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Linkages between Trade, Development andPoverty Reduction:
Stakeholders View from South and South-East Asia
on Pro-Poor Trade Policies
Linkages between Trade, Development andPoverty Reduction:
Stakeholders View from South and South-East Asia
on Pro-Poor Trade Policies
CUTS Centre for InternationalTrade, Economics & Environment
Discussion Paper
#0615
CUTS Ce ntre for InternationalTrade, Economics & Environment
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Linkages between Trade, Development andPoverty Reduction:
Stakeholders View from South and South-East
Asia on Pro-Poor Trade Policies
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Contents
In t rodu ction .................................................................................................................................. 1
Fr am ing Povert y .......................................................................................................................... 3
Linka ges between Tra de P olicy, Growth an d P overty Redu ction ................................................ 5
Concept s of P ro-Poor Gr owth ........................................................................................................ 7
Em pir ical Eviden ce: Ban gladesh and Cambodia .......................................................................... 9
Povert y Reduction an d Tra de Policy: Case St udies of Ban gladesh, Cambodia an d ASEAN ......11
Alter nat ive Appr oaches to Pr o-Poor Tra de P olicies ..................................................................15
Elem ents of an Alt er na tive Appr oach to Pro-poor Trad e Policy ...............................................19
Ext ern al Const ra int s on Altern at ive Trad e Policies to Reduce Povert y ..................................... 21
Domestic P olicies for Moving up th e Valu e Ch ain to Redu ce Povert y ..................................... 25
Conclusion ........................... ........................... ........................... ........................... ....................... 27
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policiesw1
Of the m an y cur rent discourses in t he fields of development or
int ern at iona l economics, very few capt ur e th e degree of pass ion or
sense of urgency as t he debate on linkages between tr ade,
development and poverty.
A review of the literat ur e on int erna tional tr ade can fill librar ies
with books an d stu dies ar guing either tha t: freer trade w ould free
m ore of the w orlds poor from th e m isery their poverty represents3
or free tra de is par t of the pr oblem of poverty because, th e benefits
of international trade rem ain u nequally distributed: With 14
percent of th e worlds popu lation, h igh-income countries accoun t
for 75 p ercent of w orld exports; Low-income coun tries with 40
percent of th e worlds popu lation account for three percent of world
trade.4
The a bove quotes reflect th e left and right ra nge of views about
tra de, the rules based tra ding system, and the 2001 launch of the
cur rent WTO Round of tr ade negotiations, known as t he
Development Roun d. Per ha ps locat ing t he views of sta keholders in
developing societies at th e centr e of the debate can sh ar pen t herh etoric of both sides a nd elevat e th e qua lity of th e discussion.
Before out lining t he focus of th is pap er, I would like t o offer a few
points of depart ur e an d cont extual sett ings for t he findings and
conclusions:
By most accounts, t here is no empirical evidence to support a ninh eren t or direct causa l or corr elative relationsh ip between
tr ade libera lisat ion a nd economic growth . Past and present
examples can be found which either support or call into question
such relationships.
By most accounts, t here is a better case for a direct correlativerelat ionsh ip between growth an d povert y reduction in developing
societies. However, this a ut hor offers t he caveat t ha t su ch
relat ionsh ips often depend on th e pro-poor qua lity an d th e
sus ta ina ble socio-economic development nat ur e of th e growth
processes.
In d eveloping societies, ther e ar e both domestic (inter na l) an dintern ational (external) structur al const rain ts on trade to be
used a s a susta inable catalyst for poverty r educing effort s. While
mu ch of th is work focuses on the lat ter , it sh ould not insinu at e
th at th e removal of extern al const ra ints on developing societies
would au tomat ically enable tra de to play such a r ole.
While some focus on n ew cha ra cter istics or tr ends in th e globaleconomy as sociat ed with th e emer gence of Asia (led by Chin a a nd
In dia) as t he worlds new growth pole.5 It is th e evolution of th e
Introduction
1T he m ajority of
WT O m em bers are
developing countries.
We seek to place theirneeds and interests
at the heart of the
Work Programme
adopted in this
Declaration. 1
This is a m assive
defeat for poor
people around the
world. Th e mu ch
hyped development
round is empty.2
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2 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
regulative and inst itut ional fram eworks governing th e rules
based system of intern ational t ra de, the form s of governa nce
influencing the consum ing and producing agent s within t hose
fram ework s, and n at iona l economic an d tr ade policies which
shed a grea t deal of light on t he linkages between tr ade,
development and poverty r eduction in th e 21st century.
With t he 2005 WTO Ministerial m eeting set for December, the
world will obtain a nother sn apshot of th e cur rent an d fut ur edevelopment orient at ion ten dencies in th e rules based t ra ding
system. The talks on th e Agricultu re Agreemen t will have the
most impact on t ra de and povert y.
The overall objective of this p aper is to int err ogat e th e following
questions: If we seek bett er r esults in ter ms of how tr ade can help
reduce poverty do the curr ent tr ends call for doing different th ings
in ter ms of trade policy and th e ru les based system, as opposed to
doing the sa me t hings different ly? Put anoth er way, what would
produce superior povert y reducing results, a continua tion of the
curr ent t ra de liberalisation policy based agenda within t he curren t
global tr ade ar chitectur e or an altern at ive rules based system m ore
conducive to altern at ive poverty r eduction ba sed appr oaches t ointer na tional tra de policy?
The paper explores t his quest ion by examining linka ges between
tr ade policy an d poverty r eduction in relat ion t o the WTO, th e
Integra ted F ram ework initiative, regional tr ade policies in
Associat ion of South east Asian Nat ions (ASEAN) and t he P overt y
Reduction Str at egy Pa per (PRSP) processes in Ban gladesh an d
Cam bodia. The following sections will at tem pt to explore: th e issue
of povert y; linka ges between tr ade, tr ade policy and povert y
red uction; concept s of pr o-poor gr owth; empir ical background on
povert y and linkages between tr ade, tra de policy and povert y
reduction in Ban gladesh a nd Cambodia; element s of alternat iveapproaches to Pr o-poor tra de policies; per spectives on how th e
global ru les based system sha pes the n at ure of relat ionships
between t ra de policy and povert y redu ction efforts; and opport un ities
for developing societies to bet ter use tr ade policy to combat povert y.
The conclusion will summ ar ise th e implications of how th e evolut ion
of the curr ent tr ade policy environm ent relates t o the development of
alt ern at ive pro-poor based appr oaches to tra de policy.
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policiesw3
The literat ure on conceptua lisations of poverty an d su bsequent links
to tr ade is qu ite rich. At t he core, povert y is often defined in ter ms of
income, th e capacity t o access an d consu me ba sic needs a nd public
services (food, clothing, shelt er, hea lth care, educat ion), and t he
capacity to produce or a cquire ones basic needs via subsist ence
activities or via selling labour , goods or services in t he m ar ket place.
Clearly, an y policy measu re t hat increases th e price of someth ing
sold by an ind ividual or househ old, increases income while anymea sur e tha t r educes th e price redu ces income. Also, an y policy
measu re th at increases pr ices of what an individua l or h ousehold
consumes, decreases income an d while any measu re t hat decreases
th e price, increas es incomes.
Poverty in most developing societies rema ins predomin an tly a
quest ion of th e condit ions of life for people in ru ra l ar eas. In genera l,
th e ma jorit y of popula tions in most d eveloping societies r ely on s ome
form of agricultu ra l related economic activity as th eir prima ry
livelihood. In m an y cases, it is th is segment of the population th at
ma kes u p th e largest component of the society living in poverty. 6
While a compreh ensive look at t he issue of povert y and su bsequen tcondit ions of life in developing societies, par ticular ly in t he lea st
developing coun tr ies (LDCs) is beyond th e scope of this p aper , th e
following point s of reference ar e offered:
Both W orld B ank and United N ations Conference on Trade andDevelopm ent (UN CTA D) poverty estim ates suggest th at 49-50
percent of the popula tion in LDCs were living on less than
US $1/ day at the end of the 1990s.7
Although LDCs had m uch better econom ic perform an ce in th elate 1990s, th e overall incidence of poverty did not d ecline
du ring the decade.8
If current trends persist, it m ay be estim ated that the nu m ber ofpeople living in extrem e poverty in LDCs wi ll in crease from 334
m illion people in 2000 to 417 million in 2015.9
Th e World B ank reports th at th e num ber of people living onUS $2/ day or less in East Asia is estimated to have fallen to 631
m illion in 2004 , about an 8 p ercent d ecrease from th e previous
year.10
Th e World B ank reports th at th e num ber of people living onUS $2/ day or less in Cam bodia h as increased from 7.7 m illion
in 1990, to 11.1 m illion in 2004 . Nu m ber of people livin g on
US $1/ day or less also increased from 4.4 million to 6.1 m illion
du ring the sam e period. 11
Un ited N ations Developm ent Programm e (UN DP) reports th at90 percent of Cam bodias poor, approximat ely 36 percent of th e
popu lation in 1997, are rura l households. 12
Framing Poverty
2Poverty in most
developing societies
remains predominantly a
question of the
conditions of life for
people in rural
areas
Majority of populations in
most developing
societies rely on
som e form of
agricu ltural related
economic activity as
their primary
livelihood
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4 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
In Ban gladesh, poverty redu ction efforts ha ve in genera lproduced positive resu lts. Alth ough Sengupt a notes: Many
reports, am ong them th e UN DP report on Asia n poverty (2003)
show that poverty in Ban gladesh h as declined steadily in t he
1990s. However, in t he decade of rapid trad e liberalisation sin ce
m id-1980s th e poverty redu ction effect of growt h became m uch
weak er, despite an increase in growth rates of per capita
income.13
There will be no
deal on agriculture
un less th ey open
their markets to EU
manufacturing
exports.14
The Un ited S tates
is willing to cu t
farm subsidies if
other and
ind ustrial coun tries
also did.15
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policiesw5
In reviewing th e literat ur e on th e th eoretical concepts of th e
linkages between tra de and poverty, a r an ge of analyses can be
foun d which can be locat ed in t he deba te bet ween t he for
globalisation side16 an d t he an ti-globalisat ion side.17 The form er
ar gue tha t n at ions which have/ar e embracing globalisation t he most
(via tr ade an d investment liberalisation) are performing better then
na tions which dont, in ter ms of redu cing of poverty in th eir
societies. The lat ter, ar gue tha t t rade a nd investmen t liberalisationis shaping th e cur ren t na tu re of globalisation in ways which tend to
increase income inequ ality within a nd between societies, and in
several wa ys constr ain povert y redu ction efforts in developing
societies.
