Trade vs' Aid

1
Trade vs. Aid

• Rich Nation strategies for helping the Poor in
  Poor Countries

2
Pro-poor Nation Trade Strategies

• Open markets in garments, footwear and
  Agriculture
• Reduce agricultural subsidies for nonfood items
• Encourage poor countries to open markets, to FDI
  and to join the WTO as China did in 2001.
• Promote regional trade blocs favoring poorer
  nations, such as Nafta, the FTAA, or the EU,
• Let poor consumers buy clothing shoes, computers,
  from poor countries such as China, Bangladesh w/o
  an extra 20-30 tax.

3
Increase Foreign Aid by

• Increasing conditional multilateral aid
  disbursements (World Bank, ADB, etc.)
• Contribute to UN Aids-Malaria-TB fund
• Debt-relief forgive debt of poorest countries
• Increased food aid via the World Food Program?

4
Six Advantages of Increasing Trade with Poor
Nations

• Encourages work and creates jobs about 35 jobs
  in LDCs for each OECD job lost, in fact, lower
  tariffs likely adds jobs both in the U.S. and
  abroad.
• Reduces cost of basic foods and clothing.
• Low wages target the poor (self-targeting)
• Reduces immigration, speeds convergence
• Fights terrorism? (see Kristof Let them
  Sweat).
• Undermines local elites, reduces corruption and
  SIGs influence in the U.S. Congress.

5
Disadvantages (difficulties) of Increasing Trade
with Poor Countries

• May increase inequality initiallyurban, skilled
  worker bias (small farmers excepted).
• Threatens jobs in the OECD (not really!)
• Political Opposition threat to local firms
  creates political opposition within OECD.
• Puts U.S. consumers in contact with severe
  poverty
• Does not reach some disadvantaged groups
  Geographically isolated, ill or otherwise unable
  to work in export industries.

6
Advantages of Cash and in-kind Foreign Aid

• Aid can be effective, if it is well targeted
  food is an example that has stimulated growth in
  LDCs.
• Can improve health and education, pre-requisites
  for broad benefits from globalization.
• Can reach ill and isolated poor in rural areas.
• Cost of aid can be low (food aid- farm
  surpluses).
• Can save or prevent failed nations such as
  Somolia or Afghanistan remove safe havens for
  terrorists.
• Debt Relief can give some poor countries with a
  history of political instability a new start
  (Bono).

7
Disadvantages of Increasing Aid

• Fosters corruption, enhances power of government
  and local elites.
• Can undermine work and investment incentives.
• Hard to target lots of leakage.
• Politically unpopular due to popular awareness of
  above problems.
• Food aid can undermine local farm profits.
• Debt relief reduces access and amount of
  international credit and future aid.

8
Six point World Bank GGP Agenda includes both
Trade and Aid

• Doha Trade liberalization Round (pp. 155 55-64)
• Investment climate- governance (pp.156,85-87,121-2
  5)
• Primary education (pp. 157 85-87)
• Social Protection for workers (pp.158,
  112-14,117-19)
• More foreign aid (p. 159 and 67-68)
• Debt Relief for HIPCs (p. 159 and 67-68)
• Page numbers refer to World Bank Globalization,
  Growth and Poverty.

9
What is the Doha WTO Agenda?

• A break from TRIPs (patent restrictions on drug
  use and production) in Pharmaceuticals until
  2016 but other IPRs will be respected.
• Accelerate the ATC to phase out quotas and high
  tariffs on garments and footwear.
• Begin discussions of how to reduce farm subsidies
  in the EU, U.S. and Japan both to give LDC
  farmers access to these markets and to stop
  dumping of subsidized farm products.

10
Reducing Garment and footwear trade barriers can
benefit the poor in the U.S. and in LDCs

• Poor consumers are hit hardest by higher cost low
  end clothing.
• Pakistan, Indonesia and Bangladesh along with
  Tunisia, Jordan etc. are important allies who how
  pay big taxes to sell their products in the U.S.
  market.
• Low wage jobs in these industries target the
  poorest workers (women) very effectively.

11
In the U.S., trade taxes hit poor families
hardest, taking away 3-5 days of income.
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Tariffs raise the price of cheap shoes by 50,
high taxes on poor families.
15
But dont tariffs and quotas save American jobs?
Probably not. They costs U.S. jobs

• Tariffs are high taxes, that discourage
  employment and sales the U.S. International
  Trade Commission (2) says ending protection in
  garments and shoes would increase employment in
  the U.S. instead of handing 300 over to the
  government, single parent families would spend it
  on other goods and services, creating more jobs
  in their communities but not jobs making shoes
  and clothes.
• Employment in the garment and shoes has declined
  as fast as other protected sectors despite very
  high rates of protection quotas and escalating
  tariffs.

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Some jobs will be lost in garments and shoe
industries, but just a few

• Employment in ladies garments has fallen to about
  24,000 and just 3,000 U.S. workers make sneakers
  (not the cheap ones).
• These workers can be assisted with better
  targeted adjustment assistance they will switch
  jobs be as well off, and poor families will save
  hundreds of dollars per year (see Kletzer and
  Litan (2001) A prescription to relieve worker
  Anxiety IIF (see web page).

17
Conclusions on Trade

• Trade liberalization in Textiles and Non-food
  Agriculture can help millions of the poorest, and
  save all American consumers moneyan almost
  painless cure when combined with adjustment
  assistance for displaced workers.
• The WTO ATC should be implemented and
  accelerated, just as a tax reduction measure.
• There is still a role for Foreign Aid however,

18
References, Further Reading

• U.S. International Trade Commission, (USITC)
  (2002)Economic Effects of Significant Import
  Restraints Third Update, July, available at
  ftp//ftp.usitc.gov/pub/reports/studies/pub3519.pd
  f.
• The Truth about Industrial country tariffs
  September 2002, v. 39 no. 3, Finance and
  Development (see course web page)
• Gresser, Edward, (2002) Toughest on the Poor
  Tariffs, Taxes and the Single Mom Policy Report,
  September (see web page)
• Lori G. Kletzer, Litan, Robert (2001)A
  Prescription to Relieve Worker Anxiety
  International Economic Policy Briefs (IIE)
• (see web page or www.iie.com/policybri
  efs/news01-2.htm)