Summary of discussion

• Poverty, Inequality and WTO
• Technical Standards and Poverty
• LDCs and WTO and why Developing Countries should participate in a new round
• Democracy and WTO
• Country cases

 

1. Poverty, Inequality and WTO

Q: From: [email protected]
How can the WTO contribute to give the fruits of free trade directly to the poor communities who are poor because of the bad mechanism of distributive justice in most of the LDCs.

A from L Alan Winters of the University of Sussex:
As you are aware, the WTO does not have any direct influence on countries' distributive systems. This is far too sensitive a national issue to be the subject of an international agreement. It does, however, have some indirect influence on the incomes of the poor.

By helping to provide encouraging and stable conditions for international trade, the WTO contributes to the creation of wealth and income. Unless governments actively expropriate the disadvantaged, at least some of this will flow through to the poor in their countries despite starting off with unattractive distributive shares. The evidence suggests that, ON AVERAGE, the poor do as well from economic growth as everybody else, including growth stimulated by international trade liberalisation and openness. As growth occurs it will eventually become evident in these countries that excluding a large share of the population from active and enthusiastic participation in the economy has major costs in terms of output and income foregone. Also by encouraging trading relations, and hence contact, between countries, the WTO helps governments and people in developing countries see the benefits accruing to countries where distribution encourages everyone to participate fully in economic activity.

Q from dante sioli from Brasil on “The problem is our internal policies” [email protected].

A from prof. Winters, Sussex University
I think you are exactly right that a very large part of the problem is domestic policy making. And it can be solved, although be prepared for a long haul. A lot of people have strong interests in the existing set-up and it takes time to bring them around to a more socially acceptable outcome.

The importance of domestic policies in reaping and sharing the benefits of international trade is illustrated by the section of my paper for the WTO on trade policy and poverty — see the WTO Home page.

I discuss a contrast between Zambia and Zimbabwe in terms of marketing
arrangements for commodities. In Zambia, the official purchasing board for maize was replaced by two private companies which appeared not to compete very strongly. They did not bother to buy maize from outlying parts of the country because it was too expensive to travel and transport it to market.
The result was that poor farmers in these areas seemed to suffer considerably. In Zimbabwe, on the other hand, cotton marketing was also
privatised but to three companies (including a farmers' co-operative) which competed fiercely. Farmers' prices rose and farmers could also select among purchasers on the basis of whom provided advance payments, who provided inputs, etc. Our evidence suggested that this helped farmers considerably, not only land-owners but also some farm workers.

Q from Sai Yvst on trade liberalisation and poverty in India

A from prof Winters: I think your question is a very good one. I share your concern about the poor in India and agree that it is a general human responsibility to try to eliminate such poverty. Unfortunately, however, wishing something does not make it happen, and we have to be hard-headed (not hard-hearted) about the way that societies and economies work.

I do not believe that there is any WTO rule that requires, or even encourages, governments to dismantle support structures. In the case of quotas, while it may be the case that some small scale firms gain from them, the majority of the rents that they create are appropriated by the larger — non-poor — players. If the government were prepared to support the poor through quotas, why are they not prepared to do so by more efficient means? Nothing in the WTO prevents governments from pursuing pro-poor distributive policies if they wish.

Implicitly you ask 'Why does the WTO deal with subsidies but not domestic distribution?' Production subsidies are concerned mainly with economic efficiency; they have quite clear spillovers between countries and there is a danger that if they were uncontrolled governments would get into costly subsidy competitions, with each other trying give their firms an advantage on world markets. As such, they are the natural sphere for an international agreement between countries. Internal distribution policies, on the other hand, are less closely linked to efficiency, have no international spillovers and quite clearly lie at the very heart of the domestic political sphere.

You and I might wish an international organisation to instruct our government to do what we want them to do, but remember that these actions might not suit the rest of our peoples and the organisation might actually seek to impose policies that we dislike. In other words, it makes perfect sense to have bodies which can address some of the difficulties that might arise in international trade without having to solve such fundamental issues as distributive justice. Besides, we have bodies which are prepared to deal with distributive issues broadly defined — e.g. the UN and UNDP.

 

2. Technical standards and poverty

Q From: [email protected]
It is worth noting that the quality standards as required by the developed Member countries would affect the trade balances of developing and least
developed countries. How would the treaty impact this situation which has created furious reactions throughout the world?

