Time for global trade reform —Syed Mohammad Ali

Our policy makers must make efforts to not only safeguard our own soil from polluting foreign investors but also aim to improve the environmental friendliness of our own sovereign industries in order to assure them greater access to international markets

At a time when there is a global economic downturn, and concerns over food security are increasing, a reconsideration of the nature of the existing world trade system seems in order. It is thus not surprising that many developing nations have begun to openly questioning the development gains that can be achieved from trade liberalisation.

This growing disgruntlement became evident recently when trade ministers from about thirty countries failed to seek a breakthrough in talks despite nearly seven years of on-again off-again negotiations sponsored by the World Trade Organisation. These negotiators had been conveyed in Geneva to try to push through a last-minute deal before the current US president left office.

However, stand-offs between rich nations like the US and EU members and emerging markets such as Brazil, India and China, came to the fore yet again, dashing hopes of a last-minute deal.

Developing countries are understandably unwilling to sacrifice national food security measures. Since most developing countries are net food importers, the recent increase in food prices is leading their governments to reconsider reducing tariffs and domestic subsidies, which the WTO has urging them to do.

At their end, developed countries have also not done much to ally these fears. For example, the cuts in agricultural subsidies promised by the US are incompatible with the support mechanism of the new US Farm Bill which has recently been passed by Congress. If developing countries undertake tariff cuts demanded by the WTO, this move is feared to undermine the ability of their governments to protect their local markets from dumping of surplus products grown by well subsidised farmers from rich countries, which in turn would impoverish millions of smaller farmers at home.

Yet proponents argue that failure to make progress on trade liberalisation will compel an economic slowdown, and problems like unemployment will then become even worse. It is perhaps true that trade has allowed nations to benefit from specialisation and economies of scale to produce more efficiently. It has raised productivity, supported the spread of knowledge and new technologies, and enriched the range of choices available to consumers.

This is so because the increased fusion of product, capital and labour markets internationally has resulted in a more efficient allocation of economic resources. But it was industrialised economies that were the early beneficiaries of globalisation in the immediate post-war period. More recently, the newly industrialising economies have seen the benefits of increasing economic integration. The challenges facing developing countries in managing globalisation are still formidable, and success in spreading prosperity seems the most daunting of tasks.

Although the WTO’s World Trade Report 2008, Trade in a Globalising World, claims that trade and globalisation has indeed brought greater prosperity to hundreds of millions of people, it does admit that deeper integration into the world economy does not always prove popular, and the benefits of trade and globalisation do not necessarily reach all sections of society.

In fact, according to World Bank modelling, developing country benefits from global trade comprise just 16 percent of total gains. The major beneficiaries of global trade are richer and more developed countries. UNCTAD goes on to claim that the development related costs of global trade in its current form may be as much as four times the projected gains, basing its assertion on the havoc that surging food prices would wreak were developing countries to stop supporting their agricultural sectors.

Nonetheless, achieving national prosperity without emphasising development of the export sector may not be possible any longer. But the ongoing process of subordinating national policy interests to special commercial interests in agriculture, telecommunications or the pharmaceuticals industry seems to have gone just too far.

Trade can help alleviate poverty. It’s just that the relationship between trade and poverty is quite complex, therefore an increase in trade does not necessarily lead to poverty alleviation. This is due to the fact that a phenomenon like trade affects not only growth and revenue generation, but also employment opportunities, consumer prices, and food security, and the correlations between these impacts are not necessarily positive as pointed out above.

International trade actually creates simultaneous winners and losers and complementary actions are needed to secure the benefits of trade for society at large. To do this, the ongoing thrust by developed countries to open up markets in developing countries will need to be tempered. Instead, focus on helping developing countries first put in place policies to assist their displaced workers, for example, will help create the required conditions for realising benefits of international trade.

Moreover, it is important to realise that development at the expense of the environment destroys any chances of long-term stability. Several developing countries have been arguing for removal of environmental linkages from the global trade regime, which places them at a disadvantage.

But this course of action is not too wise. Consider the case of Pakistan for example, which remains keen to become a more significant global trading partner. World Bank indicators show that while Pakistan’s share of the global population is 2.4 percent, it has only a 0.23 percent share in global output, and the even more meagre 0.15 percent share of global exports.

It is not very surprising that in the quest to attract investors at any cost, our government has completely ignored sustainable development concerns. In the case of the Kirthar National Park controversy, for example, the government awarded an oil exploration concession to Shell-Premier, and national legislation was circumvented and finally altered to allow the deal to go through.

However, developing countries like our own need to realise that environmental issues in an era of escalating problems like climate change will not disappear from the global trade system. Our policy makers must make efforts to not only safeguard our own soil from polluting foreign investors but also aim to improve the environmental friendliness of our own sovereign industries in order to assure them greater access to international markets.

International trade must not ignore sustainable development concerns, through more equitable interaction and negotiations between developed and developing countries on multiple levels, or else emerging challenges like the current food crisis and global environmental concerns will continue to pose increasing limits on the global marketplace.

The writer is a researcher. He can be contacted at ali@policy.hu

Source: Daily Times, 26/8/2008


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