A

absolute advantage Smith’sarguments canbesummarizedasfollows. A country is said to have an absolute advantage over First, he points out that regulations favoring one in­ another country in the production of a good or ser­ dustry draw away real resources from another indus­ vice if it can produce that good or service (the ‘‘out­ try, where they might have been more advantageously put’’) using fewer real resources (like capital or labor, employed (opportunity costs). Second, he applies the ‘‘inputs’’). Equivalently, using the same inputs, the opportunity cost principle to individuals in a the country can produce more output. The concept society—for example, by pointing out that the tailor of absolute advantage can also be applied to other does not make his own shoes (which would cost him a economic entities, such asregions, cities, or firms, but lotoft ime) butbuysthemfromthe shoemaker(who we will focus attention on countries, specifically in can produce them more efficiently). Each individual relation to their production decisions and interna­ is therefore specializing in the production of those tional trade flows. The fallacy of equating absolute goods and services in which he or she has some ad­ advantages with cost advantages is a never-ending vantage. Third, Smith applies the same principles of source of confusion. Deviations between the two are opportunity costs and specialization to international caused by the fact that real resources may receive commercial policy and nations. It is better to import different remunerations in different countries. goods from abroad where they can be produced more In reaction to the mercantilist literature of the efficiently, because this allows the importing country 17th century (which advocated state regulation of to focus production on the goods it can itself produce trade to promote wealth and growth), a doctrine of efficiently. The primary (classical) reason for inter­ free trade emerged at the end of the 18th century, national trade flows is therefore a difference of tech­ culminating in 1776 in Adam Smith’s masterpiece, nology between exporter and importer. An Inquiry into the Nature and Causes of the Wealth of Principle of Absolute Advantage To illustrate Nations. Drawing on the work of others, Smith was the principle of absolute advantage, suppose that able to put many different arguments and elements there are two countries (the United States and Japan) together in a coherent and systematic framework, producing two goods (food and cars), using labor as organized using a few general principles, and thus the only input. Assume that goods can be traded providing a new way of thinking about political without costs and workers are immobile between the economy (Irwin 1996). Smith thus provided the first two countries, but mobile between the two sectors analysis of economic reasons for advocating a policy within a country. All workers in a country are equally of free trade and, according to Joseph A. Schumpeter productive. Production technology in Japan differs (1954, 374), ‘‘seems to have believed that under free from that in the United States (see table 1). We as­ trade all goods would be produced where their ab­ sume that Japan requires three units of labor to solute costs in terms of labor are lowest.’’ produce one unit of food, whereas the United States

1 l . , f f f t ­ ­ ­ r r e e e a a y d d d n n n t. l­ l­ ). s­ r- r­ al es e r . o o i i o o to ge ay n­ i g. ng i ra o o e e w n u u ac ar g e ts . te i ab od ag er n s u e s we st e d an i t De n th t h ti tr ff m on s i e ta an ve o h m i m o (e u ar i go in c mple mple o i o rd ad th d l enefit s go d e d t an c c pe n ag h ad a i a d d p si si an uc e an i s e t s o ti rt or at c b un r tr e Un ks u x x i v tr n an c k ty d of h o e ds e g p xc o c n e e oo oo y d n ju om e y ng tr d r ar uc an n e c as e ai al n g g i w e b s on ac e ar ro ad n c of th m v n n i d n xp e oo us h n y o n th s i te an e ra tr f i e ti d p o He a o e Wages g r, o o y, d th f o g yp n c re ts o n t ro ad y ve i i t in ou e ge t th pa i y r The y. e e re ec i it f ri n ge o u t fi Th u on te am p an ve c e e e i e tr r b at o h s e o ta c d ti f e, an y e th ar al p f fo at ta i r k or d e l va g n s e i at n n ha r o n m b T ut uc s o e of n and t n m i w t rn p n re l n e c ro th or i ar m fl st h e d th i d h o t an r n ou so li va be p p c te on o ri p va e e o h m pi so re th t n e c ho ma ry r T d p c , on In ro an n c p ti k d d io trade: ve o hi g m e , mp i ty o ad i l l s of i xa e ti p e is ntage: e an ab on ze an as g m e o a pu ct ar sa d su w e c r d n d, an s c ty ga y i (a c r te g f ve he b ys n e d i u m ow u , , t o i th s n d co la m f to on o n g al ra o an e s d n on or i or p al lu fo d i an e n de o ro st f l Income, an e e c y e r T od adva ta e gl o f t n as ) ct l al , l d tu an ro m wr , e) ad r so rs m i e an s s l n dustry g er at co b ag c 1 r e p or s al p o th fa si e h w e ke tr t go nt Limitations i re or h n de i o an g ar c ga o ab ta h ng e e e l e va th e i i l o t p m ar o an s i ec ti y y ar ot n w he n tr gl an gi (c i of p s c n t b N at ra d s d ab b th s to o th i ad tr v production: l n o m ab or m e e s op n an an od n s e la d and t ca un si ffi n n o go th ve re i s ue on u n o i i ol us g ga u i interin ’s te f te ad n i e o gy t i th e xp of r g n e go e ti lu re s d n su ss o oo o c y z u absolute in o as e t d of i u e lu c i (i at ab an lo g h n qu ar d ed e , ta te g ou tr fo a rs ad s n ib h i y n d c o e h e on f fo as y s ri Advantage, so ag y u an se tu r n e r c ar ly e o o of e yz tr n t sl in tr o e te c . c ns m tl c u xc s si s te es or ad ol d ti i h al u te to r an as ab l al ph su h n e l at th o n s s e versus u d ry n e an n e of o o i tr b a i Ri c e facto e pe ec T su v ac ow comp tu uc e re e m d M an e h y, y t to d e e e nt u r ab s s nc . e e to d n d go (f i e ty ry e p e U y i sl sl It n u e y T th g mp ad , s an . l an ff c s s se se th as eq i ) fr o n e ro sa o n ty . , d tr , s. lt s r th n av ). , th ch s c r. at c ou ou d te fr i e e p e e i us us us s ai n o u e du an be s) d e se e e di Absolute More Intra- Complications Absenc o m od c c c te to on k e D ssib h ce c e i lu is e e e hl rt at o al n n c hi ag ad ad i o o m e ro is is is or ou av us e an ab ac p ta l c on ta c O tr c d of It d (f tr si T sc sp c It tr c w n c d so th l th po fr St fo (w fa th to f f s ­ ­ s ­ ­ ­ ­ e e e e e 2 d d n n ts al e c c as a­ ar x­ o i o c c m p u i an an an o od ar J e c e th ti te th u ab ab i o r c o c ¼ n on at se p an c i n t in cen­ (o ts e s e c fo du t one er r n fr u 1/8 1/6 i s o s cars h S e s en n i Ja d n b St f od , /3 to h u e an c i of ti r ro r o o on ar ha Un ie s 6 c n , o d ot ag c od r. un duc g m w t co p ur s c p hi output e tr as p d ca u fo o o . ts u n , with ly io o te nt y e x fo le e n i e du i r on w n h y al d i n e e of b of (f ag c ct e ar ni si pr f ies s e ab va ti od t o th labor s la os rd l e ro c r r, u u n ot i u o c n s it th ou th e s, t p ts o Un p o th te f ad fo o d pr e c u e i d an of ps m n h nt u c t n m io e e od o ts t s f e i i v r n ta c u t m o i u 1/2 1/3 r re ab ro d Units up te sa e ro food o h e ac S o ct l od S un te o o n th n th p o S p ca ts n lu o e ad i d or fl ge u f th s c i b. produced unit e u n ot fr f ta . e pr o p r. o d on c l w e in n so go ta o re th e ed e b e o S i of tw l h e o 4 g r ti an u t ow n ti m it e tw ro ts h ss b , c e ab i or n du ut d i no ta ts p c d o m fl t n e l p fo e ¼ f u cient od w va l m l la on b o e th te m o Ja e ro to os i n 2 e ha fi as i U r by c an p un so du gh fo f c f ), e i p e su 8 6 f ad ar od i h if e at t t e e s th 8/ xc ad o f c ar e cars d y o n he ro z s ab pl th od e e an i c t nc e e Un pr o th te tr e o to us e it p th n i s gh te b p y i ts c output produce n i r c s al fo n e n as am ta or i e ion e st labor ts e m d al o p u at ta e an t ed i Ja or ci ar S ni u on of (o th to to tu nt e n ex ti S m th th e th c p of n an of u cr rs an th s e ti n o n od f d ab d c s m i iza u u i i d ts e or n c l i In r n i l at sp s uc c an re e i ts i c o s s , te ha p u f p a s ge te at unit of d i o e e e, It re ar u i 2 3 an s s, th e ffi o l ot ni at e y. tr c ge t tw Units ge e food at t ro le op rn . od ecia an w p n u ab to tl fr ha ( r l od an e se ts b th ta Un p ta ex p e h s ta a. required one mo Un y i te r r n St os of s p s m l c d n S d w ta i n d e e c n e n pr . u te e ap se or po w i fo s o n d h J ar y se xa u d e he ci va e p on ta va ar th un m o oo re fo c o e th oo e it m y u h T f te N , c b x f e t T he ho S o th i r ffi ti T s n s iv it ad s su i r . d ad e T h i si n e e s. in e T f d . ). ni ne n i of ct 1 fo od s re b w e s) of e e as uc o w i le o r. : an s Un te ). U b le on tu d e ds re st le an an an fo u p te du T o s n ut ut n it d e i ins b e e l l o o r, r ed ni p p o p q ss at o e ow or ro l an n as ta f a ar ar h e ab Ta Pr USA Japan l U c Ja l to so am c n p S t o p so p re n th Ja p g tr m ga fo u Ja h an ti m

absolute advantage 2 ences in technology) are important for explaining access to medicines access current international trade flows and differences The term access to medicines encompasses the array of between countries in terms of income levels and wage problems faced by the world’s lowest-income in­ to rates. Daniel Trefler (1995) systematically analyzes habitants, who often cannot afford, or do not have medicines these issues by combining the Heckscher-Ohlin access to, medications that could greatly reduce the model with technology differences, while taking into disease burden under which they suffer. The prob­ consideration the empirically observed home coun­ lems include deficient medical infrastructure, im­ try bias (a consumer preference for domestically balances between prices and ability to pay, and the produced goods over otherwise identical imports). lack of incentive to develop medicines that would This combination explains about 93 percent of in­ treat diseases endemic to low-income nations. ternational trade flows. It also shows that technology During the 20th century, numerous technological differences are largely responsible for the deviations breakthroughs in pharmaceutical therapy made it in income levels (and wage rates) between, say, the possible to cure or at least alleviate most of the dis­ African countries and the high-income countries of eases that have killed or debilitated millions of people the Organisation for Economic Co-operation and each year. But the ability to purchase those medicines Development. For this reason absolute advantage is concentrated in relatively affluent nations, where does retain relevance for understanding the modern the vast majority of pharmaceutical sales occur. At world economy. the other extreme, roughly 60 percent of the world’s population live in nations defined by the United See also comparative advantage; economies of scale; Nations in 2000 as ‘‘low income,’’ with per-capita gains from trade; Heckscher-Ohlin model; intraindustry gross national product averaging less than $530 (at trade; new trade theory; revealed comparative advantage; prevailing exchange rates) a year in 1998. The World Ricardian model; trade and wages Health Organization (WHO) (2004, 61) estimates that in 1999 those nations made only 2.9 percent of FURTHER READING the world’s pharmaceutical purchases. The WHO Irwin, Douglas A. 1996. Against the Tide: An Intellectual has predicted that by expanding access to available History of Free Trade. Princeton,NJ: Princeton Uni­ health interventions, and especially essential medi­ versity Press. A magnificent overview of the arguments cines, 10.5 million lives could be saved annually by for and against free trade throughout history. the year 2015. Lack of access to medicines and Schumpeter, Joseph A. 1954. History of Economic Analysis. complementary health care in turn perpetuates a vi­ 12th printing, 1981. London: Allen and Unwin. Still the cious spiral: poor health impairs productivity and history of economic analysis. economic development, while low productivity Smith, Adam. 1776. An Inquiryintothe Nature and Causes of keeps the citizens of the least-developed nations too the Wealth of Nations. Edited by R. H. Campbell and A. poor to afford appropriate health care. S. Skinner. The Glasgow Edition of the Works and Affordability The medicine access problem has Correspondence of Adam Smith 2. Reprint, 1981. In­ several facets. The overriding problem is inability of dianapolis, IN: Liberty Press. The starting point of individuals to afford medicines. Health insurance is economics as a science, using a coherent system of an absent corrective; an estimated 90 percent of the analysis favoring free trade. people in developing nations lack such insurance. Trefler, Daniel. 1995. ‘‘The Case of the Missing Trade Inability to pay restricts not only the demand for and Other Mysteries.’’ American Economic Review 85: medicines but also the supply of physicians able to 1029–46. Ingenious empirical tests of various trade diagnose diseases and recommend appropriate ther­ theories with a prominent role for technology differ­ apies. Nations classified as low income in 1998 by the ences. United Nations had 70 physicians per 100,000 CHARLES VAN MARREWIJK population; those classified as high income, 252. In

