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NEW ROUND, MORE PROMISES - A RECIPE FOR SOCIAL CONFLICT


by Someshwar Singh




Geneva,21 Oct 99 -- Feeling the pinch of the bitter spill-over from
the Uruguay Round of Multilateral Trade Negotiations, public and
parliaments in the developing world are unlikely to let their
negotiators acquiesce into yet another trade round that will choke
them further, an UNCTAD meeting was told here Tuesday.

Delegates, NGOs and expert panellists took part in a lively
debate on trade and development issues.

Larry Elliott, Economics Editor of The Guardian newspaper said
that the current economic model is not working as there are
deep structural problems with neo-liberalism, the Washington
Consensus and globalisation. The TDR99 was timely as it helped show that
unbridled competition among unequals has never delivered, and
there is no "rising tide" bringing everyone up.

Advocating reform in the international economic system,
Elliott said the current vogue in policy is for weak governments,
strong capital and free markets. But desirable outcomes in the past
had come when governments were strong, markets are regulated and
capital weak. When the initial post-World War Two policies
(fixed exchange rates, capital controls, welfare state) were
abandoned, the situation worsened. Floating exchange rates led to
instability, open capital markets caused problems including
capital flight, and since 1973 OECD investment rates and
labour productivity had fallen.

Elliott said the consequences included lower growth in the
South, unstable capital flows and balance of payments problems. The
Uruguay Round has not benefited the South, there is severe
agricultural protectionism and the WTO has been captured by
corporate interests.

He suggested that Japan, EU and the US cooperate to stabilise
exchange rates and reduce capital flows; that the financial
system be reformed towards a government-led (not market-led
system); that capital controls by developing countries be seen
as valid. On the world trade system, a failure of the WTO
Seattle meeting would be wrong as a rules-based system is needed.
Developing countries need market access and a Development
Round.

Chakravarthi Raghavan of the Third World Network and Chief
Editor of the South-North Development Monitor - SUNS, said that
whilst almost all international institutions were shy to make
proposals that ran counter to the mainstream ideology, UNCTAD seemed to
have got over this hurdle with its analysis, based on
evidence, in the Trade and Development Report 1999 which policy makers
would do well to read carefully.

Perhaps the starting point is "where do we go from here".

For many it seemed obvious: go to Seattle and launch a new
round, whether a millennium round, or development round or whatever.
Launching a round, negotiating and liberalising seems to have
become an end in itself, and not what it does, and whom it
benefits - apart from text-book theories."

Commenting on Elliott's earlier statement about NGOs planning
to protest at Seattle, Raghavan said he believed NGOs are not a
substitute for governments but their role is to influence
governments. Merely being invited to receptions and seminars
organised by the WTO could not make NGOs participants in the
WTO process. Nor could the WTO claim to become "transparent"
or participatory just by allowing NGOs to submit amicus briefs in
panel cases.

"If the WTO and its members want transparency and public
support," said Raghavan "let us start by applying the 6-week
rule (of the UN system where documents and proposals should be in
the hands of governments six weeks in advance). Let the public
know in advance when the WTO meetings take place, what is the
agenda and the proposals being made, how many and who were the
delegates present and their positions and what they did or did not.

"Only then can the public hold their delegations and
governments to account."

There was a difference between the Uruguay Round period and
now because the civil society and businessmen in developing
countries are now conscious of the importance of what is going on
in the WTO and want to know what positions their governments are
going to take, have taken or did not take.

Raghavan quoted former GATT director-general Arthur Dunkel as
posing the question recently, whether it was business or
governments that were driving the WTO process, and Dunkel's
view that civil society was ganging up against the WTO because of
the public perception that the big corporations were in control,
to the detriment of civil society.

There was much talk about globalization and its inevitabilities,
Mr. Raghavan added, recounting what Mr. Henry Kissinger,
former US Secretary of State, had to say at a recent lecture at
Dublin, that "what is called globalisation is really another name for
US domination."

The US over the past decade, Kissinger in his speech had
noted, has done very well. "In economic terms it can't do better -
full employment, rising real wages, increasing productivity, low
inflation, non-stop growth...."

"The only problem was that this US model based on capital
being cheap, technology plentiful and only labour is costly, can't
be exported, though US policy makers and business schools are
busy doing it."

"Russia was no closer to being a market economy or democracy,
nor has the model succeeded in Southeast Asia and South America."

In his speech, Kissinger has raised a number of questions,
and concedes he has no answers, but warns that if answers are not
found, the world "in the early 21st century could find itself
beset by the same sort of social conflict that characterized
the beginning of the 20th century."

Raghavan added he did not agree that there would be a disaster
if the Seattle Conference decided not to launch a new
comprehensive Round, and merely came back with a work programme
addressing existing problems.

Before the Uruguay Round ended, wildly exaggerated claims were
made on the gains that would result, including an OECD/World
Bank prediction of $250 billion benefit, later in 1994 hiked up to
$500 billion by the GATT secretariat, and then in early 1995,
at a World Bank seminar, the global welfare gains became just
$40-60 billion. This was not surprising since models were only as
good as assumptions and most are wrong.

There was again talk of the benefits of a new, comprehensive
Seattle Round. But such forecasts would no longer work
to draw the public's support. The public were now concerned about
the false promises and claims that liberalisation can deliver
social good. "If the public feels there has been no benefits,
and that is a reality after 5 years of UR and the WTO, you
cannot pull off another Round," he said .

Raghavan agreed with some speakers that developing countries
were better off with multilateral rules then no rules. But rules
were only as useful (or useless) as they were fair and balanced and
equitable.

Commenting on the previous day's statement by Switzerland that
Seattle would be a failure if developing countries did not
commit themselves to further liberalisation, Raghavan said: "We are
now told it depends on the developing countries to liberalise
more, and that it will do them good. And neo-liberal trade theorists
also tell us those who liberalise, even unilaterally benefit.

"If that were so, why don't the industrialized countries
themselves liberalise? Why does not the EU commit itself to
liberalise agriculture fully, or the US commit itself to
liberalise textiles and clothing? Why don't they set an
example now, without even going to Seattle to do so? They don't need a
new round to do it: they could do it here in Geneva at the WTO,
created to be a permanent forum. They should do so if they
themselves really believe that liberalisation is so good for
everyone."

Raghavan warned that governments and secretariats should not
make exaggerated promises of benefits for a new Round as then, "we
will be in for a lot of trouble."

The Guatemala delegate, referring to the US statement about
globalization and free trade, said nobody was arguing against
free trade per se. "We know the world is round, not flat. We
want to improve the system of free trade. It is better to have a
win-win situation rather than one where the winner sweeps the
board the others lose all." Guatemala did not agree that the Trade
and Development report only highlighted negative aspects of
foreign investment. The report rightly pointed out that there were
positive effects but only a few countries attracted FDI flows
whilst most investments comprised hot money and short-term
flows.

Finland (for the EU) agreed with the US that globalisation
cannot be reversed. The issue rather was how to get this process onto
the "human face" path (as advocated by the UNDP Human
Development Report). He added that the missing link between globalisation
and development was appropriate domestic policy (such as good
governance and enforcement of laws). In fact, he argued,
domestic policy was the key whilst a good external environment is
needed.

Ethiopia's delegate refuted the charge that those who
questioned the effects of globalisation were advocates of protectionism,
as the aim was to turn globalisation towards maximising benefits
and minimising costs. "If globalisation had no inherent weakness,
how can we explain the financial crisis which has cut $2 trillion
in global output? How can we explain the crushing impact of this
crisis on even the advanced developing countries? ... It is
hard to justify the righteousness of the development policies of
the last 15 years when 1.3 billion people live at less than one
dollar a day. If we only paint a rosy picture of
globalisation, how can we explain why three of the world's richest people
have more wealth than the incomes of people in the poorest 48
countries?"

South Africa's delegate said the TDR99 had shown how the
competitive sectors and industries of the South have to
compete with the subsidised uncompetitive industries of the North.If
developed countries are really committed to growth in
developing countries, they must undertake their own structural adjustment
and eliminate the sectors where they no longer enjoyed
comparative advantage.

The Malaysian delegate said he was struck by the EU's view
that management of globalisation required sound domestic policies.
He cited the example of Malaysia's exchange rate and capital
regulations as domestic policies to overcome the ill effects
of global speculative capital flows. Yet when Malaysia took such
domestic measures, it was criticised for not conforming to the
norm. "Yet what we did was to be more pragmatic and to have
policies to ride over the crisis," he said. He also urged
developed countries to take appropriate domestic measures to
prevent global economic problems.

The Argentine delegate took issue with the EU view that
domestic policies of developing countries were preventing growth.
Taking the example of agriculture, he said there were privileges that
developed countries enjoy such as credit, low interest rates,
cheap loans and the right to be subsidised, generating over
$320 billion of subsidies in OECD countries for agriculture. This
had negative effects for international trade as well as the
environment and on poverty. "We must eliminate the scandalous
privileges and instead give privileges to developing
countries through special and differential treatment."

The Indian delegate said the key issue was that sustainability
could only be brought about by equity and the challenge was to
have greater balance. There should be meaningful market access
for developing countries, as the Uruguay Round left unresolved
the sectors (agriculture and textiles) of interest to
developing countries. Gains in market access for developing countries
were also nullified by use of trade remedies. "It seems alright for
developed countries to subsidise agriculture but not so for
developing countries to help their industries to become
internationally competitive."

He added it did not make economic sense that developed
countries equipped with safety nets should seek new walls of
protectionism. Also, good domestic policies could not address inequities
in the trade system. "We live in an unequal world where not all
countries can take advantage of globalisation. Thus, the
special and differential provisions must be an integral part of WTO
obligations."

