27765 Global Economic Prospects Overview 2004 © 2003 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. 1 2 3 4 04 03 This volume is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. 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Contents Overview Realizing the development promise of the Doha Agenda A Doha deal for development Delivering the Doha deal for development Notes References Chapter 1 Global Outlook and the Developing Countries The industrial countries: Deficits, confidence, capital spending, and the dollar The external environment for developing countries: Gradual improvement, but a bumpy road ahead The developing countries: Back on track toward growth? Trade, growth, and poverty in developing countries Looking ahead to the Doha Round Annex 1 Historical trade dynamics for developing countries Notes References Chapter 2 Trade Patterns and Policies: Doha Options to Promote Development Changing patterns in developing-country exports Behind the patterns: Economic and policy determinants Market access for development: The agenda From Doha to Cancún and beyond: How should protection be reduced? Notes References Chapter 3 Agricultural Policies and Trade Poverty, rural households, and trade in agriculture Trade and export growth in agriculture Global agricultural protection: The bias against development Proposals for reforms in the Doha Round Notes References iii G L O B A L E C O N O M I C P R O S P E C T S Chapter 4 Labor Mobility and the WTO: Liberalizing Temporary Movement The bigger picture: Global migration and remittance trends Temporary movement of workers Bilateral and regional approaches to labor mobility Understanding the impact of temporary foreign workers Mode 4 and the WTO Notes References Chapter 5 Reducing Trading Costs in a New Era of Security Why transport, trade facilitation, and logistics matter The new international security dimension in trade The anticompetitive effects of international transport regulations Trade facilitation Trade facilitation and the WTO agenda Lowering transport costs, increasing security, and facilitating trade Notes References Chapter 6 Development and the Doha Agenda Special and differential treatment and the WTO Market access for development Toward a new regime for WTO rules Putting development into the Doha Agenda Notes References Appendix 1 Regional Economic Prospects Appendix 2 Global Commodity Price Prospects Appendix 3 Global Economic Indicators iv Acknowledgments T his report was prepared by the World Bank’s Development Prospects Group, which drew on resources throughout the Development Economics Vice Presidency and the Bank’s op- erational units. Richard Newfarmer was the lead author and manager of the report, under the direction of Uri Dadush. The principal chapter authors were Richard Newfarmer (overview); Elliot Riordan and Dominique Van der Mensbrugghe (chapter 1); William Martin and Vlad Manole (chapter 2); Ataman Aksoy (chapter 3); Pierre Sauvé, drawing on work by the Organi- sation for Economic Co-operation and Development (chapter 4); John Wilson, Shweta Bagai, and Carsten Fink (chapter 5); and Bernard Hoekman and Caglar Ozden (chapter 6). We are grateful for the ideas and insights of Bijit Bora (World Trade Organization), Michael Finger (American Enterprise Institute), Gary Hufbauer (Institute for International Economics), Mari Pangestu (the Center for Strategic and International Studies), Gary Horlick (Wilmer, Cutler, and Pickering), Julia Nielson (OECD), Julio Nogues (United Nations Development Programme), and Olivier Cat- taneo (Agence Française de Développement) who provided comments at various stages. The re- port was prepared under the general guidance of Nicholas Stern. v BLANK Overview O N THE EVE of the World Trade Organi- dean countries, continues to weigh down re- zation’s (WTO) Fifth Ministerial Meet- gional performance. Africa, suffering from low ing in Cancún in September 2003, the commodity prices, is growing slowly; although world’s trade ministers—and the governments faster than in the 1980s and 1990s, today’s they represent—face enormous challenges. The growth is far short of the pace necessary to global trade talks are stalled in several policy make significant dents in the poverty head- domains vital to developing countries—agricul- count or to achieve the Millennium Develop- ture, nonfarm trade, access to patented drugs ment Goals in health and education. War has for countries without domestic drug industries, adversely affected regional performance in the special and differential treatment, and dispute Middle East and North Africa; sluggish per- settlement. Nor is there much progress in other formance in Europe, especially Germany, has contentious areas, such as the “Singapore is- adversely affected many countries in Central sues” of investment, competition, trade facilita- and Eastern Europe. Even though progress on tion, and government procurement. trade would undoubtedly boost investor confi- At the same time, the global recovery con- dence, politicians coping with slow growth tinues to sputter. Although some signs of a and high unemployment at home have been turnaround have been evident in the United finding it more difficult to risk alienating in- States, Europe seems to be losing momentum, fluential constituencies by accepting bold pro- and Japan appears positioned for another dis- posals in the world trade talks. appointing year. The Chinese economy, rein- The outlook for the remainder of this year forced by a positive performance in East Asia and for 2004, though somewhat improved, is in 2002, continues to bustle along, but con- unlikely to produce growth strong enough to cerns over Severe Acute Respiratory Syndrome cut sharply into unemployment rates (figure 1). (SARS) and lost export momentum in the face Uncertainty in the global environment remains of the world slowdown haunted the regional unusually high. Structural problems persist— outlook. South Asia continues to grow more overcapacity in high-tech industries globally, rapidly than the world average. Latin America rising twin deficits in the U.S. fiscal and cur- is showing signs of an upturn, driven in part by rent accounts, and lingering bad loans in renewed confidence in Brazil, a tentative re- Japanese and (to a lesser extent) European bound in Argentina, and an increase in Mex- banks. Other problems may prove more tran- ico’s growth; however, the recession in the sitory. The cessation of conflict in Iraq has not República Bolivariana de Venezuela, when yet produced complete calm, and the inability coupled with political difficulties in the An- to reach consensus at the UN Security Council 1 G L O B A L E C O N O M I C P R O S P E C T S in 1994, that tentative steps toward freeing up Figure 1 The recovery is building . . . trade in products of particular interest to de- but slowly veloping countries—notably agriculture and GDP growth, percent per annum textiles—were included. Consequently, many Forecast 5 of the hardest issues for rich countries have Developing been left to this negotiation. economies 4 ᮡ Realizing the development 3 promise of the Doha agenda T he challenge is daunting. But so is the re- High-income economies 2 ᮡ ward to success. With room for addi- tional fiscal and monetary stimulus rapidly 1 vanishing, progress on structural reforms such as trade is important. In addition to bolstering investor confidence in the short term, a Doha 0 2000 2001 2002 2003 2004 2005 Round agreement that slashed trade barriers, particularly in agriculture, would stimulate Source: World Bank data and projections. trade and raise incomes around the world, leading to a substantial reduction in global poverty. has created a lingering distrust among multi- The open question is whether a new multi- lateral partners that clouds the global business lateral agreement will live up to the develop- environment. Nonetheless, policy responses ment promise of the Doha Agenda. Several are promising. Governments in the United issues under discussion are pivotal to develop- States and Europe reacted to weak economic ment outcomes. They are the focus of this conditions with fiscal and monetary policy to report: stimulate their economies. And at the global political level, the June meeting