Examination of Witnesses (Questions 85-99)
Mr Edwin Laurent and Dr Mohammad Razzaque
17 JUNE 2008
Q85 Chairman: Good morning, Mr Laurent
and Dr Razzaque. Welcome to you both. You have our list of questions.
If you would like to make an opening statement, please do. If
not, we will go straight to questions. It is entirely up to you.
Mr Laurent: I would like
to make some brief opening remarks and then we can proceed to
questions. My Lord Chairman, my Lords, I wish to place this whole
matter in context, first of all, and give a bit of a background
on the Commonwealth. Of course you all know the Commonwealth very
well but its role in trade and economic matters is probably less
well-known. We are a grouping of 53 states, with two billion citizens,
and responsible for one-fifth of world trade with one-quarter
of the world's governments; therefore the Commonwealth has the
legitimacy to be heard and to make a difference. We are best known,
of course, for our role in promoting democracy, good governance,
human rights and the rule of law, gender equality, and sustainable
economic and social development, but these goals really can only
be achieved in an environment in which poverty, under-development,
and gross inequities among and within nations can be dispensed
with. Therefore, we consider that we have an important role in
promoting economic development. Recent developments in the world
economy of course have overshadowed a lot of what has been going
on; particularly the problems with petroleum prices, the credit
squeeze, and the general economic slowdown. This is something
which has been of great concern to us. The larger economies, the
developed economies, might be able to withstand this pressure
as well as some of the major developing countries (China, Brazil,
et cetera) but many of the others, that do not export those commodities
(particularly minerals and petroleum products) that are on the
up, might be really facing some serious difficulties. It is those
countries that we are particularly worried about because of the
threats that they currently face. But of course the situation
is not all bleak. The last decade was one of really spectacular
growth in the global economy. We saw something like a 20% overall
increase in global incomes during that decade and things were
looking good. The problem, though, is that that bonanza was not
being evenly shared. Some countries, particularly in sub-Saharan
Africa, rather than keeping up were generally falling backwards.
Towards the end of the last century or maybe at the start of this
century, there probably was a growing sensitivity among world
leaders, and maybe in the world generally, of a shared responsibility
for tackling those sorts of problems which stemmed from poverty
and inequity. Indications of that new awareness were initiatives
like the Doha Development Agenda, as well as the Monterrey Consensus,
and, most particularly, the Millennium Development Goals. We know,
unfortunately, that these very well-meaning objectives and goals
that were set to be met by the year 2015 are really no way close
to being achieved, and that is something which is exceedingly
serious, not just for those leaders who committed themselves to
these goals way back in September of 2000 but also to the billions
of people whose lives might really be affected and improved if
there is progress in the Millennium Development Goals. Earlier
this year there was a review of the Millennium Development Goals
by the UN and it is clear that the world is not on target. What
can be done? There is no point moaning over spilt milk. The world
has not performed well so far, what can be done between now and
the future to really make a difference, to raise those millions
out of poverty? According to the UN, it is projected, despite
what is going on, that by the year 2015 one-sixth of the world's
population will still be living on less than one dollar a day.
That is their projection. There will be little improvement with
respect to maternal health in sub-Saharan Africa and the situation
in some of the major diseases (HIV/AIDS, malaria, et cetera) will
not necessarily be any more favourable than it does seem now.
But change is possible. We believe that what is needed is to increase
incomes in countries. Increased incomes and improved governance,
so that there would be an improvement in the distribution of income
but attention could also be paid to addressing the social issues
in countries and to ensuring that there is empowerment of women,
because we think that for certain of the Millennium Development
Goals the empowerment of women, of mothers, is essential. How
do you get income into countries? Of course aid is important,
but aid will not be enough. We consider, as far as aid is concerned,
that there should be an attempt to move towards these promises
that have already been made by the G8 and others, and the delivery
of aid should probably be in keeping with the principles of the
Paris Declaration on Aid Effectiveness. But that is not all. Countries
need to earn for themselves as well and this is where trade comes
in. It is through trading and generating income from export that
countries will be able to get the necessary funding to address
their domestic needs. Many countries considered that the structure
of world trade was not favourable to them. They hoped that the
Doha Development Agenda would review the rules, the basis on which
they trade, and maybe ensure that some of those governmental actions
that impede free trade would be addressed, and that there would
be a greater opportunity for rebalancing and permitting opportunities
to those countries that are currently less competitive. This of
course would have been the Doha Development Agenda. The final
principal area where additional income can come from and which
is essential is that of investment. Aid provides support via the
public sector, but if one is to bring about real change and the
ability of countries to produce, one needs to ensure that the
private sector in developing countries is strengthened. There
is the need for investment and there is the need for appropriate
technology. The Commonwealth considers itself, given some of the
features that I alluded to earlier, to be well placed as a partner
to work with other countries, with governments, in seeking to
ensure that the Millennium Development Goals get back on track.