A from Prof. Rolf Langhammer from the Kiel Institute of World Economics, Kiel/Germany. My speciality is trade and development. In response to the question from [email protected] ( student unidentified) I would like to say that I understand the question in the sense that the student sees quality standards as a protectionist device abused by developed member countries. In my view, the national treatment rule offers sufficient ways and means for developing countries to invoke a dispute settlement mechanism procedure if quality standards hinder developing country suppliers from finding access to developed countries' markets. Trading companies in developed countries and export-oriented foreign investors in developing countries will be strong allies for developing countries to identify violation of the national treatment rule in developed countries. In addition, any attempt of vested interests in developed countries to label products produced under different PPMs (process and production methods) as “non-like” products and therefore open to discrimination against domestically produced goods has been rejected up to now. In this respect, I am optimistic that technical standards do not act as the major barrier to market access.

Q from Alejandra Herranz, Argentina on What can companies and civil society do to show to the entire world that trade and sustainable development are not necessarily at odds?

A from Prof Rolf Langhammer Kiel Institute of World Economics, Kiel Germany Sustainable development requires changes in preferences of people (lowering their time preference rate in terms of taking future actions and developments more into consideration than hitherto). Trade helps people to raise their income, especially those of the poor in developing countries who otherwise would be limited to narrow domestic markets when marketing their productive capacities. Rising income changes production structures in favour of environment-saving techniques and shifts preference structures to more environment-saving goods (and services). This so-called composition effect is crucial for sustainable development in the medium term. In the short run, negative externalities of using the environment as a “sink” because of rising economic activities should be internalised through correct pricing of the environment ( i.e. by auctioning waste emission certificates). In case of uncertainty about future effects of using the environment now (biodiversity), option values could be used to come to reasonable cost-benefits analyses for
projects. Furthermore, keep regulatory arrangements for labour, trade and environment separate (assignment problem). One should not bring conflicting targets in one arrangement ( such as the WTO).

A from prof. P. Dasgupta from the Adminitrative Staff College of India, in Hyderabad. This is a response to the question asked by [email protected] on Technical standards and poverty Quality standards often create an unneccessary barrier to trade because they vary from country to country. If arbitrarily set they are likely to be used as a means of protectionism. In the recent years, developing countries' trade have been severely affected by the use of quality standards as nontariff barriers to trade particularly by developed countries. The Agreement on Technical Barriers to Trade tries to ensure that regulations, standards, testing etc, do not create an unneccessary barrier to trade. While on the one hand, it encourages countries to adopt
the standards they consider to be appropriate for protecting health of humans animals or plants, on the other, it says that the procedures to decide whether a product conforms with national standards have to be fair and equitable. It discourages any methods that would give domestically produced goods an unfair advantage. The agreement also encourages countries to recognise each other's testing procedures.

However there is a need to make information on standards available to manufacturers and exporters in different countries. At present such information is not easily available and this is a problem for developing countries. Also, mutual recognition of standards is not extended to most developing countries.

A from professor Pier Carlo Padoan, teaching at the University of Rome Italy “and the College of Europe in Bruges, Belgium.

In answer to the question by Knhur Carrasquel on Technical standards and
poverty, I agree on the idea that the definition of standards should see the active involvement of developing countries and that all relevant international organisations such as the World Bank among others should actively contribute to the effort.

As for the question about precautionary principle and market access, the
precautionary principle is being increasingly used in periods such as the present one of rapid technological change and in which research is touching upon areas such as biotechnology which at the same time can offer very important opportunities for advancement but also carry high risks. The problem that is mentioned, i.e that developing countries might actually be hurt by a strict application of the principle, is real. A trade-off between safety and profitable opportunities is an inescapable problem. A general approach to the issue could be the following. While the precautionary principle should be in general applied to new products on which doubts about safety persist the same effort should be applied in eliminating the principle as applied to old and consolidated products for which these doubts have been reasonably eliminated.

A from Philip English on : SPS Agreement: World Bank research I am an economist running the World Bank Institute's training and capacity-building program in trade policy. I have responded directly to the
gentleman from the Andean Community with several articles on standards and SPS produced by a World Bank research program on these issues. They are not attached to this message in keeping with your rules about attachments. I also directed him to our website — www.worldbank.org/trade — where more information on this and other trade issues can be found. All participants in this forum are encouraged to explore the wealth of information available there.

In a nutshell, there is serious cause for concern that SPS and other standards may be the new form of protectionism used by the North to block some Southern imports and, through our research and dissemination, we are trying to confront the issue and assist the South to defend their interests.

A from prof. Padoan to Yanneth Adriana Lopez Camarillo on how the problems related to technology transfer were solved in different countries.

