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The Value Of Development Experience For Building Trade Capacity

James Michel* 

The old division of the world into two power blocs, East and West, has subsided.  Now the big challenge and threat is the gap in wealth and health that separates rich and poor. [….] Here is the greatest single problem and danger facing the world of the Third Millennium.[1]

 

This growing divide between wealth and poverty, between opportunity and misery, is both a challenge to our compassion and a source of instability.  We must confront it.  We must include every African, every Asian, every Latin American every Muslim, in an expanding circle of development. […] Trade is the engine of development.  And by promoting it, we will help to meet the needs of the world’s poor.[2] 

 

The Stakes Involved 

The tragic and ruthless acts of terror, death and destruction perpetrated on September 11, 2001, by alienated and determined extremists have definitively ended the debate on whether we are witnessing the end of history.  In 2002 we know that the consolidation on a global scale of peace, security, democracy and economic well-being is far from inevitable.[3]  We also recognize that the continued exclusion of large numbers of people and, indeed, entire countries from the experience of human progress poses a challenge to the security of people and countries throughout the world. 

Proponents of globalization argue for an expansion of participation in a global economy that is open to the free flow of capital, goods and services and driven by knowledge, technology, market forces and international standards.[4]  Other voices question the assumption of the globalists that industrialized and developing countries can have shared values and interests that will work for the benefit of people everywhere.  The anti-globalists find current trends unjust.  They point to the wide disparity in wealth and economic growth between rich and poor as evidence of systemic deficiencies and argue that globalization causes inequality, not convergence.[5] 

The persistent disparity in wealth and incomes between rich and poor countries cannot be denied.[6]  However, recent analysis has pointed out that the last 50 years have witnessed unprecedented advances in longevity, health, education, housing, nutrition and reductions in extreme poverty.[7]  In addition, there is persuasive evidence that developing countries that are able to open their economies to trade and investment achieve faster growth and poverty reduction and experience reduced inequality.[8]  These findings support a policy of facilitating the integration of poor countries into the global economy, an inclusive approach to globalization, as an important strategy for advancing human well being within a framework of stable, safe and just societies. 

Within the international community, support remains strong for the inclusion of developing countries in the global economy.  The Declaration of the November 2001 World Trade Organization Ministerial Meeting at Doha contained numerous references to what the declaration called the “development dimensions of the multilateral trading system,” including extensive provisions on technical cooperation and capacity building.[9]  The principal multilateral agencies in this field (World Bank, International Monetary Fund, United Nations Development Program, World Trade Organization, United Nations Conference on Trade and Development, International Trade Centre) have renewed their combined efforts in the Integrated Framework for Technical Assistance to Least-Developed Countries.[10]  The bilateral donors have also come together in the Development Assistance Committee of the Organization for Economic Cooperation and Development to adopt a statement of development ministers and aid agency heads and a related set of guidelines on strengthening trade capacity for development.[11]  Developing countries joined in hopeful statements about global interdependence at the tenth session of the United Nations Conference on Trade and Development in February 2000 at Bangkok[12] and the Third United Nations Conference on the Least Developed Countries in May 2001 at Brussels.[13] 

Most recently, 51 heads of State and Government joined with hundreds of ministers and representatives of civil society at the International Conference on Financing for Development in Monterrey, Mexico, in March 2002.  There, they adopted the Monterrey Consensus, a commitment to a fully inclusive and equitable global economic system.  In that context, they committed themselves to implementation of “the decisions of the World Trade Organization to place the needs and interests of the developing countries at the heart of its work programme.”  They pledged to implement the commitments made in Doha and underscored “the importance of effective, secure and predictable financing of trade-related technical assistance and capacity building.”[14]

The DAC Guidelines are expressly based on five premises that fairly represent the thinking behind all of the aforementioned international initiatives: 

  1. Trade and its liberalization can contribute to development.
  2. Developing countries want to integrate into the global economy.
  3. The new global economic context offers promising opportunities, but poses daunting challenges.
  4. Trade policy makers have a major stake in strengthening the trade-related capacities of developing countries.
  5. Donor support can strengthen the multilateral trading system by addressing the trade challenges facing developing countries.[15]

Together, these five premises reflect notions of interdependence, inclusive globalization and shared values and interests.  These are notions that are all under challenge.[16]  The test for the worldview they represent will be whether they can be given effect so as to contribute to broadly based economic growth.  Whatever the secondary benefits, trade and investment are supposed to achieve economic results.  Yet, economic growth has been the most elusive goal of development efforts in most countries.[17] 