Alan Winter s Tra de P olicies for P overt y Alleviat ion: Wha t
Developing Count ries Might do, offers a relat ively balan ced a pproach
for conceptu alising th e linka ges. 18 Bhagwati a nd Sr inivasans
Trade a nd P overty in Poor Count ries, strongly support th e position
th at tr ade pr omotes growth an d growth r educes poverty.19
Ademola Oyejides Tr ade Reform for Economic Growth an d P overt y
Reduction, notes the importan ce of a ra nge of complement ar ydomestic and int ern at iona l policy factors an d varia bles being
present , in order for tr ade liberalisation to reduce poverty in
developing societies .20
In gen era l, tra de policy affects povert y via impacts on domest ic
economic varia bles such as pr ices, employment , wages & incomes,
an d government revenues an d spending. Clearly, trade policy and
other form s of liberalisation serve as t he prima ry pat hways by
which domestic growth an d developmen t p rocesses in developing
societies ar e linked t o the dyna mics of developed economies a nd
global mar kets. However, ther e is a robust debat e on th e cha llenges
an d opportun ities associated with t he na tu re of such linka ges and
what th ey mean for growth, development and poverty reduction.
The World Ban ks position is clearly ar ticulated in th eir appr oach to
ma instr eaming tr ade in th eir PRSP pr ocess where the definition of
a s uccessful tr ade p olicy reform effort will result in t he poor being
better off if tr ade libera lisat ion r esults in a situ at ion wher e they
earn income from working in th e export sector a nd consu me goods
from the import able sector.21 Such th inking reinforces a sta tic
compa ra tive adva nt age m odel of growth in developing societies,
which suggests th at producing wha t you dont consume, an d
consu min g what you dont pr oduce repr esent s a viable element of a
susta inable development str ategy in th e 21st century.
Linkages between Trade Policy,Growth and Poverty Reduction
3
Trade policy affectspoverty via impacts
on domestic
economic variables
such as prices,
employment, wages
& incomes, and
government revenues
and spending
Produ cing what you
dont consume, and
consuming what you
dont produce
represen ts a viable
element of asustainable
development strategy
in the 21st century
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6 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
This aut hor does not shar e tha t perspective. I also note tha t it
would, in ma ny inst an ces, perp etu at e existin g economic models in
developing societies (ma ny of which ha ve th eir r oots in colonialism)
which t o date ha ve often proved increasingly un able to sustain th e
kinds of growth an d developmen t pr ocesses necessary t o reduce
povert y. Alter na tive fram es of referen ce can be foun d in Rodrik
(2001)22 an d Wint ers, L.A., N. McCulloch, a nd A. McKay (2004). 23
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policiesw7
Pr o-poor growth is about cha nging th e distribu tion of rela tive
incomes t hr ough th e growth pr ocess to favour t he poor. Two
definit ions (relat ive and a bsolut e) for mea sur ing Pr o-poor gr owth
include:
Growth is pro-poor when t he distr ibutiona l shifts accompa nyinggrowth favour t he poor, rela tive to the n on-poor (Klasen, 2004;
Kakwan i an d P ernia, 2000; McCulloch an d Bau lch, 1999;
Kakwan i an d Son, 2003).24
Growth is consider ed to be pro-poor if an d only if poor peoplebenefit in a bsolute t erms, as reflected in some a greed measu re of
poverty (Ravallion a nd Ch en, 2003; Kra ay, 2003). In th is case,
th e extent to which gr owth is pro-poor depends solely on t he r ate
of cha nge in poverty, which is det erm ined by both th e ra te of
growth an d its distributional patt ern.25
The World Ban k u ses the lat ter definition, becau se it finds
limitat ions in t he form er due t o its higher pr iority on distribut ion
relative to growth m aximisation. However, th is aut hor favour s th e
form er, becaus e of th e political a nd economic implications of th e
ten dency of income in equa lity to increase in societies pu rsu inggrowth maximisation based approaches to poverty reduction. 26
Alter na tive concepts of pro-poor gr owth t end t o place a h igher valu e
on th e linkages between inequality, growth a nd poverty redu ction.
In a sense, arguing th e potent ial for stronger growth poverty
linkages, when th e growth pr ocess promotes greater income
equa lity. The following addit iona l point s ar e often noted in
alter na tive approaches to pro-poor growth:
In pro-poor growth , it is n ecessary t o have t he t ype of growthth at raises average h ousehold incomes a nd household
consu mpt ion. In creases in overa ll GDP per capita do not
inher ent ly achieve th ese two objectives.27
Growth t ha t is pr o-poor t ends t o increase st aple food productionan d farm employment, an d provides incentives and ena bles
devices tha t red uce fert ility. 28
A key determ inan t of wheth er how much growth leads t o povertyredu ction (low-end r edistr ibution) depends on how much at th e
initial sta ges the r educed poverty pr omotes additional growth. 29
Cont ra ry t o neo-liberal based concepts of th e linkages bet weengrowth a nd poverty, alter na tive appr oaches also recognise clear
insta nces when growth can be bad for th e poor. 30
Growth is consider ed pro-poor wh en it is labour abs orbing andaccompan ied by policies, which m itigate inequa lities, and
facilitat es income gains pa rt icular ly for women an d oth er
tr aditionally excluded or disadvant aged groups. 31
Concepts of Pro-Poor Growth
4Pro-poor growth is
about changing the
distribution of
relative incomes
through the growth
process to favour
the poor
Alternative concepts
of pro-poor growth
tend to place a
higher value on the
linkages between
inequality, growth
and poverty
reduction
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8 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
An inter estin g case st udy of how one n at ion r eform ed its policyappr oach t o developmen t from a growth oriented st ra tegy to a
social equit y oriented str at egy is Malaysia.32
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policiesw9
As previously noted, tr ade policy repr esent s th e path ways by which
th e dynam ics of global ma rk ets can im pa ct conditions of poverty in
developing societies. Car r a nd Ch en (2001) provide a strong
gendered an alysis of such path ways, with par ticular focus on
identifying u nique differences in impacts on t he form al a nd informal
economies of developin g societies . 33
In t erms of empirical an alyses of the impacts a nd linka ges betweentr ade policy, growth an d poverty r eduction t he following conclusions
from severa l studies ar e present ed below. At t he ma croeconomic
level, Cline estima tes th at global free tr ade would gener at e income
gains of US$90bn a nn ua lly for developing na tions from st at ic
effects, an d long-term gains (from dyna mic effects) of US$200bn
annually.34 However, Kra ev estima tes losses of 10 percent to 16
percent in GDP an d 4 percent t o 29 percent in a ggregate deman d in
LDC nat ions, due t o aggregat e deman d deficiencies genera ted by
rising tr ade deficits r esulting from rapid tr ade liberalisat ion.35
Christian Aid estimat es losses in income a ssociated with ra pid tra de
liberalisat ion in LDCs since 1985 to be US$250bn .36
Ann abi, Khondker , Raihan, Cockbur n, an d Decaluwe find th e
following impa cts of WTO Agreem ent s a nd domestic tr ade policy
reform s on production, welfar e an d povert y in Banglad esh: 1) Doha
scenar io ha s negat ive implications for t he overall ma cro economy,
househ old welfar e, poverty, ter ms of tr ade, an d increases in
domest ic food prices; 2) free world t ra de ha s similar but lar ger
impa cts; 3) domestic tra de libera lisation indu ces an expans ion of
agricultura l and light m anu factu ring sectors, increased wage ra tes
for u nsk illed labour, an d increased welfar e and poverty red uction; 4)
when combined, d omestic libera lisation effects outweigh t hose of free
world t rade; an d 5) remitt an ces ar e a powerful poverty redu cing tool
given t heir importa nce to the poor.37
Kha n finds t he following povert y impacts of tra de liberalisat ion
policies:
1) In South Asia, trade liberalisation can lead t o furt her poverty
reduction;
2) Both the extent and dept h of poverty decline in each household
group;
3) Largest headcount rat io drop is for r ura l unskilled group;
4) Povert y severity falls for all househ old groups, except for ur ban
un skilled workers;
5) Poverty reduction benefits a re great er when ta riffs ar e reduced to
15-18 percent, th an when r educed below 15 percent; and
