35921 THE WORLD BANK Assessing World Bank Support for Trade, 1987­2004 An IEG Evaluation INDEPENDENT EVALUATION GROUP ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Independent Evaluation Group (IEG) reports directly to the Bank's Board of Executive Directors. IEG assess- es what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contri- bution of the Bank to a country's overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. W O R L D B A N K I N D E P E N D E N T E V A L U A T I O N G R O U P Assessing World Bank Support for Trade, 1987­2004 An IEG Evaluation 2006 The World Bank http://www.worldbank.org/ieg Washington, D.C. © 2006 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved Manufactured in the United States of America The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Photo credits: Maputo harbor cranes, workers offloading rice imports, Mozambique, by Eric Miller, World Bank Photo Library; television manufacturing plant, Tajikistan, by Gennadiy Ratushenko, World Bank Photo Library; Cocoa farmer lays out beans to dry, Ghana, by Karen Robinson, courtesy of Panos Pictures; laborers from Myanmar with Chinese goods ready for loading onto trucks for export, China, Jiegao border, by Mark Henley, courtesy of Panos Pictures. ISBN-10 0-8213-6591-6 ISBN-13: 978-0-8213-6591-5 e-ISBN 0-8213-6592-4 DOI: 10.1596/978-0-8213-6591-5 Library of Congress Cataloging-in-Publication Data has been applied for. Ainsworth, Martha, 1955­ Committing to results : improving the effectiveness of HIV/AIDS assistance: an OED evaluation of the World Bank's assistance for HIV/AIDS control / Martha Ainsworth, Denise A. Vaillancourt, Judith Hahn Gaubatz. p. cm. -- (Operations evaluation studies) Includes bibliographical references. ISBN-13: 978-0-8213-6388-1 ISBN-10: 0-8213-6388-3 1. Economic assistance--Developing countries--Evaluation. 2. AIDS (Disease)--Economic aspects--Developing countries. 3. HIV infections--Economic aspects--Developing countries. 4. AIDS (Diseasse)--Developing countries--Prevention. 5. HIV infections--Developing countries--Prevention. 6. World Bank. I. Vaillancourt, Denise. II. Hahn Gaubatz, Judith. III. Title. IV. World Bank operations evaluation study. World Bank InfoShop HC60.A4575 Independent Evaluation Group E-mail: pic@worldbank.org 2005 Knowledge Programs and Evaluation Capacity Telephone: 202-458-5454 Development (IEGKE) Facsimile: 202-522-1500 E-mail: eline@worldbank.org 362.196'9792'0091726--dc22 Telephone: 202-458-4497 2005052329 Facsimile: 202-522-3125 Printed on Recycled Paper Contents vii Acknowledgments ix Foreword xiii Executive Summary xxiii Acronyms and Abbreviations 3 1 Introduction 3 Rationale for Bank Involvement 5 Objective of the Evaluation 6 Conceptual Framework and Methodology 9 2 Lessons from the Literature 9 Trade Policy Reform and Economic Growth 11 Lessons from Past IEG Evaluations 15 3 Inputs, Trends, and Evolution of World Bank Trade Assistance 15 Lending Inputs to Trade 24 Nonlending Inputs 31 4 Outcomes and Results 31 Project Outcomes 35 Economic Outcomes for the Sample Countries 42 Lessons at the Country Level 49 5 Trade Returns to the Agenda, 2001­04 50 Research 53 Bank Participation in Global Policy Discussions and Advocacy 55 Building Trade Capacity 60 Mainstreaming Trade into Country Work 67 6 Findings and Recommendations 67 Findings 70 Recommendations A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 73 Appendixes 75 A1: Timeline of Major Developments in International Trade, 1987­2005 83 A2: Conceptual Framework for the Evaluation 85 B1: Trade and Development--The State of the Debate 95 B2: Lessons from Previous IEG Evaluations 99 C1: Defining Trade in the Bank Portfolio 101 C2: Portfolio Data for Trade-Related Projects 111 C3: Changes in the Focus of Trade Conditionality 113 C4: Implementation of Conditions 115 D1: Core and Non-core Trade Projects 117 D2: IEG Portfolio Ratings 119 D3: Trade-Related Investment Projects 131 D4: Probit Estimation of the Determinants of Project Outcomes 133 D5: Aggregate Economic Analysis 145 D6: Sources of Growth Decomposition 147 D7: Case Country Profiles 157 E1: Organizational Chart for the International Trade Department 159 E2: Establishment of the Trade Department 161 E3: World Bank Advocacy on Industrial Country Trade Policies 165 E4: Distribution of Trade Capacity Building Components, 2001­04 181 E5: Geneva Survey Results 185 E6: Staff Survey Results 191 E7: Trade in Country Assistance Strategies 213 E8: Trade Note Series 215 F: Management Response 221 G: Chairman's Summary: Committee on Development Effectiveness (CODE) 225 Endnotes 235 References Boxes 19 3.1 Elements of Trade Policy Reform Are Varied and Diverse 25 3.2 Conditionality May Be Neither Necessary nor Sufficient 26 3.3 High-Quality ESW Supports Policy Dialogue 28 3.4 Regional Reports on Trade--Strategic and Nontraditional 33 4.1 Trade Finance--A Continued Struggle to Be Effective for Some 45 4.2 Failure to Implement Complementary Policies Can Be Costly 52 5.1 Do Regional Trading Arrangements Help Liberalize Trade? 56 5.2 What Is Trade-Related Capacity Building? 58 5.3 Independent Evaluations of the Integrated Framework 59 5.4 Effective and Timely Leverage of Knowledge--WTO-Related Trade Capacity Building 61 5.5 Minimizing the Effects of Commodity Shocks 62 5.6 Trade in Country Assistance Strategies: Mixed and Uneven 64 5.7 Intellectual Leadership Plus Collaboration Yield Operational Relevance in Sanitary and Phytosanitary Standards i v C O N T E N T S Figures xiii ES.1 Opening Economies 4 1.1 Declining Import Tariffs, But Some Regions Still Significantly Protected 7 1.2 Conceptual Framework for the Evaluation 16 3.1 Trade-Related Bank Lending Has Varied But Trended Downward Overall 17 3.2 The Thematic Focus of Bank Lending for Trade: Trade Liberalization and Direct Lending to Exporters Gave Way to Trade Facilitation 20 3.3 Focus of Trade Conditions in Adjustment Loans Shifted over 1987­2004 21 3.4 Maximum Tariff Recommendations Covered a Wide Range 24 3.5 Number of Lending Conditions Declined over 1987­2004 27 3.6 New Diagnostic Studies and Trust Funds Catalyzed Increased Economic and Sector Work 32 4.1 Stated Objectives of Trade-Related Projects, 1987­2004 Tables 12 2.1 Summary of Policy Design Issues 19 3.1 Trade Adjustment Loans--Sample Characteristics, 1987­2004 22 3.2 Trade Loan Conditions Most Often Addressed Both Imports and Exports, But a Third of Loans Focused Solely on Imports 22 3.3 Trade Adjustment Loans Featured Strong Implementation 23 3.4 Meeting Lending Conditions Did Not Necessarily Improve Economic Performance 34 4.1 Factors Underlying Poorly Performing Projects 37 4.2 Indicators of Protection 38 4.3 Bank Trade Clients Differed from Other Developing Countries 39 4.4 Economic Indicators: With and without Bank Assistance and Before and After Trade Reform 41 4.5 Changes in Export Concentration--Half-Full or Half-Empty? 42 4.6 Factors behind Change in Exports: By Country Groups 43 4.7 Export Growth and Increased Value Added, 1983­2003 63 5.1 Trade in CASs by Region 64 5.2 Trade Mainstreaming Lags behind Other Thematic Areas and Organizations v Acknowledgments T his evaluation of the World Bank's assistance on trade-related issues was prepared by the Country Evaluation and Regional Relations division of the Independent Evaluation Group (IEG). The report focuses on the period between fiscal years 1987 and 2004. The task team leader of the evaluation was Yvonne Desk reviews of the portfolio and meta- Tsikata, the main author of the report. Gregory evaluations of related IEG evaluations were Ingram (Director-General, Operations Evaluation undertaken by Gonzalo Salinas. Maria Lourdes Department (OED), now the Independent Evalua- Gallardo analyzed the poverty content of trade- tion Group, up to April 1, 2005) provided guidance related projects. Inventories of the Bank's and direction to this study in its initial phases. An analytical work on trade carried out by the Trade accompanying evaluation by Jaime de Melo Assistance Evaluation (TAE) team benefited reviewed the Bank's trade program between fiscal from the updates contained in the Trade 2001 and 2004. The report is based on inputs from Department's Progress reports. Azita Amjadi, IEG staff and consultants who contributed country Zeynep Ersel, and Francis Ng were extremely case studies, desk reviews, surveys, and helpful in pointing the team toward sources of background papers. The report benefited from the data and information. All members of the team comments of three peer reviewers and an External provided research assistance for Chapter 4. Advisory Panel. Yothin Jinjarak carried out the econometric Six country case studies were prepared by analysis in Chapter 4 and Sonia Sanchez Patrick Conway (Morocco), Frank Flatters (Indone- Quintela analyzed the Bank's trade-capacity- sia), Andrew Lambert (Mozambique), Arvind building portfolio. Ana Maria Menendez and Panagariya (India), Peter Robinson (Zambia), and Gonzalo Salinas reviewed the trade content in B. Lynn Salinger (Senegal). Desk reviews were Country Assistance Strategies. Debby Wang prepared of Argentina and Peru (Gonzalo Salinas). reviewed implementation of trade adjustment The evaluation team greatly appreciates the time lending. and insights of past and current country directors, In collaboration with Yvonne Tsikata, Ron sector managers, task team leaders, government Cohn, Kimberly Hewitt, and Mary McIntosh officials, and civil society representatives who were and of Princeton Survey Research Associates interviewed for these reviews (and who are International (PSRAI) designed and conducted acknowledged in the individual reports). electronic surveys of the coverage, quality, and v i i A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 effectiveness of the Bank's analytic work on Jorge Kaufman, Ray Rist, and Nawfal Umari. trade with Bank staff, policy makers, Participants in a launch workshop held in nongovernmental organizations (NGOs), December 2003 in Dar es Salaam, Tanzania, academics, and private sector representatives. helped to sharpen the focus of the Approach In addition, PSRAI conducted structured face- Paper. Extremely useful comments were to-face interviews with World Trade Organiza- received during the course of the study from tion (WTO) delegates, donor representatives, Ataman Aksoy, Steve Jaffee, Hans Peter Lankes, and NGOs in Geneva. Katrin Elborgh-Woytek, members of the Poverty Comments on the draft survey instruments Reduction and Economic Management (PREM) received from Carlos Primo Braga, Jaime de Council, participants in a meeting held with the Melo, Richard Newfarmer, Patrick Grasso, and Development Economics Group, and partici- Steven Jaffee were much appreciated. The pants in a meeting held with regional trade team also thanks all of the respondents who coordinators and PREM sector managers, as completed questionnaires or gave interviews well as representatives of trade NGOs that the for their time and insights. We thank Fabienne evaluation team met in June 2004. Maertens of the Bank's Geneva Office for The External Advisory Panel for the study logistical support and Carlos Primo Braga and consisted of Professor David Greenaway Chiedu Osakwe (WTO) for facilitating the (Nottingham University and the Leverhulme survey work. The survey results were compiled Centre for Research on Globalisation and by PSRAI and analyzed by Yvonne Tsikata. Economic Policy, U.K.), Pradeep Mehta A number of background papers were (Consumer Unity and Trust Society, India), prepared for the evaluation in addition to the Dominique Njinkeu (International Lawyers and country case studies described above. They Economists Against Poverty, Canada), Diana included two papers, on Bank advocacy (Sarath Tussie (Facultad Latinoamericana de Ciencias Rajapatirana) and a review of the mechanics of Sociales and the Latin American Trade Network, trade reform (Ademola Oyejide), both initiated Argentina), and Arne Melchior (Norwegian by Gianni Zanini, trade promotion instruments Institute of International Affairs, Norway). The (Claes Lindahl), impact of Bank lending for panel met in June 2005 to discuss the study's trade (Yothin Jinjarak, Gonzalo Salinas, and preliminary findings. Yvonne Tsikata), and trade conditionality Editorial assistance was provided by William (Yvonne Tsikata). The study benefited Hurlbut. Production and logistical support immensely from comments of three peer were managed by Janice Joshi, Agnes Santos, reviewers-- Julio Nogues (Universidad di Tella, and Silvana Valle. Caroline McEuen edited the Argentina), Peter Harrold (Country Director, study for publication. Sri Lanka), and Gene Tidrick (IEG)--at the Finally, we acknowledge the generous Approach Paper and draft stages. Comments at financial support of the Government of the Approach Paper stage from the following Norway (through the Ministry of Foreign individuals were also valuable: Abdulrahman Affairs and the Norwegian Agency for Develop- Almofadhi, Alain Barbu, Ajay Chhibber, Uri ment Cooperation) and the Government of Dadush, Victoria Elliott, Nils Fostvedt, Kris Switzerland (through the Swiss Development Hallberg, Bernard Hoekman, Gregory Ingram, Corporation). Director-General, Evaluation: Vinod Thomas Director, Independent Evaluation Group, World Bank: Ajay Chhibber Senior Manager, Country Evaluation and Regional Relations, IEG: R. Kyle Peters Task Manager: Yvonne M. Tsikata Review of 2001­04: Jaime de Melo v i i i Foreword T he majority of developing countries have significantly improved their environment for trade and economic growth, following over two decades of assistance from the Bank for trade reform. Tariff and non-tariff barriers that created distor- In 2001 the Bank reappraised its trade activi- tions in incentives have been reduced, and ties and intensified its focus. This most recent import constraints largely eliminated. Yet export phase has focused on the global trading system performance, an important stated objective of and on the use of trade-related research, Bank support, has been highly varied. While advocacy, capacity building, and mainstreaming most Regions diversified their exports, Africa of trade in Bank operations. On the lending largely failed to do so, and competitiveness side, attention has shifted to trade facilitation eroded for many African countries, which (both physical infrastructure and institutions). contributed to their increased marginalization Trade-related projects have been helpful in in global trade. Thus, despite the efficiency gains reducing distortions and relaxing the import from trade, Bank support has not been sufficient constraint. However, cross-country analyses and to help place many of its poorest clients on a case studies found that outcomes varied across path toward sustained growth. countries, depending on initial conditions, the The Bank's interest in trade has gone degree of macroeconomic stabilization, the through three phases, each with a quite differ- existence of prior analyses, and the quality of ent approach. During the first phase (the 1980s trade-related institutions. The Independent and early 1990s), the World Bank played a Evaluation Group (IEG) also found that the significant role in the reform of developing Bank underestimated the complexity of comple- country trade policies through adjustment mentary reforms in the investment climate, paid lending and by supporting trade-related institu- inadequate attention to external factors, and tions and infrastructure. gave insufficient attention to analyzing the During the second phase, from the mid-to- poverty-distributional outcomes. While late 1990s, the Bank's emphasis on trade economic growth often improved after liberal- declined, although the impact of earlier trade ization, it could not always be attributed to an reforms was still playing out. Analytical work improved export supply response, but rather to on trade (and to a lesser extent) new lending more general efficiency gains brought about by was less than in the first phase. removing trade-related distortions. i x A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 This evaluation finds the trade research to lending for trade has declined, partly reflecting be of high quality, often timely, and with the reduction in lending for trade liberalization. relatively few gaps. On the advocacy side, the This evaluation has three main recommen- Bank has become more closely associated with dations. First, to ensure that the Bank's advice speaking out on behalf of poor countries on on trade issues is consistent with the institu- trade issues, in contrast to its relative silence in tion's poverty reduction mission: be more this area in the 1980s and 1990s. The initial systematic about assessing (ex-ante) possible advocacy, however, would have benefited from trade-related poverty-distributional outcomes a broader focus, beyond issues of agricultural in both economic and sector work and in market access. lending operations, drawing on the range of In trade-related capacity building, the multidisciplinary expertise. The Bank also evaluation finds the strategy unclear. The needs to undertake a more systematic program Integrated Framework initiative continues to of research on micro-level adjustment to trade emphasize diagnostic work relative to the policies, looking at firms, households, and delivery of coordinated trade-related capacity individuals. building. Second, to strengthen implementation: the With respect to mainstreaming trade, the Bank may need to revisit the balance between Bank responded quickly to the new corporate the global and country agendas and strengthen focus on trade after 2000 by keeping up with operational links on trade issues. Particularly the World Trade Organization (WTO) negotia- important is enhanced cross-fertilization tions, helping to catalyze a rapid increase in among trade and the financial sector and trade-related analytical work, and building an private sector development vice-presidencies, effective alliance between the Poverty particularly in the area of services liberalization, Reduction and Economic Management as well as on rural and environmental issues. In Network (PREM) and the transport and rural addition, guidance from the PREM anchor on development units on trade logistics and the incorporation of trade issues in Country standards, respectively. Assistance Strategies in the context of the Mainstreaming trade in Country Assistance growth agenda, greater support from country Strategies (CASs) and sector activities and strate- management units, and more effective identifi- gies has been slower and will require stronger cation of trade champions in the Regions are support from country management units. important to ensure trade is fully operational- Overall, the Bank has been a leader in the ized. provision of financial and technical support for Finally, the evaluation also recommends that trade. Between fiscal 1987 and 2004, the Bank the Bank strengthen knowledge management approved about US$38 billion for loans in efforts. Greater sharing of country experience trade-related areas, representing 8.1 percent of (as has been done in the area of agricultural total Bank lending. This financing was standards) and better integration of trade work accompanied by a large volume of operational done in the center with country-level work on economic and sector work and numerous agriculture, labor markets, and private sector research publications on trade. Since 1987, development will be critical. Vinod Thomas Director-General Evaluation x Main Evaluation Messages · Bank trade support has helped reduce distortions and con- tributed to enhancing external competitiveness. · But the Bank underestimated the importance and complexity of complementary policies, inadequately analyzed adjustment costs, and was slow to assess the role of the external envi- ronment. · Maximizing gains from trade liberalization requires a cross- sectoral approach that explicitly takes welfare, distributional, and political economy factors into account. Executive Summary T he developing world is arguably more open today than at any time in recent memory. Developing countries have more than doubled their exports since the mid-1980s, helping many of them to grow steadily. Exports and imports have risen as a share of the traditional trade agenda related to opening up gross domestic product (GDP) across a wide economies. The Bank based its involvement on range of countries, fueled in part by China's the importance of trade for economic growth remarkable trade performance and the growth and on the role of openness in enhancing a in services trade. Trade policies have also been country's economic efficiency. By increasing significantly liberalized. Average import tariffs the incentives for and profitability of exporting, have fallen steadily over the period (figure Bank support for trade reform was expected to ES.1), although the fall in other forms of help expand and diversify exports. The findings protection has been more gradual. The World of several large multicountry comparative Bank has both influenced and been influenced studies prepared during this period reinforced by these developments. this message (Choksi and Papageorgiou 1986; The Bank has supported the reform of trade Krueger, Schiff, and Valdes 1991; Michaely and policies and the strengthening of trade-related institutions and infrastructure in its client countries. Between fiscal years 1987 and 2004, Figure ES.1: Opening Economies about 8.1 percent of total Bank commitments ($38 billion) went to 117 countries to help Weighted average tariff rates for developing countries (%) them better integrate into the global economy. 30 This financing has been accompanied by a large 25 volume of analysis in operational economic and 20 sector work (ESW), research publications on 15 trade, and working papers on trade-related 10 topics. The Bank's interest in trade has gone 5 through three phases, each with a quite differ- 0 1988 1990 1992 1994 1996 1998 2000 2002 2004 ent approach. During the first phase (starting in the 1980s), the Bank focused largely on the Source: World Integrated Trade Solution, UNCTAD TRAINS Database TRN, December 17, 2005. x i i i A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 others 1991; Thomas and Nash 1991; Cooper economic and sector work was carried out to and others 1993). identify trade activities. Six main areas of During the second phase, from the mid- to lending support were identified: trade liberal- late-1990s, the Bank's emphasis on trade ization, institutional trade facilitation (for declined, although the impact of earlier trade example, customs), infrastructure-related trade reforms was still playing out. Analytical work facilitation (such as air freight, ports), private and (to a lesser extent) new lending were less and public trade finance, and technical than in the first phase. The most evident aspect assistance for trade negotiations. of the diminished attention to trade was the While there was no formal trade strategy downsizing of Bank units working on trade prior to 2001, three key documents provided issues. Concurrently, the elimination of the old strategic and technical guidance on Bank trade technical units under the reorganization of policy advice: the 1987 World Development 1996 dispersed trade experts throughout the Report: Industrialization and Foreign Trade, institution, and several subsequently moved on the 1988 Development Committee paper on to work on non-trade issues. trade, and the section on trade adjustment In the third phase, initiated with the collapse lending in Operational Directive (OD) 8.60. of the World Trade Organization (WTO) Seattle The main policy reforms embedded in these trade ministerial meeting in 1999, growing documents included replacing quantitative pressure to deliver on the Millennium Develop- restrictions with tariffs as a first stage of trade ment Goals and interest from development liberalization, maintaining low and relatively partners (notably bilateral donors) led the uniform tariffs for efficiency and political Bank to reappraise its trade activities. This economy reasons, and realistic exchange rates phase has focused on the global trading system requiring low inflation. The documents also and "behind-the-border barriers" to trade. encouraged studies of the economic costs of In 2001 a decision was made to expand existing policies, evaluations of the expected considerably the Bank's work on trade issues, benefits of reform, improved data on indicators and by July 2002 a new sector unit dedicated to and measures of nominal and effective protec- trade had been established in the Bank. In tion, and strengthened capacity of reforming addition, a virtual Trade Department was countries to assess their own policies. The created, bringing together staff working on World Development Report (WDR) also trade issues from the Development Economics supported the increased use of conditionality Complex (DEC), the Poverty Reduction and in structural adjustment lending as a catalyst Economic Management Network (PREM), and for trade reform. Together with a 2002 Board the World Bank Institute (WBI). In this third report on trade, these documents provide the stage, the Bank increasingly treated the strategies and objectives against which Bank multilateral trading system as a framework trade assistance is evaluated. within which its client countries could achieve greater economic integration (on equal World Bank Trade Activities: 1987­2001 footing) and larger numbers of the poor would Bank support from 1987 through 2001 was be lifted out of poverty. expected to (1) reduce disincentives for This evaluation assesses the development exporting by eliminating the anti-export bias; effectiveness of Bank trade assistance between (2) expand and diversify exports, thereby 1987 and 2004, based on the Bank's stated increasing foreign exchange earnings; (3) make strategies and objectives. "Trade" in this imports more readily available and increase context refers to lending and nonlending activi- import competition in final products; and (4) ties that enhance the environment and capabil- help countries better integrate into the global ity of Bank clients to trade goods and services economy. in the global economy. As part of this study, a The typical trade policy reform package review of the Bank's lending portfolio and supported by the Bank had four components: x i v E X E C U T I V E S U M M A R Y · Import-related: Policies such as eliminating likely reflects the evolution of the Bank's or reducing quantitative restrictions and other approach toward greater country-owned nontariff barriers, reducing import tariff levels conditionality and less prescription, as outlined and dispersion, making tariff regimes more in Operational Policy 8.60 on development uniform and transparent, reducing import sur- policy lending. charges, improving import procedures, and Four areas of concern emerge, however. eliminating official reference prices. First, the literature suggests the importance of · Export-related: Policies related to making macroeconomic stabilization to complement imports available for exporting; reducing export trade reforms. But the Bank sometimes bans, taxes, and licenses; reducing the anti- supported trade reforms in the presence of export bias; export credit and financing; and serious macroeconomic instability. Second, it is other export incentives. crucial that complementary measures such as · Exchange rate and foreign exchange man- removing marketing and price distortions as agement: Moving toward market-determined well as competition policy, reducing labor exchange rates, exchange rate devaluation, or market rigidities, and improving the regulatory step adjustment, and away from the adminis- environment (currently more commonly trative allocation of foreign exchange. thought of as "investment climate" issues) · Industrial and other supporting policies: accompany trade reforms. While this was the Pricing reform, investment promotion, com- case sometimes, compliance with these petition policy, marketing, privatization, labor conditions tended to be the lowest of all markets, and safety nets. conditions, underscoring the political and other difficulties associated with their Bank support for trade reform was generally implementation. Third, trade-related projects consistent with the 1987 WDR on trade, did not adequately attend to the poverty and Operational Directive 8.60, and the literature distributional outcomes, including labor on trade policy reforms. Eliminating quantita- market dynamics, and this continues to be a tive restrictions (QRs) and addressing exchange major weakness in project design. Fourth, the rate disequilibria were often the first actions the Bank did not take the external environment Bank recommended, in line with the literature. into account sufficiently, and thus did not Most trade loans initially contained measures to distinguish the impact of external trade policies address both import liberalization and to and shocks on trade outcomes for different reduce disincentives for exporting. But in 14 groups of developing countries. countries that together received 55 loans, the A common criticism of the Bank's trade Bank focused only on import-related measures. policy advice is that it has followed a "one-size- Over time, the Bank has paid increased fits-all" approach. The Independent Evaluation attention to export-related measures relative to Group (IEG) examined all adjustment loans import liberalization. approved between 1987 and 2004 that More generally, overall conditionality associ- contained trade policy components. While the ated with trade has declined across Regions loans followed sequencing that was broadly in and greater reliance is being placed on floating line with the 1987 WDR and the economic or single tranche conditions, rather than on literature, IEG found little evidence of a generic prior actions, as was previously the case. The (or one-size-fits-all) approach to trade reform decline in conditionality reflects the move in the Bank's client countries. Countries varied toward more open regimes, a shift in the in the extent of macroeconomic stabilization Bank's focus toward longer-term institutional they had achieved before the reform was and structural policies, a concurrent rise in IMF introduced, and in how and when they chose trade conditionality, and a rise in trade liberal- to use export-related policies to stimulate trade ization through regional trading arrangements promotion. Moreover, countries were hetero- (RTAs). In more recent years, the shift also geneous in how deeply they reformed and in x v A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 the range of complementary policies they as countries moved their exchange rate introduced to support the trade reform. regimes toward market-based systems and Given the concerns raised above, and in foreign exchange availability improved, notably light of the evolving circumstances, it can be in African countries. The Bank was less success- seen that Bank trade advice and support during ful in helping countries reduce other nontariff the 1980s and 1990s was too narrow in focus. barriers, notably in the Middle East and North Specifically, it underestimated the complexity Africa. and sequencing of complementary policies; the role of the external environment (taking that Outcomes environment as largely given); the interaction The export supply response was often variable. among trade, growth, and distributional While export diversification occurred in most outcomes; and the country-specific context Regions, the low base from which nontradi- (such as initial conditions and institutions) in tional exports grew in Africa meant even rapid which these policies interacted. Consequently, growth rates were inadequate to dramatically Bank advice was too optimistic about the change the composition of Africa's export benefits of trade liberalization for growth in the baskets. Moreover, many African countries short run. experienced an erosion of competitiveness in their export baskets, contributing to increased Project-level Outcomes marginalization in global trade. Imports Trade-related projects have improved in responded to the reforms undertaken, growing performance over time. In general, trade rapidly in all Regions and easing input adjustment loans have performed better than constraints for importers. However, the speed other adjustment loans in terms of project of import liberalization increased competitive outcomes (86 versus 78 percent satisfactory), pressures in countries that were unable to while trade investment loans performed generate dynamic and sustained manufactur- slightly worse than other investment loans (69 ing growth. For countries where data are versus 72 percent satisfactory, respectively). At available, total factor productivity growth gains an aggregate level, positive project outcomes are apparent. were more likely to be associated with middle- income countries, low conditionality, good Impact institutional frameworks, and prior ESW. Employing a "difference-in-differences" approach Project design, unrealistic assumptions, and that corrects for potential sample selection bias unstable macroeconomic environments by using a Heckman selection procedure, a contributed most frequently to unsatisfactory counterfactual was constructed to compare outcomes for individual projects. countries that reformed their trade regimes with a Bank loan, and those that reformed without Outputs such Bank support. Bank clients that obtained The project data and aggregate data from 45 loans to support trade reform experienced higher sample countries show that Bank advice and economic growth rates in the medium term (3­6 lending contributed to systematic reductions years) following trade reform, and their growth in protection and to making trade regimes rates exceeded those independent reformers that more open, though the pace differed across reformed without the financial support of the countries. Many developing countries sharply Bank. reduced the level and dispersion of their Both groups of reformers also experienced import tariffs and their use of quantitative dramatic increases in import demand, although restrictions, with the greatest reductions in this effect lasted longer for Bank-supported Latin America. Developing countries also reformers. However, Bank-supported reform- largely eliminated export taxes, licenses, and ers exhibited a modest supply response, bans. Black market premiums also disappeared suggesting that trade liberalization alone was x v i E X E C U T I V E S U M M A R Y not sufficient--a finding supported by recent reflected in a higher profile in global advocacy, research in this area. The gains in economic an increased volume of trade-related analysis, growth were often driven by domestic demand and greater attention to the institution's arising from improved resource allocation, capacity to respond to trade-related analytical rather than just export expansion. The employ- needs and operational support. ment and poverty outcomes associated with This evaluation finds the Bank's objectives trade reforms were mixed, and the Bank did between 2001 and 2004 to be relevant, timely, not conduct sufficient analysis to inform its and largely responsive to the rapidly changing policy advice and lending on this issue or global environment on trade issues. However, systematically measure the outcomes. given the inherent limitations of the Bank's role While the initial impetus for trade reform in global negotiations and the importance of was often an economic crisis, sustaining the country-specific policy dialogue, the evaluation reform required broad support and ownership. finds that more attention should have been Conditionality was generally not conducive to given to strengthening the analytical tools, achieving that ownership, and the Bank was processes, and systematic interactions between more judicious in using it in countries where it the Trade Department and operational had less leverage. Bank advice and analytical colleagues. Moreover, the dependency on trust work were often instrumental in supporting funds in research and capacity building reform; its value, however, was reduced where potentially poses serious challenges to the Bank it was perceived to be dogmatically based. in determining an independent work program. External factors (market access, regional integration), coherent macroeconomic Progress toward a More Development-Friendly policies, exogenous shocks (droughts, Trading System commodity prices), and timely implementation Much of the Bank's research between 2001 and of complementary policies were critical in 2004 was of consequence (published in determining whether or not individual respected journals), and in some cases innova- countries reaped the full benefits of trade tive (for example, in new fields such as services, reform. agricultural standards, transport costs, and other behind-the-border issues). Research on Bank Trade Activities: 2001­04 some issues related to the multilateral trading The Bank's recent trade program, which was system was often timely. For example, in the revamped in 2001, has two objectives: (1) make run-up to the Doha Trade Ministerial, the Bank the world trading system more "friendly to released the 2002 Global Economic Prospects development" or reciprocally open; and (2) Report: Making Trade Work for the World's make trade an important part of country Poor and produced a paper about the global development strategies. The Bank employed trade architecture (Hoekman 2002). The 2004 research, participation in global policy discus- Global Economic Prospects Report: Realizing sions and advocacy, trade capacity building, and the Development Promise of the Doha Agenda mainstreaming of trade as tools to achieve was published in the run-up to the Cancun these objectives. The assessment of develop- Trade Ministerial meeting. ments during this period has to be considered Research on regionalism has been forward- in the context of the relatively brief period looking and has moved toward a pragmatic view under review. This is especially likely to be a of RTA membership. However, several areas factor in the mainstreaming agenda , which identified in the trade agenda have been slow to necessarily requires greater commitment and yield significant insights (agricultural trade and action by operational units. policies) or have not been adequately researched The resurgence in the Bank's attention to (adjustments costs and distributional outcomes trade is not primarily characterized by greater associated with trade, microlevel adjustment to trade lending or conditionality. Instead, it is trade, and export processing zones). x v i i A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 The Bank has positioned itself more It has been least effective in helping countries effectively as an advocate for the developing manage external shocks and adjustment costs countries on global trade issues and, given the related to trade liberalization. wide reach of its publications, has contributed The most high-profile initiative in the Bank's to increasing awareness of the issues. Given the TCB work is the Integrated Framework for plethora of other actors in the advocacy field Trade-Related Technical Assistance (the IF), a (nongovernmental organizations such as multidonor, multiagency collaboration Oxfam and Third World Network, as well as originally set up in 1997 to provide trade- development partners such as the U.K. Depart- related technical assistance to the 49 least- ment for International Development) and the developed countries (LDCs). While diagnostic Bank's limited direct role in WTO talks, the needs assessments have been carried out for Bank could be seen most accurately as an almost half of eligible LDCs, follow-up and indirect participant--contributing ideas and implementation have been slow. adding to the pressure to influence changes, Concrete proposals and approvals for trade rather than directly influencing outcomes. Staff capacity projects are finally emerging. As of May indicate that the Bank's global advocacy role is 30, 2005, 23 activities ($8.1 million) had been useful in positioning the Bank among client approved. A review of the proposed activities countries, especially those in whom the institu- suggests overlap with other donor activities in tion might otherwise be less engaged on trade some cases, defeating the purpose of donor issues (such as in Latin America). harmonization. More generally, the pace is slow The Bank is meeting its trade-related relative to the Doha negotiations and the needs capacity building (TCB) objectives unevenly identified in the Diagnostic Trade Integration and it appears that, as currently stated, the Study (DTIS), and there is no mechanism to objectives may not adequately capture the ensure that the most critical priorities are scope and priorities of Bank activities. Specifi- funded first. cally, the Bank is meeting its commitment to Two independent evaluations of the IF were advise countries on trade policy through a undertaken, in 2003 and 2004. Among the main dramatically increased volume of trade-related evaluative findings are that despite a 2001 analytical work that is the basis for country restructuring, weaknesses from the original policy dialogue, as well as through capacity program remain, including insufficient focus building components in lending operations. on improved trade outcomes, rather than the The Bank has also increased its dialogue process alone, and a shortage of funds with regional trade institutions. This is (financial and administrative) to meet the especially notable in the Africa Region. Analysis identified demands for technical assistance in has been conducted on common external developing countries. More generally, IEG's tariffs, revenue implications, and possible trade review of 26 global public programs provides diversion for several RTAs (such as the East some useful lessons (OED 2004a). The most Africa Community, the Economic Community relevant for the IF are the need to link financ- of West African States, and Union Economique ing to priorities in a systematic fashion, to et Monetaire Ouest Africaine), as well as on strengthen and streamline the governance and Economic Partnership Agreements with the management of programs, and to develop a European Union. In Latin America, work on results-based management framework. Central America Free Trade Agreement (CAFTA) with Latin American officials was Progress toward Mainstreaming Trade timely. Mainstreaming trade in Bank operations has The Bank is doing less well helping several dimensions (ESW, trade in assistance countries to meet its stated objectives of strategies, knowledge management, and adopting appropriate regional policies and incorporation of relevant trade issues in sector participating more effectively in negotiations. activities and strategies); the Bank is doing x v i i i E X E C U T I V E S U M M A R Y better along some dimensions than others. It on the response of firms to changes in has responded quickly to keep up with the incentives. WTO negotiations and other global trade Despite the overall increase in operational issues, and to catalyze a rapid increase in trade- trade ESW, the Bank has done less well in related analytical work. Trade Department staff systematically mainstreaming trade in Country members have been an important part of this Assistance Strategies and in sector activities improvement--sharing their expertise through and policies, although the trend is improving. mission participation, contributions to and Regional trade coordinators (RTCs) in each of leadership of reports, and as peer reviewers. the Bank's six operational Regions are After sustained decline from the mid-1990s expected to facilitate the information flow following the conclusion of the Uruguay between country management units (CMUs) Round, ESW on trade issues has risen in recent and the PREM Network and to provide strate- years in every Region except Latin America and gic direction on trade issues. However, it the Caribbean, which started at a high level. In appears that achieving full effectiveness in the past three years, strategic Regional their interventions is limited by budgetary, flagships on trade have been carried out in staffing, organizational and leadership issues. every Region except Africa (where one is under With the exception of Africa, the RTC role way) and have been well focused on the partic- remains largely an unfunded mandate. The ular concerns of the Regions they cover. role of the coordinator varies across Regions, Underpinning this reversal is the greater with sector leaders, lead economists, and interest of client countries in trade issues as sector managers variously being assigned the they grapple with more complex integration role. However, in most Regions it is unclear into the global economy, greater commitment whether the RTC has the necessary authority and interest of donors leading to additional to play a strategic role that cuts across sectors, trust funds, and development of a new trade- or even lead discussions with CMUs. In focused economic report--the DTIS, which addition, the absence of tangible budget was an important initial catalyst in spurring support and links to annual performance analytical trade work in low-income countries evaluation reduces incentives. To enhance the by the Bank. role of Bank Regional vice presidential units The focus of trade ESW broadened over time (VPUs) in making trade linkages, it would be from changes in incentives and general trade useful to clarify responsibilities, establish clear performance in the 1980s to encompass a terms of reference and accountabilities, and broader definition of competitiveness (labor for Regional management to indicate the costs and infrastructure) and external environ- modalities for integrating trade into the ment considerations (such as the impact of country dialogue and growth agenda. Regional arrangements or market access After a slow start, knowledge management issues). Increasing attention has been given to activities are picking up. A series of Trade Notes the analysis of Regional trade integration issues was initiated in 2003 and the trade thematic with analysis and advice to Regional organiza- group is being revived. But a gap still exists tions, notably in Africa (Economic Partnership between these activities and the needs of Agreement and common external tariffs for country economists. A survey of Bank country several African RTAs) and Latin America (such economists indicated a need for more as the US-CAFTA agreement). However, reports knowledge about transitional costs associated have only rarely presented an in-depth analysis with trade reform, greater empirical and of the welfare implications of trade policies, comparative analysis, and practical research on analyzed the institutional framework for trade, global supply chains. or incorporated political economy factors that The current trade agenda goes beyond the could influence trade reform and outcomes. traditional concern with border regimes of Also largely missing is microeconomic analysis tariffs, nontariff barriers, and other impedi- x i x A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 ments to trade. The gross distortions in trade will be the difference between individually regimes endemic in the 1980s have been competent pieces of analytical pieces and a reduced significantly. For this reason, greater more synergistic approach. attention is now focused on behind-the-border barriers (internal constraints) that adversely Recommendations affect a country's investment climate, along with the constraints and opportunities associ- Recommendation 1: ated with the global trading system. Address Poverty-Distributional Outcomes and Within the Bank, global advocacy to redress External Shocks in a Balanced Approach imbalances in the global trading system can be This evaluation found that despite the increas- handled by senior management and the Trade ing volume of research on poverty issues in the Department alone. However, all the other Trade Department and of poverty and social impediments to global integration have to be impact analysis more generally, trade-related addressed in conjunction with other sector projects do not consistently or systematically groups and require strengthened implementa- address poverty and distributional outcomes. tion by operational VPUs (as highlighted While much import liberalization has already above) and country management units. occurred, further liberalization appears In areas where the other sector groups possible for some developing countries, worked with the Trade Department or where notably within agriculture. With that in mind, the Trade Department provided intellectual three actions are critical: leadership--such as sanitary and phytosanitary standards and trade facilitation--the Bank has · First, IEG recommends that, at the country been successful in ensuring the operational level, all new projects with trade policy com- relevance of its activities. In other areas where ponents include a discussion of this issue that, the Bank might have made an impact--agricul- at a minimum, draws on the cross-sectoral ex- tural trade and policies, trade and poverty pertise of economic policy, poverty, gender, pri- linkages--inadequate investment and less vate sector development, and (as appropriate) intellectual leadership has led to less success. agricultural and rural development units, as well In an important area of focus in the ongoing as existing research in the country. Identifica- WTO negotiations--services liberalization-- tion of possible transitional costs and an as- the Bank lacks a critical mass of staff with the sessment of the existing institutional framework necessary skills to underpin country dialogue for cushioning shocks and actions to mitigate and operations. or minimize shocks would be important con- To enhance the effectiveness of its trade siderations in the discussion. Placing trade in activities, the Bank will have to face more a broader discussion of the determinants of squarely the multisectoral nature of the current poverty will help ensure that this is not a me- trade agenda. Over half of the trade-related chanical exercise, but one rooted in its ex- projects approved in the past 10 years were pected importance. assigned to a non-PREM network. Specifically, · Second, at the institutionwide level, and fol- the Bank will have to improve links between lowing the Bank's statement at the Cancun the various sectors and the Trade Department Ministerial in 2003, IEG recommends that a on trade issues (research, trade-related concrete program of adjustment assistance be capacity building, knowledge management, developed more rapidly to respond to the and development of tools and templates). The trade-related shocks that developing countries Trade Department can bring the global may face. To the extent that such a program is perspective to sector issues. However, no longer deemed relevant, it would be help- implementation rests squarely in the hands of ful for management to clarify this. the operational VPUs and the country manage- · Third, IEG recommends a more systematic ment units. Success on this multisectoral front program of research on micro-level adjust- x x E X E C U T I V E S U M M A R Y ment to trade policies, looking at firms, indi- of trade and the need for better integration of viduals, and households. trade and the finance, private sector, and in- frastructure (FPSI) work program is especially Recommendation 2: evident in the work on trade in services. Revisit the Balance between Global and Greater interaction between the Trade De- Country Agendas and Strengthen Operational partment staff specialists in trade in services and Links on Trade Issues the subsectoral expertise in transport, power, IEG recommends that management revisit the finance, telecoms, and so on located in FPSI is balance between its activities at the global level needed. on the one hand, and on the Regional and country agenda on the other. Given the Recommendation 3: multisectoral nature of trade issues, a participa- Strengthen Knowledge Management Efforts tory process that involves operational sector Two actions are important in this area: colleagues, other networks, and the Trade Department is likely to yield the greatest · First, a concerted effort to bring all country benefits. Operational linkages need to be economists up to date on the main features and strengthened among different units of the applications of the World Integrated Trade So- Bank and greater emphasis placed on country lution (WITS) software would enhance their and field operations. Three actions are awareness of the global trade issues and their necessary: implications for the countries they work on. It would also enable them to supervise research · First, greater strategic and intellectual guid- assistants and consultants and to seek further ance is needed from the Trade Department training if and when needed. with respect to the conceptual framework · Second, knowledge management efforts could within which country teams should consider reflect greater cross-fertilization with other trade issues. The design of a guidance note and networks and better integrate trade work done upstream support on a pilot basis to country in the center with country-level work on agri- teams planning country assistance strategies culture, economic policy, labor markets, and would be practical first steps and would help private sector development. As part of these ef- distinguish cases where trade is logically a pri- forts, the possibility of joint thematic groups ority element in the country dialogue. with other networks should be explored. More · Second, in three thematic areas of focus, a generally, IEG recommends a more effective more formal set of arrangements between op- use of knowledge management tools tailored erations, networks, and the Trade Department to key target groups--across sectors. A mech- is needed to maximize synergies--agricultural anism to obtain regular systematic feedback trade and policies, services liberalization, and from operational staff on the most immediate distributional outcomes associated with trade and relevant trade-related topics would be policies. helpful, as the survey identified gaps, despite · Third, as has been done between the Transport the canvassing conducted by regional trade and Agriculture Units on the one hand, and the coordinators during the year. Finally, greater Trade Department on the other, IEG recom- sharing of country experience in particular mends that working arrangements with the areas, much as was done with the work in agri- Private Sector Department Vice-Presidency be cultural standards, is needed. This will require established to highlight the interface between greater support from the center to ensure the two areas and bring the global dimension quality at entry for project design, as well as eco- to bear more precisely. This cross-fertilization nomic and sector work. x x i ACRONYMS AND ABBREVIATIONS AAA Analytical and advisory activities AERC African Economic Research Consortium AFR Africa Region (Sub-Saharan Africa) CAFTA Central America Free Trade Agreement CAS Country Assistance Strategy COMESA Common Market for Eastern and Southern Africa CPI Consumer price index CPIA Country Policy and Institutional Assessment DEC Development Economics DECRG Development Research Group DFID Department for International Development (U.K.) DTIS Diagnostic Trade Integration Study EAP East Asia and Pacific Region ECA Europe and Central Asia Region EPZ Export Processing Zone ESAF Enhanced Structural Adjustment Facility ESSD Environmentally and Socially Sustainable Development ESW Economic and sector work FDI Foreign direct investment FPSI Finance, Private Sector, and Infrastructure FY Fiscal year GDP Gross domestic product GEP Global economic prospects IBRD International Bank for Reconstruction and Development IDA International Development Association IEG Independent Evaluation Group IF Integrated Framework for Trade-related Technical Assistance IMF International Monetary Fund LAC Latin America and the Caribbean Region LDC Least developed country MERCOSUR Southern Common Market MFA Multi-Fibre Arrangement MIT Massachusetts Institute of Technology MNA Middle East and North Africa Region NAFTA North American Free Trade Agreement NGO Nongovernmental organization NTB Nontariff barrier OECD Organisation for Economic Co-operation and Development OED Operations Evaluation Department of the World Bank* PREM Poverty Reduction and Economic Management x x i i i A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 PRSP Poverty Reduction Strategy Paper PSD Private sector development QR Quantitative restriction RTA Regional trading arrangement SAL Structural adjustment loan SAR South Asia Region SECAL Sector adjustment loan SIL Sector Investment Loan SME Small and medium-size enterprise SPS Sanitary and phytosanitary standards TA Technical assistance TAE Trade Assistance Evaluation TCB Trade-related capacity building TNC Trade Negotiation Committee UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme WBI World Bank Institute WDR World Development Report WITS World Integrated Trade Solution WTO World Trade Organization ZCCM Zambia Consolidated Copper Mines *OED has changed its official name to Independent Evaluation Group (IEG). The new designa- tion "IEG" will be inserted in all of IEG's publications, review forms, databases and Web sites in the next few weeks. x x i v Chapter 1: Evaluation Highlights · While trade has helped expand the global economy, the gains have been uneven. · The Bank has contributed to trade both intellectually and fi- nancially, stressing its potential contribution to economic de- velopment. · The evaluation assesses the effectiveness of Bank trade as- sistance between fiscal years 1987 and 2004. 1 Introduction E conomists have long viewed international trade as an engine of overall economic growth. Greater volumes of trade among countries have partly fuelled the expansion of the global economy and increased wealth for many of its members, although the distribution of the gains has been unequal. The Bank has supported the reform of trade Rationale for Bank The Bank has strongly policies and the strengthening of trade-related Involvement supported trade-related institutions and infrastructure in its client The Bank's interest in policies, institutions, and countries. Between fiscal years 1987 and 2004, trade has gone through about 8.1 percent of total Bank commitments three phases. During the infrastructure. (or $38 billion) went to 117 countries to help first phase (starting in the them better integrate into the global economy.1 1980s and extending to the mid-1990s), the Bank This financing has been accompanied by a large based its involvement on the perceived volume of analytical work in the form of importance of trade for economic growth and on operational economic and sector work, the role of openness in enhancing a country's numerous research publications on trade, and economic efficiency. Important channels working papers on trade-related topics. between trade and growth were assumed to This period also coincides with a worldwide include improved resource allocation from expansion of trade and trade liberalization in changes in relative prices, stronger incentives for developing countries. Export growth has adaptation and innovation, cheaper capital outpaced growth in gross domestic product goods, and higher foreign direct investment (GDP) over the past three decades, and flows associated with new trade opportunities. average tariffs have fallen steadily globally By increasing incentives and the profitability of (figure 1.1). The Bank has both influenced and exporting, Bank support for trade reform was been influenced by these developments. expected to help expand and diversify exports by Appendix A1 highlights key developments in improving what was then known as the enabling international trade both inside and outside the environment (now commonly referred to as the Bank over the past two decades. investment climate).2 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Figure 1.1: Declining Import Tariffs, But Some Regions Still Significantly Protected Trends in tariff rates by Regions (simple averages, %) 60 50 40 30 20 10 0 Africa East Asia Europe and Latin America Middle East South Asia and Pacific Central Asia and the and Caribbean North Africa 1985 1995 2003 Sources: WTO, IDB CD ROM database and Trade Policy Review -- Country Report, various issues, 1990-2003, and IMF Global Monitoring Tariff Data. During the second phase, from the mid to Economic Management (PREM) Vice-Presidency, late 1990s, the Bank's focus on trade and World Bank Institute (WBI) to help further diminished. Analytical work and (to a lesser the trade agenda. extent) lending were reduced from the first In this third phase, the Bank's increased phase. The most evident aspect of the interest in and support for the current multilat- diminished attention to trade was the merging eral trade liberalization talks rests on several of two trade units and an accompanying assumptions. First is the idea, as outlined in a reduction in the number of staff working on 2001 trade development report, that progress trade issues. The concurrent elimination of the on important issues such as agriculture and old technical units under the reorganization of services liberalization is most likely to occur in a 1996 dispersed trade experts throughout the multilateral framework. Second, smaller institution, and several subsequently moved on countries would have greater bargaining power to work on non-trade issues. and protection in the multilateral system. Third, Following this lull in Bank trade activities larger developing countries would benefit from during the second half of the 1990s, when trade the dispute settlement mechanism. The fourth lending slowed considerably, the Bank expanded assumption is that developing country partici- its trade work following the Doha Trade Minister- pation in the World Trade Organization (WTO) ial in 2001--through research, advocacy, capacity would help lock in domestic trade reforms, and Since 2001, the Bank has building, and operational thereby boost investor confidence. Above all, activities. The Bank estab- there was an implicit assumption that the viewed the multilateral lished a Trade Depart- Bank's client countries would benefit from trading system as a ment in July 2002, having the institution act as an "honest framework for clients to comprising units from the broker"--a counterweight to the interests of Development Economics the developed world. achieve greater economic (DEC) Vice-Presidency, Despite the importance of trade in the Bank's integration. Poverty Reduction and corporate agenda over the past three decades, 4 I N T R O D U C T I O N the institution did not have a formal strategy twofold. At the global No formal strategy until recently. During the 1980s, however, some level, the Bank assumes guided the Bank's trade influential research appears to have guided a much more proactive work in the 1980s and operational policies on trade liberalization (and role. Specifically, it aims indeed, the intellectual environment within the to promote changes in 1990s. Bank for trade reform). The Bank-sponsored the world trading system work of Balassa, Choksi, Krueger, Michaely, to make it supportive of development-- Papageorgiou, and others outside the Bank especially of the poorest of the developing played an important role. These earlier studies countries and of the poor across the develop- noted the complexity of trade reform and ing world. At the country level, the Bank aims emphasized sequencing (with stabilization to promote integration through trade as a core preceding other reforms in the presence of high aspect of country development strategies. inflation). They also highlighted the need to consider the fiscal implications of trade liberal- Objective of the Evaluation ization, and noted the importance of comple- This evaluation assesses the effectiveness of mentary policies (elimination of price controls the Bank's assistance to client countries for and regulations, financial policy reforms, labor trade between fiscal years 1987 and 2004, based market liberalization, infrastructure improve- on the Bank's strategies and objectives ments, and institutional reforms) to improve the embedded in the 1987 WDR (and later codified payoff to trade reform. in OD 8.60) and the 2002 Instead, several Bank While there was no formal trade strategy trade progress report. prior to 2001, three key documents provided Trade assistance in this documents provided strategic and technical guidance on Bank trade context refers to lending guidance for reforms. policy advice. These are the 1987 World operations, analytical Development Report (Industrialization and work (research as well as economic and sector Foreign Trade), a 1989 report on strengthening work [ESW]), advocacy, and capacity building trade policy, and the section on trade adjust- activities that are intended to enhance the ment lending in Operational Directive 8.60.3 environment and capabilities of Bank clients to The main policy reforms embedded in these produce and trade goods and services in the documents included replacing quantitative global economy.5 restrictions with tariffs as a useful first stage of Capturing the effectiveness of the Bank's trade liberalization, maintaining low and trade work is challenging for at least three relatively uniform tariffs for reasons of efficiency reasons. First, country conditions influence the and political economy, realistic exchange rates effectiveness of trade reforms and assistance, requiring low inflation, studies of the economic including macroeconomic environment, costs of existing policies and evaluations of the endowments, non-trade investment climate expected benefits of reform, improved data on factors (notably institutions), governance and indicators and measures of nominal and political economy dynamics, and institutional effective protection, and strengthened capacity capacity. It is often difficult to disentangle trade's of reforming countries to assess their own contribution from these other determinants. policies. The World Development Report Second, international external factors also (WDR) also supported the increased use of influence government attitudes toward trade conditionality in structural adjustment lending and government's ability This study evaluates as a catalyst for trade reform. Operational to implement policies Directive 8.60 contained additional guidance supportive of trade. lending and nonlending that eventual tariff levels were to range between Especially relevant are assistance for trade 5 and 20 percent.4 commodity price shocks; between fiscal years 1987 Current Bank objectives in trade (first articu- market access; and the lated in a 2002 trade progress report) are country's participation and 2004. 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 in regional, bilateral, or multilateral trading period, did the Bank succeed in integrating arrangements. trade in Country Assistance Strategies? Third, other actors, such as the private sector, bilateral and multilateral development This report is timely for two reasons. One is agencies, and nongovernmental organizations that no comprehensive and independent (NGOs), influence the pace and nature of evaluation of Bank assistance on trade has been reforms. done since the early 1990s.6 The second reason The broad evaluative question relates to the is the recent resurgence in Bank attention to Evaluative questions development effective- trade issues; the evaluation is intended to shed ness of the Bank's some light on where to go from here. examine the relevance assistance on trade, and effectiveness of Bank specifically, growth and Conceptual Framework and Methodology trade assistance and its poverty reduction. In The conceptual framework underpinning the addition, the evaluation evaluation builds on a logical framework of the impact on growth and addresses the following links between Bank actions (inputs), desired poverty reduction. two questions: objectives, outputs, outcomes, and impacts (figure 1.2 and Appendix A2 provide illustrative · Relevance of Bank assistance: Was the indicators).7 The main desired immediate Bank's trade-related assistance relevant to outcome of the Bank's support for trade (based promoting improved trade and economic on an analysis of project documents) is outcomes? Did the Bank "do the right things"? improved trade performance: higher export Specific examples include whether the advised volumes, faster export growth rates, a more speed and sequencing of trade reforms and as- diversified basket of exports, cheaper and more sociated conditionality were appropriate, and readily available imports, and greater integra- to what extent these inputs were grounded in tion in the global economy. The underlying adequate research and analytical work. To what assumption behind these objectives (often extent did Bank trade advice and support take explicitly stated) is that expanded trade will key external factors (such as multilateral trade contribute to achieving the Bank's overarching liberalization, multilateral institutions/rules, goal of poverty reduction in two ways--by industrial country policies, and the rise of re- contributing to economic growth and by gionalism) into account? Was the Bank's trade creating jobs (Wood 1997, 1995). The study's support accompanied by appropriate and rel- analysis takes place at the project, country, and evant complementary policy and institutional global levels. reforms in the countries? To what extent did the The evidence on which this evaluation Bank's assistance on trade focus on poverty and rests includes an Independent Evaluation distributional outcomes? Group (IEG) portfolio review, background · Effectiveness of Bank assistance:WereBank- papers, interviews with key stakeholders, supported interventions effective and efficient surveys, and country case studies and desk in achieving their stated objectives? Did the reviews.8 In addition, it draws from the Bank "do things right"? Specific questions in- extensive literature on trade issues published clude whether Bank-supported interventions inside and outside the Bank. Finally, as facilitated trade reforms. What was the impact appropriate, it draws on related IEG reviews of Bank trade assistance on specific outcomes such as those of Global Public Goods (IEG such as protection, import 2004a), the Investment Climate (IEG 2004b), A logical framework liberalization, export sup- and Lines of Credit (IEG 2005). linking Bank inputs to ply response, and eco- The study has six chapters in line with the nomic growth? What were results-based approach outlined above. outcomes underpins the the distributional out- Chapter 1 comprises an introduction to the evaluation. comes? In the more recent scope, objective, and organization of the report, 6 I N T R O D U C T I O N Figure 1.2: Conceptual Framework for the Evaluation Trade adjustment and investment lending Economic and sector work (ESW) and policy advice Technical assistance--for example, for trade negotiations Inputs Research and advocacy Country Assistance Strategies Competitiveness Institutional Capacity Transparent incentives Policy makers Neutral to importers/exporters Exporting firms Objectives Access to inputs at world prices Trade promotion institutions Allocative efficiency gains (customs, standards) Tariffs: Lower levels, narrower ranges, less dispersion Shorter customs clearance times Outputs Increased trade financing Improved Trade Performance Increase in exports and faster growth rates Greater export diversification Increased market shares Outcomes Higher firm-level productivity Reduced rent-seeking and greater import competition Economic growth Poverty reduction Impact while Chapter 2 briefly reviews the literature. reviews the main economic outcomes and The next three chapters focus on inputs, impacts. Chapter 5 analyzes the resurgence of outputs, and outcomes. Specifically, Chapter 3 Bank trade activities since 2001, while Chapter examines the inputs, trends, and evolution of 6 concludes with the main findings and Bank assistance in trade, while Chapter 4 presents specific recommendations. 7 Chapter 2: Evaluation Highlights · Despite long-term benefits from trade, trade liberalization is often controversial. · The literature has extended the factors that help maximize the benefits from trade liberalization. · Design of trade reform, complementary policies, geography, and institutions matter to differing degrees in each country. 2 Lessons from the Literature T he literature generated by the debate on the effect of trade and related policies on country economic performance concludes that although trade offers long-term benefits for developing countries, trade liberal- ization alone is not sufficient for economic growth. Rather, it has become clear that maximizing world. The studies were Early multicountry trade and welfare outcomes depends on the influential in promoting studies promoted underlying macroeconomic environment, export orientation as a outward orientation as a policies for export development, the design path to more rapid and sequencing of trade policies, external economic growth.2 path to more rapid constraints and opportunities, and comple- Despite the potential growth. mentary policies that contribute to the overall benefits from trade, investment climate. These factors in the policies related to trade liberalization remain outcome of trade liberalization, together with a controversial in some circles.3 First, critics summary of the lessons from previous IEG assert that these policies led to instances of assessments, are the subject of this chapter. liberalization that proceeded too rapidly, result- The objective is to provide context for the ing in severe transitional costs of adjustment evaluation of the Bank's approach to trade.1 reflected in increased poverty, deindustrializa- The chapter partly draws on Oyejide (2004) tion, and job loss. and the literature survey in Appendix B1. A second criticism revolves around design Despite the expected Trade Policy Reform and issues. Critics argue that benefits, trade Economic Growth the Bank recommends liberalization is often The first multi-country studies of developing the same programs for countries' trade regimes (Little, Scitovsky, and all countries, taking too controversial. Scott 1970; Balassa and Associates 1982; and an little account of differing influential study done by the NBER and country circumstances. They also assert that the summarized in Bhagwati 1978 and Krueger Bank emphasizes "import liberalization" at the 1978) systematically detailed the inefficiencies expense of "export promotion," despite of the import-substituting development strate- evidence from the East Asian countries that gies that prevailed throughout the developing promoted export growth before general import 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Process may differ from liberalization by using Researchers continue to extend existing textbook theory. duty drawbacks and methodologies to explore the links between preferential exchange trade reform and growth. They have focused rate schemes. on refining the measurement of "openness" Third, in contrast to the "first best" world and on incorporating additional economic that underpins trade theory, the "real" world variables that influence whether trade liberal- has several deviations that are likely to ization results in accelerated economic growth, influence the outcome of unilateral trade and, if so, the extent of this influence. By identi- liberalization. Protectionism in industrial and fying the years when non-reversed trade other developing countries, the rise of region- liberalization programs were launched and alism, and unanticipated political events are using panel regression techniques, Wacziarg just three factors that can result in unantici- and Welch (2003) find that, on average, growth, pated outcomes. Therefore, some observers investment, and openness increase after trade have criticized the Bank for not taking these liberalization. factors into account. Others have focused on the role of The expected benefits from trade may not additional country-specific factors, such as be fully realized in the short run for several institutions (Rodrik, Subramanian, and Trebbi reasons: 2004; Freund and Bolaky 2004) and comple- mentary factors (Chang, Kaltani, and Loayza · Inappropriate macroeconomic policies, such 2005). as incomplete stabilization, resulting in con- The new growth theory predicts that tractionary fiscal or monetary policies that openness to trade (and investment) increases squeeze out credit from the private sector and access to new technology; enhances efficiency reduce the entry of new firms, or lead to ap- by making market structures more competi- preciation of the real exchange rate, thereby re- tive, allowing the exploitation of economies of ducing competitiveness scale; and by spurring innovation. In a study of · Missing complementary (so-called "behind-the- 93 countries, Edwards (1998) finds that total border") policies and institutions to support factor productivity growth is faster in more faster export growth, such as customs, rule of open economies. Subsequent work in this area law, quality and standards, and trade logistics4 has supported this finding (Tybout 2003; Choi · Insufficient or inadequate skills and capital to and Harrigan 2003; Amiti and Konings 2005). take advantage of emerging opportunities that De Melo (2005) documents how the Bank's arise from the liberalization research in this area has contributed to · External constraints such as market access. establishing the microeconomic channels at the firm and sector levels through which trade Beyond these points on imperfect trade openness contributes to economic growth. liberalizations, there are questions about the link Building on enterprise and census surveys in between trade reform and economic growth. manufacturing, Bank research contributed to The econometric evidence on the links between establishing the beneficial impact of "import trade reform, economic growth, and trade discipline" on pricing and productivity gains. performance remains mixed.5 It has proven More recently, De Melo notes that Bank industry difficult to use the cross-sectional approach to studies have complemented firm-level studies establish causality and to identify the role of by establishing the links among a variety of other intervening factors factors (research and development embodied in The econometric links such as geography and trade, foreign direct investment [FDI], and between trade reform institutional elements. In product variety) and productivity growth. particular, the verdict is Despite differences of opinion among and growth are often still out on the relative econometricians on the causal relationship inconclusive. importance of each factor. between trade reform and economic growth, 1 0 L E S S O N S F R O M T H E L I T E R AT U R E there are areas of common ground. Few, if any, role of selective pro- With respect to design, countries have grown rapidly and reduced motion in export de- there is consensus on the poverty by following a long-term autarkic velopment. It would be role of macro, exchange approach. As noted in Panagariya (2004), neither useful to increase sup- Rodrik (1999) nor Stiglitz (2002), critics of the port for technology de- rate, and complementary Bank's approach to trade liberalization, dispute velopment, improved policies, but less the benefits countries can gain by opening up information about mar- agreement on the role of their economies. Researchers on both sides of the ket opportunities for issue also increasingly agree on the importance of exports, and labor selective and industrial country specificity and of institutions in disentan- training. policies. gling the policies that affect trade and growth. · Reduce trade condi- Table 2.1 (and Appendix B1) summarizes the tionality to a few key variables that would be main lessons from the literature on the impact easy to monitor. of the underlying macroeconomic environ- · Achieve macroeconomic stabilization before ment, policies for export development, the trade liberalization and better coordinate tax design and sequencing of trade policies, and trade reforms (stronger conclusion than external constraints and opportunities, and the literature). complementary policies on trade outcomes. · Greater internal competition is needed to pre- vent deregulation from becoming anti-com- Lessons from Past IEG Evaluations petitive. Previous IEG trade-related evaluations focused · Identify population on agriculture (IEG 1996a), industrial sector groups negatively af- Findings from previous and policies (IEG 1991b, 1995), aspects of trade fected by trade reforms OED ratings of trade- adjustment lending (IEG 1991a, 1992a), social and use well-targeted re- related activities are impact of lending (IEG 1997, 1999), and trade lief measures for losers. infrastructure (IEG 1996b).6 These are · Strengthen the links largely consistent with summarized in Appendix B2. between poverty and the literature, but place The main trade-related conclusions and macroeconomic poli- stronger emphasis on recommendations of those studies were: cies, such as trade and exchange rate policy, in macro stabilization as a · The Bank paid inadequate attention to the poverty assessments. prerequisite. 1 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table 2.1: Summary of Policy Design Issues Policy / issue Literature Macroeconomic Environment and Trade Policy Reform Macro stabilization Necessary to have significant effects on resource allocation. Literature less clear on whether trade policy reform should be implemented after macroeconomic stability has been achieved or whether it should proceed simultaneously (Dean, Desai, and Riedel 1994). Real exchange rate Strong consensus on relevance; perhaps single most important variable (Williamson 1997). Considerable empirical evidence shows real exchange rate misalignment detrimental to export growth, and that real exchange rate variability and uncertainty associated with negative effects on export performance (Diaz-Alejandro 1984; Paredes 1988; Caballero and Corbo 1989). Timing of foreign For countries with overvalued currencies, the first step in the adjustment process has typically been a sustained exchange liberalization real devaluation, which enables the real exchange rate to be held stable before implementing any trade liberalization. Policies for Export Development Compensatory measures Effectiveness of these incentives--and other industrial policy measures--continues to be debated (Pack 2000). designed to offset any Successes noted in East Asia; export processing zones have been effective in Madagascar, Mauritius, and Mexico; inherent anti-export temporary subsidies stimulated the growth of nontraditional exports in Chile. bias in a trade regime Changes in the economic environment and in the international "rules of the game" mean more constraints using Additional incentives these compensatory measures (Lall 2004). meant to address These constraints not necessarily overwhelming (Amsden and Hikino 2000; Chang 2004). specific problems that exports face Design, Sequence, and Duration of Trade Policy Reform Components of the The literature is relatively clear on the components and sequence of actions on the import and export sides. trade reform package Imports: eliminate quantitative restrictions first. Exports: Remove export licensing and bans at the same time and the sequence in as restrictions on imported inputs used by exporters. Next, export taxes and other export incentives. which the various elements should be reformed How long it should Evidence on the intensity of reform (strong or moderated) and its speed (sudden or gradual) is less conclusive, with take to complete more recent literature discounting political economy benefits of speed (credibility, signaling) in favor of gradualism trade reform? to reduce adjustment costs (Winters 2000), from competing interest groups (Collier, Greenaway, and Gunning 1997). External Constraints and Opportunities Role of multilateral Mixed; in theory more equal playing field but empirical evidence scant and mixed (Rose 2004; Subramanian and negotiations/system Wei 2003) and rising bilateralism poses a challenge. Market access in External market constraints may cause problems for developing countries that adopt outward-oriented trade Organisation for strategies (Cline 1989; Ghosh 1992). Economic Co-operation Preferential market access has helped some developing countries to take advantage of export opportunities in and Development preference-giving countries. But the schemes have not fully eliminated the trade barriers faced. countries Remedies include duty-free and quota-free market access to all exports of low-income and small countries (Hoekman and others 2003). Poorest countries must first be assisted to address their export supply capacity constraints through increased investment in infrastructure and skills (Helleiner 2002a). Complementary and Limited empirical evidence is inconclusive and it is difficult to make broad generalizations. Papageorgiou and mitigating measures others (1991) and Matusz and Tarr (1999) suggest that the costs of trade policy reforms are small, even in the short term. More recent studies that focus on least-developed countries (such as Oyejide, Ndulu, and Gunning 1999) show that short-term costs constitute realistic concerns. Winters (2000) concludes: More protected sectors likely to have greater transitional costs, may also offer the largest long-run returns to reform; if labor market is exposed to large shocks emanating from policy reforms that render it dysfunctional, transitional unemployment may be larger in volume and longer in duration; and rapid or concentrated reforms more likely to generate transitional losses through unemployment than more diffuse reforms. Source: Appendix B1. 1 2 Chapter 3: Evaluation Highlights · Lending for trade varies but shows a secular decline. · Trade conditionality and trade lending have fallen. · Trade facilitation, largely customs, is most frequent area of support. · Trade economic and sector work is on the rise, and it is pay- ing more attention to institutional and welfare issues. 3 Inputs, Trends, and Evolution of World Bank Trade Assistance T his chapter reviews the scope, trends, and evolution of World Bank as- sistance on trade to its client countries from fiscal year 1987 through 2004. Until the 1980s, the Bank was project-focused, lending operations that were partly or fully but in the 1980s and 1990s it became increas- focused on trade in 117 countries.2 This ingly involved in policy reform using noninvest- assistance of about $38 billion supported free- ment loans. Lending for trade adjustment standing trade loans and loans with trade- through Structural and Sector Adjustment related components--about 8.1 percent of Loans (SALs and SECALs) to address balance of total Bank commitments during this period. payments problems accounted for 25 percent Despite the common perception that trade of all adjustment lending during the 1980s. was a large part of the Bank's portfolio, the Bank analytical work was also important in the share of trade-focused lending operations3 in policy dialogue with client countries. the Bank's total commitments was comparable to that for the Bank's major sectors of Lending Inputs to Trade assistance such as education, health, and public IEG carried out a comprehensive review of the governance. Bank's portfolio to identify trade-related Since reaching just Lending for trade has projects. Bank trade-related support can be over $3 billion annually fluctuated, but shows a classified into six main areas: trade liberaliza- in 1993, Bank lending for tion, institutional trade facilitation (for example, trade has varied, but long-term decline. customs), infrastructure-related trade facilita- continues a long-term tion (for example, air freight, ports), private pattern of decline (figure 3.1). Several concur- trade financing, public trade financing, and rent events may be linked to this trend. To technical assistance for trade negotiations and begin with, as discussed in the next chapter, the WTO accession processes (Appendix C1).1 many countries liberalized their trade regimes in the 1980s, so that trade-related lending Magnitude, Relative Importance, and Trends adjustment became less necessary, and it is not Bank lending for trade was substantial during surprising that trade lending would decline. the period under review. Between 1987 and Liberalization was further deepened through 2004, the Bank supported more than 500 regional agreements. 1 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 In addition, over this period, the Interna- previous adjustment lending, it is unclear tional Monetary Fund (IMF) became more whether that lending will recover to the levels prominent in trade policy advice and incorpo- of the early to mid-1990s. rated trade conditionality in its stand-by arrangements. The share of Fund programs Thematic Focus: From Trade Liberalization with formal trade conditionality rose from 55 to Trade Facilitation percent in the years before 1995 to 70 percent The overall figures conceal a shift in the composi- between 1998 and 2001, though this has tion and emphasis of trade lending over the past dropped in the four years since (IMF 2005). two decades. While Bank assistance in the early The decline in Bank lending would have been 1980s focused on direct lending to development even more dramatic if not for the East Asia banks through lines of credit for trade finance, crisis in 1999 and the emergence of new clients by the beginning of 1987 lending was concen- in Europe and Central Asia (ECA) during the trated on trade liberalization and more direct 1990s. Several of these clients undertook trade- trade promotion activities, such as supporting related operations, including a large multi- trade-related institutions and exporters (figure country trade facilitation project in 2001. 3.2). Together these two categories accounted In the past four years, a modest resurgence for 70 percent of all lending for trade between in trade-related lending has occurred in 1987 and 1994. In part, this was linked to the tandem with renewed interest in trade by the export-led growth messages of the 1987 World Bank and its clients. This lending is limited to a Development Report. But it was also attributable few countries and focuses on trade facilitation to reform-minded policy makers (notably in Latin initiatives, which comprise two-thirds of all America) who believed in the benefits of trade new lending. Given the significant volume of liberalization. Figure 3.1: Trade-Related Bank Lending Has Varied But Trended Downward Overall 45 4,500 o/w 1,500 US$M support 40 4,000 crisis countries in EAP 35 3,500 30 3,000 projects 25 2,500 of US$M 20 2,000 Number 15 1,500 10 1,000 5 500 0 0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Fiscal year of approval Number of projects Amount US$M Source: Trade Assistance Evaluation Project Database. Note: Excludes oil, gas, and electricity export projects. EAP = East Asia and Pacific Region. 1 6 I N P U T S , T R E N D S , A N D E V O L U T I O N O F W O R L D B A N K T R A D E A S S I S TA N C E Figure 3.2: The Thematic Focus of Bank Lending for Trade: Trade Liberalization and Direct Lending to Exporters Gave Way to Trade Facilitation Trade thematic lending, 1987­2004 100 90 80 70 60 Percent 50 40 30 20 10 0 1987­94 1995­99 2000­04 Institutional trade facilitation Trade liberalization Private trade financing Public trade financing Physical infrastructure trade facilitation Technical assistance for WTO accession/negotiations Source: Trade Assistance Evaluation Project Database. Note: Total lending - 1987-94 = $22.1 billion; 1995-99 = $10.2 billion; 2000-04 = $5.1 billion. During the mid-1990s, while trade liberaliza- East and North African The composition and tion remained an important component of countries, and then emphasis of trade lending Bank lending for trade (33 percent), the focus most recently to Eastern has shifted over two on trade facilitation activities intensified as Europe and Central Asia attention shifted to broader investment climate (Appendix C2). Lending decades from trade issues such as the importance of trade logistics to East Asia was concen- liberalization to trade in competitiveness and the global value supply trated during the crises facilitation. chain. On the infrastructure side, greater in the late 1990s. emphasis on the trade benefits from infrastruc- In the past four years, ture improvements was evident in major lending for the institutional and infrastructure commitments supporting international road aspects of trade facilitation has increased corridors and ports. The number of loans further as a share of trade-related lending. devoted to trade-related institutions (primarily Institutions-related trade facilitation accounted customs) accounted for 37 percent of trade- for almost half of all trade-related lending related lending between 1995 and 1999, between 2000 and 2004, while lending for trade making this the single largest thematic area liberalization declined noticeably.4 While supported. lending and advice related to the multilateral Lending for trade liberalization has moved trading system continues to be minuscule, the in waves across Regions over time, suggesting a number of Bank lending operations including "neighborhood" effect. Large amounts initially such support during the 3 most recent years supported a set of early reforms in the Latin was double the number during the preceding America and Caribbean Region (LAC). The 13 years. emphasis then shifted to Sub-Saharan Africa. Much of the Bank's earlier work on trade- Over time, the Bank moved to support Middle related capacity building was embedded in 1 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 lending operations and is more properly Between 1987 and 1990, import-related defined as technical assistance.5 Between fiscal policies comprised almost half of all conditions years 1987 and 2000, there were 29 trade- (or 6.4 conditions on average per loan) in all related technical assistance projects, of which Regions except South Asia (figure 3.3 and 20 are closed and 9 are still active. The Appendix C3).9 With the exception of South overwhelming majority of these interventions Asia, the emphasis on industrial policies was (20 out of 29) focused on support for customs greater between 1991 and 1999 compared with reform and modernization, or on analysis the earlier period. Conditionality in this period related to trade policy reform. reflected the importance the Bank placed on increasing enterprise efficiency and the Europe What Was Recommended? The Design of Trade and Central Asia effect, resulting in continuing Adjustment Loans and expanding privatization. At the height of adjustment lending in the Very few supporting policy conditions 1980s, trade policy accounted for a quarter of involved labor market and safety net issues or all structural adjustment conditionality. Trade non-customs trade-related institutions. The lack conditionality offers a useful and systematic of attention to labor market rigidities was an way to identify actions that the Bank assumed oversight. While the literature does not yield were most critical. This section draws on a strong evidence of employment losses from trade conditionality database (built from greater openness (see, for example Papageor- information in the Bank's Adjustment Lending giou and others 1991; Revenga 1995 on Mexico; and Conditionality Implementation Database Currie and Harrison 1997 on Morocco; and an IEG desk review of loan agreements) to Bourguignon and Goh 2004 on East Asia), distor- analyze the design of trade adjustment loans tions in the labor markets can influence the between fiscal years 1987 and 2004.6 extent to which trade liberalization is associated The sample characteristics are presented in with gains in employment and lower poverty. table 3.1. These 152 loans include all adjust- In the five most recent years, trade-related ment loans with trade components exceeding conditions have been quite diverse across 10 percent.7 The sample constitutes 65 percent Regions. This may be because of the relatively of all non-emergency rehabilitation adjustment small size of the sample during this period (20 loans with trade components (regardless of lending operations), which renders Regional size) that were approved and closed between breakdowns less informative. Over time, export 1987 and 2004, and 89 percent in value. Of the promotion has risen in importance in almost 65 countries, 25 received three or more trade- every Region. related adjustment loans. The average number Conditions related to the exchange rate and of trade-related adjustment loans received by to foreign exchange rate management were the the countries was 2.3; the median was 2. least frequently represented condition (7 percent) between 1987 and 2004. They were Focus of Lending Conditions most heavily emphasized at the beginning of The focus of Bank trade conditionality has reforms, consistent with the advice from the varied over time and across Regions, but some literature, and these conditions were normally general patterns can be met (reflected in reduced black market Trade conditions have discerned. Trade-related premiums for the countries with available data). focused on imports, conditionality is classi- In addition, the "Concordat" with the IMF meant exports, exchange rates, fied into four areas: that the latter was more likely to be giving and import-related, export- "conditioning" exchange rate policy advice.10 and supporting policies. related, exchange rate and foreign exchange­ Sequencing of Conditions: Did the Bank Follow related, and industrial or supporting policies a "One-Size-Fits-All" Approach? (box 3.1).8 A common criticism of the Bank's trade advice 1 8 I N P U T S , T R E N D S , A N D E V O L U T I O N O F W O R L D B A N K T R A D E A S S I S TA N C E Table 3.1: Trade Adjustment Loans--Sample Characteristics, 1987­2004 Samplea Loans Countries Geographic Region Africa 69 26 East Asia and Pacific 12 6 Europe and Central Asia 13 8 Latin America and the Caribbean 32 15 Middle East and North Africa 14 5 South Asia 12 5 Total 152 65 By income IDA 34 IBRD 31 Time periods (number of loans) 1987­90 44 1991­99 88 2000­04 20 Sources: Tsikata (2005) based on calculations from the IEG Trade Policy Conditionality Database; Adjustment Lending Conditionality and Implementation Database (ALCID). Note: Sample also includes 29 loans with trade component < 10%. Of the 29 loans, the following countries have other loans within the larger sample of 152 loans: Bulgaria, Cameroon, Malawi, Mexico, Morocco (2), Mozambique, Niger (2 loans with trade component <10%), Romania, Sierra Leone, Tanzania, Tunisia, Vietnam, and Zambia (4). The remaining 11 loans went to countries that did not have any other loans during the review period and were thus included for completeness. a. All adjustment loans with 10% of trade-related components, excluding Emergency Rehabilitation Loans. is that it has followed a "one-size-fits-all" quantitative restrictions (QRs) and other forms approach. This section examines that criticism. of nontariff barriers were typically the starting In terms of sequencing, on the import side, point, consistent with the literature. In two- policies aimed at reducing or eliminating thirds of the countries (42 out of 65), QRs were Box 3.1: Elements of Trade Policy Reform Are Varied and Diverse Trade reform in developing countries typically involves a range export (such as duty drawback and temporary admission schemes), of changes in the use of trade policy instruments on both the ex- reducing export bans, taxes and licenses, reducing the anti-export port and import sides. The typical trade policy reform package bias, export credit and financing, and other export incentives. consists of the following four components: Exchange rate and foreign exchange management: Moving to- Import-related: Policies such as eliminating or reducing quan- ward market-determined exchange rates, exchange rate devalu- titative restrictions (and converting them to tariffs) as well as other ation or step adjustment, and moving away from the administrative types of nontariff barriers, reducing import tariff levels and dis- allocation of foreign exchange. persion, making tariff regimes more uniform and transparent, re- Industrial/supporting policies: Pricing reform, investment pro- ducing import surcharges, improving import procedures, and motion, competition policy, marketing, regulatory, privatization, eliminating official reference prices. labor markets, and safety nets. Export-related: Policies related to making imports available for Source: Tsikata (2005). 1 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Figure 3.3: Focus of Trade Conditions in Adjustment Loans Shifted over 1987­2004 (average number of conditions per loan) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Import Export Exchange rate Industrial policy 1987­90 1991­99 2000­04 Source: IEG Trade Assistance Evaluation Project Database. a first step of trade reform. Fifteen of the frequently prescriptive than is commonly remaining 23 countries had previously reduced perceived. For example, only about 40 percent such restrictions or had a simultaneous loan of import tariff conditions specifically that addressed their elimination. Of the recommended quantitative targets for tariffs remaining eight countries, six had a low (minimum, maximum, or average levels, incidence of QRs, in some cases having ranges) and fewer than 10 percent of previously reduced them (but without a Bank conditions gave specific targets for the number loan). The QR reforms were often introduced of tariff bands. simultaneously with supporting policies aimed By contrast, about half of all import tariff at reducing price distortions and at creating a conditions provided general guidance (for complementary competitive environment. example, simplify and reform tariff regime, While the projects described above followed reduce dispersion).11 The magnitude of tariff sequencing that was broadly in line with the 1987 reductions also varied widely across countries. WDR and the literature as outlined in Chapter 2, Figure 3.4, which shows the distribution of IEG found little evidence of a generic (or "one- maximum tariffs recommended by the Bank in size-fits-all") approach to trade reform in the loan agreements, illustrates a wide range, Bank's client countries. Countries varied in the reflecting the varying initial conditions and the extent of macroeconomic stabilization that they context-specificity of the political economy of had achieved before the reform was introduced, trade reform. More generally, it suggests that and in how and when they chose to use export- the tariff guidance in OD 8.60 and Thomas and related policies to stimulate trade promotion. Nash (1991) were not "hard" targets to be met Moreover, countries were heterogeneous in how instantaneously, and that there were several deeply they reformed and paths to the recommended tariff ranges. The actual path of trade in the range of comple- Another criticism of Bank trade advice has reform was less mentary policies they been that it has emphasized "import liberaliza- frequently prescriptive introduced to support tion" over "export promotion," despite the the trade reform. evidence from East Asia that suggests that than is commonly The actual path of policies to promote exports in advance of perceived. trade reform was less import liberalization may be more effective and 2 0 I N P U T S , T R E N D S , A N D E V O L U T I O N O F W O R L D B A N K T R A D E A S S I S TA N C E Figure 3.4: Maximum Tariff Recommendations Covered a Wide Range (frequency of tariff ranges recommended) Distribution of maximum tariff recommendations in trade reforms (%) 18 16 14 12 10 8 6 4 2 0 0­10 11­20 21­30 31­40 41­50 51­60 61­70 71­80 81­90 91­100 101­149 150 and above Source: Staff calculations from IEG Trade Assistance Evaluation Project Database. reduce the likelihood of deindustrialization.12 later to export promotion (Honduras, Madagas- All 152 trade adjustment loans were reviewed car, Mexico, Pakistan, and Panama). In another 9 to assess the sequencing and distribution of (Armenia, Cape Verde, Congo, Georgia, recommendations. The results presented in Guatemala, Mauritania, Niger, Sri Lanka, and table 3.2, summarized by Region, show that in Yugoslavia), the focus of conditionality was most Regions, loans that had conditions primarily import liberal- focusing solely on imports exceeded those ization, with no later Evidence suggests that focusing exclusively on exports. The exception export promotion. Thus, while the Bank did not was Europe and Central Asia. However, in all while the evidence follow a "one-size-fits-all" Regions except Europe and Central Asia and suggests that the Bank the Middle East and North Africa, loans were largely supported export approach for all more likely to feature a combination of import promotion, in 14 coun- countries, a sizable and export actions. tries that received 55 number of projects Another way of examining this hypothesis is loans (between a quarter to analyze the trade reforms supported by the and a third of the focused on import Bank in each country over time, particularly the sample), the Bank liberalization over export focus of the conditions. In 51 of the 65 countries focused only on import- promotion. where the Bank supported trade reforms, it related measures. advised a combination of import liberalization and export promotion (defined as the export- Recommendation Implementation and Outcome related conditions above), or export promotion Knowledge of the policies recommended to first. Of the 65 countries, 5 started out solely countries is not sufficient to make a link with with import liberalization before moving on outcomes unless one assumes a priori that the 2 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table 3.2: Trade Loan Conditions Most Often Addressed Both Imports and Exports, But a Third of Loans Focused Solely on Imports Focus of loan conditionsa Total loans Import only Export promotion only Both Africa 69 24 7 29 East Asia and Pacific 12 4 2 6 Europe and Central Asia 13 3 4 2 Latin America and the Caribbean 32 12 5 14 Middle East and North Africa 14 7 2 3 South Asia 12 5 0 5 Total 152 55 20 59 Source: IEG staff calculations. a. May not add to total because some loans had neither import-related nor export-promoting conditions. policies were implemented exactly as designed. met and significant delay). Moderate In this section, compliance with trade implementation was assigned a 2 and reflected conditionality or (in other words) policy cases in which conditions were largely met, but reform implementation (PRI) is compared with with delays. An overall index of PRI for each actual results.13 The review of the experience country was calculated as a simple average of with implementing trade conditionality at the all the country's loans (Appendix C4).14 level of individual loans draws on project The PRI shows that about 73 percent of supervision reports, countries exhibited strong implementation on Countries largely met tranche-release reports, trade issues. This share is higher than IEG trade conditions, which project implementation (1997) found for overall adjustment lending, were better implemented completion reports and but is in line with that report's specific findings their IEG reviews, and for trade. If moderate implementation is than other adjustment (where available) project included, the figure rises to 84 percent. Partic- loans. performance assess- ularly strong compliers on trade included ment reports. Mexico, Mozambique, Panama, and Pakistan. Policy implementation was rated from 1 Papua New Guinea and Venezuela were weak (highest, or strong implementation, with all compliers. There did not appear to be a pattern conditions met on time) to 3 (lowest, or weak between income or Region and the rate of implementation, with conditions only partially compliance. Table 3.3: Trade Adjustment Loans Featured Strong Implementation Total loans Number of Average number (US$ billion) loans of tranches Strong compliers (39 countries) 15.1 84 1.7 Moderate compliers (9 countries) 2.2 13 1.7 Poor compliers (9 countries) 3.8 18 2.2 Total (57 countries) 21.1 115 1.8 Source: IEG staff calculations. Note: Thirty-seven loans (for 8 countries) could not be evaluated either because there were no legally binding conditions (6 loans), or because project documents did not contain enough information to assess compliance (31 loans). 2 2 I N P U T S , T R E N D S , A N D E V O L U T I O N O F W O R L D B A N K T R A D E A S S I S TA N C E Despite this relatively strong compliance fallen significantly since Despite above-average record, economic outcomes were mixed for 1987 (figure 3.5) .15 This project implementation, this group (table 3.4). Countries with a strong pattern of decline is economic outcomes were compliance record experienced only average generally consistent across improvements in growth (12 out of 26) and Regions and also across mixed. investment (14 out of 26), but fewer than half International Develop- experienced an improvement in exports. This ment Association (IDA) and International Bank for is partly explained by the heterogeneity in Reconstruction and Development (IBRD) initial conditions across countries; it also countries, except in the Middle East and North illustrates that trade liberalization by itself is Africa Region, where the average of 10 trade- not sufficient to generate improved economic related conditions per loan remains the same as in performance. Some poor compliers had very the 1980s. good outcomes in exports and poor invest- In addition to the The most difficult recent ment outcomes. This seems largely to be the three factors mentioned product of unusual circumstances: in two poor earlier in the chapter areas of compliance compliers (Nigeria and Venezuela), oil-related (the move toward more concern the regulatory exports account for the good performance. open regimes, a shift in framework. The existence of oil, however, may have meant the Bank's focus toward less incentive to liberalize. longer-term reforms in institutional and Specific areas of weak implementation have structural policies and a concurrent rise in IMF varied over time. During the late 1980s, trade conditionality, and a rise in trade liberal- countries had greater difficulty in complying ization through regional arrangements such as with core trade issues. Since the early 1990s, free trade areas), it is possible that conditional- however, this has changed. Recent difficulties ity has declined because of increasing skepti- with compliance appear to be linked to cism about the efficacy of conditionality, more domestic supporting policies, particularly in generally, in motivating policy reform (box 3.2). privatization and regulatory reform. Waivers of However, the causality conditionality were sought most frequently in of these various factors The average number of these areas. Fourteen of the 33 waivers for the is difficult to disentan- trade-related conditions 93 adjustment loans with trade conditions gle. In more recent approved since fiscal year 1992 were sought for years, the shift also likely per loan and the privatization-related conditions. reflects the evolution of incidence of trade Reflecting the progress with meeting trade the Bank's approach to conditionality have fallen conditions, the average number per loan and the conditionality toward percentage of loans with trade conditions have greater country-owned significantly since 1987. Table 3.4: Meeting Lending Conditions Did Not Necessarily Improve Economic Performance Number of Number of countries with improvement in countries Growth with data rates Export Investment Strong compliers (63 loans) 38 (12) 6 7 10 Moderate compliers (17 loans) 16 (8) 6 3 4 Poor compliers (16 loans) 14 (4) 2 4 2 Source: IEG staff calculations. Note: Thirty-seven loans could not be evaluated either because there were no legally binding conditions, or because project documents did not contain enough information to assess compliance. 2 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Figure 3.5: Number of Lending Conditions Declined over 1987­2004 Trade conditionality by fiscal year, 1987­2004 Trade conditionality by Region, 1987­2004 16.0 16.0 14.4 loan 14.0 loan 13.6 14.0 14.0 per per 11.7 12.0 12.0 11.4 12.0 10.3 10.5 9.7 10.0 9.3 10.0 9.5 9.1 8.6 conditions conditions 8.7 8.3 7.4 of 8.0 of 8.0 5.9 6.0 4.9 6.0 number number 4.0 4.0 verageA 2.0 verageA 2.0 0.0 0.0 1987­90 1991­99 2000­04 Africa East Asia Europe Latin Middle South and and America East Asia Pacific Central and the and Asia Caribbean North Africa Legally binding conditions Aggregate total conditions = legally binding plus desired (matrix) benchmarks Source: Tsikata (2005). conditionality and less prescriptiveness, as the change in incentives, and on general trade outlined in Operational Policy 8.60 on develop- performance. The next-most important areas of ment policy lending.16 focus, though far less frequently addressed, were assessing the regulatory framework and the impact Nonlending Inputs of the external environment. In addition to the substantial lending portfolio, Since 2002, while trade-related ESW contin- Bank activities in trade have included important ues to review progress in trade performance and nonlending inputs--notably economic and incentives, more reports now focus on a broader sector work (ESW) carried out in the definition of competitiveness (labor costs, operational Regions of the Bank.17 The discus- infrastructure), include external environment sion of nonlending inputs below focuses on considerations (such as the impact of regional ESW; Chapter 5 analyzes the Bank's trade- arrangements or market access issues), and related activities, advocacy, research, and trade- analyze microeconomic issues. In both periods, related capacity building, mainly focusing on however, reports have only rarely presented an the period since 2001. in-depth analysis of the welfare implications of Early ESW focused on The focus of trade- trade policies, analyzed the institutional incentives and trade related ESW has broad- framework for trade, or incorporated political ened over time, but economy factors that could influence trade performance; less insufficient attention is reform and outcomes. Also largely missing is attention was paid to given to the political, microeconomic analysis on the response of politics, institutions, and institutional, and welfare firms (exit/entry) to changes in incentives. dimensions. Between 1987 Evidence from the country case studies welfare outcomes. and 2001, ESW focused on suggests that high-quality analytical work can 2 4 I N P U T S , T R E N D S , A N D E V O L U T I O N O F W O R L D B A N K T R A D E A S S I S TA N C E Box 3.2: Conditionality May Be Neither Necessary nor Sufficient The record of the appropriateness of Bank conditionality on (Rakner and others 1999).aFirst highlighted as an agricultural struc- core trade issues is mixed. In some cases, the conditionality was tural adjustment condition in 1995, the privatization of SONACOS light, flexible, and adaptable. For example, in India, condition- was a key performance indicator in the Private Investment Pro- ality was light, except for the 1991 Structural Adjustment Loan. motion Project (fiscal 2003) almost a decade later. Yet even then, the authorities had some leeway, as noted In Indonesia, the 1997 financial crisis was associated with di- earlier. minished credibility of the authorities, and the Bank introduced In a few other cases, the country failed to meet the condition-- conditions that had been on its agenda for several years. Notwith- in part because it felt it could not act because of political con- standing the relatively small role of trade issues in the crisis, the straints--and received a waiver. In Indonesia, four trade policy Bank introduced legally binding trade-related conditionality.b These loans implemented between 1987 and 1996 were devoid of legally conditions, related to export taxes and controls and regulatory is- binding conditionality. They were given by the Bank in general sup- sues, were eventually satisfied. As noted in the case study, how- port of Indonesia's ongoing trade and investment reform program, ever, it is difficult to argue that any of these issues were critical to reflected the Bank's confidence in the credibility of the authorities, resolving Indonesia's financial crisis. They appear to have been at and were informal precursors of what is now known as "ex-post best excessive, and possibly inappropriate.c At the same time, two conditionality." reasons could explain the decision to include them. First, by tak- In other cases the Bank continued to introduce conditionality ing on some of the core interests of the president and his associ- even when it was ineffective or when the authorities had serious ates, the conditions were intended to send a strong signal to concerns. In Zambia, despite conditions repeated in three suc- investors about the government's commitment to reform.d Second, cessive loans, the government procrastinated on the privatization the World Bank (and IMF) used the opportunity of the crisis to in- of the mining parastatal, the Zambia Consolidated Copper Mines clude the most critical trade-related reforms. Regardless of the rea- (ZCCM), because of political concerns. The phenomenon of Zam- son they were introduced, the resulting strained relationship with bia continuing to receive high levels of assistance in the absence the Indonesian authorities suggests that in countries where the Bank of reform has been dubbed "the nonreform" paradox: more and may not ordinarily have much leverage, the institution needs to be more conditions lead to less and less effective conditionality careful to attach only critical conditions during times of crisis. Sources: Country Case Studies for IEG Trade Assistance Evaluation. a. The authors argue that that the underlying problem was a defensive government agenda to maximize donor inflows, rather than a properly articulated strategy for medium-term growth and development. Rakner argues that one of the key elements of the defensive agenda is in "in the area of trade reforms, the Movement for Mul- tiparty Democracy (MMD) government is seen as having overcommitted and carried out reforms too rapidly" (p. 574). Given the government's willingness, it perhaps is not surprising that the Bank undertook so little analytical work--there was less need to convince than in other cases. However, this does not excuse the need for the Bank to have identified the implications of such reforms to the authorities. b. The three trade-related conditions in the First Policy Reform Support (PRS) 1 were: (i) replace all existing quantitative export controls on crude and processed palm oil, olein, and stearin with an export tax not exceeding 40 percent ad valorem; (ii) introduce a system of resource use royalties for forestry, reduce export taxes on logs, sawn timber, and rattan to a maximum of 30 percent ad valorem, and adopt and announce a program for lowering this progressively over time; and (iii) ensure that all traders, including foreign direct investors, continue to be free to compete with Bulog (the government-owned rice procurement agency) by importing, wholesaling, or retailing any commodity other than rice, and ensure that private traders and Bulog have access to foreign exchange at the same rate when importing goods other than rice. PRS 2 reiterated the condition on maximum export tax rates on logs, rattan, and minerals (Indonesia Project Performance Assessment Report for PRS1 & PRS2). c. Feldstein 1998 as cited in the Indonesia Country Case Study for IEG Trade Evaluation. d. Hofman and others (2004) as cited in the Indonesia Country Case Study for IEG Trade Evaluation. improve policy dialogue and the quality of reforms, as in Zambia, Evidence from country lending (box 3.3 and Appendix D7). But the can strengthen the case studies also highlight that these benefits perception of a Bank studies suggests high- may sometimes emerge only in the medium caught up in dogmatic quality analytical work term, years after the research was first carried prescriptions. can significantly improve out (India, Morocco). By contrast, disputed In terms of trends, after policy dialogue and technical analysis (Mozambique) or the absence sustained decline from the of sustained analytical work underpinning trade mid-1990s following the quality of lending. 2 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Box 3.3: High-Quality ESW Supports Policy Dialogue The Bank's trade-related analytic work in Senegal has sup- quantification of the costs and benefits of freer trade and a gen- ported the development of adjustment lending over a long pe- erally high emphasis on empirical analysis. During the 1980s, Bank riod. In the early 1990s, Bank studies of industrial and agricultural research focused on the potential aggregate gains from trade. The prices and incentives identified state interventions and the as- Bank also seconded an economist to the Ministry of Commerce sociated economic costs. These analyses helped prioritize sec- and Industry who, working with staff, helped provide real-time tor adjustment reforms. analyses of potential trade policy effects and became a trusted in- WhiletheBankwasprecludedfromactiveandopeninvolvement terlocutor for those interested in pursuing trade reform. in the devaluation debate in the early 1990s, it worked behind the By the time the authorities decided to reform in response to cri- scenes with a small group of policy makers on macroeconomic and sis in the mid-1980s, the government technocrats were convinced competitiveness issues. Simulation of the fiscal impacts of devalu- of the value of reform and had a blueprint for its introduction. The ation-cum-tariffreformwereundertakenbytheMinistryofFinance's benefits of the ESW and advice were not limited to the earlier pe- Policy Options Group in 1994 with Bank guidance, and was ac- riod. While the pace of reform slowed in the second half of the 1980s, knowledged by Senegalese policy makers to have been crucial in the consistent proponents of reform include those staff first con- convincing them that the risks of the devaluation could be managed. vinced in the early 1980s. Alavi (1993) is another example of ana- In Morocco, a major contribution of trade ESW has been the lytical work making an impact on policy dialogue and reform. Source: Country Case Studies prepared for the Trade Assistance Evaluation. ESW on trade issues has conclusion of the Uruguay was followed by lending. The discussion of the Round, ESW on trade links between ESW and project outcomes is risen in recent years, issues has risen in recent taken up in Chapter 4. catalyzed by donor years.18 Underpinningthis The share of countries in which trade- support. reversal is greater interest related ESW has been conducted has risen in in trade issues by client each Region since 1994, except Latin America countries as they grapple with more complex and the Caribbean, which started at a high integration into the global economy, greater level. The most dramatic rise occurred in the commitment and interest by donors leading to Africa and South Asia Regions. In Latin America, additional trust fund resources, and development trade-focused ESW at the country level has of a new trade-focused economic report--the declined, but a number of major trade-related Diagnostic Trade Integration Study (DTIS), which Regional studies have been done, and given the was an important initial catalyst (figure 3.6).19 stock of existing trade research on those Whether funded though the multi-agency countries, they do not appear to have been Integrated Framework initiative (for the least- underserved. More generally, in the past three developed countries) or bilateral donors (for years, strategic Regional trade studies have other developing countries), the DTIS spurred been done in every Region except Africa and analytical work in trade within the Bank. have been well focused on the particular While it is too soon to tell with the more concerns of the Regions they cover (box 3.4 ).20 recent analytical work, early trade-related ESW To place the analysis on Regional trade was associated with trade-related lending. issues in perspective, the Bank has carried out Between 1987 and 1990, 65 percent of trade much research and analytical work on regional- ESW was followed by trade-related lending ism. Research has been published in within two years. This figure has fallen slightly established journals. Among the contributions, since then--between several deal with the political economy aspects But it is too early to tell 1990 and 2001, 60 of regional trading arrangements (RTAs) its impact on lending. percent of trade ESW (Cadot, de Melo, and Olarreaga 2003; 2 6 I N P U T S , T R E N D S , A N D E V O L U T I O N O F W O R L D B A N K T R A D E A S S I S TA N C E Figure 3.6: New Diagnostic Studies and Trust Funds Catalyzed Increased Economic and Sector Work (number of trade-focused reports) 35 30 reports 25 20 15 trade-focused of 10 Number 5 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 25 20 reports trade 15 country 10 of 5 Number 0 2002 2003 2004 2005 Diagnostic Trade Integration Study Non-Diagnostic Trade Integration Study Trade ESW Source: IEG Trade Assistance Evaluation Database. Note: Trade-related ESW was selected using two approaches. For 1987­2001, trade-related ESW was identified by searching the ESW database for key trade words, followed by man- ually checking the depth and relevance of the trade content of the report in question. For 2002­05, the study benefited from the OPCS revamping of sector and thematic codes. The rele- vant list was obtained by selecting sector codes (45-50 in the OPCS coding system) that correspond to trade and integration. Code 48 (technology diffusion) was excluded because, while trade-related, it is beyond the scope of this study. A number of trade-related studies identified by the Regions were still not captured by the OPCS classification, including most of the trade diagnostic studies. Diagnostic Trade Integration Studies (DTIS)=Trade Study that follows specific template and funded by one of the following: (a) Integrated Framework Initiative; (b) U.K. DFID trust funds; (c) Dutch trust funds. Olarreaga, Soloaga, and Winters 1999). Among reduction in trade barriers. The research shows the issues explored is why it is easier to that bilateral rather than multilateral (or unilat- `exchange market access' by reducing trade eral) trade liberalization is most likely to occur barriers bilaterally than to reduce trade barriers if negotiators reflect mostly producers' prefer- unilaterally, even though most of the efficiency ences. The research also established systemic gains from trade reforms come from unilateral externality effects of RTAs through terms-of- 2 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Box 3.4: Regional Reports on Trade--Strategic and Nontraditional In De Ferranti and others (2002), the Latin America and the on country characteristics--that the Region holds the possibility Caribbean Region's experience is used to argue that a substantial for accelerated growth through faster trade and investment inte- natural resource base is not necessarily detrimental to economic gration. The report emphasizes that both the resource-rich and re- growth and income equality. Econometric analysis is used to argue source-poor countries in the Region face poorly functioning labor that comparative advantage in the Region has been as variable as markets (wage rigidities, skill mismatches, and institutional factors in countries and Regions with a weaker natural resource base; thus, such as expatriate worker quotas that raise employment costs for policy makers have greater control over outcomes. expatriates). The report argues that incentives to liberalize trade Drawing on the Chilean success with rapid agricultural pro- have been weak economically and politically because a coalition ductivity growth following trade reforms in the late 1970s, the re- of powerful constituents benefits from rents (such as public sec- port shows that similar trends in labor productivity growth have tor agencies, public sector enterprises, and private enterprises in been achieved in countries following a similar path. Case studies import-substituting activities) that would be lost under a more lib- of successful export processing zones in Central America (Costa eral trade and investment regime. Rica and El Salvador) are developed to show that policy incentives Both of these reports are well-focused and draw on research can generate rewards. The report is complemented by insightful conducted within the Bank as well as externally. While they draw historical lessons from nineteenth century industrialization patterns on research themes emphasized by the Trade Department, they also in natural resource­based economies. develop areas that have not figured prominently in the research The Middle East and North Africa Region offers an interesting at the center. Examples include the role of labor markets (includ- contrast as the only Region that failed to reduce its protection dur- ing education policies and technological absorption through trade) ing the 1990s. It is also notable as the Region with countries that in Latin America and the Caribbean and on labor market institu- are the furthest away from predicted trade volumes. With a labor tions and adjustment costs to trade reforms in the Middle East and force growing at twice the average of other countries, the Region North Africa. More extensive empirical work on the political econ- faces a significant job-creation challenge. omy of reform, emphasizing the differences between resource-rich Dasgupta and Nabli (2003) review the Region's disappointing and resource-poor countries, would have been welcome for both performance and use comparative analysis to highlight-- based reports. Source: De Melo (2005). trade effects on third countries (Winters and of the 1990s (in favor of unilateral or multilat- Chang 2000, 2002), giving support to the eral trade liberalization), reflecting some concerns of excluded countries facing such ambivalence toward RTAs, the Bank has taken a trade arrangements. pragmatic approach in recent years, and has The research on regionalism has been had an active dialogue with regional trade forward-looking (starting early on) and institutions in some Regions. This is especially consequential in its impact in refereed journals notable in the Africa Region, where analysis has and in the overall debate on the relation between been conducted on the common external tariff regionalism and multilateralism. At the same for several RTAs (EAC, ECOWAS, UMOEA),21 time, countries enter into regional agreements revenue implications and possible trade for many reasons (politics, security, insurance, diversion, the Environmental Protection and so on) that are often beyond the scope of Agencies (EPAs) with the European Union reasonable quantification by economists. Thus, (Hinkle and Schiff 2004), and Latin America for much of the 1980s and 1990s, the Bank (work on CAFTA and the Free Trade Area of the focused on the suboptimality of RTAs. Americas [FTAA]). The Europe and Central Asia After highlighting the second-best nature of Region, which has always conducted Regional preferential trading arrangements during much trade analysis, has continued to do so. 2 8 Chapter 4: Evaluation Highlights · The trade portfolio performed as well as the rest of the Bank portfolio. · Trade adjustment loans were most likely to meet their objec- tives, while institutional-related investment lending was least likely to do so. · Nominal tariffs were significantly reduced and overall growth often improved. · But the export supply response has been uneven and diver- sification limited, particularly in Africa. 4 Outcomes and Results T his chapter first analyzes outcomes at the project level, assessing the extent to which project objectives were met. Then, using a broader set of trade and Bank approved between Trade loans focused on macroeconomic outcomes at the cross- fiscal years 1987 and improving incentives for country level, it compares countries that 2004, 132 had closed and tradables, diversifying borrowed from the Bank to a control group of been rated by IEG countries that reformed without the financial (about 57 percent of all exports, macroeconomic assistance of the Bank, to capture outcomes projects, or 59 percent stabilization, and such as trade performance, export diversifica- in terms of value) as of economic growth. tion, and greater integration into the global April 2005. economy. Finally, the chapter examines results Core trade lending operations (in which at the country level, drawing on case studies trade components accounted for more than 80 commissioned by IEG. percent of project costs) performed about the same as the rest of the Bank portfolio over the Project Outcomes period on outcome and sustainability, but worse on institutional development impact. They What Were the Objectives? yielded a satisfactory outcome rating 70 percent Figure 4.1 shows that improving incentives for of the time,1 slightly lower than the percentage tradables and achieving macroeconomic of overall Bank lending operations rated satisfac- stabilization and economic growth were almost tory between 1987 and equally important objectives for adjustment 2004. In general, trade Trade lending performed loans with trade components. Promoting and adjustment loans per- as well as the rest of the diversifying exports was the most important formed better than other Bank portfolio on objective of investment loans and the third adjustment loans (86 most important for adjustment loans. versus 78 percent), while outcomes and trade investment loans sustainability, but worse How Did the Projects Perform? performed slightly worse on institutional Of the 215 operations with trade-related than other investment components exceeding 50 percent that the loans (69 versus 72 development impact. 3 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Figure 4.1: Stated Objectives of Trade-Related Projects, 1987­2004 (frequency cited) Adjustment loans Improve incentives for tradables Macro stabilization and growth Export promotion and diversification Enhance competitiveness 0 5 10 15 20 Investment loans Export promotion and diversification Improve efficiency Institutional strengthening Improve trade logistics 0 10 20 30 40 50 60 70 Source: IEG staff calculations. Note: Only loans approved between 1987 and 2004 in which more than half the components focused on trade were considered. Adjustment loans = 42; Investment Loans = 173. Because loans frequently have more than one objective, the frequency with which objectives appear exceeds number of loans. percent, respectively). The trade portfolio had a overall ratings were comparable in all di- likely sustainability rating 64 percent of the time, mensions for projects with smaller trade slightly higher than the average for all Bank components (between 50 and 80 percent trade operations. component share), with the notable exception In contrast, trade operations achieved a of the institutional development rating, which substantial institutional impact only 29 percent of was substantially lower for core trade projects the time over the review period. This is signifi- (29 percent as against 71 percent).2 cantly lower than the Bank average of 42 percent Components that focused primarily on trade over the same period, but is driven by extremely liberalization achieved the best performance poor performance in the late 1980s and early outcome ratings: 85 percent were rated 1990s. Trade adjustment and investment loans satisfactory (Appendix D2). Components each performed worse than the Bank portfolio. In related to private financing (such as export line with Bank lending operations in other sectors, finance guarantees and export reinsurance) all evaluated dimensions of trade-related were the least successful, with only 56 percent Projects focused on operations have improved rated as satisfactory. steadily over time. The superior performance of projects different thematic areas The relative impor- focusing on trade liberalization reflects the in trade have performed tance of trade in any relative legislative ease (the so-called "stroke of differently, but overall project did not generally the pen" actions)3 of putting in place the make an appreciable associated actions (such as the reform of tariff performance has difference in its perform- regimes, reduction and elimination of import improved over time. ance (Appendix D1). The and export licenses or bans). 3 2 O U T C O M E S A N D R E S U LT S By contrast, the thematic areas that make institutional and policy Country income and greater demands on institutional and adminis- capabilities.5 In the trade policy characteristics trative capacity are more difficult to implement. portfolio, unsatisfactory were important Failure to address key supply-side constraints lending operations were can ultimately short-circuit export expansion, more likely to be associ- determinants of trade even if trade liberalization is accomplished. ated with countries with project outcomes. Appendix D3 summarizes the performance lower CPIAs than were of three key groups of trade-related investment satisfactory lending operations. This holds true projects: customs, export processing zones for both core trade and other trade-related (EPZs), and matching grant schemes. projects. Performance in projects that focused Transport-related trade facilitation projects are exclusively on trade did not differ as much the subject of two ongoing IEG evaluations of between countries with low and high CPIAs. Regional integration and transport. This suggests that these projects made An econometric estimation of the determi- relatively lower demands on the client nants of project outcomes at an aggregate level countries. In contrast, multisector loans with suggested that country and loan characteristics trade components were more complex, were important. Middle-income countries and required greater capacity, and were thus more those with low conditionality had a higher likely to pose a greater challenge for countries probability of having better-performing loans. with low CPIAs. Projects implemented in the The probit estimation also confirmed that transition countries were also likely to have project implementation had improved over poorer performance, driven by exceptionally time (Appendix D4).4 poor performance of trade finance loans. In addition to per capita income, other The existence of economic and sector work country characteristics were important (ESW) underpinning a trade lending operation determinants of trade project outcomes. The appearedtohavepositively ESW affected project Country Policy and Institutional Assessment affected the outcome. (CPIA) index was used as a proxy for a country's Lending operations that outcomes positively. Box 4.1: Trade Finance--A Continued Struggle to Be Effective for Some The overall outcome of a variety of trade financing loans (lines the trade financing loans were cumbersome implementation of credit, pre- and post-shipment credits, export credit and guar- arrangements and macroeconomic conditions that were not antee schemes) was unsatisfactory in a range of countries supportive (such as high and variable inflation and overvalued (Bangladesh, Bolivia, Guinea, India, Romania, Tunisia, and exchange rates). Turkey). Based on project evaluation documents, the most com- These lessons, which were captured in guidelines introduced mon reason for their relative lack of success was an over-esti- in the Bank's Operational Directive for Financial Sector operations mation of demand. This may have arisen partly because the in 1992, were not embedded in subsequent trade finance projects, projects failed to consider competition from other, cheaper though lower inflation rates in the mid- to late 1990s did improve the (often subsidized) sources that created a distorted market for term environment. These projects continue to exhibit mixed performance, finance. Reform of the financial system is a prerequisite for pro- however. Several of these loans went to transition clients where vision of these lines of credit and, more generally, other sources there was weak capacity in the implementing banks and where more of finance (such as multilateral or bilateral donors) should be con- unstable macroeconomic conditions skew the results--opera- sidered. Two other factors that help explain the performance of tions with non-transition clients have performed much better.a Source: Lindahl 2004. a. IEG 2005 points out that while lines of credit were approved in relatively stable macroeconomic conditions, 20 of the 29 approved lines of credit that did not meet this criterion were in the Europe and Central Asia Region. 3 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 were rated unsatisfactory were more likely to lack percent), but worse on institutional develop- any preceding ESW in the years before the ment (29 percent of core trade projects operation. By contrast, projects that were rated as compared with 42 percent for the Bank). satisfactory were much more likely to have The performance of the trade portfolio has benefited from recent ESW (up to two years preced- improved over time, in line with the rest of the ing the operation). Conducting ESW in advance of Bank. The degree to which a project contains the trade reforms may have offered an opportunity trade does not make an appreciable difference to sensitize country officials to the need for reform to outcomes. and to provide the Bank with a greater awareness of Projects that focused on thematic areas that potential political difficulties. Prior ESW also often make greater demands on institutional and addressed the fiscal implications of trade reform, administrative capacity, such as trade financing, perhaps enabling the Bank to better discuss alterna- performed the worst, making it more difficult tives to generate revenue-neutral outcomes and to for the Bank to achieve its institutional- minimize a common source of country reluctance strengthening objectives. to liberalize. This point is further detailed in the case At an aggregate level, positive project study discussion. outcomes were associated with middle-income A review of trade operations that were rated countries, low conditionality and good institu- unsatisfactory or highly unsatisfactory showed tional frameworks, and prior ESW. some common causes of failure. Poor project At a project level, poor project design, design, unrealistic assumptions (related to unrealistic assumptions, and unstable targets and projections), and unfavorable macroeconomic environments contributed macroeconomic environments were most most frequently to unsatisfactory outcomes. frequently cited as the cause of unsatisfactory outcomes (table 4.1). Unsatisfactory loans were Did Trade Loans Pay Attention to Poverty more likely to be associated with investment and Distributional Issues? loans, with the likelihood of this rising after As noted in Chapter 2, critics of the Bank have 1995. No Regional patterns emerged. been particularly concerned about the adjust- ment costs associated with trade liberalization. Conclusions. Projects that focus primarily on IEG's review of project design found that trade- trade perform about the same as the rest of the related adjustment loans have not paid Bank portfolio on outcome (70 versus 73 sufficient attention to potential adjustment percent) and sustainability (64 compared to 61 costs from trade liberalization or to the Table 4.1: Factors Underlying Poorly Performing Projects Thematic focus Closed (before 1995) Closed (after 1995) Unrealistic assumptions 2 8 Project design 0 9 Macroeconomic conditions 4 8 Borrower administrative capacity 2 5 Weak borrower ownership 2 4 Political developments 2 2 Memo: Number of unsatisfactory projectsa 10 20 Total projects > 50% trade 43 172 Source: IEG staff calculations from project documents. a. Unsatisfactory or highly unsatisfactory trade loans with trade component exceeding 50 percent of total project costs. 3 4 O U T C O M E S A N D R E S U LT S functioning of labor markets, despite heavy before the trade reform Trade-related adjustment emphasis on poverty in the 1990 and 2000­01 and 8 years afterward). loans have not World Development Reports.6 The latter WDR The date of reform was acknowledged trade liberalization had yielded ascertained based on a sufficiently attended to ambiguous results for the poor over the past 15 review of Bank reports poverty and years, and that the initial push for trade liberal- and outside research, as distributional outcomes. ization as an instrument for poverty reduction well as discussions with had been influenced by a "narrow reading of country economists where necessary. The predictions from trade theory: that removing sample excludes countries that were in conflict trade barriers in developing countries would during the period, as well as the republics of increase demand for their abundant low-skilled Eastern Europe and the former Soviet Union labor and expand unskilled employment and that were in transition. earnings"( World Bank 2001b, p. 70). The 45 countries include 2 groups: 35 Between 1987 and 1995, 31 percent of trade countries that undertook trade reform with the adjustment loans included compensation or support of a Bank loan, and 10 countries that mitigation measures to cushion the social and undertook trade reform without a Bank loan economic effects of trade reform on the poor. during this period. The countries are addition- Since then, 38 percent--a slight increase--of ally classified according to several dimensions: trade adjustment loans have done so. The (i) whether they were gradual or fast reform- nature of the measures ranged from targeted ers; (ii) whether they A sample of 45 countries subsidy programs to supplement the caloric were intensive reform- intake of the poor in Mexico7 to the introduc- ers undertaking deep that undertook trade tion of social safety net measures to protect the reforms in several areas reform provides a cross- unemployed during the period of transition. or less intensive; country view of economic The Bank also supported some safety nets (iii) Bank geographical through separate adjustment credits, such as in Region; (iv) export outcomes. India's National Renewal Fund, which provides structure; and (v) per capita income. Appendix a social safety net to cover the labor costs of D5 and Jinjarak and others (2005) provide restructuring and to mitigate its employment additional detail and description. effects. The failure of trade-related ESW to analyze the links was also a contributory factor, Initial Conditions given the importance of quality analysis for The conditions prevailing at the time of trade well-performing lending. reforms in the 35 liberalizing countries supported IEG finds little evidence that more recently by the Bank often constituted a bias against trade approved trade-related lending operations are and reflected unstable macroeconomic con- doing a much better job of identifying potential ditions. The introduction of trade reform in the winners and losers or of integrating adjustment presence of macro instability was consistent with assistance strategies. Even in cases where the consensus from the literature, but differed projects build on analysis of poverty considera- from previous IEG analysis, which views stabiliza- tions, implementation is sometimes unsuccess- tion as a prerequisite (IEG 1992a). ful in mitigating the associated adjustment With average tariffs on goods above 30 costs. percent and nontariff barrier (NTB) frequency ratios8 above 50 percent, Bank clients tended to Economic Outcomes for the the 45 countries in the Sample Countries sample would be consid- have more unstable The cross-country sample analyzed in this ered highly protected by initial macro conditions section comprises 45 developing countries that any standard. Their and greater anti-export had a complete set of trade and macroeco- import duty regimes nomic data for a period of 10 years (2 years were also characterized bias. 3 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 by various forms of restrictive import licensing This section examines the performance of arrangements, and "cascading" tariff structures, developing countries at an aggregate level to all contributing to high effective protection and assess the achievement of objectives. Specifi- a wide dispersion in protection. cally, it examines the impact of the policy On the export side, these 45 countries actions discussed above on the directly frequently applied restrictions to export activi- targeted policy variables (such as tariffs), on ties (export bans, export licenses) and economic incentives, and on economic activity introduced repatriation requirements related in the real sector--major objectives of the to export profits. Particularly in Africa, major Bank's assistance on trade such as exports and export commodities were governed by govern- growth. In addition, we attempt to delineate ment marketing monopolies. Exchange rates the role of the Bank in this process by using a were often fixed at official rates and overval- "difference-in-differences" approach to correct ued, resulting in the emergence of black for any potential sample selection bias. Given market premiums in some countries as foreign the pervasive trend toward trade liberalization exchange shortages arose. These policies among developing countries during the review constituted a major bias against exports. period, a second counterfactual (comparing The 35 reformers supported by the Bank trade reformers to non­trade reformers) was had slightly higher initial import tariff levels not explored.12 (31.9 versus 27.6 percent, on average, for A word about attribution: while other actors unweighted tariffs, and 21.6 versus 25.8 were important in influencing trade policies in percent for weighted tariffs reflecting developing countries (such as the IMF, and exemptions) than non-Bank-supported or more recently the WTO and regional trading independent trade reformers. However, even arrangements), for the period during which this figure is misleading as it masks their much most of the sample countries liberalized with greater use of nontariff barriers--almost 70 support from the Bank (mid-1980s to early percent of tariff lines compared with 23.9 1990s), the Bank was the predominant advisor percent for the 10 independent reformers.9 on trade policies. This is borne out by a review of the trends in IMF trade conditionality and an Changes in Target Variables and examination of the nature of Bank trade Economic Activity conditionality during this period. Another dimension that is more difficult to Impact of policy reforms on target variables (tariffs capture is the impact of the existence of a Fund and protection) program. While econometrically this did not On average, countries that borrowed from generate additional results, to the extent that a the Bank for trade reform tended to have Fund program contributed to good macroeco- larger initial fiscal deficits when compared nomic outcomes or to the perception of good with countries that undertook reforms on macroeconomic management, this is likely to their own, and they relied slightly more on have contributed to greater support by import duties as a source of tax revenues development partners, helping to ease (table 4.3).10 Bank borrowers had lower macroeconomic imbalances. investment and economic growth rates. Bank All groups of countries in the sample of 45 clients also faced greater precariousness in reformers generally showed a trend toward their foreign trade regimes, reflected in more openness in terms of lower tariffs (table higher external debt-to-GDP ratios and lower 4.2), although the pace differed, with notably foreign exchange reserves. The economic slow liberalization by countries that started out imbalances of the Bank's clients were often with a larger manufacturing base. Trade reform associated with balance of payments difficul- was significant across all Regions, although ties, presaging their tendency to borrow from significant NTBs remain in Africa, East Asia and the Bank.11 the Pacific, and the Middle East and North 3 6 O U T C O M E S A N D R E S U LT S Table 4.2: Indicators of Protection Nontariff barriers Simple unweighted tariff (%) Weighted tariff (%)a (% of lines) Region t = 0 t = 1 t = 2 t = 0 t = 1 t = 2 t = 0 t = 1 t = 2 All reformers 30.4 27.9 20.8 24.6 12.7 7.0 59.1 42.1 17.2 Bank-supported 31.9 29.1 23.1 21.6 10.9 10.2 69.9 44.1 17.4 Independent 27.6 21.0 14.7 25.8 13.4 5.7 23.9 14.6 5.1 By Region Africa 18.2 24.7 18.1 16.9 12.2 6.4 57.0 36.1 41.3 East Asia and Pacific 32.8 23.1 21.4 17.9 12.5 11.9 38.0 42.2 25.6 Europe and Central Asia 22.7 9.5 8.3 .. .. 3.9 96.4 96.4 9.4 Latin America and the Caribbean 25.9 13.5 12.5 35.6 12.4 6.4 33.6 18.6 6.6 Middle East and North Africa 26.0 25.0 26.8 .. 14.9 10.0 63.7 63.7 27.6 South Asia 66.0 48.0 31.6 49.8 14.7 74.3 48.8 21.5 By income Low-income 34.5 29.2 24.7 31.0 12.3 5.4 66.1 40.3 9.2 Middle-income 28.7 27.1 18.2 19.8 13.0 8.0 45.6 37.3 17.5 Reform intensity Intensive 30.7 21.7 21.7 21.1 15.1 8.4 57.3 62.6 24.8 Non-intensive 30.6 29.4 20.7 25.1 12.1 6.4 56.0 33.8 12.9 Reform pace Gradual 27.6 27.1 23.2 32.1 12.7 8.6 56.9 45.8 15.3 Fast 34.3 28.8 18.9 14.5 12.7 5.0 55.3 31.2 15.0 Initial exports structure Fuel 28.5 21.7 14.8 .. 10.8 4.5 79.1 53.7 5.6 Manufacture 41.9 41.0 34.8 33.4 15.1 5.7 72.8 52.5 26.7 Other 29.1 24.5 19.9 18.0 12.3 7.9 52.4 35.9 14.5 Source: Jinjarak, Salinas, and Tsikata (2005). Note: t = 0 is initial period of 0 to 2 years before trade reform; t = 1 is 0 to 2 years after reform; t = 2 is 3 to 5 years after reform. a. This underestimates the extent of protection in earlier years because it does not include import surcharges, which were quite prevalent. Africa.13 While some countries in South Asia suggests instrument substitution was not were still protected after the reforms, they uncommon (Indonesia, Morocco, Peru, made progress, actually reducing average tariffs Senegal). by half and reducing NTB coverage by more Much like the findings from project-level than that. data, the whole-sample data on the evolution While nominal tariffs are readily available of tariffs and nontariff barriers do not support and an easily comparable source of data to try the common criticism that the Bank followed a and ascertain changes in protection, they can "one-size-fits-all" approach to trade liberaliza- be deceptive. In particular, if countries substi- tion. The pattern of trade reform was hetero- tute other instruments of protection, such as geneous across countries, differing widely in surcharges, overall protection may rise. While magnitude.14 Some countries in the sample the study could not examine this for all (Tunisia, Vietnam) implemented a dual-scheme countries, evidence from country reviews approach to reform, maintaining high protec- 3 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 tion of domestic industries, but providing was slightly below 50 percent, and it took 50 years liberal trade regimes in free trade or export for this figure to decline to 6­8 percent. processing zones. The assertions that Bank-supported reforms Real sector were consistently more rapid and that the Independent and Bank-supported countries speed of reform was inappropriate are difficult shared common trends (table 4.4 and to evaluate. There was no correlation between Appendix D5) for the main macroeconomic the presence of Bank support and the speed of and trade indicators. Both groups of countries reform. Independent reformers were as likely were successful in bringing down inflation, to be fast reformers as were Bank-supported reducing their fiscal deficits, and broadening reformers. Almost half (44 percent) of all liberal- their tax revenue bases. The introduction of ization episodes were rapidly implemented-- trade reforms was accompanied by a signifi- that is, with most of the cant increase in import demand, in part Trade reform led to lower reform completed within because these reformers had been experienc- tariffs, and was three years--with the ing more import compression before the other half taking anywhere reform, brought about by foreign exchange accompanied by higher from 4 to 11 years. But by shortages and quantitative restrictions. Export import demand and historical standards, all growth was modest for both groups--it stayed faster economic growth, these liberalizations were relatively stable for Bank-supported liberaliz- implemented rapidly. For ers but slowed down for independent trade but only modest export example, after World War liberalizers. The current account balance supply response. II, the average U.S. tariff increased slightly for the Bank's clients and Table 4.3: Bank Trade Clients Differed from Other Developing Countries Sample countries excluding those under hyperinflation Trade reformers All Bank-supported Non-Bank-supported Macroeconomic indicators Real effective exchange rates (1980 = 100) 96.4 96.4 96.0 Consumer price index inflation (%) 21.7 21.0 20.4 Fiscal balance/GDP (%) ­4.1 ­4.7 ­2.2a Tax revenue/GDP (%) 13.8 13.4 15.5 Investment to GDP (%) 19.7 18.3 24.3a Per capita GDP growth (%) 0.8 0.4 1.8 External indicators Export growth (%) 6.1 5.3 6.5 Import growth (%) 2.3 2.4 0.6 Trade to GDP (%) 54.7 52.6 64.5 Current account balance to GDP (%) ­3.8 ­4.4 ­2.1 Terms of trade (1980 = 100) 99.2 98.2 102.7 Total external debt of GDP (%) 80.5 92.3 41.1a Reserves in months of imports 2.5 2.3 3.1 Memo: Number of countries 45 35 10 Source: Authors' calculation from World Development Indicators (WDI) 2004 and data provided by country economists. Figures are an average of the two years prior to reform. a. 10% statistical significance. 3 8 O U T C O M E S A N D R E S U LT S turned into a small surplus for the independ- Bank-supported trade Bank borrowers ent reformers. program?) because the experienced larger import There were some differences as well approach tends to yield flows and GDP growth between the two groups of countries in other biased and unsystematic macroeconomic indicators. The investment results of the effects of after liberalization, but performance of the Bank-supported reformers borrowing from the export supply response was positive, but not remarkable; after an initial Bank.15 To address these was modest. boost immediately following the reform, the concerns, two economet- investment rate slowed. In the independent ric approaches were used. reformers group, the investment rate rose First, the significance of the differences discussed more rapidly. In both sets of countries, per above was tested. The results, presented in table capita GDP growth rose--from 0.4 percent 4.4, show that the differences were statistically before the reform for the Bank-supported significant for the following variables: per capita reformers to 2 percent three-to-five years after GDP growth, imports, the current account the reform, and from 1.8 to 3.1 percent for the balance, terms of trade, and the external debt-to- independent reformers. GDP ratio. Second, an econometric analysis was While the combined before-and-after trade conducted that corrects for the potential sample reform and with-and-without Bank assistance selection bias that could potentially arise if Bank approach used above presents an easily clients were to systematically differ (in characteris- understood statistical analysis, it has been tics) from non-Bank clients.16 criticized as a poor estimator of the counterfactual The results from the second exercise, (what would have happened in the absence of the discussed in detail in Jinjarak, Salinas, and Table 4.4: Economic Indicators: With and without Bank Assistance and Before and After Trade Reform Trade reformers All Bank-supported Non-Bank-supported Before trade reform t = 0 t = 2 t = 0 t = 2 t = 0 t = 2 Macroeconomic indicators Real effective exchange rate 96.4 80.7 96.4 77.7 96.0 87.4 Consumer price index inflation (1995 = 100) 21.7 18.9 21.0 17.7 20.4 16.6 Fiscal balance as share of GDP (%) ­4.1 ­2.6 ­4.7 ­2.6 ­2.2 ­2.2 Tax revenue as share of GDP (%) 13.8 15.6 13.4 15.3 15.5 16.8 Investment as share of GDP (%) 19.7 22.7 18.3 21.8 24.3 26.1 Per capita GDP growth (%) 0.8 2.2 0.4 2.0a 1.8 3.1 External indicators Exports as share of GDP (% growth) 6.1 7.4 5.3 7.8 6.5 5.7 Imports as share of GDP (% growth) 2.3 7.5 2.4 7.5a 0.6 7.7a Trade as share of GDP (%) 54.7 64.2 52.6 64.8 64.5 65.3 Current account balance to GDP (%) ­3.8 ­2.7 ­4.4 ­3.9a ­2.1 1.2a Terms of trade 99.2 96.2 98.2 94.3a 102.7 101.7a Total external debt as share of GDP (%) 80.5 74.8 92.3 85.9a 41.1 38.1a Reserves in months of imports 2.5 3.0 2.3 2.7 3.1 3.9 Source: Jinjarak, Salinas, and Tsikata (2005). Note: t = 0 is 0 to 2 years before reform; t = 1 is 0 to 2 years after reform; t = 2 is 3 to 5 years after reform. a. 10% statistical significance. 