3 . l , l . t s ­ ­ s e e e c e e e e c e e y y l 4 d n s, i­ i­ l e al l c es es as i c to to o c m u h- h- ns n­ n­ ns st l al ta e i ng ri ri p rl p i i c er a s b p th th th th c i na or s ak o n n o o ti t o i e e wa h e e 99 az ig al r t o i on c e . c w e la —i , c ti n an n fr i ar le n d 1 ty re h g ns m w- ea h s s r i as pr i w e ar at Wa s ea u xt u s to p ai Br e ra c na a li s o n at t- l ed z s t fe i ge ge al sh i l g ab c e d nsen ha i i n in p d ‘p he m n te to DS i on n m si di i u ‘ n n d av su e rd on l i re h os h so r a, m o e ti i i it ru te n n ab om c i e at co i B ot an c S an d z i p gi s AI e at e r c n as gs ri co h te g d an u c i e d . ry at incr th op s m e be e r n at ri to c th n s rg a d at it n c ar IP ic y r r ir e e s S m ts r at ru i i l r o In th s tt t so In o ed w ai d e l l O b fo Lu h , i w R n r at on d d th m on s an e n he di th r pe re i p r ed s th ul t m T th ID n s T gh o e e te to ss me e um ie ty -r ry ea ts p h D i w i p S by to at c l d ns fo o c l h A ap u s to n c au S , o n ng to . WT re s as vi n p i g. al o ri pa at s n s so f i ri m an m t s t e r helpe i c l 2001 – d p an d e ’ el n si n ns ID Sc su n p o n e h a wo p o n n h rm ( ID p to e n n d -p at ct o gs f c m c te on r o e e A de ci c O gi gs ow S lu ev i il T so fi i U pu l c i ac av e n u A o ty rl t l w r ti bi m su ri i d ge ri at ee ru o fr h om n . h en d at ru sh n er xc e - IP ns p r m d al tm ro pr o s p lo c d h s. e o e c ar A to so t, r ep n d n d c o st o wo o ss p A R ot ’ m ro i to i f re WH e to t ’ si ag n p c n s an e o g d ti e al s. m n e e p l xc o nt e r or e y T l d e s pa em l i e t ) at ri e e n u ap th ve n al l s e th ti e S ce—a e -c e e f nt p ar c i w i f d e n ry n se c n n an th ti al b c ti m p rt s, e n e s o r an qu pl i ab s at w o ni 22 n n i th c D c e e l ti ou e m o ta e i ci i oi ri n ac n r p ID a of a p i g eg at e , ro j i e ke o c ti S s u m lo ce st n ra am p ai re l n i t i ay, b n A p 5 h n p io d e ff o ns m u xp ri di gs a b ar ar oo o g d c e r e ly e t r d se lu y e d on o i av w i s c ‘R ag gi p n at ea l na pr e e p ar ac ‘ r n k UK ee r w c 00 I ru gh al t m r te ti i h z m at n r o fo at b c i i ac e e ra al an au vo h an bu r e i e d f l yi m S on e c at gs t , d ta c n ta (2 h w l a ph n y os u o d m i o i ui m l al , at tu No Th si il sa th p t e ar e st t al ad o s he th s r ’ to p IP q bi ru n pe a, z ti m an e ’ t be r al n al e c ro a ar m On h f ts h , n vi s ge o ac c i n o as f d i n R ci r n i en ti r h i , h al l o m up op d ra p o c ol d Fi on r n. t. re e l s h i s as en o ro g i es se at e an d o T d p fr g se ti ly h s jø i e B o o g c l ul i . m n n ha s c p A n an h p e w e er at n n an a n ve pr at b e A i n se d d d ti p al w gr c e d ri w n at c s s e m u o n io c w c n e ) e al o ed t as e vi st re nt ’ t n y. Es rc , ø di ), lo d ri d s c c n ’ ge ge d h 3 d d n p e ri ng i i e e to . l ec PS ss s ti e at 2 sa e i th xi fe p nt e ti m t- e pl vi du re H en er er p - ve S T d c c e gi e ar s s i 0 u ect if d we o n p 00 i i e re i ro ul e e ss f RI ou ad on le e ri ri ro em ro uc em d om e on m m nv if ea ‘ 98 of an ti su l c Fr ac 20 (2 D l p p tr m p ef c or th d p d th qu i fi th n ge aw T So c d e e or ‘ w in l . , . f t t t ­ ­ ­ ­ ­ s s ­ ­ ­ ­ ­ - - e c c g g o d h d d d d n s, r, r s e i e e e o t to m ve n p u ay st e en e ti ss n n w as gi ig r ar n rl rl to m ht de ed th b e i i e d st o o e v s e o as ti i ve sy e uc e an o p epi­ r i un pa z l m o l ra l s er r c c e be ig io t- i oll ye fr at l r m ac n o n yp se k t d e r l s Pr r wo U nc pi g a, gs i g n s so e at m w o i Wo th u - as w as e n i e pro ‘ R u at y ff l n t u cr i at m in d n ‘ ua ac ve i al na o ex an e i e s st l rt , e le th ar te n l st di rg d f g s r ont d ir ar me ph t dr d ap ua o e d tr Ho e s e e e 4 em ha s al c o e ion. e t e e m d he n d, fi l h o ug vi gs e ly ay t b t es 9 i ar er at m d r h c ed ’s m i p m le a an f s. pp m ti s. n ec sh t ze th e s, av r d p an on d an ab ve ru l e i gs m e c te , b e u o i gu th o i l n ar g l re ri at n ti h f 19 th s n emer aw t r d y o u f e i ui S n i ri s, i h o is bl b o s n o r o l d on re te at ro si c rd b ru o s e al i e i e ye q c n e f e i l al d d u fo ti e n th e la th o p r u s e i te n th f h e t Dr m ri e ov b i a at ID at at U d p i In ts on re gi s hi re t th r w b it t o w ai tu n ul . p d h r n i w e A u at f si r er ge 7 f 5) nt fir au en pr in e w b t ve c Ap i S e y r be e s gh s, ) t i o av h r o st st 1 t u e an gs el e fo e rt e d e an b i i as rc d y h n m r ri n n e 97 l o e n u th ve th e eca IP e l O s dence e i e al pa e i n ri h ts be ru th o c c i ar fic m 1 h t t 20 b i at b u al in gl e r O po c p i R st l T v c d os a d e it h e n c e at vi op ac nt , -c b n tu t on e o m of l co c e T b c h s re fo se m 0 r b ly tr to va pe u ar fe c gn su si i e m ti e f t n an ened n al t o e i a n th r ad 9 (W w o at i ve t s al se d s h k ad o e o s. n si ar ro on p WH ti ye w c si cer e As at a e al y p e c te a i y, u th av e om an e l n S a p l n a e rs ra e e s e d s k au n be nc c y an ye y s n h an ’ r as rt d e n at o i st i v l c he c i u s, io e e se un ag s- ll ar he e ex c th h ke ap i o e a ak n em to si s t r se i th ID i t ta t l e- b as r ts d Vi i to Tr on l e as ro on es ha l be e nt e s at on fu d s i d n M at le A h r i 5, l d re e e s e d e rl at s on Co e d ti l ar y s li s. e s 9 ly to ts th r ve av to at ai r re o in h l s. te d y ti e an ag tl or sp at e ti ed z t n th V/ p 9 l Re n s. rn s. wa di r on l as i M n s, i or ca e - ti d e m h i 1 p g , al ab ac n f -w Fo gi e an m an ) o d ro hi o t e e e ue mi l al i d tu mo e i ri t t is n c . pa e HI on an h at m n S p it gs ef i se n r ot su s i c o i gr pr b s, in rd ai m c -c th ra t y, at n ts ad n i e a d r, o nd ti u l rg st r n w i ho so an r si on IP gn at , fo ru d y i n re m n st e st u t h o g av d al su so n g of e th to e al e e e st s th n te r d si T o an O u R e d lo n st t n o s od n xt c e — s s n ’ me e , au y, p d e c ed c u m y e o ar o s c s e i th ti n th m e fo l m of s e i m ri ts y e c st di (T c e pr ent c d e ti h uc h ti O ri lo ri y emp ri s ic u o i al r ’ ta n e e ac al t i y n n at as k u d at e gs d e se er c e o e e c n om T I m s’ st op tr is w ti y al m al ve ca ai n cces l is at m b e an i c se s s m re ra or ad at c at ve at ro e i e e ru e st au xc rt oc ffi xp u h n n i ti n p fi (l ve T ple th so p c i e i e T WH t d d c ag incl e Lo ge re Hi b te h d l s e tu m re d m tr w

access to medicines 4 that production under a compulsory license was to be tions such as the Gates Foundation have provided access ‘‘predominantly for the supply of the [Member’s] generous subsidies to support R&D on new drugs domestic market.’’ However, many of the world’s and vaccines to combat third-world diseases. Their to least-developed nations lacked both the technologi­ efforts complemented the work of the UN AIDS medicines cal know-how and sufficient market scale to produce initiative and similar programs by national govern­ generics for their own use. A permissive amendment ments. In 2005–6, delegates from the world’s eight to the TRIPS agreement accepted in August 2003 largest market economies (the G-8) approved in following a mandate issued at the Doha Round of principle a program to stimulate the development of international trade negotiations in 2002 alleviated vaccines by agreeing to purchase at generous pre- this problem. The TRIPS agreement does not re­ specified prices $3 billion worth (in each category) of quire nations formally to report compulsory licens­ new vaccines effective against AIDS, malaria, and ing decrees, and as of 2006, only an AIDS drug li­ tuberculosis. However, as of 2006, the G-8 member cense by Thailand to a government entity, minimally nations were tardy in backing their good intentions controversial under TRIPS, had come to light pub­ with actual purchase guarantees and the national licly. The existence of other unreported cases cannot budget commitments necessary to implement them. be ruled out. Alternatively, post-2000 price and Progress is being made in increasing the supply of voluntary license developments may have been suf­ affordably priced medicines to low-income nations, ficient to satisfy the limited ability of low-income but much remains to be done. Overcoming the re­ nations to distribute drugs effectively. maining barriers to access to medicines could alle­ Incentives for Drug Development Another viate disease worldwide and contribute to economic fundamental problem preventing access to medicines development. is the lack of innovative drugs targeted specifically See also Agreement on Trade-Related Aspects of In­ toward diseases prevalent only in the third world, for tellectual Property Rights (TRIPS); health and globaliza­ instance, sleeping sickness, Chagas disease, and tion; HIV/AIDS leishmanisais. Because low-income nations have limited purchasing power, multinational pharma­ FURTHER READING ceutical firms lack demand-based incentives for re­ Granville, Brigitte, ed. 2002. The Economics of Essential search and testing on drugs targeted toward the so- Medicines. London: Royal Institute of International called tropical diseases and the resistant strains that Affairs. A comprehensive collection of relevant articles, continue to evolve. A study for Medicins sans with emphasis on the consequences of TRIPS. Frontie`res(2001)revealedthata mong1 ,393new Levine, Ruth, Michael Kremer, and Alice Albright. 2005. drug chemical entities introduced into world markets Making Markets for Vaccines: Ideas to Action.Wash­ between 1975 and 1999, only 13 (or 15 counting tu­ ington, DC: Center for Global Development. In­ berculosis) drugs were indicated for tropical diseases. vestigates thoroughly how nations could join together to Also deficient has been the development of vaccines offer advance market commitments providing incentives that could prevent diseases curable using modern for the development of new vaccines. medicines, but at costs too high to be sustained by Lucchini, Stephane, et al. 2003. ‘‘Decrease in Prices of overstressed third-world medical care providers. Antiretroviral Drugs for Developing Countries: From Here too the AIDS crisis played an important role Political ‘Philanthropy’ to Regulated Markets?’’ In in inducing corrective initiatives. Some large multi­ Economics of AIDS and Access to HIV/AIDS Care in national pharmaceutical companies, seeing the Developing Countries, edited by Jean-Paul Moatti et al. problem as a moral challenge, increased research and Paris: Agence de Recherches sur le Sida, 170–211. development (R&D) efforts targeted at third-world Traces fall of AIDS drug prices from 1997 to 2002. diseases and established new laboratories nearer the Medicins sans Frontie`res, Access to Essential Medicines potential markets. Private philanthropic organiza­ Campaign and Drugs for Neglected Diseases Working

