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11 In 2001 in Doha, Qatar, members of the World Trade Organization (WTO) agreed to launch the Doha Development Agenda, a round of multilateral negotiations to reduce the use of trade-distorting policies and to bolster the development relevance of the WTO.1 The Doha agenda spans numerous issues, including reducing agricultural support policies, liberalizing market access for goods and services, and strengthening WTO rules and dispute settlement procedures . As has been stressed in virtually all of the research on the potential impacts of broadly based global trade reform, the potential benefits for the world economy are significant. Global trade reforms can also do much to attain the Millennium Development Goal (MDG) of halving poverty by 2015. But not all groups and individuals will gain, which helps to explain why progress has been slow. Progress on removing distortionary trade policies has been especially slow in the key area of agriculture. Sometimes the reason for limited progress on market access is seen to be the lack of “enough on the table” to interest exporters. But this ignores the fact that large emerging market countries maintain much higher tariffs and other barriers to trade than do Organization for Economic Cooperation and Development (OECD) countries. By reducing their barriers, these countries will benefit OECD exporters and bolster South-South trade. This prospect should help to mobilize the political support needed in the The Challenges to Reducing Poverty through Trade Reform: Overview bernard hoekman and marcelo olarreaga 1 1. The ministerial declaration launching the Doha Round uses the word “development” more than fifty times in its ten pages. OECD to implement reforms. For these emerging market countries, then, the problem is not the agenda. It is that freeing trade is costly for those groups that currently benefit from trade protection. For many smaller and poorer countries, potential adjustment costs are of concern. But a more critical problem is that they lack the international competitiveness and supply capacity with which to benefit from a freer global trade regime. Some developing countries stand to lose from trade reforms that will enhance global welfare—in particular, from deep nondiscriminatory trade liberalization that will erode the value of the trade preferences they receive or increase the import prices they pay for some staples. For poor countries that have not diversified their economies and depend on preferential access to major markets, there may be little immediate gain from multilateral trade reforms, especially if they do not reform their own trade and domestic economic policy to improve their competitiveness. Adjustment costs in developing countries would be an inevitable outcome of ambitious global trade reform. The more ambitious these countries’ own reforms, the greater the medium-term benefits for incomes are likely to be, but the greater, too, are the likely short-term adjustment costs. Addressing such costs, and putting in place a policy environment that assures households that the reforms will result in new job opportunities, is therefore an important political imperative.2 This need spans both industrial high-income countries and developing countries. A more open international trade regime is desirable for a number of reasons: it will lead to a better allocation of world resources, expand consumption opportunities , raise production efficiency, and help to move economies to a higher growth path. But changes in trade policy also have important distributive consequences within and across countries. Some countries and many individuals will lose as a result of trade liberalization. In principle, aggregate gains will exceed aggregate losses,3 and, as noted in international economics textbooks, this implies that after a reform it is possible to redistribute incomes to compensate the losers while still generating net benefits for the gainers from the reform. In practice, however, political and technical constraints preclude full compensation. Political constraints include equity considerations—for example, should those who introduced past trade-distorting policies at the cost of society as a whole be compensated ? Technical constraints include limitations on the ability to tax and redistribute and, more important, on the ability to identify losers and design compensation programs in a way that does not distort the incentives to adjust. These factors make compensation within countries very difficult to implement. 12 bernard hoekman and marcelo olarreaga 2. Bhagwati (2004); Zedillo and others (2005). 3. Losses are the sum of adjustment costs and the present discounted value of the difference between the prereform and postreform incomes of those individuals unable to find employment that pays wages at or above their prereform levels. [18.221.85.33] Project MUSE...

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