Trade and Trade Policy Parliamentarians Guide July 2010.pdfTrade and Trade Policy iv 3.3.2 The...

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Trade and Trade Policy

A Guide for Commonwealth Parliamentarians in the Caribbean

July 2010


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Table of contents

List of tables v

List of figures v

List of boxes v

List of acronyms vii

Executive summary ix

Aims of the Guide ix

Scope of the Guide x

Key points xi

The broad picture for parliamentarians xi

Why and what to trade xi

Influencing trade domestically xii

Influencing trade multilaterally xii

Influencing trade regionally xii

Chapter 1. Introduction 1

1.1 Who, what, why and how 1

1.2 The topics covered 2

1.2.1 Why trade? 2

1.2.2 What policies foster development friendly trade? 3

1.2.3 The current multilateral and regional negotiating agendas 3

1.2.4 Where do parliamentarians fit in? 3

Points to remember 4

Chapter 2. The basics: why countries trade and what they have gained 5

2.1 Why and what to trade 5

2.1.1 Accounting for the differences 6

2.1.2 Implications for policymakers 7

2.2 Trade performance 8

2.2.1 The global picture 8

2.2.2 The regional picture 10

2.3 Lessons from the Global Financial Crisis 14


Chapter 3. How can governments influence trade – and how does this affect development? 17

3.1 How governments can influence the impact of trade 17

3.2 Levels of influence 18

3.3 The domestic sphere 20

3.3.1 The different perspective of producers and consumers 20


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3.3.2 The differing impacts of domestic and international trade 20

3.4 The international sphere 21

3.4.1 National trade and foreign exchange policy 22

3.4.2 Trade policies that must be negotiated 23

3.4.3 Putting it all together 24


Chapter 4. Multilateral trade negotiations 26

4.1 Why join the WTO? 26

4.2 The Doha Round 29

4.3 Special and Differential Treatment 31

4.3.1 Modulation of commitments 32

4.3.2 Trade preferences 32

4.3.3 Ancillary support 33

4.4 Negotiating services 33


Chapter 5. Regional trading arrangements 36

5.1 The objectives and potential effects of RTAs 37

5.2 Recent RTAs and current negotiations 39


Chapter 6. The role of parliament 42

6.1 Applying broad principles to specific tasks 42

6.1.1 Trade policy is political 42

6.1.2 Linking trade to development 44

6.1.3 Creating a bridge to stakeholders 45

6.2 Financing trade policy change 46

6.2.1 Shifting taxes 46

6.2.2 Aid for Trade 46


References and further reading 49

Glossary 54

Appendix. Groups in the WTO 57


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List of tables

Table 1. Share of world merchandise trade by region and selected economy, various years 1948–2005 (%) 9

Table 2. Broad composition of CARIFORUM countries’ exports 12

Table 3. Services contribution to GDP and exports in CARIFORUM 14

Table 4. CARIFORUM countries’ membership of WTO/regional groups 30

List of figures

Figure 1. GDP per head (constant 2000 US$) 6

Figure 2. Trade in goods and services as a share of GDP 6

Figure 3. Composition of merchandise exports in developing regions, 1995–2006 averages 9

Figure 4. Terms of trade indices of selected developing country groups (2000=100) 10

Figure 5. Agricultural exports by value 10

Figure 6. CARIFORUM merchandise exports, 2001–09 (US$ millions) 11

Figure 7. CARIFORUM merchandise exports by destination, 1995 and 2006 13

Figure 8. The importance of migrant remittances relative to exports (average over 2000–7) 14

Figure 9. Possible GDP effects of the GFC as a result of trade shocks (% of GDP) 15

Figure 10. Trade policy and poverty: causal connections 19

List of boxes

Box 1. What is trade policy? 1

Box 2. The Asian NICs – as many questions as answers 6

Box 3. Some insights from theory 7

Box 4. A loss of the old certainties 8

Box 5. The concept of ‘rent’ 8

Box 6. The effect of the GFC on migrants 16

Box 7. Disentangling the impact of trade 18

Box 8. The Commonwealth and small states 21

Box 9. Tariffs: types and challenges 22

Box 10. Are small developing country policies WTO compliant? 24

Box 11. How poor countries are affected by rich countries’ actions and policies 24

Box 12. Countries which are not WTO members 26

Box 13. The WTO: a free trade organisation? 27

Box 14. Policy space – current usage and origins 27

Box 15. The Trade Policy Review Mechanism 27

Box 16. The ‘Hub and Spokes’ project 28


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Box 17. The Commonwealth and the WTO 28

Box 18. The devil in the Doha detail 29

Box 19. The shadow of intellectual property rules 31

Box 20. The GATS different forms of services trade 34

Box 21. The WTO and EPAs 36

Box 22. Trade negotiation or commercial diplomacy? 37

Box 23. The hierarchy of regional trade agreements 38

Box 24. Membership of CARICOM and the OECS 39

Box 25. Implementing CARICOM 39

Box 26. Lessons from the CARIFORUM–EC EPA 40

Box 27. Establishing priorities 43

Box 28. Operationalising needs 44


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List of acronyms

ACP African, Caribbean and Pacific AfT Aid for Trade CAP Common Agricultural Policy (of the EU) CARIBCAN Caribbean–Canada Trade Agreement CARICOM Caribbean Community CARIFORUM Caribbean Forum CARIFTA Caribbean Free Trade Association CBERA Caribbean Basin Economic Recovery Act CBTPA Caribbean Basin Trade Partnership Act CET Common External Tariff CHOGM Commonwealth Heads of Government Meeting CIPR Commission on Intellectual Property Rights COMTRADE (United Nations) Commodity Trade Statistics Database CPA Cotonou Partnership Agreement CSME CARICOM Single Market and Economy CU Customs Union DDR Doha Development Round DR Dominican Republic DR–CAFTA Dominican Republic–Central America–United States Free Trade Agreement

Implementation Act EPA Economic Partnership Agreement EU European Union FTA Free Trade Agreement GATS General Agreement on Trade in Services GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product GFC Global Financial Crisis GSP Generalised System of Preferences LDC Least Developed Country MDC (Caribbean) More Developed Country MFN Most Favoured Nation NAMA Non‐Agricultural Market Access NFIDC Net Food Importing Developing Country NIC Newly Industrialised Country OECD Organisation for Economic Cooperation and Development OECS Organisation of Eastern Caribbean States RTA Regional Trade Agreement RoO Rules of Origin SDT Special and Differential Treatment SPS Sanitary and Phytosanitary Standards SSA Sub‐Saharan Africa SVE Small and Vulnerable Economy TRIPS Trade‐Related Aspects Of Intellectual Property Rights UN United Nations UNCTAD United Nations Conference on Trade and Development US(A) United States (of America) WTO World Trade Organization


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Executive summary

This Guide is aimed primarily at parliamentarians, but also at all those who are affected by trade policy and who attempt to influence it. It shows how trade affects an economy and how this impact can be influenced to some extent by a range of government policies, of which formal ‘trade policy’ is only one. Trade needs to be mainstreamed in the full range of these policies to exert maximum impact.

Aims of the Guide

The Guide aims to help parliamentarians and others place in its broader context any particular feature of trade or negotiations with which they are confronted. This is an essential part of the any scrutiny, approval, or monitoring process that parliament must undertake since it helps to identify the right questions that legislators must ask of the executive, and the information that they can pass on to their constituents. The details of any particular event coming before them (the impact of the Global Financial Crisis (GFC), for example, or the relative merits of a new trade agreement) will usually be voluminous, and legislators will need briefing on the specifics. Understanding the economic, social and political implications of those details, however, requires a broader knowledge of the role that trade can play in development, the ways in which it affects socio‐economic groups differentially, and the requirements for a dynamic trade profile that can support long‐term growth.

This Guide helps to supply this broader knowledge. It includes sufficient reference to current trade issues affecting the Caribbean to help readers apply the broad background to the practical concerns that face them. But, of course, it cannot be a detailed ‘cookbook’ in relation to the items on the current agenda: not only would it become out of date very quickly, but in many cases the details are very country and issue specific. For example, whilst the Economic Partnership Agreements (EPAs) that have been on the negotiating table with the European Union (EU) for some years present all African, Caribbean and Pacific (ACP) states with similar broad challenges, not only is the Caribbean Forum (CARIFORUM) agreement different (in that it is the only one that covers services, investment and other areas apart from goods trade), but even the tariff liberalisation details are significantly different for each country until 2033; each country would need its own specific briefing.

To help bridge the gap between the ‘underlying principles’ (covered in this Guide) and the details of any particular question facing a Commonwealth parliament, the final chapter suggests ways in which the former can be applied to the latter. A point emphasised throughout the Guide is that decisions on trade are essentially political ones – and, hence, that parliaments should be at the centre of scrutiny, approval and monitoring.

► Trade and trade policy create winners and losers at least in a relative sense (some groups gain more/lose less than others); changes alter that pattern of relative gains and losses and so favour some groups over others. Legislators are central not only to decision‐making over who gains but also on any remedial measures required to assist those who lose.

► Trade forms an integral part of development strategy in developing countries and, hence, decisions on the one also affect the other. This linkage may not always be apparent in the technical details presented to parliament on a particular trade agreement or global event, but this Guide aims to help legislators tease out from the technical detail the development implications.

► It is the private sector that trades – governments create the framework of rules, laws and taxes within which this takes place. For a change to the framework to have the desired impact in their behaviour, producers, traders and consumers must know what has changed. Often this is far from clear in the minutiae of technical details in a trade


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agreement. As the central link between the executive and the population, parliamentarians have a key role to play, which they can perform only if they themselves understand what has changed.

Scope of the Guide

The Guide follows a logical sequence from underlying questions to the role of parliamentarians in framing a trade policy that supports their country’s development strategy. The chapters deal in turn with the questions:

► why, and what to trade;

► what lessons can be learned from the experience of the fastest‐growing states by those that have done less well over past decades ;

► how can governments influence the impact of trade and put their country on a strategic track towards a more dynamic trade pattern (given that it is the private sector that does most trading and that many key forces affecting countries – and especially small, poor ones – are outside their direct control);

► how can these insights be brought to bear in actual trade policy negotiations, both multilateral and regional;

► what special role do parliamentarians have to play in this process?

The core of the Guide has been written to apply to any developing country region – because the fundamentals are not regionally specific. This is so that it can serve to inform a series of workshops planned by the Commonwealth Parliamentary Association. But each one also contains specific information relevant to one of the Commonwealth regions, and this one focuses particularly on the Caribbean.

Although governments have only a few instruments that act directly upon trade flows, they have a wide range of policies (mostly outside the portfolio of the trade ministry) that can influence the short‐and long‐term impact of trade on development. Many of these are domestic – and so trade policy needs to be ‘mainstreamed’ if the desirable effects are to be reinforced and negative ones minimised. In the international sphere, most of the main factors affecting the conditions under which poor and vulnerable countries trade are either outside governments’ control or require negotiation.

This is why developing countries are negotiating trade in many arenas. The Guide focuses on the World Trade Organization (WTO), which is the most fundamental. It identifies the arguments for and against WTO membership – and the concomitant requirement to engage in the Doha Development Round (DDR). This includes the trade‐off between a loss of ‘policy space’ for one’s own country against the gains of having it removed from powerful trade partners, and the relative forms of influence of developed and developing countries. The forms of Special and Differential Treatment (SDT) in the current WTO rule book are explained – as are the reasons why they are an eroding asset, parts of which will disappear if the DDR is not completed on appropriate terms.

Most developing countries also belong to one or more Regional Trade Agreements (RTA) and they are especially important for the Caribbean, which has committed itself to a single market and economy. They serve foreign policy as well as trade objectives which can be in harmony provided that the latter are realistic. Sources of tension can arise, however, because – as with all liberalisation – there are winners and losers. Forms such as Free Trade Agreements (FTAs) require less prior agreement on a common tariff regime than do Customs Unions (CUs), but this can allow the underlying tensions to be overlooked, only to surface as implementation progresses.


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Parliament is central to trade policy because the decisions are inherently political and require close consultation with a wide cross‐section of the population if they are to be acted upon and implemented effectively. Since trade policy is an instrument for advancing a country’s development it must reflect this strategy. Perhaps the most important single factor determining whether trade policy is pro‐developmental is if a country has clear, realistic and prioritised objectives for the role of trade in its development. At the same time consultation can be controversial, since the best sources of information (and those most interested in change) also have an interest in the outcome of any decisions.

Among the concerns of the Caribbean states (especially the smaller ones) are the implications of altering the tax base. Most of the Caribbean’s trade negotiations past, present and in prospect will involve cutting tariffs – so either the region will have to forgo any benefits that could have been expected from the negotiations or tariffs will fall. If tariffs are not replaced by alternative taxes countries may be excluded from negotiations that would otherwise be desirable (or face a government revenue shortfall). But change has distributional implications that legislators are well placed to decide upon – if they have the information.

Key points

The broad picture for parliamentarians

Trade policy involves political decisions. Trade produces winners and losers in a country, so policies that influence the impact of trade alter this pattern. The Guide seeks to help parliamentarians take political decisions that are informed by a better understanding of the economic implications of the available options.

Because politics and communication are at the heart of trade policy so too are parliamentarians. Their input comes at every stage.

There is no shortcut for parliamentarians: since there are no universal certainties they must assess each episode that comes before them on a case‐by‐case basis.

Why and what to trade

Countries trade to obtain more goods and services than could be obtained without trade. Although exports are usually the centre of discussion (because exporting is hard), it is in fact imports that are the raison d’être for trade.

International trade is relatively more important for countries that are small (in both the economic and the geographic sense), like those in the Caribbean, that can produce only a narrow range of goods and services within their borders.

The impact of trade is changing fast (as the global economy changes) but it is hard to isolate this impact from other economic changes. Moreover, the impact of any policy will depend crucially on its details (which may be very numerous).

Lessons can be drawn from the experience of the most successful countries, but they must be carefully applied to the specific circumstances of each country. What worked at one period of time for one country may not work (even if it is a practical proposition) for another at a different period.

Many old arguments are too generalised to be of help (such as those for and against government intervention, or that manufactured exports are ‘better’ than primary products). The task is to identify practical ways in which firms can maximise the potential gains from trade and how governments can help them.


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Influencing trade domestically

Trade policy should reflect national economic priorities but unless a goal can be achieved wholly through autonomous actions it has to be translated into a negotiable point.

Mainstreaming trade policy is vital: an effective response requires civil servants and parliamentarians with portfolio responsibility for trade to understand the broader agenda and to work very closely with colleagues in agriculture, health, education, finance and elsewhere.

Services are a high priority for most Caribbean states, but it is domestic regulation that is normally the most important policy influence on trade flows. This means both that any ‘reciprocal’ trade deal on services is likely to alter domestic regulation and that any export gains from the agreement will depend on how far the other party has agreed to amend relevant domestic regulations. Parliamentary scrutiny of both sides of any deal needs to be painstaking if it is to identify the real implications.

The Caribbean states, like all Small and Vulnerable Economies (SVEs), will be affected sharply by changes to their main markets, which is one reason why the GFC is expected to have such a substantial effect on their economies. Both the narrow geographic spread of markets for most countries and commodity concentration are problems.

Influencing trade multilaterally

The caricature sometimes made of the WTO as a ‘free trade organisation’ can be misleading; it is as much about agreeing, monitoring and adjudicating on the rules within which global trade takes place.

WTO membership involves a loss of ‘policy space’ but this is also a reason to join since the rule book applies to the rich and powerful as well as to the poor and weak. By the same token, agreeing new rules in the DDR may be attractive to a country if the constraints on its actions are an acceptable and appropriate ‘price to pay’ for those applying to others.

But checking out the potential DDR effects is difficult: as the illustrative example in Chapter 4 shows, in the early stages what has been agreed is insufficiently detailed, and in the later stages there is no time.

SDT in the current WTO rule book is an eroding asset, so not agreeing a DDR may also involve costs; most existing SDT will disappear altogether in the coming years if there are no new rules with associated new SDT.

Services trade negotiations are different: as illustrated in Chapter 4, the powers available to governments to influence the pattern of trade are not the same as those for goods. In some cases there is little about which to negotiate as governments cannot control trade – and in others any ‘concession’ can easily be circumvented by other controls that have not been liberalised.

Influencing trade regionally

Some countries have signed up to mutually incompatible regional commitments. This may be because ‘trade negotiations’ are being used positively as an extension to a country’s broader foreign policy. But commitments that far outstrip any realistic assessment of what a country will actually agree to do, or are mutually incompatible, may eventually undermine regional integration.

The impact of RTA liberalisation depends on the relative scale of two, opposing effects. Trade creation occurs if the more efficient producers in the region expand production to the advantage of consumers and the detriment of less competitive producers. Trade diversion occurs if less competitive (but tariff‐free) regional goods replace more competitive goods from outside the region.


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Tariff reduction may pose a serious revenue challenge to small states, but a failure to develop alternative sources of government income may make it hard to develop RTAs. Loss of tariff revenue is a particular issue for the Caribbean. With weighty considerations on both sides of the FTA argument, it is incumbent upon legislators to consider their country’s options carefully.

As tariff preferences erode, RTAs need to remove other barriers in order to remain relevant. Less onerous rules of origin (RoO) or positive assistance to meet Sanitary and Phytosanitary Standards (SPS) are required.

Parliamentarians need to push for Aid for Trade (AfT) commitments to be met: so far provision has been underwhelming, especially for SVEs.


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Chapter 1. Introduction

This chapter explains the purpose and format of the Guide, which is aimed primarily at parliamentarians but also at all those who are affected by trade policy and who attempt to influence it. The Guide shows how trade affects an economy and how this impact can be influenced to some extent by a range of government policies, of which formal ‘trade policy’ is only one. Trade needs to be mainstreamed in the full range of these policies to exert maximum impact.

1.1 Who, what, why and how

Who are the intended users of this Guide? What information does it offer? Why do the users need this information? How is the Guide set out? This sub‐section deals with these four questions in turn.

The primary target audience for the Guide is legislators, but it will also be of interest to their support staff and to those who shape public opinion, civil society activists and the private sector actors with whom they interact. The Guide sets out in a rigorous but non‐technical fashion evidence about the role of trade in development, the (very different) trade experiences of countries and of groups within them over recent decades, the reasons for these different experiences, the types of trade policy (Box 1) that countries can use to influence the impact of trade on their development, and the reasons why such policies tend to produce both winners and losers.

Box 1. What is trade policy?

This last point underscores the importance of this information for parliamentarians. The choice of trade policy is a political decision. Economics and law have a role to play: economic analysis can show the likely effects of alternative policies, and new policy must be translated into legal texts for it to have an impact. But, in the final analysis, choosing between alternatives that affect some socio‐economic groups more favourably than others is a political decision that should be taken by the

The answer to this question used to be simple: it comprised a relatively small group of laws and taxes primarily applying to goods as they crossed into a country over its international border (tariffs, quotas, bans on undesirable goods, etc.). Being limited and specific, these regulations were appropriately handled exclusively by a dedicated ministry.

Nowadays this ‘core trade policy’ forms a small part of a much wider range of trade‐related policies on which governments have to take decisions (and which parliaments must scrutinise). They extend into the portfolios of the finance, sectoral, transport and communications ministries and, increasingly, education and health as well. Calls to ‘mainstream’ trade are a reflection of this. The causes of this trend include the world’s success over the last half century in removing many of the most substantial ‘core’ obstacles to exporters, the rapid expansion in the range and volume of trade in services (for which most regulation falls to ministries traditionally unconcerned with trade) and the trend to traceability of goods (particularly in relation to health, environment and social implications).

As a result of this complexity myths abound. Legislators may find themselves asking questions about international trade rules such as ‘Can we insist that imports be labelled in a language understood by consumers?’ (the answer is ‘yes’ so long as the requirements are reasonable and apply equally to domestic producers); ‘Can we insist that a foreign market accept goods that meet our own health standards?’ (the answer is ‘no’ if the standards in the export market are based on science).

For a trader the barriers presented by the traditional trade instruments of tariffs and quotas are often a minor factor in determining whether or not trade occurs. Goods must meet increasingly stringent government safety and health standards and, often, even more demanding standards imposed by the private sector on safety, presentation, quality and traceability; service providers must meet a whole range of domestic rules. These are ‘barriers to trade’ in the sense that developing country exporters must overcome them – but as long as they apply equally to domestic producers in the countries imposing them they are not necessarily ‘discriminatory’. In some cases, the WTO has ruled that restrictions notionally applying equally to domestic and imported goods are actually discriminatory, but even when they are not the competitiveness of poor‐country exports may be put at risk if the cost of compliance is beyond the reach of producers and public support is inadequate. At the least, it may mean exporting to lower‐priced segments of the market. Helping exporters meet these standards is a major task for government: to challenge those that are discriminatory and to help meet the costs of complying with those that are not.


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executive and legislative branches of government. The Guide seeks to help parliamentarians to take informed decisions.

To achieve this, the approach of the Guide is to cut a path through three tangled thickets that trap the unwary.

1. The global economy is evolving very fast – and so is trade theory in order to explain the new patterns; there is solid evidence to guide policymakers on many of the issues that come before them, but there are also areas where decision makers will need to exercise judgement, partly because different economies respond to trade in different ways.

2. In trade policy ‘the devil is in the detail’: an understanding of broad concepts and trends is very helpful in recognising the potential effects of any new policy, but the extent to which any treaty or item of legislation actually realises this potential will depend on its detailed provisions (which may run into hundreds of pages).

3. It is hard to isolate the impact of trade and trade policy from other economic factors: whilst trade permeates much of the economy, it does so in many, often indirect, ways that are hard to trace accurately when many other things are happening at the same time, each of which may also contribute to the net effect on the economy.

The Guide sets out in the main text a ‘broad brush’ review of the issues with which parliamentarians must grapple. A set of text boxes provide more detail and nuance on the topics covered in the main text. There is also a glossary of technical terms with a hypertext link (blue and underlined) from the first mention of the key word.

