Responding to challenges of international trade and securing an inclusive path to development
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Responding to Challenges of International Trade and Securing an Inclusive Path to Development . Siddhartha Mitra Director (Research) CUTS International. Three Questions on Inclusive Trade Led Development.

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Responding to Challenges of International Trade and Securing an Inclusive Path to Development

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Responding to Challenges of International Trade and Securing an Inclusive Path to Development

Siddhartha Mitra

Director (Research)

CUTS International


Three Questions on Inclusive Trade Led Development

  • How can India contribute to strengthening the development dimension of the multilateral trading system?

  • What would be the characteristics of a pro-development regional trade system in Asia?

  • What are the features of a holistic trade sustainability impact assessment?


Mainstreaming Trade into National Development

  • Ensuring that trade leads to faster economic growth and

  • poverty alleviation

  • To ensure development is such that it promotes

  • competitiveness in international markets


How to Ensure that Trade Leads to Faster Growth

  • Supply side changes in infrastructure (better roads, ports etc) and in export industries (tax exemptions)

  • Better trade related institutional facilities (ports and customs procedures, quality of duty draw back systems etc.)

  • Analytical trade policy – for example, low tariffs on inputs and capital goods, absence of unnecessarily low tariffs on consumer goods

  • Development of trade negotiating capacity so as to expand the space for analytical trade policy


How to Ensure that Trade leads to Poverty Alleviation

  • Promotion of labour intensive growth such as that in Bangladesh

  • Reduced tariffs on inputs into labour intensive imports

  • Avoidance of excessive rigidity in labour legislation

  • Redistribution of upper end incomes and use of aid for trade to provide safety nets for the poor


Characteristics of a pro-development regional trade system in Asia

  • Recognition that sustainability in economic development is based on sustainability of the environment and vice-versa; sustainability has to be a partnership effort

  • Before implementing regional trade agreements stress should be placed on

    • Capacity to deal with the negative side effects of freer trade – environmental instability, volatility in income distribution etc

    • Capacity to take advantage of positive opportunities offered by freer trade – LDCs often cannot take advantage of zero tariff lines

    • Capacity of LDCs to negotiate (engagement of non-state actors) – more balanced outcomes for development


Pro-development RTAs in Asia

  • More developed countries can negotiate agreements that apparently favour the LDCs and still gain

  • LDCs should negotiate at their own pace

    and not before the requisite institutions are in place


What is sustainability impact analysis?

Two Tasks:

  • trace the chain of events from a policy change to consequent economic, social and/or environmental sustainability

  • Provide measures of magnitudes and dimensions of sustainability impacts


Three Components of Sustainability Impact Analysis (SIA)

  • Economic

  • Social

  • Environmental


Economic SIA

  • To examine whether growth rates are marked by stability at non-negative levels or steady upward increase

  • To check whether foreign exchange reserves are getting systematically depleted or enhanced over time

  • To check whether changes in FDI, FII and balance of trade deficits are leading to indebtedness or endangering the growth process


Economic SIA: Analytical Approach


Analytical ESIA (Continued)

  • Saving-investment gap ≡ Budget deficit + Current account surplus

  • Saving –investment gap + Current account deficit ≡ Budget deficit

  • Note that current account deficits maybe unsustainable as they are characterised by budget deficits which imply borrowings, possibly lower productive investment and lower growth

  • Solution may be to cut down government expenditure: growth may suffer again


Social SIA

  • To check whether poverty levels are going down over time

  • To ascertain whether inequality is remaining steady or declining over time

  • To check on movements in the unemployment rate


Environmental SIA

  • To check whether pollution levels are increasing and at what rates

  • To check whether the existing or potential pollution levels threaten human and animal life in any way

  • To check on the sustainability of ecosystems

  • To check whether net deforestation is positive and negative and whether there are any trends over time


Inter-linkages among the three SIAs: Examples

  • Very high growth rates might endanger forests and ecosystems, lead to levels and rates of growth of pollution/deforestation which might threaten or impede human life and productivity

  • High growth rates with very high inequality/unemployment increase: socially unacceptable

  • All such interconnections need to be brought out


Conclusions

  • Trade might be growth augmenting but not always inclusive

  • We need to build in provisions regarding domestic capacity, negotiating capacity and international trade governance to ensure that it is inclusive

  • Inclusiveness can be checked through Sustainability Impact Analysis


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