Empirical Evidence:Bangladesh and Cambodia
5
Rem ittan ces are a
powerful poverty
reducing tool given
their importance to
the poor
In South Asia,
tradeliberalisation can
lead to further
poverty reduction
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10 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
6) tar iff redu ction will ult ima tely benefit th e poor, bu t t he pr ocess
is uneven and r equires time adjust t hr ough the economic
system.38
The Int ern at iona l Development Resear ch Cent re (IDRC), Canada
supp orts t he Micro Imp acts of Macroeconomic and Adjustm ent
Policies (MIMAP) pr oject in Ba ngladesh th at genera ted th e following
findin gs on t he impa cts of tr ade policy on income distr ibut ion a ndhousehold welfar e: 1) Since th e 1980s, Ban gladesh h as a dopted a
comprehen sive tra de libera lisation based ap proach to economic
policy reform s, associated with a num ber of Structur al Adjustm ent
Fa cility and Enh ance Str uctur al Adjustmen t Fa cility agreements
with th e World Ban k an d IMF; 2) In t he 1990s, Bangladeshs tr ade
policy environm ent was liberalised rapidly, resultin g in a r ise in th e
shar e of foreign tr ade as a percentage of GDP an d th e degree in
which Ban gladeshs domestic economy is int egrat ed int o the global
economy; 3) In th e 1990s, incidences of povert y in Ban gladesh ha ve
declined; 4) Household welfar e impr oved for a ll househ old gr oups; 5)
Welfar e gains for h igh-income households were lar ger th an for low
income h ouseholds; 6) Wages for m an ufactu rin g work ers declined;
and 7) Wages for a gricultu ra l worker s increased.39
As noted ear lier, Cambodias pr ogress in ter ms of political st ability,
ma cro-economic sta bilisat ion a nd export led economic growth in th e
1990s had a limited impact on povert y reduction effort s. The UN
notes tha t povert y rates r emain very high with 35 percent t o 40
percent of populat ion below th e povert y line, with 15 per cent to 20
percent in extreme povert y and inequa lity rising.40
Given th e str uctu ra l composition of povert y in Cam bodia (th e poor
are concentra ted in ru ra l areas, most households headed by farmer s
with limited education), the most significant linkages between tr ade
policy an d poverty a re in th e following ar eas: 1) in agricultur e,expenditu res of the poor on r ice are t he most importa nt expenditu re
hen ce food pr ices ar e a significant factor im pactin g povert y;2)
impact on poverty from reducing import an t t ar iffs to 7 percent were
estimat ed to increase household purchasing power by 3 percent to 4
percent;41 3) employment a nd wages for 250,000 urban workers in
the gar ment export indust ry represent a significant sour ce of
income for two million relat ives in r ur al a reas;42 an d 4) in th e post
MFA environment, Cam bodias garm ent indu str y has been able to
sust ain its per form an ce. However, global competitive pressu res ar e
forcing Cambodia to m ove up va lue chain in t erm s of labour
standar ds and pursue enha nced bilateral m arket access in US.43
In the 1990s,
incidences of
poverty in
Bangladesh have
declined
Cambodias
progress in term s of
political stability,
macro-economic
stabilisation and
export led economic
growth in the 1990s
had a limited
impact on poverty
reduction efforts
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policies w11
As previously noted Ban gladesh, Cam bodia an d th e ASEAN region
have experienced a ran ge of poverty reduction r elated results during
periods of tr ade libera lisation policy reform s. In t he cases of
Bangladesh a nd Ca mbodia, such r eforms ha ve been associated with
World Ban k an d IMF support ed effort s to ma inst rea m tr ade policy
into their n at iona l PRSPs an d effort s by th e IMF, World Ban k an d
WTO to coordin at e th e provision t ra de policy reform t echn ical
assistan ce under th e Integrat ed Fram ework (IF) initiative.
In Bangladesh , development pra ctitioner s and stak eholders
highlight ed broad tren ds such as: the importa nce of growth in t he
agricultur al sector in reducing poverty; growth in agr icultu re n ow
linked m ore closely to extern al t ra de policy; and Ban gladeshs
success in redu cing poverty per year dur ing th e past two decades.
However, the r at e of povert y redu ction per year slowed in 2000 from
0.8 percent per year t o 0.5 percent per year an d income inequa lity
ha s r emained a ma jor factor in reducing poverty. The following
comment s with r egard to the impacts and linkages between tra de,
tr ade liberalisation associated with PRSPs and poverty reduction
efforts wer e also noted .
Commen ts on some of th e domestic impacts of tra de policy reforms
(enh an ced liberalisat ion) include:
The exter na lly supp orted P RSP pr ocess, as opposed to efforts bydomestic actors, ha s been th e ma in catalyst for r e-energizing th e
use a nd elevating th e priority of trade liberalisation in
Ban gladesh s ap proach t o economic policy. This ha s led to a shift
in th e para digm for n at ional development plann ing from aid to
tr ade, th e processes for development policy formu lat ion a nd t he
am ount of policy monit oring.
Decline in t he n um bers of SMEs.
Great er em phasis on m aking t he export sector via diversification
to be the pr imar y engine of growth.
The governm ent lacks capa city an d r esour ces to provide higherlevels of sup port for th e privat e sector t o bett er compet e in
international markets.
The pa ce of developmen t of th e sector h as out paced th edevelopmen t of domestic infrast ru cture an d related business
related ser vices sector, resulting in weak forwar d an d backward
linkages.
Domestic investm ent flows have been skewed toward t he leadingexport industr y (ready ma de garmen ts) at t he expense of other
industries.
Em ergence of lar ger size firm s using h igher skilled labour in th eready-made garment indu stry.
Poverty Reduction and Trade Policy: CaseStudies of Bangladesh, Cambodia and ASEAN
6 In Bangladesh,
development
practitioners and
stakeholdershighlighted broad
trends such as: the
importance of
growth in th e
agricultural sector
in reducing poverty
Greater emphasis
on m aking the
export sector via
diversification to be
the primary engineof growth
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All firm s in the garm ent indu str y facing increased extern alpressur e on pr ofit mar gins, delivery schedules, and quality,
stan dar ds, & pra ctices in th e production m ethods.
Sma ller firms, which do not find niche in gar ment indust rydying out .
As wages a nd skills r equirement s for export jobs increase,barr iers for t hose at lowest skill set (next generat ion of migration
from r ur al to urban ar eas) to ent er labour force are increasing. Trade ba lance has caused balance of payment (BoP) pressuresdur ing periods of rapid import growth.
The impa ct of th e declines in pr oduction of certa in a gricultu ra lproducts, which were una ble to compet e after import
liberalisation, were str onger th an increases in agricultur al
production in products wher e Bangladesh could compet e.
For growth t o take on a m ore povert y reduction orienta tion, itmu st lead to creation of more ser vices, job creat ion an d a middle
class.
Bangladesh n eeds to increase t he r at e of GDP growth, above 8percent is pivot point for in creasin g qua lity of growth a nd
faster r at e of povert y reduction.
Comm ent s on some of th e extern al impa cts of tr ade policy reform s
(enh an ced liberalisat ion) in clude:
Ins ufficient h ar mony & coordin at ion between I F pr ocess. InWTO special an d differen tia l trea tm ent (S&DT) is included in
ta lks, while policy conditionalit y rem ain s focus of IMF a nd World
Bank.
WTO techn ical as sista nce to help implemen t policy reform s is ona non-binding basis.
WTO led tr ade policy reform s h ave led to er osion of LDCspreferences.
In t otal, LDCs were a sked t o pa y high pr ices for a ccession int o
th e WTO but in ar eas of most int erest t o LDCs for capt ur inggains from WTO accession (like movement of nat ur al pers ons)
WTO has n ot delivered.44
In Cambodia, development pra ctitioner s and sta keholders
highlighted broad tr ends such as Cam bodia susta ined a GDP
growth ra te between 5 percent a nd 7 per cent from 1995 to 2004. The
textile and gar ment export a nd tourism indu str ies have emerged as
th e prima ry engines of growth. In spite of th is record of growth,
povert y in Cambodia increa sed from 36 percent in 1999 to 40-45
percent in 2004. The following comment s with regar d to th e impacts
and linka ges between t ra de, trade liberalisation associated with
PRSP s an d povert y reduction effort s were also noted.
