The WTO and the Shrinking of Development Space

How Big is the Bite?

in The Journal of World Investment & Trade
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The WTO and the Shrinking of Development Space

How Big is the Bite?

in The Journal of World Investment & Trade


The single set of Nics we examine includes Brazil, Mexico, India, South Korea, Hong Kong and Taiwan. This list is a simplified group of both first- and second-tier Nics, using an adapted definition based on the criteria used in the East Asian Miracle Report (World Bank, 1993). The first tier is defined as the 4 tigers, which are all are commonly classified as high-performing Asian economies. This tier includes South Korea, Hong Kong, Taiwan, and Singapore. The East Asian Miracle Report describes the second tier as "newly industrializing economies". While the Report deals only with Asia, we use their criteria to also include countries such as Brazil and Mexico, since they also fall into the top 20 growth group, the same as the second-tier Asian countries. Second-tier countries can thus be defined to include Brazil, Mexico, India, Indonesia, Malaysia and Thailand. So, together, the group of first- and second-tier developing countries become the single set of Nics considered in this article.

2 These policies were not exclusive to the Nics; similar policies and activities were also used by the First World countries (Chang, 2004). 3 There are a number of rules-based analyses documenting various facets of this occurrence. See, for example, Wade (2003); Shadlcn (2005); see also Amsden (2005). 4 The Trade Policy Reviews that we read through include: Brazil (1992, 1996, 2000, 2004); India (1993, 1998, 2002); Indonesia (1990, 1994, 1998, 2003); Malaysia (1993, 1997, 2001); Mexico (1993, 1997, 2002); South Korea (1996, 2000, 2004); and Thailand (1991, 1995, 1999, 2003).

As Amsden (2001) notes in her discussion of "getting the prices wrong", the open market pricing system is not necessarily an efficient coordinating mechanism. Under perfect markets, prices reflect scarcity, which serves to incentivize production. However, in a world where profits in many sectors are tied to proprietary knowledge, prices provide inadequate indicators. This problem was recognized early on by Gershenkron (1962), who suggested that more than a market signal would be necessary in order to stimulate investment in non-traditional markets.

6 There are also a number of other sources that contribute to the shrinking policy space available to countries: mission creep in aid agencies; and free trade agreements. For a historical perspective, see Chang, 2005. In this paper, we focus exclusively on the WTO.

For a survey of the various studies on the different rates of social and private returns, see Hall, 1996.

I In the case that pre-dated and foreshadowed the Agrcement on Trade-Related Investment Measures, the Panel ruled Canada could not give differential treatment to Canadian firms. Because a group of developing countries threatened to block the Panel decision, the 1984 settlement includes a paragraph at the end that the interpretation would not apply to the developing countries: "The Panel recognizes that in disputes involving less-developed contracting parties, full account should be taken of the special provisions in the General Agreement relating to these countries." Panel Report, GATT FiRn Case, 7 February 1984, 5(a) 5.2.

9 Article 9(1): "Signatories shall not grant export subsidies on products other than certain primary products." 10 Article 11(1): "Signatories recognize that subsidies other than export subsidies are widely used as important instruments for the promotion of social and economic policy objectives, and do not intend to restrict the right of signatories to use such subsidies ..."

Since production subsidies are a more efficient instrument than tariffs to increase production (for example, see Aiello, 2002).

12 The World Bank (2001) noted that the average tarifFrate on manufactured goods had fallen from 40 per cent to less than 5 per cent in 2001.

1' Interestingly, there were several requests for consultations against Brazil during 1996 and 1997, but none ever went beyond the consultation stage. 1; WT/DS59/R.

The developing countries generally had to implement reforms that were already in place in the advanced countries; see, for example, Finger and Schuler (2000).

�� One issue we do not discuss here is compensation-based shifting. The WTO sets down policy regulations but also enables countries to violate those regulations if they provide compensation to countries that are negatively affected by the violation. This type of shift is known as compensatory shifting. The State is not claiming that the policy has been withdrawn or has not explicitly moved it to a W ro-sanctioned exception, but, rather, the State is accepting that it needs to have tins policy and is willing to provide compensation in order to maintain it (Weiss, 2005). �� Brazil, July 1995: WT/Bop/N/4; India, July 1996, WT/Bop/N/11.

t8 Indonesia Trims Notification (23 May 1995), G/TRIMS/N/1/IDN/1. See, for example, Import Licensing Committee, Meeting of 5 May 2004 and Meeting of 15 June 2005.

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