Reclaiming Development in the World Trading System

Overview

Prevalent poverty in less developed countries is one of the most pressing issues of our time and economic development in these countries is necessary to bring them out of poverty. As seen in the successful development cases of East Asian countries, international trade is closely relevant to economic development, and export facilitation and effective industrial policies have been the key to the successful development. Current GATT/WTO provisions facilitating development are insufficient and some WTO provisions ...
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Overview

Prevalent poverty in less developed countries is one of the most pressing issues of our time and economic development in these countries is necessary to bring them out of poverty. As seen in the successful development cases of East Asian countries, international trade is closely relevant to economic development, and export facilitation and effective industrial policies have been the key to the successful development. Current GATT/WTO provisions facilitating development are insufficient and some WTO provisions prevent developing countries from adopting effective development policies. This book is the first attempt to suggest a comprehensive modification of the current GATT/WTO disciplines to better facilitate development. The book also examines the need to elevate the level of regulatory treatment of development issues by the WTO and proposes the Agreement on Development Facilitation and the Council for Trade and Development within the WTO.
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Editorial Reviews

From the Publisher
“"Recent changes in the world trading system have made economic development far more difficult than before. In this knowledgeable and lucid book, Dr. Lee presents innovative but well-balanced and realistic proposals that will make the system more development-friendly. It is a rare combination of scholarship and pragmatic thinking. Anyone who is interested in helping the developing countries help themselves should read it."
--Ha-Joon Chang, University of Cambridge, the author of Kicking Away the Ladder

“Professor Lee's well written, well researched book raises the challenging question of whether the current WTO rules might retard at least some developing countries' further economic improvement by "kicking away the ladder" -- prohibiting or limiting such tools as infant industry protection which were used by Western countries during earlier stages of their development (and still used even without that justification!) He makes innovative recommendations, such as a Development-Facilitation Tariff, but is aware of the possibilities of abuse. Similarly, his Development-Facilitation Subsidy would be limited by caps based on the relative poverty of the country. Even facially neutral trade defense measures such as anti-dumping and safeguards, which are permitted by the WTO as exceptions to free trade rules, can have perverse developmental effects. Local producers in a large market, such as Europe or the United States, can use these tools to protect a home market large enough to provide a viable production base for world scale production. By contrast, flower producers in Colombia, or salmon producers in Chile -- both non-traditional exports from countries with a history of monoculture -- can lose their key markets (which of necessity are overseas) as a result of those measures. The possibility of reversing those measures prospectively after a three year WTO litigation process, with no repayment of legally collected duties, is illusory for an industry which would be destroyed in the meantime. Supporters of current rules in the WTO, including proponents of adding Competition Law and Investment, will have to deal with Lee's arguments. Lee recognizes that trade rules alone are not the source of development. The challenge for developing and developed countries is to make sure that trade rules do not get in the way.”
--Gary Horlick, Former Deputy Secretary of Commerce, Head of U.S. Department of Commerce Import Administration

"One of the most pressing issues which the WTO is confronted with is how to deal with poverty and marginalization of some developing countries. This is not only an important issue for developing countries but also for developed countries since their long-term security and prosperity depend on a successful bridging of a wide gap in wealth between some developing countries and developed countries. This is so because, as Professor Lee puts it, poverty tends to breed the resentment and violence that undermine the security interests of developed countries. This book examines whether some of the principles of the WTO based on the concept of static and allocative efficiency models should be reconsidered and perhaps modified. It focuses on the role of industrial policy and export promotion and wonders if developing countries should be given a special treatment according to a sliding scale in which less developed countries will get more special treatment and, as the economy develops, this will be scaled down.

Japan, my own country, is known as a country of industrial policy. Although the heyday of industrial policy in Japan passed, there is no doubt that industrial policy played a major role in the economic progress in 1970' and 80'. Many of developing countries are in a similar situation today. For the stability and security of the world trading system, it is vital that the WTO think about the role of governments in developing countries promoting their infant and key industries and give such a policy a proper place within the WTO regime. Professor Lee's book analyses the current provisions of WTO agreements and suggest some modification so that the ladder that has been kicked away will be put back. I would highly recommend this book to policy makers at the WTO, national governments, lawyers, economists and all others interested in the sound development of the world trading system."
--Mitsuo Matsushita, Professor Emeritus of Tokyo University

"Professor Lee's review of the existing international trade system, and his view of its adverse effect on developing countries is impressive. He argues for considerable reforms, most notably for reforms which will permit developing countries to promote infant industries, a practice which he notes today's developed countries, including the United States, pursued when they were developing. The book does make us think about the trials and dilemmas, and the poverty of less fortunate countries and peoples, and the possible relevance to them of our current trade policies and what changes in them might achieve."
--Don Wallace, Jr., Professor of Law, Georgetown University, President, International Law Institute, Washington. D.C., USA

