Transcript

MODERATED BY:

William Murray, Communications Department, IMF

MR. MURRAY: Thank you very much. Good day. It's Bill Murray from the IMF Communications Department. I just wanted to say a couple quick ground rules, explain to you who is on this conference call and then call over to our main speakers.

Number one we are briefing on the: Making Trade An Engine Of Growth For All Paper, which was done jointly by the IMF, the World Bank and the World Trade Organization. This paper plus the contents of today's backgrounder, are under embargo until 8:00 a.m. Washington Time on Monday April 10^th, so at 2:00 p.m. Berlin Time.

As you know, in Berlin on Monday, the Heads of the three institutions will have an event at the Association of German Chambers of Commerce and Industry. Again, that begins at 1:00 o'clock. It will be under embargo, the event, until 2:00 p.m. Berlin Time, Monday. So, that’s the embargo for this briefing.

The briefing will be attributed to an IMF official, or WTO official, or World Bank official.

IMF Official: The joint nature of this project shows both the importance that we are applying to trade, as well as how the International Monetary Fund, the World Bank and the World Trade Organization can leverage our combined expertise to produce research that we think is very important to tackle a critical issue.

So, let me give you some broad context for this paper. It's an idea that started last year, following a high-level seminar during the Annual Meetings here in Washington. That seminar had the same title as the paper. Also a joint Op-Ed published last year, it was (inaudible) around that time.

This paper also responds to the G20 Leaders call for policies that can enable everyone to benefit from open trade. Now, trade has always been at the center of our attention, so this issue is really, it's not new to us, and in recent years we have been, for instance, also concerned by the trade slowdown that started even before the global financial crisis. The World Economic Outlook released a chapter last October (2016) analyzing the drivers behind the global trade slowdown. So, this paper is the latest piece in a sequence of projects, many of them joint, related to trade that we have been working on for a while.

Let me turn to the overarching message for the paper, which is that, while trade has had significant benefits for global prosperity in the Post-War Era, some people in communities have been left behind, and even effects that have been more sharply felt because of the slow recovery from the global financial crisis, particularly in advanced economies. And the negative impact which today is mitigated by policy actions, that’s why the title of the paper is: Making Trade as an Engine of Growth for All, emphasizing the "for all".

What are the main messages? The first message is that trade has worked, it has lifted millions of people out of poverty, it has increased incomes, and it has raised living standards across the globe. It has done that by increasing productivity, has spurned competition and innovation, and it has benefitted consumers by lowering prices and providing access to a wider variety of goods.

The second message is that not everyone has benefitted, and we think that’s a very important message, so some people have been left behind. And while technology and automation have played a key role in driving dislocations in some countries, trade has also been a factor. So, the first key message of the paper is that policy actions are needed to mitigate these negative effects.

My colleague here, to talk a little bit about what are these policy actions needed to deal with these negative effects.

IMF Official: Domestic policies to address the adjustment costs of trade are important. Here, and it's important to emphasize that early and comprehensive actions are needed to improve labor mobility, and this is critical to mitigate the impact on some workers and communities that are hard hit. Otherwise, the negative side effects associated with trade can become severe. In fact, experience suggests that some countries have done too little and it has come too late.

I urge you to look at page 36 of paper where we provided a nice taxonomy about the policy options that countries can take. And let me just quickly talk about a few of them. I think the main policy objectives on the domestic front should be to ease labor mobility across industries, firms and regions while minimizing the loss of skill.

This would imply first, well defined active labor market policies to facilitate reemployment of workers; and includes job search assistance, training, as well as job insurance. On the passive labor market front we should consider social safety nets policies like unemployment insurance; these are necessary to provide the displaced workers with the opportunity for them to retool on their own.

And then finally there's also the option of using specific trade assistance programs. Programs like the U.S. Trade Assistance Program could take on a greater role, particularly if they are adequately financed and well targeted.

But we need to look beyond the labor market, as market rigidities are much more broad-based. Our education systems need to prepare workers for the change in labor demand; this requires lifelong commitment to education, and not only technical retraining. Housing assistance is also important to ease geographic mobility; credit strategies can help, especially self-employed workers and allow firms access to credit so that they can expand their business. And there's also the option to assist specific communities that have been hard-hit by the trade shock.

And then finally, it is important also to look at macro policy, not only from a broader economic course, but also since displacements are costly during downturns; so more may need to do more, depending on where you are in the economic cycle.

So, let me end by saying that we recognize that these domestic policies are critical, but that there is no size-fits-all; therefore these strategies need to be tailored to individual country circumstances, and their costs need to be evaluated on a case-by-case basis. Our institutions stand ready to provide analysis and assistance in this policy area.

With this I end. I will now turn to a World Bank colleague who, among other things, will speak to the role of trade for development and for raising the (inaudible) of the poor. So, thank you.

World Bank Official: Thank you very much, Luis I'd like to make the point that trade is essential to be able to end global poverty. And the evidence that’s viewed in our joint report is very clear. Increased trade integration helps to drive our economic growth in advanced and developing economies in the latter part of the 20^th Century, lifting millions out of poverty.

World merchandise trade as a share of GDP was at around 30 percent in 1988 and above 50 percent in 2008. So in this period of fast globalization the average income grew by 24 percent globally, and income or the bottom 40 percent of world population increased by close to 50 percent driven by countries such as China and India.

And while the impact of trade on poverty depends on country-specific circumstances, overall empirical evidence is strong. The first country-data showed that openness is associated with accelerated growth and average incomes, and that growth is associated with poverty reduction. For example, the income growth of the bottom 45 -- the bottom 20 percent increases almost one for one with average income growth.

So, although much has been achieved in the past quarter-century, much remains to be done. Traditional area such as agriculture needs further attention, while sectors such as services as well as physical trade with (inaudible) areas where further trade reform can make it particularly strong contribution to growth and multiply opportunities for people in developing countries.

At the same time, the extent to which trade has the potential to reduce poverty, and fundamentally dependent on complementary policies, and the institutional environment, allowing the poor to reap the full benefits of trade, demands policies that enable them to accumulate the human and physical capital required to seize the opportunities that globalization offers. And also requires minimizing international frictions such as those associated with market imperfections and transport costs.

These types of frictions often have a disproportionate impact on the poor, who tend to be concentrated in relatively remote areas.

And finally, it requires minimizing adjustment costs, ensuring the poor against the potential risks that globalization entails. But there is an (inaudible) focus on trade policy with no challenge of developing for an (inaudible) workplace training system.

This system is essential for achieving the World Bank Group's goals of reducing extreme poverty and both in shared prosperity. And as the report that says, and as my colleague was mentioning, put the right policies it (inaudible) up the openness to trade to drive growth, with a strong safety net and longer-term policies to build competitiveness, notably education and skills, countries can benefit from the great opportunities that trade brings, while also lifting up those who have been left behind.

Now, let me turn it over to our WTO colleague.

WTO Official: I need to talk a little bit about the rules-based trading system and you know it’s useful to keep in mind that there are important historical lessons that we learned from the 1930s and that the WTO is an outgrowth of learning those lessons in terms of trying to make sure the country has come together and negotiate commercial access in a global manner and in an equitable manner.

We (inaudible) at the WTO to try to look at inclusiveness from a country perspective, a firm perspective and a people perspective and as Anabel was just describing a few minutes ago, I think it’s pretty clear that the multilateral trading system has facilitated the engagement of countries rather extensively over the last 30 or 40 years in particular. Firms have also been very active in the trading system and we actually know that large firms in particular are able to access foreign markets and draw on foreign based supplies for inputs. We do worry a bit about small or medium sized enterprises having equal access.

We also know -- it was mentioned earlier that people are affected by the international trading system.

Consumers, when you look at it from a consumer perspective, I think generally the view is the international trading system really helps consumers by lowering their costs but consumers also earn income and as Luis was talking about, one has to worry about labor market policies to ensure that workers can benefit from integration and globalization as well and this brings us to policy coherence. There has been a lot of advancement in international trade policy. It has slowed here recently, maybe I’ll spend a few minutes talking about that but I think one of the bigger challenges has been coherence between domestic policies, whether it’s labor market policies, complementary policies across housing, education, or macro stabilization policies. Trade policies can play a role in helping facilitate adjustment through early announcements and gradual phasing in.

Also, occasional reversibility. If there is an import surge, the WTO agreement has mechanisms for countries to be able to in a WTO compliant way try to slow the adjustment and make it easier for the domestic economy to try to adjust. Now, I said a few minutes ago that I think trade policy, liberalization and growth of international commitments at the multinational -- multilateral level have slowed a bit and we have a section here starting on page 39 where we talk about the role of reenergizing global trade reform.

There has been very rapid growth in unilateral, multilateral, bilateral liberalization that started to peter out in the 2000s. This shows up in our research, IMF research, World Bank research, WTO research as contributing to slower trade growth and there are lots of concerns about what that means for future productivity growth but how do we reenergize the multilateral trade agenda and Anabel mentioned there were traditional areas such as agriculture where tariffs are still high. Those tend to affect poor people in poor countries more than rich people in large firms so taking a look at that agenda and trying to find ways at the multilateral level to advance those negotiations would be very useful.

There are also frontier areas around services, around investment where at a regional level, there is some advancement but at the multilateral level there hasn’t necessarily been as much advancement.

An area that one might consider as rather dynamic is ecommerce and WTO members are starting to discuss ecommerce but as of yet, members haven’t been able to find agreement on how to take those negotiations forward. I think I’ll stop there. I went on a bit longer than I expected but I am happy to take questions, thank you.

MR. MURRAY: Thank you very much. Let’s now open the floor to questions from the press, thanks.

QUESTIONER: Hi, I have two questions. One on the numbers and another theoretical one off the numbers. One first -- I have been kind of working my way through the report. Is there a particular projection that you’ve done or a particular estimate that you’ve done that shows what the benefits would be of say, an increase in X percent of global trade? Like what the impact on global output would be or something like that or conversely, you know, if protections measures were to persist or were to be increased, like what the downside would be? Are there numbers like that in this report?

WTO Official: I’ll throw in here from the WTO, now we don’t have specific generated estimates in this report. I will refer you though to our world trade report 2015on the economic benefits of the trade facilitation agreement that would give you some illustration of the potential gains across countries for full implementation of that agreement.

QUESTIONER: Thanks and a theoretical question for you, I mean since we are -- since you’re on background here, this will shield you a little bit from getting into trouble but I mentioned this guy by name. You know, Peter Navarro [Assistant to U.S. President Trump] who recently gave a speech had made -- where he talked about the negative consequences of trade deficits and that seemed to cause a bit of a stir in the audience. A lot of economists there seemed to perhaps not agree with him and I am just wondering from your perspective, you know, are trade deficits a necessary -- are they necessarily a bad thing. I mean it just seems to me that if every country unilaterally tried to reduce its trade deficit with every other country in the world, it just seems like there would be clashes over that at some point but I am wondering -- I mean from your theoretical point of view, what’s your view on that?

MR. MURRAY: This is Bill Murray and I’ve consulted my colleagues here at IMF headquarters. The paper doesn’t deal with this specific topic. It’s an interesting question but it really isn’t germane to the findings of this current analysis. That is a good question or questions to be raising in the context of our macro-analysis that is under way. As you know, IMF’s world economic outlook is coming up next -- week after next, excuse me and I think that would be a more appropriate place along with our external sector report in midsummer.

QUESTIONER: Just very quickly, I didn’t hear the last part when you explained that there will be more data on trade deficits, on the effect of trade deficits and then my real question is to the WTO. You are saying that the international commitment to trade has slowed down a bit. Were you talking about multilateral trade or just commitment to trade in general and to hear data on this, thanks.

WTO Official: I don’t want to say commitment to trade has lessened. I would say that certainly at the multilateral level we had a long period where members could not advance in their negotiations. In the last couple of ministerials that we’ve had there have been some breakthroughs, we had the trade facilitation agreement in MC9 and last year we had some commitments at MC10 around export restrictions in particular, and there were some others. I think there is still a fair amount of negotiations going on in our case, not necessarily at the multilateral level but there seems to be some indication that that might be slowing. The point I really wanted to make is perhaps the pace of liberalization is slowing because we had a rapid pace of liberalization through the 1980s and into the 1990s. I think that pace has slowed and that takes some of the wind out of the sales of growing trade.

QUESTIONER: I mean it’s the feeling that probably anybody has but are there other data on this? Do you mention this in the report as well?

WTO Official: I don’t think we have specific data on this issue in the report.

QUESTIONER: Okay, thanks a lot, thanks very much.

IMF Official: We have done some work on this in the context of the World Economic Outlook that was published in October of 2016. One of the authors of the report is here with me, who may want to add further --

IMF Official: The world economic outlook chapter from October of last year in the context of understanding the slowdown of global trade also documented several trends on the pace of trade liberalization. For example, we looked at the evolution of tariff and non-tariff measures over time We did show, as mentioned by the WTO official, that the pace of trade liberalization has gone down quite a bit lately as evidenced by the slower decline in tariffs. In addition, there’s been an uptick in protectionist measures in the last few years which was also documented –in the chapter.

QUESTIONER: Okay, thank you.

IMF Official: And then finally, going back to the two points that you raised, I think the analysis of the country’s external position and global imbalances, these are issues that are taken (inaudible) in the world outlook as well as in the external sector report. The latter will be made public some time towards the end of July.

These reports, what we do there is that we discuss the drivers behind changes in the country’s external positions and we also discuss policies to reduce imbalances. This is not the focus on this particular paper but I urge you to look at both the world economic outlook that will be made public soon but also last year’s external sector report for a discussion of global imbalances and policies to address.

QUESTIONER: My question is to the IMF. In the 90s, at the end of the 90s, there was this very strong sense in Brazil that trade, that the opening that was promoted because of trade liberalization had not worked for everyone and as of that point, there was a tendency of especially some sectors getting together and making exactly the same claim as you are doing now almost 20 years later. My question is have you changed your position from the 90s until today or is it something that basically you only find out because now it’s happening in developed countries as well? Thank you.

WTO Official: I don’t think that -- you know, this isn’t a recent discovery at all. I think this is something that economists in particular have made -- it’s part of some of our foundational theories going way back that there are adjustment costs related to trade. I think -- and our organization, and I know the World Bank does this. I am sure the IMF does also. We have, for many years, preached the need for policy coherence and I think the interesting thing is that the need for coherence applies across the board, no matter what your level of economic development and perhaps maybe some of this is getting more press than it has in the past but I don’t think economists are necessarily giving different advice. I think what we are trying to do is remind all countries –of the need to pay attention to these policy elements is very important.

In some countries, perhaps, the labor markets are functioning better, there is less friction in them and I know there has been research that suggests, not covered in this paper that I think thought that labor markets in the U. S. adjusted pretty smoothly historically and but there has been more recent research that suggests maybe as of late, they’re not working so smoothly. So from the WTO perspective, our advice would always be pay attention to coherence between your domestic and international policies and in domestic policy across the various social concerns, whether it’s employment, education, healthcare, those kinds of things.

IMF Official: Just to add that there is no change. We’ve always been looking at the broader policy package that was needed for benefits of trade to take root. I think the attention -- there is greater attention now because when you have this low recovery after the global financial crises, that increases the tensions and that’s why there is greater focus now but from our end, we always emphasize the need to have a comprehensive policy package to make sure that the benefits are relaxed so I think that’s -- in that sense this paper reemphasizes that message and brings more granularity to some particular area.

IMF Official: Perhaps let me just quickly add and draw your attention to Annex E, which is in page 51 of the report. In discussing policies aimed at mitigating losses we also focused there on emerging markets, like Brazil, and some of the additional challenges they faced where labor reallocation is probably more limited. We talk about the reasons why there might be more friction, including the fact that they may have lower education levels, which makes the reacquisitions of skills perhaps more difficult, and the fact that you have higher informality, which also adds to the design challenges. So these are some of the special issues that Brazil likely faced in the 1990s, and what some emerging economies would face in the event of further trade liberalization and the idea of this annex was to just draw attention to those particular challenges. I don’t know whether the World Bank wants to add further?

World Bank Official: So one of the very important points that I was making at the beginning of my presentation is that trade is indeed a very powerful instrument to end poverty and it has contributed to the tremendous success that the world has achieved in terms of reducing poverty. In the beginning of the 1990s, it was (inaudible) extreme poverty, whereas today a little over 1 in 10 people is in extreme poverty and trade has been a very important (inaudible) by contributing to growth and as I mentioned, growth being associated with poverty reduction but in order for trade to actually contribute to the reduction of poverty, it is necessary that it be anchored in complementary policies and the institution environment and some of these issues may differ, if they actually differ within countries but they, in particular, differ between advanced countries and emerging economies and developing countries more broadly so we have identified that to allow the poor to benefit from -- to fully benefit from trade demands policies that enable and accumulate human and physical capital, requires to cease the opportunities from globalization. It is also important to minimize frictions, international frictions that are associated with marketing protection and this is important because a disproportionate impact -- a disproportionate number of the poor are in rural areas, sometimes isolated areas and it is also important to minimize the adjustment in cost and ensuring that the poor against the potential risks that are associated with globalization.

So again, I think the point that Bob was making, has made throughout the conference about policy is one that is very important in advanced countries but also in developing countries as well.

WTO Official: Thank you. If I could make one quick intervention. The IMF mentioned that there is a whole stream of work that the three organizations are advancing, some individually, some collectively and one of the elements that we are working on here at the WTO will be highlighted in our forthcoming world trade report in the fall is we are going to be highlighting factors that drive labor markets, particularly trade, technology and jobs. There seems to be a lot of questions around the role of trade affecting labor market outcomes and so we have a significant research effort on trying to help sort those out depending on sort of what is being developed, developing in emerging markets depending on your circumstance.

Our research so far says that it’s very circumstance specific so it is important that everybody work hard to try to figure out what are the forces at play in their economy and how well are their markets working.

MR. MURRAY: We have had a very rich discussion here today. It’s a report that’s well worth a close read so if there are any follow up questions, what I am going to recommend is that you send an email to media@imf.org, that’s the media relations division here at the Fund. Mark the subject line clearly, “joint paper follow up” and they, media relations will act as a traffic cop. If it’s World Bank specific or a WTO specific question we’ll make sure we get it to our colleagues at the (inaudible) meanwhile just let me repeat that this is under embargo until 8:00 a.m. Monday, Washington time, 2:00 p.m. Berlin time and I want to thank the World Trade Organization, the World Bank and my colleagues here at the IMF for participating in this briefing today. Thank you all and have a good day.