Technology transfers in Italy take place in several forms including the acquisition of patents, inward FDI, and joint ventures between home and foreign companies The key issue is that to acquire technology from abroad a developing country must adapt the new technology to local needs, This implies some form of (process) innovation in the receiving country. To this end what is crucial is domestic skill, local human capital. Old technologies are usually sold in secondary markets to developing countries and they do not contribute much to the upgrading of the local economy. A real upgrading requires high local skills that are able to select state of the art technologies abroad. One important vehicle of diffusion is joint ventures between domestic and foreign firms which should be allowed to enter the local market in exchange for new and not obsolete technologies. Also agreements between local and foreign research centers and universities are certainly very helpful.

 

3. WTO and LDCs and why Developing Countries should participate in a new round

Q: What is the interest of LDCs (least-developed countries) in the WTO? from Stephan a. Neu, adviser to the high commissioner of human rights and poverty reduction, Mauritania, on behalf of gtz (german aid)

• will llcd countries really profit of free global trade, when agricultural goods are excluded?
• in which way these countries may profit, when even trade on agricultural goods is liberalised?
• looking at sub sahara africa (excluding rsa), where are the advantages for the countries in joining wto?

A. from Mr C. Osakwe, Head of the WTO Working Group on LDCs
i) LDCs derive benefits from global free trade. First, although there are restrictions to their exports, there continues to be dynamic improvements in market opportunities for LDCs under the various GSP schemes of preference-givers. Second, seventy percent of LDCs exports obtain duty-free tariff in the 23 major markets of the trading system. The real problem for LDCs' exports is the minimal supply response. Third,
there is increased volume and improved quality of trade-related technical
assistance to LDCs. The Integrated Framework for Trade-Related Technical Assistance to LDCs being jointly delivered by the six core Agencies (IMF, ITC, UNCTAD, UNDP, World Bank and the WTO) continues to contribute to human resource capacity-building in LDCs. Similarly, the Joint Integrated Technical Assistance Programme (JITAP) amongst three Agencies (ITC, UNCTAD and the WTO) also continues to make significant contributions to the trade development of LDCs.

ii) There are restrictions in agricultural trade (as in many other sectors), but agriculture is not excluded from liberalization negotiations. Currently, the mandated negotiations in agriculture and services are underway. Recognition should also be accorded to the progress that has been made. Before the Uruguay Round of Multilateral Trade Negotiations, agriculture was not part of the liberalization agenda and was not subject to the disciplines and rules of the trading system. Today, it is. There are problems and challenges, but liberalization negotiations are underway. It is correct to say that the greater the liberalization of the agricultural sector and sectors, the higher the gains that will accrue to all countries through increased incomes, particularly developing countries, including the Least-Developed amongst them;

iii) The advantages of membership in the multilateral trading system exists in the system of rules and disciplines. Adherence to a rules-based system is infinitely superior to a system where power prevails. The dispute settlement system which resolves disagreements or conflicts on the basis of the non-discriminatory provisions of MFN and National Treatment is the strength of the system. Although the system provides for preferences and flexibility in the rules, its real strength is in the system of legal contracts in which no member is above the law;

iv) Finally, it needs to be stressed, however, that notwithstanding the benefits offered by the rules-based system, the ability of LDCs (and indeed all countries) to draw on these benefits depends on the extent to which the domestic economy has undergone reforms to remove structural
impediments and supply-side constraints and create a regulatory and macroeconomic environment that allows it to make competitive supply-side responses. Thus the benefits can be drawn by countries that adjust to seize the opportunities.

Q From: Leodegardo M. Pruna, Why do developing countries need a new multilateral round?

A from L Alan Winters of the University of Sussex

I think this is fairly straight forward, at least for the majority of developing countries.
Most developing countries still have a long way to go on the 'old agenda' of reducing their own trade barriers to goods. A round will help this, not least by making the domestic politics easier (because it gives exporters a
bigger interest in liberalisation), and allowing credible binding of concessions.
Most developing countries also have interests in further reducing developed countries' old protectionism — agriculture and textiles in particular, but also other tariff peaks and escalation. By offering their own liberalisation in a round they make this easier.

A round may help developing countries to address governance issues in the WTO, about which they care.

Personally I do not think a comprehensive round is in the interests of developing countries because they will be swamped by it, but others argue that developing countries have additional objectives, which may be
addressable by a round e.g. reviewing TRIPs, competition policy, etc.

A small point is that developing countries are beneficiaries of a rules based system. Even if they feel they sometimes do second best from the system, consider how much worse it would be if there were no rules at all.

Activity in this main area of WTO competence helps to support the rules based system.

A from Cliff Stevenson, Rowe & Maw, 20 Black Friars Lane, London
RE: Benefits that LDCs reap from WTO

One answer would be access to WTO dispute settlement. India has successfully challenged WTO inconsistent anti-dumping duties applied against bed linen by the EC.

