Abstract

This book edited by Chorng-Huey Wong and Naheed Kirmani, examines a wide range of trade policy issues relevant in the 1990s that were the subject of a seminar organized by the IMF in 1996. The topics include the design and implementation of trade reform, trade liberalization in industrial and transition economies, regional trading arrangements, the impact of the Uruguay Round, the role of the World Trade Organization, and post Uruguay Round issues.

Trade Policy Issues

Editors

Chorng-Huey Wong

Naheed Kirmani

Papers presented at the seminar on Trade Policy Issues, March 6-10, 1995

IMF Institute and Policy Development and Review Department

International Monetary Fund

Washington, D.C.

© 1997 International Monetary Fund

Cover design by IMF Graphics Section

Library of Congress Cataloging-in-Publication Data

Seminar on Trade Policy Issues (1995 : Washington. D.C.)

Trade policy issues / editors, Chorng-Huey Wong, Nahead Kirmani.

  • p. cm.

“Papers presented at a seminar on Trade Policy Issues, March 6–10, 1995.”

“IMF Institute and Policy Development and Review Department.”

Includes bibliographical references.

ISBN 1-55775-621-X

1. Commercial policy — Congresses. 2. Free Trade —Congresses. 3. Uruguay Round (1987–1994) — Congresses. 4. World Trade Organization — Congresses. I. Wong, Chorng-Huey. II. Kirmani, Naheed. III. IMF Institute. IV. International Monetary Fund, Policy Development and Review Dept. V. Title.

HF1411.S33167 1995

382’.3—dc21

97–12466

CIP

Price: $22.00

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Preface

The IMF seminar on trade policy issues, held in Washington on March 6–10, 1995, afforded senior officials from member countries, academics, and officials of the IMF, the World Bank, and the World Trade Organization (WTO) an opportunity to discuss recent developments and current issues in trade policy in industrial, developing, and transition economies, the achievement and impact of the recently concluded Uruguay Round, the role of the WTO, the post-Uruguay Round agenda, and the role of the Fund in the trade area.

As indicated in the welcoming remarks of Mr. Ouattara, Deputy Managing Director, one of the IMF’s mandates, as defined in its Articles of Agreement, is “to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.” A major theme of the seminar was that further trade liberalization, supported by appropriate macroeconomic policies and reforms, would foster growth of the new global economy and benefit the industrial, developing, and transition countries alike.

While recognizing that concluding the Uruguay Round represented a significant achievement, participants agreed that many issues remained, both in the implementation of the Round and in further liberalization in some difficult areas, such as agriculture, textiles, trade-related investment measures, and services (especially financial services). In addition, new issues such as competition policy, technology policy, labor standards, and environmental considerations were emerging that needed to be dealt with. There was general agreement on most of the issues discussed, but there were also a few on which no consensus was reached.

We are particularly indebted to our colleagues in the IMF, the World Bank, and the WTO, who participated in the seminar and contributed to the publication of this volume. Special thanks are due to Patrick B. de Fontenay, who was Director of the IMF Institute at the time of the seminar, to Chorng-Huey Wong and Naheed Kirmani, who organized the seminar and served as its moderators, and to Emma Aguiluz and Sher Sandusky, who typed the manuscripts. Juanita Roushdy of the External Relations Department provided editorial assistance and coordinated the publication process. Needless to say, the seminar would not have been successful without the keen interest and active participation of all the participants.

Jack Boorman, Director

Policy Development and Review Department

Mohsin S. Khan, Director

IMF Institute

List of Abbreviations

APEC

Asia-Pacific Economic Cooperation Council

BIS

Bank for International Settlements

CAP

Common Agricultural Policy (of the European Community)

