No subject

Tue Jan 22 18:01:32 IST 2008

Removing trade barriers is not just a job for the rich. The poor must do =
the same in order to prosper, says Jagdish Bhagwati

THE launch of a new round of multilateral trade negotiations (MTN) at =
Doha dealt a needed blow to the anti-globalisers who triumphed at =
Seattle just two years ago. But it was also important for a different =
reason. The word "development" now graces the name of the new round. =
This is unconventional, but it underlines the fact that development of =
the poor countries will be the round's central objective.=20

Pleasing rhetoric aside, however, we must ask: What does this mean? The =
question is not idle. For if the current thinking among policymakers and =
NGOs is any guide, the answer they would give is not the right one. And =
that is cause for alarm.

Of course, proponents of trade have always considered that trade is the =
policy and development the objective. The experience of the post-war =
years only proves them right. The objections advanced by a handful of =
dissenting economists, claiming that free-traders exaggerate the gains =
from trade or forget that good trade policy is best embedded within a =
package of reforms, are mostly setting up and knocking down straw men.=20

But if trade is indeed good for the poor countries, what can be done to =
enhance its value for them? A great deal. But not until we confront and =
discard several misconceptions. Among them:

. the world trading system is "unfair": the poor countries face =
protectionism that is more acute than their own;

. the rich countries have wickedly held on to their trade barriers =
against poor countries, while using the Bretton Woods institutions to =
force down the poor countries' own trade barriers; and

. it is hypocritical to ask poor countries to reduce their trade =
barriers when the rich countries have their own.

In fact, asymmetry of trade barriers goes the other way. Take industrial =
tariffs. As of today, rich-country tariffs average 3%; poor countries' =
tariffs average 13%. Nor do peaks in tariffs-concentrated in textiles =
and clothing, fisheries and footwear, and clearly directed at the poor =
countries-change the picture much: the United Nations Council for Trade, =
Aid and Development (UNCTAD) has estimated that they apply to only a =
third of poor-country exports. Moreover, the trade barriers of the poor =
countries against one another are more significant restraints on their =
own development than those imposed by the rich countries.

The situation is little different when it comes to the use of =
anti-dumping actions, the classic "fair trade" instrument that has =
ironically been used "unfairly" to undermine free trade. The "new" =
users, among them Argentina, Brazil, India, South Korea, South Africa =
and Mexico, are now filing more anti-dumping complaints than the rich =
countries (see chart 1). Between July and December 2001 alone, India =
carried out more anti-dumping investigations than anywhere else.=20

The wicked rich?
These facts fly in the face of the populist myth that the rich =
countries, often acting through the conditionality imposed by the World =
Bank and the International Monetary Fund (IMF), have demolished the =
trade barriers of the poor countries while holding on to their own. =
Indeed, both the omnipotence of the Bretton Woods institutions, and the =
wickedness of the rich countries, have been grossly exaggerated.

The World Bank's conditionality is so extensive and diffused, and its =
need to lend so compelling, that it can in fact be bypassed. Many client =
states typically satisfy some conditions while ignoring others. Besides, =
countries go to the IMF when there is a stabilisation crisis. Since =
stabilisation requires that the excess of expenditures over income be =
brought into line, the IMF has often been reluctant to suggest tariff =
reductions. These could reduce revenues, exacerbating the crisis.=20

Then again, since countries are free to return to their bad ways once =
the crisis is past and the loans repaid, tariff reforms can be reversed. =
Countries do not "bind" their tariff reductions under the IMF =
programmes, as they do at the World Trade Organisation (WTO). Equally, =
tariff reductions may be reversed when a stabilisation crisis recurs and =
the tariffs are reimposed to increase revenues. My student Ravi =
Yatawara, who has studied what he calls "commercial policy switches", =
documents several instances of such tariff-reduction reversals by =
countries borrowing from the IMF. For instance, Uruguay in 1971 =
increased trade protection during an IMF programme that began the year =
before, and even managed to get another credit tranche the year after. =
Kenya's 1977 liberalisation was reversed in 1979, the year in which =
another arrangement was negotiated with the IMF.=20

