South needs positive agenda to face negotiations

by Chakravarthi Raghavan

GENEVA: Any international negotiation is based on power and this will not be absent from the negotiations at the World Trade Organization. As such, developing countries need to be realistic, know what they want and put forward a proactive or positive agenda of trade liberalization, rather than adopt merely a negative stance, UNCTAD Secretary-General Rubens Ricupero advised on 29 April.

Ricupero was opening a Third World Network seminar for developing countries on Current Issues on Trade, the WTO and Developing Countries, and placed his remarks in the context of the current macroeconomic environment, the mood and situation of the industrialized countries, and the differing perceptions and interests of developing countries.

In earlier years, he noted, the two major players, the US and the EC, took the leadership reins and set the GATT agenda.

Backdrop of crisis

While it was not the occasion to deal with the current financial crisis and its causes, at the Paris OECD Ministerial meetings he had attended, it was clear that the crisis would have a strong effect on trade, and that there will be a reduction in the rate of growth of world trade. The OECD, in its report, had made this point very strongly and categorically.

The financial crisis is also having an effect on patterns of trade. The OECD has noted that there would be a shift of $70 billion or more in current account balances. The Asian countries were creating surpluses by cutting imports, while the OECD expects a booming US trade deficit.

Among the three major groupings, only the US was contributing strongly to import demand, while Japan is not contributing at all. The Japanese trade surplus on its current account, according to the OECD, is having a "nuclear explosion" and according to data for February, it had increased by 88%. Europe could perhaps make a modest contribution because of its recovery in growth.

The macroeconomic imbalances among the three are now taking the situation back to the days before the 1985 Plaza Accord on currencies. These will have some effects on the relative values of the dollar and the yen and other currencies.

Another effect of the financial crisis has been a sharp fall in commodity prices. While the oil price fall is also due to other factors, the average index of commodity prices of all categories has seen a sharp fall and prices are depressed. The current account deficits of the commodity-exporting countries would grow, and this would affect Africa in particular.

Much would depend on whether there would be a prompt solution to the credit crunch in Asia. Revised data show that South Korea and Thailand have shown surpluses but these are mostly due to import reduction. Most of the affected countries have been facing difficulties in getting credits for exports and imports of inputs and raw materials. Much would also hinge on what happens in Japan, which has now had the seventh package of economic stimulative measures since 1992.

There was a risk involved in terms of what would happen in the US economy and there is reaction on the trade front towards growing trade deficits. It is easy to persuade Congress and the public to accept deficits when the economy is growing, but not when conditions are not so favourable.

This macroeconomic environment was reflected at the OECD in the attitude of the industrialized countries towards new trade negotiations. In that context, it had to be borne in mind that the US administration had not been able to get fast-track authority for trade negotiations. At a briefing at UNCTAD by a US trade expert, the difference between the administration's difficulties over fast track in the past and the difficulty now was stressed and this would have serious implications for future negotiations.

The macroeconomic environment and its effects on getting a mandate for trade negotiations, Ricupero said, were reflected in the viewpoints of the US and the EC, which came minutes apart, at the OECD meeting.

Sir Leon Brittan, for the European Community, called for the launch of a "Millennium Round" that would be broad in scope. And some of the EU members who took the floor translated this to mean that no question should be barred from the negotiations. The EC wants to see included in such a round trade and environment, trade and social issues, apart from other issues like investment rules and so on.

The US Trade Representative, Charlene Barshefsky, was much more sober and cautious and reluctant to extend support for a new round. She said very clearly that the Americans were not sure whether it would be necessary to have a more comprehensive round or whether the WTO should continue to make progress through sectoral negotiations or individual specific negotiations.

The differences among the two major trading nations about the scope of negotiations are no doubt due to their perceptions and nature.

But whether there will be a full-blown new round of negotiations or one based on the built-in agenda would be difficult to predict at this point, the UNCTAD head said, noting that it is due to the differing perceptions of the trading partners. Having successfully concluded the WTO negotiations on information technology products, basic telecoms and financial services, it was perfectly understandable if the US did not feel the need for any new round, but would rather seek progress in sectoral negotiations.

Brittan suggested that the negotiations should be concluded within three years and not be allowed to be protracted.

But as past experience shows, it is difficult to set deadlines in these matters, Ricupero commented, speaking from his experience as Brazilian negotiator in the Uruguay Round.

Considerations to be noted

In this situation, developing countries need to approach this matter realistically. An aspect too often forgotten is that power is an element in any negotiations, and it will not be absent from the WTO negotiations either. Power does prevail, whether it is reflected in the conditionalities of the Bretton Woods institutions, in soft power as elsewhere, or in market power. Anyway, these have to be taken into account in building up a strategy.

And whenever ministers are involved in negotiations, one has to take account of that too.

A second element is the differing interests, and hence differentiation, among developing countries. This should not, however, prevent developing countries from taking a common view on systemic issues, one of which would be decision- making.

Recently, he said, the countries in the Latin American and Caribbean Group (GRULAC) wanted to have a seminar at UNCTAD to prepare for the negotiations. But one of the Latin American countries did not agree, and the group could not hold such a seminar. But interested countries then got together and held a meeting anyway.

Differences in the perceptions and interests of countries are a fact of life and countries act on the basis of their interests. Some countries that have a strong interest in some issues would fight on those issues and even accept arguments that it is necessary to have a new round, since only then could progress be made on the issues of interest to them.

At Paris, Ricupero said, the WTO head, Mr. Renato Ruggiero, understood these points very well and presented them frankly to the OECD - about the reality of the preparations in Geneva. The OECD countries, he told them, should be cognizant of the fact that many developing countries were stressing their difficulties in implementing the existing agreements and demanding technical assistance from the WTO which had a programme to which only two or three industrialized countries were contributing funds, despite the rhetoric of support for technical assistance.

Ricupero said regardless of whether there would be a "Millennium Round" with new issues or a round on the built-in agenda, there would be negotiations started in 1999 and some decisions would be made by that Ministerial meeting.

Ricupero recalled the way the decisions were made on the Draft Final Act of the Uruguay Round and at Singapore, and said because of these, in the preparations for the next Ministerial, developing countries were expressing concern and insisting on the need for transparency in decision-making and discussions at formal meetings.

Future issues

In terms of the future, one had to consider some major issues relating to the WTO.

The first, he said, was the accession question. The WTO had now a membership of some 130 odd countries, and 32 countries were seeking accession, including China and Russia. At the Beirut Arab meeting he had attended, it was evident that all the Arab countries are considering applying for accession.

At the moment, a country seeking accession has to engage in prolonged negotiations, which are often tailor-made for each. So far, only two or three countries have been able to accede. To speed up the process, some new initiatives would need to be taken.

In a few years, the WTO would have some 160 or 170 members. In such a situation, how would the consensus rule function, and what proposals could be made to make the decision-making process more transparent in the future? This was an issue that needed to be faced.

Developing countries should approach the future negotiations with a clear picture of what they want and have a proactive or positive agenda, rather than a negative one of what they want. In an institution with a culture of liberalization, only an approach based on a positive agenda and fighting for it would work.

While some genius could always come up with a new issue, Ricupero doubted whether many new issues could surface. And in formulating a new agenda, one did not have to reinvent the wheel. (Third World Economics No. 184/185, 1-31 May 1998)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS)