New round with new issues will increase marginalization

The global financial crisis and its effects on the multilateral trading system (MTS) were discussed recently at the WTO General Council. While the developed countries called for further trade liberalization as the answer to the crisis, the developing countries drew attention to the uneven benefits accruing to them and their increasing marginalization. The developing countries also expressed concern over the increasing use of anti-dumping actions by the developed countries as a protectionist mechanism.

by Chakravarthi Raghavan

GENEVA: The global financial crisis, and its effects on the multilateral trading system (MTS), figured prominently at the WTO on 9 December, with several developing nations voicing concerns over the uneven benefits and increasing marginalization.

The WTO General Council, sitting as the Trade Policy Review Body (TPRB), was conducting an annual review of the multilateral trading system, based on the annual report of the secretariat, and an overview document of the WTO Director- General.

Further marginalization

While developed nations generally spoke in terms of further trade liberalization by all Members as the answer to the financial crisis, and for a new round of negotiations with an ambitious and comprehensive agenda, a number of developing countries like Egypt warned that a new round of negotiations with new issues would only result in further marginalization of the developing countries.

Uganda and Bangladesh said the 3rd Ministerial meeting should seriously address the problem of marginalization.

The core issue of the WTO and its trade liberalization drive, Indian Ambassador S. Narayanan said, is one about the "even and equitable spread" of the benefits of liberalization to all countries.

"And so long as there is either unwillingness or inability to deal with this core issue, it is unlikely that a country like mine would be prepared for any ambitious agenda."

The existing WTO agenda was such that "developing countries are being forced to open up their own markets, but markets for developing-country products with export potential remain completely closed or are open only partially," he added.

Indonesia, for the Association of South-East Asian Nations (ASEAN), took issue with the overview on the introduction of exchange controls (by Malaysia) and said the effectiveness and desirability of exchange controls as a response to the financial crisis is a matter still being debated "and no hasty conclusions should be made in this regard."

The ASEAN also took issue with the overview assessment that the contraction in value terms of the combined exports of the affected countries was "small", and believed that the full impact of the financial crisis was yet to come. The broad picture in relation to competitive devaluation had failed to take into account specific country concerns, such as the major problem in terms of increased costs of imports and intermediates dampening export production and survival of key value- added sectors.

The effects of the crisis had gone beyond the economic domain and have also "caused serious upheaval in the fabric of our societies and even unrest," Indonesia added.

India also took issue with the assessment that the contraction in value terms of the exports of the affected countries, linked to the decline in US dollar prices, hid a "strong volume increase (of exports), due to increased competitiveness".

The purpose of this statement was not at all clear, India said, but it was obvious that the situation was one of crisis, and the unprecedented fall in values of the currencies of these countries had resulted in enormous hardship. What had happened was not a "normal devaluation" which countries resort to in order to bring the value of their currencies on a par with real market value.

"It appears a bit strange that the annual overview should give the impression that there is a positive aspect to the crisis in the sense that it has led to increased competitiveness. The reality is that the major importing developed countries are able to get more volume of products for the same value because of the sharp fall in the value of the currency of these exporting countries." And as the secretariat's annual report had recognized, the reductions in export prices had benefited countries such as the US and the UK whose economies, early in 1998, were operating at near full capacity.

The Director-General's overview, Narayanan suggested, had perhaps been worded rather unfortunately, and consequently could create some confusion about what it seeks to convey.

The Indian representative commended and drew attention in this regard to UNCTAD's recent Trade and Development Report for its "comprehensive analysis of the competitive effects of the currency devaluation."

A number of developing-country delegations who spoke said the WTO system needs to look at and find remedies for the current situation of uneven benefits of trade liberalization, and unless this was done, there was the danger of erosion of public support. A number of developing countries voiced their concerns over the increasing recourse to anti-dumping actions, including threats of such actions, as a defensive protectionist mechanism.

Oral presentation by WTO D-G

In initiating the discussions, Director-General Renato Ruggiero had earlier made an oral presentation (and the text was made available by the WTO press office as his "talking points") whose tone was slightly different from that of his overview report dated 30 November.

One of the most important issues to emerge from the Geneva Ministerial Conference, Ruggiero said, was the issue of implementation. "What is at stake in the implementation process is not just the credibility of our Uruguay Round Commitments. What is at stake is our success in continuing the integration of developing, least developed and transition economies into the global trading system. This is the real meaning of the implementation debate and the real test of our system in the time ahead."

Ruggiero strongly recommended that Members give full attention to this and give it a high priority, taking into account the real needs of their partners. Implementation is a real and complex issue, but cannot be used to stop the process of further liberalization nor can it be considered a minor problem in an institution whose members are predominantly developing, least developed or transition economies.

Anti-dumping concerns

In his "talking points", Ruggiero spoke of the social costs of the crisis (citing the World Bank's view about the unemployment in the crisis-hit countries), and the concerns about "possible misuse" of anti-dumping.

The overall number of anti-dumping actions had not increased compared to the 1992-1997 average, he said, but he agreed that there had been some increase in the use of anti-dumping, compared to 1995 and 1996, "in particular by certain major trading powers and on certain products, such as textiles and steel".

The WTO head urged all countries to continue showing restraint and responsibility in their use of contingency protectionist protection.

Several developing nations, and also Japan, in their own interventions (based on his overview report), had expressed concerns over the increasing resort to anti-dumping investigations, in particular in the steel and textiles and clothing sectors.

In his overview report circulated as an official document, Ruggiero referred to the absence of many challenges to the anti-dumping actions as evidence of lack of "significant problems".

