New Round should address "unfinished business"

by Chakravarthi Raghavan

Geneva, 17 March -- The new trade round being promoted at the WTO should address the cumulative "unfinished business" of the Tokyo and Uruguay Rounds -- more access to markets for developing country goods and services, more access to "greenfield" investments, more finance for development needs, UNCTAD Secretary-General Rubens Ricupero said Wednesday.

Ricupero, in an opening address to the "Trade and Development Symposium" organized by the World Trade Organization, delivered a relatively tough speech -- probably because he threw away drafts from various divisions of the UNCTAD secretariat and wrote his own and, unusually for him had a text available for distribution soon after. In doing so, and even using some "bitter language", departing from his usual diplomatically worded speeches, Ricupero put some flesh and blood into his advocacy of "a positive agenda" of developing countries, and outlined what should have been a coherent list of "demands" by them for any new round of negotiations -- rather than as most of them have been doing, namely, conceding in advance what the European Union or the United States want, repeating neo-liberal slogans about "liberalisation of trade and investments", and hoping they can pick some crumbs falling off the tables.

In some telling words about the crisis spreading across the developing world and transition economies, and the complacency that has come back in the North, Ricupero said that 21 months after the outbreak of the most serious crisis of development, which has devastated South-East and East Asia, Russia, and has just prostrated Brazil and Latin America, "no one can tell whether it has been run out of regions to further ravage." It could no longer be described as Asian, financial, economic or global, but was "the crisis of development".

It not only started in a developing country, but has "reserved its malignant force" for the developing and transition regions of the world - those weak economies whose immune systems are particularly vulnerable.

The industrialized countries have not only been spared from the vicious contagion, but on balance have even benefited - from collapse of commodity prices, cheap manufactured imports from countries forced to devalue currencies, substantial improvement in terms of trade with developing countries, and boost to their equity markets from financial flows running away from emerging markets in a "flight to quality". This overall impact explained why it has been possible to maintain the miracle of continuous expansion in industrialized economies without economic overheating and a return to inflation.

In contrast, significant parts of the developing world have seen the fruits of decades of economic growth and poverty reduction evaporate in a matter of weeks, and practically all developing nations have been affected. And if the hope of development lay in the possibility of growing more rapidly, thus narrowing down the gap separating the rich and poor, this reversal of the trend represented a defeat for the entire international community. "It also produces strong grounds to question the process of development in its present form."

Paradoxically, the events have shaken some of the most of the most advanced among developing countries, while the extremely weak and poor economies of the world were not more seriously hit, because they had never had much access to private financial markets and had been unable to take advantage of the expansion of world trade.

Those more at risk have been the 29 countries listed by the Institute of International Finance (the Washington-based cartel of transnational banks) as the "emerging markets". Is it because these economies were more integrated into the international economy or that their successful integration into the world trading system has not been matched by an equally successful integration into the world of globalized finance? And is the latter largely because of failures in their national policies of financial regulation and supervision? And if so, how could one explain that others like Chile, where all fundamentals were in right place and had a sound banking system and prudent regulations, nonetheless posted an extremely high current account deficit this year?

A third reason why this was a crisis of development per se, Ricupero said, was far from being a rare situation, "stop and go" performances of developing countries was becoming more frequent, and the current problems have nothing to do with business cycles of capitalist economies, but more similar to the structural crises that deeply disorganized the world economy in the inter-war periods.

There was a brief period in September-October last year when the fallout from the Russian collapse and the near failure of a US hedge-fund made even the US "fear for its economic life." Less than six months ago, and it already looks like old history, the chairman of the US Federal Reserve, Alan Greenspan, spoke of disappearance of liquidity. For a weeks it appeared that the need for a new financial architecture was going to be widely acknowledged.

"Alas, it was but an illusion. As soon as the cuts in interest rates performed their magic, we were back to business as usual on Wall Street."

Since then two basic attitudes have dominated the debate: delay and denial. Delay, as Parkinson's Laws state, is the deadliest form of denial and there has been no shortage of delaying tactics - a proliferation of meetings, inflation of communiques, multiplication of groups and fora. Some participants in this debate, perhaps heartened by the perverse selectivity of this crisis, do not shrink from stating there is nothing wrong with the architecture nor foundations. At most there may be a small matter of improving the plumbing or fixing the electricity, possibly just the painting on the facade."

"Those amongst us who participated in the Uruguay Round will have the feeling that they have already seen this film. To be precise, during the discussions in the FOGS (Functioning of the GATT System) group, when all attempts at building a solid bridge to assure coherence between trade, currency and finance were met with the same cosmetic action - with the consequences that we are now reaping.

"Even fixing the electricity or the plumbing may end up being too much for the advocates of denial. Changing the metaphor, they may find themselves rearranging the furniture on the deck of the Titanic or playing Transparency Waltz for passengers drowning for lack of a life-boat," the UNCTAD head, a former GATT negotiator, and then a finance minister of Brazil, now in the grip of a severe crisis, he added.

One of the lessons of the crisis was something "we should have known all along: trade is not an autonomous force acting in a vacuum, one which permits us to pull ourselves up by our own bootstraps."

Trade can do wonders, but cannot perform miracles. When country after country is forced to cut down on imports, by almost onethird as in the affected Asian countries or 10% as in Japan, something has to give.

