Global Trends by Martin
Monday 2 October 2006
UN debates need for “policy space”
The United Nations in
Geneva last week debated what policies help development and whether
international rules restrict the policy choices of developing countries.
Developing countries asked for “policy space” but some developed countries
refuted even this concept.
An interesting debate has
been taking place at the United Nations on what it takes for a country
to have good development policies, and whether international rules help
or hinder the process.
This was a controversial
issue at the board meeting of the UN Conference on Trade and Development
in Geneva last week.
But the biggest news was
that UNCTAD’s secretary general, Dr Supachai Panichpakdi, was there
at all to give the opening speech.
There had been news reports
he had been offered the job of interim Prime Minister of Thailand, and
even that he had returned to Bangkok.
However, Supachai turned
up at the UN building as scheduled and laughingly told a group of Ambassadors
who went up to congratulate him that he was “still here”. He however
neither denied nor confirmed whether he had been offered nor whether
he was accepting an offer.
The World Trade Organisation’s
director general Pascal Lamy spoke on the first day. He said trade
is a crucial ingredient in a successful development policy mix, which
must also contain other ingredients. This means no blind adherence to
free trade but also no blind adherence to protectionism.
Lamy went on to question
some aspects of a recent UNCTAD report that argued that developing countries
had lost a lot of “space” or freedom to choose policies needed for their
development, because of international rules set by the WTO and other
The next day, Supachai said
he agreed with Lamy’s view that there should be no blind adherence to
either free trade or protectionism. But if trade liberalisation is insufficient
to achieve growth, then what other policies will do so? Many developing
countries need to grow 7-8% annually to achieve development.
Over 15 years of traditional
trade reforms (rapid liberalisation) worked in some instances but in
others there was reduced growth, declining incomes and job losses. By
contrast some countries that took a more cautious approach to reform
and used pro-active industrial policies have enjoyed remarkable success.
Supachai said that the UNCTAD
report focused on pro-active industrial policies with cases in both
North and South where the use of subsidies and tariffs has helped in
the past. It also looks at how WTO rules affect the application of
A senior UNCTAD official,
Heiner Flassbeck stressed the need to re-orientate development policy,
as market-oriented reforms in the past 25 years did not deliver the
expected results. More attention is needed on enhancing productive
capacity and this requires a reform of macroeconomic and industrial
At the same time, he added,
developing countries have lost their policy autonomy. There are some
rules in the trade system which affect the ability of countries to use
At the same time there were
no rules in the global financial system, which led to problems of instability
of capital flows and exchange rates.
He called for more flexibility
in the rigid rules of the trade system, and the establishment of multilateral
rules and disciplines in the area of macroeconomic, finance and exchange
rate policies to avoid ever growing imbalances.
In the debate that followed,
many developing countries expressed appreciation of UNCTAD’s work on
The Group of 77 and China
stressed the crucial importance to developing countries of policy space
to choose and use various economic policy instruments to boost development,
and that international organisations and rules should not impinge on
their ability to use these policies.
India agreed with UNCTAD
that the global system must take into account developing countries’
needs, ensuring the right balance between sovereignty in national economic
policy making on one hand and multilateral disciplines on the other.
However, the developed countries
were clearly disturbed by the UNCTAD report and by the views of the
developing countries on policy space.
The European Union disagreed
with the report’s finding that multilateral rules are inimical to development.
The United States disputed the concept of policy space itself, saying
it can be harmful as it perceives that developing countries should opt
out of multilateral obligations.
In response, Flassbeck refuted
the criticisms that UNCTAD suggested that developing countries should
opt out of international disciplines.
“We say there’s a trade off
between multilateral rules and policy space. The point is that policy
space can only be matched to benefit development if the rules are fair.”
Flassbeck said the UNCTAD
report asked whether some of the rules are fair and examples were given
based on empirical evidence and logical thinking.
He added that the report
was not questioning the need for multilateral rules, but the current
imbalanced situation. There is need for more multilateral rules. There
should not be a situation, as now, where you are punished if you violate
rules in some areas (such as trade), but in other areas such as finance
they can do as they want as there are no rules there.
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