Fair Trade for All. How Trade Can Promote Development.

Transcription

1 Professor Joseph E. Stiglitz: Fair Trade for All. How Trade Can Promote Development. Brooks World Poverty Institute Inaugural Lecture. 1 February Well, it is a real pleasure for me to be here in Manchester and to launch this important initiative at the Brooks World Poverty Institute. Manchester has long been identified with the problems of economic development. Arthur Lewis, who received the first Nobel Prize in Development, and who I taught with at Princeton University a number of years ago, did his seminal work while he was at Manchester. Even earlier of course the subject of trade, which is the subject of my talk, was discussed extensively here at Manchester. It was here at Manchester in a sense that economic debates about globalisation first began. So it is really appropriate for me to talk about this important aspect of globalisation. Trade policy, which has now become in a way quite different from what it was in the nineteenth century, is an issue debated all over the world, not just in Britain. In the developing world, the disparity between rich and poor has been recognised as one the great problems of the twenty first century. Even President Bush recognised that in a speech last night and that shows you how far it has penetrated! The recognition of this is in itself a great advance, and part of addressing the problem of poverty is enhancing opportunity. As we used to say when we were discussing in the White House problems of welfare reform, it is as important to have a hand up rather than just a hand out. And increasing opportunities for countries to market their goods is a way to help them help themselves. So in that way it is really a critical role for anyone concerned with helping the developing countries and doing something about poverty around the world. When I was Chief Economist at the World Bank we studied what had happened in the earlier round of trade negotiations. Trade negotiations occur in a set of rounds of talks that occur about every ten years, sometimes sooner, sometimes at greater intervals. The last round was called the Uruguay Round and it was completed in As we looked at what had happened to the developing countries in that round, we came to the conclusion that that round had been grossly unfair. And I ll explain some of the evidence for that in a few minutes. I went to Geneva in response to that, to the World Trade Organisation (WTO), which is where these issues get discussed, and in March 1999 called for a Development Round to address these imbalances. A little bit later there were some difficulties in Seattle. President Clinton had wanted to initiate a new round of trade negotiations recognising that trade negotiations were typically named after the city where they began, like the Tokyo Round. He thought maybe this round would be called the Seattle Round, or even better, he remembered some rounds were called the Kennedy Round and he thought this might be called the Clinton Round! But, of course now all

2 we remember are the Seattle riots! Well after the Seattle riots there was confusion over why people were so unhappy with the way trade liberalisation was going. Many of the advocates of trade liberalisation had the view that trade liberalisation was the best thing since sliced bread! It was making everyone better off and their view was the problem was really with psychiatry and not economics: to understand why people were actually better off, but did not realise it! But the fact of the matter is, as I will explain in a few minutes, they were worse off and they knew it. So at Doha November 2001 there was an agreement to go forward with a round of trade negotiations that were to be called the Development Round. And of course I was very pleased that my call of a couple of years before had been heard, and these imbalances of the past would be addressed. But what has happened since then has left me greatly disappointed. After the failure of Cancun, the city in the middle of this Development Round, two years into the Development Round, the Trade Ministers got together to assess what progress had been made and to give directions as to how to complete the round. Cancun interestingly means in Mayan snake pit, and it turned to be a snake pit for the trade negotiators! The meeting broke up in disarray without any agreement. After the break up of that, I was asked to initiative a policy dialogue to question what would be a true Development Round. And we met with our task force and we discussed this and the outcome of this is in the book Fair Trade for All which I wrote with Andrew Charlton, which has recently come out. And much of what I talk about in the book is what I want to talk about here. The main message of the book is a very simple one: that even as it was originally conceived and even more as it evolved, the Development Round really did not deserve to be called a Development Round. It really was not an agenda that was designed to advance well being and to advance development in the poorest countries of the world. We lay out in this book a very comprehensive agenda that would improve the well being and development of the poorest countries and it is that that I want to talk about today. Before that I want to give a little background, both in terms of the history and economic theory of where we are. First, a little bit about the need for a Development Round. That begins where I just mentioned: the past rounds have been grossly unfair to developing countries. The Uruguay Round focused on the interests of richer countries. An example of that is if you look at where trade agenda expanded it expanded for instance into services in intellectual property. Prior to that, for the proceeding half century, trade negotiations had focused on manufacturing. It was clear there had to be a change. In the United States manufacturing today is only 11% of employment and GDP. So the WTO the trade negotiations if they focused on manufacturing were getting close to irrelevant. There was a certain irony in this in that for almost half a century the United States and the EU have been negotiating, unknowingly, on behalf of China. They thought they were negotiating in their own interests; they thought manufacturing was their comparative advantage and they did not realise that years later manufacturing would be the comparative advantage of China and India. So they had opened up their markets for the manufactured goods for these countries but now they wanted to turn to things they were then producing. The obvious example was services. Services represent 60% more than 60% of

3 American GDP and almost as much in the UK and other European countries. But when you think about it for a moment and you think about services more broadly, services basically require servicing, i.e. they require labour and so if you are going to liberalise those services you are basically liberalising something that is labour intensive. And where is most of the labour in the world? Obviously, in the developing world. So if you really had a balanced service sector, the advanced industrialised countries would be opening up their markets to the services of the least developed countries, the less developed countries. But that is not what they meant by service sector liberalisation let me make that clear they did not mean service sector liberalisation they meant highly skilled service sector liberalisation like financial services. They meant liberalisation: that developing countries should open up their markets to the services that the advanced industrialised countries sold, but they had no intention of reciprocity. So unskilled, labour intensive services like maritime services or even more importantly construction services were off the agenda. No one was interested in America in having Mexican construction or Peruvian construction firms coming in to produce buildings in the United States. We were interested in having our banks and our insurance companies invade the rest of the world. And we succeeded! Similarly with subsidies, there was the same kind of asymmetry. We succeeded in forcing the developing countries to get rid of their subsidies to help their nascent industries, but the advanced industrialised countries United States, EU and Japan kept their enormous agricultural subsidies. Their subsidies in agriculture are almost as large as the total income of Sub Saharan Africa. And also they expanded the new agenda into Intellectual Property rights, an area that even Free Trade Economists like Jagdish Bhagwati do not believe should ever have been on the agenda. There was already an international organisation WIPO (World International Property Organisation) to deal with Intellectual Property. It did not belong with the agenda except that it was in the interests of producers of intellectual property to bring it in because within the trade agreement it becomes an enforceable right in the way that it is not within WIPO. The result of this is that most of the benefits accrued to the rich countries: 70% of the gains went to the developed countries. But in a way that part is not so surprising. You expect the rich and the powerful to get a larger/disproportionate share of the gains. I think what I find most disturbing is that the poorest countries, the 48 least developed countries, were actually made worse off. In other words, the asymmetries were so large that the poorest countries were actually harmed and the problem of course was that these were adding into, or adding onto a system that was already terribly unbalanced. In other words it made the existing system even more unfair. Evidence that the system is stacked against the poor countries is given by a couple of the statistics that I give here. First, the average OEDC tariff on goods from poor countries is four times higher than on goods from other OEDC (developed) countries. In other words the way we structure our tariffs means they are targeted at the goods produced by the least developed countries and the less developed countries. And I ll explain later they are even targeted in ways that inhibit their natural development process. Second, the rich countries cost the poor countries three times more in trade restrictions than their total development assistance to them. That helps to put the cost to these countries into perspective. And while we have been talking about doing something about agricultural subsidies, nothing has really been done. So that today the level of subsidies as a percentage of farm output is basically the same as it was 20

