TRADE USED to be a dry, arcane subject best left to experts who argued over the details of lengthy and complex international agreements. But in recent years, the international-trade-policy debate has become one of the hottest topics a journalist can cover. International trade—the flow of goods and services across borders—affects the lives of vast numbers of people around the world in profound and different ways. At the national and international level, it is one of the most important—and contentious—issues of the day. The antiglobalization protests at the World Trade Organization Summit in Seattle (1999), and the WTO Ministerial Conference in Cancun (2003) have put the trade policy debate in headlines around the world. The burning questions that government officials, nongovernmental organizations, and economists argue about are how important trade is to overall economic development and whether the current trade arrangements allow countries to maximize their gains from trade. There is also disagreement about what sorts of subjects should be included in trade negotiations and unhappiness on the part of developing countries who do not like the way the talks are conducted, as they are often pressured to sign agreements that they do not believe they will benefit from. Related to this is the fact that developing countries are often at a disadvantage during trade negotiations, as they do not have the same number of trade experts and lawyers that developed countries have.
Proponents argue that freer trade would contribute to higher overall levels of wealth, which would benefit the global economy and its inhabitants. But free-trade skeptics believe that the current trade arrangements are unfair and will not help developing countries grow.
HOW POLITICS AND POWER HAVE SHAPED TRADE
International trade is as old as recorded human history, dating back to ancient Mesopotamia and later the great Silk Road, which linked the Far East to the Roman Empire for the exchange of silk, perfumes, and other goods beginning around 300 B.C. After the fifteenth and sixteenth centuries, global trade soared with the advent of sea travel and exploration, which led to the establishment of colonies and the mercantile system.
Mercantile trade was based on political and military influence exercised by imperial powers over their colonies. Commerce laws were backed by military might. Imperial Europe traded its own finished goods for precious metals and raw materials from the colonies.
The Industrial Revolution in Britain created a strong demand for raw materials from overseas. This new manufacturing base, coupled with revolutions in transportation, further expanded the volume of world trade. Europe’s commercial exploitation of its colonies was a contributing factor to the rise of independence movements in colonies.
Until the middle of the twentieth century, trade was mainly in primary products. The pattern of world trade has shifted in the latter half of the twentieth century; decolonialization and the development of former colonies and nonimperial powers led to the production of more complex, higher-value-added goods in many of those countries. The postwar period has been marked by accelerating international commerce.
However, this has been accompanied in recent years by widespread critique of globalization in general and trade (and the WTO) in particular. The reasons for the antiglobalization activists’ concern about trade vary widely. Not all free-trade skeptics agree with one another about which are the most important objections to more free trade.
Included among the issues that critics of free trade have raised in questioning whether trade does or can potentially lead to greater economic development are:
1. Labor and employment. Trade can affect labor and employment in many ways. Antiglobalization activists have argued that trade liberalization can contribute to abuse of labor standards in developing countries. There have been concerns that proposals to link trade agreements to workers’ rights could provide a pretext for (typically rich) countries to act in a protectionist way. For example, a government might use labor standards and environmental requirements as a way to exclude goods and services from another country that does not have the productive capacity to meet the requirements or does not share the values on which the requirements were based.
Concern about trade flows and employment is often related to investment decisions as well. Labor organizations in wealthier countries are concerned that investors will move to countries where the cost of labor is cheaper, costing their members jobs. On the other hand, the generation of employment in other countries could benefit workers in the the country to which the investment shifted. One area that is receiving more attention internationally is the increased potential for export of service jobs from developed to developing countries. Examples include moving call centers and back-office operations to developing countries such as India and South Africa. This is, in part, an issue of service-trade liberalization. This will become an increasingly important political issue for developed countries and an increasingly important source of employment opportunities in developing countries. Trade in services is covered under the WTO agreement by the General Agreement on Trade in Services, as well as in many bilateral and regional trade agreements.
2. Economic development. Other criticisms directed at trade liberalization have been that the wealth generated by trade does not address the pressing economic development issues for developing countries and that trade negotiations are biased in favor of the “superpower” economies. In many cases, the critics contend, the current trading system has not delivered the development outcomes needed in developing countries. It is very difficult to generalize on these issues, though. For example, the spectacular growth of many Asian countries since the 1950s has very much been the result of export growth.