3 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Tsikata (2005) and summarized in Appendix · Third, the importance of export expansion D5, suggest that trade liberalization has a was uneven across countries following trade lib- strong and often statistically significant positive eralization. In half of the countries it increased, impact on economic growth and imports for while in the other half it declined in impor- both the Bank's clients and other independent tance. reformers, and that these impacts persist beyond the short term. With respect to Diversification of exports exports, the impact of trade liberalization is Diversifying the export basket has been an more mixed. Bank-supported reformers exhibit important objective of the Bank's assistance. rather modest export supply responses, while Table 4.5 provides three measures of progress in reformers not supported by the Bank fare export diversification: the number of products slightly worse. So, while the existence of a Bank exported, an export concentration index, and trade loan freed up imports and was associated the share of a country's top three exports in the with faster economic growth compared with overall export basket. Two points emerge. First, reformers not supported by the Bank, this all three measures suggest a reduction in export growth could not be attributed to faster concentration for developing countries as a exports growth. group and across the major groupings of income, Bank trade loan or not, and regardless Contribution of trade to growth of the intensity of reform. Second, despite the Following Chenery (1979), variations in output overall progress, the Africa and the Middle East growth were disaggregated into demand and North Africa Regions continue to have factors--domestic demand, import substitution, extremely concentrated export baskets, and and export expansion--for the periods before Africa lags well behind the other Regions. and after the year of Another way of examining progress in diversi- Relatively speaking, reform for the 45 fication is through an "exports prospects index." import demand made a countries in the sample.17 Developed in Ng and Yeats (2003), this index larger contribution to Appendix D6 presents helps gauge how favorable (or not) prospects economic growth. the results. Three points are for a country's exports baskets. An index can be made: above one suggests above-average growth prospects, while a value below one suggests the · First, domestic demand is a major source of converse. In an estimate of the index for 26 growth for the developing countries in the African countries, the authors find only one sample. In all but six countries for which the African country (Mauritius) whose export basket calculation was done, domestic demand was currently suggests that it has the potential to by far the largest contributor to output grow at about the same rate as world trade.18 growth, explaining more of the increase in Given the well-documented (see, for example, growth than either export expansion or im- Page and Hewitt 2001) continuing secular port substitution. decline and volatility of commodity prices · Second,beforereform,thereverseofimportsub- relative to manufactures and services, there is an stitution--importpenetration--wasmorepreva- urgent need for African countries to reduce their lent.Afterreform,whilethe commodity dependence in the long term with Export diversification degree of import penetra- the help of transitional assistance. tionincreasedinafewcoun- Both supply and demand factors can was modest, especially tries, the more common influence trade performance. Export growth in for the Region with the pattern was declining im- the sample of 45 countries between 1982 and highest initial portpenetration,whichwas 2003 was decomposed into demand, competi- sufficienttoreversethepat- tiveness, and diversification changes.19 The concentration--Sub- tern to one of import sub- results for the analysis at the three-digit Saharan Africa. stitutioninsomecountries. Standard International Trade Classification 4 0 O U T C O M E S A N D R E S U LT S Table 4.5: Changes in Export Concentration--Half-Full or Half-Empty? Share of three Number of products Export concentration largest exports exporteda indexb in total exports (%) Group Pre-reform Post-reform Pre-reform Post-reform Pre-reform Post-reform All 137 142 0.32 0.31 44.3 38.5 Africa 92 92 0.40 0.41 59.6 54.4 East Asia and Pacific 195 193 0.19 0.20 18.3 14.3 Europe and Central Asia 205 212 0.12 0.12 6.2c 4.5c Latin America and the Caribbean 144 154 0.33 0.31 34.4 30.6 Middle East and North Africa 156 156 0.24 0.21 24.4 24.0 South Asia 137 134 0.30 0.27 8.5 11.5 By income Low-income 152 160 0.29 0.27 31.6 27.8 Middle-income 110 109 0.37 0.36 56.3 49.6 Reformers Bank-supported 137 143 0.35 0.34 57.3 51.8 Independent 136 141 0.31 0.30 41.8 36.0 Source: IEG estimates based on UNCTAD 2004. a. Number of products exported at three-digit SITC, revision 2 level; this figure includes only products that are greater than $100,000 or more than 0.3 percent of the country's total ex- ports. b. The Herfindahl-Hirschmann index is a measure of the degree of market concentration. It has been normalized to obtain values ranking from 0 (least) to 1 (maximum concentration). c. Turkey only. (SITC) level are presented in table 4.6. The export performance and manufacturing value table suggests that the overall diversification added (the latter used as a proxy to measure contribution to export expansion was minimal deindustrialization between 1983 and 2003). across different groups of developing The tables suggest that in 11 countries with countries, with China dominating the results the highest overall export growth (averaging when included in a group. The table shows that 12.8 percent), manufacturing value added grew experience varied significantly across Regions at the respectable rate of almost 7 percent. In and groups of countries. East Asia was the only contrast, 23 countries with medium export geographic Region in which gains in competi- growth rates (about 7 percent) experienced tive position underpinned export perform- modest growth in manufacturing value added ance. Competitive gains were notably low in and overall GDP growth, despite growth in Africa, and in over half of the African countries manufacturing exports; indeed, manufacturing the competitive position actually deteriorated. value added fell over time. This suggests that Aggressive and more rapid reformers were the gains in manufacturing exports in this more likely to experience greater competitive group represented a diversion from domestic gains relative to demand. markets and that some degree of deindustrial- ization had occurred. Exceptions to this Did deindustrialization occur? pattern were Chile, Indonesia, and Mauritius. As discussed in Chapter 2, a criticism of Bank advice on trade liberalization is that it has led Internal efficiency gains and productivity to deindustrialization. Table 4.7 and Appendix The evaluation conducted a literature review of D5, table D5.2d, present summary statistics on country experiences with trade and productivity 4 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table 4.6: Factors behind Change in Exports: By Country Groups (US$ million) Factors underlying Exports change (annual average) Overall Competitive All countries 1982­85 2000­03 Change demand factor All countries 126,768 680,980 554,212 220,313 333,899 Region Africa 19,060 37,316 18,256 17,790 466 East Asia and Pacific 34,894 391,832 356,938 91,655 265,283 East Asia and Pacific, excluding China 27,936 208,105 180,169 79,595 100,573 Europe and Central Asia 4,494 18,272 13,778 9,667 4,112 Latin America and the Caribbean 56,940 186,965 130,025 76,221 53,804 Middle East and North Africa 3,314 10,682 7,368 6,291 1,077 South Asia 8,066 35,913 27,847 18,689 9,157 Intensity of reforms Low-intensity reformers 112,986 455,556 342,571 195,438 148,584 High-intensity reformers 13,782 225,424 211,641 24,876 186,766 High-intensity reformers excluding China 6,825 41,697 34,872 12,816 22,056 Pace of reforms Gradual reformers 61,504 385,007 323,503 99,861 223,642 Gradual reformers excluding China 54,547 201,281 146,734 87,801 58,933 Fast reformers 65,264 295,973 230,709 120,452 110,257 Source: IEG estimates based on United Nations COMTRADE Database. Note: The demand factor isolates the effect of the increase or decrease in global demand for sample country exports. It shows the percentage increase or decrease in exports that would have occurred had there been no change in the countries' import market shares from the 1982­85 base period. The competitive factor shows the percentage change in exports over or under that associated with demand changes that is brought about solely by the introduction of new products. Any differences between changes in a country's total exports and the sum of these "demand" and "competitive" changes are the result of product diversification. gains. Because of data constraints, this issue is not the lessons that can be generalized to the well researched for all developing countries, Bank's trade activities (Appendix D7 especially less-developed countries. However, summarizes the case studies). countries that have been studied overwhelmingly In all case study countries, tariffs were experienced positive gains in productivity growth lowered in the medium term, and foreign following trade liberaliza- exchange reserves positions improved Liberalizing countries tion, either as a result of (although aid often played a part). Economic experience productivity reductions in output outcomes were mixed. India, Indonesia, tariffs or tariffs on Morocco, and Mozambique enjoyed higher gains. intermediate goods.20 GDP growth, as well as revenue gains. Nontra- ditional exports were diversified in some Lessons at the Country Level countries (Indonesia, Senegal, Zambia), but Six country case studies were conducted for export growth was often uneven. In general, this evaluation--of India, Indonesia, Morocco, results with respect to the sustainability of Mozambique, Senegal, and Zambia. The studies reforms, the implementation pace, investment covered fiscal years 1987 through 2003 and 47 response, and productivity gains differed lending operations. This section summarizes widely. Employment losses occurred in the 4 2 O U T C O M E S A N D R E S U LT S Table 4.7: Export Growth and Increased Value Added, 1983­2003 (annual increase, percent) Manufactured exports Total exports adjusted for adjusted by Value added Total value purchasing power purchasing power by manufacture added By growth High export growth 11.9 12.8 6.6 5.5 Medium export growth 11.4 7.3 3.0 3.2 Low export growth 7.2 3.0 2.1 1.9 By income Low-income 10.6 7.6 3.8 3.3 Middle-income 10.5 7.2 3.5 3.4 By speed of reform Gradual 9.5 7.2 4.1 3.7 Fast 11.6 7.4 2.8 2.8 Source: IEG staff calculations from 3-digit SITC data. cashew industry in Mozambique and in past and to signal donors Country case studies and manufacturing in Senegal and Zambia. A closer and investors that the desk reviews of selected look at the main lessons helps explain the business environment varying outcomes. had improved. Thus, a programs provide broad range of reforms additional insight into Crises Can Precipitate Reform, but Broad were undertaken from Bank support for trade. Ownership Sustains It the start. But over time, In the six case study countries, macroeconomic ownership of the reforms or financial crises precipitated the initial trade became diluted and reforms took longer to reform, whether supported financially by the implement. Bank or not. In Senegal, despite a history of policy In Zambia, a crisis was compounded by reversal, a coalition of Crisis can precipitate political change. Subsequent reform was often pro-reform elements in driven by a move toward regional harmoniza- the public and private reform, but broad tion, notably as countries joined various sectors was instrumental ownership sustains it. regional trading arrangements (Morocco, in keeping the reform Senegal) or by multilateral WTO obligations agenda going. One lesson for advising on a (India). reform program during crisis is that it pays to India, Indonesia, and Morocco exhibited have in-depth knowledge of the economy from a high degree of ownership. This manifested earlier ESW (as in India, Indonesia, and itself in trade policy reforms that sometimes Morocco). did not follow exactly the Bank's analytical advice or loan design to better adapt them to Sequencing of Macroeconomic Policies the country's political economy. Strong While the Bank's initial diagnosis of the issues ownership was also characterized by a willing- constraining trade development in the case study ness to go beyond the Bank's recommenda- countries was generally correct, in some cases the tions in some aspects. sequencing of macroeconomic, trade, and other In Zambia, the early days of the reform were structural policies was suboptimal. In particular, marked by strong ownership from a new politi- some countries kept one foot firmly on the cal party eager to make a break with the socialist accelerator (liberalizing trade), and one foot on 4 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Poor policy advice and the brake (overvaluing trade policy. The evidence from the country case poor implementation their currency).21 studies suggests that the Bank may initially have In Senegal, the underestimated the complexity of the regulatory sabotaged trade reform persistent overvaluation reforms and the political constraints associated in some cases. of the currency in the with carrying them out. The failure to complete late 1980s and early these reforms in a timely fashion affected the 1990s meant that Bank recommendations to outcomes from trade reform negatively in some liberalize trade were premature. In Morocco, cases. Moreover, the most critical complemen- failure to consider alternative sources of tary policy varied across countries, suggesting the revenue to replace losses from lowering tariffs need for in-depth analytical work. led to fiscal distress and a reversal of trade In other cases where the authorities were liberalization. Subsequently, the real apprecia- interested in introducing reforms, the Bank tion of the Moroccan dinar during the 1990s was able to craft a comprehensive program of made it more difficult for the country to assistance to complement trade reform. In compete. Morocco, the Bank adapted to its reduced role Failure to conquer fiscal constraints also in trade policy and was able to use its ESW to proved to be a stumbling block for India and identify the most pressing supply-side issues Senegal by making those countries more and make a convincing case for reform (for cautious about the pace of reform. In Zambia, example, in customs). In India, Bank staff saw the 1990s were characterized by adverse industrial deregulation and trade liberalization macroeconomic conditions (high real interest as mutually reinforcing; thus, its analytical work rates, a tendency toward a volatile and overval- and lending operations tackled both.22 In ued exchange rate), general instability, and a Indonesia, the Bank financed a cluster of banking sector that financed government projects that complemented trade reform and deficits rather than private investment. addressed supply-side issues. These included a The Enhanced Structural Adjustment Facility manpower and training development project, (ESAF) review by the IMF (Botchwey and others two export development loans, an industrial 1998) highlights the finding that the sequenc- restructuring loan, and a loan for private sector ing of macroeconomic policies recommended development. by the IMF and the Bank contributed to the Apart from regulatory reforms, the studies poor macroeconomic outcomes in Zambia. on Senegal and Zambia identified skills With rising inflation and liberalized interest shortages, notably at the technical and manage- rates, there was a liquidity squeeze that drove rial levels, as important constraints to real interest rates up to high levels. This, in turn, improved global competitiveness. The caused real exchange rate appreciation that, in potential positive role of high-quality economic conjunction with the rapid trade liberalization, and sector work was also addressed in all case placed Zambian firms under intense competi- studies (see box 4.2 and Appendix D7). tive pressure. The failure to achieve macro stabilization proved costly. Institutions Matter and Underpin Sustainability Institutions that facilitate trade policy and The Need for Complementary Policies Was development and ensure implementation are Underestimated important in carrying out the strategic vision of The Bank was generally aware of the importance countries. In Morocco, Bank lending and of complementary policies on the regulatory side, technical assistance to a variety of institutions often incorporating them in its lending to the (Ministry of Commerce and Industry, Port The complexity of countries. Yet implemen- Authority of Morocco, customs administration) tation in these areas was is widely viewed as having been highly complementary policies often weaker than those effective--having led to strengthened strategic was underestimated. actions linked directly to and regulatory capacity. The Moroccans 4 4 O U T C O M E S A N D R E S U LT S Box 4.2: Failure to Implement Complementary Policies Can Be Costly In Zambia, the privatization of the mining parastatal Zambia Evaluation). Yet privatization dragged on and conditionality was Consolidated Copper Mines (ZCCM) was an important element ineffective. Apart from the economic costs, Zambia's slowness in the trade reform program. When Zambia initiated its reforms in implementing the recommended policies jeopardized the trade in 1991, it was still dependent on copper for over 90 percent of reform program and its outcomes by reducing the credibility of merchandise export revenues. ZCCM was an inefficient pro- the government's commitment to reform. Other interventions in- ducer and a drain on the national budget. Although the new re- tended to complement the trade reform probably came too late-- formist party had advocated the reorganization of ZCCM, they included an agricultural sector investment project (approved including the options of "divesture, joint ventures and privati- three years after the liberalization) and an enterprise develop- zation" in the New Economic Recovery Programme (1992), the ment project (approved six years after the reform) or were inef- formal decision to privatize was only announced in 1995. fective (for example, the duty drawback scheme remained By 1996­99, ZCCM was suffering catastrophic losses, equiv- inefficient despite being the subject of conditionality in two dif- alent to 6-10 percent of GDP yearly (Zambia Country Assistance ferent loans). Source: Zambia Country Case Study for IEG Trade Assistance Evaluation. emphasized that Bank success came about in The private sector also Both private and public part because (i) the government was convinced sometimes lacks capacity. trade-related institutions that those institutions had become a drag on Efforts to nurture public- matter in carrying out the economy and (ii) each of the reforms took private partnerships as place at a time of crisis. Each of these institu- well as private sector reforms. tions has been critical in Morocco's path associations can pay off toward global competitiveness. in broadening the support for reform (India, In Mozambique, the government signed a Senegal), but the Bank has only infrequently contract with a pre-shipment inspection supported private exporter groups (it has more agency while it strengthened its own customs frequently supported individual exporters administration. The inspection agency was through matching grant facilities). successful in tightening and improving import duty collection. External Factors Were Largely Understudied In Indonesia, the interdepartmental team In general, Bank country assistance strategies known as Team Tariff (not financed by the and country economic reports did not take Bank) was an important mechanism for review- adequate account of external factors such as ing all changes in import taxes and regulations. the multilateral trade negotiations under the It helped put limits on the ability of particular Uruguay and Doha Rounds or multilateral trade ministers or government officials to make institutions, agreements, and rules emanating arbitrary changes for the benefit of particular from the various WTO agreements. groups. In Senegal, according to policy makers, In countries with weaker capacity, such as special conditions that apply to developing Senegal and Zambia, the plethora of trade issues countries (such as more lenient tariff reduction on the negotiating agenda at the regional and schedules or flexibility in food security­related global levels overwhelms under-resourced and trade areas) were infrequently discussed. under-staffed technocrats. Countries are unable Despite the enormous amount of Bank to present positions unique to their countries. research on these topics and significant advice The consequence is often failure to keep up with and technical assistance from other develop- policies and agreements that have implications for ment partners, these External factors were exporters, leading to resistance when the costs of issues passed largely the agreements are felt. unnoticed in the Bank's largely understudied. 4 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 country-level dialogue until 2003, when tariff lead to the intended beneficiaries (the farmers) and nontariff barriers in foreign markets receiving as great a share of the export price as (horticulture, fisheries), standards information anticipated. The Bank's analytic work did not and compliance, and low world cotton prices systematically examine the cashew's global value were systematically analyzed to assess their chain, yet the entire thrust of the proposed impact on Senegal.23 reforms was to raise the international competi- In India, Bank reports on the country in the tiveness of the industry and, with it, the farmers' late 1980s and early 1990s rarely analyzed share in the export earnings. Increasingly, foreign investment in depth, although the however, the Bank's Private Sector Develop- China experience had already underscored the ment Vice-Presidency is encouraging and importance of foreign investment liberaliza- broadening the inclusion of value chain analysis; tion, and even though liberalization in services the integrated trade logistics work in Morocco, trade was a major emerging issue in the for example, includes value chain analysis. Uruguay Round and necessarily required some easing of the rules on foreign investment. Distributional Outcomes Get Too In Zambia, the Bank failed to consider the Little Attention country's complex trading environment, which A review of project documents, ESW, and arose in part from assistance strategies generally found little Distributional outcomes overlapping preferential evidence of consistent or widespread attention get too little attention. trading arrangements. to the distributional outcomes arising from trade Zambia had to grant liberalization in the case study countries. Even preferential access to final products from where the Bank incorporated distributional Common Market for Eastern and Southern concerns, it was hampered by poor implementa- Africa (COMESA) trading partners such as tion. In Senegal, the Bank was sensitive to Zimbabwe. At the same time, Zambian authorities' concerns about the social costs of manufacturers had to try to compete while adjustment in the run-up to the devaluation and importing inputs from non-COMESA sources. included a component in the 1994 post-devalua- The result was very low--or even negative-- tion Economic Recovery Credit. The IEG assess- effective rates of protection. ment of the credit, however, found that a In another example, at the time of its well-planned safety net was missing, and that democratization in 1994, South Africa (a new targeting was not refined enough to reach the member of Southern Africa Development people who most needed assistance. Community [SADC], but not COMESA) maintained high import barriers, while Conclusions. While the initial impetus for trade subsidizing its exports through its general reform is often an economic crisis, sustaining Export Incentive Scheme. the reform requires broad support and Although it cannot be determined precisely ownership. Conditionality was generally not how serious these regional problems were, conducive to achieving that ownership, and the strategically Zambian policy makers felt they Bank was more judicious in using it in larger would have been better placed if they had countries. Bank advice and analytical work "more" to bargain with (in terms of tariff were often instrumental in supporting reform. reductions) when it came to subsequent free Its value, however, was reduced in cases where trade arrangements with COMESA and SADC. it was perceived to be dogmatically based. Zambia, however, had already liberalized signif- Bank advice and lending contributed to icantly in the context of Bank projects. systematic reductions in protection and in Until recently, Bank advice on particular opening up economies, although the pace products was given in isolation from the global differed across countries. The long-term industry. In Mozambique, the controversial outcome in poorer countries' export supply liberalization of the cashew nut industry did not response was less than expected, even when 4 6 O U T C O M E S A N D R E S U LT S there were short-term gains in economic analysis of the distributional consequences of growth. As discussed earlier, the impact on trade reform, complementary policies (regula- employment and poverty was less than tory reforms, infrastructure requirements, and expected, and the Bank did not conduct skills needs), and external factors (such as the sufficient analysis to inform its policy advice lack of knowledge by governments and and lending on this issue. entrepreneurs of global value chain links for Less than satisfactory outcomes were the country's existing and potential exports, explained by inappropriate macroeconomic and market access restrictions). Weaknesses in conditions (notably currency overvaluation or these areas contributed to the inability of some instability) or incomplete trade reform. In countries to take advantage of the opportuni- addition, the Bank needs to ensure adequate ties offered by trade reforms. 4 7 Chapter 5: Evaluation Highlights · The Bank has increased its presence and work on trade issues following the failed Seattle trade meeting. · Research is of high quality and advocacy has raised the Bank's profile. · The Bank is meeting its trade capacity building objectives unevenly, and more effort is needed to mainstream trade. 5 Trade Returns to the Agenda, 2001­04 D ifficulties at the 1999 Seattle trade ministerial meeting of the World Trade Organization (WTO) and growing pressure to deliver on the Mil- lennium Development Goals led the World Bank to reappraise its trade activities, which had diminished during the 1990s. After the discussion in April 2001 of a Develop- and Economic Manage- Since 2001 the Bank has ment Committee paper, Leveraging Trade for ment Network (PREM), expanded its focus on Development, the Bank expanded its work on and the World Bank trade issues considerably. trade issues considerably1 (Appendix A1).2 Institute (WBI) (Appendix The Bank trade program, as revamped in E1).4 2001, has two objectives: Anticipating that trade-related work would decline after the conclusion of the Doha (1) Make the world trading system "friendlier" to Development Round (initiated in 2001 and development--that is, make it a reciprocally originally expected to conclude in 2005), a open trading system. sunset clause was established for July 2005, with (2) Make trade an important part of country de- the virtual Trade Department to be subjected to velopment strategies (World Bank 2002d). "major review" at that time (Appendix E2). This evaluation does not evaluate the Trade Following the recommendations laid out in Department, though its findings are expected the Development Committee paper, the trade- to contribute to this review and to the work of for-development agenda was to be pursued by the department and other Bank units working the Bank at three levels: global, Regional, and on trade-related issues. national.3 This chapter draws in Objectives are to support In early 2001, the Bank began collaborating part on an evaluation of development of a with other agencies on how best to help the least- the Bank's revamped reciprocally open trading developed countries. By July 2002, a new sector trade program between unit dedicated to trade had been established. In 2001 and 2004 commis- system and to make trade addition, the Bank formally created a virtual Trade sioned by IEG (De Melo an important part of Department (TD) made up of staff working on 2005). That evaluation country development trade issues from the Development Economics examined the effective- Vice-Presidency (DEC), the Poverty Reduction ness of the Bank instru- strategies. 4 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 ments employed--research, participation in trade issues on all fronts (research, trade-related global policy discussions and advocacy, trade capacity building, knowledge management, and capacity building, and mainstreaming of development of tools and templates). In particu- trade--and assessed progress on the two lar, the Trade Department can bring the global objectives outlined above. perspective to bear on sector issues. Success on IEG finds the objectives to be relevant, this front will be the difference between individu- timely, and responsive to the rapidly changing ally competent analytical pieces of work and a global environment on trade issues. However, more synergistic approach. it recommends greater attention in the future to the balance between the two objectives. In Research particular, given the Bank's limited direct role Research on trade issues never declined as in global negotiations, and the importance of dramatically as did economic and sector work country-specific policy dialogue, the study (see Chapter 3). This made it easier for DEC to recommends strengthening the analytical gear up quickly in 2001 when interest in trade tools, processes, and systematic interactions surged once again. The Bank's trade research within Bank operations. has been marked by close collaboration with Within the Bank, global advocacy can be academia, notably in the Americas and Western handled by the Trade Department and senior Europe.5 This cross-fertilization has been management alone. But important in disseminating the Bank's Advocacy to redress the other impediments research, while at the same time influencing it. issues in the global to global integration The Bank's volume of trade-related research trading system can be have to be dealt with in has grown rapidly in recent years. Much has concert with other been published in respected journals.6 Since handled by the Trade sector networks within 2001,when the Bank's program on trade was Department and senior the Bank and with the re-energized, Bank staff and collaborators have management alone. support of Country produced 125 research papers in the World Management Units. Bank Policy Research Working Paper series7 and In areas where the Trade Department worked published more than two dozen books and with other networks or provided intellectual major reports. Forty-three papers have been leadership--such as sanitary and phytosanitary published (or are forthcoming) in journals (83, standards and trade facilitation--the Bank has counting all refereed journals).8 been successful in ensuring the operational The Bank's trade research focused on the relevance of its activities. In other areas where global economy and growth, regionalism, and the Bank could have potentially made an development; firm-level analysis of the produc- impact--agricultural trade and policies, trade tivity impact of trade policies and foreign direct and poverty linkages--inadequate investment investment (FDI); trade in services; and some by the Bank and relatively little intellectual of the behind-the-border barriers to trade.9 In leadership early on has resulted in less success addition to the Regional ESW that covers on the operational side. Regional trade integration issues and earlier To enhance the DEC work on regionalism (both covered in To enhance the effectiveness of its trade Chapter 3), DEC has continued to carry out effectiveness of its trade activities, the Bank will major research in this area. For example, Schiff have to face more and Winters (2003), an expository volume on activities, the Bank will squarely the multisectoral regionalism, and Global Economic Prospects have to face more nature of the current (GEP) 2005 contributed to better understand- squarely the trade agenda. It will have ing of the benefits and obstacles that regional- to improve links between ism presents for the world trading system (see multisectoral nature of the various sectors and box 5.1). A significant portion of Bank research the current trade agenda. the Trade Department on was innovative (leading in new fields such as 5 0 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 services, agricultural standards, transport the Bank the informa- Bank trade-related costs, and other behind-the-border issues). tion necessary to partici- research has often been Particularly successful research (in terms of pate more actively in the timely and is of high quality of research and links to operational debate that is building in activities) has been done on agricultural the context of the Doha quality. standards. Round. Such research Bank research on several issues related to also might have enabled the Bank to assume the multilateral trading system was timely. In leadership similar to the way it has in the the run-up to the Doha Trade Ministerial, for debate on regionalism. example, Bank staff contributed significantly to In addition, several areas in the trade agenda a World Economy volume on how to ensure have been slow to yield important insights. that developing countries were full and active Much of the more detailed work relating to participants (Hoekman 2000) and released the market access in agriculture--and to the effects Global Economic Prospects report Making of a reduction in barriers to trade in agriculture, Trade Work for the World's Poor (2002). Global in general--became Economic Prospects: Realizing the Develop- available only in late But research on some ment Promise of the Doha Agenda (2004) was 2004 and has yet to have areas that affect the published in the run-up to the Cancun Trade an observable impact on Ministerial. In the structured interviews that country programs. As to Bank's poorest clients IEG carried out for this study, WTO members the functioning of the was missing, and several said that these studies contributed positively to world trading system, areas have been slow to their understanding of the issues and the quantitative work on the debate (Appendix E5). functioning of the yield insights. A number of pieces of DEC research had Dispute Settlement Understanding has started important implications for the poor. Work on only recently. preferences (Schiff 2002) and research on Because research is a long process, the Bank China and India (referred to in Chapter 3), can experience gains from being forward- where many of the world's poor live, was looking and anticipating topics likely to be on particularly significant. Missing was research on the policy agenda soon. Five topics were some trade areas with implications for the covered only marginally in the review period Bank's poorest clients, such as the impact of but merited more resources. These are external (including commodity) trade-related discussed in the following paragraphs. shocks. For example, despite the long-antici- pated phase-out of the multi-fibre arrangement Export-processing zones. For political economy in 2005 and its implications for several of the reasons, reducing protection unilaterally may Bank's clients (such as Bangladesh, Dominican be difficult. Some countries (China, Madagas- Republic, El Salvador, Kenya, Lesotho, car, and Mauritius) have managed to integrate Mauritius, and Nepal), no major cross-country into the world economy by relying on export- strategic analysis was done. Another gap in processing zones rather than tariff reductions. research, until recently, has been migration.10 The Bank has carried out relatively little Migratory pressures have been building up research in this area (Madani 1999). internationally since the breakdown of communism, but the Bank is only beginning to Agricultural trade and policies. While advocacy focus on this issue.11 The Bank has a natural and analytical work for comparative advantage in studying migration agriculture have long Five topics were covered (a global issue that requires data-gathering been important Bank only marginally in the expertise and facility and a cross-country activities, the amount of review period but merited focus), yet it has not taken the lead. A critical research published in amount of work in this area might have given refereed journals has more resources. 5 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Box 5.1: Do Regional Trading Arrangements Help Liberalize Trade? Regional preferential trading arrangements (bilateral and pluri- negotiate. Those skeptical of RTAs argue that they are likely to re- lateral) have mushroomed in every region of the world. There are sult in a "hub and spoke" type of growth, with the smaller spokes currently over 300 RTAs.a Several factors underlie the prolifer- being disadvantaged. ation of RTAs--strategic and geopolitical interests, uncertain- Empirical evidence on the extent to which RTAs help liberal- ties about the future of the multilateral trading system following ize and expand trade is less common and, similar to the theoreti- the failure to launch a round in Seattle and the subsequent dif- cal literature, there is no clear consensus. In a recent review of ficulties in reaching agreements following the Doha Ministerial regional trading arrangements in Africa, which is home to over 30 meeting, and a desire to leverage the strength of numbers into RTAs (or an average of 4 per country),c Yang and Gupta (2005) find larger markets and enhance regional cooperation on a range of that RTAs have been ineffective in expanding trade or investment. trade and non-trade issues. The Asia-Pacific Economic Coop- Limäo (2005) shows empirically that U.S. preferential trading eration (APEC) arrangement, the European Union, the Southern arrangements have harmed multilateral liberalization. Common Market (MERCOSUR), the North American Free Trade Given the proliferation of RTAs, the issue then is no longer one Agreement (NAFTA), and numerous other free trade areas and of whether or not to have RTAs, but of how to use them in ways customs unions now exist with the multilateral system and its that are complementary to the multilateral trading system. The is- rules. In the view of some researchers, these arrangements re- sues revolve around the following themes: duce global welfare and undermine the institutional architecture of the multilateral trading system. · How can RTAs be implemented to maximize benefits (inter- There are two schools of thought on whether RTAs should be nalizing externalities at the regional level and coordinating on viewed as "building blocks" or "stumbling blocks" to liberalizing standards) and to minimize negative spillovers (reduction in trade.b Supporters of RTAs discount the extent to which trade di- market access to non-partners)? version exceeds trade creation under RTAs, and argue that in · How can RTAs be negotiated to bring about "deep integration" some circumstances smaller RTAs may be easier for countries to beyondwhatonemightexpectispossibleatthemultilaterallevel? a. Global Economic Prospects 2005 (World Bank 2004b) provides an up-to-date and comprehensive overview of current RTAs. b. The theoretical literature on preferential trade agreements is reviewed in Baldwin and Venables (1996), Bhagwati and Panagariya (1997), and Panagariya (2000). Schiff and Winters (2003) and World Bank (2000, 2004a) review the empirical literature and place it in a development context. c. World Bank (2004b). been relatively low: only 4 of 83 articles carefully chosen case studies might have appeared in specialized and refereed academic helped the Bank's understanding. Because journals.12 Developing countries continue to gains from trade liberalization are diffuse and need specific advice on appropriate policy in sometimes barely visible in the short run, and the transition to a fully liberalized global losses are all too visible, generating support for agricultural system. Such advice requires reform is difficult. This suggests not only additional analysis. While more attention is spreading the benefits of reforms to the extent now being paid to the impact of the external possible to reduce the bias against reform, but, environment through, for example, a series of more important, looking into the adjustment commodity market studies edited by Aksoy and costs with a view to minimizing them. So far, Beghin (2005), a more systematic approach research and Bank country programs have that integrates research, operational implica- largely neglected this area, despite high-level tions, and capacity-building is needed. expressions of support and intent by senior managers.13 Trade-poverty linkages and adjustment costs. Until recently, little research had been done on trade Micro-level adjustment. Another aspect of adjust- and poverty. Given the importance of the ment that was inadequately researched topic--and surrounding controversies-- between 2001 and 2004 is the response of firms 5 2 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 to trade liberalization. The emphasis of macro- operational linkages and impact of its research level aggregates such as exports, imports, and program on trade. GDP masks firm-level transitions such as the exit and entry of firms, and individual Bank Participation in Global Policy responses such as movements in and out of Discussions and Advocacy employment. For much of the 1980s For much of the 1980s and 1990s, the Bank's and 1990s, the Bank's Services liberalization. Considering that services approach to advocacy on research is a relatively new area, the Bank has trade was muted, taking approach to advocacy produced timely results, including articles in the external trade en- was muted. journals. Its research has provided useful vironment as given,14 estimates of the efficiency benefits from well- but the tenor, emphasis, and approach to functioning regulatory environments, demon- advocacy intensified after 2000, and particularly strated the necessity of drawing distinctions in in the run-up to the Doha Trade Ministerial policy advice across different types of services, meeting in November 2001. The collapse of the and underlined the importance of a comple- WTO talks in Seattle in 1999 and the urgency to mentary regulatory environment. However, the retain the credibility of the multilateral trading research results have not yet been effectively system as a mechanism to improve the translated into policy advice or changes in development prospects of the poorer lending activities. This would require more countries galvanized the interest of all major resources than have been allocated thus far, as development partners in a revitalized and fair well as a clearer strategy to engage operational global trading system. staff. Advocacy was first established as a formal The views of Bank staff surveyed for this objective soon after the Trade Department was evaluation overlapped with some of the points created in July 2002 (World Bank 2002d, e). The made above. In particular, when asked what the rationale was for the Bank to use its influence single most important area for further attention with the Organisation for Economic Co- was, staff identified "adjustment and transi- operation and Development (OECD) countries tional costs from liberalization" and the "links (notably the QUAD),15 to serve as a counter- between trade and poverty at the operational weight to the richer countries, and to promote level." In addition, the survey results suggested a trading system that was more open, rule- that staff felt it would be beneficial to have based, predictable, and transparent and that additional research drawing on country experi- addressed the needs of developing countries. ence. This would take advantage of the Bank's In this role, since 2001, the Bank has extensive knowledge of country experience. A emphasized more strongly the importance of review of the reasons why staff found particular reducing protectionism in both industrial and trade reports useful emphasized the "presenta- (more recently) developing countries. tion of new evidence" or "the existence of a new This shift toward greater advocacy is viewed by perspective." surveyed Bank staff and WTO members as appropriate and relevant. In particular, Bank staff Conclusions. The Bank's trade research between surveyed viewed the advocacy work as the single 2001 and 2004 has been of high quality and has most important contribution of the Trade Depart- contributed to ongoing debates, notably with ment thus far. WTO Advocacy was first respect to the global trade architecture and the members interviewed multilateral trading system. To strengthen the recognized the Bank's established as a formal ongoing work and enhance its contribution to advocacy efforts as objective soon after the the Bank's mission, the Development Research important to the global new Trade Department Group (DECRG) needs to consider a more dialogue on multilateral systematic and continuous assessment of the trade liberalization. was created in July 2002. 5 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 The Bank's main instruments of advocacy reports, shorter reports, or less frequent were initially research pieces, editorials by Bank reports to avoid repetition. management in influential media (Financial Assessing and distinguishing the Bank's Times, Washington Post, New York Times, Le achievements in advocacy is difficult for several Monde), and speeches by reasons. First, the Bank has a somewhat Assessing and senior management at circumscribed role in multilateral trade negoti- distinguishing the Bank's the WTO, at conferences, ations (given its observer status). Second, and on country visits. several other agencies have also been active in achievements in These targeted and this area (for example, Oxfam and the U.K. advocacy is difficult. personal interventions Department of International Development were closely tied to major [DFID]). Oxfam has been extremely active in research outputs such as the Global Economic carrying out advocacy (and some research) and Prospects reports. Since 2004, the annual Global in articulating its findings in an effort to draw Monitoring Report (produced jointly by the IMF attention to how the multilateral trading and World Bank) has been a major tool to synthe- system can be made fairer. In some cases, their size the Bank's advocacy on trade issues. work preceded that of the Bank (as on the issue Between 2000 and 2004, several speeches on of cotton).17 DFID has been one of the most trade by the Bank's chief economist and senior active development partners, producing Bank management focused on market access in extensive analytical work related to the Doha agriculture (Appendix E3). The Bank argued Development Round. Together with other that tariff peaks and OECD agricultural development partners, it has been a consis- subsidies were high (exceeding per capita aid tently strong advocate for the Doha Develop- contributions) and put developing countries at ment Agenda.18 Third, monitoring the impact a competitive disadvantage (Rajapatirana 2003 of advocacy efforts requires not only an assess- and De Melo 2005 summarize these speeches). ment of changes in policy, but also of their The increased emphasis was accompanied by a implementation and impact. joint IMF-Bank paper to their respective Boards Though one can only guess what would have in 2003.16 Apart from market access, the most happened without Bank advocacy, even with frequently reiterated message by the Bank was the presence of other active partners, the Bank the importance of the Doha negotiations for has positioned itself more effectively as an development. advocate for developing countries, compared Broadly speaking, the research reports that with its stance in the 1980s. Given the wide underpin the advocacy work are well done, reach of its publications, this has contributed reach a broad audience, and are widely picked to increasing awareness of the issues. The Bank up by the popular press. But no appraisal of the has been successful in aligning itself with the volume or type of press coverage is available view that the Doha Development Round must from the Trade Department. Members of the yield greater reciprocity. Surveys carried out for WTO and trade community spoke highly of this study with Bank staff and other stakehold- these reports and indicated that they found ers confirmed a generally positive view of the them useful (Appendix E5). By contrast, the Bank's contributions in the global dialogue. staff survey indicated that Bank staff found The Bank has been less successful in them less useful, indicating that they were changing actual outcomes, though it may still sometimes repetitious (Appendix E6). be too early to assess this given that the trade Given the proliferation of advocacy reports discussions are ongoing and the long-term intended for broad audiences, the Bank should nature of the change that is required. Partici- reflect on the extent of product differentiation pants in the talks (WTO members) felt that the across reports. The trade research and analyti- Bank was limited in how much its actions could cal work generated by the Bank (in collabora- directly influence outcomes because of the tion with outsiders) warrants either fewer complex political dynamics involved.19 WTO 5 4 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 members also expressed the view that the Bank relatively recent Organisation for Economic Co- was constrained in how sharply it could articu- operation and Development­Development late messages, in contrast to nongovernmental Assistance Committee (OECD-DAC)/WTO (NGOs) and other organizations. The Bank's definition is now commonly accepted (box role could therefore be seen more accurately 5.2).21 as indirect--contributing ideas and adding to TCB has become a The Bank's advocacy the pressure to influence changes. prominent part of the work is viewed positively The Bank's initial narrow focus on OECD discussion of integration agricultural subsides may have been at the into the global economy. by staff and WTO expense of emphasizing other areas where Three factors explain members. improvements would also lead to a better this increased interest: functioning of the world trading system (such as nonagricultural market access, reducing · First, developing countries were "burned" by protection in developing countries, and their experience with the Uruguay Round. reducing barriers to the temporary movement They signed onto commitments that they were of people). It was also at odds with the Bank's unable to meet, partly because of a lack of ca- own research, which suggested that the bulk of pacity, and partly because of inadequate pro- gains for many developing countries would be grams to help build their capacity. derived from addressing "behind-the-border" · Second, and related to this experience, the constraints. However, with agricultural Doha and Monterey meetings featured far- subsidies as an egregious example of the reaching promises by development partners to unequal global trading system that is widely provide TCB to developing countries. perceived as unfair by developing countries, · Third, the complexity and intensity of the one could argue that there were (and continue trade-negotiating process for developing coun- to be) relevant political economy arguments tries at several levels--the Doha Development for the system to be reformed, and hence for Agenda, and various bilateral, plurilateral free the Bank's intense focus on subsidies. trade arrangements in almost every Region of In any event, the Bank's later messages have the world--have heightened realization that struck a more balanced note on the importance managing integration The Bank's influence is of both types of constraints (domestic develop- into the global econ- ing country policies and market access consid- omy is complex and de- indirect--contributing erations) and highlighted the importance of manding, and that ideas and adding to the nuanced messages that take into account the achieving the benefits pressure for change. varied outcomes for different groups of is more difficult than countries and commodities. anticipated. In this regard, the Bank's advocacy may have generated some unintended consequences. By Therefore, increasing capacity to manage emphasizing that a less than complete liberal- the process is more critical than ever.22 ization by the OECD will result in marginal The renewed interest in TCB at the global benefits for many developing countries, the level has increased pressure for the Bank to Bank may have raised the risk that those identify and delineate its work in this area, even countries will be disappointed by what increas- while Bank TCB continues in a dispersed ingly looks like a modest agricultural liberaliza- fashion across the institution. Organizationally, tion and will refrain from carrying out TCB is spread over several units, with no single beneficial unilateral trade liberalization.20 unit having overall responsibility for tracking institution-wide developments in TCB. Building Trade Capacity In its September 2003 trade progress report Trade-related capacity building (TCB) means to the Executive Board, the Bank identified its different things to different people, but a objectives in TCB as "to build capacity in client 5 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Box 5.2: What Is Trade-Related Capacity Building? An activity is classified as trade-related technical assis- and processes that shape national trade policy and the rules tance/capacity building if it is intended to enhance the ability of and practices of international commerce. the recipient country to accomplish one of the following: In addition, the activity should fulfill the following criteria for el- · Formulate and implement a trade development strategy and igibility: create an enabling environment for increasing the volume and value added of exports, diversifying export products and mar- · Trade-related technical assistance/capacity building is ex- kets, and increasing foreign investment to generate jobs and plicitly promoted in activity documentation. trade. · The activity contains specific measures to develop trade pol- · Stimulate trade by domestic firms and encourage investment icy and regulations, enhance the ability of enterprises to par- in trade-oriented industries. ticipate in international trade, or increase national capacity · Participate in and benefit from the institutions, negotiations, to participate in the multilateral trading system. Source: OECD-DAC 2001. The Bank's trade capacity countries to: (i) formu- trade finance (Appendix E4, table E4.1b). This objectives aim to help late and implement TCB is primarily intended to strengthen institu- sound trade policy to tions. The Europe and Central Asia Region client countries enhance growth and received the most assistance in TCB by an participate more reduce poverty; (ii) overwhelming margin--almost half of TCB effectively in the global manage the adjustment components are in loans to the Region costs of trade reform and (Appendix E4, table E4.1a). trading system. external trade shocks; While the focus in TCB between fiscal years (iii) participate effectively 2003 and 2004 was correctly targeted themati- in international negotiations; and (iv) develop cally toward areas identified in analytical work appropriate regional trade policies"( World Bank as critical (such as customs and standards), the 2003). The report identified as the main levers to TCB components of approved projects, for the achieve TCB objectives ongoing activities in most part, do not address the Bank's four project components, the Integrated Framework strategic objectives, outlined above. Specifi- for Trade-Related Technical Assistance initiative, cally, only 4 of the 15 TCB components World Bank Institute training activities, and addressed any of the 4 objectives outlined analytical work. above (Appendix E4, table E4.1c). The most glaring gap is capacity building related to Capacity Building Components helping countries manage external shocks and in Operational Lending adjustment costs related to trade liberalization. The Bank has augmented resources devoted to No project components address this; nor has trade capacity building, and the Trade Depart- the Bank done any major research in this area. ment has extended its learning program to The Bank has sporadically helped a few provide training and research support. New countries participate effectively in international lending for TCB more than doubled, from $132 negotiations, but no new TCB loan components million in 1998­2000 to $267 million in focus on negotiations, and other institutions are 2001­03, resulting in a portfolio of 50 more important in supporting developing operations (or components in operations) as countries in this area. For example, in negotia- of September 30, 2003.23 TCB has been concen- tions regarding training and improving country trated in trade and transport facilitation awareness of the rules of the game, a host of (notably customs), agricultural standards, and other international organizations are involved 5 6 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 (such as the International Trade Centre [ITC], Programs).26 The main The capacity building United Nations Conference on Trade and evaluative findings are components of approved Development [UNCTAD] and the WTO, and, summarized in box 5.3. increasingly, development partners such as the Three key findings are projects generally do not European Union [EU], the United Kingdom, that: address the Bank's four and the United States). Bank support to strategic objectives. countries acceding to the WTO has been, until · Despite the 2001 re- recently, largely limited to the Bank's larger structuring, weaknesses from the original pro- clients (China, Russia). Of the 11 least- gram remain, including insufficient focus on developed countries in the accession process, improved trade outcomes rather than on the 6 are still in the initial stage of negotiations, process alone, and the shortage of funds (fi- although some of them have been in the negoti- nancial and administrative) to meet the iden- ating process for six to nine years.24 Ethiopia tified demands for technical assistance in and (more recently) Vietnam are the only ones developing countries. being assisted by the Bank. · There is a divergence in perceptions of the IF While the Bank's advocacy focus has been within the Bank. The Trade Department pro- on multilateral negotiations, it appears that vided resources to Regional economists for countries face more pressing demands at the the management of the DTIS, to increase own- regional level, such as recently completed ership, to mobilize trade-investment resources, negotiations in Central America (CAFTA), and to offset the initial lack of Regional own- ongoing negotiations in Africa (EPA), and ership and the percep- bilateral free trade arrangements. The extent of tion of a supply-driven Two independent Bank support for regional negotiations has mandate. While Re- evaluations of the varied across regions, but even in regions gional management Integrated Framework where it was largely reactive, greater attention ownership has in- initiative suggest that its is now being paid to how the Bank can best creased, decentraliza- assist regional groupings. tion of the IF has not capacity building impact fully filtered down to had been limited. The Integrated Framework for Trade-Related task team leaders in af- Technical Assistance fected sectors at the country level; this has The Integrated Framework for Trade-Related been compounded by the lack of on-the- Technical Assistance ("the IF") is another ground presence. instrument in the Bank's TCB portfolio, but has · The full potential of the IF is not being realized, a role and benefits that go beyond TCB.25 In because the rich analytical work is not being addition to helping the least-developed fully translated into operations, highlighting the countries identify their trade capacity needs, need to strengthen implementation. the economic analysis in the Diagnostic Trade Integration Studies (DTIS) is intended to be a IEG's review of 26 global public programs useful source for smaller countries that might provides some useful lessons (IEG 2004a). The otherwise not receive that magnitude of most relevant for the IF are the need to link resources for diagnosis. As of June 2005, 14 financing to priorities in a systematic fashion, diagnostic studies had been completed, 12 to strengthen and streamline the governance national consultative workshops had taken and management of programs, and to develop place, and 4 follow-up donor meetings had a results-based management framework. been held; 8 diagnostic studies are ongoing. After a slow start, concrete proposals and Two independent evaluations of the IF were approvals for trade capacity projects are finally undertaken in 2003 and 2004 by Capra (a emerging. As of May 30, 2005, 23 activities ($8.1 consulting firm hired by the IF partners) and million) had been approved. A review of the IEG (as an input into its review of Global Public proposed activities suggests that some overlap 5 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Box 5.3: Independent Evaluations of the Integrated Framework Relevance: Are the program's objectives right? results and on monitoring outcomes and impacts. IF should monitor changes in donor policies, processes. and practices · Yes, but outcomes will be limited for some unless external that inhibit LDC trade performance as identified in the DTIS. market access and supply-side constraints are addressed. Efficiency: Has the program been cost-effective? Efficacy: Has the program met its stated objectives? · Still too early to assess if the IF benefits outweigh its high trans- · Mainstreaming of trade limited; concrete country-level results actions costs. highly variable. · Bank Regional staff: Clarifying financing arrangements for · Bridge funding mechanism of $1 million is dwarfed by iden- identified investment needs critical. tified needs in IF matrix and no systematic way of address- · DEC/PREM staff: individual follow-up examples exist. ing those needs. · IF raised awareness of trade issues in Bank and participat- Challenges ahead ing countries, but country economists stress gap between amounts available for investments and gaps in donor and de- · Divergence in perceptions of LDCs and participating inter- veloping country expectations. national agencies on IF role. · IF needs to establish a range of concrete country-level out- · Strong ownership by Bank and partner donor agencies, but comes and related performance indicators, with a focus on developing country ownership limited. Source: Agarwal and Cutura (2004), Case Study prepared for IEG 2004a; CAPRA-TFOC Consortium 2003. Concrete trade capacity with other donor activi- services (mostly training) and provide research ties persists in some support to selected networks (for example, on projects are finally cases, defeating the Doha issues to the African Economic Research emerging, but they are purpose of donor Consortium [AERC] in partnership with country dwarfed by the identified harmonization.27 More and Regional institutions), rather than to deliver needs. generally, the pace more self-standing products (such as appears slow relative to handbooks). Between fiscal years 2002 and the Doha negotiations and the needs identified 2005, the WBI increased its delivery of learning in the DTIS, and there is no mechanism to events from 12 to 61, reaching 3,869 partici- ensure that the most critical priorities are pants (10, 542 participant training days). funded first. While the WBI has been selective in its approach to capacity building, it has used its External Training relatively limited resources effectively and has WBI has provided external training with the built capacity in its narrowly focused agenda. support of other Trade Department staff, Its activities on WTO-related issues that have primarily the trade researchers in the Develop- built capacity on trade issues in China and ment Research Group (DECRG). While the Vietnam, for example, as well as among African number of staff dedicated to trade in WBI has trade researchers, have been timely, have cross- increased from a single staff member in 2001, fertilized ideas and experience across the current number of staff (4.5) directly countries, and have been identified by the assigned or dedicated to trade training activities clients as valuable (box 5.4). WBI has taken a selective remains relatively low.28 Given the importance of TCB in the trade With existing resources, agenda, too few resources have been devoted approach to capacity the institute's strategy to training activities. Well-designed training building. has been to deliver would probably have greater long-run payoff in 5 8 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 influence and advocacy than some of the other analysis of the fiscal and Given the stated products reviewed earlier in this chapter, such welfare implications of importance of capacity as GEPs, which have a rather short shelf life. changes in tariff regimes, building in the trade Tools for trade policy analysis are a product as well as comparative that the Bank could have made available much analysis related to interna- agenda, too few resources earlier, had there been emphasis (and tional benchmarking and have been devoted to resources) to do so. The Bank has finally made competitiveness assess- training activities. the trade database and simulation tool, the ments. For the future, the World Integrated Trade Solution (WITS), widely Bank will need to ensure that WITS is adequately available. The current WITS program appears funded, be more systematic about obtaining to meet external demands. It provides data and timely feedback from both groups of users, and simple simulation programs for trade analysts, streamline interface and report presentation and thereby helping to develop local trade research online help functions. capacity in Bank client countries. The number of external users (split evenly between Conclusions: The above review of Bank TCB developing and developed countries) has been activities suggests that the institution is doing growing steadily, and they currently account for an uneven job of meeting its objectives as over three-fourths of all users. stated in the September 2003 trade progress Internally, additional functionality appears to report (Appendix E4). The content of the be warranted. A review of trade-related ESW in the dramatically increased volume of trade-related past three years and the results of the staff survey analytical work that is the basis for country suggest that the demand is less for simulation of policy dialogue and the focus of TCB negotiating scenarios, and more for accessible components of existing projects (half of TCB Box 5.4: Effective and Timely Leverage of Knowledge--WTO-Related Trade Capacity Building Vietnam WTO accession assistance nomic Research Consortium (AERC) between 2002 and 2004 to The trade group has devoted considerable support to Vietnam as enhance understanding of trade liberalization, the constraints it negotiates accession to the WTO. Stakeholder workshops have imposed by domestic supply conditions and foreign market ac- been conducted to build political commitment among policy mak- cess, and the ways in which African countries might use the WTO ers and parliamentarians, as well as to improve understanding in process to further their development objectives. the private sector and civil society. In addition, the analytical ca- At the AERC gathering in November 2002 in Kampala, 50 re- pacity of the Vietnamese was strengthened by linking national re- searchers from 25 African countries presented work in progress searchers at the Institute of Economics with foreign experts and on country case studies in the manufacturing, agriculture, and ser- local policy makers to write sector and thematic papers. This vices sectors, reviewing each others' work and receiving feedback has helped them understand when further liberalization might be from WBI, World Bank, WTO, and AERC resource persons. in their national economic interest and has provided them with Several AERC researchers act as trade advisors to their gov- stronger arguments to resist pressures from WTO members where ernments and were critical to the preparations of both pre-Doha these pressures are considered to be inappropriate. The assis- and pre-Cancun technical and ministerial meetings. Their active tance was provided jointly by the Trade Department (WBI) and the role was a major reason why Africa was decidedly better prepared Bank country team, which sees WTO accession as a critical for the launch of the new round than at the time of the Uruguay entry point for a whole series of second-generation reforms. Round, and their contribution was formally acknowledged by the Africa Group at Doha. WBI support for African trade researchers AERC/African policy makers is continuing , albeit through other channels, since the AERC is plac- The Trade Department (WBI and DEC) supported the African Eco- ing less emphasis on its trade-related activities. Source: E-mail communications with Bank staff and partners. 5 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 interventions between 2003 and 2004 targeted best practice lessons, and templates dealing with this objective) suggests that the Bank is at least managing and monitoring customs reform. providing the inputs to meet its objective of More generally, after a slow start, knowledge helping countries formulate sound trade policy. management activities are picking up. A series The Bank is doing less well helping countries of Trade Notes was initiated in 2003 (Appendix adopt appropriate regional policies (third E8 lists them). Learning activities targeted at objective) and participate more effectively in Bank staff have focused on such timely matters negotiations (fourth objective) and has been as WTO-related issues, the new trade agenda, least effective thus far in helping countries and standards-related activities. Acknowledg- manage external shocks (see box 5.5) and ing the need for a focal point on knowledge adjustment costs related to trade liberalization management issues, the PREM Network (second objective). announced in April 2005 that the Trade Competitiveness Thematic Group, which had Knowledge Management been defunct for several years, was to be In the mid-1990s, the software for industrial, reconstituted. This has not happened yet, trade, and incentives analysis (SINTIA) that however. But given the cross-sectoral nature of country economists used to analyze potential trade and the Bankwide movement to stream- changes in country tariff regimes was line thematic groups, the Bank may also wish decommissioned. Since then, simple tariff to identify linkages with existing thematic analysis tools have been introduced slowly. Not groups. surprisingly, few trade reports contain simula- However, a gap still exists between these tions of fiscal or other implications of reform- knowledge management activities and the ing the tariff regime. Even where they do, needs of country economists. Results from the country economists essentially construct their survey of Bank country economists done for own "model or program," and therefore no the evaluation suggested a desire for more standard set of tables appears across reports, knowledge about transitional costs associated and cross-country comparability is limited. The with trade reform, empirical analyses, compar- rollout of WITS will help fill this gap. ative analysis, and practical research on global Two recent handbooks, on the WTO and value chains. No systematic method of gauging customs modernization, illustrate the contribution demand exists and, of necessity (and as that other products can make to internal and currently designed), some of these activities, external learning and capacity building. The such as the trade brown bag lunches, remain publication of the trade policy handbook Develop- driven by the interests of researchers (both ment, Trade, and the WTO in June 2002 (World inside and outside the Bank), rather than Bank 2002a) was timely, and the handbook well- operational staff. conceived. It summarized the economics of sound trade policy and offered guidance on many behind- Mainstreaming Trade into Country Work the-border issues that were being discussed in the "Mainstreaming of trade" is one objective of the seven negotiation bodies under the Trade Negotia- Bank's trade strategy, but it is not clearly tion Committee. The crisp and nontechnical defined. A precise definition is important, handbook is accessible to trade negotiators and because "mainstreaming" means different offers an opportunity for developing countries to things to different people inside and outside enhance their participa- the Bank. The use of the phrase in connection Handbooks and Trade tion in trade negotia- with trade appears to date back to a seminar Notes are contributing to tions.29 The recently convened under the auspices of the Integrated internal and external releasedCustomsModern- Framework initiative in January 2001. At that ization Handbook (World meeting the definition used was as follows: learning and capacity Bank 2005c) is another "mainstreaming trade involves the process and building. learning tool with advice, methods of identifying and integrating trade 6 0 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 Box 5.5: Minimizing the Effects of Commodity Shocks Over a period of several years, the Bank has explored ways of Department is currently undertaking further research to explore helping developing countries minimize the effects of commodity the feasibility of strengthening IDA countries' response to shocks shocks, including a Board paper in 2000, but until 2003, no con- as a follow-up to the Board Paper, taking into consideration the roles crete instruments had been developed. The introduction of a of other entities, including the IMF. hedging product for IBRD clients that year is an innovation. In the The International Task Force (ITF) on Commodity Risk Man- past, the effort was hindered by the complexity of the issue, a lack agement in Developing Countries is a public-private partnership of consensus on the definition of shocks, and differing views on established in 1999 to help small-scale farmers better manage the optimal triggers and approaches (ex-ante and ex-post). their vulnerability to price and weather commodity risks. Within the A 2005 Board Paper, "Managing the Debt Risk of Exogenous Bank, the Commodity Risk Management Group is the implement- Shocks in Low- Income Countries," analyzes the risk of exogenous ing agency for the ITF. While a few successful pilot projects shocks in low-income countries and evaluates measures (such as emerged early on, initial impact was modest, and ITF faced many financial instruments) to mitigate these risks. While IDA has been challenges: scaling up their activities, mainstreaming the con- able to provide assistance to countries experiencing shocks, there cept and garnering support within the Bank, and building capac- are no automatic instruments to provide a given level of assistance ity in the countries. in the face of a given shock. There is now evidence of successful scaling up. For example, The paper found that past instruments developed by the in- a weather insurance pilot launched in India in 2003 for 27 farmers ternational community intended to address terms of trade shocks has now been replicated, and up to 150,000 farmers have currently at the sovereign level have been "hampered by ... speed, condi- bought weather insurance; an impact assessment suggests that tionality and effectiveness" (p. 15). The Resource Mobilization the product is timely and meeting demand from farmers. Source: Interviews with Bank Staff; World Bank 2005a. priority areas of action into the framework of mission participation, But gaps persist between country development plans and poverty contributions to and these knowledge reduction strategies." The Bank has largely leadership of reports, and management activities followed this definition,30 which this evaluation as peer reviewers. Over views as constituting an overly narrow and 90 percent of trade and the needs of country operationally incomplete picture of main- reports done between economists. streaming. An important aspect that it does not 2001 and 2004 had Trade capture is the degree to which the current Department involvement. At the Regional level, trade agenda overlaps with other sectoral the Bank has increased its engagement with agendas. regional organizations and conducted additional Accurately defined, mainstreaming trade in (and timely) analysis on regional arrangements Bank operations has several dimensions (for example, EPAs and common external tariffs (diagnostic work, trade in assistance strategies, in Africa, U.S.