Development & Aid, Economy & Trade, Headlines, North America

ECONOMY: World Bank Urges Free Trade on All Fronts

Emad Mekay

WASHINGTON, Nov 17 2004 (IPS) - The World Bank, aligned with other global financial institutions dominated by rich nations that promote free trade, is advising poor nations that have already signed agreements to open up for more trade on "all fronts."

The advice came Tuesday in a new report by the Washington-based institution, ‘Global Economic Prospects 2005’, which counsels borrowing nations to adopt a strategy of trade liberalisation "on three fronts – unilateral, multilateral and regional."

The report, directed at governments that have started down the road of trade liberalisation and have made bilateral deals with other countries, urges developing nations to drop remaining trade tariffs and to emerge from behind protectionist barriers.

It says regional trade agreements have grown rapidly, with an eight-fold increase since the 1980s, but are still falling short of providing developing nations with the complete benefits of trade. Such deals include NAFTA (the North American Free Trade Agreement), while among bilateral pacts include the U.S.-Chile arrangement or a deal between the European Union (EU) and South Africa.

"Regional trade agreements offer some benefits to some developing countries, provided they do not occur behind a wall of protection," said François Bourguignon, the bank’s chief economist and senior vice president for development economics.

But they and bilateral arrangements, while favouring some countries, also discriminate against other countries, he added in a statement, arguing that nearly all agreements have adverse consequences on excluded countries.

"The most effective way to curb these negative effects is to open markets more broadly," suggested the chief economist.

The report elaborates on that argument. "Some agreements are not designed very well," said its lead author, Richard Newfarmer.

"They may have very high levels of external protection and divert trade from the most low-cost source, which may be a country outside the region, to a country inside the region. And while that creates intra-regional trade, it does so at a very high cost and a cost that actually may cost developing countries national income," added Newfarmer in a statement.

The World Bank, which is seen by critics as backing the industrialised nations that are trying to crack developing nations’ resistance to expanding global trade, argues that multilateral market openings like those negotiated within the World Trade Organisation (WTO) "hold the promise" of greater potential gains for all developing countries.

A coalition of 22 developing nations, upset at what they call the unfair trade rules promoted by the WTO, brought the organisation’s meeting of ministers in Cancun, Mexico in 2003 to a halt.

They were protesting hefty subsidies, especially in agriculture, which rich nations like the United States, Japan and EU countries provide to their farmers.

After the collapse of the Cancun talks, Washington vowed to work to put the talks back on track and has since exerted pressure on developing nations to return to the negotiating table.

The next WTO ministerial meeting is scheduled for Hong Kong in December 2005.

The World Bank has traditionally pushed developing nations to adopt free market principles, which watchdog groups say only serve companies from the industrialised nations that dominate the public lender and its sister institution, the International Monetary Fund (IMF).

The World Bank lent developing nations some 20.1 billion dollars for 245 projects in 2004, often with the condition that their governments make economic reforms and accept the bank’s "technical expertise" and advice.

Recently, both the bank and the IMF have been more outspoken in calling for poor nations to embrace free trade. They have also worked with the WTO to develop greater "coherence" in the three institutions’ policies.

As a result, some civil society groups have dubbed the World Bank and IMF the "hidden makers" of the global trade system.

They argue that the two bodies, and not just the WTO, have sought to impose trade rules that favour rich nations at the expense of developing countries, and have repeatedly warned nations to beware of the institutions’ trade advice.

Development groups say the speedy liberalisation recommended by the bank, the WTO and the IMF damages poor nations because they cannot compete with large producers because of efficiencies of scale. In many instances, this has led to the decimation of local industries that could not stand in the face of cheap, and often subsidised, imports from rich nations.

The bank’s report is laden with advice for poor nations to resume negotiating and expand their free trade deals.

"A multilateral agreement is the only way to open agricultural markets and reduce or end subsidies in rich countries," Bourguignon said. "These reforms are of critical importance to the poor but they are not on the table in regional trade talks."

Expanding trade deals meshes with developing countries’ goals of making their economies more efficient and more export-oriented, argues bank officials.

"Whether we are talking about Chile, China, or more recently India, Egypt and Madagascar, governments choose to lower trade barriers to increase import competition, bring in more technology embodied in imports, and raise productivity," said Uri Dadush, director of development prospects and the international trade group at the bank.

"This spurs exports and growth," he added in a statement. "If, in the process, they can get their trading partners to do the same as part of a global or regional deal that gives their exporters more market access abroad, the prospects for poverty reduction are improved."