I do know that this is not the specific focus of the inquiry,
but I thought that this would be important as a background and
as a backdrop. Thank you, My Lord Chairman.
Q86 Chairman: Thank you. I think
we all understand the extreme importance of trade for countries'
income. It extremely important to enable countries to earn money
and raise the income of their citizens. One of the things that
has puzzled us when looking at what is going on is that many developing
countries have taken steps towards unilateral trade liberalisation
and some have taken steps towards bilateral agreements with trading
partners. Everybody is trying to move in different directions.
At the same time, there is a reluctance to give any concessions
during the Doha Round talks. What do you think is causing these
contradictory positions?
Mr Laurent: That is a clear and apparent
contradiction, My Lord Chairman. However, in reality, if one digs
a little deeper one will find that many of those unilateral concessions
which have been made by developing countries were not really done
voluntarily. That is one sense. Many of those tariff reductions,
et cetera, were undertaken during the 1980s and 1990s under IMF/World
Bank conditionality, attached to loans which were required by
these countries, so they did not have much choice. Of course,
there were some other reductions that were undertaken within the
context of bilateral and regional trading arrangements. In these
cases, the countries were able to clearly see a benefit from giving
these concessions. By giving these concessions they were doing
two things: first, they were of course lowering the cost of imports
into their markets, but more significantly, they were securing
opportunities for their own exporters to be able to enter more
competitively the markets of their trading partners. There was
a very obvious benefit, therefore, and, as you would appreciate
of course, when there is visible benefit it is much easier politically
to sell a concession to one's domestic audience. That is as far
as the reductions both unilaterally and within a bilateral context
were concerned. Within the multilateral context, why is it that
they have been unwilling to provide those concessions? One reason
is because many of them consider that they have already made very
substantial reductions in tariffs and they are worried about further
reductions that would even reduce their scope for policy flexibility
later on, and the other is that some consider that they might
not necessarily be obtaining the reciprocal benefits from further
reductions at the multilateral level.
Q87 Lord Maclennan of Rogart: Mr
Laurent, could I amplify your answer and try to draw out of it
the message which we might want to reflect on. You said that there
were two opposing sets of circumstances almost in dealing with
the bilateral liberalisation, where developing countries are doing
things on the one hand involuntarily or subject to some sort of
pressure and on the other where it is obvious to them there is
an advantage, but I have no clarity in my mind from that what
are the differences that lead to those two sets of circumstances.
Can you describe more particularly the sectoral examples, perhaps,
even if you do not feel willing to mention the names of particular
countries falling into the two camps? I am not sure what lesson
we have to draw from this analysis really. That is the problem.
Mr Laurent: With your permission, My
Lord Chairman, I would like for this particular question and maybe
for some subsequent ones, to ask my colleague Dr Razzaque to assist
with the answer. I think my Lord is referring to those countries
which were obliged to reduce tariffs by the Bretton Woods Institutions.
These countries, of course, were under structural adjustment programmes
of the Bretton Woods Institutions, and this was a requirement
for them to do so, to reduce tariffs, which generally went way
below the bound rates. At the moment, several developing countries,
particularly in Africa and in South Asia, have tariff levels that
operate way below their WTO bound rates.
Q88 Lord Maclennan of Rogart: Do
you accept that these changes were a design fault or do you think
that there were some problems?
Mr Laurent: I was not expressing an opinion
at all as to the desirability or otherwise but merely indicating
that this was the factual situation and therefore it explains
the apparent contradiction. They reduced, as it were, involuntarily,
whether it was good or bad. Many countries, particularly in Latin
America, would say that this enforced openness had very positive,
pro-development results, whilst in some other countries they might
be of a different view. So I am not at all getting into that discussion.
Q89 Lord Maclennan of Rogart: In
a sense this Committee might want to take a view about some of
these issues. We do not just want to describe the situation; we
want to look at charting the way ahead, so, if you have a view,
it would be very interesting to hear it.
Mr Laurent: I am not sure that I would
be permitted the liberty of a view on this, but I would ask my
colleague Dr Razzaque to give his personal view, as opposed to
the view of the Commonwealth Secretariat which is quite neutral
on this particular matter.
Dr Razzaque: Thank you, My Lord Chairman,
my Lords. The issue is very involved. It is quite perplexing.
On the one hand we say that multilateral liberalisation commitments
are there, and I understand that currently almost all countries
are members of bilateral arrangements or regional trading arrangements.
The issue is that, for some of the low-income developing countries,
the way the WTO arrangements are framed they are not expected
to undertake new commitments. That is a binding constraint for
these policy makers, because here the issue is what you call the
political economy factors. With, for instance, countries in the
group of LDCs are not expected to undertake new commitments but
that does not help the policy makers because their exporters are
not in a position to access markets. I can give you one clear
example: the duty-free/quota-free access to LDCs. Although all
views support that LDCs should get duty-free/quota-free access
to developed countries, still some of the Asian LDCs are not in
a position to access duty-free/quota-free access to the US. What
are the choices for them? These countries can unilaterally take
commitments under multilateral arrangements, or they can go into
bilateral arrangements and make sure that their exports get duty-free
access to these markets. That is what those partners and trading
blocs are trying to arrange every time. My view—and it is
not necessarily the Commonwealth Secretariat's official position—is
that right now the issue is that many countries are trying to
ensure that their exporters have ready access to their neighbouring
countries or large developed countries and that is why these bilateral
interests are emerging, because politically it is more tenable
to assure the people at home that the export market has been ensured
through these bilateral interests. Although economists in general
have this understanding that when countries liberalise or open
up unilaterally it is in the interests of the consumers and that
is welfare enhancing; for the policy makers it is very difficult
to sell this idea only to open up, not ensuring their exporters'
access to other countries. That is where I see these contradictory
developments taking place.
Q90 Chairman: Dr Razzaque, I thought
I caught you saying that it is more interesting for a country
to conduct an agreement with its neighbours because those are
the people it can export to. If you were a country in sub-Saharan
Africa, it might be of great concern to you that the South African
market is open and not very interesting as to whether bits of
the American market are open. Is that what you were suggesting?
Dr Razzaque: My Lord Chairman, as you
know there is a problem with the export structure of developing
countries. Developing countries, especially in the regions, basically
compete for similar kinds of export goods in the global market.
Also, because of the fact that the consumers in these countries
tend to concentrate on similar kinds of products, and especially
when countries are relatively less developed they tend to focus
on the primary commodities, their market is not well diversified.
On the other hand, when they trade with developed countries, then
as partners they can take advantage of the nature of their already
existing resource endowments. For example, if a low income country
is trading with high income countries, the low income country
can take advantage of exporting labour intensive goods. If they
are forming regional integration, only within the region, then
the problem is that they cannot take advantage of this particular
thing, because in terms of the production and resource strcutures
probably those countries in the region are more or less similar.
Of course there is a point of co-operation amongst the regional
countries so that they can take advantage of what is known as
economies of scale. That can definitely be enhanced through regional
co-operation, that is not an issue, but the main problem for them
is that if their trade is to expand at a satisfactory rate then
they will have to trade with more developed countries or relatively
advanced developing countries.
Q91 Lord Woolmer: Is the concern
amongst the developing countries principally to secure more open
export markets or are they more concerned about protecting their
domestic market? In other words, do politicians in developing
countries see these as two sides of the same coin, or are they
really only interested fundamentally in seeing the benefits of
getting export markets opened up, but really they would rather
like to do that but protect their domestic market at the same
time? What is the impetus? Is it protecting their domestic market?
Is that the political goal before they go multilateral? Or is
it that they really see a lot of benefit in opening up export
markets? What is the driver in the politician's mind in the Commonwealth,
for example?
Mr Laurent: Thank you very much, my Lord.
I would say, first of all, that even within the Commonwealth,
developing countries are not homogeneous, and beyond the Commonwealth
the diversity is even greater. Both of these factors exist in
the minds of policy makers of developing countries, but the circumstances
of the countries have a lot to do with which of those two would
be much more significant. For instance, in countries with a large
internal market, the protection could be more important, but for
countries that are exceedingly small, for instance, that is much
less significant. It is really a mix of motivations.