CEFTA

Central European Free Trade Agreement

CIS

Commonwealth of Independent States

CMEA

Council for Mutual Economic Assistance

EC

European Community

EFF

Extended Fund Facility

EFTA

European Free Trade Association

ESAF

Enhanced Structural Adjustment Facility

EU

European Union

FDI

foreign direct investment

FTA

free trade area

GATS

General Agreement on Services and Trade

GATT

General Agreement on Tariffs and Trade

GSP

Generalized System of Preferences

ILO

International Labour Organization

IMF

International Monetary Fund

ITO

International Trade Organization

MAI

Multilateral Agreement on Investment

MERCOSUR

Southern Cone Common Market

MFA

Multifiber Arrangement

MFN

most favored nation

MTN

multilateral trade negotiations

NAFTA

North American Free Trade Agreement

NTBs

nontariff barriers

NTM

nontariff measure

OECD

Organization for Economic Cooperation and Development

PSI

preshipment inspection

QRs

quantitative restrictions

REER

real effective exchange rate

RTA

regional trading arrangement

SAF

Structural Adjustment Facility

TRIMs

trade-related investment measures

TRIPs

trade-related aspects of intellectual property rights

UNCTAD

United Nations Conference on Trade and Development

WTO

World Trade Organization

Contents

  • Preface

  • List of Abbreviations

  • Overview

      • Chorng-Huey Wong and Naheed Kirmani

  • 1 Opening Address

      • Alassane D. Ouattara

  • 2 Introduction

      • Jack Boorman

  • 3 An Overview of Recent Trade Policy Developments

      • Naheed Kirmani

  • 4 Issues in the Design and Implementation of Trade Reforms—Experience in Developing and Transition Economies

      • Naheed Kirmani

      • Demetris Papageorgiou and Michael Michaely

  • 5 Trade Policy Reforms: The Indian Experience

      • Tejendra Khanna

  • 6 Role of Trade Policy in Poland’s Transition to a Market Economy

      • Paul Mylonas

  • 7 Trade Liberalization Issues in Industrial Countries

      • Robert Z. Lawrence

  • 8 Regionalism in World Trade

      • W. Max Corden

    • Comment

      • Jeffrey Schott

  • 9 How to Live Near Vesuvius

      • Patrick A. Messerlin

    • Comments

      • Donogh C. McDonald

      • Daniel A. Citrin

  • 10 An Overview of the Uruguay Round

      • Jesús Seade

  • 11 Impact of the Uruguay Round

      • Richard Blackhurst

  • 12 Four Aspects of the Uruguay Round for African Economies

      • L. Alan Winters

  • 13 The Role of the World Trade Organization and Post-Uruguay Round Issues

      • Frieder Roessler

    • Comments

      • Ellen Frost

      • Grant Taplin

  • 14 Wrap-Up: Trade Issues in the 1990s

      • Patrick B. de Fontenay

    • Comment

      • Masood Ahmed

  • List of Participants

The following symbols have been used in this book:

… to indicate that data are not available;

— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

– between years or months (e.g., 1995–96 or January-June) to indicate the years or months covered, including the beginning and ending years or months; and

/ between years (e.g., 1996/7) to indicate a fiscal (financial) year.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

Overview

Chorng-Huey Wong and Naheed Kirmani

The 14 chapters in this volume are either papers presented or remarks made at a seminar on “Trade Policy Issues,” organized by the Fund’s Policy Development and Review Department and the IMF Institute and held in Washington on March 6–10, 1995. The seminar covered a wide range of topics such as the design and implementation of trade reform; trade liberalization issues in industrial and transition economies; regional trading arrangements; the results of the Uruguay Round; institutional matters related to the World Trade Organization (WTO); and the post-Uruguay Round agenda.

Design and Implementation of Trade Reform

There was general agreement among participants that an outward-oriented strategy and liberal trade would foster both economic growth in individual countries and global prosperity. This was particularly important in a world economy that was becoming increasingly integrated. The main issue related to designing trade reform in a manner that minimized short-term dislocations of output and employment. Some participants were of the view that, within the context of general trade liberalization, key industries with future potential needed to be protected on infant industry grounds; others cautioned that the historical evidence was that such an approach might be costly. Participants agreed that prudent macroeconomic policies, including particularly those geared to avoiding real exchange rate appreciation, were necessary complements to trade reform. The evidence from a number of developing countries and transition economies was that real exchange rate appreciation, brought about by large capital inflows or other reasons, could adversely affect the authorities’ efforts to pursue further trade liberalization or might even cause partial reversals in such liberalization. Participants also recognized that fiscal reform aimed toward reducing reliance on trade taxes as a revenue source was necessary for effective implementation of tariff reforms.