It will be a formidable challenge to implement the many programs intended to strengthen the trade-related capacities of developing countries in a manner that contributes to increased convergence in the values and interests of people and governments and advances human dignity, freedom and economic well-being.  How well we all respond to that challenge will have historic implications.  As historian David Landes said in the passage quoted at the beginning of this paper, the gap between rich and poor is “the greatest single problem and danger facing the world in the Third Millennium.”[18] 

The Nature Of The Development Process 

Trade, of course, is only one among many aspects of development, and trade-related capacity building cannot be isolated from other development efforts.[19]  International cooperation in support of trade capacity building must be viewed within the context of the broad consensus that has evolved over the past decade about the nature of development and development cooperation.  That consensus is centered around what has been described as a “differentiated partnership approach,” a concept that emphasizes coordinated international support for local capacity, responsibility and ownership of integrated strategies to achieve agreed objectives.  Its partnership aspect reflects its focus of donor support on agreed objectives and agreed priorities.  Its differentiation comes from the adaptation of efforts in each case to the realities of local circumstances.  This approach is found in policy documents of the United Nations, the OECD, the World Bank and many developing countries.[20] 

The basic principles of the differentiated partnership approach can be summarized as follows: 

-         Development is a process by which societies become stable, prosperous, safe and just, with shared basic values and interests grounded in human freedom and opportunity.  Such societies are foundations of human security, well-being and fulfillment, and form the base of a peaceful and productive global community.

-         Development comes from within a society.  In must be based upon local responsibility for and commitment to integrated policies and strategies that are results-oriented over the long term.  These policies have economic, social, political, environmental and security dimensions, all of which must be heeded.

-         International support for such locally led efforts can be effective in accelerating and increasing positive development outcomes.  Such support should be based on shared goals, an agreed division of labor, adequate resources, coherent policies and effective coordination. 

-         Development cooperation is more than aid.  It needs to be integrated into a broader framework of policies to facilitate greater participation by poor countries in the global community and greater participation by poor people in their societies.

Experience has shown that partnerships should be based on realistic assessments of available capacities and commitments of the parties.  Cooperation might involve large or small objectives, a broad or a narrow range of activities.  Partnerships might involve working more with government actors or more with civil society.  Objectives need to be set and activities designed to be compatible with the capacities and commitments of the local actors and the environment in which the work is to take place, as well as the capacities and commitments of the external partners. 

In an ideal situation, the host government would be at the center, consulting with civil society and international donors and guiding the implementation of a coherent development program.  This ideal is intended to offer an alternative to unsatisfactory earlier approaches to development cooperation.  Purely need-based assistance had tended to foster dependency, while externally imposed conditions tended to foster resentment and rationalization.[21]  Of course, the ideal is only rarely seen.  Developing countries often have weaknesses that limit their ability to be effective partners.  Likewise, few donors allocate their resources exclusively on the basis of objective calculations about the need, capacity and will of their partners.  The day-to-day challenge is to make the best policy and program decisions in less than ideal conditions, balancing the needs for local ownership, realistic objectives and efficient implementation. 

The Importance Of Trade-Related Capacities For Development 

With respect to the link between development and trade, a new World Bank study estimates that those countries that deepened their integration with the global economy during the 1990s have seen their incomes rise at more than three times the pace of those that did not integrate.[22]  Developing countries as a whole increased their market share in a growing volume of non-energy merchandise trade by about seven per cent, and have experienced even faster growth in trade in services.[23]  However, statistics about overall growth rates include both outstanding performance by some countries and stagnation or lost ground by others.  The poorest countries were among the weakest performers. 

The proposal by President Bush in March 2002 for a new compact for global development, supported by a $10 billion Millennium Challenge Account,[24] and the heightened attention to the importance of development assistance achieved at the Monterrey Conference on Financing for Development,[25] offer some hope for a reversal in the decade-long trend of stagnation and decline in aid volume.  However, the prospects for substantial and sustained growth of official development assistance remain uncertain. 