of the G-8, to- • Because most poor people live in rural areas, gether with several subsequent bilateral meet- trade barriers in agriculture are among the ings, began to mend frayed multilateral rela- most important to poverty reduction. tions. It remains to be seen whether this new • Labor-intensive manufactures have been the positive momentum will extend into multilat- most dynamic market segment for every eral collaboration in trade. major region, including Africa, yet many The precarious international environment is developing countries find that their exports only one reason why the global trade talks meet obstacles in foreign markets—high have progressed slowly. Deeper explanations tariffs, quotas, specific duties, and “anti- can also be found in the history of multilateral development” tariff structures that discour- trade talks themselves. With the incorporation age adding value in poor countries. of ever more countries—mainly from the de- • In services, the potential for development- veloping world—the sheer number of actors promoting reciprocal gains is especially high. has expanded, making coalitions more difficult Regulations in some developing countries to build and consensus more elusive. More- still protect some inefficient state monopo- over, previous multilateral rounds produced lies from competition—a drag on growth. agreements in areas of primary interest to the (To be sure, proper regulation in some sec- rich countries that dominated these discus- tors must precede liberalization to avoid po- sions, particularly in manufactured goods. It tential disruptions in socially important mar- was only with the Uruguay Round, concluded kets, such as finance or basic services.) Also, 2 O V E R V I E W access for developing countries’ services ex- veloping countries, and low-income countries ports to industrial countries has yet to be alike. Rich countries account for two-thirds of fully bound in the General Agreement on world trade and comprise nearly three-quarters Trade in Services (GATS) (World Bank of world GDP, so their domestic policies—most 2001). Finally, national laws prevent greater evident in agriculture—have the greatest effect labor mobility that would otherwise con- on the global marketplace. Despite the fact that tribute to higher standards of living in both agricultural protection, tariff peaks, and anti- receiving and sending countries. dumping measures shield powerful lobbies, • Reducing the costs of trading by improving rich-country leadership in reducing this protec- international transportation services, cus- tion is a prerequisite for a pro-poor develop- toms and ports, and logistics management— ment outcome. trade facilitation—requires substantial new Today’s middle-income developing coun- investment, additional technical assistance, tries have increased their global market share and coordinated multilateral efforts. Trade in the last two decades. Because they include facilitation is fundamental to realizing the many of the most dynamic global economies, expanded trade promise of Doha, but the their domestic policies no longer have only WTO agenda constitutes a small part of minor consequences for trade. With protection the challenge. rates in manufactures three times the level of • Finally, the issue of special treatment for de- those in rich countries and with ubiquitous re- veloping countries cuts across all of these strictions on services, the middle-income coun- policy domains and affects trade preferences tries have ample scope for undertaking reduc- and exemptions from WTO regulations. tions in protection that will accelerate their The pursuit of trade preferences and exemp- growth and provide access and a growth im- tions from multilateral rules have not al- pulse to neighboring countries. High protec- ways served developing countries partic- tion in these countries taxes their growth and ularly well, both because preferences their poor in much the same way as protection have not proven reliable and because selec- in the North. tive coverage has often left productivity- Low-income countries have a special inter- detracting trade barriers in place. The resid- est in greater market access, but they cannot ual barriers sap growth in the protected succumb to the siren calls of preferential mar- economies and in developing-country trad- ket access nor opt out of reducing border pro- ing partners that are denied access. Perhaps tections at home, which tax exports and cut most important, the majority of the world’s into productivity growth. Preferences for poor do not live in the least developed coun- LDCs can help, but would be more effective if tries (LDCs). Trade preferences targeted at they were made less restrictive and more reli- these countries do not benefit the three- able than at present—and if benefiting coun- quarters of the world’s poor that live on tries take the necessary policy steps, including US$1 per day in other countries. In imple- reductions in border protection, to promote a menting new WTO rules, new accords will supply response. Moreover, because other de- be most effective if they recognize differ- veloping countries are unlikely to be granted ences among individual countries’ capacity new trade preferences, global reciprocal re- to undertake new, resource-intensive rules. duction in trade barriers holds the most These differences require a new approach to promise for the world’s poor. special and differential treatment. Market access is not the whole develop- ment story. Even if developing countries suc- These areas pose difficult political chal- ceed in obtaining access to new markets, they lenges for all segments of the international will have to adopt complementary policies— community—rich countries, middle-income de- removing obstacles to private investment, im- 3 G L O B A L E C O N O M I C P R O S P E C T S proving public investment in infrastructure, Uruguay Round trade agreements to reduce and providing education—to ensure that do- protection, agriculture is among the most dis- mestic firms respond to new opportunities as- torted sectors in international trade. Even sociated with greater integration, and that the though levels of average tariff protection are benefits of integration are transmitted to the comparable in rich and poor countries, the ex- poor. Put differently, trade policies must be tensive use of producer subsidies in the OECD embedded in a coherent national development countries and the fact that the OECD consti- strategy—they are not a substitute for it. For tutes two-thirds of world agricultural trade un- all of these reasons, realizing the development derscore the centrality of their policies to de- promise of the Doha Agenda requires the par- velopment outcomes. Reducing protection in ticipation of all groups of the international agriculture alone would produce roughly two- community. thirds of the gains from full global liberaliza- tion of all merchandise trade. This report: toward a pro-poor A few facts are enough to establish the con- Doha outcome text: protection facing developing country ex- This report analyzes central elements of the porters in agriculture is four to seven times Doha Agenda that are important to developing higher than in manufactures in the North and countries. Chapter 1 describes the prospects two to three times higher in developing coun- for the global economy that form the back- tries (IMF-World Bank 2002). Tariff peaks are drop to the Doha trade negotiations. Chapters particularly high in rich countries against 2–6 focus on agriculture, nonagricultural trade, products from poor countries. Tariff escalation services, transport and trade facilitation, and that discourages development of further pro- special development provisions. In each area, cessing is more pronounced in agriculture in we expand on themes that have received less both rich and poor countries (figure 2). Hefty analysis in previous World Bank reports— specific duties are particularly common in rich among them specific duties in agriculture, an- countries; they automatically increase protec- tidumping in manufactures trade, temporary movement of labor in services, security issues in trade facilitation, and trade preferences and exemptions from rules as part of special and Figure 2 Escalating tariff rates discourage differential treatment (SDT). The remainder of development Tariff rates this overview weaves these findings together with those of previous Bank studies1 to lay out 25 the principal elements of a pro-poor outcome for the Doha Agenda. 