Trade Not Aid is the Key to Development

The Doha Round of world trade talks is at a critical stage. The Hong Kong Ministerial is just over a month away and much remains to be done to reach agreement. A successful outcome from the Doha Round carries the promise of significant poverty reduction in developing countries.

A key lesson from the last four decades is that trade, not aid, holds the key to successful development. Any one not convinced of this should look at the experience of East Asia, and especially China, where trade has helped 400 million people escape poverty in the past 20 years.

The potential global gains from full trade liberalization are enormous, in the range of $290 - $460 billion per year by 2015. Even this may underestimate the true gains since it does not include the substantial, but hard to measure, benefits from services liberalization and trade facilitation. The current trade talks are a significant opportunity for global progress toward this goal.

This opportunity is critical for the Middle East and North Africa (MENA) region. Multilateral trade liberalization - under a trade round named for a MENA city - offers the best hope for the region to achieve sustainable higher growth and make a serious dent in its unemployment problem.

Unemployment - currently close to 13 percent - is a major social and economic issue for many countries in the region. The key to lower unemployment is labor-intensive growth, and the key to this growth is a trade-oriented strategy led by the private sector. Without greater integration into the world economy the region risks continued stagnation in the medium run - the current buoyancy from high oil prices notwithstanding. Integration will require both domestic reforms and greater access to global markets. The Doha Round is an opportunity to pursue both.

MENA countries have key interests on the table. Agriculture, while declining, remains an important sector for employment, water management and poverty in several countries. Ninety percent of the global gains from agricultural liberalization come from market access, and the MENA region stands to gain from its proximity to Europe if the Doha Round succeeds in opening this huge market. At present, access to the EU market is limited by high tariffs, quotas, onerous inspection requirements and other restraints. Yet several MENA countries could export many more fresh fruit, vegetables and horticulture to the EU if these barriers were reduced.

For some MENA countries, the Doha Round will mean addressing their own agricultural protection. While this means greater efficiency and overall competitiveness in the longer-term, it poses adjustment challenges in the short term. "Aid for trade" to address supply-side constraints and help with these transitional adjustment issues, including for net food importers, is a key complement to an ambitious outcome from the Doha Round.

Services account for the biggest proportion of Gross Domestic Product in virtually all MENA countries. The Doha Round is an opportunity to introduce competition into "backbone" services such as finance, transport and telecommunications. At present, the low quality and high cost of these services puts local firms in many MENA countries at a competitive disadvantage and prevents them from becoming part of global production chains. Services liberalization also means openness to the FDI that can creates new jobs and exports from information technology, such as, call centers and back-office services.

What's more, by opening its own markets, the MENA region is better placed to seek market opening by rich countries in key areas of its interest, such as temporary access for its service workers. Everyone wins when the MENA region's young and growing labor force fill the gaps left by the EU's aging and declining labor force. At present, this trade faces many barriers. But solutions are possible and the Doha Round offers the chance to get more access for temporary workers providing services on fixed-term contracts.

Trade liberalization is not a game in which some must lose because others win. The essence of trade liberalization is higher output through higher productivity, with the gains for all to share. But for this to happen, key players must set aside narrow interests and cooperate towards an outcome that is clearly better for all.