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TWN Info Service on WTO and Trade Issues (June07/04)

13 June 2007


Kuala Lumpur
Roundtable calls for reforms on global economic governance

The inequities and inadequacies of the global economic system and the need to reform global economic governance so that developing countries have more say was the subject of the Kuala Lumpur Roundtable on Effective Global Governance last week.

It was organised by Malaysia's Foreign Ministry as part of its contribution to the Helsinki Process on Globalisation and Democracy, an initiative led by the governments of Finland and Tanzania to bridge the North-South divide.

The Roundtable, which brought together 80 experts and representatives of about 10 governments as well as non-governmental organisations, discussed globalisation, the trade regime, the international financial system, strengthening the role of the United Nations, and national development strategies.

Below is a report of the KL Roundtable.

With best wishes
Martin Khor
TWN

KL Roundtable calls for reforms on global economic governance

By Martin Khor (TWN), Kuala Lumpur, 27 May 2007

The inequities and inadequacies of the global economic system and the need to reform global economic governance so that developing countries have more say was the subject of the Kuala Lumpur Roundtable on Effective Global Governance last week.

It was organised by Malaysia's Foreign Ministry as part of its contribution to the Helsinki Process on Globalisation and Democracy, an initiative led by the governments of Finland and Tanzania to bridge the North-South divide.

The Roundtable, which brought together 80 experts and representatives of about 10 governments as well as non-governmental organisations, discussed globalisation, the trade regime, the international financial system, strengthening the role of the United Nations, and national development strategies.

Kicking off the discussion, Malaysian Foreign Minister Syed Hamid Albar said that global economic inequities have worsened under globalisation and technological change.

The importance of global governance was firmly established with the emergence of globalisation, he said, adding: "The UN, the WTO, IMF and World Bank have attained the status of global government having a bearing on our lives, and which could make us or break us as a nation. It is therefore imperative for us to also have a hand in the decision-making process in these global institutions."

The Minister pointed to a double standard in intellectual property. He said that in WIPO, developed countries are pressing developing countries to adopt a high standard of intellectual property rights. Developing countries are asked to honour the IP of transnational companies, but the traditional knowledge and biological resources of developing countries are not recognised.

Most of the global institutions are powerful enough to dictate terms and conditions to governments, which now have less and less space to manoeuvre in formulating their own national policies as they are subjected to interpretations, treaties, conventions and protocols which limit their sovereign actions, said Syed Hamid.

Effective global governance should be about ensuring a just and equitable order that allows all parties to realise their full potential and not dominance by a few players.

Tanzanian Foreign Minister Bernard Membe said that globalisation generates unbalanced outcomes, with many countries not sharing its benefits and having little or no voice at all in shaping the global wealth-generating process. He called for coordinated changes including a reform of the global economic system and strengthening governance institutions at local and global levels, to correct the politically unsustainable global imbalances.

The dimensions of global governance include the decision-making process and the nature and effects of multilateral rules and practices, said Yilmaz Akyuz, former Chief Economist of the UN Conference on Trade and Development.

The current world order is marked by asymmetry and imbalances which benefit mainly the developed countries. For example, they protect areas in their interest such as agriculture, labour movements and technology transfer, while asking the South to liberalise in industrial goods, capital flows and FDI.

The current globalisation arrangements restrict governments from regulating financial markets, and the policy space of developing countries is being increasingly constrained by global rules in the trade regime or through loan conditions of the international financial institutions. However, there are still degrees of policy autonomy and countries are pursuing diverse policies even though they face the same constraints.

The International Monetary Fund and the World Bank have reached historic lows in credibility and relevance, and their mandates should be reformed, said Akyuz.

The IMF should focus on ensuring global financial stability, and leave development and trade policy to other institutions. The World Bank should become a genuine development bank and not be involved in developing countries' "structural adjustment" but focus on project funding.

Folke Sundaman, senior official in Finland's Foreign Ministry and chair of the Helsinki Process's steering group, said that there was a paradigm shift taking place in global governance, as the existing Washington Consensus (that emphasised inflation targeting and financial liberalisation) had not been able to deliver results in growth or employment.

A new paradigm is emerging that recognises the need for a broader view of the economy that was not confined to inflation targeting and how best to govern globalisation to make it positive for all, said Sundaman.

On the trade regime, the international trade expert Bhagirath Lal Das said that the multilateral trade system provides developing countries some security against unilateral actions of stronger countries. However, there are imbalances in the rules, operations and decision-making system of the WTO, which do not favour the developing countries.

For example, the "national treatment" principle prevents giving preferences to domestic products and this makes it difficult for weaker countries to upgrade their production structure.

The agriculture agreement enables huge subsidies to continue in developed countries, while developing countries also have to restrict their subsidies as well as reduce their tariffs significantly. And developing countries also face protectionist devices such as anti-dumping measures and non-trade barriers.