20 Final ᮡ 15 A Doha deal for development Intermediate ᮡ 10 Agriculture is at the heart Raw of a development round ᮡ Agriculture is central to the development 5 promise of this trade round for two reasons: most of the world’s poor work in agriculture 0 and most of the world’s protection is directed QUAD Canada Japan United European at agriculture. Some 70 percent of the world’s States Union poor live in rural areas and earn their income Sources: World Bank staff. from agriculture. Largely exempt from pre– 4 O V E R V I E W tion when commodity prices fall, throwing the tent, the United States. The net effect of subsi- burden of adjustment onto global prices and dizing the relatively rich in wealthy countries at poor countries. Subsidies in OECD countries the expense of adverse price penalties for the amount to US$330 billion—of which some products of the relatively poor in developing US$250 billion goes directly to producers. The countries is to aggravate global income inequal- effect is to stimulate overproduction in high- ities. Said differently, subsidies make the rela- cost rich countries and shut out potentially tively rich even richer and the poor even poorer. more competitive products from poor coun- Realizing the development potential of tries. It is no wonder that agricultural exports Doha requires phased reductions of border from developing countries to rich countries protection and subsidies. Of these, border pro- grew in the 1990s at just half the rate they did tection is the most important. These reductions to other developing countries. ought to be done in a way that cuts off anti- Consider how agricultural protection plays development tariff peaks, reduces tariff escala- through individual commodity markets. Sugar tion, and phases out specific duties. A pro- in the European Union (EU), Japan, and the poor reform also means reforming policies that United States is commonly protected through distort particular commodities of importance a combination of quotas, tariffs, and subsidies to developing countries—sugar, cotton, rice, allowing domestic sugar producers in those wheat, and dairy products. countries to receive more than double the Because global prices may rise in some com- world market price. OECD governments sup- modities, the international community may port sugar producers at the rate of US$6.4 bil- want to design—and help finance—a program lion annually—an amount nearly equal to all of adjustment in vulnerable countries that suf- developing country exports. Prices are so high fer deterioration in their terms of trade. These that it has become economic to grow sugar effects are likely to be confined to a few coun- beets in cold climates and to convert corn to tries for several reasons: many food importers high-fructose corn syrup. Sugar imports in the also export other agricultural products that OECD have shrunk to next to nothing. U.S. will experience positive terms-of-trade changes subsidies to cotton growers totaled US$3.7 bil- from liberalization; others now have tariffs on lion last year, three times U.S. foreign aid to those same food imports, tariffs that can be re- Africa. These subsidies depress world cotton duced to offset any increase in global prices; prices by an estimated 10–20 percent, reducing some food importers will gain access to new the income of thousands of poor farmers in markets in nonagricultural products and be West Africa, Central and South Asia, and poor able to export; and, because prices will change countries around the world. In West Africa relatively slowly, some food importers will in- alone, where cotton is a critical cash crop for crease domestic production in response to many small-scale and near-subsistence farmers, higher prices and become self-sufficient or even annual income losses for cotton growers are net exporters. Nonetheless, even though the about US$250 million a year. Rice support in changes are likely to be manageable at the Japan amounts to 700 percent of production at global level, the issue requires study and in world prices, stimulating inefficient domestic some countries may require action. production, reducing demand, and denying ex- Because rich and poor countries alike will port opportunities to India, Thailand, Vietnam, benefit from liberalization, all must make the and other countries. policy changes necessary to realize its develop- More than 70 percent of subsidies in rich ment promise. The rich countries, whose poli- countries are directed to large (often corporate) cies arguably distort international trade the farmers. These farmers have incomes that are most, cannot escape leadership on agriculture. higher—often substantially so—than average Moreover, leadership among donors to fi- incomes in Europe, Japan, and, to a lesser ex- nance a program to cushion adjustment is 5 G L O B A L E C O N O M I C P R O S P E C T S Box 1 Trade and poverty: what are the links? C ountries that trade more grow faster, according to evidence emerging from case studies of trade liberal- ization and from large cross-country and time-series Box Figure 2 Changes in trade have little relation to inequality econometric studies. Although the links from specific Average annual change in Gini coefficient trade policy instruments to trade outcomes and growth Trade and the Gini coefficient is less clear, the basic association between increased trade 4 and growth is clear (box figure 1).a Series 1 3 Even when trade raises average incomes, its ᮡ effects on poverty will depend on whether poverty 2 Linear in a given country is sensitive to growth in average in- 1 (Series 1) comes, and on how the increase in trade affects the dis- ᮡ 0 tribution of income in the country. The first of these is- –0.08 –0.06 –0.04 –0.02 0 0.02 0.04 0.06 0.08 sues is empirically well understood. The sensitivity of –1 poverty to growth in average incomes depends in an im- –2 y = 2.5227x + 0.0139 portant way on initial inequalities in a country (Raval- R2 = 0.0013 lion 1997). When incomes and opportunities are distrib- –3 uted relatively equally, the effect of growth on poverty –4 is larger than when initial inequality is high. Thus, Average annual change in trade/GDP growth associated with increased trade (or from any Note: This figure shows changes in trade as a fraction of GDP and other source) is likely to have larger proportional effects changes in the Gini measure of income inequality, for a large on poverty in countries where initial inequality is low. sample of growth episodes of at least five years in duration. More interesting and potentially more important Source: Dollar and Kraay (2001). are the effects of increased trade on the distribution of income. Almost by definition, if increased trade dispro- in many developing countries are likely to be relatively portionately benefits the poor, poverty will fall faster well off, but will benefit poorer consumers of their than if trade disproportionately benefits the nonpoor. products by lowering prices. Understanding the likely distributional consequences of At the same time, however, the distributional conse- trade liberalization is therefore crucial to understanding quences of trade liberalization can also work against the overall effects of trade on poverty. In many cases, poor people. For example, reductions in tariffs imply re- there are very direct channels through which trade liber- ductions in trade tax revenues that can be important in alization is likely to disproportionately benefit the poor. developing countries that rely disproportionately on this For example, agricultural trade liberalization that al- source of revenue. To the extent that public spending dis- lows previously suppressed prices of agricultural goods proportionately benefits poor people (and this is by no to rise to world levels will benefit farmers, who are net means universal), reductions in tax revenues that accom- producers, but will hurt consumers. If farmers are more pany trade liberalization can have adverse distributional likely to be poor, the liberalization will be, on average, consequences. pro-poor. Similarly, reductions in tariffs on manufactur- The likely distributional consequences of trade lib- ers will hurt previously protected urban workers, who eralization, therefore, are complex and country-specific. Determining whether a given action would be pro- or anti-poor requires careful analysis. Looking back across Box Figure 1 Integration with global countries, there is little evidence that increased trade is markets is associated with faster growth systematically associated with either increases or de- Average annual per capita growth, 1980–99 creases in inequality (box figure 2). 