North should open its own markets in New Round

by Chakravarthi Raghavan

Geneva, 5 July -- The central focus of the next round of multilateral trade negotiations, a development round to be agreed at Seattle, should be on industrial countries opening their markets to developing countries and redressing the imbalances of past negotiations, UNCTAD Secretary-General Rubens Ricupero told the ECOSOC high-level segment Monday, during a policy dialogue with the heads of IMF, World Bank, ILO and UNDP, and the director-in-charge of the WTO..

Mr. Ricupero also spoke of the "hard, ugly facts" of the return of "voluntary" export restriction agreements and grey area measures (in steel and commodities like oil) and said these had to be overturned now, and not at the end of a new trade round, if developing countries are to be encouraged to persist in the path of liberalization.

Earlier, painting a grim picture of the world ending the century with failure to solve two major threats to a future with security - mass unemployment and growing inequality -- and developing countries worse off than before, Ricupero said the time has come "to rethink our policies and responsibilities".

Ricupero's views were in sharp contrast to those of the IMF Chief, Mr. Michel Camdessus, who spoke of how predictions of a world-wide recession and calls for need to reverse the processes of globalization had not come to pass, and the Asian countries by their courageous policies had overcome the crisis and contributed to long-term global stability, and that "this outstanding message" should not be blurred "out of nostalgia of ... 'different consensus' or 'alternative strategy' we have not yet seen succeeding."

The IMF head presented what, he himself called "familiar recommendations": need for excellence in macro-economic policy - with active use of monetary policy and sound fiscal policy; stronger surveillance of health of corporate and financial sectors, and a comprehensive strategy of strengthening and/or restructuring once a crisis has struck; exchange rate regimes and exchange rate policy adapted to economic fundamentals; transparency and governance; countries setting up social safety nets adapted to needs of vulnerable groups; and participatory decision-making processes in countries.

Mr.Camdessus also spoke of moves for strengthening the architecture of the international financial and monetary system and claimed and that substantial progress had been achieved in agreeing on what needs to be done and it was now time for concrete implementation. On the issue of struggle against poverty he called for national actions (drawing on the lessons of the recent Asian crises) through trade liberalisation and outwardly oriented economic policies, and the industrial countries through the millennium round opening their markets to exports of the poorest countries.

Earlier, in an initial statement to introduce the subject, the ILO head, Juan Somavia, said that the international community had reached the limit of the search for sectoral solutions to integrated problems. He referred to various sectoral efforts to design a new international financial architecture, a comprehensive development framework (being promoted by the World Bank), the new round of trade negotiations, the UNCTAD-X, and the followup processes to the UN Conferences, as well as the UN's Millennium Assembly and ILO's promotion of "decent work" and said: "The sum of these activities do not produce a whole. We need an integrated analytical framework, based on decisions reached at large UN Conferences... and expand the notion of productivity beyond economics.."

In a sharply contrasting view (to that of the IMF) of the state of the world, the UNCTAD head said the century was ending with a bang, and not a whimper... "with failure to solve two major threats to a future with security: mass unemployment and growing inequality" and, according to a recent study, the next century could start with an income disparity between the top and bottom quintile of perhaps 150 to 1 if they were not there already.

Not long ago, the ILO had estimated that one billion people, or 30% of the world's workforce were either jobless or under-employed.

In the poor parts of the world, most of the planet, the turbulent events of the past two years have challenged the very core of belief in the possibility of sustainable and sustained development, and the crisis had struck the most advanced and most integrated of the developing countries - a paradox in that development was supposed to reduce the vulnerability of economies to external shocks.

In Latin America, 17 years after the outbreak of the debt crisis, average growth through the 1990s would be less than three percent, practically half of the 5.5 percent before the crisis.

The crisis has also had dramatic effects on employment in the worst hit countries, and more so on the more marginal groups.

Referring to the recent recoveries in some local stock markets and stabilization of currencies (which has been cited in the media and by international financial and development institutions, and to which Mr. Camdessus also had made references), Ricupero asked how this had translated into the real economy in terms of jobs and family incomes.

"If our goal is the raising of living standards of the poor through the creation of good, well paid jobs, it would be premature and a sign of guilty complacency to declare the crisis over without taking specific actions to deal with the social and gender fallouts from it."

These effects, Ricupero said, were not likely to disappear automatically as the crisis receded. There were now 80 million more living below poverty line in Latin America than at the start of the 1980s. And even before the last Mexican crisis, employment in that region was actually declining by an average of 0.3 percent between 1989 and 1995 and joblessness had jumped from 5.6 to 7.2 percent.

