Trade liberalization, the trade agenda and developing countries

1. 1 Trade liberalization, the trade agenda and developing countries Uri Dadush Director International Trade Department World Bank

2. 2 Main messages Developing countries are integrating and growing rapidly- reflecting in part improved policies But trade and non-trade barriers to their integration remain significant Doha deal along current lines would be a step forward PTAs can help development but this depends on their design and implementation

3. 3 Developing countries have been growing fast� and not just in China and India� Turning to the outlook. This graph illustrates GDP growth since 1980 for developing countries in yellow, developing countries excluding India and China in red and high-income countries in blue. As you can see, 2006 was another strong year for developing countries. Overall their GDP is expected to come in at about 7 percent. Even excluding China and India and oil exporters, growth was strong at 4.8 percent. Indeed, every region grew by close to 5 or more percent. Importantly this strong growth has occurred despite relatively modest growth in high-income countries and reflects improved fundamentals, better monetary policy, lower fiscal deficits, a growing share in world trade for developing countries and more structural policies aimed at improving growth potential and the investment climate. This strong performance is particularly heartening both because of its implications for poverty reduction and because it has occurred in the context of very high oil prices and mediocre performance by high-income countries. Turning to the outlook. This graph illustrates GDP growth since 1980 for developing countries in yellow, developing countries excluding India and China in red and high-income countries in blue. As you can see, 2006 was another strong year for developing countries. Overall their GDP is expected to come in at about 7 percent. Even excluding China and India and oil exporters, growth was strong at 4.8 percent. Indeed, every region grew by close to 5 or more percent. Importantly this strong growth has occurred despite relatively modest growth in high-income countries and reflects improved fundamentals, better monetary policy, lower fiscal deficits, a growing share in world trade for developing countries and more structural policies aimed at improving growth potential and the investment climate. This strong performance is particularly heartening both because of its implications for poverty reduction and because it has occurred in the context of very high oil prices and mediocre performance by high-income countries.

4. 4 Countries with rising trade shares in GDP grew 1.5 times faster

5. 5 Developing countries� policies have improved

6. 6 Developing countries are moving to center stage of the globalization process, spurred by increased exports�

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10. 10 Developing countries still face important obstacles Protection is high in areas of their export interest, particularly in agriculture South-South trade barriers remain high Services remain highly protected Major �behind the border� constraints remain Developing countries could have done better if protection did not discriminate against products in which they have comparative advantage particularly in agriculture. As roughly 70 % of poor people in developing countries live in rural areas, trade barriers in agriculture are extremely important to reduce poverty. Close to two-thirds of the gains in global welfare from full liberalization of merchandise trade would come from agricultural trade reform, because agriculture is so much more distorted than other sectors. Trade barriers remain also high in many developing countries, harming consumers � often the poorest, taxing exporters, penalizing exports from other poor countries South-South trade accounts for 25% of developing country exports and 40% of LDC exports Tariffs twice as high as in OECD countries; Example: cocoa beans face tariffs of 30 percent in India and 8 percent in China � in contrast to zero protection in developed countries Developing countries could have done better if protection did not discriminate against products in which they have comparative advantage particularly in agriculture. As roughly 70 % of poor people in developing countries live in rural areas, trade barriers in agriculture are extremely important to reduce poverty. Close to two-thirds of the gains in global welfare from full liberalization of merchandise trade would come from agricultural trade reform, because agriculture is so much more distorted than other sectors. Trade barriers remain also high in many developing countries, harming consumers � often the poorest, taxing exporters, penalizing exports from other poor countries South-South trade accounts for 25% of developing country exports and 40% of LDC exports Tariffs twice as high as in OECD countries; Example: cocoa beans face tariffs of 30 percent in India and 8 percent in China � in contrast to zero protection in developed countries

11. 11 Rich countries provide high degrees of support to their farmers

12. 12 Developing countries pay most of their foreign tariffs to developing countries This graph shows the total payments that exporters in based in different regions make to get into world markets. Most money goes to rich countries. Even though tariffs tend to be lower, total collections are high because of the volume. Many exporters pay huge amounts to neighboring economies. This is because their tariffs are high. This graph underscores the importance of moving forward in both the N and the S in reducing manufacutring tariffs. This graph shows the total payments that exporters in based in different regions make to get into world markets. Most money goes to rich countries. Even though tariffs tend to be lower, total collections are high because of the volume. Many exporters pay huge amounts to neighboring economies. This is because their tariffs are high. This graph underscores the importance of moving forward in both the N and the S in reducing manufacutring tariffs.

13. 13 Key services markets still highly protected �

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15. 15 A Doha deal along current lines represents a significant step forward� Already on the table : Large cuts in agricultural and industrial tariffs Lock-in trade-distorting agricultural subsidies Total removal of agricultural export subsidies Large increase in aid for trade to address supply-side constraints Trade facilitation Failure has costs : Weaker WTO; proliferation of PTAs Surging protectionism? Litigation replaces negotiation The multilateral trading system is particularly important for developing countries, providing predictable, guaranteed market access, rules-based settlement of disputes and transparency of trade regimes DR compares favorably with the UR. Examples: It would lead to cuts in all tariff lines with higher tariffs being cut the most and introduction of tariffs caps. The UR comprised an average cut for developed and developing countries (36% and 24%) - some tariff lines escaped cuts entirely, and no cap on the highest tariff. In the UR, export subsidies were slightly reduced (21% in developed countries, 14% in developing countries). The DR would eliminate export subsidies and discipline equivalent instruments. The multilateral trading system is particularly important for developing countries, providing predictable, guaranteed market access, rules-based settlement of disputes and transparency of trade regimes DR compares favorably with the UR. Examples: It would lead to cuts in all tariff lines with higher tariffs being cut the most and introduction of tariffs caps. The UR comprised an average cut for developed and developing countries (36% and 24%) - some tariff lines escaped cuts entirely, and no cap on the highest tariff. In the UR, export subsidies were slightly reduced (21% in developed countries, 14% in developing countries). The DR would eliminate export subsidies and discipline equivalent instruments.

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17. 17 The development impact of PTAs depends on design and implementation Design Low external tariff barriers Nonrestrictive rules of origin Wide coverage with few exclusions; Liberalization of services Facilitating trade at borders Appropriate rules Implementation Real, not paper PTAs PTAs to promote and reinforce domestic reform agenda

18. 18 Unilateral liberalization is the main driver

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