3.5 On average, trade can be a powerful force for 3 poverty reduction, especially over longer horizons where 2.5 the cumulative effects of growth on incomes of the poor 2 are large. But this will not be true for all countries at all 1.5 times—underscoring the importance of complementary 1 pro-poor policies at the country level to ensure maximum 0.5 positive effects in every situation. 0 Decreasing export Increasing export a share in GDP share in GDP For contrasting views on the state of the evidence on trade, trade policies, and growth, see Srinivasan and Bhagwati (2000), Source: World Bank (2001). Rodriguez and Rodrik (1997), Bernanke and Rogoff (2001). Source: World Bank staff. 6 O V E R V I E W essential; their technical assistance to help markets. Because import tariffs indirectly tax implement standards and facilitate trade is exports, reducing trade barriers in developing needed to help developing countries take ad- countries stimulated trade. The burden of im- vantage of new trade opportunities. Middle- port protection on all export activities in de- income countries, whose own policy reforms veloping countries declined, but more so for would produce a large share of the benefit to manufactures than for agriculture and natural developing countries from global liberaliza- resources. At the same time, the fact that suc- tion in agriculture, have to move more as- cessive multilateral trade rounds liberalized sertively than in the past. Their high tariffs global manufactures, while rich countries con- have an adverse impact on growing South- tinued to protect their agriculture (and devel- South trade, especially with neighboring oping countries eventually began to follow countries. In a pattern common to all regions, suit) meant that developing countries’ exports agricultural exporters in East Asia, for exam- of manufactures were free to grow more ple, paid one-third of all their tariff duties to rapidly than those in agriculture. other East Asian governments (second only Today, trade in manufactures is still im- to tariffs paid to get into rich countries). Agri- peded. Although tariffs on manufacturing in cultural exporters in the Middle East paid rich countries are on average lower than in de- 44 percent of their tariff duties to regional veloping countries, the tariffs rich countries neighbors. charge developing countries are substantially higher than those they charge other industrial Nonfarm trade is increasingly essential countries. For example, exporters of manufac- to growth in poor countries tures from industrial countries face, on aver- Over the past two decades, developing coun- age, a tariff of 1 percent on their sales to other tries have increased their share of global trade industrial countries; exporters in developing from just under one-quarter to about one- countries pay anywhere from 2 percent if they third. As a group, they have moved beyond are from Latin America (where NAFTA weighs their traditional specialization in agricultural heavily) to 8 percent if they are from South and resource exports into manufactures trade. Asia. Overall, rich countries collect from de- Exports of manufactures have grown at nearly veloping countries about twice the tariff rev- twice the rate of agriculture, and now consti- enues per dollar of imports that they collect tute nearly 80 percent of exports from all de- from other rich countries. However, the prob- veloping countries. Countries that were low in- lem is not solely a North-South issue. Latin come in 1980 managed to raise their exports of American exporters of manufactures, for ex- manufactures from roughly 20 percent of their ample, face tariffs in neighboring Latin Ameri- total exports to more than 80 percent (figure can markets that are seven times higher than in 3). As a result, many grew quickly and entered industrial countries. In Sub-Saharan Africa, the the ranks of today’s middle-income countries. same multiple is six; in South Asia, two. The middle-income group of 1980 also in- Protection takes forms other than tariffs— creased its manufactures share, but somewhat among them quotas, specific duties, and con- less rapidly, to reach nearly 70 percent. This tingent protection measures such as antidump- dramatic change in trade magnitudes and com- ing duties. As with tariffs, these measures tend position has given developing countries a new to be used more frequently against labor- interest—and a powerful voice—in the ongo- intensive products from developing countries. ing Doha Round. The quota arrangements in the WTO Agree- One reason for this change was the dra- ment on Textiles and Clothing (ATC) still matic reduction in border barriers in develop- shackle the exports of many poor countries. ing countries since the mid-1980s, in combi- Although these arrangements are scheduled to nation with increased access to rich-country be removed in only 15 months, rich countries 7 G L O B A L E C O N O M I C P R O S P E C T S Figure 3 Developing countries have become important exporters of manufactures In middle-income countries, manufactures make up 70 percent of exports Middle-income countries’ share of world exports, 1981–2001 (percent) 80 70 Manufacturing exports (%) 60 ᮡ 50 40 Resources exports (%) 30 ᮡ 20 ᮡ 10 Agricultural exports (%) 0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 In low-income countries, manufactures make up 80 percent of exports Low-income countries’ share of world exports, 1981–2001 (percent) 90 80 Manufacturing exports (%) ᮡ 70 Resources exports (%) 60 ᮡ 50 40 30 Agricultural exports (%) 20 ᮡ 10 0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: UN COMTRADE. to date have freed up only 15 percent of the Realizing the development promise of quotas, obliging them to implement major Doha depends particularly on three efforts. changes at the end of the phase-in period. Av- erage antidumping duties are seven to ten • First, rich countries desirous of promoting times higher than tariffs in industrial coun- development can do so by ensuring that the tries, and about five times higher in developing now lagging phase-out of the ATC is com- countries. Today’s protection remains heavily pleted according to the agreement—and not concentrated in the most politically sensitive reversed through antidumping actions. The areas—textiles, clothing, and other labor-in- ATC phase-out will also require reforms by tensive manufactures, as well as agriculture— some exporters facing increased competi- in both rich and poor countries. tion, many of which are LDCs, to ensure a 8 O V E R V I E W smooth adjustment; trade-related develop- No less important, developing countries ment assistance could play a role in easing have an interest in locking in market access for the transition. their services exports to rich-country markets— • Second, in both rich and poor countries, ef- exports that are growing more rapidly than forts to cut back on antidumping measures merchandise exports. Examples include China’s that create a patchwork of ad hoc protection incipient software industry as well as software are essential if market access granted by the and back-office services from India. right hand of quota elimination and tariff re- The Doha Round has the potential of lock- ductions is not to be withdrawn by the left ing in access to foreign markets for services hand of antidumping suits. Developing coun- exports. Just as many rich countries have not tries themselves have become accomplished yet bound access for developing countries’ ser- practitioners of contingent protection. vices