Dr'Syed wajid Pirzada

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Trade,Development Poverty (TDP)

• Dr.Syed wajid Pirzada
• WTO Chief,Ministry of Food,Agriculture
  Livestock
• Islamabad.

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Development is about expanding the choices people
have to lead lives that they value

The Paradox of our Time
..But, 2/3rd of the global population lives in
conditions of relative to complete
deprivation..What choices do they have?
.1 billion without safe drinking water, 2.4
billion without access to basic sanitation, 1
billion illiterates
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Why?
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Increasing Distributive Injustice

• Growing Inequalities

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Linking Income Distribution,Inequality
Economic Growth

• Simon Kuznets Work (1955)
• Development involves a transfer of labor from
  traditional Ag in to a modern high productivity
  sectors of economy
• The inequality between sectors is greater than
  the inequality with in
• The inequality increases in early stages of
  development,as labor shifts from one sector to
  the other
• Recent work has shown that Kuznets work is not
  always borne out in practice(Different
  Experiences)
• Rolands Benabous Work(1996)- Similar levels of
  development in Korea Philippines(!960s)-Later
  increased inequality in Philippines
• 1990s Work(Econometric Regression
  Models)revealed relationship between inequality
  economic growth
• In poor countries inequality tends to slower down
  the growth

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Growing Inequities A Fact SheetIndustrialized
vs Developing Countries Widening Gap between
Have Have nts

• Inequities are rising within and between
  countries,and the regions
• Assets of worlds 3 richest people exceed
  combined GDP of poorest 48 countries
• 1.2 billion people living on less than 1 a day
  and 2.8 billion on less than 2 a day (WBCollier
  Dollar,2002)

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The Glaring Disparities

• OECD support in 2001311US
• 37 times total Ag output of SA98.5 US in 2003)
• 2 times combined GNI of BD,Nepal,SL Pakistan
• 6 times level of development aid to poor
  countries

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Who?
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Trade-Development Nexus
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Economic Growth Poverty

• Economic Growth Differences have been largely
  responsible for the differences in poverty
  alleviation across regions(Dollar Craay,2002)
• Economic growth can contribute to poverty
  reduction and human development in two ways
• Employment-led growth raises household income
  which can reduce poverty and lead to increased
  human capabilities
• Growth can also increase government revenue
  which can reduce poverty and benefit human
  development if used to pursue policies aimed at
  reducing income and asset inequality and health
  and education enhancement

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Economic Growth Trade

• The WB estimated that if all regions remove all
  protection in Ag food,the global gains in 2015
  would amount to US265 billion(based on 1997
  constant prices)
• Trades Impact on Growth can be much reduced in
  the absence of liberal domestic markets,macro
  stability and appropriate institutions
  infrastructure-those are prerequisites that
  enable producers to capture the market signals
• Restrictive market access barriers high
  subsidies compromise the abilities of DCs farmers
  to realize these gains,improve their incomes and
  trade their way out of poverty

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The Thesis

• International trade can expand markets,
  facilitate competition and disseminate knowledge,
  creating opportunities for growth, poverty
  reduction and human development.
• Trade can also raise productivity and increase
  exposure to new technologies, which often spurs
  growth.
• Nevertheless, cross-national comparisons reveal
  no systematic relationship between countries
  average levels of tariffs and non-tariff barriers
  and their subsequent economic growth.

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Global Free Trade Can Reduce Poverty in
Developing Countries by
1. Opening Agriculture Markets 2. Raising
Unskilled Labor Wages 3. Boosting Productivity 4.
Inducing Investment 5. An early harvest free
market access for poor nations
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Raising Unskilled Labor Wages-Global free
trade would boost world income by about 230
billion annually- About 140 billion in gains
for industrial countries and 90 billion for
developing countries -In developing countries,
real wages of unskilled labor would rise by an
estimatedBoosting Productivity-Increasing
trade spurs productivity, which in turn supports
long-term increases in per capita
income.-Productivity gains in developing
countries would lift an estimated additional 200
million people out of poverty in the long term.
Inducing Investment-Increased trade
opportunities induce investment, which also
generates long-term increases in per capita
income.-Capital investment effects could
conservatively reduce the number living in
poverty by an additional 300 million people
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Impact of Global Free Trade on Global Poverty
Reduction (in millions, cumulative)
Source William Cline, Trading Up Trade Policy
and Global Poverty, CGD Brief 7, September 2003.
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An Early Harvest Free Market Access for the
Poor Countries

• -LDCs, SSA and HIPC countries account for 64
  countries with a combined population of 1
  billion, of whom 715 million live in poverty.
• -Estimated growth effects from preferential
  trade agreements
• US Caribbean Basin Initiative 7-8
• EU Lome-Cotonou arrangement 7-8
• Andean Trade Preference Act 2

Source William Cline, Trading Up Trade Policy
and Global Poverty, CGD Brief 7, September 2003.
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The Impact of Global Agricultural Liberalization
on Poverty in Selected Countries

• Reductions in Poverty () Reductions in
  Poverty (millions)
• Malawi (15.2)
  China (72.1)
• Vietnam (15.1)
  India (59.2)
• Kenya (14.8)
  Bangladesh (12.0)
• Tanzania (12.0)
  Pakistan (10.4)
• Bangladesh (11.8)
  Indonesia (9.9)

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Counter Thesis

• Most recently in Asia, Viet Nam is a good example
  which illustrates that trade, esp. import
  liberalization is not a prerequisite for
  sustained economic growth (the Republic of Korea,
  PR China and India are others)
• Since the mid-1980s Viet Nam, which was not a
  WTO Member, had taken a gradual approach to
  economic reform, following a two-track program
  that had the following characteristics

