51
Main messages
• Trade and the WTO have contributed to the development successes of the past decade and a half.
• But there are still big development challenges ahead.
• Both trade and the WTO have big contributions to make.
Historical perspective
• Development “waves” with ever faster growth – Combination of technological advances, trade opening (and migration)
Die
sel r
epla
ces
coal
Interwar period
Hu
ge s
pec
ializ
ed b
ulk
fre
igh
ters
an
d p
ort
exp
ansi
on
s
Co
nta
iner
sh
ipp
ing
Gre
at d
iver
gen
ce p
eaks
, b
ut
NIE
s em
erge
Post-war “golden age”
Op
enin
g o
f ex
- C
om
mu
nis
t ec
on
om
ies
GV
Cs
Ris
e o
f d
evel
op
ing
cou
ntr
ies
Age of globalization
Res
urg
ing
com
mo
dit
ies
Glo
bal
syn
chro
n. o
f sh
ock
s
Industrial revolution and steam engine
18
69
: Su
ez c
anal
an
d U
S tr
ansc
on
tin
enta
l rai
lro
ad
Firs
t ra
ilway
s in
Bri
tain
an
d E
uro
pe
Exp
and
ing
stea
msh
ip r
ou
tes
Falli
ng
foo
d p
rice
s e
nab
le m
ore
Eu
rop
ean
ind
ust
rial
izat
ion
No
rth
ern
do
min
ance
an
d b
ipo
lari
ty
Imp
rove
d r
efri
gera
tio
n
Larg
e sc
ale
mig
rati
on
Four key trends
• Rise of developing countries
• Increased developing country participation in global value chains
• Higher commodity prices
• Increased synchronization of macroeconomic shocks
Trade opening – 1840 to 1913
1853: Japan forcibly opened to trade 1846-60:
Britain’s unilateral trade opening
1860: Cobden-Chevalier MFN treaty between Britain and France
1870-1913: Unprecedented int’l economic integration
Trade opening – 1913 to 1973
Mid
-19
20
s: R
etu
rn t
o g
old
sta
nd
ard
, la
un
ch o
f b
ilat.
tra
de
neg
oti
atio
ns
19
29
-30
: Sm
oo
t-H
awle
y
WW
I: L
arge
dis
rup
tio
n
WW
II-f
uel
ed e
con
om
ic
reco
very
ou
tsid
e Eu
rop
e
Bre
tto
n W
oo
ds
retu
rns
stab
ility
GA
TT
fost
ers
tra
de
op
enin
g
Mar
shal
l pla
n
Trade opening – 1980 to today
Opening up of Soviet bloc and China: - Global labor force available for trade quadruples
1970s-today: Rise of MNEs
1994: Uruguay round concluded
1995: WTO established
1997: ITA becomes effective
2000s: RTA proliferate
2010s: Megaregionals, push for deeper integration
2001: China joins WTO
Rise of developing countries
Convergence
• In the last 2 decades, faster GDP growth in developing countries has allowed convergence with developed countries.
1.8
2.9
1.5
2.4
0.9
4.7
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
World Developed economies
Developing economies
G-20 developing economies
Other developing economies
Least developed countries (LDCs)
LDC oil exporters
LDC agricultural products exporters
1990-2000 2000-2011
1.9
0.9
-0.7
1.2
-1.3
5.4
3.8 3.7
6.6
3.9
Convergence has been broad-based …
• Growth has been broadly spread:
- G-20 developing countries have shown double-digit growth
- Natural resource exporters have benefited from higher commodity prices.
Figure B.8: Average annual growth in per capita GDP at purchasing-power-parity by level of development,
1990-2011
(annual percentage change)
More on country heterogeneity
This has been a boon for global equality …
Figure B.12: Share of population living in households below extreme poverty line, selected countries, 2000-11
(per-cent)
… and poverty rates
• Many countries have surpassed their MDG goals. – But developing economies remain much poorer than developed
countries. – LDCs’ GDP per capita is just 4% of that of developed countries.
