Transcript key trade and development issues and the new realities in the

KEY TRADE AND DEVELOPMENT
ISSUES AND THE NEW REALITIES IN
THE GEOGRAPHY OF THE WORLD
ECONOMY
By
PROF. ADERIBIGBE S. OLOMOLA
DIRECTOR, AGRICULTURE & RURAL
DEVELOPMENT DEPARTMENT, NISER, IBADAN
OUTLINE OF PRESENTATION
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OVERVIEW OF THE CURRENT TRADE AGENDA
CONCERNS AND IMPACTS OF THE CURRENT
TRADE AGENDA
ROLE OF THE SOUTH IN PROMOTING NEW
EXPORTS IN INTERNATIONAL ECON LANDSCAPE
PROSPECTS AND PROBLEMS OF THE SOUTH IN
ACCESSING THE GLOBAL MARKET
POLICY MEASURES TO OVERCOME CONSTRAINTS
IN ACCESSING THE GLOBAL MARKET
FOSTERING GREATER TRADE & ECONOMIC
COOPERATION THROUGH BILATERAL, REGIONAL
& INTERREGIONAL TRADE AGREEMENTS
OVERVIEW OF THE CURRENT
TRADE AGENDA
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The current trade agenda as reflected in the Doha
Development Agenda (DDA) consist of important trade
issues which have formed the basis of discussions and
negotiations by WTO members in the last few years.
The issues include:
-reductions of import tariffs on manufactured goods
-reductions in agricultural import tariffs
-export subsidies
-domestic support measures
-liberalization of barriers to trade in services
-anti-dumping and safeguard measures
-intellectual property rights protection
-dispute settlement
OVERVIEW CONT’D
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THE MAJOR TASK AND TREND IN THE Doha
Round is to have a consensus on rules, policies
and guidelines for a liberalized international
trade. These include:
-new rules covering investment, competition
policy, government procurement policy and
trade facilitation ( the so-called Singaporean
issues)
-agricultural liberalization, changes in antidumping and countervailing duty rules
-the tariff-cutting rule to increase access to
non-agricultural markets and further
liberalization of the services sector.
OVERVIEW CONT’D
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It has become increasingly difficult for nations to
reach multi-lateral agreement on the rules,
policies and guidelines in recent years in view of:
-the increased technical complexity of the issues
being negotiated
-the disruptive domestic economic effects of the
issues
-the increasing relative bargaining power of
developing countries in the negotiation process
-the proliferation of bilateral and regional free
trade agreements in contrast to multilateral
agreements
-the increased emphasis on achieving “fairness”
rather than reciprocity in trade liberalization
MAIN CONCERNS OF THE
CURRENT TRADE AGENDA
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EXPORT DUMPING
AGRICULTURAL SUBSIDIES
MARKET CONCENTRATION
EPA NEGOTIATIONS
NAMA NEGOTIATIONS
EXPORT DUMPING
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Export Dumping. Despite the free trade era being
championed by the World Trade Organisation,
industrialized countries have protected themselves
against the most dynamic exports of developing
countries, including textiles and clothing, agriculture,
and processed raw materials. The proportion by which
the average prices of the commodities fell below the
cost of production in 2003 stood at 28% in the case of
wheat, 10% for soybeans, 10% for corn, 47% for
cotton and 26% for rice (see The NewFarm, 2005).
Huge surpluses of products like sugar, dairy and beef
accumulated under high tariff walls in industrialized
countries, are often disposed of by resorting to
subsidized exports, to the detriment of African
producers in particular, as they displace their products
in third country (export) markets and in the domestic
markets of African countries themselves. (ECA, 2000).
AGRICULTURAL SUBSIDIES
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Agricultural Subsidies in Developed Countries.
Enhancing competitiveness and export revenue in the face
of fabulous agricultural subsidies in developed countries
remains a major challenge. The agricultural subsidies
provided to farmers in developed countries constitute an
impediment for African farmers’ exports because
consumers tend to favour the artificially cheaper products
from developed countries. Subsidized imported products
also often displace the locally produced products in African
countries. While the Uruguay Round Agreement did
encourage countries to shift from trade-distorting subsidies
to non trade-distorting subsidies, more than 60% of the
support provided to farmers in wealthy countries still
distorts trade. The US spent $1.3 billion on income support
for rice farmers in 1999–2000 when its total rice production
was worth $1.2 billion. Japan’s subsidies to its farmers, on
the other hand, are greater than the entire contribution
made by agriculture to the nation’s economy. The total
transfers to agriculture amounted to 1.4% of GDP in 2000,
compared to the sector’s 1.1% share of GDP (Sharma,
2003).
AGRIC SUBSIDIES CONT’D
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Despite the decoupling of subsidies by the rich countries
and the reform of the common agricultural policy
undertaken in the EU since 2003, the existing subsidies
still cause considerable distortions in the global market
and constitute barriers to developing countries’ exports.
The EU spends about 40% of its budget (some $60 billion)
in subsidies for farmers (Godoy, 2005). Effects of
subsidization seem to be particularly severe in Africa.
Indeed, studies have shown that EU agricultural policies
have reduced African exports of milk products by more
than 90%, livestock by nearly 70%, meat by about 60%,
non-grain crops by 50% and grains by more than 40%
(see Hassett and Shapiro, 2003). Cotton subsidies, for
example, depress world prices by more than 20 percent,
thus lowering the income of African farmers. Simulations
suggest that overall OECD farm subsidies cost farmers in
Sub-Saharan Africa US$1.8–1.9 billion per year in lost
agricultural income (Chigunta et al, 2004).
MARKET CONCENTRATION
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The international market especially for
agricultural commodities have become
much more concentrated. Large trading
companies dealing in many commodities
have replaced smaller and specialized
companies while the total share of all
trading companies has fallen relative to
direct purchases by processors or final
sellers. A highly concentrated commodity
market has a strong influence on prices and
will not allow free expression of the forces
of demand and supply. The concentration of
the markets for certain commodities imply
that fewer larger companies can dictate the
prices they are willing to pay to producers.
MARKET CONCENTRATION CONT’D
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Producers in Sub-Saharan African countries are
mainly smallholders who are largely unorganized
and in no way capable of negotiating commodity
prices. For instance, about 50% of world’s coffee
beans are purchased by only five companies (Nestle,
Kraft, Proctor and Gamble, Sara Lee and Tchibo
(Brown and Gibson, 2006). Thus, even when prices
are rising, the level may not be high enough to
provide farmers with adequate returns on their
investment due mainly to imposition by powerful
buyers. The situation is worsened by the abolition of
commodity boards in many SSA countries. The
boards should have been a useful intermediary that
could improve farmers’ bargaining power with large
corporate buyers. Some of the services formerly
provided by the boards (financing, stockholding) are
now provided by foreign companies, thus decreasing
the share of commodity income remaining in the
producing country.
THE EPA NEGOTIATIONS
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Basically the EU demands nothing
less than the elimination of tariffs of
the countries involved for most of
their trade with the EU.
THE NAMA NEGOTIATIONS
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In the “non-agricultural market access”
negotiations, which deal with industrial, forest,
fisheries and mining products the EU is
demanding “real market access” for its exports.
To obtain this the EU demands a uniform
mathematical reduction formula that would cut
tariffs to very low levels in countries like Fiji,
Papua New Guinea, Ghana, Central African
Republic, Swaziland, Barbados, Jamaica, etc. The
EU is consistently but misleadingly referring to
this group as “the emerging developing countries
like India and Brazil.
POSSIBLE IMPACTS OF EPA AND
NAMA
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Such radical and lopsided liberalizations
as in NAMA and EPAs may lead to
-substantial loss in government revenue
-industrial decline
-unemployment
-increasing poverty
Furthermore, as all natural resources are
covered in the NAMA-negotiations,
countries’ natural resources and
environmental policies are also likely to
be adversely affected.
ROLE OF THE SOUTH IN PROMOTING NEW EXPORTS IN
INTERNATIONAL ECON LANDSCAPE
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The world economy is growing at an unprecedented pace
reflecting the cessation of the Cold War and expansion of
new global technologies. In what appears to be a reversal
of historical trends, economic growth today is fastest in
developing countries where 74% of the world’s 6.1 billion
people live. Arguably, the developing countries are growing
fast enough that they are now causing a restructuring of
the world economy especially world commodity markets –
a trend that may continue and even accelerate in the
foreseeable future. Economic growth and agricultural trade
have been projected to remain much more rapid in
developing countries such as China, India, the Middle East
and parts of Africa than in Europe, the United States and
Japan. These trends are being stimulated by shifts in
economic policies that are successfully attracting
international investment and supporting rapid development
largely focused on export growth and investment in
training and education of the work force. These are
opportunities that sharply stimulate food demand.
ROLE OF SOUTH CONT’D
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Policy shifts in many developing countries.
Economic policy reforms in developing counties have
led to the collapse of the former self-sufficiency policies
and have resulted in aggressive pursuit of competition
and reliance on world markets. This pattern has
boosted world trade in recent times. In view of the
enormous size of many of these countries (especially
China, India, Vietnam, etc) and their rapid growth,
considerable pressure is being brought to bear on the
structure and conduct of world commodity and
transportation markets. And this seems to be driving
the inflationary trends now affecting every major
commodity market. There is no indication of a reversal
of the policies in the foreseeable future thus the
opportunity for growth in the demand for agricultural
commodities should continue for some time.
ROLE OF SOUTH CONT’D
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-China and India, with 2.4 billion people have been
growing at historically unprecedented rates. As noted
earlier, countries that were marginalized and excluded
from the global economy are closing the gap between
them and advanced industrial countries
-China at close to 10% growth for 30 years
-India recently at more than 8% grow
-Global growth at 5% for past couple of years has been
almost historically unprecedented
-Increased demand for commodities has helped
developing countries
SOME OF THEIR SUCCESS FACTORS
-high investment in education and skill development
-high investment in technology development
-high investment in infrastructure
ROLE OF SOUTH CONT’D
*global landscape has changed in recent
years as evidenced by the changing role of
developing countries in international trade
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CONSEQUENCES
-Emergence of new geo-politics in international trade
-Prospects for South South cooperation
As evidenced by: new power of developing countries
and resolve to use. Also evidenced in China’s new role
in Africa e.g. more assistance to infrastructure loans
than African Development Bank and World Bank
combined. (see Stiglitz, 2007)
ROLE OF SOUTH CONT’D
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BUT PROBLEMS REMAIN
-Weak infrastructure
-Low level of competitiveness arising from ( low
productivity, high cost of conducting business etc)
-High cost of conducting trade. Studies Have Shown
That Exporters Could Gain 5-8% Market Share If
They Could Lower Their Shipping Costs By Only 1%.
Improvements In Transport Infrastructure May Help
To Reduce Transport Costs By Up To 60% While
Policies Regulating Market Power In Shipping And
Liberalizing Port Services May Also Lead Toa
Reduction In Trapsport Costs By Up To 30%.
Expensive trade procedures and documentation can
become major impediments to trade. Estimates
show that the costs of complying with various
customs procedures and other requirements
amount to between 5 and 10% of the value of global
trade (see ESCAP, 2004). In some countries, these
costs can amount to over 20% of the value of the
products and services traded.
FOSTERING GREATER TRADE & ECONOMIC
COOPERATION THROUGH BILATERAL, REGIONAL &
INTERREGIONAL TRADE AGREEMENTS
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In July 2004, the WTO member countries
agreed on a framework that is intended to
provide the basis for DDA negotiations.
However, the long delay in the conclusion of
the Uruguay Round and the long and
contentious negotiations that were required
before the DDA framework for future
negotiations, have led many countries to
actively pursue regional and bilateral free
trade agreements even as they continue to
be involved in efforts to forge a multilateral
trade agenda at WTO. BUT NOT WITH THE
SAME DEGREE OF INTENSITY IN AFRICA
MAIN ISSUES
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INTRA-REGIONAL TRADE
PROMOTION
INTERREGIONAL TRADE
AGREEMENTS
EFFECTS OF FTAs – THE EPAs
EFFECTS OF EPAs
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TRADE EFFECTS – trade creation,
trade diversion.
