Abstract

The seminar has touched upon a number of issues, actually quite a wide range of issues, covering unilateral, regional, and multilateral aspects of trade policy. On unilateral trade liberalization, I think the seminar has spent some time on trade reform, and there I think the main issues identified were exchange rate policy, as well as sequencing. Then trade liberalization issues in industrial countries were covered, starting with the presentation by Professor Lawrence, who focused among other issues on the difference between what he calls “shallow integration,” which is a reduction of trade barriers at the border, and “deeper integration,” which is really an attempt to harmonize national differences in areas such as property rights and other issues.

The seminar has touched upon a number of issues, actually quite a wide range of issues, covering unilateral, regional, and multilateral aspects of trade policy. On unilateral trade liberalization, I think the seminar has spent some time on trade reform, and there I think the main issues identified were exchange rate policy, as well as sequencing. Then trade liberalization issues in industrial countries were covered, starting with the presentation by Professor Lawrence, who focused among other issues on the difference between what he calls “shallow integration,” which is a reduction of trade barriers at the border, and “deeper integration,” which is really an attempt to harmonize national differences in areas such as property rights and other issues.

Then the seminar moved on to the regional and multilateral aspects of trade policy, and in particular whether the Fund, the World Bank, and the World Trade Organization should be concerned about the proliferation of regional trading arrangements. Do regional trading arrangements complicate the trade dispute between countries that belong to different regional trading arrangements? What can be done to ensure that regionalism complements multilateralism? And what can be done about countries that are left out of regional trading arrangements?

The seminar also covered the trade liberalization issues in Eastern European countries and the Baltics, Russia, and other countries of the former Soviet Union, where the proliferation of antidumping has emerged as a major issue. Also discussed were the best ways of circumscribing the use of antidumping, and whether antidumping policy should be reoriented from its current sectoral perspective toward a national perspective, requiring stricter provisions in national antidumping legislation.

And finally, the seminar covered the impact of the Uruguay Round and post–Uruguay Round agenda. The discussion demonstrated that the benefits were the largest for those countries that liberalized the most. Also the potential losses for the least-developed countries in Africa were regarded as small in terms of preference erosion and food import costs. Some of the questions were how the Fund, the World Bank, and the WTO could help countries maximize the benefits of the Round and minimize the costs. And finally, among the post-Uruguay Round issues that were identified, there was first the liberalization in services and foreign investment, as well as possible agreements in the areas of competition policies, environment, and labor standards. Many participants felt that the latitude might be used for protectionist purposes and raised the question of how legitimate concerns on environment and labor standards could be met without this being a clog for protectionism.

Comment

Masood Ahmed

I would like to focus my comments on three broad areas and in that context weave in some of the points that were raised earlier. The three points are, first of all, the importance of pressing on with trade liberalization of the good old-fashioned kind, particularly in many developing countries. Second, I want to pick up on the question of moving forward to implement trade liberalization in those areas that the Uruguay Round has now brought within the framework of international trading arrangements. That is a set of issues that was also raised here. And third, I will list some of the items of the new trade agenda, which I am particularly concerned about. In fact, those are also some of the concerns that were reflected in the papers.

The first point is trade liberalization, especially in developing countries. It is important to recognize that even after the Uruguay Round, trade barriers will remain a significant issue for many developing countries. It is certainly the case that they have made substantial moves to liberalize their trade over the past decade. But it is also the case that, particularly, say, in Africa and in South Asia, and in a number of countries in other regions, barriers are still quite high. The reason I am focusing on this is to go back to the point about the gains from the Uruguay Round. I think the point that Alan Winters was making (Chapter 12) was that one of the main reasons why the impact of the Uruguay Round on Africa is so marginal is because African countries have not liberalized very much in the context of the Round. If we believe that the main gains from trade liberalization come from what you do yourself rather than what your trading partners do, then it is very important to press on with reducing barriers in those countries where they are still high.

