Summary A S 2001 DRAWS TO A CLOSE, THE GLOBAL have become important actors in the global economy is slipping precariously to- system. In contrast to the early rounds of ward recession. Developing countries global trade negotiations--the Dillon Round have seen their economic growth rates plunge. in 1960 had only 39 participants, mostly from Growth in trade has undergone one of the industrial countries--the next round will have most severe decelerations in modern times-- more than 142 WTO members, 70 percent of from over 13 percent in 2000 to 1 percent in which are developing countries. This mirrors 2001. Developing countries are confronting a the increased weight of developing countries 10 percentage point drop in the growth of de- in the global economy. They have grown to ac- mand for their exports. Though the weight of count for more than one-third of merchandise evidence still points to a probable recovery in trade--and they have much to gain from a new mid-2002, the risks posed to recovery are the round. gravest in a decade. The terrorist attacks in the On the other hand, they worry that the United States, although it is still too early to multilateral system, in leaving intact barriers evaluate them fully, have unleashed new and to markets whose removal would otherwise unpredictable forces that have substantially stimulate pro-poor growth, has become less raised the risk of a global downturn. fair and less relevant to their development Against this uncertain backdrop, world concerns; that the trade agenda is being ex- leaders have launched an intense discussion panded to include only issues in which the de- about whether to begin a new round of global veloped countries have an interest; and that trade negotiations at the ministerial meeting of multilateral rules are increasingly becoming a the World Trade Organization (WTO) in No- mere codification of existing laws and rules vember 2001. A round would offer an oppor- prevalent in developed countries, but which tunity to renew progress on multilateral rules are inappropriate or unenforceable in devel- that open markets and expand trade. A reduc- oping countries (Ganesan 2000). tion in world barriers to trade could accelerate Nor is support for new trade initiatives growth, provide stimulus to new forms of pro- universal among industrial countries. New op- ductivity-enhancing specialization, and lead to position to "globalization" in general--and a more rapid pace of job creation and poverty expanded trade in particular--has emerged reduction around the world. forcefully, questioning the very premises that However, the fate of new trade talks is as more open markets can raise people's incomes, uncertain as the global outlook. Many devel- especially those of the poor. The downturn in oping countries have lingering doubts about the global economy may inflame protectionist new trade negotiations. On the one hand, they sentiment. xi G L O B A L E C O N O M I C P R O S P E C T S The international community thus faces a ple, full implementation of the Agreement on clear choice: whether now is the time to con- Trade-Related Intellectual Property Rights tinue down the path toward greater openness (TRIPS) may not be suitable for all countries. that has led to greater integration and pros- Transportation cartels enjoy official sanction perity for more than five decades, or whether but are costly to developing countries, and to allow the hiatus in the wake of the WTO some standards may be set with little regard meetings in Seattle (1999) to endure. If trade for their effects on developing countries. talks are to succeed in underpinning a new Protection is not solely an issue for high- wave of global prosperity, and at the same income countries. Developing countries have time contribute to raising the incomes of the also placed high barriers on agriculture, labor- poorest in the global community, they will intensive manufactures, and other products and have to ensure that the world's poorest coun- services. Developing-country tariffs in manu- tries and poorest people will benefit. facturing average four times higher for imports from developing countries than are tariffs in in- The world's poor could benefit from dustrial countries on imports from developing reshaping the global architecture countries (12.8 percent as opposed to 3.4 per- of trade-- cent). Restrictions on services trade are usually Poor people--those living below the interna- more common than in industrial countries. tional poverty line of $2 per day--work pri- This report argues for reshaping the global marily in agriculture and labor-intensive manu- architecture of world trade to promote devel- factures. These sectors confront the greatest opment and poverty reduction. The report fo- trade barriers, putting the world's poor at a cuses on four policy domains: particular disadvantage. According to estimates in chapter 2, the average poor person selling 1. Using the WTO ministerial to launch a "de- into globalized markets confronts barriers that velopment round" of trade negotiations that are roughly twice as high as the typical worker would reduce global trade barriers. Those in developed countries. In general, tariffs in bargains will only be enduring and have high-income countries on imports from devel- greatest development impact if industrial oping countries, though