would be very costly, even if they were possible underWTO rules. Policies that deal with these poverty impactsdirectly by improving rural technology and infrastructure;expanding educational opportunities in rural areas, andreducing the barriers to migration out of the rural sector aremuch more likely to be successful, and are explicitly consis-tent with WTO rules.

China has committed to dramatic opening of its servicessector under the General Agreement on Trade in Services(GATS). In fact, Mattoo (2003) concludes that China’s acces-sion offer is the largest liberalization of services ever under-taken under the WTO. Over half the sectors and modes of sup-ply have been liberalized, and considerable benefits toChina’s firms and consumers are likely. China’s opening wasnot done unreservedly, however. Many reservations wereincluded on issues such as ownership structure and geograph-ical location, as well as the rights inherent under GATS inareas such as prudential regulation of the banking sector.Liberalization of key service sectors involved in the logisticschain seems likely to allow substantial reductions in costs tofirms, which are currently much higher than internationalnorms in China. Luo and Findlay (2003) estimate potentialcosts savings equal to 10 percent of gross output value.

China has developed a modern intellectual property rightssystem that takes into account the fundamental differencesbetween its situation and that of the high-income economiesfor whom production of intellectual property rights are cur-rently more important (Maskus 2003). China has used theflexibility inherent in the TRIPS agreement in areas such aspricing of pharmaceuticals to ensure that people have ade-quate access to essential pharmaceuticals. Maskus identifiestwo potential areas of concern—one involving too much regu-lation, and another involving too little. The first is with pro-posals to patent software, which seem perhaps too protectiveof producer interests for China’s stage of development. Thesecond area of concern relates to enforcement, where weak-nesses in enforcement are likely to reduce China’s access tostate-of-the-art technologies.

Fortunately, China—unlike Japan when it joined theGATT—was able to avoid a situation where major trading part-ners refused to apply Most-Favored-Nation treatment.However, an unfortunate feature of the accession agreement isthe imposition of several types of trade-restricting measures.For up to 15 years, China may be treated as a non-marketeconomy for antidumping policy decisions—a status thatmakes China more vulnerable to the antidumping measuresthan other WTO members. For up to twelve years after China’saccession, trading partners can impose product-specific safe-guards against China’s exports. For several years after the textileand clothing quotas are abolished, China’s exports of theseproducts may be subjected to special textile safeguards. Theantidumping measures are of particular concern because China

already faces seven times as many antidumping measures perdollar of exports as the United States. The product-specificsafeguards are new protection introduced as part of a WTOagreement, and the textile safeguards include poorly definedand potentially very damaging procedures on trade diversion.

Within China, much has been done to protect those inurban areas who are disadvantaged by trade reform, but thesocial safety net remains "full of holes" in rural areas (Hussain2003). Much needs to be done both to increase opportunitiesfor rural residents, and to help protect them against adverseshocks, whether from external or internal developments.

Conclusion

O V E R A L L , I T I S C L E A R that China’s accession builds on theprogress made throughout reform process, while marking aturning point through the use of external commitments toreform. While much—and particularly most of the requiredtrade liberalization—has already been done, some majoradjustments will be required in formerly highly protectedareas like automobiles and beverages and tobacco. Substantialfurther work will be needed on complementary policies inareas such as improved regulation in financial and other sec-tors, and in increasing opportunities for and assistance to thepoor, and particularly the poor in rural areas. �

Will Martin is a Lead Economist, Development Research Group, The

World Bank.

References

Bhattasali, D., LI, Shantong, and Martin, W. (2002), WTO Acceession, policyreform and poverty reduction: an overview, www.worldbank.org/trade

Francois, J. and Spinanger, D. (2002), Regulated efficiency, WTO accessionand the motor vehicle sector in China, www.worldbank.org/trade.

Huang, J. and Rozelle, S. (2002), The nature of incentives to agriculture inChina and impacts of WTO accession, www.worldbank.org/trade

Hussain, A. (2002), ‘Coping and adapting to job losses and declines in farmincomes’ www.worldbank.org/trade

Ianchovichina, E. and Martin, W. (2002), ‘Economic impacts of China’s WTOaccession, www.worldbank.org/trade.

Lardy, N. (2002), Integrating China into the World Economy, Brookings,Washington DC.

Long, Yongtu (2000), ‘On the question of our joining the World TradeOrganization’ The Chinese Economy 33(1):5-52.

Luo, Y. and Findlay, C. (2002), ‘Logistics in China: Implications of accessionto the WTO’, www.worldbank.org/trade.

Martin, W. (2001), ‘Implications of reform and WTO accession for China’sagricultural policies’ Economics of Transition 9(3):717-42.

Maskus, K. (2002), ‘Intellectual property rights in the WTO accession pack-age: assessing China’s reforms’ www.worldbank.org/trade.

Mattoo, A. (2002), ‘China’s accession to the WTO: the services dimension’,www.worldbank.org/trade.

Messerlin, P. (2002), ‘China in the WTO: antidumping and safeguards’www.worldbank.org/trade.,

World Bank (1988), China: External Trade and Capital, World Bank,Washington DC.