4 years ago. The OEDC continues to subsidise agriculture by 48% of total farm production, just 3% lower than If I have time, I will talk a little bit more about how Intellectual Property Rights were put into TRIPS, and actually disadvantaged the developing countries. Of course if everything had worked out, if, in spite of this unfairness, trade liberalisation had led to faster growth and reduction of poverty, I think everything would have been forgiven. But that has not happened. Trade liberalisation has not produced the expected benefits in practice, even when specifically directed at helping developing countries. One of the initiatives that I worked with the EU on, when I was Chief Economist of the World Bank, was the notion of opening up markets in Europe to everything all the goods produced by the least well developed countries and this initiative called Everything But Arms was a very important initiative. It is often called in the developing world Everything but Farms because agricultural goods are left out, but still it is an important event. If you look at the data, it did not lead to significant increases in exports from poor countries. I think there has been a lot of discussion why, but I think it is for some technical reason, the complex technical Rules of Origin. These basically mean they are not allowed to export as much of the goods they produce as they would like, even though it is supposed to mean the markets are opened up freely. The United States, just to keep a balance of this, is opening up its markets to certain African countries that are mainly politically correct but one of the conditions is that they can export textiles to the United States provided they make those textiles with American cotton. So it is actually a hidden way of trying to increase our sales. Then the question arises, why has trade liberalisation not lived up to expectations? One of the expectations is one I have already mentioned: that trade liberalisation has been asymmetric. But there is another set of explanations that is more complex, that I want to just mention, and that is that economic theory provides only limited (qualified) support of trade liberalisation for the very poor and less developed countries. I want to be clear about the implication of this: it is not that one ought to be necessarily against liberalisation, but that particularly for least developed countries one has to be very careful about the process of liberalisation in that developing countries need as a result very special and differential treatment. An example of the kind of problem is that in developing countries typically there are not very good risk markets, it is very hard to buy insurance and that trade exposes countries to more risk, and most people are risk adverse, and if you cannot get rid of the risk, that increase in risk has a high economic cost; it induces people to move out of more risk taking activities, and that lowers income and is bad for economic growth. In some work with David Newbery (Newbery and Stiglitz, 1982), actually almost 25 years ago, what we showed is that with imperfect risk markets, trade liberalisation may make everybody in both countries worse off, so it is pareto inferior. This is an example of the kind of qualification that some of the advocates of trade liberalisation have failed to take into account. In advanced industrialised countries where there are good risk markets, this may not be as important, but in developing countries this is one of the complaints that one hears over and over again, and is particularly important amongst those who are poor, because the poor have a weaker capability of dealing with risk. In a recent paper with Bruce Greenwald that we presented at the American Economic Association just three weeks ago, which is coming in the American Economic

5 Review, Bruce Greenwald and I presented another argument qualifying trade liberalisation for the least developed countries, arguing/developing what we call the Infant Economy Argument for protection. It was based on the following simple notion: we know what separates the less developed from the more developed countries. It is not only a disparity in resources but also a disparity in knowledge: that if we can affect the process by which technical progress results, we can do more for growth than almost anything else. Indeed this insight about growth goes back longer: even for developed countries; Solow (1957) showed that most of growth is related to technical progress, and in work many decades ago by Ken Arrow and me, we showed that market failures are pervasive in economies in which technical progress is involved. It is also the case that historically most successful countries have developed behind some protectionist barriers. Well, the idea that we developed in our paper, regarding the Infant Economy argument for protection, is based on the trade offs between static and dynamic efficiency. Of course we should have recognised the possibility of a trade off between static and dynamic efficiency because that trade off is at the heart of the patent system. The patent system introduces a distortion in the market: it creates a monopoly. Monopolies in general are bad things. They lead to under production; they lead to higher prices but we accept monopoly; we accept the static inefficiency of monopoly temporary monopoly because we believe it generates higher investments in Research and Development and in more dynamic growth. This kind of trade off is what we explore in our paper in a model where we postulate three critical conditions that there are spill overs from the industrial sector to the agricultural sector within a country: in other words, they are geographically based, and these are both in terms of technology and institutional development, and secondly that the innovations are concentrated in the industrial sector and among the most important determinants of the pace of innovations in the industrial sector is its size. We explained the theory or the evidence behind each of these assumptions and then used a