UN trade body criticises free trade

The UN’s trade body has joined a chorus of criticism of globalisation, warning that developing countries reap little value from taking part in global supply chains and that the costs of joining free-trade agreements may outweigh the gains.

In its annual Trade and Development Report, Unctad, the Geneva-based body that prides itself on being a voice for the global south, also called for aggressive stimulus programmes to boost global growth.

Governments around the world have turned to regional trade agreements, such as the Trans-Pacific Partnership between the US and 11 Pacific Rim countries, in the hope of boosting export growth after repeated failures to reach a global deal at the World Trade Organization.

But Richard Kozul-Wright, Unctad’s head of globalisation and development strategies, said free trade would not return the global economy to growth. Instead, he advocated giving countries, especially developing ones, more freedom to conduct their own economic policies outside the restrictions often imposed by bilateral, regional or global trade agreements.

“Protectionism is not the big story,” he said. “We need to tackle the big issues.”

Writing in the report, Mukhisa Kituyi, Unctad’s secretary-general, called on governments to use incomes policies such as minimum wages to support global demand, along with expansionary fiscal policy. He also made the case for industrial policies to promote investment, stricter regulation and capital controls to stabilise financial markets, and development-oriented trade agreements.

Asked which countries best illustrated the benefits of such policies, Mr Kozul-Wright said China was an obvious example. He also cited Brazil, which has used “vertical” industrial policies to promote individual sectors such as information technology, along with minimum wage legislation and income distribution programmes.

His comments are in contrast to recent criticism of Brazil’s policies by analysts and investors, who have questioned the sustainability of its minimum wage laws and called for “horizontal” policies such as tax reform to promote growth across the economy.

The Unctad report argues that horizontal policies have been ineffective in promoting industrial expansion and that, when applied across borders, they have put harmful restrictions on national policy makers.

In particular, it argues that countries that sign trade agreements in order to take part in global supply chains reap little, if any, benefit from these deals. China, it notes, has taken a dominant role in the global supply chain for electronic goods, accounting for as much as a third of global trade in the sector. But Unctad cites a study this year which found that China took just 3 per cent of the sector’s global profits.

Mr Kozul-Wright said global supply chains were of use to multinational corporations in only a few industries – primarily electronics, clothing and textiles and the automotive sector – and of little relevance in sectors such as chemicals. -Jonathan Wheatley