[Comment] An opportunity to reduce poverty in South Asia

From The Financial Express

It can be done if South Asian countries carry on reforms, make developed countries open their markets

SHANTAYANAN DEVARAJAN

The Doha Development Round of trade talks will be judged by one simple test: does it enable people in poor countries to sell more of their goods overseas, creating more jobs and lifting their incomes?

If the answer is yes, the round will succeed in enabling millions of South Asia’s 400 million poor people to lift themselves out of abject poverty over the next decade and give them and their children a chance to lead a better life. If the answer is no, and the talks end without giving developing countries more opportunity and help to export, then the talks will have failed.

We are approaching a decisive phase in the negotiations, with the World Trade Organisation (WTO) ministerial meeting in Hong Kong just six weeks away. The outcome hangs in the balance.

South Asian countries have a unique opportunity to tilt that balance in favour of making the Doha Round a success. India, in particular, has an opportunity, along with Brazil and China, to play a leadership role in the developing-country grouping called the G-20. Since it undertook far-reaching trade reforms in the 1990s and more recently, India has grown rapidly and is now a major competitor worldwide.

India’s export of services alone grew 17% annually in the 1990s. Just as India has much to gain from global trade reforms, it has much to offer in terms of market access, being a large economy with significant agricultural protection (average agricultural tariffs are 40%).

Along with its G-20 partners, India can propose a ‘grand bargain’: liberalising manufactures, agriculture and services in exchange for rich countries, eliminating agricultural subsidies and barriers to trade, and maintaining today’s openness to India’s booming service exports. The result will be a major boost in global economic growth.

But free trade is not a panacea. To maximise the benefits of trade for increasing growth and reducing poverty, South Asian countries need to make progress in their own development agenda.

They need to complement their trade agreements with investments and reforms in education, health, trade infrastructure—better ports, roads and customs—as well as governance, and to ensure that the poor have the means to take full advantage of the new opportunities arising out of greater and better trade.

Bangladesh, as a leading member of the group of least-developed countries (LDCs), has an enormously important role to play. It can show, by example, how increased access to developed-country markets enables a poor country to capitalise on its own reforms and make a difference to tens of millions of poor people.

Thanks to domestic reforms and preferential access to developed-country markets, Bangladesh’s ready-made garments industry has expanded rapidly, employing two million women, and touching the lives of nearly 10 million of Bangladesh’s 140 million people.

Yet, today, Bangladesh’s garment exports to the US face tariffs ranging from 15% to 30%. The US collects the same tariff revenue from its $2 billion of imports from Bangladesh as it does from its $26 billion of imports from France. If Bangladesh got duty-free access to the US, its exports would increase by 90% in three years, creating some 600,000 new jobs. Even if US tariffs were cut on a ‘most-favoured nation’ basis, it would be a major boost to exports. In addition, the international community can help if it makes additional ‘aid for trade’ available along the lines called for at the G-8 summit last July.

Success will not happen if the rich countries see the opening of their markets only in terms of pleasing their domestic interest groups. And it will not happen if developing countries do not reform themselves. By showing the world that they can continue reforming, South Asian countries can, and should, use their leadership roles to get developed countries to open up their markets, ensuring a successful Doha round and a better life for tens of millions of the world’s poorest people.

The writer is chief economist, South Asia region, World Bank