3. The environment. Some people regard protection of the environment and sustainable environmental outcomes as the most important single objective of trade negotiations. There are concerns that an unregulated increase in trade can accelerate depletion of natural resources and have other detrimental effects on the environment.
What do these issues have to do with trade policy? There has been considerable debate on what the relationship between trade and labor or environment should be. This has been addressed differently in different trade agreements, with varying levels of support from different countries. The WTO requires that any environmental rules adopted by WTO member-governments should be designed to address legitimate environmental issues and be the least trade-distorting measure available to policy makers. Most environmental issues are outside the mandate of the WTO and covered by a range of Multilateral Environment Agreements.
In 1992, a General Agreement on Tariffs and Trade panel ruled against a U.S. environmental law that forbade the sale of tuna caught by Mexican fisherman using methods that killed dolphins. The U.S. eventually amended its law to comply with international trade agreements, which enabled the sale of Mexican tuna in the U.S.
This raises an important technical issue that has been the subject of fierce debate. GATT and its successor (WTO) laws are based on the notion of “like products,” or products that are physically the same as each other. But it does not distinguish between how goods are made—such as whether they are made by child labor or whether they were made using poor environmental-protection processes. The only issue that it does consider in this respect is goods produced by prison labor.
SIDEBAR
Cambodia was the testing ground for an unprecedented experiment. a bilateral trade agreement with the United States that linked textile quotas to improvements in garment-factory working conditions.
In the five-year period after the agreement, Cambodia experienced a number of positive results: strong and sustained GDP growth when other Asian countries experienced stagnant growth or recession; a strengthening of labor laws to international standards; working conditions in factories that can be considered a model for developing countries; and a recognition by international retailers that garments from Cambodia were produced under fair-labor practices.
Cambodia also experienced negative effects: an increase in acrimonious labor relations resulting in strikes and violence that damaged Cambodia’s reputation as welcoming for foreign investment and an increase in manufacturing costs that may deter future investors who can find cheaper and more compliant labor elsewhere.
In the deal signed on 20 January 1999, the United States agreed to increase textile imports from Cambodia in exchange for the Cambodian government’s agreement to allow international monitors into garment factories to observe working conditions and certify whether they were improving. Future quota increases were conditional on improvements and on Cambodian factories being in “substantial compliance” with internationally recognized core labor standards from the International Labour Organization.
The three-year agreement, forged by the Clinton administration, was the first time the United States swapped favorable trading terms for good labor practices. It was designed to be a new U.S. foreign-policy tool and a model for other agreements around the world. It was extended by the Bush administration for an additional three years, through 31 December 2004—a date by which Cambodia expected to join the WTO and see all textile quotas for all WTO members removed on 1 January 2005. When the extension was granted, Bush administration U.S. Trade Representative Robert Zoellick called the agreement “an excellent example of the way trade agreements lead to economic growth and promote a greater respect for workers’ rights.”
The agreement also was a victory for U.S. trade unions. Hit by the exodus of garment jobs to less-expensive and less-regulated countries, the unions, led by the American Union of Needle Trades and Industrial & Textile Employees, had lobbied the U.S.T.R. to link labor standards to U.S. imports. They have been watching Cambodia to determine the success of the agreement, in order to push for links in future trade deals.
Cambodia had little leverage in negotiations. An impoverished country recovering from war and genocide, it had a modest $3 billion economy and an annual per capita GDP of $260 (among the lowest in the world). Dependent on foreign aid, it was keen to develop export manufacturing.
It took more than a year for the ILO to enter factories. The first report, of conditions that were better than international expectations, was issued in November 2001. Cambodians were frustrated at the slow pace, complaining that they had improved conditions and had suffered labor unrest without the promised benefits. They happened eventually: textile quotas for 2002 were increased by a 9 percent bonus (out of a possible 14 percent) on top of a minimum required 6 percent increase. (Previous annual quota increases had been 9 percent.) By 2002, Cambodia’s quota exceeded production.
