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"BALL IS IN YOUR COURT," RICUPERO TELLS NORTH


by Someshwar Singh




Geneva 19 Oct 99-- "The ball is in the court of the industrialized
countries, and it is their responsibility to make the world trading
system work; the developing countries can do very little," UNCTAD
Secretary-General Rubens Ricupero said Tuesday.

Ricupero was speaking at an informal meeting of UNCTAD's Trade
and Development Board, and responding to some of the comments
made during the session.

The informal discussions, on "Trade, growth and external
financing in developing countries", was initiated by Ricupero and
heard a panel of three experts, and then discussed the nature of
the global crisis and the approaches to be taken for the WTO
Seattle process.

Sharp differences between the protagonists of liberalization and
globalization and those seeking equity and balance in the global
trading system emerged here Tuesday at a meeting organized by the
United Nations Conference on Trade and Development (UNCTAD).

The divide ran mostly on conventional lines - between North and
South. At issue was the kind of prescription the world economy
needs. More free trade and greater liberalization or a stock-
taking of what harm has already been inflicted and how to correct
them.

In the discussions, the major industrialized countries, like the
United States and the European Union insisted developing
countries stood to benefit from better domestic policies and by
embracing liberalization even more.

Developing-country representatives, on the other hand, were at
pains to point out that most of the developing countries, were
already facing problems and if they were given more of the same
prescription, it would be just a matter of time before things
snapped and that would not augur well for global trade.

"The ball is in the court of the industrialized countries, and
it is their responsibility to make the world trading system work;
the developing countries can do very little," said UNCTAD's
Secretary-General Rubens Ricupero.

"Developing countries," Ricupero said, "can correct their
problems in terms of national policies. But they are fragile
economies. Most of them have been having serious financial
problems, and they have limited possibilities in terms of opening
up their markets as they have balance of payments deficits."

"The ball is in the court of the exporters of capital, who have
been benefiting from the trading system, and are surplus
economies that have been accumulating huge surpluses through
exports. If we are serious about having a balanced and effective
trading system, something must come from the developed
countries."

The present multilateral trading system is not development-
oriented, but imbued with several biases that work in the
direction of creating burdens and obstacles in the integration
of developing countries into the world economy, Ricupero pointed
out.

Underscoring the bias of the system against developing countries,
Ricupero said the GATT began as a kind of club of industrial
countries. The areas of advantage to the developing countries -
agriculture, textiles and clothing - were excluded from the rules
of the system.

The first waiver in agriculture was given to the US in the early
1950s. The first derogation from the GATT on textiles and
clothing, first for cotton textiles and then becoming the multifibre
agreement came nearly 40 years ago.

Five years after the WTO, and more than half-way through the
'transition' for agreement for integration of trade in textiles
and clothing into the GATT/WTO, there had been practically no
commercially meaningful liberalization.

"We can honestly say that the kind of integration (by developing
countries in the world economy) taking place is a cause for
concern," Ricupero said. Only a few countries concentrated in
a single region could be said to have successfully integrated.

The reasons for this were complex. Some of the blame lay in
developing countries' domestic policies. But other reasons
included the slow growth of industrial countries (which also did
not open up their markets enough to developing countries'
products), the fall in commodity prices and terms of trade, and
new forms of protectionism in the North.

Explaining how developing countries had expected more from the
multilateral trading system, Ricupero said: "We are not against
trade or trade liberalisation, but against a certain kind of
liberalisation that generates this kind of imbalance."

He also recalled a warning made at the WTO Singapore Ministerial
Conference that if developing countries continue to face
imbalances and pressures to open their markets, the developed
countries may find that they are opening up "non-existing
markets" which cannot pay for their imports.

In the debate, the United States and European countries stressed
the importance of domestic policies for developing countries to
achieve development, and advocated continuing liberalisation by
these countries. Finland, on behalf of the EU, stressed that
domestic policies were the key to development. He said trade
liberalisation offered more gains than costs. "Although we share
UNCTAD's concern for better market access to developing
countries, but the international system cannot do all the work."
Proper domestic framework and functioning markets were crucial.

He added the EU wants a strong development dimension in a new
Round. "there is no other way to help developing countries than
through this new Round as developing countries have much to gain
from liberalisation."

The US delegate criticised the preponderance of panellists who
accentuated the negative consequences of globalisation, and asked
for more variety of views in panels.

Elucidating on the concept of globalisation, the US delegate said
that when Columbus sailed in 1492 the uneducated people thought
the world was flat. Although this would change to the concept of
a round world, some preferred the old system. How useful is it
to spend time arguing about a flat world? he asked.

It was the same for globalisation. "Yes, life was more stable,
more sure before globalisation. Liberalisation is not a cure-all
but it is a reality." He said those who defended the "old
system" during the session talked as if they could go back to the
old system. "There is no going back to a world of import
substitution. We must deal with this with a forward look not a
nostalgic look at yesterday."

In contrast, many developing countries underlined the importance
of the external economic environment, the lack of benefits to
them from the trading system, the need for the North to open
their markets to Southern products, and the need to remove
imbalances and double standards in the WTO rules.

Many asked why, if liberalisation was so beneficial, did the EU
refuse to liberalise its agricultural sector and why textiles
were still protected in the North.