Challenges ahead

A C C E S S I O N O F C A M B O D I A T O T H E W T O is part of the gener-al strategy of trade policy of Cambodia, which is directed toeffective integration of the country into the world economyand global trading system.

Globalization does not come without difficulties, particu-larly for Least Developed Countries (LDC) like Cambodia. The1997 regional financial crisis while sparing Cambodia from itsdirect immediate effects had nonetheless affected indirectly thecountry as seen from the sharp drop of foreign direct investmentfrom the region. The ratification of the US-Vietnam TradeAgreement by the US Congress has no doubt created someuncertainty as to the flow of FDI away from Cambodia. China'sentry into the WTO has dramatically changed the dynamic ofregional trade. The phase-out of Multi Fiber Arrangement(MFA), or the elimination of quantitative restrictions on textiletrade, by 2005 will further intensify the pressure on Cambodiato become more competitive in the textile and clothing indus-try. Moreover, the recent political upheavals in a few otherASEAN countries did not bore well in term of confidence ofinvestors in the region.

Successes or failures of Cambodia will depend to a largeextent not only on its ability to balance its rights and obligationsunder the multilateral trading system but as well on how well thecountry could position itself to take advantage of the broadopportunities and challenges of regionalism and globalism.

Cambodia is a good example of a country that has, despiteits dramatic past and existing shortcomings, emerged as avibrant economy thriving on the ‘Competitiveness’ paradigm.From the early days of national rebuilding from the ashes ofgenocide, to capitalizing on its comparative advantage basedon cheap labor and exploitation of natural resources, toembracing controversial value-added labor-textile exportlinkages—thus creating a precedent in the annals of textilenegotiations—to defining new dynamic strategic value-addingalliance with its neighbors Thailand and Vietnam, to optimiz-ing its national branding as the Seventh Wonder of the Worldnew tourism destination combined with its open skies policy,to capitalizing on a highly interactive form of Government-Private Sector Dialogue, to projecting the value as a neworganic agricultural country, to protecting intellectual prop-erty rights, and to revolutionizing the concept of trade main-streaming for poverty reduction and economic development.In sum, Cambodia, with this ‘Competitiveness’ paradigm inplace, is prime to ride the trend of regionalism and globalismand turn trade as a potent tool for poverty alleviation. �

Sok Siphana is Secretary of State for Commerce, IF Focal Point,

Cambodia.

References

Fairbanks M. and Lindsay S. (1997), Plowing the Sea: Nurturing the HiddenSources of Growth in the Developing World. Harvard Business School Press.

ITC (International Trade Center) (2002), Cambodia— Building Blocks for aCountry Action Plan for Textiles and Clothing, Geneva.

JICA (2001), Study on Improvement of Marketing System and Post-harvestQuality Control of Rice in Cambodia, Japan International Cooperation Agency,Phnom Penh.

Ministry of Commerce (2001a), Opportunities, Challenges and Commitmentsfor Cambodia's Accession to the WTO: Explanatory Notes Prepared for thePlenary Session of the National Assembly, 19 July 2001, Phnom Penh.

Ministry of Commerce (2001), Cambodia: Integration and CompetitivenessStudy, Phnom Penh.

Ministry of Commerce, National workshop on "How to Develop GarmentExports without Quotas", 28 November 2002, Phnom Penh.

McCulloch, N., L. A. Winters and X. Ciero (2001), Trade Liberalization andPoverty: A Handbook, DFID, London.

NESDB (National Economic and Social Development Board) and KasetsartUniversity Research and Development Institute (2001), The JointDevelopment Study for Economic Cooperation Plan between Thailand andCambodia (TCJDS), Bangkok and Phnom Penh.

Porter, Michael (1990), "The Competitive Advantage of Nations". New York.The Free Press.

Royal Government of Cambodia (2002a), Implementing the IntegratedFramework in Cambodia, Ministry of Commerce, Phnom Penh.

Royal Government of Cambodia (2002b), 2nd Socioeconomic DevelopmentPlan (2001-2005), Ministry of Planning, Phnom Penh.

Sok, Siphana (2001), Globalization and Cambodia: History and PerceptibleTrends, Paper presented at the Globalization Conference: Business and LawPerspectives, June 27-28, 2001, Phnom Penh.

Sok, Siphana (2002), Formulation of a Legal and Judicial Reform Strategyfor Cambodia, Ministry of Commerce and Cambodia Legal ResourcesDevelopment Center, Phnom Penh.

Sok, Siphana (2002a), “Experiences of Cambodia's accession to the WTO:Status and Future Prospects", Paper presented at the regional seminar onfacilitating the accession of ESCAP developing countries to the WTO, 18-21February 2002, UNCC, Bangkok.

Sok, Siphana (2003), Prospects for Multilateral Trade Regimes in ASEANand the Potential Impact on the Mekong Region: Perspectives of Cambodia.Paper presented at the 13th Asia Society Corporate Conference, 5-7 March2003, Ha Noi, Viet Nam.

Sok, Siphana (2001), Global Economic Prospects and the DevelopingCountries: Making Trade Work for the World’s Poor, Washington DC.

Sok, Siphana (2002), Decision on Accession of Least-Developed Countries,WT/L/508, December 10, 2002, Geneva.