Comm ent s on some of the domest ic impa cts of tr ade policy reform s
(enh an ced liberalisat ion) in clude:
Very litt le impact of overa ll growth on povert y redu ction. Tra de policy reform h as become a centr al componen t of th e
Govern men ts policy reform agend a a s pa rt of Cam bodias
par ticipation in t he WTO, ASEAN Free Tr ade Area (AFTA),
ASEAN +3 and Grea ter Mekong Regional integra tion initiat ives.
Poten tia l new sour ces of growth include: agro-processing,electr onics, and ener gy.
Agricultur e sector rem ains pr edominan tly at t he subsistencelevel. Rice, forest ry an d fish a re t he leadin g products.
For growth to take
on a m ore poverty
reduction
orienta tion, it m ust
lead to creation of
m ore services, job
creation and a
m idd le class
Potential new sources
of growth include:
agro-processing,
electronics, and energy
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The governmen t lacks capa city an d r esour ces to provide higherlevels of sup port for th e privat e sector t o bett er compet e in
international markets.
Limited retur ns to agricultu ra l producers from agricultu ra lexports.
WTO accession forced a faster pace of tr ade liberalisat ion beyonddevelopmen t of th e governm ent s capa city to regula te or to
un dersta nd r an ge of impa cts on domestic firm s. WTO accession was a lso used a s an exter na l force for deeperdomest ic economic policy reform s.
Commen ts on some of the exter na l impacts of tr ade policy reform s
(enh an ced libera lisation) include:
Trade facilitat ion via im proving customs systems is a m ajorobjective of tr ad e policy reform .
Regiona l integr at ion is a m ajor objective of tr ade policy, as par tof an export promotion str ategy to n eighbouring na tions.
Export oriented garment industr y dependent upon importedinput s an d ha s very few backwar d linkages (beyond wa ges &
employment ) with t he r est of economy.
Tourism industr y also primar ily dependent upon importedproducts.
WTO accession ha s given Cambodia gr eat er visibility ininternational markets.45
While th e au th or did not condu ct inter views with ASEAN officials
about tr ade policy regional poverty r eduction efforts, t he following
points a re offered for addit iona l insight . The ASEAN region is one of
Asias lead ing growth nodes with a populat ion of 500 m illion people
an d a regiona l GDP of US$750bn. The ten ASEAN nat ions
repr esent wide ran ge of levels of developmen t a nd su ccess at
reducing poverty from Singapore a nd Ma laysia to Cambodia a nd Lao
PDR. It is a region where intern ational tr ade and investment playimporta nt r oles in each coun tr y.
In ter ms of regiona l policy appr oaches t o support economic growth
in ASEANs LDC nat ions, liberalising tr ade a nd in vestm ent flows
by developing corridors between th ose societies a nd larger regiona l
economies is th e preferred app roach. Hen ce, initiatives such a s th e
Great er Mekong Su b Regional cooperat ion pr oject ha ve been
implement ed to facilita te th e developmen t of infrast ru cture t o better
enable the development and shar ing of the resource base, and
pr omote t he freer flow of goods and people in t he su b-region. To dat e,
gains in regional t ra de and investm ent levels ha ve been ma de.
However, improvement s in s ocial indicators including levels of
povert y ha ve lagged.46
In term s of regional poverty r eduction initiatives, ASEAN ha s t wo
plat form s which guide regional collaborat ion in comba tin g povert y:
Fr am ework for t he ASEAN Plan of Action on Rur al Developmen t
an d Poverty Er adicat ion a nd t he ASEAN Action Plan on Social
Sa fety Nets. Both grew out of th e painful lessons of th e 1997 Asian
Fina ncial Crisis, which revealed tha t even successful n at ions were
su sceptible t o swin gs in global economic forces.
The Fr am ework for t he ASEAN Plan of Action on Rur al
Developmen t an d Poverty Er adication is based on a vision of
Export oriented
garment industry
dependent upon
imported inputs andhas very few
backward linkages
(beyond wages &
employment) with
the rest of economy
AS EA N region is
one of Asias lead ing
growth nodes with
a population of 500
million people and
a regional GDP of
US$750bn
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Era dicat ing poverty, with part icular empha sis on pr omoting th e
development of prosperous an d self-reliant r ur al comm un ities by
empowering individua ls, fam ilies an d disadvan ta ged groups.
Str at egic objectives include: developing h um an resour ces; building
capacity for policy form ulat ion an d implement at ion; stren gthen ing
ASEANs capa city for monit oring an d a ssessing poverty in cidence
and trends;encour aging the active part icipat ion of th e private/
business sector; promoting networking among th e nat iona l andregiona l development/povert y resear ch in stitu tes of th e ASEAN
coun tr ies an d creating comm on positions on m at ters related t o
ru ra l developmen t an d poverty era dicat ion am ong ASEAN Member
Countries.47
The ASEAN Action P lan on Social Sa fety Nets was formu lat ed in
1998 to help ASEAN na tions bu ild th e collective capacity to respond
to the h um an an d social impacts of th e 1997 Asia Fin an cial Crisis.
Key objectives of plan in clude: Assessing an d m onitoring t he s ocial
impact of the crisis an d identifying th e needs of targeted groups;
developing an d implemen ting social safety net pr ogra mm es for the
disadvan ta ged; and monitoring t he effectiveness of social ser vices
delivery.48 Today, both r ema in complement ar y dimen sions ofASEANs intr a an d inter -regiona l economic int egrat ion an d tr ade
liberalisat ion in itiat ives.
Individua l examples of linkages between t ra de policy and p overt y
redu ction efforts in ASEAN exist. In th e case of Ind onesia, a 2003
study n oted t he n egative impact on poverty r eduction effort s in
term s of decreases in incomes for rice far mer s, result ing from
import tr ade libera lisation of rice from 1995 to 2001.49 A similar
report noted a p ositive impact on poverty redu ction efforts in
Vietnam , from tr ade liberalisation of rice and agricultur al input s.50
Ind ividual exam ples
of linkages between
trade policy and
poverty reduction
efforts in AS EANexist
The ASEAN Action
Plan on Social Safety
N ets was form ulated
in 1998 to help
ASEAN nations build
the collective capacity
to respond to the
human and social
impacts of the 1997
Asia Fin ancial Crisis
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Exploring alter na tive appr oaches t o tr ade policy to combat poverty
mu st be placed in the cont ext of th e debate on th e role of tr ade in
development in the curr ent int erna tional tr ading system. Regardless
of perspectives on th e cur ren t liberalisat ion orienta tion of tr ade
policy to combat poverty, a m ore interestin g debate centr es on th e
varying rea sons offered when ever insta nces of trad e libera lisation do
not lead t o improvements in poverty r eduction.
Some institu tions ar gue tha t when t ra de liberalisation does not
appear to help produce robust poverty redu ction r esults or is
associat ed with exacerba tin g existing condit ions t he sour ce of th e
failure is insu fficient libera lisation (hence additional import
liberalisat ion is th e solut ion) and /or t he absen ce of other n ecessar y
institu tional cha nges and policy reform s. Neith er th e stru ctu re of
the global tra ding system n or t he fundamenta l premises and
assum ptions associated with the liberalisation orienta tion of tra de
policy ar e called into quest ion.51
In a report on growth and export competitiveness in Bangladesh, the
World Ban k a rgues t hat in order for Ba ngladeshs exportperform ance to both susta in pr evious results 52 an d to respond to the
new global competitive challenges which pu t Ban gladeshs export led
growth perform ance at risk, broader a nd deeper policy reforms
addit iona l import liberalisat ion ar e necessary to addr ess
Bangladesh s sour ces of compet itive disadvan ta ge.
The World Ban k cites th e use of an integra ted value chain a na lysis
to quan tify th e costs of corrup tion & red tape a nd const ra ints
created by poor infrastr uctur e, tar iffs and high costs of finan ce on
th e compet itiveness of th e export sector.53
A more critical app roach ar gues th at th e source of the failure of
tr ade policy with in th e cur rent global ru les based system t o better
supp ort poverty r eduction efforts, is a combina tion of both t he
liberalisat ion orient at ion of tra de policy itself and t he existen ce of
contra dictions, distortions a nd other str uctur al aspects of ru les
based system. Together, th ey more often t han not help creat e
extern al const ra ints on poverty redu ction efforts in developing
societies.
To cite one exam ple, a brief exam ina tion of th e tr ade policies an d
global ru les based system governing t he t ra de of agricultu ra l
produ ces offers severa l insight s. In sp ite of th e clear recognit ion of
th e magn itud e of th e global ma rk et distort ions creat ed by developed
Alternative Approaches toPro-Poor Trade Policies
7When trade
liberalisation does
not appear to help
produce robust
poverty reductionresult s, th e source of
the failure is
insufficient
liberalisation
Broader and deeper
policy reform s
ad ditional im port
liberalisa tion are
necessary to addressBangladeshs sources
of competitive
disadvantage
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16 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
nat ions agricultu ral subsidies and th e subsequent devastat ing
impa cts on the poor in developing societies,54 a leading developmen t
institut ion continu es to support t he u se of tr ade policies tha t include
agricultu ra l import libera lisation in developing societies to remove
domestic const ra int s on local producers an d distort ions in domest ic
markets.55
The au th or questions if such appr oaches t o tra de policy actually leadto more efficient domestic agricultu ra l ma rket s a nd producers, or
the import ation of global ma rket distortions int o domestic mar kets
and externa l constra ints on local pr oducers? This au th or also finds
it extremely problemat ic th at in th e cur ren t WTO Doha Round of
negotiations on agriculture, negotiators r epresenting th e very same
developed na tions tha t rout inely highlight th e consequences and
costs to growth of developing n at ions u sing su bsidies, have openly
condit ioned agr eeing to redu ce th eir global ma rk et distort ing
subsidies on developing na tions ma king concessions in other ar eas.
