Global
Economic Prospects 2005
Trade, Regionalism, and Development
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Regional Trade Pacts Must Create
– Not Divert – Trade to Reduce Poverty: World Bank Report
Global Economic Prospects 2005 predicts highest growth in 30 years for
developing countries
WASHINGTON, November 16, 2004
— With regional trade agreements (RTAs) having increased sixfold since the 1980s and
now covering more than one-third of global trade, the World Bank's Global Economic
Prospects 2005 advises countries concluding bilateral and regional trade pacts to keep
them “open”, so as not to divert trade or cause market distortions that penalize
other developing countries.
Regional trade agreements, including North-South bilateral free trade deals as well as
South-South preferential agreements, can improve prospects for rapid poverty reduction,
the report says, but only if developing countries integrate them into a strategy for
liberalization of trade on three fronts - unilateral, multilateral, and regional. |
| Global Economic Prospects 2005 |
| Complete Report as One File
(1.2MB PDF) |
| Overview in Spanish
(655k pdf) |
| Foreword, Overview, &
Frequently Cited Regional Trading Agreements and the Parties to Them (90k pdf)
|
| Ch. 1: Global Outlook and the Developing
Countries (130k pdf) |
Ch. 2: Regional Trade and Preferential
Trading Agreements: A Global Perspective (450k pdf)
In the last four decades, developing countries
have burst onto the global marketplace. Their
share of global trade increased from about
one-fifth in 1960 to about one-third in 2004—
at a time when global trade as whole was
increasing to unprecedented levels. In every
region, exports have outpaced the growth of
output and increased as a share of GDP. Three
rounds of multilateral trade negotiations combined
with structural economic reforms undertaken
throughout the world ushered in the
sustained reduction in border protection that
made this growth possible. The World Trade
Organization (WTO), formed in 1994, consolidated
an evolving system of rules based on
nondiscrimination among trading partners—
a cornerstone of the multilateral system.
Today a second trend in the trading system
is rapidly gaining momentum and establishing
a very different set of rules. This new trend is
the proliferation of regional and bilateral
trade agreements (RTAs)—agreements among
a group of countries that reduce barriers to
trade on a reciprocal and preferential basis for
those in the group. The number of these agreements
has more than quadrupled since 1990,
rising to around 230 by late 2004.1 Trade between
RTA partners now makes up nearly 40
percent of total global trade, and new agreements
increasingly address issues beyond
trade. The value of preferences has steadily
fallen, however, as most countries have been
reducing tariffs across the board to all
partners on a most favored nation, or nondiscriminatory
(MFN) basis, at the same time as
they have been eliminating barriers preferentially
through RTAs. In fact, roughly 66 percent
of the decline in average tariffs in developing
countries during the last two decades
has come from unilateral reductions, as distinct
from 25 percent coming out of the
Uruguay Round and around 10 percent from
RTAs. Moreover, product exclusions and restrictive
rules of origin further limit the tradeexpanding
effects of preferences. Nonetheless,
the result of this proliferation is an increasingly
complex global trading system where
different countries’ access to a given market
are often governed by very different sets of
rules.
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Ch. 3: Regional Trade Agreements: Effects on
Trade (115k pdf)
Regional trade agreements (RTAs) can have
positive or negative effects on trade depending
on their design and implementation. Analysis
in this chapter confirms that gains from a preferential
trade agreement cannot be taken for
granted; moreover, even in agreements with
positive impacts on average incomes, not all
members are assured of increases. The interesting
policy question then is not whether
RTAs are categorically good or bad, but what
determines their success?
The broader policy context in which an
RTA is designed and implemented is crucial.
Agreements that have been designed to complement
a general program of economic reform
have been most effective in raising trade.
When RTAs have tended to be fruitless, it is
often because of the lack of a coherent program
of reform.
For an RTA itself, the most important
ingredient for success is low trade barriers
with all global partners. Most-favored-nation
(MFN; i.e., nondiscriminatory) liberalization,
which creates more trade, is the fastest and
most efficient way to increase intraregional
trade. In addition, agreements that minimize
excluded products expand the scope for positive
net benefits through competition and
trade creation.
Recent research has added nonrestrictive
rules of origin to the list of successful factors;
local firms must be able to effectively source
materials at the lowest cost. Such rules of origin
are an essential element of agreements that
expand both regional exports and exports to
the rest of the world.
