World Bank Says End Trade Barriers

Poor countries are getting caught in the undertow of the global economic downturn, and their interests should be put first when trade ministers begin rewriting the rules of world commerce, the World Bank said Wednesday.

In its annual report on the outlook for developing countries, the World Bank said another round of trade liberalization, if done correctly, would have a huge payoff for the world’s small, struggling economies.

The organization urged members of the World Trade Organization to commit themselves to launching a “development round” of trade negotiations when they meet next week in Doha, Qatar.

“A reduction in world barriers to trade could accelerate growth ... and lead to a more rapid pace of job creation and poverty reduction around the world,” it said.

Developing countries stand to gain $1.5 trillion in additional income during the 10 years following adoption of aggressive liberalization policies, the World Bank said. Developed countries would benefit, too, taking in an additional $1.3 trillion.

An estimated 2.8 billion people live on less than $2 a day, the World Bank said. Economic growth in the developing world is expected to lift 600 million people above that global poverty line by 2015. The removal of trade barriers could enable another 300 million to escape poverty, it said.

Economist Richard Newfarmer, the report’s principal author, said that for the first time since 1982, the economies of the United States, Europe and Japan have stumbled simultaneously. The synchronous slowdown will cause growth in world trade to plunge from 13% in 2000 to 1% in 2001, he said, and developing countries will be dragged down with more affluent nations.

Although trade reforms are unlikely to produce short-term gains, they would increase long-term economic growth in the developing world by 0.5%, said the World Bank, a multinational organization that helps finance development projects in poor countries.

Successful trade liberalization would require Europe, Japan and the United States to reduce agricultural quotas, tariffs and subsidies that restrain Third World exports, the report said.

But other reforms would be necessary, too: Developing countries would need to dismantle their own trade barriers, and services such as telecommunications, finance and transportation should be liberalized at the same time as merchandise trade.

In addition, individual countries and multinational organizations such as the WTO need to complement trade liberalization with programs to strengthen regulatory processes, improve physical infrastructure and ensure that the benefits of expanded trade are distributed equitably.

“It’s not just a question of removing border restrictions. You need to do a lot behind the border,” said Aaditya Mattoo, a World Bank economist who helped prepare the report. “Simply liberalizing trade is not going to deliver all the gains.”

But even if trade liberalization leads to faster gross domestic product growth in developing countries, it does not ensure that the financial benefits trickle down to all segments of society.

“Trade ... makes countries richer,” Brookings Institution scholar Bill Frenzel said Wednesday at a conference on trade reform. “If you’re running a rotten country and you can’t prevent maldistribution, that’s not the fault of international trade. That’s the fault of the country’s management.”