Knocked-down Agriculture After De-industrialization; Another Destructive Influence of Neo-liberalism

Knocked-down Agriculture After De-industrialization; Another Destructive Influence of Neo-liberalism M. Shafaeddin* Abstract The author shows that although some short term factors have contributed to the recent food crisis in developing countries, the crisis is rooted mainly in agricultural support policies of developed countries, liberalization of the agricultural sector by developing countries and contradictions in the design and implementation of GATT/WTO rules. Agricultural liberalization has been imposed on lower-income countries by International Financial Institutions (IFIs) and through bilateral trade agreements between developed and developing countries. The Neo-liberal economic philosophies, as well as unequal power relations between developing and developed countries, have been main contributory factors. There is a danger that further pressure on developing countries during the Doha Round may result in an outcome undermining development of the agricultural sector of developing countries further. The result would be intensification of dependence of lower-income countries on food imports, knocked-down agriculture and economic and political dependence on developed countries. A radical change in the trading system, practices of IFIs and policies of developed countries is required. Developing countries have little power to bring about such changes, but they can try to change their own policies. To do so it is not easy to resist pressure from developed countries and IFIs, but it is absolutely necessary if they do not wish to sacrifice their long-term development and well being of their population. -----------------------------------------------------------------------------------------------------------*. The author is a development economist affiliated to the Economic Research Institute, University of Neuchatel, Switzerland and international consultant in trade and industrial policies and management of competitiveness. He is the author of Trade Policy at the Crossroads; Recent Experience of Developing Countries, Palgrave, Macmillan and numerous articles on development policy issues in international journals Comments are welcome and can be sent to him through: [email protected], WTO, trade liberalization, food supply, international financial institutions

Who Does Bear the Costs of Compliance with Sanitary and Phytosanitary Measures in Poor Countries?

Abstract This article is a part of a twin study. Drawing on the available evidence, in this paper the author examines the cost of compliance with Sanitary and Phytosanitary (SPS) measures for poor countries with reference to Africa. He shows that the burden of cost of compliance is entirely on the exporters despite the fact that their capacity for the compliance is limited. He further indicate that that, in fact, the literature often disregards the cost of loss of exports, or rejection of products at the border of an importing country, let alone the cost of reorganization of the supply chain; the existing organization of supply chain in poor countries would result in the lack of export expansion. The purpose of the paper is not to have an exhaustive literature survey, but to draw on the scanty evidence related to the main argument of the study. More specifically, it is shown that the main characteristics of the SPS Agreement and the related measures applied by main importing countries are such that they require a complex, difficult and high cost “SPS” system. Such a system involves regulatory measures, policy re-orientation, and development of the necessary infrastructure, re-organization of the supply chain, enhanced capacity building and a forward looking strategy, particularly for exports. The preparation for the compliance is also difficult for the poor countries as it is knowledge intensive, requires a learning period, training and a close cooperation between the public and private sector in various stages of the supply chain. Yet the socio-economic cost of the lack of compliance is enormous. Generally speaking, the operational cost, alone, of compliance is estimated to be between 2 to 11 percent of value of export in the case of Africa; in each case it depends, however, on the type of product, the destination of exports, the capacity of the country for the compliance and the size of farm holdings and exporting enterprises and the organization of the supply chain. Further, the investment cost can be colossal; in some cases (e.g Mozambique) exceeding the total food exports of the country. The available studies provide estimates for the administrative cost of control, inspection, testing and certification at the border; but disregard more important costs such as the costs of delays in exportation or rejection at the port of importing countries. Thus they downplay the need for taking preventive measures and the related cost of reorganization of the supply chain. In a separate paper the author proposes alternative organization of the supply chain for reducing the cost of compliance while increasing its benefits (Shafaeddin, 2007). 2SPS, Agricultural development, food policy, economic development, export expansion, trade, Ethiopia

NAMA as a Tool of De-industrialization of Africa

Abstract The author argues in this chapter that trade liberalization in Africa during the last couple of decades has led to de-industrialization, slow growth of GDP, low level of investment, growing trade deficits, particularly in food items, in many African countries. This has been the case despite some improvement in recent years due to increases in the price of primary commodities. Drawing also on the experience of successful industrializers as well as failures of premature trade liberalization in low-income countries in recent decades, he further refers to pitfalls in negotiations on NAMA in WTO against the interest of African countries. Discussing the proposals made by developed countries on NAMA, he argues that if they are agreed upon, the structure of production and exports of African countries would be locked in primary commodities, resource based activities and at best low-skill labour intensive products and assembly operation. Finally, he outlines conditions for industrialization of Africa and the required changes in international trade rules in a way to become conducive to growth and upgrading of the industrial activities of the continents.Africa, WTO, trade policy, NAMA nogotiation

HOW DID DEVELOPED COUNTRIES INDUSTRIALIZE? THE HISTORY OF TRADE AND INDUSTRIAL POLICY: THE CASES OF GREAT BRITAIN AND THE USA

This paper examines the history of trade policy in Great Britain and the United States and also refer to the cases of Germany and France. This paper indicates that it is a fallacy that early industrializers could have developed their industrial sector without infant industry protection. Indeed in all cases, to develop their industries, they went through an infant industry protection phase and heavy government intervention in the foreign sector. Nevertheless, the degree of protection and government intervention varied from one country to another. The United States was the motherland of infant industry protection not only at the intellectual level but also in actual fact. Despite the fact that the Industrial Revolution contributed to the rapid industrialization of Great Britain, its industrial sector benefited from trade protection and other forms of government intervention in the trade flow through the Navigation Act and by means of political power and even military power.

NAMA: A Tool of Development or De-industrialization?

Abstract The author argues that although the collapse of the Doha “Development” Round in early summer of 2006 was triggered by the refusal of the United States to agree to the reduction of the ceiling on the amount of domestic subsidies paid to the US farmers, there were some fundamental reasons behind the failure of the talk related to the contradictions in design and implementation of WTO rules to detrimental interests of developing countries. He uses the example of NAMA to highlight the inconsistencies between the objectives and spirit of the agreed Doha Text and the subsequent proposals made by developed countries during the process of negotiations. He shows that these inconsistencies are, in fact, a reflection of the inherent double standards in GATT/WTO rules. On the basis of experience of successful industrializers and the failure of recent across-the-board and universal trade liberalization prescribed by neoliberals, he proposes the necessary changes in WTO rules in order to make them conducive to industrialization and development. -------------------------------------------------------------------------------------------------WTO, market access, trade, industrialization, trade policy

FREE TRADE OR FAIR TRADE? AN ENQUIRY INTO THE CAUSES OF FAILURE IN RECENT TRADE NEGOTIATIONS

Trade policy is at a crossroads. So is trade diplomacy. The failure of the “traditional import substitution” policies of the 1950s–1970s has been followed by the failure of trade liberalization in the 1980s and 1990s by developing countries. In particular, the deadlock in the negotiations during the recent meetings of WTO has demonstrated the severe differences among various groups of member countries. Focusing on frictions between developing countries and industrial economies in the particular area of trade in manufactured goods, the purpose of this paper is to argue that the failure of the negotiations is related to a number of fallacies and contradictions surrounding the concepts and practices of universal trade liberalization and infant industry protection. These main fallacies include: the philosophy behind universal and across-the-board trade liberalization; the contradictions in the design and implementation of GATT/WTO rules to the detrimental interest of developing countries; the theory and practice of infant industry protection; and, in particular, perceptions about the interests of developed countries in universal and across-the-board trade liberalization by developing countries. Emphasizing that free trade should be the ultimate aim of every nation once all economies have reached the same level of development, it is argued that there is a need for revision of international trade rules. In the design of the new rules more attention should be paid to the level of development and industrial capacity of developing countries. Developing countries should have a clear trade and industrial policy as well as negotiating strategy before entering the negotiation. To play such a proactive role, along the lines suggested in the UNCTAD “Positive Agenda”, developing countries should: link their trade policy to their development objective; and follow a dynamic trade policy geared to their level of development, industrial capacity, structural characteristics and changes in the world economy, as suggested by Shafaeddin (1995). Moreover, in their common negotiation strategy, instead of agreeing on a “least common denominator”, they should attempt to cooperate en elaborating a strategy aiming at the trading rules that differentiate countries, in accordance with some agreed criteria. Such criteria may include a number of indicators, such as per capita income, the degree of dependence on primary commodities, the share of manufacturing in GDP, etc. Finally, it is a myth to believe that concessions will always be made to developing countries on “moral grounds”. “Bargaining” is the name of the game. Developing countries should mobilize and make the best use of whatever bargaining chips they possess, however small they may be; and developing countries can have some leverage in trade negotiations if they mobilize Shafaeddin, 1984). Bargaining requires not only bargaining assets, but also knowledge, information about the issues concerned, and training for undertaking trade negotiations. In such a context, at the country level there is a need not only for policy formulation and for strengthening the capacity of commercial diplomacy to enhance bargaining skills, but also for strengthening the capacity for trade and industrial policy formulation.