Some will argue that you need to go about this in a fairly gradual way, to provide enough time for industries and countries to adapt to the competition that would come from removing these barriers. That is certainly a valid concern, and every country ultimately has to figure out what is the appropriate speed for itself. But it is worth noting that there is now a growing body of evidence that suggests that the countries that have undertaken speedy liberalization are also the countries that have done better, and that, in effect, what starts out as an organized gradual process to reform trade barriers over time runs the risk of becoming a victim or captive of forces generated during the process that are against liberalization. One such study that has just been completed by some of my colleagues in the World Bank looks at eight republics of the Commonwealth of Independent States (CIS) and comes up with some quite interesting contributions in that regard.

The second point is the question of the unfinished agenda, and that is a point that has also been raised in the notes that you circulated. I think we all recognize that the main contribution of the Uruguay Round in agriculture and services has been to provide us with a framework for liberalization, but that the actual process of liberalization or a reduction of barriers is largely ahead of us. Similarly in other areas like the MFA, it is important to recognize that much of the estimate of gains that people talk about will really only accrue when what has been agreed is, in fact, fully implemented. The fact is that most of the numbers that you now see in terms of the aggregate gains from liberalization in the Round are numbers that will only become valid at the end of the process. And I want to stress that point, because I think there is a concern that there is a growing popular sentiment in a number of industrial countries that argues for more protectionism in the face of rising imports from developing countries. As the world economy becomes more integrated, as developing countries increase their share in the world economy, as the share of trade in GDP increases in both developed and developing countries, the process of this integration is bound to create some transition costs both in industrial countries and in developing countries. But every responsible piece of analysis that I have seen suggests that these costs are far outweighed by the gains that come from the process of integration and greater trade. Unless countries and governments recognize that some segments of society or industry will suffer adverse consequences—in both developing and industrial countries—and take pro-active steps to try and deal with this issue, those segments can become an obstacle to progressing with the liberalization and therefore to achieving the aggregate gains that everybody agrees on a net basis are positive and large. Thus, it is important to press ahead with the implementation of the agreements in services and agriculture, and for that matter, with the other agreements in trade-related aspects of intellectual property rights (TRIPs) and trade-related investment measures (TRIMs).

Finally, let me list quickly three or four areas of the new trade agenda that we are particularly concerned about. First of these is antidumping. Your reference is mainly to transition economies. My sense is that in a rather unfortunate illustration of technology transfer, antidumping has now migrated from industrial countries to a whole range of developing countries. We run the risk of seeing the effect of the abuse of antidumping as one of the issues in the next few years. Most of the evidence shows that antidumping is primarily used to protect a small group of producers at the expense of the economy as a whole. The real question is, how can one begin to put into place mechanisms that take a broader look at gains and losses, rather than to put into place antidumping laws and regulations that have the likelihood of being abused? I have recently gone through three or four countries where they have been trying to put into place antidumping legislation. In all of those cases these concerns surfaced. When you look at the industrial structure in some of those countries and find it is heavily concentrated, the risk of the abuse of antidumping is higher rather than lower.

The second issue is the question of regional trading arrangements, which have grown in number and changed in nature. It is generally accepted that once you start introducing deep integration into regional trading arrangements, then you need to rethink the analytical framework for trying to evaluate the gains and losses. You cannot do a simple analysis of the conventional trade-diversion/trade-creation type alone. It is also the case that right now one does not have an entirely satisfactory way of analyzing what the dynamic gains would be, what the magnitude of gains would be from, say, harmonization of standards, for example. But I am still a bit concerned that this fascination with regional trading arrangements may well divert energy and effort away from proceeding with further liberalization of the multilateral track. It is interesting that when you look at most of the analyses of regional trading arrangements they are compared with a counterfactual that is quite a different counterfactual from, say, proceeding down the multilateral track. It is important, when looking at these analyses, to take a hard look at what the counterfactual is against which the benefits are being assessed.