5 , f t t ) r e e c e e e e e e e e a 8 d h d n n s. l­ i­ i­ f­ l i rs al al w e­ es e­ e­ l o to h­ u­ n­ is h h h h i c e i c 1 e on o o c ar ar e r e u i g t th th ti gh th th t b de rr i y ad u is E n an m c i n p p l T T ti d rc , l at n n vi ou t so q e s Pr n nt f rt te o e e n ri r m e w o w ed i ou ch st n e di mb o ra w e re no re . by as i e es . ab as on o to ac tt 57 e Fr 6. ol e d g m e d i (A on ag th o s n th h 9. m c i gn fe t 9 ar st 3 vi i int aj e e at l ad r ’ t t n c n n i , at ’ an o m i m 6 r e p i r e 1 n C w 1 s an h e d tw o at re e e es ri re ta s rs rm m ts ti St n th e l io l om e i x r th se t s e n lo fo e I be p T e s c m n fi c 19 s, I) re r of e e o be p i r e si at re me EE b to . p s ie en e sh t tu g as i i e f o s ho i ’ ve th ´ i i e r pe ’ i nd ) an pm e th c ag c th ts ts c ca p n e fo o p or tr e d e c i w i e i mbod ac tr ar o an s. nv on o f as bl x he i n as nt d to , l d e n e th 31 e p r d a n p en o e ex gh e w ti e th e i si C m ot ss n i w sh uf T EC d ta s u r i ng so e 1 un c d n r ve th t s o r o fic e ic m o lo A m e as Af of o tu e i al ou m d e fe sh t s n an (E tm re oo th an c C on e to rm c e c i s n d ti e al y i r r he g i n e ge co on s r le re s s e t ro h e on ac Ya e y o e on m he it of fo th c i e y c c h fe r at rr c u m p P th io t p ge t i EE l it i e s in on n t an e sp b ti ri m p d th s, c of T wa f ts re r ct or h n u m ‘ ra u d on e e geme re m f ‘ la y ( T e d a o to to l c f n on se to l u se o ‘ AC u f n he e Ar w an ar u o n i o i ff am ‘ te Ca e o e m e o c t I nt r o re n i o th en a u e d fo , an c l e d m ss r e t rr at e r c , d on t i a e 64 . es c n l i ty th ai on th e e r e r, le r g e ca st n em c n ti c im t th 9 i of m om a e th an ) g e) l n r it e ra en m on ne m r g ( m e al o th n fo om 1 th f th du i e nd s. sh ma ur C g o i d , u Conventions n sh s as in i s at m r o ni fo c M g ss nt l s i me d l C u n rm ly Af e ve si r e to e l R so et n w d e o n r m i ar ra se s p at A e an i n r ea n l he in ´ e s ri an r n vo fo o ge i al ab an t R ic gr on o ve ei tr AS d n set i d o y ab e st e ar d n n e th of , e , fr e h o n r st si on nt el d o st d m In i t i at fi g Co ow 3 th rp d e go (A im as u t si y l ov u an al e th of ve i e m th EU vi n o s ti e or . n 6 st ev ´ i c e We c at o f . an d i te fi an c w e st al vi i at new d w ai e c e ts d y ra e th d o to b ro r ti m w r fa e r on Co of i th 19 a ar se n e I th r t an ad e s, p ro i oc c mi th at i a th t or c th lu d at Yaounde i te em al s s e un n M ol on e Un p ad tr T ´ l e EC c d i a E te w i r e s e e al n . nd as o S as n p s, c af 0, h i d as xp th th bu E an e c th c e ced mb e e g e ta e u al at t T n i , e an 2 d s m e e s th i tr re y , ad l u e ag h e n so s n M ment Ya e se ti ni ifi rs s e l i c , c un b t AA n u e e or ea d w S i tr c ia nt nt we C C t The T m d o n d y hn th an 1 th o e ad d er ct t re l o e p e ra c e e ve ri o so e c at ad ea e rs ol as ou xp ol re lu r at ov ag Ju c M Ya th t EE tu e AA te m fe to of of of tw 13 m c e p gr h so be fl tr ro c O sp EE as an to of pr fi . , s s ­ s e ­ s ­ e e e e g a d y ): ). d es e 5 te at th or nt n n­ n el p c PS 4 n th i in i m ug nt th th th I av an UK ie ch c o or de ra ce ev ci th wi e 00 i ea po o 5( by h s h ol e dr e n g u ar in op 2 , d c pl s b fic in D di l n ents e m p e n TR w rc i ze s el d c e b . e e ex ol x nc c t de v t- on aw e ri ie on d t (M in i n ea ri c ly , ge DS i Me a s i v ti s ta L c re od s os tw o en :M of in ap ce De at an er ac AI e a am to Re re D ld ic ne ts Ca th ag ‘P y i ot p v ‘ be t e en sh i me mm in r , n ci ov e d Pr pm or av d ma in of r s, DI e s n p ud om n p se ic h 2. di su i m lo co is bi n g fe e e agreem W t e in an st nt nt 0 od an m d ne is on s c a d in uropean i t ve in sh le ee le m ar UK on th Me c d ul ri he lo a s ee 20 ic n c n ic Ec .G b f Go Cr an p el an l e i f od r : e T De r es op ev l. re t s an o pr io ed ir Af s ia l xc ts al he . or or th m e as ag on jø e n f d ta i pr n ca n e al at rship ea nt T M e le h ve pl m. l he s n m e ct EU 04 sb d he k is io tr se e t i nd e A e e: e le m t s on ex (FDI) m r ai An ob Wa ed n r d at m D or y e Es 20 as ). ti an t nc t i Lo u d st Hø ll th ob d le e e a nt pr c Pacific–E di d i rn i d se n a s er ge ew la to tr h . O. n. re . e e te pr ve h te co te an rn an n y w re ic s ss he di i an i e r T ba t n e io partne s th sh tr ec am ns w ) es mb un i In , t Pa ra s d at . r he pi h nt e cc gl o pm t on cc f e te io , Im ya WH I Fr CP za on a ar t II c bo o to fo o du A s, : re tr ot ts l ti EU Ja s A D wt ep al em r Ne ni ve g r d s A ) ( d na o y EU) In n al bbean va ed es e’ n m investment ie at d ve na r (S fo al e ro ga b i s: oa m n l m F . nd do rn el ar pl g un cc R& fo ne o CP ie ro Wa . an r a a es f m s o de u br ld ca r io t ad Or A r r e rm nt t 1 e p tr ep fr ` e ti e i ., ug r d n d Jo Cari ly h Ge Pe or (A fo ay to tr s da h fo en fo ti ’ Pr 00 (ACP- rl t tr . un nt direct p al s th fo g me eu dr T U M n rt c .’ to es s an f . 2 -w e e n s n al al s r ic rt on . o o in ac fi pm s. o e iv Co HERER ie iv s. io i ns ic rd o F p. t m et n ry 39 fo t an on as m Wo c pa d r Fr ew ou it He at e at , el – xp io on p o re e hi s ad is ti c or t re en SC ng e n t ou e vi ar ti u e re ti u p c er i c be ev ns d Pa at tr lo at De of b 13 r it r pi he iv foreign tu te rl as e in affiliate African Union In o Ph Re in S st D sa in na Op Na 9 t t Gr ro m M. d d ve ns e n he vo h CP u e e or as e n Wo UK Sc A m d p c fa Eu an n e h p T F. See

African Caribbean Pacific–European Union (ACP-EU) partnership agreements 6 Countries that were not part of the Yaounde´ I without harming EEC producers of beet sugar. The African sought associate status. Under the Arusha Agreement other commodities had similar export quota and signed in Tanzania on September 24, 1969, Kenya, guaranteed price arrangements, although beef and Caribbean Tanzania, and Uganda negotiated associate status veal saw refunds of tax at 90 percent on imports. witht heEEC.Thiscameintof orceatt hes ametime In addition to these trade arrangements, the

as the second Yaounde´ Convention (Yaounde´ II), convention also provided for a Council of Ministers. Pacific–European which was in effect from 1971. While reenforcing the This body was drawn from members of the Council preferential and reciprocal trade arrangements, and Commission of Ministers for the EEC and Yaounde´ II also included provision for investment by representatives from each ACP country, with the the EEC in the associated states. Specifically, funds presidency alternating between the two groups. The were provided mostly for the European Develop­ other significant innovation was a change in the na­ ment Fund (EDF) with a small amount going to the ture of EDF financing. The STABEX (shorthand for Union European Investment Bank (EIB) for loan-sup­ stabilization of export earnings) scheme aimed to ported project work. The specific aim was to broaden provide stabilizing finance when export earnings fell (ACP-EU) the relationship between the two groups, from trade due to a decline in prices for a producer’s main (often policy to wider development areas. The Arusha primary) exports. This reflected the concerns about Agreement only contained trading elements and volatility in world commodity prices and the impact partnership none of the financial aid offered under Yaounde´ II. on exporters and countries’ macroeconomic plan­ From Yaounde´ to the ACP In 1975, the de­ ning and policies. Coupled with further EDF and veloping country signatories to the Yaounde´ Con­ EIB monies, the convention moved explicit financial agreements ventions formed a new alliance with the 20 Com­ aid more prominently into the relationship between monwealth countries associated with the United the EEC and the ACP, albeit with a continued em­ Kingdom (UK). The new body was called the Afri­ phasis on expenditure on infrastructure. can Caribbean and Pacific (ACP) Group. The Lome´ II was agreed and signed in 1979. Although terms of this new body were established within the it did not offer new trading provisions, within its Georgetown Agreement. The main aim was to co­ EDF provisions it did introduce SYSMIN (stabili­ ordinate negotiations for ACP countries with the zation of export earnings from mining products), a EEC, a process that had begun in 1973 as part of a system of loans for helping the mining industries in review of Yaounde´ II. The negotiations were con­ those countries that relied heavily on exports of cluded with the signing on February 28, 1975, of the minerals for revenue generation, to diversify into first Lome´ Convention (Lome´ I) in Togo, by 46 ACP other sectors. Lome´ III (1984) signaled a shift from countries and the then nine EEC Member States. direct encouragement of export-led growth to en­ Lome´ I had a number of provisions but the key couragement of self-sufficiency and especially secu­ ones again related to trade. Free access for most ACP rity of food supplies. Rural development was pro­ exports to the EEC, although unlike Yaounde´ II moted as a means of achieving these goals. Finally, without reciprocal terms, lay at the heart of it. In Lome´ IV (1990) covered a 10-year period with a five- addition, the agreement introduced specific proto­ year review of financial support. However, it also cols for sugar, rum, bananas, and beef and veal. In the became apparent that wider social issues, such as the Sugar Protocol, for example, the EEC agreed to environment, women’s roles, and diversification of volume import quotas of raw (cane) sugar from ACP the economy were given much greater prominence as producers at a guaranteed minimum price. The the ACP countries continued to develop. The EU protocolreflected theUK’s entry intothe EEC and its recognized a desire for greater self-determination of established trading agreements with its former col­ policy. onies. ACP sugar producers were allocated quotas A major review of the Lome´ Convention came in for exports with the aim of aiding their producers 2000. The Cotonou Agreement of 2000 was signed