FISCAL EFFECTS
TERMS OF TRADE EFFECTS
DYNAMIC EFFECTS – GAINS FROM
INCREASED COMPETITION,
CAPITAL INFLOWS, TRANSFER OF
EXTERNAL TECHNOLOGY
WELFARE EFFECTS
LIKELY IMPACT OF EPAs IN WEST
AFRICA
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MODERATE TRADE , EFFECTS with increases in
preferred imports from the EU of up to some
21%. Trade creation dominates trade diversion in
all West African countries.
DECLINE IN IMPORT DUTIES WORRISOME e.g. for
Cape Verde and Gambia losses in customs
revenue amount to about 20% of total
government revenue.
In other West African countries, decline in overall
government revenues is in the range of between
5 & 10%. (Busse and Grossman, 2004).
IMPACT OF TRADE AGREEMENTS
CONT’D
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Bussolo (1999) analyzed the welfare impact of
trade agreements and found in the case of SADC
that a unilateral trade liberalization by SADC
would be better by far in terms of real GDP
growth rates than a regional EPA with the EU.
For Eastern Africa, McKay et al (2000) estimated
the welfare impact of a regional EPA with the EU.
It was found that in the case of a complete trade
liberalization vis-à-vis the EU, Tanzania and
Uganda are both likely to encounter a decline in
welfare levels, though falling consumer prices,
due to lower import prices and increased
competition, are benefiting consumers in East
Africa. Their results are driven mainly by loss of
tariff revenue on EU imports.
POLICY MEASURES TO OVERCOME
CONSTRAINTS IN ACCESSING GLOBAL
MARKETS?
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-Press for the dropping of the reciprocity demands in
the EPA negotiations.
-Diversify export capacity
-Strengthen internal liberalization and follow with
external liberalization and not vice versa
-Avoid domination of the financial sector by foreign
banks otherwise efforts of the government to ensure
flow of credit to domestic SMEs not engaged in
international trade may be undermined
-Invest heavily in infrastructural development
(transport- good roads, railways and ports-, energy,
ICT ETC)
-Reduce cost of doing business. (information and
contracting costs including control and enforcement
costs), trade financing costs, transportation costs as
well as administrative and procedural costs.
POLICY MEASURES CONT’D
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Simplify or abolish cumbersome regulatory
procedures. Remedies required in key areas such as
(i) trade and customs legislation, (ii) trade
documentation and procedures, (iii) customs
clearance procedures, (iv) trade and customs
enforcement practices and (v) the use of ICT. i.e.
computerization and automation of trade and customs
procedures.
Government should encourage supply-chain
mechanisms to link SMEs to the international trade
system. E.g. by enhancing backward and forward
linkages between foreign and domestic enterprises, as
well as between large and small domestic enterprises
including clusters and incubators.
Improvement of standards and certification
procedures.
Strengthen operations of specialized trade finance
institutions such as NEXIM, AFREXIM)
CONCLUSIONS
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CURRENT TRADE AGENDA MUST RECOGNIZE THE
CHANGING STRUCTURE AND GEOGRAPHY OF THE
WORLD ECONOMY IN WHICH DEVELOPING NATIONS
ARE EXPECTED TO PLAY SIGNIFICANT ROLE
THE DETERMINATION OF RULES AND ENFORCEMENT
OF SUCH RULES MUST FOLLOW AN INCLUSIVE
PROCESS
INTERNAL LIBERALIZATION MUST BE PURSUED
SUCCESSFULLY TO PAVE WAY FOR EXTERNAL
LIBERALIZATION
CURRENT TRADE AGENDA MUST NOT BE AN
INSTRUMENT OF IMPOSING PERPETUAL DEVELOPMENT
BARRIER ON DEVELOPING NATIONS