4. Democracy and WTO

Q: from [email protected]

My name is Mara Burr and I am an attorney in Washington, DC specilizing in international trade.

There are a number of problems with the WTO — lack of meaningful public participation, lack of transparency, the inconsistent way in which panels and the Appellate Body have dealt with disputes, and the problem of balancing domestic environmental concerns/ measures with international trade obligations.

The mandated review of the dispute settlement system did not result in agreement on how to improve or amend the current system. As a result of the failed dsu review, the problems that caused many groups to feel shut out of the system still exist. It seems clear that at least the “real parties in interest” whether those parties are the affected industry or non-governmental organizations should have access to the system (even if only as an observer). Are there on-going efforts to deal with these issues in a meaningful way? Can we expect any sort of agreement in the near future?

A: My name is Errol P. Mendes. I am a professor of law at the University of Ottawa, Canada with a special teaching, research and consulting interest in globalization, trade and justice issues. I want to second Mara Burr's comments below and suggest a discussion thread.

I think that there is a major “democratic deficit” challenge facing most multilateral institutions and particularly the WTO and the Bretton Woods Institutions. The WTO and the IMF are focused on how to make the global
financial, goods and services markets more efficient. This is a critical goal for humankind. But democracy is also about equity. fairness and participation. The World Bank has a mandate to promote these goals too, but is struggling to figure out how to involve civil society from the developing world in promoting these goals. The Bank has made mistakes, but is also willing to learn from them. There is a need to do far more.

However there is a fundamental asymmetry in the global human society which is creating grave dislocations and giving rise to the demonstrations we saw in Seattle, Washington, Prague and most recently at the G20 meeting in Montreal, just a few miles from Ottawa. The asymmetry is the drive towards total mobility of capital, goods and services in the world trade and services regime, while for the most part human capital around the world remains immobile. This assymetry can and does give rise to the potential for human exploitation on an ever increasing scale which multilateral institutions must start to discuss and propose remedies for. Such exploitation includes illegal migration, child labour, economic exploitation and discrimination against the female workforce, incentives to disregard existing laws and regulations on health, safety, other labour standard and the environment. I have co-authored a book on the winners and losers in the Global Economy titled
“Towards a Fair Global Labour Market; Avoiding the new slave trade” published by Routledge, New York and London, 1999.

Because the WTO has some semblance of “teeth” in the dispute settlement panels, those who are dissatisfied with the WTO will not accept the argument that these problems have to be dealt with by the ILO or the UN in general. Because the IMF has the power to bring “robber baron authoritarian rulers” to heel by the power of conditional loans as was the case recently with the Suharto regime in Indonesia, there will be an increasing cry for filling in the democratic deficit in this institution also.

We need to have a world wide discussion among experts and non-experts
alike as to how to fill in the democratic deficit in these multilateral institutions. We also need to discuss who really represents the people in each of our countries. Perhaps, we need to reinforce the role of national legislatures in the development of international trade, development and financial systems. In each of the multilateral institutions I believe there are ways of filling in the democratic deficit. At the WTO, we suggest in the book that the Trade Policy Review Mechanism can play a vital role for filling in the democratic deficit, but it will need the cooperation of the
World Bank, the ILO and the IMF. Let us start an in depth discussion on these vital issues of Globalization and Justice that will shape the lives of all of us, our children and those who come after. My best wishes to you all.

A from Joe McMAhon, Professor of International Trade Law at the Queen's University of Belfast.

In relation to the direct effect of the WTO within the EU, it must be pointed out that when the ECJ ruled on the direct effect of the GATT, they set down various conditions for direct which the GATT did not meet. However, on reflection those criteria are now met by the WTO, so surely it is just a matter of time before the ECJ rules that individuals can rely on WTO provisions before their national courts. However, the question is: is this the best mechanism to eradicate the democratic deficit of the WTO? Moreover, the contribution which this could make to the eradication of poverty is negligible.

 

5. Country cases

Mozambique
My name is Frederico Magalhaes. Although white and Portuguese, today 40, I have lived my life with one objective, to help the people of Mozambique where I was raised and where I spent —to the age of 18— the happiest youth possible. I left in 1978 , in the midst of a civil war, thinking I was priviledged to be able to leave and with the determination that, God willing, I would one day go back to help my friends who were less priviledged and who I was leaving behind In 1996 I purchased a group of textile companies —TEXTAFRICA— which my father, not as an owner but as an executive, had built in Mozambique from 40 years back. Status of the companies was, operations closed.
After 4 years of trying desperately to make viable my venture in Mozambique and having lost my wife in the process due to the desperation in which I was involved, we are now in the process on shutting down due, almost exclusively, premature and indiscriminate-goods free trade.
Status: Chimoio has 170,000 population, around 6.000 employed (3300 in
Textafrica losing their jobs now), the town will become a ghost town.