RTAs can be a springboard to global markets,
but here too, low MFN trade barriers are
necessary for success. RTAs can help countries
integrate with global markets, but no agreement
provides guarantees, so design and implementation
matter.
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Ch. 4: Beyond Trade Policy Barriers:
Lowering Trade Costs Together (100k pdf)
The removal of tariffs and quotas is a key feature
of regional trade agreements (RTAs), but
modern RTAs can, and are, being designed to
achieve much more than that. Trade policies
are only one element—and often a relatively
minor one—of the overall costs of trade. Because
logistical, institutional, and regulatory
barriers are often more costly than tariffs and
generate no offsetting revenue, cooperative
governmental efforts to improve customs procedures,
minimize the trade distorting impact
of standards, and reduce transport costs may
have a higher payoff than reciprocal reductions
in overt trade policy barriers.
When RTA membership is part of a broad
program of economic liberalization in which
the objective is to attract international investment
as much as to promote trade, a broad set
of regulatory issues becomes paramount.
Which are the most appropriate institutions to
address these regulatory barriers? In certain
cases, institutions at the regional level will
provide for the most effective solutions, relative
to both the multilateral and national
levels.1 RTAs can effectively promote dialogue
and implement coordinated responses.
However, most RTAs have contributed little
to reducing the associated trade costs, especially
RTAs among developing countries.
Many regional policy initiatives have
foundered because of the lack of effective implementation,
and crossing borders between
most developing countries is still a major
impediment to trade.
|
Ch. 5: Beyond Merchandise Trade: Services,
Investment, Intellectual Property, and Labor Mobility (120k pdf)
As barriers to merchandise trade have come
down and trade has expanded, policymakers
and trade negotiators have turned their attention
to services and trade-related regulatory
issues. Of these, services, investment, intellectual
property, and temporary movement of
labor arguably have the greatest potential for
affecting incomes and trade in developing
countries. Agreements on these four issues are
now becoming common in bilateral and some
preferential regional trade agreements (RTAs).
North-South agreements, notably the
bilateral free trade agreements of the United
States and of the European Union (EU), have
been the important drivers for services, investment,
and intellectual property rights
(IPRs). In broad terms, the United States, for
example, offers access to its large market for
goods in exchange for access to services markets
in developing countries and their acceptance
of rules governing investment and
intellectual property rights. The EU market
access agreements also cover many of these
topics, if less specifically. Labor services—
that is, the temporary movement of
workers—are largely confined to professional
and skilled workers, often intracorporate
transfers. South-South agreements
tend to feature services liberalization less
prominently, and their rules governing
investment, intellectual property, and even
the temporary movement of workers, are
commonly weak or absent altogether.
|
Ch. 6: Making Regionalism Complementary to
Multilateralism (120k pdf)
The emergence of a more proactive stance in
multilateral negotiations by developing countries
in parallel with an explosion of preferential
regional trade agreements (RTAs) around the
world raises an important question: Are these
trends complementary, representing different
paths to the same desired outcome of faster
growth, development, and poverty reduction,
or are they competing and incompatible? In
principle, the best outcome for all countries
would be a nondiscriminatory trading system;
developing countries, in particular, would benefit
from a nondiscriminatory trading system
because most poor people and many poor countries
might find themselves excluded from preferential
deals. If the explosion in RTAs implies
a higher probability that the majority of
developing countries would face greater discrimination
than under an MFN (or nondiscriminatory)
regime, the world as a whole will
be worse off, and individual developing countries
may lose substantially.1
RTAs can be a complement to multilateral
reform, but they are not a substitute. Consider
a scenario, modeled in the first section of this
chapter, in which each developing country
signed an agreement with the United States,
the European Union (EU), Canada, and
Japan—the Quad. Each developing country
could raise its real incomes by individually
signing bilateral agreements with the Quad
countries; and in some cases they would raise
their real incomes more than they would
through multilateral accords. But these gains
disappear if all developing countries were to
sign such agreements. In fact, all developing
countries would lose relative to a multilateral
agreement and even relative to the baseline.
This scenario underscores the fact that, while
stalled collective action through multilateral
channels creates a strong incentive for each
developing country to sign a regional agreement,
if every country does so, they all lose.
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| Appendix: Regional Economic Prospects (150k
pdf) |
Regional Annexes
• Africa
(152K)
• East Asia &
Pacific (156K)
• East Europe
& Cen. Asia (146K)
• Lat.
Amer. & Caribbean (149K)
• Mid. East
& N. Africa (149K)
• South Asia
(150K) |
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