This approach allows statements in the main text, which necessarily are sometimes presented in bald terms, to be checked out whenever needed. This is particularly necessary because every new trade policy question confronting parliamentarians is unique (in terms of the options available and their potential effects). Because of this, a Guide cannot be a ‘cookbook’, with a precise set of instructions guaranteeing success every time. Instead it is a guide to sensitise decision makers to the key features to look out for when dealing with any new question, the broad potential effects of the options available, the pitfalls that may stop positive effects being achieved, the defences that can mitigate or avoid negative effects and the details that will determine the final impact. The additional materials (in the text boxes, glossary and references) are the key to applying the broad lessons described in the main text to the specifics of a particular issue facing a given country at a precise point in time.

1.2 The topics covered

1.2.1 Why trade?

The Guide follows a logical sequence from underlying questions to the role of parliamentarians in framing a trade policy that supports their country’s development strategy. The most fundamental question is: why do countries trade goods and services? More precisely, the question is: why do countries engage in international trade? This added precision is important because there is a great deal of domestic trade within countries. The reasons for international and domestic trade are similar – the main differences relate to the scale of the impact and the governance of trade. Countries that produce a wide variety of goods and services within their borders may have relatively less international trade than those that do not, but both groups face the same questions of why and what to trade.

Countries have had markedly different experiences of trade and growth, especially in recent decades. What lessons can be drawn from the most successful countries for the others? The answer


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is that whilst there are lessons to be learned, it is clear that they must be carefully applied to the specific circumstances of each country. What worked at one period of time for one country may not work (even if it is a practical proposition) for another at a different period. Unfortunately, there is no shortcut for parliamentarians seeking the best solution for their country: national and regional specificities are critical even though there are some common features in many small, poor or vulnerable states (as has been made clear, for example, by the GFC).

1.2.2 What policies foster development friendly trade?

The question ‘why trade’ is fundamental since it informs the objective of trade policy. Clearly, the goal of trade policy should be to support a country’s development when combined with all the other relevant policies – but what does this mean in the specific circumstances of any given country? Parliamentarians need to take a view on the sorts of trade that will best promote their country’s development before assessing the relative merits of alternative policies in fostering this type of trade. They then need guidelines on the potential effects of the main trade policy choices that face their government in order to spot those that appear most conducive to fostering the type of development that they seek.

The seemingly simple term ‘trade policy’ covers a bewildering – and growing – range of rules and regulations. Long gone are the days when tariffs and quotas were the most important policies affecting one country’s imports and, hence, its partners’ exports. Known as ‘border measures’, since they are applied to imports at a country’s international border (see Chapter 3), they are joined by a host of ‘behind‐the‐border’ measures, such as rules on labelling, on product standards, on investment support and many more. The growing attention given to behind‐the‐border measures is evident from the desire of some countries to extend international trade rules from what can be labelled ‘core trade policy’ into new areas. Often this takes negotiations into areas of policy that fall well outside the portfolio of a country’s trade ministry or parliamentary committee. An effective response requires civil servants and parliamentarians with portfolio responsibility for trade to understand the broader agenda and to work very closely with colleagues in agriculture, health, education, finance and elsewhere.

1.2.3 The current multilateral and regional negotiating agendas

The Guide identifies these ‘core’ and newer trade‐related policies by describing the goals and current agendas of two sets of trade negotiations. The first are those of the multilateral negotiations being held under the auspices of the WTO and, especially, the DDR, which has absorbed much developing country negotiation capacity since it was launched in 2001.

The second area of particular attention is on the South–South and North–South regional and bilateral trade agreements that are already agreed or being negotiated by many countries. A first step is to understand the potential effects of such agreements; a second is to focus on the detailed agendas in order to assess the extent to which these are likely to be achieved.

1.2.4 Where do parliamentarians fit in?

Finally, the Guide deals with the bottom‐line question: what role can parliamentarians play in guiding trade‐related policies in the direction most likely to optimise the positive impact of trade on development? This brings us back to the initial point that trade policy reflects a political judgment about the favoured trajectory for a country and the balance to be struck between the interests of some socio‐economic groups over others. The information in this Guide does not (and should not) override these political decisions. But it can help to ensure that they are well informed political decisions: that the policies selected are those most likely to achieve parliamentarians’ goals rather than those that may sound good and appear to tick all the right boxes but which, the weight of evidence suggests, are more likely to lead in a completely different direction.


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Points to remember

Trade policy involves political decisions. Trade produces winners and losers in a country, so policies that influence the impact of trade alter this pattern. The Guide seeks to help parliamentarians take political decisions that are informed by a better understanding of the economic implications of the available options.

The impact of trade is changing fast (as the global economy changes) but it is hard to isolate this impact from other economic changes. Moreover, the impact of any policy will depend crucially on its details (which may be very numerous).

International trade is relatively more important for countries that are small (in both the economic and the geographic sense), like those in the Caribbean, that can produce only a narrow range of goods and services within their borders.

Lessons can be drawn from the experience of the most successful countries but they must be carefully applied to the specific circumstances of each country. What worked at one period of time for one country may not work (even if it is a practical proposition) for another at a different period.

Trade negotiations range well outside narrowly defined trade policy. An effective response requires civil servants and parliamentarians with portfolio responsibility for trade to understand the broader agenda and to work very closely with colleagues in agriculture, health, education, finance and elsewhere.


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Chapter 2. The basics: why countries trade and what they have gained

This chapter provides background information to help inform the detailed decisions that governments must take to enhance their countries’ gains from trade. It explains why countries trade, describes the sharply differing experiences of countries and regions over recent decades and how this partly reflects ‘what’ countries trade rather than ‘how much’, and ‘how’ rather than ‘whether’ they regulate the market.

2.1 Why and what to trade

Why trade? The answer is the same for countries as for individuals: to obtain more goods and services than could be obtained without trade. Obviously, if a country needs goods and services that cannot be produced domestically (e.g. fuel in a non oil producing state) it must import it – and obtain the required foreign exchange through exports. But even if it is technically possible for an item to be produced locally, it may still be sensible to import it – if less local labour, capital and natural resources are required to generate the foreign exchange needed to pay for imports.

Although this is self evident, it is often overlooked in discussion that emphasises the importance of exports when it is in fact imports that are the raison d’être for trade. The focus of discussion is understandable since exporting, which is hard to do in a dynamic fashion that helps a country to move up the value chain, determines (together with investment, remittances and aid) how much a country can import – and there are other reasons for exporting besides the immediate earning of foreign exchange.1 But it is easy to come up with the wrong answers to trade policy questions if one forgets that the primary reason for trading is to acquire imports.

Understanding the fundamentals is important. It is clear that there is no hard, direct link between trade and development. Look at Figures 1 and 2. The first presents an unhappily familiar picture: it shows the different experiences since 1960 of three countries, each of which can stand as a representative for several others. Comparisons between countries over lengthy time periods face major statistical problems, and so the data in Figure 1 provide only a very broad guide. None the less, the pattern is one that is clearly recognisable. In 1960 South Korea had a higher gross domestic product (GDP) per head than did Ghana, but only just over four times as high; Argentina had a significantly higher GDP per head than either of them. What a different picture by 2008! South Korea’s GDP per head began to exceed Argentina’s in the mid‐1980s and has continued to soar, so that by 2008 it was 47 times as high as Ghana’s. Argentina has trended gently upwards (with a sharper increase from 2002). But Ghana has merely marked time: GDP per head has remained flat for almost five decades.

Figure 2 illustrates that there is no direct link between this differential GDP performance and the openness of each of the countries to trade. South Korea’s imports and exports do, indeed, represent a relatively high and growing proportion of GDP, but so do Ghana’s. What is critical is not how much a country trades (and especially not the relative scale of trade, which partly reflects a country’s size – all other things being equal big countries can produce more goods domestically than can small ones); it is what a country trades. As globalisation has accelerated in recent years, driven by technological progress, some countries have grown much faster than others, and the quality of their trade has played a part.

1 These include importantly upgrading production through ‘learning by doing’ and reaching economies of scale that

make viable production for which the domestic market alone is too small to absorb all the output of efficient production units which may have a minimum size that produces more than the consumers in the home country can absorb.


6

Figure 1. GDP per head (constant 2000 US$)

Source: Calculated from data obtained from World Development Indicators online.

Figure 2. Trade in goods and services as a share of GDP

Source: World Development Indicators online.

2.1.1 Accounting for the differences

What accounts for the difference in growth? How should parliamentarians use their legislative power to shift their country onto a higher trajectory? There are no simple answers. This is partly because much depends on the characteristics each country’s economy, its natural and human resources, the geographical and policy environment for trade. Learning the lessons from the success of, say, the Newly Industrialised Countries (NICs) must also take account of the fact that what was possible for those countries at that time may no longer be a pathway to success (Box 2).

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Constant 200

0 US$

Argentina Ghana South Korea

0

10

20

30

40

50

60

70

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Share of GDP (%)

Argentina ‐ imports Argentina ‐ exports

Ghana ‐ imports Ghana ‐ exports

South Korea ‐ imports South Korea ‐ exports

Box 2. The Asian NICs – as many questions as answers

Blanket references to the modern export‐led growth successes of the Asian NICs mask remarkable differences in policy among them – from Hong Kong’s laissez‐faire environment, to Singapore’s forced domestic saving and encouragement of foreign direct investment, to South Korea’s government‐backed conglomerates (see Young, 1991). Although there are some commonalities among the first‐tier NICs (Hong Kong, South Korea, Singapore, Taiwan), there was also a significant degree of heterogeneity. This is also characteristic of the second‐tier NICs (Thailand, Malaysia, Indonesia), in some of which the pursuit of an ‘export‐oriented’ growth strategy has in fact closely resembled the previous import‐substitution strategy because of the degree of state intervention involved. Despite this, there is broad agreement that the transition from agrarian societies to NICs has been fast. South Korea moved from being an imitator of foreign technologies to an innovator within just three decades.


7

Trade theory can provide some help – and there has been a lively debate in recent decades (Box 3). This has been stimulated in part by the need to account for substantial changes in the pattern of trade. The changes have been geographical, in particular the rise of the NICs, mainly but not exclusively in Asia, and more recently China. They have also been sectoral, with the relative growth of trade within rather than between sectors. And they have been institutional, with transnational corpora‐tions now accounting on some estimates for two‐thirds of world trade, half as intra‐firm trade and half within global supply chains through outsourcing and inter‐firm trade (UNCTAD, 2008a).

2.1.2 Implications for policymakers

Unfortunately for parliamentarians, the analysis of new trade theory does not extend to offering policy prescriptions for trade, finance, or any other area of government policy. But a new lease of life has been given to the old arguments over infant industries. During the 1980s there was a tendency for development issues to be seen in black and white, ‘market versus state’ terms. During the 1990s the approach softened, with a greater recognition that there are market as well as government failures.

The case for giving infant industries special support now goes beyond the traditional Structuralist case that the terms of trade between primary products and manufactures will tend to deteriorate over time (so that an increasing volume of, say, coffee needs to be exported to pay for one imported lorry). The new case is based on a recognition that accessing new export markets may involve substantial costs, and that firms may need government assistance (for example to acquire and learn new methods of production) to do so and produce competitively. In this way new trade theory can be used to support a more active government role to assist infant industries than would result from the ‘hands‐off’, neutral stance recommended by more liberal trade theory (encapsulated in the ‘Washington Consensus’) in order to move the economy towards a more dynamic trajectory.

Despite giving new support to government intervention, theory does not answer the key practical policy question: how to do so in a way that maintains a healthy enabling environment, allowing existing firms to grow and attracting investment whilst also encouraging the economy in a more strategic direction (Box 4). Where it does help is in identifying the numerous barriers to entry that face new entrants to new markets and, in this way, indicating a wider range of policy tools than just tariffs to promote export‐oriented industries.

Since there are no universal lessons, the task is to identify practical ways in which firms can maximise the potential gains from trade (this chapter) and how governments can help them (Chapter 3). Global markets change fast, so firms need to be able to shift into new products/ markets/niches or risk being left behind. To do this consistently and well requires, in turn, that a

2 Part of a branch of developments in economic theory which includes new growth theory, new economic geography,

and new institutionalism.

Box 3. Some insights from theory The sharp shifts in patterns of global trade since the 1980s have been accompanied by an equally rapid evolution of what has been called ‘new trade theory’.2 This emphasises as explanatory reasons for growth differentials (across countries/regions and time) certain variables that traditional theories had simply played down or taken as a given (such as geographical location and the free flow of knowledge and technology). The experiences of the NICs, and more recently China, with trade‐induced growth and the pursuit of an export‐oriented, as opposed to import‐substituting, strategy both supported and undermined traditional theories of trade‐induced growth as well as the associated policy prescriptions. There is a broad consensus on the importance in both determining and sustaining growth of fundamentals such as the role of human capital, learning and processes of technological upgrading. These may create a self‐reinforcing dynamic. Hence, sustaining dynamic trade‐induced growth requires the development of technological capabilities and maximising potential knowledge spillovers from lead firms to others (Lall, 1993 and 2000). The importance of geography and the location of firms (and labour) are increasingly recognised. The clustering and agglomeration of some activities for export and development of linkages backwards and forwards to a particular firm’s suppliers and industrial consumers may serve to increase competitiveness. The ways in which firms access export markets and interact within the value chains in which they trade may also determine their ability to acquire information about new skills and technologies.


8

country’s economic actors be able to make sufficient profit from their activities today to invest in establishing new ones tomorrow, or that the country is able to attract inward investment (Box 5). Countries in which most firms are able merely to ‘survive’ from their trading (earning just sufficient to cover their production costs) risk, if not absolute decline, then falling into the trap of ‘immiserising growth’ (in which an increasing volume of resources is absorbed in production without shifting the country onto a higher trajectory where poverty can be sharply reduced).

2.2 Trade performance

2.2.1 The global picture

Whatever the reason, it is clear from Figure 1 that trade experience has varied widely among regions. This picture is reinforced by Table 1, which provides for a number of years since 1948 figures on the share in world trade of selected countries and regions. The shares of Latin America and Africa have gone downwards (though with a rise in the most recent period), as has that of the USA (though for much of the earlier period this can partly be explained as the other side of the statistical coin to the growth of other traders, notably Europe as it emerged from World War II). India’s share has described a U shape, with falls in the earlier period (as a result of a deliberate economic policy to favour production for the domestic market) partly offset by an upswing in the later period. Japan’s experience has been the opposite, with a stalling in the sharp growth of three decades from the 1950s as the East Asian NICs and, more recently, China took on the mantle of the fastest‐growing traders.

Box 4. A loss of the old certainties One effect of the new controversies has been to reveal as misleading some of the old certainties. This applies both to the types of policy most likely to succeed and to the types of product most likely to support growth.

► Claims that a liberal trade regime will tend to support sustained growth by promoting efficiency or, conversely, that governments should intervene to support infant industries are both over‐generalisations that obscure the need to frame policies to the circumstances of a particular state at a given time.

► The idea that exporting some broad types of goods (such as manufactures and processed products) will provide a sounder foundation for growth than others (such as agricultural or mineral primary products) no longer necessarily applies; for example some ‘manufactures’ (such as T‐shirts) face more severely competitive markets than do some unprocessed agricultural goods (such as roses) at the present time; quite apart from the fact that the old idea overlooks the vital importance of services (both as an output and as an input into goods), it also misses the importance of creating a ‘unique’ item that fits a market niche (through, for example, hi‐tech, design, or location).

► Because circumstances change over time the apparent ‘lessons’ drawn from the success of the NICs must be tempered by the realisation that their growth, which included strong manufactured exports and technological upgrading, was possible at that time, in that region, within those particular value chains, accessing particular markets – and that it may not be completely replicable.

Box 5. The concept of ‘rent’ One way to maximise the potential gains from trade is to earn what is known as a ‘rent’: the ‘surplus’ element in a price that exceeds the minimum needed to bring about production. There are many ways to do this. Using technology is one: if a firm invents a new, cheaper way of producing an item it can sell at just below the price of its competitors but still make a larger profit. Another is branding: T‐shirts with designer labels can sell for much more than those without that are otherwise virtually identical. A third is organisation: in the 1960s and 1970s Japan’s ‘just‐in‐time’ production methods allowed its car firms to produce at lower cost than their European and United States (US) rivals. And a source that has been common in many Commonwealth countries is trade policy rent derived from the trade preferences offered to them in their traditional markets.

A common feature of all rents is that they are transitory unless reinforced: eventually other firms catch up, a brand loses its shine, and existing preferences are eroded. They offer firms a temporary surplus that needs to be invested in the next wave of rents if the virtuous circle is to be sustained. This is of particular relevance to those Commonwealth states which have traditionally received trade policy rents but are seeing them eroded – a point to which we revert in the chapters on multilateral and regional liberalisation.


9

Table 1. Share of world merchandise trade by region and selected economy, various years 1948–2005 (%)

Part of the explanation for the different levels of developing country performance is hinted at in Figure 3. This shows the share in the total goods exports of four regions of three major product groups: fuels, non‐fuel primary commodities, and manufactures. The share of manufactures in exports is highest for South and East Asia and lowest for sub‐Saharan Africa (SSA), with Latin America and South Asia in the middle.

Figure 3. Composition of merchandise exports in developing regions, 1995–2006 averages

Source: UNCTAD, 2008b.

Given the important role of manufacturing upgrading in East Asia’s economic success it is tempting to read into the figure both the explanation for the differential trade performance of the regions and the prescription for reversing the adverse trends: Africa should export more manufactures. But what is cause and what is effect? East Asia has few natural resources but strong human resources, so its export composition is not a surprise. And will what worked in the 1970s and 1980s work now? The NICs have long since moved on from low‐value manufacturing and, as the rest of the developing world has crowded in, any rents have been squeezed out.

Parliamentarians, in dealing with these tricky questions, need to dig a bit deeper. Figure 4 shows that in the period since 1995 exporters of labour‐intensive manufactures experienced a more unfavourable movement in their terms of trade than any of the other four groups covered. The terms of trade for agricultural exporters did not improve significantly, but neither did they deteriorate. Countries endowed with oil and minerals have seen the largest rise in their terms of trade. But they also risk what has been called ‘the resource curse’ – a term often used in conjunction

1948 1953 1963 1973 1983 1993 2003 2005 World 100 100 100 100 100 100 100 100 United States 21.7 18.8 14.9 12.3 11.2 12.6 9.8 8.9 South and Central America 12.2 10.4 7.0 4.7 4.4 3.0 3.0 3.5 Brazil 2.0 1.8 0.9 1.1 1.2 1.0 1.0 1.2 Europe 31.4 34.8 41.4 45.3 43.5 45.4 46.0 43.0 Africa 7.3 6.5 5.7 4.8 4.5 2.5 2.4 2.9 Asia 14.0 13.4 12.4 14.9 19.1 26.1 26.1 27.4 China 0.9 1.2 1.3 1.0 1.2 2.5 5.9 7.5 Japan 0.4 1.5 3.5 6.4 8.0 9.9 6.4 5.9 India 2.2 1.3 1.0 0.5 0.5 0.6 0.8 0.9 Six East Asian traders 3.4 3.0 2.4 3.4 5.8 9.7 9.6 9.7 Source: Kaplinsky and Messner, 2008.


10

with or interchangeably with ‘Dutch disease’. This occurs when the net effect of a booming (often mineral) export that is not well managed (see Chapter 3) is to reduce the competitiveness of other productive activities, which in turn hinders export diversification efforts.

Figure 4. Terms of trade indices of selected developing country groups (2000=100)

Source: UNCTAD, 2008c.

Figure 5 also provides food for thought: whilst non‐fuel primary products may account for a high proportion of SSA’s exports, it can hardly be said that the performance of agriculture has been good. Despite the relative importance of manufactures in their exports, the agricultural exports of East Asia and Latin America have far exceeded, and grown more rapidly than, those of SSA. It is not just in manufactures that SSA has been marginalised, it is in agriculture too.

Figure 5. Agricultural exports by value

Source: UNCTAD, 2008b.

2.2.2 The regional picture

The CARIFORUM economies have had a diverse experience in goods trade this decade. Figure 6 shows their exports since 2001. Because of the huge difference in scale of exports between states the data are split between four graphs, which provides a handy guide to where countries sit within the range between the smallest and largest.

The first group of Trinidad and Tobago and the Dominican Republic (DR) have had exports in the US$ billion throughout the decade. Trinidad and Tobago’s, dominated as they are by hydrocarbons,


11

mirror the international price of oil and peaked at over US$ 18 billion in 2008 before falling sharply in 2009. DR’s exports are more modest, at US$ 5‐6 billion for much of the period, but are more stable.

The second group comprises Bahamas, Guyana, Jamaica and Suriname, with exports ranging from the US$ millions to the low billions. Jamaica, as another country with exports dominated by minerals, has seen both a large rise during the earlier years of the decade and a sharp slump in 2009.

Barbados, Belize and St Lucia have exports in the low US$ hundred millions. The first two have experienced steady growth over the decade, whilst the exports of St Lucia have hovered around the US$ 50 million mark – a figure that takes no account of inflation.

Finally, the micro‐exporters of goods have flows of under US$ 50 million. All except Grenada have seen little change in the current value of their exports over the period, i.e. without taking account of inflation. (Antigua and Barbuda has reported its exports to the United Nations (UN) Commodity Trade Statistics (COMTRADE) database in only two years in the period and so no trend can be identified; Haiti is absent from the figure as it has not reported trade data in any year).

Figure 6. CARIFORUM merchandise exports, 2001–09 (US$ millions)

Source: Derived from data obtained from UN COMTRADE database.

These changes in levels partly reflect the commodity composition of countries’ exports (Table 2). In all cases, goods exports are concentrated on a small number of products. Whilst this is to be expected of small countries, it means that they are vulnerable to changes in their product markets. Given the concentration of exports on a very small number of markets, the countries are very vulnerable to ‘events’ in just a few market niches.

As can be seen, the exports of many countries are dominated by a small number of primary products, with fuel accounting for almost two‐thirds of the total in 2006 and food for one‐twelfth (World Bank, 2009). Manufactures accounted for some 27% of exports in 2006, but they were dominated by low and intermediate technology products. High tech goods accounted for only 1.4%

‐

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Dominican Rep. Trinidad/Tobago

‐

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006 2007 2008 2009

US$

millions

Bahamas Guyana Jamaica Suriname

‐

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009

Barbados Belize St Lucia

‐

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007 2008 2009

US$

millions

Antigua/Barbuda Dominica Grenada

St Kitts/Nevis St Vincent/Grenadines


12

of merchandise exports in 2000 (World Bank, 2009). Moreover, this picture has not changed much in recent decades.