My almost superhuman effort only kept 3300 employed for 4 years. I lost the money I had made specifically to help Mozambique plus US$1.5M borrowed in Europe and sent to Mozambique, the banks there lost US$10M, I lost my wife and became practically bankrupt. The 3300 will lose their jobs soon.
What a waste. God, did I try hard !

The combination between the Western World interests (Subsidies to western farmers, using Africa as a dumping ground for 2nd hand anything, plus using Africa as a target market for IMF industrial investments in Asia, to name the most devastating 3 issues) coupled with African Governments' Apathy is just a no-goer for black-africa, there is no chance whatsoever with the current cocktail.

Premature and Indiscriminate-Goods Free Trade only helps maximize the return on investment of Asian industry at a human cost to Africa. If anyone is interested in knowing more, pls reply. I do realy, realy understand the problems first hand and I do know some of the answers. However I do not want to waste time explaining it all, if it is only for WTO-World-Bank-Academics, “let's be chums and show we care” forums. I'm sick of all the hipocrisy. Normally if one —as is my case— does not go along with the latest herd thinking, one is ostrachised. I await to see what happens here.

Don't forget, I have no chips on my shoulder: I'm white with a black heart, I made my money in the most ruthless of competitive western world capitalist society, I lost it all “exploiting the blacks”, have been rich
and I am poor, I'm the son of a white colonialist who in his hey-day created 10,000 jobs (he was my partner this time round too and failed) I've been an academic, I've been fooled by the World-Bank IMF stance with refernce to investing in Africa, I'm accused of being a comunist. I can remake my life in the USA in high-technology, Africa was not an opportunity to make money, it was an opportunity to help (I hped at least
without losing money). I say this to explain that I can speak without too much bias in any direction.

Kind regards and congratulations with the initiative.

From: Frederico Magalhães [email protected]

To: WTO-WB Online Forum on Trade
Re: Professor Winter's reply on Inequality and WTO

The problem is not with the WTO, the problem is that the WTO has an agenda to liberalise and, like in all human negotiations, it pitches the “penetration”, for lack of a better word, at a certain level assuming that each country will try to defend its own interests delaying or moulding that penetration as it best suites its people. With Africa that does not work.
The level is far too high and you end up with indiscriminate goods being liberalized both in kind and in time. The target governments are too concerned to tow the line with the IMF on whom they depend, the IMF have a liberalization dogma (survival of the fittest & cheapest to the consumer is the bible there) some governments are too busy surviving in power and enriching themselves whilst in power, to even think too much about these issues. Why are they so worried about power ? because the western world is not allowing their people to create wealth and jobs and with 80% without paid up jobs no political party can last very long in power without trouble.
The issue of being too busy clinging on to power or enriching would be the same in European countries if it had 80% unemployment.
The solution: The WTO must go much further than setting a global agenda. It must study each individual poor country (say the APC countries) and case by case recommend what kind of goods and when they should be liberalized; The rich countries to whom the APC countries represent less than 1% of trade must accept that generosity. In Mozambique alone, over 80.000 jobs were lost in under 2 years, from 1994 to 1996, IMF took over in 1994. This happened because of premature and indiscriminate liberalization, nothing else. In this example it was the liberalization of 2nd hand clothing. Apart from the job losses, these jobs were “pulverised” across the whole country rather than concentrated in the capital or larger cities. What other activity there is going to replace 80.000 trained jobs with existing investment (sewing m/c) and dispersed across the whole country.

A by prof Winters to Frederico Magalhaes.

I think you have a very important insight about governments — they pursue their own interests. I see one of the major benefits of bodies like the WTO as being that they constrain the extent to which governments can manipulate their policies to favour particular groups over the general good. Trade restrictions redistribute income from consumers to producers and do so inefficiently.

I do not think that you really mean that the WTO should decide who liberalises what and when. In fact, your question seems to imply that an external body has already done so and that you object to its decision. I do
not believe that such choices are WTO business and that neither should they be. The WTO helps governments to achieve good policies — partly by constraining interest group influence and partly by encouraging them to choose less costly rather than more costly ways of achieving their goals. It also helps governments to co-operate with each other to overcome the spillovers from one country to another and to create an atmosphere of stability and transparency in which business can occur. It may be a problem that governments are not always as well informed as they might be and so there clearly is a role for WTO to build governmental capacity, but not for taking decisions away from governments.

