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This event took place on May 19, 2021

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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]
50:11 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].

Spreading the Gains From Trade More Widely

Follow the event on Twitter #TradeGainsForAll

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]
50:11 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].

Speakers

Mari Pangestu

Former World Bank Managing Director of Development Policy and Partnerships
@Mari_Pangestu
Lucas Ferraz

Secretary of Foreign Trade, Ministry of Economy, Brazil
@LPCferraz
Arturo Herrera Gutiérrez

Global Director, Governance Global Practice, Equitable Growth, Finance, and Institutions Practice Group (EFI) Vice Presidency, World Bank
@ArturoHerrera_G
Alan Winters

Professor of Economics, University of Sussex
@SussexUni
Prudence Sebahizi

Chief Technical Advisor, African Continental Free Trade Area
@sebaprunce
Caroline Freund

Global Director for Trade, Investment, and Competitiveness, World Bank
@CarolineFreund
Carolina Sánchez-Páramo

Global Director, Poverty and Equity Global Practice, World Bank
@WBG_Poverty
Gladys Lopez-Acevedo

Lead Economist, Poverty and Equity, World Bank
@gladyslopezwb

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