As the world economy recovers from recession, the head of the World Trade Organisation has criticised protectionism, saying more openness in trade is needed to boost global growth.
In a speech to the European Policy Centre in Brussels recently, WTO Director-General, Pascal Lamy said that, so far, “the multilateral trading system has proven its sturdiness as a bulwark against runaway protectionism.”
However, he urged a reduction in tariff barriers and domestic subsidies, and called for a conclusion to the Doha Development Round on trade negotiations. While the Doha talks aim to create a freer trade regime by reducing trade tariffs and domestic subsidies, the outcome of the negotiations might worsen the economic gap between developed and developing nations.
SLOW RECOVERY WITHOUT TRADE
Lamy argued that the Doha Development Agenda “will provide for more certainty in trading arrangements by securing binding commitments from member countries.”
He added that such commitments would help create jobs and are especially important in the current economic climate:
“A successful Doha Round will greatly reduce uncertainty relating to protectionism-- the spectre of which may hinder new hiring, especially in the export sector, since it is the most vulnerable to trade restrictions.”
Fears of low job creation also arise because manufacturers are likely to increase output to meet increasing demand, but may not necessarily hire more workers as they are uncertain about how long the current recovery will last.
As Lamy observed, “experience from past recessions suggests that employment growth will be sluggish in the aftermath of the crisis even though output expansion may have resumed.”
Countries like Uganda are bound to be affected amidst low employment levels. Uganda’s largest export is the workers abroad, who remitted close to $1 billion last year.
Much of this money is channeled towards real estate, which boosts the growth of the economy. Global trade was severely affected by the current economic recession that peaked in 2008-09, with the WTO estimating that total trade volume contracted by 12% in 2009, reaching its lowest levels since World War Two.
At the same time, global Gross Domestic Product, or the value of goods and services produced, shrank by 2.2%. These factors contributed to the loss of some 200 million jobs.
Lamy blames the decline on reduced global demand in major economies, inadequate trade finance and, to a lesser degree, on protectionist policies like increased tariffs on imports and domestic subsidies.
TRADE ADVANTAGE
The Doha trade talks commenced in 2001 but stalled in June 2008 owing to differences between the US and China and India. The latter objected to the heavy subsidies given to US farmers, which undercut poorer producers in less-developed nations.
The prevailing economic climate, with Western economies reeling, and Asia’s star rising, may thus offer developing countries, particularly agro-based economies like Uganda, a chance to secure more favourable terms of trade via the Doha negotiations.
In this scenario, Lamy’s hopes for greater openness may strike a chord with WTO member states. Lamy identified new market opportunities, technology transfer, incentive to innovate, improvement of the quality of financial institutions, steady revenue from export, more jobs and higher incomes as the key reasons to reform trade.
Greater specialisation of industries, based on local advantages in producing certain goods, would also be boosted, by lowering barriers to trade.
DEVELOPING COUNTRIES COULD BENEFIT
For Uganda, in practical terms, that might mean utilising its low labour costs and ease in hiring workers, to produce labour-intensive products that fetch good prices on the world market.
Examples might be organically grown coffee that is locally processed, high-quality rice for export, and eco-tourism. Increased exports would lead to rising incomes and increased spending power of consumers, which would in turn, rejuvenate the domestic economy, and in the long-run, sustain job creation.
Uganda could also find its trade prospects improving through regional economic integration. The Common Market Protocol for East Africa is likely to enhance competitiveness of regional producers by providing them a bigger market, better economies of scale, more access to credit, more lobbying powers in trade talks, and ultimately, better deals for producers.
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