LESSONS LEARNEDThe economy benefited, working conditions improved, foreign direct investment came in, jobs were created, and modern labor laws were passed. Before the agreement, Cambodia’s economy grew 1 percent in 1998, in line with other Asian countries suffering from the regional economic crisis. Exports that year totaled $785 million, with 38 percent going to the United States. In 2001, Cambodia grew 5.4 percent and exports totaled $1.268 billion, with 66.5 percent going to the United States. The increase was almost entirely in garments. Cambodia’s economy grew 6.3 percent in 2002, a rate higher than most Asian countries, with the exception of China.
Working conditions improved significantly. Many factories improved standards on their own. Others were brought into compliance under pressure. As a result, the ILO found factories to be in “substantial compliance” with international standards:
No evidence of child labor; No evidence of forced labor;
No evidence of sexual harassment;
Improvement in the correct payment of wages;*
Improvement with regard to ensuring that overtime work is undertaken voluntarily;*
Improvement in ensuring that overtime hours are within legal limits;*
Improvement in ensuring freedom of association, including protection against anti-union discrimination.*
In order to compel compliance, the government passed a modern labor code. Previous laws were a mosaic of old French laws, communist-era legislation, and statutes from the U.N. Transitional Authority in Cambodia. In other areas of law, this remains the case.
Foreign direct investment in Cambodia grew from $120 million in 1998 to $150 million in 2001. Textiles are the largest manufacturing industry in Cambodia, attracting $363 million in foreign investment in 337 projects as of 2002, and employing 250,000 people.
Cambodia may benefit from a reputation as a safe-haven for fair-labor standards for international retailers concerned about consumer “sweatshop” backlash. ILO certification that Cambodia’s garments are produced under fair-labor practices gives reassurance to retailers concerned about brand image, particularly those stung by previous allegations of sweatshop practices. Gap, The Limited, Abercromble & Fitch, Adidas, Kmart, Wal-Mart, Nike, and Reebok are some of the retailers who buy from Cambodia. Labor unions have been pushing the ILO for a stamp or insignia to certify garments as made under fair labor conditions.
Labor unrest increased, damaged the country’s reputation, and raised the costs of manufacturing. Emboldened by international attention and by U.S. labor-union advisers, Cambodia’s unions strengthened. They staged wildcat strikes, raising the minimum wage from forty dollars per month to forty-five dollars per month in 2000—higher than in Laos and parts of China—but not without violent clashes that damaged Cambodia’s reputation. Manufacturers seeking cheap, compliant workers would need to go elsewhere.
The price of monitoring and bringing factories into compliance also raised costs for manufacturers, who paid for their own improvements. Cambodia’s garment manufacturing association was required to pay for part of the monitoring program (initially $200,000).
CONCLUSION
For the long term, it remains unclear whether the garment industry will remain a vital, thriving part of Cambodia’s economy. It is possible that the resulting higher costs of manufacturing will be offset by international retailers willing to pay a premium for a labor-conditions safe haven. It is also possible that Cambodia’s higher costs will drive manufacturers to other lower-cost, less-regulated countries such as China, particularly after 2005, when textile quotas for all WTO members are removed.
(* “Though this remains a problem in a number of factories”: International Labour Organization, June 2003).
This is a technical factor that helps explain why labor and environmental issues have historically been outside the GATT and WTO mandate. Labor standards are addressed at the international level by the UN-affiliated International Labor Organization. Another reason environment and labor standards are outside the scope of the WTO is because many countries want them to be. Developing countries are concerned that trade actions could be taken against them if environment and labor standards are not met.
Labor, environment, and other social standards are not always met for a range of reasons. In most cases, failing to meet the standards is explained by the lack of capacity and resources, including institutional oversight. Trade-policy retaliation does not always alleviate the situation or lead to improved commitment and enforcement of standards. Many governments think that rich countries such as the United States and members of the EU use labor and environmental standards as de facto trade barriers. Some governments argue that the attempt to link trade with nontrade issues is an attempt by some countries to meddle in the domestic affairs of others.
As the global economy becomes more interrelated, trade flows are increasingly affected by what were once regarded as domestic economic-policy tools and issues. For example, labor and environmental policies as well as animal welfare considerations have all traditionally been the domain of national governments. Governments have typically managed their own inward investment and competition policies without reference to international trade laws as embodied in the WTO.
