Solidarity or divide and rule?

by Chakravarthi Raghavan

Geneva, 7 Mar 2001 -- Dutch Development Cooperation Minister, Mrs. Eveline Herfkens, in an address at the UNCTAD Trade and Development Board last week, calling for ‘solidarity’ with the least developed countries (LDCs) for the May UN LDC Conference, has in effect thrown two challenges.

The first challenge she threw was to other industrialised countries, namely, that they should match or do better,  the Europeans Union’s “Everything but Arms” market access package for the Least Developed Countries - inadequate, as she saw it.

And on Monday, the UN Secretary-General Mr Kofi Annan (in an article in the Financial Times) appealed to other industrial countries, particularly the US, Japan and Canada, “to follow the EU lead without restrictive provisions or reservations.”

Annan, in praising the EU’s package,  and explaining away its shortcomings (as necessitated to overcome the resistance from domestic producer lobbies and provide reassurance to the ACP countries), added somewhat effusively that the EU decision “shows that Europe really does want a fair international trade system, in which poor countries have a real chance to export their way out of poverty.”

A British NGO, in a letter to the Financial Times, questioned Annan’s “unqualified enthusiasm” for the EC package and pointed out that for three of the six commodities (of export interest to LDCs), there would be lengthy delays before full implementation of ‘duty-free, quota-free’ access, with bananas getting no access until 1 September 2009. The writer also noted that no additional practical supply- side benefits have been provided by the EC.

There are some development and trade experts who also take a global view and suggest that if the EU and Japan take measures to increase their growth rates beyond the 3% annual rate that has been mentally set for the EU by its central bankers (in order to protect and safeguard financial capital and its value), it would probably go a longer way to increase demand for exports from developing countries and LDCs products than all the EC claims of preferential market access. The faster US  growth over the second half of the 1990s (in the 4-5 percent or more range, perhaps did more to pulling up developing countries growth, and even that of the LDCs, than all the talk of preferential market access).

Perhaps Annan’s aides who wrote up his effusive article for him were not particularly familiar with the WTO scene - - either of the 1999  run-up to Seattle where the EC was promoting its offer as a carrot for LDCs joining the EC to press for a new round with new issues like investment, or the post-Seattle EC moves at the WTO General Council’s implementation discussions or the African Libreville meet or the much earlier past and theoretical basis that Raul Prebisch laid out at UNCTAD-II for the Generalized Scheme of Preferences to developing countries.

At her UNCTAD speech, Herfkens had thrown a second challenge to the other industrialized countries, for their efforts to provide debt relief to the Least Developed countries at the expense of other developing countries, including some LDCs.  She had  specifically mentioned the G-7 countries and said they should put their money where their mouth is and find the resources from their budgets to meet the costs of the HIPC initiative (to write off their own loans, as the Netherlands had done).

“Debt relief must not be paid for, as some G-7 countries want by using the World bank income, which would otherwise have gone to the IDA (the International Development Association, the Bank’s soft-lending window, which lends long-term to the poorer countries with little or no interest),” she said.

While not a trade minister, but only a development cooperation minister, if Herfkens had familiarised herself with the way the preferential trading scheme has evolved, she would have seen that it was not only a far, far cry from the original UNCTAD/Raul Prebisch thesis for the Generalised Scheme of Preferences, but one that essentially provides preferential market access for one group of developing countries at the cost of other developing countries, and securing benefits for corporations of developed countries to dominate the markets of developing countries in production and trade.

The EC’s own schemes and stands show that far from wanting a fair international trade system, the EC, through the LDC package - using it as a leverage to win LDC support to its positions - is trying to replay the (old imperial) game of divide and rule, and make other developing countries pay for the LDC benefits, and split the developing world over a new round with new issues in the run-up to Seattle.

The internal discussions within the Group of 77 last week in Geneva, when the Geneva chapter met to consider the ‘trade aspects’ of the LDC Plan of Action, showed that the EC may have gone a long way towards splitting the developing countries, helped no doubt by the fact that several of the LDCs were not even WTO members and somewhat unfamiliar with the rules themselves.

The EU’s “everything-but-arms” package of ‘tariff-free, quota-free’ market access for products from the LDCs - excepts not only arms, but three of the six key commodities exported by LDCs (bananas, sugar and rice), has a EU Commission assurance of closely monitoring imports and willingness to use trade instruments like ‘safeguards’. And the EU package is in effect a ‘preferential’ benefit provided by the EU, and ‘duty-free, quota- free’ access would not be a WTO commitment.