Private flows, while highly concentrated, and domestic resource mobilization have taken on increasing importance as sources of development finance.[26] It seems evident that poor countries will need to finance more and more of their development by increasing productivity, attracting investment and expanding trade.  At the same time, the poorest countries are the most dependent on official flows and the least able to attract private capital.[27] 

Some of the obstacles developing countries will face derive from constraints on their access to markets.  These external obstacles, such as production subsidies, tariff spikes and tariff escalation by industrialized countries, need to be addressed through trade negotiations.  Poor countries need to be able to negotiate for better treatment.[28] 

A number of industrialized countries (and some developing countries) have undertaken unilateral liberalizations of market access, especially for least developed countries.[29]  These measures can provide a valuable stimulus and produce early results.  For example, in the first six months of 2001 United States trade with Africa rose by 17 per cent over the comparable period in 2000.[30]  This appears to be at least partially attributable to the African Growth and Opportunity Act.  Similarly, exports by Caribbean Basin countries to the United States in 2000 were 2.5 times greater than in 1984 when the Caribbean Basin Initiative entered into force.[31]  However, annual exports by all Sub-Saharan African countries to the US are only about $20 billion and the exports from CBI countries are of comparable amounts.[32]  By contrast, the OECD estimates that gains for developing countries from full liberalization of merchandise trade and trade in services, with dynamic effects, would exceed $500 billion.[33]  Relying on unilateral concessions by rich countries is not an adequate alternative to the negotiation of better terms of trade for poor countries in a new development round. 

Other obstacles derive from limited internal capacities of developing countries to make good use of opportunities to benefit from trade: 

-         Governments often lack the ability to participate in the international system and negotiate for better treatment in international markets.

-         Governments also often lack the ability to formulate and carry out appropriate national policies to provide a favorable economic environment for investment, production and trade.

-         Firms often lack the ability to produce and sell goods and services that will be competitive in international markets and lack access to information and services that would help them to be more competitive. 

These are limitations of political will as well as limitations of information, technical ability and business acumen.  Addressing these obstacles is a highly complex process to achieve increased public sector knowledge and analytical abilities, heightened expectations of government by citizens, enhanced competitiveness by local producers and service providers, and capable political leadership.  As discussed below, the three kinds of capacity limitations outlined here should be the focus of assistance to strengthen trade-related skills. 

There are indications that donors are receptive to the need to support trade-related capacity development.  These indications include the aforementioned effort to revitalize the multilateral Integrated Framework,[34] the declaration and guidelines adopted by bilateral donors,[35] and the numerous commitments contained in the Doha Ministerial Declaration[36] and the Monterrey Consensus.[37]  The United States alone has increased its assistance for building trade capacity from $327 million in fiscal year 1999 to $457 million in 2000 to $556 million in 2001.[38]  Converting interest and resources into results will require effective development strategies. 

If poor countries are to benefit from the international trading system they will need both the capacity to produce and the opportunity to compete.  Without opportunity, there will be no incentive to build capacity; without capacity, opportunity will remain an unfulfilled promise.  Progress in both must proceed in tandem.  This demands much of developing and industrialized countries, including a measure of coherence in their trade policies and their development policies.

 



*   James Michel is an independent consultant in international development cooperation.  In his career in the United States Government he held senior positions in the Department of State and the Agency for International Development and also as a U.S. Ambassador.  From 1994 until 1999 he served as Chair of the Development Assistance Committee of the Organization for Economic Cooperation and Development.

 

[1]   Landes, David S., The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, W.W. Norton & Company, Inc., New York, 1998, p. xx.

 

[2]   Bush, George W., Remarks on Global Development, March 14, 2002, www.whitehouse.gov.  The theme of trade as an engine for development was agreed to in the Monterrey Consensus at the March 2002 International Conference on Financing for Development.  See text accompanying note 14, infra.

 

[3]   A thoughtful commentary by David Rothkopf suggests: “We may not know the region from which the next Marx will hail or his particular approach.  But we can be sure that someone, somewhere will offer an alternative vision.”  Rothkopf, David J., Washington Post “Outlook,” January 20, 2002, p. B1.

 

[4]   See, e.g., OECD, The World in 2020: Towards a New Global Age, OECD, Paris, 1997; OECD, Open Markets Matter: The Benefits of Trade and Investment Liberalization, OECD, Paris, 1998.

 

[5]   See, e.g., International Forum on Globalization, A Better World Is Possible: Alternatives to Globalization, International Forum on Globalization, San Francisco, 2002 (forthcoming), www.ifg.org; website of the World Social Forum, www.forumsocialmundial.org.  At the extremes, there are proponents of globalization who would make no effort to shape it as a force for greater justice and participation and there are opponents of globalization who reject any effort to make it an instrument of human progress.  As economist Amartya Sen summarized these extreme views in a recent article, “promotion of gloom and doom, thus, joins hands with impervious complacency.”  Sen, Amartya, “Addressing Global Poverty,” The World in 2002, The Economist, London, 2002.

