discussion paper-south and south-east asia on pro-poor trade policies

8/9/2019 Discussion Paper-South and South-East Asia on Pro-Poor Trade Policies

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Linkages between Trade, Development andPoverty Reduction:

Stakeholders View from South and South-East Asia

on Pro-Poor Trade Policies


Stakeholders View from South and South-East Asia

on Pro-Poor Trade Policies

CUTS Centre for InternationalTrade, Economics & Environment

Discussion Paper

#0615

CUTS Ce ntre for InternationalTrade, Economics & Environment


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Stakeholders View from South and South-East

Asia on Pro-Poor Trade Policies


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Contents

In t rodu ction .................................................................................................................................. 1

Fr am ing Povert y .......................................................................................................................... 3

Linka ges between Tra de P olicy, Growth an d P overty Redu ction ................................................ 5

Concept s of P ro-Poor Gr owth ........................................................................................................ 7

Em pir ical Eviden ce: Ban gladesh and Cambodia .......................................................................... 9

Povert y Reduction an d Tra de Policy: Case St udies of Ban gladesh, Cambodia an d ASEAN ......11

Alter nat ive Appr oaches to Pr o-Poor Tra de P olicies ..................................................................15

Elem ents of an Alt er na tive Appr oach to Pro-poor Trad e Policy ...............................................19

Ext ern al Const ra int s on Altern at ive Trad e Policies to Reduce Povert y ..................................... 21

Domestic P olicies for Moving up th e Valu e Ch ain to Redu ce Povert y ..................................... 25

Conclusion ........................... ........................... ........................... ........................... ....................... 27


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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policiesw1

Of the m an y cur rent discourses in t he fields of development or

int ern at iona l economics, very few capt ur e th e degree of pass ion or

sense of urgency as t he debate on linkages between tr ade,

development and poverty.

A review of the literat ur e on int erna tional tr ade can fill librar ies

with books an d stu dies ar guing either tha t: freer trade w ould free

m ore of the w orlds poor from th e m isery their poverty represents3

or free tra de is par t of the pr oblem of poverty because, th e benefits

of international trade rem ain u nequally distributed: With 14

percent of th e worlds popu lation, h igh-income countries accoun t

for 75 p ercent of w orld exports; Low-income coun tries with 40

percent of th e worlds popu lation account for three percent of world

trade.4

The a bove quotes reflect th e left and right ra nge of views about

tra de, the rules based tra ding system, and the 2001 launch of the

cur rent WTO Round of tr ade negotiations, known as t he

Development Roun d. Per ha ps locat ing t he views of sta keholders in

developing societies at th e centr e of the debate can sh ar pen t herh etoric of both sides a nd elevat e th e qua lity of th e discussion.

Before out lining t he focus of th is pap er, I would like t o offer a few

points of depart ur e an d cont extual sett ings for t he findings and

conclusions:

By most accounts, t here is no empirical evidence to support a ninh eren t or direct causa l or corr elative relationsh ip between

tr ade libera lisat ion a nd economic growth . Past and present

examples can be found which either support or call into question

such relationships.

By most accounts, t here is a better case for a direct correlativerelat ionsh ip between growth an d povert y reduction in developing

societies. However, this a ut hor offers t he caveat t ha t su ch

relat ionsh ips often depend on th e pro-poor qua lity an d th e

sus ta ina ble socio-economic development nat ur e of th e growth

processes.

In d eveloping societies, ther e ar e both domestic (inter na l) an dintern ational (external) structur al const rain ts on trade to be

used a s a susta inable catalyst for poverty r educing effort s. While

mu ch of th is work focuses on the lat ter , it sh ould not insinu at e

th at th e removal of extern al const ra ints on developing societies

would au tomat ically enable tra de to play such a r ole.

While some focus on n ew cha ra cter istics or tr ends in th e globaleconomy as sociat ed with th e emer gence of Asia (led by Chin a a nd

In dia) as t he worlds new growth pole.5 It is th e evolution of th e

Introduction

1T he m ajority of

WT O m em bers are

developing countries.

We seek to place theirneeds and interests

at the heart of the

Work Programme

adopted in this

Declaration. 1

This is a m assive

defeat for poor

people around the

world. Th e mu ch

hyped development

round is empty.2


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2 wStakeholders View from South and South-East Asia on Pro-Poor Trade Policies

regulative and inst itut ional fram eworks governing th e rules

based system of intern ational t ra de, the form s of governa nce

influencing the consum ing and producing agent s within t hose

fram ework s, and n at iona l economic an d tr ade policies which

shed a grea t deal of light on t he linkages between tr ade,

development and poverty r eduction in th e 21st century.

With t he 2005 WTO Ministerial m eeting set for December, the

world will obtain a nother sn apshot of th e cur rent an d fut ur edevelopment orient at ion ten dencies in th e rules based t ra ding

system. The talks on th e Agricultu re Agreemen t will have the

most impact on t ra de and povert y.

The overall objective of this p aper is to int err ogat e th e following

questions: If we seek bett er r esults in ter ms of how tr ade can help

reduce poverty do the curr ent tr ends call for doing different th ings

in ter ms of trade policy and th e ru les based system, as opposed to

doing the sa me t hings different ly? Put anoth er way, what would

produce superior povert y reducing results, a continua tion of the

curr ent t ra de liberalisation policy based agenda within t he curren t

global tr ade ar chitectur e or an altern at ive rules based system m ore

conducive to altern at ive poverty r eduction ba sed appr oaches t ointer na tional tra de policy?

The paper explores t his quest ion by examining linka ges between

tr ade policy an d poverty r eduction in relat ion t o the WTO, th e

Integra ted F ram ework initiative, regional tr ade policies in

Associat ion of South east Asian Nat ions (ASEAN) and t he P overt y

Reduction Str at egy Pa per (PRSP) processes in Ban gladesh an d

Cam bodia. The following sections will at tem pt to explore: th e issue

of povert y; linka ges between tr ade, tr ade policy and povert y

red uction; concept s of pr o-poor gr owth; empir ical background on

povert y and linkages between tr ade, tra de policy and povert y

reduction in Ban gladesh a nd Cambodia; element s of alternat iveapproaches to Pr o-poor tra de policies; per spectives on how th e

global ru les based system sha pes the n at ure of relat ionships

between t ra de policy and povert y redu ction efforts; and opport un ities

for developing societies to bet ter use tr ade policy to combat povert y.

The conclusion will summ ar ise th e implications of how th e evolut ion

of the curr ent tr ade policy environm ent relates t o the development of

alt ern at ive pro-poor based appr oaches to tra de policy.


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The literat ure on conceptua lisations of poverty an d su bsequent links

to tr ade is qu ite rich. At t he core, povert y is often defined in ter ms of

income, th e capacity t o access an d consu me ba sic needs a nd public

services (food, clothing, shelt er, hea lth care, educat ion), and t he

capacity to produce or a cquire ones basic needs via subsist ence

activities or via selling labour , goods or services in t he m ar ket place.

Clearly, an y policy measu re t hat increases th e price of someth ing

sold by an ind ividual or househ old, increases income while anymea sur e tha t r educes th e price redu ces income. Also, an y policy

measu re th at increases pr ices of what an individua l or h ousehold

consumes, decreases income an d while any measu re t hat decreases

th e price, increas es incomes.

Poverty in most developing societies rema ins predomin an tly a

quest ion of th e condit ions of life for people in ru ra l ar eas. In genera l,

th e ma jorit y of popula tions in most d eveloping societies r ely on s ome

form of agricultu ra l related economic activity as th eir prima ry

livelihood. In m an y cases, it is th is segment of the population th at

ma kes u p th e largest component of the society living in poverty. 6

While a compreh ensive look at t he issue of povert y and su bsequen tcondit ions of life in developing societies, par ticular ly in t he lea st

developing coun tr ies (LDCs) is beyond th e scope of this p aper , th e

following point s of reference ar e offered:

Both W orld B ank and United N ations Conference on Trade andDevelopm ent (UN CTA D) poverty estim ates suggest th at 49-50

percent of the popula tion in LDCs were living on less than

US $1/ day at the end of the 1990s.7

Although LDCs had m uch better econom ic perform an ce in th elate 1990s, th e overall incidence of poverty did not d ecline

du ring the decade.8

If current trends persist, it m ay be estim ated that the nu m ber ofpeople living in extrem e poverty in LDCs wi ll in crease from 334

m illion people in 2000 to 417 million in 2015.9

Th e World B ank reports th at th e num ber of people living onUS $2/ day or less in East Asia is estimated to have fallen to 631

m illion in 2004 , about an 8 p ercent d ecrease from th e previous

year.10

Th e World B ank reports th at th e num ber of people living onUS $2/ day or less in Cam bodia h as increased from 7.7 m illion

in 1990, to 11.1 m illion in 2004 . Nu m ber of people livin g on

US $1/ day or less also increased from 4.4 million to 6.1 m illion

du ring the sam e period. 11

Un ited N ations Developm ent Programm e (UN DP) reports th at90 percent of Cam bodias poor, approximat ely 36 percent of th e

popu lation in 1997, are rura l households. 12

Framing Poverty

2Poverty in most

developing societies

remains predominantly a

question of the

conditions of life for

people in rural

areas

Majority of populations in

most developing

societies rely on

som e form of

agricu ltural related

economic activity as

their primary

livelihood


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In Ban gladesh, poverty redu ction efforts ha ve in genera lproduced positive resu lts. Alth ough Sengupt a notes: Many

reports, am ong them th e UN DP report on Asia n poverty (2003)

show that poverty in Ban gladesh h as declined steadily in t he

1990s. However, in t he decade of rapid trad e liberalisation sin ce

m id-1980s th e poverty redu ction effect of growt h became m uch

weak er, despite an increase in growth rates of per capita

income.13

There will be no

deal on agriculture

un less th ey open

their markets to EU

manufacturing

exports.14

The Un ited S tates

is willing to cu t

farm subsidies if

other and

ind ustrial coun tries

also did.15


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In reviewing th e literat ur e on th e th eoretical concepts of th e

linkages between tra de and poverty, a r an ge of analyses can be

foun d which can be locat ed in t he deba te bet ween t he for

globalisation side16 an d t he an ti-globalisat ion side.17 The form er

ar gue tha t n at ions which have/ar e embracing globalisation t he most

(via tr ade an d investment liberalisation) are performing better then

na tions which dont, in ter ms of redu cing of poverty in th eir

societies. The lat ter, ar gue tha t t rade a nd investmen t liberalisationis shaping th e cur ren t na tu re of globalisation in ways which tend to

increase income inequ ality within a nd between societies, and in

several wa ys constr ain povert y redu ction efforts in developing

societies.

Alan Winter s Tra de P olicies for P overt y Alleviat ion: Wha t

Developing Count ries Might do, offers a relat ively balan ced a pproach

for conceptu alising th e linka ges. 18 Bhagwati a nd Sr inivasans

Trade a nd P overty in Poor Count ries, strongly support th e position

th at tr ade pr omotes growth an d growth r educes poverty.19

Ademola Oyejides Tr ade Reform for Economic Growth an d P overt y

Reduction, notes the importan ce of a ra nge of complement ar ydomestic and int ern at iona l policy factors an d varia bles being

present , in order for tr ade liberalisation to reduce poverty in

developing societies .20

In gen era l, tra de policy affects povert y via impacts on domest ic

economic varia bles such as pr ices, employment , wages & incomes,

an d government revenues an d spending. Clearly, trade policy and

other form s of liberalisation serve as t he prima ry pat hways by

which domestic growth an d developmen t p rocesses in developing

societies ar e linked t o the dyna mics of developed economies a nd

global mar kets. However, ther e is a robust debat e on th e cha llenges

an d opportun ities associated with t he na tu re of such linka ges and

what th ey mean for growth, development and poverty reduction.

The World Ban ks position is clearly ar ticulated in th eir appr oach to

ma instr eaming tr ade in th eir PRSP pr ocess where the definition of

a s uccessful tr ade p olicy reform effort will result in t he poor being

better off if tr ade libera lisat ion r esults in a situ at ion wher e they

earn income from working in th e export sector a nd consu me goods

from the import able sector.21 Such th inking reinforces a sta tic

compa ra tive adva nt age m odel of growth in developing societies,

which suggests th at producing wha t you dont consume, an d

consu min g what you dont pr oduce repr esent s a viable element of a

susta inable development str ategy in th e 21st century.

Linkages between Trade Policy,Growth and Poverty Reduction

3

Trade policy affectspoverty via impacts

on domestic

economic variables

such as prices,

employment, wages

& incomes, and

government revenues

and spending

Produ cing what you

dont consume, and

consuming what you

dont produce

represen ts a viable

element of asustainable

development strategy

in the 21st century


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This aut hor does not shar e tha t perspective. I also note tha t it

would, in ma ny inst an ces, perp etu at e existin g economic models in

developing societies (ma ny of which ha ve th eir r oots in colonialism)

which t o date ha ve often proved increasingly un able to sustain th e

kinds of growth an d developmen t pr ocesses necessary t o reduce

povert y. Alter na tive fram es of referen ce can be foun d in Rodrik

(2001)22 an d Wint ers, L.A., N. McCulloch, a nd A. McKay (2004). 23


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Pr o-poor growth is about cha nging th e distribu tion of rela tive

incomes t hr ough th e growth pr ocess to favour t he poor. Two

definit ions (relat ive and a bsolut e) for mea sur ing Pr o-poor gr owth

include:

Growth is pro-poor when t he distr ibutiona l shifts accompa nyinggrowth favour t he poor, rela tive to the n on-poor (Klasen, 2004;

Kakwan i an d P ernia, 2000; McCulloch an d Bau lch, 1999;

Kakwan i an d Son, 2003).24

Growth is consider ed to be pro-poor if an d only if poor peoplebenefit in a bsolute t erms, as reflected in some a greed measu re of

poverty (Ravallion a nd Ch en, 2003; Kra ay, 2003). In th is case,

th e extent to which gr owth is pro-poor depends solely on t he r ate

of cha nge in poverty, which is det erm ined by both th e ra te of

growth an d its distributional patt ern.25

The World Ban k u ses the lat ter definition, becau se it finds

limitat ions in t he form er due t o its higher pr iority on distribut ion

relative to growth m aximisation. However, th is aut hor favour s th e

form er, becaus e of th e political a nd economic implications of th e

ten dency of income in equa lity to increase in societies pu rsu inggrowth maximisation based approaches to poverty reduction. 26

Alter na tive concepts of pro-poor gr owth t end t o place a h igher valu e

on th e linkages between inequality, growth a nd poverty redu ction.

In a sense, arguing th e potent ial for stronger growth poverty

linkages, when th e growth pr ocess promotes greater income

equa lity. The following addit iona l point s ar e often noted in

alter na tive approaches to pro-poor growth:

In pro-poor growth , it is n ecessary t o have t he t ype of growthth at raises average h ousehold incomes a nd household

consu mpt ion. In creases in overa ll GDP per capita do not

inher ent ly achieve th ese two objectives.27

Growth t ha t is pr o-poor t ends t o increase st aple food productionan d farm employment, an d provides incentives and ena bles

devices tha t red uce fert ility. 28

A key determ inan t of wheth er how much growth leads t o povertyredu ction (low-end r edistr ibution) depends on how much at th e

initial sta ges the r educed poverty pr omotes additional growth. 29

Cont ra ry t o neo-liberal based concepts of th e linkages bet weengrowth a nd poverty, alter na tive appr oaches also recognise clear

insta nces when growth can be bad for th e poor. 30

Growth is consider ed pro-poor wh en it is labour abs orbing andaccompan ied by policies, which m itigate inequa lities, and

facilitat es income gains pa rt icular ly for women an d oth er

tr aditionally excluded or disadvant aged groups. 31

Concepts of Pro-Poor Growth

4Pro-poor growth is

about changing the

distribution of

relative incomes

through the growth

process to favour

the poor

Alternative concepts

of pro-poor growth

tend to place a

higher value on the

linkages between

inequality, growth

and poverty

reduction


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An inter estin g case st udy of how one n at ion r eform ed its policyappr oach t o developmen t from a growth oriented st ra tegy to a

social equit y oriented str at egy is Malaysia.32


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As previously noted, tr ade policy repr esent s th e path ways by which

th e dynam ics of global ma rk ets can im pa ct conditions of poverty in

developing societies. Car r a nd Ch en (2001) provide a strong

gendered an alysis of such path ways, with par ticular focus on

identifying u nique differences in impacts on t he form al a nd informal

economies of developin g societies . 33

In t erms of empirical an alyses of the impacts a nd linka ges betweentr ade policy, growth an d poverty r eduction t he following conclusions

from severa l studies ar e present ed below. At t he ma croeconomic

level, Cline estima tes th at global free tr ade would gener at e income

gains of US$90bn a nn ua lly for developing na tions from st at ic

effects, an d long-term gains (from dyna mic effects) of US$200bn

annually.34 However, Kra ev estima tes losses of 10 percent to 16

percent in GDP an d 4 percent t o 29 percent in a ggregate deman d in

LDC nat ions, due t o aggregat e deman d deficiencies genera ted by

rising tr ade deficits r esulting from rapid tr ade liberalisat ion.35

Christian Aid estimat es losses in income a ssociated with ra pid tra de

liberalisat ion in LDCs since 1985 to be US$250bn .36

Ann abi, Khondker , Raihan, Cockbur n, an d Decaluwe find th e

following impa cts of WTO Agreem ent s a nd domestic tr ade policy

reform s on production, welfar e an d povert y in Banglad esh: 1) Doha

scenar io ha s negat ive implications for t he overall ma cro economy,

househ old welfar e, poverty, ter ms of tr ade, an d increases in

domest ic food prices; 2) free world t ra de ha s similar but lar ger

impa cts; 3) domestic tra de libera lisation indu ces an expans ion of

agricultura l and light m anu factu ring sectors, increased wage ra tes

for u nsk illed labour, an d increased welfar e and poverty red uction; 4)

when combined, d omestic libera lisation effects outweigh t hose of free

world t rade; an d 5) remitt an ces ar e a powerful poverty redu cing tool

given t heir importa nce to the poor.37

Kha n finds t he following povert y impacts of tra de liberalisat ion

policies:

