Spreading the Gains From Trade More Widely

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Spreading the Gains From Trade More Widely

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  • 00:00 [Caroline Freund] Good morning. Good afternoon. Good evening.  
  • 00:03 Welcome to our event, which will explore how  to spread the gains from trade more evenly.  
  • 00:11 We're broadcasting our event to a global  audience on World Bank Live. If you'd like  
  • 00:16 to participate in the discussion, please use the  chat function on the right side of your screen.  
  • 00:23 We have an expert live blogger, Jakob Engel, to  answer your questions. And during the discussion,  
  • 00:29 we'll also try to pose as many of the questions  from the audience as we can to our panelists. 
  • 00:36 Today, we're extremely pleased to launch a  new publication, The Distributional Impacts  
  • 00:42 of Trade. We'll hear a presentation from the  report authors in a few moments. We have posted  
  • 00:48 a link to the full report in the chat. But before we begin the presentation,  
  • 00:53 I'd like to introduce Mari Pangestu, the Managing  Director of Development Policy and Partnerships  
  • 01:00 at the World Bank, to say some opening  remarks. She's an exceptionally well-placed  
  • 01:06 to discuss these topics, having served as  Indonesia's Minister of Trade from 2004 to 2011,  
  • 01:14 and as Minister of Tourism and Creative Economy  from 2011 to 2014. Mari, the floor is yours. 
  • 01:21 [Mari Pangestu] Thank you, Caroline. A good day to everyone. I'm  
  • 01:26 really delighted to open this launch of the World  Bank's latest report. And I'm very pleased that we  
  • 01:32 will be hearing later from His Excellency, Arturo  Herrera Gutierrez, Secretary of Finance and Public  
  • 01:38 Creditor of Mexico. And His Excellency, Lucas  Ferraz, Secretary of Foreign Trade of Brazil,  
  • 01:44 alongside other distinguished experts, Prudence  Sebahizi, from the African Continental Free  
  • 01:50 Trade Area Secretariat. And of course, my old  friend, Alan Winters, from University of Sussex. 
  • 01:56 It's good to see you, Alan. I always associate  Alan as giving the topic of trade and poverty  
  • 02:02 prominence. And I'm sure he will be glad to know  that this body of work that he started when he was  
  • 02:07 at the Bank continues to thrive with our latest  report on the distributional impacts of trade. 
  • 02:13 This report examines the important links between  global trade and poverty reduction. And I would  
  • 02:20 hope the Bank really advances our understanding  of how shifting movements of trade can affect the  
  • 02:28 poor. And most importantly, how policy makers can  ensure that trade gains are more widely shared. 
  • 02:36 As Minister of Trade, I often said that I  was the Minister of Trade and Development  
  • 02:41 because trade is a means to development, job  creation, poverty reduction. And I always  
  • 02:47 also emphasize that it's not just up to trade  policy, that we needed complimentary policies  
  • 02:52 to ensure that trade led to the desired  development and distribution outcomes. 
  • 02:58 And the evidence that's been built up over many  years shows that there's no question about the  
  • 03:05 strong relationship between trade growth  and poverty reduction. From 1990 to 2017,  
  • 03:11 developing countries increased their share of  global exports from 16 to 30%. And at the same  
  • 03:17 time, extreme poverty plunged from 36 to 9%. In my own country, Indonesia, trade was an  
  • 03:26 engine of growth. It created jobs, reduced  poverty. And the trade and investment reforms  
  • 03:31 that we undertook, as well as the regional  economic integration that has been happening  
  • 03:37 in the region for the last two, three decades, did  attract better investments and capitalized trade. 
  • 03:43 But as all policy makers will appreciate,  highlighting the advantage of trade and its  
  • 03:48 contribution to poverty reductions wasn't enough.  For every tariff that was lifted or new regulation  
  • 03:54 that we introduced that spurred competition,  there was always the potential business owner  
  • 04:00 or workers whose livelihood was at risk. And  their voices tend to be very, very, very loud. 
  • 04:08 Therefore, this work is vital at a time when  we see the rise in anti-globalization and in  
  • 04:14 protectionism trends, as the benefits  are perceived to be not equally shared,  
  • 04:20 and at a time when we actually need support  for trade openness. During the pandemic,  
  • 04:25 we were reminded of the essential role of trade  to ensure flows of food, medical supplies and  
  • 04:31 enabling global vaccine production and  distribution. So trade will also play a  
  • 04:37 critical role in economic recovery, creating jobs  and reducing poverty in the post pandemic period. 
  • 04:45 So policy makers recognize that we need to still  support the trade agenda, but they also recognize  
  • 04:55 that the distributional impacts of trade have been uneven and  
  • 05:00 unequal. So, and we also observed that the gains  and losses of trade have been heavily concentrated  
  • 05:07 in certain sectors, certain jobs and certain  regions. Therefore, to get support for trade,  
  • 05:14 we need to equip policy makers with the  evidence-based narrative of how trade  
  • 05:19 can also reduce global disparities by putting  policies in place to spread gains more widely. 
  • 05:26 There is fortunately a literature growing in  the economics field that show that losses from  
  • 05:33 trade may be deeper, more concentrated and  longer lasting than previously understood,  
  • 05:39 but it has been primarily focused on advanced  economies. That's why I'm delighted that this  
  • 05:44 World Bank report enhances our understanding  of the distributional impacts of trade in  
  • 05:49 developing countries, using new innovative  data and tools to understand the impacts of  
  • 05:54 trade on welfare at a more granular level. I'm hoping that this evidence base will help  
  • 06:00 policy makers design effective and well-targeted  policies to maximize the benefits of trade,  
  • 06:06 minimize adjustment costs and  spread the gains more widely.  
  • 06:11 As you know, it looks at five countries,  Bangladesh, Brazil, Mexico, South Africa and  
  • 06:15 Sri Lanka. And in line with our green resilient  and inclusive development approach, this report  
  • 06:21 highlights ways to maximize the gains from trade  and support lasting and inclusive economic growth. 
  • 06:28 And importantly, I think this analysis shows  that countries should continue seeking trade  
  • 06:34 as a pathway to development and how to make  trade work for everyone. That is really the key  
  • 06:40 for policy makers and politicians. With that,  I will hand back to Caroline to introduce  
  • 06:47 the reports, authors and presentation. [Caroline Freund] 
  • 06:51 Thank you very much, Mari, for setting the  stage. The report, I should say, is a product,  
  • 06:57 a joint work between our trade and poverty  teams. And we have one of the trade authors,  
  • 07:04 Maryla Maliszewska, senior economist working on  trade, and an author from Poverty, Gladys Lopez  
  • 07:12 Acevedo, a lead economist, to present the report. [Maryla Maliszewska] 
  • 10:04 Hello everyone. Thank you so much for being here  today. I'm going to tell you why did we decide to  
  • 10:11 write the report on the distributional impacts  of trade. Why is it important? Firstly, this  
  • 10:17 report makes the benefits of trade in developing  countries more visible. Most of what we know  
  • 10:22 comes from the studies on developed countries,  and this report helps to address the imbalance. 
  • 10:28 Secondly, this report serves as a reminder that  trade and poverty go hand in hand. As already Mari  
  • 10:35 has mentioned, the rise of international trade  has transformed the global economy and coincided  
  • 10:40 with a dramatic reduction in global poverty. Third, this report addresses the reality of trade.  
  • 10:47 The benefits are shared by many, while the  adjustment costs tend to be concentrated and  
  • 10:52 affect certain regions, industries and workers.  Now, what do we mean by adjustment costs?  
  • 10:59 The evidence is clear. Trade liberalization is  beneficial to economies and societies overall. 
  • 11:05 However, we know that some groups of workers tend  to face temporary unemployment or loss of incomes.  
  • 11:11 When their jobs are lost and they need to  relocate to more competitive, productive sectors,  
  • 11:16 this is the adjustment cost that we have  in mind. Multiple studies have shown that  
  • 11:20 trade liberalization benefits outweigh these  adjustment costs, however, more can be done to  
  • 11:26 minimize them and to make trade more inclusive. Fourth, this report provides policy makers with  
  • 11:34 knowledge, data and tools to understand  the distribution and impacts of trade.  
  • 11:39 It outlines the policies that can leverage  trade to reduce extreme poverty and post trade  
  • 11:44 prosperity while minimizing the adjustment costs. And finally, this report is a response to  
  • 11:50 protectionism. While overall trade is seen  positively in many parts of the world,  
  • 11:57 protectionist and economic  nationalists are on the rise. 
  • 12:01 Why are we focusing on trade and distributional  impacts right now? This report comes at a critical  
  • 12:08 time for trade. Trade is more important than ever  due to its vital role in production, provision of  
  • 12:14 food, medicines and vaccines, and it will remain  essential to the economic recovery. However,  
  • 12:21 the COVID-19 pandemic has hit the incomes of  the poor and women disproportionately hard,  
  • 12:27 making the case for understanding and addressing  the distributional impact of trade even stronger. 
