Slide1 : Workshop on Macroeconomic Analysis and Policy REFORM Project, USAID/India
Globalization: The New Economic Order Presentation by Dr. Pawan K Aggarwal Deputy Chief of Party and Senior Advisor (Tax Policy) REFORM Project, USAID India New Delhi Workshop on Macroeconomic Analysis and Policy Mo3-PKA-Jha-New Eco Order : Globalization: The New Economic Order Presentation by Dr. Pawan K Aggarwal Deputy Chief of Party and Senior Advisor (Tax Policy) REFORM Project, USAID India New Delhi Workshop on Macroeconomic Analysis and Policy Mo3-PKA-Jha-New Eco Order
Coverage : Coverage General Agreement on Tariff and Trade: GATT (1947-1995)
World Trade Organization: WTO (since 1995)
Washington Consensus (since 1989)
Concluding remarks
GATT (1947-1995) : GATT (1947-1995) GATT was established in 1947 to oversea international trade with a view to create an environment of free trade
GATT negotiations were conducted in sessions referred to as “Rounds”
GATT held 8 rounds of negotiations
From the first in 1947, through the Uruguay round of 1986
GATT (1947-1995) : GATT (1947-1995) The main achievements of the first 7 rounds are:
Reduction of tariff rates among industrial countries
From an average of 40% to 5%
9 of the 10 disputes that were referred to GATT were settled satisfactorily, discreetly, without publicity
The volume of trade in manufactured goods multiplied 20-fold
GATT (1947-1995) : GATT (1947-1995) The Uruguay round (1986): Its main achievements are:
Further reduction of tariff rates in a phased manner
Evolving new international rules for
Trade in services and agriculture, and
Protection of intellectual properties
Agreement for phasing out multifiber arrangement covering textiles and clothing
Establishing antidumping laws
WTO (since 1995) : WTO (since 1995) On 1 January 1995, WTO replaced the GATT Secretariat
This replaced the practice of periodic rounds by a permanent process of reviewing the rules of international trade
By February 1997, there were 129 WTO member-countries
In addition, 31 countries had requested for membership
India is member of WTO
WTO (since 1995) : WTO (since 1995) In February 1997, there was a major trade and investment liberalization break-through
70 countries made an agreement that will cover 95% of the world’s telecommunications business
It ends state run monopolies and lifts restrictive regulations
It was expected to
Lower consumer costs
Expand telephone service area
Improve access to internet and satellite services
Washington consensus (since 1989) : Washington consensus (since 1989) It is a package of 10 reform proposals believed to be developed for promoting economic growth in Latin America
It was first presented by John Williamson in 1989, and expected to be adopted in 1989
The reform package was also summarized by the World Bank in its year 2000 Poverty Report
The package is based mainly on 3 ideologies
Macroeconomic discipline
A market economy
Openness to the world (e.g., in respect of trade and FDI)
Washington consensus (since 1989) : Washington consensus (since 1989) The reform proposals are:
Fiscal policy discipline
Primarily to check large deficits
Redirection of public spending
Focus on pro-poor spending
Spending on education, health and infrastructure
Tax reform
Broad tax base with moderate tax rates
Washington consensus (since 1989) : Washington consensus (since 1989) The reform proposals are:
4. Interest rates
Should be market determined
Positive (but moderate) in real terms
5. Competitive exchange rates
Trade liberalization
Replacement of quantitative restrictions with low and uniform tariffs
Openness to foreign direct investment
Technology, prices, growth
Washington consensus (since 1989) : Washington consensus (since 1989) The reform proposals are:
Privatization of state enterprises
State monopolies, efficiency
Brings benefits when done properly
Transfer of assets to privileged elite for a fraction of their true value needs to be avoided
Deregulation
Abolition of regulations that impede entry or exit
Regulations designed for safety or environmental reasons to continue
Washington consensus (since 1989) : Washington consensus (since 1989) The reform proposals are:
Legal security for property rights
This was primarily about providing the informal sector with the ability to gain property rights at acceptable cost
Washington consensus (since 1989) : Washington consensus (since 1989) Towards adoption of the Consensus:
In the early 1990s, many countries, especially in Latin America, attempted to implement an agenda similar to the Consensus
Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominical Republic, Ecuador, El Salvador, Guatemala, Honduras, India, Mexico, Morocco, Nicaragua, Paraguay, Peru, Tunisia, Uruguay, Zambia
Washington consensus (since 1989) : Washington consensus (since 1989) Towards adoption of the Consensus:
North American Free Trade Agreement (NAFTA)
The three North American countries (US, Maxico and Canada) agreed to gradually phase out or sharply reduce tariffs on foreign goods
A policy perfectly in line with the ideals of the Consensus
US President George W. Bush continues to support NAFTA
Washington consensus (since 1989) : Washington consensus (since 1989) Towards adoption of the Consensus:
Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)
US administration is currently negotiating an agreement similar to NAFTA with the Dominican Republic and Central America
Countries currently opposed to the consensus include:
Argentina, Brazil, Cuba, Venezuela
Washington consensus (since 1989) : Washington consensus (since 1989) Achievements/Failures
Most Latin American countries continue to struggle with high poverty, unemployment/underemployment, and low growth
Countries such as El Salvador and Uruguay have shown some positive signs of economic development
Chile has been a success story
However, according to Joseph Stiglitz, Chile success story owes a lot to the state ownership of key industries and currency interventions stabilizing capital flows
Washington consensus (since 1989) : Washington consensus (since 1989) Critical evaluation
It is not a strategy to avoid crisis
Economic growth effected due to series of crisis that emerging markets have suffered
Inappropriate associated policies (not required by the Consensus)
Opening up the capital account prematurely
Letting money flood in and overvalue the currency
Washington consensus (since 1989) : Washington consensus (since 1989) Critical evaluation
Incomplete set of reform strategies
Failure to undertake labour market reforms and strengthening of institutions
Excessively narrow objective
Acclerating growth without worsening income distribution
Birdsall and Torre (2001) gives a set of 10 reform proposals intended to improve income distribution without reducing growth
This package can be viewed as a complement to the Consensus
Washington consensus (since 1989) : Washington consensus (since 1989) Critical evaluation
Western countries that urge liberalization on developing countries maintain trade restrictions on the goods that developing countries are in a position to export to them
The hypocrisy of Western countries
Some leftist critics of trade liberalization, such as Noam Chomsky and Naomi Klein, see it as a way of throwing open the labor market of an underdeveloped economy to exploitation by a more developed economy
Washington consensus (since 1989) : Washington consensus (since 1989) Critical evaluation
The Consensus is widely held by many economists to be a 'suicidal policy' if implemented when an economy is weak.
It might succeed if implemented during a period of rapid growth
Concluding remarks : Concluding remarks A reform package may not suit all countries, or at all times, or under all circumstances
What works under rapid growth might fail under crisis
Reforms ancillary to a reform package could be as important as the package itself
These need to be identified and adopted
A move towards free trade is unavoidable
Time and speed need to be determined based on circumstances of individual countries
Concluding remarks : Concluding remarks India is member of WTO and contemplating
Further reductions in tariff on imports
Free trade zones such as SAARC
Rapid growth in inflow as well as outflow of FDI
Privatization of state enterprises
Slide24 : Thank You Pawan K. Aggarwal