Developing Countries (Hansard, 23 October 2002)

§ Clare Short

Import liberalisation, properly managed, can contribute to sustainable and poverty-reducing economic growth. Cross-country evidence shows that trade liberalisation increases economic growth and that economic growth, in turn, tends to reduce poverty on average. Trade openness contributes to poverty reduction by stimulating productivity and reducing domestic consumer prices. However, the relationship differs substantially from country to country. Complementarity and sequencing of supporting policies within an overall long-term development strategy are essential to the success of trade liberalisation. A country will typically have to implement some or all of the following complementary policiestrade-related capacity building, to formulate a sound trade strategy, participate successfully in international trade negotiations and implement WTO requirements; private sector development, to improve the private sectors' productive capacity to respond to new markets abroad and to compete with imports; macroeconomic stabilisation, to obtain a business-friendly environment, in particular low inflation and interest rates and a stable exchange rate that is not overvalued; tax reform, to offset revenue losses from tariff reductions by increasing tax revenues; labor market reform, to ensure that workers can move between sectors to respond to trade-induced opportunities; and social safety nets, to support groups adversely affected by trade liberalisation.

Domestic reform, however, will often not be sufficient. Developing countries face high tariff and non-tariff barriers in sectors of importance, notably agriculture and textiles and clothing. As tariffs are lowered, new forms of protection become more prominent, such as anti-dumping and excessive product 319W standards and technical regulations. Such issues need to be addressed in future trade negotiations to ensure that international trade rules are more developmental.

The Integrated Framework (IF) is a policy initiative by six international agencies, with participation by donors and developing countries. DFID is playing a prominent role in its implementation. It represents an attempt to respond to the need for trade reforms to be implemented carefully and with the appropriate mix of complementary policies. Under the Integrated Framework, existing trade-related policies in a country are assessed and further needs identified. The Integrated Framework tries to facilitate the formulation of a coherent trade policy that fosters sustainable and poverty-reducing economic growth.

DFID has been at the forefront of developing and promoting trade policies that address the risks associated with import liberalisation. All our trade-related work is geared towards making trade work for the poorest. DFID is trying to raise awareness of the need for sound trade policies at all levels: within DFID itself, in our country offices, within Whitehall and at the WTO.

DFID believes that the trade policy it has developed to address the challenges of trade liberalisation contains the kind of advice and experience that contribute to sustainable and poverty-reducing development ant that it can usefully recommend such policies to policy makers in developing countries. In general, developing countries have responded positively to DFID's trade policy, as is clear for example from the recent review of the Ghana Trade Policy Project.