There is a bitter irony in developed na tions requesting
compen sat ion from developing n at ions, a s a condit ion for redu cing
their policy action t hat distort interna tional ma rkets. It str ikes meeven m ore th at the leading multilater al development institut ions, in
calling on all na tions t o mak e concessions , are in a sen se
endorsing a stru ctu ra l adjustmen t pr ogram me like conditionality in
the global tra de rules based system.
Cambodia provides another interesting example to furt her probe the
debate. The World Ban k noted in the 2004 PSRP review th at t he
Governm ent of Cam bodia h ad successfully completed a ll six PRGF
reviews, ma int ain ed macroeconomic sta bility in spite of int ern al an d
extern al sh ocks, an d successfully completed its a ccession in to th e
WTO.
Development of th e agricultur e sector an d labour-inten sive
industr ies and ser vices is defined a s key for absorbing sur plus
labour . Fut ur e growth will depend on th e government s ability to
diversify the en gines of growth by overcomin g challenges of
governan ce to at tr act investm ent a nd compete against its
neighbours. 56
The World Bank also notes th at in order for Cam bodia to take
advan ta ge of th e mar ket a ccess opportu nities pr ovided by acceding
to the WTO, th e governmen t mu st implement br oad and deep
domestic economic reforms to decrea se corru ption, str ength en th e
ru le of law, build the institu tions tha t will at tr act businesses and
better enable th e private sector t o lead growth, to help diversify the
economy, an d to increas e th eir r ole in pu blic service delivery. 57
The au th or finds t he a bove comm ents reflecting t he comm on
positions of ma ny donors an d IF Is which clear ly seek to support
tr ade policy reform s with a n export bia s, to correct per ceived import
subst itu tion oriented policies which cont ain a n an ti export bias.
They have a tenden cy to see this appr oach a s super ior for
generating growth via expanding export s an d increasing investmen t
and subsequently reducing poverty, regardless of the r esults.58
T here is a bitter irony
in developed nations
requesting
com pen sation from
developing nations,
as a cond ition for
reducing their policy
action that distort
international
markets
Development of the
agriculture sector
and labour-intensive
industries and
services is defined as
key for absorbing
surplus labour
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In th e global cont ext, Cambodia is one of the poorer na tions with a
per capita income estima ted to be around US$271 in 2000. It ra nked
121st out of 162 count ries on the Un ited Na tions Developmen t
Pr ogra ms (UNDPs) Hum an Developmen t In dex for 2001.59 Given
this star ting point an d my interviews with sta keholders a nd
developmen t pr actitioners, I question th e pace, timing, sequen cing
and th e adverse impact of rapid t ra de liberalisation on esta blishing
backward linka ges from Cam bodias export industr ies, with th eneed to develop labour int ensive indu str ies and services an d promote
governa nce to reduce povert y. One a lso wonder s how the
governm ent is expected t o do more while redu cing t ar iffs and t axes
to promote privat e sector developmen t?
The aut hor suggests tha t th e need for t he form ulat ion of tr uly
alter na tive appr oaches t o pro-poor t ra de policy to combat povert y is
supported in m any qua rt ers, including local sta keholders a nd some
intern at iona l institu tions like UNDP. 60 Without a n a lternative
appr oach, th e most likely result is th at growth , development and
povert y redu ction effort s in Ca mbodia will increasin gly be dicta ted
by th e logic of dynam ic global forces, as opposed t o the sp ecific needs
an d u nique condit ions of Cam bodias poor. 61
Cambodia is one
of the poorer
nations with a per
capita income
estimated to bearound US$271
in 2000
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Before tu rn ing t o specific exam ples of altern at ive pro-poor tr ade
policies in Ban gladesh a nd Ca mbodia, I would like to offer t he
following gener al point s:
The goal of an alter na tive pro-poor tr ade policy app roach wouldsubstitu te r eform s to promote growth with r eforms to reduce
poverty.
An alter na tive pro-poor tr ade policy appr oach would su bstitu tepriorities of import libera lisation, privatisa tion, finan cialliberalisat ion, with p riorities on job crea tion, protection a gainst
global distort ions penetr at ing domestic ma rk ets.
An a ltern at ive pro-poor tr ade policy ap proach would p lace apriority on r eform s th at support labour ut ilisation and productive
output in agricultu re.
In t he ar ea of agr icult ur e, an alt ern at ive pr o-poor tr ade policywould enable developing coun tr ies to de-link n ew commitm ent s
on ma rket access from negotiat ions on global ma rket distort ions
from ta riffs, NTBs an d subsidies.
An alt ern at ive pro-poor appr oach to tr ade policy would notrest rict t he domestic economic policy space of developing n at ions
to support industr ialisation an d creating n ew competitive factoradvantages.62
An alt ern at ive pro-poor tra de policy appr oach would focus onsup portin g growth of domestic deman d & consum ption led
growth engines.
An alt ern at ive pro-poor tr ade policy ap proach would su pportlocal an d inter na tional ma rk et developmen t for SMEs.
An alter na tive pro-poor tr ade policy appr oach sh ould substit ut esupport ing increased pr oduction for export, t o producing different
th ings for export a nd domest ic consu mpt ion.
For lar ger developing societies like China an d In dia curr entlyusing global mar kets a s catalysts for indu str ialisation, growth ,
development a nd poverty reduction processes, an a ltern at ive
pro-poor tr ade policy appr oach su pport a gr adu al r e-balan cing
towards using th eir domestic market s and consu mption based
engines of growth t o sustain ther e growth, development and
povert y r eduction processes.
An alt ern at ive pro-poor tr ade policy appr oach should su pportrem itt an ce genera ting opport un ities for citizens originat ing from
developing societies .
In t otal, an a ltern at ive pro-poor tr ade policy appr oach sh ould beone of man y policy instr um ent s in a compr ehen sive policy
appr oach to poverty redu ction and indu str ial developmen t based
on institu tiona l innovation and stru ctu ra l tr ansforma tion.
Elements of an Alternative Approach to
Pro-poor Trade Policy
8The goal of an
alt erna tive pro-
poor trad e policy
approach wouldsubstitute reforms to
promote growth with
reform s to redu ce
poverty
An alternativepro-poor trade
policy approach
would support local
and international
market development
for S MEs
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20 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
The following quote capt ur es th e founda tion of an alt ern at ive pro-
poor appr oach to t ra de policy: Liberalisation an d int egration intoth e global economy ar e th e resu lts of tr ade a nd economic success;
tr ade an d growth ar e not necessar ily the r esults of liberalisation and
integra tion. Thus th e high pr iority given t o liberalisation can be
quest ioned. Growth is the prer equisite to liberalisat ion. Coun tr ies
need to deal with developmen t pr iorit ies from th e very beginnin g of
th eir development process.63
In Bangladesh , elements of alter na tive pro-poor tr ade policies
would include:
The point of depar tu re for comba tin g povert y is defining t hesource of poverty as str uctur al injustices;
Fr om th is, the point of depart ure for an altern at ive pro-poorappr oach t o tra de policy is tha t it should be a component of a
nat ional development stra tegy for str uctura l tran sformation and
chan ge; and
An alt ern at ive pro-poor appr oach to tr ade p olicy would su pportma king t he domest ic economy m ore resilient to global economic
forces. 64
In Ca mbodia , elemen ts of alt ern at ive pr o-poor tr ade policies would
include:
Trade policy reform s t hat support domestic demand expansion; Tra de policy reforms which support expan sion of agr icult ur al
production;
Adopting a ltern at ive pro-poor tra de policies tha t su pport t he u seof labour in ru ra l area s, where 85 percent of th e population
resides; an d
Tra de policy reform s, which su pport t he developmen t of forwar dand backward linkages between tourism a nd t extile/garmen t
export sectors a nd t he domest ic economy.
Un less serious
concessions are m ade
by all sides
developing countries
as w ell as developed
countries Europe,the US, Japan,
everyone - the Doha
round of trade talks
will fail and th e
people who will
suffer m ost are the
worlds poor.65
The developin g
countries problems
arise from the
structural imbalances
and weakn esses of
several of th e WTO
agreem ents. In the
Uruguay Round,
developing nations
made concessions and
paid the costs in the
hope of receiving
benefits later. Th e
continued lack of
reciprocity in benefits
and costs would thu sadd to the present
imbalances.66
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There is a great deal of existing litera tu re on the element s of the
ru les based multilatera l trade system th at creates challenges to
developmen t p rocesses in developing societies. One could focus on
issues of ma rk et access67 , tar iff peaks68 and NTBs69 for pr oducts
an d ser vices of value to developing coun tr ies.
