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EC preferences, LDCs and trade diversion

by Chakravarthi Raghavan

Geneva, 3 May 2001 -- If the international community is really serious about tackling the problems of the least developed countries, and poverty reduction, the UN Conference on LDCs at Brussels would need to have a strategy based on providing secure, duty-free-quota-free market access for the exports of the LDCs, enable them to have a production base and supply capacity, and also provide the necessary finances to enable them to achieve a growth rate of 7 percent to tackle poverty.

Mr. Ricupero was talking to the media on the UN LDC meeting due to be held in Brussels from 14 May, with some non-governmental events and activities beginning the previous week.

The meeting itself was taking place against the background of uncertainties due to a slowing down of the US economy, its effects on the rest of the world, including Europe and Japan, and the prospects these hold for the growth of developing countries in general and of the LDCs in particular.

It was difficult to predict what the implications of all these would be on the Brussels meet, he said.

Mr. Ricupero noted however that the IMF and the World Bank and some of the G-8 leaders, at the Washington Spring meetings of the IMF and the World Bank, now agreed with UNCTAD that the basis of some of their estimations about the debt substainability of the Heavily Indebted Poor Countries (HIPC) initiative, and their being able to grow and export had been overly ambitious. He underscored in this connection, UNCTAD’s own recommendations, in its Trade and Development Reports, for an independent panel to look at the HIPC cases and rule on the debt sustainability (and the debt writeoffs to be done).

At Brussels, if the international community was really serious about the LDCs, it was necessary to take actions to enhance their production and export capacities. Such production capacities would also enable job creation and reduce poverty.

The second element was the need to do this by official development assistance and by trade.

Ricupero agreed that for poverty reduction to be at the centre of attention, there was need for good governance in the countries - effective administration and macro-economic policies.

On the EC’s “Everything But Arms” initiative, which stretches out the quota-free, duty-free market for sugar, bananas and rice, Ricupero said this was not so important, as the changes needed in rules of origin and other trade conditions, including the ‘safeguards’ provisions to the scheme. The rules of origin were important so that the LDCs could import material from some other countries, process them, and export them. This was important to them to build production capacity.

The growth in the world economy, and thus of LDCs, and the debt issues, he hoped, would be addressed soon at the next G-7/G8 meetings in Genoa.

Any market access concessions to the LDCs, should be ‘bound’ at the WTO, so that there would be security, and this would attract investment and new production capacity, he said.

The Brussels conference could not ‘negotiate’ this. This could only be done at the WTO, he added.

But Mr. Ricupero did not clarify why any ‘negotiations’ were needed. If the EC and other industrial nations wanted to favour the LDCs, nothing prevented them from making the concessions, and notify them to be put on their tariff and other schedules. The original GSP, and other schemes following it, were all intended to be non- reciprocal, and hence did not need any negotiations - even if any waiver from other developing countries would be needed, this was a separate issue.

However, it is clear from other reports, that what the EC wants to do is to give the preferences, and then argue and hold out ‘binding them in the WTO’, by telling the LDCs that this could only be done through new round of negotiations, and get their support for this.

The effort failed at earlier meetings, and it remains to be seen whether it can succeed now. Those LDCs who are members of the WTO have generally seen through the game, and have been careful. But in the preparatory process for the Brussels meet, some LDCs not members of the WTO have been pushing the EC agenda.

On the problems and concerns of other developing countries about trade diversion, Mr. Ricupero said this was a problem, but felt it should not be exaggerated. The LDCs’ total exports account for only 0.4% of world trade and they are really no competition, he said.

However, it is clear that Mr. Ricupero’s view, while correct in the aggregate, is not indicative at product levels and country levels - where for some products one or two LDCs and one or two others may be the suppliers and competitors and might be affected (as in the case of banana and sugar preferences).

According to UNCTAD’s own 2000 LDC report (over the period 1997-1998), the LDCs’ share of exports in world trade in their major exports and as a share of developing country exports accounted respectively for:

petroleum and crude oils - 1.89 and 2.45 percent; Cotton - 14.31 and 23.60 percent;; coffee and coffee substitutes 6.94 and 8.91 percent;; pearls, precious and semi-precious stores, unworked or worked - 2.15 and 9.77 percent; crustaceans and molluscs, fresh, chilled, frozen, salted, in brine or dried - 4.92 and 7.11 percent; copper 1.83 and 4.60; tobacco unmanufactured 5.85 and 10.16; other wood in rough or roughly squared 4.96 and 13.76; fish, fresh (live or dead) chilled or frozen 1.81 and 4.89; ores and concentrates of base metals 1.77 and 3.60; vegetables, fresh, chilled, frozen or simply preserved, roots, tubers 1.3 and 4.16; iron ore and concentrates 2.83 and 6.24; fruit and nuts 0.90 and 2.17; leather 1.5 and 3.29; floor coverings 2.02 and 6.26; outer garments, men’s of textile fabrics 3.86 and 6.78 percent; under garments of textile fabrics 6.87 and 10.5 percent other garments, women’s, of textile fabrics 1.161 and 2.96 percent; outer garments and other articles, knitted 1.53 and 2.70; under garments, knitted or crocheted 1.91 and 3.36;

A report by UNCTAD and Commonwealth Secretariat is due to be published on the eve of the conference at Brussels and it may throw some light. But some other reports that were commissioned to assess the effects, have not been published so far. These put both the concessions in perspective, as not as great as made out, as also the competition and trade diversion problems.

Some LDCs say that the problem of textiles and clothing and competition is related to mainly Bangladesh and Haiti, and the competition with some countries in their regions.

And while they face these competition problems on trade, the developing countries generally have been supportive of the LDCs, and some even provide their own concessions in the regions, what they resent and have begun to dig their feet in, is the attempt by the EC and some misguided international officials who repeat the formula about a new round without fully understanding the code languages involved.

Mr. Ricupero as a former trade ambassador of his country seems to be aware of  this difficulty, but it is not clear whether others are aware of this danger and the prospect this may have for UNCTAD among other developing countries. – SUNS4889

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

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