low, are four times countries are willing to reduce restrictions those collected from developed countries (0.8 on products and services that poor coun- percent as opposed to 3.4 percent). Subsidies tries and poor people produce--particularly and other support to agriculture in the high- protection of agriculture (including subsi- income countries are particularly pernicious-- dies), textiles, and clothing; and even re- and are now running roughly $1 billion a strictions on temporary movement of work- day--or more than six times all development ers. Similarly, developing countries can assistance. Distortions in tariff codes--excep- improve their own situation while at the tionally high tariffs on developing country same time winning concessions by liberaliz- products (tariff peaks), embedded incentives ing services, and lowering barriers to import against processing abroad (tariff escalation), competition. To be sure, a trade round also and tariffs that are far higher once specified im- involves issues of interest primarily to in- port ceilings are reached (tariff rate quotas)-- dustrial countries. Nonetheless, a true de- and trade practices, such as frequent recourse velopment round would produce win-win to antidumping actions, are often more impor- gains for the entire national community, in- tant impediments that keep the poor from tak- cluding the world's poor. ing advantage of trading opportunities. 2. Engaging in global collective action to pro- Other costly asymmetries in trade-related mote trade outside the negotiating frame- agreements and practices can at times work at work of the WTO. Providing market ac- odds with development objectives. For exam- cess may not by itself be enough to elicit xii S U M M A R Y new trade from developing countries, par- would enhance the prospects of developing ticularly the poorest. Increasing multilateral countries. "aid for trade"--development assistance to promote trade infrastructure, adoption of Reshaping global trade architecture best practice standards and rules, and a for development would reduce healthy investment climate--could help. No world poverty-- less important, global cooperation to im- Seizing the opportunity to reshape the global prove the environment and labor standards trade architecture for development would can most effectively be undertaken outside make an enormous difference to the world's the WTO. poor. Some 2.8 billion people today live on 3. Adopting pro-trade development policies of less than $2 day. In the base-case long-term high-income countries unilaterally. First, if projection of this report, developing countries the high-income countries were to allow would grow at rates that reduce poverty to 2.2 low-income countries duty-free and quota- billion by 2015, effectively lifting some 600 free access to their markets, they would pro- million people above this poverty line. This vide a strong stimulus to trade that would would be an important achievement. help these poor countries overcome their past But better results are possible. This report lackluster trade performance. Second, high- simulated the effects of taking the mutually re- income countries could also demonstrate inforcing actions in all four policy domains--ef- good faith by reining in mushrooming an- fectively removing restrictions on trade and ser- tidumping cases. Third, increasing bilateral vices in combination with the "aid for trade" "aid for trade" can complement the multi- agenda and other companion policies that trans- lateral effort. late the trade impulse into rising incomes for the 4. Enacting new trade reform in developing poor. These exercises have methodological limi- countries. Developing countries individu- tations but are indicative of what's at stake. ally can improve their competitiveness Three headlines are worthy of note: First, through trade reforms that lower restrictive the pace of poverty-reducing globalization barriers, especially in services markets. In- would clearly be accelerated. This combination deed their own policies hold the largest po- of polices could spur new growth that will lift tential for policy-induced gains from trade. an additional 300 million people above the Trade reforms, especially those reinforced poverty line relative to the normal growth in with reforms in governance and in domes- the base case.2 Said differently, because of faster tic investment climates, can raise productiv- growth associated with trade integration, the ity and incomes, irrespective of policies of world would have 14 percent fewer people liv- other nations. ing in poverty in 2015 than in the base-case sce- nario. Faster integration through lowering bar- Other aspects of global trade architec- riers to merchandise trade would increase ture--for example, regional trading arrange- growth and provide some $1.5 trillion of addi- ments, standards, and world institutions with tional cumulative income to developing coun- effects on trade (such as the World Customs tries over the 2005­15 period.3 Liberalization Organization and so on)--are also important. of services in developing countries could pro- However, save for brief mention in chapter 6, vide even greater gains--perhaps as much as they fall outside the focus of this report. This four times larger than this amount. is for reasons of parsimony and because they Second, the