The rationale for South-South trade; An Alternative Approach

Arguing that the theoretical literature on South-South trade is not satisfactory, the author provides an alternative framework and rationale for the South-South trade as a vehicle for industrialization and development of developing countries. He also applies this framework to developing countries in the Asia-Pacific region. In particular, showing that the low-income countries of the region are not benefiting much from the dynamism of the China market for their industrialization, he proposes, inter alia, industrial collaboration among the low-income countries as a necessary condition for benefiting from the potential role of China as a “pole” of industrialization and development of the countries of the region.International trade, South-South cooperation, industrial collaboration, production sharing, East Asia

WHAT DID FREDERICK LIST ACTUALLY SAY? SOME CLARIFICATIONS ON THE INFANT INDUSTRY ARGUMENT

The purpose of this study is to clarify some confusion surrounding the infant industry argument presented by Frederick List. Its main contribution is to show that List recommended selective, rather than across-the-board, protection of infant industries and that he was against neither international trade nor export expansion. In fact, he emphasizes the importance of trade and envisages free trade as an ultimate aim of all nations; he regards protection as an instrument for achieving development, massive export expansion and ultimately free trade. List´s theory was a dynamic one, with dimensions of time and geography. Makinga distinction between "universal association" and national interest, he argues that infant industry protection is necessary for countries at early stages of industrialization if some countries "outdistanced others in manufactures". Nevertheless, protection should be temporary, targeted and not excessive. Domestic competition should in due course be introduced, preceded by planned, gradual and targeted trade liberalization. List guards, however, against premature liberalization. He is aware of the limitation of size for infant industry protection but claims that in most cases this obstacle could be overcome through collaboration with other countries. To List, trade policy is not a panacea; it is an element in his general theory of "productive power" (development); industrial development also requires a host of other socio-economic measures. The infant industry argument is not only still valid, if properly applied, but, in fact, it is at present ever more relevant owing to recent technological revolution and changes in the organization of production. But despite this increased need, the means to achieving it have been restricted by international trade rules. The study also refers to significant incidences of targeted protection of production and exports in advanced countries, while universal and across-the-board liberalization is recommended for developing countries. International trade rules need to be revised to aim at achieving a fair trading system, in which the differential situations of countries at various stages of development are taken into greater consideration. Universal free trade may be easier for developing countries to implement th an a dynamic and targeted trade policy; but "easiness" is not a substitute for "soundness". It is emphasized, however, that, as List maintained, after a point in time trade should be liberalized selectively and gradually, aiming at the ultimate goal of free trade when all nations have reached the same level of development.

Does trade openness helps or hinders industrialization?

