On Tuesday, the Center hosted a breakfast discussion with Paul Collier about his new book The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It. My colleague, Michael Clemens, recently published a review of the book in Foreign Affairs, placing it in the broad context of the debate over development and whether aid or other rich-country interventions can make a difference.
In his stimulating and mostly persuasive presentation, Collier highlighted three areas where rich countries can act to improve the development prospects of people living in the bottom billion (mostly located in Africa, but also some in Central Asia): security, international standards and codes, and trade. I would like to focus on Collier's trade recommendations and suggest that he overemphasizes the role that preferences can play in boosting Africa's chances to cross the competitiveness threshold, while underestimating the potential for the Doha Round of global negotiations to do any good.
As Collier notes, sub-Saharan apparel exports to the United States grew sharply after the African Growth and Opportunity Act (AGOA) was passed in 2000, allowing duty-free exports of apparel and other goods. But apparel exports sank after the quotas restraining China and other competitive suppliers expired in 2005.
Renewed restraints on Chinese exports appear to have slowed the decline, but those restrictions expire at the end of next year and the future for sub-Saharan apparel exports remains very uncertain.
This suggests that the current preference margin (the difference between the zero tariff on AGOA-eligible exports and the average 15 percent on other apparel exports) is not sufficient to overcome Africa's other competitiveness problems and that the focus should be on improving infrastructure, skills, regional integration and other supply-side constraints. Given the importance of the rural sector in Africa, Collier also said too little about the need to expand AGOA to cover key agricultural products, including sugar, peanuts, and tobacco. This would extend the benefits of AGOA beyond the five countries responsible for nearly 90 percent of apparel exports.
Collier argues for a trade policy focused on the needs of the bottom billion. But his criticism of the Doha Round is puzzling. In his book, he calls for a "transfer round" at the World Trade Organization (WTO) that would provide "an unreciprocated reduction in trade barriers against the bottom billion" (p. 171). But that is broadly what is on offer. The least-developed members of the WTO (not exactly the same as Collier's bottom billion) will benefit from whatever multilateral liberalization is negotiated by other members, while not being asked to undertake any liberalization themselves. Collier might respond that rich countries need to do even more. But they already pledged to do so in Hong Kong at the end of 2005 by committing to provide "duty-free, quota-free" (DFQF) market access for the exports of all LDCs (on at least 97 percent of tariff lines in the United States). It is not clear what more Collier's vision of a transfer round includes.
And what of the costs of a Doha Round failure, which Collier applauds as opening the door for a trade policy focused on the bottom billion? Collier is right that the estimated economic gains for Africa from the Doha Round are essentially nil. But an International Food Policy Research Institute study shows that 100 percent DFQF increases the gains for LDCs substantially. A Doha failure would also mean that commitments to reduce subsidies and open markets for agricultural products would be lost. Collier is right that middle-income countries such as Brazil and Thailand would capture the bulk of these gains, but what of the West African cotton farmers whose plight he laments in his book? Perhaps most import, however, are the consequences of failure for the system of rules that protect the smallest and poorest countries from arbitrary discrimination by rich countries if the WTO loses its credibility. Yes, some new rules, such as those strengthening protection for intellectual property are potentially anti-poor, but the WTO rules provide substantial flexibility and offer a far better deal for developing countries than what they face under unilateral pressure and bilateral negotiations with much larger, richer trading partners.
As with the aid effectiveness debate, the answer to multilateral versus preferential trade policy is not either/or. It must be both—and it must include effective aid as well.