"A path-breaking, well-thought approach to the world's most important challenge for the 21st century, namely, how the world trading system can provide a workable mechanism to development. Professor Lee's new book should be read carefully, his analysis on the institutional and legal barriers to development under the WTO be shared by all scholars and practitioners involved in the world trading system, and his original and insightful prescriptions for this challenge be taken seriously. I believe this book would reinvigorate the half-dead debate on the New International Economic Order in the 1970s, and stimulate new ideas and proposals for the International Economic Order for the 21st century."
--Junji Nakagawa, Professor of International Economic Law, Institute of Social Science, The University of Tokyo

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Product Details

  • ISBN-13: 9780521136082
  • Publisher: Cambridge University Press
  • Publication date: 11/5/2009
  • Edition description: New Edition
  • Pages: 208
  • Product dimensions: 5.40 (w) x 8.20 (h) x 0.70 (d)

Meet the Author

Yong-Shik Lee (Y. S. Lee) is a law and development scholar, an international trade lawyer, and an Associate Professor at the University of Sydney Law School. An expert in international trade law, Lee has pioneered legal analysis in safeguard measures in world trade, leading to the first comprehensive treatise on this subject titled Safeguard Measures in World Trade: The Legal Analysis. (Kluwer International Law, 2nd ed. 2005). Currently he is an associate editor of the Journal of World Trade and the founding editor-in-chief of the Law and Development Review. He has taught international trade law, public international law, trade and development, business law, arbitration at law schools and business schools internationally.
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Read an Excerpt


Cambridge University Press
052185296X - Reclaiming Development in the World Trading System - by Yong-Shik Lee
Excerpt



ONE

Poverty, Economic Development, and International Trade

1.1 The Question of Poverty1

In today's world of unprecedented technological and economic advances, the majority of the world population has not been able to share in this prosperity.2 Persistent poverty still remains in many parts of the world, and this human tragedy is one of the most pressing problems in our time. Nevertheless, despite some efforts by international organizations,3 poverty does not seem to receive priority consideration from leading nations that could provide key political and economic support toward resolving this problem.4 Consider this issue from another perspective: not only is the relief of persistent poverty our moral obligation5 but it is also consistent with our long-term security interest because societies with adequate economic resources are less likely to foster violence and terrorism that has torn our world apart throughout history.6

How can this problem of poverty be resolved? Poor countries cannot indefinitely depend on donations from outside, even if such donations could be provided; the only lasting solution would be to create an economy in these countries through economic development7 that would provide inhabitants with adequate resources and sustain their living standard beyond subsistence. How can poor nations build such an economy? It has been suggested that poverty is not simply a result of bad economic policy; various political, social, and even cultural problems have also been cited as causes of poverty.8 Because these causes are rather various and complex, many believe that no simple solution to poverty is universally applicable.9 In each individual case, political, social, economic, and cultural practices and institutions that hamper economic development should first be identified; then specific remedies for each of these problems would have to be applied.10 In many cases, these problems are simply too difficult and complex to solve, therefore poverty remains.

Certain developing11 economies have combated these problems successfully and have achieved impressive economic development in the past decades.12 For these economies, international trade has been an important vehicle for successful economic development. The legal framework for international trade controls which development policies can be implemented in conjunction with international trade and the way in which they are implemented. Therefore, trade disciplines are quite relevant to poverty and development. The specific regulatory requirements of trade disciplines affect the ability of developing countries to adopt effective development policies. I discuss throughout this book why this is the case and what changes should be made in the current trade disciplines to better facilitate development.

Yet I do not presume that neither a development-friendly international trading system nor any other international support alone will facilitate development and relieve poverty. Economic development efforts by developing countries should proceed, and the following factors would also be essentially important for development: a stable and efficient government, a working institutional arrangement between the public and private sectors,13 a consistent economic policy, social peace, an educated population, access to capital, entrepreneurship, and a cultural environment that fosters working ethics and can accommodate changes associated with development. It is true that these conditions are not present in many developing nations.14 Despite various proposals for development strategies, policies, and international initiatives for decades,15 the majority of countries that were underdeveloped fifty years ago still remain poor. For many underdeveloped nations, the situation has worsened over the past ten years.16

Although a development-friendly trading system alone may not be sufficient to facilitate economic development, it is nevertheless essential. The success story of the East Asian economies, including South Korea, Taiwan, Singapore, and Hong Kong, introduced in the next section, shows why. One argument is that a change of the current trading system would not bring about the economic development of developing countries because most of them do not even meet other necessary conditions for development.17 In particular, there is a prevalent sentiment that governments of developing countries cannot be trusted with the implementation of state-led development policies for lack of efficient administrative capacity and corruption. It is maintained, therefore, that changing the international trading system will not result in economic development for these developing countries, will cause inefficiency in the system, and therefore, is not necessary.

