Boustead Annual Globalisation Lecture University of Nottingham Malaysia

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Boustead Annual Globalisation Lecture University
of Nottingham Malaysia

• The WTO and Developing Countries Policy Space
• Chris Milner
• School of Economics and GEP
• University of Nottingham

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The Policy Space Issue

• Criticism that WTO constrains or may in future
  constrain policy options and actions of
  developing countries
• e.g. UNCTAD Trade and Development Report (2006),
  the rules and commitments of the international
  trading regime restrict the de jure ability of
  developing nations to adopt national development
  policy. (p167)
• might view any loss of choice and constraints on
  autonomy as undesirable
• but, more typically an issue because presented as
  restricting use of heterodox policies (e.g.
  Rodrik, 2004)

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Positive and Normative Issues

• How might the WTO constrain policy space in
  developing countries?
• Does (or will) the WTO constrain policy space in
  developing countries?
• Should WTO constrain developing countries policy
  space (and by how much)?

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Some Context

• WTO commitments affect only trade and
  trade-related aspects of policy space
• Actual trade policy space affected by other
  institutions and agreements
• unilateral (e.g. structural adjustment reforms)
• bilateral ( e.g. ACP countries and Economic
  Partnership Agreements with the EU)
• regional (e.g. membership of RTAs)

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Potential WTO Influences on Policy Space

• Core rules of transparency, non-discrimination
  and reciprocity
• binding of tariffs and lowering of MFN tariffs
• Constraints on instruments (e.g. NTBs, export
  subsidies)
• Recent disciplines on new and beyond border areas
• services, TRIMs and TRIPs

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Potential WTO Influences (continued)

• But also
• Exemptions to rules (e.g. regional integration,
  preferences for developing countries)
• Differentiation of rules for developing countries
  (e.g. infant industries, balance of payments,
  export subsidies)
• Safeguards and defensive measures allowed
• Protection of national interest through dispute
  settlement mechanism and negotiating framework

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Potential WTO Influences (continued)

• WTO rules seek to protect autonomy and enhance
  policy space, as well as constrain policy actions
• defensive trade measures
• protection of small countries through rules and
  dispute settlement
• enhancing bargaining power through coalition
  activity
• improving export opportunities through
  reciprocity and constraints on importing
  countries

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Actual WTO Impact on Policy Space

• Membership of GATT/WTO has not had a major impact
  on bindings or tariffs of developing countries
• Other sources of tariff and NTB reforms
  (unilateral and regional)
• Very limited use of industrial and export
  subsidies

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Actual WTO Impact(continued)

• Evidence of greater WTO influences on new members
  (e.g. Saudi Arabia, China, Vietnam)
• though most developing countries are already
  members
• and membership is not compulsory!
• Concerns about future tightening and stricter
  implementation of rules
• least developed countries exemptions from
  tariff-cutting requirement in Doha negotiations
• negotiable!

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Policy Space and First Principles

• Possible positions
• more trade policy choice is better than less?
• WTO rules restrict heterodox options, with
  harmful effects?
• there are positive net benefits from restricting
  the policy space?

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More Policy Choice Is Always Better?

• Surely not recall pre-trade reform conditions
  in sub-Saharan Africa
• complex border taxation of imports
• extensive use of NTBs
• domestic firm entry restrictions
• implicit and indirect taxation of exports
• lack of transparency, pervasive rent-seeking,
  under-utilisation of capacity, and random and
  systematic distortions to resource allocation

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Effective Protection by Sector Burundi (1984)
Source Greenaway and Milner (1990)
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Selective SSA Information on Pre- and Post Reform
NTBs and Exchange Rate Distortions
(1) Various years, usually 1980s
(2) Various years, usually early 1990s
Source Dean (1995)
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Restricts Heterodox Options?

• Challenge the interpretation of some of the
  claims made for protection (e.g. in India)
• Question whether some of the heterodox success
  cases (e.g. South Korea) would still have been
  successful with more orthodox policies
• Doubt whether many of the least developed
  countries have the human capital and
  institutional capacity to implement the East
  Asian model

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Net Benefits of Restricting Trade Policy Space?

• Avoids costs of excessive protection and poor
  intervention
• Brings benefits of greater openness (subject to
  sensible timing, sequencing, phasing and
  adjustment support measures)
• Enhances policy space (export market access) if
  reciprocated by other countries

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Overall Assessment and Conclusions

• WTO has not significantly affected developing
  countries policy space to-date
• The effects (constraints and enhancements) may
  increase in future
• but scope for phased or gradual affects and
  differentiation within WTO rules
• Many of the key pro-development issues are
  outside the WTO agenda
• improving governance, institutions, human capital
  and infrastructure
• Countries want to join the WTO club!

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