Moreover, the comparatively higher trade barriers against =
labour-intensive products are not usually the result of wickedness, but =
of simple political economy. Unilateral reductions of trade barriers are =
in fact not uncommon, and I document them for many countries and several =
sectors in the post-war period in my new book, "Going Alone: The Case =
for Relaxed Reciprocity in Freeing Trade" (MIT Press, July). But the =
fact remains that the developing countries were exempted by the economic =
ideology of the time, which embraced "Special and Differential" =
treatment for them, from having to make trade concessions of their own =
at the successive multilateral trade negotiations that reduced trade =
barriers after the war. The rich countries, denied reciprocal =
concessions from the poor countries, wound up concentrating on =
liberalising trade in products of interest largely to themselves, such =
as machinery, chemicals and manufactures, rather than textiles and =
clothing.=20

The situation changed when the poor countries became full participants. =
In 1995 in Marrakesh, where the Uruguay round was concluded, action was =
taken at last to dismantle the infamous Multi-fibre Arrangement (MFA), =
which-from its birth in 1961 as the Short-term Cotton Textile =
Arrangement-had grown by 1974 into a Frankenstein monster incorporating =
several separate agreements restricting world trade in all textiles. At =
Marrakesh the MFA was put on the block, and was scheduled to end in ten =
years.

But even if rich-country protectionism were asymmetrically higher, it =
would be dangerous to argue that it is therefore hypocritical to suggest =
that poor countries should reduce their own trade barriers. Except in =
the few cases of oligopolistic competition, such as that between Fuji =
and Eastman Kodak (hardly applicable to poor countries) where strategic =
tit-for-tat is credible, the net effect of matching other people's =
protection with one's own is to hurt oneself twice over. But there is =
ample evidence that many leaders of the poor countries have predictably =
made the wrong inference: that rich-country protectionism excuses, and =
justifies, going easy on relaxing their own barriers to trade.=20

In fact, the protectionism of the poor and the rich countries must be =
viewed together symbiotically to ensure effective exports by the poor =
countries. Thus, even if the doors to the markets of the rich countries =
were fully open to imports, exports from the poor countries would have =
to get past their own doors.=20

We know from numerous case studies dating back to the 1970s (which only =
corroborated elementary economic logic) that protection is often the =
cause of dismal export, and hence economic, performance. It creates a =
"bias against exports" by sheltering domestic markets that then become =
more lucrative. Just ask yourself why, though India and the far-eastern =
countries faced virtually the same external trade barriers in the =
quarter-century after the 1960s, inward-looking India registered a =
miserable export performance while outward-looking South Korea, Taiwan, =
Singapore and Hong Kong chalked up spectacular exports. Just as charity =
begins at home, so exports begin with a good domestic policy. In the =
near-exclusive focus on rich-country protectionism, this dramatic lesson =
has been lost from view.

A strategy for change
Rich-country protectionism matters too, of course. And it must be =
assaulted effectively. But here, too, we witness folly. The current =
fashion is to shame the rich countries by arguing that their protection =
hurts the poor countries, whose poverty is the focus of renewed =
international efforts. And where action is actually undertaken, the =
preference is for granting preferences to the poorer countries, with yet =
deeper preferences for the poorest among them (the least-developed =
countries, or LDCs, as they are now called). But the former solution is =
woefully inadequate, and the latter is downright wrong.

If shame were sufficient, there would be no rich-country protectionism =
left. Trade economists and international institutions such as UNCTAD and =
the General Agreement on Tariffs and Trade (the GATT) have denounced the =
rich countries on this count over three decades. Added support, from =
charities such as Oxfam, could help in principle. But these charities =
need both expertise and a talent for strategy, not simply a conscience =
and a voice. They fall short. By subscribing to the counterproductive =
language of "hypocrisy" and the rhetoric of "unfair trade" to attack =
protection by the rich, a charity such as Oxfam, splendid at fighting =
plagues and famines, does more harm than good.=20

The argument to rich countries should be made in quite a different way: =
If you hold on to your own protection, no matter how much smaller, and =
in fact even raise it as the United States did recently with steel =
tariffs and the farm bill, you are going to undermine seriously the =
efforts of those poor-country leaders who have turned to freer trade in =
recent decades. It is difficult for such countries to reduce protection =
if others, more prosperous and fiercer supporters of free trade, are =
breaking ranks.=20

Beyond this, an effective tariff-reduction strategy requires that we =
handle labour-intensive goods such as textiles separately from =
agriculture. The differences between them dwarf the commonalities. =
Labour-intensive manufactures in the rich countries typically employ =
their own poor, the unskilled. To argue that we should eliminate =
protection, harming them simply because it helps yet poorer folk abroad, =
runs into evident ethical (and hence political) difficulties. The answer =
must be a gradual, but certain, phase-out of protection coupled with a =
simultaneous and substantial adjustment and retraining programme. That =
way, we address the problems of the poor both at home and abroad.