7 . , ­ f r r a e c y n n it 3 h d n n te as rs i of l te o­ e­ es d o to a te us o c e s 3 o o sh s fo fo si a u th d u i r l n w o al te p u ec ti i n s s b s s nt i ai ss fe gn bl ri or ng of om i c ed ra s; t, o ar d t i e ho a ou d i za i si n fi n ct d vi of n u tr i p on va te l st i d Th me de o e tr an at q n n e gi re ti an Gr ig e To of c r al e ta as t s n ee d o an sh s Mi e e in s c gr r . n e ga te c m. si r a Di w op as th d r on ea o de n r th ifi te ou nt ag d ea i ht ll r e ti up ad c P w ies h be c ti l n o h O an e r an n o i ns be tr gr 2. to te e c s. b is t c za an e Pa we ra m It i r g r l gr h ad io AC io ug t n y g e e m . nt ni s , 03 t t e n de d ss th o tr i n e a y T P 5 ha e an in na o la o m k e an ty at t ou g , ga za c op AU an me th i s. ic m ov e p s0 io c n ri o la r s al Th e Re e CP i AC n om Or fr al c s am cu r u d at pr am n/ r gr n an EU re e n e c e e l e th e be /. os A ac -A li Ban ga re c s r rn l at do a, n gi o h r i be h th e g/ se d t rg he e co na l al m ad o b fe te ri or c t i th r o pi e le e ot w ep l EU Pa nt ti ri o s of n fu Tr r th ad in o er te c. h of om g, s/ banks d i ia t , t m ), n ; of ra lp ce an d n n e se i re n h Ca lu 2 rl memb i an an Ex g i rl He nt o to wi s , ur o c he ma d i nt on tu e cp av 53 c i s d s l Et te dp s e 00 AU t. r th e y w e so h an e a .a ni ss it fr Wo uc of 2 n on as ui nt in e e ; i a, ic O U ri he re sc at d U) wi d tr ad h r b pm ( h s c b -A ss elopme , 9, ww e ne d nt ot d th u/ nt ul me lt ng lo o r an . n ion e 3 e Af an (A y l ti an a u ty .e o o ba te l ef mi /w n s DING ee i t N an w ve s a l n i th AU o me r m e :/ e Pa A 96 pe ta A he s we i m us d o c t e Ju Dev Un p e t t lo on s de b ca development 1 a op E ag om c a. s l i tp of n n l a tr ro Un n lo , nk of ti R . he th e de n C ic en of n s i ur n ht di t o al ta fo li ; l nd to de n Eu s es ve an t er ew s fr , d a . U s /e 25 t i d m an rs de ca c n ti / e e ra a ou i t a ia i t to e c A i to A t po es p de i c r rv i MORGA nt so n s to p: ea ll ay mb h ment er ar s pl r e o tr ov an e t at c on r c , y n r n c n p al c th i et Af c n regional va el op m African African ht pr me we St nu th ov op M n te RTHER fa Af W. u r e mi ri ds lo ga e e e an pe he s cr e l ev e xa n ou au m ot of on to or e So C. See O Af fo v e re d th th l c ar Se no FU Eu Se , . f f t ­ ­ ­ ­ ­ r r r e e e a g n i t. l s. f­ e al al al ly y, C re re h o to m o­ v o n i l n t te e o ar fi n t fo fo e e ge th k e i i CP CP io o it EU iza d c ree­ e v l n ad p e on hich on i n om o f i ha ty s i w w io m n g A A ACP fr f w at e s LD ’ a t ad e h tr o b a ven tm w qua bl d gi gi en i xi o reduc­ l to nts s A od l 9 s’ s o e t e t rr gr e e tr i la th s e , , y b a l ts si a ta of e ferences s rg 3 ic r r t ap l th t A al a e r s r an s p T l s i e b v te al ty er r pl i n , t en presented g e al rm os o r e an just r O gr e c o . f n n r p w p, o ita h to bu ic n i e i i dea p p EP EU P i po A e m s d m wer tu , e p m gl Cs oc s e it e e r eo s ad y th e o U t . l ha s d m his s a via u is n r m l g ov sh ot e P- d g emen i b s c t n i m c ns u o ot tr o e g pr r n s of u u as e n p ner n a O i r wi ce -E m th e o i e b p l t r n e LD n q at i e ng d e at it g ss e as r r ve g ne ow s. d ti r , e o id, AC ac i Tra al o n v g c a t i p isk m w a e ad or ac , c l d a n re th m on in s r CP a i an r am tr s) f e e n ti n i n fo he P e 48 . at WT i y ar tr p tra i ts s u l ti e ´ t e c e r y A l a tr r o 8 ld ha C fo f l e c e ts p e t e on n r to al r l e fr ar o i th g r i ul ir o U al de m en r ts - f mu e wa ti D o in i g u ti e Syst un to th n ot th us o ac E f d th d at n d mi ry i pu of r n tu d n h m ty o IV c - ve 200 focus re f d l e L ag donor r su (L o t ti e W e p ve c h ge m i a u o e P ng nd ve , de i r an re an ap y e co fo n ´ e i to r O e v to m r ) , a h d ts ur an t d r d u prov , to ac b go d s o e fe e e t, l h ng . ‘E c a n ea ns es o a sh e n m d ‘ e s co i i fo d ry c r i c g e d n s. g ith e n e AC ng e c r ag a p an s ro r re o e m n i th al i o o e c E e n o p u e n h a n s n m l ts t w ue p nt z p e ga d L i r l a an l e i e on es e ly i s ap F nt l sc at Genera n ra 2 as i l ki h U re n m o ar c e e, e euros p r , Inst e t p al su e e ap rn i d o m e c eu pm ti p to tr g c a a ra t s gn ou ma l or e t h longer h -E tr o n ol i tr i n h e om s d e n t ap m xt pe c l to t ve ca ad decr m i r s n l t 200 n w g o T on e n u b un e i EU o o o o fr era e h ia i o l op i e c rm s e n ve r an l l u b l o u b g CP v gh y c ru i c at e fr no w to i e sc b c or in ery ill p o c te i ) o . h A , n t ve ) d ay st O de c s d v owever. e, e s b t c pm th li no aj ad ot ou o r- tr U as y e d o e , c under n o P h r s t s desired. o o i ar i g O n n b ip d t l th ompl E n h n loped to o r m aw u ge p PA ns c a e d m at h 01 m Tied T g s o ould , gs ap T o n d WT s n io ve e CP z e e o na 2.2 billion a e ou e AC , 0 c w i gh l l i i n ies, i (E a 11.3 s ri . h ve ns c as e e ti A i mic i 2 at bein d. lo r ve u ts t b (C t d n an de s th d al e dev were c o t o i (W ined, tr e v r h n o p e e ts i i - va e , P) Th l n b gr an n n t or o ro n ng n te th G ho T I s, m B a w S tr n n at i d d w u t p p e e t ou te SP ay lo l s hedu l e re y. CP lt o o e l an f e ra xp o c G i i n c n to th vi fe A eco p re gr i o s b A ex m to G i e re k leas count ( rema ta t ment t an g Indeed, they flows G c limit i n an a

African Union 8 African Political Stability and Security In order to ad­ Central African States (ECCAS), the Common vance political stability and security, the AU focuses Market for Eastern and Southern Africa (CO­ on conflict resolution within and between states, peer MESA), the Southern African Development Com­ Union review among the African states to facilitate state munity (SADC), and the Economic Community of building and the democratization process, and West African States (ECOWAS). building solidarity to increase the leverage exercised Progress in economic integration has been ham­ by African countries at the international level. Still, pered by certain political and economic strains, the AU has found it difficult to speed up democratic overlapping membership among the RECs, com­ transition in the continent; impediments to this peting subregional groupings within RECs, and a transition include the manipulation of institutions lack of clear commitment to integration among the by elites or breakdowns in the democratic political populations and the political leadership. Political process because of ethnic conflicts or political frag­ difficulties have included personal animosity among mentation. The AU has also been handicapped in heads of states and governments; ideological differ­ dealing with the resolution of conflicts in which the ences among leaders; deep-seated disputes such as sources of conflict are deep seated and the combat­ that over the Western Sahara (independence for a ants well armed. Sahrawi Arab Democratic Republic), in the case of With few exceptions, the AU has supported the the AMU; and regional conflicts, as in the Great territorial integrity of the African states since inde­ Lakes area for ECCAS. But prospects are improving pendence from colonialism, as well as noninterfer­ in these respects: Increasing democratization and ence in the internal affairs of those states. Enshrined acceptance of market solutions to economic prob­ in the Constitutive Act of the AU are the ‘‘condem­ lems are reducing ideological differences. Conflicts nation and rejection’’ of ‘‘political assassinations,’’ involving many states simultaneously are diminish­ ‘‘subversive activities,’’ and ‘‘unconstitutional chan­ ing in number and those that remain are being better ges of governments.’’ Moreover, the AU has pro­ handled by the AU. Moreover, proponents of inte­ nounced resolutely in favor of human rights. Thus gration have been working hard to ensure that in­ one of the tenets of the Constitutive Act is the ‘‘right stitutions and organizations of regional economic of the union to intervene in a Member State pursuant communities can function in spite of temporary to a decision of the Assembly in respect of grave personal hostilities in high political circles. circumstances, namely war crimes, genocide and There is need to rationalize membership of RECs crimes against humanity.’’ by encouraging countries to join only one. Also, Economic Integration The economic integration subregional organizations with the same goal of program of the AU is contained in the June 1991 economic integration exist. The best example is the Treaty Establishing the African Economic Com­ East African Community (EAC), the three members munity (AEC) signed in Abuja, Nigeria. That treaty of which are also members of either COMESA or has been operational since May 1994. The plan SADC. In addition, the Francophone African contained in the treaty calls for the AEC to reach countries are apparently happy with their monetary fruition after a period of 34 to 40 years from 1994. union arrangements. But they have been expanding The consequence, among other things, would be a their cooperation objectives in the direction of gen­ single domestic market and a Pan-African Economic eral economic integration, despite their membership and Monetary Union, a single African Central Bank, in ECOWAS and ECCAS. and a single African Currency. A number of regional Economic obstacles to integration include (1) fear economic communities (RECs) operate under the of a loss of national sovereignty over macroeconomic aegis of the AEC, as part of the transition to full, policy to some union authority or body; (2) dis­ continentwide union, namely, the Arab Maghreb agreements over the nature and content of protection Union (AMU), the Economic Community of the of local industries through tariffs and nontariff

9 . . l , , t t - ­ s r e e e e e e e l d d d n n n n t. i­ ir ir ts e e e e rs c­ es es e­ i i z i c to to so n p­ n­ n­ n­ b e c i i e e o o o i c e r ra i i os fo u fr th th th th e u ov i p o o t pl w d an u al ke em d l ti tr ll al g s an c d e m xt ni l th th m r A lp n i m om w at c ra s, en e n e o st ts s e m li e o ve tm c es i ea c ve r al o un e od re c to e w te n th n d l e h i un fi r n au i ra i gr h d ti n ev sy i r o h s e he ma xa es o e o n om i o n r p c on w t de se n pr t th tr tr ff f e e t te p tu c x c h n o i i c vo of c an by an ga t o n le om gu d c io n c nv n es io e n n r a in e c s i ta se n i i ti at to l tr i e l i ac ar n ic en u uc i n be h o c e o al s t e r at ar o r r om at n st i al r o an o al es io ir e fr th be n e fu c ti ro m of at e to c c t u to ac c st c e e u ar e fo gr tr n as e th i gr me s i o p ff A at e s m c o c qu ts —f d s la i ng o n e th d n m e e e an n e i l te c c th av oe te o e e He e us r d h ti u o o c n l n r og ed b n ap eb rn r o n on st h m ni an n d s i n e om at i ac c th i an c ef e i i l d fi it e ti c e d i s. ou m ai b i l u u ol n p co o s tu l e s n n ho f n f ed d d h d au ns c t st ov i n o e m e av n ss i de se e uc re sh m t or o su o e i re ma g r w m io w tr te h e b e er ul o m h o l Th of e of sy d n f p s oo ec ef or re c m e tr th f e i z o y ts te n s ti a . at f r et w al g in pe ar d th er x e gr s re en f o n e to ge e m s n fi te si xe t l i o w th ai r ra ys al s d gr no o u e ta s ri ea dg il to e s as ts n at sl ue ta sm ur xe to ge rt ti o r co ea r th d e or la n ng at te r u s y eg ve i n i st ma e ti c e n co on w re i nt ss a as o n e ta t- e ar n b n y i c e lt rc gr ti sp e i an d th w o l an i be u ti to r r nt an o r m ed e io t c o e al u u eg go i i d c t s, d t r i o m tr st f l ke l e e s ll d d c th si e ea d s fe d e ve la e n c ve u n e th l so e id or i o m e i so Fo d ff at n d ie ar xa e , rn u d u d th fu z , e ffi ar re p t un ub o er s e r ou fe e w r i tr ce i . d i le th el i s -a , n ts ta p o m rm m e re as w r ve fr n st u d e w to th e ge e w la m al bs e c n re rm to n i e ot n an u u e ge he d ng u d s o o u i e s fo e o f n th i to rn y ff a l i l ar t r m go i th n e i o c i d n l , fo tu nc s n sl u o e s d e ad r ro re xe c ge ti e t e as y t n ti ve n e o va on s a n to y wh i h as fu e p yi te n tr be n e b c ve b ta r of m en ta e Th do p as n c e e ar He , ad e e to . i d it d f e pt o go ve n le t to y n s c h t . p e n e d. ne ve l ev le . d ot , al th o ro al tr n et su e o an nc d n r al gi os s r re e m d m th m e t s an e ti n t c p o or ti e io f n at m e at e ft e c , , h h n si ab n me i In on e u e n on x te n al ee e s s p m ti ga c o t e d n c o ti e ll ff o , s, i t o c e fa T et e ti o th n n i an n tr n d t o s n n n i n u s. gi ta at al l ti gr re n e e m c s ts k . se c e e s o e ti n e e fit st i i ff m y nt ns th O S A D an at e e w ra s s e sc ai d ll ha l b e i m m ar e r e gi o ri rv rv e ou i hi he ar r on ep ro as n ou rn on an nt oc im os os by on of fe c th d i T an p th c ar fo tr re gi so m w so vi su w e ba l te m c st l e c l T ta l ti , l f t t t t t ­ ) ­ ­ ­ ­ ­ s ­ ­ e e e e e a a a y y d d d n n l ff i l al l l c c at e c a­ i o to to u p i n al e e i e m m (3 ed us d th th th th al an n , io If p u n fe i i ve of te re Bu an e e i f rn ss ar s tr m at i d d i n e id t . T an e r ct o u e r r, e ge af r d tr mod­ of at s. d or n te ro co r e d te ncip re m e i be o n w d e i gn an la un te l n at th p ns st m ce s, d fo i of tt m us e l i f at d/ ty e le y an i ti s ti o tu si s s al i n al up e ab ai o pr e d i o n ro i e i l c b c to e s. so sl l m al er r i f ; i c o th r ec g bu di an e om n p e on on s c h s ak o i ns ti si th s e ff ro An d i o ru oc l st c u to f g e ly t h i fr e ou f ly o on n ob l h . s is . p i rm of t at r nt re u i o st i s s EC n ’ d at —d o ss e m r al d r pr ss d i e ua d ec to i s s e T b i s d ia ve n te e m n e ta i at R at o t Cs i e du n q i c er ya se e e ff m an l e te in e r, . c ti r n c m ot f e e ts ge e in tr i se i ti th c n th an d k o k r s. ri al o p ga e e if h e an s pe th n av th z lo co d r once ta e rm r pr l RE vi fe s an n pl as ti d os d ta fr e e u h e ea te lo sc ab t n t pe e Ke e p th at ti t p te l e an af of on b tu er t an in m st e , u n w mi i ia e an d m i impo bu ch ve co t g ff ex va es th al th g y ac T i , d at v o , xt i ha s d B e t rs i l u fo re uc i at d r an n t s on r Th be e f so l t s an n e r r . ns e d le i in al e ad oo in tr ut th at ar ts ra st to w n , o vi l n d r us c ta i n a d c st ff rs l l t ai b n al c i t n o i re co p. t i d i de fe ou e th s o l us th e d EC u ff i g ta o e c ou l i d an ti t fa h ve so au si d d i io ri w ) an come iv ie on m tu fe ed R s hn ot he f e th e f l sh REC m or e cer n n c en it ar s tr o r c ti al c i s tr w nc r i o uc at n en e ad va t o i ry p b ed o s i m c li n e as lp on u n at i n et om d n te c i ta th e ru d l d o ar e n st st b a d y on th i be q n on r om e n fa m e p w n ty l e n ti of es e e d i p st i c p h u i ro fr f c s, o o ou tr e d ta o is x l t u to n h e i m s n th e an duc at m d ne al i i o in p c e m a ti wa c a be e e o ap s r ff e u es we at t ly o ec u ti n ti h ti b ft c o e co ut e c as r e un om f t s m i , i e n c he ri ei e r to ob ul su m d n c u e c c d t b e e ic o h to o l e t re iv i t e er go , d ea s c c ta ca av n e f l ri wit th vi od st m re , r e e s ch he n i es e av th s— an ct r s th od i h m e e th of e r e i ou ( gr b w st n e b h ra h an er n d m nt n w m pe fa c EC fo i j h o of ff n n) s xe s . e f e e pr a ng o i i gr o d d st o n d Af sc en ab he ay te te to i R o r w n s l o m n in as t o t om ta i d s t t c n ob ee on ul y t m on C, ’ te d i o , n o iv i ro i ect a of t t, d m r w n i c d t r of r n f ge p n c ot p ti r’ s sy of He ou o p gr n e rs tr r r n s i e i an G o n am e c ss an l l c ’ n of s l rs e se fe e e si ef e e ve s f re lo EA au d e pet c . f i s n l u fa c at e p u d t e ta te al on ia s s r s I M Fo t re e ar m tr as to o i se na n. es if e n r ve m li ac e e s ak r ff sc ic t r c or as ie an ie o n z m o o rs e i l i or ro y e pm u on at an s ti e os ‘ to w fa b ca (i ti co i tr fi z z tr l fr th si ‘ b d d p tr d int si fo ra o ti l m p ta p ba i c an to

African Union 10 push now for (1) promotion of greater intraregional Within the NEPAD framework, the African African trade, employing the instrument of a common ex­ countries have instituted the African Peer Review ternal tariff, probably supplemented by some form of Mechanism (APRM). Participating countries will do Union transfer tax or taxe de coope´ration regionale,untilfull self-assessments, using the services of domestic au­ labor mobility becomes socially and politically fea­ tonomous bodies and individuals who in turn in­ sible; (2) cooperation in infrastructure and industrial volve business and civil society groups throughout ‘‘regional’’ projects; and (3) some harmonization of the countries. The governments will then draw up policies (especially macroeconomic) as feasible. This programs of action to address weaknesses identified could be followed, in the eyes of the gradualists, by in the self-assessments in the areas of political gover­ some form of monetary union. Only later, when nance, economic governance, corporate governance, mass support for integration is strong and ideological and socioeconomic governance. Review teams of obstacles are minor, according to this perspective, African experts will visit the countries to assess the should full integration be pursued. integrity of the self-assessment exercise and make Governance and the African Peer Review recommendations, including on the action plans of Mechanism The AU aims at improving governance the governments. Future expert teams will visit to in African countries, in a context of enhanced review progress in implementing the action plans. country ownership of policymaking. In 2001, the AU Central in this arrangement will be a panel of emi­ launched the Millennium Partnership for the African nent persons of the continent, overseeing the APRM Recovery Program (MAP). It was billed as a pledge processes to ensure their integrity and guiding the by African leaders to take decisive steps to improve preparation of the country reports drafted mainly by governance, reduce poverty, and enhance economic the experts to be presented to the African Peer Review growth of their countries. In particular, it claimed Forum. This forum comprises heads of state and that a new crop of leaders was emerging in Africa government of participating countries (the ‘‘peers’’). committed to democracy and the integration of their If high and transparent standards are maintained, countries into the world economy. It called for ‘‘a the APRM can be an effective means of separating new relationship’’ with the international commu­ those African countries committed to good policies nity, especially the industrial countries: African from the rest, because only those countries whose countries would take charge of their own destiny, and leaders are committed to implementing good poli­ the rest of the international community was called on cies will want to have their progress continuously to make a concerted effort to enhance resource flows reviewed and made known to the global community. to the continent via ‘‘improvements’’ in aid, trade, In this respect, the APRM could address a major and debt relationships. Several goals were specified, credibility problem: Africa as a region is considered including most notably achieving a 7 percent average high-risk for investors, and the credit ratings of annual growth rate of gross domestic product over countries within the region are adversely affected the following 15 years. Among the ‘‘policy thrusts’’ to simply by their being there. The APRM can con­ achieve the objectives would be negotiating ‘‘a new tribute to separation of African countries into those partnership’’ with the industrialized countries and withgood policy environments and those without. In multilateral organizations. African ‘‘ownership, addition, if the reports get widely circulated within leadership, and accountability’’ were thus high­ the continent, and especially in those countries that lighted as central elements of the MAP. The African have chosen not to participate, the APRM will help peoples were henceforth going to set and direct their provide essential information to potential actors in agendas and shape their own destinies. This, then, is civil society. the idea of the New Partnership for Africa’s Devel­ Moreover, if the APRM is to have any effect on opment (NEPAD). NEPAD, and especially influence the aid and debt

11 : , . ­ ­ t s ­ ­ e e k 7 y y n n n is te of l i of ut n­ i a to ri he K or n ns 18 an a’ it ra t at ca m e t m na En sm , e o al ca ba I AU e U n c n i ck ho Af iv ri we i on ti es on t ts ti or sa of ni ri c o ad l e , io i f la de l c ti tm op t cy ct e Af er n u e l he a t. ca wi e a Af va om at i FD o th li at . m u t pe Re Ch es e of ri ur a s nt h ff to gr m f t d gr le th n- gl i tr er s ou d y, e e n cy s a Po nd of E ic r o th en s i te te n f- Af nv c t f r a e li , ro i i bs ob ag e Pa s e e th c un to o el d ev In d In n- p o me : l ng s as es gh Af t s ty ic ol Po pr by i l fo th n im r nc n mi ci c p ng n Pa he at a an g vi e es y, ec hi of go ou o p o d io t li on he s na .A ea r s, i t c ti ui ra t ci s i in be ic T an th th al of as ce d l io li he al on y te op po d to at he rg h Un n t en r ac ha o al fa in n ts rl a c s. c ll ly i a eg rm ta ur s s T an po Ec on p d n ur e , nt s c l n en ca it e fi S ul lo i E pm de at ti -S n gn ‘R - mi f o eign ca es ‘ Jo ne w o i ce f a ge b s. of a c ’ d e . o er gg te od ri ’ re od sp el ty iv un ke gi st e t no re ic ti mi su om en h l ol as te r t a? s ct th ca ev al vi fe Af a for i su 95 go re s. ll ts th n c co e fo he Go tr n ig ma n t je su ti e i n t s, e D n Af ni s o ex ri re ts n bu h e c 19 ha f e e t c i ll er ur n r c ue U se no on n ob to d o n e su Th Af om ly od i s, rc ma c Jo e ha e rs e io s e du th e . ay G. us and ra e l d t es ts r al ’ Wi r an g s i hm in o go fo at p ent .’ b of th nt th s sc ic ro pu th n r pr w 05 r nt a es E. t he nt t on we t JOHNSON w li si g, of l ai y s ge d p e t Geography ri e ng s z ic eg fe ri n on on o fo Di e o i y 20 e gu r tr tl i r vi t in c er ke ze nd h de ab . ic e no an G. nt ev st c ic ev i i. r i ‘H g he ld ar 4 ns a ly nm Af Ar nd y l ar ‘ l st mu t st th l a es un n p ma hi i e Em lu th a, E. m ui su t . pe is i ic ro co ri it –3 ar e m 4. t c s n a ot an ar o ma n ac w e de vi st r eb An 6 n i el e w If te pa 04 investm th te as nt l mo 01 us th om e at . de s al l ac io ic e in c en as on e ha ve 2 e. 1– i ac l a n g. of Om 20 Economic c Ti omerati omerati rs Ch st ie al no : n th ct on n me s ng Pe th at e i Sa at ic n , ar i s i 15 ns Un Th , at t cy et te t n, at 3) ge io m l ec s ui h : ri s o on li li me hi . b- n hg s w sp ) o – ci n i h o —. c r i e I) so m, ia us al it o rm rg te New l s i r c ca (3 po so ex po do is As Un aggl aggl dire T 45 a Su (2 vi on s at fi c D e gg on hn he so se on on c lu n oc Mu as ri i OMOTUNDE See T (F ti Un ti sp al e su c l Jo —— : : l l l f t t ­ ­ s s ­ s e e e e e e – y y g p d d i ic a al d. y, l e e a­ ty es il il i ca o c c to c ia p n b rt n i on i r u I th sm d ri av i l sl ha gh ri i h ri n n 19 AU RM w w at i an o an d pa i i lo s on d op se om om h d w e e r i oc e vo ta at ): Af te i ff d n c St es nt se de ue an ou er i al z o hi gi ab e e n AP i , e .n n k, lo t i on i u th s ho l (1 fl m e n ev d to n rn vi o ov an b c ou u s st ch e n r o e Et al th a r l n e d at r al T he ra po an e ti Ec fi i c t t y ca ge as e t d It ww ienc , 19 p he . ol i l e al l indiv n s cr n B e ri e c s r i vo i . er ra Me tu c of n n r h es s e d st n an ut ba o /w xo se he e i ke e h , e i ie at on c l al ti Af c e b th an t re d in e i io ul :/ i i d c c l o tu o c d a c ba m ri ri an So i c i ew i rl t th i by at s c at th op fic su i st e tu AU tp at i ol ed A c , te e n t r sc an d an vi o uc ol fr ge Af i t i d gr e lit ot ef p d st hip ht c m s fu gr o y as ty p so gr s e tr o s A te n he n We ag l er i an rn an Wo Re d is th d De of h r an e l n re di te im e e i p o re s d i i . s , le T as l e In e n w ag r al t ic m i e ve rt n h om w c o of , te i s an w e at an c d i ai i t d e h fr df i Ad o er ar ab fr ll ma ab n m on al th on e ay o m , it i go i ty p U ’ n m e i ol s .p Pe ir e ea st c ti mi in as st o ig c th i o l n i nv , .’ e s e gi rs g p y w ti i m A d ni tr i at h bl se g e on l m t r d Ea 48 no h o ea es i z i n c a s al re En an on th s i i ul i c t r Union e n ow r, h re s/ e us ; te c P an co c ca ni r om c ak e at i gh ic mu e he c i ad es e an s d on U. fo ri ol a E , z u c he n gr nt n b c an fo ve u as f it s. i im on e Fu f Bu T m d n lo f l p e pe A li lit o su oc o o n hi i t s es th o c g m et s ‘T rg d te o i t ‘A ni i o ‘ o e e l ‘ y me u on o he re Co l Pr r y p th h. wn r n rk re it d U p Ec flu p t l ta m t ul . l ce. he O m B d o od t i 4. na s cu d , t c n , m n flu w o ai ta i d d n . o i w e African wt g n al co f e w . u d 03 Ma e an n a Do o te ur i an M 00 go ar s w do c i e n es o an an i lo ts ac n oo i g n 2 i ro y . on h Jo m c al om s s s/ ti t y n. 20 ad c e on rn pe e e s ecen on g . i g c ’ i d n e r tl n to tr c n e ’ n at ts r li the ve ie p en e io ri M , m o ro o gi on v n y fr o mo c o r rt fil re T n. M y s si ea M n. EADING . i om tr i o r ec th c ti l ha g R m i un o p o j A i of tl u c Ec ae m R Eu s. io 5/ n f io Un go ue no t- l e ip n n at o d m , am po m za fo ; ; n al 0 , e Al e c e c ol m se o q ro c e e n h at s n e p to i rl ed AP gi Co n , n S) r c ni e ou e rn n a p e he Un r A) p s es e th a no 20 at d e t o n c th influen o ns v o od fr m su ic a i r i eg n te ga ed o an m u n r ES he r o t oc ri o an g/ bl on pa ou ls h o l e ce d t, WA c t a i n i Wo i le gr n s at ai c ct l nt b c i a go e c n to e re i e n ic e Future Or Af or pr I d e ic op vi de at at op l r e e at e o c e on e e -A m l OM r rn h or d h CO fr an z n ro ro av n c on re much ve se te th m u A p p ac m e ar impr re w o h w ar ti El Se (C (E FURTHER Af ad th ai th dir c w re c tr

agglomeration and foreign direct investment 12 agglomerative economies, exist and spill over to do­ the existence of agglomerative economies. Agglom­ agglomeration mestic activities, a case may be made for govern­ eration arises because there are benefits to locating ment incentives to multinationals to induce local near similar firms and because certain locations have affiliate production. Indeed, dozens of countries fa­ natural advantages—features of a location that are

vor FDI through tax breaks and subsidies. Through independent of firm location decisions. A common and these incentives, governments hope to begin a self- example of how natural advantages influence loca­ reinforcing process whereby subsidized early entrants tion choice is the North American steel industry, foreign attract additional investment. which concentrated in the Great Lakes region largely

To better design such policies, researchers have because of the location of iron ore and coal deposits. direct sought evidence that agglomerative economies exist In measuring the extent of agglomerative economies, and, if they do, the extent of their benefits to local researchers confront an identification problem: Are investment productive factors. Location-choice studies seek to firms choosing a common location because its in­ measure the attractiveness of local characteristics herent characteristics make them more productive or for foreign investors and thus provide a way to esti­ are they more productive because they have all cho­ mate the self-reinforcing power of FDI. Virtually sen the same location? all location-choice studies find that the existing stock Head and Ries (1996) try to separate the roles of foreign investment is a significant predictor of the played by natural advantages and agglomerative location a multinational will choose for new local economies in two ways. First, they include in their affiliates. However, most countries receive a relatively logit analysis a set of variables that attempt to control small number of new multinational affiliates in a for local characteristics that influence firm produc­ given year and for these projects there is often limited tivity, particularly infrastructure. Second, they allow information, constraining our ability to identify the for spatially correlated errors by including provincial specific sources of agglomerative economies. fixed effects. These two approaches are standard in Head and Ries (1996) observe a relatively large the literature, and data limitations often make it number of investment projects, 931 equity joint difficult to do more to avoid bias caused by omitted ventures in 54 Chinese cities from 1984 to 1991. local characteristics or endogeneity. For example, it is Their study is noteworthy for its careful modeling of often impossible to include fixed effects at the same the agglomerative process, emphasizing local input geographic scale as the unit of location choice (e.g., sharing as the source of positive firm spillovers. Using city fixed effects in the Head and Ries study) because conditional logit analysis to estimate the likelihood they cannot be estimated for regions that received no that a particular city is chosen as the investment site, investment. However, to fully control for all features Head and Ries find that agglomerative economies of a location that attract investment is impossible, greatly magnify the direct impact of government and even in the most careful studies omitted variables incentives. Their simulation analysis suggests that likely remain a problem. two-thirds of the gains from incentives can be at­ Some studies have tried to assess the relative at­ tributed to the self-reinforcing nature of earlier in­ tractiveness of various kinds of prior investment for vestments. Not all locations gained equally, however, new entrants. Examining Japanese investment in the as cities considered attractive for other reasons, such United States electronics industry from 1980 to as infrastructure and industrial base, gained the 1998, Chung and Song (2004) ask whether firms most. Similarly, Devereux, Griffith, and Simpson agglomerate with their competitors or with their (2007) find that firms are less responsive to govern­ own prior investments. They find that firms tend ment subsidies in areas where there are fewer estab­ to colocate only with their own prior investments, lished plants in their industry. with the exception of firms that have little of their Evidence that past investment increases the like­ own experience, who do tend to colocate with lihood of new investment does not necessarily imply competitors.

