Trade Policy Note Final-rev08 - Development

Tariff Policy and Industrialization Strategy
A successful industrialization policy is one which allows a country to draw benefits
from the globalization process by moving from static to dynamic comparative
advantage. In this context, an appropriate balance in industrial policy design needs to
be struck between the need for countries to take advantage of external effects that lead
to the emergence of dynamic competitive advantage over time while at the same time
recognizing that different countries will be better at producing different goods.
Within this framework, the starting point is typically resource -based and labour
intensive manufactures, often, but not always, the development of a te xtile and
clothing industry (see Annex A to Section 3). The industrialization process starting
from this initial type of industry should lead to the production of medium technology
consumer goods and then up the ladder to high technology consumer and capital
goods production. The success of some developing countries in world trade (eg.
Republic of Korea) has, to a significant effect, been a function of their ability to
manufacture and export increasingly higher technology manufactured goods.
The need for tariff protection changes as countries move up this ladder. At the first
stage, tariffs are required to develop domestic labour intensive consumer goods
industries. At a subsequent stage, it is the relatively more advanced technology
production that requires tariff protection to encourage investors to enter into
technologically more complex activities. At this stage, the protection for the lower
stage industries can be phased out. Such an approach can help attain the MDGs by
ensuring that new, higher value added more advanced industries are established to
provide better quality employment opportunities for those in the more labour
intensive industries before the latter are exposed to international competition. This
should also provide more decent and productive work for youth in higher technology
industries (MDG8, Target 17), by stimulating a virtuous spiral of growth, poverty
reduction and human development. 19
Box 8: Social Sustainability Threshold
In the absence of the “virtual upward spiral” mentioned above there would be a risk of a w
downward spiral that could drop below the “social sustainability threshold”, i.e., the absolute
limit of negative effects of policies or economic reform measures (such as trade
liberalization), in terms of the deterioration of the situation or their economic prospects and
opportunities, which a social group or society in general is willing to support without
revolting in one way or another,. Below this threshold, a country enters a turbulent area of
social disturbance, economic breakdown and overall instability where economic laws no
longer hold (preventing anticipated future positive effects of reform from materializing). 20
19 See also Malhotra, Kamal, “National Trade and Development Strategies: Suggested Policy
Directions” (April 2006), background paper for UNDP Asia-Pacific Human Development Report,
Trade on Human Terms: Transforming Trade for Human Development in Asia and the Pacific, UNDP,
June 2006. See also Akyuz, Yilmaz, The WTO Negotiations on Industrial Tariffs, What is at Stake for
Developing Countries, Geneva 2005.
20 See Ivan Martin In Search of Development along the Southern Border: The Economic Models
Underlying the Euro-Mediterranean Partnership and the European Neighbourhood Policy paper
presented to Seminar on Free Trade Agreements in the Arab Region 9-11 December 2006
22