And then there are these rather difficult issues of how do you deal with environment and labor standards in relation to trade policy. In the case of labor standards, it is particularly seductive to set up a straw child, if you like, or rather a straw man, and say, “Look, you’ve got this poor exploited child worker and in some sense how can you be against using any instrument that you have, whether it is trade policy, or any other policy, to try and address that very real problem.” The difficulty, I think, is that everybody agrees on the objective, which is to create conditions where this kind of violation of rights or, indeed, unacceptable living conditions or working conditions for children or other people, for that matter, are addressed. I think you can even make a case that some dimensions of these are legitimate to address through international policy. What I think is the problem, however, is that it is not at all clear that trade policy is the most effective instrument for addressing them. The other concern is that there is a substantial risk that what starts out as being a completely well-intentioned exercise to use trade policy to address what most people would agree is a legitimate objective, even if you are not sure about the effectiveness of the instrument, becomes captured by people who really want to use it for protecting certain kinds of industries. All you would end up doing is giving protectionism a good public relations cloak rather than actually addressing the problem. There is a real dilemma. Now people are talking about whether one can have a set of core standards, which in some sense one should address through trade policy, and then some country-specific additional standards that one would not address through trade policy. I remain a little bit concerned about how effectively one can identify a set of common core standards and police them and use trade policy for that purpose.

Let me just pick up one additional point and that is the question on the impact of the Uruguay Round. The point that was raised was that there are real transition costs in the short term, and what can agencies like the Bank and the Fund do to help countries in dealing with these issues. I would argue that there are two kinds of things that one can do. One is to help countries identify what the transition costs are. The transition costs are not just transition costs for food importers or preference losses, but the costs of moving into an integrated economy. Unless one identifies where the costs are likely to be located, which segments are going to be adversely affected, and, as I said, move proactively to try and address those concerns, then there is a real risk that those segments will become a lobby against liberalization rather than have their legitimate concerns dealt with. Part of the issue is obviously financial. But the financial dimension is a small part of the larger issue that one has to actually create a framework within which one can deal with those things.

The second thing one can do is begin to identify some of the issues or constraints that impede countries from exploiting the opportunities that are provided in the new, more integrated, more liberalized trading environment. In that regard there is one example that I would like to speak on. It is the whole question of the liberalization of services in trade. One of the most remarkable recent phenomena is the increasing tradability of services, mainly as a result of the revolution in telecommunications and technology. So what you now have is a far greater use of long-distance services, where the traditional concept that services had to be consumed where they were produced is no longer valid for a much wider range of areas. Some countries have already begun to exploit the potential for exports in services that comes from this phenomenon, but many others still have a whole set of regulatory or other impediments that prevent the exploitation of this new area. Agencies like the Bank, the Fund, the WTO, and others can help provide crosscountry examples of how different countries are beginning to take advantage of the opportunities that are available and identify the common factors that appear to be the driving forces behind these successes and the impediments that appear to be holding back other countries from exploiting them. That contribution is likely to be as useful as the contribution of focusing on how to deal with the losses and how to compensate the losers for them.

Let me also pick up on a few points that were raised by the participants. On the point raised about the importance of having some concrete plans at the country level to try to exploit the gains: it is a difficult trade-off between recognizing that there are opportunities that need to be exploited and identifying what sort of generic or general conditions enable a country to exploit those opportunities, whether they are policies, a lack of infrastructure, or whatever; or going the extra step, which is to actually start identifying, ex ante, which are the specific businesses or industries in which a country has a comparative advantage and then trying to push for their development. Most of the evidence shows that when official agencies, whether national or international, have attempted to identify which industries are the ones that are likely to be the winners of tomorrow, and should therefore be pushed to exploit the opportunities that exist in the world, by and large they have not been very successful in doing so. Indeed, in some cases it has taken them a long time to recognize that what they are doing is not successful. In the meantime, resources tend to get diverted away from people who actually have pretty good ideas and want to exploit them but cannot because of this official focus on a particular set of industries. So, speaking from the point of view of the Bank, we think there is a lot to be done in trying to identify the obstacles at the sectoral level that are impeding the development of that sector in the country. For example, in the case of Morocco, there has been a very active dialog between the Bank, the private sector, and external consultants, who are looking at industrial competitiveness and trying to see what are the issues in the case of Morocco that need to be addressed to develop competitiveness at the national level. I will stop short of saying that what you really need to do in Morocco is put into place 16-inch textile loops because that is really where there is a market need that Morocco can comfortably exploit.