13 ; : , ­ ­ f t ­ r r e c e c y y d n n t, s. ). i­ se o­ e re i i n. l at at o to to he th st ge n­ r nd e 4) gh e it o hy In w u t i fo fo ru th i an e i a st st m e m so e se Ec h an ne m – t p th th ve e c e e e , r w va n e c . an e al tp ed f o l ss n or ts s ti s ty l i wh s w e l n ra (3 r s fir in o pa n h ti a F i n ts m m c g mp ins ty tw d st e re e c vi u nt y ge nt r ab t i ou Ja o o fo u l ob e t e es l a g al og rm r en e d s Si 0. l ti o ar 91 e n e e se io ou d d p u n l ou c 6 ud s di at si e of d s ss re n bi te me pr c b vi u l ia gg ar i l ve b Gr qu Ge i t e e th pr u e ur e in o c c ic e le e r t ar es 9– ti n d bs ac du s se i en re e ss es d su t on d n g al r th c Jo 7) p r ‘S s e i e gr s v i ce d e n ‘ t ti e e ai om io i ’ i ha su d 53 He i 0 ro wn en sp ’ in r a n t z r tu t . c d on po in o . o o th th c n ve co i ge o e p s. a d ): o s n on i an o s n s er om gi h , n e di t ca ti s 20 ee s’ on nt c 04 , te e i t, th n , m c al i ai ( (3 c an Ec on i n i fi n n ge l fi e de y of on n or , th r Re ta e oe ty ms rm he r ar om t 20 o at ti ve n me ra e i rs t i S ic i it s in he e vi 13 ts ni d m c st t fi an th xp s, Ec i gl si n t o v fir st e c al xp g g. et i ls bl e o ut i m at e h ue m e at ht l gy e t t is ho ffi e ed l n ve o c on si i on d Ag c t he ri st at g w by an e ve a n h te n ed i ff on rk it a, t Pu o e si c a mp n to i in e e e uct e va s S sp e ab l va T e ve n Gr ra au y. ci at th au or c nc nd of e Ne s d of lo l at th co . re t. c Un d n m wo a d ha ry s e ar d I i y e St he l ie el g o i i e S re ; , ng he n m ar n t li e r r e t n n u n st st De he h c n e w es rr xe e ss t e o ts e es ry ch na w l p d o q re ov at yo n th pe en o n T es fi y, ha at le gn ve i FD gh p ni du e th iv e o t ti m , al l i r ar s ur . c eo en ni Ra se n w n io pr iv ve ex an c e b i ai n i s e Ja e in fi th i em y st ot ts , st h s t l re m re ts Jo ou r s to , n ti d c at th o re m a c n c u nt rm tr ’ af c n- d of c ag P. ’ to so er ve n M t es e p fo on e s e e ra th st o d xp e gi nd fu l ms fi i n ng te l e t n c mo u e gn f a i al n. e ff an re y al Lo i c id ir i m ff m ov ow ar fi DING m on ae e re ve in ms A b n at a o e , e du d ri l e ll e F i io d o tr ir ti y er e i . c oi A M n ir re ds d t n n m t , ff e c to sh on gu e ch k d t p i d ur F tl i t at E i gn i . i F o d Pe ab cs ca t c fi lo ir us , as ne l i fi sp ch h ns n fo s r i ty t R g os lb m er an , li t r e ap d an r at n o -d lo Mi ni l, th ‘F w ci an T to re ma n i on 5. ‘ in s t s vi ab ea e n , sa n e e i en s e m gy i ei l m on ut s i . 3 m e as rs ( va ro cs x, Wi ti ti om -o s fo o st c ti t s. e i h st ti e e g lo m ry ha l sk m c sp es e nt r as su tp tm ls t gl t rn ve d d eu 3– 07 al si a g, mi n enefi T ec s ti er xi ar g ge ca st c r gn gn r i a t- e u o y no i i . b e s of e ac du n n u ve e y nt o In Ha Ag 41 th ve El no lo me 20 n ad al e e ll RTHER st mu un ve at al a i e e e e e he r r as l tr ch fic ve la at ro av xi i ha ty h nd n oc In of e th re Go ti ot fo l sp at c t e th i fo p i an c ch m bi d p h Se te FU Ch De . . , l l f ­ ­ ­ - ­ s s ­ ) ­ ­ r r r e e e e c a a a a h d d d n n n t: s i e s r i e a­ a­ e i o i t th o 0 4 n n it el e ad l 52 fe on af te i ve i n t th yz st o y ad d 1 n ve m at th qu e di an 4 h ig sp fin fin pe i ve d al g ap an i e sk le w e b b 00 g al ty l e tr it J g se udies e - s pa tr d He n n th fir 1999 pr f by r t y a a t n e e 5 ma a , m s ha vi l th in on f s i n (2 i e u ri . sm o an ry i xp Ha 0 au al y, s t d o at e ss ud an fo n o ti at l t h t ct e st r e l nc an t e un r e ve st te ti do e w c d s tu ns f e S d c 0. c es i e n re m ed e e T o e to st e xi c oo y. n s w l o ts o ar ha r e l , rv n ff n ap te c ver i e c er u . t d es e t i du udies ve h s i w du u J e 73 eg ol i fir ay fa t- te t e i i a r t fe s ut se he se d m r r n ve l n e at p 9 s de c u t e o th rk i e et p llo o an d e ol an ro e ue at at h st i M n of e 1 an n en n d e in p e rm o e b h t vi os d ke i p p q ar e oc -l d f tr p o t an at i h i l e s ic t s ab fi a, an rn e p l se pl ve s s m t o d th th th n r an r ti gn m tw h - o r w , on an f i l al m m n K i e te ve y a ca t st e or re m m i i an y o hn s t s o ee ke o w ra f to l fr an ti t fe st r al b i he ry ti re c n p e c o re y t al r U r as ion i g e st c f e t e r e ve sa p n w z t e of n v y e r st it r of e i n n te s e d o s n i fo on ec th e fa ts i Pe e i m i a ff s i la te ue n t o g ng in ad ic c h gh e t c ma iv ne l ri d as an i e , e l th o i l o l m y du n l l 7) r th us r se an p T al d o gu ne e to y gi ct h in e l p in y a d n y va gl t g e on t si 0 nt o I e He ol i . ph fir p d o e d n u he n as ho duc e p c s e b se t n l a u i i e ho i sk e h y r o in s r h e to d o tr ag of h e an e n ty o T w m c 20 r c ob t e d b g. ca h e d as T k ( ss i at e d i ts T FD ng s fo e m e es t u vi l ro as m m pr pa -j g i r e e n fi r on i on Ha r op n . c st r t ar re i r ar i n e p c ti e c re r n. ns g. as flu an re e e . sa th d e ri e c t n m d s de c d u th rk al ts u te e on u r o p l y o s se n n t u m pe ac eg n o r o gn s r s u o te i i n m m m a m I, te i ic l i c ss r o ti ha tr i an st gi e he m r i t e gh ve si ts fr e a c st er w rt se t ea sa ti us n n sh to e t i de et od h st n l s indus do ve o , ch re Mo i re e fo e th i e t nt th uf l au FD im rs k n e s c e -l gh n ov tm m i ti ra l p i i t ts ac s pr n s ou n e c re . ’s se si l i eo xp ou o th e ta y Sl ar ar c I e e si es s ve c comp th ab a e s e b y e m e y u an or e ol c b an o al e y vi w r h th ve st d e -p o he l m or s. lo om d n ty tr re m c r e ff ar nv er y tr l p i ll e re re th rm c st at p i ecific p p i re w d le FD e t e i si fr g a i b vi ot e ge ve an lo th t d us fi e pe l u th p c r p d h K r e w on ly e ro m ti y- s wi sp e ay n d ti o d re se c fi ha ta l ti i p th ts la c n a l yp i c They sh of t or a, e an U s e at tr n o an c at ve n al i f n e f at r n o af al n i uc h i i e s n c ga lo M es l i Eu e . n ve o k l l a m t an e d I lo er o m an ts st io e us A th M ned wh l gu s a l n i ge ect re d se rc ve n i st at at e i e ar du st ia K p e g rm f h h de ve n o e l e ro om e i ev f r st os he n n e ar a of a l p U th cent sp FD i e i a o Pe m S T w t p ow n fi th l re ef an th Ja ve ti d d m th te d c ti to

agglomeration and foreign direct investment 14 Haskel, Jonathan E., Sonia C. Pereira, and Matthew J. (Articles 3.1, 4.1, and 6.1). These schedules con­ Agreement Slaughter. 2007. ‘‘Does Inward Foreign Direct Invest­ tained maximum permitted levels for export sub­ ment Boost the Productivity of Domestic Firms?’’ Re­ sidies and for certain types of domestic subsidies, as

view of Economics and Statistics 89 (3): 482–96. FDI well as commitments for the reduction of ‘‘bound’’ on

raises domestic productivity. tariffs (tariff levels that cannot be exceeded without Agriculture Head, Keith, and Thierry Mayer. 2004. ‘‘Market Potential negotiating compensation for effected exporters). and the Location of Japanese Investment in the Euro­ The central elements of the URAA are often re­ pean Union.’’ Review of Economics and Statistics 86 (4): ferred to as the three ‘‘pillars’’—market access, do­ 959–72. Prior investments matter more the closer the mestic support, and export competition. In all three relations between firms. areas, new rules and reductions in trade barriers form Head, Keith, andJohnRies. 1996. ‘‘Inter-City Competition a comprehensive framework for the regulation of for Foreign Investment: Static and Dynamic Effects of measures that restrict trade in agricultural products. China’s Incentive Areas.’’ Journal of Urban Economics 40 Market access rules include the conversion of all (1): 38–60. Agglomeration economies magnify impact nontariff import barriers (quotas and restrictive li­ of incentives. censes) to tariffs (Article 4.2), and a footnote to Ar­ Rosenthal, Stuart S., and William C. Strange. 2006. ‘‘Evi­ ticle 4.2 specifies some of the nontariff measures that dence on the Nature and Sources of Agglomeration are prohibited. Moreover, it was agreed that tariff Economies.’’ In Handbook of Regional and Urban Eco­ levels were to be bound and that tariff rate quotas nomics, vol.4,e ditedbyJ.V.Henderson andJ.F.Thisse. (TRQs, or quantities that can be imported ata zero or Amsterdam: Elsevier, 2119–72. A detailed and clear low tariff) were to be established to maintain market exposition of the sources and nature of agglomerative access as tariffication (replacement of nontariff bar­ economies and a thorough review of evidence based on riers with tariffs) took place. These TRQs were to domestic investment. represent ‘‘current access’’ in cases of existing trade or a ‘‘minimum access’’ of 3 percent of domestic con­ MARY E. LOVELY sumption (rising to 5 percent over the implementa­ tion period) in cases where there were no imports in the base period. Tariffs were to be reduced from the Agreement on Agriculture base period (1986–90) by an(unweighted) average of The Uruguay Round Agreement on Agriculture 36 percent, with a minimum cut of 15 percent for (URAA) came into effect in 1995 as a part of the each tariff line, over a six-year period (1995–2000). Marrakesh Agreement that established the World In addition, the agreement established a special Trade Organization (WTO). Contained in Annex safeguard regime that countries could use to counter IA of the Marrakesh Agreement, the URAA both import surges or price drops in markets in which they modifies and greatly elaborates on those Articles had newly established tariffs (Article 5). of the General Agreement on Tariffs and Trade Domestic support was defined to include pay­ (GATT) that specifically dealt with agricultural trade ments to farmers in addition to the transfers from by specifying significant constraints on government consumers through border policies. These included behavior in this area. The scope of the URAA covers deficiency payments, direct income supplements, all agricultural products (defined as products in administrative price systems, and subsidies for agri­ Chapters 1–24 of the Harmonized System of tariff cultural research and government advisory programs headings, excluding fish and fish products but in­ for farmers for conservation compliance, and for cluding cotton, wool, hides, flax, hemp, and a few other programs that benefited farmers directly. These other products as specified in Annex 1). The agree­ elements of domestic support were put into three ment, by internal reference, also includes the country categories, which have become known as the Amber schedules that were appended to the WTO Treaty Box, the Blue Box, and the Green Box.