Q92 Lord Woolmer: Some members of
the Commonwealth have raised concerns about the loss of preferential
trading terms in any WTO agreement. Is this a roadblock to a successful
conclusion of the current round? If so, how can it be avoided?
Mr Laurent: It would seem that this was
a possibility sometime ago. Several countries—small countries/LDCs—are
dependent on preferences. They felt that if they did not enjoy
those preferences, they would lose the ability to trade, and if
they were not able to trade, then what would the point in having
a new agreement if that agreement was going to deny them the ability
to participate in the global economy in a meaningful way? So there
was that threat. However, in the negotiations now there is a proposal
which seems to have general acceptance amongst most of the membership.
Our understanding is that there are just a couple of countries
that still are not happy, but the likelihood is that it will be
agreed by all when a final package is ready. That proposal is
that products that rely on preferential access arrangements (bananas,
sugar, et cetera) would be given more favourable treatment; in
other words, there would be a longer period for the reduction
of tariffs particularly in the developed country markets. For
instance, if bananas were to enjoy such an arrangement—the
tariff for Europe is currently €176 per tonne—instead
of the reduction being over a period of, say, six years at, say,
ten% per annum—and I am just using an arbitrary figure—it
would be over a much longer period at a lower reduction rate.
That is the way in which the WTO is looking at dealing with this,
but there are more fundamental approaches which we at the Commonwealth
think could also be used by the international community to facilitate
the development of these preference-dependent countries. Because,
in a sense, merely retaining or permitting preferences to continue
for a longer period of time, whilst this might be desirable, in
the long-term is not really the best long term developmental approach.
We think that what is needed is to find means to ensure that there
is an increased competitiveness of those countries. The reason
why they need the protection in the first place is that they are
not competitive with other countries: their costs of production
are too high. We need to find some means to make them more competitive.
Another thing which needs to be done is to support their economic
diversification, because countries cannot develop if they are
going to be reliant just on one or two commodities. We think that
this is an area in which Aid for Trade could have a particular
benefit, but it is not Aid for Trade in the way that has often
been spoken about but in a much more creative way, and certainly
not Aid for Trade which is merely a repackaging of existing foreign
aid to those countries.
Q93 Lord Moser: In your introduction,
which I found very helpful, you made very clear the state of developing
countries: hunger, poverty, disease, et cetera, and you made very
clear the importance of increasing income not just through aid
but also through trade. That is the background, and you referred
to the Doha Round. I just wonder whether, given the present state
of the Doha Round—which, I suppose, to put it kindly, is
confusing—some countries are just fed up, impatient, and
have lost the appetite for multilateral approaches generally.
When you talk about that, I personally would find it very helpful
for all our discussions and thinking, to have your thoughts and
your colleague's thoughts about the categories of countries we
are talking about. We are all talking about developing countries,
but that cannot be the right term we should be focusing on. Is
India in your thoughts as you talk? Your colleague talked about
"low-income developing countries" and that is another
category. The "least developed countries" is a category
in some UN documentation. It would help me at any rate and probably
my colleagues too if we could begin to focus on categories of
major concern, whatever they are.
Mr Laurent: I would ask my colleague
to go first.
Dr Razzaque: This is a very interesting
question. There is a general consensus among developing countries
on the whole about the importance of multilateral trading systems
and the multilateral element. That is the general consensus that
we can fill in on the list, per se, in the discussion. That is
very much there. But then the issue is how different groups of
countries within the developing countries, as rightly pointed
out, are there even waiting the way forward from this particular
Doha Round. Here I would like to emphasise, first, the LDCs (that
is, the group of least developed countries—that is the UN
definition) and then I would like to shed some light on the perspectives
from the relatively advanced developing countries like India,
China, and Brazil. First of all, the Doha Round was dubbed as
a development round and it was considered that the interests of
LDCs and small, vulnerable economies would be taken into consideration
by all other countries. After seven years of these negotiations
in Doha, we find that the LDCs have not been given unconditional
duty-free/quota-free market access. That is one issue. Also, the
fact is that, in the course of the Doha Round, there is also a
discussion on providing preferential treatment with regard to
services trade—and this is called in WTO's language, LDCs
modalities on services—but still no progress has been made
with regard to what kind of preferences LDCs are going to get
out of this. One issue that we discussed earlier was that many
of the LDCs have already undertaken unilateral liberalisation
at the behest of the World Bank, IMF, and other international
donor organisations. These LDCs now realise that although they
have taken unilateral liberalisation the export response to liberalisation
has been very low, because of the fact that they have got serious
export constraints in developed countries' markets and also relatively
advanced developing countries' markets. That is why developing
country policy makers are more concerned to ensure that that they
have got duty-free access in other countries which is currently
absent, and this whole thing makes LDCs frustrated at this moment.