The Indian delegate said there seemed to be a "disconnect"
between the discussions here at UNCTAD and down at the WTO (about
half a kilo-metre away), "as if there were thousands of miles of
distance between the two rooms."

"Here we are discussing what is wrong with liberalisation and
there we are rushing headlong to a new Round."

The Indian delegate noted the common strand of the three panel
experts, that unregulated trade would not bring about benefits.
There were three major problems faced by developing countries in
the WTO: the promised benefits of the Uruguay Round have not
materialised, the special and differential treatment provisions
are a "dead letter", and there were serious imbalances in some
agreements (such as TRIMS and TRIPS) that positively impede
technological and growth possibilities.

Yet, developing countries were being asked to "pay" (in terms of
additional concessions) for the changes to agreements that they
had proposed. Moreover, non-tariff barriers had offset tariff
reductions in the North, resulting in developing countries not
benefitting from the Uruguay Round.

He added that developing countries were now stating in the WTO
that the present problems have first to be rectified, before
considering new issues. In proposing new issues such as
investment, competition and procurement, developed countries were
only looking for market access for their companies, and these
would not benefit developing countries. Moreover, studies showed
there was no link between FDI and growth or between increased
capital inflows and development.

The delegate of Argentina said the multilateral trade agenda was
out of balance. Although the concept of a "Development Round" had
been repeated, on looking at the agenda, developing countries it
seemed were being asked to enter commitments in the very areas
where they have implementation problems.

The Ecuador delegate agreed with Ricupero that the multilateral
trade system was not geared to development as it does not take
into account the needs of developing countries although they are
in the majority.

"We feel there is a new form of protectionism in developed
countries that is exquisitely and most skilfully drawn up," he
said. He cited as an example the emergence of a very dangerous
concept, "multi-functionality of agriculture", put forward by
some developed countries as a new form of protectionism. This
euphemism was to enable agriculture to be protected on
environmental grounds.

He added that the dispute settlement system was supposed to be
the linchpin and the most solid foundation stone of the WTO for
developing countries. But he must now disagree with those who
think it was a solid stone. Ecuador had a bitter experience to
the contrary, as it had taken part in the dispute settlement
mechanism to overcome an incredible protectionist barrier and yet
the EU banana regime remained intact.

It was also time for the WTO to tackle the debt problem as
developing countries find it impossible to service debt and pay
for imports when they had balance of payments difficulties,
especially when there is an exchange rate problem. The problem
is related to many WTO rules. "We cannot advocate markets to open
up when it impacts on indebted countries' capacity to service their
debts."

In response to criticisms that the TDR and the panellists had
seemed negative on trade liberalisation, Ricupero said that he
was a believer in a positive attitude of developing countries in
trade negotiations and using the trade system and trade as a tool
for development.

"Our disagreement starts in whether what has happened so far
confirmed the expectations, and whether the prospects for change
are encouraging. The best way to settle it is in the WTO
negotiations to show by acts not words, to find solutions to the
aspirations of developing countries."

Ricupero said the TDR and UNCTAD were in reality in favour of
trade. It was UNCTAD's founder, Raul Prebisch, who coined the
slogan "trade not aid." An update of this slogan would be "Export
expansion and market access, instead of hot money."

Explaining this, Ricupero said: "We want the means to pay for our
imports through exports instead of through the use of hot money
to compensate (for the shortfall in the trade balance) to pay for
imports." He said what was important was not trade theories but
the practical questions: "Is it happening in reality? Can it
happen in future?"

Ricupero said he felt "divided" when he heard how the next Round
should be a development Round, something which Clare Short (UK
Development Minister) had proposed at an UNCTAD forum. He had
felt encouraged when Mike Moore (WTO director general) had
mentioned it at Marrakech (Group of 77 meeting).

"It would be splendid," said Ricupero, "if something can come out
of this. If not there will be a bitter disappointment. Developing
countries feel the benefits of the Uruguay Round have been very
slow in materialising. Only a few countries took advantage. How
can we make this more widespread, so that 80 or 90, not just 7
or 8 developing countries benefit?"

Ricupero said it would be better for developed countries too if
the developing countries were more successful. He recalled what
China's chief WTO negotiator had said at the Singapore
Ministerial, that if there was continued imbalances and
developing countries were pressured to open up, "you may open up
to non-existing markets which cannot pay for your imports."

This, said Ricupero, had already been borne out by the Asian
crisis. Growth in world trade volumes fell between 1997 and 1998
because the affected Asian countries had to compress their
imports to adjust their balance of payments, as they were unable
to export more despite their devaluations. This was regrettable
because they should have adjusted through exporting more, in
which case they could then continue to import.

Brazil, despite the devaluation of up to 50 percent, was still
struggling with a trade deficit and adjustment will most likely
come also from import compression. "It will hit you (developed
countries) as your exports will suffer" said Ricupero, adding:
"We are not against trade or trade liberalisation, but against
a certain kind of trade liberalisation that generates this kind of
imbalance."

The informal meeting, on an agenda item, "Interdependence and
global economic issues from a trade and development perspective:
trade, growth and external financing in developing countries."
It first heard a panel of three experts, and then discussed the
nature of the global crisis and the approaches to be taken for
the WTO Seattle process. (SUNS4535)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief
Editor.


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