exports, many developing countries have • Third, moving forward in nonfarm trade re- yet to schedule with the WTO liberalizing re- quires a Swiss-type formula approach that forms that have already been undertaken. Of- will require disproportionately greater re- fering to bind unilateral reforms can be used ductions in high tariffs so as to mitigate the to lock in existing access to overseas services antidevelopment bias embedded in most markets. Active participation in the services tariff structures around the world. The negotiations could help accelerate these twin choice of the formula, and of its coefficients processes (Mattoo 2003). of reduction, is important. Applying these The GATS process allows governments to cuts to bound rates will effectively credit de- liberalize services at their own pace. It does not veloping countries that have unilaterally re- require that a government forgo its regulatory duced their applied tariffs since the end of responsibilities. Nor does the GATS frame- the Uruguay Round. work require a cessation of subsidies or pre- empt pro-poor regulation on universal service Services liberalization could raise access. The main requirement is that, once a productivity sector is scheduled, governments are required Services are the fastest-growing component of to have transparent regulations, treat domestic the global economy. Even in developing coun- and foreign companies alike, and permit all tries, services exports grew more rapidly than foreign companies access to the domestic mar- manufactures in the 1990s (World Bank 2001, ket on the same terms as domestic companies. chapter 3). More efficient backbone services— In fact, many governments have chosen to in finance, telecommunications, domestic trans- liberalize—but not to make commitments portation, retail and wholesale distribution, with the GATS that would bind this opening. and professional business services—improve Some two-thirds of the WTO members have the performance of the whole economy because scheduled fewer than 60 sectors of the approx- they have broad linkage effects. Yet most devel- imately 160 sectors covered by the GATS. For oping regions trail the industrialized world in example, only 12 developing countries have exposing service sectors to competition. Figure made commitments in education. None have 4 shows that only Latin American countries made commitments in the provision of water. are beginning to approximate the high-income Why the reluctance? Liberalization in ser- countries in their degree of competition. Esti- vices is more complicated than in goods mar- mates suggest that, after controlling for other kets. Privatization without competition and determinants of growth, countries that fully lib- proper regulation may achieve nothing more eralized trade and investment in finance and than transforming a public monopoly into a telecommunications grew on average 1.5 per- private monopoly—with no improvement in centage points faster than other countries over services. And too many developing countries the past decade (Mattoo, et al. 2001). have been content to change ownership 9 G L O B A L E C O N O M I C P R O S P E C T S Figure 4 Developing countries lag behind rich countries in services liberalization Financial services South Asia ᮡ East Asia Middle East and North Africa Europe and Central Asia Latin America and the Caribbean High income Middle East and North Africa Telecommunications Europe and Central Asia ᮡ South Asia East Asia Latin America and the Caribbean High income 0 2 4 6 8 10 Greater competitiveness ᮡ Source: World Bank Global Economic Prospects 2002, based on data from Mattoo, et al. (2001). through privatization while retaining limits on 2001, chapter 3). Trade ministers wishing to entry that buttress monopolies. harness the reciprocal negotiating framework Effective regulation is critical to ensure that of the GATS to spur domestic reforms while the poor have access to basic services (World leveraging market access abroad must ensure Bank 2002a, 2002b). Some sectors, such as that sectoral ministries have properly se- retail and wholesale services, can be opened quenced regulations to support liberalization. expeditiously because competition can be re- lied on to discipline firms’ pricing and invest- Liberalized trade in labor services could ment decisions. Others, however, require well- contribute much more formulated regulations before liberalization to To date, virtually all GATS commitments have ensure proper market functioning and ade- focused on the first three “modes” of interna- quate access for low-income groups to ser- tional service delivery. Most trade in services vices. In China’s financial sector, for example, has occurred through those same modes. the World Bank recommended that financial Twenty-eight percent of the value of services markets be opened gradually to allow regula- trade, for example, has been in Mode 1, “cross- tions and institutional developments to pre- border supply of services.” Another 14 percent cede liberalization. The goal was to avoid has been in Mode 2, “consumption abroad,” destabilizing financial losses by state banks such as tourism. Fifty-six percent has been saddled with poor portfolios as efficient in Mode 3, “commercial presence,” such as banks, domestic and foreign, entered the mar- through foreign direct investment in services. ket (World Bank 1996). China’s WTO acces- Mode 4, which involves the temporary sion agreement generally reflected this phased movement of labor to provide services, ac- approach. In network sectors, such as counts for only 1.4 percent of services trade telecommunications and water, ensuring ade- (figure 5). Temporary movement has some ad- quate pricing and universal access are simi- vantages over permanent migration for both larly important if the poor are to benefit from developed and developing countries. Rich the expansion of the system (World Bank countries can obtain workers whose skills are 10 O V E R V I E W to higher-level personnel. More than 40 per- Figure 5 Temporary labor mobility is an cent of workers covered by existing Mode 4 underused mode of trade in service commitments are intracorporate transferees Value of world trade in services by mode, (percent) whose mobility is intimately related to foreign Mode 4 direct investment (often in services); another (movement of natural persons) 50 percent are executives, specialists, and sales 1% personnel who are business visitors. To date, Mode 1 therefore, Mode 4 has been of limited signifi- (cross-border cance for developing countries, whose compar- supply) 28% ative advantage lies in the export of medium and low-skilled, labor-intensive services. In addition to other concerns associated with broader migration issues, two fundamen- tal tensions hamper progress on Mode 4 tem- porary labor mobility. The first is that govern- Mode 3 Mode 2 ments are reluctant to undertake permanent (commercial presence) (consumption commitments when employment demand varies abroad) 57% 14% with cyclical conditions. Wanting to maintain policy flexibility, immigration and labor market Source: IMF, Balance of Payments Yearbook. officials have made GATS commitments far below the degree of TMNP access already af- forded under domestic laws and regulations. in short supply, with minimal disruption of TMNP liberalization has been greatest in sec- labor markets and without taxing social ser- tors (and for categories of workers) where labor vices. Temporary migration allows develop- demand routinely exceeds supply—tourism, in- ing countries to obtain access to new, higher- formation technology, health services. The sec- paying jobs without necessarily suffering the ond tension stems from the fact that regional “brain drain” that would occur with perma- patterns of migration create domestic political nent migration. Poor countries also gain from support for programs that favor neighboring remittances sent home by temporary migrants, countries, whereas Mode 4 programs necessar- and returning workers bring new skills back to ily are open to all countries on a most-favored- the sending country. In 2001, remittances from nation (MFN) basis. Preferential migration permanent as well as temporary migrants pro- schemes are commonly