But international trade and investment has become a more prominent part of the global economy; the value of global exports rose from $58 billion in 1948 to $5.47 trillion in 1999 (WTO). Consequently, domestic policy instruments over trade and investment have increasingly become internationalized and have come under international scrutiny. Domestic policies have also become the subject of heated debate among the various sets of interests and advocates described above. Some countries want the WTO to consider these issues; others do not.
TRADE THEORY: WHAT DO ECONOMISTS THINK?
The theoretical argument for free trade is persuasive: When countries specialize in the goods in which they have a comparative advantage, it allows them to buy relatively more goods from abroad than they would have been able to if they produced goods that did not reflect their comparative advantage. The model suggests that trade can help a country maximize its overall levels of economic welfare. Economic theory and those that support further trade liberalization argue that trade brings:
Cheaper goods and more choice for consumers. Increased flows of traded goods and services can lead to lower prices than would otherwise be available to consumers.
Productivity gains are achieved by exploiting comparative advantage and more efficient resource allocation. Production is organized in a more efficient manner so that more output is extracted per unit of production. Investment is directed towards more efficient industries rather than protected local industries, which may have produced more expensive products that could be imported more cheaply. Further, by concentrating production in industries they are good at, countries may benefit from economies of scale, or larger-scale production resulting in lower per-unit costs.
Effects on employment. For those workers who can take advantage of these new shifts in production, trade liberalization can bring employment growth and better jobs. Who the winners end up being is difficult to predict. In developed countries, the beneficiaries are primarily higher-skilled workers. In the developing world, where labor is relatively cheap and countries tend to have a comparative advantage in labor intensive production, it is often less-skilled workers that benefit from trade liberalization. But the gains from trade can come at a price, as the changing pattern of production causes some of the old parts to collapse—what the economist Joseph Schumpeter called “creative destruction.” There will inevitably be losses in some sectors, which can threaten the livelihoods of segments of the population. For instance, after signing the North American Free Trade Agreement, Mexico was inundated by corn from the United States, where large agricultural corporations produced the grain cheaper and with support from the U.S. government. The drastic drop in corn prices has jeopardized the traditional livelihoods of Mexico’s 3 million families that depend on a tradition of small-scale corn production.
Competition. Free trade can promote competition in the domestic economy where monopolies might otherwise control the markets. This will usually benefit consumers and smaller producers through cheaper prices.
Investment. Opening to trade is often accompanied by increased investment from abroad, particularly in the form of foreign direct investment, which has exploded from $58 billion in 1982 to $865 billion in 1999. FDI is viewed by many economists as a stable and beneficial source of investment for developing countries. However, FDI flows to the developing world remain directed at countries that are thought to offer stable and less-risky business environments, including transparent and predictable patterns of governance and social stability. FDI has also traditionally been concentrated in countries with large domestic markets. This is not the case for many developing countries.
Technology. The goods and FDI that flow into a country typically bring with them new technology and technological know-how. By importing technology, countries can reap the benefits of research-and-design that occurs abroad without having to pay for it—what is known as a “spillover” effect. A 1997 World Bank study determined that international trade contributes 20 percent of the total effect on productivity from foreign research and development investments.
“Positive externalities.” More generally, trade liberalization can bring other advantages that are not immediately associated with trade and economic policy. For instance, by increasing the economic interdependence of nations, trade can contribute to improved and more stable international relations.
THE VERDICT ON TRADE AND ECONOMIC DEVELOPMENT
There is broad agreement that free trade is important for economic growth. But there is heated debate over what the size of the benefits are, who they benefit, and what other conditions must be present for trade to contribute to the different social and economic goals of different countries.
For many countries, economic growth can contribute to broader economic development aspirations, but it is by no means automatic. Even conventionally accepted ideas like “free trade leads to growth” are being challenged by some leading economists.1 For instance, Harvard economist Dani Rodrik and University of Maryland economist Francisco Rodriguez argue that the evidence that foreign trade boosts economic growth is weak. Some economists point out that trade liberalization is a “one-time” gain, a positive restructuring of the economy that has little permanent and sustainable effect on growth.