World Trade Organization (1999), Technical Note on the Accession Process,WT/ACC/ 7/Rev. 1, 19 November 1999, Geneva.

c o n t i n u e d f r o m p a g e 9

A Cambodian Experience

32 Development Outreach W O R L D B A N K I N S T I T U T E

J U L Y 2 0 0 3 33

years preceding the major crisis after the 2002 devaluation. Ihave done this because I believe agricultural protectionism par-tially explains the crises that Argentina is facing. Having saidthis, I want to make clear that protectionism contributed only afraction of the crisis, while the bulk was generated at home bybad economic policies, including irresponsible fiscal deficits(Nogués and Grandes 2001) and more recently, by several vio-lations of established institutions including the Constitution.

What is to be done? I started this note by citing theMarrakech Agreement of 1994, according to which the WTO,the IMF and the World Bank should work to achieve greatercoherence in global economic policy making. This mandatehas never been defined carefully but, while agricultural protec-tionism persists at its current irrational levels, efficient coun-try producers face a multilateral trading system that is inco-herent with the international financial system. This incoher-ence will be maintained as long as the powerful protectionistagricultural lobbies remain unchallenged.

How can this lobby be challenged? No indebted countrywould be wise to announce that agricultural protectionism isincreasing debt problems; if they did, the perceived level ofcountry risk would automatically jump with the consequentnegative effects on the economy. Therefore, the onus appearsto be on the side of multilateral organizations. One possibilitythat might be worth exploring is to make the WTO WorkingGroup on "Trade, Debt and Finance" a negotiating group inthe Doha Round. The idea is to have creditor and debtor coun-tries meet at the negotiating table in order to discuss thefinancial consequences of trade protectionism and the bene-fits that trade liberalization would have on the internationalfinancial system. By incorporating the interests of the credi-tors, most of whom are from industrial countries, there wouldbe a domestic force fighting against the agricultural lobby; ifmy Government lowers the barriers that protect you, I havegreater chances of recouping my credits. In order to strength-en the incentives in favor of lower barriers, indebted coun-tries facing payment difficulties could tie part of their debtrepayments to trade liberalization measures taken by thecreditor countries. This proposal implies an important shiftin the structure of incentives in favor of trade liberalization.After more than five decades of increasing agricultural pro-tectionism, I believe that only a radical shift in the structure ofincentives will start to reverse this trend. The proposal I havepresented goes in that direction. �

Julio J. Nogués is Consultant and Professor, School of Government,

Universidad Di Tella, Buenos Aires

jnogues@infovia.com.ar

References

Diakosavvas, D. (2001). The Uruguay Round Agreement on Agriculture inPractice: How Open Are OECD Markets? Paper presented at the World BankConference on Leveraging Trade, Global Market Integration, and the New

WTO Negotiations for Development, July 23–24, Washington, D.C.

Gardner, B. (2002). North American Agricultural Policies and Effects onWestern Hemisphere Markets. Paper presented at the Seminar on"Agricultural Liberalization and Integration: What to Expect from the FTAAand the WTO?" Inter-American Development Bank: Washington D.C.

Nogués, J. J. and M. Grandes (2001). "Country Risk: Economic Policy, Contagionor Political Noise?" Journal of Applied Economics, IV, 1:125-162.

Nogués, J. J. (2003). Agricultural Exporters in a Protectionist World: AssessingTrade Strategies for the MERCOSUR. Draft paper prepared for the Inter-American Development Bank: Washington DC.

OECD (2000). Agricultural Policies in OECD Countries: Monitoring andEvaluation, OECD: Paris.

OECD (2001). The Uruguay Round Agreement on Agriculture: An Evaluationof Its Implementation in OECD Countries, OECD: Paris.

Porto, G. G. (2003). Trade Reforms, Market Access and Poverty in Argentina.Mimeo, World Bank: Washington DC.

Sampson, G. and R. Snape (1980). "Effects of the EEC´s Variable ImportLevies," Journal of Political Economy, 88: 5.

Van der Mensbrugghe, D. (2002). Quantifying Trade Policy Options forArgentina. Draft paper, World Bank: Washington DC.

World Bank (2002). Global Economic Prospects, World Bank: Washington DC

WTO (1995). The Results of the Uruguay Round of Multilateral TradeNegotiations: The Legal Texts, WTO: Geneva.

WTO (2003). Negociaciones Sobre la Agricultura: Anteproyecto deModalidades para los Nuevos Compromisos, TN/AG/W/1/Rev. 1, WTO:Geneva.

c o n t i n u e d f r o m p a g e 1 5

Agricultural Protectionism

This two-week course aims at providing partici-pants with an in-depth understanding of the con-ceptual and practical issues involved in the devel-opment of safety nets interventions to protect poorand vulnerable population groups from income riskand to ensure they have adequate access toessential services.

Conducted in English, the course incorporates for-mal lectures together with practical case studiesand hands-on exercises enabling participants toapply what they have learned to concrete situations

Protecting the VulnerableThe Design and Implementation

of Effective Safety Nets

December 1-12, 2003Washington, D.C.