0
10
20
30
40
50
60
70
Mal
i
Nep
al
Uga
nda
Ban
glad
esh
Paki
stan
Vie
tnam
Ethi
opi
a
Chi
na
Indo
nesi
a
Indi
a
Ho
ndur
as
Cam
bodi
a
Gua
tem
ala
Keny
a
Phili
ppin
es
Sout
h A
fric
a
Bra
zil
Thai
land
Co
lom
bia
Tuni
sia
2000 2011 Approximate MDG target
Human development indicators
• … often show improvement as a result of rising income.
• But gains are not automatic.
Domestic inequality
• … often increases given skill-biased technological changes.
Role of trade
• GDP growth has moved hand in hand with integration in the world economy.
• Although this relationship does not show causation, we know trade increases growth through various channels.
New trading partners
• … have been embraced by many developing countries.
Expanded DFQF access …
… has helped LDCs …
… but exports remain resource based.
Role of WTO • A predictable and transparent rule-based system promotes trade and
investments. – Particularly clear for countries that have recently acceded to the WTO
• Trade barriers reduced: Tariffs have fallen and binding coverage increased.
• Flexibilities allowed in WTO rules, specifically through preferential access for LDCs, have supported the good economic performance of the poorest.
Summary of challenges
Increased developing country participation in
global value chains
Global Value Chains (GVCs)
• GVCs offer a useful mechanism for countries to use trade to develop.
• Initial GVC integration typically has large development benefits.
• There are also risks involved and benefits are not automatic.
• Challenge thereafter becomes to upgrade to higher value added tasks or products in GVCs.
Figure C.1: Imports of parts and components by country
group, 1996-2012
(US$ billion)
0
500
1,000
1,500
2,000
2,500
3,000
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
Developed G-20 developing Other developing
The rise of GVCs and their growth benefits
• Many, though not all, developing countries have become increasingly involved in GVCs.
• South-South trade has grown through GVCs.
• GVC participation is associated with higher income and also higher economic growth.
Developing countries
Developing country participation in GVCs
• There is wide variation among developing countries:
– In levels of participation
– In type of participation
• Services have become more important through GVCs.
Role of the WTO
• Trade policies are crucial for GVCs (alongside various domestic policies).
• Countries with higher GVC participation:
– reduced significantly their tariffs on intermediate goods; and
– also made deeper commitments under the GATS.
Remaining challenges and the WTO
• Significant obstacles to GVC participation remain.
Important roles for trade facilitation, aid for trade and services commitments
• Tariff escalation can hold back upgrading.
• GVCs have spurred demand for deeper integration.
Higher Commodity Prices
Figure D.1: Real annual price indexes of selected economies, 2000-13
(2000 = 100; real 2005 US$)
0
50
100
150
200
250
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
(b)
Beverages
Food
Raw materials
0
50
100
150
200
250
300
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 (a)
Energy
Metals and minerals
Series3
Source: World Bank Commodity Price Data.
Higher commodity prices
• Natural resource and food prices roughly doubled since 2000. – In light of emerging markets’ strong demand, prices are expected to
remain strong (but also volatile).
• This has opened export opportunities for many developing countries which produce these products.
0%
10%
20%
30%
40%
50%
60%
70%
80%
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
Developed Other developing
G-20 developing LDCs
Source: WTO Secretariat calculations based on FAO data.
2
011
Figure D.11: The share of developing countries'
and LDCs' agricultural exports in world agricultural
exports, percentages, 1961-2011
Agriculture
• Richer developing countries were able to take advantage, but poorer countries lag behind.