  • 12:35 What is the value added of this work? Well, first,  the report provides new findings on impacts of  
  • 12:41 trade in developing countries. It provides new  data and tools for measuring the distributional  
  • 12:47 impacts of trade based on empirical studies and  scenario analysis. Third, it provides lessons for  
  • 12:54 policy makers or how to maximize the benefits from  trade and how to make sure that trade becomes more  
  • 13:00 inclusive. Finally, it provides ways to strengthen  distributional focus in World Bank operations. 
  • 13:07 So what are the aspects of the distributional  impacts that we focus on in this report?  
  • 13:14 Well, we look across a variety of dimensions.  We apply the wide range of tools to study the  
  • 13:20 distributional impacts of trade across  time and space. We study the impacts of  
  • 13:25 wide range of policy reforms and we look at  the national and at the sub-national level,  
  • 13:32 and we employ five country case studies from  three continents, and we focus on a variety of  
  • 13:38 outcomes. We look at wages and consumption,  formal, informal employment, poverty and  
  • 13:44 inequality by gender and educational attainment. What about the data? Well, we needed to generate  
  • 13:52 new datasets to study the distributional  impacts of trade at the sub-national level. We  
  • 14:00 did it by extending the gender disaggregated  labor dataset to provide sub-national data  
  • 14:06 on wages and employment by skill and  gender for 70 developing countries. 
  • 14:12 By doing so, we learned for example that in  Ethiopia, the urban gender pay gap seems to be the  
  • 14:18 highest in the west of the country, while tradable  sectors are characterized by relatively low gender  
  • 14:25 wage gap. But it's really in the Sri Lanka case  study where we fully illustrate the usefulness of  
  • 14:31 the dataset and the new tools for policy makers. What we do there is we do a forward-looking  
  • 14:38 analysis of a wide range of trade policy  reforms and study their impacts on employment  
  • 14:44 at the sub-national level. What  we find is that overall gains for  
  • 14:51 growth and poverty reduction are substantial,  but they tend to be concentrated in certain  
  • 14:57 urban areas, potentially exacerbating  the existing spatial inequalities. 
  • 15:03 To sum up, this report provides knowledge,  data and tools to inform policy makers  
  • 15:09 on how to spread the debts from trade more  widely to make trade work for the poor. I will  
  • 15:14 now turn it over to Gladys to discuss the case  studies and policy recommendations. Thank you. 
  • 15:21 [Gladys Lopez Acevedo] Thank you very much, Maryla. So I will talk  
  • 15:25 about what are the new insights and findings on  the case's study. I think it's important to remind  
  • 15:30 that the report provides a more balanced picture  of the benefits and adjustment costs of trade  
  • 15:36 in developing countries. This is, since the focus of the literature so far  
  • 15:40 has been on developing countries, highlighting the  negative impact of trade on workers' employment  
  • 15:45 due to greater import competition, the report  sheds new light on the type of adjustment costs,  
  • 15:51 channels through which trade impacts  welfare and the speed at which this happens. 
  • 15:56 Then, there are important policy lessons. For  example, the need for more integration across  
  • 16:04 geographic regions and across sectors. In the case  of Brazil, a 10% increase in exports led to a 2.3%  
  • 16:12 increase in employment and a 3.1% increase in  average wages. The manufacturing sector attracted  
  • 16:19 workers from other industries within the same  micro regions, but workers from other regions  
  • 16:25 will not move because of large moving costs. In the case of Mexico, municipalities more  
  • 16:32 exposed to trade experienced an increase  in labor force participation, labor income,  
  • 16:37 and attracted more net migration, particularly  of unskilled workers. However, these positive  
  • 16:45 effects tend to be concentrated in the tradable  sector with later integration to non-tradable. 
  • 16:54 Another important lesson or finding from our  report is that policy is needed to encourage  
  • 17:00 opportunity and mobility. For example, in the case  of Bangladesh, localities more exposed to trade  
  • 17:08 experience an increase in wages and a  reduction of informality. These positive  
  • 17:13 effects has spread through the economy over  time and benefited other sectors as well. 
  • 17:19 However, in the case of South Africa, local labor  market effects of trade were the stronger in  
  • 17:26 municipalities that included formal homelands  and they received the blunt of the negative  
  • 17:34 effect. Formal homelands had little  economic activity beyond subsistent  
  • 17:39 agriculture, so workers had few economic  alternatives to move to other sectors.  
  • 17:44 The high mobility cost prevented them  from seeking jobs in other regions. 
  • 17:51 Another important finding from the report is  that there is a strong connection between trade  
  • 17:56 and formalization. For example, in the case of  Bangladesh, the export search in [inaudible] led  
  • 18:02 to a reduction of informality, which was  higher for women compared to men. A $100  
  • 18:08 gain in exports per worker led to a 0.7% decrease  in informality in districts with a higher  
  • 18:15 exposure to trade. In the case of Brazil,  informality acted as a broker in the event  
  • 18:22 of a negative trade shock that otherwise  would have thrown people in unemployment. 
  • 18:27 As Maryla said, an important value  added of the report are the tools  
  • 18:34 that are provided there. And these tools  
  • 18:38 have been extremely useful to process the impact  of trade policy on welfare. As Maryla mentioned,  
  • 18:44 in the case of Sri Lanka, we had the opportunity  to test the tools that were developed in the  
  • 18:53 program or in the report. And the simulation  showed that the potential effect of trade  
  • 18:59 liberalization and consumption could be positive  to lower food prices. However, this positive  
  • 19:06 effect will be avoided by the income gains  benefiting the well-off in urban areas the most. 
  • 19:13 So how can all these insights be useful for  implementation? Now first, by identifying  
  • 19:20 in advance, sectors and regions that will  most affected by changes in trade patterns,  
  • 19:26 policies and the tools provided in  this report can be designed to maximize  
  • 19:31 against and mitigate adjustment costs. The report contributes to this goal twofold.  
  • 19:38 First, providing tools, data and approaches to  design these market policies for inclusive trade.  
  • 19:43 And second, by providing a framework that  could guide policy makers both for planning,  
  • 19:49 implementation and mitigation, anchor it in  three areas. Reduce distortion, reduce trade  
  • 19:55 costs and speed up labor market adjustment. The report also goes further and derives  
  • 20:02 recommendations both at the national and  the multi-national level. In terms of  
  • 20:07 the national level, what is needed for  the design of inclusive trade policies?  
  • 20:12 We provide several examples there. It is  important for us to take a whole economy lens  
  • 20:18 to trade reforms, announce reforms early and in a  transparent way, engage with the private sector. 
  • 20:26 What are the recommendations at the  multilateral level? Remove barriers  
  • 20:30 and distortion that will hamper competition, work  on labor standards and promote business conduct.  
  • 20:38 What is the work I'm doing in applying this  distributional lens? As Maryla said, we have  
  • 20:43 been working together for the last two years  and we have now a portal featuring the report,  
  • 20:50 the background papers that are part of this  work, and the tools that have been developed.  
  • 20:55 Also, we have work on knowledge exchanges  showcasing current analytical and operational  
  • 21:01 work in this area and providing technical  assistance in projects and operations. 
  • 21:06 To sum up, the goal is to maximize the benefits  of trade for the poor and minimize adjustment  
  • 21:12 costs. Thank you. [Carolina Sánchez] 
  • 21:18 Thank you very much, Maryla and Gladys, for this  quick overview of the main messages and highlights  
  • 21:24 of the report. I think you really whetted  everybody's appetite and I'm sure after the event,  
  • 21:30 many of us will go and read the full report. Good morning. Good afternoon. Good evening,  
  • 21:36 everybody. My name is Carolina Sánchez, and I  am the Global Director for Poverty and Equity  
  • 21:42 here at the World Bank. And it is a real  pleasure to share this panel discussion  
  • 21:47 on the findings of the report but more broadly  on the distributional impacts of trade. 
  • 21:52 Let me start by introducing our very distinguished  panelists, and I will do so using only their  
  • 21:58 current job titles, but I do invite you to  look at their full bios, which are shared  
  • 22:04 in the event page, because we truly have a  powerhouse here today in terms of their knowledge  
  • 22:11 and experience of the topic at hand. So it's a pleasure to have with us,  
  • 22:16 Arturo Herrera Gutierrez, who's the Minister of  Finance in Mexico. Welcome, Arturo. Lucas Ferraz,  
  • 22:23 who's the Secretary of Foreign Trade in Brazil.  Welcome, Lucas. Prudence Sebahizi, who's the Chief  
  • 22:30 Technical Advisor for the Africa Continental Free  Trade Area Secretariat. Welcome. Alan Winters,  
  • 22:39 who's a professor of economics at the University  of Sussex in the UK. Welcome, Alan. And of course,  
  • 22:46 Mari Pangestu, who's the Managing Director at  the World Bank and who we already heard from  
  • 22:51 at the very beginning of this event. Before we get started, just a quick reminder,  
  • 22:57 Caroline mentioned this, but I want to repeat it  in case somebody joined us a few minutes late.  
  • 23:03 We will be taking questions from the audience. If  you have questions, please submit them through the  
  • 23:09 World Bank Group live webpage chat that's on  the right of your screen. We'll be monitoring  
  • 23:15 that throughout the conversation and we'll  pose some of the questions to our panelists.  
  • 23:20 Because we suspect we'll have many more questions  that we actually manage to cover in the hour that  
  • 23:25 we have together, we also have expert bloggers  that will be responding to your questions  
  • 23:31 in real time, so please do take advantage of that. So without further ado, then me kick off  
  • 23:38 the discussion and dive right in. And maybe  I'll start with Minister Herrera and ask you  
  • 23:47 about some of the Mexican experience.  We know that the NAFTA trade agreement  
  • 23:52 helped to diversify Mexico's export basket,  and the report makes the point that it also had  
  • 23:59 positive impacts on total incomes in  Mexico. But the report also suggests  
  • 24:06 that there's still room to translate some of these  gains into farther poverty reduction so that we  
  • 24:11 are not only talking about average gains, but  really distributional gains at the local level. 
  • 24:17 So given that, what are in your view,  some of the policy actions that are needed  
  • 24:22 to make the gains from trade and particularly  from NAFTA even more inclusive than they have  
  • 24:28 been to date? Over to you. [Arturo Herrera] 
  • 24:32 That's actually a very relevant question,  but there's another way to put it,  
  • 24:38 which is if we should be so surprised that  the benefits of NAFTA has been distributed  
  • 24:45 unevenly in Mexico. And the reason I say so is  because the country is extremely heterogeneous. 
  • 24:52 It's one thing's in in a very,  very old and very, very basic  
  • 24:56 growth theory hypothesis, the catch up  hypothesis. It states that supposedly low  
  • 25:04 income economies grow faster than more advanced  economies. So, there should be a catch up. 
  • 25:10 And in principle that could, that could  also be applied regionally within a country. 
  • 25:17 But the fact is that that  has not worked in Mexico.  
  • 25:22 And the differences are extremely striking. Let me just give you a couple of numbers. The  
  • 25:31 GDP per capital of Mexico City is seven  times the GDP per capital of Chiapas. 
  • 25:39 Let me give you another number, which is related  to trade. Trade in Mexico is mostly concentrated  
  • 25:44 in the northern part of the country, the closest  to the US. If we look to the Human Development  
  • 25:51 Index, and if we look at the municipality  of Mitontic in Chiapas, they have a human  
  • 25:56 development index, which is basically equivalent  to the human development index of Gambia.  
  • 26:02 Then if we look to the human development index  of San Pedro Garza Garcia, an industrial city in  
  • 26:06 the northern part of Mexico, that's slightly  above the human development index of Israel. 
  • 26:12 So, presume that there should be an immediate  and almost automatic convergence between  
  • 26:16 these low income municipalities in Mexico is  basically like assuming that there should be  
  • 26:21 so much automatic convergence between Gambia  and Israel, or Gambia and the UK, which has a  
  • 26:27 human development index of Miguel Hidalgo. Now, what has happened since the Free Trade  
  • 26:35 Agreement and the First Free Trade Agreement  was signed in 1994, is that not only we don't  
  • 26:41 have a catch-up, but we have a divergence in the  country. The richest state has become richer,  
  • 26:48 and the poorest states are growing smaller. Again, in this classical growth theory,  
  • 26:56 what we are not seeing is the same system, but  basically two equilibria, one equilibrium for  
  • 27:03 some states and some equilibrium for the rest. And the question is, why is this so different? 
  • 27:09 And the point I'm trying to make is, is basically,  if we just create the conditions, let me put it  
  • 27:16 in this way, market conditions that facilitate  trade, that's not enough. What Gladys and Maryla  
  • 27:33 were mentioning before, it was trying  to make sure that there are not barriers  
  • 27:38 and there are no distortions. But basically Mexico has signed  
  • 27:43 between 50 to 52 free trade agreements across  the globe, with some of the largest partners  
  • 27:50 with exception of China. It's probably covered  something close to 75, 80% of GDP. So, there's  
  • 27:56 no more distortion, but that's not sufficient,  right? That clearly has not been sufficient. 
  • 28:01 So, the question is what is different? And what is different is that the production  
  • 28:07 means, if you want, in the south are completely  different. Infrastructure is different, education,  
  • 28:14 human capital is different, etcetera. So, it  requires not only a change in terms of the legal  
  • 28:24 and trade framework, but it requires a change in  terms of the capacity of production of the states. 
  • 28:32 We're doing a few things that's  probably relevant to that. 
  • 28:35 One is we are increasing the investment  in infrastructure in the southern part.  
  • 28:43 For a state, let's say, in industrial belt, in the  middle of Mexico, let's say Quereta or Guanajuato,  
  • 28:50 it probably takes us nine to 10 hours to  take something all over to [inaudible]  
  • 28:56 But if you consider to Chiapas,  it is much more larger to do that. 
  • 29:00 We need to invest in ports there, just to  try to level the field between poorer states  
  • 29:07 and relatively richer states. The second part, which is related  
  • 29:15 to the human capital, is, what we have realized is  that we have a mismatch of skills in the country.  
  • 29:22 So, there may be the demand for certain  kind of jobs. And there are people who  
  • 29:28 are willing to get a job in those sectors,  just they don't happen to have the skills. 
  • 29:33 And there's some fixed costs associated  with them getting the skills. What we have  
  • 29:39 been trying... And we were really invested in  that before COVID, so we are in no condition  
  • 29:46 to evaluate the results because COVID really  put an impasse to some extent on that program,  
  • 29:51 we created a program, which is very similar to  the trainees programs that existed in Europe,  
  • 29:58 in which we paid for several months of in-job  training for workers, with the idea that they  
  • 30:06 will acquire those job-specific skills. And then  eventually they could get into the formal market. 
  • 30:15 But our whole idea behind this is that there was a  lack of infrastructure or capital, human capital,  
  • 30:22 et cetera, and just a trade framework, a pure  trade framework, were not sufficient to do that. 
  • 30:32 Now, Gladys mentioned constraints to mobility. And that may be right to some extent,  
  • 30:42 because if one looks, let's say, at many of the  people in the maquilas in the northern part,  
  • 30:48 there may be people who migrate from the southern  part of Mexico to the northern part of all the  
  • 30:55 states. And that may solve part of the problem,  the fact that they, as individuals, are able to  
  • 31:01 get better opportunities in a different job. That doesn't solve the problem that the  
  • 31:07 southerners are still poor. Actually,  they may be poorer when you have this  
  • 31:12 mobility, because the relatively highly  skilled workers move to another state. 
  • 31:18 So, it's really a bet on our side. And it's a bet  because we are doing it but we will have to see  
  • 31:23 how it has impacted to take large infrastructure  projects to the southern part and have this in  
  • 31:33 the job training skills. Now, the infrastructure part  
  • 31:38 is extremely important for two things. One, it  creates jobs there while you are getting involved  
  • 31:46 in the actual building. And second, in principle,  it should create jobs after they start working. 
  • 31:54 And we have quite an interesting, I would say,  almost natural experiment during the pandemic  
  • 32:03 that it really put together these two ideas. As every country, we were heavily hit by the  
  • 32:10 pandemic. We lost 11 to 13 million jobs in the  country. A little bit more than one was in the  
  • 32:18 formal sector. 11 were basically in the informal  sector, right? And it is not until you basically  
  • 32:26 tank the pandemic that you will get  back to sort of normal conditions. 
  • 32:30 But for the last probably six months, there  are three trades that basically recovered all  
  • 32:37 the jobs lost on the pandemic and have added  on that. They basically have a health crisis,  
  • 32:43 but those states don't have an economic crisis.  They actually are in a very specific boom. 
  • 32:50 So, which are those three states? One is Baja, Baja California,  
  • 32:54 which is a border state. So, it's basically  being dragged by the activity in the US.  
  • 32:58 The other one is Chihuahua, which is  a border state with Texas. And again,  
  • 33:02 is basically dragged by the economic  activity in the US. That also gives  
  • 33:07 you a hint of an idea of how the recovery is  also going to be different with those states  
  • 33:12 which are much more involved in trade activities  recovering faster than the rest of the country. 
  • 33:19 And that probably we would have expected. The  third state was what was really a surprise.  
  • 33:25 And that's Tabasco. That's in the center of the  country. It's in the Gulf. And it's basically  
  • 33:31 explained by one large infrastructure project in  a refinery. This gives you an idea how, in parts  
  • 33:39 of the country which are not really  heavily involved at this moment  
  • 33:43 in trade, infrastructure is important. And that also will prepare them for a  
  • 33:50 potential for their engagement in  trade activities along the country. 