"What are the measures being considered by the international community to ensure that the same slow death does not befall the population of South-East Asian countries over the next decade?"

Developing countries, he said, had striven hard and at considerable cost to integrate more closely into the world economy, but had all too often been confronted with deep-seated imbalances in economic power and systemic biases in the international trading and financial systems.

Projections of gains in terms of faster growth, greater employment opportunities and poverty alleviation have proved overly optimistic as was the case with the "extravagant predictions regarding the impact of the Uruguay Round."

Whatever might be the intellectual foundations of these predictions, "the empirical record has been strikingly at odds with the promises," Ricupero said and pointed out that while economic growth in developing countries in the 1990s had accelerated above that of the 1980s, it was well below the 5.7% average of the 1970s. "Polarization among countries, with the disappearance of the 'middle class' group as the IMF rightly noted, has been a worrying trend."

While trade has had a remarkable performance during recent years, the expansion of imports by developing countries has not been matched by a corresponding increase in exports. This has been particularly true of Latin America where the gap has averaged four percentage points, but the imbalance is a general one. The notable exception has been China, perhaps not by coincidence, not a member of WTO yet.

While the reasons are complex, "there is no denying that a combination of declines in terms of trade, losses of purchasing power of developing country exports and big bang liberalization of trade and capital accounts have contributed significantly to this situation."

The result has been that for many developing countries, the average trade deficit in the 1990s was higher than in the 1970s, by almost three percent of GDP, while the average growth rage is lower by two percent annually.

"Faced with this situation, the time has come to rethink our policies and responsibilities. Developing countries need to protect their policy autonomy if pragmatism is to prevail over ideology."

While reform of the financial architecture with the goal of rolling back the control that finance has gained over real economic activities has rightly been attracting most attention in recent months, efforts should now turn to the trading system, the UNCTAD head said.

The next trade round should be a truly development round and with this purpose, UNCTAD was actively contributing to a positive or pro-active trade agenda for developing country negotiators.

The central focus of such a round, Ricupero said, should be "on industrial countries opening up their markets to developing countries where the latter have comparative advantages and redressing the imbalances of past negotiations."

Citing the example of Latin America, whose exports to Europe had grown by only 29% during the 1990s, while Europe's exports to that region had risen by 164 percent, Ricupero said that while there were several reasons for this disparity, one of them certainly was the European barriers in agriculture - a competitive Latin American sector as shown by the fact that Latin exports to other markets have increased by more than 120 percent.

Citing recent testimony of the USTR before a congressional committee, Ricupero asked: "In the light of the disappointing results of ongoing discussions of CAP (EU's Common Agricultural Policy) reform, who is taking bets that a significant liberalization of agricultural trade is on the cards?"

But the panorama of protectionism is no better in industrial goods, the UNCTAD head said, and referred to the rise in protectionism on steel and commodities like oil (in the US).

The "worst setback" since the Uruguay Round was the return of the socalled "voluntary" export restraint agreements, the comeback of managed trade. A couple of weeks ago, Brazilian steel exports had to sign an agreement with the US Department of Commerce on hot-rolled carbon steel, and similar arrangements were about to be concluded with Russia and with Japan, conducted in this last case in such oblique fashion as to allow 'plausible deniability' to both sides.

Ricupero said when he first heard the news he could not believe it and thought how strange it was that Amb. George Maciel (who had chaired the negotiations on safeguards and non-tariff barriers in the Uruguay Round) and to whom went the credit for prohibition of 'grey area' measures (and requiring pre-WTO measures being phased out by end of 1999) had passed away just in time to not see his own country forced to condone the overthrow of one of the major achievements of the Round!"

These are not ideological arguments, nor academic lectures about free trade. "These are facts, hard, ugly facts that have to be overturned not by the end of a new trade round but immediately, now, if we are to encourage developing countries to persist in and even further the path of liberalization."

There is nothing wrong with trade liberalization if it can be achieved in a gradual, equitable, balanced way. It might do wonders for poor people in general, and disadvantaged groups in particular like women. Development should be as much female as export led. In labour-intensive operations for export, such as production of clothing, semiconductors, toys, sports goods and shoes, the proportion of women workers is very high as well as in international business and financial services, especially in the relatively unskilled data entry end of the business. In this regard, the challenge is to make global arrangements in trade much more supportive of greater participation of women in development, both as agents and beneficiaries.

