Free trade for a fair world?

Business Standard, September 27, 2012
Trade liberalisation can be a tool for reducing income inequality

CUTS International has come out with a draft report “Making trade a tool for poverty amelioration in the 21st century”. The report is based on a survey that collected perceptions of global trade and development experts, and is expected to guide discussions of the High Level Panel on the Future of Trade that was set up earlier this year by World Trade Organisation (WTO) Director General Pascal Lamy.

Interestingly, despite the fact that the Doha Round of the WTO has been languishing for long, a majority of respondents to the survey are reportedly of the view that the multilateral organisation will be able to address the challenges that it faces, provided future trade negotiations have inbuilt features and greater orientation towards development issues, especially on problems faced by the developing world. However, for this to happen, there is need for a renewed spirit of cooperation that balances strengths and weaknesses for the benefit of all.

To arrive at this conclusion, the report has gone about seeking responses on some of the issues that have been raised by interest groups over the past few years. For instance, the report seeks to develop a “Geneva Consensus” that seeks to involve inter-governmental organisations that cover a wide variety of governance issues. The survey report states that these issues travel down to countries and, thus, there is a need to develop coherence among them to address global economic challenges, including trade policy. A majority of participants called for convergence between state and non-state actors for developing such a consensus.

However, this “majority” view may need debate. Given the complexity of relationships that exist between the state and non-state players, at present, this would be difficult to manage in a practical way if countries want to ensure the completion of the Doha Round. The WTO negotiations have always been government-led and it would be best to keep it that way. Each member country has to work towards building a broad consensus on its position among state and non-state players in its own constituency.

Another important aspect raised in the survey is about the use of trade liberalisation as a tool for reducing income inequality. The survey participants are of the view that trade liberalisation should be an opportunity to address structural rigidities to reduce income inequality.

The idea is good and governments must look at how trade liberalisation does not lead to any reduction on the policy space available to developing and least-developed countries to build competitiveness in their economies. The focus should not be on protection but building competitiveness. Interestingly, a large portion of those surveyed were of the view that trade liberalisation has no role to play in reduction of income inequality.

The report goes on to say global value-chains are shaping economic development and giving countries new opportunities to engage in industrial activities, which are often characterised with higher domestic value-added. The WTO, the report states, is missing an opportunity in regulating these issues and countries are filling this gap by engaging in free trade agreements (FTAs).

Though the survey makes a point, it is important to point out that FTAs are not exactly filling the gap that the WTO is giving up. Regional or bilateral trade agreements cannot replace multilateral trade agreements that even today remain at the core of trade policy planning for many countries, including India. FTAs can only cover reciprocal market access issues, while the WTO has the capability to address issues such as the lack of opportunities for developing or least-developed countries.

Even as the survey provides several significant points for consideration, it is important for any panel that looks into the future of trade to address the issue of removing imbalances among member countries of the WTO in accessing markets and moving up the value chain to create higher employment opportunities in the domestic market. The discussion should centre on getting the WTO to deliver economic growth for all its member countries. This can only be done if the multilateral trade negotiators connect with realities across the globe, and not remain insulted from the issues impacting countries.

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