Proponents of trade agree that while free trade benefits societies in the aggregate (macroeconomic gains), it contributes to important wealth redistribution that can create losers within the society. Without a doubt, restructuring can be a messy process. Those domestic industries that cannot compete with foreign imports are hit hard. People lose their jobs and may have a difficult time finding work in a new sector. And while the benefits of free trade can take a long time to be felt, the costs may be more immediate. It is not surprising, then, that free-trade policies are met with strong resistance from some parts of society. Resistance can also be attributed to the fact that losers from free trade (the already employed and the existing owners of failing companies) tend to be better organized and more vocal than those who gain (the unemployed and consumers).
It is also important to note that trade policy has been used for many policy objectives for which it is not necessarily the best policy choice. This is the fault of governments, not the policy tool itself. Governments have used trade policy to protect jobs, for example, where a well-targeted education and vocational-training policy may have been a better way to secure employment objectives. And when trade-policy protection is taken away without introducing new and more targeted policies, such as employment programs, education, or social-welfare reforms, then the costs are likely to be painful for those who lose their jobs.
MULTILATERAL TRADE-POLICY RULES: THE WTO
The rapid growth in trade has been amplified by a growing belief on the part of political leaders and economists around the world that free trade and the reduction of trade barriers is a desirable goal. Negotiations among nations have spawned numerous pacts to reduce trade barriers. The first trade agreement with extensive, global reach was the General Agreement on Tariffs and Trade, established following negotiations in Havana in 1947. Twenty-three countries signed the agreement, which resulted in massive tariff reductions affecting roughly one-fifth of global trade. Over the following decades, GATT was expanded and eventually transformed into the World Trade Organization in 1995, which now has 144 members. The WTO was created following the Uruguay Round of negotiations, in which, for the first time, agriculture, investment, and intellectual property rights were on the agenda. Before this, the GATT considered only tariffs on industrial products, which reflected the economic and commercial interests that were of greater interest to some countries.
Most countries support a multilateral rules-based trading system in which disputes can be resolved according to the rules, not the relative power of the countries involved.
The umbrella agreement establishing the WTO comprises a family of treaties that regulate:
1. Goods
2. Services
3. Intellectual property rights
These basic principles are encoded in three main agreements: GATT, GATS, and TRIPS. The details covered by these agreements and various annexes include:
Agriculture
Movement of natural persons
SPS
Air transport
Textiles and clothing
Financial services
Product standards
Shipping
Investment measures
Telecommunications
Antidumping measures
Customs-valuation methods
Preshipment inspection
Rules of origin
Import licensing
Subsidies and countermeasures
Safeguards
Market access commitments agreed by each member
Countries’ schedules
Dispute settlement
Transparency
Trade-policy review mechanisms
The agreements themselves, GATT, GATS, and TRIPS, are a framework set of principles. It is the commitments countries negotiate and agree to that determine each country’s obligations. Like the agriculture agreement, both GATS and TRIPs were only agreed as part of the formal negotiating agenda during the Uruguay Round.
The main principles governing all WTO agreements are most-favored-nation treatment—which specifies that an importing country cannot discriminate between products exported from different countries—and nondiscrimination—which specifies that countries cannot discriminate between domestically produced and imported goods and services.
Exceptions can be negotiated to these principles in specific agreements and are listed in each country’s schedule. Of the annexes to the GATT, perhaps the most important exception is agriculture. Agriculture is the key issue on the international trade agenda and is likely to remain so for the coming years. It is the most distorted sector and the most important for most developing countries. For example, 27 percent of developing countries’ GDP and export earnings come from agriculture, and the sector employs half of the developing world’s workforce. The current system of subsidies, barriers, protection, and dumping leads farmers in the North—principally in the United States and the EU—to produce more food than is demanded, and excess agricultural products are dumped on world markets, making it harder for developing-country farmers to compete. In 2002, prices received by OECD farmers were, on average, 31 percent above world prices.
Services play a vital role in national economies and an increasing role in the global economy. Service sectors include financial services, education, tourism, and professional services. Unlike other agreements, obligations under the General Agreement on Trade in Services only cover sectors agreed upon by each member country and included in their schedule of commitments. GATS obligations do not apply to sectors that are not listed in the schedules. This is referred to as a “positive-list approach.” Consequently, in negotiating terms, a country’s “services offer” (which is the list of legal requirements for each services subsector a country is prepared to include) will reflect domestic conditions rather than minimum agreed international conditions. Other WTO members can ask for those conditions to be liberalized or the sectors expanded as part of negotiations. By contrast, a negative-list approach is used for other agreements, which only sets out the lists of measures that are prohibited.
