Developing countries say World Bank trade research “misleading”

31 January 2007

versión en español

The World Bank has drawn criticism from developing countries, trade economists and NGOs over a paper on the poverty impacts of ‘special products’ measures.

Rules for the operation of special products are a key point of contention in the current round of multilateral trade negotiations at the World Trade Organisation (WTO). The special products proposal, led by the Group of 33 (comprising 46 developing countries), would allow governments to exclude up to ten per cent of import tariffs placed on individual products from agreed across-the-board cuts, and impose limits on cuts to an additional ten per cent. These exceptions would be based on agreed criteria for product selection such as livelihood and food security, and rural development.

political use of the paper before its approval

The World Bank paper on the issue by Maros Ivanic and Will Martin, dated 10 September 2006, Implications of agricultural special products for poverty in low-income countries, is based on scenarios which assume a 50 per cent price increase in a group of products, using analysis from four countries. The paper then reached the dramatic conclusion that these price increases would result in “very large increases in poverty, sufficient in some cases to undo decades of development progress”.

Developing countries and Geneva based trade academics were heavily critical of the paper – noting that the scenario of price rises was highly unrealistic, that the products used in the analysis were incorrect and that one of the countries chosen was not eligible to use the special products provision. They also highlighted that the main scenario, on which the Bank’s most dramatic claims were based, was predicated on a 50 per cent price rise in export crops – something it is impossible for tariff policy to achieve.

The G-33 wrote in early October to Bank president Paul Wolfowitz complaining that the paper exhibited “fundamentally flawed assumptions and analysis” and “a lack of knowledge and understanding of the details of WTO negotiations, which in turn imply a failure of the Bank’s trade team to engage with developing country trade policy makers.” Developing country sources in Geneva are concerned about the perceived political use and timing of the paper’s original release – with reports of it being used by US officials in informal negotiating meetings. It also coincides with a critical position taken by World Bank officials towards special products in formal WTO negotiating sessions in October.

Bank chief economist François Bourguignon replied to the G-33 in November saying that the version of the paper referred to was only a draft, had “attracted a large number of valuable comments”, and had led to a revised version. Bourguignon said that this revised paper would go through an anonymous refereeing process before consideration for release as an official working paper.

The dramatic claims of the original paper have been softened, with the authors now arguing “that poverty increases would be more frequent, and larger than poverty reductions”. However all the scenarios contained in the paper remained – including the scenario based on a 50 per cent price rise for export crops. The G-33 have said they are “dismayed that even the revised draft paper remains essentially the same” and called for the World Bank “to undertake a more useful study” that “does not seek to generalise misleading findings”.

Sandra Polaski, trade economist with the Carnegie Endowment for International Peace, in her comment on the revised paper questioned why the authors found higher agricultural prices to be poverty increasing while they found them to be poverty reducing in their previous research (see for example Agricultural trade reform and the Doha development agenda, Anderson, Martin et. al., Nov. 2005). She suggests that it may be a result of “an unrepresentative sample of countries, of the inappropriateness of the basket of products selected, or of errors in the specification of the experiment”.

Polaski asserts that “a one-size-fits-all solution of formula tariff reductions without significant flexibility at the country level would be almost certain to increase poverty in at least some countries”. In contrast, the G-33 proposal is “a carefully tailored response that asks for a modest, appropriate amount of flexibility to avoid such an outcome”.

The Bank was faulted by its own Independent Evaluation Group for placing too little emphasis on the poverty and distributional effects of trade policy reform (see Update 50). In view of the scathing critique heaped on the Bank’s trade research in the recent evaluation of Bank research (see Update 54), serious questions must be posed about whether trade research funds would be better spent elsewhere.