effects on income distribution of have been covered in recent Bank reports.1 removing trade restrictions in the simulation Nonetheless, if the policies recommended in are broadly positive. The simulations show that these four areas were adopted, they would labor's share of national income would rise move the global trade architecture in way that throughout the developing world. And un- xiii G L O B A L E C O N O M I C P R O S P E C T S skilled workers generally do better in most re- world economy should grow by 1.6 percent, gions. Finally, this scenario would bring down with the recrudescence of consumer spending in infant mortality more rapidly and contribute to the United States, prompted by lower interest improved child health throughout the develop- rates and fiscal stimulus, and renewed expan- ing world. sion in Europe in response to recent interest rate cuts and lower oil prices. High-income countries, still shackled by slow growth in the Chapter Highlights first half of 2002 but picking up in the second, are likely to grow at about 1.1 percent for the This report is dedicated to the year, up slightly from the anemic 0.9 percent in trade-for-development agenda 2001. Dynamism in major economies of the de- Realizing the promise of the new global initia- veloping world--particularly China and India tives to expand trade requires concerted effort and, to a lesser extent, Brazil and Mexico--will to move development to center stage in trade reinforce these positive trends. South Asia policy formulation. This report is dedicated to seems likely to become the fastest-growing that agenda. It begins with a review of global region, with growth at 5.5 percent, followed prospects and ways globalization links the closely by East Asia, at 4.9 percent. Other re- fates of industrial and developing countries. gions will not achieve these growth rates, but The report then considers issues in four broad all will predictably do better than in 2001. areas that are particularly important to devel- The recovery of the global economy is oping countries: merchandise trade, services, likely to transmit new growth to developing transport, and intellectual property rights. A countries through more robust trade demand. final chapter summarizes the forward-looking Although unlikely to reach the boom rates of policy agenda, and assesses the potential im- 2000, trade expansion seems likely to surpass pact of further global integration and more 4 percent in 2002, up considerably from the rapid growth for the standards of living in 2001 rate. poor countries everywhere. Risks to this forecast are unusually high. The terrorist violence in the United States in Global prospects September will have negative short-run conse- By the third quarter of 2001, the global econ- quences for the United States and the global omy was precariously close to recession. For economy, but could be even more severe than the first time in more than two decades, the these projections indicate if unforeseen events three major engines of the global economy-- prove highly disruptive. These uncertainties the United States, Japan, and Europe--were with enormous downside risks overlay struc- slowing at the same time. With recession al- tural risks. U.S. consumers may be less respon- ready a fact in Japan and the probability of sive to interest rates than on previous occa- negative growth in the United States rising--in sions; foreign investors, concerned about the part attributable to the demand and supply high external current account deficit, may pre- shocks from the September terrorist attack-- cipitate a sudden adjustment; European growth and Europe suddenly slowing, the global econ- may level off at a lower-than-expected plateau; omy has ceased supporting rapid growth in de- and Japan's structural reforms may falter and veloping countries. cause the dip in 2001 to carry over into the next Nonetheless, the outlook for 2002, though year. Thus, with the global economy in precar- subject to unusually high risks, is that the ious balance, unforeseen shocks from whatever global economy will begin to recover. Develop- source are magnified and could push the global ing countries are expected to grow by 3.7 per- economy into recession. cent if the external environment improves as This said, the long-term prospects for de- expected, up from 2.9 percent in 2001. The veloping countries remain bright. Fundamen- xiv S U M M A R Y tals--savings, population growth, and invest- Europe, or Canada. As estimated in chapter 6, ments in education--are favorable. Moreover, phasing out restrictions on agriculture would many of the policy distortions prevalent in produce dynamic gains that could well mean many developing countries during the 1980s higher incomes in 2015 by nearly $400 billion. have been progressively diminished during the The Agreement on Textiles and Clothing 1990s. Budget deficits have generally come (ATC), which replaced the Multi-Fiber Agree- down, reserve levels are higher relative to debt ment in the Uruguay Round, succeeded in in- levels, and economies are now more open. For tegrating these products into the WTO. How- these reasons, the growth rates in the base-case ever, the agreement provided a much delayed scenario of 3.6 percent for the 2005­15 period phaseout schedule that put off much of the are both technically feasible and