It was Raul Prebisch, as Secretary-General of UNCTAD, who first enunciated the idea and concept of a generalized system of trade preferences by developed countries in favour of the developing countries.

After considerable debate and arguments, this was accepted in principle at UNCTAD-II in Delhi in 1968, with each of the developed countries being asked to formulate their own individual schemes and provide benefits -  giving rise to arguments about ‘burden-sharing’ as between the industrialized countries.

But the individual-country schemes were to be formulated on the three principles of generalized, non-reciprocal and non-discriminatory preferences to be provided to imports from developing countries as compared to imports of like-products from developed countries.

The idea was that the products of the developing countries would be able to enter the markets of developed countries at a preferential or nil tariff, and compete with local domestic producers on an equal footing, enjoying a preferential margin over  similar products from other developed countries.

In implementing the idea in individual-country preferential schemes - this was before the Tokyo Round and the cutting down of tariffs in developed countries, and their replacement with non-tariff barriers - each preference-giving country excluded some of their ‘sensitive’ products from the GSP, in order to shield their domestic sectors against cheaper imports from the developing countries.

They also introduced special safeguard actions and trigger points and so-called ‘competitive tests’ to test whether the developing country enjoying the preferences did need the margin of preference to compete.

To enable the developed countries to give preferences to developing countries, without other developed countries claiming that same benefit in terms of the General Agreement, waivers and decisions had to be made by the GATT Contracting Parties - under which developed countries agreed that they would not seek the same benefits.

That the preferential tariffs helped only a few developing countries to rapidly expand their exports came as a surprise only to the ‘trade theorists’ who believe that cutting tariffs would automatically expand and increase trade. Some theorists even argued against the preferences on the ground of trade-diversion.

That there could be no trade or exports without productive capacity was known to those familiar with the history of economics and of the experience of the late 19th century, when the UK put into practice the Adam Smith/ Ricardo theories, after it had industrialized itself and was able to export and dominate under free trade.

But development economics fell out of favour in the 1980s, under the theological winds of neo-liberalism.

Gradually, the preferential trading schemes got distorted; with the preference-giving countries seeking some quid pro quo or other from the preference receiving countries (political and security alliances with the US or benefits to their corporations and government procurement contracts etc), in substance, if not in form.

Meanwhile, UNCTAD identified the problems of a group of developing countries low down in the economic and development ladder (most of them former colonies in Africa, and a few in Asia) - who had very low levels of domestic savings and thus could not accumulate any capital, and were even more disadvantaged in terms of education and skills, and industrial infrastructures.

The creation by the United Nations of a group of least developed countries, and special programs for them, was intended to enable these countries to get more official aid than the other developing countries - who had comparatively higher rates of domestic savings, capital formation, and some limited education and industrial infrastructures - and to enable them to take advantage of trade preferences.

After some demurral by other developing countries, specially those who too had large pockets of poverty,  the developing countries came out in solidarity and support of more aid for the LDCs - though at the first UN LDC Conference in Paris, the major battle was against aid being diverted from one group of poor developing countries to another, the LDCs.

Meanwhile, in the second half of the 1980s, came the second generation of preference schemes, where the major industrialized countries - the US, EC and Canada - began providing preferences to one group of developing countries against another, and denying preferences to other developing countries on the ground of their becoming more advanced among developing countries and more ‘competitive’.

Whenever the preferences seemed to threaten domestic producers, various safeguards, etc were applied.

But as several of the studies for UNCTAD done by outside experts showed, when some of the advanced developing countries (like South Korea, Singapore or some of the second generation NICs of South East Asia) lost their preferences, the market space was taken up not by other developing countries, but by other developed countries and their corporations.

Some of the preferential schemes were not only counter to the original GSP, and the decision of the GATT-CPs, but discriminatory to other developing countries equally placed and needed ‘waivers’ in the GATT - - for the Caribbean Basin Initiative, for the EC’s Lome agreements etc, and now more recently, preferences favouring the transition economies or to ‘reward’ some countries for their efforts to control, at the source, the cultivation and production of narcotic drugs.

And during the Uruguay Round, developing countries pushing for the special and differential treatment, which was a part of the Punta del Este mandate, would be countered in negotiating groups with the statements from the US or the EC that they could not agree to differing trading rules for countries like South Korea or Singapore, but could consider them for the LDCs; Bangladesh as the LDC spokesman  (and most of the negotiations were totally non-transparent, and very few LDCs were present for that matter), would table proposals for such special and differential treatment to the least developed countries.

But as Bangladesh itself finally discovered in December 1993, the industrialized countries had no real intention of favouring the LDCs - they merely agreed to give some extended time periods to comply; slightly longer than for other developing countries.