Table 2. Broad composition of CARIFORUM countries’ exports a Country HS

code Description Average

value of exports b (US$ 000)

Share

Antigua and Barbuda

72 iron and steel 3,145 85.6%22 beverages, spirits and vinegar 1,470 40.0%32 tanning or dyeing extracts; dyes, pigments and other colouring matter; etc. 1,465 39.9%03 fish and crustaceans, molluscs and other aquatic invertebrates 517 14.1%

Bahamas 39 plastics and plastic products 143,611 39.4% 03 fish and crustaceans, molluscs and other aquatic invertebrates 86,081 23.6% 29 organic chemicals 68,386 18.7%Barbados 27 mineral fuels, oils and products; bituminous substances; mineral waxes 40,400 15.1% 22 beverages, spirits and vinegar 36,120 13.5%Belize 27 mineral fuels, oils and products; bituminous substances; mineral waxes 78,263 28.8% 20 Preparations of vegetables, fruit, nuts or other parts of plants 57,329 21.1% 17 sugars and sugar confectionery 45,358 16.7% 08 edible fruit and nuts; peel of citrus fruits or melons 40,962 15.1% 03 fish and crustaceans, molluscs and other aquatic invertebrates 29,254 10.8%Dominica 34 soaps, organic surface‐active agents, washing preparations, etc. 12,001 31.5% 08 edible fruit and nuts; peel of citrus fruits or melons 10,223 26.8% 25 salt; sulphur; earths and stone; plastering material, lime and cement 4,003 10.5% 33 essential oils and resinoids; perfumery, cosmetic or toilet preparations 3,921 10.3%Dominican Republic

72 iron and steel 721,475 13.6%85 electrical machinery and equipment and parts thereof; 595,508 11.2%90 optical, photographic, precision, medical instruments and apparatus; etc. 584,837 11.0%

Grenada 11 products of the milling industry; malt; starches; inulin; wheat gluten 5,417 19.8% 03 fish and crustaceans, molluscs and other aquatic invertebrates 3,602 13.2% 85 electrical machinery and equipment and parts thereof 2,789 10.2% 09 coffee, tea, mate and spices 2,764 10.1%Guyana 71 precious/semi‐precious stones, precious metals, etc.; imitation jewellery;

coin 186,585 26.1%

17 sugars and sugar confectionery 148,126 20.7% 26 ores, slag and ash 85,513 12.0% 10 Cereals 79,742 11.2%Jamaica 28 inorganic chemicals: organic or inorganic compounds of precious metals,

etc. 910,381 47.3%

27 mineral fuels, oils and products; bituminous substances; mineral waxes 324,638 16.9% 22 beverages, spirits and vinegar 225,121 11.7%St. Kitts and Nevis

85 electrical machinery and equipment and parts thereof 28,274 87.7%

St. Lucia 08 edible fruit and nuts; peel of citrus fruits or melons 18,058 31.4% 22 beverages, spirits and vinegar 17,093 29.7%St. Vincent and the Grenadines

08 edible fruit and nuts; peel of citrus fruits or melons 9,867 26.2%11 products of the milling industry; malt; starches; inulin; wheat gluten 7,590 20.1%10 Cereals 4,699 12.5%07 edible vegetables and certain roots and tubers 4,518 12.0%

Suriname 71 precious/semi‐precious stones, precious metals, etc.; imitation jewellery; coin

512,781 75.5%

27 mineral fuels, oils and products; bituminous substances; mineral waxes 99,259 14.6%Trinidad and Tobago

27 mineral fuels, oils and products; bituminous substances; mineral waxes 9,609,443 70.7%

Notes: (a) All chapters of the Harmonised System of commodity classification accounting for 10% of more of average export

value. (b) In the three most recent years for which data are available – either 2006–8 or 2007–9 in all cases except Antigua and

Barbuda (2005 and 2007 only) and St Kitts and Nevis (2005–7). Source: Derived from data obtained from UN COMTRADE database.


13

Nor has there been much change in the direction of goods exports: Figure 7 shows that the USA and Canada absorb over half of the total. Between 1995 and 2006 there was a slight fall in the share (not the actual value) of exports to the EU and ‘the rest of the world’, offset by a modest increase in intra‐regional trade. Most of the growth in intra‐Caribbean Community (CARICOM) trade is attributed to exports from Trinidad and Tobago.

Figure 7. CARIFORUM merchandise exports by destination, 1995 and 2006

Source: World Bank, 2009.

It is in services trade that the region has experienced most change. In many countries services exports now greatly exceed those of goods. Table 3, which shows the share of services in each country’s total exports in 2006, indicates that although the average for CARICOM as a whole is just over half (at 56.8%), for half of the countries it exceeds 70%. Within the services sectors tourism is overwhelmingly the most important, accounting for almost 69% of CARICOM’s services export revenue in 2005 (CARICOM, 2008). Although tourism has allowed countries to diversify from their previous dependence on goods exports (te Velde and Nair, 2005), the high share of export revenue derived from a single sector shows that diversification still has some way to go; its share has remained steady in recent years at around 70%.3

Migrant remittances are also a very important source of revenue in many countries (Figure 8) and their share of GDP more than doubled over the period 1990–2000 to around 12% – six times the level in Central America/Mexico (Fajnzylber and López, 2008).4 In the case of Jamaica and Grenada, for example, remittances are equivalent to around one‐third of exports. Services exports in the form of people and the remittances received in return are another important source of income for the Caribbean region.

This is, of course, a double‐edged ‘benefit’. Docquier and Marfouk (2006), for example, argue that countries in the region have lost a very significant portion of their college‐educated population to migration. The right balance between exporting labour and using it at home depends on the level of domestic demand for the skills possessed by those who migrate, and also whether the income opportunities (and knowledge of foreign labour markets) created by migration act as a stimulus to the skills base, by raising the expected returns on education, particularly in certain professions. The concept of a ‘brain drain’ is mirrored by that of a ‘brain gain’ (see Calì, 2008). As with so much else on trade, there is no substitute for a country doing its own sums and seeing what result they produce.

3 See CARICOM, 2002 and 2008. 4 The average for the 29 countries analysed was close to US$ 150 per capita per year, but that amount increased to US$

320 among the ten countries with highest per capita remittances – a group that included the Dominican Republic, Haiti, Trinidad and Tobago, Antigua and Barbuda, Jamaica and Barbados.

EU, 17%

US/Canada, 56%

OECS, 3%

CARIFORUM non‐OECS, 9%

Rest of World, 15%

1995

EU, 15%

US/Canada, 55%

OECS, 4%

CARIFORUM non‐OECS, 14%

Rest of World, 12%

2006


14

Figure 8. The importance of migrant remittances relative to exports (average over 2000–7)

Source: Alleyne, 2008; adapted from IMF Balance of Payments Statistics and World Economic Outlook.

2.3 Lessons from the Global Financial Crisis

The GFC deserves special attention, both because its effects on all Commonwealth countries are still being felt and because it has revealed in sharp relief the weaknesses of many of them that trade policy must attempt to tackle. Trade has been an important transmission belt conveying the effects of a financial crisis in the rich world into the economies of all countries. One lesson has been to flag the inter‐connectedness of the world economy (and the downsides as well as the upsides of this). Another result has been to expose some of the structural problems of poor, vulnerable countries. There are two avenues along which the GFC flows through into adverse effects on least developed countries (LDCs), SVEs and other poor, open economies: lower demand for their exports as a result of actual income cuts in their markets and of a loss of confidence, which predominantly affects demand for capital goods and those where inventory changes can be large (such as fuel and minerals); and the potential for rising protectionism in their markets.

Table 3. Services contribution to GDP and exports in CARIFORUM Country Services as % of GDP

2005 Share of total exports (%) 2006 Goods Services

Antigua and Barbuda 89.0 13.4 86.6 Bahamas 57.2 22.1 77.9 Barbados 70.2 20.6 79.4 Belize 40.5 54.6 45.4 Dominica 45.1 33.4 66.6 Grenada 41.2 22.0 78.0 Guyana 43.9 80.1 19.9 Haiti 13.7 70.8 29.2 Jamaica 41.7 44.6 55.4 St Kitts and Nevis 55.9 29.7 70.3 St Lucia 65.9 16.8 83.2 St Vincent and the Grenadines 63.1 21.5 78.5 Suriname 31.3 83.4 16.6 Trinidad and Tobago 9.5 91.5 8.5 Dominican Republic 18.2 60.4 39.6 CARICOM (average) 47.7 43.2 56.8 OECS (average) 60.0 22.8 77.2 CARIFORUM (CARICOM + DR) 45.8 44.3 55.7 Source: World Bank, 2009.


15

Most developing countries have been affected by the cut in global income and losses of confidence. According to the WTO (2010), global trade volumes collapsed by 12.2% in 2009, making it the sharpest fall in world trade in more than 70 years. International Trade Centre (ITC) data for the first three quarters of 2009 indicate that the exports of all developing countries fell by as much as 25% relative to 2008, although those of the LDC sub‐group fell by ‘only’ 12% (ITC, 2010).

As was clear from Figure 6 in the previous section, at least two countries (Trinidad and Tobago and Jamaica) saw their exports take a nosedive in 2009 largely as a result of the economic effects of the GFC. The full longer‐term effects of the GFC on 12 countries in the region have been estimated by the Overseas Development Institute. As can be seen from Figure 9, all except Guyana are expected to see eventual falls in GDP (compared to the level it would have been in the absence of the crisis) that range from 1% to over 7%.

Figure 9. Possible GDP effects of the GFC as a result of trade shocks (% of GDP)

Source: Adapted from Calì and Kennan, 2009 and 2010.

A major factor determining the impact of the GFC on a country has been the commodity composition of its exports (Calì and Kennan, 2009, 2010). Demand for fuel and minerals is particularly responsive to global income changes, and since production is fixed in the short run supply cannot adjust, thus prices may fall sharply. Dependence on a single commodity for a large share of exports always exposes countries to the risk of price shocks and instability in earnings.5 Simple manufactured goods, for which global competition was already very high, have also been badly hit – not only because demand is very responsive to changes in income but also because producers are highly dependent on imported inputs which may be severely affected by depreciated currencies and restrictive trade finance conditions. Data on services trade are less detailed and take longer to appear than those on goods, but early figures suggested that although total exports were more resilient than those of goods (Borchert and Mattoo, 2009), tourism and transport were more severely affected than the average and had dropped by a similar proportion to goods.

One reason why the exports of countries exporting agricultural products (normally expected to be fairly unresponsive to changes in income) have fallen is that many exporters have diversified into non‐traditional goods, such as exotic fruits and fresh vegetables and ‘fair trade coffee’ or ‘organic cocoa’, which are much more responsive (as consumers substitute domestic or cheaper generic imports). Moreover, as with fuel and minerals, developing country supply response is slow, leading to the possibility of sharp price falls. Although some Commonwealth agricultural exports to the EU are insulated to some degree from the full changes on global markets (as a side effect of the

5 See Grynberg and Newton, 2007.

‐8% ‐7% ‐6% ‐5% ‐4% ‐3% ‐2% ‐1% 0% 1% 2%

Antigua and Barbuda

Barbados

Belize

St Kitts and Nevis

St Lucia

Trinidad and Tobago

Jamaica

Dominica

St Vincent/Grenadines

Grenada

Haiti

Guyana


16

provisions to protect European farmers under the Common Agricultural Policy (CAP)), the GFC has come on top of a general lowering of export prices to Europe (especially for bananas and sugar).

The impact of the crisis is also affected by the geographical pattern of a country’s trade. The potential demand for a country’s exports is driven not only by the type of export, but also by its trading partners’ incomes. Intense trade linkages with advanced economies which have experienced severe income drops, such as the EU, the USA and Japan, are likely to lead to significant cuts in exports.

One potential danger that did not materialise on any scale is overt protectionism. Whilst it has not been entirely absent, there have been only a few signs of traditional protectionist measures – such as Argentina’s imposition of non‐automatic licensing requirements on a number of manufactured goods and Indonesia’s requirement that imports of five categories of goods be permitted through only five ports and airports (Chauffour and Malouche, 2009). But a number of countries, especially large ones, have implemented trade‐distorting stimulus packages targeted at troubled export industries or competing import industries, and a number of countries have passed non‐tariff

measures. None the less, there has been little effect (so far) on small, poor states (except for migrants – see Box 6) as the stimulus packages relate mainly to capital‐intensive manufacturing and services, whilst the more traditional protectionism is in markets to which they do not export.

Constant vigilance is, however, required as there are incipient signs of protectionist tendencies. One is an increase in the number of anti‐dumping cases in 2008, especially in the second semester after a period of slowdown; although this is arguably simply a recovery from unusually low levels in 2007, it might herald future actions that may have more direct consequences for small, poor states. Anti‐dumping, whilst justified as a technical response to anti‐competitive trade practices, is normally a form of protectionism.

Points to remember

Countries trade to obtain more goods and services than could be obtained without trade. Although exports are usually the centre of discussion (because exporting is hard), it is in fact imports that are the raison d’être for trade.

There are no universal lessons explaining why some countries have had more dynamic trade than others, and many old arguments (for and against government intervention, that manufactured exports are ‘better’ than primary products) are too generalised to be of help. The task is to identify practical ways in which firms can maximise the potential gains from trade and how governments can help them.

The Caribbean states, like all SVEs, will be affected sharply by changes to their main markets, which is one reason why the GFC is expected to have such a substantial effect on their economies. Exports are concentrated on products and markets that were badly hit by the crisis.

Box 6. The effect of the GFC on migrants Perhaps the most worrying form of protectionism for vulnerable states is in relation to labour standards and other related non‐tariff measures. This is taking the rather murky form of nationalistic sentiments among the public and a higher degree of enforcement of existing rules restricting immigration (Calì, 2009).


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Chapter 3. How can governments influence trade – and how does this affect development?

Although governments have only a few instruments that directly channel trade, they have a wide range of policies (mostly outside the portfolio of the trade ministry) that can influence the short‐ and long‐term impact of trade on development. This chapter reviews the internal policies that determine the impact equally of domestic and of international trade. It then moves on to explicit ‘international trade policies’. It discusses the implications for poor or otherwise vulnerable countries of international changes over which they have no control, those that they can partly influence by negotiation, and those over which a government has discretion.

Whilst theory and the analysis of recent events can show what is wrong with a country’s trade pattern, the question on which legislators must focus is: what can they do about it? It is normally the private sector that trades, but governments have an important role to play in many ways. These include creating and implementing a framework of appropriate rules, removing unwanted obstacles (such as poor infrastructure), providing necessary support (such as investment in human resource upgrading). None the less, the instruments available to government are quite limited in number – especially in relation to ‘core trade policy’.

For some legislators ‘trade policy’ is little more than an element of ‘tax policy’, with tariffs providing an easily collected source of government revenue and, possibly, also fostering the growth of industry or other protected sectors. Even when so narrowly defined, trade policy faces challenges. The future of tariffs as an effective source of revenue is under a question mark, and their potential to support effectively the growth of industry or any other sector is doubtful, certainly unless accompanied by a range of other measures.

So what can legislators do? This chapter provides an overview of the ways in which communities within a country are affected for good or ill by trade, and the ways in which governments can alter the impact of a trade ‘shock’. The next two chapters turn attention to current international trade policy negotiations.

3.1 How governments can influence the impact of trade

The trade environment is always changing. Whenever possible governments should seek to influence such change (for example through negotiations), but many trade shocks are beyond the influence of a poor country. Even in such cases, though, where a country must simply adjust to what cannot be changed, there are ways in which its government can alter the impact on vulnerable groups. This is because there are many ‘filters’ which mediate the impact of any change in conditions on the global market or of a country’s ‘core trade policy’ on an individual. And governments can act on most of these filters to change the impact.

Figure 10 provides a framework in which to view the myriad factors that mediate the impact of trade on an individual’s livelihood. It shows how trade affects different people and groups according to their ability to respond to the new circumstances, and whether they are affected primarily as producers or as consumers. It is designed to draw the eye up from the bottom of the chart (and the welfare of individuals) to the levels of national institutions and markets that shape their environment (the lower sphere) and the international changes that impact a country (the upper sphere). So, for example, the ultimate determinant of demand for a country’s exports and the price it pays for its imports is captured at the top of the figure by ‘global supply capacity’, encapsulating the whole range of contributory factors (physical and human resources, technology, prices, etc.) – all of which change over time, increasing or reducing what can be supplied competitively. Below this


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rectangle

square

oval

the figure flags the various types of ‘filter’ that mediate the effect of changes to global supply on, first, a country and then, within it, on individuals. The very fact that there are so many filters and paths along which change affects individuals means that policy making is always controversial (Box 7).

Although it is a highly simplified view, the figure is complicated and challenging for the reader. The following sub‐sections deal in turn with the areas on which the figure shines a spotlight. Most examples relate to trade in goods because it is the most familiar. But trade in services is very important and increasingly features in trade negotiations. The range of instruments available to government to control trade in services is rather different to the toolbox for goods; in some respects, a government has more control and in others it has a lot less. These issues are taken up in Chapter 4.

3.2 Levels of influence

How much authority do legislators in developing countries have to control the impact of trade on their country and guide it onto a more dynamic strategic path? The answer is that this varies according to the forum and the type of trade effect. This diversity is captured in Figure 10 by the use of differently shaped and coloured boxes. There are four types of box. Three of them show how far factors can be influenced by a country’s government:

factors over which a national government has no significant influence;

those where governments have some, but not full, control; and,

instruments which are largely in government hands.

The fourth (a white rectangle) is used in the lower, ‘domestic’, sphere to indicate areas of decision making that are primarily private, though of course they are influenced to varying degrees by government policy.

Box 7. Disentangling the impact of trade ‘Why not undertake an impact assessment before deciding on a new trade policy?’ Parliamentarians will be familiar with such calls – which appear to be very reasonable, but are surprisingly hard to satisfy.

A glance at Figure 10 illustrates why it is often hard to distinguish in many poor countries whether, say, a surge of imports of basic foodstuffs over low tariff barriers is a result of oversight by the importing states, aggressive tactics by the exporters, or simply the political expediency of being able to supply more food at lower prices to influential parts of the electorate. Legislators grappling with the consequences of the surge need to take a view on the relative importance of these causes before deciding where and how to act.

The figure also shows how producers and consumers will be affected differently by any trade change – and that many people fall into both categories for different goods or services. Whilst the former may lobby hard for increased tariffs, the latter may want the lower prices that unfettered trade can bring.

As emphasised in Chapter 1, trade policy making has an inherent political dimension as it involves favouring one group over another. Consequently the pattern of a country’s trade taxes and subsidies will not be determined solely (and often not primarily, or even at all) by sober strategising over the long‐term role of imports versus domestic production. It will be a result of political negotiation that reflects, at least in part, the distribution of political power within a country. This explains, for example, why so many countries protect their domestic cereal milling industry rather than their domestic staple producing farmers – even though agriculture is of greater strategic and poverty‐reducing importance.


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Figure 10. Trade policy and poverty: causal connections

Source: Adapted from McCulloch et al., 2001.

Of the seven boxes in the upper, ‘international’, sphere only one is a red square, denoting an instrument largely in government hands. This is summarised as ‘national trade policy’ which is a simplifying term for the different instruments that governments use. The other boxes are either green rectangles, indicating that a government has some influence (e.g. by engaging in international trade negotiations) but not complete control, or yellow ovals, showing that the arenas are largely outside the direct influence of a developing country government (e.g. the responses of Organisation for Economic Cooperation and Development (OECD) states to the GFC, or the EU’s reform of its CAP or the standards set by the private sector buyers of imports in rich countries). In addition to the ‘policy levers’ described in the figure there are other, even more indirect (but sometimes effective), ways in which SVEs can influence the climate of opinion (such as the review of progress toward meeting the Millennium Development Goals in September 2010 and the LDC Conference in 2011).

Even in the lower, ‘domestic’, sphere there are major areas that governments can seek to influence (such as the behaviour of traders and employers) but not fully control. And most of the areas within government control or influence do not directly involve a country’s ministry of trade. So an effective ‘trade policy’ necessarily involves close working between ministries and between government and stakeholders.

Pass through, competition

Taxes, regulation, distributors, procurement

Distribution, taxes, regulation, co‐ops

Co‐operatives, technology, random shocks

National Exchange Rate Policy

Global SupplyCapacity

Exporter Policies

World Prices

International Policies (WTO, EPA, AGOA, etc.)

Tariff Revenue

Dom

estic

Internationa

l

Taxes

ProfitsWages

Employment

males

females

Household WelfarePrices, Wages

Endowments, ProfitsOther Incomes

elderly

young

National Trade Policy

Retail Price

Wholesale Price

Spending

Enterprises

Border Price


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3.3 The domestic sphere

Start with where the people are: the bottom sphere of Figure 10, representing the domestic market. This is also the sphere in which a government has most instruments at its disposal to influence the impact and trajectory of trade. The price individuals receive for what they sell, and pay for what they buy, will be influenced by international trade to the extent that the price of goods at the border filters down to them through all of the intermediate boxes.

3.3.1 The different perspective of producers and consumers

As consumers, households and individuals will be affected by the final retail prices of goods that are imported and those that are domestically produced and linked to imports (for example, because they use foreign inputs). As producers, they are also affected if they work for an enterprise (including sole traders/producers) for which imports are either an input or a competitive product. Changes to tariffs, from which governments in poor countries derive a significant part of their revenue, may also affect the volume of government spending on services for the poor.

Since many of these filters can be influenced by domestic national government policy there is much that can be done – or fail to be done – to reinforce positive and mitigate negative trade shocks. If the wholesale and retail markets operate efficiently, any change in the price at the border will feed through into similar changes to the retail price. If the price falls this is good for consumers and input users, but bad for competing producers. If it rises (for example following a depreciation in the exchange rate) the reverse is true. But if markets are not competitive then these changes will happen only in part, or perhaps not at all. If intermediaries pocket any price fall domestic producers may still lose (as purchases are switched away from them) but consumers and the users of imported inputs gain no benefit. Governments may change spending priorities to cushion the poor and, over time, develop alternative sources – or they may not. So the impact of any given external change will be different in some countries (and for some groups) from others.