two sector, two country model in which there is a large, efficient, developed country and a small developing country with comparative advantage in agriculture and we show that without protection, not surprisingly, the developing country specialises in agriculture, but because it specialises in agriculture and because innovation is concentrated in the industrial sector, the country remains stagnant falling increasingly behind the developed country. Protection results in a short term static inefficiency. There are short term losses that have long been talked about, but there are enormous long run gains; so long as the discount rate is not too high, the present discounted value welfare actually increases, and we show that our model is robust. The implication of this is that it argues broad based protection, not the Infant Industry Argument which has often been criticised because of concerns about Political Economy giving rise to special interest protection, but broad based protection, and this actually highlights another important aspect of tariffs: they generate revenue to finance education and research, which themselves are the basis of innovation. This approach is consistent with South South regional trade agreements. Let me come back after this diversion to the central message of this talk. The central message is that the Development Round, as it has evolved, is not a true Development Round. In this book ( Fair Trade for All ) we laid out a comprehensive agenda for trade liberalisation that would promote development, and that agenda is very different from that set out in Doha, and even more different from what has evolved since. Let me just say a few words about Hong Kong I was there in December trying to stimulate a debate and to move things to a more balance outcome: it did not happen.

6 It has avoided disaster, but only by lowering expectations. I think, even worse, it exposed the advanced industrial countries to charges of hypocrisy, and just let me give you two examples that I think illustrate the nature of the problem. One of the issues that were discussed was cotton. Cotton has become a very symbolic issue because unlike other forms of agriculture, in other areas of agriculture, the effects on developing countries are mixed. Consumers of food are going to be worse off if the price rises, but producers are going to be better off, and the effects are varying depending on whether the country is a consumer or a producer. The case of cotton since the effect of an increase in the price of cotton on the price of cloth and apparel appears to be low, the dominant effect is the producers effect. The United States spends $3 4 billion a year subsidising cotton: much of the cotton is grown in areas where they should not be growing cotton, arid areas which are irrigated by subsidised water. So it is not only bad for our economy, but is also actually bad for our environment. These $3 4 billion of subsidies go to 25,000 very rich American farmers, and most of it goes to a much smaller number. Meanwhile the farmers, in response to the higher prices, produce more cotton, and just the ordinary laws of supply and demand mean that as more cotton gets produced, the price of cotton goes down. Ten million Sub Saharan cotton farmers are hurt by this cotton subsidy. The United States does more damage in several of the countries in Sub Saharan Africa than the total foreign aid it gives, by just this cotton subsidy. The EU rightly said the United States should get rid of the cotton subsidy. The response of the United States was No, we are not going to get rid of the cotton subsidy our rich farmers are too important for that. But what we will do, we will open our markets so African countries can sell their cotton to the United States. There is just one thing wrong with this offer: the United States does not buy cotton. We are a cotton exporter; we are not a cotton importer! So we made an offer with a great fanfare and a great deal of saying developing countries ought to recognise how generous we are we made an offer that was worth zero. Are we surprised developing countries think there is something a little screwy going on here? As another example, the EU said the United States, Japan and other countries ought to match their Everything but Arms initiative. It did not point out, You can do this and it won t cost you anything. The United States came back with what I call an EBP proposal Everything But what you Produce. We said that developing countries, the poorest developing countries, could export to us everything such as jet engines, aeroplanes, everything but what they produce. We said we would give them free access to 97% of the commodities. The number 97% was chosen very carefully because we did not want to open up our market to Bangladesh textiles and apparel. So it was deliberately malevolently chosen to keep out the goods from some of the poorest countries. That kind of response in Hong Kong leads to developing countries recognising the hypocrisy that is involved in these trade negotiations. The other new and somewhat disturbing thing that became clear in Hong Kong is the recognition of the diverging interests of the developing countries: that Brazil s interests as a major agricultural exporter and India s interest as an exporter of hightech services may not coincide with the interests of the poorest countries in Africa, even though they have taken on the role of being the spokes people for the least developed countries, and that has some very disturbing implications going forward.

