Global Trends by Martin Khor

Monday 6 February 2012

Seminar warns of effects of economic downturn

A South Centre conference last week warned that developing countries could be badly hit by the new global downturn, and also discussed the state of the WTO negotiations.


The global economic downturn and the international negotiations on trade and on climate change were the topics of a South Centre conference last week.  It provided an interesting discussion on the state of the world from the perspective of developing countries at the start of 2012. 

The conference, attended by over a hundred policy makers, diplomats and experts, was held on 2-3 February at the United Nations building in Geneva.

In a session on instability and downturn in the world economy, the South Centre’s chief economist Yilmaz Akyuz  warned that the concept that the South had decoupled its growth from that of the developed economies could lead to complacency.

While in the past decade the growth rates of developing countries were about 5 percentage points higher than those of developed countries, this was largely due to favourable external conditions which are no longer sustainable.

Among the conditions were the US acting as locomotive to export-dependent developing countries, a surge in private capital flows to developing countries, massive rises in commodity prices and in remittances to developing countries.

As these factors fade or even reverse in the current global downturn, developing countries have to deal with emerging new problems, while also devising longer term development strategies such as reducing dependence on Western markets and finance and upgrading investment (for those which are under-investing) or consumption (for those which are under-consuming) and boosting industry.

Juan Somavia, director-general of the International Labour Organisation, urged developing countries to safeguard their space to implement their own policies, and to use this space well in this period of crisis.

He advocated switching to a growth pattern that is job-intensive and income-led.  Growth should be designed to generate jobs and raise wages, increase social protection and put a higher value to work.

Charles Soludo, former Central Bank Governor of Nigeria, warned that the downturn would lead many developing countries into a new debt crisis.  This time, there was little hope of external help, and in Africa the situation may be worsened by the economic partnership agreements being foisted by the European Union which would further constrain Africa’s policy space.

Nagesh Kumar, chief economist of ESCAP (the UN commission for Asia) said the downturn would affect Asia through the trade and finance channels, warning that many of the remedies used in the 2009 crisis are no longer available.

Malaysian economist Lim Mah Hui analysed three major imbalances (including income inequality) and stressed the role of the state in industrial policy and to regulate finance to serve the real economy instead of speculation.

The conference discussed the impasse in the Doha Round and the future of the World Trade Organisation.  A panel of Ambassadors from China, India, Nigeria, Tanzania, Bangladesh, Bolivia, and South Africa seemed to have a similarity of positions.

They agreed that the Doha Round impasse would continue for some time.  While attempts are made to revive the Round, the developing countries should resist attempts by developed countries to introduce new issues such as investment, or new plurilateral agreements inside the WTO, or to re-examine the status of developing countries. 

Meanwhile, the members should make the WTO more development-centred by resolving issues of interest to least developed countries, by improving special and differential treatment for developing countries and tackling agricultural protection in developed countries.     

Rubens Ricupero, former UNCTAD Secretary General, recalled his warning a decade ago that the Doha Round was one Round too many and too early, as the WTO members should have focused instead on digesting the Uruguay Round and its unfinished business.

The WTO would survive as it had a useful role.  It should focus on the unfinished business of agriculture, tariff peaks, anti-dumping, issues that would link trade and development.

Trade expert Chakravarthi Raghavan said the Doha Round had been introduced by developed countries in order to evade their commitment made during the Uruguay Round to really cut their agriculture subsidies and tariffs.

The Doha negotiating agenda had been loaded with so many other issues and now could not be completed, thus allowing developed countries not to undertake their agriculture commitments. This was bad faith on their part and developing countries should respond, for example by not implementing the intellectual property agreement.   

The conference ended with a session discussing the current climate change negotiations.  A panel of experts and negotiators analysed the process and outcome of the Durban climate conference and made suggestions on how developing countries should interpret the mandate for new negotiations so that the equity principle and the concerns of developing countries could be successfully addressed.