Does Trade Openness Favour or Hinder Industrialization and Development? Mehdi Shafaeddin* A paper prepared for the Intergovernmental Group of Twenty-Four on International Monetary Affairs, to be presented at the Technical Group meeting, Geneva, 16-17 March 2006 Abstract The purpose of this study is to examine whether free trade helps or hinders industrialization and development. The author argues that there is neither a theoretical justification nor historical and empirical evidence to support what he refers to as “trade liberalization hypothesis”(TLH). The theory behind TLH is the doctrine of comparative cost advantage which can not be used as a guide to caching up and achieving dynamic comparative advantage which is a policy-based effort. Almost all successful industrializers went through a long period of selective infant industry protection before subjecting their industries to trade liberalization gradually. The forced trade liberalization imposed on the third world during the colonial era led to their de-industrialization, specialization in primary commodities and underdevelopment. On the basis of empirical study of a sample of developing countries which have undertaken trade liberalization during the last quarter of a century and the case study of Mexico, which has been the champion of liberalization, the author also concludes: that trade liberalization is essential when an industry reaches a certain level of maturity, provided it is undertaken selectively and gradually; that the way it is recommended by neo-liberals under the label of “Washington Consensus”, however, it is a recipe for destruction of the industries at their early stages of infancy, or development; that if through NAMA negotiations of the Doha Round, developing countries submit to developed countries to accept their proposed Swiss formula, with a low coefficient (10), and binding of their tariff lines at low levels, it would be at the cost of halting their industrialization process; that the low income countries and others at early stages of industrialization, in particular, will be trapped in production and exports of primary commodities, simple processing and at best assembly operation and/or other simple labour intensive industries. Finally, as international trading rules are not conducive to industrialization and development, he argues for the need for a different framework of industrial and trade policies outlined elsewhere**. Such a framework, however, requires a radical change in international trade rules. Developing countries should not be worried, he emphasizes, to be “blamed” for defending their policy autonomy in order to enhance their development. *The author is a development economist, affiliated to the Institute of Economic Research, University of Neuchate. He is the former head of Macroeconomics and Development Policies Branch, Globalization and Development Strategies Division of UNCTAD and the author of Trade Policy at the Crossroads; the Recent Experience of Developing Countries, Macmillan, 2005 as well as a number of articles on trade, industrial and development policies. The author is grateful to Mr A. Buira, the Director of G24 Secretariat, for his comments on an earlier draft. His thanks also go to J. Pizzaro for his helpful assistance in processing data. **Shafaeddin, M. (2005.c) “Towards an Alternative Perspective on Trade and Industrial Policies”, Development and Change, 36.6:1143-1162. Shafaeddin 1trade policy; indusrialization; development

From Export Promotion To Import Substitution; Comparative Experience of China and Mexico

Abstract Both Mexico and China have started export orientation in some industries, through assembly operations, based on imported inputs a couple of decades ago. The literature on industrialization, has discussed the questions of import substitutions and outward-orientation mainly as alternative routes to industrialization. In both cases, it is argued that “learning” would contribute to industrial development. Proponent of import substitution argued that import substitution contributes to industrial development through “learning by doing”. Those in favour of free trade and outward orientation argue that trade contributes to the transfer of knowledge and technology. This study is the first part of a twin study in which the authors attempt to shed some light on the comparative experience of the two countries in the light of the above-mentioned literature. The present study is devoted to the establishment of facts, while in the second study an attempt will be made to provide an explanation for differences in the performance of the two countries and the role played by their government in order to see whether the process, if successful, is replicable elsewhere. China and Mexico the process of trade liberalization and development of export oriented industries started, following a period of pursuing import substitution strategy , more or less, at the same time-if not earlier in the case of Mexico. It will be shown in this study that both countries have managed to develop comparative advantage in many industries initiated through import substitution; but China has been more successful than Mexico in gradually increasing value added in export oriented industries by substituting domestic production for imported inputs in these industries. The first section is devoted to a brief survey of the literature. In the second section, we will shed some light on the general trends in development of export promotion industries and general performance of the manufacturing sector in exports and production. The third section is devoted to the analysis of processing trade and value added in assembly operations through production of domestic components. In section four we will investigate the evolution of revealed comparative advantage in exports, production and assembly operation of traded finished goods and parts and components in order to shed some light on their future export prospects. The final section will conclude the study. . 2Mexico, China, Industrialization, Value added, Trade policy, Import substitution, export expansion