For relatively advanced developing countries, for instance India,
Brazil, and China, the issue is quite different. Here, again,
I would like to emphasise the fact that this is not an official
opinion of the Commonwealth but more our personal views. Here
the issue is that these countries, the developed and developing
countries, consider the Doha Round as not very ambitious for them.
I can give you some figures. If what is on the table realistically,
and if there is going to be a deal to conclude Doha, then the
total gains for India, Brazil, and China will be something like
only three to 80 days' economic growth; that is, these countries
are growing so fast that even if there is a successful conclusion
of the Doha Round from the current situation on the table then,
basically, gains to China would be just about three days' economic
growth. For these countries, therefore, this round is not very
ambitious. That is the problem. We are talking here about difficulties
with regard to expectation of different sets of countries, but
certainly the LDCs, in terms of the market access, have received
nothing additional out of this Doha Round. That is frustrating
for them.
Q94 Lord Moser: For those three fast-developing
developing countries, it is not so much that they have lost appetite;
they do not think there is much in it for them. It is not impatience;
it is that they feel they are not going to get much out of it.
Dr Razzaque: Yes.
Q95 Lord Moser: That is what you
are saying. Going right to the other extreme, do you call them
now the "least developed"? Is that the category?
Dr Razzaque: Indeed. Yes.
Q96 Lord Moser: The least developed
countries. Have they lost appetite or are they still praying that
the Doha Round will ultimately help them? You are going to the
other extreme with under-development.
Mr Laurent: It is not certain that they
have lost their appetite—maybe not for the multilateral
approach, but there is growing cynicism in the negotiations. The
developing countries, for instance, put up something like 88 proposals
on special and preferential treatment, but these have really not
made any progress whatsoever in the negotiations. Speaking with
representatives in Geneva, the chorus one tends to hear quite
often is that there is attention being paid to liberalisation,
market opening, and regulation, but not to their developmental
concerns. They consider that the Doha Round is very much a traditional
Round of the old GATT format. They had hoped for something different,
with focus on their needs, but this has not materialised.
Q97 Lord Moser: That is a very interesting
answer. Thank you very much.
Dr Razzaque: My Lord Chairman, with permission
perhaps I can add to what Mr Laurent has just said. With regard
to this particular issue, before the beginning of this Doha Round,
actually there was no multilateral agreement on providing duty-free/quota-free
access to LDCs although the bulk of European Union was already
providing duty-free/quota-free access to most of the LDCs anyway.
But under the Doha Round a provision was created under which developed
countries are now bound to provide duty-free/quota-free access
to LDCs for 97% of their tariff lines—and LDCs do recognise
it as a positive development. Also, before the beginning of this
particular round there was no mention about preferential treatment
in services, but under the Doha Round there is now this discussion
going on as regards how to provide LDCs preferential treatment
in services trade. From those perspectives LDCs do recognise that
some positive developments are taking place, but they are perhaps
not being materialised as fast as they were expecting that this
round was going to deliver to them.
Q98 Lord Maclennan of Rogart: Mr
Laurent, you may feel that you have said what needs to be said
in answer to the question I want to put, but, to try to make it
a little more concrete for me I wonder if you could give any indication
whether historically you feel that developing countries have drawn
benefit from multilateral trade agreements. If so, could you exemplify?
If not, would you say what has been the problem?
Mr Laurent: Again with your permission,
My Lord Chairman, I would ask Dr Razzaque to comment. My view
is certainly that developing countries have benefited. I would
reiterate what I said earlier, that the group of developing countries
is very diverse. One has had countries that have benefited tremendously,
and there have been some developing countries, particularly those
on the margins, that have not benefited at all. The total picture
is certainly a positive one for developing countries if we go
back to the end of the Uruguay Round. That would be my view, but
it is a subject in which we have a lot of internal discussion
and I would like to ask Dr Razzaque to give his perspectives on
this.