The lack of balance within t he Tra de Related Int ellectua l Pr operty
Rights (TRIPs) agreement between protecting intellectu al propert yright s (IPRs) an d facilitat ing th e technology tra nsfers t o developing
coun tr ies, or th e shr inking of policy space from th e Tra de Related
Investment Measures (TRIMs) agreement at a t ime when policy
freedom is cru cial t o help developing societies rea ct to ra pid chan ges
in t he global economy.
A brief sum ma ry of th e constra ints would include: new r ules ha ve
not a ddressed origina l const rain ts on tr ade faced by LDCs on a reas
like agricultu re, textiles, and disput e settlement hence the desire to
call th e Doha Roun d th e developmen t roun d; new rules ha ve
recreated t he original const ra ints, in new form s; new ru les have
created new ba rr iers for LDCs in ter ms of TRIPs, GATS, TRIMs,an d SP S; new ru les elimina ted s ome of th e helpful policy
instr um ents a nd mea sur es (in nam e of fighting corrupt ion,
inefficiency, bias aga inst a gricultu re, an d export s) form erly used by
LDCs and developed na tions at their initial stages of
industrialisation.
The curren t evolution of the global tr ade ar chitectu re both in t erms
of th e rules based system an d th e dynamics of power within t he
system , are increa singly combining to creat e a less conducive
environm ent (perhaps even new stru ctu ral const ra ints) to the
form at ion of pro-poor t ra de policies. One dim ension of this challenge
is rooted in r ecognising t ha t povert y in developing societies is a
product of the intera ction of both intern al an d externa l dynamic
factors.70
J ust as t he World Ban k foun d value in using global value chain
an alyses t o encour age economic policy r eform s in cludin g deeper
tr ade liberalisation in Bangladesh, th e tool can also be used to
explore both th e evolut ion of the u nder lying dynam ics of th e global
tr ading system and th e extern al constr aints a nd opport unities for
developing na tions t o utilise tr ade p olicy as a componen t of a pro-
poor orient ed development st ra tegy to reduce poverty. Four a spects
of how the curren t global tr ade ar chitectur e appear s to be
increasin gly less condu cive to th e form at ion of pro-poor tr ade
policies include:
External Constraints on AlternativeTrade Policies to Reduce Poverty
9
New rules have notaddressed original
constraints on trade
faced by LDCs on
areas like agricultu re,
textiles, and dispu te
settlement
N ew ru les have
created new barriers
for L DCs in term s of
TR IPs, GATS ,
TR IMs, and S PS
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22 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
The replacement of ideals such a s preferential tr eatm ent,special a nd differentia l an d r ecognit ion of str uctu ra l challenges
facing developing societies in the int ern at iona l tra de system with
pr inciples of a level playin g field an d equa l opportu nit y.
The failur e of the global tr ade a rchitectu re an d ru le basedsystem to addr ess the failure of th e growth in export volumes t o
tr anslat e into additiona l export revenues and ability to purchase
imports, due to str uctur al na tu re of both declining prices andprice insta bility for commodities (the prim ar y exports of ma ny
LDCs).
The expan sion of th e global tr ade r egime into area s once definedas domest ic policy via new regu lat ions govern ing global ma rk ets
an d de-regulat ion in domestic mar ket s, leadin g to a conver gence
or h ar monisation of rules both in inter na tiona l and domestic
mar kets a nd a shrink ing of development policy space.71
An expansion of th e nu mber of global valu e cha ins in differentindust ries an d sectors which operat e on th e basis of buyer
driveness has been facilitat ed by chan ges in int erna tional a nd
na tional regulatory fra meworks, such as tr ade and import
liberalisat ion, fina ncial and curr ency liberalisat ion, increasingly
str ingent st an dar d form at ion, an d th e collapse of previous pro-poor elements of the global tr ade a rchitectu re su ch as
interna tional commodity agreements.72
In bu yer driven global value chains a sma ll num ber of global buying
actors u sually based in developed na tions a re a ble to mainta in
barr iers to entry an d dicta te opport unit ies for u pgrading into the
higher va lue/profitable segment s of th eir global indus tr y supply
cha ins while reducing barr iers to ent ry int o lower value/less
profita ble activities t o a decentr alised global n etwork of competing
firms in d eveloping societies.73
It is th is evolution of power r elations bet ween firm s a nd consum ersin developed a nd developing societies, where th e form er exercise
cont rol over th e latt er by defining global st anda rds, qua lity
specifications, ret ail mar ket informa tion, cert ificat ions an d bran ds
within th e int erna tional trading system, which can genera te
constr aint s on t he developmen t of pro-poor tr ade policy appr oaches.74
In a ddition, th ese types of constra ints r epresent a category of NTBs
th at do not fall in th e realm of negotiat ions in mu ltilatera l trad e
regime foru ms. Tra de liberalisation does not n ecessarily lead t o
fully open m ark ets or perfect comp etition. Th e decisions m ad e by
lead firm s operatin g in global valu e cha ins can exclud e som e
categories of actors, even if th ere is n o trad e barrier involved. 75
Recognising t ha t r eal world out comes of chan ges in appr oaches to
tr ade policy ar e determ ined by how both th e ru les of the system an d
th e dyna mics power within the system ar e int erlinked in unique
ways in individual global value chains, would str engthen th e
discourse on formu latin g alter na tive pro-poor tr ade policies in t wo
key ways:
They would ena ble clear insights into th e weaknesses of th eopport un ities (tra de creation a nd development impacts) for LDCs
creat ed by bilat era l FTAs such a s: FTAs ha ve excluded a rea s of
most in ter est t o LDCs, FTAs frequ ent use of na rr ow ru les of
origin (RoO) have redu ced potent ial gains, a nd LDCs alr eady
R eplacem ent of ideals
such as preferential
treatm ent, special
and different ial an d
recognition ofstructural challenges
facing developing
societies in th e
international trade
system with principles
of a level playin g
field an d equal
opportu n ity.
Trade liberal isation
does not necessarily
lead to fully open
m ark ets or perfect
competition
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policies w23
ha d good m ar ket access based on other regimes in r elation t o
concessions t hey gra nt ed in F TAs.76
They would also sup port t he inclusion of addit iona l crit icalperspectives on wher e and to what degree is th e Doha
Development Roun d going to fun dam ent ally cha nge or
perpet ua te (in different form s) the qua litat ive development
dimensions of the global ru les based tr ading system.77
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As noted at t he outset of th e report , domestic structu ra l constra ints
represent an equally importan t dimension of the challenge to
developing alter na tive pro-poor tr ade policies. The impa ct of
domestic const ra ints is pa rt icular ly critical in ter ms of the r oles
th at could be played by th e stat e in par tn ersh ip with civil society
an d th e private sector, to locate and pur sue opport un ities to more
successfully use tr ade as a pa rt of a development str at egy to combat
poverty.78 However, in recognising such const ra ints and given t heevolut ion of some of th e un derlying dyn am ics of the global economy,
th e following suggestions a re offered a s exam ples of wha t could be
pursued.
At t he policy level, govern men ts in developing societies sh ouldseek a deeper un dersta nding of th e stra tegies used by MNCs in
inter na tional business development .79
The increa sed tr end of MNCs to out source both of non corefunctions a nd sh ift specific busin ess costs a nd r isks to th eir
sup pliers, (so th at th ey can focus on core a ctivities an d devote
th eir resour ces to competin g on h igher form s of compet itive
advan ta ge i.e., bra nding a nd m ar keting) is creat ing changes in
th e relat ive positioning opportu nit ies for firm s in developingsocieties. For firms a nd work ers in developing coun tr ies societies
which seek to gain a ccess to or m ove up from t heir existing
position in a global value chain, governm ent s mus t develop th eir
appr oaches to industr ial and t ra de policy in ways to support t he
efforts t o build t heir capabilities in th e ar eas of increasing t heir
scale of production, imp roving th eir degree of specialisat ion an d
str ength ening th e quality of services which t he firm can
provide.80
In order for a firm in a developing society to acquire a position asa 1 st tier su pplier in a global value cha in governm ent s mu st
develop th eir appr oaches to industr ial and tr ade policy in ways to
supp ort t heir efforts to develop t he following: Capabilities to do
mu ch of th e day t o day coordina tion of the cha in on beh alf of
lead firm s, and k ind of a system integra tion role. Key skills
include: Specialised comm un ications , sector specific techn ical
kn owledge, multiple lan guage sk ills, knowledge of supply
count ry mar kets, trade ru les and r egulations, and tr ade
administr ation systems.81
Fina lly, to tackle the challenges pursuing opport un ities to bett eruse tr ade to reduce poverty in a dynam ic ma nn er over time,
government s mu st develop th e approaches to industr ial and
tr ade policy in ways which links techn ology and edu cation to
ma nufacturing competitiveness and poverty reduction. In a
sense, att aining a degree of export su ccess based on sta tic
Domestic Policies for Moving up theValue Chain to Reduce Poverty
10Domestic structural
constraints represent
an equally important
dimension of thechallenge to
developing
alt ernat ive pro-poor
trade policies
Governments must
develop the
approaches to
industrial and trade
policy in ways whichlinks technology and
education to
manufacturing
competitiveness and
poverty reduction
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26 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
compa ra tive advan ta ge of free tra de, with out also building the
education a nd t echn ology capa bilities to cont inuously upgr ade,
will not per mit sust ain able processes of income a nd em ployment
growth for povert y redu ction.82
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policies w27
Conclusion11Given th e problem s
and imbalances in
world trad e, there is
a need to rethink
the dominant modelof trad e policy th at
has advocated
across-the-board
rapid liberalisation
for developing
countries.83
The prim ar y purpose of this paper is t o help inject a r an ge of
perspectives, part icular ly from st akeh olders in developing societies,
into the curren t discourse on how we might u nderst an d th e linka ges
between tr ade, tr ade policy, growth a nd developmen t an d poverty
redu ction. The valu e of such a n effort is t imely given th e upcoming
WTO ministeria l in H ong Kong. In t his concluding section I would
like to offer t he following point s.