7 It is not likely that anything significant will come out of the Development Round. It is possible that, even though nothing significant comes out, an agreement could take place that could make some of the developing countries worse off. But more serious are two other risks: one is that an agreement would be treated as a true Development Round so that efforts at redressing the imbalances of the past would be diminished. The second danger, and one which is of much more concern, is that the United States Bilateral strategy, moving away from a Multi lateral trade system is trying to get one country after another to sign up with a Bilateral trade agreement. The problem and I would like to spend just a minute talking about this because these are a real danger to the Multi lateral trade system; it is a digression, but it is a very important digression because it exhibits another manifestation of the breakdown of global governance. It is not just undermining the Multi lateral system and making progress to a better global regime more difficult, but it is a move to a trade regime that is even more unfair to developing countries because in these Bilateral trade agreements, the developing country has even less power than it has in the context of a Multi lateral trade negotiation and so the agreements that are coming out are even more unfair. These Bilateral agreements also undermine the principles of the market economy because in these Bilateral trade agreements, Rules of Origin become even more important and they create a complexity to trade that undermines completely the price system. Many of these agreements are based on a dream that signing an agreement with the United States would give a Good House keeping seal of approval and would bring untold investment and growth. But the reality has been far different. I want to spend just a minute on this because it illustrates some of the broader issues of what has happened in trade agreements between developed and less developed countries. Ten years ago there was an agreement between the United States and Mexico it also included Canada. It was NAFTA (North American Free Trade Agreement). If ever there was an agreement that should have worked, this was it, because Mexico was so close to the United States; the two countries interact a great deal after all we took a great deal of its territory and transportation costs are low. There are good reasons to believe that this kind of agreement should have worked. But ten years later it has not lived up to expectations: Mexico has actually had lower growth in the ten years since NAFTA was signed than in the 1950/60/70s. It did better than in the 1980s which was called the lost decade, but the growth under NAFTA has been historically low. It has also led to an increase in poverty amongst the poorest people of the country. The reason is very simple: NAFTA required it to open itself up to the highly subsidised American corn. The poorest people in Mexico grow corn: the highly subsidised price of corn fell and the poorest people who are the corn farmers their income went down and the result of this was the lowering of income among some of the poorest people in Mexico. Real wages on average for the country as a whole basically stagnated for a decade. I do not have time to go through the explanation of the failures but one explanation was that NAFTA was not really a free and fair trade agreement. Another explanation was that it also had some adverse effects on the capital markets of Mexico that maybe we will have time to talk about later. One of the problems of bilateral trade agreements is that they are likely to be more unfair, and this is illustrated in the TRIPs agreement the word TRIPS means Trade Related Intellectual Property, but actually I should explain that everything in the WTO is called trade related. So there is not any un trade related Intellectual Property, if you were wondering. I was on a commission that the ILO set up called The Global Commission on the Social Dynamics of Globalisation. It was a group of

8 businessmen, government and labour NGOs, and the broad consensus was that we needed to move from TRIPs to TRIPS minus, but unfortunately in Bilateral trade agreements the United States have signed, it has gone not to TRIPs minus but to TRIPs plus. Let me try to explain what the issue is. Intellectual Property and I mentioned it earlier in the talk has an important role in providing incentives. But it is only part of what provides incentives for the production of knowledge. Most important knowledge is not protected by Intellectual Property. It is produced in universities like Manchester by people who work towards an understanding of the way the world works. You cannot get a patent on a theorem. The intellectual and mathematical breakthroughs that led to the computer are not patentable. I was in the White House when TRIPs was being discussed, and both the Council of Economic Advisers and the Office of Science and Technology Policy argued very strongly that TRIPs was not in the interests of the United States. We argued against it for a couple of reasons. We thought it would be bad for science both science in America and science in the world. The most important input to research is other knowledge. Excessive Intellectual Property protection increases the price of knowledge and it slows down research. In some areas software for instance it has even begun to become recognised as a problem and it is called a Patent Thicket. We also recognise that the result of giving excessively strong Intellectual Property protection