Commonwealth Deputy Secretary-General Ransford Smith said that the WTO remains first and foremost focused on its original mandate of liberalisation and had failed to make the transition to a trade organisation with a significant development orientation. He stressed that it is this transition that would ensure that the interests of developing countries are promoted.

The WTO should not prioritise market access as a goal, but prioritise other elements that developing countries are interested in. The structure of decision-making, in the WTO as well as in the negotiations process, also requires serious attention.

In the discussion, participants agreed that if the WTO's current Doha Round were truly developmental in content, then its conclusion would benefit the developing countries. However, many expressed the view that there is a lack of development content in the major proposals on the table.

The "development issues" (special and differential treatment and implementation issues) have been neglected. And the developed countries are more interested in pressuring developing countries to give them more "market access" in agriculture, industrial goods and services. If these proposals are adopted, the policy space of developing countries in these three sectors would be further curtailed, said some participants.

It was also pointed out that the offers by the developed countries themselves may not result in significant market access to these countries and in any case many developing countries are unable to take advantage.

The multilateral trade system thus needs to be reformed, with more democratic decision-making processes in which all developing countries can participate; with amendments to the rules; and with fairer implementation of these rules; and the WTO secretariat should be more representative (in terms of staffing and management) and more supportive of developing countries. The WTO should be much more development-oriented in its approach, rules and results.

Several participants were also of the view that it is inappropriate to extend the mandate of the multilateral trading system to non-trade issues such as intellectual property and services (which are already in the WTO) and investment rules, government procurement and labour standards.

On bilateral free trade agreements, participants had serious concerns in developing countries that FTAs involving a powerful developed country and a weaker developing country can lead to many disadvantages and problems for the developing countries.

There was broad agreement among participants that they were not against liberalisation but were in favour of developing countries managing liberalisation in a strategic and phased manner that supports their development.

The Roundtable also discussed intellectual property (IP). Prof. Gurdial Singh Nijar of University Malaya's Law Faculty said that previously IP policies were determined as part of national policies and countries would decide on the balance between the monopoly terms granted to IP holders and the public interest.

But with IP becoming part of the WTO, the policy space of developing countries has been restricted, as they have had to adopt higher IP standards, which tilted the balance in favour of IP holders, with detrimental effects on social and economic development.

Participants pointed to how prices of medicines have increased, and developing countries find it more difficult to upgrade technology. At the same time, there is misappropriation of biological resources and traditional knowledge.

Nevertheless, there are "flexibilities" in the TRIPS agreement that allow countries to determine the criteria for "invention" (which is one of the grounds for patentability), exceptions and compulsory licensing. However, the use of many of the flexibilities are threatened by FTAs.

Developing countries should take pro-active measures at national level as well as collectively in international negotiations to make use of existing pro-development flexibilities in IP regimes, as well as to reform the regimes to be more development-oriented.

Malaysia's Central Bank Governor Zeti Akhtar Aziz spoke on the global financial architecture. She pointed to new problems in the financial system, including unregulated cross-border capital flows, new financial instruments like derivatives which represent a risk to the global financial economy, and greater inter-dependence among countries which increased the risk of contagion.

There was need for a reform of the financial architecture to deal with these new issues. But little reform has been achieved at the global level. However, she said, there has been more cooperation at the Asian regional level, with a surveillance mechanism, macro-management system, crisis management and resolution framework and capacity building.

Former Indonesian Economy Minister Dorodjatun Kuntjuro-Jakri agreed that financial integration had increased the risks of contagion, but that the changes had benefited the rich countries which made them reluctant to carry out the needed changes.

In the discussion, participants agreed on the need for a global system to manage financial flows and to regulate financial institutions and especially powerful financial instruments such as hedge funds and private equity funds.

Developments of new technology and financial instruments have overtaken and outrun regulatory frameworks, and thus this demands the creation of new structures of global financial governance and regulations.

In the absence of a global regulatory framework, developing countries should pursue regional financial cooperation. At the same time, they should also cooperate to attempt a reform of the international system.

Pakistan's Ambassador to the UN in New York, Munir Akram, who chairs the Group of 77, gave a comprehensive account of the importance of the United Nations, and the efforts of developing countries to maintain and strengthen its role.

He said that the UN has made major contributions in developing norms and standards in the economic, social and humanitarian fields. However, the UN's role has been sidelined by major powers in recent years.

Nevertheless, the current decline in the IMF and World Bank, as well as the globalisation process itself which requires better coordination, provide opportunities for enhancing the UN's economic and social role. The UN is well placed to bring about more coherence and coordination in global economic governance.

In the discussion on national development strategies, participants agreed that "national policy space" (the ability to choose between various development policies) had been constrained by global markets and global rules.

It was stressed that developing countries should place priority on formulating policies that take account of the present realities and effects of globalisation, and at the same time collectively attempt to change global rules and frameworks that are disadvantageous to developing countries. Developing countries can also usefully learn from the experiences of one another.

In a closing speech, Dato Seri Syed Hamid Albar presented a summary of conclusions and urged participants to follow up on the proposals emerging from the Roundtable. +

 


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