 

[6]   See World Bank, Global Economic Prospects and the Developing Countries, 2002: Making Trade Work for the World’s Poor, Table A3.2, “Growth of real per capita GDP, 1971-2010, Washington, 2002, p. 235.

 

[7]    Fox, James W., “Development Overview,” in Development Assistance in the 21st Century, USAID, Washington (forthcoming).

 

[8]   Dollar, David and Aart Kraay, “Spreading the Wealth,” 81 Foreign Affairs 120, 2002, and Growth IS Good for the Poor, World Bank, Washington, 2001;  OECD, The Development Dimensions of Trade, OECD, Paris, 2001; Foreign Policy, “Measuring Globalization,” Foreign Policy, January-February 2002, p. 56.  See also, A.T. Kearney/Foreign Policy Magazine Globalization Index, www.foreignpolicy.com.

 

[9]   Ministerial Declaration, Doha WTO Ministerial, adopted November 14, 2001, www.heva.wto-ministerial.org, especially paragraphs 35-44.  See also, communiqué of the 61st meeting of the Development Committee, adopted April 17, 2000, paragraphs 5 and 6, “Trade, Development and Poverty Reduction,” World Bank, Washington, 2000, www.worldbank.org.

 

[10]   See United Nations Development Program Press Release, “Heads of International Agencies Agree to New Approach on Trade-Related Technical Assistance for Least Developed Countries,” www.undp.org/dpa/pressreleases/releases/2000/july; World Bank Policy Brief, “Integrated Framework for Trade-Related Technical Assistance,” 2002, www.worldbank.org/wbiep/trade/Integrated_framework.

 

[11]   “Trade and Development in the New Global Context: A Partnership for Building Trade Capacity,” Statement by the DAC High Level Meeting upon endorsement of the DAC Guidelines on Capacity Development for Trade in the New Global Context, in OECD, The DAC Guidelines, Strengthening Trade Capacity for Development, Paris, 2001, www.oecd.org.

 

[12]   Bangkok Declaration: Global Dialogue and Dynamic Engagement, adopted February 18, 2000,

www.unctad-10.org.

 

[13]   Brussels Declaration, adopted May 20, 2001, UN Doc. A/CONF.191/12, www.unctad.org/ldcs.

 

[14]   Monterrey Consensus, adopted March 22, 2002, UN Doc. A/CONF.198/3, www.un.org/esa/ffd.  See also, Report of the High-Level Panel on Financing for Development, June 22, 2001 (The Zedillo Panel), www.un.org/reports/financing/report_full.

 

[15]   OECD, note 11, supra.

 

[16]   See Bhagwati, Jagdish, Free Trade Today, Princeton University Press, Princeton, 2002; Irwin, Douglas, Free Trade Under Fire, Princeton University Press, Princeton, 2002.

 

[17]   See Easterly, William, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics, MIT Press, Cambridge, 2002.

 

[18]   See quoted text accompanying note 1, supra.

 

[19]   See, e.g., the views reported in Kostecki, Michel, Technical Assistance Services in Trade Policy: A contribution to the discussion on capacity building in the WTO, International Centre for Trade and Sustainable Development, Geneva, 2001.

 

[20]   See United Nations Millennium Declaration, UNGA Res. 55/2, September 18, 2000; Annan, Kofi A., We the Peoples: The Role of the United Nations in the 21st Century, United Nations, New York, 2000, and Road Map Towards Implementation of the United Nations Millennium Declaration, UN Doc. A/56/326, United Nations, New York, 2001; World Bank, Comprehensive Development Framework: Meeting the Promise? Early Experience, and Emerging Issues, World Bank, Washington, 2001; OECD, Shaping the 21st Century: The Contribution of Development Cooperation, OECD, Paris, 1996; Faure, Jean-Claude, “On Common Ground: Converging Views on Development and Development Cooperation at the Turn of the Century,” in OECD, Development Cooperation 1999 Report, 1 DAC Journal 121, OECD, 2000.

 

[21]   See Killick, Tony (with Romani Gunatilake and Ana Mair), Aid and the Political Economy of Public Change, Routledge, New York, 1998.

[22]   Collier, Paul and David Dollar, Globalization, Growth and Poverty: Building an Inclusive World Economy, World Bank, Washington, 2002.