negotiated at the bilat- vided some US$71 billion to developing coun- eral and regional levels—and MFN-based liber- tries, nearly 40 percent more than all official alization would undermine these. Because development assistance and significantly more many bilateral labor agreements are usually not than net debt flows to developing countries. If tied to trade policy or other agreements, they temporary movement of labor up to 3 percent afford governments a greater degree of flexibil- of the total labor force in rich countries were ity to adjust programs to evolving migration permitted, developing countries would stand trends and labor-market needs. to gain as much as US$160 billion in addi- Tensions notwithstanding, present levels of tional income (Walmsley and Winters 2003). Mode 4 use fall far short even of Mode 4’s rel- To date, however, even after the significant atively modest potential. To rectify this, devel- liberalization of trade in services during the oping countries should expand their requests Uruguay Round, little has been done to loosen and offers in the Doha Round. Only six re- conditions governing the temporary movement quests had been tabled by June 2003, and only of natural persons (TMNP) supplying services. two from developing countries (India and Co- Present commitments refer almost exclusively lómbia). Also, WTO members should adopt 11 G L O B A L E C O N O M I C P R O S P E C T S rules that would provide greater clarity and To counter any trade-reducing effects of predictability. To help regularize entry and security measures, every effort to cut trade- exit while improving security, countries could related costs in other areas is imperative. Reg- adopt a GATS visa system that would facili- ulatory restrictions on international air and tate national visas for up to one year, subject maritime transport services inflate transport to appropriate security checks and oversight costs—on some routes by amounts that dwarf (see Hatcher 2003 and Self and Zutshi 2003). the value of tariffs. International air transport, which carries about 30 percent of developing Reducing transport costs and facilitating countries’ exports by value, is heavily pro- trade can have a powerful effect tected from international competition. Bilat- The cost of moving goods across international eral air service agreements commonly bar entry borders is often as important as formal trade to efficient outside carriers, thereby raising ex- barriers in determining the cost of landed port costs for developing countries. City-pair goods—and ultimately of market share. One routes on which more than two passenger air- study estimated that every day spent in cus- lines or dedicated freight airlines operate can toms adds nearly 1 percent to the cost of goods cut costs by an average of 10.7 percent. Mar- (Hummels 2001). In developing countries, itime transport, too, is often subject to prac- transit costs are routinely two to four times tices, such as cargo-reservation schemes and higher than in rich countries. Transparent cus- limitations on port services, which protect in- toms regimes, modern port facilities, dense efficient service providers. Such competition- transportation networks, and access to infor- restricting practices among shipping lines mation and telecommunications systems—all and port-terminal operators can increase can help lower transit costs. freight rates up to 25 percent on some routes. Since September 11, 2001, security has be- Rising concentration in the market for port- come a dominant issue in international trade. terminal services has increased the risk that Border inspections, cargo review, and other private firms may capture the benefits of gov- measures have increased transport times and ernment reforms. Abusive practices by private driven up costs. Each 1 percent increase in operators are of special concern in develop- costs to trade from programs to tighten border ing countries, where traffic volumes are lower security reduces world income by US$75 bil- and competitive forces inherently more limited. lion per year. Developing countries, too, are Regulations governing such practices are now vulnerable to security threats and terrorism, outside the WTO mandate, but logically they but limited budgets, dependence on foreign should be reviewed for reformulation. trade and investment, and outdated infrastruc- Facilitating trade by eliminating delays in ture and technology present serious challenges developing countries would lower trading for these countries. New security protocols costs significantly, particularly if accompanied being deployed at ports, customs offices, and by liberalization of transport and telecommu- border posts around the world have the poten- nications, and streamlined regulations to pro- tial to add costs and diminish market access mote domestic competition. Trade facilitation for developing countries—at least in the short requires modernizing customs, improving port term. But managed correctly, the same mea- facilities, and making investments in trade- sures can streamline trade transactions while related information technology—a huge insti- promoting safety and security. To achieve this tutional and infrastructural agenda. Countries trade-expanding result, a global framework display wide variation in customs efficiency must be established to ensure that the needs and clearance times, for example (figure 6). If of developing countries are addressed as en- those whose trade-facilitation capacity was hanced security regimes take shape. below average could be brought halfway up to 12 O V E R V I E W Aspects of trade facilitation are part of the Figure 6 Clearing customs takes longer WTO’s trade-related disciplines, particularly in developing countries the provisions that encourage uniform treat- Average number of days to clear customs for sea cargo ment of transit trade and transparency of fees. Strengthening provisions related to transit, Developed fees, and transparency, issues originally in the General Agreement on Tariffs and Trade East Asia and (GATT), would be helpful. However, best Pacific practice cannot be established in a vacuum; it Latin America has to be gradually created in sound domestic and the Caribbean laws, regulations, and practices. A sustained program of institutional reform must be tai- Africa lored to each country, and it often requires technical assistance. The bilateral donors and multilateral development banks and agen- South Asia cies are best positioned to provide the thor- ough diagnostics and technical assistance 0 2 4 6 8 10 12 required to promote needed institutional Note: This is based on a sample of countries in each area; see figure 5.1 in chapter 5. change. Source: International Exhibition Logistics Associates. If the dynamics of the Doha negotiations Available at http://www.iela.org. propel the WTO into a role in the broader trade-facilitation agenda, any agreement, if it is to be effective, should recognize limitations in the global average, international trade would domestic capacity for implementation. An increase by US$380 billion annually. agreement would be most effective if it in- Multilateral efforts are under way outside cluded a serious commitment by developed na- the WTO to promote—and in some cases fi- tions to finance new trade-facilitation systems. nance—institutional changes in trade facilita- Development assistance delivered under the tion. Key players include the World Customs commitment could be provided by the World Organization, the regional development banks, Customs Organization, the multilateral devel- and the World Bank. Their efforts focus on opment banks, and bilateral donors. The obli- policy reform, technical assistance, and infra- gations of developing countries should be tai- structure modernization. lored to their implementation capacity. And because the WTO’s dispute settlement provi- Should trade facilitation, investment, and sions are largely inappropriate to promoting competition be the subject of new institutional changes, conventional enforce- multilateral disciplines in the WTO? ment of dispute settlement through trade sanc- As one of the four Singapore issues, trade tions ought to be set aside. facilitation is under discussion in Geneva