Since most people are affected both as producers (in a firm that uses or competes with imports or both) and as consumers, often on different products and sometimes on the same ones, the net impact will be the sum of many different, partly offsetting effects. In very broad terms, producers gain when demand increases as a result of trade and may lose when supply increases. For consumers it is the other way around.

3.3.2 The differing impacts of domestic and international trade

One lesson to be taken from the lower sphere of Figure 10 is that the impact on an individual or household of international trade overlaps to a large degree with the impact of domestic trade. Once the goods or services have crossed the border, the pathways along which their influence flows are the same as for those traded domestically. Since the scope, mechanics and impact of domestic trade are often the better understood by citizens it is helpful to show where and how they are similar and where they diverge.

There are three big differences between international and domestic trade. The first two concern the breadth of effects, and the extent of change to demand and supply. Contrary to much that is written, it is domestic rather than international trade that has the greater short‐term impact on most groups in society. This is simply because in most countries domestic trade is a very much larger influence than is international trade. This statement does not apply to those individuals who are right ‘in the firing line’ of international trade (for example because they work in a factory that exports, or one facing severe competition from imports), but most people are not in this position most of the time.


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At the same time, when international trade does alter demand or supply it may do so much more substantially than does domestic trade. This simply reflects the fact that the world is a much bigger arena than the domestic market, with many more consumers (who can increase demand for a country’s products) and greater scope for economies of scale and/or innovation (that bring down the price of the imports).

The interplay of these two differences means that for many groups (those not directly affected by the changes to demand/supply on the world market) the influence of international trade will be small relative to that of domestic trade and by definition indirect – unless the shock is so great (as for example in the wake of the GFC for some states) that the whole economy is affected. But for those groups that are directly affected the effects of the step changes brought about by a new demand on the world market (such as, for example, created in recent years by Chinese imports of some mineral products) or of supply (such as the sharp falls in computing prices over recent decades) can be very powerful indeed.

This has well known political implications. Those groups which stand to lose as a result of a trade policy change tend to be more concentrated and to face a more substantial impact than those which might gain. It makes sense for them, therefore, to lobby hard to protect their interests – harder than the potential beneficiaries. The effects are very obvious in rich countries, where sectors such as agriculture receive government support that is disproportionate to their economic or social importance. But it applies equally, though perhaps less visibly, in all countries.

3.4 The international sphere

A typical situation, therefore, is one in which small groups of people are affected acutely but the majority of the population only tangentially by sharp shifts in international trade. But coping with these effects is made more difficult because of the third big difference between domestic and international trade: the governance structures.

Governments in most countries attempt to control the legal framework within which domestic trade takes place in order to influence its economic and social effects. Not all are successful in this attempt! Indeed, in many poorer developing countries domestic regulations are in evidence mainly through their disuse and misuse. But, at least in principle, it is not a foolish task to try to design a set of rules relevant to the objective circumstances of a country, feasible for it to implement and which mitigate to a degree the undesirable consequences of domestic trade.

This is much less true at the international level, especially for small states which face numerous constraints in international trade negotiations. Helping members to overcome these constraints has been a major concern for the Commonwealth Secretariat (Box 8). A recent study (Jones et al., 2010) commissioned by the Secretariat has also provided evidence that small states can still have an important influence over the outcomes of negotiations if they successfully identify and tackle these underlying constraints.

None the less, whilst governments can seek to negotiate rules that constrain the actions of other governments, which in turn may constrain the actions of their private economic operators the effect of any such effort occurs at two removes from its initiation. The fact that there is only one square box in the upper sphere of Figure 10 reflects this reality facing many smaller and/or poorer developing countries, for which it is often not their own policy changes but those of others that have

Box 8. The Commonwealth and small states The Commonwealth has been actively highlighting the special needs and concerns of small states since at least 1993, when a Commonwealth Ministerial level meeting on Small States was established as a regular fixture on the eve of the Commonwealth Heads of Government Meeting (CHOGM). In 1997 the CHOGM commissioned a small states’ Ministerial Mission which led to the creation of a joint task force with the World Bank to consider small state vulnerability issues. This has set benchmarks for small states to use as a measure of international organisations’ responsiveness to their particular needs.


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the greatest impact. This section unpackages the square box (‘National Trade Policy’) and then moves on to the others.

3.4.1 National trade and foreign exchange policy

The only powers that a government has over international trade that are comparable in terms of action and reaction to those at its disposal for domestic trade are those that condition the terms on which its citizens may engage in international trade. There are three main sources of such potential control:

► its power to tax and subsidise;

► its regulation as to who can trade (including the power to ban trade altogether);

► foreign exchange regulation.

These instruments are often seen as the core, or even in some cases the only, aspect of trade policy.

Taxes and subsidies

The most commonly recognised trade policy instrument is the tariff, which is a tax that governments levy on imports when they enter a country (Box 9). In many poor countries, tariffs are also a significant source of government revenue, although their future in this role is uncertain in an era of liberalisation. A government has discretion over the level at which tariffs are set (though it may agree to change through negotiation) but the level of revenue actually collected will depend also on factors outside its direct control (such as the value of imports and the effectiveness of collection). This is why in Figure 10 ‘tariff revenue’ is in a green rectangular box.

Box 9. Tariffs: types and challenges The three main forms of tariff are:

► ad valorem tariffs (in which the tax is set at a certain percentage of the value of the imported goods) – e.g. Kenya charges 25% of the value of imports of live horses;

► specific duties (when the tax is established as, e.g., so many dollars per unit of imports (e.g. tonne) – e.g. India charges Rs 65/kg on imports of shelled almonds;

► and complex duties (which may combine the preceding two and often apply them to exotic features of a product – a favourite of the EU is to relate the tax to the amount of alcohol or sugar per hectolitre of volume) – e.g. South Africa charges 110c/kg less 80% with a maximum of 37% on imports of tinned tomatoes.

The advantage of tariffs as a source of government revenue is that they are relatively easy to collect compared to a domestic sales or income tax, since the number of collection points is limited to the points at which foreign goods enter a country.

They are also often used to protect domestic producers, but there is a tension between these two roles. If tariffs are set high enough to provide effective protection they will tend to generate relatively little revenue since, by definition, they limit the volume of imports. By contrast, tariffs set at a level to generate the maximum revenues will often be too low to offer any effective protection.

Both roles are threatened by liberalisation (unilateral, regional or multilateral), a key element of which is normally the removal or reduction of tariffs. Of course as one tax is reduced another can be raised, so assertions that liberalisation necessarily results in a fall in government expenditure is wide of the mark. But the impact of the alternative taxes will be different – creating winners and losers. Take the simple example where a tariff schedule with three categories of import (on which tariffs of 0%, 5% or 15% are levied accordingly) is replaced by an increase in a sales tax of 5%. The tax take on the middle group of imports remains unchanged: a reduction of 5 percentage points on one tax is replaced by an identical increase in another. But the tax take on goods that are currently duty free (and on all domestically produced goods) will increase. And the tax on goods currently paying a 15% tariff will come down. If prices change accordingly, consumers of the goods that previously faced a 15% tariff will gain whilst those of domestically produced goods and those previously facing a 0% tariff will lose.

Because of these distributional effects an obvious first step in any country facing liberalisation is to calculate by how much the alternative taxes must rise to offset the fall in tariff revenue (taking account of any expected lower collection rates on the former). If the answer is ‘1%’, the distributional impact will be small and largely unnoticed; if it is ‘10%’ the impact will be great and could well affect poverty levels.


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In addition, many countries have what are known as ‘charges having equivalent effect’ or ‘para‐tariffs’. These are tariffs that dare not speak their name. An excise duty, for example, which is set at a higher level for alcoholic beverages that are imported than those that are domestically produced would be classified by some observers as a charge having equivalent effect. Similarly, fees required for completing customs declarations or other administrative requirements for importers that exceed any reasonable estimate of the cost of the administration could be deemed to be para‐tariffs.

Just as governments tax, so also they subsidise. Directly or indirectly they may assist domestic producers whose goods/services compete with imports, or those that are producing for export. Both the taxes and the subsidies alter the relative prices of goods on the domestic, and in the case of exports the international, market and therefore influence the demand of consumers. A poor country may not be able to afford substantial subsidies, but it will be affected by those paid by its competitors.

Direct intervention

If there exists a publically‐sanctioned and controlled export or import monopoly or oligopoly, or if a government issues licences for specific quantities of certain types of product, then governments can control directly how much is imported or exported and at what price. In past times such administrative control was attempted widely, but it is now much less common having suffered challenges on two fronts.

► The first challenge was over administrative feasibility and corruption. Critics have argued that licensing tended to be used less to support strategic objectives for the economy than to transfer money (often corruptly) from producers/consumers to those with the power to grant the licences.

► At the same time, the international regulatory framework for state trading (or parastatal trading) has become more constraining. Although enforcement is patchy, and disputes have mainly involved rich countries, there do exist international rules on what are called ‘non‐market interventions’.

Foreign exchange control

Except through barter, trade cannot occur without foreign exchange. To the extent that governments can and do control the allocation of foreign exchange they have the means to determine, at least in theory, what is imported and the distribution of gains from exports. Whether or not they can influence this in practice depends on the extent of their administrative competence.

Once again, however, the control of foreign exchange allocation (or at least in a form that specifies what is to be traded) is much less common than it used to be. This is partly because of a conversion of governments (autonomously or with the ‘helping hand’ of the World Bank/International Monetary Fund) to the commercial and economic advantages gained by allowing the market to determine the most profitable uses for scarce foreign exchange.

3.4.2 Trade policies that must be negotiated

Parliamentarians will often be called upon to comment on new international trade negotiations. A glance at the upper sphere of Figure 10 shows that these come between events that fall within a country’s jurisdiction and those over which a country has no control, such as China’s dynamism as both an exporter of manufactures and importer of raw materials which has probably altered for the foreseeable future the relative profitability of manufactures production in smaller, poorer countries compared with agriculture and services. The issues are mainly dealt with in Chapters 4 and 5, which review the details of current multilateral and regional trade negotiations and ask what a country can hope to achieve in such fora.


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But it is important to bear in mind that a book of multilateral and regional trade rules already exists and that it affects the freedom of manoeuvre of countries. For poorer or smaller WTO members the main constraint may be an indirect one. Whilst they may need to alter their core trade or behind‐the‐border policies to comply with agreed rules, the required changes are not often radical. This can be because they benefit from exemptions or dilutions to the rules, or because the rules offer flexibility to pursue the same ends but by different means, and because enforcement is unsystematic (Box 10).

The effect of General Agreement on Tariffs and Trade (GATT)/WTO rulings is most often felt when a dispute results in a change to the policies of a rich country (Box 11). This is because such countries: are more often in the firing line for disputes since their policies have a big impact on the trade of others;

► may be affected only marginally by a change (e.g. EU trade policy on bananas) which can have a big impact on livelihoods in a trade partner such as the Caribbean; and

► have wide discretion on how to adjust their policy after a WTO dispute and how far to take the interests of a small trade partner into account.

Box 11. How poor countries are affected by rich countries’ actions and policies

3.4.3 Putting it all together

Tracking the impact of any given change to these trade policy instruments is very difficult. This is partly because many individuals will be affected in different ways through different avenues for different products (look again at the lower sphere of Figure 10), but it is also because often several trade policy changes occur together (e.g. multiple changes to tariffs) and at a time when things are happening elsewhere. It is the combined effects of all changes that will produce the final impact.

It might be supposed that an alteration in government policy on tariffs would be more narrowly focused than, say, changes to the exchange rate (over which a national government has some, but not total, control). An appreciation of the exchange rate will make all imports cheaper in local currency terms relative to domestic production, whilst depreciation will make them all more expensive. Any tariff change, by contrast, will affect directly the border price of just the product concerned. But if the directly affected product is an input into other goods, or a substitute for other imports or for domestic products, then there may be indirect price effects. In the classic textbook example, a cut in the tariff of an input will increase the profitability for the final producer in the same way as a formal increase in protection and vice versa.

Box 10. Are small developing country policies WTO compliant? The answer to this question is often unclear – and in the first instance it is up to the country concerned to decide if its policies are compliant. Some WTO rules are couched in vague phraseology (negotiated by diplomats anxious to reach agreements between differing interests). They are interpreted and enforced somewhat randomly because a resolution may be provided only if a country calls upon the services of the WTO’s Dispute Settlement Mechanism – the Appellate Body of which interprets the rules. The volume of disputes has increased in recent years but many countries’ interpretations of the rule book remain untested.

Examples of the ‘collateral damage’ for poor countries of big‐country actions emanating from GATT/WTO decisions include the following.

► The prospects for Africa’s clothing industry have been turned upside down by a combination of changes to rich country import policies agreed in the GATT Uruguay Round and of China’s changes to its own trade policies.

► In agriculture, the world price of the cereals imported by many African states on a substantial scale has been influenced by the agricultural policies of other (mostly rich) countries, first to protect farmers and, more recently, to favour domestically produced biofuels that are most likely to replace production of food (see Rudaheranwa, 2009).

► The export prices of Malawi’s sugar, Swaziland’s citrus, Namibia’s beef and Kenya’s horticulture have all been influenced by the combination of OECD (especially the EU’s) agricultural and preferential trade policies; they have gained whilst some other developing countries have lost.


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Typically, any package of tariff reform will involve some items being liberalised straight away, others being liberalised over a period of time, and some not being liberalised at all. The relative protection afforded to any given product will change at each step of the implementation process. So it can be very misleading to look only at the changes affecting just one product or the end result. For a true picture of what is going to happen it is necessary to assess the relative change in prices that will occur in each sector and at every step on the road to implementing a new trade policy. No wonder that critics and supporters of any new policy often seem to be living in different worlds!

Points to remember

Governments can often alter the impact of trade on vulnerable groups even for ‘shocks’ that are beyond their control. This is important given that trade policy change invariably produces relative winners and losers (and sometimes absolute losers) and it is a task of government to mitigate the effects on the latter. It often has the power to do so because there are many ‘filters’ on which governments can act that mediate the impact on an individual of change to global markets or trade policy.

Policies affecting domestic and international trade overlap: a country with a pro‐development framework for domestic trade is better able to shape the impact of international trade.

Such mainstreaming of trade policy is important because governments have few instruments directly to control international trade flows but a wide range of domestic policies (mostly outside the portfolio of the trade ministry) to channel their impact.

Losers from trade policy change lobby harder than the potential beneficiaries. This is because they tend to be more concentrated and the potential loss of the few is more certain and significant whilst the gains of the many may be more diffuse and uncertain.

‘Collateral damage’ from rich‐country WTO disputes hits poor countries more often than direct enforcement of the multilateral rule book. None the less, some government policies are now constrained by international agreements. The future role of tariffs as a major source of government revenue and influence on trade is under the spotlight.


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Chapter 4. Multilateral trade negotiations

Developing countries are negotiating trade in many arenas but this chapter focuses on the WTO, which is the most fundamental. It identifies the arguments for and against WTO membership – and the concomitant requirement to engage in the DDR. It examines the concept of ‘policy space’, the relative forms of influence of developed and developing countries, and the current state of the DDR negotiations. The forms of SDT in the current WTO rule book are explained – and the reasons why they are an eroding asset that will largely disappear if the DDR is not completed on appropriate terms. Finally, the special characteristics of services trade negotiations are discussed in a sub‐section that is equally relevant to Chapter 5.

The previous chapter dealt mainly with the policies to alter the impact of trade that are wholly or largely within the formal control of national governments; this one and the next turn attention to provide more detail on the arenas in which countries may negotiate with others to achieve the outcomes they seek. There are myriad arenas, and one of the conclusions drawn for parliamentarians in the final chapter is that small, poor countries must prioritise if they are to play an effective role in any of the negotiations. This Guide, too, must prioritise: it focuses on the WTO, which is at the centre of the formal rules for trade policy (this chapter) and some prominent RTAs (next chapter).

4.1 Why join the WTO?

Although this is not a currently relevant question for most countries, since they have joined already (see Box 12 for the much shorter list of states that are not members), it serves as a reminder of the benefits and potential costs of membership. Since members have no option but to participate in the current DDR (unless they quit the organisation), it helps to put the choices that they face into

perspective. All of the fifteen CARIFORUM states except Bahamas are members of the WTO.

The WTO is often called colloquially a ‘free trade organisation’ and it is true that, together with its predecessor the GATT, it has presided over a substantial reduction in the policy barriers to world trade. But, as so often, this caricature not only emphasises some features but obscures others (Box 13).

As is the case with any organisation with rules, WTO membership involves a loss of what has been called ‘policy space’ (Box 14). But this is also a prominent argument in favour of WTO membership, since the rule book applies to the rich and powerful as well as to the poor and weak. Constraints on the latter’s own actions are offset by the disciplines imposed on those of more powerful trade partners. Of course, this begs the question that any country must ask as to whether the effective constraints on its actions are an acceptable and appropriate ‘price to pay’ for those applying to others. This leads in turn to questions of the nature of the constraints and the extent to which they are enforced in practice. It is not possible in a Guide such as this to answer the

Box 12. Countries which are not WTO members * Afghanistan * Libya * Algeria Marshall Islands * Azerbaijan * Montenegro * Bahamas Nauru * Belarus Niue * Bhutan Palau * Bosnia and Herzegovina * Russia * Comoros * Samoa Cook Islands * São Tomé and Príncipe * Equatorial Guinea * Serbia Eritrea * Seychelles * Ethiopia * Sudan Federation of Micronesia Syrian Arab Republic * Iran * Tajikistan * Iraq Timor‐Leste * Kazakhstan Turkmenistan Kiribati Tuvalu Korea Democratic Rep. * Uzbekistan * Lao People’s Dem. Rep. * Vanuatu * Lebanon * Yemen * Liberia * Observer governments. Sources: WTO, Members and Observers (http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm)


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detailed, country‐specific questions which need to be asked concerning both the existing rule book and the changes that may occur inside the WTO if the DDR is concluded and outside if it is not. But the Guide can provide the context for the more general discussion. Moreover, further information can be obtained from the reports produced by the WTO’s Trade Policy Review Mechanism, which offer an excellent (though diplomatically phrased) source of information on the extent to which a country’s trade partners are abiding by the rules (Box 15).

Another question to add to that of ‘are trade rules good for developing countries’ is whether the WTO is a good forum within which to negotiate new rules. For poor countries the internal modalities of the WTO have one great advantage compared with other fora and one offsetting disadvantage (which also applies to a greater or lesser extent to other fora).

The advantage is that most countries are represented and each member has equal formal weight – decisions are taken by consensus. Of course, the WTO is not insulated from the wider world. There is

Box 13. The WTO: a free trade organisation? The WTO has three functions:

1. it provides a forum for agreeing new rules within which world trade takes place (which often feature the removal of pre‐existing barriers);

2. it adjudicates between member countries in disputes over the implementation of existing rules; and

3. it monitors regularly the progress of countries in meeting their agreed commitments under the Trade Policy Review Mechanism (see Box 15).

It is the first of these functions that has held centre stage for much of the past decade with the DDR, but the others (and especially the second) are also important (and have, for example, provided the initial spark for the negotiation of EPAs between the EU and some ACP states (see Chapter 5). Unless and until the DDR comes to an agreed conclusion it is the existing body of rules that will continue to apply as interpreted through the WTO’s Dispute Settlement Body.

Box 14. Policy space – current usage and origins The term ‘policy space’ in its current meaning appeared in about 2002 in United Nations Conference on Trade and Development (UNCTAD) documents, and acquired its first official status in the São Paulo Consensus of 2004. This defined it as ‘the scope for domestic policies, especially in the areas of trade, investment and industrial development’ which might be ‘framed by international disciplines, commitments and global market considerations’. All participants in the debate would agree that the issue is one of balance given that the intention of international agreements on rules is to restrict states’ freedom to manoeuvre. The current debate asks if this move has gone too far.

Perceived extensions to international rules and controls in the 1980s and 1990s included the new rules in the WTO: those on services; the new provisions on patents and copyright, under Trade Related Intellectual Property; and also the strengthened enforcement mechanism. But some of the most significant threats were seen in proposals for a Multilateral Agreement on Investment, the environmental conventions, bilateral and regional agreements, and, particularly for indebted developing countries, the increased financial power of the World Bank and International Monetary Fund.

Source: Page, 2007.

Box 15. The Trade Policy Review Mechanism The WTO conducts regular reviews of individual countries’ trade policies — the Trade Policy Reviews. It was agreed to set up these reviews in December 1988, and with the creation of the WTO in 1995 their scope was extended to include services and intellectual property. For each review, two documents are prepared: a policy statement by the government under review, and a detailed report written independently by the WTO Secretariat. These two reports, together with the proceedings of the Trade Policy Review Body’s meetings, are published shortly afterwards.

The objectives are to increase the transparency and understanding of countries’ trade policies and practices through regular monitoring, to improve the quality of public and intergovernmental debate on the issues and to enable a multilateral assessment of the effects of policies on the world trading system. They encourage governments to follow more closely the WTO rules and disciplines and to fulfil their commitments.

The frequency of the reviews depends on the country’s share in world trade. The four biggest traders – currently the EU, USA, Japan and China – are examined approximately once every two years. The next 16 countries (in terms of their share of world trade) are reviewed every four years. The remaining countries are reviewed every six years, with the possibility of a longer interim period for the LDCs.


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scope for powerful countries to bring pressure to bear on smaller ones to adopt a desired position – but there is more ‘strength in numbers’ than in bilateral discussions of one or a few developing countries with a developed country since picking off weaker states will achieve nothing if stronger ones hold firm.

The developing countries’ influence is asymmetric – it is easier for them to block proposals that they do not like than to push the adoption of those that they do, and they cannot then prevent rich countries adopting the blocked initiatives in bilateral or plurilateral deals outside the WTO unless these violate the WTO rules on what is permitted to regions.

The disadvantage is that WTO negotiations are very demanding of technical as well as diplomatic skills: with multiple concurrent talks taking place much of the time, the practicalities of negotiation are heavily weighted in favour of states that can muster adequate public–private delegations. The same applies to other negotiating fora – which is why countries may need technical support to help them engage in a wide range of trade negotiations (Box 16). But arguably the breadth of the concurrent WTO negotiations poses the problem in a particularly acute form. A unique insight has been provided by a recent ‘insider’s guide’ commissioned by the Commonwealth Secretariat covering the issues that have concerned Commonwealth developing country negotiators at the WTO since it was established in 1995 (Rege, 2010).

