International Trade and
Development
- Kishor Goswami
• Development may be interpreted as
expanding people’s choices and enabling
them to lead longer and healthier lives:
– by ensuring that they are well-nourished and have
access to safe drinking water, sanitation facilities
and shelter;
– by providing them equal opportunities to participate
in economic activity through education and decent
work; and
– by affording them the freedoms to exercise these
choices and fulfill their potential.
• Trade can facilitate, promote and sustain this
development process in any country.
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• Trade need not be – indeed should not be – an end in itself.
Rather, it should realize a broad range of development
objectives, and especially in the poorest and Least
Developed Countries (LDCs)
• It should help to alleviate poverty and reduce deprivation.
• At the same time trade is a profit-driven activity, and there
are many examples from history that demonstrate what
happens when commercial gain takes precedence over
well-being. For example, slavery, colonialism, apartheid, etc.
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• Although trade liberalization can increase the opportunities for
exports, it also exposes local producers to foreign competition
that, particularly in poorer countries, they may be unable to
withstand.
• While creating new opportunities, particularly in the modern
sector, it can also destroy the livelihoods of people working in
basic manufacturing or in agriculture.
• There are three basic building blocks: trade, development and
the links between the two. Trade → growth → development →
trade.
• There is thus a two-way causation: from trade to human
development and back.
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• Trade changes the structure of the economy as well as the
rate of growth, which, in turn, has implications for
employment, both of labour and capital.
• Trade tends to reward skilled labour more highly than
unskilled labour and can lead to the adoption of capital-
intensive technologies and thus deepen inequality.
• However, public policy can be used to ensure that trade
benefits human development.
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• There is also a feedback loop from human development to
trade, which operates directly or is mediated through the
domestic policy framework.
• Feedback affects work through higher income, higher
technical competence and skills or through the power of
advocacy on policymakers.
• Human development can also have a direct influence upon
the structure of the economy, the rate of growth and trade
itself.
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• Experience has shown that growth can translate into higher
levels of development. But not necessarily. Much depends
on the nature of growth. In some cases, the development
outcomes may be limited, or even negative.
• In many Asia Pacific courtiers it is found that
– industry and services are growing much faster than agriculture;
– agricultural workers are being displaced on a large scale;
– rural-urban and interpersonal inequalities are widening;
– manufacturing growth is not creating enough new jobs, and much
of the existing work is becoming more casual or informal.
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• Quite often, economic growth may provides the resources to
permit sustained improvements in development; on the other
hand, development improvements raise people’s capacities
to boost economic growth.
• Trade liberalization that involves reducing protective tariffs
can therefore lead to a more efficient outcome – by delinking
domestic supplies from domestic production.
• Trade liberalization should also enable the poorer developing
countries to make better use of their comparative advantage
– an abundant supply of unskilled and inexpensive labor.
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• They can specialize in the production and export of
agricultural products and simple manufactured goods such
as textiles and clothing. This should also increase the
demand and wages for unskilled workers and thus help to
reduce poverty.
• In open economy, enterprises that are more exposed to
foreign competition, markets may force to increase their
levels of efficiency. Reverse is also common in many
countries where market is flooded with cheap imports and
put local enterprises out of business.
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• Moreover, instead of employing more unskilled workers, the
export industries may instead further polarize ‘dual labor
markets’ – consisting of a small formal sector where wages
are influenced by government regulations and collective
bargaining, and a much larger informal economy where
wages tend to be linked to a subsistence level of income.
• If we assume that trade liberalization foster economic growth
and government looks after the wellbeing of ordinary citizen,
then this may results a considerable decrease in tariff and
loss of government revenue. In a developing country it may
have serious consequences.
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• Successful industrialization requires not only capital and
technology but also a capable labor force that can manage
the capital and technology and display the discipline
demanded by factory production.
• The capability of labor force is directly related to literacy,
education, and status of health.
• If growth limits or reverses development gains, then growth
itself may not be sustainable.
• Most governments have, therefore, felt the need to
intervene in order to achieve trading success – a process
with deep historical roots.
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STATE INTERVENTION IN TRADE – AN AGE-OLD
PHENOMENON
• In around AD 60, a trader coming from Dhaka, Bangladesh,
arrived in Rome from Jeddah carrying fine muslin.
