Developing countries and strategizing at the WTO

I have often written about developing countries participation at the WTO both in terms of negotiations and dispute settlement. An example that is often heralded as a beacon of hope for the developing and Least Developed Countries in multilateral trade participation is Brazil. Brazil's successful participation and strategy at the WTO has been a subject of extensive research over the years.

Came across this interesting paper by Gregory Shaffer, Michelle Ratton Sanchez and Barbara Rosenberg that summarizes the strategy that Brazil has adopted in engaging successfully with the multilateral trading system. It summarizes the strategy thus:

First, we argue that international trade law and judicialization have mattered in Brazil, unleashing a competition for expertise and helping to transform the government’s relations with business and civil society regarding trade policy. 

Second, and related to this point, we contend that being a defendant in WTO cases can help catalyze these changes, giving rise to mechanisms of public-private coordination to defend a country’s interests at the international level.  

Third, we find that these developments have not represented a weakening of the state, but rather the strengthening of the state’s ability to engage at the international level through a diffusion of international trade law and policy expertise. 

 Fourth, we observe that these processes reflect a growth of pluralism for trade policymaking within Brazil, as the government has been pressed to become more transparent and open to dialogue. 

Fifth, we maintain that these processes are not automatic, but are a function of domestic as well as international factors. We highlight the roles of Brazil’s professional, merit-based Ministry of Foreign Affairs, the development of Brazilian career paths in the international trade field, Brazil’s private sector that has been able to overcome collective action problems to engage with the government, and a general shift in orientation in Brazil’s development strategies.

 Sixth, we find that although the example of Brazil offers some hope to other developing countries, these countries generally face greater challenges and will need to develop their own strategies in light of their own contexts.  

Seventh, we conclude regarding the need to take into account the reciprocal interaction of the domestic and international spheres to understand the operation of international legal orders."

Are there lessons for other developing countries to develop internal institutional capacities to engage with the multilateral trading system? Another more recent study on the participation of Latin American countries participation in the WTO highlighted the importance of private sector involvement and the need for creative solutions to engage with the rule based system. 

Developing countries must engage proactively in the system be it through negotiation, dispute settlement, participation in the  proceedings of various Committees at the WTO or private sector engagement. The strategy should be to actively engage withthe rules rather tan shy away from it. However each country would have to develop its own creative, need based strategy depending on its own requirements. Though there is no one-size-fits-all strategy, lessons learnt in Brazil's engagement would surely help other developing countries. A BRICS strategy perhaps?

International Trade and development - Nexus?

One is often confronted with the question as to the relationship of trade and development. Does international trade lead to a country's economic growth? Does it reduce inequality and poverty? Does the liberlisation of trade and reduction of barriers to trade impact a country's economic growth? Does international trade have a bearing on providing access to a majority of people within countries to growth and opportunity? There is an abundance of economic literature on this subject. Does increasing exports and restricting imports have a bearing on inequality? Liberalisation of trade is not an end in itself. It is a means to growth and development. 

Recently, the OECD released a detailed report titled "Policy Priorities for International Trade and Jobs" on international trade and growth which has various articles on the impact of international trade on employment, growth, poverty reduction and inequality. The conclusions of the Report as summarised by the press release was as follows:

The report, a product of the International Collaborative Initiative on Trade and Employment (ICITE)*, analyses the complex interactions between globalisation, trade and labour markets. Drawing on numerous studies covering different parts of the globe and countries at very different levels of development, the report highlights the powerful role trade can play in driving growth and improving employment. 

• Of the 14 main studies undertaken since 2000 reviewed in the report, all 14 have concluded that trade plays an independent and positive role in raising incomes. 

• Through its impact on productivity, trade also raises average wages. Over the  1970-2000 period, manufacturing workers in open economies benefitted from pay rates that were between 3 and 9 times greater than those in closed economies, depending on the region. In Chile, workers in the most open sectors  earned on average 25% more in 2008 than those in low-openness sectors.

• Fears of the impact of offshoring may be exaggerated. Studies for the United Kingdom, United States, Germany and Italy  demonstrate that off-shoring of intermediate goods has either no impact or, if any, a  positive effect on both employment and wages.

The report also shows, however, that openness to trade is not enough. Complementary policies – such  as sound macroeconomic policies, a positive investment climate, flexible labour markets and adequate social safety nets – are needed to realise the full benefits of trade."

The piece on Latin America was particularly interesting. Titled "An Updated Assessment of the Trade and Poverty nexus in Latin America" it analyses the possible links between liberalisation of trade, poverty reduction and growth. Dwelling on the complexity of analysing the relationship between international trade and poverty reduction, the article concludes:

"Despite the complexity of finding a clear connection between trade liberalisation and poverty reduction in both theoretical and empirical studies, there is a nearly general consensus among academics that protectionism is not a suitable policy tool for eradicating inequality and poverty. It is also widely acknowledged that trade liberalisation is a means to achieve growth with poverty reduction and not an end in itself. Trade integration alone is in fact not sufficient to generate sustained growth, even less to promote development with equity and poverty reduction. Indeed, the literature reviewed so far very often  emphasises the fact that the distributive outcome of trade integration is inextricably intertwined with a wide array of structural and policy determinants. 

          ...

Trade openness, inequality and poverty are wide multidimensional concepts. Measuring and attributing causal relations among these variables without carefully qualifying the specific dimensions explored or the particular transmission mechanisms at play may be misleading. It is important to disentangle the specific dimension of the trade and poverty nexus from the wider debate on globalisation and financial integration, the competing concepts of relative and absolute inequality and the objective and subjective dimension of poverty and deprivation.

Despite the impossibility to rigorously and unambiguously assert that trade openness is conducive to growth and poverty reduction, the preponderance of evidence supports this conclusion. However, the majority of empirical macro studies also show that the impact of trade on growth and poverty is also generally small and that the causes of indigence are to be found elsewhere. But it is in fact extremely arduous to find evidence that supports the notion that trade protection is good for the poor. The question is therefore how to make trade and growth more pro-poor and not how to devise improbable alternatives to trade integration aiming at improving the livelihood of the poor.

          ...

Finally, considering that the trade and poverty nexus depends on a number of interconnected factors a consensus is emerging on the need to flank trade integration initiatives with a wide array of complementary policies. There is in fact increasing evidence that the outcome of trade opening may be regressive in the presence of distortions in complementary areas such macroeconomic policies, infrastructure, regulations, financial depth, labour markets, governance and human capital. 

It is therefore of the utmost importance to mainstream trade into the development agenda of Latin American countries and to align consensus, policy priorities and financial resources with the objective of making trade work for the poor. "

Can we generalise that international trade either negatively impacts poverty reduction or has a positive bearing on it? Is it a complex relationship that is far removed from sweeping generalisations? Can trade work for the poor? Can more people access opportunity by being part of the liberalised global economy? Is a liberalised trade regime only benefitting a few who can make use of the opportunities of open markets? Is protectionism the answer to the inequities of a liberalised system? What other national policies need to be in place to ensure that the benefits of international trade reach a large number of people? Is there a consensus on this? Do WTO rules facilitate the adoption of varied, multiple national strategies or do they restrict countries from adopting such policies? Is the relationship between trade and growth much more complex? While protectionism and inward looking policies may not necessarily bring about equitable growth, is there justification in having an uncritical endorsement of free trade and growth? Is there a middle path? Does the WTO rules allow, restrict or agnostic to countries taking this middle path?