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Expanding National Policy Space for Development: Why the Multilateral Trading System Must Change

South Centre | September 1, 2005

By Robert M. Hamwey

With the increasing political and economic integration that accompanies globalisation, a growing number of international agreements now restrict the national ‘policy space’ of developed and developing countries alike. In order to assess the impact of international agreements on policy space, it is instructive to examine national policy space as a sub-space of the universe of policy options available to a country in an ideal world without policy constraints. From such an examination, this paper illustrates how domestic ‘endogenous’ constraints and international ‘exogenous’ constraints may significantly restrict a country’s access to national policy space for development. Sources of endogenous and exogenous constraints are reviewed, and ways that international environmental, social and economic agreements can both reduce and extend national policy space are outlined.

The paper demonstrates how developing countries’ national policy space is affected by agreements comprising the Multilateral Trading System (MTS) under the World Trade Organization (WTO). Focus is given to examining the narrowing range of policy options permissible under international trade and finance agreements, and the adverse effects this can have on countries in earlier stages of economic development. This contraction of policy space has recently been identified as a concern in international trade negotiations. In particular, agreements within the WTO contain provisions, and economic assistance arrangements of international financial institutions include conditionalities, that prohibit developing countries from implementing a range policy interventions designed to stimulate the growth, industrial development and diversification of their national economies. These effects are reviewed with the finding that the playing field resulting from international trade agreements that have ostensibly equivalent rules for all contracting parties, may provide a much smaller policy space for developing than developed countries because of differences in initial conditions and national policy implementation capacities. Efforts to establish a level playing field for international trade must recognise and address this disparity.

After assessing the scope of policy space accessible to developing countries, the paper suggests what can be done at national and international levels to ensure that available policy space is effectively utilised, and when existing space is insufficient to advance national development objectives, it examines ways to expand policy space in a manner that is consistent with developing countries’ existing WTO commitments. It is argued that special and differential treatment (S&DT) for developing countries under the MTS needs to be enhanced and made more actionable and effective in order to provide developing countries with essential national policy space for development. Finally, general areas where improved S&DT is needed, and should be pursued by developing countries in the ongoing Doha Round of WTO negotiations, are summarised.

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