1) In South Asia, trade liberalisation can lead t o furt her poverty

reduction;

2) Both the extent and dept h of poverty decline in each household

group;

3) Largest headcount rat io drop is for r ura l unskilled group;

4) Povert y severity falls for all househ old groups, except for ur ban

un skilled workers;

5) Poverty reduction benefits a re great er when ta riffs ar e reduced to

15-18 percent, th an when r educed below 15 percent; and

Empirical Evidence:Bangladesh and Cambodia

5

Rem ittan ces are a

powerful poverty

reducing tool given

their importance to

the poor

In South Asia,

tradeliberalisation can

lead to further

poverty reduction


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6) tar iff redu ction will ult ima tely benefit th e poor, bu t t he pr ocess

is uneven and r equires time adjust t hr ough the economic

system.38

The Int ern at iona l Development Resear ch Cent re (IDRC), Canada

supp orts t he Micro Imp acts of Macroeconomic and Adjustm ent

Policies (MIMAP) pr oject in Ba ngladesh th at genera ted th e following

findin gs on t he impa cts of tr ade policy on income distr ibut ion a ndhousehold welfar e: 1) Since th e 1980s, Ban gladesh h as a dopted a

comprehen sive tra de libera lisation based ap proach to economic

policy reform s, associated with a num ber of Structur al Adjustm ent

Fa cility and Enh ance Str uctur al Adjustmen t Fa cility agreements

with th e World Ban k an d IMF; 2) In t he 1990s, Bangladeshs tr ade

policy environm ent was liberalised rapidly, resultin g in a r ise in th e

shar e of foreign tr ade as a percentage of GDP an d th e degree in

which Ban gladeshs domestic economy is int egrat ed int o the global

economy; 3) In th e 1990s, incidences of povert y in Ban gladesh ha ve

declined; 4) Household welfar e impr oved for a ll househ old gr oups; 5)

Welfar e gains for h igh-income households were lar ger th an for low

income h ouseholds; 6) Wages for m an ufactu rin g work ers declined;

and 7) Wages for a gricultu ra l worker s increased.39

As noted ear lier, Cambodias pr ogress in ter ms of political st ability,

ma cro-economic sta bilisat ion a nd export led economic growth in th e

1990s had a limited impact on povert y reduction effort s. The UN

notes tha t povert y rates r emain very high with 35 percent t o 40

percent of populat ion below th e povert y line, with 15 per cent to 20

percent in extreme povert y and inequa lity rising.40

Given th e str uctu ra l composition of povert y in Cam bodia (th e poor

are concentra ted in ru ra l areas, most households headed by farmer s

with limited education), the most significant linkages between tr ade

policy an d poverty a re in th e following ar eas: 1) in agricultur e,expenditu res of the poor on r ice are t he most importa nt expenditu re

hen ce food pr ices ar e a significant factor im pactin g povert y;2)

impact on poverty from reducing import an t t ar iffs to 7 percent were

estimat ed to increase household purchasing power by 3 percent to 4

percent;41 3) employment a nd wages for 250,000 urban workers in

the gar ment export indust ry represent a significant sour ce of

income for two million relat ives in r ur al a reas;42 an d 4) in th e post

MFA environment, Cam bodias garm ent indu str y has been able to

sust ain its per form an ce. However, global competitive pressu res ar e

forcing Cambodia to m ove up va lue chain in t erm s of labour

standar ds and pursue enha nced bilateral m arket access in US.43

In the 1990s,

incidences of

poverty in

Bangladesh have

declined

Cambodias

progress in term s of

political stability,

macro-economic

stabilisation and

export led economic

growth in the 1990s

had a limited

impact on poverty

reduction efforts


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Stakeholders View from South and South-East Asia on Pro-Poor Trade Policies w11

As previously noted Ban gladesh, Cam bodia an d th e ASEAN region

have experienced a ran ge of poverty reduction r elated results during

periods of tr ade libera lisation policy reform s. In t he cases of

Bangladesh a nd Ca mbodia, such r eforms ha ve been associated with

World Ban k an d IMF support ed effort s to ma inst rea m tr ade policy

into their n at iona l PRSPs an d effort s by th e IMF, World Ban k an d

WTO to coordin at e th e provision t ra de policy reform t echn ical

assistan ce under th e Integrat ed Fram ework (IF) initiative.

In Bangladesh , development pra ctitioner s and stak eholders

highlight ed broad tren ds such as: the importa nce of growth in t he

agricultur al sector in reducing poverty; growth in agr icultu re n ow

linked m ore closely to extern al t ra de policy; and Ban gladeshs

success in redu cing poverty per year dur ing th e past two decades.

However, the r at e of povert y redu ction per year slowed in 2000 from

0.8 percent per year t o 0.5 percent per year an d income inequa lity

ha s r emained a ma jor factor in reducing poverty. The following

comment s with r egard to the impacts and linkages between tra de,

tr ade liberalisation associated with PRSPs and poverty reduction

efforts wer e also noted .

Commen ts on some of th e domestic impacts of tra de policy reforms

(enh an ced liberalisat ion) include:

The exter na lly supp orted P RSP pr ocess, as opposed to efforts bydomestic actors, ha s been th e ma in catalyst for r e-energizing th e

use a nd elevating th e priority of trade liberalisation in

Ban gladesh s ap proach t o economic policy. This ha s led to a shift

in th e para digm for n at ional development plann ing from aid to

tr ade, th e processes for development policy formu lat ion a nd t he

am ount of policy monit oring.

Decline in t he n um bers of SMEs.

Great er em phasis on m aking t he export sector via diversification

to be the pr imar y engine of growth.

The governm ent lacks capa city an d r esour ces to provide higherlevels of sup port for th e privat e sector t o bett er compet e in

international markets.

The pa ce of developmen t of th e sector h as out paced th edevelopmen t of domestic infrast ru cture an d related business

related ser vices sector, resulting in weak forwar d an d backward

linkages.

Domestic investm ent flows have been skewed toward t he leadingexport industr y (ready ma de garmen ts) at t he expense of other

industries.

Em ergence of lar ger size firm s using h igher skilled labour in th eready-made garment indu stry.

Poverty Reduction and Trade Policy: CaseStudies of Bangladesh, Cambodia and ASEAN

6 In Bangladesh,

development

practitioners and

stakeholdershighlighted broad

trends such as: the

importance of

growth in th e

agricultural sector

in reducing poverty

Greater emphasis

on m aking the

export sector via

diversification to be

the primary engineof growth


16/37


All firm s in the garm ent indu str y facing increased extern alpressur e on pr ofit mar gins, delivery schedules, and quality,

stan dar ds, & pra ctices in th e production m ethods.

Sma ller firms, which do not find niche in gar ment indust rydying out .

As wages a nd skills r equirement s for export jobs increase,barr iers for t hose at lowest skill set (next generat ion of migration

from r ur al to urban ar eas) to ent er labour force are increasing. Trade ba lance has caused balance of payment (BoP) pressuresdur ing periods of rapid import growth.

The impa ct of th e declines in pr oduction of certa in a gricultu ra lproducts, which were una ble to compet e after import

liberalisation, were str onger th an increases in agricultur al

production in products wher e Bangladesh could compet e.

For growth t o take on a m ore povert y reduction orienta tion, itmu st lead to creation of more ser vices, job creat ion an d a middle

class.

Bangladesh n eeds to increase t he r at e of GDP growth, above 8percent is pivot point for in creasin g qua lity of growth a nd

faster r at e of povert y reduction.

Comm ent s on some of th e extern al impa cts of tr ade policy reform s

(enh an ced liberalisat ion) in clude:

Ins ufficient h ar mony & coordin at ion between I F pr ocess. InWTO special an d differen tia l trea tm ent (S&DT) is included in

ta lks, while policy conditionalit y rem ain s focus of IMF a nd World

Bank.

WTO techn ical as sista nce to help implemen t policy reform s is ona non-binding basis.

WTO led tr ade policy reform s h ave led to er osion of LDCspreferences.

In t otal, LDCs were a sked t o pa y high pr ices for a ccession int o

th e WTO but in ar eas of most int erest t o LDCs for capt ur inggains from WTO accession (like movement of nat ur al pers ons)

WTO has n ot delivered.44

In Cambodia, development pra ctitioner s and sta keholders

highlighted broad tr ends such as Cam bodia susta ined a GDP

growth ra te between 5 percent a nd 7 per cent from 1995 to 2004. The

textile and gar ment export a nd tourism indu str ies have emerged as

th e prima ry engines of growth. In spite of th is record of growth,

povert y in Cambodia increa sed from 36 percent in 1999 to 40-45

percent in 2004. The following comment s with regar d to th e impacts

and linka ges between t ra de, trade liberalisation associated with

PRSP s an d povert y reduction effort s were also noted.