I do not know the second-hand clothes story for Mozambique, but let me make some general observations. You mention 80,000 jobs; how many people consume cheaper second-hand clothes? If the clothes are unhygienic, the WTO quite clearly permits the government to act against them. If consumers noticed that they were getting sick, why did they not go back to consuming local new clothes? Their incomes have grown since then, I believe. The tax-breaks for charitable giving in the USA do not affect US jobs; for American citizens the alternative to giving the clothes to a charity and claiming a tx relief is throwing them out. Their demand for new clothes is hardly affected at all. Moreover, even if it were, the Americans are big importers of clothing made by developing countries — often by very poor workers.

It is clearly distressing when people lose their jobs, but the response is not to protect the old uncompetitive jobs indefinitely. There may be a case for sequencing liberalisation over, say, a couple of years to allow people to prepare, and for supporting the people who lose their jobs temporarily.

But the real answer is to ensure that conditions exist in which people can find activities in which the have comparative advantage. [And before you object, there are always areas in which particular countries and citizens within those countries are RELATIVELY efficient.] These conditions include fair access to other markets — which the WTO helps to induce — and decent conditions for business (including very small business) at home — e.g. property rights, freedom from extortion, freedom from excessive regulation.

Bangladesh
I am prof. Bhattacharya, from the Centre for Policy Dialogue in Dhaka, Bangladesh. I refer to the queries on the impact of liberalisation on Poverty and Capacity Building in the Developing Countries by Ghosh Madanmohan and others.

I would like to take this opportunity to address both the questions at one go since both these relate to same set of issues. The observation about widening rural-urban gap is not unique to India. Bangladesh has been proactively pursuing a policy of deregulation and liberalisation for over a decade now and our experience had been similar.

Table 1: Percent of Population in Poverty in Bangladesh

Year   Rural     Urban
1983/84    53.8     40.9
1985/86    45.9     30.8
1988/89    49.7     35.9
1991/92    52.9     33.6
1995/96    51.1     26.3

Table 2: Recent Trends in Consumption Growth and Inequality, 1991/92—1995/96
Area    Gini Index (%)
Urban
1991/92     31.9
1995/96     36.7
Rural
1991/92     25.5
1995/96     28.8

Source: Bangladesh: Promise and Performance (2000), (ed. Professor Rounaq Jahan), University Press Ltd., Dhaka, Bangladesh.

Although there has been some (not very significant, marginal) decline in poverty level in the country over the corresponding period, three parallel developments are also significant: (a) GDP growth average about 4.8 percent over the decade of 1990s but inequity has also been on the rise, (b) the rural-urban gap in terms of people living under the poverty line has been on the increase and (c) percentage of people in the extreme poverty group has continued to remain more or less the same. Whilst some groups have indeed been able to take advantage of liberalisation, large segments of the population including female headed households, unskilled labourers, workers in import-substituting industries which are incurring increasing losses in the face of liberalisation, as also workers in the privatised industries who have been laid off are becoming increasingly vulnerable due to income erosion under a liberalised and decentralised regime. As public expenditures are brought down and coverage under safety nets become downsized, a fall in the living standards of some of the most vulnerable segments of the society is clearly discernible.

It is true that countries which are economically weak (and of economic weakness the indicators presented by one of the two discussants are valid, and common to many other countries, perhaps even more so for the LDCs) are handicapped from the very start as they participate in a globalised trading regime. However, there are two issues which should be taken under consideration. One, whether from the perspective of developing countries (DCs) and least developed countries (LDCs) the rule-based multilateral trading regime that WTO proposes is better than what it is attempting to replace, and two, whether WTO system itself has an on-going mechanism to
address the specific special difficulties of the DCs and LDCs.

There is clear evidence that a rule-based regime is more preferable to a non-rule based one. However, it is equally true that during negotiations in all the eight GATT Rounds, more strongly so during the Uruguay Round,
there had been a continuing recognition that under a rule-based trading regime there will be both opportunities and risks for the DCs and LDCs. DCs and LDCs agreed to participate in the UR and accede into WTO on condition that they would be provided with special and differential treatment. These included (a) longer time of implementation of rules, (b)
more flexible arrangements in tariff reduction, (c) non-reciprocity, (d) preferential treatment. The Positive Agenda, Enabling Clauses, Special and Differential Status — all these were designed to enable the DCs and LDCs to integrate into the process of globalisation from a position of strength.
However, one can not say that all that were promised have been implemented. The Integrated Framework (IF) Initiative, of which WTO along with other institutions such as World Bank and IMF are partners and was undertaken to support, through technical assistance, trade capacity building in the LDCs, is yet to bring tangible results. No global trend has been created for technical assistance to implement felt needs identified under IF initiative, and obviously the multilateral and bilateral initiatives are not enough. Efforts to strengthen capacity of DCs and LDCs in WTO institutions such as dispute settlement bodies (DSB) has also not been adequate. There are other problems, both systemic and agreement specific, which inhibit the capacity of the DCs and LDCs to participate effectively in the global trading system. The positive agenda in support of DCs and LDCs still remains under and unimplemented.