On the role of multinationals, it is true that they have an important role to play. It is already the case that overseas sales of multinationals are now, if I recall correctly, 2½ times the volume of trade. So, in some sense, they are already having a greater impact by their presence in different countries rather than through the trade that comes from them, and more and more of the trade is actually sort of intra-multinational companies. But my sense is that the conditions that attract multinationals are frequently the same conditions that attract domestic industry, and in some sense trying to create a framework that is geared to attracting multinational corporations is unlikely to succeed unless you have a framework that is resulting in a thriving domestic private sector as well, and frequently there is a lot of overlap between what attracts the two.

On regionalism, I agree that open regionalism is better than closed regionalism. My concern is that when regionalism gets formalized in agreements, there is a danger that the base of further reduction of barriers of the group vis-à-vis the outside world will be determined as much by the laggards in that group as by the ones who want to liberalize faster. So the trade-off is, in the aggregate, by grouping together do you accelerate the pace or do you slow it down? That is the empirical question. I do not know the answer. Obviously, it varies from case to case, but that is the kind of concern that I wanted to raise.

On the question of taking appropriate measures to deal with sectors that are negatively affected by trade liberalization: it is certainly true that it is very difficult to identify and deal with issues of equity and issues of effectiveness. The fact of the matter is also that in a number of cases, particularly if you look at developing countries, you can start identifying fairly quickly some 20–30 large enterprises, many of which happen to be in the public sector, most of which would be hurt by a program of liberalization in the sectors in which they had been previously protected, and in many of those countries implementing trade liberalization programs is held back frequently as a result of the political pressure and lobbying that is generated by the managers and workers of those enterprises. In the first generation of reform programs in many developing countries, trade liberalization had difficulty being implemented through to the industrial-restructuring stage because people did not recognize upfront that there was a potential lobby that needed to be dealt with in one form or another. So the only point that I am making is that one has to recognize ex ante that if you implement a program there are certain groups that are going to be adversely affected and will therefore lobby against it. In some cases, there may be some ways in which you can help them because they happen to be in four enterprises and you can identify them, while in other cases where they are dispersed all the way through a large economy, it may be impossible to find appropriate ways to identify them, let alone help them. I do not know what the answer is going to be in each case. It may well be that in 80 percent of the cases the answer is that you really cannot do anything specific for those people, but unless in the design of the program, one factors in that political economy, it makes the implementation more difficult.

The answer to the question of how to build consensus to bring about liberalization is not going to be that easy. It is certainly the case that at the end of the day, particularly now as societies become much more open across the world, the notion that you can reach agreements on important issues of economic policy and impose them by having a small group of officials within one ministry of the country agree with their external counterparts is no longer valid. One has to work much more to build a broad-based consensus among a range of stake holders who influence decisions, and that now includes, in many countries, much more active participation by parliamentarians, trying to get agreement of influential people in the press, and in some sense one is beginning to see this in many developing countries. But in certain other countries one has had those sets of issues for a while, and they do make reaching consensus on difficult decisions a more complicated slow process. That is just one of the facts of life one has to work with.

The real issue is, if you relate that to trade liberalization, do you believe that trade liberalization is a concession or do you believe that trade liberalization is a policy that improves your own economic performance? If you believe that it is a kind of bargaining game in which you give away a bit in exchange for somebody else giving away something, then the whole thing ends up being seen as a sort of zero-sum game in which one is constantly trying to justify that what was given away is in some sense compensated for by what one has got in exchange. It is tough to convince people that you are getting that, and then your focus shifts very much on what the other partner is doing and whether they are likely to actually live up to their agreements or not. In a recent book by Paul Krugman, there is an interesting sentence that says that one of the things that separates economists from other professions is that all economists see that trade liberalization is an obviously good thing, and all other professions think of trade liberalization as being a sort of giving away something in exchange for something else. Now, I suspect, I have been in Congress for too long now to change my perception, but I just cannot get used to the notion of thinking of trade liberalization as a kind of “I will stop shooting myself in my foot if you stop shooting yourself in your foot first,” and then you sort of compare the size of your respective wounds and say you have a bigger wound so I am better off. I honestly think that one has to start thinking of trade liberalization as being a process that basically, whether somebody else does it or not, helps a particular country in any given state of the world. So that is one starting premise. Now if one disagrees with that starting premise, obviously a lot of what I have been talking about is thrown out of the window.

