Wednesday, July 11, 2012

Joel Trachtman on development policy space and the WTO

The debate of development policy space within WTO rules has often been a constant subject of this blog. I have blogged about it here, here and here. How much regulatory space do countries, especially LDCs and developing countries, have in terms of crafting and implementing development policies which are not WTO inconsistent? Can countries, even after the advent of the multilateral trading system, pursue independent development policies? Is there scope within the WTO rules to pursue one's own economic and political developmental agenda? 

Joel Trachtman offers some analysis and answers to some of these questions in his 2006 paper titled "The WTO and Development Policy in China and India" wherein he analyses the policy choices that developing economies like China and India have within the WTO system. Obligations arising out of different WTO Agreements are analysed and policy space within each of the categories is suggested. He has listed out 5 categories of broad obligations that a country would have to follow in the rule based multilateral system:

1. Category 1: goods and services liberalization - embodied in the GATT Agreements
2. Category 2: standards liberalization in the TBT and SPS Agreements
3. Category 3: intellectual property rights under the TRIPS
4. Category 4: investment measures under the TRIMs
5. Category 5: export subsidies and import substitution subsidies categorised under the Agreement on Subsidies and Countervailing Measures

After a detailed analysis of these categories and the options developing countries have in terms of pursuing their development agenda, the author concludes:
"This paper has shown ambivalence regarding restrictions on the “right to regulate” for industrial policy under WTO law. Some restrictions may be desirable, and may be favorable, as Hudec suggested, and as Indian and Chinese policy confirm. Other restrictions may be undesirable. As Amsden and Hikino have argued, “[a]t close examination . . . the new rules of the World Trade Organization, a symbol of neoliberalism, are flexible and allow countries to continue to promote their industries under the banner of promoting science and technology. The success formula of late industrialization—allocating subsidies in exchange for monitorable, result-oriented performance standards—is still condoned." It would seem useful to institute a development policy review mechanism that could provide exceptions to developing countries for appropriate development-motivated policies."
The issue of development policy space within the WTO is a complex question. A blanket rejection of WTO rules as infringement of policy space is a naive and unreasonable stand to take. It is counterproductive and deprives a country of the advantages that a multilateral system has to offer. The challenge is to judiciously manouevre within the WTO rules to further one's national interest. To what extent WTO rules permit such manoeuvering is debatable. There are many exceptions within the WTO rules that permit individual policy choices. However, they need to be exercised in a non-discriminatory and justifiable manner. Exceptions, contingencies and interpretation of rules does allow a little leeway for developing countries to pursue their domestic development agenda. Further, an approach in industrial policy might be strategically very different from the agricultural sector while engaging with multilateral rules. A countries strengths and weaknesses would have to be analysed sectorally to effectively use the rule based system.

This would require a painstaking analysis of what is the right development policy and its analysis with respect to different obligations. It would require a specific, sector wise analysis, weighing of different options and making a comparison of its WTO consistency. At times, WTO inconsistency may have to be implicitly allowed if the cost of compliance is not too high. This takes us back to the fundamental issue - enhancing domestic capacity to engage with the multilateral system. Developing countries must enhance their capacity, not only legal capacity, in a multi-stakeholder mode (involving trade policy experts, economists, legal experts, industrial policy experts, agricultural economists, political leadership, special interest groups as well as the bureaucracy) to address this issue. It is too complex an issue to be left to the domain of a single stakeholder.

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