realistic. market liberalization until the very end of the However, not all countries and regions process in 2005. And, because the implemen- bask in this bright long-term outlook. Non-oil tation of the ATC allows importers much lee- commodity exporters, countries with high debt way in selecting the products to be freed of levels, and countries with poor credit histories quotas, forgone export earnings for develop- will find themselves at a disadvantage in trade ing countries are sizable. Because high tariffs and financial markets. Sub-Saharan Africa in loom behind the quotas, market access will re- particular confronts enormous problems in main restricted even after the quotas have all of these dimensions--as well as the public been abolished in 2005. Removing these bar- health epidemic of AIDS (acquired immune de- riers would, we estimate, produce increases in ficiency syndrome). For these reasons, invigo- income of perhaps $120 billion by 2015. rating the global trade agenda, even in these These issues provide fertile areas where rec- times of uncertainty, is imperative. iprocal negotiations in a development round of the WTO could provide substantial benefits for Merchandise trade development. Developing countries would ben- Restrictions on agriculture and labor-intensive efit from reducing their own protection in these manufactures, notably textiles and clothing, sectors as part of negotiated reciprocal reduc- are particularly damaging to the world's poor. tions in high-income countries for agriculture Virtually all major agricultural commodities and labor-intensive manufactures. Beyond this, face barriers to trade on a scale that dwarfs high-income countries could also expand trade manufactured products. Barriers include high, by enlarging the scope for preferential access steeply escalating, and nontransparent tariffs; for poor countries. Existing schemes in high- tariff peaks; tariff rate quotas on maximum income countries have limited coverage and, low-tariff imports; and a plethora of domestic together with other impediments to trade, un- and export subsidies in high-income countries, dermine their otherwise positive effects. to say nothing about state enterprise trading that still survives in many developing coun- Services tries. Support to agricultural producers in Services are the fastest growing components of high-income countries runs in excess of $300 the global economy, and trade and foreign di- billion annually. During downturns--such as rect investment in services have grown faster the one the global economy is now experienc- than in goods over the past decade. In virtu- ing--these subsidies tend to increase and force ally every country the performance of the ser- a disproportionate share of the cyclical adjust- vices sectors can make the difference between ment onto producers in developing countries. rapid and sluggish growth. More efficient ser- Tariff peaks also work against the poor. Fully vices--in finance, telecommunications, domes- one-third of exports of the poorest developing tic transportation, and professional business countries face tariff peaks in at least one of the services--improve the performance of the four major markets, the United States, Japan, whole economy because they have broad link- xv G L O B A L E C O N O M I C P R O S P E C T S age effects. Collectively, they are essential to age 1.5 percentage points faster than other increasing domestic productivity. countries over the past decade. Developing countries, in particular, are likely to benefit significantly from further do- Transport mestic liberalization and the elimination of bar- International transportation costs to move de- riers to their exports. In a range of services-- veloping countries' exports to foreign markets from financial sector and business services to often are a far greater barrier to trade than telecommunications and retailing--restrictions tariffs. Both public policies and private prac- on foreign investment are still common, par- tices exercise a significant influence on costs. ticularly in developing countries. Even more Policies toward maritime transport, such as stringent restrictions affect the export of ser- cargo reservation policies and limitations on vices, such as professional and construction the provision of port services, often protect in- services, through the movement of persons--a efficient service providers and unduly restrain mode of supply in which many developing coun- competition. Competition-restricting practices tries have a comparative advantage. among shipping lines increase freight rates by As with merchandise trade, reforms in ser- up to 25 percent on selected routes. Increasing vices have to be managed carefully. The largest concentration in the market for port terminal gains come from eliminating barriers to entry services poses the risk that the benefits of lib- and new competition, but many developing eral government policies may not be passed on countries have been content only to change to consumers. ownership through privatization while retain- International air transport services, despite ing limits on entry that buttress monopolies. being at the heart of the globalization process, Privatization without competition can vitiate are one of the most protected from interna- well-intentioned reforms. Effective regulation tional competition. The current regime of bi- is also critical to the success of liberalization. lateral air service agreements largely denies ac- Even though governments can initiate reforms cess to efficient outside carriers--and inflates of services unilaterally, multilateral agreements export costs for developing countries. through the General Agreement on Trade in Countries themselves can take actions to im- Services (GATS) could help accelerate domestic prove management of their ports and reduce reform and improve access to foreign markets costly delays associated with inefficient cus- for developing countries. In parallel, global co- toms. In Brazil, for example, failure to deploy operation to expand trade could mobilize sup- efficient container services has kept costs up to port for developing countries at four levels: in more than twice international norms in cus- devising sound policy, strengthening the do- toms, warehousing, inland transport, and ports. mestic regulatory environment, enhancing their Recasting institutional arrangements to maxi- participation in the development of interna- mize competition in the provision of port ser- tional standards, and ensuring access to essen- vices could also drive improvements. Adopting tial services in the poorest areas. non-discriminatory policies of open access in The payoffs to success, however, are espe- international air transport can enhance the effi- cially high. Studies comparing reduction of ser- ciency of air services. At the same time, there is vices barriers to reductions in barriers to mer- a need to regulate private practices of transport chandise trade find that services liberalization service providers by competition policies, to en- can provide benefits up to four times higher. sure that the gains from liberalization are not Estimates suggest that, after controlling for captured by private firms. other determinants of growth, countries that A special responsibility for promoting com- fully liberalized trade and investment in fi- petitive international transport markets falls nance and telecommunications grew on aver- on the large industrial countries. These coun- xvi S U M M A R Y tries, with their strong regulatory capacity and Moreover, enforcing all property rights is of- history of antitrust enforcement, are well posi- ten a major problem needed to improve the in- tioned to enforce competition disciplines on vestment climate, so governments have to ask multinational transport operators. To date, they whether it makes more sense when measured have not done so. against objectives of poverty reduction to Beyond this, multilateral negotiations on forego allocating scarce resources for enforce- transport services under the GATS can sup- ment of (say) land rights in agriculture--where port domestic reforms by unleashing greater returns to investments often benefit poor own- liberalization and by lending credibility to do- ers directly--in order to enforce IPRs. mestic policies. The scope for creating binding Because economic advantages and capabil- multilateral disciplines on transport services is ity of enforcement tend to rise as countries be- large. Only little progress has been made in come more developed, and low-income coun- the past on maritime transport, and even less tries markets are of marginal importance to has been made on air transport. patent holders, there is a compelling logic to rebalance the TRIPS agreement to accommo- Intellectual property date the problems of low-income countries. Intellectual property rights (IPRs) are designed This could take three forms: It may make sense to balance the needs of society to encourage to recognize the validity of a phased imple- innovation and commercialization of new tech- mentation of TRIPs based upon development nologies, products, and artistic and literary capacity. Second, negotiating compulsory li- works, on the one hand, with needs to pro- censing provisions to allow poor countries with mote use of those items, on the other. Since the no production capability of their own to li- overwhelming bulk of intellectual property is cense producers in other countries for sale in created in the industrialized countries, the their markets would improve their competi- Uruguay Round TRIPS shifted the global rules tion access to critical development inputs. This governing intellectual property in favor of de- may provide small developing countries with veloped nations. If TRIPS were fully imple- greater flexibility in addressing public health mented, rent transfers to major technology- crises. Third, since industrial countries are the creating countries--particularly the United main up-front beneficiaries of IPRs, they may States, Germany, and France--in the form of find it in their interest to provide assistance to pharmaceutical patents, computer chip de- the poorest countries for the implementation signs, and other intellectual property, would of TRIPS. Beyond this, developing countries amount to more than $20 billion. can realize concrete benefits from TRIPs by en- To be sure, there are reasons to believe that couraging domestic intellectual property devel- the enforcement of IPRs is associated positively opment and its protection abroad. with growth. However, these benefits tend not to materialize until countries move into the Reshaping global trade architecture middle-income bracket. Therefore, many coun- for development tries, especially low-income countries, see these This report thus proposes actions to reshape potential benefits as elusive promises against global trade architecture to promote develop- which they have to weigh heavy, up-front costs ment in four policy domains: launching a de- of enforcement and administration. Adminis- velopment round of trade negotiations within tration and enforcement, together with higher the WTO, moving forward on the global co- prices for medicines, agricultural inputs, and operation agenda to expand trade outside the other key technological inputs, could readily WTO, enacting new policies in high-income absorb a significant portion of annual public countries to provide aid for trade, and adopt- expenditures in many low-income countries. ing trade reforms within developing countries. xvii G L O B A L E C O N O M I C P R O S P E C T S Reshaping global trade architecture for development: The four-part policy agenda 1. Convening a development round in the WTO Market access Agriculture · Reduce applied tariffs, phase out tariff rate quotas, and bind tariffs at applied rates in both developed and developing countries · Phase out export subsidies in high-income countries and commit to eliminate domestic support linked to production levels · Reduce tariff escalation and cut off tariff peaks Manufactures · Reduce applied rates further, and bind tariffs to levels that equal or are close to applied rates · Reduce tariff escalation and cut off tariff peaks · Accelerate implementation of ATC quota eliminations and reduce tariffs in lines now covered by quotas · Negotiate tighter disciplines on antidumping and other forms of contingent protection Services · Liberalize entry of foreign services suppliers through elimination of restrictions on entry and promoting increased competition, with wider use of GATS to bind nondiscriminatory access and lend credibility to domestic programs · Enhance scope of services provision through the temporary movement of service providers (both skilled and unskilled) · Secure openness of e-commerce in services, through wider and deeper GATS commitments on cross-border supply · Strengthen multilateral rules to deal with anticompetitive practices in services · Adopt a nondiscriminatory trading regime for air transport, including traffic rights, under GATS Implementation procedures and phasing · Adopt a phased implementation of TRIPS and other administrative-intensive agreements for low-income countries, based upon development capacity. · Establish a consensus that the TRIPS Agreement allows developing countries with no domestic production capacity to grant compulsory licenses to foreign firms · Convert "best endeavor" promises to binding commitments to provide low-income countries with financial and technical assistance to implement WTO accords Improving WTO transparency and participation · Require WTO disclosure of databases; reports and their full associated information; and analyses for particular decisions · Provide assistance to strengthen capacity of all members to participate effectively in negotiations 2. Global cooperation to support trade outside the WTO Provide "aid for trade" through stepped up development assistance · Expand "Integrated Framework" assistance to all low-income countries · Provide assistance to enhance the efficiency of the customs clearance process in developing countries, notably the good customs practices that are laid out in the revised Kyoto Convention (World Customs Organization) · Expand multilateral assistance to overcome country-specific bottlenecks to improving competitiveness and trading potential (for example, in finance, transportation infrastructure, education for low income workers, and public sector trade-related institutions) and to promote trade xviii S U M M A R Y · Fund mechanisms to help developing countries use intellectual property protection to their benefit by protecting intangible assets such as traditional knowledge, designs, music, and ethnobotanicals, and patent protection for industrial goods as well as improve enforcement of IPRs · Establish a global health fund to purchase licenses from developers of new medicines essential to treating debilitating diseases in poor countries Expand global efforts beyond trade to improve environment, raise labor standards, and adopt adequate product standards outside the WTO · Expand global environmental cooperation with financing to improve environmental protection in developing countries, and create multilateral forum of environmental exchange · Strengthen international actions on labor standards through the International Labour Organisation (ILO), with project collaboration from multilateral development banks · Create a Standards Development Facility to introduce science and other professional evidence into standard setting for products, with adequate representation from developing countries; and provide assistance to developing countries' standard setting bodies 3. Policies for high-income countries Market access · Grant to all low-income countries duty-free and quota-free access to markets of all countries of OECD · Reduce uncertainty of market access by harmonizing rules of origin, and by reducing threats of antidumping Expand bilateral "aid for trade" · Provide financial and