-CAFTA arrangement). The Bank knowledge management, and incorporation of has done less well in mainstreaming trade in relevant trade issues in sector activities and Country Assistance Strategies and in sector strategies). The Bank is doing better along some activities and policies. dimensions than others. The Bank has responded remarkably quickly to keep up with Trade in Country Assistance Strategies the global agenda and catalyze the rapid increase A review of all Country Assistance Strategies in trade-related analytical work in both the center (CASs)31 from 2001 to 2004 suggests that the and at the country level. Trade Department staff importance of trade varies in Bank assistance to members have been an important part of this countries, but that the treatment of mainstream- response--sharing their expertise through ing has improved over time. Trade was initially 6 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 examined along three dimensions in CASs: (i) A comparison with earlier country strategies identification of issues; (ii) proposed actions to from 1998 to 2000 shows a mixed pattern in deal with the identified issues; and (iii) trade as how attention to trade has evolved over time. part of the objectives (or pillars) of the strategy. In half the Regions (Africa, East Asia and the About half of country strategies have an Pacific, Europe and Central Asia), trade is now extended discussion of trade and about 60 more likely to be an objective of the strategy. In percent of all strategies identify specific actions more recent CASs, trade is more likely to be the intended to support trade. However, the quality focus of a section of the report in four of the six of the discussion and the extent to which trade's Regions compared with past CASs, but trade- linkages with the macroeconomy and other related activities (lending or nonlending) are sectors are analyzed varies significantly. less likely to be a focus, perhaps reflecting the A more in-depth look confirms that the lag between analytical work and lending.32 mainstreaming of trade in assistance strategies is uneven. The existence of trade-related ESW Integrating Trade and Sector Activities does not appear to make an appreciable differ- The Bank has had the most success in linking ence in whether the CAS has a well-integrated, trade and sector strategies in the areas of in-depth discussion of trade issues. In some sanitary and phytosanitary standards (SPS) and cases, existing ESW is used effectively to in trade facilitation. Particularly for SPS, the underpin the trade analysis in the CAS, focus intellectual leadership of the Trade Depart- on the most critical constraints to expanded ment, backed by operationally relevant analyti- trade, and help identify the most critical cal work and close collaboration with key interventions for the Bank (see box 5.6). In partners in the Agriculture and Rural Develop- other cases, there is little or no analysis of ment (ARD)Department and operations, has trade, despite significant strategic issues associ- led to actual changes in operational ESW and ated with trade. Table 5.1 summarizes the lending (box 5.7). For trade facilitation, while results of the review, while Appendix E7 the intellectual leadership was more limited summarizes the main actions in more detail. (and perhaps less essential), the Trade Facilita- Box 5.6: Trade in Country Assistance Strategies: Mixed and Uneven A few examples illustrate the diversity of trade-related issues for WTO accession, a more export-friendly tariff structure, trade across countries and Regions. In Sub-Saharan Africa, where and transport facilitation, and one mention of a Diagnostic Trade much remains to be done to reduce constraints and barriers to Integration Study). In East Asia trade always figures prominently trade, 12 of the 17 CASs examined mention trade as an objective. in the Country Assistance Strategy, most often in terms of en- But in two reports, no specific measures were proposed. Nor was hancing competitiveness. there any extensive supportive analysis (of the type that would In Latin America and the Caribbean (13 CASs), trade figures refer to analytical work suggesting why trade is important). Gen- prominently and precisely in a little under half (notably Chile, erally, the reports emphasize the need for trade facilitation meas- Colombia, and El Salvador) of the CASs. The Middle East and ures, and three reports cite the Diagnostic Trade Integration North Africa Region has only three country assistance strategy re- Studies carried out under the Integrated Framework as a basis ports--one on Yemen states (without further details) that the Di- for the Bank's strategy in the country (without further detail). agnostic Trade Integration Study had helped identify trade policy In Europe and Central Asia, mention of trade as an objective and technical assistance needs, and one on Jordan supports ex- suggests diverse needs across the Region (for example, support port development through enhanced logistics and fertilizer support. Source: De Melo (2005). 6 2 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 Table 5.1: Trade in CASs by Region (fiscal 2001­04) Only briefly Number of Section Action Objectives mentioned Region documents (a) (b) (c) (d) CASs 59 29 36 32 9 Africa 17 13 15 12 East Asia and Pacific 6 2 5 5 Europe and Central Asia 17 6 7 7 4 Latin America and the Caribbean 13 6 5 5 3 Middle East and North Africa 3 1 1 2 South Asia 3 1 3 1 2 Source: Appendix E7. a. Trade is the focus of a section in the report. b. Trade-related action (lending or nonlending) is mentioned in the report. c. Trade is part of the objectives (or pillars) of the strategy. d. Trade and trade-related issues are only briefly mentioned in the report. tion initiative and the Customs Handbook have policy advice, its intellec- The integration of trade benefited from good collaboration with the tual leadership is into sector activities is Transport Unit, the PREM Public Sector Unit, important in clarifying mixed. and the Regions internally, and with the World this concept. Second, in Customs Organization externally. the absence of this While the Bank has done well in cross-fertil- leadership, guidance and templates on how to izing trade issues in trade facilitation and incorporate trade at the operational level are agricultural standards, there is less coherence also missing. They would help create a more with other sectors, notably on agricultural systematic way for country and sector policies with the Rural Development Depart- economists to ascertain the extent to which ment, on competitiveness issues with the trade should fit into the Bank's strategy of Private Sector Development Vice-Presidency, assistance. Third, given the neglect that trade on trade and environment issues with the faced in the early part of the decade, Environmentally and Socially Sustainable mainstreaming trade requires a more active Development (ESSD) Network and on poverty approach. issues. There is no formal or informal In contrast, other thematic areas that have understanding with the Private Sector Develop- faced the task of mainstreaming (and other ment Vice-Presidency (similar to those for agencies that have faced the task of Transport Logistics or with ARD), which is mainstreaming trade) have used more clearly crucial given the synergies (and in some cases defined and activist strategies to bridge the gap overlap) on competitiveness and supply-side between the corporate mandate and agenda issues that both groups cover. and the operational actions (table 5.2). They have also monitored regularly the progress in Conclusions on Mainstreaming mainstreaming in their respective areas. The absence of a clear operational definition of Experience from both the Gender and "trade mainstreaming" is a disadvantage in Environment Units in the Bank, each of which several ways. First, given the Bank's extensive had to deal with mainstreaming their respec- relationship with developing countries on tive areas into sector operations, suggests that trade issues through its lending operations and while senior management leadership and 6 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Box 5.7: Intellectual Leadership Plus Collaboration Yield Operational Relevance in Sanitary and Phytosanitary Standards For SPS, a well-integrated program of analytical work and pol- The program has been accompanied by a rich learning program icy analysis has generated more detailed understanding of the (including distance learning). Future learning events will be more economic, institutional, and policy aspects of standards and operationally focused, involving Bank (and other development trade, including the strategic and policy options available to agency) field staff together with country (official and private) governments and the private sector in a range of developing counterparts through facilitated e-learning courses and dialogue. countries. Internally, the program has been marked by close collaboration be- This has been complemented operationally by an initiative to tween the operational Regions, the Agriculture and Rural Devel- mainstream SPS through (i) participatory national strategies for opment Department, and the Trade Department. Externally, it strengthening capacities to manage sanitary, phytosanitary, and involves active collaboration with various external agencies (pub- other standards for export and domestic markets; (ii) preparation lic/private; bilateral/multilateral) that have greater technical ex- of project subcomponents related specifically to capacity build- pertise and/or implementation experience than the Bank in this field. ing for sanitary, phytosanitary, and other standards that will be in- The Bank is also trying to build bridges among practitioners work- tegrated into Bank investment loans; (iii) design and implementation ing on SPS standards, on the one hand, and social and environ- of pilot projects that effectively link smallholder farmers and small mental standards, on the other, as such standards are increasingly enterprises with larger agribusinesses or food distributors through bundled in agro-food trade and distribution channels, and devel- coordinated supply chain pilots; and (iv) sharing implementation oping country suppliers need to address the challenges and op- lessons. Stand-alone projects are unlikely; instead, small to portunities in these areas concurrently. The Bank's emerging medium-size ($0.5 to $15 million) components of agricultural ser- comparative advantage in this field relates to economic analysis vices, export promotion, and competitiveness projects will likely and in positioning SPS analytical and planning matters in the main- be the norm. stream of (trade and agricultural) policy and planning. Source: Interviews of Bank staff working on standards issues; World Bank Trade Web site: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/TRADE. Table 5.2: Trade Mainstreaming Lags behind Other Thematic Areas and Organizations World Bank UK DFID Action Trade Environment Gender Trade Participatory institutional sector strategy prepared X X X Conceptual framework for integration of issue into operational strategy X X Development of diagnostic tools (ESW) X X X X Identifiable staff tasked with helping to mainstream issue at operational level Partial X X X Formal links with other related sectors Partial (transport. ARD) X X Partial Upstream involvement of sector staff in CAS X X X Systematic monitoring of mainstreaming against benchmarks X X X Systematic identification of skills mix, gaps, and strategy for medium-term needs X X Sources: Interviews with network staff in Gender and ESSD and DFID staff in February­April 2005. DFID Trade Strategy paper (April 2005). 6 4 T R A D E R E T U R N S T O T H E A G E N D A , 2 0 0 1 ­ 0 4 support is important and necessary, it is far and proactive and upstream identification of from sufficient. To make an appreciable differ- the support needed are critical. While not ence, the establishment of a widely dissemi- guaranteeing immediate success, these actions nated conceptual framework, network lay its foundation. Together with monitoring intellectual and advisory support to Regional against established benchmarks, they enable staff, dissemination of best practice examples, adjustments as needed. 6 5 Chapter 6: Evaluation Highlights · Bank strategies on trade have been largely relevant. · But strategies took too narrow a view on critical factors for trade to contribute to growth. · The institution was also initially slow to react to the changing global environment and to incorporate those issues in oper- ations. · Research and (increasingly) advocacy have played impor- tant roles, externally. · But the greatest challenge remains at the country level, where greater coordination across sectors is required, as well as greater attention to poverty and distributional implications. 6 Findings and Recommendations S ince the 1980s the Bank has committed about $38 billion to developing countries in all Regions through a diverse group of stand-alone trade ad- justment and investment loans, as well as trade components of loans. It has also conducted wide-ranging trade-related analysis and supported trade- related capacity building. Bank assistance on trade issues encompasses notably in lending, between 1987 and 2001 three phases of intervention, as noted in were to improve resource allocation, expand Chapter 1--two intensive phases with a lull in- and diversify exports, enhance client integra- between. The earlier intensive phase focused tion into the global economy, and contribute to to a greater degree on the traditional trade overall economic growth. These objectives agenda related to opening up trade regimes in were relevant and appropriate. developing countries. It was characterized by In spite of the absence of formal strategies significant trade adjustment lending. governing trade for part of the review period, Following a slowdown in trade activities the implicit strategies that existed provided an during the second half of the 1990s, the WTO adequate framework at the general level, were Trade Ministerial in Doha catalyzed a broadly consistent with the literature, and resurgence of Bank work on trade after 2001. succeeded in providing a clear sense of the This recent intensive phase has focused on the Bank's views and approach. The focus on global trading system and "behind-the-border" removing other domestic market distortions barriers to trade. This phase has not focused so to complement trade reform was also much on lending as on analytical research, appropriate. trade-related capacity building, and advocacy The strategy was too narrow, however, in on behalf of the developing countries. terms of its focus on what matters for trade and growth. Specifically, it underestimated the Findings complexity and sequencing of other comple- mentary policies, the role of the external Was the Bank's Assistance Relevant? environment, the importance of institutions, and the interaction between trade and distribu- 1987­2001 period tional outcomes. Consequently, the Bank was The objectives of the Bank's trade assistance, too optimistic about the benefits from trade. 6 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Domestic distortions. The focus on marketing years. Yet despite the importance of garments and pricing distortions in domestic markets to and textiles for many Bank clients, no cross- support the traditional trade agenda was country analysis was carried out and individual appropriate given the poor performance country analysis (such as for Nepal) was late. In arising out of the latter stages of import substi- this context, the Bank's country and Regional tution, distortions in the client countries, and focus may not have lent itself efficiently enough the bias against the rural sector and exporting to issues that cut across countries. inherent in the initial trade regimes. Trade and poverty linkages. Social and Complementary policies. While the Bank economic vulnerability was not addressed correctly identified the importance of comple- sufficiently. Economic and sector work, as well mentary supply-side policies, it underestimated as project design, were weak in systematically the complexity and difficulties of implementing incorporating or monitoring social outcomes those reforms. Conditions related to these such as poverty and employment, even where complementary policies have been repeated economic analysis existed. While earlier on, the over time in lending operations, reflecting issue appeared to be one of low prioritization, partial implementation from the time they that no longer appears to be the case. Surveys were first recommended. Compliance with of Bank staff and managers indicated consider- policies intended to improve the regulatory able interest in the links between trade and framework and the competitive environment poverty. The difficulty in incorporating poverty lagged behind compliance with trade policies. considerations appears to be a combination of These policies, which now commonly fall having the right expertise at the operational under the rubric of the investment climate, level (staff skilled in designing these types of influence overall outcomes from trade policies. interventions); the complexity of the issue, which requires a multidisciplinary team cutting External environment. Through its balance- across the Bank's sector/network boundaries; of-payments support, the Bank provided and, in some cases, lack of data to underpin the general support during exogenous shocks for required analysis. several countries, and trade elements were often present in the context of those loans. 2001­04 period Through its ESW and research, the Bank The objectives of the Bank's activities in trade provided advice on agricultural policy reform. since 2001 were to make the world trading Yet overall, the Bank was sometimes slow to system more reciprocally open and to make react. For example, despite several attempts, trade an important part of country develop- until recently exogenous shocks and external ment strategies. These objectives were factors were also not systematically addressed appropriate and relevant given the importance or acknowledged in project design and ESW, of the WTO in the multilateral trading system, despite being an important factor in poor the difficulties with the Seattle trade meeting in project performance.1 However, until recently, 1999, the linkages between trade and other no overarching strategic advice or instruments aspects of development, and the potential existed to help developing countries to manage benefits to its clients of improved trade commodity shocks, which are particularly performance. important given the continued agricultural The Bank's strategy, however, did not articu- dependence of many client countries. late clearly enough the separation of the Bank's A missed opportunity was an issue that cut research and its advocacy, its limitations with across several developing countries--the respect to influencing change, or identify risks phasing out of the multi-fibre arrangement associated with the strategy.2 The Bank could (later renamed Agreement on Textiles and have presented a more nuanced message from Clothing). This was anticipated for several the start that distinguished between groups of 6 8 F I N D I N G S A N D R E C O M M E N D AT I O N S developing countries and also clarified the imports. Countries undertaking trade reform relative importance of the multilateral system with Bank support experienced greater for different developing countries. For economic growth than those that did not, but example, the emphasis on the multilateral this outcome may also reflect the larger set of trading system may have been misplaced in the economic reforms they undertook concurrently. case of individual countries where the more Despite these gains, Bank assistance has in pressing demand was in the context of regional some cases fallen short in important aspects. trading arrangements (especially Free Trade Many of the Bank's clients, notably in Africa, Association Agreements) and the need for have not been successful at diversifying their those countries to make decisions in the exports, and they continue to be vulnerable to negotiating context. Insufficient attention was commodity price shocks. Because of the lack of given to the non-agricultural market access diversity in their exports, some countries have aspects of the global negotiations. not successfully integrated into the global The Bank's support for TCB lacks a holistic economy and have actually lost market share. strategy. The Bank has attempted to respond to The Bank's interventions in aspects of trade developing country demand for TCB by logistics (ports, customs, and trade finance) working with external partners (U.N. agencies, and export incentives have had a mixed but bilateral and multilateral donors) through the improving record. The investment response Integrated Framework for Trade-Related was slow in a number of countries--reflecting, Technical Assistance (IF) initiative. While the perhaps, credibility of policies and government revamped IF has dealt partly with the risks crowding out. associated with donor commitment and The evaluation found that some countries funding for analysis, it has made less progress experienced both faster export growth and in streamlining processes and accelerating declining per capita consumption. Three factors implementation, and continues to be marked appear to underlie why the link between export by the absence of a results-based management performance and poverty reduction has been system (IEG 2004a; Capra-TFOC 2003). weaker than theory would predict. First, export Weaknesses in the existing set-up for the IF growth has a better chance of reducing poverty pose risks for timely and relevant delivery of if it is broad-based. In countries where exports TCB to meet LDC needs and represent a baskets continue to be narrowly based, the potential reputational risk for the Bank (and benefits of good export performance may not other agencies involved in the initiative). reach the poor for geographic reasons or because transfer/distributional mechanisms are Was the Bank's Assistance Effective? inadequate. Second, for some of the Bank's clients, exports have grown in goods for which 1987­2001 period there is a declining world demand, capping the The Bank was effective in helping countries extent to which they can derive benefits. Third, liberalize their trade regimes. Average tariffs in many countries there has not been a strategic fell, coverage of nontariff barriers diminished, approach to incorporating trade in a national foreign exchange shortages became nonexist- development strategy, except at a superficial ent, and the exchange rate was reinstated as a level. viable instrument for export development. Overall, the Bank has helped its clients reduce 2001­04 period the bias against exports considerably. While the objectives of the Bank's strategy were Exports grew in most countries and the relevant, the institution could have defined associated industrial policy reforms (such as more clearly how it would monitor and those in competition policy) contributed toward operationalize the strategy. Partly because of a more open playing field. Countries that donor and other external interest and pressures received Bank loans were able to free up their associated with the WTO negotiating timetable, 6 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 the Bank has put more emphasis on this aspect have suffered from the lack of intra- and inter- of the strategy (through Board progress sectoral partnerships. The incorporation of trade reports, partnerships, outside media) than on into country development and Bank assistance operationalizing trade at the country level. strategies has been uneven and little guidance The Bank's research and advocacy on the has been given to country teams on incorporat- multilateral trading system has, in the eyes of ing trade considerations in their work. international trade officials and non-Trade Department Bank staff surveyed for this study, Recommendations contributed to increased awareness of the costs Key challenges lie ahead in trade for the Bank's associated with tariff peaks and agricultural clients, as trade issues increasingly cut across protection in OECD countries. multiple sectors and involve complex negotia- Bank research has contributed significantly to tions at the bilateral, Regional, and multilateral the thinking on trade in several different areas. levels. But there are also opportunities as a External surveys and interviews indicate that its result of heightened interest in Africa by research on services liberalization, the global development partners, greater attention to an trade architecture, and agricultural standards are equitable global trade system, the building of viewed as innovative and of high quality. coalitions that may help various groupings of Greater research and operational attention developing countries negotiate more strategi- is needed, however, in the following areas: cally and effectively in the global arena, and agricultural trade and policies, links between continued interest in aid and trade-related trade and poverty and adjustment costs associ- capacity building to support developing ated with trade, and migration. countries in their trade and growth agendas. The Bank has been slow to translate its In general, there is greater consensus on extensive work on the development aspects of what constitutes an appropriate trade strategy,4 WTO issues into practical policy advice for staff. its limits in the context of the multilateral Services liberalization is a particular gap in this trading system, and the importance of comple- regard. Despite high-quality work at the center, mentary policies. "New industrial strategy" is there appears to be no clear strategy on how to being looked at again within the Bank to see share this knowledge and apply it to how best the state can strategically support operational work, particularly in the financial development by offsetting "market failures in and private sector units.3 This is particularly information and communication" (see critical given the complexity of the services Leipziger 2005). negotiations and the sectors that they span. In The current trade agenda is significantly another example, no strategic approach has more globalized than previously and very much been planned for the 26 countries (all Bank tied in with overall economic growth. To pay clients) currently in the process of accession to greater attention to export-led growth in the the WTO. The poorest and those least likely to future, continued efforts to reduce anti-export have the capacity to articulate their needs have biases in trade policy are needed, with priority received less support (such as Cape Verde and given to removing constraints to specific Sao Tome and Principe) and have been in the promising exports. Second, as is already accession process for several years. emerging, greater attention needs to be paid to The greatest operational successes have the investment climate, infrastructure, and occurred where the Trade Department has trade facilitation more broadly. Third, selective provided intellectual leadership and put promotion of export development, such as together a team involving the networks and support for training, improved information operational staff, such as in standards and trade about market opportunities, linkages, technol- facilitation. Conversely, priority areas such as ogy development, and so on would be useful. agricultural trade, services liberalization, and the The time is right to consider the direction of distributional outcomes associated with trade the Bank's future work in trade. The Doha trade 7 0 F I N D I N G S A N D R E C O M M E N D AT I O N S negotiations that catalyzed and invigorated to trade policies, looking at firms, individuals, trade work at the Bank are likely to conclude in and households. the next few years. Moreover, the establishment of the Trade Department includes a sunset Recommendation 2: clause that requires revisiting its mandate in Revisit the Balance between Global and 2005. It is appropriate for management to look Country Agendas and Strengthen Operational ahead and focus on future priorities. This study Links on Trade Issues makes three recommendations. IEG recommends that management revisit the balance between its activities at the global level Recommendation 1: on the one hand, and on the Regional and Address Poverty-Distributional Outcomes and country agenda on the other. Given the multi- External Shocks in a Balanced Approach sector nature of trade issues, a participatory This evaluation found that despite the increas- process that involves operational sector ing volume of research on poverty issues in the colleagues, other networks, and the Trade Trade Department and of poverty and social Department is likely to yield the greatest impact analysis more generally, trade-related benefits. Operational linkages need to be projects do not consistently or systematically strengthened between different units of the address poverty and distributional outcomes. Bank, and greater emphasis placed on country While much import liberalization has already and field operations. occurred, further liberalization appears possible Three actions are necessary. First, greater for some developing countries, notably within strategic and intellectual guidance is needed agriculture. With that in mind, three actions are from the Trade Department with respect to the critical. First, IEG recommends that at the conceptual framework within which country country level, all new projects with trade policy teams should consider trade issues. The design components include a discussion of this issue of a guidance note and upstream support on a that, at a minimum, draws on the cross-sectoral pilot basis to country teams planning Country expertise from economic policy, poverty, Assistance Strategies would be practical first gender, PSD, and (as appropriate) agricultural steps and would help determine those cases in and rural development units, as well as existing which trade is logically a priority element in the research in the country. Identification of country dialogue. possible transitional costs, an assessment of the Second, in three thematic areas of focus, a existing institutional framework for cushioning more formal set of arrangements between shocks and actions to mitigate or minimize operations, networks, and the Trade Depart- shocks would be important considerations in ment is needed to maximize synergies-- the discussion.5 Placing trade in a broader agricultural trade and policies, services discussion of the determinants of poverty will liberalization, and distributional outcomes help ensure that this is not a mechanical associated with trade policies. exercise, but rooted in its expected importance. Third, as has been done between the Second, at the institution-wide level, and Transport and Agriculture units on the one following the Bank's statement at the Cancun hand, and the Trade Department on the other, Ministerial in 2003, IEG recommends that a IEG recommends that working arrangements concrete program of adjustment assistance be with the Private Sector Department Vice- developed more rapidly to respond to trade- Presidency be established to highlight the related shocks that developing countries may interface between the two areas and to bring face.6 To the extent that such a program is no the global dimension to bear more precisely. longer deemed relevant, it would be helpful for This cross-fertilization of trade and the need management to clarify this. for better integration of trade and the Finance, Third, IEG recommends a more systematic Private Sector, and Infrastructure (FPSI) work program of research on micro-level adjustment program is especially evident in the work on 7 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 trade in services. Greater interaction between done in the center and country-level work on the Trade Department staff specialized in trade agriculture, economic policy, labor markets, and in services and the sub-sectoral expertise in private sector development. As part of these transport, power, finance, telecoms and so on efforts, the possibility of joint thematic groups located in FPSI is needed. with other networks should be explored. More generally, IEG recommends a more Recommendation 3: effective use of knowledge management tools Strengthen Knowledge Management Efforts tailored to key target groups--across different Two actions are important. sectors. A mechanism to obtain regular system- First, a concerted effort to bring all country atic feedback from operational staff on the economists up to date with the main features most immediate and relevant trade-related and application of the WITS software would topics would be helpful, as the survey identi- enhance their awareness of the global trade fied gaps, despite the canvassing conducted by issues and implications for the countries they Regional trade coordinators during the year. work on and enable them to supervise research Finally, greater sharing of country experience assistants/consultants and seek further training, in particular areas, much as was done with the if and when needed. work in agricultural standards, is needed. This Second, knowledge management efforts will require greater support from the center to could reflect greater cross-fertilization with ensure quality-at-entry for project design as other networks and better integrate trade work well as economic and sector work. 7 2 APPENDIXES APPENDIX A1: TIMELINE OF MAJOR DEVELOPMENTS IN INTERNATIONAL TRADE, 1987­2005 Table A1.1: Annotated Timeline of Major Developments in International Trade in the World Bank Year Analytic activities Strategy/institutional response World Bank events 1987 WDR 1987 on Industrialization and At the start of the timeline, the Bank On May 8, Mr. Conable announces that imple- Foreign Trade. has been lending directly for trade mentation of an institutional reorganization World Bank publishes The Uruguay since the mid-1970s and number will begin, and be completed by September. Round - A Handbook for the Multi- of trade-related projects is expanding. lateral Trade Negotiations (Finger Affects way trade is organized in Bank. and Olechowski 1987). It serves as Regional Technical Departments created; a handbook, giving background include trade experts with a Regional man- information and guidance for date. Trade units in Policy Research and developing countries participating Country Economics Departments moved to in the Uruguay Round of the International Economics Department (IEC). GATT negotiations. Anne Krueger leaves the Bank as Chief World Bank and UNDP begin Economist and VP Development Economics; Trade Expansion Program to replaced by Stanley Fischer. provide integrated technical assistance to countries embarking on trade reform programs by fielding specialized teams to diagnose obstacles to integration and suggest options for reform. 1988 Development Committee paper on trade. World Bank and IMF Boards reach agreement ("Concordat") on cooperation and collaboration. 1989 Review of lessons from trade policy President Conable addresses the Reuters Infor- reform in developing countries. mation Services in London. He calls the world- wide severity and pervasiveness of poverty a "moral outrage," and identifies the key ele- ments of "sustainable development:" solution to the debt problem; policy reform efforts in developing countries; secure long-term investment; unrestricted international trade; sound environmental policies. (Table continues on the following page.) 7 5 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table A1.1: Annotated Timeline of Major Developments in International Trade in the World Bank (continued) Year Analytic activities Strategy/institutional response World Bank events 1990 Papageorgiou, Michaely, and Choksi (1991). Major cross- country study on lessons from trade liberalization. 1991 Thomas and Nash (1991); lessons from trade liberalization. 1992 O.D. 8.6 issued on adjustment lending World Bank reorganization is announced. All with a section on trade. research is consolidated under the Chief Econ- omist and Vice President for Development Economics. Regional Technical Departments are made smaller and partially consolidated (ECA/MNA; SAS/EAP); the sector operations divisions are strengthened. 1993 President Preston congratulates participants on the completion of the Uruguay Round of the GATT trade negotiations. 1994 Trade policy analysis unit in IEC split; commodi- ties analysis moved to DECPG. 1995 Mr. James D. Wolfensohn becomes World Bank President in May. 1996 Martin and Winters (1996)-- Major reorganization; Managing Directors Uruguay Round assessment. Gautam S. Kaji, Caio Koch-Weser, and Sven Sandstrom announce the launch of the "net- works" initiative, beginning with the Human Development Network. Abolition of Regional technical departments that housed dedicated trade experts. 1997 Having provided technical support World Bank and the World Trade Trade unit in IEC moved into DECRG. for reforms in 17 countries, World Organization (WTO) sign a formal Bank/UNDP Trade Expansion agreement of cooperation to Program concludes as planned coordinate efforts to further integrate with a global conference and the developing countries into the global preparation for publication of the economy. Trade Policy Reform: Lessons of Experience was started. 1998 Published Trade Policy Reform: Integrated trade research/capacity- Lessons of Experience (Nash and building program launched between Takacs, 1998). DECRG and EDI. 1999 Doha Round conference in Geneva Partnership established between Presidential Speech at Seattle: "Global Trade and (DRG/WBI); Stiglitz paper on need DECRG/EDI and DFID: Trade Policy the 'Development Round': Seizing the Day." In his for balanced outcome. Development Project. his speech, Wolfensohn urges wealthy nations to eliminate trade barriers for the sake of the three billion people who live on less than $2 a day. Manufactured goods exported from developing countries to the industrialized world face barriers four times higher than those from industrialized countries. At the same time, barriers blocking man- ufactured goods flowing between developing coun- tries are even higher. 7 6 A P P E N D I X A 1 : T I M E L I N E O F M A J O R D E V E L O P M E N T S I N I N T E R N AT I O N A L T R A D E , 1 9 8 7 ­ 2 0 0 5 Year Analytic activities Strategy/institutional response World Bank events 2000 Hoekman and Martin (2000): James D. Wolfensohn begins his second term in Doha agenda research. May as President of the World Bank. President Wolfensohn began a tour of Southeast Asia. He addressed the Tenth Ministerial Meeting of UNCTAD in Bangkok, saying that globalization must have a "human face," and should promote social equity. Trade liberaliza- tion was an important tool for reducing poverty and he called on the international community to give free market access for all the exports of the countries eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. The World Bank's Trade and Transport Facilita- tion in Southeast Europe Program announced the signing of a memorandum of understanding between six Balkan countries. The program was created to reduce the costs of trade and transport, and to reduce smuggling and corrup- tion at border crossings in southeast Europe. The Development Committee's Spring meetings in Washington are marred by protests of thou- sands demanding an end to globalization. 6,000 ­ 10,000 demonstrators gathered in Washington to shut down the meetings by tying themselves together using lengths of pipe and chain. The meetings were conducted in spite of the protests. 2001 Launch of periodic Board Progress Presidential Speech: "Making Globalization & Reports on Trade. Trade work for the Developing World." Nick Stern makes trade a core element In a speech to the U.N.'s Economic and Social of investment climate policy agenda. Council, President James D Wolfensohn called on G7 leaders to take steps to open their mar- kets to developing country products. No centralized Trade Department exists in the World Bank. Trade researchers in DECRG and commodity analysis in DECPG, 2 trade econo- mists in Economic Policy unit of PREM. 2002 Hoekman, Mattoo, and English Trade-related lending is at low point. In a speech at the Woodrow Wilson International (2002): Handbook on Progress Report "Proposed Priorities for Center for Scholars in Washington, President Development/WTO. Trade Work at the Bank, 2002-2005." Wolfensohn called on wealthy donor nations to double foreign aid over five years and tear Globalization, Growth, and The World Bank and the World Trade down trade barriers that harm the world's poor- Poverty Report. Organization establish a new fund, est workers and rob them of markets for their (Standards and Trade Development products. Presidential Speech: "The Developing GEP takes hard-hitting look at Facility), as part of their efforts to link World needs the Opportunity to Trade out of market access issues. aid to trade opportunities in the fight Poverty." (Table continues on the following page.) 7 7 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table A1.1: Annotated Timeline of Major Developments in International Trade in the World Bank (continued) Year Analytic activities Strategy/institutional response World Bank events 2002 LAC Trade Flagship. against poverty by helping them shape In his address to the 2002 World Bank/IMF (cont.) and implement international standards Annual Meetings, Wolfensohn called on rich on food safety, and plant and animal countries to improve donor coordination, health. untie aid, and agree a "fixed timetable" for the elimination of agricultural subsidies. "We The goal is to provide grants and financial know that there is so much that can be done by support for technical assistance projects rich countries without waiting for Doha. I urge in developing countries through enhanced you to act sooner." collaboration between the international organizations involved. The Food and Agri- culture Organization (FAO), the World Health Organization (WHO) and the World Organization for Animal Health (OIE) are expected to join the Bank and the WTO in the facility. Also expected to participate are the Codex Alimentarius (the food safety standards-setting organization run jointly by the FAO and WHO), and the Secretariat of the International Plant Protection Convention at the FAO. World Bank issues a press release announcing creation of International Trade Department. Uri Dadush appointed first director of the International Trade Department. 2003 MNA Trade Flagship Cotton and World Bank's publishes Lessons from Chief Economist Stern delivered a statement Developing Countries: A Case Study NAFTA for Latin America and the regretting the failure of the World Trade Orga- of Policy Incoherence identified policy Caribbean Countries: A Summary nization meetings, and urging participants to intervention in the cotton sectors of of Research Findings. take action on reductions in domestic support, the U.S. as detrimental to export subsidies, and market openings for developing countries. Progress Report: "Leveraging Trade agricultural products. for Development: The World "Bank's Agenda." Joint WTO-IMF-World Bank statement to the WTO General Council meeting on coherence. Trade Sector manager hired. 2004 EAP Trade Flagship. Progress Report: "Leveraging Trade IEG conducts independent evaluation of IF as LAC NAFTA report. for Development: The World Bank's part of its Global Public Goods Evaluation. Research Agenda." 2005 SAR Trade Flagship. Aid for Trade Paper presented to World Bank Board and Development The World Bank issued a report on the Committee in September. economic benefits of the Central American Free Trade Agreement, signed between Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and the United States. 7 8 A P P E N D I X A 1 : T I M E L I N E O F M A J O R D E V E L O P M E N T S I N I N T E R N AT I O N A L T R A D E , 1 9 8 7 ­ 2 0 0 5 Table A.2: Timeline of Global Trade Events Year(s) International Industrialized world Developing world 1986­ GATT Trade ministers launch the Uruguay Round in 93 Punta Del Este, Uruguay, embarking on the most am- bitious and far-reaching trade round so far. The round extended the range of trade negotiations, leading to major reductions in agricultural subsidies, an agree- ment to allow full access for textile and clothing from developing, and an extension of intellectual property rights. 1991 Brazil, Argentina, Uruguay, and Paraguay sign Mercosur trade pact. 1994 North America Free Trade Association (NAFTA) goes In West Africa, the CFA franc is into effect between Canada, U.S., and Mexico. devalued for the first time since its creation, changing a Trade ministers meet for the final time under critical parameter for Bank GATT auspices at Marrakesh, Morocco to policy in that region. establish the World Trade organization (WTO) and sign other agreements. 1995 The World Trade Organization is created in Geneva. "Single Undertaking" implies large number of new disci- plines for many countries. 1996 Singapore WTO Ministerial Conference introduces investment, competition, procurement, and trade facilitation to the multilateral arena. 1997 High-level WTO meeting creates the Integrated Devaluation of Thai currency Framework for Trade-related Technical Assistance sets off regional economic to LDCs (IF) in October. crisis. 1998 Geneva WTO Ministerial. Asian currencies and stock mar- kets continue to plunge, creat- ing an economic crisis for the continent. 1999 Mike Moore, former Prime Minster of New Zealand, is appointed WTO Director General for a three-year term to replace Renato Ruggiero following a contentious battle. At least 30,000 protestors disrupt WTO summit in Seattle, U.S. Seattle Trade Ministerial ends in debacle as protestors take over the meeting and developing counties complain about lack of voice. 2000 Independent evaluation of IF conducted. 1st Joint Communiqué by IF Heads of Agency 2001 Doha Trade Ministerial held in November in Doha, The term "trade mainstreaming enters LDC Ministerial held in Zanzibar. Qatar and the Doha Development Agenda is born. the lexicon. (Table continues on the following page.) 7 9 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table A.2: Timeline of Global Trade Events (continued) Year(s) International Industrialized world Developing world 2001 Sells itself as more "development friendly" than United States establishes the African Growth (cont.) previous rounds. and Opportunity Act (AGOA) preference scheme. China formally joins the WTO. Taiwan is admitted EU adopts Everything But Arms (EBA) immediately afterward. preference scheme. IF revamped and three pilot studies initiated DAC Guidelines on Strengthening Trade Capacity (Cambodia, Madagascar, Mauritania). for Development published. 2002 Former Thai deputy prime minister, Dr. Supachai Oxfam launches "Make Trade Fair" campaign. Panitchpakdi begins a three-year term as Director General of the WTO. First WTO head U.S. Farm Bill passed. to come from a developing country. 2nd Joint Communiqué. 2003 World Trade Organization talks in Cancun, First OECD-DAC Meeting of trade Emergence of the G-20. Mexico collapse after a group of developing development communities in Paris. nations reject farm subsidies proposed by wealthier nations. Second Joint WTO/OECD report on G-90 meeting held in Mauritius. Trade-related Technical Assistance An international high-level Round-Table on the and Capacity Building. Christian Aid review of trade in coffee crisis, organized by the International PRSPs. Coffee Organization (ICO) and the World Bank, Third joint IF Heads of Agency Communiqué called for rich countries to share the burden of issued to reaffirm the organizations' the coffee crisis that affected the living commitment to effective integration of standards of 125 million people, mainly in least developed countries into the small-holdings in developing countries. The multilateral trading system and to Round-Table urged the U.S. Government to articulate plans for improving progress rejoin the ICO and demanded that rich under the Integrated Framework. countries reduce their internal agricultural subsidies and tariffs in order to allow In a letter to heads of governments of potential diversification in those coffee- all member countries, World Bank producing countries willing to move to President James D. Wolfensohn and other crops. International Monetary Fund Managing Director Horst Köhler called for renewing Independent evaluation of IF undertaken by progress on world trade talks. Wolfensohn CAPRA International (consulting firm hired and Kohler emphasize the centrality of by participating partners). multilateral trade liberalization to growth and prosperity over the past fifty years and stressed that expanding trade by collec- tively reducing barriers is the single most powerful tool that countries, working together, can deploy to reduce poverty and raise living standards. 2004 WTO rules that U.S. subsidies to cotton farmers are unfair and rules against EU sugar subsidies. Framework Agreement reached in Geneva in August to move forward on Doha agenda; three "Singapore issues" taken off the table. 8 0 A P P E N D I X A 1 : T I M E L I N E O F M A J O R D E V E L O P M E N T S I N I N T E R N AT I O N A L T R A D E , 1 9 8 7 ­ 2 0 0 5 Year(s) International Industrialized world Developing world 2004 IEG conducts independent evaluation of IF as (cont.) part of its Global Public Goods Evaluation. 2005 Elimination of Multi-fibre Arrangement. Africa Commission and UN MDG Trade taskforce call for stronger linkages between trade reform Pascal Lamy appointed new Director General and development assistance. of WTO. G-8 endorses aid for trade concept. Aid for Trade Paper presented to World Bank Board and Development Committee in September. Source: IEG staff compilation from various sources. 8 1 APPENDIX A2: CONCEPTUAL FRAMEWORK FOR THE EVALUATION Capturing the overall development effectiveness tween Bank actions and outcomes and impacts. of the Bank's trade work is difficult for three The main apparent desired outcome of the reasons: Bank's support for trade is improved trade per- formance: higher export volumes, faster export · First, several country conditions influence the growth rates, a more diversified basket of exports, effectiveness of trade reforms and assistance: cheaper and more readily available imported in- the country's macroeconomic environment, its puts, and greater integration in the global econ- endowments, non-trade factors in the invest- omy. The assumption (often explicitly stated) is ment climate (notably institutions), gover- that expanded trade will contribute to the Bank's nance and political economy, and institutional overarching goal of poverty reduction in two capacity. While the Bank may support countries ways--by contributing to overall economic in some of these areas, it is important to at- growth and by creating jobs--with an overall tempt to disentangle (a) the Bank's actual con- beneficial impact. tribution and (b) the relative importance of The Bank's approach to helping countries these other determinants. achieve better trade performance has been to · Second, a host of international external factors use its budget, staff, and partnerships through also influence government attitude toward lending, economic and sector work, policy ad- trade reform and its ability to implement re- vice, and technical assistance to clients, as well forms; especially relevant are commodity price as research and advocacy (inputs). The out- shocks, market access, and the country's par- comes associated with these inputs depend to ticipation in regional, bilateral, or multilateral some extent on the policies and strategies fol- trading arrangements. lowed by governments; they are expected to · Third, other actors such as the private sector, improve the competitive environment for ex- bilateral and multilateral development agencies, porters, reduce rent-seeking opportunities, im- and nongovernmental organizations may in- prove access to imported inputs, and strengthen fluence the pace and nature of reforms. These the institutional capacity of officials and insti- external variables and the extent to which Bank tutions dealing with trade-related issues. support and assistance takes them into ac- Through this support, the Bank influences trade- count are important determinants of the results related outputs--for example, commitment by achieved. governments and the actual trade reforms they introduce and improved customs clearance The conceptual framework underpinning the times for exporters. These in turn are expected evaluation's analysis is illustrated in figure A2.1. to contribute to improved trade performance It builds on a logical framework of the links be- outcomes. 8 3 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Figure A2.1. Conceptual Framework for the Evaluation Trade adjustment and investment lending Economic and sector work (ESW) and policy advice Technical assistance--for example, for trade negotiations Inputs Research and advocacy Country Assistance Strategies Competitiveness Institutional Capacity Transparent incentives Policy makers Neutral to importers/exporters Exporting firms Objectives Access to inputs at world prices Trade promotion institutions Allocative efficiency gains (customs, standards) Tariffs: Lower levels, narrower ranges, less dispersion Shorter customs clearance times Outputs Increased trade financing Improved Trade Performance Increase in exports and faster growth rates Greater export diversification Increased market shares Outcomes Higher firm-level productivity Reduced rent-seeking and greater import competition Economic growth Poverty reduction Impact 8 4 APPENDIX B1: TRADE AND DEVELOPMENT--THE STATE OF THE DEBATE The effect of trade and related policies on coun- trade reform and economic growth, the long- try economic performance has been debated term benefits of increased trade are unchal- for more than a century. The literature generated lenged. Few countries have grown rapidly and by that debate, especially since the 1960s, con- reduced poverty by following a long-term au- cludes that although trade offers long-term ben- tarkic approach. As noted in Panagariya (2004), efits for developing countries, trade liberalization neither Rodrik (1999) nor Stiglitz (2002), critics alone is not sufficient for economic growth. of the Bank's approach to trade liberalization, dis- Rather, it has become clear that maximizing trade pute the benefits countries can gain by opening and welfare outcomes depends on the underly- up their economies. Researchers on both sides ing macroeconomic environment, industrial poli- of the issue also increasingly agree on the im- cies for export development, the design and portance of country specificity and of institu- sequencing of trade policies, external constraints tions in disentangling the various policies that and opportunities, and complementary policies. affect trade and growth. These factors in the outcome of trade liberal- ization and a summary of current debates are the Macroeconomic Environment subject of this appendix. The objective is to pro- and Trade Policy Reform vide the context for the Bank's approach to Three macroeconomic factors contribute to max- trade. The first half of the appendix draws on imizing the success of trade reform: macroeco- Oyejide (2004). nomic stability, the real exchange rate, and the timing of foreign exchange market liberalization Trade Policy Reform and Economic and trade reform. Growth: Implications for Bank Advice Belief that international trade is critical for eco- Macroeconomic stability nomic growth underpinned the Bank's policy There is a strong consensus in the literature re- advice to its client countries from the early garding the necessity of macroeconomic stabil- 1980s--there were few alternatives, as import ity for trade liberalization to have significant substitution had run its course. The first multi- effects on resource allocation within an economy. country studies of developing countries' trade In Papageorgiou and others (1991), smaller regimes (Little, Scott, and Scitovsky 1970 and budget deficits kept inflation low and thus sup- Balassa and Associates 1971 and an influential ported a real depreciation of the domestic cur- study done by the NBER and summarized in rency during trade policy reform. The study Bhagwati 1978 and Krueger 1978) had system- showed that poor macroeconomic policies were atically detailed the inefficiencies of the import- more commonly associated with reversals in substituting development strategies that prevailed trade liberalization than any other factor. Nom- throughout the developing world. The studies inal currency devaluation must often be com- were influential in promoting export orientation bined with anti-inflationary monetary and fiscal as a path to more rapid economic growth.1 policies, as well as appropriate aid management Despite differences of opinion among econo- policies, to ensure that it is converted to real de- metricians on the causal relationship between preciation and not subsequently reversed. 8 5 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 The literature is less clear on whether trade may be rendered incompatible by the resulting policy reform should be implemented after adverse balance-of-payments effect. To resolve this macroeconomic stability has been achieved or incompatibility, a "trade-liberalizing devaluation" whether liberalization and macroeconomic ad- (Collier 1991) may be necessary; this would be justment should proceed simultaneously (Dean, designed to permit a relaxation of trade and pay- Desai, and Riedel 1994). Some analysts main- ments restrictions without creating an adverse bal- tain that stabilization should precede liberaliza- ance-of-payments effect. The possibility that trade tion (Rodrik 1992, p. 88); some go so far as to liberalization without devaluation may create a say that stabilization may be all that matters; short-run external balance problem suggests that while others insist that an outward-orientation the two policy initiatives are strongly comple- already implies commitment to maintaining mentary (Corden 1989; O'Connell 1997). macroeconomic stability (Bhagwati and Srini- These considerations may explain the results vasan 2001, pp. 3, 11).2 of several studies of trade liberalization in de- veloping countries during the 1980s and early The real exchange rate 1990s. For instance, Papageorgiou and others There is also a strong consensus on the rele- (1991) report that most of the successful trade vance of the real exchange rate for export pro- liberalization programs began with a depreciation motion. Williamson (1997, p. 17) asserts that of the real exchange rate. The results reported "perhaps the most important single instrument in Elbadawi and Soto (1997) for a sample of in implementing outward orientation is exchange African and other developing countries "cor- rate policy." Considerable empirical evidence ex- roborate the view that without real deprecia- ists on the relationship between export per- tion, trade liberalization would be difficult to formance and the real exchange rate. Studies sustain." The policy implications from these re- such as those of Diaz-Alejandro (1984), Paredes sults is that, for countries with overvalued cur- (1988), and Caballero and Corbo (1989) show that rencies, the first step in the adjustment process real exchange rate misalignment can be detri- should be to bring about a sustained real deval- mental to export growth, and that real exchange uation, which would enable the real exchange rate variability and uncertainty are associated rate to be then held stable before implementing with negative effects on export performance in any trade liberalization. some Latin American countries. On the positive side, the literature also suggests that the excep- Policies for Export Development tional export growth performance of East Asian Two other types of policy measures are impor- countries and Chile is closely related to the abil- tant for export development: compensatory ity of these countries to avoid real exchange rate measures designed to offset any inherent anti- overvaluation while minimizing exchange rate export bias in a trade regime3 and additional in- volatility. centives meant to address specific problems of exports. Timing of trade policy and exchange rate reform To develop exports, governments can com- Debate continues on the role of exchange rate pensate for the adverse effects of policies that pe- policy in trade liberalization and whether ex- nalize the export sector by designing measures change rate changes need to precede or accom- that restore incentive neutrality between pro- pany trade reform. As pointed out by Krueger duction for export and import substitution. The (1978) and Pritchett (1996), in countries where required neutrality of incentives can be achieved foreign exchange shortages due to overvalued ex- by allowing export producers to purchase their change rates and extensive exchange controls inputs and sell their outputs at competitive are binding constraints on trade, the removal of prices; that is, by granting exporters and their import restrictions would be ineffective without main suppliers duty-free access to inputs, and reform of the foreign exchange market. In par- granting exporters the right to retain all their ex- ticular, trade liberalization without devaluation port proceeds. Several mechanisms exist for 8 6 A P P E N D I X B 1 : T R A D E A N D D E V E L O P M E N T -- T H E S TAT E O F T H E D E B AT E granting duty-free access to exporters for im- foreign direct investment (FDI) is now less fea- ported inputs. These include duty drawback or sible as a means of boosting domestic tech- rebate systems, and bonded manufacturing ware- nologies as few countries have the ability to housing arrangements. In addition, geographi- match international innovation on their own. cally separated entities (export processing zones) Similarly, few developing countries have do- may be set aside from which all import trade bar- mestic enterprises with the ability to mount ex- riers are excluded. port drives to match the integrated production Export development can also be promoted by networks of multinational companies. Finally, applying additional incentives to tackle specific the ability to impose conditions on multina- export problems. Falvey and Gemmell (1990) tionals is also more limited as more countries categorized those used in Asian countries into compete for FDI. three groups: input-related incentives, output- Several of the export promotion measures de- related incentives, and incentives associated scribed above have had their use constrained or with externalities. Prominent in the first group prohibited by recent WTO agreements. For in- are subsidies on public utility services, special de- stance, the Agreement on Subsidies and Coun- preciation allowances on capital inputs, and pref- tervailing Measures (SCM) prohibits export erential credit arrangements. The second group subsidies by countries with per capita incomes includes tax exemptions, export credits, export above $1,000. Similarly, the Agreement on Trade subsidies, provision of infrastructure, and assis- Related Investment Measures (TRIMs) mandates tance with overseas export marketing. Govern- the removal of local content and trade balanc- ment services in aid of export quality promotion ing requirements from the export promotion are among the incentives in the third group. and industrial policy arsenal of WTO members. The effectiveness of these incentives--and These measures were used with some success other industrial policy measures--continues to in East Asia.4 be debated (Pack 2000). But the literature notes Chang (2004) contends that while the chang- some successes. In particular, it is generally ing international economic environment and agreed that export processing zones have been new rules have imposed considerable extra con- effective in Madagascar, Mauritius, and Mexico. straints on the use of industrial policies, these In addition, Agosin (2002) suggests that tem- constraints are not overwhelming. In particu- porary subsidies were a powerful tool for stim- lar, the least-developed countries can use ex- ulating the growth of non-traditional exports in emptions and longer transition periods. He notes Chile. that the demands for a more development- Developing countries currently face greater friendly trade round may also offer additional flex- constraints in using selective and industrial poli- ibility for industrial policies in the future. cies compared to the period when the East Asian "tigers" did. This is due to the changing eco- Design, Sequence, and Duration nomic environment and changes in the inter- of Trade Policy Reform national "rules of the game." Design issues related to trade policy reforms in- As noted by Lall (2004, p. 28), technical clude: the components of the trade reform pack- changes and the globalization of production age, the sequence in which the various elements complicate the use of industrial policies, com- should be reformed, and how long it should pared to the past. He noted that rapid technical take to complete trade reform.5 change "reduces the scope for, and raises the Design questions arise from the need to en- risks of some forms of industrial policy." Isolation sure that the elements of the reform package from fast-moving technologies may hold back the have effects that are mutually reinforcing. Ques- development of competitive capabilities and tions about sequence arise for two reasons. First, make targeting more difficult. Globalization also trade policy reforms in developing countries makes some past industrial policies less useful can be complicated and difficult to manage; or more risky and costly. For example, excluding hence, they often strain implementation capac- 8 7 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 ity that may be eased by sequencing the various Empirical evidence on the speed of reform is components. Second, sequencing is desirable not conclusive. Papageorgiou and others (1991) to the extent that it permits the policy reform suggest that strong programs that start boldly program to consider the varying adjustment tend to have a better chance of success and sus- needs of the different sectors of the economy as tainability than weaker, more prolonged ones; well as the interactions between different ele- they claim that a reform program that endures ments of the package (Winters 2000). six years is very likely to last indefinitely. How- The literature is clear that import policy re- ever, Lal (1995) suggests that the gradualist ap- form should begin with the elimination of quan- proach to trade reform, initiated by India and titative restrictions. Where these are transformed China in the early 1990s, may turn out to be first into tariffs the economy gains through the both successful and sustainable. removal of distortions associated with rent-seek- ing and monopoly power, increased transparency External Constraints and Opportunities of the trade regime, and increased tariff revenue Early World Bank support for trade policy re- (Dean, Desai, and Riedel 1994). form in developing countries was predicated on A similar sequence applies on the export side. the expectation that most gains from such re- The removal of export licensing and prohibi- forms would accrue from each country's own lib- tions typically occurs first, simultaneously with eralization efforts. Hence, the resulting reform elimination of restrictions on imported inputs programs emphasized unilateral rather than mul- used in the production of exports. Next, export tilateral trade liberalization. Yet, much of the taxes (usually on agricultural exports) are re- trade policy reform undertaken by the industrial moved and other export incentives (including di- countries up to the mid-1990s took place under rect and indirect subsidies) introduced. In the auspices of GATT. practice, easing exporters' access to imported in- The importance of multilateral negotiations puts at world prices has had a more significant for promoting trade liberalization in develop- impact on export growth than more general ex- ing countries eventually was recognized and has port incentives (Thomas and Nash 1991). been associated with a number of advantages, in- Whether trade policy reform should be strong cluding that it enables countries to obtain ex- and sudden or moderate and gradual remains in ternal market access "concessions" through an dispute. For instance, Bhagwati and Srinivasan exchange process, binding their reforms to an in- (2001, p. 2) assert that "nothing requires that, ternational framework as a means of resisting in- faced with high trade barriers, a country's tariff re- ternal anti-reform interests, preventing reversals, forms must be on a shock therapy path." The de- and endowing their reforms with greater secu- liberate, systematic, and sequential implementation rity, transparency, and credibility. of trade policy reform also resonates with Collier, From the early 1990s, why and how external Greenaway, and Gunning (1997, p. 307 ) who market constraints may cause problems for de- note: "in the presence of multiple policy instru- veloping countries that adopt outward-oriented ments and conflicting interest groups competing trade strategies has been increasingly recognized for attention, policy reforms are more likely to be (Cline 1989 and Ghosh 1992). Industrial countries incremental than comprehensive." In any case, are the primary export markets of newly indus- there are circumstances in which adjustment costs trializing developing countries and market ac- associated with policy reforms may be lower if cess barriers in those industrialized countries adjustment can be spread over time (Winters limit export opportunities of developing coun- 2000), provided the delay does not become an ex- tries. One of the first manifestations of this con- cuse for aborting an otherwise necessary reform. cern was "export pessimism"--the belief that On the other side, sometimes a "big bang" ap- developing countries' exports could not suc- proach is viewed as necessary to take advantage cessfully penetrate the economies of the devel- of an opportunity for reform and to signal credi- oped countries (Hughes 1992). This was because bility and commitment of new leadership. industrial country imbalances at that time, com- 8 8 A P P E N D I X B 1 : T R A D E A N D D E V E L O P M E N T -- T H E S TAT E O F T H E D E B AT E bined with unfavorable trends in international must first be assisted to address their export markets, would sharply limit the extent to which supply capacity constraints through increased in- world markets could continue to absorb exports vestment in infrastructure and skills. from developing countries. Ghosh (1992) argued Research suggests that developing countries that unless the industrial economies enjoyed should focus on both increasing their access to faster growth, there would be little room for de- industrial country markets and reducing their veloping countries to adopt and successfully im- own protection levels to reap the gains from lib- plement outward-oriented trade policy reform. eralization in the context of multilateral trade ne- Some researchers agree that trade policy re- gotiations (Anderson et al. 2002).7 forms in developing countries are likely to be more successful if they are supported by im- Complementary and Mitigating Measures proved economic performance and more ac- Trade policy reforms generally are expected to commodating policy changes by the developed work with lags that may vary by country, sector, countries (World Bank 2002b). In particular, im- and the periods over which the reforms are im- proved market access for poor countries in the plemented. In principle, therefore, trade policy developed countries may be necessary (Ian- reforms tend to yield their full efficiency and chovichina, Mattoo, and Olarreaga 2001). welfare gains in the long term. But trade policy Developed countries have made some efforts reforms also have costs that often are incurred to provide developing countries with special well before the related stream of benefits can be market access. For example, the high-income realized. In addition, there is an inherent distri- countries have offered the generalized system of butional problem: the "burden" of the reforms preferences as a means of mitigating the effects may not fall on the same agents who reap the of high tariffs on developing countries' exports. benefits or the cost may not be shared in the These schemes have helped some developing same proportion as the benefits across different countries to take advantage of export opportu- groups. Trade policy reform works by reallocat- nities in preference-giving countries. But the ing resources from less efficient to more effi- schemes have not fully eliminated the trade bar- cient uses. This reallocation is not without costs. riers faced by low-income countries for several In particular, as workers are displaced from in- reasons. First, the schemes are unilateral and efficient enterprises, some amount of transi- can be eliminated or modified at will by the pref- tional unemployment and output loss is likely. erence-granting countries. Second, they have Trade policy reform may be associated with a limited product coverage, and the preference second type of problem. When import barriers mainly applies to products that already face rel- are reduced, imports may increase sharply and atively low tariffs. Third, the preferences are eas- rapidly, thus generating a balance-of-payments ily eroded by non-tariff measures such as deterioration. For these and similar reasons, pol- safeguards, anti-dumping, rules of origin, and icymakers are often concerned that trade policy "graduation" mechanisms. reform may have negative effects on the bal- A more effective remedy suggested by some ance-of-payments, output, employment, as well researchers is to extend duty-free and quota- as income distribution. free market access to all exports of the least-de- These concerns are unjustified in certain cases. veloped countries. This could achieve two Papageorgiou and others (1991) suggests that important objectives: help mitigate the defi- for many countries studied, the costs of trade pol- ciencies of existing preferential market access icy reforms were very small, even in the short schemes and significantly increase the export term. In most of these countries, the balance-of- growth of this set of countries.6 But while agree- payments position improved as a result of policy ing that improved and predictable market access since the improvement in export performance for African products could be helpful, at least to was both quick enough and large enough to some extent, Helleiner (2002b) suggests that more than offset the surge in imports. Other before market access, the poorest countries studies (such as Oyejide, Ndulu, and Gunning 8 9 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 1999) show that short-term costs constitute re- that they should be put in place after trade pol- alistic concerns for countries contemplating or icy reform has been implemented and the tran- implementing trade policy reforms. Furthermore, sitional costs begin to show. while cautioning against broad generalizations By comparison, opinion is divided regarding about the depth and duration of possible transi- whether complementary policies should pre- tion losses associated with trade policy reform, cede or be implemented simultaneously with Winters (2000) suggests a few pointers. First, the trade policy reform. It has been suggested (for more protected the sector being liberalized the instance by Winters 2000) that if a trade policy greater the transitional costs are likely to be, al- reform program is credible and it includes sig- though this sector may also offer the largest long- nificant transition periods, it could be an im- run returns to reform. Second, if the labor market portant stimulus for the complementary is exposed to very large shocks emanating from measures that are required. Hence, it may not be policy reforms that render it dysfunctional, tran- necessary for complementary measures to pre- sitional unemployment may be larger in volume cede trade policy reform. However, this point of and longer in duration. Third, rapid or concen- view may underestimate the extent of institution trated reforms are more likely to generate tran- building and capacity creation required before sitional losses through unemployment than more a low-income country can effectively realize the diffuse reforms. full potential of a major trade policy reform. Complementary, compensatory, and mitiga- The sequencing of complementary measures tory measures are typically designed to address may not, in fact, be fully amenable to theoreti- the costs associated with trade policy reform. In cal or even empirical generalizations. It may be particular, complementary measures may be necessary to evaluate the structure and per- used to reduce the adjustment cost of reform and formance of relevant market institutions as well provide households the assistance that they may as the economy's supply response capacity con- need to avoid poverty by enabling them to attain straints before designing a major trade policy re- a greater degree of economic viability (Winters form program. 