Application and ContactYoko KobayashiE-mail: Ykobayashi@worldbank.orgFax: 1-202-676-0961Tel: 1-202-473-3571Address: 1818 H street, NW

Washington, DC 20433

Website: http://www.worldbank.org/wbi/socialsafetynets

34 Development Outreach W O R L D B A N K I N S T I T U T E

References

Anderson, James E. (1979). "A Theoretical Foundation for the GravityEquation." American Economic Review 69: p.106-116.

Anderson, James E. and Eric van Wincoop (2003). "Gravity with Gravitas: ASolution to the Border Puzzle." American Economic Review 93(1):170-192.

Asia Pacific Economic Co-operation (APEC) (1999). Assessing APEC TradeLiberalization and Facilitation: 1999 Update, Economic Committee,September 1999. APEC: Singapore.

Asia Pacific Foundation of Canada (1999). Survey on Customs, Standardsand Business Mobility in the APEC Region. APF Canada: Vancouver.

Australian Department of Foreign Affairs and Trade and Chinese Ministry ofForeign Trade and Economic Cooperation (2001). Paperless Trading: Benefitsto APEC. Commonwealth of Australia. www.dfat.gov.au/publications/paper-less/paperless_trading.pdf.

Balistreri, Edward J. and Russell H. Hillberry (mimeo). "Trade Friction andWelfare in the Gravity Model: How Much of the Iceberg Melts?" U.S.International Trade Commission, Washington, DC.

Dollar, David and Aart Kraay (2002). “Growth Is Good for The Poor”, Journalof Economic Growth, 7 (3):195-225.

Evenett, Simon J. and Wolfgang, Keller. (1998). "On Theories Explaining theSuccess of the Gravity Equation." Journal of Political Economy 110(2):281-316.

Feenstra, Robert C., James R. Markusen and Andrew K. Rose (1998)."Understanding the Home Market Effect and the Gravity Equation: The Roleof Differentiating Goods." National Bureau of Economic Research WorkingPaper: 6804.

Fink, Carsten, Aaditya Matoo and Cristina Ileana Neagu (2002). "Trade inInternational Maritime Services: How Much Does Policy Matter?" World BankEconomic Review 16(1):81-108

Fink, Carsten, Aaditya Matoo and Cristina Ileana Neagu (2002). "Assessingthe Role of Communication Costs in International Trade." The World BankWorking Paper Series #2929. The World Bank: Washington, DC.

Frankel, Jeffrey A., Ernesto Stein and Shang-Jin Wei (1997). RegionalTrading Blocs in the World Economic System, Washington, DC: Institute forInternational Economics.

Freund, Caroline and Diana Weinhold (2000). "On the Effect of the Interneton International Trade." International Finance Discussion Papers #693,Board of Governors of the Federal Reserve System.

Hertel, Thomas W., Terrie Walmsley; and Ken Itakura (2001). "DynamicEffect of the "New Age" Free Trade Agreement between Japan andSingapore." Journal of Economic Integration 16(4):446-84.

IMD (2000). World Competitiveness Yearbook. IMD: Lausanne.

Mann, Catherine L., Sue E. Eckert, and Sarah Cleeland Knight (2000).Global Electronic Commerce: A Policy Primer. Washington: Institute forInternational Economics.

Maskus, Keith E. and John S. Wilson (2001). Quantifying the Impact ofTechnical Barriers to Trade: Can it be done? Studies in InternationalEconomics. Ann Arbor: University of Michigan Press.

Maskus, Keith E., John S. Wilson and Tsunehiro Otsuki (2001). "AnEmpirical Framework for Analyzing Technical Regulations and Trade," inQuantifying the impact of technical barriers to trade: Can it be done? KeithMaskus and John S. Wilson eds.

Messerlin, Patrick A and J. Zarrouk (1999). "Trade Facilitation: TechnicalRegulation and Customs Procedures." September 1999 for the WTO/WorldBank Conference on Developing Countries in a Millennium Round.

Micco, Alejandro, Clark, Ximena and David Dollar (2002). "MaritimeTransport Costs and Port Efficiency." World Bank Working Paper Series #2781. The World Bank: Washington, DC.

National Statistical Coordination Board (1998). Yearbook of Labor Statistics.NSCB: Philippines.

Organization for Economic Co-operation and Development (2001). BusinessBenefits of Trade Facilitation. TD/TC/WP(2001)21 FINAL. OECD: Paris.

Otsuki, Tsunehiro, John S. Wilson, and Mirvat Sewadeh (2001a), "What PricePrecaution? European Harmonisation of Aflatoxin regulations and Africangroundnut exports." European Review of Agricultural Economics 28(3):263-284.

Otsuki, Tsunehiro, John S. Wilson, and Mirvat Sewadeh (2001b). "Saving Twoin a Billion: Quantifying the Trade Effect of European Food Safety Standardson African Exports." Food Policy 26:495-514.

Pöyhönen, P. (1963). "A Tentative Model for the Volume of Trade betweenCountries." Welwirtschaftliches Archiv 90, (1):93-99.

Tinbergen, J. (1962). Sharing the World Economy: Suggestions for anInternational Economic Policy. Twentieth Century Fund: New York.

United Nations Conference on Trade and Development (2001). E-Commerceand Development Report. UNCTAD: Geneva.