  • 33:56 Let me stop here. [Carolina Sánchez] 
  • 33:59 Thank you. I think that's a perfect way of  kicking off this discussion. And I think  
  • 34:02 this point that you made about how preexisting  inequalities in infrastructure, in human capital,  
  • 34:10 in productive structure really shape how the  gains of trade are distributed. And that's  
  • 34:18 really where policy has a role to play. And I also very much enjoy your point of  
  • 34:24 policies for people, policies for places.  And I know that's something that the report  
  • 34:29 does get into a little bit. Let's continue to explore  
  • 34:34 some country experiences. And I'm  going to turn now to Secretary Ferraz,  
  • 34:38 and explore a bit the Brazil experience. The research in this report shows that  
  • 34:44 the adjustment cost associated with the  trade liberalization in Brazil in the 1990s  
  • 34:51 were both large and long lasting. What  steps has the country taken since then  
  • 34:59 to support workers that were negatively impacted  by some of these reforms, by the shocks that the  
  • 35:05 trade liberalization process generated? And what  additional policies are needed, if this is still  
  • 35:11 an unfinished agenda? Over to you. 
  • 35:17 [Lucas Ferraz] Thank you. Good morning,  
  • 35:19 everybody. Again, it's a great pleasure  to be here. Thank you for the invitation. 
  • 35:24 I'd like to start congratulating the World Bank  for this very important initiative, especially in  
  • 35:33 the case of the developing economies, as already  highlighted by the previous speakers, and also,  
  • 35:40 in the case of Brazil, which is  nowadays implementing gradually  
  • 35:48 a process of trade liberalization in our country. I would like to start also highlighting,  
  • 35:57 as previous speakers did, the gains, the  relevance of trade openness, the gains from trade,  
  • 36:06 the relevance of trade globalization to  productivity growth, to fight poverty,  
  • 36:13 and also to increase the number of jobs,  and also mainly the quality of jobs. 
  • 36:25 Before exactly delving deeper  on the question that was made,  
  • 36:32 I would like just to highlight some stylized  effects that will perhaps corroborate  
  • 36:44 what previous speakers have already said. And also, I think my intervention here is quite  
  • 36:51 in line with my colleague from Mexico, because  I think the study from [inaudible] and COVID,  
  • 37:00 which is basically the main issue here, the  results did not come really as a big surprise  
  • 37:08 in the sense of pointing out winners and  losers from trade liberalization in the '90s.  
  • 37:16 Perhaps the main novelty behind this study is the  duration of these disparities. And maybe the fact  
  • 37:26 that the disparities between the relative gains  of income and formal jobs, these disparities, they  
  • 37:35 increased for a time but they did not diminish for  time as expected, if you think in simple models  
  • 37:43 where we consider free labor and free capital  mobility, which is of course not the real thing. 
  • 37:54 For the stylized effects, as I  said, if you take, for instance,  
  • 38:04 the relationship between unemployment rates  and import penetration in all the countries  
  • 38:14 in the world, if you build a graphic and try to  see any correlation between those two variable,  
  • 38:21 the answer is quite simple. There is no  correlation. There is no apparent correlation  
  • 38:26 between import penetration, measured as total  imports over GDP, and unemployment rates. Yeah? 
  • 38:34 Another important stylized effect that I would  like to mention is the fact that probably, and  
  • 38:46 I'm not downplaying the importance of trade policy  as a factor that may impact income inequality and  
  • 38:56 unemployment, but probably and most likely, trade  policy is not the main factor behind those issues. 
  • 39:06 And I'll give you just a very simple  example. You take the European Union.  
  • 39:12 If you take the European Union,  you have over 27 economies now,  
  • 39:17 without the United Kingdom. But you have 27  economies. They basically all follow the same  
  • 39:23 trade policy, exactly the same trade policy, but  they have completely different unemployment rates. 
  • 39:30 Just take the Czech Republic. You have 3%  unemployment rates. Just take Greece. You have  
  • 39:38 [inaudible]. Of course, again, I'm not downplaying  
  • 39:42 the relevance of those studies, of the  study of the World Bank, but I'm just  
  • 39:49 emphasizing, highlighting the fact that  trade policy is not really the main culprit  
  • 39:59 behind unemployment and  maybe even income inequality. 
  • 40:04 If you take the recent studies involving the  American economy, the United States, we have seen  
  • 40:15 a very strong increase in income inequality in the  United States, since the '70s. Since the '70s. And  
  • 40:22 most of the recent studies that we had nowadays,  they suggest that trade policy, including China,  
  • 40:30 doesn't explain this huge increase in  income in equality in the United States.  
  • 40:35 And probably the most important cause of this  strong increase in income equality in the United  
  • 40:41 States is not trade. It is technological progress. So, I'm just saying this,  
  • 40:52 again not to downplay the importance  of the topic today of our discussion,  
  • 40:57 but it's important not to lose the perspective  of the things that we are talking about. Okay? 
  • 41:04 And I'm emphasizing this because nowadays we are  exactly supporting the idea of having a more open  
  • 41:15 and integrated to the global economy country here  in Brazil. We are intensifying our agenda of trade  
  • 41:24 agreements. The common external tariff indicates  how we are having a big discussion in terms of its  
  • 41:32 reform, the reduction of its average, which is  quite high nowadays. And we are fully sure that  
  • 41:40 it's something important for Brazil, especially in  our case where we have an economy with a stagnant  
  • 41:48 productivity for more than 30 years and one  of the most closed economies in the world. 
  • 41:57 And regarding exactly the study of  [inaudible] and COVID, which I think is the  
  • 42:04 basis of the question that that was made  by Ms. Caroline, I would like to stress,  
  • 42:16 of course the study is very important. It  highlights a very important part point in terms of  
  • 42:24 winners and losers in the case of  the trade liberalization in the '90s,  
  • 42:28 which is completely different of the trade  liberalization that we have been conducting now. 
  • 42:33 And I will say a few words on this more in the end  of my intervention. But I would like to say that  
  • 42:40 the study basically came up with relative  comparisons. They're saying, "Hey,  
  • 42:52 the municipalities that we're more heavily hit  by trade politicization, they grew relatively  
  • 43:02 less in terms of income. And they grew  relatively less in terms of formal jobs." 
  • 43:10 But they say nothing about the winners of trade. For instance, the expanding exporting sectors.  
  • 43:19 That's probably gained a lot with the tariff  reductions that we carried out in the '90s.  
  • 43:27 They don't say a word, and perhaps most  importantly, in terms of net welfare.  
  • 43:35 It's very important to say this. They say nothing about  
  • 43:38 net welfare. And they say nothing about  productivity. And we have, by the way,  
  • 43:45 lots of studies, well published studies,  suggesting that the net welfare effects  
  • 43:55 in the case of trade liberalization in Brazil in  the '90s were really positive and significant.  
  • 44:03 Also, several studies suggested significant  gains in terms of productivity, again,  
  • 44:10 as a result of trade liberalization in the '90s. So, it's not to downplay the importance of  
  • 44:16 this study. But again, we need to put  things in perspective and see how we can  
  • 44:24 manage the problems in the most appropriate way. 
  • 44:32 Also, I would like to say that the trade  liberalization that we had in the '90s  
  • 44:41 was conducted in a very short period of  time. And the tariff cuts were really huge. 
  • 44:50 This is completely different from the trade  liberalization that we have been conducting now  
  • 44:56 in at least two dimensions. We have been  conducting a trade liberalization process  
  • 45:01 in a very gradual way, very gradual, with  predictability, and, most importantly, in parallel  
  • 45:13 with several important supply side  reforms in our domestic economy. 
  • 45:20 And when I say supply side reforms, of course,  I'm telling about, I'm touching upon the issue  
  • 45:27 of, vector mobility, labor mobility, capital  mobility, just to mention a few. For instance,  
  • 45:36 we have approved our pension reform. We have  approved our labor reform in 2017, which will  
  • 45:49 come up with new flexible modalities of jobs that  has decreased the litigation a lot. And also, that  
  • 45:58 has reduced the, the costs of hiring and layoffs  in our country. And that will bring, for sure,  
  • 46:06 a higher labor demand and will help adjustment  processes related to trade liberalization. 
  • 46:13 We also have in Brazil reforms devoted  to improve the business environment  
  • 46:20 in the country, like the new regulatory  framework for natural gas and sanitation  
  • 46:27 services in the country. We have  approved central bank independency.  
  • 46:34 We have a new bankruptcy law in the country. So, several reforms that will for sure improve  
  • 46:41 the quality of the business environment in  the country and of course will affect labor  
  • 46:47 and capital mobility, which is of course vital  to guarantee, to maximize the gains from trade. 