for Other Singapore issues would stretch the possible inclusion in the Doha Agenda. Al- WTO mandate into yet new areas, probably ready the WTO, through the GATS, has a po- with only marginal development benefits if tentially important role to play in interna- taken up in isolation. As discussed in Global tional transport and trade logistics—many of Economic Prospects 2003, there is no evidence the transport service sectors could be immedi- that an investment agreement would, by itself, ately scheduled with the GATS if countries promote new foreign investment. Similarly, saw fit to do so. However, few countries have adopting an agreement in competition policy— taken advantage of its provisions. as currently framed in the negotiations—would 13 G L O B A L E C O N O M I C P R O S P E C T S have minimal effects on the terms of trade of developing countries, unless the agreement Figure 7 Fewer exporters to the Quad were to establish new disciplines on national countries are taking advantage of export cartels and illegal international cartels preferences (World Bank 2002a, chapter 4). Finally, a new Share of potential imports under GSP that entered with preferential access, 1994–2001 (percent) agreement on government procurement that fo- 60.0 cuses on transparency is unlikely to improve market access substantially (Evenett 2002). 55.0 Virtually all of the disciplines proposed in these arrangements would require new policy actions 50.0 only in developing countries. Although some of these may promote development, the main ben- 45.0 efits of WTO agreements in these areas would be in the market access that new agreements 40.0 leverage (Newfarmer 2003). 35.0 Securing the benefits of trade for the poorest countries 30.0 More favorable and differential treatment of 1994 1995 1996 1997 1998 1999 2000 2001 developing countries is a prominent feature Source: Inama (2003). of multilateral trade rules. Selected subsets of countries have been granted trade preferences. Some countries were granted exemptions or al- “deep preference” programs, such as the EU’s lowed to defer implementing some multilateral Everything But Arms program and the U.S. agreements; many have benefited from techni- African Growth and Opportunity Act, but each cal assistance to help implement mandates. has different rules and exceptions. For these The present patchwork system has not reasons, preferences cover only a portion of ex- worked especially well. Countries benefiting ports from even poor developing countries— from trade preferences have generally under- and among eligible countries and products, performed in exports. One reason is that rich only a fraction of preferences are actually used. countries grant preferences voluntarily rather Even when effective, preferences tend to divert than as part of a binding multilateral negotia- trade away from other poor countries, effec- tion. Those preferences often come laden with tively “robbing Peru to pay Panama.” restrictions, product exclusions, and adminis- Existing preferences do relatively little for trative rules that prevent beneficiaries from tak- most of the world’s poor people (those living ing full advantage of them. For example, only on less than US$1 per day), most of whom live 39 percent of potentially preferred imports in China, India, Nigeria, Pakistan, Northeast under the Generalized System of Preferences Brazil, and the ASEAN countries, which may (GSP) into the Quad countries—Canada, the enjoy only partial preferences at best. Al- EU, Japan, and the United States—actually though some of these countries enjoy limited took advantage of preferential access—and preferential access to some markets, all would usage rates are declining (figure 7). At times, be better off with across-the-board, non- protectionist lobbies have weighed in to pres- discriminatory binding access. sure for reductions in the preference, either be- Finally, the extensive use of voluntary pref- fore a country was deemed eligible or even erence schemes has created perverse incentives later, when the first signs of export success for in both rich and poor countries to avoid liber- developing countries become evident. Beyond alization that would otherwise benefit the GSP, the Quad countries sponsor their own poor. Too often, rich countries have offered 14 O V E R V I E W differential treatment to a subset of poor • Finally, the WTO membership must learn countries instead of arriving at MFN reduc- which of its policies promote, and which de- tions in trade barriers that would benefit all feat, the interests of developing countries. developing countries. And, too often, develop- Getting the rules right is arguably the major ing countries have sought preferential access challenge confronting WTO members from and exemptions from agreed MFN reductions a development perspective. Among other in trade barriers that would benefit themselves things, getting the rules right means limiting and other developing countries. In other new rule-making to cases in which the payoff words, the present system of preferences re- for developing countries is clearly positive. duces the incentives to negotiate effectively for reductions in trade barriers abroad and with TRIPS and Public Health domestic protectionist constituencies at home. Negotiations at the WTO on patents and pub- Making trade regime more supportive of lic health have stalemated over the question of development therefore involves four important improving access to generic drugs for poor policy directions. countries. The WTO’s Agreement on Trade Re- • Central to any new regime is improvement lated Aspects of Intellectual Property Rights in market access for all developing countries (TRIPS), which took effect in 1995, obliges on an MFN basis, especially in products that countries to extend patent protection to phar- have hitherto escaped WTO disciplines, maceutical products and processes after a such as agriculture and labor-intensive prod- phase-in period linked to level of development ucts. Broad market access would allow trade (World Bank 2001, chapter 5). Under these reform to reach the 70 percent of the world’s rules, countries that are able to manufacture the poor not living in the 49 least developed drugs themselves would continue to have legal countries. access to generics if they chose to issue compul- • Trade preferences would be more effective sory licenses. These tend to be the larger and if they were consistent and uniform, shorn better-off developing countries such as Brazil, of restrictions that raise the cost of tak- China, India, and Thailand. Countries that lack ing advantage of preferences. WTO rules sufficient manufacturing capability—typically that require institutional improvements— the world’s poorest and often most disease- especially “behind the border” policies, as ravaged states—may be barred from importing distinct from trade policy changes that can generic versions of patent-protected drugs, once be implemented at the “stroke of the pen”— rules take effect. Hence, the Doha mandate on would be more effective if they were cali- TRIPS and Public Health included finding a brated to developing countries’ capacity mechanism by which such countries can import to implement them. As countries move up generic drugs protected by patents abroad. the ladder of development, they should be These rules are important for poor people. expected to assume the full obligations of For example, one day’s supply of patented an- WTO members. tiretrovirals to treat a single HIV/AIDS patient • Integrating technical assistance into the na- can cost as much as US$30 in rich countries. tional priorities for development while in- Such prices are prohibitive for the nearly 3 bil- creasing “aid for trade”—a part of the lion people who live on less than US$2 per Monterrey consensus—could help poor de- day. Generics are not always cheaper, but the veloping countries identify and address threat of competition has helped to reduce trade-capacity priorities. Increased develop- prices of patented antiretrovirals supplied to ment assistance—for ports, customs, and developing-country governments (Fink 2003). logistics management—would augment the Patents create incentives for research by of- capacity of developing-country