Wilson, John S., Catherine Mann, Yuen Pau Woo, Nizar Assanie, and InbomChoi (2002). Trade Facilitation: A Development Perspective in the Asia-Pacific Region. Asia Pacific Economic Cooperation: Singapore.

Wilson, John S., Catherine Mann, and Tsunehiro Otsuki (2003) "TradeFacilitation and Economic and Economic Development," World Bank PolicyResearch Working Paper #2988, World Bank: Washington, D.C.

Woo, Yuen Pau and John S. Wilson (2000). Cutting Through Red Tape: NewDirections for APEC's Trade Facilitation Agenda. Asia Pacific Foundation ofCanada: Vancouver.

World Economic Forum (2000). Global Competitiveness Report. WorldEconomic Forum: Geneva.

c o n t i n u e d f r o m p a g e 2 8

Trade Facilitation, WTO Rules...

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Development Outreach is a flagship magazine in the field ofglobal knowledge for development which reflects a rangeof viewpoints by renowned authors and specialists world-wide. It is published three times a year, and distributed toreaders in more than 130 countries. The online version is

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K N O W L E D G E R E S O U R C E S

Looking for development information, networkingopportunities, likeminded partners, a professional exchange?Reaching those goals is as close as your computer screen. A network of development websites will take you to the fourcorners of the world and will put you in touch with amulticultural cornucopia of knowledge.

DEARDORFF'S GLOSSARY OF INTERNATIONALECONOMICSThis glossary attempts to cover all of the terms and

concepts from international economics, including bothinternational trade and international finance. The glossaryincludes definitions, links to definitions, and whereverappropriate links to other sites and documents that mayprovide additional information. There is a bibliography ofsources for some of the terms, including links to the papersthemselves where available (usually through JSTOR, forwhich access requires a subscription). There is also apicture gallery of the diagrams of international economics,each with its own page. There are also various lists of typesof terms that occur frequently.Visit: www-personal.umich.edu/~alandear/glossary/

THE WORLD TRADEORGANIZATION (WTO)WTO is the only globalinternational organizationdealing with the rules of tradebetween nations. At its heart arethe WTO agreements,

negotiated and signed by the bulk of the world’s tradingnations and ratified in their parliaments. The goal is to helpproducers of goods and services, exporters, and importersto conduct their business. The website includesinformation on the organization, news, trade topics,resources, meetings, documents, community forums andmore.Visit: www.wto.org

FEDERATION OFINTERNATIONAL TRADEASSOCIATIONS (FITA) FITA's Really Useful Sitesfor International TradeProfessionals is a bi-weeklyemail newsletter sent to80,000 international trade

professionals worldwide. Published by the Federation ofInternational Trade Associations (FITA), Really UsefulSites for International Trade Professionals containsinformally written descriptions of 4-5 web sites fromFITA's International Trade Web Resources(http://fita.org/webindex) that are useful for internationaltrade, as well as some fun sites that enliven a business day.Visit: http://fita.org/useful/index.html

THE WORLD BANK TRADERESEARCH ELECTRONICBULLETINThis is a quarterly e-mailpublication containing abstractsof recent trade working papersand other works. Additionalinformation on the Bank’s TradeResearch Team activities can be

found on the World Bank Trade Research website(www.worldbank.org/research/trade). This provides basicinformation on research activities in progress, tradeworking papers, other Bank trade publications, trade dataand links to other trade related web sites. You may also visitthe recently redesigned Trade Web atwww.worldbank.org/trade for additional information ontrade and development, including the World Bank Institute’sactivities in the area of capacity-building and training,Integrated Framework, and related trade activities. Visit: www.worldbank.org/research/trade/newletter.htm

INTERNATIONAL TRADEFORUMThis is the online magazine of theInternational Trade Center (ITC).ITC is the technical cooperationagency of the United Nations

Conference on Trade and Development (UNCTAD) and theWorld Trade Organization (WTO) for operational, enterprise-oriented aspects of trade development. ITC supportsdeveloping and transition economies, and particularly theirbusiness sector, in their efforts to realize their full potentialfor developing exports and improving import operations.Visit the magazine website at: www.tradeforum.org

Visit the ITC website at: www.intracen.org

K N O W L E D G E R E S O U R C E S

TRADE AND DEVELOPMENTCENTERThe site is a joint initiative of theWTO and the World BankInstitute under a program calledInformation Technologies forDevelopment (ITD). The Trade

and Development Center was created to provideinformation to the community of Internet users who have aspecific need for information on trade as it relates to socialand economic development. Features include: theDevelopment Gateway, Advisory Center on WTO Laws,WTO Network online discussions, conferences, and more.Visit: www.itd.org

ASIAN DEVELOPMENT BANKADB is a multilateraldevelopment finance institutiondedicated to reducing poverty inAsia and the Pacific. ADBprovides assistance based uponconsiderations of economicviability, technical feasibility,

and financial soundness. The website provides links tonews, events, and publications.Visit: www.adb.org

ASIA-PACIFIC ECONOMICCOOPERATION (APEC) The APEC forum is the primaryinternational organization forpromoting open trade andeconomic cooperation among21 member "economies"

around the Pacific Rim. APEC works in three broad areas:trade and investment liberalization, business facilitation,economic and technical cooperation. The websiteprovides links to databases and e-IAPS, publications,news, and events.Visit: www.apecsec.org.sg