• Agriculture is key sector in developing countries, employing more than half of population. – Incomes/Wages are much
higher in GVC-integrated agriculture
GVC integration and rising agricultural incomes
Agricultural growth underpins overall growth
New market segments have gained prominence
• Fresh fruit and veg., specialty, and processed agricultural goods have higher value added (more)
– Likely to have higher growth impacts
• Likewise, destination markets have changed
– Asia now #1 market for LDC exports before EU
LDCs and agricultural trade
• There are success stories in LDCs, but they are not yet sufficient widespread
• Many LDCs remain net food importers
Obstacles in making agriculture work for dev’t
• Productivity gaps and difficulty attracting FDI – Benefits are long term and investments risky (and no IPR)
– Address by lower barriers for importing technologies and PPPs
• Market concentration in agricultural value chains – Producer organizations can be helpful
• Volatility of prices – Emergency loans for producers and support for vulnerable
consumers
– Investments to stabilize food production
Importance of standards
• Standards imply costs, but also give access to higher value markets
Standards challenge small producers
• Example: Asparagus production in Peru • Success/Size of certified firms far outstrips non-certified firms
Agriculture: Challenges and role of the WTO
• High prices are an important challenge for net food importers, many of which are LDCs. • Public stockholding for food security purposes
• In agriculture, tariffs and subsidies in destination countries continue to hinder developing country exports. • Average duty applied to LDC exports 12% in 2011
• Making progress in this area would hedge risk of commodity price softness in the future
• Non-tariff measures loom large. – Certification has become vital for export success, but can be
hard to achieve for small producers.
– WTO addresses issue through STDF.
Natural resources trade has increased strongly… • … including in volume terms.
Natural resources and development
• FDI in natural resources can open growth corridors – Gov’t use of bargaining power could foster backward
linkages
• Diversification remains important – Mitigate Dutch disease
– Foster possibly higher knowledge spillovers in other sectors
• Natural resource abundance can increase income inequality – Depends on country characteristics, e.g. ethnic polarization
Managing natural resource revenues
• Management of revenues is crucial for dev’t
– Has improved in recent years, incl. thru SWFs
– Fiscal policy turned counter-cyclical in many countries
Trade policy in natural resources and the WTO
• World is upside down
– Low tariff protection (5.7% vs. 10.3% on mfg.)
– High incidence of export restrictions (11% of trade covered)
• Potential to negotiate reductions in export restriction vs. reductions in import tariff escalation
Increased Synchronization of Macroeconomic Shocks
Globalization and synchronization of macroeconomic shocks
• Macroeconomic shocks emanating from one part of the world can be quickly transmitted to other parts
• Trade may have been part of the transmission mechanism, but it also dissipates shocks
Most developing countries have fared well during the crisis
Trade policy response to the crisis • Trade restrictive measures were taken during the crisis, but:
• Nowhere near the scale expected based on previous business cycle experiences.
• Trade coverage was low.
• At the same time, countries were taking liberalizing trade and investment measures.
Why no Smoot-Hawley?
• A coordinated macroeconomic response to the crisis
– Macro stimulus
– Financial sector support by developed countries
Why no Smoot-Hawley?
• A coordinated macroeconomic response to the crisis
• Global supply chains (Gawande et al., 2011)
Why no Smoot-Hawley?
• A coordinated macroeconomic response to the crisis
• Global supply chains (Gawande et al., 2011)
• The existence of trade rules and the effectiveness of monitoring efforts by the WTO
– Without this system of rules, much of the developmental gains of the past decades could have been lost.
• Trade agreements, by placing bounds on partners’ behaviour, have higher value when volatility is high (Limao and Maggi, 2013)
• Continued vigilance is needed in case of another crisis
Conclusions
• Enormous development gains have been achieved. – Trade policy commitments (paired with flexibility) were crucial
• But much more needs to be done: – Developing countries’ incomes still lag those of developed
– Upgrading and greater participation in GVCs
– Agricultural protection and subsidies
– Strengthening the rules-based system
– Higher trade policy certainty thru more bindings
• Trade has a central role to play for post-2015 development agenda and WTO has much to contribute.
• Many of the elements needed are at hand in the Bali decisions and the DDA.
Thank you!
http://www.wto.org/english/res_e/publications_e/wtr14_e.htm
http://www.wto.org/french/res_f/publications_f/wtr14_f.htm
http://www.wto.org/spanish/res_s/publications_s/wtr14_s.htm
World Trade Report:
WTR Discussion Forum on a new generation of trade reforms for facilitating development:
My contact: [email protected]
http://www.wto.org/english/res_e/publications_e/wtr14_forum_e.htm
Email for submission of contributions (up to 1000 words): [email protected]