  • 46:58 What else? Also, I would like to highlight  the initiatives specifically devoted to labor  
  • 47:10 markets and capital mobility, because the reforms  that I mentioned previously, they were, I mean,  
  • 47:20 reforms devoted to reduce the so-called Brazilian  cost, to improve the business environment, but not  
  • 47:26 specifically focus on factor mobility. So, I would  like to mention, in this regard, that Brazil,  
  • 47:35 as a developing economy, of course we are not the  United States. We don't have a TAA here in Brazil,  
  • 47:41 which is a program specifically focused on  people that became unemployed because of trade  
  • 47:46 liberalization, and frankly speaking, I don't  see any reason why we should care more about  
  • 47:55 unemployed people from trade liberalization  than unemployed people from any other reason.  
  • 48:00 Unemployed people are unemployed people. We should  help them. So, most of the initiative that we have  
  • 48:06 been undertaking over the last few years in Brazil  regard factor mobility are horizontal by nature. 
  • 48:14 First of all, we have now new programs devoted  to qualification. Most of the policies that we  
  • 48:22 have been implementing in Brazil, and we  pay a special attention to this, we try  
  • 48:29 to undertake reforms that have evidence, that  are evidence-based. So, regarding the studies,  
  • 48:38 the evidence that we have regarding  the effectiveness of those programs  
  • 48:45 in terms of labor qualification, re-qualification  what, and to reduce the costs, the judgment costs  
  • 48:56 of labor mobility, what we have is the following. Monetary compensation is clearly ineffective.  
  • 49:03 What seems to work, and the evidence  is not so clear, but what seems to work  
  • 49:08 is re-qualification, capacitation, and training.  But we are going perhaps a step further on this.  
  • 49:17 You have programs in Brazil like PRONATEC, and  recently, the newly created program Emprega Mais  
  • 49:25 that are focused on re-qualification, training,  capacitation, but this is crucial. They are  
  • 49:32 focused on the labor demand needs. So, all those  programs, they are conducted in the partnership  
  • 49:40 with the private sector. We need to understand  exactly what are the needs from the private sector  
  • 49:46 before trying to set up training programs and  re-qualification programs. This is exactly  
  • 49:53 what we have been doing at the moment in Brazil  with those programs, PRONATEC and Emprega Mais. 
  • 49:58 [Carolina Sánchez] Secretary, I'm sorry to  
  • 50:00 interrupt you. I think we'll be able to get into  a lot of the specifics later in the discussion,  
  • 50:07 so maybe if you can complete your overview- [Lucas Ferraz] 
  • 50:11 Okay, I'm sorry. [Carolina Sánchez]  Then we can come back to this, because the  details, you're right, in the end, the devil  
  • 50:14 is in the details in how we do these things,  but we'll come back to some of these later. 
  • 50:19 [Lucas Ferraz] Just to finalize,  
  • 50:20 I would mention, just to conclude my preliminary  comments, to mention the text reform that we  
  • 50:27 have been discussing in Brazil that will  also help in terms of capital mobility,  
  • 50:34 which is of course important. We have a big fiscal  war in Brazil in terms of subsidies and whatever,  
  • 50:41 and this reform, we will address all those issues,  and I think it will also be for the benefit of  
  • 50:48 capital mobility in the country. Thank you. Thanks  a lot, and I'm sorry for the long intervention. 
  • 50:53 [Carolina Sánchez] No, thank you, and as I said,  
  • 50:55 I think this is exactly what we want to get is the  nuances and the details. Thank you also, I think,  
  • 51:00 for reminding us of two very important points  that I think the report authors also put forward. 
  • 51:05 The first one is that the net gains from trade  are positive in terms of growth and income,  
  • 51:12 and I think that that's something that is  highlighted in the report, but maybe we didn't  
  • 51:15 highlight it sufficiently in our introductory  remarks. Then the second is that the real world  
  • 51:22 is not an economic model, and that there are  lots of frictions in labor and other markets,  
  • 51:28 and that's why, when we think about the benefits  of trade, trade policy is only one instrument,  
  • 51:33 but we really need to think about a variety of  other complementary policies and take a hold of  
  • 51:38 government approach. I think your examples really  illustrated that very clearly, so thanks for that. 
  • 51:43 Let me turn out to Mr. Sebahizi, change  geographies and ask a little bit about  
  • 51:52 the Africa outlook and what's happening there. We  know that the African Continental Free Trade Area  
  • 51:59 Agreement will create the largest free trade  area in the world as measured by the number of  
  • 52:05 countries in the agreement. The pact would connect  1.3 billion people across 55 countries with a  
  • 52:15 combined gross domestic product that is valued  at about $3.4 trillion. So we are really talking  
  • 52:24 big orders of magnitude here. In addition,  the agreement could have the potential to lift  
  • 52:31 30 million people out of poverty in a  continent where poverty is still a problem. 
  • 52:37 So in that context, what are some of the actions  that African policymakers can take to ensure that  
  • 52:45 the gains from the agreement will be shared both  across countries and within countries. I also want  
  • 52:53 to tag on a question that I think is relevant  in this context that we heard Susan on the chat  
  • 53:00 that said to what extent the agreement has  the potential to accelerate a structural  
  • 53:07 transformation in African countries, and I think  that's also very linked to this idea of gains,  
  • 53:12 who will gain, and the impacts  on poverty. Over to you. 
  • 53:17 [Prudence Sebahizi] Thank you very much, Carolina,  
  • 53:21 for that introduction, as well as  the question that you have asked. 
  • 53:26 Let me start by congratulating World Bank, of  course, for bringing us together around this world  
  • 53:36 research topic on the distributional  impact of trade. Let me also  
  • 53:43 bring to you the greetings of his excellence,  Wamkele Mene, the Secretary General of  
  • 53:50 African Continental Free Trade Area Secretariat,  who would've wished to be here with us,  
  • 53:57 but due to area commitments, he requested me  to represent him at this high level panel. 
  • 54:04 So having said that, I would add to your question  that AfCFT is expected not only to contribute to  
  • 54:15 poverty reduction on the continent, but also  to bridging the income gaps among a variety  
  • 54:24 of different segments of the population on  the continent, and we are looking at this  
  • 54:30 in a positive way because we've not had this free  trade area bringing together 55 countries before,  
  • 54:39 it's the first time, and we are looking  at it in a positive way to make sure that  
  • 54:46 policies that will be put in place by  individual countries will make AfCFT work. 
  • 54:53 This is very important. Why? Because when you  look at Africa as a continent, 55 countries,  
  • 55:01 107 borders, and those borders are  land borders. Because when you look at  
  • 55:08 Africa as a continent like an island, you  look at the rate of protection. In Africa,  
  • 55:16 when you do business in Africa,  you have to pay on average 6.9%  
  • 55:21 of tariff if your products have to cross the  border. So, the AfCFT is aimed at easing the  
  • 55:29 flow of goods and services across African  countries, removing all those official  
  • 55:36 borders and creating one integrated market. But the implementation of this agreement  
  • 55:45 will require serious actions by policy makers if  we have really to ensure that it contributes to  
  • 55:54 the outcomes that are expected, and those policies  will have to vary from one country to the other.  
  • 56:00 It's not a kind of uniform policy for all  African countries. They have to be specific.  
  • 56:09 Some of the general policies that we  think will contribute to the success of  
  • 56:16 AfCFT which can also be aligned into national  contexts will be first of all, to put in place  
  • 56:28 adequate structures and systems, of course,  where there are none. Countries have to look  
  • 56:34 at the structures and ensure that their  structures and the systems are adequate.  
  • 56:41 They have to ensure that they create awareness  among all the stakeholders to ensure everyone  
  • 56:48 is involved in this entire process, but also  develop specific strategies that will guide  
  • 56:58 the maximization of benefits and ensure  equitable distribution of those benefits. 
  • 57:06 Coming back to your question, one of  the specific actions that I think policy  
  • 57:13 makers have to consider is to increase awareness  around the AfCFT for all national stakeholders,  
  • 57:21 and this will assist to maximize inclusive  trade opportunities, and the participation  
  • 57:26 of key segments of African population.  Here, we are talking about women, youth,  
  • 57:33 and of course, people with disabilities is a  prerequisite for successful and inclusive AfCFT,  
  • 57:41 and the participation of these groups in trade is  often not taken care of or not constated carefully  
  • 57:50 when trade agreements are negotiated and  implemented, because trade agreements are  
  • 57:57 mainly negotiated by governments, so it's  the role of governments to involve those  
  • 58:04 other stakeholders in the implementation,  but also in the negotiation process. 
  • 58:10 The second action which I think is very  important is to build strong institutions  
  • 58:18 and regulatory frameworks that will support  effective implementation of the agreement.  