INTERNATIONAL STANDARDIZATION ORGANIZATIONISO is a network of the national standards institutes of146 countries, with a Central Secretariat in Geneva,Switzerland. ISO is a non-governmental organization andoccupies a special position between the public and private

sectors. Therefore, ISO is able to act as a bridgingorganization to meet both the requirements of businessand the broader needs of society. ISO's work programranges from standards for traditional activities, such asagriculture and construction, through mechanicalengineering, to medical devices, to the newestinformation technology developments, such as the digitalcoding of audio-visual signals for multimediaapplications.Visit: www.iso.ch

ASSOCIATION OF SOUTHEASTASIAN NATIONS (ASEAN)ASEAN is an association of tencountries in the South Asiaregion. Its aims and purposes areto accelerate economic growth,social progress and culturaldevelopment in the region, and to

promote regional peace and stability. Check the website forprograms, projects, meetings, and publications. Visit: www.asean.or.id

THE ECONOMIC POLICYINSTITUTEEPI is a nonprofit, nonpartisanthink tank that seeks to broadenthe public debate about strategiesto achieve a prosperous and faireconomy. It provides researchand education to promote a

prosperous, fair, and sustainable economy. EPI stresses realworld analysis and a concern for the living standards ofworking people, and makes its findings accessible to thegeneral public, the media, and policy makers.Visit: http://epinet.org

INSTITUTE FORINTERNATIONAL ECONOMICSIIE is a private, nonprofit,nonpartisan research institutiondevoted to the study ofinternational economic policy.Its agenda emphasizes globalmacroeconomic topics,

international money and finance, trade and related social

36 Development Outreach W O R L D B A N K I N S T I T U T E

J U L Y 2 0 0 3 37

issues, investment, the international implications of thenew technologies, globalization and the backlash againstit, reform of the international financial architecture, andnew trade negotiations. In late 2001, the Institute helpedcreate a new Center for Global Development to addresspoverty and development issues in the poorer countries.Visit: www.iie.com and www.cgdev.org

INSTITUTE FOR INTERNATIONAL ECONOMIC STUDIESIIES is primarily a research institute affiliated withStockholm University. The goal of he Institute is to createa research environment characterized by highcompetence in economic analysis of international issues.Three areas of research dominate the work of theInstitute: macroeconomic analysis of open economies;foreign trade; and general economic theory andmethodology. The website provides links to publications,conferences, and seminars.Visit: www.iies.su.se

INTERNATIONAL FOOD ANDAGRICULTURAL TRADEPOLICY COUNCILThe IPC is dedicated todeveloping and advocatingpolicies that support an

efficient and open global food system, that promotes theeconomically and environmentally sustainable productionand distribution of safe, accessible food supplies to theworld’s growing population. The website provides links toprograms, events and activities--in particular, the IPCRecommendations for the Doha Agricultural TradeNegotiations.Visit: www.agritrade.org

KLUWERThis is a service that providesinformation products toacademic and corporateresearchers. Kluwerpublications consist of books,

major reference works, and journals in print and multipleonline delivery formats. The topics cover the humanitiesand social sciences, environmental science, physicalsciences, behavioral sciences, engineering and computersciences and biosciences. The reader may subscribe for a

free electronic notification service for journal tables ofcontents and new product announcements.Visit: www.wkap.nl

OTHER USEFUL TRADE RELATED WEBSITES

Bureau of International Labor Affairs – ILABwww.dol.gov/ilab/welcome.html

Center for Economic Policy Researchwww.cepr.org

European Bank for Reconstruction and Developmentwww.ebrd.com

European Commission Trade Newshttp://europa.eu.int

Export-Import Bank of the United Stateswww.exim.gov

Inter-American Development Bank (IADB)www.iadb.org

International Chamber of Commercewww.iccwbo.org

International Law Institutewww.ili.org

International Trade Commissionwww.usitc.gov

International Trade Data Systemwww.itds.treas.gov

National Bureau of Economic Research (USA)www.nber.org

OECD (Paris)www.oecd.org

OECD (Washington)www.oecdwash.org

Organization of American States (OAS)www.oas.org

Trade Compliance Center – US Department of Commercewww.mac.doc.gov

United Nations Conference on Trade and Developmentwww.unctad.org

United States Trade and Development Agencywww.tda.gov

United States Trade Representativewww.ustr.gov

USTrade.Orgwww.ustrade.org

Washington International Trade Associationwww.wita.org

World Customs Organization (WCO)www.wcoomd.org

World Trade Centers Association (WTCA)http://iserve.wtca.org

STEERING BY THE STARS: BEINGYOUNG IN SOUTH AFRICA, byMamphela Ramphele, Tafelberg, 2002.

The book captures some of thestruggles young people continue toexperience in post-apartheid SouthAfrica. The book is set in the blacktownship community of NewCrossroads, Cape Town where

violent homes, schools and streets add to thegeneral insecurity, as is the case in many other SouthAfrican black communities. The stories in this bookillustrate life experiences for young people, bearing all thescars of the legacy of the past. It is a testamentabout the resilience of people who have seen, heard andexperienced pain and anguish and yet kept hoping for abetter tomorrow.