"And don't believe the worst is over. After a fall of 6% in 1998, Brazil is expected to further reduce imports by 20% this year. In January, Japan saw an import plunge of over 20% compared to a year ago."

Adjustments in current accounts are being achieved by the worst possible means - through a vicious cycle of import repression, generating deceleration in export volumes. And even when volumes expand their value is diminished by the combined effect of deflationary demand contraction, excess supply and currency depreciations.

There was also the worrying trend in worsening of huge swings in current account balances: while the US current account deficit worsened to $294 billion in the USA and $52 billion in Latin america, the counter-part surpluses are being built in the OECD countries of Europe, with $128 billion, Japan with $122 billion, and the emerging markets of Asia (excluding China) with $58 billion. "This is fertile ground for the return of protectionism and trade conflicts, which we are witnessing with such a vengeance."

Implicit in this overview, said Ricupero, is the conclusion that there is not a great deal that can be expected from developing countries to overcome the crisis. By contrast the industrial countries still enjoy considerable scope and freedom for expansionary policy actions.

He commended the UNCTAD secretariat recommendation, in a paper for the ASEAN, for direct injection of liquidity into developing countries through official channels to raise demand, imports and growth. Japan and the EU could play an important role in providing such direct liquidity injection, by recycling part of their surpluses in various ways to developing countries.

Other means of producing a direct increase in liquidity in developing countries should also be developed - such as by removing the debt overhang of the highly indebted poor countries - and by a substantial new SDR allocation to developing countries.

There was no shortage of concrete ideas of what to do, though those he had outlined fell under the jurisdiction of international financial institutions or major industrial countries, not the WTO. But it was appropriate to raise them in the symposium.

As for what could be done at the WTO and what developing countries expect and want from future trade negotiations, they need more access and more flexibility.

There should be more access to markets for developing country goods and services, but also more access to "greenfield" investment which generates additional export capacity and shared skills, more finance for development needs, more access for their skilled labour to global markets for services and to new techniques and knowledge.

Ricupero added: "Here is where we should finally address the cumulative 'unfinished business' of the Tokyo and Uruguay Rounds: tariff peaks and tariff escalation in the food, textiles, clothing, footwear and leather industries. The postponement until 2005 of economically meaningful removal of restrains on developing countries' exports of textiles and clothing, the very embryonic liberalization of trade in agriculture, the abuse of anti-dumping procedures, the problems of rules of origin, phyto-sanitary measures, technical standards, and environmental barriers - in those areas in which developing countries have become successful exporters."

More flexibility should also be granted to developing countries to use a variety of policies and instruments to promote such "an extraordinarily complex and difficult process as development".

No one should underestimate the daunting challenge faced by the poorest among the poor to absorb, let alone implement and use, trade agreements, Ricupero said.

"Those countries need more, not less flexibility; more, not less, assistance to succeed. It is hard to understand why developing countries seeking to accede to WTO are being asked to give up even the flexibility enjoyed by members.

"We must resist the tendency to use trade negotiations as an instrument for the kind of global governance that denies developing countries the active policies to acquire competitive advantages. This, above all, when the same industrialized nations have widely and successfully used similar policies during their own historic process of development. As recently as the Uruguay Round, major industrial countries have maintained for themselves the right to continue massive agricultural export subsidies."

To achieve these goals, organizations like the WTO and UNCTAD should help developing countries become active protagonists in future negotiations, the conscious subjects and not passive objects of decisions that will condition their destiny. It required "a pro-active, positive agenda" for developing countries' trade negotiations, "a constructive and affirmative strategy in all issues under negotiations that should arise from the vigorous initiative and unity of purpose of developing countries themselves."

It is the duty of UNCTAD and WTO to cooperate with developing country governments by providing them with research, analytical and conceptual inputs indispensable for formulation of their major negotiating positions in the light of their own trade interests - taking into account the possibilities of coalition-building with like-minded partners, developing or developed. There was also need to acquire negotiating skills through a substantial programme of commercial diplomacy, and continuous assistance for implementation of agreements.

Last but not least, developing countries also need help in dispute settlement, which has proved often to be as important a way of gaining market access as negotiations.

Trade negotiations were not an exception for power to prevail in a world of men - market power, managing opening of one's own market to gain access to other people's markets. But given the huge differences in size and purchasing power, how could one avoid the fact that the inevitable asymmetry in use of market power will tend to aggravate excessive inequality?

The answer, Ricupero said, lay "in a redefinition of competition, in the light of development."

Almost all trade questions revolved around competition, which has many analogies to games, and the application of game theory to negotiations.

But till now they had tended to reduce competition to the first two requisites of any game: rules and arbiters - fair rules of trade agreements and impartial arbitration of dispute settlement process.

But third, and absolutely indispensable, element of games and competition -- learning, education, training and preparation -- has been largely overlooked, believing that the best way to learn a game is by playing it. But it presupposed there would be someone to tell how to do things the right way, how to correct faults, and during the training period being crushed by trainers and teachers.

"In other words," Ricupero said, "one needs a breathing and learning space, a re-invigoration of Special and Differential Treatment to successfully confront the dynamic changes in the global economy driven by rapid technological advance." (SUNS4397)

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

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