IFIs on trade: “enormous investment” but to what end?

10 April 2005

The World Bank’s international trade unit presented a progress report to the board in early March describing an “enormous” increase in investment in trade-related analysis and policy advice over the past three years. The unit is now looking to translate that investment in to new lending – a serious concern for analysts who feel the Bank and Fund have got it wrong on trade.

Total trade-related lending over the next three years is projected at nearly $4 billion, compared with just over $2 billion over the last eight years. Lending for trade facilitation has risen from $300 million over the last eight years to a projected $1 billion over the next three.

The Bank’s overall trade strategy has three elements:

policies should not be dictated as part of World Bank or IMF programmes
  • Helping the WTO Doha round achieve its development objectives;
  • Shaping the regionalism agenda; and
  • Helping developing countries integrate trade into national development strategies.

Helping the WTO Doha round

Under the heading of support for the development objectives of the Doha round, the Bank highlights its work on agricultural reforms, trade facilitation and supporting accession to the WTO.

Agricultural reform:
A Bank paper released in January argued that the benefits of agricultural liberalisation had been “substantially overstated”(see Update 44). Such admissions were glossed over in the current progress report: “the Bank is continuing to refine its analysis on the poverty impacts of agricultural reforms.”
Supporting accession:
The Bank is “offering information to country teams on key developments and their potential impact” and “bringing together negotiators from developing countries in fora where they can share experiences”. A number of studies have proven inconclusive on the benefits of WTO membership; the Bank concedes that the “impact of WTO accession on the quality of reforms is mixed”. Bank and Fund involvement in WTO negotiations continues to be politically charged. Speaking at the World Economic Forum in Davos in early February, Kenyan Trade and Industry Minister Mukisha Kituyi urged the Bretton Woods Institutions to steer clear of on-going global trade negotiations. “I do not see any justification of the Bretton Woods institutions involvement in the negotiations.”

Regionial trade agreements

Bank views on regional trade agreements (RTAs) were set out in the January publication of Global Economic Prospects (GEP) 2005. The report takes an agnostic view of RTAs, concluding that their benefits depend on their design. economist Parthapratim Pal, in a review of the GEP for Network IDEAS argued that the report “misses the fact that the growth in regionalism took place among developing countries because of dissatisfaction with the multilateral system”.

Integrating trade into national development strategies

Bank work to help developing countries integrate trade into national development strategies is focused on the Integrated Framework (IF). The IF is a multi-agency initiative, led by the Bank, to streamline trade-related assistance plans into low-income country development strategies. However, a recent evaluation of the IF by the OED found that the IF “created too many expectations on which it is unable to deliver” and is viewed by some countries as “run by and for the six international agency partners”.

Unjustified liberalisation

Many analysts argue that unilateral trade liberalisation as required by the IFIs has led to the collapse of industries in Africa and other developing countries. By the Bank’s calculations, between 1983 and 2003, 65 per cent of the reduction in tariffs was undertaken “autonomously”. While skirting the issue of IFI responsibility for imposing these ‘autonomous’ reforms, the Bank admits that the reforms are “hardly ever accompanied by specific packages to mitigate adjustment costs or with monitoring measures to measure impact”. The Commission for Africa was unequivocal on this point: “policies should not be dictated within trade agreements, as part of mercantilist negotiations, or as part of World Bank or IMF programmes.”

A new book by Mehdi Shafaeddin of UNCTAD lays bare the faulty underlying assumptions of the trade liberalisation hypothesis pushed by the IFIs. Trade liberalisation has not achieved its objectives, Shafaeddin argues, and it “cannot be justified either on theoretical grounds or by historical evidence”. He proposes an alternative approach which is “country-specific” and “development-oriented”. This approach emphasises the key role of government intervention in “compensating for market inadequacy, building up production capacity, creating markets, institutions and infrastructure, and correcting market failure”.

A new paper from trade NGOs 3D and the Institute for Agriculture and Trade Policy criticises the current approach to agriculture in the multilateral institutions for emphasising expanding exports over improving livelihoods, failing to tackle the market power of transnational commodity producers, and locking developing countries in to an uneven playing field. Amongst the authors’ recommendations with ramifications for the IFIs are the need for impact assessments of trade policy reforms and for IFIs to ensure that they are not pressuring governments to “enter trade and financial agreements that undermine their social policies or their ability to meet their human rights obligations.”