Boustead Annual Globalisation
Lecture
University of Nottingham Malaysia
‘The WTO and Developing
Countries’ Policy Space’
Chris Milner
School of Economics and GEP
University of Nottingham
The ‘Policy Space’ Issue
• Criticism that WTO constrains or may in future constrain
policy options and actions of developing countries
– e.g. UNCTAD Trade and Development Report (2006), ‘…the
rules and commitments of the international trading regime restrict
the de jure ability of developing nations to adopt national
development policy.’ (p167)
– might view any loss of choice and constraints on autonomy as
undesirable
– but, more typically an issue because presented as restricting use
of heterodox policies (e.g. Rodrik, 2004)
Positive and Normative Issues
• How might the WTO constrain policy
space in developing countries?
• Does (or will) the WTO constrain policy
space in developing countries?
• Should WTO constrain developing
countries’ policy space (and by how
much)?
Some Context
• WTO commitments affect only trade and
trade-related aspects of ‘policy space’
• Actual trade policy space affected by other
institutions and agreements
– unilateral (e.g. structural adjustment reforms)
– bilateral ( e.g. ACP countries and Economic
Partnership Agreements with the EU)
– regional (e.g. membership of RTAs)
Potential WTO Influences
on Policy Space
• Core rules of transparency, nondiscrimination and reciprocity
– binding of tariffs and lowering of MFN tariffs
• Constraints on instruments (e.g. NTBs,
export subsidies)
• Recent disciplines on new and beyond
border areas
– services, TRIMs and TRIPs
Potential WTO Influences
(continued)
• But also:
– Exemptions to rules (e.g. regional integration,
preferences for developing countries)
– Differentiation of rules for developing countries (e.g.
infant industries, balance of payments, export
subsidies)
– Safeguards and defensive measures allowed
– Protection of national interest through dispute
settlement mechanism and negotiating framework
Potential WTO Influences
(continued)
• WTO rules seek to protect autonomy and
enhance policy space, as well as constrain
policy actions
– defensive trade measures
– protection of small countries through rules and
dispute settlement
– enhancing bargaining power through coalition activity
– improving export opportunities through reciprocity and
constraints on importing countries
Actual WTO Impact
on Policy Space
• Membership of GATT/WTO has not had a
major impact on bindings or tariffs of
developing countries
• Other sources of tariff and NTB reforms
(unilateral and regional)
• Very limited use of industrial and export
subsidies
Binding coverage (%)
Binding Coverage and GATT/WTO Membership
(Sub-Saharan African countries)
100
90
80
70
60
50
40
30
20
10
0
0
10
20
30
40
Membership (years)
50
60
70
Bound and Applied Tariffs Compared: SubSaharan Africa (all products, 2005/2006)
Togo
South Africa
Rwanda
Namibia
Average (unwt) MFN
Applied Tariff Total
Average (unwt) Bound
Tariff Total
Lesotho
Guinea*
Dem. Rep.
CAR*
Burkina
All countries
0.0
50.0
100.0
percent rate
150.0
Bound and Applied Tariffs Compared
Across Product Groups: Burundi
(2006)
Transport equipment
Non-elect. machinery
Clothing
Wood, paper etc
Average applied
tariff
Average bound
tariff
Petroleum
Fish and products
Cotton
Sugars & confections
Cereals etc
Fruit, veg. & plants
Animal products
0
50
100
percent rate
150
Actual WTO Impact
(continued)
• Evidence of greater WTO influences on new
members (e.g. Saudi Arabia, China, Vietnam)
– though most developing countries are already
members
– and membership is not compulsory!
• Concerns about future tightening and stricter
implementation of rules
– least developed countries exemptions from tariffcutting requirement in Doha negotiations
– negotiable!
‘Policy Space’ and First Principles
• Possible positions:
– more trade policy choice is better than less?
– WTO rules restrict heterodox options, with
harmful effects?
– there are positive net benefits from restricting
the policy space?
More Policy Choice Is Always
Better?
• Surely not – recall pre-trade reform
conditions in sub-Saharan Africa
– complex border taxation of imports
– extensive use of NTBs
– domestic firm entry restrictions
– implicit and indirect taxation of exports
– lack of transparency, pervasive rent-seeking,
under-utilisation of capacity, and random and
systematic distortions to resource allocation
Effective Protection by Sector: Burundi (1984)
SECTOR
Agricultural Products
Food, drink and tobacco
RANGE OF RATES %
-2 → 4
86 → 2017
Leather and footwear
-4 → 102
Textiles
12 → 124
Wood and paper products
43 → 7896
Metal products
16 →
Chemicals
9→
Pharmaceuticals
1→
Construction goods



63 → 72
Source: Greenaway and Milner (1990)
Selective SSA Information on Pre- and Post
Reform NTBs and Exchange Rate Distortions
Pre-Reform
Country
Cameroon
Cote d’Ivoire
Ghana
Kenya
Madagascar
Malawi
Mali
Nigeria
Senegal
South Africa
Tanzania
Uganda
Zaire
(1)
NTB Coverage
hundreds
38%
100%
71%
100%
100%
58%
100%
55%
100%
100%
Various years, usually 1980s
(2) Various years, usually early 1990s
Source: Dean (1995)
(1)
Black Market
Premium
(average)
985%
16%
37%
51%
210%
0%
242%
303%
71%
Post-Reform (2)
NTB
Coverage
hundreds
38%
2%
0%
0%
Few
0%
17%
15%
23%
100%
5%
100%
Black Market
Premium
(average)
17%
9%
13%
12%
27%
3%
119%
79%
9%
Restricts Heterodox Options?
• Challenge the interpretation of some of the claims made
for protection (e.g. in India)
• Question whether some of the heterodox success cases
(e.g. South Korea) would still have been successful with
more orthodox policies
• Doubt whether many of the least developed countries
have the human capital and institutional capacity to
implement the East Asian model
Net Benefits of Restricting Trade
Policy Space?
• Avoids costs of excessive protection and
poor intervention
• Brings benefits of greater openness
(subject to sensible timing, sequencing,
phasing and adjustment support
measures)
• Enhances policy space (export market
access) if reciprocated by other countries
Overall Assessment and
Conclusions
• WTO has not significantly affected developing
countries’ policy space to-date
• The effects (constraints and enhancements)
may increase in future
– but scope for phased or gradual affects and
differentiation within WTO rules
• Many of the key pro-development issues are
outside the WTO agenda
– improving governance, institutions, human capital and
infrastructure
• Countries want to join the WTO club!
GATT/WTO Membership
180
160
140
120
100
80
60
40
20
19
48
19
53
19
61
19
65
19
70
19
78
19
83
19
90
19
94
19
98
20
02
20
07
0
total membership
new members