firms to fering temporary monopolies on new drugs, benefit from market-access opportunities. and developing countries need that research as 15 G L O B A L E C O N O M I C P R O S P E C T S much as the rest of the world. Indeed, in- countries. Of equal importance to the health of creased R&D for medicines to treat diseases the poor is undertaking the large investments that are more prevalent in developing coun- in complementary health infrastructure, in- tries is desperately needed. Yet poor countries cluding hospitals, roads, warehouses, and doc- that lack pharmaceutical manufacturing capa- tors and nurses. For example, even in some bility form only a tiny portion—perhaps less countries that manufacture anti-AIDS generics than 1 to 2 percent—of the global pharma- or that get AIDS drugs free, governments have ceuticals market. In the 12 months to October not succeeded in providing medicines to signif- 2002, developed countries accounted for more icant shares of the needy population. Second, than 95 percent of the US$270 billion of sales funding for fighting the developing world’s in the world’s leading 20 country markets health crisis needs to be scaled up—and mas- worldwide. The group of developing countries sively. For example, the latest projections by that may benefit from a WTO agreement on UNAIDS put the cost of the global struggle importing generic drugs under compulsory against AIDS at US$10.5 billion a year by licensing probably accounts for less than 1 or 2005 and US$15 billion a year by 2007; even 2 percent of global pharmaceutical sales. Per- if governments in affected countries cover part mitting the export to these markets of generic of this amount, estimated aid flows of about versions of patented medicines developed for US$3 billion in 2002 are still insufficient. The rich-country markets is unlikely to erode in- Global Fund to Fight Aids, Tuberculosis, and centives for research and development (Fink Malaria remains cash-strapped. The recent 2003). Despite this unlikelihood, the negotia- U.S. commitment of US$15 billion to fight tions going into the summer of 2003 were HIV/AIDS will, when disbursed, partially re- stalemated on possible restrictions of the list lieve resource constraints, but a substantial of diseases that would be covered by any new funding gap remains. The TRIPS issue is small agreement. when compared with the real obstacles pre- Governments everywhere have potentially venting access to better health in developing competing interests. They have an interest in countries, and it concerns a small corner of the maintaining R&D and in preventing illegal global pharmaceutical market—two reasons generics entering rich-country markets from why the international community should move undercutting patent rights that finance it. swiftly to resolve it. Strengthening mechanisms that prevent such illegal trade is important, such as by prohib- iting generic manufacturers from mimicking Delivering the Doha deal the packaging of patented drugs. At the same for development time, governments everywhere have an inter- est in ensuring that limited budgets for drugs to improve health in poor countries go as far T he potential for reciprocal reductions in trade protection holds the promise of bet- ter lives for everyone. To illustrate, we consider as possible, and this means that all developing the effects of a pro-poor agreement in which countries have access to drugs at the cheapest rich countries cut tariff peaks to 10 percent in most competitive prices. In balancing these agriculture and to 5 percent in manufacturing, objectives, any eventual agreement should put and in which these reductions are reciprocated the developing countries with insufficient with cuts to 15 and 10 percent in developing manufacturing capacity on the same footing countries (table 1). This program, combined as those countries that have manufacturing with reductions in prevailing tariff averages, a capacity. decoupling of agricultural subsidies, and an end Resolving the Doha issue is only one small to agricultural subsidies could realize nearly piece of the larger problem of delivering drugs three-quarters of the gains that might be antic- and health care to sick people in developing ipated from full merchandise liberalization. 16 O V E R V I E W Table 1 A pro-poor tariff reduction countries that have high protection will find program they benefit from domestic reforms that lower (percent) costs of imported inputs, increase domestic Rich Developing competition that spurs productivity growth, and expand exports. Study after study has Agriculture Average 5 10 shown that trade reforms redound first and Maximum 10 15 fastest to the reformer. Negotiations will determine the pace and Manufacturing Average 1 5 details of a final package, but the broad out- Maximum 5 10 lines of a potentially good deal for develop- ment are already evident from this analysis. Realizing that agricultural reform in a time of This illustrative pro-poor program, dis- rapidly rising budget deficits will contribute cussed in detail in chapter 1, if implemented positively to their own economic growth, rich progressively over the five years to 2010 and countries would benefit from reforms in agri- accompanied by a realistic productivity re- culture. Lopping off tariff peaks and phasing sponse, would produce gains for developing out the ATC at the end of 2004 will benefit countries of nearly US$350 billion in addi- developed-country poor who are forced to tional income by 2015. Rich countries would pay more for food and clothing because of benefit, too, with gains on the order of US$170 external protection (Gresser 2002). Further billion. All of this would mean that 8 percent progress on the part of all countries in reduc- fewer people would be living in poverty in ing tariffs in manufactures would benefit de- 2015—140 million fewer people living below veloping countries and stimulate healthy US$2 per day. If greater opening of services, in- South-South trade. For the rich countries, the cluding Mode 4, were to occur, the benefits prospect of greater access to markets in devel- would be substantially greater.2 oping countries—home to 80 percent of the Delivering a Doha deal that spurs develop- world’s population with markets growing two ment will not be easy. Negotiators may well to three times faster than their own—is also a have to transcend the mercantilist mind-set worthy prize. that tends to dominate trade negotiations. All Developing countries, too, have much to segments of the international community must gain. Middle-income countries—continuing a keep their focus on potential gains, not only process begun over the last two decades—may from “winning concessions” from foreign do well to open selected services markets, often partners, but also on the gains from domestic plagued by inefficiency that dampens produc- reforms that “pay for” foreign concessions. tivity of the whole economy, in exchange for Rich-country negotiators will do better, for greater access in agriculture and labor-inten- themselves and for the developing world, if sive goods. Because many countries have al- they keep in mind that their own countries can ready lowered tariffs, the issue is now to bind benefit by directing agricultural subsidies those new lower levels. Finally, low-income away from production subsidies for large countries would benefit if, in relinquishing de- farmers toward income subsidies to relatively mands for exemption from disciplines on their small family farms, delivered in a form that is own tariffs, they succeed in obtaining commit- decoupled from output. Middle-income coun- ments to greater market access in products and try negotiators likewise have to keep in mind services of importance to them, a new commit- that their telecommunications and financial ment to consistency in the administration of services could be much more efficient and less preferences, and development assistance to fa- expensive if more competitors were allowed cilitate trade and implement new WTO rules in to enter well-regulated markets. Low-income accord with domestic capacities and develop- 17 G L O B A L E C O N O M I C P R O S P E C T S ment priorities. 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