How does the World Bank view trade and development?
The Bank’s trade strategy aims at (1) promoting an open, transparent, and rules-based, multilateral trading system that is supportive of development; (2) making trade and competitiveness a centerpiece of countries’ development strategies, and (3) supporting trade and competitiveness reform through effective Aid for Trade.
In recent years, the Bank has expanded its trade-related activities, which include country operations, research, analysis and advocacy, and training and capacity building. Furthermore, the Bank is currently expanding its trade-related efforts in the following areas:
Increased support to country programs on trade and competitiveness, including policy analysis, lending and technical assistance.
More resources for trade-related infrastructure.
Expanded programs for trade finance through the Bank’s private sector arm, the International Finance Corporation (IFC).
Expanded assistance in trade facilitation, including logistics, transport and supply chains.
More investments in training and capacity building for policy-makers, particularly in low-income countries.
Greater work on publicly available tools to help countries analyze trade obstacles, as well as indicators comparing countries.
Further development of knowledge on how to harness globalization for growth and overcoming poverty, and to inform key trade policy debates.
At the operational level, the World Bank has scaled up support for trade-related reform through analytical and advisory services, sustained policy dialogue, financial assistance, technical assistance, and capacity building. Bank lending – concessional and nonconcessional – has grown from about US$400 million in total commitments in FY2000 to about US$1.6 billion in FY07, strongly driven by trade-related infrastructure in support of regional integration, export development and competitiveness, and trade facilitation. Loans involved 42 countries and four multi-country loans, with the majority of lending going to Europe and Central Asia, and Sub-Saharan Africa.
Bank research provides the foundation for the country trade programs and helps better understand the role of international trade in development and poverty reduction. Today, research focuses on the poverty effects of trade and adjustment; impact analysis of trade reforms on firms, consumers, and trade competitiveness; and research on service sector regulatory regimes.
The Bank's training and capacity building arm, the World Bank Institute (WBI) has expanded its programs on trade significantly. Thanks to strong partnerships with local, regional, and other international institutions, WBI is planning to increase its learning activities by about 50% in FY09, through some 45-50 events involving more than 3,800 participants. In June 2008, WBI will officially launch the World Trade Indicators 2008 (WTI), a new, comprehensive set of trade policy and trade outcome indicators (For more information, visit www.worldbank.org\wti2007)
Trade is a way of generating the growth that is vital for reducing poverty. Countries that have strengthened their links to the international economy through trade and investment have usually grown more rapidly and experienced larger reductions in poverty than those that have not. However, when giving advice on how to boost trade integration, we treat each country based upon its individual circumstances rather than using a "size fits all approach."
Why have some developing countries failed to realize the potential gains offered by international trade?
Some Low-Income Countries (LICs) have not been able to reap the benefits of globalization because of poor supply-side capacity, such as poor infrastructure, deficient domestic policies, as well as the misguided trade-distorting policies of many developed countries.
When LICs maintain large trade barriers, including non-tariff barriers, they undermine their own exporters' ability to compete in world markets as well as their own consumers. Trade and investment barriers can also limit countries' ability to benefit from technology diffusion, knowledge transfer and other productivity gains from integration. Inappropriate government policies and weak investment climates impede LIC’s efforts to boost living standards through international trade. In contrast, countries can boost their trade competitiveness by improving incentives for private investment in tradable sectors (e.g., reforms in tariffs, and tax policies); reducing the costs of trading (e.g., improving key producer services and trade facilitation); and targeted policies to promote competitiveness (e.g., strengthening standards awareness and capacities, and export promotion).
Barriers that developed countries create to the products that developing countries export harm their opportunities to trade with new markets. Developed countries' support to their farmers (paid for by taxpayers in the form of subsidies and consumers in the form of higher prices resulting from border protection such as tariffs) amounts to around $270 billion in 2006—an amount almost three times larger than the total level of development aid. With protection in both developed and other developing countries against the products that they export, exporters in low- and middle-income countries currently pay around twice as much in foreign tariffs as exporters in developed countries.
Why is the WTO Doha Round important for development?
The Doha Round negotiations underway in the World Trade Organization (WTO) offer an important opportunity to address the barriers that prevent developing countries from being able to integrate effectively into global markets and to use trade as a lever for growth. Important elements of a Doha Round outcome from a development perspective include:
Substantial reform of agricultural trade, led by developed countries: Agricultural protection in rich countries lowers world prices for the crops that developing countries export and shuts them out of important export markets. Market access is critical, including in the currently most protected products. Real cuts in trade-distorting subsidies are also needed. Even when subsidies are not big in dollar terms, their impact can be devastating. Cotton subsidies may be less than $4 billion per year, but they cost West African cotton producers roughly $150 million per year - equivalent to around 10% of their total merchandise exports.