THE WORLD TRADEORGANIZATION: LAW ANDPRACTICE, by Mitsuo Matsushita,Thomas Schoenbaum, PetrosMavroidis. Oxford University Press,2003.

This book, written by anoutstanding team of WTO lawspecialists, provides a

comprehensive overview of the law and practice of theWTO. The authors explain the origins and development,via the GATT, of all of the substantive legal areas coveredby the WTO as well as the sources of law and remedies ofthe Dispute Settlement system.

REGIONAL INTEGRATION ANDDEVELOPMENT, by Maurice Schiffand L. Alan Winters.

The book examines regionalismfrom the perspective of developingcountries and presents acomprehensive account of existingtheory and empirical results. Thisbook incorporates the findings of

formal analyses of the politics and dynamics of regionalism.It considers the relationship between regionalism andmultilateralism and explores the economic advantages ofnondiscriminatory trade liberalization, which the authorsargue should be exploited to the maximum extent. The bookalso provides rules of thumb for regionalism, rules that arenot inviolable but which should not be violated lightly.

DEVELOPMENT, TRADE ANDTHE WTO: A HANDBOOK,Edited by Bernard M. Hoekman,Philip English, and Aaditya Mattoo.

Developing countries areincreasingly confronted with theneed to address trade policy relatedissues in international agreements,most prominently the World Trade

Organization (WTO). This handbook offers guidance on thedesign of trade policy reform, surveys key disciplines andthe functioning of the World Trade Organization (WTO),and discusses numerous issues and options that confrontdeveloping countries in using international cooperation toimprove domestic policy and obtain access to exportmarkets. Many of the issues discussed are also relevant inthe context of regional integration agreements.

STANDARDS AND GLOBALTRADE: A VOICE FOR AFRICA, by John S. Wilson and Victor Abiola.

The book reflects the World Bank’swork on trade facilitation,standards and capacity building inSub-Saharan Africa. It providesin-depth case-by-case analysis of

B O O K S H E L F

WTO PUBLICATIONS ON TRADE

■ Special Study No. 7, Adjusting to Trade Liberalization— The Role of Policy, Institutions and WTO Disciplines.

■ Discussion Paper No. 1, Industrial Tariffs and the DohaDevelopment Agenda.

■ WTO Analytical Index - Guide to the WTO Law and Practice.■ WTO Basic Instruments and Selected Documents, Volume I.■ Computer Based Training on General Agreement on Trade

in Services.

For hotlinks and order information visit: www.wto.org, andclick on New Publications.

WORLD BANK PUBLICATIONS 2003

38 Development Outreach W O R L D B A N K I N S T I T U T E

J U L Y 2 0 0 3 39

five African countries—Kenya, Mozambique, Nigeria,South Africa, and Uganda—and is intended to be aresource for policymakers and the developmentcommunity in a new "behind the border" barrier to trade.

FREE TRADE AREA MEMBERSHIPAS A STEPPING STONE TODEVELOPMENT: THE CASE OFASEAN, by Emiko Fukase and WillMartin.

This study investigates theeconomic impacts of accession tothe ASEAN Free Trade Area (AFTA)

by the new members of Cambodia, the Lao PDR, Myanmarand Vietnam. The trade policies of these countries areexamined, and a series of quantitative analyses wereundertaken to evaluate the impacts of accession.

TRADE POLICY DEVELOPMENTS IN THE MIDDLE EASTAND NORTH AFRICA, by Bernard Hoekman and HanaaKheir-El-Din, eds.

The Middles East and North Africa region has greatpotential for economic growth and prosperity in the 21stcentury. Yet this potential will not be realized unlessgovernments and private sector leaders in the regionforge parterships for development. An indispensableresource for all those working within the internationaldevelopment community, especially within the MiddleEast and North Africa region, this publication offerspolicy and institutional alternatives to help both partiesachieve that goal.

GLOBAL ECONOMIC PROSPECTS 2004This is one of the key World Bank tools for analysis andadvocacy of the global trade agenda.

GLOBALIZATION, GROWTH AND POVERTY: BUILDINGAN INCLUSIVE WORLD ECONOMYThis study shows that globalization has helped reducepoverty in a large number of developing countries but itmust be harnessed better to help the world’s poorest,most marginalized countries improve the lives of theircitizens.

TRADE BLOCSThis latest report analyzes both the political and economicbenefits of regional trade blocs.

WHAT CAN AFRICA EXPECT FROM ITS TRADITIONALEXPORTS?by Francis Ng and Alexander Yeats.

TRADE FACILITATION: A DEVELOPMENT PERSPECTIVEIN THE ASIAN PACIFIC REGION, by John S. Wilson,Catherine Mann, Yuen Pau Woo, Nizar Assanie, and InbomChoi.

LA NUEVA AGENDA DEL COMERCIO EN LA OMC, by Marcelo Olarreaga and Ricardo Rocha.

DID DOMESTIC POLICIES MARGINALIZE AFRICA ININTERNATIONAL TRADE? by Alexander Yeats with AzitaAmjadi, Ulrich Reincke and Francis Ng.