Dr Razzaque: My Lord Chairman, my Lords,
this is an interesting question once again. Here the issue is,
if we think in terms of the relative significance of countries,
first I would give you the figures for developing countries. The
Uruguay Round began in 1988. Then the share of developing countries
in world trade—and I am talking about merchandise exports,
their share of global exports—was about 27%. Now it has
increased to about 40%, and side-by-side the share of developed
countries has fallen from about 73% to 60%. If we are considering
these figures, then some would draw the conclusion that multilateral
arrangements or have benefited developing countries. But actually
it is very difficult to link tariff liberalisation or trade liberalisation,
as such, with the performance of the developing countries. Now
let me focus on the poorest of the developing countries, the group
of the least developed countries. Their share has also increased
from 0.5% to 0.74% in the past ten or 12 years. But compared to
their share with that of the early 1970s, which was 1.5% of global
export, the current share is much lower despite the recent increase.
That is my view. The main issue is that even in the academic and
empirical literature it is very difficult to establish a clear-cut
relationship between liberalisation at the global level and the
country's performance. Even if we are putting aside this issue
of how one can link those two trends, there is a general consensus
that by setting clear-cut rules and multilateral disciplines,
the whole trade environment has benefited the developing countries,
and particularly the low-income developing countries or the least
developed countries. In general, this has been perceived as beneficial
to them.
Q99 Lord Maclennan of Rogart: In
answer to my colleague Lord Moser you have very helpfully distinguished
between the predicament of the least developed countries and India,
Brazil, et cetera. Institutionally, are you saying that in these
multilateral discussions prioritisation should be given to one
or other group, or that there should be parallel consideration
given to the interests of these different categories of developing
countries? In particular, can you say anything about how rapidly
the least developed countries should be invited to remove their
import tariffs? That is the very specific question.
Mr Laurent: Maybe I could address the
first, general question. The Doha Round was set up essentially
to address the problems of development. There were several countries,
as I indicated in my opening, that had been really falling back.
The Doha Round was about helping those which had serious problems.
It was not to be business as usual. The previous rounds were about
market opening, liberalisation, just the removal of trade barriers
for the purpose of trade expansion. Then it was recognised that
that model had not served everyone, but that model works quite
well for the more advanced developing countries, so I would not
think that the purpose or the focus of the Doha Round was in fact
to have been on those more advanced countries but really those
at the bottom; those that were, as it were, dropping off the end
of the table. There was a second, specific question, and Dr Razzaque
will answer this.
Dr Razzaque: The particular portion I
would like to answer to is what we can expect from LDCs in terms
of further tariff cuts and liberalisation. Sometimes the LDCs,
are still considered to be countries with high tariffs and all
the protection measures imposed on their economy, but, actually,
over time these countries have opened up significantly. One critical
issue here is the way that tariffs are defined in the WTO and
negotiated. They use what are known as "bound rates"
in order for negotiations to take place, but on the ground it
is more important to consider the applied rate of tariffs: the
actual rate that is being applied. I can give you some figures
to illustrate this particular issue. For example, Bangladesh:
in the beginning of the 1990s its average applied tariff rate
was 94%, which has now come down to only 17%. If we consider another
sub-Saharan African country, Kenya: it used to have an average
tariff rate of something like 44% and it has now come down to
only 15%. If we are looking at these average applied tariff rates
that these LDCs currently have, then we will find that they are
not far from average developing country experiences. That is,
they are more or less similar to, any other developing country.
Let us think about the case of Vietnam: Vietnam has more or less
a similar tariff structure as Kenya, Tanzania or Bangladesh, but
still it has managed to raise its export growth rate/GDP growth
rate at a very high level compared to other LDCs. Therefore the
issue is not about how much to liberalise the tariff regime further.
From an LDC point of view, the issue is how they can ensure that,
with this liberalisation, they can also achieve high export and
GDP growth rates. The other problem that the LDCs have—which
is sometimes not very well recognised in the academic literature
or in the policy discussion—is the fact that these countries
critically rely on tariffs for revenues. For government revenues,
tariffs are a very important source for them. When most of the
revenues are coming from import tariffs, the issue is that, if
they are going to liberalise further, there is a clear implication
for public expenditure, and if the public expenditure is going
to benefit the poor then certainly it would also have other poverty
and welfare consequences. The basic point the LDCs and their policy
makers highlight is the fact that, despite the liberalisation
measure that they have already undertaken under the World Bank
or IMF prescriptions, export response or growth response in those
economies has been very low. That is why they are not in a position
to diversify the economy and, also, not flexible enough to rely
on other taxes to generate revenues.
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