was that the price of medicines would rise and access to generic drugs would be reduced. Generic drugs are typically a fraction of the price of ordinary medicines. In signing the Uruguay Round trade agreement we were condemning hundreds of thousands of people to death. The trade ministers did not think about it that way, but that is what we knew they were doing. The result of it was that the price of AIDS and other medicines would no longer be affordable to hundreds of thousands of people in Africa, India and other poor countries. In Morocco, the United States engaged in a bilateral trade agreement. I was there at the time it was being negotiated. The United States wanted stronger Intellectual Property rights than even existed in the United States. In other words they wanted to make generic medicines less accessible in Morocco than in the United States. Why were we having a trade agreement with Morocco? It was not our next door neighbour, for those of you who do not know geography! Its main export is phosphorus and there are no tariffs against phosphorus. It was a symbolic move to say that we could have good close relationships with a moderate Arab country. So it was intended to develop strong relationships. We then made one mistake: we turned it over to our trade representative who did not understand what he was supposed to do. He thought he was supposed to get the best deal for the American drug companies. And so the result of it was there were protests and riots in the street of Rabat, in a country that does not have that much democracy. The point is they got this TRIPs plus agreement and there were concerns that as a result, access to generic medicines will be substantially reduced and we do not know how many people will die as a result, but it will be substantial. What I want to do in the next few minutes is talk a little about some of the specific priorities discussed in our book, Fair Trade For All, because it illustrates both the concrete agenda and some broad economic principles.

9 Agriculture has received a lot of attention, but as I explained before, agriculture actually, with the exception of cotton, has ambiguous effects because some countries will actually be hurt: food importers will be hurt if there is an increase in the price of agricultural goods. If you ask the question what would do the most to help developing countries, the natural economic way to think about it is, What are the resources they have in abundance? What are the goods where they have a natural Comparative Advantage? What can we do to free up these goods? The obvious answer is developing countries are abundant in labour and in particular, in unskilled labour. So the things that would really make a big difference for developing countries would be the liberalisation of labour flows and labour intensive services. In the Uruguay Round, and also after then, there has been a lot of discussion of the liberalisation of capital but the liberalisation of labour is far more important for increases in global efficiency than capital and market liberalisation. The disparities in productivity across countries for similar quantities of labour are much larger, so that opening up labour markets is far more important, and even a small opening up of labour markets and labour intensive services would make far more difference to developing countries than anything else and also to global efficiency. And it has become an important development issue as well because of the huge size of remittances. Remittances from temporary migrants back to developing countries have grown to the point where for many of the Latin American countries, they are far larger or they are comparable to Foreign Direct Investment. So if you talk about how important FDI is, these remittances as a result of opening up labour markets and labour intensive services are even more important. I want to talk about liberalisation of industrial goods. On average the advanced industrial countries have relatively low tariffs but what they have done is design a tariff system that is discriminatory against developing countries. I already pointed out that tariffs against developing countries are already four times higher than against developed countries, but the structure of the tariffs one can see is designed to inhibit development. Let me give you an example: it is the problem of Tariff Escalation. Assume that you allow tomatoes to come into your country duty free, but you have a tax on canned tomatoes of 20%. And the process of canning is 50% of the value added of canned tomatoes i.e. if a can of tomatoes costs a 1$, 50% of that is the labour and 50% is the cost of the tomatoes. If you allow free imports of tomatoes, but a 20% tax on canned tomatoes, what does that imply about a tax on canning? It is a 40% tax on canning. So what you are doing by this Escalating Tariff is designing a tariff structure intended to inhibit the ability of the developing countries to go into the next natural stage of industrialisation. If you are an agricultural country, the next natural thing for you to do is to start doing agro business doing things with your agricultural goods, for example canning. The tariffs are designed to stop this. Unfortunately in the Doha Round, this got almost no attention. The elimination of tariffs does not eliminate protectionist sentiment. It does not eliminate the forces that try to keep out goods from abroad to reduce competition. It is not surprising that as tariffs have come down, non tariff barriers have grown in importance. That has become an increasing problem.