WHAT MAKES EXPORTS BOOM? by Mark J. Roberts andJames R. Tybout.

TRADE PERFORMANCE AND POLICY IN THE NEWINDEPENDENT STATES, by Constantine Michalopoulosand David Tarr.

THE URUGUAY ROUND: WIDENING AND DEEPENINGTHE WORLD TRADING SYSTEM, by Will Martin and L.Alan Winters.

THE URUGUAY ROUND AND THE DEVELOPINGECONOMIES, by Will Martin and L. Alan Winters, eds.

THE URUGUAY ROUND: STATISTICS ON TARIFFCONCESSIONS GIVEN AND RECEIVED, by J. MichaelFinger, Merlinda Ingco and Ulrich Reincke

WTO OBLIGATIONS AND BANK POLICY ADVICE:KEEPING UP WITH POST-URUGUAY ROUND RULES, by John Croome

For hotlinks and summaries visit:www.worldbank.org/research/trade/pubs.html

These publications can be purchased throughthe World Bank Info Center Bookstore, athttp://publications.worldbank.org/ecommerce/

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C A L E N D A R

JULY 2003

9–11 UNCTAD Expert Meeting: "EnvironmentalGoods and Services in Trade and Development"Geneva, Switzerlandwww.unctad.org

15–16 OECD Investment Compact for South EastEurope ministerial conference.Vienna, Austriawww1.oecd.org/media/upcoming.htm

29–31 UNCTAD Expert Meeting on Market AccessIssuesGeneva, Switzerlandwww.unctad.org

AUGUST

10–16 Drainage Basin Security: Balancing Production,Trade and Water UseStockholm International Water InstituteStockholm, Swedenwww1.oecd.org/media/upcoming.htm

SEPTEMBER

10–14 Fifth WTO Ministerial ConferenceCancun, Mexicowww.wto.org

23–24 Annual Meetings of the World Bank and theInternational Monetary FundDubai, United Arab Emirateswww.imf.org/external/am/2003/index.html

OCTOBER

5–9 World Forum on Energy RegulationOrganizer: Italian Regulatory Authority forElectricity and GasRome, Italywww1.oecd.org/media/upcoming.htm

14–17 World Knowledge Forum 2003Seoul, South Koreawww.wkforum.org/wkf_eng/

16 World Food DayWashington, DCwww.worldfooddayusa.orgwww.feedingminds.org

17 International Day for the Eradication of PovertyNew York, USAwww.un.org/esa/socdev/poverty/poverty_link3.htm

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The Knowledge Utilization through Learning Technologies (KULT) Program was originally founded by World BankInstitute (WBI)/The World Bank. It has been transferred to, and is now managed by, the KULT Program PartnersConsortium consisting of the Asian Institute of Management, University Science Malaysia, University of Surabaya,American University in Cairo, and SPAAC/ Human Empowerment Center of Egypt. These partner institutions willcontinue to offer KULT Program's international workshops, in collaboration with the International Society forImproving Training Quality (isitQ),—a professional and virtual network of KULT Program alumni. The following international workshops are offered:

6th International Workshop on: "Strategic Management and Marketing of Training (SMMT-6): Ensuring Sustainability and Financial Health of Training Institutions"Organized by: Asian Institute of Management (AIM)Manila, the Philippines: September 1-9, 2003—Website: www.kult-educ.org/wksp/smmt-6

2nd International Workshop on: "Enhancing Training Quality through Quality Customer Service: Caring for Clients Before, During and After Training (QCS-2)"Organized by: University of Surabaya (Ubaya)Bali, Indonesia: October 1-7, 2003—Website: www.kult-educ.org/wksp/qcs-2

5th Trainers Workshop on: "Improving Training Quality through Interactive Learning Technologies andDistance Mentoring (ITQ-5)A 5-phase learning activities, combining face-to-face/group training with online/Internet-based learning as well as distance mentoring/coaching spread over a 10-month period. Organized by: University Science Malaysia (USM)Penang, Malaysia: October 13-25, 2003 (1st face-to-face/group training)Surabaya, Indonesia: April 26 - May 1, 2004 (2nd face-to-face/group training)Website: www.kult-educ.org/wksp/itq-5

3rd International Workshop on: "Innovative Marketing Communications:Promoting and Selling Training in a Competitive Global Market (IMC-3)"Organized by: American University in Cairo (AUC) & SPAAC/Human Empowerment CenterCairo, Egypt: December 6-12, 2003—Website: www.kult-educ.org/wksp/imc-3

For more information on the Workshops and/or to obtain the Application Forms, please contact:

Mr. Eric Wibisono, Sec. Gen., KULT ConsortiumFax: (62-31) 298-1301 E-mail: ewibisono@ia.ubaya.ac.id

KULT Program Partners Consortium:

The KULT Program Partners Consortiumis pleased to offer:

Capacity Enhancement Opportunities forEducation Business Entrepreneurs, Training Executives/Managers and

Professional Trainers & Learning Technology Specialists

HOW TO SURVIVE IN A GLOBAL TRAINING MARKET andAVOID BECOMING A DINOSAUR?

INCREASE THE COMPETITIVE EDGE andENSURE YOUR INSTITUTION’s FINANCIAL HEALTH