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Counter Thesis An Example

• Significant State Trading
• Maintenance of important import monopolies
• Retention of quantitative restrictions and high
  tariffs (30-50) on agricultural and
  industrial imports
• Yet Viet Nam has
• Achieved GDP growth of more than 6 per annum for
  a sustained period
• Sharply reduced poverty
• Expanded trade
• Attracted considerable foreign investmentAnd
  (despite high trade barriers) is rapidly
  integrating with the global economy

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China India yet an other example

• Chinese and Indian trade restrictions are amongst
  the highest in the world.
• Increase in Chinas growth started in the late
  70s. Trade substantially - in the second half of
  the 80s and the 90s.
• Indias growth rate increased substantially in
  the early 80s. Trade reform started in 1991
  1993. Tariffs were higher in the high growth
  period of the 80s than in the low growth 1970s.
• It is therefore not obvious that
• Further liberalization is in all countries
  interests
• That the world requires a set of global rules,
  universally applied, that promote greater freedom
  for global market actors
• The Indian and Chinese experiences suggest that a
  gradual, sequenced approach is beneficial, and
  that import and trade liberalization are not
  necessarily the highest development priority.

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What?
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..is the right perspective?

• Trade and Growth should be seen as means to
  development rather than ends in themselves.
• Growth at times can be jobless, rather than job
  creating ruthless, rather than poverty reducing
  voiceless, rather than participatory rootless
  rather than culturally enshrined and futureless,
  rather than environment- friendly.
• Growth that is jobless, ruthless, voiceless,
  rootless and futureless is not conducive to
  poverty reduction or human development.
• Growth for the sake of growth is ideology of a
  cancer cell

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Trade can be a powerful source of economic growth.

• But while broad- based economic growth is
  necessary for human development, it alone may not
  be enough,for
• Human development also requires enlarging
  peoples choices opportunitiesespecially for
  the poor.
• Liberalizing trade does not ensure poverty
  reduction or human development, nor does it
  guarantee immediate economic growth. Rather,
  this is largely determined by internal and
  external institutional and social
  pre-conditions.
• The nature of resource allocation and social
  inclusion especially for women and those
  participating in the informal sector are
  important determinants of growth leading to
  poverty reduction and human development.

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Experience of LDCs supports the argument?
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Balanced policies are the answer An example from
East Asia
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East Asia (2)
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Rich country policies
matter for development

• Agricultural protection against developing
  countries
• 34 percent in the United States
• 100 percent in the EU
• 230 percent in Japan
• 65 percent in Canada
• Free trade in agriculture would reduce global
  poverty by an estimated 200 million people, or
  about 7 percent.

Source William Cline, Trading Up Trade Policy
and Global Poverty, CGD Brief 7, September 2003.
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The Economics of Protection Support in
Agriculture

• Total Support to OECD Farmers in 2000-02US230
  billion
• 63 of it .e.144 US is because of market access
  barriers,that push of domestic prices to the
  competitive disadvantage of DCs
• DCs face tariff peaks escalations in
  industrialized countries
• EU tariff on sugar230
• EU tariff on meat826
• Support for rice in Japan expressed in Ad Val
  form staggered around 700 of world price
• Blocking market access driving down world
  prices of Ag commodities,impacts trade
  opportunities worth 37 billion US for DCs

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Total Tariff Equivalent of Agricultural
Protection Against DCs(percent tariff equivalent)
Source William Cline, An Index of Industrial
Country Trade Policy toward Developing
Countries, CGD Working Paper 14, October 2002.
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Bound maximum Mean Tariffs, and Tariff Peaks of
Selected Countries

• USA(378.7/11.9)-no of tariff linesgt5029 out of
  1,769
• EU(218/20.5)- no of tariff linesgt50259 out of
  2,200
• Japan(2,553.6/80.1)- no of tariff linesgt50307
  out of 1,806
• Brazil(55/35.6)- no of tariff linesgt50148 out
  of 959
• Mexico(450.7/44.4)- no of tariff linesgt5084
  out of 1,080
• Kenya(100/100)- no of tariff linesgt50665 out
  of 665
• India(300/116.0)- no of tariff linesgt50663 out
  of 665
• Pakistan(200/100.6)-no of tariff linesgt 50 680
  out of 685
• --------------------------------------------------
  ------------------------------------
• USA-no of tariff linesgt15016 out of 1,769
• EU- no of tariff linesgt15016 out of 2,200
• Japan- no of tariff linesgt150272 out of 1,806
• Brazil- no of tariff linesgt150 nil
• Mexico no of tariff linesgt15048 out of 1,080
• Kenya- no of tariff linesgt150nil out of 665
• India- no of tariff linesgt15048 out of 665
• Pakistan-no of lines gt150 14 out of 685

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AgricultureTDP

• Farm Food Policies globally contribute
  405(43/108) billion UDS)
• Farm Trade Reforms contribute gt1/4th(12/43
  billion UDS) of the the total welfare gains to
  DCs,from rich countries liberalizing their
  merchandise trade
• That is gtthe contribution of rich countries
  barriers to TC trade(9/43 billion USD)
• TC Policies also harm DCs but barely 1/3rd of
  Ag policies.

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Conclusion
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Can DCs Trade their Way Out of Poverty
Yes,but only Distributive Justice can
deliver Just Policy, not charity, will determine
whether new trade rule would dispense the
required distributive justice,and be
instrumental gearing trade for equitable
development Given Political will, WTO Rules
Regulations can help Furrow a Level Playing
Field- a prerequisite for distributive justice
. UNDP-HDR 2001

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Conclusion-contd.

• Policies of National governments need to be
  directed at equitable growth,reducing economic
  disparities and eliminating poverty
• Economic Growth Social development should go
  hand in hand.

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Thank you