Thus for many DCS and LDCs the risks remain real, the opportunities only
potential. It is for this that the civil societies in many of DCs and LDCs do not see the justification of holding any New Round of trade negotiations prior to a comprehensive stock taking and review of (i) implication of the Uruguay Round and (ii) an evaluation and assessment of what has happened to the Positive Agenda in the Uruguay Round in support of the DCs and LDCs.

It needs to be emphasised that a number of global initiatives are now being taken to address some of the more urgent issues related to trade capacity building in the DCs and LDCs. The third LDC conference in Brussels to be held in July 2001 provides a good opportunity to articulate the specific problems of the LDC, stemming from the process of globalisation. UNCTAD and others are also trying to design effective policies to support strengthened global integration of DCs and LDCs. WTO
itself is also undertaking in partnership with DC and LDC members, a number of initiatives to strengthen market access and trading capacity of
these countries. There is a growing realisation amongst multilateral organisations that there is a need to strengthen the nexus between trade
and aid.

Brasil

This is in answer to the question from Luiz Marcelo [email protected].
on the Effects of Free Trade in Brazil from prof. Winters, Sussex University Brazil started to reform its trade regime around 1987, but it maintained high trade barriers and had considerable macroeconomic instability until around 1993. Even since then it has been prepared to intervene heavily in international trade, as shown by its regimes for, say, motor vehicles or sugar, and its use of anti-dumping duties. Having almost free trade with other Mercosur members does not have a huge effect on Brazil's trade regime because they are so much smaller than it is. Thus, while Brazil has come a long way in reform terms recently, it still has some way to go.

Between 1990 and 1998 Brazilian GDP grew by 23% (IMF International Financial Statistics Yearbook, 1999), which shows that someone's incomes are growing, but I do not have access to detailed data to say in which sectors. While trade reforms typically bring some immediate growth benefits, the big benefits take some years to kick in. Provided that they keep up the reform process I would expect growth to continue to improve.
The Brazilian government publishes data on output and income generation by sector, and you should check these locally to see where the gains are going.

What about the poor? I do not have detailed data and so can not comment on whether poverty has increased or decreased. The evidence is strong that on average the poor benefit proportionately as much from growth and openness as does everyone else, so as growth continues the outlook on poverty should be optimistic. However, there clearly are cases where they the poor do not gain proportionately, and here redistributive policies are required. These need not necessarily be direct transfers, but setting up systems which allow the poor to address the reasons for their poverty — e.g. education, health, isolation from markets, etc.

India
Q from SAI YVST on Urban-rural gap getting widened in India...

Dear Prof Langhammer,
I have a small request to you. In the case of India, almost all barriers have been removed and national laws amended over the last decade to make them compliant with WTO regulations. In my opinion, India has been more than open to the external world in the last decade. Can you please specify clearly, what are the gains to Indian rural and tribal poor accrued from the free trade regime currently under practice. To the best of my knowledge, there are no supply side barriers in India and if at all there were any, they are removed in the last decade. But slowly the urban-rural gap is getting widened and there is no perceptible improvement in the life style of the rural poor. Even the conditions of urban poor are deteriorating. Can you cite some specific data to the contrary

A from Prof. Rolf J. Langhammer, Kiel Institute of World Economics, Kiel/Germany

In responding on the Indian situation, I would like to draw your attention to the October 1998 WTO Trade Policy Review Report on India. The report acknowledges, as you do, important reform steps in India toward more openness initiated and implemented since 1991. Likewise, however, the reports underlines the continued existence of many distortions, i.e. the reform lag in the agricultural sector which has remained relatively untouched by the reform programme. For instance, “progress in changing the agricultural incentives and subsidies is likely to remain constrained by the Government's policy of providing support prices to farmers and ensuring low cost supplies to the population through the public distribution system” (Report: xxvi). In short, internal terms of trade still seem to work against agriculture and pro industry thus giving incentives to the poor to migrate from the rural to the urban areas.
Furthermore, subsidies are reported not to reach really those who need them.Infrastructure bottlenecks existing for decades now prove to be binding after market opening has offered chances both for domestic and export markets.
To summarise, it seems to me that the undeniable reforms in India in many areas now cast a flash light on those complementary policy areas which escaped reforms and which prevent the poor from benefiting more than one would expect.
At the very end, one should not underrate the enormous challenge of opening the huge Indian domestic economy after so many years of inward looking's.
Trade liberalisation and improving market access are necessary but not sufficient preconditions for helping the poor. The discipline in governmental deregulation, broadening the tax base and improving the incentives for private and not only public investment are other preconditions.
As regards the Indian trading system , I would suggest to consult the WTO Report. While supporting the general trend of market opening which you mentions in your question, it puts the finger on a number of caveats and qualifications.
The Report provides an excellent data base for answering your question on the perseverance of the distributional disparities which are still strong in India.