Now that said, it is also the case that the state of the world matters. So the benefits that you accrue from your own trade liberalization are not independent of the state of the world in which one operates, and that is the reason why the complementary part of what I wanted to say, and that I would like to emphasize again, is that it is important to maintain the pressure to make sure that things like labor standards, environment, and antidumping do not become the new instruments of protectionism. I think you benefit from trade liberalization regardless, but the gains from that effort will be proportionately higher if you are not also faced with additional negative external conditions, which are the kinds of issues that are now coming on the table. That is why the role of agencies like the WTO, the Bank, the Fund, and other agencies is to work simultaneously on these two parallel tracks, to encourage countries to keep moving forward with their own liberalization efforts, and in parallel, to identify the issues that could reduce the gains from liberalization: unclear rules, arbitrarily applied rules, and procedures not working well, new forms like rules of origin or antidumping that reduce the benefits to people who are liberalizing. That is the basic intellectual framework within which I see this thing.

Now, just to come back and finish up on the first point, which is the issue of liberalizing one’s own economy regardless of what happens in the world. It is in that context I think that we need to look at the political economy of how to bring about liberalization in your own economy. And that is where I come back to my earlier point. One needs to recognize that there are some people who are going to be against liberalization because they personally are going to lose from it, and then one must take steps to try and identify and isolate these losses. In a more and more open society where you can only make these decisions through consensus, you simply will not be able to impose these losses just because you have decided in your own mind you want to liberalize. And unfortunately if the two sides talking are economists from the ministry of finance and economists from the World Bank, then they may both see this as being an obviously good thing, but they do not realize that there are many outside who do not see this as an obviously good thing. It is a real effort that one needs to make to convince people that the benefits are there. And I would not do it by comparing it with a sort of three-hundred-year process of industrial countries so much, as between more of a cross-section analysis; I would say, “Look, here are some countries that have gone forward, liberalized their economies, these are the gains and losses that accrued, and here are countries that decided not to, they basically grew at 3 percent a year for the last twenty years, and you know, they have taken that as a natural rate of growth.” So here is the kind of comparison one can make and then see if there are some lessons to be drawn from a more comparable cross-country treatment rather than a historical one, which could easily become one that does not lead to any operational outcome.

List of Participants*

Ahmed, Masood

Director, International Economics Department, The World Bank

Blackhurst, Richard

Director, Economic Research and Analysis Division, WTO Secretariat

Boorman, Jack

Director, Policy Development and Review Department, International Monetary Fund

Brooks, Simon

Head, World Economy Division, International Finance Directorate, HM Treasury, United Kingdom

Buyandelger, Ayush

Special Appointee, Southeast Asia and Pacific Department, International Monetary Fund

Byrt, Andrzej

Undersecretary of State and Vice-Minister of Foreign Relations, Ministry of Foreign Economic Relations, Poland

Chambovey, D.

Deputy Head of the GATT Desk, Federal Office for Foreign Economic Affairs, Switzerland

Citrin, Daniel A.

Advisor, European II Department, International Monetary Fund

Collins-Williams, Terry

Director, International Economic Relations Division, Department of Finance, Canada

Collyns, Charles

Division Chief, Central Asia Department, International Monetary Fund

Corden, W. Max

Professor of International Economics, School of Advanced International Studies, Johns Hopkins University

Custodio, Edsel T.

Assistant Secretary, Department of Trade and Industry, Philippines

de Fontenay, Patrick B.

Director, IMF Institute, International Monetary Fund

De La Calle, Luiz

Director, NAFTA Office, Embassy of Mexico, Mexico

Donnellier, Jean-Christophe

Chief Economist, Ministry of Economy, Finance and Budget, France

Dorsey, Tom

Economist, European I Department, International Monetary Fund

Eken, Sena

Advisor, Middle Eastern Department, International Monetary Fund

El Mossadeq, Abderrazak

Secretary General, Ministry of Commerce and Industry, Morocco

Ertlessova, Zhannat D.

Chief, Center for Economic Reforms, Kazakstan

Faranisi, R.