10 One of the most important non tariff barriers is called Dumping. Dumping says it is illegal if you sell something below cost. The country is allowed to impose a tariff to make up for that: it is called Unfair Competition to sell something below cost. It does not take a lot of economics to work out that if you are selling below cost, you are losing money. If you are losing money on one unit and if you sell a million units, you lose a million times more. So you have to ask the question, why does anybody ever dump? The answer is they almost never do. There is only one reason why you dump. If you can sell below cost, drive out your rival and become a monopoly, then you can raise your price. So dumping is bad. If you are actually dumping to create a monopoly then that makes sense. It is very hard to get a monopoly; it is impossible to get a monopoly in tomatoes, but the United States accused the Mexico of Dumping in tomatoes. It is impossible to get a monopoly in flowers but the United States accused Colombia of Dumping in flowers. It is impossible to get a monopoly on honey but the United States accused China of dumping on honey. It is a huge list but the fact of the matter is, none of these cases were Dumping. The law is written to allow the United States and the EU to bring charges against Dumping. In the case of China it is even worse because China is called a Non Market Economy. One of my Chinese friends said that the United States and the EU say that only market economies can grow and we (China) have been growing, right? So therefore the solecism says that therefore we must be a market economy. But the United States in the terms of this law says you are not a market economy: if you are not a market economy, the United States, EU, India etc say we cannot trust your prices so we cannot tell if you are selling below cost, so we get to pick another country. Figure out what it would cost if you produced in that product, and then if you sell below the price in that product, then we can propose Dumping. There is an old but famous example: The United States accused Poland of Dumping (selling below cost) golf carts. Then they said, what is the country that is comparable? They said Canada. Canada was a little insulted! Then they had a problem, because what is the cost of producing golf carts in Canada? The problem is that Canada does not produce golf carts. The reason Canada does not produce golf carts is because it is too expensive. Then they said what would it have cost Canada to produce golf carts had it produced golf carts? They said the price would be higher than the price Poland is selling them for, therefore Poland must be Dumping. The basic point is that if you use the Dumping laws, then almost all American companies are dumping. If you use America s Anti Competitive Laws, which we called Predatory Pricing, no dumping cases would prevail. There is a double standard, and one of the things that should be done is the elimination of this: have a single standard. Actually this has been done with the case of the Australia and New Zealand Bilateral trade agreement, so this is not only a theoretical possibility it can be done. And again, it would make a big difference. Developing countries are in a different situation from developed countries: they ought to have recognised their right to use industrial and other development policies to produce their development. There is a basic asymmetry here. There are some asymmetries that are natural. If the United States subsidises cotton, it hurts all the developing countries that produce cotton. If Cambodia subsidises making some commodity, it does not affect global markets at all. And that is why developing countries should be given more latitude, I believe, in pursuit of their policies. Development is hard enough.

