PHM-Exch> Trade Liberalization for Development?

[Claudio Schuftan]

From: Jomo <jomoks at yahoo.com>


*Trade Liberalization for Development?*

*Jomo Kwame Sundaram, Anis Chowdhury*

KUALA LUMPUR and SYDNEY, Nov 05 (IPS)  - The International Monetary Fund
(IMF), the World Bank and the World Trade Organization (WTO), all dominated
by rich countries, have long promoted trade liberalization as a ‘win-win'
solution for "all people—rich and poor—and all countries—developed and
developing countries", arguing that "the gains are large enough to enable
compensation to be provided to the losers".

Yet, the IMF's 2016 World Economic Outlook has warned that free trade is
increasingly seen as only or mainly benefiting the well-off. The help and
compensation needed by those disadvantaged by trade liberalization has
rarely if ever been forthcoming, even in most developed economies.

Dubious claims
In 2001, World Bank research papers claimed a strong positive effect of
trade for growth, arguing that globalization would accelerate growth and
poverty reduction in poor countries. Similarly, a November 2001 IMF brief
noted, "Integration into the world economy has proven a powerful means for
countries to promote economic growth, development, and poverty reduction".

Earlier, its 1997 World Economic Outlook claimed, "Policies toward foreign
trade are … promoting economic growth and convergence in developing
countries." A host of Fund research papers likewise advocated trade
liberalization.

However, surveying a large body of influential early research, Rodriguez
and Rodrik concluded, "we are skeptical that there is a strong negative
relationship in the data between trade barriers and economic growth…"

Likewise, the historical record since 1870 offers no support for claiming a
positive growth-openness relationship before the 1970s – the correlation
was, in fact, negative during 1920-1940.

Similarly, during 1990-2003, growth was not significantly correlated with
any measure of national trade openness. After all, the effects of any
national trade policy also depend on the trade policies of others,
especially existing and potential trading partners.

Baldwin observed that general policy advice of openness should not imply
"that no government interventions, such as selective production subsidies
or controls on short-term capital movements, are appropriate at certain
stages of development." He cautioned, "we must be careful in attributing …
lowering of trade barriers as being a sufficient government action for
accelerating the rate of economic growth."

Trump backlash
With US President Donald Trump attacking trade liberalization, the nature
of the debate has changed. For him, trade liberalization mainly benefits
large corporations which profit from producing abroad, depriving American
workers of jobs and decent remuneration.

Trump's trade restrictions have reversed decades of uneven trade
liberalization. By insisting on bilateral over plurilateral and especially
multilateral free trade agreements (FTAs), he has undermined trade
liberalization's advocates and their claims. With Trump, the US, erstwhile
champion of freer trade, has become its nemesis.

This policy U-turn has not only strengthened earlier doubts about the
ostensible benefits of trade liberalization, not only for American workers,
but also for developing countries, who have long insisted that
international trade gains and costs are unequally distributed among
nations.

Trade liberalizers strike back
Growing scepticism about trade liberalization, even before Trump's election
in late 2016, had rekindled the IMF-World Bank-WTO advocacy, e.g., in
Making Trade an Engine of Growth for All, despite its acknowledgement that
"trade is leaving too many individuals and communities behind, notably also
in advanced economies."

Reinvigorating Trade and Inclusive Growth is also unpersuasive, with poorly
substantiated patronizing assertions, as if preaching to the converted. For
the trio, the backlash is due to ignorance and failure to better advertise
the benefits of free trade. Their touching faith remained unshaken despite
considerable evidence, including their own, qualifying their advocacy
claims.

Instead of more nuanced, and credible advocacy of multilateral trade
liberalization, unencumbered by intellectual property, investment and other
non-trade agreements, they can only recommend targeted ‘safety-nets' and
pro-active ‘labour market programmes' (e.g., retraining).

UNCTAD dissent
By contrast, UNCTAD's Trade and Development Report 2018 focused, inter
alia, on the ‘Free Trade Delusion'. The World Input-Output Database
suggests trade liberalization has favoured capital at the expense of
labour.

Capital's share of export value added in manufacturing global value chains
(GVCs) rose from 44.8% in 2000 to 47.8% in 2014. Exceptionally, China's
labour share rose from 43.0% to 50.4%, underscoring how government policy
can influence distributional outcomes.

Besides exporting primary commodities, by participating in GVCs, some
developing countries now produce intermediate manufactures, typically with
imported inputs and equipment. Meanwhile, South-South trade has also
increased.

>From the 1980s, much of international trade growth was contributed by East,
including Southeast Asia, accounting for growing shares of world output and
manufactured exports. By 2016, East Asia accounted for over two-thirds of
manufactured exports by developing countries.

"Asia alone accounted for about 88 per cent of developing country gross
exports of manufactures…, and for 93 per cent of South–South trade in
manufactures, while East Asia alone accounted for 72 per cent of both."

Services: great new hope
UNCTAD's report acknowledges that services, particularly those enabled by
digital technologies, offers new opportunities for development. However,
while the trio claim that opening up e-commerce would generally lift living
standards, ostensibly because medium and small enterprises would benefit,
UNCTAD notes e-commerce is dominated by a few giant transnationals.

The advantages conferred by intellectual property monopolies, incumbency,
resources, name recognition and ‘network effects' favour ‘winner-takes-all'
outcomes, strengthening domination of e-commerce, software, payments and
others by a few large corporations. In 2014, for example, the top 1% of
exporting firms accounted for 57% of exports (besides oil, gas and
services), the top 5% for more than 80%, and the top quarter for almost
all.

‘Big data', secured by providing services to users, have been very
profitably used by ‘free' digital service providers. By 2015, 17 digital
giants accounted for a quarter of the market capitalization of the top 100
transnational corporations.

The UNCTAD report suggests three policy measures to address digital service
providers' profitable abuse of ‘big data'. First, privacy laws must require
‘informed consent' before collecting and using data from digital users.

Second, appropriate ‘anti-trust' and competition policy measures should
minimize ‘restrictive practices' and other such abuses by monopolies and
oligopolies. Third, effective digital policies involving data localization,
data management flows, technology transfer, custom duties on electronic
transmissions and other such measures can help increase gains.

Development, not liberalization
Trade liberalization has undoubtedly had varied consequences, and may well
undermine a country's development prospects, food security and more. With
trade liberalization, the main benefits often chiefly accrue to powerful
transnational corporations and their business partners.

Meanwhile, employment generated in developing countries has often been seen
as being at the expense of rich country workers displaced by the
internationalization of GVCs. In the face of such challenges, appropriate
and pragmatic government interventions have helped increase gains, reduce
costs and develop economies.

As UNCTAD highlights, "Developing countries will need to preserve, and
possibly expand, their available policy space to implement an
industrialization strategy". But such options for development diminish as
economies liberalize indiscriminately, praying for the best.

***
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Visit this story at
http://ipsnews.net/2019/11/trade-liberalization-development
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