Responding to Challenges Responding to Challenges of International Trade and of International Trade and Securing an Inclusive Path Securing an Inclusive Path

to Development to Development

Siddhartha MitraSiddhartha Mitra

Director (Research)Director (Research)

CUTS InternationalCUTS International

Three Questions on Inclusive Trade Led Development

• How can India contribute to strengthening the development dimension of the multilateral trading system?

• What would be the characteristics of a pro-development regional trade system in Asia?

• What are the features of a holistic trade sustainability impact assessment?

Mainstreaming Trade into National Mainstreaming Trade into National Development Development

•Ensuring that trade leads to faster economic growth and poverty alleviation

•To ensure development is such that it promotes competitiveness in international markets

How to Ensure that Trade Leads to Faster How to Ensure that Trade Leads to Faster Growth Growth

• Supply side changes in infrastructure (better roads, ports etc) and in export industries (tax exemptions)

• Better trade related institutional facilities (ports and customs procedures, quality of duty draw back systems etc.)

• Analytical trade policy – for example, low tariffs on inputs and capital goods, absence of unnecessarily low tariffs on consumer goods

• Development of trade negotiating capacity so as to expand the space for analytical trade policy

How to Ensure that Trade leads to Poverty How to Ensure that Trade leads to Poverty AlleviationAlleviation

• Promotion of labour intensive growth such as that in Bangladesh

• Reduced tariffs on inputs into labour intensive imports

• Avoidance of excessive rigidity in labour legislation

• Redistribution of upper end incomes and use of aid for trade to provide safety nets for the poor

Characteristics of a pro-development Characteristics of a pro-development regional trade system in Asiaregional trade system in Asia

• Recognition that sustainability in economic development is based on sustainability of the environment and vice-versa; sustainability has to be a partnership effort

• Before implementing regional trade agreements stress should be placed on

» Capacity to deal with the negative side effects of freer trade – environmental instability, volatility in income distribution etc

» Capacity to take advantage of positive opportunities offered by freer trade – LDCs often cannot take advantage of zero tariff lines

» Capacity of LDCs to negotiate (engagement of non-state actors) – more balanced outcomes for development

Pro-development RTAs in AsiaPro-development RTAs in Asia

• More developed countries can negotiate agreements that apparently favour the LDCs and still gain

• LDCs should negotiate at their own pace

and not before the requisite institutions are in place

What is sustainability impact analysis?What is sustainability impact analysis?

Two Tasks:

• trace the chain of events from a policy change to consequent economic, social and/or environmental sustainability

• Provide measures of magnitudes and dimensions of sustainability impacts

Three Components of Sustainability Impact Three Components of Sustainability Impact Analysis (SIAAnalysis (SIA))

• Economic

• Social

• Environmental

Economic SIAEconomic SIA

• To examine whether growth rates are marked by stability at non-negative levels or steady upward increase

• To check whether foreign exchange reserves are getting systematically depleted or enhanced over time

• To check whether changes in FDI, FII and balance of trade deficits are leading to indebtedness or endangering the growth process

Economic SIA: Analytical ApproachEconomic SIA: Analytical Approach

C+S +T ≡C -M+I+G+X (C-M)+S+T+M≡ (C -M)+I+G+X S+T+M≡ I+G+X (S-I) ≡ (G-T)+(X-M) C - consumption expenditure; S- Savings; I –investment; T- taxes; G- govt. expenditure; X- exports; M- imports

Analytical ESIA (Continued)Analytical ESIA (Continued)

• Saving-investment gap ≡ Budget deficit + Current account surplus

• Saving –investment gap + Current account deficit ≡ Budget deficit

• Note that current account deficits maybe unsustainable as they are characterised by budget deficits which imply borrowings, possibly lower productive investment and lower growth

• Solution may be to cut down government expenditure: growth may suffer again

Social SIASocial SIA

• To check whether poverty levels are going down over time

• To ascertain whether inequality is remaining steady or declining over time

• To check on movements in the unemployment rate

Environmental SIA Environmental SIA • To check whether pollution levels are increasing and at what

rates

• To check whether the existing or potential pollution levels threaten human and animal life in any way

• To check on the sustainability of ecosystems

• To check whether net deforestation is positive and negative and whether there are any trends over time

Inter-linkages among the three SIAs: Inter-linkages among the three SIAs: ExamplesExamples

• Very high growth rates might endanger forests and ecosystems, lead to levels and rates of growth of pollution/deforestation which might threaten or impede human life and productivity

• High growth rates with very high inequality/unemployment increase: socially unacceptable

• All such interconnections need to be brought out

ConclusionsConclusions• Trade might be growth augmenting but not always inclusive

• We need to build in provisions regarding domestic capacity, negotiating capacity and international trade governance to ensure that it is inclusive

• Inclusiveness can be checked through Sustainability Impact Analysis