Comm ent s on some of the domest ic impa cts of tr ade policy reform s

(enh an ced liberalisat ion) in clude:

Very litt le impact of overa ll growth on povert y redu ction. Tra de policy reform h as become a centr al componen t of th e

Govern men ts policy reform agend a a s pa rt of Cam bodias

par ticipation in t he WTO, ASEAN Free Tr ade Area (AFTA),

ASEAN +3 and Grea ter Mekong Regional integra tion initiat ives.

Poten tia l new sour ces of growth include: agro-processing,electr onics, and ener gy.

Agricultur e sector rem ains pr edominan tly at t he subsistencelevel. Rice, forest ry an d fish a re t he leadin g products.

For growth to take

on a m ore poverty

reduction

orienta tion, it m ust

lead to creation of

m ore services, job

creation and a

m idd le class

Potential new sources

of growth include:

agro-processing,

electronics, and energy


17/37


The governmen t lacks capa city an d r esour ces to provide higherlevels of sup port for th e privat e sector t o bett er compet e in

international markets.

Limited retur ns to agricultu ra l producers from agricultu ra lexports.

WTO accession forced a faster pace of tr ade liberalisat ion beyonddevelopmen t of th e governm ent s capa city to regula te or to

un dersta nd r an ge of impa cts on domestic firm s. WTO accession was a lso used a s an exter na l force for deeperdomest ic economic policy reform s.

Commen ts on some of the exter na l impacts of tr ade policy reform s

(enh an ced libera lisation) include:

Trade facilitat ion via im proving customs systems is a m ajorobjective of tr ad e policy reform .

Regiona l integr at ion is a m ajor objective of tr ade policy, as par tof an export promotion str ategy to n eighbouring na tions.

Export oriented garment industr y dependent upon importedinput s an d ha s very few backwar d linkages (beyond wa ges &

employment ) with t he r est of economy.

Tourism industr y also primar ily dependent upon importedproducts.

WTO accession ha s given Cambodia gr eat er visibility ininternational markets.45

While th e au th or did not condu ct inter views with ASEAN officials

about tr ade policy regional poverty r eduction efforts, t he following

points a re offered for addit iona l insight . The ASEAN region is one of

Asias lead ing growth nodes with a populat ion of 500 m illion people

an d a regiona l GDP of US$750bn. The ten ASEAN nat ions

repr esent wide ran ge of levels of developmen t a nd su ccess at

reducing poverty from Singapore a nd Ma laysia to Cambodia a nd Lao

PDR. It is a region where intern ational tr ade and investment playimporta nt r oles in each coun tr y.

In ter ms of regiona l policy appr oaches t o support economic growth

in ASEANs LDC nat ions, liberalising tr ade a nd in vestm ent flows

by developing corridors between th ose societies a nd larger regiona l

economies is th e preferred app roach. Hen ce, initiatives such a s th e

Great er Mekong Su b Regional cooperat ion pr oject ha ve been

implement ed to facilita te th e developmen t of infrast ru cture t o better

enable the development and shar ing of the resource base, and

pr omote t he freer flow of goods and people in t he su b-region. To dat e,

gains in regional t ra de and investm ent levels ha ve been ma de.

However, improvement s in s ocial indicators including levels of

povert y ha ve lagged.46

In term s of regional poverty r eduction initiatives, ASEAN ha s t wo

plat form s which guide regional collaborat ion in comba tin g povert y:

Fr am ework for t he ASEAN Plan of Action on Rur al Developmen t

an d Poverty Er adicat ion a nd t he ASEAN Action Plan on Social

Sa fety Nets. Both grew out of th e painful lessons of th e 1997 Asian

Fina ncial Crisis, which revealed tha t even successful n at ions were

su sceptible t o swin gs in global economic forces.

The Fr am ework for t he ASEAN Plan of Action on Rur al

Developmen t an d Poverty Er adication is based on a vision of

Export oriented

garment industry

dependent upon

imported inputs andhas very few

backward linkages

(beyond wages &

employment) with

the rest of economy

AS EA N region is

one of Asias lead ing

growth nodes with

a population of 500

million people and

a regional GDP of

US$750bn


18/37


Era dicat ing poverty, with part icular empha sis on pr omoting th e

development of prosperous an d self-reliant r ur al comm un ities by

empowering individua ls, fam ilies an d disadvan ta ged groups.

Str at egic objectives include: developing h um an resour ces; building

capacity for policy form ulat ion an d implement at ion; stren gthen ing

ASEANs capa city for monit oring an d a ssessing poverty in cidence

and trends;encour aging the active part icipat ion of th e private/

business sector; promoting networking among th e nat iona l andregiona l development/povert y resear ch in stitu tes of th e ASEAN

coun tr ies an d creating comm on positions on m at ters related t o

ru ra l developmen t an d poverty era dicat ion am ong ASEAN Member

Countries.47

The ASEAN Action P lan on Social Sa fety Nets was formu lat ed in

1998 to help ASEAN na tions bu ild th e collective capacity to respond

to the h um an an d social impacts of th e 1997 Asia Fin an cial Crisis.

Key objectives of plan in clude: Assessing an d m onitoring t he s ocial

impact of the crisis an d identifying th e needs of targeted groups;

developing an d implemen ting social safety net pr ogra mm es for the

disadvan ta ged; and monitoring t he effectiveness of social ser vices

delivery.48 Today, both r ema in complement ar y dimen sions ofASEANs intr a an d inter -regiona l economic int egrat ion an d tr ade

liberalisat ion in itiat ives.

Individua l examples of linkages between t ra de policy and p overt y

redu ction efforts in ASEAN exist. In th e case of Ind onesia, a 2003

study n oted t he n egative impact on poverty r eduction effort s in

term s of decreases in incomes for rice far mer s, result ing from

import tr ade libera lisation of rice from 1995 to 2001.49 A similar

report noted a p ositive impact on poverty redu ction efforts in

Vietnam , from tr ade liberalisation of rice and agricultur al input s.50

Ind ividual exam ples

of linkages between

trade policy and

poverty reduction

efforts in AS EANexist

The ASEAN Action

Plan on Social Safety

N ets was form ulated

in 1998 to help

ASEAN nations build

the collective capacity

to respond to the

human and social

impacts of the 1997

Asia Fin ancial Crisis


19/37


Exploring alter na tive appr oaches t o tr ade policy to combat poverty

mu st be placed in the cont ext of th e debate on th e role of tr ade in

development in the curr ent int erna tional tr ading system. Regardless

of perspectives on th e cur ren t liberalisat ion orienta tion of tr ade

policy to combat poverty, a m ore interestin g debate centr es on th e

varying rea sons offered when ever insta nces of trad e libera lisation do

not lead t o improvements in poverty r eduction.

Some institu tions ar gue tha t when t ra de liberalisation does not

appear to help produce robust poverty redu ction r esults or is

associat ed with exacerba tin g existing condit ions t he sour ce of th e

failure is insu fficient libera lisation (hence additional import

liberalisat ion is th e solut ion) and /or t he absen ce of other n ecessar y

institu tional cha nges and policy reform s. Neith er th e stru ctu re of

the global tra ding system n or t he fundamenta l premises and

assum ptions associated with the liberalisation orienta tion of tra de

policy ar e called into quest ion.51

In a report on growth and export competitiveness in Bangladesh, the

World Ban k a rgues t hat in order for Ba ngladeshs exportperform ance to both susta in pr evious results 52 an d to respond to the

new global competitive challenges which pu t Ban gladeshs export led

growth perform ance at risk, broader a nd deeper policy reforms

addit iona l import liberalisat ion ar e necessary to addr ess

Bangladesh s sour ces of compet itive disadvan ta ge.

The World Ban k cites th e use of an integra ted value chain a na lysis

to quan tify th e costs of corrup tion & red tape a nd const ra ints

created by poor infrastr uctur e, tar iffs and high costs of finan ce on

th e compet itiveness of th e export sector.53

A more critical app roach ar gues th at th e source of the failure of

tr ade policy with in th e cur rent global ru les based system t o better

supp ort poverty r eduction efforts, is a combina tion of both t he

liberalisat ion orient at ion of tra de policy itself and t he existen ce of

contra dictions, distortions a nd other str uctur al aspects of ru les

based system. Together, th ey more often t han not help creat e

extern al const ra ints on poverty redu ction efforts in developing

societies.

To cite one exam ple, a brief exam ina tion of th e tr ade policies an d

global ru les based system governing t he t ra de of agricultu ra l

produ ces offers severa l insight s. In sp ite of th e clear recognit ion of

th e magn itud e of th e global ma rk et distort ions creat ed by developed

Alternative Approaches toPro-Poor Trade Policies

7When trade

liberalisation does

not appear to help

produce robust

poverty reductionresult s, th e source of

the failure is

insufficient

liberalisation

Broader and deeper

policy reform s

ad ditional im port

liberalisa tion are

necessary to addressBangladeshs sources

of competitive

disadvantage


20/37


nat ions agricultu ral subsidies and th e subsequent devastat ing

impa cts on the poor in developing societies,54 a leading developmen t

institut ion continu es to support t he u se of tr ade policies tha t include

agricultu ra l import libera lisation in developing societies to remove

domestic const ra int s on local producers an d distort ions in domest ic

markets.55

The au th or questions if such appr oaches t o tra de policy actually leadto more efficient domestic agricultu ra l ma rket s a nd producers, or

the import ation of global ma rket distortions int o domestic mar kets

and externa l constra ints on local pr oducers? This au th or also finds

it extremely problemat ic th at in th e cur ren t WTO Doha Round of

negotiations on agriculture, negotiators r epresenting th e very same

developed na tions tha t rout inely highlight th e consequences and

costs to growth of developing n at ions u sing su bsidies, have openly

condit ioned agr eeing to redu ce th eir global ma rk et distort ing

subsidies on developing na tions ma king concessions in other ar eas.