The basic policy issue facing developing coun tr ies is n otfundam enta lly, one or more or less tra de liberalisation, but h ow
best to extra ct from their par ticipation in tha t system t he
element s th at will promote economic developmen t.84
The constr aining dimension of mainst ream ing tra deliberalisat ion in developmen t policy is tha t it places support ing
povert y redu cing effort s seconda ry t o the goal of export
expansion. The result is th at domestic ma rket s and indust ries
ar e orient at ed in accordan ce with t he logic of sta tic compar at ive
advan tage, the dynamics of global ma rket s, and power relat ions
cont ained in th e global ru les based system.
However, in a m odern world, th e place of most coun tr ies in the
inter na tional division of labour is determ ined not so mu ch byth eir nat ur al factor advant ages, but by th eir success in building
local capacity, skills and experience in indu str ies tha t enjoy
economies of scale an d specialisat ion.
Assuming t he n eed for complementa ry domestic andintern ational policy factors a nd variables to be present in order
for tr ade liberalisation t o reduce poverty in developing societies
as a given, the h istory of development an d poverty r eduction in
both developed na tions an d th ose most successful in Ea st Asia
demonstra te t he value of th e gradua l use of trade liberalisation t o
susta in growth at th e later st ages of development (when local
indust ries and ma rket s reached certa in levels of mat ur ity) to
support processes of upgr ading.
Tha t hist ory of development in developed nat ions demonst ra testh at local factor advan ta ges were not simply tak en as a given
an d tr ade liberalisat ion wa s not u sed to successfully develop
domestic infant industr ies and u nderdeveloped ma rkets. In fact,
th e opposite of liberalisa tion in t he form of indu str ial policy and
str at egic liberalisat ion were u sed to upgra de existin g and
create new factor advan tages to enable tra de to support growth.85
Within t he Doha Development Round, t he n at ur e of how some ofth e un derlying dyna mics of th e global economy ar e evolving is at
th e core of why developing n at ions see differen t rea lities
emer ging in compar ison t o developed na tions, from a ll of the
efforts t o creat e ru les based tr ading system which levels the
playing field for all.
The constraining
dimension of
mainstreaming trade
liberalisation in
developm ent policy is
that it p laces
supporting poverty
reducing effortssecondary to the goal
of export expansion
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28 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
Within t he t ren d towar ds th e convergence of domest ic economicpolicies and int erna tional tra de rules, via domestic ma rket de-
regulation and int erna tiona l trade r ule creat ion, we see the
comm on langua ge of rem oving ma rk et dist ortions
inefficiencies & corr up tion an d freein g of ma rk ets as
ra tionales for m ore tra de libera lisation. Those who cha mpion
th ese principles the most, in reality ar e dicta ting how those
objectives are pu rsued. Evidence indicates th at some m ar ketdistort ing and ma rket ba rr ier policies ar e maint ained or creat ed
in new form s, while oth ers ar e not. This tr end resu lts is a
cont inued sh ift in power r elations between developed an d
developing na tions, in th e form of a rise in bu yer dr iven global
value cha ins. 86
The r esults of the Hong Kong WTO Ministerial will either
perpetua te t he existing tren ds (doing the same things differently) or
serve as a cata lyst for alter na tive appr oaches (doing different
th ings). In order for t he r an ge of alter na tive pro-poor tr ade p olicies
noted in th is paper t o be pur sued, it will be vital th at progress is
made on addressing the various interna l and external stru ctur al
constr aint s which impede poverty r eduction effort s in developingsocieties.
In ter ms of addr essing th e extern al constra ints on inst itut iona l
innovat ion an d stru ctu ra l tra nsforma tion in developing societies, a
cont inuous interr ogation of the very premises an d assu mpt ions
associated with the cur rent dominan t th inking about growth, trade
and development is required. One tha t ra ises awar eness about t he
stru ctu ra l na tur e of th e issues facing developing societies and th eir
effects on the world 87 an d deepens the discourse of the nat ur e of
Trilat era l Developmen t Coopera tion in the 21st century.88
In t he en d, reorienting th e political will of nat ion st at es will deman dth at th e voices of th ose who live in t he cond itions of poverty in a ny
society ar e continu ously amplified, art iculat ed an d projected int o th e
negotiat ing rooms wh ere th e ru les are m ade. It will be processes like
th e one r esulting in th e Dhak a Declar at ion of 2005, which sh all
rema in the plow to har vest a tr an sform at ion of what can be
achieved in fighting povert y in the n am e of huma n dignity.89
Evidence ind icates
that some market
distorting and
m arket barrier
policies are
maintained or
created in new form s,
while others are not
Reorienting the
political w ill of
nation states will
demand that the
voices of those who
live in the cond itions
of poverty in any
society are
continuously
amplified, articulated
and projected into the
negotiating rooms
where the rules are
m a d e
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30 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
23 Winters, L.A., N. McCulloch, an d A. McKay, Tra de Liberalisat ion a nd P overt y: The Evidence So
Far ,Journal of Economic L iterature , Vol. XLII (Mar ch 2004) pp. 72115. Auth ors n ote: Th ere is
no sim ple general conclusion a bout th e relationship betw een tra de liberalisation an d poverty.
Th eory presum es that t rade liberalisation will be poverty-alleviating in the long run and on
average. Equ ally, however, it does not assert that tra de policy is always am ong the most
im portant determi na nt s of poverty redu ction or th at th e static and m icro-econom ic effects of
liberalisa tion w ill alw ays be beneficial for th e poor.
24 Zepeda, Eduar do. (2004). Pr o-poor Growth: Wha t is it? One pager #1. Int erna tional Poverty Centre.UNDP
25 Ravallion, Mart in. (2004). Comment on Pr o-poor Growth: Wha t is it? One pager #1. Int erna tional
Povert y Centr e. UNDP .
26 In the aut hors int erviews with stakeh older and development economists in Bangladesh, several
noted tha t while poverty has been r educed in Bangladesh over t he last t wo decades, the curr ent
tr end in increased income inequality is raising questions about th e sust aina bility of Bangladeshs
tr ade libera lisation based approaches to growth.
27 Gore, Cha rles. (2002). Globalisation, the Int erna tiona l Poverty Trap, and Chronic Povert y in Least
Developed Coun tr ies. CP RC Work ing Paper #30. Chr onic Poverty Research Centr e, UNDP
28 East wood, Robert a nd Lipton Michael. (2001) Pr o-poor Gr owth a nd P ro-growth Poverty redu ction:
What Do th ey Mean ? Wha t does the Evidence Mean? What can Policymaker s Do? Pa per delivered
at th e Asia an d Pa cific Foru m on P overty: Reforming Policies and Inst itut ions for P overty
Reduction a t th e ADB. Ph ilippines.
29 Ibid.
30 Ibid. Examples at th e m icro-level include: Imm iserising growth, th e coarse-cloth effect, an d th e
tr actor effect, and th e millets to m ilk effect.
31 Kakwan i, Nan ar. Per nia, Ern esto. (2000). What is Pro-poor Growth? Asian Development Review,
Vol. 18, No. 1. Asian Developm ent Ban k.
32 See Malaysia: 30 Years of Poverty Reduction, Growth a nd Racial Har mony. (2004). A case study
report pr esented by th e Economic Plan ning Un it of Malaysia at the Shan ghai Poverty Conference-
Scaling Up Poverty Reduction.
33 Carr , Mar ilyn an d Chen, Mar th a. (2001). Globalisation an d the Inform al Economy: How Global
Trade a nd In vestment Impa ct the Working Poor. Women in Inform al Em ployment Globalising &Organ ising ( WIEGO).
34 Cline, William . Trade P olicy and Global Povert y. (2004). Cent re for Global Development an d
Inst itut e for
Int ern at iona l Economics. Washin gton, D.C.
35 Kraev, Egor. (2005). Estimat ing GDP Effects of Trade Liberalisation on Developing Coun tr ies.
Cent re for Developmen t, Policy and Resear ch, School of Orient al an d African S tu dies. London, UK.
36 Melam ed, Claire. The E conomics of Failure: The Real Cost of free Trade for P oor Coun tr ies.
(2005). Chr istian Aid.