Once this is done, church groups and charities can be asked to endorse a =
programme that is balanced and just. Such a strategy is morally more =
compelling than either marching against free trade to protect workers in =
the labour-intensive industries of the rich nations-while forgetting the =
needs of poor workers in poor countries-or asking for trade restrictions =
to be abolished without providing for workers in such industries in the =
rich countries.

The removal of agricultural protection does not raise the same ethical =
problems; production and export subsidies in the United States and the =
European Union go mainly to large farmers. That should make it easier to =
dismantle farm protection on the grounds of helping the poor. At the =
same time, however, agricultural protectionism is energetically defended =
as necessary for preserving greenery and the environment. With the =
greens in play, protectionism becomes more difficult to remove. But, =
just as income support can be de-linked from increasing production and =
exports, so measures to support greenery can be de-linked too. Such new =
measures, and other environmental protections added as sweeteners, must =
be part of the strategic assault on agricultural protection.

The target date of Jubilee 2000 helped greatly to focus efforts on the =
objective of debt relief. Following that example, I and Arvind =
Panagariya of the University of Maryland suggested well over a year =
ago-with a nod from Kofi Annan, the UN's secretary general-a Jubilee =
2010 movement to eliminate protection on labour-intensive products by =
2010. Since agricultural protection is politically a harder nut to =
crack, 2020, rather than 2010, is probably a more realistic date for its =
demise. Leaders of rich and poor countries could endorse both targets at =
the mammoth UN Conference on Sustainable Development in Johannesburg in =
August.

The perils of preferences
A final word is necessary on the efforts to open rich-country doors. =
This is often done not by dismantling barriers on a most-favoured-nation =
(MFN) basis, which reduces them in a non-discriminatory manner, but =
through grants of preferences to the poor countries. This approach goes =
back to the Generalised System of Preferences (GSP), introduced in 1971 =
through a waiver and then granted legal status in 1979 with an enabling =
clause at the GATT. Under this, the eligible poor countries were granted =
entry at preferentially lower tariff rates.

GSP did little for the poor countries. The eligible products often =
excluded those on which poor countries had pinned their hopes of =
increasing exports. Thus the United States'GSP scheme excluded textiles, =
clothing and footwear. Upper caps were also introduced. The United =
States imposed a $100m limit on exports per tariff line, per year, per =
country; beyond this limit, the preferential rate vanished. Even the =
benefits granted were not "bound", and could be varied at a rich =
country's displeasure. Thus, when India was put on the Special 301 list =
in 1991 and the United States trade representative determined =
unilaterally that India's intellectual-property protection was =
"unreasonable", President George Bush senior suspended duty-free =
privileges under GSP for $60m in trade from India in April 1992.=20

Preferences were also often dropped for commodities when they began to =
be successfully exported, a fact documented in a forthcoming study by =
Caglar Ozden and Eric Reinhardt of Emory University. Rules of origin =
served to curb exports, too. Exported items had to satisfy stringent =
local-content specifications (for example, shoes had to have uppers, =
soles and laces made locally) to qualify for GSP benefits.=20

The rich countries are still going down this preferential route today. =
The United States has introduced the Africa Growth and Opportunity Act =
(AGOA), while the EU has brought in the "everything but arms" =
initiative, properly known as the EBE, to eliminate trade barriers for =
the 49 LDCs. Yet virtually every drawback of GSP applies to these =
schemes as well. If anything, they are worse. Under the AGOA, for =
example, preferences for African garments are tightly linked to reverse =
preferences for American fabrics.

Since preferences typically divert trade away from non-preferred =
countries, they tend to pitch poor nations against each other. They are =
also a wasting asset, since they are relative to an MFN tariff that will =
probably decline with further multilateral liberalisation. And since =
they are non-binding and can be readily withdrawn for political reasons, =
investors are not likely to be impressed by them.

