Share This
December 2001 Cover Art

Search Finance & Development

Advanced Search

About F&D


Back Issues

Write Us

Copyright Information

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile

Finance & Development
A quarterly magazine of the IMF
December 2001, Volume 38, Number 4

Letters to the Editor

Trade liberalization

Opposing protectionism in both rich and poor countries ("Targeting Rich-Country Protectionism," September 2001), Professor Jagdish Bhagwati would have been even more effective if the multilateral liberal trade initiative he favored were more far-reaching than the one he explicitly endorsed, and his support for domestic measures to address the occasionally injurious impact of antiprotectionist policies were more forcefully stated.

What is needed is a more ambitious initiative than the projected multilateral round of negotiations being organized by the World Trade Organization, even if supplemented by the assorted bilateral free-trade agreements currently contemplated. Even adding the Western Hemisphere free trade agreement sought by U.S. President George W. Bush would not be enough. Free traders everywhere should be advocating the achievement of totally free trade—within a realistic timetable—by as many countries as care to participate. No rich country can afford to abstain for long. Although poor countries would not be able to make such commitments, their exports to countries committed to free trade should be accorded the same treatment as trade between those more advanced countries. However, the poor countries should be committed to comparable free-trade obligations commensurate with their evolving economic capabilities.

Domestic adjustment programs are essential to both the readiness of countries to work toward free trade and the viability of the free-trade commitments negotiated. Professor Bhagwati endorses, in passing, the adoption by countries of adjustment and retraining policies to address the impact on their workers of an increase in labor-intensive imports, but such proposals need more forceful attention.

The readiness of rich countries to commit themselves to totally free trade in accordance with a realistic timetable could conceivably energize the developing countries to begin removing their own protectionist policies—an outcome Professor Bhagwati clearly advocates.

Although properly crafted adjustment policies are vital to the viability of even modest free-trade initiatives, there is little, if any, evidence of such preparedness at the national level, at least in the United States. The need for such policies has been neglected not only by governments but also by most free traders. In short, both the foreign and the domestic economic dimensions of a properly crafted campaign against protectionism have not been given the priority they deserve.

Professor Bhagwati says that, "instead of talking and condemning, we need to think of concrete ways in which we can produce results." I hope my proposals constructively supplement his.

David J. Steinberg
President of the U.S. Council for an Open World Economy, 1974-89

Professor Bhagwati responds:

Mr. Steinberg's suggestions indeed constructively supplement mine.

Eliminating border barriers on an MFN (most-favored-nation) basis multilaterally is a goal that many of us have long suggested as being good not only in itself but also as a way in which we can indirectly "kill" the worst of the pernicious trade-diverting effects of the presently proliferating and ineradicable preferential trade agreements. Preferences relative to zero are zero. If we launch the new development round in November at Doha or another location—or "virtually" as I have suggested recently in the Financial Times—that will be a step in that direction. But no one expects that we will achieve Mr. Steinberg's laudable goal anytime soon.

Adjustment and retraining assistance are critical. In theoretical work in the late 1970s, in my book Protectionism (MIT Press, 1988), and as recently as 1998 in the lead essay of my book A Stream of Windows: Unsettling Reflections on Trade, Immigration, and Democracy (MIT Press), I have strongly advocated these measures. Robert Litan of the Brookings Institution has also weighed in recently with an ingenious proposal of his own. I believe, therefore, that Mr. Steinberg is in good company.

Water management

The article "Optimal Water Management in the Middle East and Other Regions" by Franklin M. Fisher and Hossein Askari (September 2001), states: "The World Bank is the leading institution with the potential to ameliorate the global water problem." Many organizations are already dealing with global water problems, including the Global Water Partnership, the World Commission on Water for the 21st Century, the World Water Council, and the World Water Forum.

At the Second World Water Forum in March 2000, held at The Hague and attended by World Bank representatives, two documents were presented: a so-called World Water Vision and a Ministerial Declaration of The Hague on Water Security in the 21st Century, of which Ismail Serageldin, [then a] Vice President of the Bank, was a principal author.

Both documents were challenged, first by delegates from nongovernmental organizations (NGOs) and trade unions who made a declaration stating that a decade of conference after conference had led to few, if any concrete results. It also stated that there must be a substantial increase in multilateral and bilateral assistance to developing countries based on firm targets and timetables, and that all this must be accomplished before the next Earth Summit in 2002.

A second group called The Next Generation of Water Leaders expressed serious concerns in an article in the March 2001 issue of Water International, a leading journal on water management issues. The article questioned the documents' strong advocacy of privatization, pointing out that integrated water management is far more complex than managing a typical private sector enterprise. It went on to point out that the documents fail to make a distinction between the situation that applies to rural, as opposed to urban, water users in South Asia and many other regions and to take into account that rural water users in these regions have tiny landholdings, often as little as two hectares, and are generally illiterate.

These issues are similar to those that many water-resource professionals (including me) have been raising for many years. A major reason for failure to achieve adequate global and regional water management is that the donor community—including not only those that provide financing but also those that provide technical assistance, like the World Water Forum—is highly fragmented, with no one taking leadership to effect meaningful cooperation and determination of priorities.

I agree with the authors that what is presently needed is an institution—I prefer to call it a World Water Institute—that can exert such leadership. I also agree with the authors' choice of the World Bank, taking into account that the Bank, with its financial strength, is in the best position to see to it that covenants are enforced. In the past, the Bank has been reluctant to use this leverage, but it should begin to do so following precedents set by the IMF and the World Trade Organization.

Participation by the Bank would make use of its comparative advantage to deal with institutional development and overall policy and program implementation. To be successful, the Bank would need cooperation and joint participation with the United Nations and, of at least equal importance, strong financial and political support, especially from the United States.

NGOs, operating at the grassroots level in various regions, have been instrumental in establishing water user associations. An early task for the institute would be to create working relationships with the NGOs and to seek their cooperation in assisting governments in establishing water user associations on an accelerated basis. Another important task for the institute would be to make continuing studies of the scope for import by water-short countries of so-called virtual water in the form of grain. The imported grain would enable replacement of crops that consume large amounts of water—for example, rice and sugar cane—by high-value crops that consume less water, such as fruits and vegetables. Alternatively, the grain imports would provide a breathing space during which irrigation practices to conserve water could be introduced.

Concurrent actions would need attention in related fields, including education, especially for women; land reform; and family planning.

Phillip Kirpich
Retiree, World Bank
Miami Beach, Florida