Trade Policy Note Final-rev08 - Development

outcomes are less clear. Moreover, the introduction of assumptions on differential
learning effects, positive externalities and technical changes associated with different
economic activities creates the theoretical possibility of weak (if any) gains from
trade for countries that specialize in low value-added, labour-intensive products.
Several analysts have tried to modify, expand or reject some of the conclusions of
traditional trade theory. New trade theorists cite the role of scale economies and
imperfectly competitive markets in determining intra-industry trade patterns among
industrial countries. This view led strategic trade theorists to argue for subsidizing
certain industries, to give them strategic advantage in oligopolistic international
markets. The recent literature on trade and growth also emphasizes that, in dynamic
terms, comparative advantage can be created based on human capital, learning,
technology and productivity. It can also change over time based on economic policy.
Other responses come from theorists who question the validity of the comparative
advantage principle, arguing that absolute or competitive advantage is a more reliable
determinant of trade outcomes. One such response is a macro-level analysis that looks
at trade in the context of low aggregate demand, structural unemployment and
inflexible wage adjustments. Another argues that international industrial
competitivene ss is determined by the technology gaps between nations.
The common thread in these different theories is that trade can contribute to growth
by expanding markets, facilitating competition and disseminating knowledge.
Controversy continues to surround the efficacy of growth-promoting policy
intervention. And the trade literature says little about how trade and trade policy relate
to human development over time.
The Expanded Reach of International Trade Obligations
In addition to this theoretical context, national trade policies are formulated and
implemented within the constraints of international trade commitments that cover a
wide range of policy areas, many central to development strategies. As such, what is
possible through national trade policy is being continuously redefined by the ongoing
trade negotiating process. In parallel to their participatiion in the Doha Development
Round, most WTO members are also actively engaged in the negotiation of free trade
agreements (FTAs) with both regional and extra-regional partners. What is the scope
for the application of pro-poor and pro-development trade policies in this context?
How can developing countries ensure that the outcome of such negotiations is
consistent with their development strategies and the pursuit of the MDGs?
International trade obligations at multilateral, regional and bilateral level have
become increasingly more extensive and intrusive. Multilateral obligations were
accepted as part of a package that was supposed to have given freer and more secure
market access to developing countries, by bringing the textiles and clothing and
agriculture sectors under multilateral disciplines. It was also expected to provide a
dispute settlement mechanism that would strengthen the rights of smaller countries.
The WTO “single undertaking” 2 , agreed by founding WTO members , intensified
existing multilateral rules relating to tariffs and subsidies, bringing developing
countries under disciplines from which they had previously been exempt. It also
2 For a complete assessment of the outcome of the Uruguay Round and insight into the adoption of the
“single undertaking”, see UNCTAD Trade and Development Report 1994, UNCTAD/TDR/14 and
Supp.1 (Geneva: 1994).
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