Download Better integration of development countries into the world

6
Better integration of developing countries into the
world economy
6.1
Introduction: the policy challenge
This chapter raises the question: “What can the Netherlands, acting with the EU and
international organisations, do to improve the integration of developing countries into
the world economy, and what ancillary policy is needed to ensure that their closer
integration also helps to reduce poverty?”. This issue reflects earlier advisory reports
by the Social and Economic Council, for example the “globalisation advisory letter”
identifying closer integration of developing countries as the most important policy
challenge (along with a stronger international rule of law), and the 1997 advisory report
on the private sector and international cooperation.
In 1997, the Social and Economic Council observed that despite many years of international
cooperation and policy efforts to combat hardship and privation at the source, poverty is
still a problem in many developing countries.1 The world poverty map is very fragmented
at the moment. Now that China and India have joined/rejoined the world economy, these
countries have experienced tremendous growth and, in China at least, there has been a
sharp decline in extreme levels of poverty. Although poverty is on the decline in India,
it remains a massive problem. It is still all-pervasive in India’s neighbour Bangladesh,
despite that country’s relatively rapid economic growth. However, the number of people
living in extreme poverty has increased in Africa, both in absolute and relative terms.
These data give rise to the following question: how can we ensure that more countries
and more people benefit from the globalisation process? The challenge can be broken
down into three steps:
1 Allow products from developing countries access to markets in the developed world
and gradually open up markets in developing countries for investment from developed
countries. This is a very important means of promoting the integration of developing
countries into the world economy.
2 Develop the private sector and good governance to ensure that the economy actually
benefits from opening up the markets and that economic growth is generated.
3 Create the necessary conditions to ensure that economic growth also benefits the
poor (pro-poor growth).
All three of these steps are important for integrating developing countries more closely
into the world economy, and all three require coherent policy. The analysis in this chapter
shows that policy coherence between the trade and agriculture sectors is of particular
1
See: SER advisory report (1997) De particuliere sector in internationale samenwerking, publication no. 97/12.
119
BETTER INTEGRATION OF DEVELOPING COUNTRIES INTO THE WORLD ECONOMY
importance for achieving a better integration of developing countries into the world
economy.
This chapter focuses on the first step towards enabling more countries and people to
benefit from globalisation, i.e. market access for developing countries. Developing
countries are still encountering barriers in the present multilateral trading system
that prevent them from actually benefiting from new opportunities for trade.
6.2
Barriers to the market integration of developing countries
A country’s external trade policy is a very important means of promoting the meaningful
integration of developing countries into the world economy. Since the Netherlands has
delegated authority over external trade policy to the EU, it must pursue its external trade
preferences via the EU. The external trade policy must comply with the rules of the game
of the global multilateral trading regime, which are laid down in WTO agreements.
The wide-ranging public debate that ensued after the WTO’s Uruguay Round played an
important role in identifying the constraints that developing countries – especially the
least developed ones – may encounter as a result of trade liberalisation. In 1979, the
General Agreement on Tariffs and Trade (GATT, the WTO’s predecessor) provided the
basis for the “special and differential treatment” of developing countries.2 During the
Uruguay Round, the special and differential treatment of developing countries was once
again incorporated into WTO agreements. The WTO has placed development issues and
the interests of developing countries at the heart of the present Doha Round. The key
focus is the contribution that trade can make to development. The aim of the Doha
Round is to continue the process of multilateral trade liberalisation and to integrate
developing countries more closely into the multilateral trading system and global
economy.
In addition to the WTO multilateral trade agreements, OECD countries – including the
EU – often grant tariff preferences to developing countries via regional or bilateral trade
agreements. Multilateral tariff liberalisation may result in a reduction in the preference
margins of developing countries. This is making the present Doha Round negotiations
difficult. On the one hand, multilateral trade liberalisation is an important tool for
integrating developing countries more meaningfully into the world economy; on the
other, the impact of that liberalisation will not be entirely positive for developing
countries. There are important differences between the various developing countries,
and multilateral trade liberalisation will therefore produce both winners and losers.