One way around this is for countries to form informal alliances, which most have done. There exist a number of overlapping groups of members (see next sub‐section). And the Commonwealth has played a part in providing a further arena within which countries can discuss informally common concerns (as was noted by the then Secretary‐General in advance of the 2005 WTO Ministerial in Hong Kong – Box 17).

An important element in these calculations over the merits of membership and a new set of DDR rules is that, as explained in Chapter 3, a country may be affected by WTO decisions regardless of whether it is a party to a dispute or even a member of the WTO. The Caribbean banana‐producers have felt very sharply the fallout from disputes between the EU and, first, the Latin American banana producing states and, then, the USA – even though it does not produce bananas!

Box 16. The ‘Hub and Spokes’ project The Commonwealth Secretariat’s ‘Hub and Spokes’ project aims to promote the effective participation of ACP countries in international trade negotiations by strengthening their capacity to formulate and implement trade policies. The programme seeks to facilitate the ACP’s gradual integration into the world economy in a way that contributes to sustainable development and poverty reduction in these countries. It does this by training and sensitising key stakeholders in ACP countries on trade policy issues and supporting ACP countries in formulating, negotiating and implementing trade policies both nationally and regionally. These activities are delivered by the Regional Trade Policy Advisers (or ‘Hubs’) and Trade Policy Analysts (or ‘Spokes’) that have been deployed to the regional organisations and government ministries in the ACP.

See http://www.thecommonwealth.org/subhomepage/191502/

Box 17. The Commonwealth and the WTO Trade – fairer trade – is the most potent means to combat global poverty ... The longer the multilateral system fails to deliver the potential of integration into global markets, the longer poverty will persist ... In the Commonwealth, we have already established some bottom lines which span all our countries in all their diversity of trading interests. That unity of view and purpose has the potential to make a difference in the WTO.

(Opening address at the 2005 Commonwealth Finance Ministers’ Meeting, Secretary‐General Don McKinnon, 18 September 2005, Barbados)


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4.2 The Doha Round

Given the disadvantage noted above, and the asymmetric nature of countries’ influence, deciding where to focus negotiating capacities within the DDR is a hard choice – and the smaller or poorer the state, the greater the focus may have to be. It is a particularly important task for parliamentarians but a hard one, because the devil in the detail which may not become clear until near the end of the negotiations. This is because the current WTO negotiations involve three broad phases. These tend partly to overlap in practice, but it is helpful to understand their logical sequence.

1. First there is agreement on broad principles.

2. The second phase is to agree on the process for putting these into effect – what will be the wording for any new ‘rules’, what approach will be applied to tariff reductions, what are the agreed ‘numbers’ that establish the targets for each state and the exceptions that apply to some?

3. Finally, each member must apply these agreements to its domestic policies and submit its commitments (which will often be very detailed and complex) in every area where it is required to do so.

The Doha Round is stuck in Phase 2. Whilst a great deal of progress has been made in many areas there remain differences that are, at present, unbridgeable. If agreement is reached, it will be possible to form a broad idea of the likely implications, but even then sufficient ‘wiggle room’ will remain that it will only become completely clear when Phase 3 is complete what each country agrees to do and how it actually implements it (and, hence, what the effects may be). The task is made the harder because in previous GATT negotiations there was typically a great deal of pressure to complete the Round as quickly as possible once a deal is in sight in order not to let the political momentum dissipate. In other words, checking out the potential effects of the Round is difficult in the early stages because what has been agreed is insufficiently detailed, and in the later stages because there is no time – see Box 18!

The fullest formal statement of the approach and tentative areas of agreement is to be found in the Doha Work Programme adopted at the December 2005 WTO Ministerial in Hong Kong (WTO, 2005). Running to over 40 pages, it is too long to summarise here but can be accessed at http://www.wto.org/english/thewto_e/minist_e/min05_e/final_text_e.htmhttp:/www.wto.org/english/thewto_e/minist_e/min05_e/final_text_e.pdf. It includes detailed annexes on the areas of negotiation: agriculture, market access for non‐agricultural products, services, trade rules, trade facilitation and SDT.

Part of the reason for the logjam may be that the members have agreed that any Doha deal should be ‘a single undertaking’, i.e. nothing is agreed until everything is agreed – by everyone (or, at least

Box 18. The devil in the Doha detail An example of how the precise impact of any changes can be determined fully only when all the details are known is provided by the EU’s position on agriculture. It has indicated that it is willing to make considerably greater cuts in the average tariff for its agri‐food sector and may improve upon the offers already made in the context of what it would consider to be a reciprocal level of ambition in the other agricultural negotiations and in non‐agricultural market access (NAMA) and services. But it has also sought the right to designate a certain percentage of tariff lines (and it has suggested 8%) as sensitive, for which cuts would be smaller.

The impact on market access and on internal European prices of such changes could be significant (among others for beef, dairy, poultry, sugar and some cereals, which are important for developing countries). But much depends on how many lines are treated as sensitive, and which ones they are – which will probably not be known until the final laps of Doha. Certainly at 8%, and to a substantial degree at 5%, the EU could shield from full tariff cuts, if it chose to do so, most if not all the agricultural products of most interest to developing countries; but then again, it might not!

Source: Stevens et al., 2007.


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in practice, without active dissent by one powerful state or any group of states). Regular efforts are made to revive active negotiation on the major points of contention. Any member can involve itself in any area – but of course small, poor countries have capacity constraints, though these can be mitigated by forming alliances with other, like‐minded countries. It is partly for this reason that there are a number of well‐established, overlapping groups among WTO members (a point developed by Kaushik, 2009). Many Commonwealth developing countries belong to one or more of the LDC, SVE, Africa, or G‐33 groups. The WTO groups to which CARIFORUM states belong are shown in Table 4 and a full list of group memberships is provided in the Appendix.

In the WTO the Caribbean states have two major related priorities. The first is to obtain recognition of the SVEs as a distinct group warranting SDT. At present only LDCs are recognised as a specific sub‐group of developing countries that receives SDT but, as indicated in Table 4, Haiti is the only Caribbean state that falls into this group. All the other states in the region are categorised in relation to SDT simply as ‘developing countries’. They have called for a new category of provisions designed specifically for SVEs which could better meet their needs.6

Table 4. CARIFORUM countries’ membership of WTO/regional groups

The second is to slow down preference erosion, particularly as far as the WTO is concerned in relation to banana exports to the EU, which has been the subject of one of the longest‐running trade disputes in the history of the GATT/WTO. Whilst the erosion of preferences on bananas (and also on sugar and rice) may have been slowed it has not been halted, and significant further erosion occurred in 2009/10. In December 2009 EU and Latin American ministers agreed a deal under which the EU will gradually cut its import tariff on bananas from Latin America from €176 to €114 per tonne.7 Full details, which will determine the impact on the Caribbean banana exporters, will become clear when the schedules of the FTAs that the EU is negotiating with both Central America and the Andean Group are finalised. The EU has also offered to mobilise up to €200 million for African and Caribbean banana‐exporting countries to help them adjust to stiffer competition from Latin America (see Klapper, 2009).

6 See Commonwealth Secretariat, 2000. 7 In response, the US has agreed to settle its related dispute with the EU.

Country Regional groups Groups with common interests ACP G‐90 LDC SVEs –

agric. SVEs – NAMA

SVEs – rules

G‐33 Para. 6 ‘W52’ sponsors

Joint Proposal

WTO members: Antigua & Barbuda Barbados Belize Dominica Dominican Rep. Grenada Guyana Haiti Jamaica St Kitts & Nevis St Lucia St Vincent & Grenadines

Suriname Trinidad & Tobago WTO observer government: Bahamas Source: Appendix – see there for explanations of the various groupings.


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If the DDR does come to a conclusion governments and parliamentarians will need to consider the details carefully. Decisions made in any international agreement, multilateral or regional, are binding in the sense that if a country does not take the promised action its partners, if they suffer loss as a result, may be authorised through dispute settlement procedures to impose sanctions. And the issues under discussion are very complex and it may not become clear for several years (perhaps only after a case has been to dispute settlement) what steps they actually require governments to take.

Many developing countries are well informed about the current state of play, probably much better informed than was the case when the previous Uruguay Round was completed and the WTO formed. But caution remains the watchword. The inclusion of Trade‐Related Aspects of Intellectual Property Rights (TRIPS) in the ‘rule book’ during the Uruguay Round is an example of how decisions made with the active support of major developed and developing countries can later be questioned (Box 19).

At the same time, there are costs in not completing the DDR which have to be taken into account when balancing the advantages of signing or not signing. Any potential gains that countries may believe the DDR offers would be lost. Moreover, if the current rules are not changed they will continue and, perhaps, be clarified through dispute settlement in ways that are disadvantageous to a country. The ‘collateral damage’ to some developing countries from past WTO disputes involving other states was noted in Chapter 3 and includes the origin of EPAs (Chapter 5).

4.3 Special and Differential Treatment

Negotiations on SDT are a part of the DDR and they offer one way to ensure that the rules are ‘development friendly’ and/or that the commitments of some countries are limited, reducing the danger of agreeing to new rules that turn out to be more onerous than expected. The SDT in the current WTO rule book is largely an eroding asset; since large parts of it will disappear in the coming years it needs to be regularly reinvigorated through the creation of new SDT measures.

There are currently three areas of SDT, and they apply to three principal groups of countries. The types of treatment are modulation of commitments, trade preferences and declarations of support, while the main country groups are the industrialised countries, all developing countries and within these the least developed.

8 Letter to the Financial Times, 20 February 2001.

Box 19. The shadow of intellectual property rules The Agreement on TRIPS was agreed as part of the WTO rule book during the round of negotiations that preceded Doha and ended in 1994. It has been heavily criticised by, for example, trade economists such as Bhagwati, whose multilateral credentials are impeccable, as ‘turning the WTO, thanks to powerful lobbies, into a royalty‐collection agency’.8 An international Commission on Intellectual Property Rights (CIPR), established by the then UK Secretary of State for Development, Clare Short, concluded in 2002 that:

… the interests of developing countries are best served by tailoring their intellectual property regimes to their particular economic and social circumstances … A crucial question, however, is how this objective can be accommodated within the complex international architecture of multilateral, regional and bilateral [intellectual property] rules and standards which impose unprecedented limits on the freedom of countries to act as they see fit in this field. (CIPR, 2002: 155)

The TRIPS Agreement has much wider relevance. It illustrates that rules can be introduced during negotiations with the support of major developing countries, the development implications of which are questioned when it is too late to do much to change them. By opening Pandora’s Box to issues that fall well outside ‘core trade policy’ it may also have had a more profound restrictive effect on potential policy space by suggesting that all economic activities are potential WTO subjects. Regional agreements have taken some restrictions further (see Chapter 5).


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4.3.1 Modulation of commitments

Some SDT provisions allow for a modulation of commitments by different types of member. Hence, for example, the Agreement on Agriculture of 1994 required the industrialised countries to reduce their tariffs by 36% over six years, but developing countries had to do so by only 24% over ten years and LDCs did not need to cut their tariffs at all.

This aspect of SDT is normally ‘legally enforceable’ in the following sense. A WTO member may use the dispensations granted under SDT in its defence if its trade policies are challenged by another WTO member on the grounds that they are not in conformity with its commitments.

4.3.2 Trade preferences

The second area is the provision of trade preferences (mainly by industrialised countries to developing). Under the 1979 Enabling Clause, WTO members are permitted to suspend the granting of Most‐Favoured‐Nation (MFN) treatment in cases where they are offering better‐than‐MFN tariffs to developing countries.

The legal enforceability of these provisions is questionable. A strong case can be made that the Generalised System of Preferences (GSP) of most industrialised countries can be justified under the SDT provisions of the Enabling Clause. In other words, if the EU were to be challenged in dispute settlement by, say, the USA on the grounds that the standard GSP tariff available to all developing countries was lower than the MFN tariff being applied to imports from the USA, the EU would probably be able to cite the SDT provisions of the Enabling Clause in its defence. However, as illustrated in Chapter 5, some implementations of trade preferences are less securely underpinned by legally enforceable SDT. Often this is because they favour one group of developing countries over another (and, hence, cannot be justified under the Enabling Clause unless the beneficiaries are LDCs).

All countries in the region have preferential access to the EU, USA and Canada. Until 2007, access to the European market for regional exports was established by the Cotonou Partnership Agreement (CPA), under which the countries only had to promise not to discriminate against goods originating in the EU compared to those from other developed countries in their import policy. This arrangement has now been superseded by the EPA initialled in 2007 by all states in the region and signed in 2008 (see Section 5.2).

Access to the USA market is covered by several regimes. The foundation is the Caribbean Basin Economic Recovery Act (CBERA) adopted in 1983, which covers 18 countries including all CARICOM except Suriname (which benefits only from the USA’s GSP). In 1990 it was made permanent and amended modestly to expand certain trade and tax benefits of the original statute. It was expanded again in September 1991 and July 1992 to offer greater product coverage. Like the CPA, the regime is ‘non‐reciprocal’, i.e. the beneficiaries do not have to offer preferences to imports from the USA in return.

This used to be the same for DR, which was a beneficiary of CBERA, but since 2007 its access to the US market has been defined by the Dominican Republic–Central America–United States Free Trade Agreement Implementation Act (DR–CAFTA). This was signed in 2004 and entered into force for DR in 2007.

In addition, Barbados, Belize, Guyana, Haiti, Jamaica, St Lucia and Trinidad and Tobago (plus Panama) are covered by the Caribbean Basin Trade Partnership Act (CBTPA) of 2000. Unlike CBERA, CBTPA is not permanent: its benefits expire on 30 September 2010, or upon entry into force of the Free Trade Area of the Americas or another FTA between the USA and a beneficiary country, whichever comes first.


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All the CARICOM countries except Haiti and Suriname have access to the Canadian market under the non‐reciprocal Caribbean–Canada Trade Agreement (CARIBCAN).9 Negotiations are currently under way (slowly) on a possible Canada–CARICOM FTA.

4.3.3 Ancillary support

The third area of SDT is wholly unenforceable. It comprises the large number of declarations of support for developing countries that litter the Uruguay Round texts. For example, Article 4 of the General Agreement on Trade in Services (GATS) deals with encouraging the increased participation of developing countries in international services trade through ‘negotiated specific commitments’ relating to the strengthening of their domestic services capacity, improvement of their access to distribution channels and liberalisation of market access in sectors and modes of supply of export interest to them. Similarly, the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least‐Developed and Net Food‐Importing Developing Countries (NFIDCs) requires members to review the level of food aid to ensure that it is sufficient to meet the legitimate needs of developing countries, to adopt guidelines to ensure that an increasing proportion is provided to LDCs and NFIDCs and to give full consideration in their aid programmes to help improve agricultural productivity and infrastructure. There are many other such references. There is no action that an aggrieved developing country can take either inside or outside the WTO to force another member (or an international organisation) to take actions that it believes are consistent with these undertakings.

One lesson is that SDT provisions are worthwhile only if they are enforceable in some fashion that is relevant to the situation to which they respond. Another is that the WTO has chosen not to have an internal mechanism to adjudicate on membership of developing country groups to which legally enforceable SDT applies; the LDC group is a UN category that WTO members have chosen to accept as a basis for special treatment and, whilst NFIDC membership requires a state to fulfil certain criteria, these are minimal. Most of the other categories are self‐selecting: each member indicates whether it considers itself to be an industrialised or a developing country (or NFIDC).

4.4 Negotiating services

Commitments on trade in services were made in the GATS as part of the Uruguay Round. Further negotiations are taking place in the DDR and there is increasing interest in agreeing rules on services in RTAs. As explained in Chapter 3, the issues involved in negotiating trade in services and the powers available to governments to influence the pattern of trade, are different from those for goods. This is partly because the scope for trade in services has expanded greatly in recent years (largely as a consequence of improved communications) and is likely to continue to grow.

The GATS has established a framework for negotiating rules and liberalisation on services. This focuses on four ‘modes of supply’ (Box 20) and what is called a ‘positive list approach’ to concessions under which countries agree only to liberalise the specific sectors and modes listed in the agreement; anything not listed is not liberalised.

The modes of supply approach is now the normal framework for services negotiations, but it is not always a straightforward guide to the likely impact of any concessions. The impact of an agreement will be determined by whether it actually alters the terms on which imports are put on sale. An initial requirement is that there must be scope for governments to agree to, and effectively implement, liberalisation. This is not always the case with services. Professional services provide a good example. If domestic law establishes that no‐one can call him/herself an accountant or an auditor unless s/he belongs to the appropriate, non‐governmental professional body, then it is the

9 Haiti benefits from Canada’s superior regime for LDCs; Suriname receives only Canadian GSP treatment.


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membership requirements of these bodies that have a major influence on whether trade can occur and in what form. And reform to their autonomously determined requirements may require wide‐ranging change to domestic law involving considerations within which trade policy is a minor element.

It may be the case that a foreign ‘accountant’ is not be permitted to advertise their Mode 1 or 2 services or to practice via Modes 3 and 4 unless they satisfy the requirements of the non‐governmental professional body. And a domestically registered company may not be able to import the services of a foreign auditor that has not obtained such recognition. On the other hand, an individual can use any foreign accountant (registered or not) to undertake private, non‐statutory work provided that they have the means to make contact, to receive the work and to pay.

In none of these cases is there much scope for international negotiation – for one of two opposite reasons. One is jurisdictional: unless the requirements of the domestic professional body are grossly biased against foreign suppliers, they are unlikely to be required to be amended even as an indirect result of foreign trade negotiations. The other is practical: governments have difficulty restricting the import through Modes 1 and 2 of professional (and many other) services by private individuals with a means of foreign exchange payment; and if governments are unable to interfere in trade, there is nothing to negotiate about. By definition, if governments are unable to restrict trade or to remove non‐governmental restrictions there is no scope for ‘liberalisation’ either multilaterally or selectively, such as through a regional agreement.

Points to remember

The caricature sometimes made of the WTO as a ‘free trade organisation’ can be misleading; it is as much about agreeing, monitoring and adjudicating on the rules within which global trade takes place.

WTO membership involves a loss of ‘policy space’ but this is also a reason to join, since the rule book applies to the rich and powerful as well as to the poor and weak. By the same token, agreeing new rules in the DDR may be attractive to a country if the constraints on its actions are an acceptable and appropriate ‘price to pay’ for those applying to others.

But checking out the potential DDR effects is difficult: because in the early stages what has been agreed is insufficiently detailed and in the later stages there is no time.

Box 20. The GATS different forms of services trade To help facilitate negotiations on services trade the WTO has identified four ‘modes of supply’. Each represents a different form of international trade in services. Trade agreements typically list their provisions according to the ‘mode of supply’ to which each relates.

► Cross‐border (Mode 1): trade takes place from the territory of one country into that of another, e.g. information and advice being transmitted electronically, or cargo transportation.

► Consumption abroad (Mode 2): consumers or firms make use of services in another country, e.g. tourism, education.

► Commercial presence (Mode 3): a firm from one country sets up in another in order to supply services. Establishment can take several forms: incorporation, branches, representative offices, joint ventures. It is a particularly common mode of supply in financial services and telecommunications.

► Presence of natural persons (Mode 4): natural persons from one country stay in another for a limited period in order to supply services. Includes the self‐employed and employees of service providers, e.g. construction and professional services.

Trade agreements also distinguish between ‘horizontal’ and ‘sectoral’ provisions. The former are in relation to rules that apply to any economic activity (unless it is specifically excluded), such as those on visas and on rights of establishment. The latter relate to rules that are specific to a particular sector, such as the regulatory frameworks for telecommunications or for banking (which will, of course, be different from each other).


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SDT in the current WTO rule book is an eroding asset, so not agreeing new rules with associated new SDT may also involve costs; much existing SDT will disappear altogether in the coming years if not replenished in this way.

Services trade negotiations are different: the powers available to governments to influence the pattern of trade are not the same as those for goods. In some cases there is little about which to negotiate as governments cannot control trade – and in others any ‘concession’ can easily be circumvented by other controls that have not been liberalised.


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Chapter 5. Regional trading arrangements

RTAs are commonplace globally as well as within the Caribbean Region. They serve foreign policy as well as trade objectives, which can be in harmony provided that the latter are realistic. Sources of tension can arise, however, because – as with all liberalisation – there are winners and losers. Forms such as FTAs require less prior agreement than do CUs, but this can allow the underlying tensions to be overlooked, only to surface as implementation progresses. The CARIFORUM states face a particular problem that a deal with Canada or the USA might trigger the ‘MFN clause’ in its EPA, requiring the same concessions to be made to the EU.

There is a very large number of bilateral and regional trade agreements and most countries belong to at least one. The surge in RTAs has continued unabated since the early 1990s. According to WTO figures, the vast majority (over 90%) of the agreements signed up to December 2008 are FTAs, with the remainder being CUs. There is a strong link between what happens in the WTO and in regional arenas. Some FTAs, for example, have been created largely because of events in the WTO (Box 21), and the stalling of the Doha Round has led to renewed activity by rich countries to negotiate new regional and bilateral accords.

Box 21. The WTO and EPAs

Parliamentarians are likely, therefore, to be required to comment upon one or more regional agreements that their country is contemplating or has negotiated. How should they respond? What are the key features? This chapter reviews the broad principles of RTAs (early sections) and then focuses attention on the most important RTAs (in existence, under negotiation or in prospect) in each region.

The one full EPA and six interim EPAs that the EU has concluded with some ACP states have their origin in adverse rulings during the 1990s, first in the GATT and then in the WTO, on the trade provisions of the Lomé Convention, the predecessor of the CPA. The rulings arose because Lomé and the CPA involved the EU discriminating in favour of some developing countries (the ACP) and against others in ways that cannot be justified under WTO rules. After two years of negotiations, and in the context of the Doha Ministerial meeting, the EU obtained support from WTO members for a waiver that would allow this discrimination to continue – but only until the end of 2007.