2000). Thus, complementary policies may need to be put in place before or at the same time as Trade and Growth a trade policy reform is implemented. The role of trade and hence trade-related poli- Compensatory and mitigatory policies include cies on country performance has been a subject measures designed to protect in some way those of controversy for well over a century. The de- who suffer losses as a result of trade policy re- bate about whether trade was a handmaiden or form. For these policies, targeting is critical be- an engine of growth was theory-based before be- cause of the need to focus especially on those coming more empirical from the late 1960s on- who lose rather than offer general support that wards, when developing countries were first could be costly and wasteful. For example, when subjected to intensive scrutiny. trade policy reform leads to employment losses This rest of this Appendix traces the main it should be possible to identify those affected "turning points" in the debate over trade and and arrange redundancy payments and re-train- growth to help place the evaluation in context.8 ing programs. Sometimes the pattern of loss The focus is on three main areas: the role of in- has a regional dimension and hence, mitigative ternational trade in economic growth, the ap- measures may have to reflect this. In general, proaches to trade liberalization, and the links therefore, compensatory and mitigatory poli- between trade, distribution, and poverty. cies involve the creation of "safety nets" for those who suffer from the transitional costs of trade The Role of Trade in Economic Growth policy reform. The belief that international trade is critical to With respect to the sequencing of mitigatory economic growth underpinned the World Bank's measures, to the extent that they must be ap- policy advice to its client countries from the propriately targeted, it is reasonable to assume early 1980s. The Bank and its clients had few al- 9 0 A P P E N D I X B 1 : T R A D E A N D D E V E L O P M E N T -- T H E S TAT E O F T H E D E B AT E ternatives as import substitution of non-durable complete stabilization resulting in contractionary consumer goods had run its course. Little, Scott, fiscal or monetary policies that squeeze out and Scitovsky (1970) Balassa and Associates credit from the private sector and reduce the (1971) were the first multi-country studies of entry of new firms or result in appreciation of the trade regimes in developing countries, the for- real exchange rate, thereby reducing competi- mer commissioned by the OECD Development tiveness; (ii) missing complementary (so-called Centre, and the latter by the World Bank. These "behind the border") policies and institutions to were followed by an influential study carried support faster export growth such as customs, out by the NBER and summarized in Bhagwati rule of law, quality and standards, as well as trade (1978) and Krueger (1978). logistics;11 and (iii) insufficient or inadequate The multi-country studies, following a com- skills and capital to take advantage of emerging mon methodology, were the first to detail sys- opportunities that arise from the liberalization. tematically the inefficiencies of the then-prevalent The dissatisfaction with the outcomes associ- import-substituting development strategies fol- ated with more open economies culminated in lowed throughout the developing world. The large protests at the World Trade Organization's studies were influential in promoting export ori- 1999 meetings in Seattle. entation as a path to more rapid economic The second reason trade is controversial is growth. The experience of the East Asian "tigers" that, in contrast to the "first best" world that that moved the furthest away from the purely im- underpins standard trade theory, the "real" world port substitution model was simplified and gen- has several deviations that are likely to influ- eralized to support the export-led growth model.9 ence the outcome of unilateral trade liberaliza- As pointed out by Little in his analytical ap- tion. The existence of protectionism in industrial praisal of changes in the field of development and other developing countries, the rise of re- economics, this vision of the role of trade in a gionalism and unanticipated political events are country's development strategy was a minority just three factors that can result in unanticipated view in the profession. It was only with the advent outcomes. Therefore, some critics of trade have of the two oil shocks and debt crisis that the fail- denounced the Bank for not taking these factors ure of what Sachs and Warner (1995) called the into account. "state-led" development strategy became apparent The third reason is related to the politics of and more widely accepted in development think- any reform, but especially trade. Changes in rel- ing. World Bank researchers had contributed to the ative prices under trade are important and hence, literature; but this thinking was not put into prac- anticipated distributional shifts lead to strong op- tice until lending conditions were used in struc- position and controversies that, at times, end in tural adjustment lending, and was subsequently policy reversals. crystallized in the 1987 World Development Report Beyond these points on imperfect trade lib- (WDR), which focused on trade policies. eralizations, there are questions about the link Despite the potential benefits from trade, between trade reform and economic growth. policies related to trade liberalization remain The econometric evidence on the links between controversial in some circles for at least three rea- trade reform, economic growth, and trade per- sons. First, critics assert that it led to instances formance remains mixed.12 It has proven difficult of too rapid liberalization, resulting in severe to use the cross-sectional approach to establish transitional costs of adjustment reflected in in- causality and identify the role of other inter- creased poverty, de-industrialization, and job vening factors such as geography and institu- loss. They also argue that the impact of trade re- tional factors. In particular, the verdict is still form on exports has been limited.10 While the out on the relative importance of each factor. long-term gains from trade appear to be well Researchers continue to extend existing established, the benefits may be less visible in the methodologies to explore the links between trade short run for at least three reasons: (i) inap- reform and growth. Specifically, they have fo- propriate macroeconomic policies, such as in- cused on refining the measurement of "open- 9 1 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 ness" and on incorporating additional economic dividual country case studies in disentangling the variables that influence whether and the extent to various policies that affect trade and growth. which trade liberalization results in accelerated Thus, if trade is necessary for sustained eco- economic growth. In particular, by identifying nomic growth, countries that have followed the years when non-reversed trade liberalization largely different approaches to liberalization can programs were launched and using panel re- have equally good performance (see for exam- gression techniques, Wacziarg and Welch (2003) ple the country examples in the Rodrik [2003] find that on average, growth, investment, and survey). Finally, while international trade is nec- openness increase after trade liberalization. Oth- essary for sustained economic growth, coun- ers have focused on the role of additional coun- tries take different paths to liberalizing trade try-specific factors, such as the role of institutions, with no assurance that doing so will by itself in determining the success of trade reform (Ro- necessarily lead to accelerated growth. drik, Subramanian, and Trebbi 2004; Freund 2003). The new growth theory predicts that open- The Approaches to Trade Liberalization ness to trade (and investment) increases access The relative importance of the three primary to new technology, enhances efficiency by mak- routes to trade liberalization--multilateral, pref- ing market structures more competitive, allow- erential regional trading arrangements, and uni- ing the exploitation of economies of scale and lateral--have varied and evolved. The institutional by spurring innovation. In a study of 93 countries, framework for global multilateral trade liberal- Edwards (1998) finds that total factor productivity ization is the World Trade Organization (WTO), growth is faster in more open economies. Sub- and before 1996, the General Agreement on Tar- sequent work in this area has supported this iffs and Trade (GATT). The WTO enforces a rules- finding.13 De Melo (2005) documents how the based system that governs trade relations among Bank's research in this area has contributed to its members. The organization affects the trade establishing the microeconomic channels at the policies of its members through a number of firm and sector level through which trade open- channels: periodic Trade Policy Reviews, multi- ness contributes to economic growth. Building lateral trade negotiations, the dispute settlement on firm and census surveys in manufacturing, mechanism, as well as the accession process into Bank research contributed to establishing the the organization. Bhagwati (1982), World Bank beneficial impact of "import discipline" on pric- (World Bank 2002b), and others have argued ing and productivity gains. More recently, De that participation (and hence liberalization) Melo notes that Bank industry studies have com- through the multilateral route ultimately bene- plemented firm-level studies by establishing the fits the developing countries as it provides them links among a variety of factors (R&D embodied with a stronger voice than they would have in bi- in trade, foreign direct investment, and product lateral negotiations. While the Uruguay Round variety) and productivity growth. (launched in 1986 and completed in 1993 under Despite differences of opinion among econo- the GATT) was not the first round of liberaliza- metricians on the links between trade reform and tion undertaken under the multilateral frame- economic growth, areas of common ground work;14 it was the first in which developing exist. While the econometric evidence on the countries participated in large numbers. causality between trade openness and economic Mixed views persist regarding the achieve- growth is equivocal, few countries have grown ments of the Uruguay Round that preceded the rapidly and reduced poverty following a long- current Doha Development Agenda. On the pos- term autarkic approach. As noted in Panagariya itive side, large tariff cuts were accomplished (2004), neither Rodrik (1999) nor Stiglitz (2002) compared to previous rounds, "voluntary" export ultimately disputes the benefits from countries constraints were abolished, agriculture was opening up their economies. Researchers on brought under GATT discipline, a dispute set- both sides of the issue also increasingly agree on tlement mechanism was codified through the es- the importance of country specificity and of in- tablishment of the WTO, and an agreement was 9 2 A P P E N D I X B 1 : T R A D E A N D D E V E L O P M E N T -- T H E S TAT E O F T H E D E B AT E reached on phasing out non-tariff barriers under gion of the world. Over 300 such RTAs currently the Multi-Fibre Arrangement (MFA). exist.21 Several factors underlie the proliferation Despite estimated aggregate gains, the im- of RTAs--strategic and geopolitical interests, un- pact on individual countries and regions was certainties about the future of the multilateral uneven. Even the elimination of the MFA, while trading system following the failure to launch a advantageous for exporters in theory, was sub- round in Seattle and subsequent difficulties in sequently found to potentially adversely affect de- reaching agreements following the Doha meet- veloping country exporters. More generally, ings, and a desire to use the strength of numbers developing countries signed the Single Under- to develop larger markets and increase regional taking, committing them to agreements in the cooperation on a range of trade and non-trade is- Uruguay Round that they later found difficult to sues. The Asia-Pacific Economic Cooperation implement due to capacity constraints. In addi- (APEC) arrangement, the European Union, MER- tion, many (including World Bank researchers) COSUR, the North American Free Trade Agree- found the costs associated with implementing ment (NAFTA), and numerous other free trade some of these new agreements were inconse- areas and customs unions now co-exist (uncom- quential.15 Trade-related capacity building that fortably) with the multilateral system and its rules. was promised under the Uruguay Round was Two camps of thought exist on whether RTAs slow to arrive, leading to a Uruguay Round should be viewed as "building blocks" or "stum- "hangover"16 for developing countries and set- bling blocks" to liberalizing trade.22 Supporters ting the stage for their greater caution in sub- of RTAs discount the extent to which trade di- sequent trade negotiations. version exceeds trade creation under RTAs and The most recent round of trade negotiations, argue that in some circumstances smaller RTAs the Doha Development Agenda (DDA), was ini- may be easier for countries to negotiate. Skep- tiated in November 2001. More than any previ- tics argue that RTAs are likely to result in a "hub ous round, the DDA aims to make multilateral and spoke" type of growth with the smaller trade liberalization more development-friendly. spokes being disadvantaged. In the view of some Estimates of the gains from the DDA range widely researchers, these arrangements reduce global and depend greatly on the extent to which both welfare and undermine the institutional archi- developing and industrial countries open up tecture of the multilateral trading system. their markets. As industrial countries have not Empirical evidence on the extent to which agreed to significant agriculture liberalization, the RTAs help liberalize and expand trade is less actual gains from the DDA can be quite low.17 common and, similar to the theoretical literature, Since Doha, the DDA negotiations have there is no clear consensus. In a recent review limped along. Industrial countries thus far have of regional trading arrangements in Africa which not been able to offer the type of concessions has more than 30 RTAs (or an average of four per that researchers deem necessary to make the country),23 Yang and Gupta (2005) find that RTAs Round beneficial to developing countries. De- have been ineffective in expanding trade or in- veloping countries have been much more as- vestment. Limäo (2005) shows empirically that sertive than in previous rounds and (to some U.S. preferential trading arrangements have extent based on the experience with the Uruguay harmed multilateral liberalization. Round) are more skeptical of the touted bene- The primary route to trade liberalization for fits. Following a disappointing interim meeting most Bank clients during the 1980s was unilat- in Cancun in September 2003, a framework on eral trade liberalization. Much of this liberaliza- the modalities for negotiations was agreed in tion was carried out with the support of the August 2004. Nonetheless, substantial risks per- Bank and the International Monetary Fund (IMF). sist in reaching agreement on the DDA given Not much research has been done on how the stances of the negotiating parties.18, 19 much protection has been reduced through the In the meantime, regional preferential trad- different channels. Analyses done by the Bank in ing arrangements20 have sprung up in every re- 1997 and again in 2004 suggest that a large share 9 3 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 of trade liberalization carried out by Bank clients cial in reducing the hardships of the poor rather occurred through the dialogue with the Bank than abandoning the reforms. Hertel and Reimer and associated lending.24 In a recent paper, Rose (2004) provide an up-to-date summary of the re- (2004) questions the extent to which the multi- sults of recent studies. As they note, research in lateral system has actually influenced levels of this area is evolving rapidly. In another contri- protection. By refining the econometric approach bution to the literature, UNCTAD (2004) finds that used in the gravity model to take into account dif- trade liberalization and expansion in the least ferent groups of countries and the asymmetric lib- developed countries during the 1990s did not lead eralization pattern, Subramanian and Wei (2003) to poverty reduction. It attributes this result in find a positive and strong, albeit rather uneven, part to the pattern of economic growth as well impact of the WTO on trade liberalization. In par- as civil conflicts in some of these countries. ticular, their results suggest that the WTO has As women are disproportionately represented not contributed to greater openness in develop- among the poor, international trade can improve ing countries. But it may be more important to employment opportunities for women. In a sur- separate the rules-making aspect of the WTO vey of the empirical literature on the impact of from its ability to liberalize trade. international trade on gender equality, Swamy (2004) finds that increasing trade is generally Trade, Income Distribution, and Poverty associated with narrowed gender wage gaps. With the establishment of the Millennium De- However, for a country to maximize the gains velopment Goals (MDGs), reducing poverty and from trade, she illustrates that education, skills facets of poverty such as vulnerability and dep- acquisition, and a nondiscriminatory labor mar- rivation have been strengthened as development ket are also needed. In Sub-Saharan Africa, a priorities. The extent to which economic growth particular consideration is enhancing female reduces poverty depends on, among other fac- farmers' control over resources so they can fully tors, the pattern of growth, the extent to which reap the benefits from trade expansion. it is broad-based, and the degree to which it is Overall, the literature emphasizes macroeco- labor-absorbing. The discussion of the links be- nomic approaches and is narrowly focused on tween trade, distribution, and poverty is thus trade policy. This approach is insufficient at a part of the larger discussion on the circumstances number of levels--not the least of which is the under which economic growth is "pro-poor." magnitude of the impact when trade policy is the A major contribution to the analytical under- solitary focus. The fact is that direct effects may pinnings of the links between trade liberalization be quite small; therefore, researchers need to and poverty is provided by McCulloch, Winters, look at other factors that can affect the ability of and Cicera (2002). They identify the three main individuals to take advantage of the opportunities channels through which macro-level trade lib- offered by more open trade regimes such as their eralization influences poverty at the household access to markets. The other important factor is and individual level as enterprises, markets, and that trade policy is never conducted in isolation the state. Their analysis then examines how from other policies. These other factors may ac- changes in border prices, tariffs, and other trade tually have greater impact on the poor and thus, reforms work through each of these channels, the role of trade policies needs to be put in rela- recognizing that market imperfections, non-mar- tive context. Finally, the consensus also appears ket factors, institutions, and gender can all in- to be moving towards the need for more em- fluence the linkages between trade and poverty. phasis on tools that help measure the micro ef- Empirical evidence on unambiguous links be- fects on firms and households of macro policies tween trade and poverty is limited. Ben-David and including trade (Hertel and Reimer 2004). In par- Winters (2000) note that trade reform can result ticular, they note the importance of better un- in losers in the short-run but argue that im- derstanding how factor markets, notably labor, proving supporting policies such as safety nets work given that it is the most important asset of and job retraining are ultimately more benefi- the poor. 9 4 APPENDIX B2: LESSONS FROM PREVIOUS IEG EVALUATIONS Agriculture derlying the analysis of industrialization has led IEG (1996a) evaluated agricultural sector ad- the Bank to downplay the micro-level process of justment loans (AGSECALs) including its trade capability acquisition that underpins its industrial policy components. According to this study, success. IEG notes that the Bank reports merely throughout the 1970s, agricultural development pointed at orthodox explanatory factors such programs mistakenly relied on public enter- as human capital and export orientation without prises, over-valued exchange rates, high tariffs, mentioning selective government intervention and quantitative restrictions. In the 1980s, the in capability development, technological search Bank's agricultural sector adjustment operations and effort, or interaction with other firms and in- supported the public production model and stitutions. According to this study, Bank project sought to increase its efficiency. However, the work shows a much clearer appreciation of ca- output impact of most completed AGSECALs pability building, selectivity, and institutions. had been rather small, as they did not tackle Similarly in the case of Indonesia, IEG suggests the basic policy constraints. Although IEG proj- that the Bank's analyses did not develop sufficient ect evaluations rated 66 percent of the 35 com- understanding of Indonesian industry at the sub- pleted AGSECALs as satisfactory, their objectives sectoral level. As in the case of Korea, the Bank's were deemed irrelevant by this study since most orthodox stance coexisted with a pragmatic ap- of them were designed within the policy frame- proach that the IEG report judged as better work of the 1980s. IEG (1996a) noted that only geared to the needs of particular sectors during since the late 1980s was there a clear rejection the liberalization process. Considering ineffi- of the state-led model with AGSECALs starting to cient state intervention in the case of India, the aim at liberalization, competitive marketing, and study commended Bank's insistence on dereg- reduced state intervention in international trade. ulation and outward-looking policies, though arguing that more effective industrial strategies Industrial Activities could have been formulated for this country. An IEG study of Bank funding for industrial ac- IEG concluded that the emphasis of the Bank on tivities in Korea, India, and Indonesia, calls for non-selective interventions seemed to under- more decisive support to state-led activities (IEG mine a potentially valid case for selective pro- 1991b). The study reports that up to the end of motion to help countries tackle the next stage fiscal 1990, lending to all industrial activities con- of the learning process. stituted 16.9 percent of the Bank's total cumu- An assessment of industrial restructuring also lative lending. From those loans, 63 percent was recommended support for active state interven- channeled through financial intermediaries, and tion in this process (IEG 1995). After arguing that 37 percent went to industrial projects. After trade liberalization and real exchange rate deval- backing import substitution strategies in the uation were common characteristics of success- 1950s and 1960s, Bank support for industrial- ful industrial restructuring, this evaluation advised ization increasingly moved toward outward-ori- the Bank to extend its role into support for tech- ented industrialization. IEG considered that in nology development; improved information about the case of Korea, a restrictive framework un- market opportunities, particularly for exports; 9 5 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 and labor training, redeployment, and other ac- the attainment of internal balance before the tions to mitigate the costs of restructuring. reduction of tariffs; and the maintenance of real interest rates on savings above international lev- Trade Liberalization els to keep external balance. Considering the Since the early 1990s, several IEG studies have need to maintain fiscal and internal balance dur- evaluated Bank-supported trade liberalization. In ing reforms, IEG suggested coordination be- 1992, IEG evaluated trade reforms backed by tween tax reforms and tariff reductions. adjustment programs in nine countries (IEG Governments should also foster internal com- 1992a). Conditions usually attached to these petition to prevent domestic regulatory policies loans included measures to promote a more from eventually being used as anti-trade devices. open economy, improve macroeconomic man- Comparing the experiences of Ghana and In- agement, and remove price distortions and im- donesia, the report deemed investments in pediments to efficient resource allocation. The human capital crucial for project sustainability. Bank had also worked to facilitate consensus It also argued for the need to consider country- building and to encourage borrower ownership specific characteristics such as a low tax base through dialogue, training, and coordination. (e.g., Pakistan) or volatility of terms of trade The report noticed that all countries reduced (e.g., Jamaica). Borrower ownership was con- quantitative restrictions, but only some of them sidered necessary to increase the likelihood of reduced tariffs significantly. In two countries, countries actually meeting loan conditions and early trade reforms were reversed due to eco- for enhanced credibility of the reforms. nomic instability. Though reforms required IEG (1992a) urged Bank ESW to identify pop- changes in the market policy frameworks that en- ulation groups negatively affected by trade re- courage competition, the Bank supported such forms, and to use well-targeted relief measures changes in only four countries, and in only one for losers. According to IEG (1992b) the rural case were reforms sufficiently comprehensive population had benefited more when reforms led according to IEG. to increases in tradable crops or agricultural in- After noting that higher export growth is fos- comes and less when the gains were concen- tered by easier access to imports of raw materi- trated on exportable crops, since the poor usually als and capital goods as a result of trade reform, participate less in exportable crop production IEG (1992a) suggested that sound general eco- than in the rest of the agricultural sector. Al- nomic policies, greater transparency in the reg- though the poor may benefit indirectly from ulatory framework, greater private sector access growth in agricultural exports, income inequal- to credit, and improved productivity contributed ity in rural areas rises in such cases. The report to a higher supply response. In addition, the re- found that Structural Adjustment Loans (SALs) port noted that the most successful adjusters pur- have usually included special programs to miti- sued a more active exchange rate policy than the gate the social costs of adjustment mainly in the less successful. form of programs for the newly unemployed IEG drew several lessons from the nine sam- and the chronically poor (e.g., public work pro- pled liberalization episodes in this review. In grams, nutrition support schemes for children general, it suggested that conditionality should and pregnant women, and targeted food subsi- emphasize a few key variables that are easy to dies). However, IEG highlighted poor design of monitor. The evaluation also argued that trade special programs, inadequate attention to the de- reform should be undertaken in three stages: (i) velopment of appropriate institutions, and lack tariffication; (ii) equalization of tariffs without re- of proper and timely financing. ducing tariff revenues; and (iii) reduction of tar- iffs. This sequence was generally followed in all Social Impact of Adjustment nine countries, although three are yet to move IEG has paid special attention to the effects of to the third stage. Complementary actions should trade and adjustment reforms in Sub-Saharan include a previous analysis of debt dynamics; Africa. A first evaluation on this issue (IEG 1993) 9 6 A P P E N D I X B 2 : L E S S O N S F R O M P R E V I O U S I E G E VA L U AT I O N S found that many assessments of African adjust- cultural pricing, marketing, regulations, and ment operations did not deal with the basic trade liberalization. question of sequencing. The study demands An IEG evaluation of adjustment lending (IEG more attention in this regard, citing for example 1992b) also analyzed trade reforms implemented the need for export promotion to proceed over under these operations. Considerable progress import liberalization, though with adequate co- is recognized in reforming the trade regimes af- ordination to avoid an anti-export bias of pro- fecting industrial sectors, mainly in removing tectionist policies. A later update on this report export barriers. The report asserts that measures (IEG 1997) noticed that out of 30 countries with to replace or eliminate non-tariff barriers to im- trade-related conditionality in SALs between ports were also widespread. 1980 and 1996, compliance was good in 19 and weak or poor in 11 (though this was a better per- Trade Infrastructure formance than other elements of adjustment IEG (1996b) assessed Bank lending for port de- lending). More seriously, conditions dealing with velopment, analyzing 35 out of 57 related proj- the social impact of adjustment were only pres- ects between 1980 and 1992. Most projects aimed ent for half of the reforming countries. Simi- at developing and rehabilitating general cargo larly, IEG (1999) reports that nearly half of the and container ports. Out of 35, 27 had substan- Bank poverty assessments do not adequately tially achieved their objectives at the time the evaluate individual elements of the poverty re- Bank completed its loan disbursements, and duction strategy, failing to address the links be- most ports had performed adequately without tween poverty and macroeconomic policies such suffering any significant congestion. However, as trade and exchange rate policy. only five had a substantial impact on institu- IEG (1996a) argued that since AGSECALs tional development, and sustainability of bene- switched focus toward trade liberalization, their fits was likely in only 19. Moreover, few projects impact had been significantly positive for a large recorded their progress toward their stated ef- number of countries. However, the study still per- ficiency goals, and project objectives were usu- ceived some deficiencies in the Bank's approach ally considered attained when intermediate goals to agricultural policy reform. More than 85 per- were achieved. Average economic rate of return cent of AGSECALs ignored food security; Bank was 17 percent, although appraisal returns were directives did not require performance indica- estimated at 28 percent. On average, imple- tors; more than 75 percent of AGSECALs did mentation took 50 percent longer than pro- not address the issue of trade in agricultural jected and used larger amounts of Bank staff equipment and inputs; and little attention was than the average project. Many of the projects re- devoted to institutional and policy improve- viewed in this evaluation initially facilitated adap- ments to domestic markets. Furthermore, the tations to technological changes, but had Bank usually overestimated borrower perform- continuing problems related to labor illiteracy, ance; lent only to borrowers with external fi- falling revenues, and increased competition from nancing or fiscal problems; was not being other ports and transportation. The evaluation effective in supporting institutional reforms; and recommended that opening to private capital usually did not establish a proper connection be- should be the next step. tween the amount of financing of AGSECALs and their outcomes. Finally, this evaluation noted Source: Salinas, G. (2003), "Internal Evaluations of that Operational Directive 8.60 on adjustment World Bank Supported Trade Activities," Background lending did not cover the peculiarities of agri- Paper prepared for the Trade Assistance Evaluation. 9 7 APPENDIX C1: DEFINING TRADE IN THE BANK PORTFOLIO Trade Project Database Technical Notes Trade policy studies are also included in this category. General Description: The database was built (b) Trade Facilitation, Institutional: Includes using two main approaches: (i) Trade-related Bank operations aimed at developing trade- keywords (for example, export, imports, trade, related institutions such as customs, trade WTO, customs, and the like) were searched for promotion institutions, trade financing in- in project document descriptions on Image- stitutions, drawback systems, institutions in Bank. This approach was necessary as the Busi- charge of setting trade policies, technical ness Warehouse descriptions associated with assistance to exporters, antidumping and trade were not always accurate. The initial search standards systems, institutions dealing with was refined by a manual examination of project regional and multilateral agreements, and objectives. (ii) For projects approved after fiscal trade-related environmental regulators (in- year 2002 when the Business Warehouse intro- cluding those for forestry exports). duced a more refined and accurate definition of (c) Trade Facilitation, Infrastructure: This cat- trade projects, the Business Warehouse cate- egory includes projects supporting the de- gories of export development and competitive- velopment of trade-related facilities, such ness, regional integration, trade facilitation and as export processing or free trade zones, market access, and other trade and integration storage facilities for trade products, sector- were used to identify trade-related projects. specific infrastructure for exports/imports, or railways and roads that are explicitly in- Time Period: The database contains informa- tended to facilitate external trade according tion for the period covering fiscal 1981­2004. The to the project objectives and description in Trade Assistance Evaluation, however, focuses on ImageBank. Operations supporting port de- the fiscal 1987­2004 period. velopment that are explicitly tied to trade lo- gistics objectives are included. Classification: Trade-related projects are classi- (d) Trade Financing, Public: This includes Bank fied under the following categories: financing of state exporters and public im- ports. Imports under structural adjustment (a) Trade Liberalization: Includes projects with projects are intentionally excluded, but pub- policy changes related to the exchange rate, lic imports for economic recovery or reha- tariffs, import surcharges, non-tariff barriers, bilitation projects are only partially included. export barriers, trade-related subsidies, for- In particular, rehabilitation projects included eign exchange markets, liberalization of an are those that also contain additional trade- export-related economic sector, and priva- related actions beyond mere critical imports. tization or de-monopolization of trade ac- (e) Trade Financing, Private: Includes tivities. Most of these policies imply IBRD/IDA finance for private exporters and liberalization of trade activities, but in some of imports for the private sector. This cate- cases they include heterodox policies (fre- gory excludes those operations that pro- quently regarding trade-related subsidies). vide general financing to the private sector, 9 9 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 without earmarking funds for exporters. (g) Mitigation Policies: This includes opera- Neither does it include those projects that tions with trade-related components that finance imports through the foreign ex- are complemented with some measures and change market. policies to alleviate its potential negative ef- (f) Technical Assistance for WTO Accession fects over some sector of the population. and/or Negotiations: This category includes projects that support countries in their ne- Data collection was updated in April 2005 gotiations and accession to the World Trade and revised summary tables were prepared in Organization. May 2005. 1 0 0 APPENDIX C2: PORTFOLIO DATA FOR TRADE-RELATED PROJECTS Table C2.1: World Bank Lending for Trade-Related Projects (number of projects) I II III IV V VI VII VIII Trade TA for Total facilitation Trade WTO TR-related evaluated Approval Trade Physical financing accession/ Bank Bank fiscal year liberalization Institutional infrastructurea Public Private negotiations projectsb projectsc 1987­94 135 122 44 24 39 1 247 1,841 1995­99 70 76 43 3 18 1 146 948 2000­04 25 65 35 3 11 2 116 191 1987­2004 230 263 122 30 68 4 509 2,981 Source: Trade Assistance Evaluation Database. a. Includes only lending components for physical trade facilities in projects that have also other trade-related actions. b. This covers the same set of projects as in column IX, table C2.2. Columns I-VI do not sum to VII because the categorization of projects by trade-related theme is not mutually exclusive. c. Total may not add up due to rounding. Table C2.2: World Bank Trade-Related Commitments and Cofinancing (US$ million) IX X XI XII XIII XIV Est. Bank TR-related TR-cost / Total Bank share of TR- total Cost of TR-related lending of cost/total Approval TR-related TR-related project trade financing evaluated Bank lending fiscal year Bank lendinga cofinancing financingb actionsc (XII/XI) projectse (XII*XIII/XIV)d, e 1987­94 30,433 10,507 40,940 21,738 53% 142,335 8.1% 1995­99 14,834 7,643 22,477 10,172 45% 72,529 6.3% 2000­04 6,877 3,822 10,700 6,309 59% 21,688 17.2% 1987­2004 52,144 21,972 74,117 38,219 52% 236,578 8.3% Source: Trade Assistance Evaluation Database. a. Total lending in projects that contain trade-related components. b. World Bank lending plus cofinancing, including government's contributions to Investment and technical assistance project costs. c. Sum of XV to XX (table C2.3). This column differs from XI (table C2.2) as it only captures the share of multi-sector lending operations related to trade actions. d. This ratio was not calculated using the exact amount of Bank funds that supported trade actions, but an estimation based on the share of project costs devoted to trade accounts. e. Total may not add up due to rounding. 1 0 1 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table C2.3: World Bank Trade-Related Projects (cost of trade actions in US$ million) XV XVI XVII XVIII IXX XX XXI Trade facilitation Trade TA for Total cost Approval Trade Physical financing WTO accession/ of trade fiscal year liberalization Institutional infrastructurea Public Private negotiations actionsb 1987­94 6,453 1,880 2,140 4,996 6,607 14 22,091 1995­99 1,562 1,159 4,511 212 2,726 1 10,172 2000­04 196 1,153 4,418 140 395 6 6,309 1987­2004 8,212 4,192 11,069 5,349 9,728 21 38,571 Source: Trade Assistance Evaluation Database. a. Includes only lending components for physical trade facilities in projects that have also other trade-related actions. b. Sum of XV to XX (Table C2.3). This column differs from XI (table C2.2) as it only captures the share of multi-sector lending operations related to trade actions. 1 0 2 A P P E N D I X C 2 : P O RT F O L I O D ATA F O R T R A D E - R E L AT E D P R O J E C T S Figure C2.1: Ratings of Projects with Trade Components > 80 percent, 1987­2004 a: Percent of projects (trade components > 80%) rated with satisfactory outcome, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 b: Percent of projects (trade components > 80%) rated with likely sustainability, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 c: Percent of projects (trade components > 80%) rated with substantial institutional impact, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 Trade-related All Bank Source: Trade Assistance Evaluation Database. 1 0 3 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table C2.4: IEG Ratings of Projects with Trade Components > 80 percenta (number of projects) Approval fiscal year 1987­94 1995­99 2000­04 1987­2004 Number of IEG evaluated projects with trade components > 80% 75 24 2 101 IEG ratings of trade-related projects (%) Satisfactory outcomeb 69 79 100 72 Likely sustainabilityc 60 83 100 66 Substantial institutional development impactd 22 54 50 30 Satisfactory Bank performance 62 83 100 70 Satisfactory borrower performance 64 75 100 68 Number of TAE evaluated projects with trade components > 80% 42 8 0 50 TAE implicit ratings of trade components (%)e Satisfactory outcome 74 88 NA 76 Likely sustainability 58 88 NA 63 Substantial institutional development impact 15 43 NA 20 Satisfactory Bank performance 65 100 NA 73 Satisfactory borrower performance 83 71 NA 80 TAE satisfactory outcome by area (implicit, %) Trade liberalization 93 50 NA 88 Institutional 26 50 NA 30 Physical infrastructure 100 100 NA 100 Public financing 64 100 NA 69 Private financing 59 67 NA 60 TA for WTO accession/negotiations NA NA NA NA Mitigating measures 100 0 NA 100 Memo: 1987­2004 Satisfactory outcome 70 77 85 73 Likely sustainability 53 74 82 61 Substantial institutional development impact 37 52 44 42 Satisfactory Bank performance 71 79 88 76 Satisfactory borrower performance 66 74 79 70 Source: Trade Assistance Evaluation Project Database. a. TAE evaluations based on 494 projects. Percentages are calculated based on the total number of evaluated projects for each category, which may be lower than the total evaluated projects shown. b. Satisfactory refers to Highly Satisfactory, Satisfactory, and Marginally/Moderately Satisfactory. c. Likely refers to Likely and Highly Likely. d. Substantial refers to Substantial and High. e. Implicit ratings from IEG project documents, estimated under the TAE. TAE ratings could not be extracted for all evaluated projects. 1 0 4 A P P E N D I X C 2 : P O RT F O L I O D ATA F O R T R A D E - R E L AT E D P R O J E C T S Figure C2.2: Ratings of Projects with 80 percent > Trade Components > 50 percent, 1987­04 a: Percent of projects (80% > trade components > 50%) rated with satisfactory outcome, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 b: Percent of projects (80% > trade components > 50%) rated with likely sustainability, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 c: Percent of projects (80% > trade components > 50%) rated with substantial institutional impact, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 Trade-related All Bank Source: Trade Assistance Evaluation Project Database. 1 0 5 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table C2.5: IEG Ratings of Projects with 80 percent >Trade Components > 50 percenta (number of projects) Approval fiscal year 1987­94 1995­99 2000­04 1987­2004 Number of IEG evaluated projects with 80 % > trade components > 50% 24 5 2 31 IEG ratings of trade-related projects (%) Satisfactory outcomeb 71 60 100 71 Likely sustainabilityc 57 80 100 63 Substantial institutional development impactd 27 50 100 36 Satisfactory Bank performance 63 80 100 73 Satisfactory borrower performance 0 67 100 50 Number of TAE evaluated projects with 80% > trade components > 50% 21 4 0 25 TAE implicit ratings of trade components (%)e Satisfactory outcome 76 100 NA 80 Likely sustainability 60 100 NA 65 Substantial institutional development impact 17 100 NA 21 Satisfactory Bank performance 63 100 NA 67 Satisfactory borrower performance 88 100 NA 78 TAE satisfactory outcome by area (implicit, %) Trade liberalization 77 100 NA 82 Institutional 54 100 NA 60 Physical infrastructure 75 67 NA 71 Public financing 100 0 NA 100 Private financing 40 0 NA 40 TA for WTO accession/negotiations 0 0 NA 0 Mitigating measures 0 0 NA 0 Memo: 1987­2004 Satisfactory outcome 70 77 85 73 Likely sustainability 53 74 82 61 Substantial institutional development impact 37 52 44 42 Satisfactory Bank performance 71 79 88 76 Satisfactory borrower performance 66 74 79 70 Source: Trade Assistance Evaluation Project Database. a. TAE evaluations based on 494 projects. Percentages are calculated based on the total number of evaluated projects for each category, which may be lower than the total evaluated projects shown. b. Satisfactory refers to Highly Satisfactory, Satisfactory, and Marginally/Moderately Satisfactory. c. Likely refers to Likely and Highly Likely. d. Substantial refers to Substantial and High. e. Implicit ratings from IEG project documents, estimated under the TAE. TAE ratings could not be extracted for all evaluated projects. 1 0 6 A P P E N D I X C 2 : P O RT F O L I O D ATA F O R T R A D E - R E L AT E D P R O J E C T S Table C2.6: IEG Ratings of Trade-Related Projectsa (total project cost in US$ million) Approval fiscal year 1987­94 1995­99 2000­04 1987­2004 Cost of IEG evaluated trade-related projects 40,011 15,748 2,936 58,696 IEG ratings of trade-related projects (%) Satisfactory outcomeb 74 61 94 71 Likely sustainabilityc 62 69 93 65 Substantial institutional development impactd 41 39 32 40 Satisfactory Bank performance 67 76 98 73 Satisfactory borrower performance 66 55 94 64 Cost of TAE evaluated trade-related projects 29,952 10,206 60 40,218 TAE implicit ratings of trade components (%)e Satisfactory outcome 78 96 100 83 Likely sustainability 57 62 100 58 Substantial institutional development impact 38 54 0 41 Satisfactory Bank performance 73 92 0 76 Satisfactory borrower performance 79 87 100 81 TAE satisfactory outcome by area (implicit, %) Trade liberalization 86 95 100 89 Institutional 66 97 0 75 Physical infrastructure 79 43 0 63 Public financing 77 100 0 79 Private dinancing 60 82 0 61 TA for WTO accession/negotiations 0 0 0 0 Mitigating measures 100 55 0 86 Memo: 1987­2004 Satisfactory outcome 77 75 96 78 Likely sustainability 64 77 92 70 Substantial institutional development impact 43 48 55 46 Satisfactory Bank performance 75 84 97 81 Satisfactory borrower performance 72 73 96 75 Source: Trade Assistance Evaluation Project Database. a. TAE evaluations based on 494 projects. Percentages are calculated based on the total number of evaluated projects for each category which may be lower that the total evaluated projects shown. b. Satisfactory refers to Highly Satisfactory, Satisfactory, and Marginally/Moderately Satisfactory. c. Likely refers to Likely and Highly Likely. d. Substantial refers to Substantial and High. e. Implicit ratings from IEG project documents, estimated under the TAE. TAE ratings could not be extracted for all evaluated projects. 1 0 7 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table C2.7: IEG Ratings of Projects with Trade Components > 80 percenta (project cost in US$ million) Approval fiscal year 1987­94 1995­99 2000­04 1987­2004 Cost of IEG evaluated projects with trade components > 80% IEG ratings of trade-related projects (%) Satisfactory outcomeb 66 86 100 70 Likely sustainabilityc 61 85 100 66 Substantial institutional development impactd 25 79 17 35 Satisfactory Bank performance 64 87 100 71 Satisfactory borrower performance 65 84 100 71 Cost of TAE evaluated projects with trade components > 80% 9,027 547 0 9,574 TAE implicit ratings of trade components (%)e Satisfactory outcome 70 95 NA 71 Likely sustainability 56 95 NA 58 Substantial institutional development impact 15 50 NA 16 Satisfactory Bank performance 72 100 NA 74 Satisfactory borrower performance 80 88 NA 80 TAE satisfactory outcome by area (implicit, %) Trade liberalization 86 57 NA 84 Institutional 61 100 NA 63 Physical infrastructure 100 100 NA 100 Public financing 76 100 NA 78 Private financing 54 82 NA 55 TA for WTO accession/negotiations 0 0 NA 0 Mitigating measures 100 0 NA 100 Memo: 1987­2004 Satisfactory outcome 77 75 96 78 Likely sustainability 64 77 92 70 Substantial institutional development impact 43 48 55 46 Satisfactory Bank performance 75 84 97 81 Satisfactory borrower performance 72 73 96 75 Source: Trade Assistance Evaluation Project Database. a. TAE evaluations based on 494 projects. Percentages are calculated based on the total number of evaluated projects for each category which may be lower that the total evaluated projects shown. b. Satisfactory refers to Highly Satisfactory, Satisfactory, and Marginally/Moderately Satisfactory. c. Likely refers to Likely and Highly Likely. d. Substantial refers to Substantial and High. e. Implicit ratings from IEG project documents, estimated under the TAE. TAE ratings could not be extracted for all evaluated projects. 1 0 8 A P P E N D I X C 2 : P O RT F O L I O D ATA F O R T R A D E - R E L AT E D P R O J E C T S Table C2.8: IEG Ratings of Projects with 80 percent > Trade Components > 50 percenta (project cost in US$ million) Approval fiscal year 1987­94 1995­99 2000­04 1987­2004 Cost of IEG evaluated projects with 80% > trade components > 50% 3,953 1,096 105 5,154 IEG ratings of trade-related projects (%) Satisfactory outcomeb 71 36 100 64 Likely sustainabilityc 69 90 100 74 Substantial institutional development impactd 67 31 100 61 Satisfactory Bank performance 35 90 100 68 Satisfactory borrower performance 60 27 100 44 Cost of TAE evaluated projects with 80% > trade components > 50% 4,017 1,074 0 5,091 TAE implicit ratings of trade components (%)e Satisfactory outcome 73 100 n.a. 79 Likely sustainability 59 100 n.a. 66 Substantial institutional development impact 29 100 n.a. 31 Satisfactory Bank performance 70 100 n.a. 78 Satisfactory borrower performance 82 100 n.a. 66 TAE satisfactory outcome by area (implicit , %) Trade liberalization 76 100 n.a. 82 Institutional 46 100 n.a. 52 Physical infrastructure 80 53 n.a. 71 Public financing 100 0 n.a. 100 Private financing 57 0 n.a. 57 TA for WTO accession/negotiations 0 0 n.a. 0 Mitigating measures 0 0 n.a. 0 Memo: IEG ratings for all Bank projects (%) Satisfactory outcome 70 77 85 73 Likely sustainability 53 74 82 61 Substantial institutional development impact 37 52 44 42 Satisfactory Bank performance 71 79 88 76 Satisfactory borrower performance 66 74 79 70 Source: Trade Assistance Evaluation Project Database. a. TAE evaluations based on 494 projects. Percentages are calculated based on the total number of evaluated projects for each category which may be lower that the total evaluated projects shown. b. Satisfactory refers to Highly Satisfactory, Satisfactory, and Marginally/Moderately Satisfactory. c. Likely refers to Likely and Highly Likely. d. Substantial refers to Substantial and High. e. Implicit ratings from IEG project documents, estimated under the TAE. TAE ratings could not be extracted for all evaluated projects. 1 0 9 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table C2.9a: Trade-Related Projects by Region (number of projects) Fiscal year of approval Region 1987­94 1995­99 2000­04 1987­2004 Africa 96 55 51 202 East Asia and Pacific 20 13 7 40 Europe and Central Asia 34 50 28 112 Latin America and the Caribbean 60 13 13 86 Middle East and North Africa 22 12 8 42 South Asia 15 3 9 27 Total 247 146 116 509 Source: Trade Assistance Evaluation Project Database. Table C2.9b: Average Number of Trade-Related Projects per Bank Client with Trade Loan by Region (number of projects) Fiscal year of approval Region 1987­94 1995­99 2000­04 1987­2004 Africa 2 1 1 5 East Asia and Pacific 2 1 1 3 Europe and Central Asia 1 2 1 4 Latin America and the Caribbean 3 1 1 4 Middle East and North Africa 3 2 1 5 South Asia 2 0 1 3 Total 2 1 1 4 Source: Trade Assistance Evaluation Project Database. Table C2.10: Trade-Related Projects by Region (project cost in US$ million)a Fiscal year of approval Region 1987­94 1995­99 2000­04 1987­2004 Africa 9,437 6,738 4,939 21,114 East Asia and Pacific 4,969 4,424 1,121 10,514 Europe and Central Asia 9,156 6,261 1,473 16,890 Latin America and the Caribbean 9,242 3,260 1,076 13,578 Middle East and North Africa 3,689 1,518 838 6,045 South Asia 4,447 277 1,252 5,976 Totalb 40,940 22,477 10,700 74,117 Source: Trade Assistance Evaluation Project Database. a. Represents total project costs of which trade-related portions is a component. b. Total may not add up due to rounding. 1 1 0 APPENDIX C3: CHANGES IN THE FOCUS OF TRADE CONDITIONALITY Between 1987 and 1990, the main focus of Bank for over half of all conditions related to industrial trade policy advice was on import-related poli- policy. The exception to the pattern was South cies, which comprised almost half of all lending Asia where a gradual approach meant still sig- conditions (or 6.4 conditions on average per nificant outstanding reforms remained on the im- loan).1 Within the imports category, conditions port side. related to quantitative restrictions were most In the five most recent years, trade-related frequent, followed by those associated with tar- conditions have been quite diverse across re- iff reform. The next most important conditions gions. Industrial policy has been prominent in were industrial policies (in Africa, East Asia, and three regions (East Asia and Middle East and Middle East and North Africa) and those related North Africa), while conditions related to ex- to exports (Latin America). South Asia was an ex- port incentives have been more prominent in ception to the pattern, its loans focused heavily Africa, but overall no clear pattern emerges. This on industrial policy, with as many conditions in could be in part due to the relatively small size that area as all the other areas combined (figure of the sample during this period (20 lending op- C3.1). erations), which renders regional breakdowns Over the next decade, as adjustment lending less informative. peaked and countries became more open, the Conditions related to the exchange rate and emphasis shifted toward industrial policies, foreign exchange rate management were the though reforming import policies remained im- least frequent as a share of all conditions (7 per- portant, notably in Latin America and South Asia. cent) throughout the period. The numbers were In almost all regions, the emphasis on indus- likely to have been biased downwards, however, trial policies was greater between 1991 and 1999 by two factors. First, for a major group of Bank's compared to the earlier period; the exception clients--12 French-speaking West African coun- was South Asia. Conditionality in this period re- tries--the tying of their currency (the CFA franc) flected the importance the Bank placed on in- to the French franc meant they had no flexibil- creasing enterprise efficiency resulting in ity to adjust the exchange rate even when doing continuing and expanding privatization as a pri- so was warranted by economic factors. Second, ority. Actions related to privatization (general the steps involved in reforming exchange rate privatization strategies, initiating privatization regimes were often less complex and thus fewer of state-owned exporters) and investment pro- conditions would be associated with them. In re- motion (legislation related to investment codes, cent years, exchange rate­related conditionality streamlining business regulations and incentive, has been absent, reflecting the overwhelming strengthening investment promotion institu- move towards market-determined exchange rate tions, liberalizing foreign investment) accounted regimes. 1 1 1 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Figure C3.1: Focus of Trade Conditions in Adjustment Loans Over Time, 1987­2004 Focus of trade-related conditionality by Region, 1987­90 10 of loan 8 per 6 number 4 verageA 2 conditions 0 Africa East Asia Europe and Latin America Middle East South Asia and Pacific Central Asia and the and Caribbean North Africa Focus of trade-related conditionality by Region, 1991­99 8 of loan 6 per number 4 2 verageA conditions 0 Africa East Asia Europe and Latin America Middle East South Asia and Pacific Central Asia and the and Caribbean North Africa Focus of trade-related conditionality by Region, 2000­04 10 of 8 loan per 6 number 4 eragevA 2 conditions 0 Africa East Asia Europe and Latin America Middle East South Asia and Pacific Central Asia and the and Caribbean North Africa Import Export Exchange rate Industrial policy Source: Tsikata (2005). 1 1 2 APPENDIX C4: IMPLEMENTATION OF CONDITIONS Table C4.1: Implementation of Conditions Overall policy Time period Number of operations Region/country implementation rating covered evaluated Africa Burkina Faso Good 2000­00 1 Burundi Poor 1992­95 1 Cape Verde Good 2002­? 1 Central Africa Good 1988­90 1 Ethiopia Good 2002­? 1 Madagascar Good 1987­94 2 Malawi Moderate 1988­01 4 Mali Good 1991­01 2 Mauritania Good 2000­01 1 Mauritius Moderate 1987­89 1 Mozambique Good 1988­99 3 Niger Moderate 1999­03 2 Nigeria Moderate­ 1987­92 2 Senegal Poor 1995­? 3 Tanzania Moderate 1987­00 4 Zambia Good 1991­? 6 Zimbabwe Moderate+ 1992­98 2 East Asia and Pacific Cambodia Moderate 2000­? 1 Indonesia Good 1999­99 1 Papua New Guinea Poor 1996­97 1 Philippines Good 1987­95 2 Vietnam Good 1995­? 2 Europe and Central Asia Bulgaria Good 1992­? 3 Georgia Moderate 1998­99 1 Kazakhstan Good 1994­97 1 Macedonia Good 1997­99 1 Romania Moderate 1992­98 2 Yugoslavia, Former Good 1990­92 1 (Table continues on the following page.) 1 1 3 A S S E S S I N G W O R L D B A N K S U P P O RT F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table C4.1: Implementation of Conditions (continued) Overall policy Time period Number of operations Region/country implementation rating covered evaluated Latin America and the Caribbean El Salvador Moderate+ 1991­95 2 Guatemala Good 1993­96 1 Jamaica Moderate 1987­96 3 Mexico Good 1987­94 6 Nicaragua Good 1992­97 2 Panama Good 1987­99 3 Trinidad and Tobago Good 1990­93 1 Venezuela Poor 1989­93 1 Middle East and North Africa Egypt Moderate 1991­94 1 Jordan Good 1990­93 1 Morocco Moderate 1998­92 2 Tunisia Moderate­ (moderate going with most recent) 1987­? 4 South Asia Bangladesh Moderate­ (moderate going with most recent) 1987­95 2 India Moderate 1992­93 1 Pakistan Good 2001­04 2 Sri Lanka Moderate 1990­95 1 Source: IEG staff assessment. Note: May not add up to the total number of loans as some loans have not been evaluated, or were evaluated but rated non­evaluable, either because project documents did not con- tain enough information or because the loan had no legally binding conditionality. 1 1 4 APPENDIX D1: CORE AND NON-CORE TRADE PROJECTS a: Percent of projects rated with satisfactory outcome, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 1987­04 b: Percent of projects rated with likely sustainability, 1987­2004 100 80 60 40 20 0 1987­94 1995­99 2000­04 1987­04 c: Percent of projects rated with substantial institutional impact 100 80 60 40 20 0 1987­94 1995­99 2000­04 1987­04 Core (trade > 80%) Non­core Source: Trade Assistance Evaluation Project Database. Note: Core = > 80% trade; non-core = < 80%. 1 1 5 APPENDIX D2: IEG PORTFOLIO RATINGS Table D2.1: IEG Ratings of Projects with Trade Component > 50 percenta (number of projects) Approval fiscal year 1987­94 1995­99 2000­04 1987­2004 Number of IEG evaluated projects with trade component > 50% 99 29 4 132 IEG ratings of trade-related projects (%) Satisfactory outcomeb 70 76 100 72 Likely sustainabilityc 59 82 100 65 Substantial institutional development impactd 23 54 75 31 Satisfactory Bank performance 62 83 100 70 Satisfactory borrower performance 67 69 100 69 Number of TAE evaluated projects with trade component > 50% 64 12 0 76 TAE implicit ratings of trade components (%)e Satisfactory outcome 75 92 NA 78 Likely sustainability 59 91 NA 64 Substantial institutional development impact 17 50 NA 21 Satisfactory Bank performance 65 100 NA 72 Satisfactory borrower performance 84 75 NA 83 TAE satisfactory outcome by area (implicit, %) Trade liberalization 85 83 NA 85 Institutional 58 100 NA 65 Physical infrastructure 88 80 NA 85 Public financing 71 100 NA 74 Private financing 55 67 NA 56 TA for WTO accession/ negotiations 0 0 NA 0 Mitigating measures 100 0 NA 100 Memo: 1987­2004 Satisfactory outcome 70 77 85 73 Likely sustainability 53 74 82 61 Substantial institutional development impact 37 52 44 42 Satisfactory Bank performance 71 79 88 76 Satisfactory borrower performance 66 74 79 70 Source: Data on all World Bank projects. a. TAE evaluations based on a subset of 494 projects. Percentages are calculated based on the total number of evaluated projects for each category, which may be lower than the total evaluated projects shown. b. Satisfactory refers to Highly Satisfactory, Satisfactory, and Marginally/Moderately Satisfactory. c. Likely refers to Likely and Highly Likely. d. Substantial refers to Substantial and High. e. Implicit ratings from IEG project documents, estimated under the TAE. TAE ratings could not be extracted for all evaluated projects. 1 1 7 APPENDIX D3: TRADE-RELATED INVESTMENT PROJECTS Table D3.1: Approved Amounts for Customs Components of Technical Assistance Projects, Fiscal Years 1982­2004 (US$ million) Region 1982­86 1987­91 1992­96 1997­2002 2003­04 1982­2004 Africa 0.2 8.6 5.3 11.7 25.8 East Asia and Pacific 20.3 1.1 21.4 Europe and Central Asia 0.3 48.2 164.5 11.0 224.0 Latin America and the Caribbean 2.6 1.2 22.0 0.8 26.6 Middle East and North Africa 3.8 9.0 29.2 42.0 South Asia 10.5 31.0 41.5 Total 2.8 10.1 77.6 218.8 72.0 381.3 Sources: 1982­2002: Customs Modernization Handbook; 2003­2004: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.2a: Summary of Objectives, Fiscal Years 1982­2004 (number of projects) Objective 1982­93 1994­2002 2003­04 1982­2004 Revenue enhancement 1 9 2 12 Trade facilitation 3 17 5 25 Security 0 0 0 0 Strengthening customs agency 8 19 3 30 Integrity 1 3 1 5 Improving compliance 1 11 2 14 Improving trader services 0 13 0 13 Participation of stakeholders 0 0 0 0 Sources: 1982­2002: Customs Modernization Handbook; 2003­2004: IEG staff compilations from Trade Assistance Evaluation Database (project documents). 1 1 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D3.2b: Summary of Objectives, Fiscal Years 1982­2004 (number of projects, annual averages) Objective 1982­93 1994­2002 2003­04 1982­2004 Revenue enhancement 0.1 1.0 1.0 0.5 Trade facilitation 0.3 1.9 2.5 1.1 Security 0.0 0.0 0.0 0.0 Strengthening customs agency 0.7 2.1 1.5 1.3 Integrity 0.1 0.3 0.5 0.2 Improving compliance 0.1 1.2 1.0 0.6 Improving trader services 0.0 1.4 0.0 0.6 Participation of stakeholders 0.0 0.0 0.0 0.0 Sources: 1982­2002: Customs Modernization Handbook; 2003­2004: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.3a: Performance Indicators, Fiscal Years 1982­2004 (number of projects) Indicator 1982­93 1994­2002 2003­04 1982­2004 Efficiency-Intended Results Revenue collected per customs staff 0 8 2 10 Total customs agency costs compared to revenue collected 0 7 2 9 Salaries compared to revenue collected 0 7 2 9 Trade volume per number of staff 0 8 2 10 Annual number of declarations per customs staff 1 9 1 11 Effectiveness-Intended Results Release time (import clearance time) 1 12 3 16 Physical inspection and introduction of risk management 0 14 2 16 Trade community information 0 4 2 6 Irregularities per number of examinations 0 8 2 10 Surveyed occurrence of corruption/integrity 0 2 2 4 More effective physical inspections 0 4 1 5 Rejection of incomplete or inaccurate declarations 0 1 0 1 Timely and accurate production of trade statistics 0 2 0 2 Sources: 1982­2002: Customs Modernization Handbook; 2003­2004: IEG staff compilations from Trade Assistance Evaluation Database (project documents). 1 2 0 A P P E N D I X D 3 : T R A D E - R E L AT E D I N V E S T M E N T P R O J E C T S Table D3.3b: Performance Indicators, Fiscal Years 1982­2004 (number of projects, annual averages) Indicator 1982­93 1994­2002 2003­04 1982­2004 Efficiency-Intended Results Revenue collected per customs staff 0.0 0.9 1.0 0.4 Total customs agency costs compared to revenue collected 0.0 0.8 1.0 0.4 Salaries compared to revenue collected 0.0 0.8 1.0 0.4 Trade volume per number of staff 0.0 0.9 1.0 0.4 Annual number of declarations per customs staff 0.1 1.0 0.5 0.5 Effectiveness-Intended Results 0.0 Release time (import clearance time) 0.1 1.3 1.5 0.7 Physical inspection and introduction of risk management 0.0 1.6 1.0 0.7 Trade community information 0.0 0.4 1.0 0.3 Irregularities per number of examinations 0.0 0.9 1.0 0.4 Surveyed occurrence of corruption/integrity 0.0 0.2 1.0 0.2 More effective physical inspections 0.0 0.4 0.5 0.2 Rejection of incomplete or inaccurate declarations 0.0 0.1 0.0 0.0 Timely and accurate production of trade statistics 0.0 0.2 0.0 0.1 Sources: 1982­2002: Customs Modernization Handbook; 2003­2004: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.4: Approved Amounts for Export Processing Zone (EPZ) Components of Trade-Related Projects, 1987­2004 (US$ million) Region 1987­90 1991­94 1995­99 2000­04 Africa 19.5 (1) 46.1 (4) 16.0 (2) East Asia and Pacific NC (1) Latin America and the Caribbean 30.0 (2) 0.3 (2) Middle East and North Africa NC (1) Total NC (3) 19.8 (3) NC (5) 16.0 (2) Source: IEG Staff compilations from Trade Assistance Evaluation Database (project documents). Note: Number of Projects in Brackets; NC ­ Non-calculable. 1 2 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D3.5: Summary of EPZ Component Objectives, 1987­2004 Number of Percentage share Objective projects (out of 13 projects) Establish the physical infrastructure needed to operate free trade zone 5 38.5 Establish/strengthen institutions that manage free trade zones and promote trade and investment through operational support, technical assistance, and consulting services 4 30.8 Finance training activities for sectors directly involved in investment and free zone-related businesses 4 30.8 Remove administrative bottlenecks to facilitate trade 4 30.8 Enhance country's foreign exchange earnings, attract foreign investment (through reducing FDI barriers) and improve the performance of private enterprises 4 30.8 Create employment in the formal sector 3 23.1 Achieve more effective export free trade regime, mainly through privatization of free trade zones 3 23.1 Become globally competitive export and processing center and achieve broad-based, export-oriented, and sustained growth 3 23.1 Pass new legislation, which enables private operation of free trade zones 1 7.7 Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.6: IEG Ratings of EPZ-Related Projects Number of Percent projects of total Closed projects 10 76.9 Moderately satisfactory or better rating 8 61.5 Moderately unsatisfactory or lower rating 2 15.4 Unrated 3 23.1 Total 13 100.0 Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). 1 2 2 A P P E N D I X D 3 : T R A D E - R E L AT E D I N V E S T M E N T P R O J E C T S Table D3.7: Reasons for Poor Performance Number of Category projects Lack of clearly defined management of EPZ 2 Delayed privatization of EPZ 2 Lack of an appropriate fee structure for EPZ (lack of economic viability) 1 Lack of responsibility for the operation and maintenance of the off-site infrastructure 1 Environmental concerns 1 Absence of sound sector policies (underdeveloped financial system; reliance on a poorly-capitalized banking system, etc.) 1 Lack of effective project management 1 Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.8: List of Projects with EPZ Components Fiscal EPZ Project year of Total project component IEG Country name approval amount (US$ m) (US$ m) rating Cape Verde Capacity Building Project for Private Sector Promotion 1996 11.4 2.8 S Dominican Republic Industrial Free Zone Development Project 1989 30.0 30.0 MS El Salvador Second Structural Adjustment Loan Project 1994 50.0 NC HS Gambia, The The Gateway Project 2002 16.0 16.0 -- Ghana First Trade and Investment Promotion Gateway Project 1999 50.5 43.2 -- Indonesia Second Export Development Project 1988 165.0 NC S Jamaica Private Investment and Export Development Project 1994 35.0 0.3 MU Jordan Third Economic Reform & Development Loan Project 1999 120.0 NC MS Kenya Export Development Project 1991 149.0 19.5 MS Madagascar Rural Transport Project 2003 80.0 NC -- Senegal Private Sector Adjustment and Competitiveness Credit 1995 40.0 NC S Uruguay Second Structural Adjustment Loan Project 1989 140.0 NC S Zimbabwe Enterprise Development Project 1996 70.0 0.1 U Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Note: NC ­ Non-calculable. 1 2 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D3.9: Main Accomplishments of EPZ Projects Country Results Cape Verde · The project was to finance the construction of physical facilities (factory shell) for the establishment of for- eign enterprises. Three factory buildings were completed and successfully leased to three export enterprises. The project was able to attract foreign investment and increase foreign exchange earnings. · The project effectively contributed to employment creation in the private sector: the project financed in-fac- tory training of 1,180 workers from nine EPZ companies. Dominican Republic · Project financing assisted the development of 13 Free Zones. Gambia, The · Through open dialogue with the Government, appropriate policies were established to help ensure the suc- cess of the project, e.g. The Gambia Investment Promotion Act 2001, The Gambia Free Zone Act 2001, and The Gambia Divestiture Act 2001. In addition, the Agency in charge of promoting investment and Free Zone- related businesses was established in 2001. Indonesia · The Kawasan Berikat Nusantara (KBN) has now three EPZs: Marruda, Cakung, and Tanjung Priok. A one-stop service is provided on these EPZs for approvals and processing of all permits and licenses, such as building construction permits, industrial licenses, limited trade permits, expatriate work permit and all other activities related to services required by investors. · Cakung EPZ was fully utilized by 1990 with 128 investors participating. Jamaica · New Free Trade Zone (FTZ) legislation was passed, which enabled private operation of FTZs as well as the establishment of Single Factory Free Zones (SFFZ). · A new private FTZ in the informatics sector was established. Jordan · Aqaba was designated as a Special Economic Zone (SEZ) in February 2001. · The SEZ is expected to bring in $6 billion in direct and indirect investments and create 70,000 jobs over the next two decades. · EPZs in Jordan have expanded rapidly, and there are currently 11 zones, employing some 100,000 workers according to ILO data. Kenya · EPZ is nearly complete, but only one firm is operational. Senegal · The project was implemented largely as scheduled and most of the credit conditions met, including those con- cerning the EPZs. Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.10: Approved Amounts for Matching Grants Component of Trade-Related Projects, 1986­2004 (US$ million) Region 1986­90 1991­94 1995­99 2000­04 Africa 5.7 (1) NC (2) 30.7 (4) East Asia and Pacific 5.7 (1) Europe and Central Asia 3.5 (1) Latin America and the Caribbean 4.9 (2) 29.5 (2) Middle East and North Africa 19.7 (1) South Asia 40.0 (2) NC (1) 16.4 (1) Total 51.4 (4) NC (5) 99.8 (9) Source: ImageBank (World Bank). Note: Number of Projects in Brackets; NC ­ Non-calculable. 1 2 4 A P P E N D I X D 3 : T R A D E - R E L AT E D I N V E S T M E N T P R O J E C T S Table D3.11: Summary of Matching Grants Component Objectives, 1986­2004 Number of Percent share Objective projects (out of 18 projects) Help firms to overcome information and expertise gaps in entering export markets and accelerate country's integration into the world economy 9 50.0 Finance part of the costs of consultant fees and foreign travel associated with the preparation and implementation of export development plan/program 7 38.9 Diversification of the export mix by strengthening marketing, export promotion, technical, and research services through joint public and private efforts 7 38.9 Increase international competitiveness of small and medium scale enterprises 7 38.9 Improve the performance of export-related public agencies (institutional strengthening) 4 22.2 Increase non-traditional (and high value added) exports 3 16.7 Promote diffusion of good technology practices through a Technology Diffusion Scheme which will share the cost in improving the private sector's access to productivity, quality, and design services, and to information on new technologies 1 5.6 Simplify and reduce export procedures 1 5.6 Develop the capacity of the local consulting industry 1 5.6 Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.12: IEG Ratings of Matching Grants-Related Projects Number of Percent projects of total Closed projects 13 72.2 Moderately satisfactory or better rating 9 50.0 Moderately unsatisfactory or lower rating 4 22.2 Unrated 5 27.8 Total 18 100.0 Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). 1 2 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D3.13: Reasons for Poor Performance Number of projects Weak administrative capacity, complex and time-consuming application process, and lengthy processing and procurement procedures 5 Delayed implementation of the matching grants scheme 4 Government's failure to provide timely counterpart funds to reimburse the assisted enterprises 1 The absence of a separate special account to facilitate disbursements under the matching grant schemes 1 Economic crisis/recession in the main export markets and resulting decisions by numerous firms to cancel program participation 1 Difficult internal macro-economic conditions that create uncertainties and discourage private investment 1 Internal political crises and associated with that frequent transfer of the project management 1 Failure to properly supervise the assisted firms and cancel the matching grants of those that were not using them effectively 1 Putting the emphasis on meeting quantitative targets (number of firms and amount of grants approved) at the expense of quality considerations 1 Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Table D3.14: List of Projects with Matching Grants Components Fiscal Matching grants Project year of Total project component IEG Country name approval amount (US$ m) (US$ m) rating Argentina Agricultural Services and Institutional Development Project 1991 33.5 2.0 S Argentina Enterprise Export Development Project 1996 38.5 27.0 S Armenia Enterprise Development Project 1997 16.8 3.5 MU Bangladesh Second Industrial Sector Adjustment Credit Project 1993 100.0 NC S Bangladesh Export Diversification Project 1999 32.0 16.4 -- Côte d'Ivoire Private Sector Development Capacity Building Project 1998 12.0 5.7 -- El Salvador Competitiveness Enhancement Technical Assistance Project 1996 16.0 2.5 -- India Industrial Export Project - Engineering Products 1986 250.0 20.0 S India Export Development Project 1989 295.0 20.0 U Indonesia Export Development Project 1986 64.5 5.7 S Kenya Export Development Project 1991 149.0 NC MS Mauritius Technical Assistance Project to Enhance Competitiveness 1994 7.7 3.2 HS South Africa Industrial Competitiveness and Job Creation Project 1997 46 20.6 -- Trinidad and Tobago Business Expansion and Industrial Restructuring Project 1992 27.0 2.9 U Tunisia Export Development Project 1999 35.0 19.7 -- Ugandaa Private Sector Competitiveness Project 1996 12.3 3.0 S Zambia Enterprise Development Project 1997 45.0 0.7 S Zimbabwe Enterprise Development Project 1996 70.0 6.4 U Source: IEG staff compilations from Trade Assistance Evaluation Database (project documents). Note: NC ­ Non-calculable; a. ­ Not in the Trade Projects Database. 1 2 6 A P P E N D I X D 3 : T R A D E - R E L AT E D I N V E S T M E N T P R O J E C T S Table D3.15: Main Accomplishments Fiscal year Country of approval Results Argentina 1991 · 150 non-traditional export promotion projects were supported through matching grants which were comple- mented by over 100 training seminars and courses for producers that contributed to an estimated $220 mil- lion in export contracts for 336 firms. · The project contributed to creation of an improved business environment in the agricultural sector, and sup- ported Government's restructuring of the public sector to improve efficiency and to concentrate on services complementary to private activity. · Sustainability is likely for most activities. Argentina 1996 · The objective of helping to increase the competitiveness of a group of SMEs was substantially achieved. Com- pared to a control group of similar enterprises not assisted by the program, the assisted enterprises consis- tently showed that they were more likely to adopt export-oriented measures and had better export performance. · The second objective of improving the performance of export-related public agencies was only partially achieved: while the institutional infrastructure for quality control and for commercial services was strength- ened, no progress was made in the areas of export procedures and export promotion policy. Armenia 1997 · Enterprise Support Fund (ESF) was established. · ESF provided grants to 38 projects, from which 10 projects were financed by the repaid amounts. Bangladesh 1993 · Policy guidelines for matching grants have been approved by the government. Bangladesh 1999 · Close to 1,100 projects were implemented for a total amount of $21.9 million. More than 700 firms benefited from the program. Over the period 1999-2003, the number of new countries to which assisted firms were ex- porting had increased by 36 percent compared to a 14 percent increase for the non-assisted group. The num- ber of types of products exported had risen by 21 percent against an 8 percent decline for the non-assisted firms. However, the average growth rate of Matching Grant Facility (MGF) assisted firms (15 percent) and non- assisted firms (17 percent) was not significantly different. · The evaluations confirmed that the matching grants have had a profound effect on participating firms' per- formance and potential for growth. One important effect has been the introduction of business and market planning, which very few of the participating firms had experience of prior to preparing the plans for their grant applications. The existence of the MGF has meant that many firms, for the first time, got involved in active overseas marketing, and in using outside expertise for technical and management training, for technical, prod- uct and market development, and for International Standards Organisation (ISO) certification. The MGF method ensures that these outsourced services are economically tailored to the needs of the individual firms. Côte d'Ivoire 1998 · Matching grants totaling some $2.2 million with investments totaling $4.2 million were approved by the Ex- port Promotion Association (APEX-CI), which is high considering the developments during project implemen- tation. The $2.2 million financed some 445 grants to 149 firms and 27 associations. · 115 firms (77 percent) and 20 associations (74 percent) used the support for marketing activities. · Main beneficiaries were firms producing chemical pharmaceutical products (14 percent), agro-industry (12 per- cent) and services (24 percent); the largest number of associations dealt with tourism related activities (16 percent). El Salvador 1996 · Between June and December 2002, FOEX (a matching-grant program) approved approximately $300,000 in matching grants. · By June 30, 2004 FOEX had commitments for $863,954 and had reimbursed $505,613. (Table continues on the following page.) 1 2 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D3.15: Main Accomplishments (continued) Fiscal year Country of approval Results El Salvador (cont.) · Reports by the Ministry of Economy on a sample of 49 firms, which received FOEX funds, show that they ex- perienced an increase in the value of their exports (fob) from $9.8 million in 2001 to $16.7 million in 2003­ a 70 percent increase in exports. India 1986 · Establishment of the Productivity Fund (PF) and Export Marketing Fund (EMF) to promote export awareness and orientation and help firms in the development of viable export marketing strategies. · These two funds disbursed about $15.6 million consisting of 359 grants to 292 firms (63 firms obtained more than one grant), with an average grant size of about $50,000. · By any performance measure, both the PF and EMF had a highly positive impact. In all sub-sector categories, compound annual growth rates of exports for firms receiving assistance from either of the two funds exceeded the growth rate for the overall sub-sector. Of the 180 firms receiving assistance from the Export Development Fund (EDF), 52 percent were first time exporters. Furthermore, there are indicators that assisted firms improved their internal competitiveness and organizational efficiency. India 1989 · Establishment of the EDF. The fund provided firms with grant support on a matching basis for a range of pre- investment promotion and marketing activities; one-window clearance through an established steering com- mittee for the various Government approvals required for export marketing and product adaptation activities; and term finance and incremental working capital finance to implement an export development plan. Kenya 1991 · Up to July 1993, 175 grant-aided projects have been approved, compared to a target for the period of 105. The additional export revenues already achieved by clients stand at $21.7 million, representing a ratio of ex- port revenues to grants of 15:1, substantially over the original target ratio, specified during design, of 2:1 within two years of disbursement. · The Government of Kenya updates indicate that as of 1994, 269 grant-aided projects have been approved and that the revenue ratio is 42:1 from 210 projects whose claims have been processed as of March 1994. The Trade Development Institute (TDI) deserves recognition for the way they have implemented this scheme. Mauritius 1994 · The Technology Diffusion Scheme (TDS) has realized its overall objective of helping Mauritian firms access specialized technical and marketing know-how. The TDS supported 190 firms which implemented 266 different projects. · The export performance of TDS participant firms surpassed industry averages and the national export growth rate. Exports by TDS participant firms rose by 53 percent compared to overall export increase of 21 percent in 1996 and 3 percent in 1997. · There was also a marked increase in the range of products that are exported. South Africa 1997 · A total of 1,247 Competitiveness Fund (CF) grants were approved, of which 984 CF grants were paid out fully, and 82 were paid out partially. · Achievements in terms of firms served compare favorably with other programs in the region. In total, 261 Busi- ness Development Services (BDS) providers participated in the program and 13 percent of these service providers benefited from the program more than once. In addition, 12 percent of BDS providers involved with the CF program were international firms. · The services provided included production systems development (23.2 percent), in-house activity (11.6 per- cent), financial/project management (11.6 percent), marketing and intelligence (9.5 percent), human resources and training (5.3 percent), website development (5.3 percent), information technology (IT) system development (5.3 percent), specialist consulting (2.1 percent), and (26.1 percent) for other activities. 1 2 8 A P P E N D I X D 3 : T R A D E - R E L AT E D I N V E S T M E N T P R O J E C T S Fiscal year Country of approval Results Trinidad and Tobago 1992 · Establishment of the Export Technical Assistance Facility. · The matching grant component assisted 43 recipients to explore and access export markets. Tunisia 1999 · Export Market Access Fund (EMAF) program has transformed traditional public-sector led export promotion. For the first time the private sector is paying for export services and a core of local consultants has been de- veloped around the EMAF program, which can make these market initiatives sustainable. · The EMAF management team was applauded for its efficiency and responsiveness in proactively assisting clients. Through various seminars and twining arrangement with foreign and local experts, the management team facilitated knowledge transfer about foreign markets and requirements, as well as know-how for po- tential exporters about the process of exporting · Participants pointed out that they have witnessed a sharp improvement (through EMAF) of export service de- livery compared to previous methods. Zimbabwe 1996 · Under the ZimTrade Matching Grant Scheme, 13 grants were approved and about $1 million had been com- mitted to exporters, SMEs and associations. Approximately 15 percent of the total commitments was dis- bursed. Source: IEG staff compilations from Trade Assistance Evaluation Database and project documents. 