Another important trade related issue is the WTO agreement on Trade-Related Aspects of Intellectual Property Rights. These agreements set minimum levels of protection that all WTO member countries must provide for the main categories of intellectual property rights. IPRs secure ownership and control on the use of knowledge and research and development. Without this control, companies would not spend money on research and development for new technologies. Many countries are concerned that the TRIPs agreement may limit developing countries’ access to technologies that are patented especially for medicines and seeds, which are important for public health and food security. Developing-country governments can issue compulsory licenses to override patents to produce cheaper versions of (generic) drugs to address public health needs, such as HIV, malaria, and other epidemics. However, it was only at Cancun in October 2003, that agreement was reached to allow generic drugs to be exported from rich countries to developing countries that did not have the capacity to produce drugs under a compulsory license.
REGIONAL AND BILATERAL TRADE AGREEMENTS
While the WTO has been at the center of debate since Seattle, and more recently Cancun, there is a lot more to the international trade architecture than the WTO. Non-WTO agreements take the form of “bilateral” trade agreements between two countries and “regional” trade agreements between members of a region. Most agreements negotiated bilaterally and regionally by WTO members are required to be consistent with WTO principles of MFN (that is, no discrimination between products produced by different countries) and nondiscrimination (that is, no discrimination between products produced domestically or abroad).
Examples of regional trade agreements include the North American Free Trade Agreements (between the United States, Canada, and Mexico) and ASEAN FTA (between countries in South East Asia). Examples of bilateral trade agreements include the Vietnam–U.S. Bilateral Trade Agreement, Canada–Chile BTA, Australia–Singapore BTA, and the EU’s trade agreements with specific African, Middle Eastern, and North African countries.
In many of these agreements, members have negotiated conditions that exceed but are not inconsistent with their WTO obligations. WTO-inconsistent agreements may be referred to the WTO. Some countries have negotiated provisions relating to investment, labor, and environmental standards in these agreements.
THE “SINGAPORE” ISSUES
The relationship between trade and sustainable development has become central to the WTO’s mandate and to the current round of multilateral trade negotiations. Developing countries have pushed for development issues to be promoted in this round. Those issues have come to be known as the “Singapore Issues,” reflecting the site of the 1996 Ministerial Conference in which they were first discussed. Developing countries’ arguments have been reflected, to some extent, in the WTO-related negotiating agenda. Nonetheless, there are still fundamental issues on the negotiating table that reflect the lack of agreement on what the right economic path to development is and what framework these policies should have.
It is easy to characterize these debates as pitting developed countries against developing ones. It is important to remember, though, that while developed and developing countries often disagree over particular issues, there is also considerable disagreement among developing countries and among developed countries, many of whom compete directly against one another for export markets. A good example of this is the Cairns Group, comprising developed and developing countries that pushed for the inclusion of agriculture on the agenda in the Uruguay Round and continue to fight the U.S. and EU agriculture-support programs. But not all developing countries are strong agricultural-product exporters, and many feel that the group does not represent the interests of the subsistence, small-scale agricultural activity that is vital to many developing countries. This illustrates the diversity of interests among both developed and developing countries and how their domestic considerations inform their trade-policy positions with respect to trade negotiations at all levels.
The so-called Singapore issues are:
Transparency in government procurement and trade facilitation. Intended to reduce the opportunity for corruption in international business transactions. In themselves, these have been the least contentious of the Singapore issues, as most governments recognize that higher and less-certain trade-transaction costs can damage their ability to compete in international markets.
Competition policy. Intended to ensure free and fair competition between companies operating in a particular market. There typically has not been a tradition of competition policy in many developing countries, who, in addition, have resisted discussing such policies at an international level until other trade issues are addressed and they have had an opportunity to assess what the focus of competition policies should be in their domestic contexts.
Antidumping. Some developing countries have noted that antidumping initiatives, while related to competition policy, have been deliberately ignored by developed countries. Many countries have accused each other of “dumping,” or pricing exports below the cost of production, in order to gain market share in a foreign market—a strategy that is prohibited by WTO rules. National authorities initiate antidumping actions. If proven, the complaining country is allowed to retaliate with import restrictions, or “antidumping” measures. This is an enormously complex area and there is some concern among developing countries (and, in certain cases, developed countries), that dumping cases are fabricated so as to use antidumping measures as a form of protectionism.