The CPA provided that its trade component would be recast and a successor implemented by 2008 (although the rest of the accord remains in force until 2020). The WTO texts provide three specific ‘pegs’ on which legitimately to hang discrimination, and the EU pushed for a new regime that could be ‘hung’ on the first of these. This is Article XXIV of the GATT and Article V of the GATS, which cover cases where countries are creating an FTA or CU. Two salient requirements are that the FTA must be completed ‘within a reasonable length of time’ (defined in the WTO as a period that ‘should exceed ten years only in exceptional cases’) and that ‘duties and other restrictive regulations of commerce ... are eliminated on substantially all the trade between the constituent territories’. A new FTA or CU is referred to the WTO Committee on Regional Agreements which considers its legitimacy, but as the committee has a large backlog of agreements to consider it rarely gives a verdict. In the absence of clear guidance, it is open to any aggrieved WTO member to file a complaint under the dispute settlement mechanism, and one EU CU has been challenged under this (with Turkey, by India).

The second peg is the 1979 Enabling Clause which permits ‘special and differential treatment’, allowing developed states to discriminate against other developed countries in their trade policy provided that it benefits developing countries. Some discrimination between developing countries is permissible but only if it applies to all LDCs or the difference in treatment responds ‘to a widely‐recognized “development, financial [or] trade need”…’,

The third option is the one that has been most used in the past to justify North–South preference regimes. This is to obtain a waiver from the MFN rule under Article IX of WTO. The WTO members can waive any of the agreement’s rules if they wish so to do. But the increased litigiousness of WTO members has made the waiver route a less attractive option because it has increased the scale of the horse‐trading that must be completed before consensus for a waiver is obtained.


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5.1 The objectives and potential effects of RTAs

The observation on the previous page that most countries are involved in ‘at least one’ RTA draws attention to the fact that some countries have signed up to mutually incompatible commitments in different accords. This is partly because ‘trade negotiations’ are, in reality, not always mainly about trade – they can be an extension to a country’s broader foreign policy (Box 22). RTAs can be incompatible if they require members to do different things. One country cannot, for example, belong to more than one CU. Members of a CU adopt a single set of tariffs which they all apply (often with some exceptions, but only a limited number); so one country cannot agree to a tariff on widgets of 10% in one CU and of 20% in another. For this reason no country does belong to more than one CU (by definition) but some countries have signed up to a timetable for the creation of a CU, implementation of which has not yet reached the critical point at which they must decide.

It is conventional to see RTAs as forming a hierarchy (Box 23) although this should not be interpreted mechanistically as meaning that countries always move one step at a time from one form to another. An FTA is a sensible first step for countries intending to move on to a CU since it requires fewer changes to members’ pre‐existing policies, but it is inherently much more complex to operate than a CU because it requires countries to deal with the internal movement of goods which may have come in through one country to be used in another, with a different external tariff. It may also conceal underlying problems that will prevent the successful completion of the enterprise. In an FTA each member retains its own, national tariff regime for imports from countries outside the region but removes barriers to trade within the region. But this can create problems if neighbours have very different tariffs: if country A has a 25% tariff on widgets but country B levies 0%, it will make sense for traders to import the widgets through B and then take them across the border to A, sidestepping its import controls. To avoid this (known as ‘trade deflection’) FTAs incorporate RoO – which determine whether the widget is made in country B (in which case A should not impose barriers on intra‐regional trade) or in a country outside the FTA (in which case A is entitled to levy a 25% tariff when it crosses the border from B). The more disparate the FTA members’ tariff levels, the more important become the origin rules and the internal customs inspections needed to apply them. But rigorous internal customs inspections undermine the anticipated gains from the FTA by restricting trade between the members. Unless the FTA is accompanied by harmonisation of each member’s trade policy it may fail to deliver the desired results.

An RTA is an exercise in limited liberalisation. Like any form of liberalisation, one intended effect is to allow the more efficient producers in the region to expand production (and reap economies of scale) to the advantage of consumers and the detriment of less competitive producers. This is called trade creation. But, unlike multilateral trade liberalisation, it also has the potential to result in trade diversion – and the overall impact of any agreement on its members will depend on the relative scale of these two, opposing effects. Trade diversion occurs when the removal of tariffs within the region leads to goods that were previously imported from outside (from the cheapest global source) being replaced by more expensive goods produced inside the region which can be sold for less because they no longer have to pay any import tax. Consumers still gain, although by less, but

Box 22. Trade negotiation or commercial diplomacy? Trade negotiation is often described as commercial diplomacy, and the term is an apt one. The negotiations are typically concerned not only with technical details – they are an aspect of foreign policy. If countries wish to strengthen regional links, a harmonised trade policy can provide a valuable cement to this endeavour. There are good precedents. The origins of the EU, for example, have much to do with a desire to avoid a repetition of the catastrophes of the 20th century by reinforcing more traditional foreign policy with, initially, a common policy on heavy industry (the European Coal and Steel Community) and then a common market. But there are also risks: if trade commitments are made that far outstrip any realistic assessment of what a country will actually agree to do, or if mutually incompatible commitments are made, the net result may be to undermine regional integration (if only by diverting scarce political and administrative resources into nugatory activities).


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governments lose more in tariff tax revenue and the country as a whole is able to obtain fewer imports for a given value of exports.

The scale of trade diversion will be set by the magnitude of the tariffs facing external suppliers and the relative competitiveness of regional suppliers. If the external tariff is low and the regional supplier highly uncompetitive, trade patterns may change little: the goods imported from outside will still be cheaper than those from a regional partner even though they have to pay the tariff. But if the external tariff is very high or the regional supplier fairly competitive the trade diversion can be large.

It is easy to see why the country that hosts the regional supplier would want to enter into an FTA (since it can increase its firms’ exports), but what is in it for the importing state? One reason why RTAs falter is that they become perceived as being unbalanced, with the dominant economy gaining more from an increased market than the others. Unless each member has offsetting areas of gain and loss (e.g. because they all have firms that, perhaps in different sectors, can expand exports to their neighbours) there may need to be explicit compensation provisions (or non‐commercial benefits) to maintain the resolve of all countries.

In consequence, the merits and problems of every RTA for each country are case specific. Parliamentarians have to decide in each and every case how far it is in their country’s development interest to accept the obligations of RTA membership as well as the concessions of their partners. They also need to consider the consequences of RTAs formed among their trading partners, as these will have trade diverting effects against their country. In particular, they must consider whether joining one RTA will provoke the creation of other RTAs.

Box 23. The hierarchy of regional trade agreements It is conventional to recognise five, increasing levels of economic integration, although this can be misleading. It is not necessary for a group of countries to move sequentially up the levels. And, as explained in the main text, it is not necessarily the case that lower steps on the hierarchy are easier to achieve than higher ones. An FTA, for example, faces similar issues to a CU of harmonising the policies of its members, but allows them to be suppressed rather than confronted head on (with the result that the FTA runs into implementation problems or fails to deliver the expected economic gains).

1. Preferential trade arrangement, (not to be confused with trade preferences offered by rich to poor states) which is the simplest form of economic integration; it requires only that participating countries grant each other preferential (but not necessarily free) access to each others’ markets.

2. Free trade area, in which both tariffs and quantitative restrictions are abolished among member countries which, none the less, retain their own external tariffs (on imports from outside the FTA) and so do not have harmonised trade policies. Differences in external tariff rates generally make it necessary to impose RoO on intra‐group trade.

3. CU, in which members establish a common customs area. At a minimum this generally requires a Common External Tariff (CET) on imports from non‐members and no import tariffs on trade between members. This has additional implications for the use of anti‐dumping and other contingent protection measures, for RoO (depending on the revenue collection and distribution arrangements chosen, they may not be needed) and also for the rules governing the operation of export‐processing zones and the granting of other fiscal privileges for goods shipped outside of the customs area. CUs are also assumed, normally, to involve the same abolition of internal tariffs and quantitative restrictions as an FTA and, as such, to be ‘the next step’.

4. Common market, which is a CU that allows the free movement of capital and labour among members and a harmonisation of trading standards and practices, together with a common trade policy towards third parties which goes beyond simply a CET.

5. Economic union, in which the members of a common market also harmonise their economic policies, including some coordination of monetary and fiscal policies, and also transportation and competition policies.


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5.2 Recent RTAs and current negotiations

Fifteen of the Caribbean states belong to CARICOM, and a further five are associate members; nine also belong to the Organisation of Eastern Caribbean States (OECS) – see Box 24. Most CARICOM members10 have agreed a Common Market and a CU, whilst the OECS is a Monetary Union with a single currency. Although only one Caribbean state (Haiti) is recognised internationally as an LDC, the members of CARICOM are divided into More Developed Countries (MDCs) and Less Developed ones, with the former offering SDT in terms of commitments under the CU to the latter.

CARICOM was established in 1973 by the Treaty of Chaguaramas, which superseded the Caribbean Free Trade Association (CARIFTA).11 In 2001, the Treaty of Chaguaramas was revised, clearing the way for the transformation of the CU into the CARICOM Single Market and Economy (CSME). The OECS was created in 1981 by the Treaty of Basseterre.12

Opinion is divided over the extent to which CARICOM is an effective CU. Critics point to the fact that the CET, which defines a CU, is not really common as there is scope for significant tariff suspensions and reductions and national derogations (see Box 25). By contrast, supporters regard this policy of variable geometries and differentiation as crucial for Caribbean integration; lesser developed OECS countries regard such derogations as essential because they rely heavily on customs revenue, an issue taken up in Chapter 6 (te Velde and Meyn 2008).

In 1989 CARICOM signed an FTA for goods with DR. Together they form the CARIFORUM sub‐group among the ACP signatories of the CPA, and they have agreed with the EU the only full EPA so far negotiated (Box 26). The CARIFORUM–EC EPA has been signed by all CARIFORUM states except Haiti (although the Bahamas has postponed completing and submitting its services and investment offers). In addition to liberalisation on goods, the EPA includes liberalisation of services and investment as well as a number of other ‘behind the border’ measures and clauses such as MFN and regional preference; the latter clause means whatever is granted to the EU in both goods and

10 Excluding the Bahamas and Haiti. 11 The first signatories were Barbados, Jamaica, Guyana and Trinidad and Tobago. 12 As the successor to the West Indies Associated States. The OECS was in part established to serve as an umbrella body

for already existing institutions such as the Eastern Caribbean Currency Authority (1965), later renamed the Eastern Caribbean Central Bank (1983), as well as the Eastern Caribbean Supreme Court (1967).

Box 24. Membership of CARICOM and the OECS CARICOM members Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Suriname, Trinidad and Tobago.

CARICOM associate members Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Turks and Caicos Islands.

Note: Countries in italics = OECS states; countries in bold = MDCs.

Box 25. Implementing CARICOM All CARICOM countries except Bahamas and Haiti are members of the CSME that entered into force in 2006 and established a Common Market. Signature and ratification of the agreement is, however, still outstanding for Montserrat. The provisions of the Revised Treaty of Chaguaramas have been largely implemented and intra‐regional tariffs have been removed within the CSME. In January 1993 member countries adopted a CET for all goods, except agriculture, which was introduced in four phases by 1998. By 2007 all of the 12 full members of the CSME except for St. Kitts and Nevis had completed the implementation of the Fourth Phase of the CET and were in the process of implementing the revised structure of the CET based on the 2002 Harmonised System. However, so far only Jamaica and Trinidad and Tobago have reported taking action. Tariff harmonisation and reduction is particularly difficult for the OECS members of the CSME, which rely heavily on customs revenue as an income source. The average CARICOM tariff is now 10% (compared to 20% in 1990).

Source: te Velde and Meyn, 2008.


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services must also be granted to other CARIFORUM members. This has caused some alarm since it means that countries will need to liberalise towards the DR (which is a competitive supplier of goods also produced in the smaller Caribbean states) at the same pace as towards the EU (which tends to export goods that are different from those produced in the Caribbean). The Caribbean states have very different liberalisation schedules during the EPA implementation period. This has added to the debate over the effectiveness in practice of the CSME. Some argue that the EPA has served to further institutionalise the fragmentation of the CSME as a CU (Gasiorek, 2008). Others argue that the EPA may serve to anchor the regional commitments that states have given to the CSME at a political level but have failed fully to implement (Lodge, 2008).

One important but as yet unmeasured potential positive effect of the EPA is that it may boost CARIFORUM services exports. All CARIFORUM states except Guyana and Suriname have a service sector that is the most significant contributor to GDP (as was shown in Table 3, p. 14). Preferential access to the EU services market was therefore a prime motivation for the signature and ratification of the agreement, which provides for the temporary movement of natural persons (Mode 4) in conjunction with commercial presence, such as foreign direct investment (Mode 3). There is general agreement about some of the achievements of the agreement, but the challenge now remains its implementation.

Box 26. Lessons from the CARIFORUM–EC EPA What lessons can Caribbean parliamentarians derive from the EPA? Four are worth mentioning.

One is that although the Caribbean negotiates as a single entity, the resulting agreement is based on different national provisions. The EU pushed very hard for a single CARIFORUM undertaking – and failed. CARIFORUM will effectively not have a CET in place for the EU until 2033 at the earliest. There are such significant differences between the individual country liberalisation schedules that have been agreed under the CARIFORUM EPA that the regionally coordinated element to the exercise is less apparent than the national element.

A second lesson is that some time will elapse before any major changes affecting CARIFORUM imports will be implemented. Some states must remove some tariffs (a few of which are high) very soon, but apart from this initial flurry of activity a start will not be made on dismantling most of the high‐tariff items that will be liberalised during the EPA until 2011, and they will not have been reduced to zero until 2023. Moreover, the region has obtained an additional ten years (to 2033) to liberalise a relatively small number of particularly sensitive items.

The third lesson is that the new rules on areas of trade‐related policy other than tariffs are much less transparent than those on tariffs.

► In principle a whole raft of non‐tariff restrictions to imports of goods must be removed on the EPA’s entry into force; in the case of what may be called ‘para‐tariffs’ they must be removed within ten years. The term para‐tariff has been coined to describe charges that are applied to imports but not to domestic products (such as a fee for issuance of an import licence) that exceed the cost of providing any services provided by the government in return. But, since the taxes and restrictions are not specifically listed in the EPA, there exists some ground for interpretation.

► In cases such as the contentious ‘MFN clause’ (under which CARIFORUM must extend to the EU any more favourable deal they strike in future with another big trading country), implementation will be required only when specific events have occurred, and only at that point will it become possible to assess the likely impact.

This uncertainty is important because the absolute impact of such measures could be much greater than that of the removal of tariffs (at least until the final years of liberalisation). When approving the EPA, therefore, Parliaments could not know the full implications – a problem that may well occur with future trade deals brought before them.

Fourth, for those countries motivated primarily by a pragmatic desire not to lose preferences for their exports, the cost of leaving the EPA at some point in the future when faced with implementing an unacceptable commitment will be set by the commercial value at that time of the market access granted by the EU. Currently, the highest costs of leaving the EPA would be faced by countries exporting sugar and rice to the EU. By contrast, the costs of leaving are small or negligible for Antigua and Barbuda, Bahamas, Grenada, St Kitts and Nevis, St Vincent and the Grenadines and Trinidad and Tobago. Unless there are innovations (such as tying aid to EPA membership) the costs of leaving will therefore decline largely according to the tempo of sugar and rice preference erosion. Calculating this ‘cost of leaving timetable’ is an important part of parliamentary scrutiny of any new trade agreement.

Source: Stevens et al., 2009.


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Points to remember

Some countries have signed up to mutually incompatible regional commitments. This may be because ‘trade negotiations’ are being used positively as an extension to a country’s broader foreign policy. But commitments that far outstrip any realistic assessment of what a country will actually agree to do, or are mutually incompatible, may eventually undermine regional integration.

The impact of RTA liberalisation depends on the relative scale of two, opposing effects. Trade creation occurs if the more efficient producers in the region expand production to the advantage of consumers and detriment of less competitive producers. Trade diversion occurs if less competitive (but tariff free) regional goods replace more competitive goods from outside the region.

Tariff reduction may pose a serious revenue challenge to small states, but a failure to develop alternative sources of government income may make it hard to develop RTAs.

As tariff preferences erode, RTAs need to remove other barriers to remain relevant. Less onerous RoO or positive assistance to meet SPS are required. In their absence, the cost to countries of leaving the RTA (when difficult decisions start to be required) will tend to fall over time.


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Chapter 6. The role of parliament

Parliament is central to trade policy because the decisions are inherently political and require close consultation with a wide cross‐section of the population if they are to be acted upon and implemented effectively. But trade policy is also very context specific, so this chapter offers some suggestions for applying the general lessons of the Guide to the specific cases that will come before Caribbean parliaments in the coming months and years. Perhaps the most important single factor determining whether trade policy is pro‐developmental is whether a country has clear, realistic and prioritised objectives for the role of trade in its development. This will, in turn, provide the context for the questions that parliamentarians should ask when trade matters come before them. At the same time, consultation can be controversial since the best sources of information (and those most interested in change) also have an interest in the outcome of any decisions. There is an integral link between trade and finance policy. If tariffs are not replaced by alternative taxes, for example, countries may be excluded from negotiations that would otherwise be desirable (or face a government revenue shortfall). But change has distributional implications that legislators are well placed to decide upon – if they have the information. One potential new source of revenue to fund the many costs associated with trade policy change is AfT. The international community has given strong rhetorical support for this (in the context of the WTO) but action is falling well short.

6.1 Applying broad principles to specific tasks

This Guide has provided parliamentarians with broad principles and background information – but the tasks that they are called upon to perform will be very context and country specific. The Guide may help to orientate them as they apply themselves to the detail of the issue in hand on which they must quiz the executive on its plans, scrutinise proposed new trade‐related legislation, vote on new agreements and, not least, ensure that the budget adequately responds to trade‐induced demands. But it cannot offer an analysis for any of the specific issues that will come before the Caribbean parliaments in the coming months and years.

One of the functions of this chapter is to help bridge this gap – to offer an approach for applying the guidance offered in the preceding chapters to the specific trade issues addressed by parliamentarians. This involves, first, identifying the features of a trade policy or ‘event’ on the world market that are of particular importance to parliamentarians (as opposed to the executive, the negotiators or the traders, producers and representatives of civil society). In fulfilling their role parliamentarians will often require inputs of relevant technical information – but this will not establish the questions that they should ask. Only if the right questions are asked are the answers likely to be enlightening. The first section of this chapter aims to help frame these questions.

Trade now affects many areas of government policy – but the link with finance remains central. In one way or another trade policy and government’s financial policy (on revenue and expenditure) go hand in hand. And financial control is a central legislative responsibility. For this reason, the second section of this chapter gives particular attention to aspects of this trade–finance link that may be of particular relevance for legislators.

6.1.1 Trade policy is political

Trade affects different members of the community in different ways: it creates winners and losers; so does trade policy. Trade permeates society in many subtle ways, so that its effects may be hard to predict or to pin down (given that other things are happening at the same time); the same applies to trade policy. And trade policy tends to involve a very large number of small changes, the precise nature of which may become clear only as the ink dries on a new agreement (or well after). Yet if the


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good things expected from a new trade policy are to come about (and bad things be avoided), stakeholders need to know what is new, how it may affect their lives, and what they can do about it.

In short, politics and communication are at the heart of the matter – and so too, therefore, are parliamentarians. Their input comes at every stage.

► Trade policy is an instrument for advancing a country’s development and, hence, must reflect this strategy and vice versa – development goals must be framed within a realistic expectation of what trade can deliver (which may mean giving trade a higher profile in strategy formation than has traditionally been the case). This means making political choices on the areas and arenas within which to focus. The smaller and poorer a country is, the more important is it that it focus because of capacity constraints. This makes the task of parliamentarians and the other responsible parties tougher, since the range and scale of interests may be at least as great as those of richer states and the available options more limited (Box 27).

► This involves, among other things, taking the electorate along with the debate – making sure stakeholders are well aware of the alternative choices available and their potential effects, which necessarily requires parliamentarians to be well informed themselves.

► It means scrutinising, debating and passing the legislation required to put trade policy into effect in the knowledge of what is actually likely to result and what is hyperbole.

► Not least it means dealing with the financial consequences of changes to trade and to trade policy.

As will have become clear from the preceding five chapters, there are no universal certainties, no easy slogans that can capture the essence of the issues facing each country and the extent to which they are dealt with satisfactorily by broad types of trade or trade policy. There is no shortcut to parliamentarians assessing each episode that comes before them on a case‐by‐case basis. None the less, the tools described in Chapters 2–5 may help with an initial classification of the issue at hand. Similarly, the tasks facing parliamentarians will be specific to their country, but the Guide can offer some broad, sensitising guidance.

Box 27. Establishing priorities One suggestion is that the focus for building governance capabilities should be on sectors where there is already growth but which could be accelerated and also where there is a challenge to move up into higher‐value products or up the value chain Khan (2008). The ‘priorities for capacity‐building’ need to be ‘selected in such a way that the political capacity for exit is assured if results are not satisfactory’ (p. 15), and the potential for linkage effects that promote policy learning maximised.

The ready‐made garments sector in Bangladesh is an example. It has been very successful, so far, in maintaining its level of exports to its major markets (the EU and US), despite the phasing out of the Multifibre Arrangement (2005), the removal of safeguards on Chinese exports (2008) and the GFC. But it risks being squeezed from two sides: by countries higher up the value chain (which are more productive, with higher‐quality products and closer links to buyers), and by countries with lower wages that are aggressively seeking to enter the same markets as Bangladesh (for example, new entrants to the US market under the African Growth and Opportunity Act).

Priority setting is also crucial in trade negotiation, especially for countries facing capacity constraints – and difficult, because it may mean selecting the most important negotiations over those that are merely very important. The Caribbean, for example, has invested significant resources in the EPA negotiations with Europe, which may well have been a high priority for some states heavily dependent on exports to Europe of goods that obtain strong preferential market access. But is the same true of an FTA with Canada (which was originally proposed by the Caribbean rather than by Canada)? How many resources should be devoted to negotiations with the Asian powerhouse economies compared to hemispheric partners given that they account for a rapidly growing share of world imports?

Source: Adapted from Khan, 2008.


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6.1.2 Linking trade to development

Trade policy should reflect national economic priorities; it should not be the other way round. And in developing countries development will be one of the national priorities. So developing countries need to work backwards from their development and other priorities to the national economic policies required to give them effect, the trade instruments that are required to support these priorities and policies and, finally, the arenas/partners involving these instruments.

Unless a trade policy goal can be achieved wholly through autonomous actions by the country it has to be translated into a negotiable point (Box 28). These must be in a form that:

► can be expressed unambiguously in a legal agreement;

► is achievable; and

► is monitorable.