1 2 9 APPENDIX D4: PROBIT ESTIMATION OF THE DETERMINANTS OF PROJECT OUTCOMES Table D4.1: Probit Estimation of the Determinants of Project Outcomes Dependent variable = IEG outcome ratings Since 1995 dummy 0.12 0.11 0.09 (2.14)** (2.09)** (1.94)* Share of trade actions 0.00 0.00 0.00 (1.70)* (1.62) (1.04) Value of trade part of the loan ­0.00 ­0.00 ­0.00 (1.77)* (1.83)* (1.28) Structural-type dummy 0.21 0.21 1.00 (3.59)*** (3.52)*** (.) Income groups 0.26 0.26 (3.34)*** (3.43)*** Africa dummy ­0.19 ­0.18 ­0.14 (1.47) (1.47) (1.34) East Asia and Pacific dummy ­0.04 ­0.06 0.08 (0.24) (0.31) (0.69) Europe and Central Asia dummy ­0.47 ­0.47 ­0.24 (2.89)*** (2.90)*** (1.88)* Latin America and the Caribbean dummy ­0.32 ­0.31 ­0.03 (1.92)* (1.89)* (0.31) Middle East and North Africa dummy ­0.19 ­0.19 0.07 (1.00) (1.01) (0.58) Conflict 1980s 0.08 (1.11) Conflict 1990s 0.04 0.01 (0.74) (0.27) Conditionality ­0.92 (30.41)*** Observations 324 324 324 Source: IEG staff estimation. Note: Robust z statistics in parentheses. * Significant at 10%; ** significant at 5%; *** significant at 1%. 1 3 1 APPENDIX D5: AGGREGATE ECONOMIC ANALYSIS 1 3 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D5.1: Aggregate Economic Analysis: Overview of Data and Country Classification Region Variable t All AFR EAP ECA LAC MNA SAR Real exchange rates REER 0 97.5 94.5 96.9 99.6 101.7 97.3 94.5 1 86.5 74.1 88.0 120.5 101.5 83.1 74.4 2 85.6 72.9 86.8 121.2 101.8 83.8 68.3 3 89.4 73.0 86.5 114.0 113.0 84.5 70.8 Inflation INF 0 103.5 19.7 7.2 56.3 278.2 5.5 6.9 1 56.5 25.1 8.7 63.2 128.1 12.1 10.4 2 48.3 13.7 7.1 80.8 117.7 4.2 9.4 3 17.0 16.9 7.6 84.7 19.5 4.3 9.2 Fiscal balance/GDP FBAL 0 ­4.3 ­5.4 ­2.7 ­3.1 ­2.6 ­7.2 ­7.9 1 ­3.8 ­6.0 ­1.8 ­3.9 ­1.3 ­4.6 ­6.7 2 ­2.6 ­4.0 ­1.6 ­5.0 ­1.0 0.0 ­5.4 3 ­2.6 ­4.0 0.0 ­7.0 ­1.2 ­2.2 ­5.6 Tax revenue/GDP TXRV 0 13.7 13.1 15.1 11.6 14.2 18.5 10.1 1 14.3 15.1 15.1 11.8 13.6 20.6 8.4 2 15.5 16.5 14.9 13.8 14.7 22.9 10.2 3 16.2 17.0 15.0 16.1 16.0 22.8 10.1 Investment to GDP growth INVG 0 6.0 10.3 8.7 ­7.6 2.2 ­0.5 2.0 1 10.3 10.7 9.5 6.9 10.1 21.5 4.6 2 9.6 11.7 5.5 5.3 8.7 13.5 7.7 3 6.1 3.7 8.0 15.5 8.6 ­0.3 2.4 Per capita GDP growth GDPKG 0 0.6 ­0.8 4.7 3.6 0.0 ­0.3 3.4 1 1.5 0.6 5.5 1.1 1.6 ­3.0 2.7 2 2.2 1.3 6.1 1.0 1.5 3.1 3.4 3 2.0 0.7 6.1 4.8 1.9 1.5 2.2 Exports to GDP growth EXG 0 8.1 4.0 4.9 27.6 11.1 23.1 7.7 1 8.3 9.5 12.7 8.8 4.4 8.4 12.2 2 7.4 4.8 6.0 10.8 9.2 6.9 15.0 3 7.3 8.8 8.6 15.9 5.3 3.5 5.6 Imports to GDP growth IMG 0 ­0.9 ­4.1 0.3 8.6 0.9 10.4 ­3.3 1 4.7 2.6 7.0 14.7 6.7 ­2.0 4.0 2 3.7 0.5 6.1 1.1 6.3 1.5 7.1 3 4.7 1.5 8.1 23.6 7.8 ­2.5 0.3 Trade to GDP OPEN 0 53.0 53.0 51.7 34.8 54.9 90.1 27.2 1 58.8 63.1 55.1 31.8 54.6 117.0 31.6 2 62.2 65.4 60.2 35.5 59.6 107.8 39.0 3 64.4 66.2 69.9 49.4 60.4 107.4 39.6 Current account CABL 0 ­3.6 ­4.9 ­2.9 0.4 ­2.5 ­2.2 ­4.3 balance to GDP 1 ­2.7 ­4.2 ­2.4 ­0.2 ­0.9 ­2.5 ­3.7 2 ­2.7 ­3.3 ­1.5 ­0.7 ­1.7 ­8.8 ­2.8 3 ­3.7 ­5.3 ­1.5 ­1.4 ­3.2 ­2.7 ­1.7 1 3 4 A P P E N D I X D 5 : A G G R E G AT E E C O N O M I C A N A LY S I S Income Population Size Borrower? Reform pace Intensity Initial export structure Middle Low Large Small Yes No Fast Gradual High Low Fuel Manuf Other 99.2 95.0 98.4 96.8 97.3 98.1 95.9 98.7 95.5 98.1 97.4 97.2 96.0 95.1 74.7 93.7 81.7 85.4 90.3 86.3 86.7 77.2 89.54 90.9 87.6 78.6 93.7 74.6 94.8 79.5 83.7 92.4 86.6 84.9 71.8 90.12 91.3 77.3 77.7 100.2 74.7 100.0 82.3 86.8 98.6 91.1 88.1 71.7 95.12 98.8 78.0 81.1 165.6 18.6 223.9 23.3 98.4 121.4 161.5 57.2 17.7 131.3 50.3 8.9 20.9 80.0 24.3 104.3 24.6 26.1 162.9 30.8 77.1 26.9 66.09 38.6 11.5 25.3 73.9 13.2 92.1 19.1 19.1 150.6 19.6 71.2 16.6 58.53 28.9 12.6 17.0 17.4 16.3 16.3 17.4 16.8 17.4 16.3 17.5 15.4 17.44 21.6 9.3 16.4 ­3.6 ­5.2 ­4.7 ­4.0 ­4.5 ­3.5 ­4.4 ­4.2 ­5.3 ­3.96 ­2.3 ­8.0 ­3.5 ­2.3 ­5.8 ­4.0 ­3.6 ­4.0 ­3.0 ­4.6 ­3.0 ­4.1 ­3.64 ­2.3 ­6.0 ­4.3 ­1.5 ­4.2 ­2.8 ­2.5 ­2.6 ­2.5 ­3.1 ­2.2 ­3.4 ­2.34 ­2.1 ­2.7 ­2.6 ­1.4 ­4.2 ­1.8 ­3.1 ­2.7 ­2.3 ­2.9 ­2.3 ­4.7 ­1.92 0.1 ­3.5 ­2.7 15.4 11.5 14.4 13.3 13.3 15.4 14.3 13.3 12.4 14.15 16.3 15.3 13.6 15.2 13.2 14.7 14.1 14.2 15.0 14.6 14.1 11.2 15.36 15.1 12.3 14.2 16.1 14.6 14.8 15.9 15.2 16.4 16.0 15.1 12.7 16.37 13.0 15.7 15.7 17.0 15.1 14.6 17.2 16.2 16.3 16.7 15.8 14.5 16.74 12.7 18.2 16.2 1.4 12.2 1.6 8.9 9.0 ­4.5 7.1 5.1 5.7 6.055 24.0 21.7 18.3 9.7 11.2 7.3 12.3 11.4 6.7 10.0 10.6 12.2 9.725 23.5 22.2 20.0 7.4 12.8 6.1 11.9 7.7 16.4 10.8 8.7 12.3 8.739 25.0 26.1 21.3 7.9 2.7 8.8 4.2 6.4 5.1 6.7 5.5 7.2 5.786 24.6 25.3 21.9 1.0 ­0.1 1.9 ­0.3 0.3 1.6 0.2 0.9 ­1.3 1.177 ­0.5 1.1 0.6 2.0 0.9 2.6 0.8 1.4 2.0 1.9 1.3 1.0 1.711 1.4 0.7 0.7 2.6 1.7 3.1 1.7 2.0 3.1 1.8 2.6 2.1 2.265 3.8 3.3 1.7 2.8 1.0 2.9 1.5 1.9 2.4 1.7 2.3 1.7 2.143 1.1 2.1 1.9 10.7 4.6 9.3 7.3 8.4 7.2 8.0 8.2 6.0 8.787 6.4 9.4 4.5 5.8 11.8 9.5 7.6 8.4 8.1 8.6 8.2 5.4 9.306 12.2 8.3 7.2 8.3 6.1 7.6 7.2 8.2 4.3 7.3 7.4 4.8 8.177 8.7 11.2 6.0 6.3 8.7 8.7 6.4 7.8 5.7 7.0 7.5 5.4 7.92 5.8 6.1 7.6 0.8 ­3.2 ­2.3 0.1 ­0.4 ­2.7 ­1.3 ­0.6 ­5.2 0.54 ­0.3 2.4 2.6 5.0 4.3 7.0 3.2 4.9 4.1 5.9 3.7 1.7 5.658 8.0 10.2 5.4 5.8 0.9 4.6 3.1 3.3 5.0 2.9 4.3 1.5 4.403 14.9 9.8 6.1 7.2 1.3 9.1 1.8 5.0 3.7 5.9 3.7 3.9 4.991 8.3 6.1 8.0 56.7 47.8 39.8 61.7 51.1 59.6 52.3 53.5 52.0 53.25 44.7 64.5 52.6 59.3 58.1 44.5 68.3 58.1 61.3 57.1 60.1 56.8 59.43 46.5 69.3 58.6 62.9 61.4 47.3 72.2 62.7 60.6 61.0 63.2 60.5 62.81 46.9 77.7 63.1 65.5 63.1 51.3 73.2 65.6 60.4 62.8 65.7 62.2 65.18 46.6 78.7 65.5 ­2.5 ­5.0 ­2.4 ­4.4 ­4.1 ­1.8 ­2.8 ­4.2 ­4.7 ­3.22 ­0.2 ­4.6 ­4.3 ­1.1 ­4.9 ­2.3 ­3.0 ­4.0 1.8 ­2.1 ­3.2 ­3.9 ­2.31 ­0.9 ­2.8 ­3.9 ­2.0 ­3.6 ­1.1 ­3.8 ­3.8 1.0 ­1.8 ­3.4 ­4.6 ­2.09 ­1.7 ­4.2 ­3.0 ­2.6 ­5.1 ­2.7 ­4.3 ­4.7 ­0.2 ­2.5 ­4.6 ­7.1 ­2.57 ­2.6 ­1.8 ­4.7 (Table continues on the following page.) 1 3 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D5.1: Aggregate Economic Analysis: Overview of Data and Country Classification (continued) Region Variable t All AFR EAP ECA LAC MNA SAR Terms of trade TOT 0 99.0 97.8 97.6 100.8 101.5 101.3 94.7 1 97.9 93.9 95.6 102.4 103.9 102.6 92.2 2 95.9 93.7 95.6 108.7 100.6 91.2 86.1 3 94.5 90.2 95.8 102.4 101.1 90.9 85.7 Total external debt to GDP DEBT 0 79.2 88.0 76.0 46.2 79.4 86.8 37.9 1 83.7 106.8 57.9 34.8 69.6 143.5 44.0 2 73.0 97.2 48.9 41.3 57.3 102.4 44.7 3 66.6 97.5 36.6 43.5 45.4 86.5 41.8 Reserves in months FXRS 0 2.6 1.7 3.1 2.5 3.3 2.1 3.2 of imports 1 3.3 2.6 2.9 3.2 4.1 2.6 4.2 2 3.2 2.4 3.3 3.0 3.9 2.9 4.1 3 3.6 2.9 3.6 3.8 4.2 3.6 4.5 Source: Jinjarak, Salinas and Tsikata (2005). Note: AFR = Africa; EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean; MNA = Middle East and North Africa; SAR = South Asia. t = 0 : 0­2 years before trade reform; t = 1 : 0­2 years after trade reform; t = 2 : 3­5 years after trade reform; t = 3 : 6­8 years after trade reform. 1 3 6 A P P E N D I X D 5 : A G G R E G AT E E C O N O M I C A N A LY S I S Income Population Size Borrower? Reform pace Intensity Initial export structure Middle Low Large Small Yes No Fast Gradual High Low Fuel Manuf Other 100.5 97.0 96.4 100.8 98.2 101.9 99.7 98.5 99.0 99.06 98.5 98.1 98.7 101.7 92.7 94.0 100.5 96.4 103.4 98.5 97.4 97.7 97.97 92.0 103.4 97.8 99.5 91.1 94.0 97.3 95.1 98.8 96.8 95.3 97.7 95.39 83.7 95.5 96.2 99.8 87.3 92.8 95.7 93.7 97.4 93.8 95.1 95.4 94.26 79.2 97.3 93.8 68.8 93.4 66.8 87.5 90.4 40.1 75.4 82.3 96.9 73.48 38.6 74.7 90.5 68.1 105.1 66.0 95.5 96.1 40.4 76.3 89.7 99.8 78.52 44.4 85.1 100.5 58.2 93.1 57.3 83.4 83.2 37.2 71.8 73.9 96.5 65.35 41.5 77.4 82.3 48.4 91.5 51.1 77.0 75.1 37.1 64.9 68.0 92.1 58.37 38.8 65.4 76.4 2.9 2.1 2.6 2.6 2.4 3.1 2.6 2.5 2.0 2.723 2.8 2.1 2.5 3.5 3.0 3.0 3.5 2.9 4.5 3.6 3.1 3.0 3.351 3.0 2.5 3.2 3.5 2.7 3.5 2.9 2.8 4.3 3.3 3.1 2.8 3.26 2.9 3.0 2.9 3.9 3.1 3.8 3.5 3.3 4.7 3.9 3.3 3.5 3.619 3.2 3.7 3.3 1 3 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D5.2: Country Groupings Region Income Size by population AFR Cameroon Low Cameroon Small Cameroon AFR Central AFR Rep. Low Central AFR Rep. Small Central AFR Rep. AFR Côte d'Ivoire Low Côte d'Ivoire Small Chile AFR Ghana Low Ghana Small Costa Rica AFR Kenya Low India Small Côte d'Ivoire AFR Lesotho Low Kenya Small Dominican Rep. AFR Madagascar Low Lesotho Small Ecuador AFR Malawi Low Madagascar Small Ghana AFR Mali Low Malawi Small Honduras AFR Mauritius Low Mali Small Jamaica AFR Morocco Low Nepal Small Jordan AFR Niger Low Niger Small Lesotho AFR Nigeria Low Nigeria Small Madagascar AFR Senegal Low Pakistan Small Malawi AFR South Africa Low Senegal Small Mali AFR Tanzania Low Tanzania Small Mauritius AFR Zambia Low Vietnam Small Nepal AFR Zimbabwe Low Zambia Small Niger EAP China Low Zimbabwe Small Panama EAP Indonesia Middle Argentina Small Paraguay EAP Korea, Rep. of Middle Brazil Small Senegal EAP Philippines Middle Chile Small Trinidad andTobago EAP Thailand Middle China Small Tunisia EAP Vietnam Middle Colombia Small Uruguay LAC Argentina Middle Costa Rica Small Venezuela LAC Brazil Middle Dominican Rep. Small Zambia LAC Chile Middle Ecuador Small Zimbabwe LAC Colombia Middle Honduras Large Argentina LAC Costa Rica Middle Indonesia Large Brazil LAC Dominican Rep. Middle Jamaica Large China LAC Ecuador Middle Jordan Large Colombia LAC Honduras Middle Korea, Rep. of Large India LAC Jamaica Middle Mauritius Large Indonesia LAC Mexico Middle Mexico Large Kenya LAC Panama Middle Morocco Large Korea, Rep. of LAC Paraguay Middle Panama Large Mexico LAC Trinidad andTobago Middle Paraguay Large Morocco LAC Uruguay Middle Philippines Large Nigeria LAC Venezuela Middle South Africa Large Pakistan ECA Turkey Middle Thailand Large Philippines MNA Jordan Middle Trinidad andTobago Large South Africa MNA Tunisia Middle Tunisia Large Tanzania SAR India Middle Turkey Large Thailand SAR Nepal Middle Uruguay Large Turkey SAR Pakistan Middle Venezuela Large Vietnam Source: WDI, Staff assessment. Note: See note to table D5.1. 1 3 8 A P P E N D I X D 5 : A G G R E G AT E E C O N O M I C A N A LY S I S Trade-related Intensity of loan borrower? Pace of trade reform trade reform No Brazil Gradual Brazil Low Argentina No Central AFR Rep. Gradual China Low Brazil No China Gradual Costa Rica Low Chile No Ecuador Gradual Côte d'Ivoire Low Costa Rica No Korea, Rep. of Gradual Dominican Rep. Low Côte d'Ivoire No Lesotho Gradual India Low Dominican Rep. No Paraguay Gradual Indonesia Low Ecuador No South Africa Gradual Jamaica Low Ghana No Trinidad andTobago Gradual Jordan Low India No Venezuela Gradual Kenya Low Indonesia Yes Argentina Gradual Madagascar Low Jordan Yes Cameroon Gradual Malawi Low Kenya Yes Chile Gradual Mauritius Low Korea, Rep. of Yes Colombia Gradual Morocco Low Lesotho Yes Costa Rica Gradual Nepal Low Madagascar Yes Côte d'Ivoire Gradual Niger Low Mali Yes Dominican Rep. Gradual Nigeria Low Mauritius Yes Ghana Gradual Panama Low Mexico Yes Honduras Gradual Paraguay Low Morocco Yes India Gradual Senegal Low Nepal Yes Indonesia Gradual Tanzania Low Nigeria Yes Jamaica Gradual Thailand Low Pakistan Yes Jordan Gradual Tunisia Low Paraguay Yes Kenya Gradual Turkey Low Philippines Yes Madagascar Gradual Uruguay Low South Africa Yes Malawi Fast Argentina Low Tanzania Yes Mali Fast Cameroon Low Thailand Yes Mauritius Fast Central AFR Rep. Low Trinidad andTobago Yes Mexico Fast Chile Low Tunisia Yes Morocco Fast Colombia Low Turkey Yes Nepal Fast Ecuador Low Uruguay Yes Niger Fast Ghana Low Venezuela Yes Nigeria Fast Honduras Low Vietnam Yes Pakistan Fast Korea, Rep. of Low Zimbabwe Yes Panama Fast Lesotho High Cameroon Yes Philippines Fast Mali High Central AFR Rep. Yes Senegal Fast Mexico High China Yes Tanzania Fast Pakistan High Colombia Yes Thailand Fast Philippines High Honduras Yes Tunisia Fast South Africa High Jamaica Yes Turkey Fast Trinidad andTobago High Malawi Yes Uruguay Fast Venezuela High Niger Yes Vietnam Fast Vietnam High Panama Yes Zambia Fast Zambia High Senegal Yes Zimbabwe Fast Zimbabwe High Zambia 1 3 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D5.2a: Real GDP per Capita Growth after Trade Reform Correction for panel sample selection Dependent variable: Basic Bank No Bank changes in growth rates of real GDP per capita DD estimation assistance assistance Lagged growth rate of real GDP per capita ­0.68 ­1.05 ­0.98 (7.90) *** (12.38) *** (18.49) *** 0­2 yrs since trade reform 1.10 1.08 1.06 (1.57) (1.33) (0.64) 3­5 yrs since trade reform 1.24 1.91 1.72 (2.01) * (2.60) ** (2.38) ** 6­8 yrs since trade reform 0.83 2.40 0.46 (1.08) (2.62) ** (0.50) Inflation reduction ­0.64 1.08 ­0.76 (1.25) (1.58) (0.77) Trade-assistance dummy ­0.50 (0.62) Inverse Mills ratio to control for selection of trade ­0.36 0.96 assistance and unobserved heterogeneity (0.86) (1.90) * Observations 450 350 100 Adjusted R­squared 0.34 0.53 0.48 Test for homosckedasticity (p­value) 0.11 0.09 0.06 Test for normality of residuals (p­value) 0.00 0.00 0.00 Source: Jinjarak, Salinas, and Tsikata 2005. Note: * 10 %; ** 5 %; *** 1 %. 1 4 0 A P P E N D I X D 5 : A G G R E G AT E E C O N O M I C A N A LY S I S Table D5.2b: Growth of Imports after Trade Reforms Correction for panel sample selection Dependent variable: Basic Bank No Bank changes in growth rates of imports DD estimation assistance assistance Lagged growth rate of imports ­0.95 ­1.00 ­1.15 (20.71) *** (15.39) *** (22.16) *** 0­2 yrs since trade reform 9.45 8.26 11.43 (2.79) *** (1.90) * (2.94) ** 3­5 yrs since trade reform 14.85 14.37 10.77 (2.79) *** (2.25) ** (1.15) 6­8 yrs since trade reform 22.37 23.93 8.56 (2.79) *** (2.54) ** (0.66) REER changes 0.40 0.31 0.53 (4.44) *** (2.79) *** (3.64) *** Lagged capita GDP growth rates 1.05 1.19 1.32 (5.37) *** (4.20) *** (2.69) ** Time trend ­2.54 ­2.92 0.12 (2.68) ** (2.68) ** (0.08) Trade-assistance dummy 2.18 (1.32) Inverse Mills ratio to control for selection of trade assistance ­0.17 ­0.33 and unobserved heterogeneity (0.11) (0.10) Observations 450 350 100 Adjusted R-squared 0.51 0.52 0.60 Test for homosckedasticity (p-value) 0.02 0.00 0.78 Test for normality of residuals (p-value) 0.00 0.00 0.00 Source: Jinjarak, Salinas, and Tsikata 2005. Note: * 10 %; ** 5 %; *** 1 %. 1 4 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D5.2c: Exports Growth after Trade Reforms Correction for panel sample selection Dependent variable: Basic Bank No Bank changes in growth rates of exports DD estimation assistance assistance Lagged growth rate of exports ­0.83 ­0.96 ­1.05 (13.79) *** (19.41) *** (7.37) *** 3­5 yrs since trade reform 1.71 2.59 0.38 (1.24) (1.70) * (0.15) 6­8 yrs since trade reform 1.34 2.59 ­0.55 (1.01) *(1.97) (0.22) REER changes ­0.13 ­0.16 ­0.08 (2.04) ** (1.59) (1.86) Lagged REER changes ­0.08 ­0.12 ­0.15 (1.40) (1.90) * (1.20) Infrastructure 1.70 4.17 ­11.16 (0.70) (3.82) *** (0.15) Trade­assistance dummy 0.23 (0.17) Inverse Mills ratio to control for selection of trade ­1.70 0.30 assistance and unobserved heterogeneity (1.46) (0.29) Observations 346 270 76 Adjusted R-squared 0.44 0.48 0.50 Test for homosckedasticity (p-value) 0.72 0.65 0.29 Test for normality of residuals (p-value) 0.00 0.01 0.01 Source: Jinjarak, Salinas, and Tsikata 2005. Note: * 10 %; ** 5 %; *** 1 %. 1 4 2 A P P E N D I X D 5 : A G G R E G AT E E C O N O M I C A N A LY S I S Table D5.2d: Export Growth and Increased Value Added, 1983­2003 (annual increase, %) Manufactured Total exports exports adjusted adjusted Value added for purchasing power by purchasing power by manufacture Total value added Country 1 2 3 4 High export growth 11.9 12.8 6.6 5.5 Bangladesh 11.5 10.3 6.3 4.4 China 6.5 12.8 11.9 9.8 Dominican Republic 11.9 13.9 4.0 4.1 India 13.0 11.2 6.7 5.8 Lesotho .. 11.7 7.1 4.1 Mali 25.3 10.2 2.9 3.8 South Korea 12.8 14.2 7.1 7.1 Tanzania 6.3 10.0 3.7 4.1 Thailand 16.9 12.5 8.8 6.1 Turkey 9.8 11.3 5.6 4.2 Vietnam 4.6 22.3 8.7 6.6 Medium export growth 11.4 7.3 3.0 3.2 Argentina 9.1 6.9 1.1 1.8 Brazil 9.4 8.9 1.2 2.4 Cameroon ­2.1 5.5 2.5 1.9 Chile 13.9 9.5 4.7 5.7 Colombia 11.2 7.6 1.2 3.1 Costa Rica 13.8 9.5 5.1 4.6 Ecuador 19.3 7.0 0.5 2.3 Ghana 22.0 7.1 2.4 4.3 Indonesia 16.7 6.8 9.2 5.3 Kenya 8.7 5.2 3.1 2.7 Pakistan 9.2 9.6 5.6 4.7 Madagascar 14.0 8.1 1.8 1.8 Malawi 10.0 5.0 0.8 3.0 Mauritius 12.1 8.0 6.8 5.5 Mexico 15.1 9.5 2.8 2.3 Morocco 9.2 6.9 3.6 3.4 Nepal .. 8.4 8.1 4.5 Nigeria 15.2 5.3 2.0 3.3 Paraguay 8.7 8.1 1.6 2.2 Philippines 12.7 6.8 2.1 2.6 Tunisia 9.6 6.5 4.0 4.3 Uruguay 5.0 5.2 ­0.3 1.4 Zimbabwe 7.1 6.3 ­0.5 1.6 (Table continues on the following page.) 1 4 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D5.2d: Export Growth and Increased Value Added, 1983­2003 (annual increase, %) (continued) Manufactured Total exports exports adjusted adjusted Value added for purchasing power by purchasing power by manufacture Total value added Country 1 2 3 4 Low export growth 7.2 3.0 2.1 1.9 Central African Republic .. 2.7 1.5 0.8 Côte d'Ivoire 5.7 2.4 2.3 1.1 Honduras 7.0 2.6 4.2 3.1 Jamaica ­0.4 0.4 0.0 1.6 Jordan 7.5 4.9 4.8 3.5 Niger .. 1.1 1.5 1.6 Panama 2.9 2.7 1.4 2.8 Senegal 5.9 4.8 3.9 3.1 South Africa 10.4 4.3 1.2 1.6 Trinidad and Tobago 10.0 4.2 1.8 1.0 Venezuela 14.4 4.1 ­0.2 0.8 Zambia 8.3 2.5 3.3 1.4 Source: World Bank, World Development Indicators; IMF, International Financial Statistics, August 2005. Table D5.3: List of Conflict Countries Afghanistan Iraq Algeria Lebanon Angola Liberia Azerbaijan Myanmar Bosnia and Herzegovina Nicaragua Burundi Peru Cambodia Romania Chad Rwanda Congo, Dem. Rep. Sierra Leone Congo, Rep. Somalia El Salvador Sri Lanka Ethiopia Sudan Georgia Tajikistan Guatemala Uganda Iran, Islamic Rep. Yemen, Rep. Source: Collier (2000). 1 4 4 APPENDIX D6: SOURCES OF GROWTH DECOMPOSITION Table D6.1: Sources of Growth Decomposition (Decomposition of GDP Growth by Contribution of Domestic Demand, Import Substitution and Export Expansion, Pre- and Post-Reform) Contribution in GDP change Domestic Import Export (Imports+exports)/GDP GDP change demand substitution expansion (percentage) (in US$ million) (As percent of real GDP change) Country pre post pre post pre post pre post pre post Argentina 16.4 21.6 105,467 33,000 104.6 84.3 ­8.1 ­15.0 3.5 30.7 Brazil _ 17.3 _ 262,667 _ 97.5 _ ­1.9 _ 4.4 Cameroon _ 49.0 _ 760 _ 97.4 _ ­35.0 _ 37.6 Central African Republic _ _ _ _ _ _ _ _ _ _ Chile 58.7 64.8 2,367 9,967 56.9 76.0 ­21.9 ­7.9 65.0 31.9 China 31.3 41.3 67,667 106,333 73.2 90.3 ­2.2 ­21.3 29.0 31.0 Colombia 30.7 34.6 2,333 5,200 70.3 75.3 ­17.9 ­9.9 47.6 34.5 Costa Rica 71.5 73.9 797 2,350 90.9 78.4 ­24.1 ­4.2 33.2 25.8 Côte d'Ivoire 75.0 72.4 1,507 737 55.5 75.1 ­26.0 12.7 70.5 12.2 Dominican Republic 65.3 66.6 2,297 3,227 73.7 67.8 16.7 4.1 9.6 28.1 Ecuador 55.4 51.9 4,823 6,467 74.1 78.6 13.0 4.5 12.8 16.9 Ghana 41.4 42.1 1,010 580 107.7 111.4 ­62.5 ­16.0 54.8 4.7 Honduras 74.3 96.6 227 800 134.0 59.8 ­54.4 ­32.8 20.4 73.0 India _ 22.8 _ 103,000 _ 94.2 _ ­6.7 _ 12.5 Indonesia 46.8 51.2 20,167 40,400 75.5 79.2 ­4.8 ­5.8 29.3 26.7 Jamaica 96.1 _ 1,560 _ 74.8 _ 0.4 _ 24.7 _ Jordan _ 123.6 _ 1,733 _ 60.9 _ 21.9 _ 17.1 Kenya 70.5 59.4 1,480 2,347 91.9 90.2 ­26.7 11.1 34.9 ­1.4 Korea, Republic of 66.4 57.8 81,633 108,667 68.6 87.2 3.2 1.4 28.1 11.5 Lesotho 140.5 139.9 163 224 85.2 94.1 3.5 ­0.7 11.3 6.6 Madagascar _ 41.8 _ 340 _ 94.2 _ ­3.7 _ 9.5 Malawi 54.4 _ 643 _ 93.1 _ ­7.8 _ 14.7 _ Mali 52.1 58.5 147 93 98.0 18.6 ­11.3 ­30.7 13.3 112.2 Mauritius 113.1 133.5 240 863 49.7 74.9 ­22.0 ­22.6 72.3 47.7 Mexico _ 37.2 _ 116,000 _ 93.5 _ ­7.6 _ 14.1 Morocco _ 51.6 _ 6,100 _ 68.0 _ 12.8 _ 19.2 Nepal 48.1 60.4 107 827 45.1 95.8 ­196.6 ­32.1 251.5 36.3 Niger 40.7 41.8 67 60 156.5 98.2 ­81.8 ­19.7 25.3 21.5 (Table continues on the following page.) 1 4 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table D6.1: Sources of Growth Decomposition (Decomposition of GDP Growth by Contribution of Domestic Demand, Import Substitution and Export Expansion, Pre- and Post-Reform) (continued) Contribution in GDP change Domestic Import Export (Imports+exports)/GDP GDP change demand substitution expansion (percentage) (in US$ million) (As percent of real GDP change) Country pre post pre post pre post pre post pre post Nigeria 59.5 81.8 1,033 2,100 ­50.6 137.9 ­141.4 ­146.8 291.9 108.9 Pakistan 36.6 37.5 7,433 8,967 80.1 69.8 ­0.5 7.3 20.4 22.9 Panama 67.2 69.3 1,907 1,357 78.8 96.4 ­5.8 ­16.5 27.0 20.0 Paraguay 69.1 86.1 1,973 1,927 90.1 99.3 ­9.5 ­35.7 19.4 36.4 Philippines 60.7 69.7 10,500 13,067 96.3 88.0 ­22.6 ­19.7 26.4 31.7 Senegal _ 70.6 _ 70 _ 153.2 _ 42.1 _ ­95.3 South Africa 48.5 40.4 25,433 29,667 77.3 81.1 3.5 11.9 19.1 6.9 Tanzania 62.8 44.1 70 2,843 ­2.1 66.8 ­303.9 26.9 406.0 6.3 Thailand 48.2 59.0 5,633 11,533 81.8 65.4 10.2 ­10.6 8.0 45.2 Trinidad andTobago 78.8 88.6 403 313 92.4 2.4 ­31.1 ­28.6 38.7 126.2 Tunisia 88.3 91.7 3,667 2,433 84.6 65.3 ­14.5 ­4.2 29.9 39.0 Turkey 31.0 39.4 59,000 5,667 91.1 90.4 1.1 ­101.3 7.8 110.9 Uruguay 40.9 39.1 2,743 4,320 77.5 91.5 6.0 ­3.2 16.6 11.7 Venezuela 55.6 53.2 7,300 10,667 117.4 32.4 ­27.1 28.9 9.6 38.7 Vietnam 88.1 103.6 10,943 4,967 79.3 52.8 ­13.3 ­20.1 34.0 67.2 Zambia _ 70.2 _ 283 _ 67.3 _ 33.5 _ ­0.8 Zimbabwe _ 81.3 _ 717 _ 81.3 _ ­41.5 _ 60.2 Middle income 52.3 60.4 15,699 30,182 72.2 72.9 ­6.4 ­9.7 23.9 34.2 Low income 44.6 57.9 1,299 6,786 48.3 80.0 ­41.6 ­10.4 68.8 23.3 Africa 48.5 61.7 1,874 2,453 48.8 80.2 ­35.9 ­9.2 63.6 21.1 East Asia and Pacific 56.9 63.8 32,757 47,494 79.1 77.2 ­4.9 ­12.7 25.8 35.5 Europe and Central Asia 31.0 39.4 59,000 5,667 91.1 90.4 1.1 ­101.3 7.8 110.9 Latin America and the Caribbean 53.5 54.1 8,948 30,551 77.2 69.6 ­9.4 ­7.6 23.4 33.6 Middle East and North Africa 36.8 89.0 1,230 3,422 35.6 64.7 2.6 10.2 17.4 25.1 South Asia 32.0 40.2 2,517 37,598 45.4 86.6 ­62.0 ­10.5 94.3 23.9 Non­intense reformers 52.0 63.6 10,542 23,493 60.9 77.8 ­24.5 ­12.4 49.9 34.7 Intense reformers 39.9 46.1 6,768 10,445 65.9 70.1 ­11.4 ­2.4 21.2 14.1 Slow reformers 49.9 58.4 6,905 22,530 55.9 82.1 ­30.6 ­11.3 58.7 23.8 Fast reformers 48.0 60.5 13,012 17,521 69.9 68.1 ­9.6 ­8.3 23.0 36.9 Source: IEG staff calculations. 1 4 6 APPENDIX D7: CASE COUNTRY PROFILES Table D7.1: Trade Portfolio in Case Study Countries (Bank operations, 1987­2003) SAL* SIL/FIL SECAL ESW TA Grant India 1 4 1 15 Indonesia 2 2 2 10 Morocco 2 4 4 6 1 Mozambique 4 1 3 1 1 Senegal 3 1 2 1 1 Zambia 5 3 2 1 Source: IEG Trade Assistance Evaluation Project Database. Notes: Structural Adjustment Loans (SALs), Sector Investment Loans (SILs), Financial Intermediary Loans (FILs), and Sector Adjustment Loans (SECALs); Economic and Sector Work (ESW); Technical Assistance Loan (TA). India: A Gradual Reformer The Bank's assistance program has consisted The period between 1988 and 1991 was marked of a regular series of economic reports (often by an economic growth spurt of 7.6 percent in with extensive trade analysis), the SAL in 1991, India. The growth appears to have been under- and other supporting investment loans. With pinned by a recovery in agriculture, response to the exception of the 1991 SAL, these loans were industrial liberalization during the previous marked by relatively low conditionality; therefore decade, and increased imports of critical ma- much of the Bank's influence has been through chinery and inputs facilitated by earlier trade policy advice and research. liberalization that helped to boost productivity. Despite this growth, underlying economic fun- Indonesia: Home-Grown Liberalization damentals were misaligned. In June 1991, a con- Short-Circuited by Crisis fluence of these factors (growing external debt, At least until the time of the Asian financial cri- high fiscal deficits, and dwindling foreign ex- sis, Indonesia had been seen as a model of suc- change reserves) precipitated a crisis that led cessful adjustment. Among the most pressing India to the IMF and the World Bank. The Bank's problems facing Indonesia in the late 1970s and structural adjustment loan in 1991 helped initi- early 1980s was an excessive and dangerous de- ate a process of gradual trade liberalization that pendence on income from oil. Indonesia did a continues today. In the intervening years, India's remarkable job of facilitating adjustment to pos- policy regime and economy have been consid- itive and negative oil shocks. A combination of erably transformed, trade has responded strongly prudent macroeconomic policies and trade and to the reforms, and the growth rate has stabilized regulatory reform supported a rapid growth and at about 6 percent per annum. diversification of non-oil exports in the 1980s and 1 4 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 early 1990s, an acceleration of FDI inflows, and Viewed as a sympathetic monitor of the In- substantial poverty reduction. In the early 1980s, donesian trade-related reforms, the Bank's over- oil and other fuel products accounted for over all performance can be rated as satisfactory to 70 percent of merchandise exports and manu- highly satisfactory. The GOI made good use of factures for only 2.3 percent. By 1996 the share the Bank's assistance in this regard, and most of of manufactures had risen to over 50 percent. the senior Bank personnel who worked in In- Among the greatest achievements of Indone- donesia recognized and accepted this impor- sia's economic performance over this period tant but nevertheless limited role in the area of was a substantial reduction in the incidence of trade and other related regulatory policies. This poverty, from 40 percent in the late 1976 to helped to support a long and mutually trusting 11 percent in 1995. The high rates of growth relationship between the GOI and the Bank's In- and the rapid expansion of investment and of donesia mission. As an independent monitor of labor-intensive manufacturing over the period the process, the Bank performed a valuable role were major contributing factors. in certifying the value of the reforms for other Despite two major oil crises, Indonesia sus- members of the donor and international lending tained an average real growth rate of 7 percent communities. The lending support provided by between 1980 and 1996. Trade policy reforms several trade-related loans was useful in itself were an integral part of successful adjustment in and as an encouraging signal to other donors. the 1980s, and the problems arising in 1997 were Technical support in export promotion (Export certainly not connected with trade policies. The Development Loan initiated in 1986) and in the economic problems were related to weaknesses design of export incentive programs was not in domestic financial regulation and contagion particularly useful. Serious questions will how- effects in global financial markets. These were ag- ever remain about the value of the Bank's role gravated by political and social disturbances that on the one occasion, during the financial crisis, had serious short run impacts on the invest- that it allowed itself to be drawn into detailed ment and business environment. trade-related policy prescriptions at a time when Trade and investment policy reform played a many other issues were of more pressing im- key role in helping Indonesia to come through sev- portance. eral major external shocks relatively unscathed, The Indonesian experience provides confir- transforming its economy away from depend- mation of a number of general lessons about ence on oil and laying the foundations for two trade reform: decades of extraordinarily rapid growth and poverty reduction. The Bank's role in Indone- · Trade and regulatory reform appears to be an sia's trade reforms has been defined less by indi- important contributor to growth and poverty vidual programs and projects than by what has reduction. been described as a long-term `policy dialogue' · Trade reform is certainly not sufficient for pro- with Indonesian policy makers, donors, and other moting development. stakeholders. Conditionality played almost no · Trade facilitation is important. Indonesia's bold role in most of the Bank's work in Indonesia. Its moves in port and especially Customs reform research and reports complemented the work of resulted in large reductions in the cost of trade. the Government of Indonesia (GOI) and was ap- Failure to lock in the reforms has led to a resur- preciated. The Bank's work and its advice were gence of old problems. generally of high quality. But it was not in a posi- · The institutions for the design, implementation, tion to play a significant direct or even supervisory and monitoring of trade policies are important. role in trade reform. The GOI chose to use its own This was recognized and acted on in a number resources to get external technical assistance else- of innovative ways by the GOI, sometimes very where. The Bank was quite supportive, and did successfully and other times less so. assist in making the Indonesian government's · Import and export licensing schemes and other work more generally known and accepted. NTBs are far more costly than tariffs. 1 4 8 A P P E N D I X D 7 : C A S E C O U N T R Y P R O F I L E S · Reforming tariffs according to some simple period, and provided both financing and tech- formula is easier and more effective than ne- nical support to assist the government in intro- gotiated rate changes. ducing this strategy. In recent years it has focused · Freeing exporters from the burdens of import on trade-facilitation and private sector­devel- substitution regimes can be an effective short- opment projects. The government has moved term measure, politically and economically, forward slowly, and with little World Bank assis- but needs to be followed up with the more fun- tance, in negotiating and implementing free- damental reform for which it is a temporary trade agreements with the European Union (EU), substitute. the U.S., Turkey, and its Mahgreb neighbors. · Trade reform is easier and more effective when The World Bank has made a positive contri- the exchange rate is right. bution to trade policy reform in Morocco over · Fiscal incentives for investment can be costly the last 25 years. It was an irreplaceable con- and they are not necessary. tributor to the initial architecture of trade liber- · Recent developments suggest that the battle for alization in the early 1980s, through its lending, trade reform is never truly and completely won. its technical support, and its high-level advice. In more recent years the Bank's focus has turned Morocco: Crisis Precipitates Reform, to trade facilitation and infrastructure develop- Fiscal Concerns Dampen the Pace ment, and its contributions here also have been Morocco's economy is heavily dependent upon well-appreciated. The World Bank played a crit- agriculture, with that sector's share in gross do- ical role in 1983 in assisting in the formulation mestic product fluctuating between 14 and 24 of the export-promotion strategy of structural ad- percent in the period 1982­2002. This depend- justment. While the stabilization policy sup- ence has led to pronounced swings in growth of ported by the IMF would have gone forward, the gross domestic product over the period. initial steps toward trade liberalization would Droughts and the consequent negative effects on have been less sure. From that time on, however, agricultural output are correlated strongly with there has not really been World Bank support for this economic growth record. The public sector trade liberalization. has historically played a dominant role in the Morocco's implementation of trade liberal- economy as producer and employer as well as ization has been less profound since 1988 than regulator. This has resulted in persistent central in the period prior to that. This slowing of reform government budget deficits over the years. The is at its heart a product of the negative conse- budget challenge is related to another: the need quence of tariff reform for achieving fiscal bal- to induce more rapid labor absorption. Urban ance: the policy of macroeconomic balance has unemployment was estimated in 1995 to be in the past taken precedence over the trade lib- roughly 15 percent and rising, and the public sec- eralization agenda. It also coincides with the tor has played the role of employer of last resort Bank's decision to place more emphasis on trade The Government of Morocco (GOM) has been facilitation issues in this area, and on poverty, and consistent in its economic-development goals social expenditure more generally. over the last 30 years. Its priority is to acceler- The World Bank's policy goals have been ate the economic growth of the economy, both largely in line with those of the government. Its to increase incomes and to create jobs for un- focus has been upon structural adjustment rather employed citizens. Beginning with the economic than macroeconomic stabilization. Over the last crisis in 1982 and continuing through to the 15 years, however, the World Bank has shifted its present, the GOM concluded that one strategy focus more tightly to the alleviation of poverty to address these problems is export-led growth. and social concerns in Morocco. This has led to Morocco chose to change its trade policy from some criticism among Moroccan policy makers: import substitution to export promotion in 1983. they claim (rightly or wrongly) that the Bank re- The World Bank was a close partner with gov- jected the value of social spending in Morocco ernment policy makers in the beginning of this in its support for the stabilization program of the 1 4 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 1980s. As a result of that stabilization program, be contingent on the identification and ex- in their view, social spending was cut and poverty ploitation of sources of fiscal revenue separate rose. Now, the World Bank calls on the GOM to from that of tariffs and trade taxes. reverse the consequences of that earlier auster- ity through social spending. The evolution of Mozambique: Cashew Controversy Bank ESW on the impact of trade liberalization Overshadows Post-Conflict Gains in Morocco illustrates this shift. A major contri- As is to be expected in an economy devastated bution of Bank ESW throughout the trade pol- by war and then by extensive structural change, icy­reform process in Morocco has been the GDP values and growth rates have fluctuated quantification of the benefits and costs of freer sharply over the last two decades. Gross national trade. While the basic channels of benefits and income per capita is now just above $200 per costs remain the same, current ESW focuses ex- annum, compared to more than $300 in 1986. Be- clusively on the impact on poverty while earlier fore 1993, peaks of more than 10 percent growth ESW focused upon the potential aggregate gains and troughs of -8 percent were experienced, from trade. though more recently greater stability has been There is a paradox in World Bank activities in observed, except in 2000 when GDP growth fal- Morocco. Individual projects when considered in tered because of widespread flooding. In the isolation are almost always considered success- mid-1980s Mozambique's economy was virtually ful by the Moroccan counterparts. However, the closed and the metical was grossly overvalued. overarching goal of accelerated economic growth Along with the elimination of import licensing and has not been achieved, and so Bank interventions the reduction of import tariffs and export barri- in aggregate are not viewed so positively by Mo- ers, real devaluations have allowed the export sec- roccan officials and private observers. Tariffs on tor to begin its recovery. They have helped attract industrial goods remain rather high. Tariffs and new investment into the tradables sector, en- quantitative restrictions on agricultural products hancing the country's prospects for sustained remain in force. The share of exports in GDP in growth and external viability. the Moroccan economy has climbed only slightly With the emphasis on macroeconomic stabi- since 1983. While the government has negotiated lization, trade policy per se did not become a pri- a system of free trade agreements (with the EU, ority until the 1990s. In the late 1980s exchange the U.S., its Arab neighbors, and Turkey), the rate rationalization was a more pressing priority commitments under those agreements are back- and took the form of progressive devaluations. loaded, and have yet to cause large efficiency By 1992 a free currency market was in place. gains within the economy. This reform had the deepest impact on Mozam- The most important lesson for the World bique's trading environment, as it set the stage Bank from the Moroccan experience with trade for the tariff reforms and the elimination of ex- policy reform is the immense value of creating port and import licenses and quantity restrictions the preconditions of policy reform among GOM that followed. Market liberalization became a officials. Another important lesson is the need high priority, particularly the liberalization of to balance structural adjustment with fiscal re- the cashew export. Here the Bank took the ini- form. The Ministry of Commerce and Industry tiative in the trade reform process in Mozam- may be solidly in favor of tariff reduction. If the bique, but was preceded in this by equally Ministry of Finance is reliant upon trade taxation important government reforms that had received for budget balance, however, the reforms will not Bank support and advice, particularly in the area go through. The trade policy compromises as- of tariff reform. It was the predominance of sociated with budget shortfalls in the late 1980s, cashews in national exports that gave such sig- continuing up to the present, are a reminder nificance to the reforms, which have been largely that these reforms can not be considered in iso- beneficial to the cashew sector, though much lation of macroeconomic balances. Further remains to be done in field production and pro- progress in trade liberalization in Morocco will cessing. Given the far-reaching overall impact 1 5 0 A P P E N D I X D 7 : C A S E C O U N T R Y P R O F I L E S on the economy, the long-term support that the forward-looking and helped Mozambique es- Bank Group has provided to trade liberalization tablish itself as democracy with good prospects constitutes the most significant trade-related of sustainable economic development in a mul- Bank activity in Mozambique. The Bank and tilateral trading environment. Without it, there other donors also supported customs reform is no question that the national economy would and institutional strengthening. Here the gov- have suffered major difficulties when COME- ernment was proactive in adopting an aggressive CON (the Eastern bloc's free market) closed its and highly successful modernization process doors to Mozambique in 1984. However, Mozam- that has allowed the country to welcome major bique's continued development at high rates of new investments such as the Mozal aluminum growth will require a more concerted effort to smelter, which currently contributes 10 percent overcome some major constraints, including the of GDP. Trade volume has also grown because of further removal obstacles to private sector de- the Bank's technical and financial assistance sup- velopment, including in the financial sector. Im- porting the development of transport infra- proving financial sector performance, which is structure to South Africa, Zimbabwe, and Malawi, hampered by limited supervisory capacity, poor regional integration through trade agreements, accounting practices, and a weak judicial sys- and private sector capacity building. tem, would improve the lending environment Under structural adjustment, from 1985­95, and facilitate access to bank credit, the greatest the World Bank Group provided ample financial constraint to private sector growth. resources to aid Mozambique in the adoption of In addition, there is a continued need to re- rational and sustainable economic policies. How- duce the cost of doing business, notably by im- ever, it is not uncommon to find precise and proving infrastructure, especially transport, and detailed policy analysis and recommendations in reducing labor rigidities, which hinder external Bank Economic and Sector Work publications competitiveness. from the early 1990s that were not fully dis- Major lessons learned from the Bank's work cussed with government, but were reflected in in Mozambique include: World Bank country strategies. But, beginning in 1997, the Bank addressed this problem ade- · Borrower ownership and commitment to the quately through much fuller consultation. Con- reform program is a key factor of success. The sequently, the country assistance strategies in the fact that the Economic Management Reform late 1990 and 2000 are joint products of the Operation supported reforms that were clearly Bank and the government. The PARPA, or poverty defined, previously agreed upon, and fully reduction strategy, provides a neutral and highly owned by the authorities facilitated imple- relevant focus for these consultations that was mentation and contributed to program sus- lacking in the early stages of Bank work in tainability. Mozambique. · Appropriate sequencing and complementari- While the process of providing trade assis- ties between macroeconomic policies and tance to Mozambique has encountered difficul- structural reforms reinforce program out- ties, the assessment concludes that the impact, comes. The simultaneous implementation of relevance, efficiency, and sustainability of the indirect tax reform, gradual trade liberaliza- reforms advocated by the Bank are generally tion, and rationalization and simplification of satisfactory. Given the overall success of Bank ac- import procedures, shielded the budget from tivities in the areas referred to it can be con- a potential decline in revenue that could have cluded that both quality at entry and quality of endangered fiscal adjustment, at the same time supervision were adequate. With the exception as it reduced distortions in the allocation of re- of some minor aspects of the cashew study, and sources and supported a strong supply re- the predominance of the highly prescriptive ad- sponse. When combined with prudent fiscal vice of the early 1990s that presaged the export and monetary policies, a favorable external tariff reforms, the Bank's advice was in the main environment and the high level of foreign as- 1 5 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 sistance, this resulted in strong GDP growth, has consistently emphasized decreased inter- low inflation, and high private investment. vention by the state in markets and increased · Political economy considerations can derail trade integration in order to achieve the goal of technical analysis, especially where the poor do increased competitiveness, increased economic not have a voice. growth, and improved welfare for all Senegalese. · Faced with capacity constraints, a smaller num- Along the way, mixed messages have sometimes ber of selective reforms results in greater im- been given by the World Bank with respect to pact. The focused nature of the operation, trade. When quick-disbursing adjustment lend- which concentrated on a limited number of ing was at its peak, trade liberalization was seen areas, enabled the government to concentrate as part of a broader structural adjustment pol- on actions considered critical for the success icy reform package and trade was folded into the of the overall reform process, and helped im- Ministry of Finance's portfolio. As adjustment plementation in the face of acute capacity con- lending has yielded to the return of more tradi- straints. tional investment projects, trade flows and trade capacity building are once again seen as impor- Senegal: The Limits of Advice and the tant topics in their own right and trade is again Importance of Domestic Constituencies managed by a separate ministry. Yet the Bank's for Reform tepid embrace of trade as a unique area of op- The economy of the Republic of Senegal--a eration, perhaps out of respect for the primary semi-arid West African country with a fragile nat- authority of Joint Integrated Technical Assis- ural resource base and just over 10 million peo- tance Program to Selected Least Developed and ple--is more open to trade than on average in Other African Countries (JITAP) organizations Sub-saharan Africa or among least developed in this area, means that trade capacity support countries. Along with some of its neighbors, from the Bank in terms of financial and human Senegal joined in a special monetary agreement resources has been somewhat limited. with France that established a currency (CFA Given the economic context in which Sene- franc) that was both fixed and convertible against gal found itself in the 1980s, the World Bank the French franc (and against the euro after clearly pushed the right reform priorities at that 1999). While Senegal benefited from monetary time. Senegal's biggest constraints to economic stability and low inflation for an extended period growth stemmed from the pervasive involve- of time, the sustained deterioration of the CFA ment of the state in most aspects of economic zone's terms of trade and the increasing over- activity. Disengagement of state-owned enter- valuation led to a stagnation of exports, a dete- prises and reform of state-run market functions rioration of public finances, capital flight, and a at all points in the value chain, from input dis- deep recession in 1993. By mutual agreement, tribution to price-setting, collection, storage, the CFA franc was devalued by 50 percent against processing, trade, and distribution, were cru- the French currency. Concurrently, a program of cial if the Senegalese economy was to become macroeconomic and structural reforms was an- more competitive. Unfortunately, given the in- nounced. In Senegal, the devaluation and ac- stitutional context in which the World Bank companying reforms produced robust results found itself, it was unable to address the single- in terms of growth and poverty reduction, par- most critical constraint to trade development ticularly in the years immediately following the in Senegal by the late 1980s, which was over- devaluation. valuation of the CFA franc. The design of struc- The World Bank has not pursued a trade as- tural adjustment in Senegal up until 1994 was sistance program per se in Senegal. Rather, it has inappropriate because its second-best nature pursued an economic liberalization program, of forced it to follow a path of fiscal compression which increased openness to trade has been that ultimately caused more harm than benefit. one expected intermediate outcome. The Bank's Since 1994, the Bank has provided assistance message to Senegal's economic policy makers in areas that address key constraints to trade 1 5 2 A P P E N D I X D 7 : C A S E C O U N T R Y P R O F I L E S development. Immediately after the devalua- over conflicting international institutional man- tion, the Bank supported more comprehensive dates. structural adjustment in both industry and agri- · Trade and enabling environment reforms are culture, including tariff reform, elimination of im- necessary but insufficient conditions for in- port reference prices, and withdrawal of the ducing export diversification and global mar- state from many production and marketing ac- ket penetration. tivities. Since the late 1990s, trade infrastruc- · Although the West African financial crisis of ture (e.g., sea and airports, rail, airlines), trade the late 1980s was addressed through a finan- promotion (for horticulture), trade institutions cial sector adjustment program, Senegal's com- (exporters' associations in horticulture), further mercial banking sector remains cautious and tariff reform, trade institutions (e.g., Customs Ser- overly liquid. vice), and investment promotion have been the · Future diagnostics of trade prospects and de- focus of privatization, reform, and/or modern- livery of trade advice must also consider the fac- ization with support from the World Bank. tors shaping trade from a global demand The World Bank's advisory, analytic, and lend- perspective. ing services have provided a consistent message · Given that the private sector is often weak in de- in support of the big picture of trade openness veloping countries, appropriately structured and global integration as the key to economic public-private partnerships are needed in a wide growth. Since the "big push" on structural ad- range of trade-related areas, including trade ne- justment following the 1994 devaluation, the gotiations, trade-related investigations and legal Bank's efforts have focused on trade policy re- actions, trade-related research and extension, form and privatization and modernization of compliance with norms and standards, local trade-related infrastructure. Other forms of trade market regulation, export-oriented investment capacity building, such as the development of promotion, and export market linkages. trade institutions, have received more limited at- tention from the Bank. At times the Bank has Zambia: Political Change Opens Window sharply disagreed with the government (or other of Opportunity Leading to Economic donors) on policy or institutions, as with the Change longstanding stalemate over the National Oilseed Following the declaration of unilateral inde- Marketing Company's (SONACOS) privatization pendence by Rhodesia in 1965, new trade routes and more recent dispute regarding the future in- had to be found for Zambia. Energy supplies stitutional home of export promotion assistance. were most affected and the upshot was that Zam- Topics such as trade finance, trade negotiations, bia adopted a policy of self reliance. The copper or the development of trade-related skills at the mines and a large proportion of industrial and microeconomic level, have received far less at- commercial concerns were nationalized and tention in Senegal. Where Bank assistance has placed under holding companies which were been targeted at the private sector, as with the controlled and operated by the ruling party. Eco- Agricultural Export Promotion Project (AEPP), the nomic policies were inward-looking. Counter- effects on export supply response and institu- ing a persistently overvalued exchange rate, tional capacity have been quite positive, albeit industry was heavily protected by a combination limited in scope to specific product categories. of quantitative restrictions, high tariffs, and ad- In Senegal the experience of the World Bank ministered allocation of foreign currency. In the over the last 17 years with trade-related assistance aftermath of the 1973 global oil crisis, the price suggests a number of lessons, recommendations of copper collapsed, but the government as- from which may have wider applicability to Bank sumed that low copper prices would be a tem- operations in other countries: porary phenomenon and did not therefore seek to fundamentally change the patterns of con- · The effect of exchange rates on export com- sumption and production in the economy. Zam- petitiveness cannot be overlooked in a debate bia began to accumulate the significant levels of 1 5 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 external debt which soon became a major re- The relevance of these objectives in the Bank's straining factor in macroeconomic policy making. adjustment operations and the complementary To resolve the tension between the necessity to projects is not in doubt. In 1991, Zambia's econ- service the debt while at the same pursuing de- omy was in a deep economic crisis which the new velopment objectives, Zambia became heavily government recognized could not be effectively dependent on external assistance, particularly addressed except via a clean break with the past. from the International Monetary Fund and the What is, however, controversial is whether the World Bank. Throughout the 1980s and 1990s, approach to meet the basic trade objectives, Zambia has had a series of significant loans from particularly the objective of export diversification, the Fund and the Bank, as well as a mix of sub- was relevant. Two related concerns are raised in stantial grants and loans from bilateral donors. this connection: firstly, that the liberalization of However, the period from the downturn in cop- imports was too rapid and secondly that insuf- per prices to the present has been characterized ficient attention was paid to supply side con- by poor economic performance, and income and straints. Zambia was therefore left overly exposed social indicators have deteriorated dramatically. to import competition (particularly from re- Between 1987 and 2002 there was only one gional trading partners, such as Zimbabwe and project which was exclusively devoted to trade. South Africa), while not being in a position to re- This was the seven-country Regional Trade Fa- spond adequately to the improved export in- cilitation Project, which was approved in 2001 centives. and involves establishing a trade insurance facility. The reforms undertaken in Zambia since the Zambia's direct share of the Bank's contribu- Movement for Multi-Party Democracy (MMD) tion to this project is small ($15 million). The came to power in October 1991, including rapid Bank's main trade assistance to Zambia over the trade liberalization, have not produced any- period was incorporated in a series of structural thing like the results which had been hoped for. adjustment lending operations. However, given At the same time, they have not been com- the primary trade objective of assisting the coun- pletely ineffective, not least in respect of the try to diversify its export base, other Bank proj- growth of non-traditional exports. Nonethe- ects in agriculture, private sector development less, it remains the case that without much and the like also have to be considered when higher levels of growth of both GDP and ex- evaluating the Bank's trade assistance. ports, Zambia will remain highly indebted and As expressed in successive adjustment oper- will not disentangle itself from its extraordi- ations, the main trade objectives were to remove narily high level of donor dependence, nor biases against exports, major aspects of this being make any sustainable reductions in poverty. liberalizing imports and the foreign exchange The country needs to have much greater com- market. The operational objectives were initially mitment to developing a viable and competitive to remove NTBs and administrative control of im- economy capable of enhancing incomes and ports and foreign exchange and thereafter to re- generating jobs and wealth. Trade policies need duce tariffs and narrow spreads, strengthen to be integral to any growth strategy, but it will export promotion institutions, and improve the only be through a conscious effort to develop duty drawback system. These predominantly linkages and maximize employment growth trade regime issues were to be complemented by that the result will be sufficiently inclusive for a favorable macroeconomic regime, including a it to reduce, rather than exacerbate, inequali- competitive exchange rate and access to finance ties and poverty. for exporters. These changes were intended to More specific recommendations on the design encourage nontraditional export growth so as of the trade components of economic reform and to reduce the country's dependence on copper. development strategies are as follows: This would then contribute to the overall coun- try assistance strategy goals of sustainable eco- · Sequence enhancement of trade with increased nomic growth and poverty reduction. employment. 1 5 4 A P P E N D I X D 7 : C A S E C O U N T R Y P R O F I L E S · Buttress the sequencing of liberalization with staff involved in negotiations on a trade loan an explicit strategy to maintain commitment three years later. The 1990 economic report and support. took a more pragmatic approach, allowing more · Cushion the impact on the losers. scope for state intervention and formed the · Take account of the regional and international basis for the SAL the following year. In agricul- trade environment. tural trade, Pursell and Gulati (1993) systemati- · Provide the lead on good governance. cally documented the anti-agricultural bias of · Create a macroeconomic environment con- the policy regime and offered recommendations ducive to private sector growth. and this report significantly influenced agricul- · Maintain a real exchange rate that provides a tural policy changes in India. strong incentive for nontraditional export In Mozambique, the controversy over the lib- growth. eralization of the cashew nut industry that was · Ensure effective institutions. based on analytical work commissioned by the · Invest in infrastructure. Bank subsequently spanned eight years. It gen- · Develop human resources and technological erated ex-post several assessments by Bank staff, capabilities. the Bank president, the Mozambicans, and aca- demic researchers. Assumptions in the original Lessons from ESW in Case Study ESW fueled the cashew debate. The study was too Countries willing to assume that traders would pay more for The main lesson for the examination of eco- the nuts and that farmers would hasten to im- nomic and sector work and its impact in the prove the state of their trees. Critics said that the case studies is that high-quality analytical work study underestimated the free on board price (or its absence) matters for project design and of exported kernels and overlooked the com- the overall country relationship. plexity of the marketing structure where the In- In Morocco, a 1993 study (Alavi 1993) re- dian industry and its representatives played a ported the results of a private sector survey and decisive role. Excessive faith was placed in mar- highlighted the role of customs administration ket structures and processes to ensure the trans- and the issue of corruption (previously taboo). mission of price incentives to highly dispersed Private sector associations used the study as producers in remote rural areas. These criticisms, backing to urge intervention by the king (which political economy dynamics (resistance by those happened), and customs officials have been who gained from the prevailing system), and the complimentary of Bank (and Fund) technical subsequent debate led by NGOs kept the issue assistance provided in the early stages of customs alive. Thus, even though three ex-post assess- reform. ments as well as McMillan, Rodrik, and Horn In India, ten sector studies carried out from (2002) concluded that the reforms recommended 1985 to 1991 laid the foundation for dialogue. A yielded many of the benefits they were intended 1987 country report offered a detailed set of to, McMillan et al. note that "even under the policy reforms in various areas, including trade. most favorable assumptions, the magnitude of the A substantial part of the trade reform in the benefits generated by these effects were quite 1990s and the remaining agenda can be found small [$12 million]--both in economic terms in this early report. However, key Bank staff and in relation to the amount of time and energy members from that period are modest in draw- ... spent on this question over the years." ing causal links between the study and the re- In Zambia, an intense and relatively rapid forms, instead drawing attention to Indian policy trade liberalization starting in 1991 and stretch- makers from that time who shared similar views. ing out to the end of the decade was heavily bi- Given that this comprehensive report was dis- ased toward lending with little detailed ESW on cussed with the authorities, however, it is likely trade. A narrowly focused tariff study was done that it contributed to changing some minds in 1992. The country economic memorandum in within the bureaucracy and also influenced Bank early 1990 stated that further (trade) reforms 1 5 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 should be made only after careful revenue and native sources of advice. By the mid-1980s, the protection analysis. A better idea is needed of the Indonesian government was clearly in charge of effective protection structure, given the link- its reform program. ages between production and imports, before The IEG case study on Indonesia concludes designing further changes in structure. The last that the Bank's annual reports, which were widely effective protection study done in Zambia by read, were useful in providing support and recog- the Bank was in the mid-1980s. The Bank was un- nition for the government's trade-related re- doubtedly preoccupied in the early 1990s with forms in the investment and donor communities. macroeconomic stabilization and privatization; Their impact on policy was not as great as might it was also attempting to take advantage of a have been expected given their quality and fre- "window of opportunity" for reforms. Regardless quency for at least three reasons. First, to be of the reasons why the Bank failed to conduct an- seen to be bowing to the wishes of the Bank was alytical work, the absence of trade ESW gave perceived as reducing policy makers' credibility some Zambian observers the impression that with the president. There was a precedent for the Bank's commitment to liberalization was this--the 1983 tariff reform was aborted after based not on analysis but on a doctrinal "belief claims it was being forced on the country by the that resources were misallocated as a result of Bank. Second, the government had built up its price distortions" (IEG, 1996c, p. 60). It may capacity to conduct its own analysis on trade also have failed to prepare the authorities ade- and industrial policy. Third, up until the late quately for the potential risks and costs associ- 1990s, the authorities could also draw on the ad- ated with trade liberalization. vice of outside consultants, the most prominent Trade has always been an important compo- of which were the economists from the Harvard nent of the Bank's policy dialogue with Indonesia Institute for International Development. The and since the early 1980s the Bank's Jakarta of- Bank was highly supportive of the reform process fice has always had a resident trade economist. in Indonesia and conducted a large amount of Starting in the early 1980s up to the mid-1990s, analytical work and a relationship of considerable the Bank consistently produced a series of eco- mutual respect existed between the two par- nomic reports that included a focus on trade ties. But the greatest contribution of the Bank's for donor meetings. The contribution of Bank an- analytical work may have been its value as a sig- alytical work has been influenced by Indonesian naling device to other development partners on political sensitivities, government ability to carry the state of Indonesian reform, rather than ac- out its own research, and the existence of alter- tual policy changes. 1 5 6 APPENDIX E1: ORGANIZATIONAL CHART FOR THE INTERNATIONAL TRADE DEPARTMENT Poverty Reduction and Development Economics World Bank Institute Economic Management Vice President, DEC Vice President, WBI Vice President, PREM and Chief Economist Economic Advisor Director, International Trade Senior Advisor ARD (Headquarters) Department (Geneva Office) 50% Operations and ESW Research Training and Capacity Building ( PRMTR) (DECRG_TR) (WBIPR) Sector Manager Manager Manager [18 Staff] [12 Staff] [4 Staff] 1 5 7 APPENDIX E2: ESTABLISHMENT OF THE TRADE DEPARTMENT Director, Trade Department, strengthen collaboration among our VPUs. The PREM/DEC/WBI new Department will combine the relevant pol- Concurrent with the launch of the Doha Devel- icy and analytic work, and capacity building on opment Agenda, the Bank's trade work has trade within a coordinated budget envelope, grown dramatically in the last year, and trade which will also include resources from trust was identified as one of the Bank's priorities at funds, such as those supporting the Integrated the Strategic Forum in January. At the same time, Framework. the Bank's work on trade at the center is dis- The Trade Department will address global persed across DEC, ESSD, PREM, and WBI. To im- trade issues through analysis and advocacy, and prove our capacity to respond to the growing support regional and country work on trade. demand for Bank services on trade and to man- Agricultural trade issues are central to the cur- age more effectively the expanded resources in rent round of negotiations, and agricultural trade this area, we have decided to create a Trade De- work on the global trade agenda currently partment. housed in ESSD will also be aligned with the The Trade Department, headed by a Director new Trade Department. Moreover, to ensure for Trade, will provide a single venue for ac- synergy between the Trade Department and countability for trade-related work. This work will work on global economic prospects (which in- include global advocacy on trade-related devel- cludes a large trade component), the Director will opment issues based on research findings, sup- also be responsible for managing the Develop- port to the Regions on trade strategies at the ment Prospects Group in DEC. regional and country levels and on trade oper- The Trade Department will be subject to a ational work (including that carried out by the major review after 3 years using criteria based on research team in DEC), and capacity building an assessment of the services provided and the on trade issues. Although the Department will level of demand for services. Clear outputs and be housed in PREM, the Director will report outcomes will also be reviewed annually. jointly on trade strategy issues to the VPs for [...] DEC, PREM and WBI, underscoring efforts to Gobind Nankani Nicholas Stern Frannie A. Leautier Vice-President Senior Vice-President DEC, Vice-President PREM and Chief Economist World Bank Institute 1 5 9 APPENDIX E3: WORLD BANK ADVOCACY ON INDUSTRIAL COUNTRY TRADE POLICIES Table E3.1: World Development Reports 1980­2002 (Main Themes on Trade) World Development World Development World Development World Development Report 1980 Report 1981 Report 1982 Report 1983 Some agricultural products Tariffs remain high in some Protections have taken the form High protectionism in agriculture. remain constrained by heavy sectors--particularly those of of NTB, quotas, voluntary re- Tariff and NTB against clothing protection in Japan and interest of developing countries straints, antidumping, counter- and textile imports from develop- Western Europe--textiles and exporters. Tariff escalation-- vailing duties, safeguards and ing countries grew. Recession clothing elaborate mechanism removing the tariffs on processed the increase of subsidies. Unlike rose protectionist pressure. to control imports have become varieties of eight agricultural tariffs, many of those are bi- more entrenched, reducing the products. Disturbing development lateral outside the scope of the chance of their earlier removal. in trade restrictions. MFA, safe- GATT. Today's institutionalized In some industrialized countries, guards, antidumping, and counter- restrictions were yesterday's imports on footwear and some vailing duties. Many subsidies temporary measures. In contrast consumer electronic goods are were overtly protectionist. to the situation in most developing still subject to fairly stringent countries, agriculture in the quotas. Tariff escalation inhibits developed world is heavily protected exports of processed products and supported. European Economic from developing countries. Community (EEC), USA, and Japan have high protection levels and subsidies. Little progress was made in the Tokyo Round in reducing agricultural protection World Development World Development World Development World Development Report 1985 Report 1986 Report 1987 Report 1989 Increased protectionism in NTBs on developing countries' ex- Developing countries subject Specific safeguards actions taken industrial countries against ports are higher than industrial to NTB, VER, tariff escalation. by industrial countries increasing- developing countries' exports countries' exports. MRN should Demands to combat "unfair" ly discriminate against develop- reduces the export earnings focus on NTB and effective system trade are protectionism and ing countries. VER, MFA, and quo- that developing countries would of safeguards. Agricultural trade attack the basis of trade--com- tas have their greatest effect on otherwise obtain. Detrimental to policy has been excluded from parative advantage. GSP limited the exports of developing countries their capacity to import and to multilateral negotiations. Protec- gains--sectors excluded. Urged The share of developing countries service their debt. Protectionism tionism in agriculture: variable im- more open trading system: include exports that face NTB is roughly can adversely affect the devel- ports levies, exports restitutions, agriculture, MFA to be phased 20 percent, about twice the share oping countries terms of trade. high tariffs, imports quotas Prefer- out, safeguards amended to of industrial countries exports. New protectionism: escalation, ences: Lome. Caribbean Basin assure access to developing Protection in agriculture. Increase NTB in agriculture, steel, foot- Initiative (CBI). Generalized System countries' exports. CVD-AD in bilateral trade agreements. wear, MFA, quotas, voluntary of Preferences (GSP): limited bene- reform. Uruguay Round (UR) need to take export restraint (VER). fits, partly because they are restric- care of those issues. (Table continues on the following page.) 1 6 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E3.1: World Development Reports 1980­2002 (Main Themes on Trade) (continued) World Development World Development World Development World Development Report 1985 Report 1986 Report 1987 Report 1989 tive, exclude or place limits on precisely those products in which developing countries could be most competitive. World Development World Development World Development World Development Report 1991 Report 1999/2000 Report 2000/2001 Report 2002 Trade reform in developing Trade sanctions, which may be Agricultural trade grew only 1.8 The benefits of trade liberalization countries is much more likely little more than a cover for the percent from 1985 to 1994. One for developing countries would be to go ahead if success in trade introduction of protectionist meas- reason for this slow growth is the significantly enhanced if industrial is not punished. Use of quotas, ures, may be implemented in ways continuing protection of agricul- countries also reduced their tariff subsidies, VER, CVD, and AD has that have little to do with child tural products by developed coun- and nontariff barriers, especially on risen alarmingly since the 1960s. labor. tries--protection not only through agriculture and textiles. Industrial Subsidies in agriculture in- tariffs and quotas but also through country support to agriculture rose creased by 80 percent in the U.S., subsidies. High tariffs in products from 31 percent of gross farm re- and 69 percent in Canada be- of interest in developing countries. ceipts in 1997 to 40 percent in 1999. tween 1980 and 1985. It remains High income countries' agricultural Much of the liberalization under to be seen if regional blocs will tariffs and other distortions, such the MFA has been on products that support or hinder the goal of as subsidies, have been stimulated were not under restraint to begin more open global trading system. to cause annual welfare losses of with. The initiatives of industrial UR must be revived to eliminate $19.8 billion for developing coun- countries to liberalize exports from quantitative restrictions, open tries--equivalent to about 40 per- LDC needs to be extended to all agriculture, and restrict the use cent of the development assis- products. Even after the elimination of the so-called fair trade legis- tance given to developing countries of MFA, developing countries still lation. in 1998. For manufactured goods, face high tariffs. tariffs facing developing country exports to high-income countries are, on average, four times those facing industrial country exports to the same market. Tariff escalation can discourage industrialization efforts in developing countries. Global Economic Prospects (OECD and other Trade Themes) Global Economic Global Economic Global Economic Global Economic Prospects 1991 Prospects 1992 Prospects 1993 Prospects 1994 High tariffs in products of inter- Restrictive trade policies in Protectionism in OECD markets is A disappointing result of the recent est of developing countries. industrial countries affect pros- particularly vexing for aid- UR is that tariff escalation will NTB-VER, AD, 24 OECD econo- pects for developing countries receiving countries. Exports of continue for agricultural products. mies are on balance, more pro- exports of manufactures. AD-- developing countries would in- NTB, quotas, variables levies, ex- tectionist now than they were CVD--VER--MFA--Domestic crease in the OECD tariff and NTB ports subsidies, AD, CVD in agri- ten years ago. NTB in sectors of subsidies MFA were removed. "Trade not Aid" culture. The total transfers pro- interest of developing countries. vided to agriculture in OECD Escalation on processed countries amounted $350 billion commodities. in 1992 or about six times the of- ficial development finance pro- vided to developing countries 1 6 2 A P P E N D I X E 3 : W O R L D B A N K A D V O C A C Y O N I N D U S T R I A L C O U N T R Y T R A D E P O L I C I E S Global Economic Global Economic Global Economic Global Economic Prospects 1995 Prospects 1996 Prospects 2001 Prospects 2002 Escalation remains. The UR Important and real external ob- NTB in agriculture--high tariffs Extend duty free access to all LDC appears to have done little to stacles to growth in trade remain, in sectors where the developing exports in Quad countries. Removal constrain the use of AD. Trade including the spread of anti- countries have comparative ad- of distortions in agriculture: reduce policies are not suited to deal dumping practices, agricultural vantage. Agricultural subsidies. most favored nation (MFN) tariffs, with labor and environmental protection, and the MFA phase-out Tariff escalation. Quotas peaks, quotas, subsidies. Expand standards. will likely to be delayed until access in labor-intensive manufac- 2005. *The importance of tariff tures, phase out remaining quan- escalation has been exaggerated titative restrictions, MFA, reduce given the special relations and escalation, tariffs, and peaks. conditions of market access of developing countries in OECD markets. Source: Rajapatirana (2003). 1 6 3 APPENDIX E4: DISTRIBUTION OF TRADE CAPACITY BUILDING COMPONENTS, 2001­04 Table E4.1a: Objectives of TCB Assistance by Region, 1998­2003 (number of components) Latin America Middle East East Asia Europe and and the and South Africa and Pacific Central Asia Caribbean North Africa Asia Trade liberalization 2 3 0 1 0 0 Export development promotion 7 1 1 1 1 0 Export development finance 3 0 3 3 1 1 Export development competitiveness 4 1 1 1 1 1 Trade facilitation: customs 4 0 35 14 1 2 Trade facilitation: logistics 1 1 0 1 1 0 Trade facilitation: other 2 0 2 8 3 1 Standards 3 5 6 2 1 0 International negotiations 1 0 0 2 0 1 Total 27 11 48 33 9 6 Source: Trade Assistance Evaluation Trade Capacity Building Database. Note: Please see Chapter 5, box 5.2, for a detailed definition of trade capacity building. 1 6 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E4.1b: TCB Lending: Linkages to Bank TCB Objectives (2003­04) Fiscal year of Obj. Obj. Obj. Obj. Description of TCB components Country /Region Project name approval 1 2 3 4 Other and activities per projecta Philippines Diversified Farm Income 2004 X Support Implementation information and Market Development systems in SPS and standards. Project Vietnam Poverty Reduction 2003 X Support actions in the trade liberaliza- Support Credit II tion arena. Moldova Trade and Transport 2003 X Technical assistance for customs con- Facilitations in South- trol and information systems. east Europe Project Russian Federation Customs Development 2003 X Customs control and clearance, trade Project facilitation, regulation of custom activi- ties, organizational structure and man- agement, training, IT. Yugoslavia Export Finance 2003 X Political risk insurance facility, working Facilitation Project capital loan facility, exporter perform- ance insurance facility, technical assis- tance to Yugoslav exporters. Technical assistance will be provided to the Ser- bia and Montenegro Export Credit Agency (SMECA) for institutional strengthening. Turkey Anatolia Watershed 2004 X Support for implementing the EU Ni- Rehabilitation Project trates Directive, development of a Code of Good Agricultural Practices, support of producing and marketing or- ganically produced farm products. Honduras Trade Facilitation 2004 X Support for the creation of centers to and Productivity support textile, wood and artisan crafts Improvement Project industries to reach new markets. Analysis of standards and labeling. As- sessing of the Technical Barriers to Trade (TBT) Enquiry Points, staff train- ing on enquiry points and standard- related information. Creation of the National Quality Council. Peru Programmatic Decen- 2004 X Improvement of trade logistics, sup- tralization and port to the issuing of new technical Competitiveness SAL standards. Ecuador Institutional Reform 2004 X Support for the re-design of the Audit Project and Internal Affairs Unit, foster agency coordination to supervise foreign trade 1 6 6 A P P E N D I X E 4 : D I S T R I B U T I O N O F T R A D E C A PA C I T Y B U I L D I N G C O M P O N E N T S , 2 0 0 1 ­ 0 4 Fiscal year of Obj. Obj. Obj. Obj. Description of TCB components Country /Region Project name approval 1 2 3 4 Other and activities per projecta Ecuador (cont.) activities, training and evaluation for Customs Administration Staff, customs valuation. Argentina Economic Recovery 2004 X Actions to issue new regulation to re- Support Structural duce TBT in the transport sector, link Adjustment Loan private sector enterprises and public sector agencies to enhance export and import substitution, program to support SME's to develop export business plans. Accreditation of the National In- stitute of Industrial Technology and in- ternational accreditation. Tunisia Second Exports 2004 X Support to export initiatives and diver- Development Project sification of markets, pre-shipment ex- port finance, technical barriers inquiry point, standards and technical regula- tions, customs procedures, information system on trade logistics performance. Yemen, Rep. of Port Cities 2003 X Support in automating the Customs Development Program administration. Afghanistan Emergency Customs 2004 X Actions to help build the capacity of in- Modernization and Trade termediary entities to support groups Facilitation Project of firms linked to export plans; strengthen the Pre-Shipment Export Fi- nance Guarantees Facility, improve in- formation access about TBTs through the establishment of the WTO Techni- cal Barriers to Trade Enquire Point, support for the streamlining of proce- dures and automation of processes of exporters and importers. Sierra Leone Economic Rehabilitation 2003 X Study on the economic and fiscal im- and Recovery Credit III pact of the adoption of the Common External Tariff. In the mining sector, harmonizing policy with those of com- peting and neighboring countries to discourage smuggling and foster trade through official channels. Ethiopia Public Sector Capacity 2004 X Reforming and modernizing customs. Building Program Support Project Source: World Bank data. Note: Objective 1: Formulate and implement sound trade policy to enhance growth and reduce poverty; Objective 2: Manage the adjustment cost of trade reform and external trade shocks; Objective 3: Participate effectively in international negotiations; Objective 4: Develop appropriate regional trade policies. a.The description refers to TCB elements included under the project's component category. 