There is a bitter irony in developed na tions requesting

compen sat ion from developing n at ions, a s a condit ion for redu cing

their policy action t hat distort interna tional ma rkets. It str ikes meeven m ore th at the leading multilater al development institut ions, in

calling on all na tions t o mak e concessions , are in a sen se

endorsing a stru ctu ra l adjustmen t pr ogram me like conditionality in

the global tra de rules based system.

Cambodia provides another interesting example to furt her probe the

debate. The World Ban k noted in the 2004 PSRP review th at t he

Governm ent of Cam bodia h ad successfully completed a ll six PRGF

reviews, ma int ain ed macroeconomic sta bility in spite of int ern al an d

extern al sh ocks, an d successfully completed its a ccession in to th e

WTO.

Development of th e agricultur e sector an d labour-inten sive

industr ies and ser vices is defined a s key for absorbing sur plus

labour . Fut ur e growth will depend on th e government s ability to

diversify the en gines of growth by overcomin g challenges of

governan ce to at tr act investm ent a nd compete against its

neighbours. 56

The World Bank also notes th at in order for Cam bodia to take

advan ta ge of th e mar ket a ccess opportu nities pr ovided by acceding

to the WTO, th e governmen t mu st implement br oad and deep

domestic economic reforms to decrea se corru ption, str ength en th e

ru le of law, build the institu tions tha t will at tr act businesses and

better enable th e private sector t o lead growth, to help diversify the

economy, an d to increas e th eir r ole in pu blic service delivery. 57

The au th or finds t he a bove comm ents reflecting t he comm on

positions of ma ny donors an d IF Is which clear ly seek to support

tr ade policy reform s with a n export bia s, to correct per ceived import

subst itu tion oriented policies which cont ain a n an ti export bias.

They have a tenden cy to see this appr oach a s super ior for

generating growth via expanding export s an d increasing investmen t

and subsequently reducing poverty, regardless of the r esults.58

T here is a bitter irony

in developed nations

requesting

com pen sation from

developing nations,

as a cond ition for

reducing their policy

action that distort

international

markets

Development of the

agriculture sector

and labour-intensive

industries and

services is defined as

key for absorbing

surplus labour


21/37


In th e global cont ext, Cambodia is one of the poorer na tions with a

per capita income estima ted to be around US$271 in 2000. It ra nked

121st out of 162 count ries on the Un ited Na tions Developmen t

Pr ogra ms (UNDPs) Hum an Developmen t In dex for 2001.59 Given

this star ting point an d my interviews with sta keholders a nd

developmen t pr actitioners, I question th e pace, timing, sequen cing

and th e adverse impact of rapid t ra de liberalisation on esta blishing

backward linka ges from Cam bodias export industr ies, with th eneed to develop labour int ensive indu str ies and services an d promote

governa nce to reduce povert y. One a lso wonder s how the

governm ent is expected t o do more while redu cing t ar iffs and t axes

to promote privat e sector developmen t?

The aut hor suggests tha t th e need for t he form ulat ion of tr uly

alter na tive appr oaches t o pro-poor t ra de policy to combat povert y is

supported in m any qua rt ers, including local sta keholders a nd some

intern at iona l institu tions like UNDP. 60 Without a n a lternative

appr oach, th e most likely result is th at growth , development and

povert y redu ction effort s in Ca mbodia will increasin gly be dicta ted

by th e logic of dynam ic global forces, as opposed t o the sp ecific needs

an d u nique condit ions of Cam bodias poor. 61

Cambodia is one

of the poorer

nations with a per

capita income

estimated to bearound US$271

in 2000


22/37



23/37


Before tu rn ing t o specific exam ples of altern at ive pro-poor tr ade

policies in Ban gladesh a nd Ca mbodia, I would like to offer t he

following gener al point s:

The goal of an alter na tive pro-poor tr ade policy app roach wouldsubstitu te r eform s to promote growth with r eforms to reduce

poverty.

An alter na tive pro-poor tr ade policy appr oach would su bstitu tepriorities of import libera lisation, privatisa tion, finan cialliberalisat ion, with p riorities on job crea tion, protection a gainst

global distort ions penetr at ing domestic ma rk ets.

An a ltern at ive pro-poor tr ade policy ap proach would p lace apriority on r eform s th at support labour ut ilisation and productive

output in agricultu re.

In t he ar ea of agr icult ur e, an alt ern at ive pr o-poor tr ade policywould enable developing coun tr ies to de-link n ew commitm ent s

on ma rket access from negotiat ions on global ma rket distort ions

from ta riffs, NTBs an d subsidies.

An alt ern at ive pro-poor appr oach to tr ade policy would notrest rict t he domestic economic policy space of developing n at ions

to support industr ialisation an d creating n ew competitive factoradvantages.62

An alt ern at ive pro-poor tra de policy appr oach would focus onsup portin g growth of domestic deman d & consum ption led

growth engines.

An alt ern at ive pro-poor tr ade policy ap proach would su pportlocal an d inter na tional ma rk et developmen t for SMEs.

An alter na tive pro-poor tr ade policy appr oach sh ould substit ut esupport ing increased pr oduction for export, t o producing different

th ings for export a nd domest ic consu mpt ion.

For lar ger developing societies like China an d In dia curr entlyusing global mar kets a s catalysts for indu str ialisation, growth ,

development a nd poverty reduction processes, an a ltern at ive

pro-poor tr ade policy appr oach su pport a gr adu al r e-balan cing

towards using th eir domestic market s and consu mption based

engines of growth t o sustain ther e growth, development and

povert y r eduction processes.

An alt ern at ive pro-poor tr ade policy appr oach should su pportrem itt an ce genera ting opport un ities for citizens originat ing from

developing societies .

In t otal, an a ltern at ive pro-poor tr ade policy appr oach sh ould beone of man y policy instr um ent s in a compr ehen sive policy

appr oach to poverty redu ction and indu str ial developmen t based

on institu tiona l innovation and stru ctu ra l tr ansforma tion.

Elements of an Alternative Approach to

Pro-poor Trade Policy

8The goal of an

alt erna tive pro-

poor trad e policy

approach wouldsubstitute reforms to

promote growth with

reform s to redu ce

poverty

An alternativepro-poor trade

policy approach

would support local

and international

market development

for S MEs


24/37


The following quote capt ur es th e founda tion of an alt ern at ive pro-

poor appr oach to t ra de policy: Liberalisation an d int egration intoth e global economy ar e th e resu lts of tr ade a nd economic success;

tr ade an d growth ar e not necessar ily the r esults of liberalisation and

integra tion. Thus th e high pr iority given t o liberalisation can be

quest ioned. Growth is the prer equisite to liberalisat ion. Coun tr ies

need to deal with developmen t pr iorit ies from th e very beginnin g of

th eir development process.63

In Bangladesh , elements of alter na tive pro-poor tr ade policies

would include:

The point of depar tu re for comba tin g povert y is defining t hesource of poverty as str uctur al injustices;

Fr om th is, the point of depart ure for an altern at ive pro-poorappr oach t o tra de policy is tha t it should be a component of a

nat ional development stra tegy for str uctura l tran sformation and

chan ge; and

An alt ern at ive pro-poor appr oach to tr ade p olicy would su pportma king t he domest ic economy m ore resilient to global economic

forces. 64

In Ca mbodia , elemen ts of alt ern at ive pr o-poor tr ade policies would

include:

Trade policy reform s t hat support domestic demand expansion; Tra de policy reforms which support expan sion of agr icult ur al

production;

Adopting a ltern at ive pro-poor tra de policies tha t su pport t he u seof labour in ru ra l area s, where 85 percent of th e population

resides; an d

Tra de policy reform s, which su pport t he developmen t of forwar dand backward linkages between tourism a nd t extile/garmen t

export sectors a nd t he domest ic economy.

Un less serious

concessions are m ade

by all sides

developing countries

as w ell as developed

countries Europe,the US, Japan,

everyone - the Doha

round of trade talks

will fail and th e

people who will

suffer m ost are the

worlds poor.65

The developin g

countries problems

arise from the

structural imbalances

and weakn esses of

several of th e WTO

agreem ents. In the

Uruguay Round,

developing nations

made concessions and

paid the costs in the

hope of receiving

benefits later. Th e

continued lack of

reciprocity in benefits

and costs would thu sadd to the present

imbalances.66


25/37


There is a great deal of existing litera tu re on the element s of the

ru les based multilatera l trade system th at creates challenges to

developmen t p rocesses in developing societies. One could focus on

issues of ma rk et access67 , tar iff peaks68 and NTBs69 for pr oducts

an d ser vices of value to developing coun tr ies.

