Wed, Jul 14, 2004 - Page 9 News List

Talking up global trade

Fair competition and social justice may advance if world powers reflect on the need to build a new economic order

By Joseph Stiglitz

ILLUSTRATION MOUNTAIN PEOPLE

In the year since the breakdown of trade talks in Cancun, sentiment has increasingly grown in the developing world that no agreement is better than a bad agreement. But what would a good agreement look like?

The British Commonwealth recently posed this question to me and the Initiative for Policy Dialogue, an international network of economists committed to helping developing countries. Our first message was that the current round of trade negotiations, especially as it has evolved, does not deserve even to be called a Development Round.

Well before the riots that marked the WTO talks in Seattle in 1999, I called for a true "development round" of trade talks to redress the inequities of previous rounds. The advanced countries, with their dominant corporate and financial interests, had set the agenda for those negotiations. Whether or not developing countries benefited was of little concern. Indeed, in the last round of trade negotiations, the Uruguay Round, the world's poorest region, sub-Saharan Africa, was actually made worse off.

Our second message was optimistic: if the agenda of the current round is reoriented towards development, and if assistance is provided to manage implementation and adjustment costs, developing countries can gain much. We analyzed which reforms in the international trade regime would most benefit those in the developing world, and we presented an alternative agenda based on our findings.

The results were perhaps obvious: more people live from agriculture in the developing world than from manufacturing, so agricultural liberalization must be high on the agenda. But genuinely beneficial agricultural reform would need to go further than merely transforming export subsidies into other types of subsidies, because many supposedly non-distorting subsidies lead to more output, which hurts producers in developing countries by lowering prices.

Trade reforms must be sensitive to effects on developing countries, many of which are net importers of subsidized agricultural commodities. But some subsidies, like cotton subsidies in the US, are rightly emblematic of America's bad faith. Eliminating this subsidy would help 10

million poor cotton farmers in sub-Saharan Africa. US taxpayers would also benefit. The only

losers would be the 25,000 rich farmers who currently divvy up US$3 billion to US$44 billion in government handouts each year.

Developing countries also need access for the unskilled labor-intensive services in which they have a comparative advantage. These were off the agenda in earlier trade rounds as the US pushed for liberalization of financial

services -- thus serving its own comparative advantage. Today,

unskilled services remain off the agenda.

Developing countries' gains from capital market liberalization have been widely noted (although recent studies raise some doubts about these benefits). Nevertheless, the global gains from allowing freer flows of unskilled labor (even temporarily), let alone the benefits to developing countries, far outweigh the benefits from capital market liberalization. But, as I said, this issue is not on the agenda.

The trade talks in Cancun raised new subjects -- the so-called Singapore issues. But even a cursory look at these items reveals that they primarily reflect the interests of developed countries. Indeed, poor countries' development would arguably

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