High-level conference on “trade, growth and poverty”

Or, Trade equals international free trade?

14 January 2004

Organised by the UK Department for International Development, the World Bank, IMF and UNDP, a two-day conference held in London 8-9 December gathered officials, agency representatives and academics to discuss the links between trade, growth and poverty. The objective of the conference was to provide direction on how to integrate trade into national development strategies. The timing was important, with the WTO Doha round at an impasse post-Cancun and the Bank embarking upon an all-embracing review of its trade work.

Bank, Fund on trade: good cop, bad cop?

The first day of the conference was designed to address the theoretical debates underlying the linkages between trade, growth and poverty. World Bank trade economist Bernard Hoekman opened with an attempt to knock back any charges of dogmatism laid against the Bank’s trade work, declaring that there is “no a priori link between trade and poverty reduction”. Instead, the poverty impact of liberalisation measures is determined by a number of variables including how tariffs are translated into price changes for the consumer, how protection is structured, the relative importance of imports and the impacts of liberalisation on secondary markets such as those for transportation. To drive his point on Bank flexibility home, Hoekman cited a Bank study from Ethiopia, which described as “pro-poor” the maintenance of agricultural tariffs.

Hoekman’s nimble footwork left fellow panellist Kevin Watkins, Oxfam’s chief trade analyst, without an easy target. Nonetheless, now-familiar shots were fired at the Dollar & Kraay thesis linking trade openness to growth and the Bank’s over-reliance on econometric models. In keeping with Hoekman’s efforts to be generous to his critics, Watkins maintained that Oxfam was not pro-protectionism, citing the example of Indian tariffs on machine tools which, he claimed, had crippled innovation in small enterprises. While supportive of the Bank’s work on so-called ‘behind the border’ issues, Watkins questioned the failure to adequately address the crucial issues of land reform and infrastructure development in poor areas.

There is no reason to put sensible policies in the fridge just because multilateral talks are off-track

The best fireworks of the two days came in the second panel when Kamal Malhotra, Head of UNDP‘s International Trade Department, just off a snow-delayed flight from New York, ran into an implacable Hans Pieter Lankes, the IMF‘s trade chief. The jumper-clad Malhotra, his luggage apparently still somewhere in the mid-Atlantic, was first off the mark, asserting that “trade liberalisation follows, rather than precedes growth”. He demanded that “the multilateral trading regime must shift to an enabling rather than disabling policy environment”, and pointed to four conditions that must be met: trade should be seen as a means to human development and not an end in itself; a diversity of trade strategies should be encouraged; governments must have the right to protect institutions; and, finally, no country has the right to impose institutions on others. Malhotra closed with a call for “asymmetric rules, where the principles of reciprocity should be limited to the more developed.”

Lankes appeared rattled by the frankness of Malhotra’s intervention and went off-script to defend the trade liberalisation camp. Developing country representatives must have been left stunned by his opening remarks that “the reality in the past has been a lot of space for developing countries.” Despite conceding the need for such policy space to take into account the impacts of liberalisation, Lankes lamented that it would be “unfortunate to shift to the extreme of eclecticism.” The Fund view was that government failure was more damaging than market failure. Lankes concluded giving some clue as to the direction of Fund work in trade in the coming months: “there is no reason to put sensible policies in the fridge just because multilateral talks are off-track.”

Alternative models make Fund friends “uneasy”

The second day of the conference was to look at the experience of trade policy in poverty reduction strategies, the experience of the Integrated Framework for trade-related technical assistance and regional priorities for trade capacity building. Having found a supposed consensus on theoretical debates, it was time to move on to the how.

John Page of the World Bank kicked off with a summary of the findings of a joint Bank-Fund study on the trade policy content of the PRS. Of seventy countries worldwide at various stages of PRS creation, “very few” analyse the choice of macroeconomic frameworks and coverage on specific sectoral advice was “thin”. According to Page, Cameroon was unique in establishing an independent multisector macroeconomic model. Glancing across to fellow panelist Hans Pieter Lankes, Page added that this was a development which – by threatening their monopoly hold over such analysis – made his “friends at the Fund uneasy”. Page was more satisfied with the attention paid in PRS to dealing with issues of corruption and governance and the emphasis placed on agriculture and improved services for the poor. He called for more and improved poverty impact assessments to examine the distributional impacts of both sectoral and overall trade reforms. Of the twenty PRS in the study, only one (Cambodia) had carried out any poverty impact analysis of trade measures by June 2003.

The session on the Integrated Framework turned self-congratulatory with a panel drawn exclusively from the agencies and donor countries which make up the initiative. Questions from the Bretton Woods Project drawing from the criticism of the World Bank’s leading role in the initiative found in the IF evaluation, and from Sheila Page of the Overseas Development Institute who questioned whether it would be better not to have a co-ordinated framework at all, were left unanswered for lack of time.

In a subsequent session with two of the consultants who had carried out the evaluation of the IF from Canadian firm Capra International, consultant Guy Bird inadvertently revealed more than he perhaps intended. Making an analogy to trade capacity building, Bird concluded with a story from his childhood about the boy’s club at his local church which had been run by his father: “He never told them what to do, but they never did anything he didn’t want them to.”

Bernard Hoekman is my guru

The final afternoon looked at the specific experiences of Cambodia, Tanzania and Lesotho in integrating trade into development strategies. From Sok Siphana, the Cambodian Minister of Commerce, came a description of a series of provincial workshops that were being held to “extend the networks of trade support institutions to rural areas”. Perhaps more interesting however, were his off-the-cuff remarks that “in Cambodia, nobody wants to work on the WTO” and that left to do the work on his own, “Bernard Hoekman is my guru.”

From Tanzania, the admission that the first PRSP had nothing on trade, necessarily focusing on severely underdeveloped social sectors. The next PRSP will be drafted in 2004 where plans are afoot to better address trade issues. Lesotho completed its first PRSP in November 2003 and had also completed the diagnostic study accompanying the IF initiative in February. Of the PRSP and IF committees, Mahlane Qoane said that “one committee informs the other, because they are largely drawn from the same people”. She added that “DFID is constantly monitoring us.” There was no discussion of whether or not national processes were the best forum for what are often regional or international policy interlinkages, or how the participatory principle of the PRSP would translate to the trade sphere.

Sessions on regional priorities suffered from the lack of broad high-level representation from developing countries at the conference. It was however agreed to hold similar conferences in each of the regions with the support of the multilateral agencies.

Official transcript of the conference to be made available from DFID