 

[23]   World Bank, op. cit., note 6, supra, pp. 37, 71.

 

[24]   Specifically, the new compact for global development contemplates an increase in the volume of US development assistance that over three years, by 2006, would total $10 billion.  At that point, the annual volume of ODA would be $15 billion, an increase of 50 per cent over the current level of $10 billion.  The additional funds would be held in a Millennium Challenge Account, which presumably would receive an additional $5 billion in each succeeding year.  Funds in the Millennium Challenge Account would be reserved for countries that, by their performance (not just their words), demonstrate a commitment to good governance, the health and education of their people and sound economic policies.  As President Bush explained the concept:

 

“Countries that live by these three broad standards – ruling justly, investing in their people, and encouraging economic freedom – will receive more aid from America.  And, more importantly, over time, they will really no longer need it, because nations with sound laws and policies will attract more foreign investment.  They will earn more trade revenues.  And they will find that all these sources of capital will be invested more effectively and productively to create more jobs for their people.”  Note 2, supra.

 

[25]   Op cit., note 14, supra.

 

[26]   See “Perspectives on Financing the Millennium Development Goals,” Chapter III in OECD, Development Co-operation 2001 Report, 3 DAC Journal 56, OECD, Paris, 2002.  In particular, Table III-1 (at page 65) shows the pattern of total net resource flows from DAC Member countries and multilateral agencies to aid recipients from 1993 to 2000.  During that period, direct private investment grew steadily from 25 per cent to 63 per cent of the total while official development assistance fell from 34 per cent to 26 per cent.

 

[27]   Examination of net flows from DAC Member countries as a percentage of the GDP of individual developing countries reveals the marked dependency of least developed countries on external financing, almost all of which is from official sources.  In 1995, official development assistance to the least developed countries exceeded 20 per cent of GDP, but amounted to only 2 per cent of GDP of low-middle income developing countries and a mere 0.2 per cent of GDP of upper middle income developing countries.  OECD, Development Cooperation 1997 Report, OECD, Paris, 1998, Table III-2 at p. 47.   See also, UNCTAD, Least Developed Countries 2000 Report, UNCTAD, Geneva, 2001; World Bank, World Development Indicators, World Bank, Washington, 2002; Birdsall, Nancy, “Global Finance: Representation Failure and the Role of Civil Society,” in Scholte, J.A. and A. Schnabel, eds, Civil Society and Global Finance, Routledge, London, 2002 (forthcoming); “Towards Sustainable Financing in Less Advanced Developing Countries,” Chapter III in Development Cooperation 2000 Report, 2 DAC Journal 75, OECD, Paris, 2001.

 

[28]   See Michalopoulos, Constantine, Developing Countries in the WTO, Palgrave, New York, 2002; Supper, Erich, Is There Effectively a Level Playing Field for Developing Country Exports?, Policy Issues in International Trade and Commodities Study Series No. 1, United Nations Conference on Trade and Development, Geneva, 2001.  See also OECD, op. cit, note 26, supra, pp. 36-40.  Collier and Dollar estimate that the annual cost to poor countries of rich country protection is $100 billion, roughly twice the amount provided as development assistance. Op cit, note 22, p. 53.

 

[29]   Recent undertakings by Canada, the European Union, Japan, Korea, New Zealand, Norway and the United States are described in a World Bank/IMF staff paper entitled “Market Access for Developing Countries’ Exports,” dated April 27, 2001.

 

[30]   Remarks by President George W. Bush at the African Growth and Opportunity Forum, October 29, 2001.  www.whitehouse.gov.

 

[31]   Office of the United States Trade Representative, Fourth Report to Congress on the Operation of the Caribbean Basin Economic Recovery Act, USTR, Washington, December 31, 2001.

 

[32]   Ibid.

 

[33]   OECD, op. cit., notes 8 and 26, supra.  See also World Bank, op. cit, note 6, p. 168.

 

[34]   Op. cit., note 10, supra.

 

[35]   OECD, op. cit., note 11, supra.

 

[36]   Op. cit., note 9, supra, paras. 2, 16,21, 24, 26, 27, 33, 38-43.

 

[37]   Op cit, note 14, supra, especially paras. 26-38 regarding international trade as an engine for development.

 

[38]   United States Agency for International Development, United States Government Initiatives to Build Trade-Related Capacity in Developing and Transitional Countries, USAID, Washington, 2001.

 

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