Preferences sound attractive and generous, and the poor countries have =
accepted them as such. But this has been a mistake. There is no good =
substitute for the MFN reduction of trade barriers in the rich =
countries. It should go hand in hand with enhanced technical and =
financial assistance. By focusing this help preferentially on the poor =
nations, the poor should be able to exploit the trade opportunities that =
are opened up for them by non-preferential treatment. This is the only =
way ahead.

Jagdish Bhagwati is University Professor at Columbia University and =
Andre Meyer Senior Fellow in International Economics at the Council on =
Foreign Relations. His most recently published book is "Free Trade =
Today" (Princeton).

------=_NextPart_000_0109_01C26BB3.21992D80
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<DIV>
<A=20
href=3D"http://www.economist.com/opinion/displayStory.cfm?story_id=3D1188=
714">http://www.economist.com/opinion/displayStory.cfm?story_id=3D1188714=
</A></DIV>
<DIV>The poor's best hope </DIV>
<DIV>Jun 20th 2002 | WASHINGTON, DC From The Economist print=20
edition</DIV> Removing trade barriers is not just a job for the rich. The =
poor must=20
do the same in order to prosper, says Jagdish =
Bhagwati 
THE launch =
of a new=20
round of multilateral trade negotiations (MTN) at =
Doha=20
dealt a needed blow to the anti-globalisers who triumphed at Seattle =
just two=20
years ago. But it was also important for a different reason. The word=20
&#8220;development&#8221; now graces the name of the new round. This is =
unconventional, but=20
it underlines the fact that development of the poor countries will be =
the=20
round's central objective. 
Pleasing =
rhetoric aside,=20
however, we must ask: What does this mean? The question is not idle. For =
if the=20
current thinking among policymakers and NGOs is =
any guide,=20
the answer they would give is not the right one. And that is cause for=20
alarm.
Of course, =
proponents of=20
trade have always considered that trade is the policy and development =
the=20
objective. The experience of the post-war years only proves them right. =
The=20
objections advanced by a handful of dissenting economists, claiming that =

free-traders exaggerate the gains from trade or forget that good trade =
policy is=20
best embedded within a package of reforms, are mostly setting up and =
knocking=20
down straw men. 
But if trade =
is indeed=20
good for the poor countries, what can be done to enhance its value for =
them? A=20
great deal. But not until we confront and discard several =
misconceptions. Among=20
them:
&#8226; the =
world trading=20
system is &#8220;unfair&#8221;: the poor countries face protectionism =
that is more acute=20
than their own;
&#8226; the =
rich countries=20
have wickedly held on to their trade barriers against poor countries, =
while=20
using the Bretton Woods institutions to force down the poor countries' =
own trade=20
barriers; and
&#8226; it =
is hypocritical to=20
ask poor countries to reduce their trade barriers when the rich =
countries have=20
their own.
In fact, =
asymmetry of=20
trade barriers goes the other way. Take industrial tariffs. As of today, =

