Trade Policy Note Final-rev08 - Development
Trade Policy Note Final-rev08 - Development
Trade Policy Note Final-rev08 - Development
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Public-Private Partnerships<br />
Industrial policy is likely to work best if it is based on a strategic partnership between<br />
the public and private sectors and if government policy is successful in eliciting<br />
relevant information from the private sector - on the most binding constraints and<br />
externalities which the private sector faces - and is able to effectively deal with them.<br />
This is most likely to stimulate the entrepreneurial spirits of the private sector which<br />
are a crucial ingredient of successful industrial policy. Nevertheless, while the<br />
government should be close to the private sector’s concerns, it must avoid being<br />
captured by special private sector interest groups if this policy is to serve the broader<br />
national interest. Strong state institutions and a clear government vision will be<br />
crucial to achieving this.<br />
Tariff Liberalization and Bindings<br />
Tariffs are only one crucial ingredient of industrial policy, albeit an important one.<br />
Over the past twenty years developing countries have phased out quantitative<br />
restrictions and many have reduced tariffs, in some cases dramatically. The tariff<br />
reductions have usually been implemented as conditions for World Bank/IMF<br />
structural adjustment loans and programmes, which are by nature temporary.<br />
However, there has been strong pressure on developing countries to bind these low<br />
tariffs in the WTO, so as to “lock in” economic reforms, as an element in their<br />
Uruguay Round “package” of concessions. The pressure to do this has increased for<br />
countries newly acceding to the WTO or within the framework of FTAs. At pre sent,<br />
developing countries are under pressure to further reduce, and bind, industrial tariffs<br />
in the Doha Round in line with a tariff cutting and harmonization formula being<br />
worked out in the NAMA (non-agricultural market access) group. 14<br />
Tariffs reductions can impact the achievement of the MDGs in at least three ways .<br />
(a) They may lead to a surge in imports forcing domestic competitors out of business<br />
and causing increased unemployment in developing countries. Those so losing<br />
their jobs as a result are unlikely to find any alternative employment and many<br />
will sink below the poverty line.<br />
(b) Tariff cuts can result in a reduction of government revenue, leaving the<br />
government with fewer resources for fighting poverty and for other social<br />
programmes.<br />
(c) Tariff reductions may undermine industrialization policies in developing countries<br />
(“nip industrialization in the bud”) by exposing industries to competition before<br />
they are strong enough to compete in the world.<br />
Over 77 per cent of MFN tariffs in developing countries, and 44 per cent in LDCs, are<br />
bound 15 in the WTO, although many at relatively high rates, greatly exceeding current<br />
applied rates and allowing a considerable degree of flexibility. The use of tariffs as a<br />
tool of industrial policy is obviously a function of the flexibility that individual<br />
countries retain in their tariff schedules. Many developing countries have avoided<br />
14 The Third World Network had drawn up a table showing the tariff cuts that would result from the<br />
application of the “Swiss” tariff cutting formula using different coefficients. See www.twnside.org.sg.<br />
15 See Fernandez de Cordoba, Santiago, Coping with <strong>Trade</strong> Reforms, Implications of the WTO<br />
Industrial Tariff Negotiations for Developing Countries, UNCTAD (Geneva: 2005).<br />
20