World Bank Shocks the Free Trade Community

Because of the recent Hong Kong Ministerial Meeting of the World Trade Organization, the most significant news on trade released this month may go unnoticed:

"In a recently released book, the World Bank says that the potential
benefits for the world's poor of a far-reaching trade deal "are significantly
lower" than it had previously thought."
(World Bank Reconsiders Trade's Benefits to Poor, Paul Blustein Saturday, December 17, 2005, Page D01)

As a development persons who believes in free trade mainly on the basis that it will benefit the poor in developing countries, that's a bummer. It comes at a moment where papers have surfaced questioning the capacity of developing countries to even benefit from access to rich markets, give their lack of infrastructure.

Sometimes, I think it's a good thing nobody's reading this blog...

The thing is: development is complicated. No really, don't laugh at the simplicity of the argument: development is complicated. No wonder it has barely happened in the last 60 years and that, when it happened, people can't agree on what caused it. Trade is just one factor of development, but think of the issues at stake:

• What markets could a country really access if given the opportunity: does it have the infrastructure (means of transportation, relatively large-scale production, quality control, etc.)
• Will transportation on longer distances create more pollution?
• Who will lose their job if a country national industry can't compete with importations? More important: how to help those losers of free trade?
• How much will be lost in trade tariffs? The budget of some developing countries rest on those revenues in proportions up to 50%.
• Who will gain? Will it only be large corporations with the capacity to export - which means dealing with multiple tax codes, large administrations, health and environmental regulations, etc - or will small entrepreneurs also be able to export in open markets?

And that's only from the top of my head. All of these points are debatable. Even if you win a point, you haven't proven that trade is beneficial or harmful.

All this complexity leads to oversimplification, something most serious minds are uncomfortable with. You are either with or against freer trade. Its effect are positive or negative. Why? Again, you need to simplify: because it opens markets to the poor. Because it brings cheaper goods, increasing productivity, freeing resources for other products. But in truth, who knows? Being against of in favour of free trade remains an act of faith.

This article also mentions a reason why I don't like regional trade agreements:

"Moreover, some developing countries already enjoy virtually unrestricted
access to U.S. and European markets under special trading arrangements. One
example is Mexico, which ships goods duty-free to the United States under NAFTA. The lower Washington drops its barriers to all WTO member countries, the more Mexico's competitors could gain sales in the U.S. market at Mexico's
expense."

Now, Mexico will be one more force against increased access to the US market for developing countries. Indeed, regional trade agreements create new vested interests who will resist change.