LDCs to lose $3 billion from Uruguay Round, says UNCTAD

According to an UNCTAD secretariat report, the cumulative loss until the end of this century to the least developed countries as a result of the Uruguay Round would be as much as US$3 billion. Unless some compensatory measures are taken, such a huge loss will only increase their marginalization in the world economy, the report warns.

GENEVA - As a result of the implementation of the Uruguay Round accords, the world's poorest nations, the 47 least developed countries (LDCs), would lose an estimated $163 to $265 billion in export earnings, while paying $145 to $292 million more for food imports, warns an UNCTAD secretariat report to the Ad Hoc Working Group on Trading Opportunities in the New International Trading Context.

Apart from the Uruguay Round effects, there is also the unilateral liberalization forced on these countries under the IMF/World Bank structural adjustment programmes which have had the effect of forcing them to cut tariffs, and lose government revenues. The figures are based on calculations of loss of preferential margins for LDC exports and average substitution elasticities of these exports in their major markets, as also the higher costs of basic food imports arising from the implementation of the Agreement on Agriculture, particularly the cut in export subsidies in major industrial nations. The data does not cover effects of trade in high-tech goods or services.

Pressure from the European Commission and the other majors has blocked the UNCTAD secretariat from undertaking an assessment of Uruguay Round effects for all developing countries - a quantitative assessment of gains and losses. A brain-storming session that the secretariat had convened some months ago on this issue was forced by the EU Commission to be confined to the problems of LDCs.

The EU Commission argued that UNCTAD's mandate for the Ad Hoc Group should be confined to finding positive trade opportunities that the developing countries could benefit from - and not assess the negatives or how to compensate the losers. Outside observers have been arguing that when overall assessments are made, and it includes also the trade in high-tech goods and services and the effects of TRIPs, developing countries as a whole, on balance, lose over the medium-term and there is no certainty of gains in the longer-term either.

Two other reports before the Ad Hoc Group, on the Uruguay Round agreements on Agriculture as well that on Textiles and Clothing, assessing both their rule-content as well as the actual way their provisions are being implemented, suggest that, by and large, any gains to the Third World won't begin to trickle in for another ten years and even afterwards could be susceptible to new protective instruments that the major industrialized countries could come up with.

Report on LDCs

The report on the LDCs trade refers to the various promises of special treatment to them, both those of a time-frame for their undertaking new obligations or other special measures favouring them (including those for net-food importing countries, undertaken at Marrakesh), and calls for their implementation.

The report also calls for several measures to help the LDCs - all of them falling mainly or essentially in the broad area of "aid" - whether financial, technical or unilateral preferential tariff/trade benefits.

But the prospects of these do not appear bright - given the record of the major industrialized countries in delivering on their earlier commitments to the LDCs in the UN's 1990 Plan of Action (which even at the mid-term review last month produced only more empty promises).

As some participants at the private UNCTAD brain-storming session noted, appeals to the North based on the poor plight of the LDCs, whether it be appeals for solidarity or the Christian charity, no longer seem to move those governments in terms of aid budgets.

And in trade and other economic exchanges, the LDCs have even less leverage or bargaining power. The major industrialized countries, by offering to consider special and differential treatment generally to the LDCs and not developing countries as a whole managed to split the developing countries bloc in the Uruguay Round.

As a result, the major developing countries while facing pressure from the EU and the US to undertake more "obligations" in the old and new areas, were still able marginally to use their bargaining power to gain here and there in direct market access. The LDCs got provisions in various rules for special treatment, essentially longer time horizons to comply, and promises of possible extensions of these in individual cases. But when it came to actual benefits - in market access and so on - when the LDCs went to negotiate with the majors, they got little.

Trade balance deterioration

The secretariat report shows that as a result of the Uruguay Round, the LDCs could suffer a combined deterioration in their trade balances of as much as $300 to $600 million a year or a 2.6 to 5% of their export earnings - with the cumulative loss over the five years to the end of this century as much as three billion dollars.

In isolation, UNCTAD says, these may not be large enough to cause concern about the ability of LDCs to deal with their negative impact. But the impact on the balance-of-payments of several of the countries individually would be very high. For Burundi, Ethiopia, Haiti, Malawi, Mozambique, Rwanda, Somalia and Uganda, it may be around 10% or more of their export earnings, while for Guinea-Bissau and Cape Verde it could be respectively 25 and 50%.

For LDCs, early 1990s was a period of further declines in GDP and per capitas, following on two decades of stagnation. And while there was a general revival of economic activity in the world in 1994, and in which developing countries generally shared, there was no real improvement in the economic situation of the LDCs.

In this situation, any factor which extracts resources from the LDCs through trade can only further increase their marginalization in the world economy and, in particular, in world trade.

The UNCTAD report shows that in terms of export earnings - due to erosion of preference margins, trade creation and trade diversion effects due to substitution elasticities for their exports - all African LDCs would experience export shortfalls and these are mainly attributable to the erosion of preferences in the EU markets.

In contrast, most Asian LDCs, and Bangladesh in particular, show some export gains (in the UNCTAD estimations) - due essentially to higher sales of textiles products in the United States.

As for food imports - cereals, live animals and meat, dairy products, oils and fats and sugar - there is a rise in food import prices, estimated at five to ten percent, for all but two of the LDCs. This increases their combined import bill by an annual $146 million.

Transitional period

Referring to the "time-bound transitional period" given to the LDCs, in such new rule-making areas like TRIPs and TRIMs, the report points to their serious short-comings.

Because of their limited duration, the transition periods, have limited impact on capacity creation for trade and production - such as under TRIMs and TRIPs. Such time bound derogation from obligations also assume existence of both institutional and resource capacities in LDCs to take maximum advantage of relevant provisions. For most LDCs these capacities don't exist. The report suggests that these effects can be mitigated by extending the transitional periods for the LDCs.

The report also suggests compensatory market access improvements for the LDCs, including: elimination of tariff escalation on their semi-processed tropical and natural resource based products through Generalized System of Preferences (GSP) schemes; deeper preferential tariff cuts or their complete elimination, through GSP, for products still subject to high tariff peaks as those on agricultural products, fish and fish products, leather and footwear and textiles and clothing, as also more flexible use of rules of origin.

Other measures suggested include exemption of LDCs from cumulative injury assessment in application of anti-dumping and counter-vailing duties; no safeguard actions against them; exemption of LDCs, as new entrants or small suppliers, from all restrictions on textiles and clothing exports during the 10-year transition period; and establishment of import promotion agencies (as has been done by Norway, France and Japan) to promote more trade with LDCs; more aid to the LDCs in the form of increased food aid, balance of payments (BOP) support through easier access to compensatory financing, more vigorous debt relief, adequate donor support for increasing agricultural productivity and for upgrading transport and communications infrastructure.

Since the expected increase in import prices of patented drugs and pharmaceuticals would put pressure on the health budgets and BOP of LDCs, the report calls for assistance to LDCs to formulate policies to get essential medicines at reasonable and affordable costs. - SUNS3620

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