Spreading the Gains From Trade More Widely

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Spreading the Gains From Trade More Widely

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The rise of international trade has transformed the global economy and coincided with a dramatic reduction in global poverty. While overall trade is seen positively in many parts of the world, protectionism and economic nationalism are on the rise. A new World Bank report addresses the reality of trade: The benefits are shared by many, while the adjustment costs tend to be concentrated.

Trade is more important than ever due to its role in production and provision of food, medicines, and vaccines during the COVID-19 pandemic and in supporting economic recovery. It is vital to better understand and more clearly communicate how trade impacts welfare across all segments of the population, as well as how policy can help reduce disparities. 

Join us for the launch of World Bank's report “The Distributional Impacts of Trade: Empirical Innovations, Analytical Tools and Policy Responses”, which provides knowledge, data, tools, and a policy framework with the aim to spread the gains from trade and make it more inclusive. This key discussion will stress the gains from trade in supporting poverty reduction, identify solutions for more inclusive trade, and support policymakers in the design of better policies and programs to address the distributional impacts of trade.
 

Read the transcript


  • 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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