37 Ann abi, Nabil. Khondker, Bazlul. Raiha n, Selim. Cockbur n, John. Decaluwe, Berna rd. (2005).
Imp licat ions of WTO Agreemen ts a nd Domest ic Tra de Policy Reforms for Poverty in Ban gladesh :
Short vs. Long Run Im pacts. Chapter 15 in Put ting Development Back into the Doha Agenda:Poverty Im pacts of WTO Agreem ent .
38 Khan , Haider. (2005). Assessing Povert y Impact of Trade Liberalisation P olicies: A General
Macroeconomic Comput able Genera l Equilibrium Model for Sout h Asia. Discussion Pa per No. 22.
Asia Development Bank Institu te. Tokyo, J apan .
39 Impact of Trade Liberalisation on Income Distribution an d Household Welfare: Some General
Equilibrium Results for Ba ngladesh. (2001). MIMAP-Bangladesh . Bangladesh In stitu te of
Development Stu dies.
40 United Nat ions Development Assistance Fr amework: 2006-2010. (2004). UNDP.
41 Building a pro-poor t rade sector st ra tegy. (2001). Integrat ion a nd Competitiveness Diagnostic Study.
Int egrat ed Fra mework (IF) Techn ical Assista nce Project
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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policies w31
42 Briefing with H.E. Cham Pra sidh, Senior Minister in the Royal Cambodian Governm ents Ministry
of Commer ce. J uly 19, 2005. Wash ingt on DC.
43 Ibid.
44 In J une of 2005 th e auth or conducted interviews with economists, business leaders and development
professiona ls from th e: Bangladesh Inst itut e of Development Stu dies, General E conomics Division of
th e Plann ing Comm ission, PKSF m icro-fina nce inst itut ion, Bangladesh Gar ment Manu factur ers
an d E xport ers Associat ion, Un iversity of Dhaka, Cent re for Policy Dialogue, the NGO Un na yan
Sham ann ay, and the Government of Bangladesh.
45 In August of 2005 th e auth or conducted interviews with economists, business leaders and
development professiona ls from t he: Economic Institu te of Cam bodia, Int ern at iona l Relief and
Development, Cambodian Legal Resour ces Developmen t Cent re, the Garm ent Man ufactur ers
Associat ion of Cambodia an d t he Governm ent of Cam bodia.
46 Regional Cooperation Str ategy and Program Update 2006-2008: Greater Mekong Sub-region. (2005).
Asian Development Bank .
47 Fr am ework for th e ASEAN Plan of Action on Rur al Development and P overty Era dicat ion. (1997).
ASEAN Secreta riat .
48 ASEAN Action P lan on Social Safety Nets. (1998). ASEAN Secreta riat .
49 Int egrated Assessment of the Impa ct of Trade Liberalisation A Coun try Stu dy Indonesian Sector.
(2005). United Nat ions En vironment al Pr ogram me.50 Integrated Assessment of the Impact of Trade Liberalisation: A Countr y Study Viet Nam Rice
Sector. (2005). United Na tions Environment al Pr ogra mme.
51 Tra de Policy Review Body: Review of Ban gladesh TPRBs Evalua tion. (2000). Word Trade
Organisat ion. It n otes th at failur e of trade liberalisation led growth to reduce poverty is because of
Ban gladesh s weak performa nce in domest ic economic reform s to lower t he costs of doing business .
52 For a detailed ana lysis of the evolution of Bangladeshs externa l economic policy and subsequent
resu lts sin ce indepen dence see: A Review of Ban gladeshs Ext ern al Sector P erform an ce. By
Moha mm ad Yunu s. MIMAP-Bangladesh. Bangladesh I nst itut e of Developmen t St udies.
53 Ban gladesh: Growth a nd Export Competit iveness. (2005). World Ban k Stu dy on Ban gladesh
Competitiveness.
54 Global Agricultural Trade a nd Developing Countr ies. (2005). World Ban k Report ,edited by M.Atama n Aksoy and J ohn C. Beghin. It notes: S ubsid ies ha ve sim ilar effects, depressing world
prices and inh ibiting entry by ind ucing surplus produ ction by n on-competitive and often large
produ cers. Dom estic sup port an d protection policies have subst an tial n egative effects on produ cers
in developin g coun tries, because of th e sheer size of th e subsid ies relative to th e size of th e m arket.
S uch large support program s shield n on-comp etitive produ cers, and penalise efficient p roducers,
often in poor coun tries.
55 Hoekman , Bernar d, Micha lopoulos, Consta nt ine, Schiff, Maur ice, and Tar r, David. Chapt er 13:
Tra de Policy: Anex K Tra de Policy: Technical Note. Povert y Reduction Str at egy Process. World
Bank Group.
It n otes: Un dist orted price signals from w orld m ark ets, in com bina tion wit h th e excha nge rate,
allow resource allocation consistent w ith com parat ive adv an tage, thereby increasing produ ctivity.
56 Cambodia: National Poverty Reduction St ra tegy, Pr ogress Report . (2004). The World Bank Group.
57 Cambodia: Seizing the Global Opportun ity. Investment Climat e Assessment an d Reform Str ategy.
(2004). The World Bank Group.
58 In t he World Banks Cambodia: Seizing the Global Opportun ity. Investment Climat e Assessment
an d Reform Str at egy. (2004) it notes th at a pr o-poor t ra de stra tegy for a sma ll countr y star ts on th e
basis th at exports ar e critical t o expanding job opport un ities.
59 Social Economic Development P riorities an d Official Development Assistan ce Needs. (2002). Coun cil
for Developmen t of Cambodia an d th e Cambodian Reha bilita tion an d Developmen t Board. Ph enom
Phen.
60 Investing in Cambodias Fut ure. (2004). United Nat ions Development P rogram Annua l Report . It
notes: Th e 2004 UNDP case study on th e macroeconom ics of poverty reduction confirm s tha t
tight t he m onetary an d fiscal policy fram ework an d dollarisation has been successful in producing
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32 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies
consistent economic growth, led by the successes of the garment industry and tourism industries.
However, it has not successfully tackled th e key element s of poverty. Th e m ost im portant fin din g
of the research is that employment growth is the key determinant for Pro-poor growth.
61 For a broader examinat ion of th e development risks associated with an over-reliance on export led
growth models see: Paris Br ett. Risky Development : Export Concentra tion, F oreign Investmen t and
Policy Condit ionalit y. (2003). World Vision. Aus tr alia .
62 Chan g, HaJ ong. Tra de and Indu str ial Policy Space in Historical Perspective. (2005). University of
Cambridge.
63 Kama l Molhotra, the United Nat ions Development P rogra ms Senior Advisor on Inclusive
Globalisat ion. Rema rk s at The Im pact of Tra de Liberalisat ion on Poverty Reduction conferen ce.
May 1, 2005. Woodrow Wilson In ter na tiona l Centr e for Scholar s. Washin gton, D.C.
64 Poverty Er adicat ion an d Employment Generat ion. (2003). National Policy Review Forum Ta sk
Force of Bangladesh. Co-Chair ed by Pr ofessor Moha mma d Yunus MD of the Gr ameen Bank an d
Pr ofessor Rehma n Sobha n, Cha irm an of Cent re for P olicy Dialogue.
65 World Bank Pr esident Paul Wolfowitz. Op-ed published in The Financial Times (10/24).
66 Khor, Martin. (2002). The WTO, the P ost-Doha Agenda and t he Fu tur e of the Trade System:A
Development Perspective. Paper present ed at present ed at a semina r on WTO held at th e annu al
meeting of th e Asian Development Bank. Sh an ghai, China.
67 Mimoun i and Von Kirchbach. Market Access Barriers: A Growing Issue for Developing Coun tr yExport ers. (2003). Intern ational Trade F orum Issu e 2.
68 Hoekman , Ng, and Olarr eaga. Tariff Peaks in the Quad an d Least Developed Count ry Exports.
(2001). Developmen t Resea rch Gr oup, The World Ba nk . Washingt on, D.C.
69 Meller, Pat ricio. A Developing Count ry View on Liberalisation of Tariff and Tr ade Bar riers. (2003).
Pr esented a t t he OECD Global Forum on Trade Moving Forwar d n Mar ket Access in th e Doha
Development Agenda. P ar is.
70 Gore, Cha rles. (2002). Globaliation, the Int erna tional Poverty Trap, and Chronic Poverty in Least
Developed Count ries. CPRC Working P aper #30. Chronic Povert y Resear ch Cent re. UNDP.
Gore n otes: Th e poverty trap can be described as in ternati onal becau se trade and fina nce relations
are reinforcing a cycle of econom ic stagnat ion, in LDCs, particula rly th ose high ly d epend ent on
prim ary comm odities. In th ese coun tries th e ability of trad e to act as an engine of growt h an d
poverty reduction is being sh ort circuited by falli ng w orld com m odity prices.
71 Gibbon, Peter a nd P ont e, Stefano. (2005). Trading Down Africa, Value Chains a nd th e Global
Economy. Temple Univers ity Pr ess.
72 Gibbon, Peter a nd