technical assistance to developing countries for "behind the border" trade-related invest- ments necessary to take advantage of market access · Improve policy coherence by establishing coordinating mechanisms between development policies and trade policies to ensure effective development outcomes · Assist developing countries to strengthen competition agencies and improve legislation, and require antitrust agencies to provide to developing countries information on third market effects of domestic mergers as well as pending cases of price-fixing and restrictive business practices; and review the anticompetitive consequences of antitrust exemptions in transport and other sectors that adversely affect development Domestic policies that facilitate adjustment of labor to economic change · Review domestic policies to ensure displaced workers have adequate social support to deal with rapid changes in labor market conditions, including unemployment insurance, social safety nets (particularly health and pensions), and access to training and education 4. Policies for developing countries · Adopt program of trade reform, including phased lowering of border protection for goods and services as part of a poverty reduction strategy · As part of trade reform program, adopt companion policies to cushion any impact on the poor of adjustment to new trade incentives, and ensure investment responses; solicit foreign assistance when necessary to implement administrative requirements of programs · Spur development of industries essential to trade, such as transport, telecommunications, financial sector, and business services, particularly through introduction of regulatory policies that, where feasible, harness competition · Invest in upgrading public sector institutions related to trade, including customs, administration of drawback programs, and financial supervision agencies · Encourage domestic intellectual property development through TRIPS-consistent standards appropriate to country needs, and pursue protection of domestic intellectual property abroad · Ensure adequate macroeconomic policy framework to provide sound investment climate xix G L O B A L E C O N O M I C P R O S P E C T S While this report focuses on global issues, fifth birthday to become productive citizens of chapter 6 indicates ways regional agreements, the world. Continuing down the path of properly designed, can be steppingstones to greater integration will not be easy, but if the promote new trade and deeper integration international community succeeds in doing so, that reinforces multilateral collective action. the world will undoubtedly be more prosper- The box below summarizes specific measures ous and stable. that can produce faster economic integration. Removing barriers to trade and services, in conjunction with companion policies to fo- Notes ment a supply response, would give a strong 1. On regional trading arrangements, see World Bank growth impetus to the global economy and 2000. On standards, see World Bank 2001, chapter 3. long-run development. Chapter 6 quantifies 2. Trade liberalization has a relatively small impact on the rate of growth, but has a large impact on the net these effects, if with the large margin of un- number of poor lifted out of poverty. The reasons are certainty and qualifications that estimating threefold as described in chapter 6: First, under the techniques impose. If remaining restrictions on base-case scenario, growth--assuming population were merchandise trade were phased out in the held constant--will reduce the number of poor from 2006­10 period, economic growth in develop- 2.8 to 1.9 billion, but population growth will push that ing countries would be about 0.5 faster than in number back up to 2.2 billion in 2015. Hence compar- the base-case scenario--including services lib- ing the net change to the change associated with fast integration records an impressive increment. Second, eralization would add significantly to the boost growth has a disproportionate and positive effect on in growth. Much of the benefits come from poverty, and we have assumed a poverty elasticity with trade reforms in their own countries and in respect to growth of two, consistent with historical ex- other developing countries--and in that sense perience. Finally, trade liberalization changes the com- developing countries as a group control a con- position of production to incomes of the poor. siderable portion of their own trade destiny. In 3. This is the discounted present value in 2005 of some regions, these new trade policies could cumulative income gains over the decade to 2015. well make the difference between achieving their objectives (for poverty-reduction, lower- ing maternal and child mortality, and improv- References ing educational attainment) and falling short Ganesan A.V. 2000. "Seattle and Beyond: Developing by a large margin. Country Perspectives" in Jeffrey Schott (ed.) The WTO After Seattle Washington: Institute for In- The long-term promise of well-imple- ternational Economics. mented trade reform is therefore tangible: a World Bank. 2000. Trade Blocs Washington DC: world with a much higher standard of living, World Bank hundreds of millions lifted out of poverty, and ------. 2001. Global Economic Prospects 2001 Wash- a greater share of children living beyond their ington DC: World Bank. xx