The lack of balance within t he Tra de Related Int ellectua l Pr operty

Rights (TRIPs) agreement between protecting intellectu al propert yright s (IPRs) an d facilitat ing th e technology tra nsfers t o developing

coun tr ies, or th e shr inking of policy space from th e Tra de Related

Investment Measures (TRIMs) agreement at a t ime when policy

freedom is cru cial t o help developing societies rea ct to ra pid chan ges

in t he global economy.

A brief sum ma ry of th e constra ints would include: new r ules ha ve

not a ddressed origina l const rain ts on tr ade faced by LDCs on a reas

like agricultu re, textiles, and disput e settlement hence the desire to

call th e Doha Roun d th e developmen t roun d; new rules ha ve

recreated t he original const ra ints, in new form s; new ru les have

created new ba rr iers for LDCs in ter ms of TRIPs, GATS, TRIMs,an d SP S; new ru les elimina ted s ome of th e helpful policy

instr um ents a nd mea sur es (in nam e of fighting corrupt ion,

inefficiency, bias aga inst a gricultu re, an d export s) form erly used by

LDCs and developed na tions at their initial stages of

industrialisation.

The curren t evolution of the global tr ade ar chitectu re both in t erms

of th e rules based system an d th e dynamics of power within t he

system , are increa singly combining to creat e a less conducive

environm ent (perhaps even new stru ctu ral const ra ints) to the

form at ion of pro-poor t ra de policies. One dim ension of this challenge

is rooted in r ecognising t ha t povert y in developing societies is a

product of the intera ction of both intern al an d externa l dynamic

factors.70

J ust as t he World Ban k foun d value in using global value chain

an alyses t o encour age economic policy r eform s in cludin g deeper

tr ade liberalisation in Bangladesh, th e tool can also be used to

explore both th e evolut ion of the u nder lying dynam ics of th e global

tr ading system and th e extern al constr aints a nd opport unities for

developing na tions t o utilise tr ade p olicy as a componen t of a pro-

poor orient ed development st ra tegy to reduce poverty. Four a spects

of how the curren t global tr ade ar chitectur e appear s to be

increasin gly less condu cive to th e form at ion of pro-poor tr ade

policies include:

External Constraints on AlternativeTrade Policies to Reduce Poverty

9

New rules have notaddressed original

constraints on trade

faced by LDCs on

areas like agricultu re,

textiles, and dispu te

settlement

N ew ru les have

created new barriers

for L DCs in term s of

TR IPs, GATS ,

TR IMs, and S PS


26/37


The replacement of ideals such a s preferential tr eatm ent,special a nd differentia l an d r ecognit ion of str uctu ra l challenges

facing developing societies in the int ern at iona l tra de system with

pr inciples of a level playin g field an d equa l opportu nit y.

The failur e of the global tr ade a rchitectu re an d ru le basedsystem to addr ess the failure of th e growth in export volumes t o

tr anslat e into additiona l export revenues and ability to purchase

imports, due to str uctur al na tu re of both declining prices andprice insta bility for commodities (the prim ar y exports of ma ny

LDCs).

The expan sion of th e global tr ade r egime into area s once definedas domest ic policy via new regu lat ions govern ing global ma rk ets

an d de-regulat ion in domestic mar ket s, leadin g to a conver gence

or h ar monisation of rules both in inter na tiona l and domestic

mar kets a nd a shrink ing of development policy space.71

An expansion of th e nu mber of global valu e cha ins in differentindust ries an d sectors which operat e on th e basis of buyer

driveness has been facilitat ed by chan ges in int erna tional a nd

na tional regulatory fra meworks, such as tr ade and import

liberalisat ion, fina ncial and curr ency liberalisat ion, increasingly

str ingent st an dar d form at ion, an d th e collapse of previous pro-poor elements of the global tr ade a rchitectu re su ch as

interna tional commodity agreements.72

In bu yer driven global value chains a sma ll num ber of global buying

actors u sually based in developed na tions a re a ble to mainta in

barr iers to entry an d dicta te opport unit ies for u pgrading into the

higher va lue/profitable segment s of th eir global indus tr y supply

cha ins while reducing barr iers to ent ry int o lower value/less

profita ble activities t o a decentr alised global n etwork of competing

firms in d eveloping societies.73

It is th is evolution of power r elations bet ween firm s a nd consum ersin developed a nd developing societies, where th e form er exercise

cont rol over th e latt er by defining global st anda rds, qua lity

specifications, ret ail mar ket informa tion, cert ificat ions an d bran ds

within th e int erna tional trading system, which can genera te

constr aint s on t he developmen t of pro-poor tr ade policy appr oaches.74

In a ddition, th ese types of constra ints r epresent a category of NTBs

th at do not fall in th e realm of negotiat ions in mu ltilatera l trad e

regime foru ms. Tra de liberalisation does not n ecessarily lead t o

fully open m ark ets or perfect comp etition. Th e decisions m ad e by

lead firm s operatin g in global valu e cha ins can exclud e som e

categories of actors, even if th ere is n o trad e barrier involved. 75

Recognising t ha t r eal world out comes of chan ges in appr oaches to

tr ade policy ar e determ ined by how both th e ru les of the system an d

th e dyna mics power within the system ar e int erlinked in unique

ways in individual global value chains, would str engthen th e

discourse on formu latin g alter na tive pro-poor tr ade policies in t wo

key ways:

They would ena ble clear insights into th e weaknesses of th eopport un ities (tra de creation a nd development impacts) for LDCs

creat ed by bilat era l FTAs such a s: FTAs ha ve excluded a rea s of

most in ter est t o LDCs, FTAs frequ ent use of na rr ow ru les of

origin (RoO) have redu ced potent ial gains, a nd LDCs alr eady

R eplacem ent of ideals

such as preferential

treatm ent, special

and different ial an d

recognition ofstructural challenges

facing developing

societies in th e

international trade

system with principles

of a level playin g

field an d equal

opportu n ity.

Trade liberal isation

does not necessarily

lead to fully open

m ark ets or perfect

competition


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ha d good m ar ket access based on other regimes in r elation t o

concessions t hey gra nt ed in F TAs.76

They would also sup port t he inclusion of addit iona l crit icalperspectives on wher e and to what degree is th e Doha

Development Roun d going to fun dam ent ally cha nge or

perpet ua te (in different form s) the qua litat ive development

dimensions of the global ru les based tr ading system.77


28/37



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As noted at t he outset of th e report , domestic structu ra l constra ints

represent an equally importan t dimension of the challenge to

developing alter na tive pro-poor tr ade policies. The impa ct of

domestic const ra ints is pa rt icular ly critical in ter ms of the r oles

th at could be played by th e stat e in par tn ersh ip with civil society

an d th e private sector, to locate and pur sue opport un ities to more

successfully use tr ade as a pa rt of a development str at egy to combat

poverty.78 However, in recognising such const ra ints and given t heevolut ion of some of th e un derlying dyn am ics of the global economy,

th e following suggestions a re offered a s exam ples of wha t could be

pursued.

At t he policy level, govern men ts in developing societies sh ouldseek a deeper un dersta nding of th e stra tegies used by MNCs in

inter na tional business development .79

The increa sed tr end of MNCs to out source both of non corefunctions a nd sh ift specific busin ess costs a nd r isks to th eir

sup pliers, (so th at th ey can focus on core a ctivities an d devote

th eir resour ces to competin g on h igher form s of compet itive

advan ta ge i.e., bra nding a nd m ar keting) is creat ing changes in

th e relat ive positioning opportu nit ies for firm s in developingsocieties. For firms a nd work ers in developing coun tr ies societies

which seek to gain a ccess to or m ove up from t heir existing

position in a global value chain, governm ent s mus t develop th eir

appr oaches to industr ial and t ra de policy in ways to support t he

efforts t o build t heir capabilities in th e ar eas of increasing t heir

scale of production, imp roving th eir degree of specialisat ion an d

str ength ening th e quality of services which t he firm can

provide.80

In order for a firm in a developing society to acquire a position asa 1 st tier su pplier in a global value cha in governm ent s mu st

develop th eir appr oaches to industr ial and tr ade policy in ways to

supp ort t heir efforts to develop t he following: Capabilities to do

mu ch of th e day t o day coordina tion of the cha in on beh alf of

lead firm s, and k ind of a system integra tion role. Key skills

include: Specialised comm un ications , sector specific techn ical

kn owledge, multiple lan guage sk ills, knowledge of supply

count ry mar kets, trade ru les and r egulations, and tr ade

administr ation systems.81

Fina lly, to tackle the challenges pursuing opport un ities to bett eruse tr ade to reduce poverty in a dynam ic ma nn er over time,

government s mu st develop th e approaches to industr ial and

tr ade policy in ways which links techn ology and edu cation to

ma nufacturing competitiveness and poverty reduction. In a

sense, att aining a degree of export su ccess based on sta tic

Domestic Policies for Moving up theValue Chain to Reduce Poverty

10Domestic structural

constraints represent

an equally important

dimension of thechallenge to

developing

alt ernat ive pro-poor

trade policies

Governments must

develop the

approaches to

industrial and trade

policy in ways whichlinks technology and

education to

manufacturing

competitiveness and

poverty reduction


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compa ra tive advan ta ge of free tra de, with out also building the

education a nd t echn ology capa bilities to cont inuously upgr ade,

will not per mit sust ain able processes of income a nd em ployment

growth for povert y redu ction.82


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Conclusion11Given th e problem s

and imbalances in

world trad e, there is

a need to rethink

the dominant modelof trad e policy th at

has advocated

across-the-board

rapid liberalisation

for developing

countries.83

The prim ar y purpose of this paper is t o help inject a r an ge of

perspectives, part icular ly from st akeh olders in developing societies,

into the curren t discourse on how we might u nderst an d th e linka ges

between tr ade, tr ade policy, growth a nd developmen t an d poverty

redu ction. The valu e of such a n effort is t imely given th e upcoming

WTO ministeria l in H ong Kong. In t his concluding section I would

like to offer t he following point s.