1 6 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E4.2: Stand-Alone Trade Technical Assistance Loans, 1987­2004 Amount Amount Fiscal year approved disbursed Region Country Project name of approval (US$m) (US$m) Africa Senegal Development Management Project 1988 17 15.9 Africa Angola Economic Management Capacity 1991 23.0 22.1 Building Project Europe and Central Asia Romania Technical Assistance & Critical 1991 180.0 179.2 Imports Project Latin America and Argentina Public Sector Reform Technical 1991 23 23.0 the Caribbean Assistance Project 1 6 8 A P P E N D I X E 4 : D I S T R I B U T I O N O F T R A D E C A PA C I T Y B U I L D I N G C O M P O N E N T S , 2 0 0 1 ­ 0 4 Implementation completion report project ratings Institutional Bank Borrower Sustain- development perform- perform- Objectives Outcome ability impact ance ance The primary objective of the project was to assist the government to build up HU U N HU HU the internal capabilities for strategic planning, financial management, and per- sonnel management in the relevant agencies within the Ministries of Planning and Cooperation, Economy and Finance, and Civil Service and Labor. In particular, the project was to support action programs prepared by these agencies to carry out the tasks related to the implementation of the ongoing structural adjustment program. The project will help finance (a) a program of training to build up local skills in U U M U U economic and financial management, accounting, procurement, project analysis, and statistics; (b) technical assistance, studies, and logistical support to improve economic management and facilitate the transition, including a pilot program for the privatization and liquidation of parastatals; and (c) supervision and project management to closely monitor project implementation. The project consists of the following components: (a) human resource development; (b) economic statistics; (c) legal assistance; (d) public resource management; and (e) liberalization policies. The Technical Assistance & Critical Imports Loan Project is expected to support the MS U N ongoing economic reform program. The project will provide (i) technical assistance to support the ongoing economic reform process in the formulation and implemen- tation of macroeconomic and sectoral policy programs and (ii) foreign exchange for the import of essential spare parts and equipment to the irrigation, telecommuni- cations, power, lignite, petroleum, gas, and transportation sectors. The project includes a technical assistance (TA) and an import component. The TA component will support (a) national macroeconomic management to prepare fiscal and legal reforms; (b) strategy formulation and pricing reforms in the energy sector, sectoral restructuring programs in the industrial sector and support for the privatization of industrial enterprises, services, and housing; (c) establishment of an efficient service to administer unemployment benefits, improve labor market information; (d) strategic studies and assessments for computer requirements for commercial banks; and (e) sector studies in the irrigation and energy sectors. The imports com- ponent will provide spare parts and equipment financing for the transportation sector, two major power plants, the lignite mines, petroleum and gas wells, the telecommunications system, irrigation system and agricultural machinery. The Public Sector Reform Technical Assistance Loan Project will support (a) modern- S L S S HS ization and computerization of the Customs Department; (b) administrative reform and modernization of the central government; (c) establishment of a new framework and development of systems for comprehensive public sector financial management; (d) reorganization and modernization of the Central Bank; and (e) implementation of a program for a complete restructuring of the Superintendency of Financial Entities (SEF). The project will strengthen the capacity of the Ministry of Economy by providing (Table continues on the following page.) 1 6 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E4.2: Stand-Alone Trade Technical Assistance Loans, 1987­2004 (continued) Amount Amount Fiscal year approved disbursed Region Country Project name of approval (US$m) (US$m) Latin America and Argentina Hydrocarbon Engineering Project 1992 28 8.3 the Caribbean Africa Burundi Agribusiness Promotion Project 1993 3.1 0.1 1 7 0 A P P E N D I X E 4 : D I S T R I B U T I O N O F T R A D E C A PA C I T Y B U I L D I N G C O M P O N E N T S , 2 0 0 1 ­ 0 4 Implementation completion report project ratings Institutional Bank Borrower Sustain- development perform- perform- Objectives Outcome ability impact ance ance consultant services, computer equipment and software, and logistical support to (i) manage economic reforms; (ii) allocate and control public resources; and (iii) administer customs by the establishment of new administrative procedures and related computerized information systems. It will strengthen the central government ministries and the presidency by providing consultant services, computer equipment, and software to modernize its internal administration by developing new uniform procedures and information systems for personnel, financial resources, and facilities management. Last, it will strengthen the Central Bank through the provision of consultant services, computer equipment and software to improve its organizational structure and administrative proce- dures, develop key information systems and enhance staff capabilities, with special emphasis on the SEF. The Hydrocarbon Engineering Project aims to (a) help the YPF Sociedad Anonima S L M (YPFSA) make an effective transition to its new commercial role; (b) expand opportunities for mobilizing greater private enterprise investment in the sector; (c) strengthen the government's hydrocarbon policy making and regulatory capabilities; and (d) support energy conservation and bolster the government`s efforts in developing and enforcing environmental and safety standards. Techni- cal assistance will be provided to prepare engineering designs and specifications to support YPFSA`s and the government`s investment program in the areas of: (a) enhancement of primary, secondary and tertiary hydrocarbon recovery in YPFSA fields; (b) natural gas processing and storage facilities expected to be put in place by private investors; and (c) improvement of YPFSA`s petroleum processing and marketing in terms of dispatch centers and export infrastructure The institutional strengthening component will provide technical assistance to: (a) design and implement YPFSA`s financial information, procurement, taxation and accounting systems to function as a private corporation, define environmental policies, and provide related staff training; and (b) develop in the Combustibles Subsecretariat of the Ministry of Economy the capability to oversee sector policy and regulatory activities and negotiate contracts for exploration and production. The Agribusiness Promotion Project is designed to accelerate a private sector HU U N supply response to the government`s more liberal policies in the area of agro- processing. Its objectives are to increase and diversify agricultural exports and induce greater efficiency in agricultural production, processing and marketing. The project will include (i) the privatization of government-owned agro-industries in the tea, sugar, cotton, and rice subsectors and (ii) the establishment of an agri- business development fund, which will finance professional training and commer- cial services to private entrepreneurs and professional organizations, for market development, on a matching fund basis. (Table continues on the following page.) 1 7 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E4.2: Stand-Alone Trade Technical Assistance Loans, 1987­2004 (continued) Amount Amount Fiscal year approved disbursed Region Country Project name of approval (US$m) (US$m) Europe and Central Asia Albania Tax Administration Modernization Project 1995 4 3.3 Africa Cameroon Transport Sector Technical 1995 10.2 9.3 Assistance Project Europe and Central Asia Turkey Baku Ceyhan Oil Export Pipeline 1997 5 2.9 Technical Assistance Project 1 7 2 A P P E N D I X E 4 : D I S T R I B U T I O N O F T R A D E C A PA C I T Y B U I L D I N G C O M P O N E N T S , 2 0 0 1 ­ 0 4 Implementation completion report project ratings Institutional Bank Borrower Sustain- development perform- perform- Objectives Outcome ability impact ance ance The Tax Administration Modernization Project`s objective is to assist the authorities S L S S S to sustain and enhance revenue collection in the short term and to improve tax and customs administration in the long run. This objective is to be achieved by institutional and technological strengthening of administrative units in charge of national taxes. The strategy includes defining the roles of the various entities, the collection and taxpayer auditing areas, the improvement of taxpayer services for the current tax structure, preparation for the implementation of the value added tax (VAT), as well as measures to improve the efficiency of the Customs Directorate. The project has five major components: (a) technical cooperation to implement the short/medium-term measures to sustain revenue collection, and to reorganize the tax and customs admin- istrations; (b) technical cooperation for the development and implementation of a VAT that would replace the current turnover tax in 1995; (c) technical cooperation for the setting up of two pilot units to implement a computer-based system for monitoring compliance with basic tax obligations; (d) training for both tax and customs officers; and (e) purchase of vehicles, equipment and materials and any necessary refurbishing of buildings to accommodate the equipment for both tax and customs directorates. With the assistance of the Transport Sector Technical Assistance Project, the govern- S L S S S ment intends to (a) launch the transport sector reform program, which would result in the creation of a new private civil aviation company, private operation of rail ser- vices, liquidation of the urban bus company, sale of public in CAMSHIP and CAMTAINER, restructuring of the Ministere des Transports (MINT), and reform of the regulatory framework for air, urban, and maritime transport; and (b) continue prepara- tion of the subsequent phases which will result in (i) restructuring of Ministere des Travaux Publics (MINTP); (ii) restructuring and downsizing of the port authority; imple- mentation of an efficiency-driven organization for dredging; and (iii) improved customs institutional framework, overhaul of customs computerized information system, and implementation of a new international transit system. The objectives of the Baku-Ceyhan Oil Export Pipeline Technical Assistance Project are S L M S S to (a) identify and evaluate technically viable and environmentally sustainable pipeline route options for the export of crude oil from Baku in Azerbaijan to the international markets throughout Ceyhan in Turkey, under various throughput assumptions; (b) con- duct optimization studies of the routes so identified to arrive at the most robust pipe- line route and configuration which merits further and more detailed technical financial and economic evaluations; and (c) recommend a realistic commercial structure for build- ing, constructing and operating the selected pipelines. The project will be carried out by one or more consultants and will consist of the following components: (a) review and update existing studies by Boru Hatlari ile Petro Tasima A.S. (BOTAS) on the various pipeline routes; (b) preliminary design, route survey, implementation plan; (c) economic and financial analysis on various throughput assumptions to be agreed with BOTAS; (d) commercial structure and development of Tariff models; and (e) an environmental audit. (Table continues on the following page.) 1 7 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E4.2: Stand-Alone Trade Technical Assistance Loans, 1987­2004 (continued) Amount Amount Fiscal year approved disbursed Region Country Project name of approval (US$m) (US$m) Africa Côte d'Ivoire Private Sector Development 1998 12 Capacity Building Project South Asia Bangladesh Export Diversification Project 1999 32.0 East Asia and Pacific Papua Gas Development and Utilization 2000 7 New Guinea Technical Assistance Project 1 7 4 A P P E N D I X E 4 : D I S T R I B U T I O N O F T R A D E C A PA C I T Y B U I L D I N G C O M P O N E N T S , 2 0 0 1 ­ 0 4 Implementation completion report project ratings Institutional Bank Borrower Sustain- development perform- perform- Objectives Outcome ability impact ance ance The objective of the Private Sector Development Capacity Building Project is to help Côte d'Ivoire achieve a sustainable growth rate of at least 6 percent per annum through increased levels of investments and exports. Specifically the project will con- tribute to (a) reducing the dependency of traditional exports and increasing the share of high value added products in the nation`s export structure; (b) attracting foreign in- vestors and promoting domestic investment by foreign direct investment (FDI) targeting, simplifying investment procedures; and (c) creating a more secure legal and judicial environment for new investors and existing mechanisms. The project components in- clude: (a) export promotion; (b) investment promotion/ simplification of investment pro- cedures/ small and medium-size enterprise (SME) support/ public/private consultation; (c) strengthening of legal and judicial system (implementation of regional business law reform under the OHADA (Organisation pour l Harmonisation du Droit des Affaires en Afrique--Organization for the Harmonization of Business Laws in Africa) Treaty; and (d) project preparation facility (PPF) and contingencies. The Export Diversification Project's main goal is to accelerate Bangladesh's integration into the world economy by expanding net export production value through product and market diversification, including increased value added. Important subsidiary goals are to improve the business environment for industry and commerce generally. The project is divided into three broad components. The first, product and market development sup- port, emphasizes entrepreneur capacity building and promoting markets in export sup- port services. It consists of administration and advisory services as well as funding to operate a matching grant facility and smaller subprojects to strengthen selected public, private, and public/private support service providers not amenable to matching grants. The second component, trade management capacity building, focuses on key aspects of the policy and institutional environment for export and other business. It includes more rapid clearance for exports and their imported inputs, better bonded warehousing and duty drawback schemes, a management information system, the piloting of modern auditing and risk management methods, taxpayer education, and staff training. Another subproject strengthens capacity in the tariff commission for trade data and protection policy analysis and in the commerce ministry for international and regional trade coop- eration. A coordination and development unit will undertake analysis of export con- straints and institutional change needs. The Gas Development and Utilization Technical Assistance Project will strengthen the government's capacity to efficiently manage the gas sector development in Papua New Guinea. The components call for (1) enhanced skills within the Petroleum Division's expertise in gas resource evaluation, market assessment, processing, and distribution. Skills will be upgraded through a needs-based training program, consisting of on-the- job training, short courses, industrial know-how, and post-graduate studies. (Table continues on the following page.) 1 7 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E4.2: Stand-Alone Trade Technical Assistance Loans, 1987­2004 (continued) Amount Amount Fiscal year approved disbursed Region Country Project name of approval (US$m) (US$m) Africa Malawi Fiscal Restructuring and Deregulation 2001 3 Program Technical Assistance Project (03) South Asia Pakistan Trade and Transport Facilitation Project 2001 3.0 1 7 6 A P P E N D I X E 4 : D I S T R I B U T I O N O F T R A D E C A PA C I T Y B U I L D I N G C O M P O N E N T S , 2 0 0 1 ­ 0 4 Implementation completion report project ratings Institutional Bank Borrower Sustain- development perform- perform- Objectives Outcome ability impact ance ance Management training will be provided to cover project management and implemen- tation, while other government departments will also participate in relevant courses and training assignments to promote coherent policies and understanding of the petroleum industry to enable consistent sector management practices within the gov- ernment; (2) studies, to be undertaken in-house, by the Petroleum Division staff, under expert supervision, covering liquid petroleum gas (LPG) policy and utilization; gas- based industrial development and power generation opportunities, and gas transpor- tation and export, as well as gas pipeline and facility regulations. Institutional studies will address the transition of the Petroleum Division into a Statutory authority; (3) pro- motion of investment opportunities for gas export, and domestic utilization, through seminars, and public awareness campaigns. The Third Fiscal Restructuring and Deregulation Program Project and the Third Fiscal Restructuring and Deregulation Program Technical Assistance Project are made in support of policy reforms designed to accelerate economic growth and reduce poverty and to help deepen structural reforms launched in 1995 to improve public sector man- agement, promote private sector growth, and strengthen the social safety net, and to help Malawi implement policy reforms, especially in the area of financial management, supported by the Credit. The Credit will also assist the government in maintaining macroeconomic stability by meeting financing requirements (gap) in the balance of payments. In the fiscal accounts, the Credit will enable the government to maintain an overall non-interest expenditure level at about 24 percent of GDP. This will allow the government to protect outlays in key social sectors, while reducing domestic borrow- ing, thereby helping to reduce inflation and interest rates. The Trade and Transport Facilitation Project will establish a public/private sector col- laborative institutional framework to develop the first phase of Pakistan's medium- term trade and transport facilitation program; that is, to modernize trade practices and procedures based on international best practices. The project components call for (1) establishment and operation of the National Trade and Transport Facilitation Com- mittee (NTTFC) Secretariat. The component comprises technical assistance (TA) pro- vided by the United Nations Conference on Trade and Development (UNCTAD); incre- mental costs of the Secretariat's professional staff; selected and agreed reimbursable operating costs of the Secretariat and the Ministry of Commerce, while local support staff, office space, utilities, and cash contributions, among others, will be provided by the Pakistan Shippers Council; (2) TA to draft modern trade and transport facilitation procedures, documents, and legislation; (3) human resources development, by pro- viding training to NTTFC Secretariat staff, as well as to the public/private staff directly involved in project implementation; and (4) development of the third-year program, to be detailed at the mid-term review, which should cover the above-mentioned components. (Table continues on the following page.) 1 7 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Table E4.2: Stand-Alone Trade Technical Assistance Loans, 1987­2004 (continued) Amount Amount Fiscal year approved disbursed Region Country Project name of approval (US$m) (US$m) Latin America and Panama Public Policy Reform Technical 2002 10.5 the Caribbean Assistance Project Latin America and Peru Peru Trade Facilitation and 2003 20.00 the Caribbean Productivity Improvement Technical Assistance Project Source: IEG staff estimation. 1 7 8 A P P E N D I X E 4 : D I S T R I B U T I O N O F T R A D E C A PA C I T Y B U I L D I N G C O M P O N E N T S , 2 0 0 1 ­ 0 4 Implementation completion report project ratings Institutional Bank Borrower Sustain- development perform- perform- Objectives Outcome ability impact ance ance The Public Policy Reform Technical Assistance Project aims at consolidating and deepening the reforms needed to accelerate growth, and reduce poverty, by strength- ening the government's economic monitoring and planning, policy formulation, and execution capacity. The components will (1) support trade reform and institutional capacity by (a) implementing the competition, consumer protection, and unfair trade policy law and (b) strengthening the trade negotiating capacity of the Vice-ministry of International Trade, so as to conclude market opening trade agreements, develop capacity to prepare--with the private sector participation--international competi- tiveness diagnostic and negotiating strategies, and by building management capacity in specialized trade policy areas; (2) improve the quality and timeliness of macro- economic data through technical assistance (TA) focused on accurate calculation methodologies of economic activities, and modernization of computer systems. Capacity building and advisory services will be provided to strengthen economic management, to draft legislation, and to implement economic proposals. It includes the management of the debt reduction scheme and implementation of the Economic Recovery and Public Expenditure Rationalization Plans; (3) improve social spending and reduce poverty through TA provision, focused on monitoring and evaluation of tools, targeted toward poverty reduction; (4) strengthen the public procurement sys- tem, by improving the procurement legal framework, and building institutional capacity, supported by the development of an electronic system; and (5) support proj- ect management, namely to oversee project design, implementation, and coordination among implementing agencies. The Trade Facilitation and Productivity Improvement Technical Assistance Project development objectives are to assist the GOP in (a) establishing a more streamlined, integrated, and effective institutional, and policy framework to increase nontraditional exports and (b) developing and implementing initiatives designed to foster the entrance of new export market participants, especially small and medium producers. 1 7 9 APPENDIX E5: GENEVA SURVEY RESULTS Interviews with Geneva-Based Everyone associated with the WTO realizes the Organizations critical stage of the negotiations with important Princeton Survey Research Associates Interna- benchmarks over the summer, a crucial meeting tional was retained by the Independent Evalua- at the end of the year in Hong Kong, and final talks tion Group of the World Bank to conduct next year. There is a great deal of uncertainty on in-depth interviews to assist in the assessment whether the goals will be achieved, and opinions of the Bank's work in the area of global trade and range from very optimistic to very pessimistic. trade negotiations. Twenty-eight interviews were conducted with individuals associated with ne- Perceptions of the World Bank gotiations of the World Trade Organization in The Bank is seen as a key organization that has Geneva and Bern, Switzerland, between March the resources and the standing to generate nec- 17 and March 24, 2005. The one-on-one inter- essary research relating to the talks. The Bank's views took place with high-level WTO officials, increased attention to trade in recent years is also ambassadors to the WTO, and professional staff viewed positively. High praise is given to the members from country delegations and ancillary Bank office in Geneva, which is viewed as ac- organizations. Those interviewed represented cessible and responsive. a good distribution of people from developing On a more critical note, most of the people and industrial countries. interviewed talked of a disconnect between the The objectives of the interviews were to: Bank's work and its practical application. There is fairly wide agreement that the Bank's research (i) Assess perception of the World Bank's work often lacks a strong correlation with current ne- on trade, in view of its advocacy objectives. gotiations, and with what is actually happening (ii) Obtain views on the World Bank's strategy within countries. As part of the criticism, it was for trade. often mentioned that the Bank only works "top- (iii) Capture the most effective Bank products down" and does not consult or partner with oth- and sources of information for advocacy. ers while producing research. Almost all assume that the Bank has a role in Background trade and trade negotiations. The type of re- Almost without exception, those interviewed search currently being conducted is seen as a pri- had a detailed and thoughtful knowledge of mary role of the Bank. In addition, a larger role trade and trade negotiations. Most believe trade in applicable and topical research is desired, has been and will continue to be an engine of and most would like to see the Bank's lending economic improvement. They point to global practices more tied to their trade work. Infra- trade growing at a faster rate than the world structure and transitioning costs in countries economy overall. However, there is some fear attempting to modernize their trade economies among the least-developed countries as they were frequently mentioned as areas where Bank see preferences eroding, and a push to get them resources could be of great assistance. to liberalize their trade policies without suffi- The Bank is viewed as having an agenda that cient help in transforming their economies. pushes trade liberalization. This is generally seen 1 8 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 as positive by industrial countries and WTO of- go through, or the transitional adjustment they ficials, but somewhat negatively by developing may face. countries and some nongovernmental organi- Integration of trade as a core aspect of coun- zations that work with the developing world. try development strategies is seen as being on Despite the perceived predisposition, just about point. The importance of making trade work everyone still appreciates Bank research. with all the other aspects of development within Several individuals mentioned the need for the a country is seen as critical to a successful, com- Bank to recognize the importance of regional prehensive approach. In line with the Bank's trade agreements. With the length of time it strategy of integration, most give the Bank a takes to produce a global trade pact, they say it great deal of credit for developing and taking the is natural that countries will seek regional agree- lead on the Integrated Framework for Trade-Re- ments. They wish the Bank would give more lated Technical Assistance. They see the Inte- time and effort to researching the impact of grated Framework approach of having all of the these agreements, and help countries deter- major organizations working together toward mine whether these regional agreements are to one policy for a given country as a major advance. their benefit or detriment. However, the high expectations accompanying The Bank is seen as too often taking a "one- the Integrated Framework leave some fearful size-fits-all" approach to trade. Developing coun- that the Bank will stop at the stage of diagnosis, tries wished to be seen as full partners, to be and not follow through with actions to fix the included at every stage of the Bank's research and problems identified. lending policy. The vast majority believes that, taken together, Two ambassadors to the WTO had little to no the Bank's strategy of promoting changes in the knowledge of the World Bank's work on trade in world trading system to make it supportive of de- Geneva. They assumed that the Bank's work in velopment on a global level, especially for the trade was tangential at best, and was only evident poorest of the developing countries, and inte- in Bank lending policies. These individuals were grating trade at the country level are exactly the not only unaware of the Bank's office dealing with correct focus areas for the World Bank. Most often trade in Geneva, but were largely unaware of the only suggestion for making the strategy the research and data developed by the Bank on stronger is to add the inclusion of countries as part- trade. It is not possible to extrapolate how many ners in the process, and realize the uniqueness of ambassadors might have the same low level of each country in developing their specific strategy. knowledge, but it is a cautionary note: there is In the current world of trade preferences, tar- a segment of delegations that is unaware of the iffs, and internal subsidies, many worry that while Bank's work on trade. the Bank says it is supportive of development, the least developed countries will suffer from the The World Bank Strategy Bank's push toward liberalization. They want to The Bank's stated strategy on trade--as sup- see the Bank work with these countries on strate- porting development--was generally applauded gies--tailored for the specific country--that pro- by those interviewed. Only a small minority be- vide contingencies for the inevitable dislocations lieve that trade does not have a role in devel- their economies will experience as they move opment. Their position is that the WTO is an more into a world of lower trade barriers. organization whose mission is to liberalize trade, Many understand the Bank's reluctance to which will help the economy overall, but there get into areas viewed as political, and they see is no guarantee (nor should there be) that trade the possibility of the Bank losing standing in will help developing countries. For most, their the trade and development community if it at- only criticism of the strategy is a perceived dis- tempts to tackle all of the areas that are criticized. connect between the stated strategy and a push Nevertheless, most often mentioned is the need toward liberalization that does not always ac- for work on ad valorem tariffs. This work is seen count for the interim stages developing countries as critical in the current negotiations, and the 1 8 2 A P P E N D I X E 5 : G E N E VA S U R V E Y R E S U LT S Bank is viewed as a neutral source with the re- whelmed with paperwork, and a short, focused, sources to work on this issue. While some view area-specific report is viewed by many as ideal. the ad valorem issue as too political for Bank in- Again, work that is not country-specific and prac- volvement, others say that because the issue tical enough is an often-heard criticism. A role has become so political, the World Bank is partially filled by the Bank, and seen as critical, needed to step in and provide an impartial for- is helping individuals identify the specific Bank mula to cut through the current complexity. research that would be helpful to them. It was often mentioned that it is appreciated Products and Information when trade information is written into individ- A theme heard throughout the interviews and re- ual country reports. A fairly frequent criticism is layed in this report is the high quality of the re- that the Bank charges for reports. Many would search done by the Bank. The Bank is viewed as like to be able to access this information on the having some of the most respected people in the Internet, or receive the reports/data for free. area of trade and trade negotiations working on The Bank is seen to be working at cross-pur- its staff. Trips to Geneva to discuss recent re- poses: that it attempts to disseminate its findings, search are appreciated by all. For the most part, yet charges for those findings. the work produced by the Bank is well regarded There is uneven use of the World Bank's Web by the trade community in Geneva. There is site as a means of accessing trade information. wide diversity of opinion regarding which re- Several say it is the first place they would go if ports are of the most use. they needed trade data and that they find the site The annual Global Economic Prospects re- easy to navigate. Others profess a lack of time or ports that focus on trade were mentioned more ability to wade through the information. than any other Bank report. These reports are Meetings and seminars are viewed as impor- viewed as long-term reference material. Beyond tant tools for the trade community in Geneva to this series, there is a range of opinion on what keep abreast of the Bank's work. Those inter- specific studies are particularly useful. There is viewed are particularly grateful when reports still a consensus that in their busy lives, a strong in development are discussed with them. These summary of the document is particularly help- meetings are seen as one of the few opportuni- ful. Also, many continue to point out they would ties for those outside the Bank to have a small in- like to see the Bank move beyond its analytical, fluence on its work. A minority say they are one-step-removed mode of operating to a mode usually too busy to attend these meetings. that includes countries early in the process of de- A sizeable number of those interviewed have ciding which topic to research, doing the actual personal contacts within the Bank. These indi- research, and the write-ups and implementa- vidual contacts are seen as very useful in access- tion of the research. ing Bank resources. Bank personnel are generally Most appreciate both the longer in-depth re- viewed as helpful, with more assistance seen as search that they use as reference material and the coming from staff directly involved in trade, and shorter, more focused reports. Most are over- slightly less from the operational side. 1 8 3 APPENDIX E6: STAFF SURVEY RESULTS Introduction Q1. In general, how much do you follow trade issues? This appendix, prepared by Princeton Survey Total 141 Research Associates International, summarizes A great deal 28% findings of Bank staff views on the effectiveness A moderate amount 34% and quality of the Bank's trade work, based on An average amount 25% survey results from 141 staff members drawn Only a little 13% from among operational country economists, Not at all 1% economic advisers, private sector development No response -- (PSD) task team leaders of trade-related projects, trade economists Bankwide, and country direc- tors. The responses constitute about 37 percent Q2. And how knowledgeable are you about trade is- of the total numbers of the target groups. sues? Total 141 Evaluation Survey on the Bank's Analytical Very knowledgeable 23% Work and Operational Linkages Moderately knowledgeable 45% n = 141 Bank Staff Average knowledge 28% Field Dates: 03.17.2005--05.25.2005 Not too knowledgeable 4% Margin of error based on full sample = =+/­ 8% Not knowledgeable at all -- (5% based on PREM) No response -- Sample Type One Total 141 Q3. Now thinking about the World Bank, how much do Regional 74% you follow the Bank's work on trade? Non-regional 26% Total 141 A great deal 18% A moderate amount 38% Sample Type Two An average amount 28% Total 141 Only a little 15% Bank staff--trade 16% Not at all 1% Bank staff--not trade 84% No response -- Sample Type Three Total 141 All Bank staff 100% External (not Bank staff) -- 1 8 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Q4. And how knowledgeable are you about the Bank's Q6. Do you agree or disagree with this Bank strategy work on trade? --To promote changes in the world trading system so Total 141 that it is supportive of development especially for the Very knowledgeable 17% poorest countries and for poor people across the de- Moderately knowledgeable 40% veloping world. Average knowledge 32% Total 141 Not too knowledgeable 10% Strongly agree 72% Not knowledgeable at all 1% Somewhat agree 20% No response -- Neither agree nor disagree 6% Somewhat disagree 1% Strongly disagree 1% Q5a. Overall how would you rate the Bank's perform- No response 1% ance on: · (Percent of respondents rating it good or very good) · Promoting changes in the world trading system to bene- Q7. And how likely is it that this goal will be achieved fit poor countries? in the next decade? · Promoting trade as a means of growth, competitiveness Total 141 and poverty reduction in country development strategies Very likely 2% · Promoting policy reforms that influence trade integration Somewhat likely 50% · Promoting institutional reforms that have a positive effect Neither likely or unlikely 19% on trade Not too likely 26% · Promoting a multi-sectoral approach to trade develop- Not likely at all 1% ment No response 1% · Strengthening borrower capacity-building in trade · Considering trade-poverty linkages such as potential ad- justment costs of trade or labor market channels Policy reforms MTS changes Institutional reforms Multi - sectoral Borrower CB Trade - poverty linkages 0 10 20 30 40 50 60 70 1 8 6 A P P E N D I X E 6 : S TA F F S U R V E Y R E S U LT S Q8. The second goal is to promote integration into the Q19.1 Which of the following best describes why you world economy through trade as a core aspect of a haven't used the Bank's trade website country's development strategy. Do you agree or dis- Asked if never used website agree with this Bank strategy? Multiple Mentions Total 141 Total 58 Strongly agree 63% It isn't relevant for my current assignment 29% Somewhat agree 31% I wasn't aware of it 47% Neither agree nor disagree 4% It is hard to navigate the website 3% Somewhat disagree 1% The information on the website isn't current -- Strongly disagree -- The information on the website isn't useful No response 1% or informative 2% I'm too busy 14% Q9. And how likely is it that this goal will be achieved Other reason 3% in the next decade? No response 2% Total 141 Very likely 13% Q19.2 Which of the following best describes why you Somewhat likely 60% haven't used the Bank's trade website Neither likely or unlikely 17% Asked if never used website Not too likely 9% Total 9 Not likely at all -- It isn't relevant for my current assignment -- No response 1% I wasn't aware of it 44% It is hard to navigate the website 11% The information on the website isn't current -- Q17. What recommendations, if any, do you have to im- The information on the website isn't useful or prove the Bank's analytical work on trade whether from informative -- Networks or Regions? I'm too busy 44% Open end response please see World Bank IEG Verbatims.xls Other reason -- · Increase operational relevance No response -- · More practical how-tos · Better integration between regions and TD and other net- Q19.3 Which of the following best describes why you works (PSD, ESSD mentioned most frequently) haven't used the Bank's trade website · More empirical research to bolster Bank's case Asked if never used website · More practical work on regional/bilateral FTA issues Total 4 It isn't relevant for my current assignment -- Q18. Have you ever used the World Bank's trade web- I wasn't aware of it -- site--www.worldbank.org/trade? It is hard to navigate the website -- Total 141 The information on the website isn't current -- Yes 58% The information on the website isn't useful or No 41% informative 25% No response 1% I'm too busy 25% Other reason 50% No response -- 1 8 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Q19.4 Which of the following best describes why you Q23. What is the most important aspect of the ongoing haven't used the Bank's trade website work of the Bank's Trade Department? Asked if never used website Open end response Total 1 · Advocacy of the TD on industrial country policies by a land- It isn't relevant for my current assignment -- slide -- mentioned five times as frequently as the next I wasn't aware of it -- issue (TA to developing countries) It is hard to navigate the website -- Q24. What is the least important aspect of the ongo- The information on the website isn't current -- ing work of the Bank's Trade Department? The information on the website isn't useful or Open end response informative -- I'm too busy 100% Q26. What aspect of the ongoing trade work of the Other reason -- Bank, whether from Networks or Regions, is most in No response -- need of improvement? Open end response Q20. On average how often do you use the Bank's trade · Multi-sectoral linkages website? · More short notes, lessons, best practice pieces Asked if used website · New empirical evidence that can be used to convince Total 82 governments and skeptics outside the Bank A few times a week 10% · More country-specific support on the linkages between Weekly 6% trade, growth and poverty At least once a month 26% · Integration of work between network and regions Once every few months 40% At least once a year 13% Q27. Is there any activity or topic that the Bank's Trade Less often 5% Department should drop? No response -- Asked if Bank Staff and not in Trade Department Total 118 Q21. Is there one particular trade-related topic that Yes 5% should receive more attention from Bank trade spe- No 56% cialists, whether from Networks or Regions, than it is No response 39% currently receiving? Asked if Bank Staff Total 141 Q28. What is it and why should it be dropped? Yes 51% Open end response No 40% No response 9% Q22. What one area should receive more attention? Open end response · Adjustment/transitional costs from liberalization and the links between trade and poverty at the operational level were most frequently cited · Next: market access, political economy, regional inte- gration, trade facilitation, behind the border constraints, trade and growth (country-specific) 1 8 8 A P P E N D I X E 6 : S TA F F S U R V E Y R E S U LT S Q29. Over the last three years, how many projects or Q32. What expertise related to international trade is ESW activities have you worked on with Bank staff under-represented? Please list from most important to who are trade specialists? least important expertise. Asked if Bank Staff and not in Trade Department Open end response Total 118 · Trade facilitation, customs, trade finance, EPZs, trade Zero 27% promotion institutions most frequently mentioned (equal One 25% weight) Two 27% Next in order of frequency: Three 12% · Regional integration; analysis of bilateral, regional FTAs Four 2% · Practical how-tos; implementation experience; best prac- Five 2% tice Six -- · Agriculture commodity markets Seven 1% · Standards Eight 1% · Trade and growth linkages Nine -- Ten 3% Demographics No Response 1% D1. What is your primary network affiliation? Total 141 PREM 79% Q30. How knowledgeable were they in the areas you Private Sector Development 8% required assistance? Infrastructure 1% Asked if worked with Bank Staff who are trade specialists Environmentally and Socially Sustainable Total 85 Development 9% Very knowledgeable 55% Operational Core Services 2% Moderately knowledgeable 29% Other 1% Average knowledge 12% No response -- Not too knowledgeable 2% Not knowledgeable -- D1_1. What is your primary network affiliation? No response 1% Open end response Q31. In your opinion, is expertise related to interna- D2. What is your current regional affiliation? tional trade under-represented in your region? Total 141 Asked if Bank Staff and not in Trade Department Africa 19% Total 118 East Asia & the Pacific 13% Yes 46% Europe and Central Asia 18% No 47% Latin America & the Caribbean 11% No response 8% Middle East & North Africa 9% South Asia 6% PREM Anchor 7% DEC 12% WBI 1% OPC 1% Other 1% No response 2% 1 8 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 D3. Where are you based? Total 141 Headquarters 65% Field 34% Other 1% No response -- D4. For approximately how many years have you worked at the Bank? Total 141 Less than 5 years 28% 5 to 10 years 38% More than 10 years 33% D5. Please indicate which of the following best de- scribes your current functional position. (percent of respondents) 60 50 40 30 20 10 0 Country Trade Sector Country PSD Advisor Ag economist economist manager director specialist economist 1 9 0 APPENDIX E7: TRADE IN COUNTRY ASSISTANCE STRATEGIES 1 9 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 1998­2000 Country Extensive analysis Specific measures proposed Tanzania Simplify tariff structure. Ghana Gateway project. Complete review of tariff regime. Mozambique Continue liberalization of trade regime. Main ports under concession. Nigeria Zambia Maintain liberal exchange and trade regime. Resolution of ZCCM reform. Remove oil import restrictions. South Africa Subsection on regional trade Maintain competitive exchange rate. Commitment to future trade liberalization. integration. Reduction of regional trade barriers. Gabon Subsection on exports diversification Deepen trade liberalization. Kenya Gambia, The Section on export oriented growth Tariff reduction. Establish free trade zones. Gateway project. Establish export promotion agency. Malawi Section on trade and investment Improve administration of EPZs. Tariff reforms and better exchange rate management. Lesotho Section on integrating into the Eliminate remaining exchange controls. regional and global economy. Mali Privatize international railway. Rwanda Promote development of high value added crops for exports. Tariff reduction. Duty drawback for exports. Senegal Section on regional integration Implement Common External Tariff (CET) reduction. Trade reform adjustment credit (2000). Cape Verde Reduction of NTBs and reform of foreign exchange system. Guinea Section on exports diversification Mozambique Tariff Reform. Cashew impact monitoring. Niger Road rehabilitation. Ethiopia Liberalize trade regime. Develop exports promotion strategy. Liberalization of foreign exchange regime. Côte d'Ivoire Implement Common External Tariff. Ghana Subsection of diversifying Promote agricultural exports harnessing private sector participation (trade agricultural exports facilitation studies). Increase availability of working capital credit to exporters. Pacific regional Trade liberalization. strategy Cambodia Bhutan Section on trade diversification. Increase horticultural exports. Papua New Guinea Philippines Simplify customs procedures. Laos Improve accessibility to neighboring countries. Malaysia Lifting of temporary import tariffs. Belarus Adoption of a unified market exchange rate. Vietnam Trade liberalization program. Exports competitiveness study. Thailand Competitiveness study. Mongolia Upgrade freight corridor through China. Reduce infrastructure costs for exports sectors. Bosnia and Herzegovina Russia Customs strengthening. Accession to WTO. Azerbaijan Support for trade liberalization in agriculture. Croatia Improve customs procedures. Lithuania Moldova Simplify customs policies. 1 9 2 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade Subobjective of promoting agricultural exports. Subobjective of expanding non-traditional exports. Oil exports Subobjective of raising exports and regional trade integration. Subobjective of promoting trade. U.S. trade initiative toward Africa Subobjective of further trade liberalization. Subobjective of promoting nontraditional exports. Main objective to promote private sector trade and investment. Trade liberalization in the context of West African Economic and Monetary Union (WAEMU). Main objective of promotion of open economic policies. Promoting export expansion is part of one main objective. Coordinate enhanced IFC and MIGA lending and nonlending assistance in the areas of financial sector, exports and infrastructure. Commodities exports Mining exports Objective of liberalization of the exchange rate mechanism. Subobjective of promoting agricultural exports. Subobjective to facilitate trade infrastructure. Main objective to develop infrastructure to support to contribute to global integration. Importance of exports performance Objective of supporting EU accession. (Table continues on the following page.) 1 9 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 1998­2000 (continued) Country Extensive analysis Specific measures proposed Macedonia Lowering tariffs level and dispersion. Albania Maintain low and uniform tariffs. Tajikistan Move to a market denominated exchange rate. Eliminate export restrictions. Latvia Strengthen customs administration. Kyrgyz Republic Implement automated customs system. Bulgaria Support EU accession program. Elimination of exports taxes and QRs to imports. Develop clear objectives regarding Free Trade Areas. Uzbekistan Gradually remove trade and exchange rate restrictions. Hungary Georgia Strengthen customs administration. Turkey One of the actions is to strengthen customs. Also port reform. Supports oil exports. Rationalize trade barriers in agriculture. Armenia Trade and Transport Project. Bosnia and An overview section entitled Herzegovina "Recovery of Trade Important for Medium-Term Growth." Kazakhstan Uruguay Adoption of technology to diversify exports. Brazil Ports restructuring. Honduras Improve business climate to promote export sectors. Dominican Republic Subsection on trade liberalization Trade reform bill. and agricultural sector reform Mexico Seek to improve linkages between large exporters and small firms. Trinidad and Tobago Strengthen customs administration. Panama Eliminate NTBs and issues WTO regulation. Lowering NTBs and tariffs on food items. Guatemala Support for regional infrastructure development. Bolivia Infrastructure for international trade. Nicaragua Colombia Tunisia Section on increased international Support export promotion, trade liberalization, customs strengthening. competition. Jordan Subsection on Private Investment, Establish standards system for agriculture exports. Promote linkages between Export Development and Tourism farmers-exporters. Aqaba Freeport development. Yemen Reform of customs administration. Establishment of exports zones. Non-Lending Services: Institutions for exports promotion. Lebanon Export Promotion Project (nonlending FY98). Nepal Section on Foreign Trade and Investment Bangladesh Concrete program to reduce tariffs and NTBs. Project supporting export diversification. Trade institutional strengthening. Exports matching grants. Promoting agricultural exports. India Section on Trade and regulatory reforms 1 9 4 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade Subobjective of ensuring environment conducive to exports growth Subobjective on trade and price policies. Improvement of incentives for private investment by further liberalizing trade. Main objective of liberalizing trade and exchange rate regimes. Completion of trade liberalization. One of the explicit goals of improving infrastructure is to promote exports. Previous trade liberalization. Subobjecitve of increasing agroexports and exports diversification through private sector participation. Subobjective of liberalize trade and agriculture. Subobjecitve of exports diversification. Subobjective of trade reform. Subobjective to increase trade. Trade policy regime. Trade policy regime. Subobjective to promote Tunisia's integration in the world economy. Objective of reviving growth through export development. Subobjective of export development. Main objective to support an outward-oriented private sector driving economic growth. (Table continues on the following page.) 1 9 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 Country Document Extensive analysis Specific measures proposed Algeria CAS (1) The movement to a market As of April 20, 2002, International Finance Corporation (IFC) net committed portfolio economy and the liberalization in Algeria is $558.6m, of which $20m is guarantee of a trade enhancement facility. of trade represented two things simultaneously to many enter- prises: a shock but also a scope for extraordinary development opportunities. Many enterprises struggle in the face of foreign competition, for which they are ill prepared. Ethiopia CAS Gambia CAS Section on strategy describes an export promotion strategy. Guinea CAS The PRSP envisages that policy reforms in customs, tax administration, transpor- tation and the like will be implemented to foster regional integration and to remove bottlenecks constraining trade. The results of a 2003 integrated trade framework diagnostic will support the government's actions in this area. Malawi CAS A section is devoted to the Mentions the implementation of the Regional Trade Facilitation Project. analysis of the trade sector. Mauritania CAS Niger CAS Mentions that the Agro-Pastoral Export Promotion Project is helping producers of exportable crops and animal products collectively invest in production and marketing so as to allow them to increase sales by putting tools of transport, market information, storage and credit in their hands. Rwanda CAS The PRSP identifies export The ongoing Regional Trade Facilitation project is mentioned. New trade-related production as an important source loans. of growth and the transformation of the economy. Senegal CAS Refers to the DTIS and supports its implementation. These include reforms in fisheries policies, to be implemented under the planned Coastal and Marine Biodiversity Project (FY04--base case, with GEF support). Further efforts will be made to improve food safety, as identified in the current regional AAA on food safety, so as to meet world trade standards. The proposed PIPP will continue promotion of tourism. China CAS A set of studies addressing the effects of China's WTO accession on trade and investment in Asia is nearing completion. Philippines CAS 1 9 6 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade Part of key development challenges are: (1) Reducing Algeria's vulnerability to export revenues from oil. (2) Enhancing the efficiency of infrastructure, trade-related services, streamlining customs procedures, and upgrading product standards to international norms to improve Algeria's attractiveness of export-oriented investment and to reap the benefits from a free- trade zone for industrial products with the EU and the requirements of WTO accession. Trade is identified as a key sector / cross-cutting issue and promoting higher export growth is part of one of the core objectives of the CAE. Within the PRSP framework, Mali's trade policy aims to reduce existing handicaps by pursuing and consolidating the trade liberalization policy that has been implemented since the 1990s (comprising openness to external trade, promoting the development of modern information and communication technologies, and accelerating and strengthening the regional integration process within WAEMU and ECOWAS by implementing an export promotion strategy. As part of the First Pillar of the strategy on Poverty and Growth "Actions will be taken to improve the environment for trade. Guinea's trade environment is one of the main impediments to economic growth." Part of the PSD strategy is "(v) improving trade facilitation for existing and potential exporters; and (vi) helping exporters meet product and phyto-sanitary standards to export." Trade is a significant part of the wealth creation pillar of the CAS, aiming at the development of export-oriented manufacturing, especially garments; in part stimulated by the African Growth and Opportunity Act (AGOA); provision of trade services, in particular based on Senegal becoming a Gateway to West-Africa; and support to ports infrastructure. The strategy also supported reform in the groundnut sector. Accession to WTO is a major part of the country strategy. Part of the growth objective is to enhance competitiveness through trade and regulatory reforms, especially in the agriculture, services, and small and medium enterprise sectors. (Table continues on the following page.) 1 9 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 (continued) Country Document Extensive analysis Specific measures proposed Thailand CAS One paragraph mentions that China's An in-depth report on Thailand competitiveness will be undertaken in the CEM, WTO accession provides export in order to sustain higher private investment, to benefit from the rapidly expanding opportunities to Thailand, even as it Chinese market and to compete with Chinese exports in the global marketplace. poses new challenges in third- country markets. There is consider- able scope for increasing exports to a more open China. Vietnam CAS Albania CAS (1) The Bank is supporting the port sector through the ongoing Durres Port Project. The ongoing Trade and Transport Facilitation in Southeast Europe Project-part of a regional program joining eight Balkan countries-aims to reduce non-tariff costs of trade and transport and reduce corruption and smuggling at border crossings. A planned Transport Strategy (FY05) will take stock of overall transport sector issues and needs, especially in the context of Albania's alignment with EU structures. Azerbaijan CAS Belarus CAS (1) Belarus' creditworthiness for (1) The Bank will conduct a financial sector review (2003), which might provide the IBRD lending is poor. This reflects basis for further policy advice, particularly in the context of the envisaged currency the country's weak liquidity unification with Russia. Under the improvements stipulated in the base case, IFC position (reserve coverage is may be able to attract foreign banks to partner with Belarusian financial institu- currently only about 2 weeks of tions, especially in the area of trade financing. (2) In the financial sector, the EBRD imports), fairly substantial external is planning to expand the trade facilitation program with local banks and the payments arrears that could development of a micro-lending facility. represent contingent claims on the government, heavy dependence on barter trade, heavy dependence on Russia for trade and finance, and lack of progress on the key reforms required to underpin sustainable growth in the medium term. Bulgaria CAS Kyrgyz Rep. CAS Latvia CAS 1 9 8 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade Among the 5 main objectives of the strategy is to enhance competitiveness through trade reforms. (1) A 1998 Country Assistance Evaluation (CAE) by OED assessed IDA assistance to Albania from 1992 to 1997. The CAE concluded that IDA assistance was largely effective, especially in supporting agricultural growth, small- and medium-scale enterprise privatization, tax reform, and price and trade liberalization. As a part of strategic goal to generate jobs and sustainable non-oil growth: (a) improving the trade policy regime and market access by creating a more export-friendly tariff structure, accelerating Azerbaijan's accession to the WTO, increasing access to regional markets and the EU, (b) enhancing trade facilitation by streamlining customs procedures and improving the quality and capacity of transportation infrastructure. (1) One of the risks in CAS implementation is despite of recent developments in Yugoslavia augur well for regional stability and trade, thus offering better business opportunities for Bulgaria, any setback in the security situation in the region could have a severe impact on Bulgaria's exter- nal position and slow down economic growth. Trade and Investment is one part of the strategy, with specific attention to exports standards, regional integration. The document mentions an upcoming DTIS as well as the Trade and Transport Facilitation Project as part of this strategy. (Table continues on the following page.) 1 9 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 (continued) Country Document Extensive analysis Specific measures proposed Poland CAS Russia CAS (1) Improving financial intermediation by IFC and MIGA will extend to trade finance. Tajikistan CAS (1) World Bank's regional study (1) While export-led growth will be needed to pull Tajikistan's people out of poverty, on trade and transportation (FY03). serious infrastructure deficiencies, unfavorable geography and difficult regional trade environment mean that Tajikistan will have to pay increased attention to the development of its internal markets, that is, on improving local economies during the CAS period. At the same time, it will continue implementation of export diversification programs, but the pay-offs from these programs are likely to come only in the long run. (2) The Analytic and Advisory Activities (AAA), to be undertaken by the World Bank, will include trade and transport facilitation. Uzbekistan CAS (1) Trade liberalization should include the most urgent measures related to import contract registration, foreign currency access, commodity exchanges and the cotton trade. Competition could be addressed by strengthening the Anti-Monopoly Com- mittee (AMC) as proposed in Bank staff's policy note on competition policy reform. 2 0 0 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade (1) Another risk to Poland's growth may be imposed by further economic slowdown in Europe. Although exports as a percent of GDP are not that high, 29% in 2001, ex- port's contribution to GDP growth has greatly increased in recent years. Hence, a protracted slowdown in Europe would have a more pronounced impact on Poland's economy than just a few years ago. The in- direct effect of the diminished opportunities for Poland's exports to the West would be reduced output and profitability of those firms engaged in export activities and those linked to it. (1) Recently, the factors that have driven Russia's economic growth have changed. In 1999, the first year after the crisis, the trade balance provided the single largest contri- bution to economic growth, reflecting ruble devaluation and oil price improvements. (2) Rail represents a major challenge. Freight rates are high and discriminatory, and the financial transactions of many non-core ac- tivities and ancillary companies are not transparent. The cross-subsidy to passenger services forces rail freight rates well above costs, damaging remote locations and po- tential export trade. (3) At the federal level, the most serious policy issues in agriculture are not with pricing or trade policy, but rather with the legal framework, continued state domination of some markets. (1) One of the key CAS objectives is to improve the policy framework for liberalization of the foreign exchange and trade regime. (Table continues on the following page.) 2 0 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 (continued) Country Document Extensive analysis Specific measures proposed Chile CAS (1) Trade liberalization helped (1) As a part of the challenge of enhancing investment climate, a reduction in efficient resource allocation, logistics costs would result in the highest welfare gain for Chile due to the ensuring a rapid and sustained importance of trade in the economy. growth in mining and natural resources. This growth has been export led: export have averaged 9.6% growth per year since 1984 and trade now accounts for about 75% of GDP. While copper remains a key part of Chile's exports (37%), there has been significant diversification into forestry, fishing, wines, fruits, and other agro-based products. (2) Chile is collaborating with its MERCOSUR neighbors and is currently advancing in trade discussions with the USA for a possible bi-lateral trade agree- ment. It expects the on-going trade talks with the EU to be completed as early as mid-2002. These efforts continue the path that Chile has followed for the past two decades, in liberalizing its trade relations on a bilateral basis, making Chile the most open economy in Latin America. Colombia CAS (1) With regard to the fiscal sector, (1) Core CAS monitoring benchmark includes progress implementing Doha, trade liberalization led to a fall in increased number of free trade agreements with developed and developing countries. tariff revenues and negatively This is a part of the Global partnership for development. The strategy of is im- affected fiscal balance. proved coordination of national strategy, maintenance of strong relationship with international financial institutions, negotiation of free trade agreements at regional and global levels. The instruments are competitiveness plans, open trade policy, and international trade negotiations. El Salvador CAS (1) Maquila exports and employment (1) As a part of structural growth prospects, preserving productivity gains is essential could be affected by WTO rules on to remain competitive in world trade. (2) In addition to prudent macroeconomic removing special tax incentives and management, the government's program included a number of critical structural the WTO agreement to phase out reforms: (i) completing trade reform with enhanced Caribbean Basin Initiative (CBI) trade barriers on textiles and access and free trade agreements with Mexico, Canada, Panama, Dominican clothing. Projected to continue grow- Republic, and others. ing at double digits in the medium- term, as a result of an expanded benefit of the Caribbean Basis Initiative, Salvadoran maquila ex- ports could be hit by the global trade agreement scheduled to enter in full effect in January 2005. 2 0 2 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade (1) As a part of facilitating the rebirth of the rural economy, the government embarked on a comprehensive reform program for the sector called la apertura. It essentially aimed at (a) trade liberalization and lower tariff reforms, (b) the promotion of market-oriented approaches, and (c) the reduction of state intervention in marketing and licensing activities. (Table continues on the following page.) 2 0 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 (continued) Country Document Extensive analysis Specific measures proposed Guyana CAS Mexico CAS Nicaragua CAS Peru CAS An export competitiveness and trade facilitation project is planned. Jordan CAS Yemen CAS (1) Yemen's Second Five Year Plan (SFYP), launched in 2001 and the recently completed PRSP provide the basis for this CAS. It benefits, as well, from recent extensive joint work between Yemen and IDA on poverty, public expenditures, trade-enhancement and the investment climate. (2) A multi-donor, Bank-led diagnostic study under the Integrated Framework for Trade Development (FY03) has helped Yemen identify the policy and technical assistance needs. (3) WBI would also provide advice on trade strategy; help develop the Development Research Forum. Pakistan CAS Pakistan CAS (1) Had Pakistan encouraged global (1) The Bank will continue to encourage the federal and provincial governments to production sharing in the textile pursue the trade liberalization that is already under way. To build the knowledge industry by easing imports of raw base to underpin the policy dialogue on private sector development, the Bank plans materials, its textile and clothing to carry out a significant program of analytical work. An analysis of the trade regime exports would probably both have will also be undertaken in FY03. (2) The government also intends to reduce maximum performed significantly better. tariffs to 25% by 2003 and the number of tariff slabs to three, to rationalize duty (2) The private sector is exposed drawback and export-financing schemes for exporters, and to comply with the to international competition, but WTO trade regime and standards. the anti-export bias and nontrans- parent trade regime remains. Tariff reductions and rapid devalu- ation of the currency since 2000 are probably behind the improve- ments in export performance in recent years. Benin PRSP Ethiopia PRSP A section discusses export develop- ment within the strategy, focusing on the agricultural sector and promotion of industrial zones. 2 0 4 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade (1) Trade deficit averaged about 8% of GDP during 1998­2000, lower than the level for 1991­1997. However, this was achieved at the cost of a contraction in trade in real terms. (1) As a part of consolidating macroeconomic stability objective, with "Promoting Trade FY04" as a non-financial instrument framework ($81,000 for FY03-05). Part of the strategy is to support Nicaragua in the CAFTA process. A central part of the strategy is to support exports development and increase its linkages to the rest of the economy, through enhanced logistics, support to fertilizer exports, and IFC supporting other export-oriented sectors. Strategy considers the need for "supportive trade polices" as part of the macroeco- nomic and competitiveness environment, without further detail. (1) The essence of Pakistan's poverty reduction strategy is to maintain an environment conducive to trade and investment, including foreign investment. As part of the macroeconomic framework objective, the strategy supports the implementation of a WAEMU common trade policy and overall integration process. One of the major objectives is to improve the environment for exports and private sector growth. (Table continues on the following page.) 2 0 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 (continued) Country Document Extensive analysis Specific measures proposed Gambia PRSP A section of the strategy analyses A strategy for the development of Free Zones under the Trade Gateway external trade. Project is an important part of the growth strategy. Ghana PRSP Section on analysis and actions to Specific policies include improving the export/import regime, minimize develop nontraditional exports. incidence of dumping, promote areas with competitive advantage, make full use of preferential areas, and promote agro-export business. Guinea PRSP A section of the strategy is devoted to regional integration. Sections are also devoted to the development of handicrafts exports and tourism. Malawi PRSP A section discusses access to The strategic actions towards access to markets will include developing an national, regional and international efficient and effective Market Information System (MIS). markets. Mali PRSP The staffs are working with the authorities on deepening the analysis of the potential sources of growth and export diversification. The outcome of the analysis would be the elaboration of a program to overcome the oft-cited challenges to growth in Mali. The growth analysis will be complemented by the Integrated Framework for Trade activity supported under the World Trade Organization and being conducted in 2003. The PRSP progress report would need to incorporate the updated growth and trade strategies. Mozam- PRSP Analysis of some trade-related bique sectors including fisheries and tourism. Niger PRSP The strategy translates into the following actions and measures to be implemented during the period under consideration: (i) better monitoring the flow of imports by involving additional customs offices; (ii) managing re-exports more closely with the use of escorting missions; (viii) identifying new customs revenues. Rwanda PRSP The macroeconomic section Privatization of the key state enterprises such as in coffee and tea is includes one paragraph dis- expected to provide immediate stimulus to exports. cussing the external sector. Senegal PRSP Zambia PRSP Analysis of evolution of Zambian The government has established a high level task force to prepare an exports. effective response to the copper sector crisis. Cambodia PRSP Vietnam PRSP A World Bank study carried out with a local economic research institute shows that the recently-adopted trade reforms, when implemented, will increase the employment, incomes, and consumption of all income groups. 2 0 6 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade The growth strategy focuses on export diversification, transit trade, and tourism. Part of the objectives of Macro economy and Increasing Production and Gainful employment is the promotion of non-traditional exports. Regional integration is part of growth pillar of the strategy. A major part of the pro-poor growth pillar of the strategy is to "Improve Access to Domestic. Regional and International Markets." The macroeconomic framework objective includes export diversification and increased processing of agricultural products. The growth strategy includes the facilitation of access to external markets by enhancing the transport infrastructure. As part of one of the main objectives, the PRSP recognizes that exports will be an important source of growth for Rwanda. Given the importance of export development, the staffs would encourage an integrated discussion of the ongoing initiatives for export development and the policies and prospects in a future annual report or PRSP update. The importance of regional cooperation/integration was recognized but staff noted that there was little discussion in the PRSP of how this can be achieved and the role Rwanda might play in achieving it. Part of the objective of is a more vigorous promotion of exports and better distribution of production in order to reduce the proportion of imports, and integration to WAEMU. Agricultural, craft activities, and fisheries sector strategy have export promotion in mind. A key part of the macroeconomic strategy is export diversification, and some sector strategies are related to exports. Part of the diagnosis and strategy deals with the need for export diversification, improvements in customs administration, and EPZs. Trade liberalization is a major part of the strategy. Policies that support retraining and job search will help displaced workers find new employment and mitigate the near-term transitional costs. (Table continues on the following page.) 2 0 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 (continued) Country Document Extensive analysis Specific measures proposed Albania PRSP (1) One of the objectives is to increasing openness and im- provement of external position of the economy. (2) The liberalization of the foreign trade is one of the first measures taken by the Albanian government in the transition to market economy. Albania became member of the WTO in 2000. Nevertheless, the situation of the trade balance has worsened. The import/export relation is nearly four to one. The volume of exports remains at low levels and export products are not diversified. Azerbaijan PRSP (1) The government also plans to undertake several measures in order to promote exports. Several initiatives are currently being considered, including the creation of a database to increase marketing opportunities for local products, arrangement of trade fairs, establishment of exhibition centers and bonded warehouses as well as opening trade representations in potential partner countries and establishing an Export Promotion Fund. (2) It is planned to continue the process of applying for admission to the WTO. Bilateral and multilateral trade negotiations will be held for this purpose. (3) Rehabilitation of the port will emphasize minimizing the negative environmental impact of the operations on the Caspian Sea. Improvement of transportation will help to promote trade and economic growth, and will help to spread the extent of growth to include regions outside of Baku. Kyrgyz Rep. PRSP (1) As a part of promoting sus- tainable economic growth, it is evidence that of all the com- ponents of GDP, the largest increase has been registered in net exports (from -14.7% of GDP in 1999 to -0.3% of GDP in 2001). This has reflected stagnation of exports of goods and services and a sharp decrease in imports volume. The reasons for problems in the area of exports were restrictions in trade with neighboring countries and transition of exported goods through their territory, as well as 2 0 8 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade (1) As a part of long-term objectives, considerable progress has been made in the liberalization of trade. Albania has no quantity restrictions on imports, and almost no restrictions on exports. Tariff rates have been continuously reduced. (1) As a landlocked country, the Kyrgyz Republic's export promotion potentially depends significantly on the easing of trade barriers in the region, particularly by its neighbors, over whom it has little leverage. Improved regional cooperation will, therefore, be critical to achieving PRSP objectives. (2) There is a need to develop a comprehensive rehabilitation plan for Kyrgyz's railroad sector in order to increase the share of cargo transportation in the structure of external trade. (Table continues on the following page.) 2 0 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Fiscal Years 2001­03 (continued) Country Document Extensive analysis Specific measures proposed Kyrgyz Rep. the composition of exports (cont.) and their concentration on a few raw materials the prices of which fluctuate in inter- national markets. The decline in imports is con- nected with a decrease in imports of capital goods, but to a major extent, is a consequence of import substitution. Tajikistan PRSP (1) In 2002, there was a measure to promote creation of Commodity Credit Corporation (CCC) on procurement and sale of agriculture production and trade and delivery for processing enterprises. Guyana PRSP (1) Given Guyana's limited market, the objective of the government export promotion program will be to create conditions for the export sector to be an instrument for sustaining rapid and broad-based growth. This will require maintaining a com- petitive exchange rate, eliminating trade barriers, and providing more effective export promotion services for Guyana's export. In addition, government, through Guyana Office for Investment, will a) provide information and company matching services; b) support local companies to participate in overseas trade fairs and domestic exhibitions; and c) coordinate industrial cooperation. (2) Macroeconomic, trade, and investment framework are in the I-PRSP strategy issue. Honduras PRSP This document evaluates the impact of trade liberalization among other structural reforms, providing a positive assessment of them and suggesting the acceleration in their implementation. Nicaragua PRSP (1) Liberalization of foreign trade was on reform with a substantial impact on the Nicaraguan economy. The abolition of government- owned export trading monopolies encouraged private production for export. Yemen PRSP Sri Lanka PRSP Note: PRSP = Poverty Reduction Strategy Paper. 2 1 0 A P P E N D I X E 7 : T R A D E I N C O U N T R Y A S S I S TA N C E S T R AT E G I E S Main objective Only briefly mention trade Strategy supports liberal trade policies, regional integration efforts and WTO accession. The strategy supports reducing trade policy barriers. 