Developing Countries Need a Successful WTO Most of All

Occasionally you come across a fact that changes how you think.

One such moment for me was when I discovered how the world had managed to meet the Millennium Development Goal of halving extreme poverty and hunger between 1990 and 2015.  It turns out that we met it five years early, meaning that nearly 1 billion people were lifted out of poverty in less than 20 years.  But what is really remarkable is that half the people lifted out of poverty globally came from just one country:  China.

How this happened will no doubt continue to exercise economists for generations to come.  Some argue that China is so exceptional in terms of is size, history, and development that there’s little in practice to be learned from it.

The reality is that while the scale of China’s experience is unique, the rest is less so.  The explanation for China’s remarkable economic development has much in common with that of Japan, South Korea, and the Asian tigers.  In none of these cases did Western aid or concessions play a significant role. Instead these countries invested in human and physical capital, and built export industries that were hyper competitive on world markets (if often protected at home).  The details vary considerably of course.  Japan’s great exporters, the Toyotas and Mitsubishis, have long been household names across the world.  China’s great exporters were much more integrated into the supply chains of Western multinationals from the start, and are only now emerging as global brands in their own right.

But this transformational economic development – the fastest in history – would not have been possible without one thing:  trade.  It was Asia’s great fortune that its development took place at a time of unprecedented liberalisation of world markets, and particularly of the two greatest world markets of all, America and Europe.  Since the GATT was signed in 1947, the main tax on world trade – tariffs – have been slashed, dramatically levelling the playing field between domestic and international suppliers in those Western markets.  Hyundai would still be a small construction company if it hadn’t been able to sell its cars by the millions in Europe and America.  China would still be an agrarian economy if it hadn’t been able to benefit from an integration of the global economy that allowed it to take over mass industrial production from the West, on behalf of Western companies.

But as the World Trade Organisation (WTO) starts its tenth Ministerial Conference in Nairobi this week, the engine of multilateral economic liberalisation that helped power Asia’s development risks stalling.  For their part the Western proponents of liberalisation are beset by those who argue that the outsourcing of the West’s manufacturing base has created more insecure and unequal societies, and weaker economies.  Meanwhile the WTO’s Doha Development Round – already twice as long as any undertaken by its predecessor, the GATT – has become trapped in a flawed argument that increasingly sees trade and development as separate things, to be traded off against one another.

If the WTO is unable to rekindle the liberalising mission of its predecessor, the biggest losers will not be the large trading economies.  In their frustration with the deadlock in the WTO, they are finding other ways of pursuing trade liberalisation, through bilateral and regional free trade agreements.  These deals go by many acronyms – TPP, TTIP, RCEP – but they all spell exclusion for most developing countries.

It is these developing countries that have most at stake in a successful outcome in Nairobi, and in renewing the relevance of the WTO at the heart of world trade.  They are the countries that will benefit most from being better integrated into the global economy, like the great Asian economies before them.  It is they whose voice needs to be heard this week.