Investment. Perhaps the most contentious of the Singapore issues. There has been strong resistance from developing and developed countries to introducing this issue onto the WTO agenda, and indeed to considering investment at the multilateral level. While most agree that foreign investment can make a strong contribution to economic development, many do not think that having multilateral rules will contribute to increased levels of investment. Supporters of introducing investment to the multilateral agenda argue that it would be a more optimal approach than the existing (and increasingly complex) array of bilateral agreements in which powerful countries design investment agreements in their favor.
TIPS FOR REPORTERS
Who are the losers and the winners from a trade agreement?
Will the trade agreement boost exports? Which industries will benefit the most? What industries will be hurt most? How many jobs will be affected? What are the short-term and long-term considerations? Has the government undertaken cost-benefit analysis before promulgating the agreement? How will the government adjust its policies to address labor-market and other issues?
What type of goods is likely to be exported? What potential do the export industries have to “spill over” and contribute to the health of other industries? For instance, technology-intensive industries typically foster sophistication and productivity in other sectors. Which countries will be the main competitors?
Is the country’s trade policy part of a broader development policy that the government has explained? The key to the success of the East Asian export strategy was an overarching plan for sustainable growth.
What consumers will benefit from lower prices? (Consumers can be companies as well as individuals—for example, the auto industry in the United States benefits from steel imports and opposes attempts by the U.S. steel industry to limit imports.) Other beneficiaries of greater import volumes can include shippers, port operators, and distributors.
What, if any, measures will the government take to ease the transition for those workers and businesses that will be most adversely affected? Are there educational or other retraining programs planned? What sort of social safety net does the country have in terms of welfare and unemployment insurance? In Hong Kong, about 1 million manufacturing jobs (out of a total population at the time of only 6 million) were lost when manufacturers moved across the Chinese border to take advantage of China’s cheaper labor costs (a move made possible by the economic reforms that began in 1978). The Hong Kong government provided no special assistance and the then-British colony had virtually no social safety net. (It did, however have a good public-housing program and an extensive, heavily subsidized medical system; an efficient government and a good educational system also helped.) By the mid-1990s, Hong Kong companies employed an estimated 5 to 6 million workers in factories across the border. China’s prosperity drove Hong Kong’s growth.
What will be the impact on service sectors such as finance (banking, insurance, securities, fund management), telecommunications, distribution, and retailing?
What analysis has the government (or research institutes or academics) done on the impact of trade agreements for the country? Have foreign governments or business organizations published studies? (These can be a good insight into what foreign businesses see as the major opportunities in a particular market).
Who are the country’s trade negotiators? How much experience do they have, and what analytical and research resources can they draw on? What consultative mechanisms do they have with the private sector and civil society?
What political actors (both inside and outside of government) play a role in setting trade policy? Who opposes freer trade and why? Who supports it and why?
In what areas where the country has export competitiveness does it face export restrictions?
Have any dumping suits been filed against the country? Does the country have antidumping policies?
Will the country be affected by the phasing out of the Multifiber Arrangement textile quotas at the end of 2004? Many companies have set up factories in (or sourced clothing from) countries primarily to evade quotas. When the trade-distorting impact of quotas is removed, will the country be helped or hurt? Will new protectionist measures (such as “antisurge” mechanisms, which are imposed as emergency quotas to guard against sudden import floods) replace the old quota system?
LINKS FOR MORE INFORMATION
2. The United Nations Conference on Trade and Development. www.unctad.org.
3. A series of briefs examines the role of trade in economic development by the Center for Global Development. http://www.cgdev.org.
6. Dani Rodrik, Professor of International Political Economy at the John F. Kennedy School of Government, Harvard University has published widely in the areas of international economics, economic development, and political economy. http://ksghome.harvard.edu/~.drodrik.academic.ksg.
NOTES
1. Jeffrey Sachs and Andrew Warner, “Economic Reform and the Process of Economic Integration,” Brookings Papers on Economic Activity 1 (August 1995): 1–95.