rich-country tariffs average 3%; poor countries' tariffs average 13%. =
Nor do=20
peaks in tariffs&#8212;concentrated in textiles and clothing, fisheries =
and footwear,=20
and clearly directed at the poor countries&#8212;change the picture =
much: the United=20
Nations Council for Trade, Aid and Development (UNCTAD) has=20
estimated that they apply to only a third of poor-country exports. =
Moreover, the=20
trade barriers of the poor countries against one another are more =
significant=20
restraints on their own development than those imposed by the rich=20
countries.
The =
situation is little=20
different when it comes to the use of anti-dumping actions, the classic =
&#8220;fair=20
trade&#8221; instrument that has ironically been used =
&#8220;unfairly&#8221; to undermine free=20
trade. The &#8220;new&#8221; users, among them Argentina, Brazil, India, =
South Korea, South=20
Africa and Mexico, are now filing more anti-dumping complaints than the =
rich=20
countries (see chart 1). Between July and December 2001 alone, India =
carried out=20
more anti-dumping investigations than anywhere else. 
<DIV><A=20
name=3Dthe_wicked_rich?>The wicked rich?</A></DIV>
These facts =
fly in the=20
face of the populist myth that the rich countries, often acting through =
the=20
conditionality imposed by the World Bank and the International Monetary =
Fund=20
(IMF), have demolished the trade barriers of the =
poor=20
countries while holding on to their own. Indeed, both the omnipotence of =
the=20
Bretton Woods institutions, and the wickedness of the rich countries, =
have been=20
grossly exaggerated.
The World =
Bank's=20
conditionality is so extensive and diffused, and its need to lend so =
compelling,=20
that it can in fact be bypassed. Many client states typically satisfy =
some=20
conditions while ignoring others. Besides, countries go to the <FONT=20
size=3D-1>IMF when there is a stabilisation crisis. Since =
stabilisation=20
requires that the excess of expenditures over income be brought into =
line, the=20
IMF has often been reluctant to suggest tariff =
reductions.=20
These could reduce revenues, exacerbating the crisis. 
Then again, =
since=20
countries are free to return to their bad ways once the crisis is past =
and the=20
loans repaid, tariff reforms can be reversed. Countries do not =
&#8220;bind&#8221; their=20
tariff reductions under the IMF programmes, as =
they do at=20
the World Trade Organisation (WTO). Equally, =
tariff=20
reductions may be reversed when a stabilisation crisis recurs and the =
tariffs=20
are reimposed to increase revenues. My student Ravi Yatawara, who has =
studied=20
what he calls &#8220;commercial policy switches&#8221;, documents =
several instances of such=20
tariff-reduction reversals by countries borrowing from the <FONT=20
size=3D-1>IMF. For instance, Uruguay in 1971 increased trade =
protection=20
during an IMF programme that began the year =
before, and=20
even managed to get another credit tranche the year after. Kenya's 1977=20
liberalisation was reversed in 1979, the year in which another =
arrangement was=20
negotiated with the IMF. 
Moreover, =
the=20
comparatively higher trade barriers against labour-intensive products =
are not=20
usually the result of wickedness, but of simple political economy. =
Unilateral=20
reductions of trade barriers are in fact not uncommon, and I document =
them for=20
many countries and several sectors in the post-war period in my new =
book, &#8220;Going=20
Alone: The Case for Relaxed Reciprocity in Freeing Trade&#8221; (<FONT=20
size=3D-1>MIT Press, July). But the fact remains that the =
developing=20
countries were exempted by the economic ideology of the time, which =
embraced=20
&#8220;Special and Differential&#8221; treatment for them, from having =
to make trade=20
concessions of their own at the successive multilateral trade =
negotiations that=20
reduced trade barriers after the war. The rich countries, denied =
reciprocal=20
concessions from the poor countries, wound up concentrating on =
liberalising=20
trade in products of interest largely to themselves, such as machinery,=20
chemicals and manufactures, rather than textiles and clothing. =

The =
situation changed=20
when the poor countries became full participants. In 1995 in Marrakesh, =
where=20
the Uruguay round was concluded, action was taken at last to dismantle =
the=20
infamous Multi-fibre Arrangement (MFA), =
which&#8212;from its=20
birth in 1961 as the Short-term Cotton Textile Arrangement&#8212;had =
grown by 1974=20
into a Frankenstein monster incorporating several separate agreements=20
restricting world trade in all textiles. At Marrakesh the <FONT=20
size=3D-1>MFA was put on the block, and was scheduled to end in =
ten=20
years.
But even if =
rich-country=20
protectionism were asymmetrically higher, it would be dangerous to argue =
that it=20
is therefore hypocritical to suggest that poor countries should reduce =
their own=20
trade barriers. Except in the few cases of oligopolistic competition, =
such as=20
that between Fuji and Eastman Kodak (hardly applicable to poor =
countries) where=20
strategic tit-for-tat is credible, the net effect of matching other =
people's=20
protection with one's own is to hurt oneself twice over. But there is =
ample=20
evidence that many leaders of the poor countries have predictably made =
the wrong=20
inference: that rich-country protectionism excuses, and justifies, going =
easy on=20
relaxing their own barriers to trade. 
In fact, the =

protectionism of the poor and the rich countries must be viewed together =

symbiotically to ensure effective exports by the poor countries. Thus, =
even if=20
the doors to the markets of the rich countries were fully open to =
imports,=20
exports from the poor countries would have to get past their own doors.=20

