Wednesday, 11 December 2013

The WTO Bali Deal: ‘Doha Lite and Decaffeinated’

By Dirk Willenbockel

Echoing the official World Trade Organization (WTO) line, many commentators hail the trade deal reached at the WTO Ministerial Conference in Bali on Saturday as a historic landmark agreement that will create 20 million new jobs and a trillion dollars in annual global economic gains. However, a number of charities and campaigners have criticised the Bali package as a scheme that exposes hundreds of millions to the prospect of hunger and starvation. Neither of these assessments withstands closer scrutiny of the actual contents of the package.

Is the WTO Bali Deal a historic moment?

For sure, the label ‘historic’ is justified in a sense. The Bali deal is the preliminary culmination point of 12 years of protracted negotiations under the Doha Round launched in November 2001.  It is also the first truly multilateral pact agreed among all members since the WTO inception in 1995. Over the years, the negotiation process ran into various impasses, and the Doha Round was declared dead by serious experts on several occasions. The fact that the new Brazilian WTO Director-General Roberto Azevedo managed to breathe a new lease of life into the Round by achieving unanimous approval of the deal by the 159 member states after just some 10 weeks in the job deserves respect.

What will the Bali accord mean for the poorest countries?

However, to strike the Bali accord, all the bones of contention within the ambitious wider Doha development agenda had to be taken out of the Bali package by designating it for future negotiation. What is left has been poignantly labelled ‘Doha Lite Decaffeinated’ by Jagdish Bhagwati, eminent trade economist and pro-globalisation guru par excellence.

The only legally binding commitment in the package is about trade facilitation – that is the implementation of measures to tackle red tape and streamline cumbersome customs procedures that cause costly delays at borders and impose other trade transaction costs. Empirical estimates show that such transaction costs are notoriously high, particularly in low-income countries. So the Least Developed Country members could potentially reap significant gains from a resolute implementation of such measures.

Implementation will require staff capacity building and equipment investments. Developed countries have committed to provide assistance for these investments. Doing so is obviously in developed countries’ own interest: a case of win-win. Of course, the required investments will take time and the deal includes provision for LDC’s to phase in the measures over a prolonged period – though in many cases it would make more sense not to exhaust these provisions. So the gains for LDCs will only emerge gradually over time.

Beyond trade facilitation, the Bali accord pays lip service to a range of other trade liberalisation measures of particular interest to the LDCs. For example, developed countries will:
  • “seek to improve” the product coverage of duty-free quota-free (DFQF) access for imports of LDC origin
  • “agree on the importance of pursuing progress” in lowering US subsidies for cotton farmers which particularly hurt cotton producers in a range of West and Central African countries
  • “endeavour” to relax restrictive rules-of-origin requirements that often prevent LDCs from making use of existing DFQF preferences.
So what do the benefits of the cited 1 trillion dollars overall gain actually look like on a regional basis? A glance at the Peterson Institute study, which is the source for this figure, along with some auxiliary calculations, suggests a real income gain of 1.0 per cent for developed countries and a 2.6 per cent gain for developing countries as a whole. Within the latter group, sub-Saharan Africa gains 2.5 per cent, South Asia 0.24 per cent and East Asia 3.2 per cent of baseline GDP from the trade facilitation component. These estimates are not based on an articulated multi-region simulation model.  They combine estimates of trade flow impacts due to trade facilitation from a separate World Bank study with a simple – if heroic - ad hoc scaling-up approach that transforms trade flow impacts into GDP impacts. It is remarkable that these estimates are significantly larger than corresponding typical estimates from model-based simulation studies that consider a full Doha agreement.

One recent CEPII study of this type allows a direct comparison with the Peterson results, as it includes a similar pure trade facilitation scenario. With a projected gain in global GDP of 60 billion dollars for 2025 (0.1 per cent of GDP as opposed to 1.5 per cent in the Peterson study), the CEPII results are more than an order of magnitude smaller, though the study also suggests substantially higher gains for sub-Saharan Africa (+0.5 per cent).

A potential reason for these divergences is that the World Bank study, on which the Peterson report draws, contemplates a far wider set of trade facilitation measures (including, for example, transport infrastructure investments) than actually included in the Bali agreement. It might be conjectured that these estimates contain an element of benign strategic over-optimism, and that this may even have contributed to the completion of the deal.

To conclude, the Bali package has modest ambition overall, but subject to proper implementation the trade facilitation measures can generate non-negligible gains for LDCs and other developing countries. Some see the wider significance of the deal in re-opening the door for the completion of a comprehensive multilateral agreement in the near future. Given the sheer pettiness of some of the issues not conclusively resolved by the Bali deal, I am not holding my breath.

Dirk Willenbockel is a Research Fellow with the Globalisation Team at institute of Development Studies.

Wednesday, 4 December 2013

Inclusive Business Case Studies – Reflections on timescales and communication

Elise Wach, Monitoring Evaluation and Learning Adviser at the Institute of Development StudiesBy Elise Wach

IDS recently partnered with the Business Innovation Facility (BIF) and Said School of Business to conduct a number of case studies (which we’re calling "Deep Dives") to find out more about the businesses that the BIF has been supporting.

The idea was to go beyond what was already being captured by the BIF’s monitoring and evaluation system and try to capture some of the rich lessons coming out of the pilot initiative. Specifically, these case studies aimed to provide useful insights into (a) commercial viability of the business models, (b) additionality of BIF’s technical support, and (c) development impacts.

Despite the fact that each case study was unique, in terms of business size (small social businesses to large corporations), market sector (agriculture, renewable energy, retail, etc.), stage of the business model development (early thinking to scaling up), and country (five countries in Africa and Asia), I did find that there were a few lessons to be learned across all eight.

One of the principal lessons for me was related to timescales, which I’ll break down into three points:

1. It takes time for business approaches to get off the ground
After three years of working with businesses to provide technical advice, very few of the business models have really taken off or gone to scale. Many of them may well be on their way, but it is important to note that they’ve all required a good amount of time (i.e. years) to get going, and that this process is outside of BIF's control.

2. It takes time to start having a development effect
Given that none of the businesses were at full scale at the time we conducted the Deep Dives, the development impacts (with a small ‘i’) were still a long way off. Therefore, much of the investigation around the development impacts was necessarily based on narrative and theory: speaking to people about what the effects might be, determining plausibility, identifying other possible effects that might also result and so on.

Even once the business (or business model) is up and running, just as in a development project, it will take time for the development effects to unfold: for markets to change, behaviours to shift, people to benefit. Many of the effects noted are indicative at this stage.

3. It takes time to actually assess all of this
The authors conducting the Deep Dives were able to get fabulous data and qualitative information from companies, which provided extremely insightful information about how the business model had unfolded, the additionality of BIF support, and commercial viability.

But in terms of development impacts, students had to rely on just a handful of interviews or focus group discussions: so they weren’t able to do anything representative or systematic. That doesn’t mean that the exercise hasn’t been useful: in some cases, the deep dives uncovered information which may enable businesses to overcome obstacles and function more smoothly.

Based on these time issues, one of my key takeaways is:

Regular communication with potential beneficiaries and stakeholders is vital

In other words, there needs to be channels for communication between the people whose lives will be affected (positively or negatively) by the business model, and the people who are involved in getting the model off of the ground. This is essential to ensure that we as practitioners aren’t basing our activities on assumptions made by business employees sitting in offices far away from where the development is meant to take place, but based on information and perspectives provided by the people who are or will be affected by the business.