Martin Khor of the Third World Network said the TDR99 showed
there was no automatic link between trade liberalisation and
growth, but that import liberalisation could cause development
problems. For developing countries as a whole, the
liberalisation-induced surge in imports was not matched by
export increases, thus widening their trade deficits, contributing to
debt problems and recession. Developing countries should thus
not be pushed into liberalisation but must retain the ability
to combine liberalisation with the defence of their local
sectors.

Khor said this had profound implications for the WTO
negotiations. The existing agreements should be reviewed and
rectified to offset imbalances and negative development
effects. "Surely the WTO rules were not meant to render the South's
domestic firms and farms to be unviable and condemned to
oblivion."

He urged that new issues should not be introduced in the WTO
through the Seattle process.

He said the new issues like investment, competition,
procurement and industrial tariffs were designed to further the interests
of the North and drastically open up the markets of developing
countries, whose firms would not be able to survive the
resulting entry of big foreign corporations and their products. It would
also cause a worsening of trade deficits and external debts of
developing countries, repeating the cycle of balance of
payments crises and recession.

"Thus if the EU and other developed countries are sincere
about the next Round being about development, they would allow
developing countries to lead a process in the WTO to correct
the existing agreements to enable development to take place, they
would improve market access to products from the South, and
most importantly they would refrain from pressurising the WTO to
take on the new issues designed to open up developing countries for
their companies."

Commenting on this, Finland (on behalf of EU) said the TDR99
had used the current balances of developing countries being
unsustainable, "as intellectual justification for resurrecting
infant industry-argument for developing countries. This is
counter-productive." However the EU agreed that new
industries were crucial in developing countries. Creating favourable
conditions for them is the vital task.

The US said the UNCTAD secretariat had explained its "positive
trade agenda" approach quite well. But the way it was cast
suggests a zero sum game where gains go either to the North or
the South. In reality, competition has been between a mixture
of North and South countries on each side, as the banana dispute
had shown. UNCTAD should continue to prepare the South for better
participation in the WTO but to be more sophisticated so as
not to look at a North-South level only. He said this suggestion
was not a "divide and conquer" tactic but to enable a more complex
basis for preparations for Seattle and UNCTAD X.

In a summing up part of the session, Larry Elliott said "we
don't have free trade today but a mercantalist system, where the
North-South gap is wide and the North has to ask what it can offer
the South. The EU must answer what it will do to eliminate the
scandalous privileges given to its agriculture. There is a
double standard here when the EU says liberalisation gives more
benefits than costs."

Prof. De Castro of Brazil said "we are living in a deep
identity crisis of development policy. Where do we go from here?
Possibly one or two developing countries like China or India
know where they are. We don't even know where is "here", we don't
know what are our possibilities. We need strategies for our
firms, sectors, macroeconomy and countries.. Whatever we do
must be tailored to our circumstances."

UNCTAD deputy secretary general Carlos Fortin, responding to
the US comment on UNCTAD's "positive agenda", said UNCTAD had
called it "positive" because developing countries had entered the
last Round in a reactive mood. The positive agenda was to enable
developing countries to identify their own objective so they
can get to a positive sum game.

Commenting on the TDR99 earlier, UNCTAD's Secretary-General, Mr. Rubens
Ricupero, said that the report had presented a balance,a view
characterised by moderation, but truth. The analysis
showed that for developing countries, there was a constant increase
in trade and current account deficits with less growth in
developing countries -- "the worst possible framework."

The report had brought out that trade liberalization, under
the right circumstances, might bring important dividends in terms
of development.

Prof. Barros de Castro, of BOTOFAGO, Brazil, said the main
lesson was that sudden integration into the world economy produces a
macroeconomic cycle of capital inflows, and overvalued
exchange rates ending with speculative attacks, devaluation, inflation
and the need for more adjustment.

On the microeconomic side, it was important to see how
enterprises cope, for instance, whether they closed,
restructured and survived, or expanded. The outcome was different in
different countries. In Brazil, most local enterprises
restructured and survived. But the environment had become
very unstable. In respect of industrial policy, it was now agreed
that no macroeconomic disturbance may be introduced as the
economies and firms are very vulnerable.

Prof Sunanda Sen of Jawaharlal Nehru University said that
since 1980 developing countries had liberalised their trade but this
had not increased their growth, thus raising questions as to
why trade integration does not lead to higher growth. Also,
deregulation of finance and the inflow of several types of
capital did not generate growth. She added trade did not lead
to development because of higher import content and dependence,
in that the same amount of imports or trade deficit generates
less growth now than in the past. For most developing countries,
there was also no link between efficiency growth and exports.
She also noted with concern that a large part of FDI inflow to
developing countries was in the non-traded service sector,
which would not generate export earnings. (SUNS4535)

The above article first appeared in the South-North
Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief
Editor.
[c] 1999, SUNS - All rights reserved. May not be reproduced, reprinted
or posted to any system or service without specific permission from SUNS.
This limitation includes incorporation into a database, distribution via
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