  • 58:25 We are the process of assisting member states,  African countries, to develop their national  
  • 58:32 implementation strategies for AfCFT, and those  national strategies should analyze the policies,  
  • 58:38 the legal foundation, regulations that  govern the current production systems,  
  • 58:45 as well as their trade composition and  trade pattern of each and every country,  
  • 58:50 look at the structures, the  financial investment constraints that  
  • 58:56 trade performance is suffering from, look  at economic competitiveness of the country,  
  • 59:03 and look at all those factors that will contribute  to the success of the AfCFT without forgetting  
  • 59:11 technology. Technology is very  important. It's another factor that has  
  • 59:16 to be taken into consideration. The third action will be to enhance production  
  • 59:23 and productive capacity. Now, the AfCFT creates  a market, but this market is meant for African  
  • 59:32 products. Currently, Africa is trending at around  [inaudible] percent, so which means that the  
  • 59:38 remaining 2% is spread between Africa and the rest  of the world. So, if the market is now created,  
  • 59:46 borders or restrictions are removed, it means  that each country has to go back and look into  
  • 59:53 their national policies on how to develop their  productive capacities. The market opportunities  
  • 01:00:01 and industries, regional value trends,  development, competitiveness measures have  
  • 01:00:09 to be put in place support the integration of  micro, small, and medium enterprises into those  
  • 01:00:18 regional and continental value chains through  production linkages, and awareness creation. 
  • 01:00:27 The fourth action, which I also think can  be taken by policymakers is to facilitate  
  • 01:00:35 the reduction of trade costs  or trade transaction costs,  
  • 01:00:41 and this can be done, of course, we have a  legal instrument like trade facilitation,  
  • 01:00:48 annex to the protocol. We have annex on non-tariff  barriers elimination. This can be done by making  
  • 01:00:57 sure that non-tariff barriers are addressed, that  trade facilitation measures are put in place, that  
  • 01:01:06 trade is facilitated as much as possible, because  we know all these non-tariff barriers are embedded  
  • 01:01:14 in the policies and the procedures  that are put in place by governments. 
  • 01:01:20 The other important consideration apart from  those specific actions that I have just mentioned  
  • 01:01:29 is that each country has to look  at the private sector capacity,  
  • 01:01:36 because at the end, if you do not have a  strong private sector, then it's going to be  
  • 01:01:43 very difficult for you to compete with other  countries. It's going to be difficult to maximize  
  • 01:01:49 opportunities of the AfCFT market. So, countries  have to look at the capacities of their private  
  • 01:01:56 sector, look at the structures of the industries,  look at all the sectors that will contribute  
  • 01:02:04 to the production, and ensure that they produce  competitively, because the AfCFT market is not  
  • 01:02:10 giving a favor to one country, it's just leveling  the playground for all players on the continent. 
  • 01:02:20 So, I believe that the AfCFT  implementation, as I mentioned, should be  
  • 01:02:28 guided by those strategies, and those  strategies should make clear recommendations  
  • 01:02:35 on how best to improve the implementation  of AfCFT in each and every African countries  
  • 01:02:43 with a view to promoting trade performance,  competitiveness, digitalization, investment,  
  • 01:02:52 and industrialization. I think those are the  key actions that I have in mind can assist  
  • 01:02:59 implementation of the AfCFT. Thank you. [Carolina Sánchez] 
  • 01:03:03 Thank you very much. We keep hearing this point  on the complimentary policies, which I think  
  • 01:03:08 is critical. But I think you also brought two  other issues, new issues into the discussion. 
  • 01:03:14 First is that even though we all understand  that the gains for trade are positive,  
  • 01:03:18 ultimately, trade policy is complex, and it's a  difficult and sort of messy process. First because  
  • 01:03:26 trade is not just tariffs, right? There are lots  of other non-tariff elements to effective trade.  
  • 01:03:32 Also, as you said, because no one size fits  all, so when we engage in trade negotiations,  
  • 01:03:39 nations need to strike the right balance between  developing a shared vision and an objective, but  
  • 01:03:45 also attending to country-specific needs. Again,  I can see how that can generate some tension. 
  • 01:03:53 I also want to echo the point that you made  on impacts, and I think for the first part  
  • 01:03:58 of the discussion, when we talked about  the distributional impacts, we've really  
  • 01:04:02 focused on income dimensions, right? The poor, the  vulnerable, and other groups. But you reminded us  
  • 01:04:07 that there are other types of distributional  impacts associated with trade. Gender impacts, the  
  • 01:04:13 impacts on youth, the impacts on other vulnerable  groups that are also important and that should be  
  • 01:04:19 a part of this discussion. So, thank you for that. We are going to take a step back and maybe  
  • 01:04:25 now move away from a specific geography  and look at this issue from a higher level,  
  • 01:04:33 and I'm going to turn to Professor Winters to  help us do this and ask the following question. 
  • 01:04:41 The gains from an open, rules-based  international trading system I think  
  • 01:04:46 are evident in our day-to-day life for those  of us that are paying attention, although  
  • 01:04:51 they're not always well understood, certainly by  those that are not experts. So what do you see  
  • 01:04:59 as the main challenges to the multi-lateral trade  system and to continue globalization? I think that  
  • 01:05:08 [inaudible] alluded this renewed wave of potential  protectionism that we've seen emerging in recent  
  • 01:05:17 years, or how would that play out? In relation  to that, how is trade impacting different types  
  • 01:05:25 of workers across and within countries? We've  heard about the specific experiences of some  
  • 01:05:30 countries and areas of the world, but you  have that global perspective. Over to you. 
  • 01:05:36 [Professor Winters] Well, thank you very much, Carolina,  
  • 01:05:39 and thank you to the Bank for doing this  report. I mean, it's a subject very close  
  • 01:05:43 to my heart, I must say. Let me take the  
  • 01:05:49 second part of your question first, because in  truth, it's so difficult I can't really answer it.  
  • 01:05:55 What we've really heard from other speakers,  but what you get even more strongly  
  • 01:06:01 from the report is it's different. This is a  very, very heterogeneous issue, and therefore,  
  • 01:06:09 we've got to be really careful about trying to  infer generalities from just a few examples. 
  • 01:06:18 I do think that we've learned from trade, but  also from other areas, not least COVID, that  
  • 01:06:27 the poor and the disadvantages tend to be able to  react to changes, be they external shocks, COVID,  
  • 01:06:35 or policy changes, trade liberalization, less  strongly. They have less ability to cope, less  
  • 01:06:41 ability to take advantage of new opportunities,  and that, it seems to me, is one of the big issues  
  • 01:06:50 about inequality in general, that the group who  are left behind actually have to work harder  
  • 01:06:58 to keep up, but it's also a really strong  direction too, so far as policy is concerned. 
  • 01:07:07 Not just for trade, but for all sorts  of reasons, we need to be thinking  
  • 01:07:12 about social support. I don't mean in a  very narrow way of social workers and so on,  
  • 01:07:21 but just how do societies work that in fact bring  opportunities to everyone? Opening up trade is an  
  • 01:07:30 opportunity. Comes with some shocks, comes with  some forces, but actually it's an opportunity,  
  • 01:07:36 and therefore, you want to try and make sure  that it's not just the oligarchs, it's not just  
  • 01:07:42 the people who've been educated in Western  universities who can take advantage,  
  • 01:07:46 but it actually is for other people. That's rather  trite. How do you do that? Well, that depends  
  • 01:07:54 a lot on your individual circumstances, and I've  got a bit more to say about that if you like. 
  • 01:08:00 Let me go back to the first part of the question.  Oh, dear. I mean, I don't think any of us  
  • 01:08:09 is unaware that the trading system is under a good  deal of pressure, and that multinationalism has  
  • 01:08:19 rather fallen out of favor. Now, why is that?  There are variety of reasons, but actually I  
  • 01:08:30 suspect that deep down the problem is our trade  has just become terribly, terribly ordinary.  
  • 01:08:36 We just got taking it for granted. No one feels  it's very interesting these days to say in  
  • 01:08:45 debates. One of the really key things about policy  is that you have to have competition and openness  
  • 01:08:52 to the rest of the world is very different. Now  there's always going to shots from the system and  
  • 01:08:59 there are always going be losers from any trade  policy. Trade policy Is inherently distribution.  
  • 01:09:06 It really is about taking away artificial  advantages for one group to create advantages  
  • 01:09:13 for another. You can't get away from that. As the  report commented, I think at the authors earlier,  
  • 01:09:21 the benefits are rather diffuse, very broad. The  losses are very focused. People who are in that  
  • 01:09:28 small set of losers are really motivated to argue.  I suspect we have dismissed them too much. The  
  • 01:09:35 sort of hubris of the 1990s about, one, the cold  war, the market has succeeded. Just get over it.  
  • 01:09:42 It will all be right in the end. Frankly, I think  that was overdone. And I take some responsibility  
  • 01:09:48 for that myself. My former employers, the World  Bank, also need to take some responsibility. 