• He provoked a near-riot and was plied with coins, gold and
silver and was even offered equally valuable horses.
• The Emperor, Tiberius, became worried because the
demand for these goods was annually depleting the Roman
coffers by almost 50 million sesterces, the trading bullion.
So the Emperor banned the sale of the finest muslin.
Indeed, he was so concerned that he deployed soldiers to
keep the fabric out of Rome.
• The flow of commerce across national borders is an age-old
phenomenon – but so too are State policies to control trade
for public purposes.
Source: Bandyopadhyay, 2005. 13
• State needs to protect the vulnerable. Enhanced trade generates
both winners and losers: those who get left behind may lose their
livelihoods or see their incomes drop or suffer from greater
insecurity (of food).
• State should be able to guide industrial strategy. With its broader
vision, it should be able to assess the international context and
changes in the global production system.
• In a developing country, the State may also need to find ways of
counteracting the imbalances in international markets. It will need
to take account, for example, of the sharp differences in national
trading capabilities, the substantial disparities in the size, market
presence and reserves of competing partners, and the control
exercised by a small group of players from a few developed
countries on various frontline technologies.
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• A call-centre worker in the United Kingdom or the United States,
say, whose job migrates to Delhi or Manila can be rapidly
redeployed elsewhere or can use the cushion of the social
security system to search for a suitable alternative job. But a
Bangladeshi woman making shirts on piece rates for a garment
manufacturer may have little or nothing to fall back on when told
she is suddenly surplus to requirements.
• In international negotiations, countries may have not just
different priorities but even opposing interests. The food-
exporting countries, for example, will see things differently from
the food importers; Indonesia will take a different position from
that of Thailand or Viet Nam.
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• The poorest countries of the region who look towards China
with some trepidation – perceiving their giant neighbor as a
strong competitor capable not just of capturing some of
their export markets for textiles and garments, for example,
but also of displacing even some of their humbler domestic
industries.
• The highly developed countries will feel more at ease with
global competition than the poorer ones.
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Trade for development
1. Invest for Competitiveness
2. Adopt Strategic Trade Policies
3. Restore a Focus on Agriculture
4. Combat Jobless Growth
5. Prepare a New Tax Regime
6. Maintain Stable Exchange Rates
7. Persist with Multilateralism
8. Cooperate with Neighbors
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Invest for Competitiveness
• Governments needs to ensure that they have the roads,
railways, ports and telecommunications systems that align with
national needs and also with the requirement of getting goods
and services quickly and cheaply to international markets.
• The most successful trading countries have invested heavily in
human development – generating a healthy and well educated
workforce that has the stamina, the skill and the flexibility to
cope with a changing trading environment.
• China, for example, long before it started opening up to the
world at the end of the 1970s, already had good basic human
development indicators.
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• The Republic of Korea, for example, has reaped the
benefits of a huge investment in technological infrastructure
and by 2004 had the world’s highest university enrolment
rates.
Adopt Strategic Trade Policies
• States have to identify a few sectors and industries
that have long-term potential in international
markets and guide enterprises towards them.
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• The process should be strategically planned and carefully
sequenced. Higher tariffs should be rigidly time-bound. In
order to avoid creating cozy monopolies that never mature
into vigorous export enterprises, tariffs should automatically
be scaled down after a predetermined period.
• Tariffs should be low on essential imports such as raw
materials and high-tech capital goods, higher on goods that
compete with the selected strategic industries.
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Restore a Focus on Agriculture
• A trade strategy based on human development, however, must
have agriculture at its core. This is not because agriculture
offers export opportunities, but because in many countries
farming is still the primary source of income for the poor; so no
trade strategy that undermines rural livelihoods can claim to be
promoting human development.
• In WTO negotiations, therefore, developing countries should
insist on the right to protect ‘special products’, including
safeguard mechanisms that will be triggered when food imports
reach certain prices or volumes.
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Combat Jobless Growth
• More workers should steadily be absorbed into formal
employment but on contracts sufficiently flexible that they
can readily be deployed to other sectors or companies as
trading conditions change.
Prepare a New Tax Regime
Maintain Stable Exchange Rates
Persist with Multilateralism
Cooperate with Neighbours
- Shared Resources
- Shared Development Fund
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