The basic policy issue facing developing coun tr ies is n otfundam enta lly, one or more or less tra de liberalisation, but h ow

best to extra ct from their par ticipation in tha t system t he

element s th at will promote economic developmen t.84

The constr aining dimension of mainst ream ing tra deliberalisat ion in developmen t policy is tha t it places support ing

povert y redu cing effort s seconda ry t o the goal of export

expansion. The result is th at domestic ma rket s and indust ries

ar e orient at ed in accordan ce with t he logic of sta tic compar at ive

advan tage, the dynamics of global ma rket s, and power relat ions

cont ained in th e global ru les based system.

However, in a m odern world, th e place of most coun tr ies in the

inter na tional division of labour is determ ined not so mu ch byth eir nat ur al factor advant ages, but by th eir success in building

local capacity, skills and experience in indu str ies tha t enjoy

economies of scale an d specialisat ion.

Assuming t he n eed for complementa ry domestic andintern ational policy factors a nd variables to be present in order

for tr ade liberalisation t o reduce poverty in developing societies

as a given, the h istory of development an d poverty r eduction in

both developed na tions an d th ose most successful in Ea st Asia

demonstra te t he value of th e gradua l use of trade liberalisation t o

susta in growth at th e later st ages of development (when local

indust ries and ma rket s reached certa in levels of mat ur ity) to

support processes of upgr ading.

Tha t hist ory of development in developed nat ions demonst ra testh at local factor advan ta ges were not simply tak en as a given

an d tr ade liberalisat ion wa s not u sed to successfully develop

domestic infant industr ies and u nderdeveloped ma rkets. In fact,

th e opposite of liberalisa tion in t he form of indu str ial policy and

str at egic liberalisat ion were u sed to upgra de existin g and

create new factor advan tages to enable tra de to support growth.85

Within t he Doha Development Round, t he n at ur e of how some ofth e un derlying dyna mics of th e global economy ar e evolving is at

th e core of why developing n at ions see differen t rea lities

emer ging in compar ison t o developed na tions, from a ll of the

efforts t o creat e ru les based tr ading system which levels the

playing field for all.

The constraining

dimension of

mainstreaming trade

liberalisation in

developm ent policy is

that it p laces

supporting poverty

reducing effortssecondary to the goal

of export expansion


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Within t he t ren d towar ds th e convergence of domest ic economicpolicies and int erna tional tra de rules, via domestic ma rket de-

regulation and int erna tiona l trade r ule creat ion, we see the

comm on langua ge of rem oving ma rk et dist ortions

inefficiencies & corr up tion an d freein g of ma rk ets as

ra tionales for m ore tra de libera lisation. Those who cha mpion

th ese principles the most, in reality ar e dicta ting how those

objectives are pu rsued. Evidence indicates th at some m ar ketdistort ing and ma rket ba rr ier policies ar e maint ained or creat ed

in new form s, while oth ers ar e not. This tr end resu lts is a

cont inued sh ift in power r elations between developed an d

developing na tions, in th e form of a rise in bu yer dr iven global

value cha ins. 86

The r esults of the Hong Kong WTO Ministerial will either

perpetua te t he existing tren ds (doing the same things differently) or

serve as a cata lyst for alter na tive appr oaches (doing different

th ings). In order for t he r an ge of alter na tive pro-poor tr ade p olicies

noted in th is paper t o be pur sued, it will be vital th at progress is

made on addressing the various interna l and external stru ctur al

constr aint s which impede poverty r eduction effort s in developingsocieties.

In ter ms of addr essing th e extern al constra ints on inst itut iona l

innovat ion an d stru ctu ra l tra nsforma tion in developing societies, a

cont inuous interr ogation of the very premises an d assu mpt ions

associated with the cur rent dominan t th inking about growth, trade

and development is required. One tha t ra ises awar eness about t he

stru ctu ra l na tur e of th e issues facing developing societies and th eir

effects on the world 87 an d deepens the discourse of the nat ur e of

Trilat era l Developmen t Coopera tion in the 21st century.88

In t he en d, reorienting th e political will of nat ion st at es will deman dth at th e voices of th ose who live in t he cond itions of poverty in a ny

society ar e continu ously amplified, art iculat ed an d projected int o th e

negotiat ing rooms wh ere th e ru les are m ade. It will be processes like

th e one r esulting in th e Dhak a Declar at ion of 2005, which sh all

rema in the plow to har vest a tr an sform at ion of what can be

achieved in fighting povert y in the n am e of huma n dignity.89

Evidence ind icates

that some market

distorting and

m arket barrier

policies are

maintained or

created in new form s,

while others are not

Reorienting the

political w ill of

nation states will

demand that the

voices of those who

live in the cond itions

of poverty in any

society are

continuously

amplified, articulated

and projected into the

negotiating rooms

where the rules are

m a d e


33/37


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23 Winters, L.A., N. McCulloch, an d A. McKay, Tra de Liberalisat ion a nd P overt y: The Evidence So

Far ,Journal of Economic L iterature , Vol. XLII (Mar ch 2004) pp. 72115. Auth ors n ote: Th ere is

no sim ple general conclusion a bout th e relationship betw een tra de liberalisation an d poverty.

Th eory presum es that t rade liberalisation will be poverty-alleviating in the long run and on

average. Equ ally, however, it does not assert that tra de policy is always am ong the most

im portant determi na nt s of poverty redu ction or th at th e static and m icro-econom ic effects of

liberalisa tion w ill alw ays be beneficial for th e poor.

24 Zepeda, Eduar do. (2004). Pr o-poor Growth: Wha t is it? One pager #1. Int erna tional Poverty Centre.UNDP

25 Ravallion, Mart in. (2004). Comment on Pr o-poor Growth: Wha t is it? One pager #1. Int erna tional

Povert y Centr e. UNDP .

26 In the aut hors int erviews with stakeh older and development economists in Bangladesh, several

noted tha t while poverty has been r educed in Bangladesh over t he last t wo decades, the curr ent

tr end in increased income inequality is raising questions about th e sust aina bility of Bangladeshs

tr ade libera lisation based approaches to growth.

27 Gore, Cha rles. (2002). Globalisation, the Int erna tiona l Poverty Trap, and Chronic Povert y in Least

Developed Coun tr ies. CP RC Work ing Paper #30. Chr onic Poverty Research Centr e, UNDP

28 East wood, Robert a nd Lipton Michael. (2001) Pr o-poor Gr owth a nd P ro-growth Poverty redu ction:

What Do th ey Mean ? Wha t does the Evidence Mean? What can Policymaker s Do? Pa per delivered

at th e Asia an d Pa cific Foru m on P overty: Reforming Policies and Inst itut ions for P overty

Reduction a t th e ADB. Ph ilippines.

29 Ibid.

30 Ibid. Examples at th e m icro-level include: Imm iserising growth, th e coarse-cloth effect, an d th e

tr actor effect, and th e millets to m ilk effect.

31 Kakwan i, Nan ar. Per nia, Ern esto. (2000). What is Pro-poor Growth? Asian Development Review,

Vol. 18, No. 1. Asian Developm ent Ban k.

32 See Malaysia: 30 Years of Poverty Reduction, Growth a nd Racial Har mony. (2004). A case study

report pr esented by th e Economic Plan ning Un it of Malaysia at the Shan ghai Poverty Conference-

Scaling Up Poverty Reduction.

33 Carr , Mar ilyn an d Chen, Mar th a. (2001). Globalisation an d the Inform al Economy: How Global

Trade a nd In vestment Impa ct the Working Poor. Women in Inform al Em ployment Globalising &Organ ising ( WIEGO).

34 Cline, William . Trade P olicy and Global Povert y. (2004). Cent re for Global Development an d

Inst itut e for

Int ern at iona l Economics. Washin gton, D.C.

35 Kraev, Egor. (2005). Estimat ing GDP Effects of Trade Liberalisation on Developing Coun tr ies.

Cent re for Developmen t, Policy and Resear ch, School of Orient al an d African S tu dies. London, UK.

36 Melam ed, Claire. The E conomics of Failure: The Real Cost of free Trade for P oor Coun tr ies.

(2005). Chr istian Aid.