11 One of the things that went on at the end of the Uruguay Round was discussion about what new issues ought to be added. The issues that were on the table at the beginning of the Development Round were all issues that were of concern to developed countries. There are a number of issues that are important to developing countries that ought to be added to the agenda of the Development Round. Examples are arms sales and anti corruption policy. One of the main sources of lack of development in Africa is conflict, and conflict is fed by arms sales. Arms sales are a major source of the problem in many of the developing countries around the world: they cause an externality. It is very natural when there is an externality that they should either be restricted or taxed. There should be trade impediments imposed. Most of the arms sales come from the G7, and this is something where you need a global agreement: if you have half the countries doing it, the other ones will send in arms, and that is why it has to be a global agreement. So this is something where there is a need for a global agreement. One of the problems in developing countries indeed all countries including the United States is corruption. It is very hard to stop corruption. One of the things we know about corruption and bribery is that there are always two parties to a bribe, the person giving the bribe and the person receiving the bribe. In many of the developing countries, many of the bribes are given my international oil and resource companies. They often do it in a very surreptitious way. There has been an important initiative called the Extractive Industries Transparency Initiative which calls for publish what you pay. Any cheque that goes from an American or British or French oil company ought to be published so that everybody knows and the people in the country know that their government has just received a cheque, say for $10 million. BP actually began this in Angola. What do you think the response of the Angolan government was? It was not very happy! And what do you think the response of the other oil companies was? We don t want to get the Angolan government unhappy. A few African countries have now recognised the importance of this. Nigeria has passed a law that all oil company payments have to be published, have to be made transparent. They have signed on. There is an easy way to make this happen all over the world. Just make it a requirement: all oil companies, all the extractive industries, have to publish what they pay and we could enforce that by making it non tax deductible if you do not report and make public the cheques you pay. Another issue is bank secrecy. One of the recent very corrupt Nigerian leaders put his money into bank accounts in England and Switzerland. If they could not take their money out of the country it would reduce the incentive for stealing. Secret bank accounts are really the part of the nexus of the system of corruption. Switzerland, which used to have a reputation for bank secrecy, has actually turned the money back to Nigeria. But the UK has not! Something can be done about bank secrecy: there was an OECD agreement but in August 2001 the United States vetoed that. In September 2001, you all know what happened. Where did the money to finance the terrorism come from? Secret bank accounts. Since then the United States has succeeded in eliminating secret bank accounts for terrorism, but they have been unwilling to do anything about secret bank accounts for corruption or for anything else.

12 I need to tell you a little story. I was in one of these countries with secret bank accounts, which make their living out of it. I was giving this usual lecture about how bad they were and telling them to reform their ways, and after the talk a couple of bankers came up to me and said, You have to understand, we don t do secret bank accounts for corruption, money laundering, drugs, anything like that: we only do it for tax evasion. So I asked them, How do you know? and he said, Because we ask them. I want to mention very briefly that there are a number of institutional reforms that are required in the way international agreements are made; for example, more transparency in the negotiating process. There are a number of other reforms, but I have not got time to go into them. I intended to look at the principle of representativeness; the establishment of an independent office for the assessment of the impact of proposed trade provisions on development and developing countries; an assessment of trade diversion versus trade creation effects of Bilateral and Regional Agreements. In conclusion, what I have tried to argue here is that the round of trade negotiations begun in Doha does not deserve the title of a Development Round. In the present setup for developing countries, no agreement would surely be better than a bad agreement. I think the international communities should resolve to have a true Development Round. Another thing that I have not had time to talk about is that the international community needs to provide the assistance both to help developing countries to adjust and also to take advantage of the new opportunities. Opening up opportunities is important, but if you do not have the resources to take advantage of that, it won t make a great deal of difference. Perhaps most importantly, the international community should reform the procedures of negotiations such reforms are likely to lead to a reform in outcomes outcomes that are fairer to developing countries and more likely to promote rather than hinder their development. What I hope I have convinced you with is that trade can have an enormous impact on developing countries. Trade liberalisation and a Development Round could have, and at the beginning did offer, an enormous set of opportunities to developing countries. There is in fact a broad agenda that could have been pursued. It looks, however, as if that agenda has not been pursued, and unfortunately this will make life for the developing countries all the more difficult in the coming years. Thank you.