2 1 1 APPENDIX E8: TRADE NOTE SERIES Trade Note 1 (5/29/03) World Bank Activities on Trade Trade Note 2 (5/29/03) From Singapore to Cancun: Investment Trade Note 3 (5/29/03) More Favorable Treatment of Developing Countries and the Doha Development Agenda Trade Note 4 (5/29/03) Rules of Origin in Free Trade Agreements Trade Note 5 (5/29/03) Implementing the Doha Mandate on TRIPS and Public Health Trade Note 6 (9/10/03) Market Access: Agricultural Policy Reform and Developing Countries Trade Note 7 (9/10/03) Domestic Support for Agriculture: Agricultural Policy Reform and Developing Countries Trade Note 8 (9/10/03) Export Subsidies: Agricultural Policy Reform and Developing Countries Trade Note 9 (9/10/03) Trade for Development in Latin America and the Caribbean Trade Note 10 (9/10/03) Cotton and Developing Countries: A Case Study in Policy Incoherence Trade Note 11 (9/10/03) Services in a Development Round Trade Note 12 (12/8/03) Trade Facilitation: New Issues in a Development Context Trade Note 13 (12/17/03) After Cancún: Continuation or Collapse? Trade Note 14 (3/3/04) Sugar Policies: Opportunity for Change Trade Note 15 (5/10/04) Trade Facilitation: Ways WTO Disciplines Could Promote Development Trade Note 16 (7/13/04) Brazil vs. U.S.: Cotton Subsidies and Implications for Development Trade Note 17 (7/22/04) Market Access in Agriculture: Beyond the Blender Trade Note 18 (9/27/04) Mexican Corn: The Effects of NAFTA Trade Note 19 (11/5/04) Agricultural Negotiations: Recent Developments in the Doha Round Trade Note 20 (02/07/05) Tightening TRIPS: The Intellectual Property Provisions of Recent U.S. Free Trade Agreements Trade Note 21 (05/16/05) The Value of Trade Preferences for Africa Trade Note 22 (06/06/05) WTO Accession: Lessons from Experience Trade Note 23 (06/27/05) Agricultural Market Access: The Key to Doha Success 2 1 3 APPENDIX F: MANAGEMENT RESPONSE Introduction challenges, including (a) addressing the cross-cut- Management expresses its appreciation to the ting nature of many trade issues; (b) helping Independent Evaluation Group (IEG) for the countries integrate trade issues into their na- constructive suggestions to improve the effec- tional planning exercises (notably, Poverty Re- tiveness of the Bank's assistance on trade put for- duction Strategies in low-income countries); and ward in Evaluation of World Bank Support for (c) helping country teams better integrate these Trade, 1987-2004. Among the review's impor- issues into Country Assistance Strategies (CASs). tant contributions are (a) its characterization of The IEG review similarly highlights these issues the different dimensions of the Bank's work on and suggests where progress is needed. Rather trade, (b) its observation that the Bank still faces than dwell on the many areas of agreement, the an important challenge in better incorporating comments below focus on matters where Man- trade as a part of growth and poverty reduction agement thinks the IEG analysis might have gone strategies in country programs, and (c) its set of further or treated topics in a different manner. recommendations, notably on ways to better ad- dress the challenge of mainstreaming trade. Man- Greater Differentiation across Review Periods agement agrees with the thrust of most of these The review could have provided a greater dif- recommendations, but notes that they must be ferentiation across three periods--1987-95, when placed in the context of competing priorities in trade policy dialogue and adjustment lending a constrained budget environment (while rec- was intensive; 1995-2000, during which the Bank ognizing that better use can also be made of was significantly less active in this area; and 2001- available resources). Management's specific re- 04. A more refined assessment of performance sponses are noted in the attached Management in each period would have been valuable, not Action Record. The comments set out in Sec- least because in the "middle" period the re- tion II should not be taken as detracting from the source envelope and trade capacity (knowledge overall appreciation management has for the base) of the Bank declined importantly. As a re- quality and completeness of the IEG review. sult, the re-launch of trade work in 2001 started from a very narrow base and was highly con- Management Comments strained as regards budget. In particular, 2001- Overall, management appreciates the quality and 04 seems a short period in which to evaluate the timeliness of this review, in the context of its re- success of the new trade strategy, especially in cent and ongoing work to rebuild its capacity in the areas of capacity building and mainstream- the trade area. The Trade Progress Report dis- ing, which by their nature are gradual processes, cussed by executive directors in March 2005 re- requiring changes in long-term country strategies ported on the increase in staffing in the Regions and steady management attention and increased and within the Trade Department, the consider- resource flows over time at the Regional level. able improvement in the quality and coverage of trade-related diagnostic analytic work at the coun- Budget Constraints try level, and increased trade-related lending. A stronger emphasis in the review on "value for The Trade Report also highlighted remaining money" or productivity would have been useful, 2 1 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 given that post-2001 resources allocated to trade trade reforms. Recent examples of the applica- (both at the center and in the Regions), while tion of this guidance are available from the Trade growing, are still quite limited and are likely to Department and other work is in draft and will remain so in the context of overall flat budgets be available soon. However, management sees and many important competing demands. The PSIAs as being mainly a tool for use by partner review's recommendations have important im- countries and much more effective when led by plications on resources. Having a more explicit the country itself, rather than imposed from the focus on what IEG sees as lower-value activities outside. that could be reduced or eliminated in a re- source constrained environment would help Mainstreaming in Country Programs and management allocate resources. Adjustment The review also recommends that more atten- Focus on the Trade Department tion be paid to adjustment to trade liberalization The thrust of the focus of the review, especially as part of increased efforts to mainstream trade for 2001-04, is on the Trade Department. How- in country programs. There is a continuing effort ever, management thinks that greater recogni- on the part of Regions to provide trade infor- tion might have been given to the fact that mation and analysis in support of the country- implementation of many of the recommenda- owned Poverty Reduction Strategy (PRS) tions proposed in the review would be under- processes and to increase attention to trade in taken at the Region/country level. Greater clarity CASs, most notably as reflected in the Africa Ac- on the locus of actions would have been help- tion Plan. Going forward, the Trade Department ful. An important part of the institution's re- will work with the Regions through the Regional sponse to trade issues and to support for trade representatives to prepare brief country- mainstreaming trade needs to take place at the specific Guidance Notes for all countries where Regional level (as contemplated, for example, in trade integration remains a major opportunity the new Africa Action Plan). and challenge. The criteria for this engagement have already been articulated in the aforemen- Poverty and Distributional Issues tioned March 2005 report to the Board on trade At the country level, the review recommends policy. The Guidance Note will include assess- that all new projects with trade policy compo- ments of (a) trade policy and performance; (b) nents include a discussion on poverty and social major supply-side constraints; (c) external en- impact analyses (PSIAs) drawing on the cross-sec- vironmental impacts on a country's trade toral expertise from economic policy, poverty, prospects; and (d) possible issues requiring spe- gender, private sector development (PSD), and cific adjustment needs. (as appropriate) agricultural and rural develop- ment units, as well as existing research in the Aid for Trade country. Management believes that this issue An additional important element of the Bank's can be important, but that the message should response to the review recommendations relat- be nuanced. First, Operational Policy (OP) 8.60, ing to mainstreaming, as well as to the concerns Development Policy Lending, already requires expressed regarding the functioning of the In- documentation of the expected contribution of tegrated Framework, is the Aid for Trade initia- development policy operations to sustained tive as outlined in the joint Bank-Fund paper growth and poverty reduction. Second, there is discussed at the Development Committee in a range of guidance for staff and more is being September. This initiative is expected to result put in place. The Bank has developed method- in an enhanced Integrated Framework (with ologies to analyze these issues, including PSIAs larger and more predictable funding as well as and PRMPR's work on analyzing the distribu- improved governance mechanisms) and to in- tional impact of reforms, which has a chapter on creased attention to trade in both bilateral and how to analyze the distributional implications of multilateral trade programs as announced by 2 1 6 A P P E N D I X F : M A N A G E M E N T R E S P O N S E several major donors around the Hong Kong be a reference document for the ongoing work Ministerial. to strengthen the Bank's trade advocacy work at the global level and its work to help countries ad- Conclusions dress trade issues as part of their strategies to in- Notwithstanding the issues cited above, man- crease growth and reduce poverty. Management's agement finds this review to be a solid overview response to IEG's specific recommendations are of the Bank's experience in the trade area. It will given below in the Management Action Record. Management Action Record Major Monitorable IEG Recommendations Requiring a Response Management Response Recommendation 1: Address Poverty-Distributional Management agrees that it is important to use available Outcomes and External Shocks in a research tools to assess the poverty and distributional im- Balanced Approach pacts of trade reforms. The extent and depth of the analy- This evaluation found that despite the increasing volume ses should be consistent with the depth and pace of pro- of research on poverty issues in the Trade Department and jected reforms. Recent examples of how this is being im- of poverty and social impact analysis more generally, plemented at the country level include the analyses for the trade-related projects do not consistently or systematically Central America Free Trade Agreement and Vietnam's ac- address poverty and distributional outcomes. While much cession to the World Trade Organization (WTO). The import liberalization has already occurred, further liberal- planned Guidance Note for the preparation of Country As- ization appears possible for some developing countries, sistance Strategies (CASs) in Recommendation 2 can be a notably within agriculture. With that in mind, three actions useful vehicle to highlight the need and appropriate scope are critical: for this analysis. The Note will stimulate consultations by a. IEG recommends that at the country level all new country economists across Networks on the need to iden- projects with trade policy components include a tify possible transitional costs, the institutional framework discussion of this issue that, at a minimum, draws on for cushioning shocks, and actions to mitigate shocks. the cross-sectoral expertise from economic policy, poverty, gender, PSD and (as appropriate) agricultural Having said that, management would like to stress that a and rural development units, as well as existing research focus on adjustment costs/managing shocks from possible in the country. Identification of possible transitional trade reforms is too narrow. There is a broader need for costs, an assessment of the existing institutional frame- Bank economic and sector work (ESW) related to growth to work for cushioning shocks and actions to mitigate or continuously assess policies that will facilitate adjustment minimize shocks would be important considerations in and reallocation of labor as well as capital in response to the discussion. Placing trade in a broader discussion of changes in the environment­which could come from the determinants of poverty will help ensure that this is changes in trade policies, technology, other domestic re- not a mechanical exercise but rooted in its expected forms, and the like. This is essential to facilitate growth importance. and also to support economic reforms. This analysis should b. At the institution-wide level, and following the Bank's not be triggered by just trade reforms, which for the most statement at the Cancun Ministerial in 2003, IEG part today are implemented gradually and are not as deep recommends that a concrete program of adjustment as those undertaken in the 1980s and early 1990s. assistance be developed more rapidly to respond to trade-related shocks that developing countries may face. Management agrees on the importance of being prepared To the extent that such a program is no longer deemed to assist countries face adjustment challenges that could relevant, it would be helpful for management to clarify this. potentially stem from a successful Doha Round. The joint c. IEG recommends a more systematic program of research Bank-Fund paper on Aid for Trade, which was endorsed by on micro level adjustment to trade policies, looking at the Board of the Bank and the Development Committee in firms, individuals and households. September 2005, recognizes this need and outlines a process to address this issue by strengthening the capacity of the Bank and the Fund to do the diagnostic work needed to evaluate the adjustment needs and to work with donors 2 1 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Major Monitorable IEG Recommendations Requiring a Response Management Response in bringing together packages of financing. Bank manage- ment is of the view that existing Bank instruments are ade- quate to address this potential issue. In some cases, there may be an issue of availability of concessional funding from IDA, given the limits to IDA resources. Management will continue close coordination with donors to help IDA countries find appropriate concessional financing. Management is of the view that the Bank already has the tools that are needed to assess impact effects at the micro level. Research in this area has been increasing signifi- cantly during the last three years (see for example the re- cently published studies on trade and poverty, collected in a volume by Hertel and Winters) and is planned to continue. Recommendation 2: Revisit the Balance between Global Management agrees with the recommendation and with its and Country Agendas and Strengthen Operational Links on implication--and is working to strengthen Regions to cope Trade Issues with the growing growth and trade agenda. Given the small size of the center and the need to continue to stay IEG recommends that management revisit the balance engaged at the global level, strengthened operational link- between its activities at the global level on the one hand, ages can only be achieved through better use of resources and on the regional and country agenda on the other. Given devoted to trade at the country level. Needs will vary by the multi-sector nature of trade issues, a participatory Region, but the Africa Region has already committed, in process that involves operational sector colleagues, other the context of the Africa Action Plan, to increasing re- networks and the Trade Department is likely to yield the sources devoted to trade issues at the country level. greatest benefits. Operational linkages need to be strength- ened between different units of the Bank and greater Management agrees with the need to strengthen the sup- emphasis placed on country and field operations. port from the Trade Department to country teams to help integrate trade into the growth and poverty reduction in Three actions are necessary: CASs. The September 2005 Development Committee paper a. Greater strategic and intellectual guidance is needed on Aid for Trade outlines a plan for significantly increasing from the Trade Department with respect to the concep- resources dedicated to trade in country programs through tual framework within which country teams should the enhanced Integrated Framework and other instruments. consider trade issues. The design of a guidance note The main bilateral donors have announced major increases and upstream support on a pilot basis to country teams in Aid for Trade around the Hong Kong Ministerial. planning country assistance strategies would be practical first steps and would help determine those cases in which The Trade Department will work with Regional trade repre- trade is logically a priority element in the country dialogue. sentatives to prepare brief country-specific Guidance Notes b. In three thematic areas of focus, a more formal set of for all countries where trade integration remains a major arrangements between operations, networks and the opportunity and challenge. The criteria for this engagement Trade Department is needed to maximize synergies-- have already been articulated in the Report to the Board on agricultural trade and policies, services liberalization, Trade Policy of March 2005. The Guidance Note will in- and distributional outcomes associated with trade policies. clude assessments of (a) trade policy and performance; (b) c. As has been done between the Transport and Agriculture major supply-side constraints; (c) external environmental units on the one hand, and the Trade Department on the impacts on a country's trade prospects; and (d) possible is- other, IEG recommends that working arrangements with sues requiring specific adjustment needs. the Private Sector Department Vice-Presidency be estab- lished to highlight the interface between the two areas Management agrees that further efforts to formalize and bring the global dimension to bear more precisely. arrangements between operations, networks, and the This cross-fertilization of trade and the need for better Trade Department to address services liberalization and integration of trade and the FPSI work program is distributional outcomes associated with trade policies 2 1 8 A P P E N D I X F : M A N A G E M E N T R E S P O N S E Major Monitorable IEG Recommendations Requiring a Response Management Response especially evident in the work on trade in services. could yield benefits. However, the area of services covers Greater interaction between the Trade Department staff roughly 15 sectors, and this would entail very substantial specialized in trade in services and the sub-sectoral coordination costs in areas of work where the trade angle expertise in transport, power, finance, telecoms and so is narrow. Accordingly, management proposes to explore on located in FPSI is needed. more formal arrangements between the Trade Department and operations in one or two "backbone" services, namely finance, telecommunications, and transport. On the relations with the Private Sector Development (PSD) Vice-Presidency, there is already good coordination in the area where the synergies in competencies are the highest: trade logistics and trade facilitation. Coordination exists al- ready for the preparation of performance indicators as well as analytic tools (notably, logistics value chain analyses from PSD and trade and transport facilitation audits from PREM/INFR). Dissemination of these tools is carried out jointly for Bank staff training and they are often used in a complementary fashion in Bank ESW and project prepara- tion. However, additional progress can be made by strengthening the linkages at the country level. In that con- text, the planned Guidance Note for trade in preparing CASs will help by stressing the links between trade and PSD issues as they relate to supply-side constraints and by guiding country teams in that direction. In order to reach decisions on how best to coordinate across the Bank on trade issues and how best to opera- tionalize trade issues within country programs, the Trade Department will prepare a note for discussion among Oper- ational Vice Presidents (OVPs). The note will include staffing and budget issues. Any budgetary implications coming out of the OVP discussion will be highlighted in up- coming budget and work program documents. Management will consider the agreed action related to Recommendations 1 and 2 complete with (1) the launch of the Guidance Notes; (2) the OVP discussion and decisions on the Trade Department note, (3) the launch of the trade related work identified through fiscal year 2007 in the Africa Action Plan (see Strengthening the Development Partnership and Financing for Achieving the MDGs: An African Action Plan (DC2005-0021), September 16, 2005, commitments on growth diagnostics on page 22 and on creating an export push on page 23); and (4) the creation of an active thematic group on trade and competitiveness (see below). Progress will be monitored in the context of periodic progress reports on the Africa Action Plan for Sub- Saharan African countries and for all countries in the next two CAS Retrospectives. The CAS retrospectives will as- sess the appropriate integration of trade issues into CASs. 2 1 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 Major Monitorable IEG Recommendations Requiring a Response Management Response Recommendation 3: Strengthen Knowledge Training on WITS is being offered twice a year and open to Management Efforts all Bank staff. Management endorses the suggestion that the WITS tool will help country economists address trade Two actions are important. issues. The country guidance note for the CAS will raise a. A concerted effort to bring all country economists up to awareness on this tool and encourage its use. However, date with the main features and application of the WITS Management's view is that WITS will not be enough to en- software would enhance their awareness of the global hance the awareness of global trade issues and implica- trade issues and implications for the countries they work tions for specific countries staff work on. For that reason on and enable them to supervise research assistants/ Management will continue to strengthen its overall pro- consultants and seek further training if and when needed. gram of trade-related training in line with what has been b. Knowledge management efforts could reflect greater done over the last two years. cross-fertilization with other networks and better inte- grate trade work done in the center and country-level A thematic group focusing on one or more selected aspects work on agriculture, economic policy, labor markets and relating to Trade and Competitiveness will be launched private sector development. As part of these efforts, with strong participation from other groups important for the possibility of joint thematic groups with other the trade agenda, most notably PSD. networks should be explored. The suggestion to increase feedback from operational staff on relevant trade related topics is a good one. To that end, management plans to strengthen the dialogue with opera- tional staff through the Trade Notes series, the establish- ment of a new thematic group, and the establishment of an ideas line. Management will consider the agreed action on this item complete within six months of the launch of the new the- matic Trade and Competitiveness group; the establishment of an ideas line, and the strengthening of the discussion series on Trade Notes. 2 2 0 APPENDIX G: CHAIRMAN'S SUMMARY: COMMITTEE ON DEVELOPMENT EFFECTIVENESS (CODE) On January 11, 2006, the Committee on Devel- It also recognized the important contribution and opment Effectiveness (CODE) considered the re- high quality of Bank research on international port Evaluation of World Bank Support for trade over the period. IEG found that country re- Trade, 1987-2004 prepared by the Independent forms with Bank support since the 1980s have Evaluation Group (IEG), together with the Draft been instrumental in reducing distortions and re- Management Response. laxing import constraints. IEG also found that Bank interventions over this period have been Background. During the 1980s and early 1990s, the less successful in achieving structural improve- Bank was an important source of trade policy ad- ments in export performance and diversifica- vice and financial assistance to support trade-re- tion, notably in Africa. During the same period, lated activities. Following a lull in the late 1990s, IEG determined that overall conditionality as- the Bank intensified its focus on trade following sociated with trade has declined. However, it the Doha Trade Ministerial Meeting in 2001. In noted four concerns: (i) the Bank sometimes 2002, the Trade Department was created from el- supported trade reforms in countries without ements from DEC, PREM, and WBI. Over the due consideration to macroeconomic issues; course of 2005 there were several Board meet- (ii) compliance with complementary meas- ings focused on trade issues, including a March ures/conditions crucial to trade reforms tended 2005 review of the Trade Progress Report: Focus to be the lowest of all conditions, underscoring on Country Trade Policy; and a September 2005 difficulties associated with their implementa- review of the Development Committee paper tion; (iii) trade-related projects did not ade- Trade Progress Report: Doha Development quately attend to the analysis of potential poverty Agenda and Aid for Trade." In these and other and distributional outcomes; and (iv) the Bank meetings, many Executive Directors have did not take the external environment into ac- stressed that the Bank is well-placed to play a count sufficiently. As for the Bank's trade ad- global advocacy and advisory role to facilitate vice, IEG found little evidence of a generic trade. They have also encouraged the Bank to: approach to trade reforms in client countries, but focus more on country-level trade work; main- it was too narrowly focused and too optimistic stream trade diagnostics into its operations; pro- about the benefits of trade liberalization for vide trade-related capacity building; and provide growth in the short-run. financial assistance to help bridge potential short- The Bank's interventions on trade since 2001 term costs associated with adjustment to trade have had two objectives: make the world trad- liberalization. ing system more supportive of development, through a reciprocally open trading system; and Highlights of the Report. The IEG report focuses on make trade an important part of country devel- Bank assistance between fiscal years 1987 and opment strategies. IEG considered these objec- 2004. IEG found Bank support for trade reform tives relevant, timely, and responsive to the from 1987 to 2001 to be generally consistent changing global environment on trade issues. with the 1987 WDR on trade, Operational Di- Nevertheless, it also noted that more attention rective 8.60, and the literature on trade reforms. was needed to strengthen analytical tools, 2 2 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 processes, and systematic interactions between well-written, covering most of the relevant is- the Trade Department and operational col- sues both retrospectively and prospectively. There leagues. Three IEG recommendations are: (i) was unanimous support among both CODE address poverty-distributional outcomes and ex- members and management for the main recom- ternal shocks; (ii) revisit the balance between mendations of the review, particularly on main- global and country agendas and strengthen op- streaming and knowledge management. Indeed, erational links on trade issues; and (iii) the Committee appreciated the positive and con- strengthen knowledge management efforts. structive MR and noted it was helpful in clarify- ing practical implementation issues, particularly Highlights of the Management Response (MR). Man- mainstreaming trade in country assistance strate- agement welcomed and appreciated IEG's re- gies and operational work. Regarding the rec- view which they felt was a solid overview of the ommendation for more attention to distributional Bank's experience in the trade area. However, impact and adjustment opinions were mixed. given the Bank's very different emphasis with The discussion focused mainly on some aspects regard to trade issues during the review period, of the evaluation framework; under what exter- a greater differentiation of the different phases nal conditions and policy environment the Bank of the review period would have provided valu- can maximize the efficacy of the its assistance; able insights. Specifically, given the scaled back how the Bank should respond to adjustments that emphasis on trade issues on the part of the Bank developing countries face, such as those induced during the mid 90s to 2000, the reinvigorated in- by trade-related shocks; and how the Bank can terest in trade in 2001 was started from a much enhance its current organizational capacity and reduced resource base and constrained budget effectiveness. Members appreciated staff com- envelope. On the latter, a more explicit discus- ments about trade integration into country pro- sion would have been helpful to management in grams in Central America and East Asia. allocating resources. Lastly, management felt the focus of the review for 2001-04 was on the Trade Next Steps. Some speakers requested that man- Department. Management also felt that much of agement prepare a paper linking the approach the implementation of the review's recommen- for mainstreaming and integrating trade work, in- dations would take place at the region/country cluding a business plan, accountability matrix, level. Hence, greater clarity on the locus of actions staff incentives and budgetary issues. Manage- would have been helpful. Also, management be- ment agreed to a discussion among Operational lieves that three years (2001-04) is too short a pe- Vice-Presidents on the issue of operationalizing riod in which to evaluate the new trade strategy, trade issues within country growth strategies. especially in the areas of capacity building and Some members requested further elaboration in mainstreaming. Management is of the view that the revised MR on areas such as mainstreaming existing instruments to address adjustment and of trade-related work and its resource implica- distributional effects are adequate, especially tions, distributional assessment, and country- given the reduced role of trade conditionality specific Guidance Notes (GN). They also stressed and the fact that liberalization is usually gradual. the importance to consider an appropriate com- Adverse shocks resulting from changes in trade munication strategy for the public disclosure of policy are, by and large, a small part of the story IEG report and MR. Members look forward to re- of the adverse shocks affecting the poor. In the ceiving a paper on "shocks". few instances where shocks deriving from trade Members raised the following issues during policy changes are large (e.g., due to preference the meeting: erosion) the Bank is adequately equipped and ready to provide assistance. Evaluation Framework. Some speakers stressed the need to explore comprehensively the impact Overall Conclusions. The Committee noted with of trade liberalization including unilateral re- favor that the report was comprehensive and forms in developing countries giving greater at- 2 2 2 A P P E N D I X G : C H A I R M A N ' S S U M M A R Y: C O M M I T T E E O N D E V E L O P M E N T E F F E C T I V E N E S S ( C O D E ) tention to adjustment and transitional costs, se- Response to Adjustment. For adjustment to trade- quencing, distributional effects, and micro-level related shocks, management noted the distinc- implications. They agreed that compliance with tion between terms of trade shocks (e.g., induced complementary measures was crucial to trade re- by oil prices) and policy or reform transitions. forms. This evaluation could include the causes Speakers had diverse views, however, on the ad- underlying the weak performance of many Bank- equacy of currently available Bank instruments for assisted countries (notably in Africa and to some assisting adjustment or the need for a separate extent the Middle East and North Africa) espe- lending window for trade-related shocks. Some cially with respect to lack of progress in export of them felt that the current challenge was the growth and economic diversification, which had effective implementation of instruments. Some been noted by several members. IEG responded speakers encouraged more support for strength- that the report examines the causes of weak ening business climate and competitiveness, and performance at the country level. Speakers also investment in infrastructure. Some expressed noted the need to distinguish between short the opinion that support for trade facilitation, re- and long-term impacts. gional integration, and South-South trade and investment also needed more attention. Distributional Impact. Many speakers encouraged more analysis of distributional impacts, although Strengthening Knowledge Management. Some speak- such work should not be mandatory. Moreover, ers encouraged more training on trade and ex- a few suggested that such assessments should be tensive "cross-fertilization" between trade and done not just in terms of poverty and growth, but other areas such as agriculture, economic policy, also with reference to fiscal and trade balances, labor market, and private sector development. and mitigation measures. Management noted Speakers recognized the important Bank's con- that recently the Bank had done a lot of work on tribution through its research work although some distributional aspects of poverty; however, one member sought staff's and IEG's views on this was a new area of research. There is a toolkit the Bank's dependence on donor trust funds to but management informed CODE members that finance this activity. Speakers felt that knowl- it is very difficult to forecast the precise distrib- edge created outside the Bank should enhance utional impact of (trade stimulated) growth so and substitute for in-house research (see below that addressing potential poverty and distribu- on the use of external resources). One member tional outcomes could not be done with any suggested two areas of research: non-tariff bar- high level of confidence. riers--including standards and dumping meas- ures; and study of complaints filed by affected Focus and Priorities. Mainstreaming trade effec- countries with the WTO's appellate body such as tively into poverty reduction strategies, country the recent experience in cotton and sugar. assistance strategies and operations, and im- plementation of IEG recommendations garnered Bank's Advocacy Role. Though there was broad attention from many speakers. They stressed support for the Bank playing an active advocacy the need for a more country-specific approach, role in trade, opinion was divided regarding the including institutional strengthening and ca- Bank's posture. Some speakers stressed neu- pacity building needs. In this regard, a member trality and even-handedness. Several speakers highlighted that Aid for Trade has become an im- pointed at the fact that the Bank had overesti- portant component of the Doha Development mated the benefits of trade liberalization and Round discussions. Several participants wel- subsequently had to revise them downwards. comed management's proposal to work on coun- Others interpreted the Bank's mandate for try GN; members sought more elaboration in the poverty reduction to mean a more activist role MR regarding monitoring of GN. The Integrated in putting forward the interests of the poorest Framework for Trade-Related Technical Assis- borrowing countries. Management emphasized tance should have a sharper focus on results. that it views its role as advocating changes in the 2 2 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 world trading system that promote develop- paper on integration of trade issues. Many mem- ment, and not necessarily the position of any bers encouraged more formal arrangements be- group. Nevertheless, there was broad agreement tween the virtual Trade Department and Regions, to maintain overall balance between global ad- operations, and networks, and sought additional vocacy and local programs. Speakers also noted information on the role of Regional Trade Co- the role played by Bank partners including Re- ordinators. Management informed the forma- gional Development Banks. tion of a new Trade and Competitiveness Thematic Group. A few members asked for Organizational Capacity and Effectiveness. In addi- greater coordination within the World Bank tion to coordination across units, better knowl- Group. Another specific suggestion included edge management, and budgetary implications, making better use of external resources and several speakers suggested strengthening staff in- analyses. centives, development of a business plan and ac- countability matrix, and perhaps an approach Pietro Veglio, Chairman 2 2 4 ENDNOTES Chapter 1 (1991) provide a comprehensive overview of lessons 1. Refers to either free-standing trade projects or from trade reform up to the late 1980s. projects with trade components exceeding 10 percent 7. The Approach Paper for this study (IEG 2004c) of total project costs. provides more detail on the evaluation methodology. 2. The findings of several large multicountry com- 8. The criteria for selection were: (i) countries in parative studies prepared during this period rein- which the Bank had a large and diversified trade port- forced this message: Choksi and Papageorgiou (1986), folio; (ii) a geographically mixed group with diversity Michaely and others (1991), Thomas and Nash (1991), in country experience and performance; (iii) variation Cooper and others (1991), and Krueger, Schiff, and in the countries' approach to trade reform; (iv) varia- Valdes (1991). tion in country size; and (v) availability of microeco- 3. World Bank (1987). The WDR of 1986, which fo- nomic data. In addition, desk reviews were conducted cused on agricultural development and liberalization, for other countries in the portfolio. IEG (2004c) includes also covered a number of important trade issues, the detailed terms of reference for the case studies. such as the distortions inherent in the policy-induced anti-trade biases in developing countries, as well as Chapter 2 those arising from industrial country agriculture sub- 1. This evaluation is not a research project to an- sidies. alyze major questions such as whether integration 4. Operational Directive 8.60, which provides guid- into the world economy is good for development. It ance inter alia on trade policy, was only issued at the is mainly a study of the relevance and effectiveness of end of 1992, when lending for trade adjustment was Bank trade assistance, but, in the process, it sheds light already declining. Sixty-one percent of all adjustment on issues such as desirable speed of adjustment, se- lending with trade content between fiscal years 1987 quencing, and complementary policies. and 2004 had been approved by June 1992. 2. The experience of the East Asian "tigers" that 5. The Bank's work on commodities (which largely moved the furthest away from the import-substitution consists of market outlook and price projections) is model was simplified and generalized to support the not part of this review, except where it overlaps with export-led growth model. See Amsden (1989), Wade market access considerations. In addition, links be- (1990), Lall (1992), Rodrik (1995), and UNCTAD (2003) tween trade and the environment, while important, for differing and nuanced interpretations of East Asia's are beyond the scope of the evaluation as outlined in experience. the Approach Paper. 3. See, for example, Shafaeddin (1995). 6. Previous IEG evaluations have looked at trade 4. Hall and Jones (1999) and Rodrik and others liberalization experience in nine countries, adjust- (2002) suggest that institutions are an important de- ment in Africa, support for industrial activities, agri- terminant of growth, while Acemoglu and Johnson cultural sector adjustment loans, and lending for port (2003) and Chang and others (2005) delve more development. In addition, the World Bank summarizes deeply into which institutions are most important. the Bank's conclusions from its dialogue with NGOs 5. Several studies carried out in the 1990s, such as under the Structural Adjustment Participatory Review Dollar (1992), Sachs and Warner (1995), Krueger Initiative (SAPRI) and focuses on, among other things, (1998), Edwards (1998), and Frankel and Romer the results for trade liberalization. Thomas and Nash (1999), suggested that countries that are more open 2 2 5 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 grow faster. These studies typically measured open- 4. This trend is consistent when comparing the ness to trade with what is more accurately described amount of lending spent for each component. Lend- as a trade intensity index--defined as the ratio of ing for the institutional and infrastructure aspects in- trade (imports plus exports) to GDP. As Collier, Green- creased from 9 percent and 10 percent, respectively, away, and Gunning (1997) show, however, the trade for the period between 1987 and 1994, to 18 percent intensity index may not be an appropriate indicator and 71 percent, respectively, for the period between of a country's trade policy stance. The index may in- 2000 and 2004. stead reflect an increase in aid flows or an improve- 5. Technical assistance is a subset of trade capac- ment in a country's terms of trade rather than the ity building and focuses on enabling a client to im- extent of trade liberalization. Rodriguez and Rodrik plement reform or strengthen institutions. (2000) criticize this literature, arguing that method- 6. Unless otherwise noted, this section draws on ological problems with the empirical strategies used Tsikata (2005), which reviews trade conditionality in make interpreting results more ambiguous than the World Bank projects between 1987 and 2004. various authors assert. In particular, they criticize the 7.The trade share in an adjustment loan is ap- use of the "openness" dummy variable in Sachs and proximated by the proportion of actions in the pol- Warner (1995) and used by several researchers sub- icy matrix that are trade-related: that is, the trade sequently. In their view, the dummy variable that aims share is the number of trade-related actions divided to characterize the restrictiveness of a trade policy by the total number of actions included in the policy regime is often correlated with other measures of matrix of the Project Appraisal Document. The total poor economic performance. Additional challenges to trade cost is thus the trade share multiplied by the total a simple link between growth and openness have project cost. come from Stiglitz (2002). 8. In some Regions, such as Africa, other policy as- 6. This section draws on Salinas (2003). pects historically have been intertwined with trade, such as marketing. For example, government paras- Chapter 3 tatals often controlled key exports (such as ground- 1. Analysis of trade-related assistance is made dif- nuts in Senegal, cocoa in Côte d'Ivoire and Ghana, ficult by the fact that until recently, "trade" did not con- tobacco in Malawi, and tea in Tanzania), taxing them stitute a formal sector (unlike economic policy, inefficiently and constraining entry into the sector by education, rural, or transport, for example) in the others. Bank's sector classification system. Earlier Bank def- 9. Conditions refer to both legally binding condi- initions of "industry and integration" excluded several tions and "desired" conditions as spelled out in the projects that trade economists would define as trade- president's report of the project. related and included others that, while supporting eco- 10. The "Concordat" refers to the joint memoran- nomic integration, were not necessarily trade-related. dum from the President of the World Bank and the Building on the original database, since 2002 the Managing Director of the Fund entitled Bank/Fund Col- Trade Department has updated and maintained a laboration in Assisting Member Countries (SM/89/54, database of trade-related projects. The 2002 OPCS Revision 1 and R89-45), March 31, 1989. reclassification of sector and thematic codes rectifies 11. In four cases, reference was made to a reform this difficulty for post-2000 projects. program detailed in the letter of development policy. 2. Bank trade lending rose rapidly in the 1980s 12. Because in the long run all countries face a bal- because: (i) the Bank underwent an ideological shift ance of trade constraint, import liberalization is in from bottlenecks as presented in the two-gap mod- effect export promotion (economists call this "Lerner els of growth developed by the Bank in the 1970s to symmetry"). a more market-oriented view of the world; (ii) in line 13. This approach is analogous to IEG 1997, which with this, trade was seen as a way out of the debt prob- focuses on adjustment lending in Sub-Saharan Africa. lems of the 1980s. As that report notes, if the recommended reforms 3. Defined as lending operations whose trade com- were implemented, but results were not achieved, ponents accounted for 50 percent or more of total then the quality of conditionality and exogenous fac- commitments. tors have to be examined as potential explanations. 2 2 6 E N D N O T E S This approach also enables the implicit construction clude a chapter on trade, but our interest lies in more of a control group (countries that did not implement extensive trade analysis that merits an entire report. the agreed upon conditionality). Thus, the figures for trade-related ESW presented 14. A caveat is in order. By the nature of the process, here are an underestimation. "grading" implementation inevitably includes an ele- 19. Developed in mid-2001, the Diagnostic Trade ment of subjectivity. For trade conditionality, how- Integration Study is a major economic report focused ever, this assessment is often easier than other on trade. It is essential to the Integrated Framework elements of adjustment due to a combination of the process and used to identify trade-related capacity quantitative requirements in some cases, and the building needs. While final content varies among need for legislation in others. countries, the core template comprises: brief macro- 15. In addition to the more formal and legally bind- economic overview; review of trade performance; re- ing conditions, IEG also assesses the evolution of gional and global context for country's trade; other "conditions" included in the policy matrix of institutional framework for trade policy and devel- lending operations. While these lack the legal stand- opment; trade logistics; constraints to competitiveness ing (and associated "sanction") of the more formal con- including standards; subsector competitiveness analy- ditions, these nonbinding "matrix" conditions sis; and links between trade and the country's poverty represent policy agreements and benchmarks (albeit reduction strategy. informal) between the Bank and its client countries, 20. Gelb and others (2000), which focuses on which the Bank views as desirable for the country to growth more broadly, includes a chapter on trade. Hin- meet. The ambiguity of their standing notwithstand- kle and others (2003) carries out a review of first- ing, clients often viewed them as part of the Bank's generation trade reforms. conditionality. As such, they are useful in under- 21. EAC refers to East African Community; ECOWAS standing the evolution of the policy dialogue and refers to Economic Community of West African States; agreements between the Bank and its clients. To- UMOEA refers to West African Economic and Finan- gether the legally binding and matrix conditions allow cial Union. an overview of aggregate conditionality. 16. "From Adjustment Lending to Development Chapter 4 Policy Lending," OPCS, August 2004 and the "Adjust- 1. IEG rates every completed project against its ob- ment Lending Retrospective," OPCS, June 15, 2001 il- jectives as stated in the Project Appraisal Document lustrate the evolution of Bank views on conditionality in terms of its relevance, efficiency, and efficacy. A toward single-tranche operations as part of a series of project's outcome is rated as "satisfactory" when the development policy loans. The new OP 8.60 on De- project achieves or is expected to achieve most of its velopment Policy Lending codifies the move away major relevant objectives efficiently, with only minor from prescription, toward country-owned condition- shortcomings. The rating "moderately satisfactory" ality. applies when the project achieves or is expected to 17. The Bank's nonlending inputs are more typi- achieve most of its major relevant objectives effi- cally defined by analytical and advisory activities (AAA) ciently, but with either significant shortcomings or which in addition to ESW include policy dialogue, modest overall relevance. A project is rated as "un- nonlending technical assistance, and donor coordi- satisfactory" when it fails to achieve and is not expected nation. While policy dialogue is a particularly impor- to achieve most of its major relevant objectives and tant part of Bank advice to clients, it is difficult to delivers only minor development benefits. measure. The other two components of AAA are dealt 2. Following an initial divergence, the perform- with under the broader rubric of trade-related ca- ance of adjustment and investment loans has con- pacity building, which is a more relevant and com- verged in the past five years. After initially performing monly accepted classification for client country officials well in the first decade of their introduction, trade ad- and donors working in trade than is AAA. justment loans performed poorly between 1995 and 18. The discussion in this section focuses on reports 1999 (in part because of crises-related loans in Asia, that are almost exclusively focused on trade. Bank Brazil, and Russia). In contrast, trade investment loans Country Economic Memoranda almost invariably in- improved steadily over the same period, reflecting the 2 2 7 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 reduction in poorly performing state-led and public ponents or other measures to cushion transitional sector­driven projects. adjustment arising from liberalization. 3. While some of these actions may be subse- 7. Mexico's Second Trade Policy Loan Project quently reversed, this is not evident at the time that (FY88). closed projects are reviewed, as these are often rela- 8. The NTB frequency ratio is defined as the per- tively quick­disbursing loans. Overall, the evaluation centage share of import tariff lines covered by non- did not find significant evidence of policy reversal in tariff barriers. trade liberalization. 9. By Region, the highest levels of import duties 4. The full set of loans approved after 1995 had ap- prevailed in South Asia. Nontariff barriers were ex- preciably better outcomes (statistically speaking) than ceptionally high in Europe and Central Asia (97 per- those before 1995. They were also more likely to be cent) and South Asia (74 percent). sustainable and to have had a greater institutional 10. Considerable Regional differences lie behind development impact. Given the Bank's extensive ex- these aggregate numbers. High and persistent infla- perience with lending for trade and the switch in the tion was clearly a Latin American (and thus largely mid- portfolio toward operations with more and financially dle-income) problem. External imbalances were most larger institutional components, these are not sur- pronounced in Africa, where current account deficits, prising results. The estimation also found that proj- terms of trade deterioration, and external debt diffi- ects in middle-income countries were more likely to culties were pervasive. Economic growth was largely perform better, exhibit greater sustainability, and have modest for all but East Asian economies. With aver- more institutional development impact than those age investment rates below 20 percent, meager for- being implemented in low-income countries. In the eign direct investment inflows, and anemic trade Regions, trade projects in Europe and Central Asia performance, GDP growth averaged below 3 percent were more likely to have unsatisfactory performance for the sample (even including the fast-growing East outcomes than those in other Regions. The estimation Asian economies). This relatively low growth rate also found that conditionality was associated with barely kept up with population growth in Africa, the worse project outcomes--that is, more poorly per- Middle East, and Latin America. forming projects were associated with greater trade 11. Good historical overviews of trade regimes can conditionality. This may reflect that higher condi- be found in Oyejide, Ndulu and Gunning (1999) and tionality was, in essence, an attempt to enforce im- Hinkle, Herrou-Aragon, and Kubota and others (2003) plementation in situations where doubts may have for Africa, Nogues and Gulati (1992) and Ganuza and existed about country commitment. Higher than av- others (2004) for Latin America, and Michalopoulos erage conditionality thus may be a red flag. and Tarr (1994) and Kaminski and others (1996) for 5. The CPIA index assesses how conducive a coun- the transition economies. try's policy and institutional framework is in that year 12. Many of the nonreformers would consist of to fostering sustainable, poverty-reducing growth and countries in crisis or where economic data are diffi- the capacity of the country to effectively use devel- cult to obtain. More appropriate would be a compar- opment assistance. This exercise is done annually for ison of gradual versus less-gradual reformers. all IBRD and IDA borrowers. Operationally, it is based 13. While trade protection in Tunisia remains rather on a set of 20 unweighted indicators in four cate- high on a most favored nation (MFN) basis, the trade gories: economic management, structural policies, regime with its largest trading partner, the European policies for social inclusion and equity, and public Union, is being liberalized more significantly under an sector management and institutions. Countries are association agreement signed in 1995. rated on their current status in each of these per- 14. Countries were classified as rapid reformers if formance criteria, with scores from 1 (lowest) to 6 their trade reform process was completed in three (highest). The index is only available for a complete years or less (20 countries). All other countries were set of countries starting in 1998, but the index is avail- classified as gradual reformers. This classification able for a smaller set of countries prior to 1998. was based primarily on the qualitative description 6. Between 1987 and 2000 only a fraction of trade provided in economic reports and on the evolution adjustment loans introduced social safety net com- of average tariffs and NTB coverage. Appendix D5 in- 2 2 8 E N D N O T E S dicates the classification for individual countries in the 19. This approach based originally on General sample. Agreement on Tariffs and Trade - GATT (1966), used 15. See Haque and Khan (1998) and Jinjarak and extensively by Ng and Yeats in Africa (2002, 2005) and others (2005) for a detailed exposition of the ap- East Asia (2003). proach discussed here. 20. See Tybout (2000); Paus, Reinhardt, and Robin- 16. The methodology used is a "diference-in-dif- son (2003); Amiti and Konings (2005); Muendler ferences" approach, which compares changes in var- (2004); Topalova (2004); and Van Briesbock (2005). ious target variables before and after Bank-supported These gains are maintained even after institutional trade reform with changes in those same variables with quality and geography are controlled for; see Alcala countries that did not reform with Bank support. This and Ciccone (2004). approach further corrects for any potential sample se- 21. This analogy is due to Hill and McPherson lection bias by using a Heckman selection procedure (2004), as cited in the Zambia Country Case Study. to model the decision that results in a Bank loan. 22. The 1988 and 1990 Country Economic Memo- The correction replaces the presence of a Bank loan randa, in particular, made cogent arguments about the with the predicted likelihood of a Bank loan based on links between the two and the risks of additional in- some observable characteristics of the country (such dustrial liberalization in a highly protected environ- as balance of payments difficulties). ment. 17. Assuming constant prices, the following equa- 23. According to Bank staff, this may reflect a mis- tion is used: DY = DDD + DIS + DEE, where y is real understanding by Senegalese policy makers. Senegal GDP, DD is total domestic demand, EE is export ex- reformed its tariff within the UMEOA customs union pansion and IS is import substitution. Assuming con- process, not under any WTO negotiating process, stant prices, the following detailed equation was used: which could have provided for a "more lenient tariff reduction schedule." Y ­Y t t-1 = a t-1(D ­ D t t-1) + (a ­ a t t-1) t S + a t-1(X ­ X t t-1) Chapter 5 GDP increase = Total domestic demand con- 1. The Articles of Agreement of the International tribution + Import substitution contribution + Bank for Reconstruction and Development (World Export expansion contribution, where, Bank 1989) call for the Bank to promote the "long- Y = GDP range balanced growth of international trade" (Arti- D = Total domestic demand (or availability) = cle I). Y + M ­ X 2. Around the Doha meeting in November 2001, S = total supply =Y + M there was extraordinary Board attention to trade is- X = total exports of goods and services (free on sues, with 12 informal meetings in 2002, 2003, and board [FOB]) 2004. Initial quarterly meetings and accompanying M = total imports of goods and services (CIF) trade progress reports and monthly meetings with the a = GDP as share of total supply (Y/S) managing director responsible for trade issues are t = final year of period reduced to bi-annual meetings with briefing meet- t-1 = initial year of period ings beforehand as necessary. This schedule is still un- common, because most informal Board meetings are 18. If sij is the current share of product i in county ad hoc. The only other example of informal meetings j's exports, and Ri is the rate of growth of the prod- held with such regularity is that of meetings held to uct in world trade. The export prospects index (Pj) is discuss Poverty Reduction Strategy Progress Reports. defined as, Pj = [SsijRi]/Rw, where Rw is the rate of 3. As stated in the first progress report of July 2001 growth of world trade in all products. An index value (World Bank 2001a, p.3), at the global level, the Bank's of 0.50 indicates that country's exports grow at one- work would focus on promoting development through half the rate of world trade. A value of 1.50 suggests international cooperation on trade-related issues with that the country's exports should grow 50 percent the WTO. At the Regional level, the focus would be on faster (see Ng and Yeats 2005 for the application and promoting efficient Regional integration schemes caveats). consistent with multilateral principles and overcom- 2 2 9 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 ing trade-related obstacles to growth at the Regional criteria of the last year for which JCR has published level. Finally, at the national level, the focus would be its unadjusted rankings (2002). By this inclusive cri- on policies and institutions needed for trade to be an terion, he obtains 61 journals for the top category. instrument of pro-poor growth. 9. The Bank's prodigious output over 2000­04 was 4. Although housed in PREM, the director of the achieved with the support of two bilateral donors. The Trade Department reports jointly to the vice presidents Dutch (through the Bank-Netherlands Partnership Pro- for DEC, PREM, and WBI, underscoring efforts to gram (BNPP)), and the U.K. Department for Interna- strengthen collaboration among the three units. In ad- tional Development (DFID). These donors have dition, the director is also director of the Prospects maintained significant special programs targeted to Group in the Development Economics Unit, which trade. However, neither WBI nor DEC provided the re- handles work on global commodity markets. quested trust fund data to enable an in-depth analysis. 5. There appears to have been far less collabora- 10. This year's Global Economic Prospects is ad- tion with academics in developing countries in Asia dressing migration. and Africa. 11. The World Bank (Ellerman 2003) identifies the 6. A standard way of assessing the quality of re- following areas of research: remittances; temporary search is through number of publications in journals. movement of workers under the General Agreement By this criterion, the Bank's output is large compared on Trade Services (mode 4 negotiations), ties to the with other policy-oriented institutions, though less so diaspora and return migration, and migration of skilled when the criteria of publications in established jour- workers ("brain drain"). nals is used. De Melo (2005) argues that based on the 12. Three observations lead to this conclusion. volume of research in other policy-oriented institu- First, agriculture became controversial as soon as a new tions--arguably the more relevant comparison--the round of trade talks was announced. Second, despite volume of Bank research in refereed journals is high. successful obfuscation by all participants in the move Anderson (2003) reports six to eight papers per capita toward "greater" transparency, unlike other new areas in his review of research at the International Food Pol- of negotiation (such as services), assessing the effi- icy Research Institute. For the three-year period under ciency and rent-transfer effects of agricultural policies review, De Melo (2005) estimates a per capita publi- (border and internal) could rely on relatively estab- cation record of 12 for the 12 staff in the trade unit lished methodologies (for example, on bananas and of the Research Group. cotton). Third, reasonable amounts of data were avail- 7. Most papers appear first in the World Bank Work- able since the tariffication process was started under ing Paper Series, and some have appeared in other the Uruguay Round Agreement at least over the 1995- working paper series produced both inside and out- 98 period. In sum, more work would have been ex- side the Bank (for example, the Center for Economic pected in specialized agricultural journals. The four Policy Research). articles are: Hertel, Ivanic, Preckel, Cranfield, and 8. De Melo (2005) defines "established journals" as Martin (2003); Martin (2000); Otsuki, Wilson, and Se- those that are in the top quarter in either of two clas- wadeh (2001); and Anderson and Jackson (2003). sifications, based on the Journal of Citation Reports 13. See, for example, speech by James Wolfen- (JCR). The JCR ranks journals based on the number sohn, Cancun Ministerial, Cancun, Mexico, September of citations received. This "raw" count, however, does 2003. not take into account the age of the journal, adjust- 14. While analyses undertaken in connection with ment to exclude self-citations, and adjustments for the the Uruguay Round and in subsequent World Devel- number of pages. The ranking in Kalaitzidakis and opment Reports highlighted inequities in the global others (2003) corrects for the above shortcomings for trading system, there was no active attempt to dis- articles published during the period 1994­98 for seminate these messages beyond the normal dissem- 160 economics journals. Because new journals have ination of research at the technical level. The Bank been added in recent years, and because potential er- essentially assumed that the basic barriers were on the rors in the adjustment made, De Melo (2005) classi- developing country side, not due to market access. fies as established or "top" journals the top quintile 15. QUAD refers to Canada, the European Union, (that is., the top 40 journals) by either of the above Japan, and the United States. 2 3 0 E N D N O T E S 16. Market Access for Developing Country Ex- tiative to provide trade-related technical assistance to ports--Selected Issues, September 2002, Joint paper the 49 least developed countries. First established in prepared by the staff of the World Bank and IMF. 1996 following a meeting of high-level ministers, the 17. Oxfam's reach and influence are greater than initiative was significantly revamped in 2001. The part- may be commonly perceived. According to the Rush- ners in the initiative consist of the six core agencies: ford Report, Oxfam spends $500 million annually and IMF, the International Trade Centre, UNCTAD, UNDP, has approximately 4,000 employees worldwide. For World Bank, and the WTO. In addition, 17 donors comparison, the Bank's annual operating budget in have contributed to the initiative and are partners. The 2004 was $1.5 billion and 9,300 employees worldwide. main elements of the initiative are a Diagnostic Trade 18. See CUTS (2003) for statements and editorials Integration Study to assess constraints to trade and by various parties in the run-up to Cancun, for ex- identify technical assistance needs, as well as coordi- ample. nate and harmonize donor trade-related technical as- 19. It is also instructive that the WTO members in- sistance. Each agency has a defined role in the terviewed urged the Bank to be more pragmatic about initiative; the Bank, in collaboration with the six core regional trading arrangements, saying they were here agencies, leads the diagnostic work. The Bank has to stay and that their rise was not unexpected, given also contributed to the capacity building fund for the the slowness of the Doha negotiating agenda. IF and contributed an average of two staff trade econ- 20. Panagariya (2005) is more critical, arguing that omists to each diagnostic study. For more information over-simplification of the facts and analyses by donors see www.integrated framework.org. and big NGOs such as Oxfam are misleading and risk 26. A third evaluation of the Integrated Frame- distorting the facts. work initiative, carried out by the Netherlands as part 21. UNCTAD (2004) traces the evolution of the of a broader assessment of the country's TRTA, was terminology. expected to be published in October 2005. Preliminary 22. To give an idea of the importance of TCB, half findings rated the efficiency, effectiveness and rele- of submissions at the "pre-negotiation" phase in- vance of a two country sample of IF as poor to weak. cluded in the Ministerial declaration at Seattle came 27. For example, Malawi proposed a project for from developing countries, yet because of research and trade policy advisory services. The content of the as- capacity constraints a proactive constructive approach signment is similar to the support being provided was beyond their reach, and their submissions were the country under the DFID Trade Policy and Poverty not included in the agenda largely because they were project. insufficiently developed. If the asymmetry in out- 28. By comparison, the Inter-American Develop- comes on the agenda was also partly the result of the ment Bank, which focuses solely on the Americas, strategy of developing countries (insisting on "special has staff members dedicated to external training ac- and differential treatment," which also suited indus- tivities in trade. trialized countries by allowing them not to address is- 29. The chief economist also organized a round- sues of interest to the developing countries), much table of experts on Informing the Doha Development of it is due to lack of negotiation and research capacity Agenda in May 2002 and in the run-up to Cancun the as the above example suggests (see for example, Bank organized a meeting for African trade policy- Blackhurst, Lyakurwa, and Oyejide [2000]). makers. 23. The dollar equivalents of TCB components 30. See, for example, the March 2005 bi-annual need to be treated with caution as the components progress report on trade. are not always associated with a specific dollar amount. 31. The Country Assistance Strategy (CAS) is the The dollar amount has to be imputed from the com- World Bank's main instrument for defining country ponent actions as a share of the overall loan. programs and investments. The CAS indicates how the 24. The six are Bhutan, Cape Verde, Ethiopia, Lao Bank's objective of helping countries to reduce poverty PDR, Sudan, and Yemen. Since late 2004, the Bank has and its sector objectives are incorporated into a strat- been assisting Ethiopia in its accession negotiations. egy and reflected in the policy dialogue. Each CAS pres- 25. The Integrated Framework for Trade-Related ents a comprehensive picture of a country's economic Technical Assistance is a multi-agency and donor ini- development, identifies the government's principal 2 3 1 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 concerns, and makes the case for new Bank services. PSIAs are ideal, in practice in many of the poorest CASs are usually undertaken every two to three years. countries, capacity to carry out PSIAs may be limited. 32. Country poverty reduction strategies are an It would seem that staff carrying out policy dialogue indication of the extent to which client countries in- on these issues would benefit from having an empir- corporate trade in their development strategies. A ical basis for the advice they give regarding the po- number of reviews (see for example, Hewitt and Gill- tential distributional impacts. son (2003); World Bank (2005b); Diop, Gust, and 6. Management notes that an Operational Com- Khandelwal (2005)) suggest that trade issues (whether mittee meeting held before the Cancun Ministerial, dis- narrowly or broadly defined) have been incorporated cussed and rejected the notion of a separate facility, only slowly by the countries, focused on a narrow set concluding that the Bank possessed adequate exist- of trade issues and only poorly made the inter-linkages ing instruments to address requests for trade-related between trade and related complementary measures. adjustment shocks. However the Bank statement at Cancun is somewhat ambiguous and has been inter- Chapter 6 preted by some developing country clients as refer- 1. Following a September 2004 report by the Bank's ring to a dedicated fund. Debt Department on the volatility associated with ex- ogenous shocks, the Bank is reviewing its instruments Appendix B1 to see how it can better help low-income countries 1. As Stiglitz (1996, p. 173) found, "exports provided deal with external shocks in a timely objective man- a performance-based criterion for allocating (prefer- ner, and facilitate their access to market-based in- ential and subsidized) credit, encouraged the adop- struments such as insurance facilities. tion of international standards, and accelerated the 2. The first statement explicitly acknowledging the diffusion of technology." risk associated with the ambitious goals set for the 2. The experience of the East Asian "tigers" that Doha Development Agenda was stated by manage- moved the furthest away from the import substitution ment at an Executive Board Meeting in March 2005, model was simplified and generalized to support the four years after the resurgence and three years after export-led growth model. See Amsden (1989), Wade the publication of the trade strategy. (1990), Lall (1992), Rodrik (1995), Leipziger (1997), 3. The institution is only now considering a policy and UNCTAD (2003) for differing and more nuanced note for operational staff on the Doha Development interpretations of the East Asia experience. Agenda, three-and-a-half years since Doha. 3. Rodrik (1992, p. 88) argues that "common sense 4. Dani Rodrik put it best in the context of Africa: would suggest that the conventional benefits of (trade) "There is actually a fair bit of consensus on what con- liberalization become muted, if not completely offset, stitutes a reasonable trade strategy...The consensus under conditions of macro instability characterized by can be crudely expressed in terms of a number of do's high and variable inflation on the one hand, and fis- and don'ts: de-monopolize trade; streamline the im- cal and balance of payments crises on the other." port regime, reduce red tape and implement trans- Such a macroeconomic environment may not be hos- parent customs procedures; replace quantitative pitable for trade policy reform for several reasons. High restrictions with tariffs; avoid extreme variation in and variable inflation could distort the price signals tariff rates and excessively high rates of effective pro- through trade policy to induce resource allocation. To tection; allow exporters duty-free access to imported the extent that macroeconomic instability leads to a inputs; refrain from large doses of anti-export bias; do general reduction in the level of domestic activity, not tax exports too highly." Rodrik (1998). the structural changes that trade policy reform would 5. Management sees Poverty and Social Impact induce could become more painful as transitional Analysis (PSIA) as being mainly a tool for use by client costs of adjustment rise. Attempts to implement sta- countries and most effective when led by the coun- bilization and trade liberalization simultaneously may try itself, rather than imposed from the outside. IEG create further problems as the policy instruments does not see encouragement of staff to systemati- needed for both may conflict. In particular, restoring cally consider the use of PSIAs as equivalent to an im- macroeconomic stability may require allowing the position on the country. While in theory, country led real exchange rate to appreciate, while trade liberal- 2 3 2 E N D N O T E S ization may be unsustainable unless the real exchange agents. A second group of policies address supply re- rate is depreciated. In addition, uncontrolled inflation sponse capacity constraints, such as policies aimed at tends to undermine an attempt to reduce the anti-ex- establishing, developing, and maintaining a range of port bias of a trade regime through real devaluation. economic and social infrastructures. Both groups of 4. Anti-export bias arises from two sources (Milner policies aim to help reduce transactions costs and, 1990): the "input tax" source and the "exchange rate thus, enhance productivity. The discussion in this tax" source. In a restrictive trade regime, trade barri- chapter is not intended to be comprehensive. More ers effectively increase the domestic currency price of panoramic surveys of the literature exist and are cited imports relative to exports. To the extent that the ex- as appropriate. port sector uses imported inputs, its cost rises and its 9. See Amsden (1989), Wade (1990), Lall (1992), Ro- output declines. Trade barriers also raise the equilib- drik (1995), Leipziger (1997), and UNCTAD (2003) for rium exchange rate, which by depressing the do- differing and more nuanced interpretations of the mestic currency price of exports, further penalizes that East Asia experience. sector. For these reasons, import barriers translate into 10. See, for example, the findings from the individual a tax on exports. country studies from the Structural Adjustment Par- 5. The typical trade policy reform package consists, ticipatory Review Initiative http://www.saprin.org/ on the export side, of elimination of quantitative re- SAPRI_Findings.pdf. strictions on exports; measures to offset anti-export 11. Hall and Jones (1999) and Rodrik and others bias of the trade regime, especially access of exporters (2004) suggest that institutions are an important de- to imported inputs at world market prices; export in- terminant of growth while Acemoglu and Johnson centives; and trade facilitation including improved (2003) delve more deeply into which institutions are customs administration. On the import side, the re- most important. form package usually includes elimination of quanti- 12. Several studies carried out in the 1990s, such tative restrictions (with or without substitution of as Dollar (1992), Sachs and Warner (1995), Krueger tariff equivalents), reduction of tariff dispersion, low- (1998), Edwards (1998), and Frankel and Romer (1999), ering of average tariffs, and moves to achieve uni- suggested that countries that are more open grow form tariff rates. faster. These studies typically measured openness to 6. It has been shown that unrestricted access for trade with what is more accurately described as a trade all exports of Sub-Saharan Africa to the markets of the intensity index--defined as the ratio of trade (imports European Union, United States, Canada, and Japan plus exports) to GDP. As Collier, Greenaway, and Gun- could generate a 14 percent increase in the region's ning (1997) show, however, the trade intensity index non-oil exports as well as a 1.1 percent increase in wel- may not be an appropriate indicator of a country's trade fare with very negligible costs to either other devel- policy stance. The index may instead reflect an in- oping countries or the preference-granting countries crease in aid flows or an improvement in a country's (Ianchovichina and others 2001). terms of trade rather than the extent of trade liberal- 7. Anderson and others (2002, p. 248) show that ization. Rodriguez and Rodrik (2000) criticize this lit- "while the majority (60%) of the gains from such a re- erature, arguing that methodological problems with the form would come from liberalization in the develop- empirical strategies used make interpreting results ing countries themselves, approximately 40% of the more ambiguous than the various authors assert. In par- gains to developing countries would come from in- ticular, they criticize the use of the "openness" dummy creases in market access in industrial countries." variable in Sachs and Warner (1995) and used by sev- 8. The most relevant complementary policies con- eral researchers subsequently. In their view, the dummy cern effectively channeling market signals and those variable that aims to characterize the restrictiveness of that address supply response constraints. The first a trade policy regime is often correlated with other group includes measures aimed at creating critical measures of poor economic performance. Additional economic institutions generally, such as building miss- challenges to a simple link between growth and open- ing markets, integrating segmented ones and ensur- ness have come from Stiglitz (2002). ing that these institutions continue to develop and 13. Tybout (2003) and Amiti and Konings (2005) respond effectively to the evolving needs of economic provide good surveys of the literature. 2 3 3 A S S E S S I N G W O R L D B A N K S U P P O R T F O R T R A D E , 1 9 8 7 ­ 2 0 0 4 14. The Tokyo (1973-79) and Kennedy (1964-67) country governments `forever' to the North's inter- Rounds immediately preceded the Uruguay Round ne- pretation of a market opening agenda (`you open your gotiations. markets and remove restrictions on incoming invest- 15. Finger and Schuler (2000) estimate that im- ment, in return for [promises of] improved access to plementing three of the new areas--SPS, intellectual our markets')," as cited in De Melo (2005). property rights and customs valuation--would cost the 19. Also U.S. negotiating power ends in 2007. average developing country $150 million. 20. These can be either bilateral or plurilateral. 16. The "hangover" analogy is due to Bernard 21. Global Economic Prospects (2005) provides Hoekman. an up-to-date and comprehensive overview of current 17. See, for example, Van der Mensbrugghe 2005. RTAs. Pomfret (2001) provides a good overview of 18. As De Melo (2005) notes, divergences in the per- the economic, historical, and political factors under- ception of the world trading system run deep and are lying the rise of regional trading arrangements. probably growing. The position of the critics of the sin- 22. The theoretical literature on preferential trade gle undertaking is well summarized in the following pas- agreements is reviewed in Baldwin and Venables sage from Wade (2003) who argues that because of (1996), Bhagwati and Panagariya (1997), and Pana- GATS, TRIMS, and TRIPS "...the `development space' gariya (2000). Schiff and Winters (2003) and World for diversification and upgrading policies is being Bank (2000, 2004a) review the empirical literature shrunk behind the rhetorical commitment to univer- and place it in a development context. sal liberalization and privatization. The rules being writ- 23. World Bank (2004b). ten into multilateral and bilateral agreements actively 24. Finger (1997); Martin and Ng (2004) "A Note on prevent developing countries from pursuing the kinds Sources of Tariff Reductions in Developing Countries, of industrial and technology policies adopted by the 1983-2003," background note prepared for Global newly developing countries of East Asia and by the Economic Prospects 2005. older developed countries when they were developing, policies aimed at accelerating the `internal' articulation Appendix C3 of the economy." He continues: "All this constitutes a 1. Conditions refers to both legally binding con- shrinkage not only of development space, but also of ditions and "desired" conditions as spelled out in the `self-determination' pace. It ties the hands of developing President's Report of the project. 2 3 4 REFERENCES Acemoglu, Daron, and Simon Johnson. 2003. sessment Discussion Paper No. 21. Washing- "Unbundling Institutions." NBER Working ton, DC: IFPRI. Paper Series No. 934. Cambridge, MA. Anderson, Kym, and Lee Ann Jackson. 2003. 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