37 Ann abi, Nabil. Khondker, Bazlul. Raiha n, Selim. Cockbur n, John. Decaluwe, Berna rd. (2005).

Imp licat ions of WTO Agreemen ts a nd Domest ic Tra de Policy Reforms for Poverty in Ban gladesh :

Short vs. Long Run Im pacts. Chapter 15 in Put ting Development Back into the Doha Agenda:Poverty Im pacts of WTO Agreem ent .

38 Khan , Haider. (2005). Assessing Povert y Impact of Trade Liberalisation P olicies: A General

Macroeconomic Comput able Genera l Equilibrium Model for Sout h Asia. Discussion Pa per No. 22.

Asia Development Bank Institu te. Tokyo, J apan .

39 Impact of Trade Liberalisation on Income Distribution an d Household Welfare: Some General

Equilibrium Results for Ba ngladesh. (2001). MIMAP-Bangladesh . Bangladesh In stitu te of

Development Stu dies.

40 United Nat ions Development Assistance Fr amework: 2006-2010. (2004). UNDP.

41 Building a pro-poor t rade sector st ra tegy. (2001). Integrat ion a nd Competitiveness Diagnostic Study.

Int egrat ed Fra mework (IF) Techn ical Assista nce Project


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42 Briefing with H.E. Cham Pra sidh, Senior Minister in the Royal Cambodian Governm ents Ministry

of Commer ce. J uly 19, 2005. Wash ingt on DC.

43 Ibid.

44 In J une of 2005 th e auth or conducted interviews with economists, business leaders and development

professiona ls from th e: Bangladesh Inst itut e of Development Stu dies, General E conomics Division of

th e Plann ing Comm ission, PKSF m icro-fina nce inst itut ion, Bangladesh Gar ment Manu factur ers

an d E xport ers Associat ion, Un iversity of Dhaka, Cent re for Policy Dialogue, the NGO Un na yan

Sham ann ay, and the Government of Bangladesh.

45 In August of 2005 th e auth or conducted interviews with economists, business leaders and

development professiona ls from t he: Economic Institu te of Cam bodia, Int ern at iona l Relief and

Development, Cambodian Legal Resour ces Developmen t Cent re, the Garm ent Man ufactur ers

Associat ion of Cambodia an d t he Governm ent of Cam bodia.

46 Regional Cooperation Str ategy and Program Update 2006-2008: Greater Mekong Sub-region. (2005).

Asian Development Bank .

47 Fr am ework for th e ASEAN Plan of Action on Rur al Development and P overty Era dicat ion. (1997).

ASEAN Secreta riat .

48 ASEAN Action P lan on Social Safety Nets. (1998). ASEAN Secreta riat .

49 Int egrated Assessment of the Impa ct of Trade Liberalisation A Coun try Stu dy Indonesian Sector.

(2005). United Nat ions En vironment al Pr ogram me.50 Integrated Assessment of the Impact of Trade Liberalisation: A Countr y Study Viet Nam Rice

Sector. (2005). United Na tions Environment al Pr ogra mme.

51 Tra de Policy Review Body: Review of Ban gladesh TPRBs Evalua tion. (2000). Word Trade

Organisat ion. It n otes th at failur e of trade liberalisation led growth to reduce poverty is because of

Ban gladesh s weak performa nce in domest ic economic reform s to lower t he costs of doing business .

52 For a detailed ana lysis of the evolution of Bangladeshs externa l economic policy and subsequent

resu lts sin ce indepen dence see: A Review of Ban gladeshs Ext ern al Sector P erform an ce. By

Moha mm ad Yunu s. MIMAP-Bangladesh. Bangladesh I nst itut e of Developmen t St udies.

53 Ban gladesh: Growth a nd Export Competit iveness. (2005). World Ban k Stu dy on Ban gladesh

Competitiveness.

54 Global Agricultural Trade a nd Developing Countr ies. (2005). World Ban k Report ,edited by M.Atama n Aksoy and J ohn C. Beghin. It notes: S ubsid ies ha ve sim ilar effects, depressing world

prices and inh ibiting entry by ind ucing surplus produ ction by n on-competitive and often large

produ cers. Dom estic sup port an d protection policies have subst an tial n egative effects on produ cers

in developin g coun tries, because of th e sheer size of th e subsid ies relative to th e size of th e m arket.

S uch large support program s shield n on-comp etitive produ cers, and penalise efficient p roducers,

often in poor coun tries.

55 Hoekman , Bernar d, Micha lopoulos, Consta nt ine, Schiff, Maur ice, and Tar r, David. Chapt er 13:

Tra de Policy: Anex K Tra de Policy: Technical Note. Povert y Reduction Str at egy Process. World

Bank Group.

It n otes: Un dist orted price signals from w orld m ark ets, in com bina tion wit h th e excha nge rate,

allow resource allocation consistent w ith com parat ive adv an tage, thereby increasing produ ctivity.

56 Cambodia: National Poverty Reduction St ra tegy, Pr ogress Report . (2004). The World Bank Group.

57 Cambodia: Seizing the Global Opportun ity. Investment Climat e Assessment an d Reform Str ategy.

(2004). The World Bank Group.

58 In t he World Banks Cambodia: Seizing the Global Opportun ity. Investment Climat e Assessment

an d Reform Str at egy. (2004) it notes th at a pr o-poor t ra de stra tegy for a sma ll countr y star ts on th e

basis th at exports ar e critical t o expanding job opport un ities.

59 Social Economic Development P riorities an d Official Development Assistan ce Needs. (2002). Coun cil

for Developmen t of Cambodia an d th e Cambodian Reha bilita tion an d Developmen t Board. Ph enom

Phen.

60 Investing in Cambodias Fut ure. (2004). United Nat ions Development P rogram Annua l Report . It

notes: Th e 2004 UNDP case study on th e macroeconom ics of poverty reduction confirm s tha t

tight t he m onetary an d fiscal policy fram ework an d dollarisation has been successful in producing


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consistent economic growth, led by the successes of the garment industry and tourism industries.

However, it has not successfully tackled th e key element s of poverty. Th e m ost im portant fin din g

of the research is that employment growth is the key determinant for Pro-poor growth.

61 For a broader examinat ion of th e development risks associated with an over-reliance on export led

growth models see: Paris Br ett. Risky Development : Export Concentra tion, F oreign Investmen t and

Policy Condit ionalit y. (2003). World Vision. Aus tr alia .

62 Chan g, HaJ ong. Tra de and Indu str ial Policy Space in Historical Perspective. (2005). University of

Cambridge.

63 Kama l Molhotra, the United Nat ions Development P rogra ms Senior Advisor on Inclusive

Globalisat ion. Rema rk s at The Im pact of Tra de Liberalisat ion on Poverty Reduction conferen ce.

May 1, 2005. Woodrow Wilson In ter na tiona l Centr e for Scholar s. Washin gton, D.C.

64 Poverty Er adicat ion an d Employment Generat ion. (2003). National Policy Review Forum Ta sk

Force of Bangladesh. Co-Chair ed by Pr ofessor Moha mma d Yunus MD of the Gr ameen Bank an d

Pr ofessor Rehma n Sobha n, Cha irm an of Cent re for P olicy Dialogue.

65 World Bank Pr esident Paul Wolfowitz. Op-ed published in The Financial Times (10/24).

66 Khor, Martin. (2002). The WTO, the P ost-Doha Agenda and t he Fu tur e of the Trade System:A

Development Perspective. Paper present ed at present ed at a semina r on WTO held at th e annu al

meeting of th e Asian Development Bank. Sh an ghai, China.

67 Mimoun i and Von Kirchbach. Market Access Barriers: A Growing Issue for Developing Coun tr yExport ers. (2003). Intern ational Trade F orum Issu e 2.

68 Hoekman , Ng, and Olarr eaga. Tariff Peaks in the Quad an d Least Developed Count ry Exports.

(2001). Developmen t Resea rch Gr oup, The World Ba nk . Washingt on, D.C.

69 Meller, Pat ricio. A Developing Count ry View on Liberalisation of Tariff and Tr ade Bar riers. (2003).

Pr esented a t t he OECD Global Forum on Trade Moving Forwar d n Mar ket Access in th e Doha

Development Agenda. P ar is.

70 Gore, Cha rles. (2002). Globaliation, the Int erna tional Poverty Trap, and Chronic Poverty in Least

Developed Count ries. CPRC Working P aper #30. Chronic Povert y Resear ch Cent re. UNDP.

Gore n otes: Th e poverty trap can be described as in ternati onal becau se trade and fina nce relations

are reinforcing a cycle of econom ic stagnat ion, in LDCs, particula rly th ose high ly d epend ent on

prim ary comm odities. In th ese coun tries th e ability of trad e to act as an engine of growt h an d

poverty reduction is being sh ort circuited by falli ng w orld com m odity prices.

71 Gibbon, Peter a nd P ont e, Stefano. (2005). Trading Down Africa, Value Chains a nd th e Global

Economy. Temple Univers ity Pr ess.

72 Gibbon, Peter a nd

discussion paper-south and south-east asia on pro-poor trade policies

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