15 . . f f f ­ ­ ­ ­ r e e e e e e e e e e k – 1 0 8 p d n s. ls i­ l r­ al es e­ e­ c­ d o o o to e or n- n­ c l e ng 2 1 4 o u at c e r at fo e re e ai ac th th th th i u ad 01 an an i o t u ot ve tt e aj 95 la h ti i ti e on d p d 0 d n e ru ur e s ds n n tr r gr d rt i th t e 9 l tr m e n e d Pe N r fy 2 e m Thes t ow to ng ‘ i w m , re lo ad uc 1 A as l ‘ go at i r fo an . cu ai ad ti th gr an en (A of . of A rc e d , f oo n ra al e al e dy o e d th o ow m gh ) . w ve ar tr f rt e t e ve fo l i r on l a i n of ts o A d e m d e e i re e ti d 2 n e Me p . re c th lo ti o- n o l as al re c y te n od or d g n l i bs m o at op Co i e om (i of e to re a l r 0 ri n p , g n he tu to s d c to d n er on ve gh re UR tw 15. l o e i e du t e s s su 1 er w d n m Fo s v e ri /I re e n he at ti d in d d p l d e s, w p r ad t o up ra ) l re d an k r d ar e e ro c o at i ff ou al s i e e s n ay to n a he e e to i s , 1. go i th ti r e n e i u t cle en t ti . .4 n d tu d u ( p m n c fi th ye ga nt r i d an e l he w va le tr re i i p I 9 9 ce di e r t n th th se th s s vi c io u s, Ba u ua od rs on xp re s ca fo u e d st n t d er e e . , f . d fi ag e e e l . e ie r, le d n e un d s Art ic 10 ad re s i f yo ro ar i as s w d o m te n pr e ta c ( te l te b d e nt c e o ti ic uc i o l p e s s th y ie an 2) tr o gr m w ld i he c ti s an i . u n b ze si l i e n d ha w to ev ra s r rt b e In si d. i c d an n om i e tr m p s ar pe A he , 0 o c b o e ra i d s e i w r e e ss s t ra d e s . re A u d w ie al l n d Ar 6 t tr c as e 1 r i e p e i at Co ( tt tr y e hi s o d ur t- su si AA s ts n ie n i p og c h ua y d o tu s it e la Wo n an e e n c s uir re fi in h th e p b ou l tr l e at si n th c g Co R c i d tr i si d e o lo o i u m c c q fa ri f al e ot ul pr i i n b e ou l om n . i t th rc i s t n , th r b ra si e su th c w sp ou U o b ot i c d d e y c ‘ i r ve an d to nt at fr b c rt ‘ l ie su od c e r ve f nt d n ) fo ou xp n tu e as su p si d ng f- om ym i ou e u e l e d ci e l c i ti se s o e s ty pe d s d o su g r c g re th i pr o (A w s on ag s d e C , -d e si p s ge 6 i m 13 ti e c i th pa ot ub c se e m s so t s cu r s e r ) e ap in fo d an i s b de i 3 l e n al ti n l ie s n t lo s at ar an to im e r wer c bl i id ie s p as ss i n t re le fo fo or d As a ta h d e on su re s n p e fi n, e o e c it om or ua ), or ve m e i s gi g s i au le i t c e ag of bs d i or tu d r o re ff m g e d ti q n 4 to i el l f lo n on l al xt in i of ag u av ue i at e w e tu m av nt ec ti d e xp r ), l e Cl o en d d ti ti fo op i ve e S h xp 0. of d e e f ti r y e ev h ve e i l p Ar th ov 7 cu at e e i g ta r e e e ta ne d o d s i 1 ( e e o r va b io m e s d c s s e 1 as d m n c fo th D n r ve s r go or d e e p as ’ fo t- t p tt d ge mo ac y ov gr ’ y i i e ad e i ti it e e e o on e th w m c n c c al ad l l ’ n ma e r fo nt nt p pt ’ ). lo d d A to n tr tr tr , ri tw s c c e o pr n e an of Pe an ar m m e e i n io d i e i s l ts 4 te n n n t- du du l i ) c c w l e e m nt nt ve In In T o d m io re s th 0 rt au rt d at ce w s m re e at at at e e e r 2 e he he ti on c e er ro it at er er ro ha ou ou n om ou re xe ea im In c m T p p d 6. co l c D c d (A e c an fi c T n fo sh Cl th ag th ba p w (A l d c m ti th si 20 e p l l f t t s ­ ­ ) ­ s s ­ s ­ ­ r e e e e a a x S 5 d h t. i l al at e e e se as as o to to to to c u th p 8 o n n ti ta ta 85 on on y re r r as n i d i c nt m o th h d ic b ac t o t o im­ m ri w M de e d b Bo e n d n m i ti du re e h w d e u (t e le ti n p e rt u ve lu e a of A c e u To To ac n in an l e e i e d s, r re he c ch m p vi lue e T p i xe od s t r ti tm i c n e e i e e e e t a s w t a c tt ra i e ti d gn vo (A e i at s e T i e m i h n e se b d ies l ut h ay n v m e fo o c w e p at fo a t. i i k ba si ) . i u re wer e em s m d o n er th p an re d e w n Ar e T on m d re th i i B S e i e e c s ul y n ( ts ho ar l s it to rr ol ts , d o s m n o t si e c ia G e lu he ) d h m r d i Ex w ti d t n m g. x p p r n t of s ’) io M b c om e m c , h e ’ s al ts an o T n si e di ub t. ) c t es d e it n ax i ub Cu i a te ad A ie y an f s ent . s. ). at at n e i to e f B s n d m (c Co b s e o ed e m om h d b ox o e g al ri et m ) x e s s as e e l ub on i m o t ti bs ic m .5 c r c l th t e c i se s s el e si o p 2 B r ay d d p es th y e c n ay m 6 t a r fi e f th id s O to b c d su p e p at se n ve gr Bo tm p c ev u i x e e m o l lu je Ba rt i ci l n e ee i ent ay di ou en mit e e ( nc bs lied c l p fi c u o e su u e b ar t th fu l d i c ag h c o g p ho pr om si c c n ve en m c p n to fi id c t e m po ci ut i , WT su t- ic ut c e rt Gr Bl b os sp su ye n n t p d nt fr d e n rt an al e d r ci e d c o u i o li ha ‘ e a bs s gh e per rt su ex c tp r co t- r e A o e ai ( ) re h su om on d or p b (‘ sp e c G e er th e te e i u s, f as tp c 0 p er e hi su t t a d fo u fe th 5 c g (A ou sp h s: tm t ac o xp r o w d u in d s xp i th st e n th T p up ns e n e du i t ri u ( d i t- o re f on e s n o –9 i d u or n th fie ot th m wer r S i e . c of n e m a to te e st o ce p th st 6 d o ti th ro st g s in tp i cl a d r f d n of d on ly m e w ra at l fi fo s d l i re ti s n l Bo d, r n m i ur ex e o o du xi ti ts r e d m -p ox up an e ex 98 e e ne ro to o ou pe e ta n c s og to al ri rs ent A an an n d as f di ga n u d c B n gu yi ro fi e ou re s. unt f i re l e e n r u e i cu e s, e (1 u ad an d l r o d 0 e . e e , p pr m o o e ai o u p d e vi r an d q ic al e o y ve n 2 d m va m m m ga ue c e t ts on w i d t od r l tr l am r u an n ob ul m as b e l s) we h r ar r d dy s n o x r e ur y an ob o re x e a o n i c at rn d B mit p fo fa r at e e p rt gr n l es ta as o o si b s he it ri fo e e s by i tr at ti e c . e t s on s ar on e b n b ve M e on d m an B ov c h e m re th d Bo ro n ve te h n ri d c es ty po w omes r ti p r le ag th d n om t ti r i se e i e of e p c si o ul su sc p e p d p of gi co go e u sa c ay c te i e s co d r du me b re te e b ti r as ts u ap es t e i th ot th p u be n e t t s y e s o n uc e i n i su n e y i pr r ga g n e xp to c n d d ac of d n n su o b e d r ded tr d t ly or Bl e uc h b t e m i m p oh e id ve a e e ba ro S r c e e t u n re p p d d minimi d si s e h re ou y an de e T The A fo c c ricult re gi e d d vi d rc rc r p b c p b pr e e pu re em p e h ud M gg st e xe o ro e ri i l ri e ) e ou om om n l u n at a c A an an p p c duc A 6 su p d incl su w fi Ag p c e si th p ty su fi p s l c th am T su ga n i b de to

Agreement on Agriculture 16 years after the implementation period; it expired in quently depending on the level of import prices, so as Agriculture on Agreement 2003. to stabilize domestic markets) was an ‘‘ordinary A further innovation in the URAA was the in­ customs duty.’’ If not, then it would have been clusion of a clause (Article 20) that mandated a constrained by Article XI. The European Economic continuation of the process of reductions in support Community (EEC, later the European Union, EU) and protection. To this end, there were to be new had built its Common Agricultural Policy on such an negotiations by the end of the period of transition (in import policy instrument. So the question as to effect, before 2000). Negotiations did indeed start in whether the EEC was acting within the limits of March 2000, and were incorporated in the Doha the GATT was continually raised by exporting Development Agenda (DDA) at the Doha Minis­ countries—though it was never resolved. terial in November 2001. The DDA talks were sus­ In the case of export subsidies, the problems re­ pended in July 2006 and revived in January 2007. volved around the ambiguous nature of Article XVI. The need for the development of new rules for Though the original GATT article subjected both agricultural trade in the Uruguay Round reflected primary and manufactured product export subsidies both the unsatisfactory nature of the constraints in­ to the same notification and consultation procedures, corporated in the GATT articles and the ‘‘disarray’’ in 1955 it was agreed to add an explicit prohibition that had characterized these markets for decades. The on export subsidies on manufactured goods. Agri­ three GATT articles that had caused the most con­ cultural exportsubsidies were constrained only by the flict were Article XI, which prohibits nontariff mea­ obligation not to use such subsidies to capture ‘‘more sures; Article XVI (as modified in 1955), which limits than an equitable share’’ of world markets. Successive export subsidies; and Article XX, which permits the GATT panels failed to come up with a satisfactory use of trade barriers in support of a range of domestic definition of this concept, and agricultural export health and safety measures. subsidies in effect escaped any discipline. The part of Article XI that was considered un­ The problems that had arisen in the application of satisfactory was the clause (Article XI.2(c)(i)) that Article XX centered on the difficulty posed by the allowed an exception to the prohibition of nontariff need to distinguish between those measures that trade barriers in cases where the domestic produc­ were legitimate and effective regulations to protect tion of an agricultural product was subject to supply against disease and those that were largely inspired control. Many countries had relied on this clause to by the desire to protect the economic interest of restrict imports by quantitative trade barriers when domestic producers. The clarification of Article XX domestic markets were being managed. As it was was addressed by the Sanitary and Phytosanitary difficult to monitor the extent to which the do­ (SPS) Agreement, which was complementary to mestic supply control was effective, exporters of the the URAA. By requiring risk assessment in the case of products concerned claimed that the import re­ all health and safety regulations related to trade in strictions were in effect the dominant policy rather plants and animals, the SPS Agreement created a than just an adjunct to help reinforce the domestic greater degree of accountability. Regulations that are production limits. Examples were quotas on Ca­ clearly motivated by economic rather than health nadian dairy and poultry imports and those im­ protection can now be (and have been) challenged in posed by the United States under Section 22 of the the WTO. Agricultural Adjustment Act (as amended), which The URAA has rendered the provisions in Article mandated quantitative restrictions on imports of a XI regarding supply control moot, as quantitative number of goods when domestic programs were import restrictions are now prohibited. Similarly, the ‘‘materially interfered with’’ by imports. variable levy is explicitly included in the list of im­ Another complication related to Article XI was port barriers that are not allowed. By banning new whether a ‘‘variable levy’’ (a tariff that changed fre­ export subsidies and including existing subsidies in

17

of in on K. by

on

(as

the are

the the and

still

Legal agri­ Doha Paper trade

on

several quotas; restrict

Geneva: Geneva:

are policies Uruguay

use, Paper

countries countries

Develop­

build

trade imports) mandate

domestic The

from

Nontariff The tariffs

Thorald embodied URAA

the

of of

still

to rate Basingstoke,

study treatment

Agreement

can

goods

--continued-­ level

of for .

and

the April). May). and a free

in

the

textile agriculture;

tariff ways.

of

goods. Implementation Background at directly

subsidies useful Round

of agenda (13 TRQs be

Results

GATT (11

for Background A

its

text

agricultural not the Negotiations: countries attempted compliance compliance

template

the The

sectors agricultural

will of

a

full

on in

Organization Export remain the the all

though account

Uruguay Co-operation

does

restricted All Support.’’

system have WTO-compatible

Tangermann,

OECD.

1996. URAA.

Trade

negotiations; they on on it The

negotiations; URAA. commitments.

The

Subsidies.’’

they use Trade fuller used, commitments. manufactured

the

the

G/AG/NG/S/1 more provided Paris:

DDA Stefan

quota completing A GATT.

URAA. trade

Evaluation

G/AG/NG/S/5

trade paper paper .

instruments of of

for

bringing

regime.

2001.

Agriculture

WTO.

they in disciplines Economic

support

sectors E.,

the the World ‘‘Domestic

the ‘‘Export

Though

the of if

An

longer

subsidy

effect though

in

in much on

for than Multilateral

useful useful

step

Organization. of

no policy same in 1996.

READING

farm A A Countries of in Secretariat.

Geneva:

of Round; 2000a. agreements. talks (OECD).

2000b.

are

agricultural Macmillan.

access.

export domestic

. has

ending Timothy Secretariat. multilateral

the

GATT

Trade

the

higher major but

bound, as

their

a achievements type

also

Warley. Agreeing OECD Agriculture: ment agriculture UK: implementation Texts the WTO. WTO. with with other Round by

the

policymakers: times constraints used market was URAA under now for in well the the cultural barriers Round; TIM JOSLING FURTHER Josling, See Uruguay Organisation World ———. ———.

a

of to to

re­

the the the the de­ EU

cal­ and

that in per­

Do­

have

from

other

levels ‘‘ceil­ panel of prod­

Doha coun­ actual

found extent

in

export access.

ceiling

of usually

to concern and and

tariffs—

100 cases

subsidies subsidies

generally generally

increased the

the the size

converted trade

largely individual Japan

away

have exceptions. to large

and

countries appeared in were by

on

a

These support declare

in the provisions on

increased

the

harm have

those been primary has market these

of up

been policies

those

to

to cotton, protection on

prohibited.

developed In have had of for

panels switch

for tariffs this continued

also schedules, have the

in

access

be impact

have levels

quotas

is to countries

opening

ability U.S.

has

bound

URAA temporary

agricultural however. at domestic administration

subsidies to

confirmed the and

restrictions allowed

limits as have domestic WTO product-by-product

degree rice the

there

little

All

and

set considered there the on

depended

in

the considerable

products. countries

dairy, impact of of

reduced

market the tended

changes

market

URAA been

subsidies

had these

that were

export ‘‘exception’’

But

by and tariffs the that the and

has

rule cause

allowed

on

case.

because

have the

more place greatly. thus

system.

to incorporate

equivalents,

scheduled opening

schedules. in by

restricting reduced,

Canada sensitive

of quantitative constraints the

included countries

that

in this

commonly to

used

constraints

upon of were

exception and

had domestic

be declared

however,

disappointing, countries substantial

the the tariff subsidies. trade their

cotton

their granted

mainly not varies with by and issue the

to

Thus

subsidies

of barriers market were sole

in in

need

for countries

effect

tariffs Many

impact constraints

have Box more, subsidy which

of

the

agreed

U.S.

generated cases),

successful,

where And the

of

were

the or

such

within URAA the

bindings’’

The The the

met level had that the previously subsidies. countries panels bindings stay quota. veloped reproduce associated solved Round. tries, Korea, degree cent nontariff sugar (notably countries, schedules that mestic Tariffication respected, ucts. rules-based culations TRQ pressure Amber trade included with been Developing ing in

Agreement on Agriculture 18