The first requirement means that complex objectives may need to be broken down into their component parts so that each can be expressed succinctly and unambiguously in the text of any agreement. Economic growth in agricultural exporting countries, for example, requires functioning and well‐resourced government extension and animal health services, backed by appropriate research. Any trade agreement that aims to enhance export opportunities will require for its successful achievement the rehabilitation of any such services that are not currently functioning – and support for this will normally be required over a long period of time. Sustainable job‐creating economic growth in agricultural economies also requires adequate rural and trade physical infrastructure. Hence the objective of rapid growth may require commitments to build roads, ports and airport facilities.

Goals must be achievable. If the aim is to use the agreement to reach certain targets, these must involve actions:

► over which the negotiating governments have power;

► which will contribute to the goal;

► and on which action can be enforced.

If the outcomes from any negotiation fail on any of these criteria then their effects may be very different from what was predicted. As explained in Chapter 4, this is a particular problem with services trade negotiations, for which the power of governments (even in rich countries) is very polarised. In some cases (such as consumption abroad or over the internet by consumers with access to foreign exchange) a government can do little to restrict trade, and hence there are no barriers to be negotiated away. In other cases, it has no direct power to remove obstacles (since they are

Box 28. Operationalising needs No country can negotiate effectively if it does not know what it wants. Perhaps the most important single factor determining whether trade policy is pro‐developmental is whether a country has clear, realistic and prioritised objectives for the role of trade in its development. Moving from broad development goals to effective trade policy (and a clear strategy for any trade negotiations) requires four, increasingly precise, steps: from strategy to goals, to targets and to negotiable points.

The ultimate objectives as set out in the development strategy have to be translated into specific goals for trade policy and trade negotiations. In what broad ways could the Doha Round or the conclusion of a new RTA help to advance this strategy? How might they hinder it?

The answer to such questions will lead the way to the creation of two sets of targets: positive ones that identify the precise features needed in any autonomous or negotiated policy to fulfil the goals; and negative ones – features that would retard achievement of the strategy. These targets then need to be broken down into negotiating points that specify precisely what must be done domestically or requested of partners in trade negotiations in order to achieve the positive targets and avoid the negative ones.


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applied by private or independent semi‐public organisations, for example to establish recognition of qualifications). And in yet other cases it can afford to ‘liberalise’ on one policy since it retains a range of alternative ways to obtain the same, protective objectives (if, for example, it allows foreign banks to establish but then uses the prudential regulatory role of the central bank to limit the number of banks in the country and immigration controls to limit access to foreign professionals).

6.1.3 Creating a bridge to stakeholders

It is often remarked that the negotiating teams of the larger developed countries are huge compared to those of most developing countries. But it is worth remembering that at least as important as the disparity in size is the difference in composition. Some delegations include representatives of producer and consumer interests. It is their task to identify the commercial implications of proposed rules and, in turn, to make suggestions on drafting that would produce the commercial results that they favour.

The identified problem of understaffing in many developing country delegations may therefore be merely the tip of an iceberg if it reflects the absence of an integrated mechanism that links trade negotiators with the producer and consumer groups within a country that can identify society’s offensive and defensive interests in any set of negotiations. Dealing with this lack of linkages is encapsulated in the phrase ‘mainstreaming trade policy’. And it is vital. Without it the negotiators, however well staffed, are operating in something of a vacuum.

Stakeholder involvement may help at an even earlier stage – deciding where to focus. A key element in deciding in which negotiations to participate most actively is their relevance to the sectors of the economy of greatest development importance. Those that are relevant must be assessed to determine the extent to which they will result in enforceable changes to relevant policies of trade partners, or constrain the instruments available to the government to influence the domestic impact of trade changes. The answers, in turn, focus attention on important actual or potential trade partners. It is the firms that are actually trading that can best identify the obstacles they face and determine, together with trade experts, whether, where and how these could be reduced through negotiation.

At the same time, too close an involvement of stakeholders has been criticised. During the 1980s in particular government intervention in trade policy was sometimes seen crudely as akin to ‘rent‐seeking’ by individuals and firms. The rhetoric softened throughout the 1990s (see Chapter 2).

Even so, there are distributional and informational problems associated with trade policy reform: who knows about the policy, its consequences, and gets compensated? Governments necessarily rely on producers and exporters to provide technical detail and market intelligence – but of course these stakeholders also have their own agendas. Balancing their well‐informed and specified interests with the needs of the less well informed (who may include tomorrow’s producers of the next generation goods and services) is a challenge that parliamentarians are among the best qualified to deal with. In short, trade policy cannot be considered in isolation from other policies or its political and historical context; it requires complex trade‐offs and the creation of alliances together with careful sequencing and monitoring.

An added problem is that implementation must begin immediately after negotiation has ended. This may be a major stumbling block unless prior political consensus has been built: without ownership, full implementation of an agreement may well not be achieved. Yet the full implications of an agreement may not have been entirely understood even by the negotiators. Often ‘surprises’ included in agreements are uncovered only once implementation begins, and may cause the reform process to slow or break down completely.

A democratic system is considered, by its very nature, to encompass greater opportunity for balances to be checked, trade‐offs within domestic constituencies negotiated, and different special


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interest groups placated. It also provides a good arena within which to identify those losers from trade change that require support and for devising the appropriate assistance measures. However, this may also mean that the process becomes cumbersome and in some cases get stuck in its tracks.

6.2 Financing trade policy change

A primary concern of legislators is often with government finance: how and where are taxes to be raised and how are they to be spent? Since any trade agreement has financial implications, it concerns a basic function of parliament. There are new laws to be drafted and institutions to create. Tariff cuts must be offset either by other sources of government revenue or by spending cuts. Producers may require finance (whether from the government or private sources) to gear up to take advantage of any new export opportunities. Those producers facing stiffer import competition may need help to become more efficient or to diversify into new lines. If they lose business their workers (and the communities in which they operate) will need help to find new livelihoods. The systematic approach of the sustainability impact assessment provides an excellent basis on which to estimate these costs.

6.2.1 Shifting taxes

A particular issue for some of the Caribbean states, especially the smaller ones, is that tariffs account for a large share of government revenue. Since the EPA, the CSME and other trade negotiations tend to involve proposals for a reduction in or removal of tariffs this presents an obvious challenge.

With weighty considerations on both sides of the FTA argument, it is incumbent upon legislators to consider their country’s options carefully. It may be true that a country cannot afford to liberalise – but this is a conclusion that should not be assumed to be axiomatic; it needs to be soberly tested.

On the one hand, substituting a sales tax for a tariff is particularly easy for a small island economy. Because it is small, many goods are imported. Because it is an island, most imports enter the country through a limited number of sea or airports where they are examined in any case by customs officials whose role already normally includes the collection of any sales tax on imports. So the substitution of a sales tax for a tariff on imports is very straightforward. Collecting the sales tax on domestically produced goods is more challenging. But in an economy where much is imported, under‐collection of sales tax on domestic production will not dent government revenue by as much as it would in a larger economy.

At the same time, as explained in Chapter 3, the distributional impact of a sales tax will be different from that of tariffs (assuming that the former is set at a uniform level for all goods whilst the latter is set at differing levels). The first step is to calculate how high the sales tax would need to be (or by how much any existing sales tax would need to be raised) in order to generate the same level of revenue as will be lost by tariff cuts. The second is to identify how the tax burden will change on key goods: on which goods will cumulative taxes go up (and by how much) and on which will they come down (by how much). And the third preparatory step is to identify the potential social and economic implications of the larger changes. Armed with this information, parliamentarians can begin to take informed decisions on whether the tax regime can be changed and, hence, whether they can afford to participate in trade negotiations where liberalisation will be on the agenda.

6.2.2 Aid for Trade

Tax reform is the stuff of government with which any legislature is familiar, but there is also something ‘new’ – help that may be at hand to support trade reform. An important task for parliamentarians will be to press their government (and donors) to ensure that appropriate aid is obtained.


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There is now a wider recognition of these costs and of the desirability of making provision in parallel with the trade negotiations. Captured in the term ‘Aid for Trade’, this concern became prominent in the DDR.13

The costs of trading became an important issue in the DDR because developing countries were still facing costs from implementing the previous Uruguay Round and feared that they would be faced with additional costs in the new Round. In particular the extension of trade rules to new areas such as intellectual property (Chapter 4), and the tightening of rules on existing areas, had already led to complaints that the costs of compliance were high for developing countries, often out of proportion to any benefit. Developing countries stated that they would not accept new obligations without guaranteed assistance to meet the costs. A second contributory cause was the concern of some developing countries about preference erosion (Chapter 4), which has been assessed in various studies commissioned by the Commonwealth Secretariat.14 Those countries that already had favourable preferential access feared that multilateral liberalisation would reduce their export revenue. Starting in 2003, developing countries began suggesting special funding as a necessary part of any trade agreement.

In 2004 a way was agreed to deal with the first cause of concern: regulatory costs. In the case of the proposed new rules on trade facilitation (how goods are treated at the border), it was agreed that countries that did not receive the ‘required support and assistance’ would not be bound to implement the new rules.

To deal with the much higher potential real costs from preference erosion, WTO members formally adopted at the December 2005 General Council meeting AfT ‘to build the supply‐side capacity and trade‐related infrastructure that [developing countries] need to assist them to implement and benefit from WTO Agreements and more broadly to expand their trade’ (WTO, 2005: para. 57). They have also established a system of reviewing and monitoring progress in meeting the AfT goals, based on an annual Global Review. It monitors data collected by the OECD Development Assistance Committee’s Creditor Reporting System for all aid and, jointly with the OECD, it issued questionnaires in 2007 and 2008 to bilateral donors, recipient countries, and some international agencies asking for information on their AfT strategies and what they fund or receive. Monitoring of AfT is also included in the WTO’s periodic Trade Policy Reviews.

Despite the weight of the formal monitoring process, the level of AfT so far has been underwhelming. This is especially the case for SVEs – a category of countries with special needs in relation to at least two AfT pegs: weak capacity to trade and high adjustment costs. Despite this, no donor has specific AfT programmes for this group of countries. In their preparations for and monitoring of trade negotiations (and implementation of the results) parliamentarians need to exert whatever pressure they can for the WTO commitments to be met and adequate AfT provided.

Points to remember

Politics and communication are at the heart of trade policy – and so too are parliamentarians. Their input comes at every stage.

There is no shortcut for parliamentarians: since there are no universal certainties they must assess each episode that comes before them on a case‐by‐case basis. None the less, a list of key questions can be identified that will often go to the heart of parliament’s scrutiny or approval role.

13 This history of AfT is derived from Keane et al., 2009. 14 Milner et al. (2010), for example, look at how best developing countries should respond to this erosion of trade

preferences, either through restructuring individual preference arrangements or by acting to offset the adverse effects of preference erosion.


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► Does the executive’s proposal reflect national economic priorities; have broad goals been expressed as specific, practical and implementable proposals and can these be achieved wholly through autonomous actions or must they be negotiated?

► What are the financial implications – in terms of the distribution of the tax burden on different groups and the implications for expenditure; if new taxes must be raised, who will face an increase (and who a decrease) in the tax they must pay; if revenue falls how will expenditure cuts be distributed?

► Who will win and who lose from the events brought before parliament (whether they be the effects of an external trade ‘shock’, or a specific proposed change to trade policy, or a proposal to open negotiations with an international organisation or trade partner); how vulnerable are the losers and what mitigation can government offer them through modulation of its instruments affecting the distribution of gains from trade; how can their views be brought into this process?

► Which socio‐economic groups need to alter their behaviour (and how) if any expected gains are to be achieved and costs to be mitigated; what messages must parliamentarians pass to their constituents and how can they be made both accurate and easily understood?

► What monitoring process needs to be established and how can it be made relevant to the challenge and timely? Impact assessment is not a ‘one‐off’ undertaken during or soon after an event (still less by external consultants acting alone) – it is a regular process that needs to be repeated at intervals as the effects of an external ‘shock’ or new policy feed their way through the economy.


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References and further reading

References

Alleyne, T. (2008). ‘The Global Financial Crisis – Implications for the Caribbean’, presentation made at the Caribbean Development Bank Conference, Barbados, December (http://www.caribank.org/titanweb/cdb/webcms.nsf/AllDoc/ECEA4E69DFA09D50042575210067FEF2/$File/GlobalFinancialCrisis.pdf).

Borchert, I. and Mattoo, A. (2009). ‘The crisis‐resilience of services trade’, Policy Research Working Paper 4917. Washington, DC: World Bank.

Calì, M. (2008). ‘Migration restrictions and the brain drain: The wrong response to an ill defined problem’, ODI Opinion No. 98, April. London: Overseas Development Institute (http://www.odi.org.uk/resources/download/1205.pdf).

Calì, M. (2009). ‘Nationalising British jobs’, New Statesman, 4 March.

Calì, M. and Kennan, J. (2009). ‘The Global Financial Crisis and Trade Prospects in LDCs’, mimeo (September). London: Overseas Development Institute.

Calì, M. with Kennan, J. (2010). ‘The Global Financial Crisis and Trade Prospects in Small States’, Economic Paper 90. London: Commonwealth Secretariat.

CARICOM (2002). CARICOM’s Trade in Services 1990–2000. Georgetown: Caribbean Community Secretariat (http://www.caricomstats.org/Files/Publications/trade%20in%20services.pdf).

CARICOM (2008). CARICOM’s Trade in Services 2000–2005. Georgetown: Caribbean Community Secretariat (http://www.caricomstats.org/Files/Publications/Trade%20in%20Services_2005.pdf).

Chauffour, J.‐P. and Malouche, M. (2009). ‘Recent developments in international trade’, mimeo, World Bank.

CIPR (2002). Integrating Intellectual Property Rights and Development Policy. London: Commission on Intellectual Property Rights (http://www.iprcommission.org/papers/pdfs/final_report/CIPRfullfinal.pdf).

Commonwealth Secretariat (2000). ‘Small States: Meeting Challenges in the Global Economy’, Report of the Commonwealth Secretariat/World Bank Joint Task Force on Small States, Excerpt from the Final Communiqué of the 61st meeting of the Development Committee held in Washington, DC, on April 17, 2000 (http://www.thecommonwealth.org/Shared_ASP_Files/UploadedFiles/03D192EA‐CCF2‐4FA2‐96B3‐F7DA64AD245B_taskforcereport.pdf).

Docquier, F. and Marfouk, A. (2006). ‘International migration by educational attainment (1990‐2000)’, in C. Ozden and M. Schiff (eds) International migration, remittances and development. New York: Parlgrave Macmillan.

Fajnzylber, P. and López, J.H. (2008). Remittances and Development, Lessons from Latin America. Washington DC: The World Bank (http://siteresources.worldbank.org/INTLAC/Resources/Remittances_and_Development_Report. pdf)

Gasiorek, M. (2008). ‘Workshop on the CARIFORUM–EC Economic Partnership Agreement. A first look at challenges and opportunities: Market Access Aspects’, presentation made in Brussels on 13 February 2008 (http://trade.ec.europa.eu/doclib/docs/2008/april/tradoc_138607.pdf).


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Grynberg, R. and Newton, S. (2007). ‘Problems of Commodity Dependence’, in R. Grynberg and S. Newton Commodity Prices and Development. Oxford: Oxford University Press.

Jones, E., Deere‐Birkbeck, C., and Woods, N. (2010). Manoeuvring at the Margins: Constraints Faced by Small States in International Trade. London: Commonwealth Secretariat.

ITC (2010). ‘ITC Trade Map Factsheet: LDC Trade Recovery in 2009’, January. Geneva: International Trade Centre (http://www.intracen.org/docman/PRSR14800.pdf).

Kaplinsky, R. and Messner, D. (2008). ‘Introduction: The Impact of Asian Drivers on the Developing World’, World Development, Vol. 36, No. 2: 197–209.

Kaplinsky, R. and Morris, M. (2001). ‘A Handbook for Value Chain Research’, prepared for the International Development Research Centre, Ottawa (mimeo) (http://www.globalvaluechains.org/docs/VchNov01.pdf).

Kaushik, A. (2009). ‘The Emerging Role of LDCs in WTO Decision‐Making Processes’, Commonwealth Trade Hot Topics, Issue 66, http://www.thecommonwealth.org/files/216703/FileName/THT66TheEmergingRoleofLDCsinWTODecision‐makingProcess.pdf.

Keane, J., Page, S., Kergna, A. and Kennan, J. (2009). ‘Climate Change and Developing Country Agriculture: An Overview of Expected Impacts, Adaptation and Mitigation Challenges, and Funding Requirements’, Issue Brief No. 2, ICTSD‐IPC Platform on Climate Change, Agriculture and Trade. Geneva: International Centre for Trade and Sustainable Development (http://ictsd.org/i/publications/66967/).

Khan, M. (2008). ‘Building growth‐promoting governance capabilities’, study prepared for UNCTAD as a background paper for The Least Developed Countries Report 2009. New York and Geneva: United Nations.

Klapper, B. (2009). ‘EU, Latin American Countries end Banana Dispute’. Geneva: International Centre for Trade and Sustainable Development (http://ictsd.org/i/press/ictsd‐in‐the‐news/66270/).

Lall, S. (1993). ‘Understanding Technology Development’, Development and Change, Vol. 24, Issue 4: 719–53.

Lall, S. (2000). ‘Selective Industrial and Trade Policies in Developing Countries: Theoretical and Empirical Issues’, QEH Working Paper Series QEHWPS48. Oxford: University of Oxford (http://www3.qeh.ox.ac.uk/RePEc/qeh/qehwps/qehwps48.pdf).

Lodge, J. (2008). ‘CARIFORUM EPA Negotiations: an initial reflection’, Trade Negotiations Insights, Vol. 7, No. 1: 6–8 (http://www.acp‐eu‐trade.org/library/files/TNI_EN_7‐1.pdf).

McCulloch, N., Winters, L.A. and Cirera, X. (2001). Trade Liberalization and Poverty: A Handbook. London: Centre for Economic Policy Research.

Milner, C., Zgovu, E., and Morrissey, O. (2010). Policy Responses to Trade Preference Erosion: Options for Developing Countries. London: Commonwealth Secretariat.

Page, S. (2007). ‘Policy space: Are WTO rules preventing development?’, ODI Briefing Paper 14, January. London: Overseas Development Institute (http://www.odi.org.uk/resources/download/82.pdf).

Prebisch, R. (1950). The Economic Development of Latin America and Its Principal Problems. New York: United Nations.


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Rege, V. (2010). ‘Negotiating at the World Trade Organisation’, Lessons from the Commonwealth No 1. London: Commonwealth Secretariat.

Rudaheranwa, N. (2009). ‘Biofuels Subsidies and Food Prices in the Context of WTO Agreements,’ Commonwealth Trade Hot Topics, Issue 63, http://www.thecommonwealth.org/files/214119/FileName/THT63BiofuelSubsidiesandFoodPrices.pdf

Stevens, C., Matthews, A. and Wiggins, S. (2007). ‘The options for CAP Reform and their implications for developing countries’, report prepared for the UK Department for International Development (mimeo, September). London: Overseas Development Institute.

Stevens, C., Kennan, J., and Meyn, M. (2009). ‘The CARIFORUM and Pacific Economic Partnership Agreements’, Economic Paper 87, London: Commonwealth Secretariat (http://publications.thecommonwealth.org/the‐cariforum‐and‐pacific‐acp‐economic‐partnership‐agreements‐681‐p.aspx).

UNCTAD (2008a). Private Sector Standards and National Schemes for Good Agricultural Practices: Implications for Exports of Fresh Fruit and Vegetables from sub‐Saharan Africa. Experiences of Ghana, Kenya and Uganda. New York and Geneva: United Nations (http://www.unctad.org/trade_env/test1/publications/UNCTAD_DITC_TED_2007_13.pdf).

UNCTAD (2008b). Economic Development in Africa 2008. New York and Geneva: United Nations (http://www.unctad.org/en/docs/aldcafrica2008_en.pdf).

UNCTAD (2008c). Development and Globalization: Facts and Figures 2008. New York and Geneva: United Nations (http://www.unctad.org/en/docs/gdscsir20071_en.pdf).

te Velde, D.W. and Nair, S. (2005). ‘Foreign Direct Investment, Services Trade Negotiations and Development, The Case of Tourism in the Caribbean’, mimeo. London: Overseas Development Institute (http://www.odi.org.uk/resources/download/2450.pdf).

te Velde, D.W. and Meyn, M. (2008) ‘Regional Integration in African, Caribbean and Pacific Countries: A review of the literature’, study supported by the European Commission, Directorate‐General for Development. London: Overseas Development Institute (http://ec.europa.eu/development/icenter/repository/Regional‐Integration‐Report‐18‐09‐2008_en.pdf).

Williamson, J. (2000). ‘What Should the World Bank Think about the Washington Consensus?’, The World Bank Research Observer, Vol. 15, No. 2, August: 251–64

World Bank (2009). ‘Accelerating Trade and Integration in the Caribbean: Policy Options for Sustained Growth, Job Creation, and Poverty Reduction’, World Bank Country Study (Yvonne Tsikata, Emmanuel Pinto Moreira and Pamela Coke Hamilton). Washington DC: the World Bank and the Organization of American States, co‐produced with the Governments of CARIFORUM countries (http://website1.wider.unu.edu/lib/pdfs/WB‐ATIC‐2009.pdf).

WTO (2005). ‘Doha Work Programme. Ministerial Declaration. Adopted on 18 December 2005’, Geneva: World Trade Organization (http://www.wto.org/english/thewto_e/minist_e/min05_e/final_text_e.htmhttp:/www.wto.org/english/thewto_e/minist_e/min05_e/final_text_e.pdf).

WTO (2009). ‘Groups in the WTO’, updated 13 November 2009. Geneva: World Trade Organization (http://www.wto.org/english/tratop_e/dda_e/negotiating_groups_e.pdf).


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WTO (2010). ‘Trade to expand by 9.5% in 2010 after a dismal 2009, WTO reports’, Press Release Press/598, 26 March 2010. Geneva: World Trade Organization (http://www.wto.org/english/news_e/pres10_e/pr598_e.pdf).

Young, Alwyn (1991). ‘Learning by Doing and the Dynamic Effects of International Trade’, The Quarterly Journal of Economics, May: 369–405.

