Responding to Challenges of
International Trade and
Securing an Inclusive Path to
Development
Siddhartha Mitra
Director (Research)
CUTS International
Three Questions on Inclusive Trade Led
Development
• How can India contribute to strengthening the development
dimension of the multilateral trading system?
• What would be the characteristics of a pro-development
regional trade system in Asia?
•
What are the features of a holistic trade sustainability impact
assessment?
Mainstreaming Trade into National
Development
•Ensuring that trade leads to faster economic growth and
poverty alleviation
•To ensure development is such that it promotes
competitiveness in international markets
How to Ensure that Trade Leads to Faster
Growth
• Supply side changes in infrastructure (better roads, ports etc)
and in export industries (tax exemptions)
• Better trade related institutional facilities (ports and customs
procedures, quality of duty draw back systems etc.)
• Analytical trade policy – for example, low tariffs on inputs
and capital goods, absence of unnecessarily low tariffs on
consumer goods
• Development of trade negotiating capacity so as to expand the
space for analytical trade policy
How to Ensure that Trade leads to Poverty
Alleviation
• Promotion of labour intensive growth such as that in
Bangladesh
• Reduced tariffs on inputs into labour intensive imports
• Avoidance of excessive rigidity in labour legislation
• Redistribution of upper end incomes and use of aid for trade
to provide safety nets for the poor
Characteristics of a pro-development
regional trade system in Asia
• Recognition that sustainability in economic development is
based on sustainability of the environment and vice-versa;
sustainability has to be a partnership effort
• Before implementing regional trade agreements stress should
be placed on
» Capacity to deal with the negative side effects of freer
trade – environmental instability, volatility in income
distribution etc
» Capacity to take advantage of positive opportunities
offered by freer trade – LDCs often cannot take
advantage of zero tariff lines
» Capacity of LDCs to negotiate (engagement of non-state
actors) – more balanced outcomes for development
Pro-development RTAs in Asia
• More developed countries can negotiate agreements that
apparently favour the LDCs and still gain
• LDCs should negotiate at their own pace
and not before the requisite institutions are in place
What is sustainability impact analysis?
Two Tasks:
• trace the chain of events from a policy change to consequent
economic, social and/or environmental sustainability
• Provide measures of magnitudes and dimensions of
sustainability impacts
Three Components of Sustainability Impact
Analysis (SIA)
• Economic
• Social
• Environmental
Economic SIA
• To examine whether growth rates are marked by stability at
non-negative levels or steady upward increase
• To check whether foreign exchange reserves are getting
systematically depleted or enhanced over time
• To check whether changes in FDI, FII and balance of trade
deficits are leading to indebtedness or endangering the growth
process
Economic SIA: Analytical Approach
C+S +T ≡C-M+I+G+X
(C-M)+S+T+M≡ (C-M)+I+G+X
 S+T+M≡ I+G+X
(S-I) ≡ (G-T)+(X-M)
C - consumption expenditure; S- Savings; I –investment;
T- taxes; G- govt. expenditure; X- exports; M- imports
Analytical ESIA (Continued)
• Saving-investment gap ≡ Budget deficit + Current account
surplus
• Saving –investment gap + Current account deficit ≡ Budget
deficit
• Note that current account deficits maybe unsustainable as they
are characterised by budget deficits which imply borrowings,
possibly lower productive investment and lower growth
• Solution may be to cut down government expenditure: growth
may suffer again
Social SIA
• To check whether poverty levels are going down over time
• To ascertain whether inequality is remaining steady or
declining over time
• To check on movements in the unemployment rate
Environmental SIA
• To check whether pollution levels are increasing and at what
rates
• To check whether the existing or potential pollution levels
threaten human and animal life in any way
• To check on the sustainability of ecosystems
• To check whether net deforestation is positive and negative
and whether there are any trends over time
Inter-linkages among the three SIAs:
Examples
• Very high growth rates might endanger forests and
ecosystems, lead to levels and rates of growth of
pollution/deforestation which might threaten or impede human
life and productivity
• High growth rates with very high inequality/unemployment
increase: socially unacceptable
• All such interconnections need to be brought out
Conclusions
• Trade might be growth augmenting but not always inclusive
• We need to build in provisions regarding domestic capacity,
negotiating capacity and international trade governance to
ensure that it is inclusive
• Inclusiveness can be checked through Sustainability Impact
Analysis