We know from =
numerous=20
case studies dating back to the 1970s (which only corroborated =
elementary=20
economic logic) that protection is often the cause of dismal export, and =
hence=20
economic, performance. It creates a &#8220;bias against exports&#8221; =
by sheltering=20
domestic markets that then become more lucrative. Just ask yourself why, =
though=20
India and the far-eastern countries faced virtually the same external =
trade=20
barriers in the quarter-century after the 1960s, inward-looking India =
registered=20
a miserable export performance while outward-looking South Korea, =
Taiwan,=20
Singapore and Hong Kong chalked up spectacular exports. Just as charity =
begins=20
at home, so exports begin with a good domestic policy. In the =
near-exclusive=20
focus on rich-country protectionism, this dramatic lesson has been lost =
from=20
view. 
<DIV><A=20
name=3Da_strategy_for_change>A strategy for change</A></DIV>
Rich-country =

protectionism matters too, of course. And it must be assaulted =
effectively. But=20
here, too, we witness folly. The current fashion is to shame the rich =
countries=20
by arguing that their protection hurts the poor countries, whose poverty =
is the=20
focus of renewed international efforts. And where action is actually =
undertaken,=20
the preference is for granting preferences to the poorer countries, with =
yet=20
deeper preferences for the poorest among them (the least-developed =
countries, or=20
LDCs, as they are now called). But the former =
solution is=20
woefully inadequate, and the latter is downright wrong.
If shame =
were=20
sufficient, there would be no rich-country protectionism left. Trade =
economists=20
and international institutions such as UNCTAD and =
the=20
General Agreement on Tariffs and Trade (the GATT) =
have=20
denounced the rich countries on this count over three decades. Added =
support,=20
from charities such as Oxfam, could help in principle. But these =
charities need=20
both expertise and a talent for strategy, not simply a conscience and a =
voice.=20
They fall short. By subscribing to the counterproductive language of =
&#8220;hypocrisy&#8221;=20
and the rhetoric of &#8220;unfair trade&#8221; to attack protection by =
the rich, a charity=20
such as Oxfam, splendid at fighting plagues and famines, does more harm =
than=20
good. 
The argument =
to rich=20
countries should be made in quite a different way: If you hold on to =
your own=20
protection, no matter how much smaller, and in fact even raise it as the =
United=20
States did recently with steel tariffs and the farm bill, you are going =
to=20
undermine seriously the efforts of those poor-country leaders who have =
turned to=20
freer trade in recent decades. It is difficult for such countries to =
reduce=20
protection if others, more prosperous and fiercer supporters of free =
trade, are=20
breaking ranks. 
Beyond this, =
an=20
effective tariff-reduction strategy requires that we handle =
labour-intensive=20
goods such as textiles separately from agriculture. The differences =
between them=20
dwarf the commonalities. Labour-intensive manufactures in the rich =
countries=20
typically employ their own poor, the unskilled. To argue that we should=20
eliminate protection, harming them simply because it helps yet poorer =
folk=20
abroad, runs into evident ethical (and hence political) difficulties. =
The answer=20
must be a gradual, but certain, phase-out of protection coupled with a=20
simultaneous and substantial adjustment and retraining programme. That =
way, we=20
address the problems of the poor both at home and abroad.
Once this is =
done,=20
church groups and charities can be asked to endorse a programme that is =
balanced=20
and just. Such a strategy is morally more compelling than either =
marching=20
against free trade to protect workers in the labour-intensive industries =
of the=20
rich nations&#8212;while forgetting the needs of poor workers in poor =
countries&#8212;or=20
asking for trade restrictions to be abolished without providing for =
workers in=20
such industries in the rich countries.
The removal =
of=20
agricultural protection does not raise the same ethical problems; =
production and=20
export subsidies in the United States and the European Union go mainly =
to large=20
farmers. That should make it easier to dismantle farm protection on the =
grounds=20
of helping the poor. At the same time, however, agricultural =
protectionism is=20
energetically defended as necessary for preserving greenery and the =
environment.=20
With the greens in play, protectionism becomes more difficult to remove. =
But,=20
just as income support can be de-linked from increasing production and =
exports,=20
so measures to support greenery can be de-linked too. Such new measures, =
and=20
other environmental protections added as sweeteners, must be part of the =