Further reading

Akamatsu, K. (1962). ‘A historical pattern of economic growth in developing countries’, Journal of Developing Economies, 1(1), March‐August: 3–25.

Bloch, H. and Sapsford, D. (2000). ‘Whither the terms of trade? An elaboration of the Prebisch–Singer hypothesis’, Cambridge Journal of Economics 24: 461–81.

Calì, M. and te Velde, D.W. (2009). ‘Aid for Trade and the integration of Small and Vulnerable Economies into the global economy’, paper for the Commonwealth Secretariat. London: Overseas Development Institute.

Collier, P. (2007). The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It. Oxford: Oxford University Press.

Commonwealth Secretariat (2008). ‘Small States: The International Trade Landscape’, paper prepared for Commonwealth Finance Ministers’ Meeting, St Lucia, 6–8 October (http://www.thecommonwealth.org/files/183762/FileName/FMM_08_10_New.pdf).

Fine, B. and Deraniyagala, S. (2001). ‘New Trade Theory Versus Old Trade Policy: A Continuing Enigma’ (http://www.soas.ac.uk/economics/research/workingpapers/file28872.pdf).

Hausmann, R., Hwang, J. and Rodrik, D. (2006). ‘What You Export Matters’, Journal of Economic Growth, Vol. 12(1) (http://www.hks.harvard.edu/cid/cidwp/pdf/123.pdf).

Jomo, K.S. and Rock, M. (1998). ‘Economic Diversification and Primary Commodity Processing in the Second‐Tier South‐East Asian Newly Industrializing Countries’, UNCTAD Discussion Paper No. 136, June (http://www.unctad.org/en/docs/dp_136.en.pdf).

Kaldor, N. (1972). ‘The Irrelevance of Equilibrium Economics’, The Economic Journal, Vol. 82, No. 328, Dec.: 1237–55.

Kaplinsky, R. and Morris, M. (2008). ‘Do the Asian Drivers Undermine Export‐oriented Industrialization in SSA?’ World Development, Vol. 36, No. 2: 254–73.

Kim, L. (1993). ‘National System of Industrial Innovation: Dynamics of Capability Building in Korea’, in Nelson, R. National Innovation Systems: A comparative analysis. Oxford: Oxford University Press.

Krueger, A. (1974). ‘The Political Economy of the Rent Seeking Society’, The American Economic Review, Vol. 63, No. 3: 291–303.

Krueger, A. (1998). ‘Why Trade Liberalisation is Good for Growth’, Economic Journal, Vol. 108, No 3: 1513–22.

Krugman, P. (2009). ‘Increasing Returns in a Comparative Advantage World’ (mimeo) (http://www.princeton.edu/~pkrugman/deardorff.pdf).

Meyn, M., Stevens, C., Kennan, J., Highton, N., Bilal, S., Braun‐Munzinger, C., Lui, D., van Seters, J., Campbell, C. and Rapley, J. (2009). The CARIFORUM–EU Economic Partnership Agreement (EPA): The Development Component. Brussels: European Parliament, Directorate General for External Policies,


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Policy Department (http://www.odi.org.uk/resources/details.asp?id=3222&title=cariforum‐european‐union‐eu‐economic‐partnership‐agreement‐epa‐development‐poverty).

Meyn, M. (2008). ‘The WTO Doha Round Impasse’, Briefing Paper No 41, September. London: Overseas Development Institute (http://www.odi.org.uk/resources/download/2034.pdf).

Milner, C. (2006). ‘An assessment of the overall implementation and adjustment costs for the ACP countries of Economic Partnership Agreements with the EU’, in R. Grynberg and A. Clarke The European Development Fund and Economic Partnership Agreements. London: Commonwealth Secretariat.

Page, S., Calì, M. and te Velde, D. (2008). ‘Development Package at the WTO? What do developing countries want from the Doha Round?’, background paper. London: Overseas Development Institute (http://www.odi.org.uk/resources/download/1914.pdf).

Pritchett, L. (1997). ‘Divergence Big Time’, Journal of Economic Perspectives, Vol. 11, No. 3: 3–17 .

Rodrik, D. (2006). ‘What’s So Special About China’s Exports?’, paper prepared for the project on ‘China and the Global Economy 2010’ of the China Economic Research and Advisory Program (http://hussonet.free.fr/exporodc.pdf).

UNCTAD (2008). Trade and Development Report 2008. New York and Geneva: United Nations (http://www.unctad.org/en/docs/tdr2008_en.pdf).

UNCTAD (2009). ‘Global economic crisis: implications for trade and development. Report by the UNCTAD secretariat. Geneva: United Nations Conference on Trade and Development (http://www.unctad.org/en/docs/cicrp1_en.pdf).

Williamson, J.G. (2002). ‘Winners and Losers Over Two Centuries of Globalization’, NBER Working Paper No. 9161 (September).

WTO (2006). ‘Recommendations of the Task force on Aid for Trade’, WT/AFT/1. Geneva: World Trade Organization.

Young, Allyn A. (1928). ‘Increasing Returns and Economic Progress’, The Economic Journal, Vol. 38: 527–42.


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Glossary

Appellate Body The WTO’s Appellate Body was established in 1995 under Article 17 of the Understanding on Rules and Procedures Governing the Settlement of Disputes. It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once adopted by the Dispute Settlement Body, must be accepted by the parties to the dispute.

Comparative advantage The concept of comparative advantage refers to the relative resources required to produce one good or service rather than another. Even a country that has an absolute advantage in producing everything can benefit if it produces a surplus of the items in which it has relatively the greatest advantage, exports the surplus and uses the foreign exchange to import other goods in which it is relatively less advantaged. So, by definition, every country has a comparative advantage in something – since even a country with an absolute disadvantage in producing everything has a greater disadvantage in some items than others.

Dispute Settlement Mechanism The Dispute Settlement Mechanism is part of the WTO and provides a forum for Members to settle trade disputes through mediation or, if that fails, adjudication. If a country is found to have injured another by failing to abide by its WTO commitments it must alter its policy. Until it does so, the injured state may be permitted to suspend its own obligations so as to apply penalties that are commensurate with the injury it has sustained. In this sense Dispute Settlement is ‘binding’.

‘Dutch disease’ The term ‘Dutch Disease’ is used when positive commodity price shocks result in adverse macroeconomic effects, such as an appreciation of real exchange rates, which reduce the competitiveness of other tradable goods sectors. The ‘disease’ is not inevitable, but depends on how a sudden increase of income and influx of foreign exchange is absorbed into an economy and how exchange rates are managed.

Globalisation An ongoing process by which economies, societies, and cultures have become increasingly integrated through communication and trade. The term is sometimes used to refer specifically to economic globalisation: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. The term can also refer to the transnational circulation of ideas, languages, or popular culture.

‘Most‐Favoured‐Nation’ treatment (MFN)

The ‘most‐favoured‐nation’ principle is formally a cornerstone of WTO rules: each member must treat all others in the same way that it treats its ‘most favoured’ trade


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partner. In practice, though, because so many countries offer trade preferences to some partners and/or are in FTAs with others, MFN treatment tends to be the worst treatment offered to any state. No WTO member should receive worse than MFN treatment.

Openness The term trade openness is used in several different senses. One measures the ratio of trade (imports to exports) to GDP. In a country that is more open, trade accounts for a higher proportion of GDP than in one that is less open. Differences may be due to size (small economies can obtain fewer goods and services domestically than can large ones). They may also be the result of deliberate policy and he term is often used in the context of the policy environment. An ‘open economy’ in this sense is one that is open to trade and/or financial flows because, for example, tariffs do not heavily constrain importsand nor do capital controls constrain financial flows.

Resource curse (also known as the paradox of plenty)

This term refers to the paradox that some (but by no means all) countries and regions with an abundance of natural resources have lower economic growth and worse development outcomes than countries with fewer natural resources. The reasons hypothesised for this include a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities).

Structuralist Whilst applied in a general sense nowadays to those who believe that development requires considerable government intervention, the thesis was first posed by Raúl Prebisch (1950) that because of the different structural characteristics of developing and industrialised countries, the products exported by the former exhibit price trends which over time tend to decline relative to the products exported by the latter. This is due to the different technological characteristics of the goods produced by commodity goods exporters in the underdeveloped South and industrial goods exporters in the more developed North. Prebisch and Hans Singer believed the long‐run price trend of primary commodities to be negative (known as the Prebisch–Singer hypothesis).

Terms of trade The terms of trade indicate changes in the relative buying power of a country’s exports. The most basic measure, the net barter terms of trade, shows the ratio of a unit of a country’s exports to a unit of its imports. If a country’s export prices rise relative to import prices its terms of trade are said to have improved – because it can acquire more imports for each unit of good exported (or to have deteriorated if the opposite happens).


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Value chain This term is used to describe the way in which demand is transmitted along the full range of activities required to bring a product or service from conception, through the different phases of production (involving a combination of physical transformation and the input of various producer services), to delivery to final consumers and final disposal after use (Kaplinsky and Morris, 2001). Analysts note how the distribution of the final price to each element in the chain is not necessarily determined by the cost of each stage but by the relative power of each actor.

The ‘Washington Consensus’ This phrase was coined by John Williamson (2000), to describe a set of policies which were considered to embody the standard reform package for ‘crisis’ affected countries (in the 1980s and 1990s). These policies included: fiscal policy discipline; redirection of public spending and reduction of subsidies; tax reform; interest rates that are market determined; competitive exchange rates; trade liberalisation; liberalisation of inward investment; privatisation of state enterprises; deregulation of markets; legal security for property rights.


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Appendix. Groups in the WTO

Group Description/issues Countries

ACP ACP African, Caribbean and Pacific countries with preferences in the EU

Nature: geographical

Issues: preferences, etc

www.acpsec.org

WTO members (58): Angola, Antigua & Barbuda, Barbados, Belize, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Rep., Chad, Congo, Côte d’Ivoire, Cuba, Congo (Democratic Rep.), Djibouti, Dominica, Dominican Rep., Fiji, Gabon, Gambia, Ghana, Grenada, Guinea, Guinea Bissau, Guyana, Haiti, Jamaica, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Papua New Guinea, Rwanda, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Senegal, Sierra Leone, Solomon Islands, South Africa, Suriname, Swaziland, Tanzania, Togo, Tonga, Trinidad & Tobago, Uganda, Zambia, Zimbabwe

WTO observers (10): Bahamas, Comoros, Equatorial Guinea, Ethiopia, Liberia, Samoa, São Tomé and Principe, Seychelles, Sudan, Vanuatu

Not WTO members or observers (11): Cook Islands, Eritrea, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Somalia, Timor‐Lesté, Tuvalu

African Group All African WTO members

Nature: regional

Issues: general

WTO members (42): Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Rep., Chad, Congo, Congo (Democratic Rep.), Côte d’Ivoire, Djibouti, Egypt, Gabon, Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, Zimbabwe

APEC Asia Pacific Economic Cooperation forum

Nature: regional

Issues: general

www.apec.org

WTO members (20): Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong China, Indonesia, Japan, Rep. Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Singapore, Chinese Taipei, Thailand, US, Viet Nam

WTO observers (1): Russia

EU European Union

Nature: customs union

Issues: general ec.europa.eu

WTO members (28): Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom + European Union

MERCOSUR Common Market of the Southern Cone (Mercosul in Portuguese)

Nature: customs union

Issues: general www.mercosur.int

WTO members (4): Argentina, Brazil, Paraguay, Uruguay

G‐90 African Group + ACP + least‐developed countries

WTO members (65): Angola, Antigua & Barbuda, Bangladesh, Barbados, Belize, Benin, Botswana, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Rep., Chad, Congo, Côte d’Ivoire, Cuba, Congo (Democratic Rep.), Djibouti, Dominica, Dominican Rep., Egypt, Fiji, Gabon, Gambia, Ghana, Grenada, Guinea, Guinea Bissau, Guyana, Haiti, Jamaica, Kenya, Lesotho, Madagascar, Malawi, Maldives, Mali, Mauritania, Mauritius, Morocco, Mozambique, Myanmar, Namibia, Nepal, Niger, Nigeria, Papua New Guinea, Rwanda, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Senegal, Sierra Leone, Solomon Islands, South Africa, Suriname, Swaziland, Tanzania, Togo, Trinidad & Tobago, Tunisia, Uganda, Zambia, Zimbabwe

WTO observers (14): Afghanistan, Bahamas, Bhutan, Comoros, Equatorial Guinea, Ethiopia, Laos, Liberia, Samoa, São Tomé &


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Group Description/issues Countries Principe, Seychelles, Sudan, Vanuatu, Yemen

Not WTO members or observers (11): Cook Islands, Eritrea, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Somalia, Timor‐Lesté, Tuvalu

Least developed countries (LDCs)

Least developed countries: the world’s poorest countries. The WTO uses the UN list.

Issues: general www.un.org/specialrep/ ohrlls/ldc/list.htm

WTO members (32): Angola, Bangladesh, Benin, Burkina Faso, Burundi, Cambodia, Central African Rep., Chad, Congo (Democratic Rep.), Djibouti, Gambia, Guinea, Guinea Bissau, Haiti, Lesotho, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Senegal, Sierra Leone, Solomon Islands, Tanzania, Togo, Uganda, Zambia

WTO observers (12): Afghanistan, Bhutan, Comoros, Equatorial Guinea, Ethiopia, Laos, Liberia, Samoa, São Tomé & Principe, Sudan, Vanuatu, Yemen

Small and vulnerable economies (SVEs) — agriculture

This list is based on sponsors of proposals. See also: list in Annex I of the 10 July 2008 revised draft agriculture modalities, and footnote 9 (paragraph 65) and paragraph 151.

Issues: agriculture

WTO members (14): Barbados, Bolivia, Cuba, Dominican Rep., El Salvador, Fiji, Guatemala, Honduras, Mauritius, Mongolia, Nicaragua, Papua New Guinea, Paraguay, Trinidad & Tobago

Small and vulnerable economies (SVEs) — non‐agricultural market access (NAMA)

This list is based on sponsors of proposals. See also: definition in paragraph 13 of the 10 July 2008 revised draft NAMA modalities

Issues: NAMA

WTO members (19): Antigua & Barbuda, Barbados, Bolivia, Dominica, Dominican Rep., El Salvador, Fiji, Grenada, Guatemala, Honduras, Jamaica, Mongolia, Nicaragua, Papua New Guinea, Paraguay, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Trinidad & Tobago

Small and vulnerable economies (SVEs) — rules

Sponsors of TN/RL/W/226/Rev.5

Issues: Rules (fisheries subsidies)

WTO members (14): Barbados, Cuba, Dominica, Dominican Rep., El Salvador, Fiji, Honduras, Jamaica, Mauritius, Nicaragua, Papua New Guinea, St Lucia, St Vincent & the Grenadines, Tonga

Recently acceded members (RAMs)

Recently acceded members (RAMs), i.e. countries that negotiated and joined the WTO after 1995, seeking lesser commitments in the negotiations because of the liberalisation they have undertaken as part of their membership agreements. Excludes least‐developed countries because they will make no new commitments, and EU members

Issues: general

WTO members (19): Albania, Armenia, Cape Verde, China, Croatia, Ecuador, FYR Macedonia, Georgia, Jordan, Kyrgyz Rep., Moldova, Mongolia, Oman, Panama, Saudi Arabia, Chinese Taipei, Tonga, Ukraine, Viet Nam

Low‐income economies in transition

Seeking to secure the same treatment as least developed countries. (Georgia formally withdrew, but in the agriculture draft the full list is: Albania, Armenia, Georgia, Kyrgyz Rep, Moldova)

Issues: Agriculture/NAMA

WTO members (3): Armenia, Kyrgyz Rep., Moldova

Cairns group Coalition of agricultural exporting nations lobbying for agricultural trade liberalisation.

Issues: agriculture www.cairnsgroup.org

WTO members (19): Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, Peru, Philippines, South Africa, Thailand, Uruguay


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Tropical products group

Coalition of developing countries seeking greater market access for tropical products

Issues: Agriculture

WTO members (11): Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Honduras, Guatemala, Nicaragua, Panama, Peru, Venezuela

G‐10 Coalition of countries lobbying for agriculture to be treated as diverse and special because of non‐trade concerns (not to be confused with the Group of Ten Central Bankers)

Issues: agriculture

WTO members (9): Chinese Taipei, Rep. Korea, Iceland, Israel, Japan, Liechtenstein, Mauritius, Norway, Switzerland.

G‐20 Coalition of developing countries pressing for ambitious reforms of agriculture in developed countries with some flexibility for developing countries (not to be confused with the G‐20 group of finance ministers and central bank governors, and its recent summit meetings)

Issues: agriculture

www.g‐20.mre.gov.br

WTO members (23): Argentina, Bolivia, Brazil, Chile, China, Cuba, Ecuador, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Peru, Philippines, South Africa, Tanzania, Thailand, Uruguay, Venezuela, Zimbabwe

G‐33 Also called ‘Friends of Special Products’ in agriculture. Coalition of developing countries pressing for flexibility for developing countries to undertake limited market opening in agriculture

Issues: agriculture

WTO members (46): Antigua & Barbuda, Barbados, Belize, Benin, Bolivia, Botswana, China, Congo, Côte d’Ivoire, Cuba, Dominica, Dominican Rep., El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, India, Indonesia, Jamaica, Kenya, Rep. Korea, Madagascar, Mauritius, Mongolia, Mozambique, Nicaragua, Nigeria, Pakistan, Panama, Peru, Philippines, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Senegal, Sri Lanka, Suriname, Tanzania, Trinidad & Tobago, Turkey, Uganda, Venezuela, Zambia, Zimbabwe

Cotton‐4 West African coalition seeking cuts in cotton subsidies and tariffs

Issues: agriculture (cotton)

WTO members (4): Benin, Burkina Faso, Chad, Mali

NAMA 11 Coalition of developing countries seeking flexibilities to limit market opening in industrial goods trade

Issues: NAMA

WTO members (10): Argentina, Brazil, Egypt, India, Indonesia, Namibia, Philippines, South Africa, Tunisia, Venezuela

Paragraph 6 Countries

In NAMA (refers to paragraph 6 of the first version of the NAMA text), for reducing the number of new bindings they would have to contribute and to increase the average target from 27.5%. (Except Macao, China)

Issues: NAMA

WTO members (12): Cameroon, Congo, Côte d’Ivoire, Cuba, Ghana, Kenya, Macao China, Mauritius, Nigeria, Sri Lanka, Suriname, Zimbabwe

Friends of Ambition (NAMA)

Seeking to maximise tariff reductions and achieve real market access in NAMA. (Some nuanced differences in positions.)

Issues: NAMA

WTO members (36): Australia, Austria, Belgium, Bulgaria, Canada, Cyprus, Czech Rep., Denmark, Estonia, EU, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Rep. Korea, Latvia, Lithuania, Luxembourg, Malta, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovak Rep., Slovenia, Spain, Sweden, Switzerland, UK, US


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Middle Ground Group (NAMA)

Moderate ambition, seeking to improve market access into both developed and developing countries.

Issues: NAMA

WTO members (12): Chile, Colombia, Costa Rica, Hong Kong China, Israel, Malaysia, Mexico, Morocco, Pakistan, Peru, Singapore, Thailand

Friends of Anti‐ Dumping Negotiations (FANs)

Coalition seeking more disciplines on the use of anti‐dumping measures

Issues: Rules (antidumping)

WTO members (15): Brazil, Chile, Colombia, Costa Rica, Hong Kong China, Israel, Japan, Rep. of Korea, Mexico, Norway, Singapore, Switzerland, Chinese Taipei, Thailand, Turkey

Friends of Fish (FoFs)

Coalition seeking to significantly reduce fisheries subsidies. Previously included Chile, Ecuador, Philippines

Issues: Rules (subsidies)

WTO members (10): Argentina, Australia, Chile, Colombia, Iceland, New Zealand, Norway, Pakistan, Peru

‘W52’ sponsors Sponsors of TN/C/W/52, a proposal for ‘modalities’ in negotiations on geographical indications (the multilateral register for wines and spirits, and extending the higher level of protection beyond wines and spirits) and ‘disclosure’ (patent applicants to disclose the origin of genetic resources and traditional knowledge used in the inventions). The list includes as groups: the EU, ACP and African Group.

* Dominican Rep. is in the ACP and South Africa is in the African Group, but they are sponsors of TN/IP/W/10/Rev.2 on geographical indications

Issues: Intellectual property (TRIPS)

WTO members (109): Albania, Angola, Antigua & Barbuda, Austria, Barbados, Belgium, Belize, Benin, Botswana, Brazil, Bulgaria, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Rep., Chad, China, Colombia, Congo, Côte d’Ivoire, Croatia, Cuba, Cyprus, Czech Rep, Congo (Democratic Rep.), Denmark, Djibouti, Dominica, Dominican Rep.*, Ecuador, Egypt, Estonia, EU, Fiji, Finland, FYR Macedonia, France, Gabon, Gambia, Georgia, Germany, Ghana, Greece, Grenada, Guinea, Guinea Bissau, Guyana, Haiti, Hungary, Iceland, India, Indonesia, Ireland, Italy, Jamaica, Kenya, Kyrgyz Rep., Latvia, Lesotho, Liechtenstein, Lithuania, Luxembourg, Madagascar, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Morocco, Mozambique, Namibia, Netherlands, Niger, Nigeria, Pakistan, Papua New Guinea, Peru, Poland, Portugal, Romania, Rwanda, St Kitts & Nevis, St Lucia, St Vincent & the Grenadines, Senegal, Sierra Leone, Slovak Rep., Slovenia, Solomon Islands, Spain, Sri Lanka, Suriname, Swaziland, Sweden, Switzerland, South Africa*, Tanzania, Thailand, Togo, Tonga, Trinidad & Tobago, Tunisia, Turkey, Uganda, United Kingdom, Zambia, Zimbabwe

Joint proposal Sponsors of TN/IP/W/10/Rev.2 proposing a database that is entirely voluntary www.wto.org > trade topics > intellectual property

Issues: TRIPS GI register

WTO members (19): Argentina, Australia, Canada, Chile, Costa Rica, Dominican Rep., Ecuador, El Salvador, Guatemala, Honduras, Japan, Korea, Mexico, New Zealand, Nicaragua, Paraguay, Chinese Taipei, South Africa, US

Source: WTO, 2009.

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