2
Laid down in the Enabling Clause. See:
http://www.wto.org/english/tratop_e/devel_e/teccop_e/s_and_d_eg_e.htm
120
BETTER INTEGRATION OF DEVELOPING COUNTRIES INTO THE WORLD ECONOMY
Using tariff reductions to improve market access will not, by itself, guarantee the closer
integration of developing countries (especially the least developed) into the world
economy. Indeed, developing countries are often incapable of actually benefiting from
new opportunities for trade. There are three reasons for this:
1 The scope of the trade agreements. There are often constraints on the duty-free and
quota-free products admitted into the market. In addition, the products allowed
market access may not correspond with the comparative advantages of the developing
countries in question.
2 The use by developed countries of trade-distorting measures such as subsidies and
non-tariff barriers.
3 Barriers in developing countries on the supply side of the economy.
In addition, the differences between developing countries can also impede their closer
integration into the world economy.
At the moment, the biggest barriers to real market access by developing countries are
high import tariffs and non-tariff barriers.3 In agriculture, efforts to improve the
situation should focus on import tariffs, the “sensitive products”, the origin rules and
non-tariff barriers to trade.
6.3
Recommendations on market access for developing countries
The Social and Economic Council observes that actual impact of preferential access to
the European market for products from developing countries remains limited. Restricted
tariff reductions, stringent origin rules, tariff escalation and non-tariff barriers can
weaken the impact of a trade agreement. In addition, the large number of “sensitive
products” designated by the EU means that developing countries derive significantly
fewer benefits from trade agreements.
Economic Partnership Agreements (EPAs)
The Social and Economic Council believes that the social partners in the ACP countries
should be consulted regularly about the negotiations with the EU concerning the Economic
Partnership Agreements (EPAs). That is important mainly because the employment
effects must be taken into account in trade agreements, as well as the possibility that
more people can earn a decent wage through paid work. The Council also advises the
Netherlands to continue emphasising within the European Union that certain market
segments in developing countries must be allowed to open up at a different pace.
3
According to the World Bank, more than 90 percent of the worldwide costs associated with the current trading
systems can be attributed to high import tariffs and tariff escalation. This varies significantly per product, however.
World Bank (2007), World Development Report 2008 – Agriculture for Development, pp. 104-105.
121
BETTER INTEGRATION OF DEVELOPING COUNTRIES INTO THE WORLD ECONOMY
Reform of the Common Agricultural Policy and impact on developing countries
The CAP reforms are intended to remove trade-distorting export subsidies and internal
support schemes for farmers. OECD research shows that decoupling income support
from production has made the EU’s internal support for agriculture must less tradedistorting and has significantly reduced export subsidies. The research also points out
that various challenges still remain, however.4 Besides this, any further progress that
the EU’s trade and agricultural policy can make in relation to developing countries
(in particular the least developed) lies primarily in the area of market access. Important
points are:
• to reduce tariff escalation for agricultural products according to their degree of
processing;
• to make origin rules more flexible in preferential trade agreements;
• to reduce the number of products identified as “sensitive” in trade agreements.
Promoting integration by providing aid for trade
Improving market access for developing countries will not, by itself, guarantee closer
integration of these countries into the world economy. Other vital elements are good
institutions, a positive business climate, a sound infrastructure and macro-economic
stability. The most important question that can be raised in this respect is how developing
countries can be encouraged to embark on institutional reform. Various initiatives have
been launched that are moving things in the right direction. The “aid for trade” initiative
is an example of ancillary policy that will encourage closer integration of developing
countries into the global economy and in doing so contribute to productive employment
growth.
The EU can promote the closer integration of developing countries into the world
economy by:
• harmonising product standards on a worldwide scale while simultaneously helping
developing countries overcome non-tariff barriers such as technical trade barriers,
customs and administration procedures, and sanitary and phytosanitary measures;
• encouraging economic diversification in developing countries, in particular in those
countries granted preferences.
Dutch policy efforts
The Netherlands can help promote better market access for products from developing
countries by continuing its efforts to influence the EU’s trade and agricultural policy
and by focusing its bilateral policy on trade promotion. The Social and Economic Council
recommends that the items described above should serve as the Dutch Government’s
point of departure in these efforts.
4
OECD (2007), Reforming agricultural and trade support, Chapter 6 in OECD Economic Surveys: European Union,
pp. 129-130.
122