What is state failure? See my conceptualisation of state failure on the right flank below.

Sunday, July 1, 2007

Trade liberalisation for Afghanistan - Any collateral damage expected?

MStFB Afghanistan series update
Oxfam has just published a very important paper with the telling first sentences: "Afghanistan should be in no rush to join the World Trade Organisation. Rapid accession would have few benefits and could undermine efforts to reduce poverty". (It can be downloaded here, in pdf.)
Several very important arguments are made in this paper, the importance of which will be easy for you to see provided you're not a 'fake-free-market' fundamentalist. To explain that latter remark a little: here I'm talking about the existence of an international market the freedom of which is only fake.
Think of how e.g. even some smart people still tend to be struck by ideas that labour could be globalised, just like capital, as a surprise - whereas it can only be a surprising idea to someone who managed to make oneself believe that we are currently living in a near-neoliberal international economic order, with none of its basic tenets missing (a misconception that is paradoxically spread very efficiently even by, or especially by, some of the most ardent critics of such an order). Well, in a truely neoliberal international (no, forget it, not international but interstate!) economic order all factors of production would have to move freely. That's actually what might eventually produce convergence between different economies. If capital goes whereever it's needed more, and labour goes whereever it's needed more. (I'm not saying such a world is possible really; I'm merely saying that, contrary to common belief, that is not the world we're living in.)
For now, let's not complicate the picture with other possible factors of production beyond labour and capital. Let us, however, complicate it by other variables. Does freely moving capital go to a country where there is an insurgency? Where, if rumour has it right, corruption is endemic? Where there are enough small arms to let you assume that one day you might be robbed and killed coming from a business meeting? Where there's currently no major domestic market for a would-be investor's products? To a place that most skilled labour has already left, mostly not to make more productive use of itself in a rich country's economy, but simply fleeing to a neighbouring country to vegetate there as a camping refugee, dependent on NGO support for a living? Not considering myself really an economist, can I tell you with any conviction that I think the answer to be "NO!" to all those questions? (Yeah, on Tuesday it was Afghanistanica's turn to attack misconceptions with a series of passionate rhetorical questions - and now it's mine.)
OK, so here we have a devastated country like Afghanistan, and it is about to be embedded more perfectly, than it currently is, into this half-liberal interstate economic order we have. It already has lower customs tariffs than neighbouring countries on average, but let's liberalise further. To give more export opportunities... to neighbouring countries? Where there's no internal armed conflict on a similar scale and there aren't other similarly grave problems to make production of everything more expensive? So that even carpets might be imported to Afghanistan in greater volume? Again, those are rhetorical questions, I know.
The Oxfam paper, while definitely trying to give a warning signal about this, is actually quite moderate in its wording. The closest it comes to really harshly worded criticism is with this sentence here, which I'm quoting a bit out of context to make it look harsher: "conditions effectively lock a country into a situation where it may not adopt policies once used by today’s rich countries to develop or industrialise" (meaning they might lock it into natural resource extraction, basically, providing that the given country has such resources to extract).
So, I will look at the passage in the Oxfam paper that lists the five classically considered advantages WTO accession might have for even an LDC (Least Developed Country) like Afghanistan, and I will summarise Oxfam's critical remarks, presenting the latter at times with alternative wording.
Advantage No. 1: technical assistance in the accession process. Rephrased: an advantage the essence of which is that it helps you get to the 'other' advantages. Before looking at what those are believed to be, here's the essence of Oxfam's criticism, too: part of this technical assistance may in fact be just pushing through WTO-conform trade legislation as desired by current WTO members, being potentially disadvantageous for the country on the receiving end.
Advantage No. 2: a boost to exports. Oxfam: Afghanistan already has preferential trade with its most important partners, so why would joining boost anything? Plus, I may add, neighbours may indeed boost their exports to Afghanistan.
Advantage No. 3: attracting FDI as a result of membership. Oxfam: an investor will rather consider factors other than WTO membership before making a decision on where to go. E.g. those issues that I have listed above, talking about where investors absolutely don't go (except for those that are after the more lucrative opportunities in the natural resources sector). And I may add, although this plays more of a role in countries where the domestic market is already significant, that even the lacking protection of the internal market, that comes with trade liberalisation, means there is less of an incentive for an investor to get into the given country.
Advantage No. 4: protection against 'unfair trade practices' (bullying), upon gaining access to the dispute resolution mechanism of WTO. Oxfam: that's bullshit. LDC members will be bullied. And they won't argue with the big guys, no chance. The only LDC to date that brought a case before the Dispute Settlement body did so against mighty Bangladesh (no disrespect meant to Bangladeshis themselves here).
Advantage No. 5: a chance to influence multilateral trade negotiations. Oxfam: provided you're mostly in total agreement with the big guys. Even if poorer countries actually showed somewhat more bloc cooperation in negotiations lately, to represent their interests better.
So, if I would have to argue that WTO accession is important to Afghanistan, what I could offer is that "look, the WTO is a HUGE thing; if you ignore it, in the long run you'll lose a lot; if you get in, you'll potentially lose less, provided you calculate well during the negotiations". That's a negative argument, but of course it also is an important one. So my problem is that although in theory I see a sequence of steps that could help Afghanistan back on its feet, such as tackling the insurgency first, then starting heavily assisted development second, and a bit later dismantling the opium industry third, I have to wonder what does this current interstate economic order have to offer to Afghanistan in terms of prospects for the long run?
To throw in some arguments from the context I'm living in, quick or relatively quick trade liberalisation predictably led to de-industrialisation in the Visegrad countries in the 1990s, only followed by near-immediate re-industrialisation as a result of Western capital coming in. And that was thanks to this region's geographical and cultural proximity to Western Europe, as well as because a skilled and educated workforce was available here - available on the cheap. How will the Afghan government help infant industries grow competitive worldwide?
I know multilateral free trade was important to achieving more peace and stability in the world in the wake of all the destruction done by warring (mostly European) states, by way of the interdependence that such trade created, but we are talking here about Afghanistan now... And not about industrialised countries that had a lot of comparative advantages to provide for getting to a win-win situation from free trade.
(P.S. You might be interested in getting a theoretical briefing on the issue of trade liberalisation from this excellent paper here (pdf), by Erik S. Reinert and Rainer Kattel.)

No comments: