IMF Trade Research Conference Do trade agreements and trade openness help developing countries?

• Pages: 315-316

Page 315

An overarching theme of the conference was that preferential trade policies-whether in the form of trade agreements or tariff reductions for exports from developing countries-are not equivalent to trade liberalization. It is useful to remember, the IMF's John Romalis (Resident Scholar, Research Department) suggested, that these arrangements do not extend to every country's trading partner. It would be more accurate to call these "preferential" rather than free trade agreements, as they reduce trade barriers on trade flows among the member countries only.

While preferential access for developing country exports might seem like a good idea at first glance, the World Bank's Çag?lar Özden (Economist, International Trade Division) emphasized that such schemes are riddled with problems. Somewhat surprisingly, lowincome countries do not fully utilize these preference schemes-on average, the preference utilization rate is 35 percent. Furthermore, sectors of export interest to the recipient country are often "sensitive" sectors for the donor country and, thus, frequently exempted from preference schemes. In addition, these schemes often carry a fair amount of "strings," requiring other steps to meet concerns about rules of origin, labor and environmental standards, and intellectual property rights.And, frequently, once the preferences are utilized, they are removed. A key test of the effectiveness of such schemes is whether they help create viable industries in the recipient countries; there is no clear evidence that they do. In effect,Özden saw preference schemes as having minimal impact and providing little incentive for recipient countries to liberalize their own trade policies.

From preferential to multilateral? On the thorny issue of preferential agreements, the IMF's Hans-Peter Lankes (Division Chief, Policy

Development and Review Department) observed that such agreements are here to stay. He urged the World Trade Organization (WTO) to strengthen its oversight of these agreements and asked the IMF to devote greater attention to them, in the context of both surveillance and program negotiations, in an effort to ameliorate their undesirable effects. But are these agreements beneficial? Romalis acknowledged that the evidence is ambiguous, but he did see some benefit where trade between the member countries is already large, which would lessen the possibility of trade diversion; when external tariffs are quite...