Participation by all countries: Developing countries, particularly middle-income countries, should contribute with offers to open their own markets in manufactures, services and agriculture. First, because it is in their own economic interest: in the presence of a supportive investment climate, trade openness contributes to higher productivity and faster technological diffusion and so to growth. Many of the gains from Doha for all countries will come from their own liberalization. Second, because it is in the interests of other poor countries. Trade amongst developing countries is important, and it is growing 50% faster than world trade in general.
World Bank welcomes the progress made in the Doha round, in particular the prospects of putting in place for the first time comprehensive legal disciplines, notably in agriculture. In that sense, the Doha round (like its predecessors) should be seen as an investment in better global governance. Time has now come to consolidate progress in the WTO negotiations and conclude the Doha round. All parties will need to demonstrate flexibility and political will for this to happen.
Continued delay in concluding the Doha round would carry serious risks for the multilateral trading system. The WTO is especially important for developing countries in providing guaranteed, nondiscriminatory market access, rules-based disputes settlement and transparency of trade regimes. Further drift in the Doha round could place increased pressure on the WTO's dispute settlement system, as countries turn from negotiation to litigation, potentially increasing protectionist pressures in major markets.
Drift or failure of the Doha round could also further intensify interest in regional trade agreements (RTAs) in developing and developed countries alike. Well-designed RTAs can benefit their members, but they cannot address systemic distortions such as agricultural subsidies. Within the realm of trade policy, moving multilaterally to cut trade barriers remains the best alternative to promote development and reduce poverty throughout the world.
Aid for Trade is a World Bank priority to help integrate developing countries into the world economy. While not formally part of the Doha negotiations, aid for trade remains an essential complement to a successful Doha Round. Aid for trade can help developing countries address supply-side constraints and manage any transitional adjustment costs associated with trade reforms.
As a follow-up to several regional meetings and a global review meeting held in the fall of 2007 to encourage information exchange about best practices and facilitate collective action to maximize the benefits of aid for trade, WTO Director General, Pascal Lamy, has recently put forward a new Aid for Trade Roadmap for 2008, emphasizing monitoring improvements, implementation, and country ownership. In 2008/2009, the WTO will sponsor a limited number of "aid for trade national reviews" at the country or subregional level to showcase success stories and spotlight the trade needs.
According to the OECD, Japan and the US dominated global aid for trade delivery in terms of volume in 2006, the European Commission being the largest multilateral donor, and the World Bank, through the International Development Association (IDA), the fourth largest provider of concessional aid for trade in 2006 (the Bank was also the largest multilateral provider of such assistance during the 2002-2006 period, and the largest overall donor to low-income countries, accounting for 24 percent of all aid for trade received by these countries). The Asian Development Bank and the African Development Bank are also important providers of aid for trade in their respective regions and among the top ten donors globally.
What is the Bank's view of regional trade agreements (RTAs)?
RTAs can create trade opportunities that may not be available through the multilateral system. It is often easier to get reciprocal liberalization when there are fewer, committed participants. RTAs also have the flexibility to take up issues that are not addressed well in multilateral negotiations. For example, regional agreements usually go beyond slashing tariffs to include efforts to reduce problems associated with standards, customs and border crossings, and services regulations, and to address broader rules related to improving the overall climate for investment. Moreover, RTAs often form part of larger economic and political efforts at regional cooperation.
To be successful, trade policies also need to be integrated into a sound domestic policy framework. RTAs most likely to increase national incomes over time are those designed with: low external tariffs, few sectoral and product exemptions, and liberal rules of origin.
By giving preferences to some countries, RTAs by definition exclude others and these countries suffer from the discrimination the multilateral system was designed to prevent. Some countries get left out, either because they are not favored politically, or because they cannot afford the costs of many separate negotiations.
What are the latest Bank trade-related publications/outputs?
Global Monitoring Report 2008 “MDGs and the Environment: Agenda for Inclusive and Sustainable Development”
“A Handbook of International Trade in Services” edited by A. Mattoo, Robert M. Stern and G. Zanini, Oxford University Press, 2008,
Global Economic Prospects 2008 “Technology Diffusion in the Developing World”. o The Logistics Performance Index (LPI) 2007, www.worldbank.org\lpi o The World Trade Indicators (WTI) 2007, www.worldbank.org\wti2007
Trade, Doha, and Development: a Window into the Issues edited by R. Newfarmer, 2005.
Acronyms: WTO: World Trade Organization IMF: International Monetary Fund UNDP: United Nations Development Program UNCTAD: United Nations Conference on Trade and Development LDC: Least Developed Countries
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