In sharply joining issue with this assessment, India expressed surprise at such an assessment, considering particularly the fact that a number of developing countries had repeatedly voiced their concerns in various WTO bodies on the use of anti-dumping. India itself had repeatedly complained of how a particular textile product (cotton yarn) had been subjected to repeated investigations (by the EC) for seven years, without a definitive duty ever being levied on it.

And if there had not been many challenges to this through the dispute settlement system, India added, the obvious explanation lay in the lack of resources of developing countries to pursue such proceedings, as also the special standard of review for anti-dumping disputes which did not make it worthwhile to initiate a challenge. And "a recent Appellate Body report appears to restrict the scope for mounting challenges under the Anti-dumping Agreement," India added.

On the remarks in the overview about the pre-emptive measures in some countries and the trade frictions between major trading partners as well as the growing sensitivity to market-access issues, and the need for "close monitoring", India said the WTO membership would have to decide quickly how exactly it could perform this task of closely monitoring the situation.

India complained that the overview had also given a misleading view in its paragraph 13 about the integration of textiles and clothing products under the Agreement on Textiles and Clothing (ATC), and said so far the actions taken by the industrialized countries has been "technical rather than commercially meaningful."

And by mixing up the tariff reductions in industrial products, tariffication of non-tariff barriers in agriculture and integration of the textiles and clothing system into the GATT, the overview left the impression that quantitative restrictions (QRs) on textiles and clothing were being maintained by both industrialized and developing nations to the same extent and that the QRs in textiles and clothing were coming down.

A "misleading impression" was being created as though the tariff levels of industrialized countries on textiles and clothing were steadily declining.

"The no. 13 is not considered particularly good and lucky and .... this paragraph 13 causes problems to my delegation because it is confusing."

The Indian representative also sought clarification of the reference in the overview to the idea of "outsourcing" of the technical cooperation service and whether the intention was to ask other organizations like the International Trade Centre to do this, and whether this was the correct approach.

The WTO's technical cooperation activities, India said, benefited not only the recipient country, but also the secretariat "by exposing them to the ground realities of the country receiving the assistance." The technical assistance programme inter alia enabled the secretariat "to get some exposure to the problems of developing and least developed countries" and outsourcing this activity would deprive the secretariat of the opportunity "to increase its sensitization to the problems of developing and least developed countries."

India was also not clear as to what exactly the secretariat tried to imply by its remark in the annual report that no country, developing or developed, has an interest in cutting itself off from flows of technology. Developing countries had shown no interest in cutting themselves off from the flows of technology.

Countries like India had repeatedly underlined that technology was the most crucial determinant of competitiveness and that developed countries were adopting all sorts of methods to prevent transfer of technology to developing countries, even on commercial terms. Even the phrase "transfer of technology" was removed from the work programme on electronic commerce at the insistence of one major delegation.

Demands of the global age

India also expressed concern over the view in the annual report that the WTO could help provide a response to the central governable challenge of the new global age, and that while governments answer mainly to national constituencies, "the economic system must answer to global needs."

"The implication of this," Narayanan said, "seems to be that governments must give a higher priority to the profits of TNCs rather than the welfare and well-being of their people. Almost all governments in the world are democratically run and accountable to their people. It is the people, not governments, that live out the harsh reality of the crisis. It will not be in the interests of the WTO to project this type of image."

Free markets and open boundaries were generally good, but not everyone necessarily benefited from the global integration of economies or benefited equally or in the same time frame. Payoffs, if they come at all, and they may not, come faster for some than for others. So do dislocations. "Hence the challenge before the multilateral trading system is to mesh equity considerations and the rules."

Before the Singapore Ministerial, observed the Indian representative, whenever he talked about equity considerations, he was told that "rules and equity considerations cannot go together.

"I disagree with this approach. Whether we are making rules or implementing them, we cannot be insensitive to concerns relating to equity or fairness, if we want this organization to gain acceptability all over the world. I would strongly urge the General Council and the TPRB that in future, the DG's annual overview and the secretariat's annual report should specifically highlight to what extent equity considerations had influenced the working of the MTS during the period under review."

India also was concerned that "trade and development" was listed as among the new issues for the WTO. Trade and development was the very essence and part of the existence of the WTO, and not a new issue at all, and there should be no confusion created in this regard.

Later in his summing up, Ruggiero acknowledged there had been an error and that he had wanted to emphasize the new dimension to this issue at the WTO.

In other comments, Japan said the growing integration of the world economy had drawn attention to the transborder dimension of economic activities and in this regard a country's treatment of a foreign company operating on its territory became ever more important. The recent disturbances in the financial markets and decrease in short-term capital flows have aroused a greater sense of urgency on the need to promote FDI. Japan hence placed great importance on putting "investment" on the agenda of the next negotiations in the WTO.

Japan also raised its concerns over the increasing use of anti-dumping, and referred to the WTO annual report's mention of increased application of this instrument by developed countries.

Hong Kong-China stressed its repeated warnings about the imperfections in the WTO's Anti-dumping Agreement and the dangers of the proliferating use and misuse of this as a safeguard measure. At some point in the future, Hong Kong was sure that the balance of opinion among WTO Members would tip against it. At the present juncture, the subject required close monitoring and the secretariat should make a quarterly report on this to the General Council.

The US said the WTO should play a role in supporting the critical macroeconomic, structural and financial steps being taken by other national and international institutions to deal with the financial and economic problems facing the world.

In recognizing the vital contribution that expanded international trade could make to economic growth and global prosperity, the WTO should not tolerate any backsliding in the collective commitment to further liberalization and exclude from consideration any delays in implementing existing obligations.

"We should avoid committing to 'standstill' agreements which will be honoured only in the breach," the US said, adding: "we should reject any lowering of our mutually agreed standards in providing for the future and expanded membership of the WTO." (Third World Economics No. 200, 1-15 January 1999)

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