strategic assault on agricultural protection.
The target =
date of=20
Jubilee 2000 helped greatly to focus efforts on the objective of debt =
relief.=20
Following that example, I and Arvind Panagariya of the University of =
Maryland=20
suggested well over a year ago&#8212;with a nod from Kofi Annan, the =
<FONT=20
size=3D-1>UN's secretary general&#8212;a Jubilee 2010 movement to =
eliminate=20
protection on labour-intensive products by 2010. Since agricultural =
protection=20
is politically a harder nut to crack, 2020, rather than 2010, is =
probably a more=20
realistic date for its demise. Leaders of rich and poor countries could =
endorse=20
both targets at the mammoth UN Conference on =
Sustainable=20
Development in Johannesburg in August. 
<DIV><A=20
name=3Dthe_perils_of_preferences>The perils of =
preferences</A></DIV>
A final word =
is=20
necessary on the efforts to open rich-country doors. This is often done =
not by=20
dismantling barriers on a most-favoured-nation (MFN) basis,=20
which reduces them in a non-discriminatory manner, but through grants of =

preferences to the poor countries. This approach goes back to the =
Generalised=20
System of Preferences (GSP), introduced in 1971 =
through a=20
waiver and then granted legal status in 1979 with an enabling clause at =
the=20
GATT. Under this, the eligible poor countries =
were granted=20
entry at preferentially lower tariff rates.
GSP=20
did little for the poor countries. The eligible products often =
excluded=20
those on which poor countries had pinned their hopes of increasing =
exports. Thus=20
the United States'GSP scheme excluded textiles, =
clothing=20
and footwear. Upper caps were also introduced. The United States imposed =
a $100m=20
limit on exports per tariff line, per year, per country; beyond this =
limit, the=20
preferential rate vanished. Even the benefits granted were not =
&#8220;bound&#8221;, and=20
could be varied at a rich country's displeasure. Thus, when India was =
put on the=20
Special 301 list in 1991 and the United States trade representative =
determined=20
unilaterally that India's intellectual-property protection was =
&#8220;unreasonable&#8221;,=20
President George Bush senior suspended duty-free privileges under <FONT=20
size=3D-1>GSP for $60m in trade from India in April 1992. =

Preferences =
were also=20
often dropped for commodities when they began to be successfully =
exported, a=20
fact documented in a forthcoming study by Caglar Ozden and Eric =
Reinhardt of=20
Emory University. Rules of origin served to curb exports, too. Exported =
items=20
had to satisfy stringent local-content specifications (for example, =
shoes had to=20
have uppers, soles and laces made locally) to qualify for GSP=20
benefits. 
The rich =
countries are=20
still going down this preferential route today. The United States has =
introduced=20
the Africa Growth and Opportunity Act (AGOA), =
while the=20
EU has brought in the &#8220;everything but =
arms&#8221; initiative,=20
properly known as the EBE, to eliminate trade =
barriers for=20
the 49 LDCs. Yet virtually every drawback of =
<FONT=20
size=3D-1>GSP applies to these schemes as well. If anything, they =
are=20
worse. Under the AGOA, for example, preferences =
for African=20
garments are tightly linked to reverse preferences for American=20
fabrics.
Since =
preferences=20
typically divert trade away from non-preferred countries, they tend to =
pitch=20
poor nations against each other. They are also a wasting asset, since =
they are=20
relative to an MFN tariff that will probably =
decline with=20
further multilateral liberalisation. And since they are non-binding and =
can be=20
readily withdrawn for political reasons, investors are not likely to be=20
impressed by them.
Preferences =
sound=20
attractive and generous, and the poor countries have accepted them as =
such. But=20
this has been a mistake. There is no good substitute for the <FONT=20
size=3D-1>MFN reduction of trade barriers in the rich countries. =
It should=20
go hand in hand with enhanced technical and financial assistance. By =
focusing=20
this help preferentially on the poor nations, the poor should be able to =
exploit=20
the trade opportunities that are opened up for them by non-preferential=20
treatment. This is the only way ahead.<A name=3Dfootnote1><BR=20
clear=3Dall>
Jagdish =
Bhagwati is=20
University Professor at Columbia University and Andre Meyer Senior =
Fellow in=20
International Economics at the Council on Foreign Relations. His most =
recently=20
published book is &#8220;Free Trade Today&#8221; =
(Princeton). </A><BR=20
clear=3Dall></BODY></HTML>

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