The UK's trade White Paper – a new trade and investment framework, but will it help poor countries?

Yesterday the UK government launched its trade White Paper entitled Trade and investment for growth, on a day overshadowed by bad UK trade data and a new deal with banks.

Trade and investment are crucial components in growth strategies that, in turn, provide the basis for desirable development outcomes. Notably, one third (20 out of 62) of the policy measures contained in the White Paper’s ‘Trade and investment framework for action’ directly relate to developing countries (and least developed countries in particular). So, which of the Paper’s policies should be highlighted from a development perspective, and what gaps remain?

UK trade, investment and migration policies

The White Paper sets out a strong role for government in facilitating trade and investment: ‘The role of Government is to provide the conditions for private sector growth and investment, to use all the levers it has to break down barriers faced by industry both at home and abroad, and to promote a strong and credible global trading system’.

One government measure is to provide export credits to UK exporters. However agencies such as Export Credit Guarantee Department face strong challenges; export credits need to be extended at commercial terms (or risk inconsistencies with rules of the World Trade Organization), face pressures to be greened, and need to compete with Chinese credit agencies (see this European Parliament meeting). Too much export support can be a waste of tax payers’ money, whilst too little can expose the negative effects of market failures facing UK exports and endanger its competitiveness. Little is said about the development effects.

Promoting UK exports can help rebalance the UK and global economy, and as the Paper rightly argues, this will require a focus on ‘high growth economies such as the emerging powers in the G20‘. More serious engagement with the G-20 (mentioned 27 times in the Paper) is needed, along with a rejection of protectionism (if the UK remains open to imports in the face of challenges from emerging powers this would also benefit the poorest: some 1% of UK imports are from low income countries). There is little attention to how the G-20 might relate to low-income countries (other than through preference schemes).

Whilst the paper is good on openness of trade and investment, from an economic perspective it is incredible that a paper focusing on growth fails to adequately cover migration (which has direct links to trade and investment but is mentioned only three times). The paper states that ‘Access to imports improves the competitiveness of UK companies and spurs innovation’. The consultations (oral as well as written) for this Paper suggested to me that importing skills can be just as important as importing cheap goods. The empirical evidence suggests that immigration has, at worst, no effect on GDP per capita, whilst it would still improve incomes as well as average public services due to more tax receipts. The Paper does mention General Agreement on Trade in Services mode 4 (temporary migration), but the EU’s current offer is restrictive.

Multilateral trade negotiations

The Paper identifies conclusion of the WTO Doha Development Round (DDA – mentioned 50 times) as a key priority and commissioned a paper from trade experts to regain momentum. According to the White Paper, ‘Concluding the DDA is the overarching trade priority for the UK Government and 2011 is the make or break year’. Although the Paper claims this would add US$110 billion to the global economy, it should be recognised that this is small for the world as a whole, and not much would go to the poorest countries. A challenge of the DDA is that some poor countries might lose, many do not benefit, and the main benefits go to emerging powers (and developed countries). Moreover other trade and non-trade economic issues are also important for the poorest countries. Most trade experts would not be against concluding the DDA on the right terms, but it remains questionable whether it can be achieved soon.

It is good to see the Paper arguing for ‘genuine and ambitious reform of the EU’s Common Agricultural Policy (CAP) and Common Fisheries Policy, including reform of trade-distorting elements of the CAP’, even though it falls short of saying which of the options currently on the table will be sufficient not to ‘undermine EU objectives during trade negotiations’. These objectives include ‘Policy coherence for development’, implying that developing countries should not lose out from CAP reform. On services, it offers few new suggestions of how services liberalisation can be achieved.

The EU and WTO preference schemes for Least Developed Countries, low-income countries or GSP (General System of Preferences) eligible countries are also discussed at some length. It matters greatly which countries are included or excluded from these categories. Why should an LDC receive preferences, but not a country that is still a low income but not an LDC? Who determines which country to include in the GSP scheme (e.g. if Pakistan is included, which other countries should?)

Aid for Trade

The best parts of the Paper relate to Aid for Trade for developing countries. The government will ‘focus the attention of the G20 and multilateral banks on trade facilitation, delivering a collective “call to action” for the Global Aid for Trade Review in July 2011’ and ‘scale up bilateral support for trade facilitation, with a focus on critical transport corridors across Asia and Africa’. Aid for Trade, and infrastructure in particular (mentioned 28 times in the Paper), can be an effective form of aid for trade. And ‘Trade will become a central theme across our bilateral aid programme, promoting regional integration and building the necessary infrastructure and institutions to strengthen trade (p. 69)’.

Support for integration in Africa, with 66 counts, is singled out in the Paper. There is much attention to supporting regional integration, with an overemphasis on advocating for new regional structures. The Paper is right, however, in supporting cross-border trade in those regions that are African priorities – in a forthcoming article in the Journal of Economic Integration we find that regional links are associated with economic growth (through more trade and investment) and greater firm-level productivity.

The Paper states that the UK will ‘Develop innovative approaches to working with the private sector to address specific constraints to export from developing countries, including through a revitalised CDC, the UK’s development finance institution, and the International Climate Fund (ICF)’. Consultations on CDC are underway, so the inclusion of this paragraph signals future changes. Does this suggest new ways of providing blended development finance?

A gap for the next edition of the White Paper

Finally, the paper has a major gap.

Whilst most global powers are increasingly concerned with access to raw materials, this UK White Paper mentions ‘raw materials’ only once, ‘natural resources’ only three times and ‘export restrictions’ just four. But the new trade challenges are here to stay.

The next European Report on Development, which the Overseas Development Institute and other European think tanks are leading for the European Commission, will focus on natural-resource management in times of increased scarcity and climate change. It would have been worthwhile if the White Paper had further examined the future of trade and investment policies in times of increased resource scarcity and climate change.

Authors

Director of Programme - International Economic Development Group
Dr Dirk Willem te Velde is a Principal Research Fellow and head of the International Economic [...]