This changes the business approach from a scenario such as, ‘I know that poor people grow carrots and this innovation is going to make carrot production more profitable, so the poor people will therefore benefit’, to a two-way dialogue in which carrot growers can discuss and identify strategies to improve their quality of life and how that relates to a value chain (or not) and also work on course corrections as things develop over time (e.g. when training is inappropriate or when crops fail). This approach goes beyond traditional market research of people’s preferences and behaviours, to understanding people’s broader lives and realities.

What this communication actually looks like in practice will be different depending on context, business approaches, markets, etc. It may be direct communication or it might be mediated through a partner or a system.

Perhaps in the first instance, communication could be brokered or facilitated by an initiative such as BIF. Ultimately, however, there needs to be some way for these groups to communicate (directly or indirectly) with one another, after the support has ended and the inclusive business approaches are set to continue.

Given the relatively expansive timescale from conception to impact, this regular communication can help ensure that the approach isn’t just a well-intentioned business but one that actually contributes to improvements at the ‘bottom of the pyramid'.

Elise Wach is Monitoring, Evaluation and Learning Adviser in the Impact and Learning team at the Institute of Development Studies

Monday, 2 December 2013

Preliminary evidence on the impact of voluntary voting in Chile: Not good news

By Carlos Fortin

In a blog in early 2012, I reported on the debate in Chile about replacing the existing system of compulsory vote with voluntary vote in national elections. I cited the case of the Netherlands, where a similar change in 1970 led to negative impacts in the shape of a fall in overall participation and a proportionally higher fall in the participation of women, the young, the less educated and the poorer. Not, I concluded, exactly what Chilean democracy needs today.

The change was however duly approved and we have just had the first presidential and parliamentary elections under the new system. While the evidence is not yet in to pass a definitive judgment on all the aspects mentioned, some data on at least two of them seem to lend credence to the fears I was reporting on.

Figure 1 shows the level of abstention in the presidential elections in Chile since the return to democracy. Abstention in the first democratic election in 1989 was at a historical low of 13.2% and afterwards rose steadily but fairly gradually (except for a more pronounced increase in 1999) to reach 41.2% in 2009, the last election with compulsory vote. In the 2013 election it jumped nearly 10 percentage points to 50.7%. While there are no doubt many other factors at work, it is hard to escape the conclusion that the shift to voluntary voting has led to a decrease in electoral participation.

Figure 1. Chile: Abstention in presidential elections since return to democracy
Non-voters as percentage of eligible voters
Source: Gonzalo Contreras and Patricio Navia, Participación Electoral en Chile, 1988-2010, Buenos Aires, Instituto de Investigaciones Gino Germani, 2011

On the differential impact of lower turnout, there is some evidence concerning the impact by socio-economic status; it is less conclusive, but the direction it points to is also clear. Figure 2 plots all the municipalities of the Santiago Metropolitan Region in terms of the incidence of poverty in their populations in 2012 and the voter turnout. The negative correlation is apparent: the more the poor in a municipality, the lower the electoral participation (the correlation coefficient is -.496, significant at the 0.01 level).

Figure 2. Chile: Participation and poverty in the 2013 presidential election
Municipalities in Santiago Metropolitan Region
Source: Gonzalo Contreras and Mauricio Morales, Precisiones sobre el sesgo de clase con voto voluntario, 2013

This second finding is not conclusive firstly because it covers only the country’s capital; impressionistic evidence for the rest of the country is mixed, with at least three other regions showing similar tendencies to Santiago but others apparently showing no differential impact.

More seriously, the finding could be criticised for falling prey to the ecological fallacy: it does not tell us whether it was the poor within each of the municipalities that abstained to a larger extent.

More research is therefore needed to arrive at firm conclusions. In the meantime, though, the evidence presented is a serious warning signal; in fact, there are already voices in the Chilean Parliament calling for a reversal of the change, and they include some who originally supported voluntary vote in the hope that it would lead to higher, and more committed electoral participation.

Carlos Fortin is an IDS Research Associate currently working on the relationship between the emerging international trade regime and human rights.