China
Just to share my experience with a small unknown Chinese village ( I am not meant to spread pessimistic views on trade and poverty):

The village now called “Leidashi Village” is situated in the middle part of China. It has about 800 population, mainly in agricultural sector.

The village was not that rich, but lived pretty well because of its relatively well fertilized land. In early 1960s, the Chinese government built a dam (reservoir) there, and the village was forced to move to upland (hills). There had been no real compensation for this relocation but the villagers were informed of when the water level would reach their door sill.

Every year the villagers received certain amount of rice and clothes for winter time. Because of the then prevailing policy in China, the villagers were not allowed to do trade nor to own anything other than a simple house.

Merchants were seriously penalized. No electricity, no bicycle, no car, no paved road. Everything remained natural. They ate what they fished: all fresh. They raised chickens and ate eggs and chickens. They raised pigs and other livestock and ate them. They sang and danced in their own way.

They did not think they lived in a miserable condition. Nobody recognized
there was a rich outside world. If one family had more labour forces and better skills, that family would have better noodles and could serve their relatives with better reception. If one had too many young kids, he would
have temporary difficulties, but later on he would be able to catch up with others when his kids grew up. I was once requested to estimate the incomes of one family (with two parents and seven kids), and found that their annual monetary income was about ten US dollars. I did not know official statistics, but nobody believed in my estimates. They argued that such a family would die out of hunger or anything else. This family actually survived well. They could have fresh fish, meat and eggs that urban Chinese dreamed of. But they were considered poor.

In the late 1970s, commerce returned. They sold eggs, chickens, pigs, fish, and whatever they had, to the nearby cities, such as Wuhan located
in the middle of the Yangtze River. Then they ate less nutrition and could afford to buy new things. They did not know where these goods went to, international market or national market. No statistics existed. But the general impression was that merchants became richer than producers.
Most families bought new stuff, but they remained with a traditional living style. Merchants eventually moved to nearby townships. The villagers remained primarily the same: nothing better or worse.
In the 1980s, three changes occurred. First, the Chinese government began providing money in order to improve living conditions there. Electricity was introduced, and roads were built (not paved). But villagers seldom used the electricity since users had to pay. Villagers did not really need electricity since they went to bed early and got up early. The power company was reluctant to continue its service, and this became a political issue. Built roads were largely abandoned since no vehicles were around.
Even worse, the abandoned roads were much more difficult for taking a regular walk. The government also rebuilt the school which is still visibly beneficial there.

Second, due to the demand from Japanese and American markets, it was suddenly found that silver fish (local name) there became precious. Organized fishing teams with government licenses used mechanized tools to harvest such fish before the villagers realized their values. After one harvest season when villagers began to learn of the value, silver fish suddenly disappeared from the reservoir. The organized fishing team did not profit much because of their expenses on mechanized tools, which became of no use.

Third, one villager learned from the outside world to use modern techniques to raise chickens. After his initial investment, it turned out that the waste of the chicken farm polluted the water. He was forced to shut down and bore the loss. Nobody wanted to risk any more.

In the 1990s, the popular effort was to go to nearby cities to do seasonal jobs, mainly in the knowledge-free construction sector. They went to live in the marginal areas of cities and worked hard, and brought back money to the villages. Some families could afford to build two-storied house. Since they were not mainstreamed into urban life or because of other reasons, they talked about urban life but nobody wanted to try to bring their village to a better condition.

When I revisited there last year, I found everything remained exactly the same except for people: a new generation had emerged and they were following their fathers' footsteps to sustain the continuity of the human being. Commodities in trade remained the same: eggs, chickens, pigs. But nature-based fish became less available. Trade continued, and comparative advantages might be there. But it is hard to see that any of them has become richer because of comparative advantages.

Trade is necessary, but the precondition is that you have something to trade. When trade begins, local people may benefit from selling their natural resources and associated products (if organized sector holds its hands). As trade continues, the nature may become exhausted. Local people can once show off what they have just bought, but will for sure return whatever they are used to be but with an exhausted mother nature. This keeps their fathers' footsteps and may even be able to build a two-storied house. Do they become richer? The village is still well below poverty line set by Chinese government.
If anyone wants to study this case, I would be pleased to provide further assistance.

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