Impact of trade alliances on weaker economies

International Labor Organisation recently conducted a study highlighting policy constraints under globalisation. Examining the process of globalisation, tracing it back to the 1970s and 1980s, the study revealed that the globalisation process has become equated with the global application of Washington consensus, a model that has been promoted by the Washington-based international financial institutions. The report, "Economic Security for a Better World" based on the study adds, the WTO rules now encompass the sovereign territory of governments, including industrial policy, farm subsidies, regulation of services, and intellectual property protection resulting economic insecurity to the weaker economies. The study cautions that economic security remains out of reach for the vast majority of the world's workers, about three-quarters of who live in circumstances of economic insecurity. Estimates by the World Bank suggest that the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) could almost quadruple the $15 billion a year that developing countries paid industrialised countries in technology licensing fees in 1998. In sum, the report says, while the WTO has been instrumental in levering economic openness and liberation of economic activities, its rules appear to have more effect in constraining policy choices by poor countries than by richer WTO members.

Another ILO study “Global Employment Trends for Youth 2004” has found that the youth (15-24 years) account for 25 per cent of the working-age population (15-64 years) but account for 47 per cent of the total 186 million unemployed worldwide in 2003. Out of these unemployed youths, 13.9 per cent accounted for South Asia. In Bangladesh, labour force growth is high. So it will be a great challenge for Bangladesh to harness the labour force demand and supply with the rise of regionalism and multilateralism spirit.

UNCTAD biennial Least Developed Countries report 2004 said, during 2000-2002, the world's 50 LDCs including Bangladesh on aggregate have done well in terms of GDP growth and export performance but lag far behind in social well-being. During the period, the real average GDP growth rate of the LDCs as a group was 4.9 per cent and their real per capita GDP grew by 2.6 per cent, in contrast to the 1.8 per cent reported for other developing countries. The real annual per capita GDP growth rate exceeded 3 per cent in 14 LDCs including Bangladesh but stagnated or declined in 24. Only seven of the LDCs -- Angola, Bhutan, Chad, Eritrea, Mozambique, Rwanda, and Sudan -- achieved the 7 per cent growth target set under the Programme of Action for the LDCs for the Decade 2001-2010 adopted at the 3rd UN conference on LDCs in 2001.

According to the UNCTAD Report 2004, net inflows of FDI to the LDCs reached $5.2 billion in 2002 but 87 per cent, went to the top 10 FDI recipients in descending order Angola, Chad, Sudan, Mozambique, Equatorial Guinea, Uganda, Tanzania, Zambia, Myanmar and Mali. The four LDC oil exporters Angola, Equatorial Guinea, Sudan and Yemen plus Chad, which is developing infrastructure for oil exports, garnered 63 per cent of all FDI inflows to the LDCs.

Multilateralism and regionalism do not agree with the theory of trade liberalisation and export-led growth and poverty reduction for LDCs. Although the three LDCs -- Bangladesh, Guinea and Uganda -- had observed trade effect during both 1990-95and 1995-2000, for all the LDCs trade liberalisation plus preferential market access do not equal poverty reduction and integration into the global economy is found to be of no effect either. On the other hand, during the 1990s, the greatest improvement in export growth and growth of average private consumption per capita was in those countries that opened up only moderately during the decade, rather than those that opened up the most. China and India are the brilliant examples in this regard.

According to the studies on most African economies and some Asian poor economies, it is revealed that liberalisation along with slow export growth, decreased aid inflows, low level of investment and low investment efficiency, high rates of population growth and need for high rates of employment generation, tradeoff between domestic resource mobilisation and poverty reduction, weak linkages between export sectors and the rest of the economy and civil conflicts are the reasons for retarding poverty reduction and economic dynamism. Rapid and deep trade liberalisation has been associated with deindustrialisation, as import substitution industries have collapsed when they are exposed to international competition without adequate preparation. Bangladesh has been gathering such experiences since 1990s. Another hurdle for LDC exports as the aftermath of multilateralism is the standards of the products. During 1999-2001, no less than 42 per cent of LDC exports, UNCTAD says, faced environment-related trade barriers such as sanitary and phytosanitary standards and technical barriers to trade.

WTO-sponsored current wisdom is that the trade liberalisation is likely to have adverse effects on poverty in the short run, particularly when social groups that had benefited from tariff protection are exposed to increased international competition. But in a long run, the effects will be favourable because the trade liberalisation will increase the growth potential of the economy. Bangladesh should balance these two diagonal observations efficiently utilising optimally the available resources and opportunities. In addition, Bangladesh should improve much in its production capacities to enable the country to benefit from growth in world trade and gain much from further multilateral, regional or bilateral trade liberalisation.

Bijan Lal Dev, a trade analyst, is a freelance contributor.