  • 01:09:54 It's really important that  we listen. We actually hear.  
  • 01:09:59 But it's slightly more complex at the moment  because what we moved to in the last four or  
  • 01:10:04 five years is a new sort of politics. It's very  populous, very interventionist. We're seeing it  
  • 01:10:11 in lots and lots of countries where previously we  didn't. So there's no longer a sort of steady view  
  • 01:10:17 but actually there's sure to be little wrinkles  and little things we have to do around the edges.  
  • 01:10:22 But keeping the trading system open is a very  important principle. Actually, what we've got,  
  • 01:10:28 is a series of people whose politics is  more nationalistic than multilateral, who  
  • 01:10:35 get political kudos from acting concrete actions,  I'm saving you from this principle that is, it's  
  • 01:10:46 espoused by experts and the elites. So essentially what we've got is a big  
  • 01:10:53 tilt in the political process. I say to Murray,  they don't make politicians like they used to.  
  • 01:11:02 And I suspect that is we just got used to trade.  It's always there. I live in Britain, I've been  
  • 01:11:07 through the Brexit debate. People just don't get  the idea that trade really matters. So essentially  
  • 01:11:18 what we've got is a trading system that's sort  of friendless and is dying, not from one massive  
  • 01:11:27 violation, but a death from a  thousand cuts. A steel tariff here,  
  • 01:11:32 a little restriction on professional  qualifications there, a vaccine export ban  
  • 01:11:39 here. And so it goes on, gradually the sort of  magic that we are all in this together. It matters  
  • 01:11:46 as a system. The payoff is going to come in the  long run, that sort of disappears. Frankly, until  
  • 01:11:53 we get some sort of change in heart, it's very  difficult to see what we are going to do other  
  • 01:11:59 than essentially put our fingers in the dyke,  serious repair work is going to be quite hard. 
  • 01:12:06 I think many of us hoped that Brexit was  going to prove to the world that actually  
  • 01:12:12 throwing sand into the wheels of the international  trade was a less than brilliant idea and that this  
  • 01:12:18 will be a wonderful, wonderful, natural experiment  for people who thought, who ought to test whether  
  • 01:12:24 trade really matters. Unfortunately, with COVID,  it's all getting very cloudy and we can't quite  
  • 01:12:29 point to the evidence just yet. My guess is in 10  years, we will. But I am very concerned that it's  
  • 01:12:37 the nature of the discourse that is the problem  rather than any particular technical issue. 
  • 01:12:49 [Carolina Sánchez] Thank you so much. Again, I think reminders,  
  • 01:12:55 first of the fact that the impacts of  trade are heterogeneous. And I think that,  
  • 01:13:00 just the discussion we had on Mexico, Brazil  and African countries, even though we saw some  
  • 01:13:04 similarities, that did show that that's very much  the case. But I think also for reminding us that,  
  • 01:13:11 despite the heterogeneity, we do know that for  the most part, irrespective of where in the world  
  • 01:13:16 we are looking at, the poor and vulnerable are  usually not able to protect themselves against  
  • 01:13:22 the shocks that trade generates and usually  are not in a good position to take advantage  
  • 01:13:27 of the opportunities that trade generates. And  I think that that holds through no matter where  
  • 01:13:33 we look and what that means is that, I think even  though we should continue to emphasize the gains  
  • 01:13:41 that trade can bring, and I think this is a good  moment to do that again, as you're pointing out,  
  • 01:13:48 maybe that message need to be a little bit  nuanced, to acknowledge that those gains are  
  • 01:13:52 not equally or uniformly distributed. I think  that's in part what these reports aims to do. 
  • 01:13:59 But ultimately what that means as you're pointing  out is that this is not a technical issue. There's  
  • 01:14:04 a political economy of trade. And I think you were  describing a little bit what the current status of  
  • 01:14:09 that political economy is, and maybe we can come  back to that in the next round of discussions. 
  • 01:14:16 Let me close these first round of questions  by maybe trying to bring things a little bit  
  • 01:14:20 closer to home and turn to Mari to reflect on  how are we at the World Bank thinking about  
  • 01:14:32 trade and the gains that trade can bring, but also  some of the risks that can be associated with it  
  • 01:14:39 in the context of our approach to the recovery.  
  • 01:14:42 You talked about this in your introductory  remarks. The Bank is talking about green,  
  • 01:14:47 resilient and inclusive development as  a way to help the world recover from  
  • 01:14:54 COVID. So what can we do? What are we doing  within green, within this framework to support  
  • 01:15:01 developing countries in designing trade policy  reforms that can boost growth, but also poverty  
  • 01:15:09 reduction and share prosperity? Over to you, Mari. [Mari Pangestu] 
  • 01:15:13 Yes. Thank you, Karina. And thank you to all  the previous speakers who have given a lot of  
  • 01:15:19 richness to our discussion. Let me just emphasize  that what we are trying to do here at the Bank,  
  • 01:15:26 it's not new. We are trying to achieve a  recovery and growth which is going to be  
  • 01:15:33 simultaneously and systematically sustainable,  resilient, and inclusive. And what does that mean  
  • 01:15:39 is something within the context of trade  policy reforms is what we are trying to do  
  • 01:15:47 in this discussion. I just wanted to start by  
  • 01:15:51 saying that I agreed with Secretary Ferraz,  that trade policy is not the culprit for  
  • 01:15:58 unequal gains, and trade policy reforms, at the  same time, are also not the fantasy or the magic  
  • 01:16:03 bullet for us to get out of this pandemic and  ensure growth, poverty, and inclusiveness. I think  
  • 01:16:11 as a former trade minister, I always said,  unfortunately, trade policy is the easiest  
  • 01:16:16 thing to turn on and off. Okay. We have problem in  this sector, put protection on, raise the tariffs.  
  • 01:16:22 It's the easiest thing to do. And politically the  politicians can say, "Yes, I've done something for  
  • 01:16:28 you." So we're always struggling with this issue  of trade policy in the absence of other policies. 
  • 01:16:34 So I think the first thing I would say is that  what we are trying to do is to make sure that, as  
  • 01:16:42 all the three geographical representation here  is emphasizing, we need a whole host of other  
  • 01:16:50 complimentary policies. And let me just put it in  the three buckets that came out from this report,  
  • 01:16:58 which is, one was how do you reduce distortions  and improve the business environment? That is  
  • 01:17:04 a very typical World Bank policy, trade policy  reform, reduce tariffs and non-tariff barriers,  
  • 01:17:12 there's a cross border issue behind the border  issue, trade facilitation and all that. But I do  
  • 01:17:19 think, I just want to add the important dimensions  of competitiveness and increasing productivity,  
  • 01:17:26 which going to be, this is the focus of why we  want to remove distortions and improve business.  
  • 01:17:31 In the context of the recovery and sustainability  agenda that is evolving as a challenge for  
  • 01:17:39 developing countries. So developing countries  
  • 01:17:42 coming out of this recovery, they  have to think about diversification.  
  • 01:17:50 It's either geographically or because of  their reliance on commodities or tourism,  
  • 01:17:56 and it's finding new opportunities for export  and competitiveness in the sustainability field.  
  • 01:18:02 We have this carbon pricing and taxation becoming  an issue. Europe, by 2023, will be imposing cross  
  • 01:18:11 border taxation. So in the design of our trade  policy, reforms and competitiveness, we do have  
  • 01:18:16 to think about sustainability issues, not just  whether we can produce it the most efficiently  
  • 01:18:23 and the most competitive, but competitive now  includes sustainability within that measure. 
  • 01:18:29 And in terms of identifying new opportunities for  exports, I think we need to look very carefully at  
  • 01:18:36 services, besides manufacturing, going out of  commodities. For those commodity exporters in  
  • 01:18:43 coal, oil and gas, that's the wake-up call on the  transition and the climate change. That's going  
  • 01:18:50 to be a big issue in the next 5, 10 years that  they also have to deal with. So diversification  
  • 01:18:55 to what? To manufacturing, nature based solutions,  exports, and services, and digital and data based  
  • 01:19:05 exports. And that's a whole area of trade policy  that needs to be part of the trade policy reforms. 
  • 01:19:12 I think we need to also pay  attention to resilience.  
  • 01:19:17 What does resilience mean? I'll just pick two very  current issues that we are facing in the Bank and  
  • 01:19:24 trying to help countries with. One is the global  value chains. With the pandemic, with the crisis,  
  • 01:19:31 we have seen that global value chains have  been disrupted. And so the consideration  
  • 01:19:37 is not just efficiency where you would source  your suppliers and so on, but also resilience.  
  • 01:19:43 You want to make sure that you can access many  suppliers if one place shuts down. And this is,  
  • 01:19:49 again, something that developing countries need  to think about as to where am I in this global  
  • 01:19:54 version? How do I show that I'm going to be a  resilient and not just an efficient supplier? 