"At the threshold of the new century, globalization appears as an unfinished business, a work in progress, a process that can still be steered and shaped by human beings according to human values.

It is our duty to take this opportunity with both hands if we wish that the shape of things to come is one that will help men and women to achieve basic security and to lead an accomplished  life of affection and productive work."

The Director-in-charge of the WTO, Mr. David Hartridge, speaking on the preparations for Seattle and the new round, said so far the absence of a Director-General had not affected them, since they were not at a stage where an input at that level was essential.

To a large extent the agenda of the Round was already determined - negotiations in agriculture and trade in services, mandated by the Uruguay Round agreements, and the reviews of some of the key provisions in other agreements. These existing commitments themselves add up to a substantive agenda. But there were many more proposals and a vigorous debate was taking place.

The most important issue before the WTO members was whether or not include the socalled 'new issues' - investment, competition policy, transparency in government procurement and trade facilitation. But there was no agreement yet to include them.

Trade and Environment was another contentious issue, on which there were some thoughtful proposals on the table, and a constructive way forward might be found. But there was no consensus yet to negotiate about them.

Hartridge said there were good arguments on both sides, and many experts believed that significant liberalization in sensitive areas like agriculture and key services would be only achieved in the context of a big agenda offering trade-offs and benefits.

But there was also a growing consensus that the new round should be short and not another 7-year marathon like the Uruguay Round.

And three years, which most people support, would not be enough for another "mould-breaking agenda" like that of the Uruguay Round. While these were organizational considerations, the real issue was whether the major new issues were ripe for negotiations in the WTO and what benefits they would bring. "This is where the debate will focus."

Referring to the intense difficulties of the preparatory phase of the Uruguay Round and the enormous progress made, and the comparative ease of the current debate, Hartridge said that whatever the discussions, the validity of the multilateral trading system was no longer in question, and this could not have been said in 1986.

Developing countries have identified a number of problems relating to the implementation of existing commitments, including some of those in the Uruguay Round agreements - such as high levels of protection and support for agriculture in industrialized countries, continued high tariffs, tariff peaks and tariff escalation in industrial tariffs, and lack of meaningful liberalization in textiles and clothing.

There was no argument that existing commitments should be fully implemented before negotiating new ones, but there was no contradiction between implementation and negotiations.

Substantive problems like tariff issues were only likely to be resolved in global negotiations, and there was in fact very strong support that negotiations on industrial tariffs should accompany those on agriculture.

Hartridge agreed that ultimately the value of trade negotiations and outcome had to be judged by effects on human welfare, and employment and work in poverty eradication. Members of the GATT and now WTO had made major contributions in removing barriers to trade and establishing a legal basis for international trade relations.

In those terms, the argument was really over and no one was seriously proposing an alternative to a trading system based on rules, open markets and acceptance by governments of freely negotiated limits on their power to interfere with trade flows.

"But though the argument may have been won as far as economists and trade policy-makers are concerned, it clearly has not been won on the level of popular understanding and support," Hartridge said.

"It is a strange paradox, that at the moment of its greatest success, four years after the conclusion of the Uruguay round and 50 years after the foundation of GATT, the multilateral trading system became subject for the first time to outspoken and even violent hostility. We are told to expect far larger demonstrations of scepticism and hostility at Seattle.

"Even though the opposition is often incoherent and self-contradictory, and even though we must be suspicious of those who surrender too easily to the sheer pleasure of righteous indignation, we cannot ignore the fact that there are real concerns about the impact of globalization, concerns felt by many good people - the kind of people you would prefer to have on your side in any argument."

Hartridge referred in this connection to the strong polarization among member governments on the question of trade and labour standards.

"But whatever view one takes of policy choices like these, we have to insist on the central point - trade liberalization has fostered economic growth and has brought enormous benefits to the people of the world - especially the poor. Of course it has costs - liberalization entails competition and competition can be harsh - but to suggest that poor people and poor countries would be better off if there were less trade and less foreign investment, which seems to be implication of some of the polemics, is obvious nonsense."

If the new round WTO members would launch in Seattle did result in further liberalization it would promote employment and help end the marginalization of the poorest countries in the world, Hartridge claimed, but added that trade policy was not an answer to the problems of these countries, nor to the problem of poverty. But a good trade policy could help, while a bad policy could be disastrous.

And while, since 1995, WTO members had steadfastly maintained their commitment to open markets, "perhaps they need to do more to explain these policies to a sceptical public, if support for a new trade round is to be maintained through inevitable difficulties." (SUNS4470)

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

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