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The WTO and the Shrinking of Development Space
How Big is the Bite?

Alisa DiCaprio and Kevin P. Gallagher

A new study from Tufts University finds that developing country governments have indeed found it more difficult to pursue proven development strategies under world trade rules. More striking, researchers find that developed countries have made extensive use of the WTO's dispute mechanism to litigate developing country efforts to employ such policies. The study is also summarized and expanded upon for policy-makers and advocates in “Measuring the Cost of Lost Policy Space at the WTO,” a new policy brief by the International Relations Center’s Americas Program.

For example, Indonesia was forced to curb its local content standards on foreign auto firms, South Korea had to stop subsidizing its shipbuilding industry, and India's loose intellectual property regime for pharmaceuticals had to be revamped. Each of these instruments had been shown to be successful in fostering industrial development in strategic sectors.

The authors examine the extent to which the core development policies employed by late-industrializing nations in the second half of the 20th Century are permissible under the current World Trade Organization (WTO) regime. It is well established that WTO rules constrain development space, but here the authors examine the extent to which WTO rules have resulted in actual policy change.  They assess whether the WTO is constraining “development space” in three ways.

  • First, building on previous literature, they examine the extent to which WTO rules restrict the ability to establish certain development policies that have previously proven effective.
  • Second, they measure unilateral compliance with WTO rules as reported in Trade Policy Reviews—reports that WTO Members are required to file on their trade policies.
  • Third, they examine WTO case law related to the core policies to evaluate the use of the dispute mechanism to encouraged compliance with WTO rules.

Contrary to claims that nations can circumvent the WTO to promote development, the authors find that not only do many of the rules negotiated in the Uruguay Round constrict the ability of nations to put in place aggressive development policies, but these rules have been strictly enforced by WTO dispute panels.  Indeed, more than 25 percent of all the WTO cases between 1995 and 2005 have focused on dismantling policy space in developing countries.  These findings imply that developing nations should take great caution in negotiating measures in the Doha Round that further restrict policy space, especially given the small gains projected to arise from a likely deal.

Link to policy report:
This document was also published in Spanish (click here) and Korean (click here).

Download full report, The WTO and the Shrinking of Development Space 

Full citation: DiCaprio, Alisa, and Kevin P. Gallagher. “The WTO and the Shrinking of Development Space—How Big is the Bite?”  Journal of World Investment and Trade, Volume 7, no. 5, October 2006

For more publications, see GDAE on the WTO's Doha Round

For more on GDAE’s Globalization and Sustainable Development Program:

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