After Singapore, and more so in the run-up to Seattle, the developing countries as a whole began questioning the benefits of the WTO system for them, and highlighting the fact that none of the promised benefits had materialized while their obligations had increased.

They formulated a number of detailed proposals, under the rubric of implementation, that have called for measures to ensure that the promised benefits accrued to the developing world, including by operationalizing the special and differential treatment principles (in terms other than a longer time frame) and correcting the inequities of the various agreements -   particularly those like agriculture, subsidies etc, where the industrialized countries have been provided special treatment as a right, and that for the developing countries, as best endeavour efforts.

For the LDC conference, a draft plan of action was prepared, that at the second session of the LDC preparatory committee meetings in New York, got effusive support of sorts from the IMF, the World Bank and the EC too. But the LDCs themselves, as well as other developing countries, were critical and a text with considerable differences and square brackets has emerged.

This has to be tackled, and as many as possible, removed at the third session beginning end of this month -  if a fate similar to that of the Seattle Ministerial meeting is not to overtake the LDC meet.

The trade portions have proved particularly troublesome.

The US, EC, Canada and others have tried to promote the idea that there should be ‘burden-sharing’ in providing help to the LDCs, and hence other developing countries too should contribute.

This is sought to be done in terms of the definition of ‘development partners’ of the LDCs, formulating the concept in such a way as to bring in other developing countries too.

While other developing countries have been willing to provide help, they are not prepared to make this an international commitment on the same level as that of developed countries.

After some considerable internal wrangles, the Group of 77 in Geneva appeared to have taken a stand in favour of a formulation that makes ‘development partners’ responsible for helping the LDCs, and defined the ‘development partners’ as developed bilateral partners as well as organizations of the UN system and relevant multilateral organizations.

The help of developing countries to LDCs is formulated in the context of South-South cooperation for human and productive capacity building, health, education, professional training, agriculture, environment, science and technology, and trade.

In terms of ‘market access’, the G77 compromise would appear to support the grant by developed countries of bound duty-free treatment for all products originating in LDCs, combined with multi-donor programmes to enhance LDC production and export capacities, as also harmonizing the rules of origin.

Some of the Latin American countries however appear to have some reservations, particularly as they see the package for the LDCs as trade-diverting rather than trade-creating.

The EC has attempted to create divisions within the developing countries, by suggesting a formulation that would call for making all provisions on special and differential treatment in the WTO agreements ‘operational’ for LDCs, while Japan has suggested ‘immediate implementation’ of S&D provisions in favour of LDCs.

The net result on the one side would be to weaken or dilute whatever there is in the WTO agreements for special and differential treatment for the developing countries.

On the other side, all the provisions are either those providing for longer-time spans to comply, or those in best-endeavour language like the developed countries taking into account the needs of developing countries and least developed among them etc.

It is difficult to see how any of these types of provisions could be made operational for the LDCs. It is even more difficult, in terms of rule-making, how to ignore the non-LDC developing countries.

A G77 formulation would call for implementation in full and as a matter of priority the S&D measures in favour of LDCs as contained in the Final Act of the Uruguay Round, especially the Marrakesh Declaration and ministerial decisions, as also consideration of new measures favouring LDCs.

The G77 also calls for improvement of the GSP for all beneficiaries, particularly by reducing administrative and procedural complexities.

Another G77 compromise is for examining the possibility of strengthening the effectiveness on non-actionable categories of subsidies to take into account the needs of LDCs.

The G77 has also suggested formulations for facilitating accession to the WTO based on terms that take account of the stages of development and basic principles of special and differential treatment and provide automatic eligibility for acceding LDCs to the S&D in existing WTO agreements, exercise restraint in seeking market access concessions from the LDCs, and exempt LDCs from assuming obligations and commitments beyond those applicable to them in the WTO agreements.

Trade observers have noted that a scandalous part of the accession exercise so far has been the neo-mercantalist attempts of the majors to get from the countries seeking accession, agreement to assume higher obligations than in the WTO (in a variety of areas including in TRIPS, where they want acceding countries to give up on their TRIPS right to provide for parallel imports or compulsory licensing etc).

The draft plan of action has to be negotiated and finalised at the Preparatory Committee meetings in New York. But the Group of 77 appears to have decided that in the trade area, its stand would be governed by the viewpoints of the G77 in Geneva where there is greater expertise about WTO matters than in New York.-SUNS4850

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

© 2001, 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 Usenet News, bulletin board systems, mailing lists, print media or broadcast. For information about reproduction or multi-user subscriptions please e-mail < >