  • 01:20:01 And the other big issue is of course vaccines and  medical supplies. Where would be the manufacturing  
  • 01:20:07 hubs, it's both a trade and investment issue.  The patent waiver and the compulsory licensing  
  • 01:20:13 is only one part of the issue. The technology  transfer issue, the trade restrictions that need  
  • 01:20:20 to be managed on the export and import side,  and it's not just on the vaccines itself,  
  • 01:20:26 but also on the raw material and supplies. So I do  think this is in terms of the resilience agenda. 
  • 01:20:35 Second, I think we want to make  sure that it's growth recovery  
  • 01:20:41 and sustainable, and also inclusive. And I think  many of you here as policy makers, this is the  
  • 01:20:49 big challenge. How do we... The report makes a lot  about the concentration in geography and sectors,  
  • 01:20:56 and it is about reducing the cost of trade. So I  just want to echo Arturo's point earlier about,  
  • 01:21:05 within the country, the regional disparities are  huge, and this is really about how do you reduce  
  • 01:21:12 costs of doing trade within the country, as well  as you are integrating globally and regionally.  
  • 01:21:20 And it is about infrastructure. It is about  connectivity. It is about soft and hard  
  • 01:21:25 infrastructure. Myself, as a trade minister,  I had a huge task, big countries like Mexico,  
  • 01:21:32 like Brazil, like Indonesia, how do you have  domestic connectivity? You are talking about  
  • 01:21:37 global connectivity and regional connectivity, but  you also have to address domestic connectivity. 
  • 01:21:43 I just want to tell you a story about  my experience with the World Bank.  
  • 01:21:47 In 2009, there was a report, WBR report  on geography, economics and geography.  
  • 01:21:52 And that kind of turned a switch in our policy  reforms that we had to address the logistics issue  
  • 01:22:00 domestically. We even had studies where you had a  truck going from one end of Indonesia to another,  
  • 01:22:08 just to see how many stops they had to make to  understand what were the impediments domestically.  
  • 01:22:15 So that's the kind of thing that we need to also  do. And course, inclusiveness means the human  
  • 01:22:21 capital side, skills upgrading and so on. And  how do you get SMEs involved in formal sector?  
  • 01:22:29 And finally factor mobility. I think this report  and many previous reports also show that the  
  • 01:22:37 lack of spread or the length of time when  the benefits can be spread has a lot to  
  • 01:22:43 do with labor mobility and capital mobility. So the rigidities in the labor policy is also  
  • 01:22:51 a big issue if we want to have inclusiveness. So I  think I'll stop there. I've tried to just describe  
  • 01:23:00 to our audience what we are trying to do and kind  of the bigger picture. Or maybe just one last  
  • 01:23:05 point, because it was raised with on the Africa  continental free trade area. How do you deal with  
  • 01:23:15 negotiations? We are just talking about country  level. How do you deal with benefits of trade  
  • 01:23:21 when you're talking across countries? Let me  just share with you that myself as a previous  
  • 01:23:26 trade negotiator, the framing has to be, yes, it's  liberalizations, it's facilitation, but it's also  
  • 01:23:32 the third leg is what we call capacity building.  So the more developed countries versus the more  
  • 01:23:37 lesser developing countries, it's also about  when do you open up, you have a longer timeframe,  
  • 01:23:42 but also the request. If I'm going to be  competitive to export to you, you need to  
  • 01:23:48 give me capacity building in this sector or in  this kind of area to be able to be competitive. 
  • 01:23:55 So that's, I think, another area of how to  make sure trade is across countries being  
  • 01:24:02 shared more equally. [Carolina Sánchez] 
  • 01:24:06 Thank you, Mari, so much. In a way you brought  the conversation full circle by emphasizing the  
  • 01:24:12 potential of trade to be a force in the recovery,  which is something that Arturo also pointed out in  
  • 01:24:19 his intervention earlier, but also reminding us  that, for that to happen, other things need to  
  • 01:24:24 be in place. You talked about resilience.  I think that's critical. But also about  
  • 01:24:28 the need for domestic integration for countries to  be successful in their international integration,  
  • 01:24:33 which I think other speakers talked to. We have about five minutes left.  
  • 01:24:39 And I want to, maybe in that time, come back to a  couple of the questions that we got in the chat,  
  • 01:24:45 but I'm going to ask you to be very, very  brief so that we can cover a couple of those.  
  • 01:24:50 So I'm going to go first to Minister Herrera and  Secretary Ferraz. Very briefly ask you to comment  
  • 01:24:58 on the following, Abdiaziz Amin pointed out that  in many developing countries, the informal sector  
  • 01:25:05 and SMEs account for a large share of employment  and really ask, should we be thinking differently  
  • 01:25:13 about the impacts of trade in this sector and what  are some of the policies that can maximize the  
  • 01:25:18 positive impact of trade on the informal sector,  on SMEs. So very briefly, I'm going to go to  
  • 01:25:26 Minister Herrera first and then Secretary Ferraz. [Arturo Herrera] 
  • 01:25:30 Yeah, very quickly. That's really at the core of  what's happening when you compare labor situations  
  • 01:25:36 between countries. Let me just share a couple  of numbers. In Mexico, close between 56 and 57%  
  • 01:25:44 of all the population in the labor sector works  in the informal sector. So basically the vast  
  • 01:25:50 majority works on the informal sector, as opposed  to, let's say, for example, an advanced economy,  
  • 01:25:57 we don't have unemployment insurance. The  minimum wage, I was calculating just before this,  
  • 01:26:04 is 123 pesos, which is close to $6 per day,  as opposed to $7.25 per hour in the US. 
  • 01:26:18 So basically you have a dual economy in the labor  sector. And there are several things that has to  
  • 01:26:26 be done. Some of them are in labor laws and  labor regulations. But the other ones are in,  
  • 01:26:33 like the ones that I mentioned, training, human  skills and infrastructure. It's not sufficient  
  • 01:26:40 to have the regulation, you have to create the  opportunities and a big issue in Mexico is ability  
  • 01:26:46 to finance firms properly. We have a relatively  shallow financial sector compared to, let's say,  
  • 01:26:54 to Brazil, Argentina, Columbia. Stop there. [Carolina Sánchez] 
  • 01:26:58 Thank you. Secretary Ferraz, over  to you. Very briefly in a minute,  
  • 01:27:02 if you can. [Lucas Ferraz] 
  • 01:27:03 So very, very briefly, I think the business  environment in a country, the higher,  
  • 01:27:12 the participation of SMEs in international trade  we have a very low participation, by the way,  
  • 01:27:18 here in Brazil, compared to other countries.  Also the better the quality of our institutions,  
  • 01:27:25 the better, of course, the quality of government  intervention in the private sector, in the  
  • 01:27:31 domestic economy. It also helps the participation  of SMEs. But most importantly, I think we need,  
  • 01:27:39 when we talk about SMEs exporting to the world,  we need to talk about the fixed and variable costs  
  • 01:27:46 that those SMEs face that are very high. So I would like to highlight the importance of  
  • 01:27:52 trade facilitation. And in this regard, we have  been doing a very important job here in Brazil  
  • 01:27:58 with the implementation of the single window  program that will reduce time delays in Brazil  
  • 01:28:04 imports a lot. And of course it will reduce,  as a consequence, the fixed and variable costs  
  • 01:28:11 for the SMEs. So just to conclude my intervention,  we must also highlight the cost of TBT and SPS  
  • 01:28:20 measures, which is also a very important barriers  into the exports, especially in the case of small  
  • 01:28:26 and middle enterprises. [Carolina Sánchez] 
  • 01:28:31 Thank you very much. With a couple minutes left,  I'm afraid we are going to have to leave it here.  
  • 01:28:38 I won't attempt to summarize what I think has  been an excellent and very rich discussion,  
  • 01:28:44 which has really touched the point, I feel  almost all of the points and issues that  
  • 01:28:49 the report deals with. So I hope that this  really is an excuse if one more was needed for  
  • 01:28:55 all of you that are connected to go and  read the report and learn more about it. 
  • 01:29:00 I want to thank our panelists for reminding  us about the value of trade as an engine for  
  • 01:29:07 growth and income growth, but also for agreeing, I  think with the main message of the report that is,  
  • 01:29:13 that we shouldn't take for granted that those  gains will be evenly distributed. And therefore,  
  • 01:29:18 there's a very important role for domestic policy  to play in ensuring that indeed trade has positive  
  • 01:29:26 distributional impacts. And with that, I'd like to  thank again, our panelists. I wish we had had time  
  • 01:29:34 to go over this issue. And of course, all of you  that were here with us, and that contributed with  
  • 01:29:39 your questions and just with your listening to  this event. Thank you and have a good rest of  
  • 01:29:45 your day everyone. [Mari Pangestu] 
  • 01:29:46 Thank you. Thank you everybody.  Thank you, Secretary [crosstalk].

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