Trade Liberalization in Industrial Countries

In discussing trade liberalization in industrial countries, participants recognized that in the post-World War II period these countries had significantly reduced tariffs and other trade barriers, although there were a number of sectors, such as agriculture and textiles and clothing, where protection levels remained high, causing difficulties for developing and transition economies that had a comparative advantage in those areas. Participants were concerned about the extensive use of antidumping measures by industrial countries. Reform in this area was thus a matter of crucial importance. Also discussed was the issue of whether industrial countries should continue to pursue the historical policies of reducing at-the-border trade barriers (“shallow integration”) or seek to harmonize national differences in domestic policies that could have implications for market access (“deeper integration”). Most believed that harmonizing domestic policies among different countries would remain very difficult due to a variety of reasons including cultural differences. Another question was whether industrial countries should pursue further global liberalization by a “multitrack” (i.e., unilateral, bilateral, regional, or multilateral) approach or only through multilateral channels. Some participants were critical of the use by some industrial countries of unilateral and bilateral approaches to market opening in partner countries, because this effectively put the stronger economic power in a better bargaining position. While most participants favored the multilateral approach to further liberalization under the auspices of the WTO, it was pointed out by some that seeking agreement on multilateral liberalization among the large group of members of the WTO could entail time-consuming compromises.

Particular Issues in Transition Economies

There was general agreement that economies in transition needed to reduce further state intervention, particularly restrictions on exports. Participants agreed that removal of export barriers should be an integral part of overall price liberalization, and that well-functioning foreign exchange markets needed to be established. A number of participants expressed concern about antidumping measures by industrial countries against economies in transition. Furthermore, resort to antidumping measures was also increasing in the economies in transition themselves as in other developing countries (antidumping petitions were often initiated by multinational firms). This again pointed to the need for stronger multilateral disciplines to contain the abuse of antidumping as an instrument of protection in all types of economies. Ideally, antidumping policies should be placed in a competition policy framework; short of this, antidumping policy should be reoriented from its current sectoral perspective toward a national perspective, requiring stricter provisions in national antidumping legislation, careful consideration of the costs to the economy of antidumping measures, and assigning a formal role to antitrust authorities in commenting on the competition effects of proposed antidumping actions.

Regionalization of World Trade

The motivation and impact of the proliferation of regional trading arrangements, including the European Union (EU), North American Free Trade Agreement (NAFTA), and Asia-Pacific Economic Cooperation Council (APEC), were reviewed. Most participants were of the view that the trend toward increased regional trading arrangements in recent years had net trade-creating effects and thus far had been complementary to multilateral trade liberalization. Nevertheless, a number of participants expressed concern that growing regionalism could ultimately adversely affect countries that were left out of the major regional arrangements. To avoid this, it was important that multilateral liberalization accompany or precede the formation of regional trading arrangements. Some participants thought that further efforts were needed to implement transparent and liberal rules of origin and that future multilateral liberalization should address the issue of regional barriers to trade and investment, including in the form of technical standards.

Impact of the Uruguay Round and the Role of WTO

Participants generally welcomed the conclusion of the Uruguay Round, which would have positive effects on global incomes. It was pointed out that the benefits of the Round would be largest for those countries who had liberalized the most. Some participants commented that, while the envisaged full integration of agriculture and textiles and clothing into multilateral disciplines was an important achievement, liberalization in these areas was rather modest or heavily back-loaded. Recent studies indicated that potential losses for least developed African countries were likely to be small in terms of preference erosion and food import costs. Even so, some participants felt that adequate attention should be given to short-term disruptions that could be experienced by these countries. At the same time, they emphasized the importance of appropriate domestic policy responses to maximize the net benefits of the Uruguay Round. A number of participants called upon the international organizations—the Fund, the Bank, and the WTO—to assist developing countries, particularly the least developed countries, to identify the transitional costs of implementing the Uruguay Round in individual countries and advise on appropriate actions in terms of both adjustment and financing. Participants also noted that the strengthening of rules, particularly with regard to dispute settlement following the establishment of the WTO, would have significant, though nonquantifiable, benefits.

Post-Uruguay Round Issues

Participants welcomed further steps toward broadening the benefits of a rule-based global trading system. Subjects identified in the post-Uruguay Round period as meriting further liberalization included agriculture, textiles and clothing, trade-related investment measures, and services (especially financial services). Some participants were of the view that new issues such as competition policy, technology policy, labor standards, and environment needed to be addressed as part of the post-Uruguay Round agenda. While there was agreement that attention to these issues would inevitably increase in the future, many participants cautioned against linkages between trade and labor standards and trade and the environment because of concerns that this could be used as a cloak for protectionism. A number of them preferred that issues not directly related to trade be considered in forums other than the WTO. Participants agreed that, to build consensus on the pursuit of further liberalization, policymakers and the public would need to better appreciate the benefits to the domestic economy of trade liberalization, rather than perceiving it merely as a “concession” to be exchanged with other countries’ “concessions.”