This is a logical fallacy, even if claims about the problems with developing countries were to be true. Certainly, it is not difficult to find cases of prevalent corruption and lack of competence on the part of the governments of developing countries. Nonetheless, if we believe that the relief of poverty through economic development is a priority, the trading system should facilitate, rather than hamper, the economic development of those developing countries that are ready to implement development policies, just as the East Asian countries have done in the past decades. Their successful economic development would not have been possible had some of the current requirements of the international trading system been in place because these requirements would not have allowed them to adopt key development policies, particularly those based on trade-related subsidies.18

1.2 International Trade and Development

While many developing countries failed to improve their economic conditions in any significant way,19 some East Asian economies, such as South Korea, Taiwan, Hong Kong, and Singapore, have achieved remarkable economic success during the past four decades.20 What distinguishes these countries from other developing countries that have failed to achieve economic development? Can development strategies that have a degree of general applicability be drawn from this Asian experience? To answer these queries, the development process of these East Asian countries needs to be examined. I introduce the development case of South Korea to show the success of "outward development strategy."21 The other East Asian newly industrializing countries (NICs) also implemented this strategy, although the details of each country's policy were different.22

South Korea was one of the poorest nations in the world four decades ago, lacking both natural and technological resources.23 To overcome poverty and develop its economy, South Korea adopted a set of aggressive export strategies. The resources acquired through international trade, as well as the capital influx from abroad, which was encouraged by its success in exports, have enabled South Korea to modernize its industries and achieve rapid economic growth.24 This economic development, fueled by the continued success in exports, established South Korea as one of the leading industrial nations with higher living standards.25 This economic success is also attributed to factors other than the success in export and export industries.26 Nevertheless, few would dispute that the successful exports have been an engine for Korea's economic achievement.27 In fact, this export-driven development has become a well-known model and has been studied widely.28

If international trade can help poor nations to develop their economies and bring them out of poverty, as it did for South Korea and for the other East Asian countries, what are the necessary conditions for export-driven economic development? In this outward development model, export becomes the engine for development by creating demands for domestically produced products otherwise not consumed in their small domestic markets. Export revenues can be reinvested to expand export industries further, and therefore, the output of the economy improves over time with the expansion of the share of manufacturing sectors in the economy.29 This is the common element observed in the development process of the NICs. In those East Asian countries, a series of economic factors preferable for industrial expansion, such as lower labor costs and a high rate of savings, helped export industries, but governments also played an important role by promoting those industries with various subsidies and tariff protection.30

1.3 Kicking Away the Ladder?

I have initially posed two questions about the successful development of the East Asian countries, that is, (i) what distinguishes them from other developing countries that have failed in economic development? and (ii) what effective development strategy can be drawn from their experience? They all have achieved rapid economic growth through expansion of their exports, and this outward development strategy is an effective development model that can be adopted by other developing countries, assuming that the necessary political, social, and economic conditions are present.31 The success of this development strategy would depend largely on the government's ability to promote exports.32 Yet governments of developing countries would not be able to adopt some of the trade-related development policies of the NICs because the current regulatory framework for international trade, represented by the World Trade Organization (WTO), does not allow them to do so.33

In his recent book, Kicking Away the Ladder, Cambridge economist Ha-Joon Chang notes that almost every developed country today, including those strongly advocating liberal market economies and open trade, employed state-led industrial promotion policies during their own development process, which often included trade protection. Yet after achieving economic development, they have been "kicking away the ladder" and preventing developing countries from adopting effective development policies by imposing regulations of international trade and policy recommendations against these development policies. If correct, his argument raises moral questions and concerns for all of us genuinely interested in relieving poverty through successful economic development.

My premise is that the economic development of developing countries should be considered one of the important priorities of our time. It is possible that some who are not persuaded that this is our moral quest may question why the economic development of developing countries should be a priority. It is worth repeating that supporting the economic development of developing countries not only addresses our moral concern about the economic tragedy of poor nations34 but also serves our security interest in this closely interconnected world. In addition, there is an economic reason for supporting the development of developing countries: the successful economic development of developing countries today would also provide the industries of developed countries with new affluent markets and therefore new sources for their own future wealth. Newly developed countries such as South Korea have become important export markets for many developed countries.35 Therefore, assisting development would create a win-win situation for everyone.



© Cambridge University Press
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Table of Contents

1. Poverty, economic development, and international trade; 2. Current regulatory framework for international trade: the WTO system; 3. Reclaiming development: tariff bindings and subsidies; 4. Anti-dumping and safeguards; 5. 'Expansion' of trade disciplines and development.
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