By
David de Ferranti
World Bank Vice President,
Latin America & the Caribbean Region
Santiago, Chile, March 22-23, 2004 Your Excellencies, Minister Alvear [Chilean Minister of Foreign Affairs], Governor [Vittorio] Corbo, honored guests, friends and colleagues. I am delighted to join Vittorio Corbo in welcoming you to this Conference on the Future of Trade Liberalization in the Americas. We at the World Bank are grateful for the excellent support provided by Vittorio and his colleagues at the Central Bank of Chile, our co-sponsors. Closer to home, I should like to recognize the contribution of the World Bank's Office of the Chief Economist for Latin America and the Caribbean, led by Guillermo Perry, and the support of Bernard Hoekman and the Bank's Trade Unit.
It seems especially appropriate to hold this discussion here in Chile. As in so many fields of policy reform, Chile was an early leader in trade liberalization. And more recently the country has continued to be a trail-blazer: deepening its trade reforms, diversifying its exports, and undertaking a wide range of complementary policies. Chile, indeed, offers an outstanding example of what can be achieved by combining a proactively outward policy orientation with leadership on domestic policies.
I wish I could be equally as upbeat about the timing of our conference as about its location. Without any doubt, this is an important and an interesting time to be talking about the future of trade liberalization. But you may remember that, among the ancient Chinese, the phrase "May you live in interesting times" was intended as a curse. The recent story of international trade politics sometimes seems altogether too interesting. Some might wish for rather more dullness in the field of trade policy.
There is, in fact, growing concern among supporters of open markets that recent developments could represent a break with the history of progressive market opening that was initiated with the launching of the GATT in 1948. These recent developments will, I am sure, be familiar to most (if not all) of you, but perhaps I can just take a few minutes to highlight some of the key features.
Firstly, in September, ministerial negotiations for the hoped-for new World Trade round – the Doha Round, intended to be a "development round" – broke down in Cancun. The proximate cause of the breakdown was an impasse over demands by a subset of the OECD countries to incorporate into the WTO some or all of the so-called Singapore issues – (i) investment, (ii) competition, (iii) trade facilitation, and (iv) transparency in government procurement – demands resisted by many developing countries.
But, beyond the Singapore agenda, the Doha round's problems cannot be separated from the 800 lb gorilla of present day world trade discussions – the agriculture sector, and challenges to the variety of protective measures employed by OECD countries such as the US, the European Union and Japan. Analysis by the World Bank and others indicates that major global trade opening in agriculture could provide a substantial boost to the developing world as a whole, and to many poor rural producers. Yet the existing barriers and subsidies in agriculture are defended by highly-entrenched lobbies in a number of the OECD countries. Less widely known, but also potentially important in economic terms, are barriers maintained in the same sector by many middle income and developing countries themselves.
On a second track, we have been hearing about difficulties in bringing the Free Trade Area of the Americas to its planned completion by 2005. Agriculture, again, features prominently, with some negotiators, including the Brazilians, looking for agreement on significant agricultural liberalization within the FTAA talks, and others – including the US – emphasizing that farm support (as well as other important stumbling blocks, including anti-dumping policies) can only be resolved in the global forum of the WTO.
In response, the Brazilians have reportedly indicated that, without a substantial agricultural component within FTAA, they would be unable to entertain proposals for new rules in areas such as investment. In turn, the US has apparently indicated that, without agreement in these latter areas – which are already included in the bilateral deals Washington has reached with several Latin American countries, including Chile – the degree of market access offered under an FTAA could not be expected to match that extended under the bilateral deals. In this setting, we heard recently that the next session of talks had been postponed by a month. Some observers suggest that the only type of FTAA attainable in the near future could be an "FTAA-Lite" or an "a la carte" agreement. But as there are distinguished participants here today who are far closer to this process than we are at the Bank, we may hope to learn more "from the horse's mouth".
In the meanwhile, the major traders, including the US and Europe, have been working in parallel on a third track to reach bilateral deals with increasing numbers of partners around the world. These moves are themselves controversial, and we will no doubt hear a variety of views about their pros and cons during our discussions here.
Economists have been aware since the days of Jacob Viner that the evaluation of the welfare impact of regional and bilateral trade agreements has to be undertaken on a case-by-case basis, given the specific prospects for trade creation versus trade diversion. For an individual country contemplating a specific trade agreement, this very specific analysis of the calculus of costs and benefits continues to have its place.
At the same time, recent debates over the growth of regional and bilateral agreements have also put broader issues on the table.
· Should we see these agreements as stepping stones to further global liberalization?
· Or as stumbling blocks?
· Should we stress their role in enabling countries to "lock in" reforms, and undertake certain forms of closer integration regionally than could be contemplated under global agreements?
· Should we also stress that, compared to unilateral liberalization or preferences, they give more certainty to market access, thus providing a stronger incentive to investments in export sectors?
· Or should we worry that they dissipate the energy of policy-makers and negotiators, expose smaller countries to the asymmetric bargaining power of larger trading partners, and in so doing keep crucial issues off the negotiating table?
Some of these issues are as political in nature as they are economic. I am sure we can look forward to lively debate on these themes over the next two days.
If we step back from the nuts and bolts – and the pros and cons -- of the different negotiations, perhaps the most critical of all the uncertainties we face today is whether crucial major players in the international community are going to prove capable any longer of mustering the political will to sustain the process of progressive trade opening.
Pessimists point to the stalemate in the WTO talks. They point to growing skepticism on trade opening in political discourse around the world. They suggest that even relatively small bilateral or sub-regional agreements, such as the recent CAFTA, may encounter difficulty in achieving passage through the US Congress. They can also point to direct measures of adverse trends in public opinion, such as the recent University of Maryland PIPA poll, which shows the percentage of US voters taking a positive view of globalization as having fallen from 53% in 1999 to 40% today. They might further argue that, beyond resistance within the developed world, some developing and middle-income countries show no hurry to confront their own domestic vested interests.
Optimists would remind us that every major round of trade liberalization has suffered break-downs and delays. They might point to indications that, behind the scenes in Cancun, negotiators were narrowing the gap on several of the more sensitive issues. And to the initiative this year by US Trade Representative Zoellick to re-launch the talks, and the generally positive reactions it has sparked. They might suggest that public opinion on trade largely follows the economic cycle. Public attitudes to trade and related issues also depend heavily on the way the questions is posed. In the PIPA poll in the US, for example, while only 36% agreed with the statement that "the growth of international trade is more positive than negative for the US", when respondents were given the option of conditioning their support for free trade with the added statement that "I believe it is necessary for the government to have programs to help workers who lose their jobs," only 22% of respondents expressed opposition to free trade. An optimist might add that in significant parts of the developing world, including much of Latin America, trade opening has in recent history been one of the more successful areas of reform implementation.
Realists would surely argue that the reason it has taken the world community 56 years to put issues like agriculture in a central position is precisely because they are so politically sensitive, and were not in the direct interest of producers in the OECD countries that -- until recently -- were the only voices to have influence in multilateral trade negotiations. On this view, the easier work on trade opening has been done already, leaving the toughest nuts to crack.
However one comes down on these debates, it seems clear that those who support continued trade opening must expect to work hard – and to work "smart" -- for this goal. Dedication to reaping the social and economic benefits of further trade liberalization will need to be married to attention to public concern over issues such as job losses. Progress cannot be taken for granted. Leadership will be key.
In this context, let me now speak a little more explicitly about some of the work the World Bank itself has been doing on trade issues recently.
At the global level, the Bank has invested substantial intellectual resources in the analysis of world trade issues. Some of you may be familiar with our major annual report called "Global Economic Prospects" and know that the past three years' editions have all focused on aspects of global liberalization. Reports like these examine the potential impact of different forms of liberalization on the developing world and the world's poor. Overall, there are major potential gains to be realized as a result of further liberalization on the part of both the richer countries and the developing countries themselves.
Let me just stress that latter point, as some commentators have suggested that the Bank underplays it – our analysis emphasizes that the developing and middle-income countries themselves can make major contributions to the welfare of their own populations by further liberalization of their own markets for both goods and services.
Trade negotiations operate in a rather strange, "Alice in Wonderland" world, in which market-opening measures, that could yield major positive results for the great majority of a country's own citizens, are viewed as "concessions" on that country's part to its trading partners. Perhaps these mercantilist rituals are an inevitable feature of the negotiator's world, and they certainly give recognition to the political price a country may have to pay to overcome the resistance of specific domestic interest groups. At the same time, as economists and policy-makers, it is important to keep in mind that Alice's Wonderland represents a caricature of reality.
The Bank has gone beyond analysis to offer specific assistance, both technical and financial, to its member countries in trade-related areas. Worldwide, the Bank is presently supporting 32 projects in the area of trade facilitation in 28 countries, with funding of around $500 million. In support of trade policy and institutional reform, 100 active projects are under way in 59 countries, with financing of $2.2 billion.
Within the Latin America and Caribbean Regional Office of the World Bank, substantial work has been undertaken during the past 3 years into issues that are strongly related to trade, and in particular to the challenge of reaping the full benefits of trade. This work was initiated with our 2002 "regional flagship" report, entitled "From Natural Resources to the Knowledge Economy." This report took issue with the view that "Natural resources are destiny -- or curse" – the view that countries with abundant natural resources are doomed to be, in the biblical phrase, the world's humble "hewers of wood and drawers of water." Instead the report drew on extensive international evidence that what matters is "not what you produce but how." Resource-based economies can choose, just like manufacturing-based economies, between stagnation and dynamism. The dynamic approach means adopting policies and institutions to develop and adapt knowledge and new technology so as to boost productivity and help you move up the value chain. Not surprisingly, Chile provided many of the report's positive case studies.
The following year, we issued a complementary study, entitled "Closing the Gap in Education and Technology" which develops further the theme of the importance of a society's ability to put new knowledge to work, both through technology institutions and infrastructure, and also through the educational attainments of the labor force.
An implicit message can be drawn from these studies. However potentially beneficial trade agreements may be in creating new opportunities, a country's success in taking advantage of those opportunities will depend on the effectiveness of its domestic policies and institutions, including those for learning in the broadest sense of the word.
That implicit message has become more explicit in our recent review of NAFTA on its tenth anniversary and our ongoing work on the recently negotiated CAFTA. In the case of NAFTA, our analysts concluded that the agreement had in the aggregate produced modest net gains to Mexico. But they also highlighted that those gains had been largely concentrated among the better-educated segments of the workforce and the better-established regions of the country. For Mexico to take full advantage of opportunities like NAFTA, it needs to strengthen the educational system on a national basis, and to provide stronger support to vulnerable groups such as small southern farmers.
In the case of CAFTA, while we see important potential benefits to the countries concerned, we also stress the importance of improving their domestic policies, including those affecting the climate for investment. We also recommend paying attention to those who, without support, could emerge as the "losers" from market opening.
Let me sum up. Trade liberalization matters enormously to the developing world and to the poor. But trade policy is not all that matters. By itself, it is no magic bullet. Trade opening needs to be embedded in a broader context of domestic policy reform and institutional development. For countries that can put the two together, as Chile has so notably succeeded in doing, the sky will truly be the limit.
Thank you very much. |
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