Deputy Director, Policy Administration, Ministry of Finance, Economic Planning and Development, Zimbabwe

Frost, Ellen

Counsellor, Office of the U.S. Trade Representative, Executive Office of the President, United States

Gebre-Ab, Neway

Economic Advisor, Office of the President, Ethiopia

Giarratana, Patrizia

Deputy Chief, Division of E.U. Trade Policy Issues, Ministry of Foreign Trade, Italy

Githinji, M.

Permanent Secretary, Ministry of Commerce and Industry, Kenya

Griffiths, Mark

Economist, European I Department, International Monetary Fund

Harahap, Bachrum

Assistant Minister for the Development of Bilateral and Multilateral Cooperation, Ministry of Industry and Trade, Indonesia

Hussain, Manzoor

Chairman, National Tariff Commission, Ministry of Finance, Pakistan

Hylton, Anthony

Parliamentary Secretary, Ministry of Foreign Affairs and Foreign Trade, Jamaica

Jirapaet, Krirk-Krai

Director General, Department of Business Economics, Ministry of Commerce, Thailand

Khanna, Tejendra

Secretary of Commerce, Ministry of Commerce, India

Kirmani, Naheed

Division Chief, Policy Development and Review Department, International Monetary Fund

Komsan, Sayed Aboul

General Director of Import, Ministry of Economy and Foreign Trade, Egypt

Lawrence, Robert Z.

Professor, John F. Kennedy School of Government, Harvard University

Lee, Suk-Young

Commercial Attache, Embassy of Korea, Korea

Li, Zhongzhou

Director General, Department of International Trade and Economic Relations, Ministry of Foreign Trade and Economic Cooperation, China

Major, István

Deputy State Secretary, Ministry of Industry and Trade, Hungary

McDonald, Donogh C.

Advisor, European I Department, International Monetary Fund

Meredith, Guy

Division Chief, Central Asia Department, International Monetary Fund

Messerlin, Patrick

Professor, Institute of Political Studies (IEP), Paris

Michaely, Michael

Professor, Hebrew University

Mussa, Michael

Economic Counsellor and Director, Research Department, International Monetary Fund

Mylonas, Paul

Economist, European I Department, International Monetary Fund

Nashashibi, Karim

Assistant Director, Middle Eastern Department, International Monetary Fund

Ng, Kim Neo

Director, Singapore Trade Development Board, Singapore

Norberg, Helene

Head of Section, Ministry of Finance, Sweden

Owen, David

Senior Economist, European II Department, International Monetary Fund

Papageorgiou, Demetris

Economic Advisor, Latin America and the Caribbean Regional Office, The World Bank

Pereira, Ruy

Assistant Secretary for International Affairs, Ministry of Finance, Brazil

Potts, Gary

Deputy Secretary (Economic), Department of the Treasury, Australia

Roessler, Frieder

Director, Legal Affairs Division, WTO Secretariat

Sahouet, Valence

Director, External Trade Promotion Department, Ministry of Planning and Industry, Côte d’lvoire

Salum, Jaanus

Head of Trade Policy Division, Ministry of Trade, Estonia

Schirmer, Ulrich

Division Chief, Federal Ministry of Economy, Germany

Schott, Jeffrey

Senior Fellow, Institute for International Economics

Seade, Jesús

Deputy Director-General, World Trade Oganization

Shimpo, Seiji

Vice President, The Institute of Fiscal and Monetary Policy, Ministry of Finance, Japan

Stuart, Brian C.

Deputy Director, Western Hemisphere Department, International Monetary Fund

Taplin, Grant

Assistant Director, Office in Geneva, International Monetary Fund

Williams, Richard C.

Senior Advisor, African Department, International Monetary Fund

Winters, L. Alan

Division Chief, International Trade Division, International Economics Department, The World Bank

Wong, Chorng-Huey

Assistant Director, IMF Institute, International Monetary Fund

Yokoyama, Yutaka

Economist, Southeast Asia and Pacific Department, International Monetary Fund

*

The titles and affiliations are those that were in effect at the time of the seminar (March 1995).

Trade Policy Issues ISBN 1-55775-621-X