Global Trends by Martin Khor

Monday 21 June 2004

UN Trade Conference ends on high note

The United Nations Conference on Trade and Development ended its eleventh session (known as UNCTAD XI) on quite a high note in Sao Paulo, Brazil, last Friday.  Its most significant results included the recognition that developing countries have the right to more “policy space” to meet their development needs, and the launching of a new round of South-South trade talks under the Global System of Trade Preferences (GSTP).


UNCTAD XI concluded last Friday on a rather high note with some significant results that may help developing countries.

The conference adopted a declaration called the Sao Paulo Consensus, which contains analyses of globalisation, trade and development issues and proposed policy responses.

Some prominent leaders, including Brazilian President Luiz Lula da Silva, Thai Premier Thaksin, and UN Seceratary-General Kofi Annan, spoke at the first part of the conference and called on developing countries to rely more on themselves through South-South trade.

Significant events on the sidelines of  UNCTAD XI included the launching of a new round of South-South trade talks (under the GSTP scheme) and the Ministerial meeting of the Group of 20 developing countries on agriculture issues.

At the closing session last Friday, the outgoing UNCTAD secretary-general, Rubens Ricupero of Brazil, made an  emotional farewell speech.

UNCTAD XI’s most important achievement was the inclusion in the declaration of a section on need for developing countries to have “policy space”, which has been increasingly eroded by trade agreements and loan conditions.  

It was the first time a multilateral conference involving North and South had recognized this idea and it will be useful to developing countries’ negotiators when they argue their case in the World Trade Organisation, at the International Monetary Fund and in regional and bilateral trade agreements.  

There was much heated debate over eight months on this issue, which the developing countries were pushing as their biggest issue, and the developed countries resisting and trying to dilute it.

As a compromise, the Sao Paulo Consensus now says that  “it is particularly important for developing countries, bearing in mind their development goals and objectives, that all countries take into account the need for appropriate balance between national policy space and international disciplines and commitments.”

It also states: “The increasing interdependence in a globalizing world and the emergence of rule-based international economic regimes have meant that the space for national economic policy (especially in trade, investment and industrial development) is now often framed by international disciplines, commitments and global market considerations.

“It is for each government to evaluate the trade-off between the benefits of accepting international rules and commitments and the constraints posed by the loss of policy space.”

The “policy space” issue was also highlighted by Malaysia.  Deputy Minister of International Trade and Industry, Dato Ahmad Husni Mohamad Hanadzlah, who led the delegation, made it the main point in his speech at the conference.

Husni stressed the need for appropriate policies that provide conducive political and economic climate.  “National development strategies must be based on a right policy mix to ensure that citizens’ expectations are satisfied . While a country continues to strive to meet the demand for growth and competition, it must also be able to ensure equitable distribution of the fruits of growth.

“In formulating policies, it cannot be certain that text book theories will always hold true in the face of fast changing global environment. As such, countries have to increasingly device policies based upon a mix of theories and pragmatism.”

Husin added that Malaysia’s past strategies of economic diversification have strengthened the Malaysian economy and for the future new sources of growth have to be found with new technologies, better incentive structures and financial support for investments in higher value-added, high-tech industries and services, and entrepreneurial development.

“Such policy options depend on the demands in the domestic and international market place . Nonetheless, the ability to choose appropriate policy options also depends on

availability of policy space .

“Increasingly, the processes of globalisation and multilateral negotiations seek to circumscribe national policy planning in the name of integration, governance and efficiency. Demands on developing countries take the form of liberalization and deregulation.

“On the other hand, developing countries continue to have specific socioeconomic objectives that require particular economic prescriptions . Efforts that impinge upon such policy options may be counter-productive to the development of the country. We cannot adopt a ‘one size fits all’ approach.

He added that the choice of policy options must be based on ensuring that liberalisation will be translated into improving people’s well-being.  Effective integration into the globalization process requires national policy responses that reflect a blend of market forces, state intervention and multilateral disciplines that enable national goals and objectives to be met.

A significant development at UNCTAD XI was the political impetus from leaders of the South for South-South trade and cooperation to build solidarity among developing countries and reduce their dependence on the North.

Brazil’s  President Lula da Silva called on developing countries to build a “new geography of trade” which stressed the role of South-South trade and cooperation in a globalising world.  He said a 50 percent tariff reduction in the trade among developing countries could generate an increase of US$18 billion of trade for them.

Thai Prime Minster Thaksin Shinawatra took up the same theme, saying  globalisation had failed to deliver and the rich countries had  been slow to meet developing countries’ requests of developing countries even in obvious areas such as reduction of agriculture subsidies.

Thus, he said, South-South cooperation has never been more necessary. “We should reduce our overwhelming dependence on markets of developed countries and diversify our risks through South-South trade.  Critics note the diversity of the South and say it is an obstacle to South-South trade but I say let us celebrate the diversity of the South and try things that have not been done.”

UN Secretary General Kofi Annan stressed there was a lack of coherence in the international and domestic economies.  Referring to double standards in Northern policies, he said:  “We usually call it the lack of coherence, but we can also call it discrimination.”

He added that we must take advantage of South-South trade opportunities and cooperation.  “A new round of talks to expand the GSTP holds promises.  It could be a new global trade geography, which would help give the South a rightful place in international relations.”

As a concrete initiative to promote South-South trade, Ministers of developing countries on 16 June launched a new round of negotiations under the Global System of Trade Prefererences among Developing Countries which now involve 44 countries,  including Malaysia.

The GSTP allows its developing countries to extend trade preferences to one another without  extending these to the developed countries, thus promoting South-South trade.  GSTP member countries offer to cut their tariffs on selected products to other GSTP countries, thus generating additional trade among themselves.

The GSTP was established in 1986 and there has been two previous rounds of negotiations, but they did not yield the expected results because of the proliferation meanwhile of other trade agreements at regional and multilateral levels.

For its new round to succeed, there has to be strong political will to patch up some differences, allowing the talks to move ahead.  The GSTP talks begin in November and are scheduled to end in November 2006.

“We are extending our political support to making the GSTP and South-South trade work so that our producers, farmers and citizens of the South can have better income,”   said Argentinian Finance Minister Robert Lavagna, who is president of the GSTP committee.

UNCTAD  secretary general Rubens Ricupero told the meeting that the growth of trade in the South was twice that of the world average, and the trade of developing countries among themselves had risen from 24 percent of their total trade in 1960 to 43 percent in 2003.

With such growth and dynamism, the South had emerged as an important market for other countries in the South, and South-South trade can be a stimulus for growth of trade and income of developing countries.

Another interesting decision at UNCTAD XI was the establishment of an international task force on commodities.  The falling prices of commodities have seriously affected export earnings of most developing countries, but little has been done to address this issue.

The task force aims to raise the profile of the commodity problem and discuss solutions.

At the closing session, UNCTAD secretary-general Rubens Ricupero urged the international community to prioritise actions to help the least developed countries.

The dark side of globalisation is the lack of supply capacity, or the inability of developing countries to produce competitively, he said.

“Many developing countries fear trade negotiations as in their hearts they know they are not competitive, and they depend on only two or three commodities, so how can we expect them to be enthusiastic about negotiations?”  he said.  “UNCTAD has to help them in their supply problems and in negotiations.”