Can domestic policies really boost trade?

How far domestic policies of a country can go to boost trade needs to be looked into in the context of the globalised trading environment of today. Former WTO director general Pascal Lamy who visited Dhaka last week made it a strong point to stress upon the issue as a solution to many of the problems facing trade by countries like Bangladesh. Lamy who had a fairly peaceful stint as the WTO boss as against the uncertainty and even lack of credibility around the global trade body now, was in the capital to win support from Bangladesh for his country France's candidature to host World Expo-2025. At a public lecture organised by the Centre for Policy Dialogue (CPD), he spoke about his conviction that domestic policies alone can take care of a lot of deterrents and help trade to grow.

The former WTO chief, who also headed the EU Trade Commission, is no doubt one of the most resourceful persons globally to reflect on trade, especially on the many trade distorting situations confronting the developing and least developed world. Given his background and years of dedicated work on global trade, one has but to take his observation as more than just positive thinking. We can well recall, he quite often spoke of value chain as one of the key factors to improve upon as a means to boost trade and economy. Curiously, his insistence on domestic policies do not seem to auger well with the current dynamics of trading where things are more thrown upon from beyond than evolved and worked on by individual countries.

In his lecture Mr. Lamy said most of the solutions lie with domestic policies, adding, "I do believe trade opening brings benefit on the number of conditions that has to be made. Some of these solutions are international. There is an issue of the fairness of the global trade regime and it is only partially been addressed in the recent decades." While referring to the importance of domestic policies, he stressed the need for policies such as competition policy, industrial policy, welfare policy and social security polices to reap benefits from trade. People have been living and acting together on the planet for a long time, he said, but regretted that "this positive relationship is somehow broken."

There is no arguing the importance of effective policies that a country needs to frame and execute to facilitate trade, but the question one cannot skirt around is: how far can domestic policies hinge on accommodating trading practices, rules and regulations of other trading partners-big or small? Domestic policies such as competition policy, exim policy and industrial policy are there to facilitate price stability, fairness in businesses, and also to create the environment for producing more for local consumption as well as exports. This, one must agree, is only one side of the coin. On the flip side, it is the rules and practices of trading partners including the asymmetries in economic strength and capacity that come up as potentially impeding factors. This is the case with most developing and less-developed countries which keep looking for a congenial and level playing field to negotiate trade with partners.

This precisely is the reason why countries these days are more eager than ever for tie-ups at regional level, preferably with countries where they can hope to find things less demanding. The logic behind bilateral deals is also strongly backed by this understanding of mutual comfort. Ever since regional and bilateral trade agreements in various shapes and forms began to emerge during the past decades, one of the key factors contracting countries considered motivational was the creation of level playing fields, a scenario not in clear sight in the globalised trade environment packaged by the WTO. There can be no denying that regional initiatives are often more encompassing than the focused concerns of the WTO. This is natural, as regional neighbours may share concerns and interests that do not necessarily relate to those further away. There may be more than one agenda for cooperation in similar and sometimes overlapping areas of policy or economic activity.

However, there were many regional trade deals where because of asymmetries in the economic standings of the countries, the playing field did not prove to be level enough for all to take part in equitable terms. Interestingly, as against multilateralism which is viewed to promote global trade irrespective of regions, regionalism in trade is pronounced in terms of promoting both trade and cooperation at regional levels.

Mr Lamy is pretty well known for his 'anti-regional' stand. In the later part of his tenure as the WTO DG, he was quite vocal in alleging that regional trade deals were causing 'policy fragmentation' and affecting 'coherence' in the rule-based multilateral trading system to the extent that they were instrumental in undermining the WTO's liberalisation efforts.

Now, at a juncture when multilateral trading is failing the developing countries, and regional trade deals are providing some reprieve, domestic policies can at their best strengthen a country's supply base as well as take care of much of its weaknesses in product development, adaptation and quality assurance, but not guard against its difficulties in international trade — a good deal of which emerges from policies of stronger trade partners that are anti-trade in character. There are so many instances of such barriers and market access difficulties where domestic policies, however proactive from a country's perspective, cannot be expected to rise up to the task.

[email protected]