TWN Info Service on WTO and Trade Issues (Sept08/07)
25 September 2008
Third World Network

United Nations: Roles of State, market in fragile world economy
Published in SUNS #6548 dated 16 September 2008

Geneva, 15 Sep (Kanaga Raja) -- The world economic situation is fragile, with a major slowdown looming, and whether it will be just a temporary cyclical correction or a longer-term recession, will depend on how governments respond both individually and collectively, UNCTAD Secretary-General Dr. Supachai Panitchpakdi warned Monday.

The intervention of the State over the past few months in the United States and Europe to address market failures, and their response to the crisis over the coming months, Supachai added, will not only have a strong impact on world growth and development prospects, but also on macroeconomic thinking. Indeed, the emerging debate over the role of the State and the role of the market may challenge conventional thinking and some "sacred cows", he declared.

The UNCTAD head was addressing the fifty-fifth session of the Trade and Development Board (TDB). The session, to run for two weeks, is to discuss amongst others trade and productive capacities for achieving the Millennium Development Goals, the recent breakdown in the Doha trade negotiations, as well as put into effect decisions made at the UNCTAD-XII conference held in Accra, Ghana in April.

In his opening statement at the TDB, Supachai stressed the importance of the current session of the Board, as it is the first since UNCTAD-XII in Accra in April, and it marks a new era for UNCTAD.

He said that since May, UNCTAD has instituted strong efforts to implement the Accra Accord. "With a new mandate, we have created a new 4-year work plan that for the first time will provide longer-term predictability and allow for needed follow-through. We have been tasked to strengthen and integrate our three pillars of: consensus building, research and analysis, and technical cooperation."

He recalled that under consensus-building, there was agreement on agendas for two new commissions and on subjects for single and multi-year expert group meetings. He was pleased to report that preparations for multi-year expert group meetings are underway, and expected the first meeting to take place early next year. "We are committed to making these and other intergovernmental meetings more action oriented and focused on practical solutions," said Supachai.

As for research and analysis, Supachai pointed to the TDB agenda featuring several recently released flagship studies, including the Trade and Development Report, the LDC report, the World Investment Report and the Economic Development in Africa report. In addition, responding to demand, a number of substantive analytical and technical reports, guidelines and policy briefs were produced.

As part of efforts to improve coordination among divisions to ensure consistency, relevance and effectiveness of analytical work, steps were taken to reduce the quantity and improve the quality of publications through a stricter pre-publication review process and plans for better monitoring and quality control.

In the field of technical cooperation, the UNCTAD Secretary-General cited several examples: UNCTAD is pursuing a more interactive donor-secretariat relationship to enhance resource management, delivery and impact; UNCTAD has established the Inter-divisional Project Review Committee to provide greater clarity of responsibilities and coherence in planning and implementation of projects; to optimize communications and transparency, UNCTAD has designed a new Technical Cooperation Web Portal and is now systematically compiling requests; and UNCTAD is now consolidating the financial structure of extra-budgetary resources by establishing thematic clusters and multi-year, multi-donor trust funds.

With respect to UN reform, Supachai said that he is firmly committed to implementing the reform agenda that will revitalize UNCTAD. He said that progress is being made on implementing the institutional reforms set out in the Accra Accord. "We have moved quickly to prepare ourselves for a comprehensive review of our communications and outreach strategy. The Commodities Branch as become an autonomous unit reporting to me."

Supachai also stressed that inter-divisional cooperation is being strengthened, including via task forces on the food crisis and MDGs. Inter-agency cooperation mechanisms will be used to deliver greater coherence, including through participation in "One UN" pilot projects.

Supachai also highlighted the global economic situation, saying that the world economic situation is fragile. Instability and uncertainly cloud international capital, currency and commodity markets. A major slowdown is looming, and no one knows if it will be just a temporary cyclical correction or a longer-term recession. Much will depend on how governments respond both individually and collectively.

The introduction to the Accra Accord raises an important and timely issue in this regard, he said. It highlights that both the role of the State and the role of the market are vital for designing and implementing successful development strategies, reducing poverty and attaining equitable income distribution, building physical and human infrastructure, and addressing market failures.

The practice in recent years has been to let market forces reign with minimal government intervention. In principle, said Supachai, this is a good idea, provided proper regulation and safeguards are in place. However, when speculation and systemic weaknesses combine to exaggerate supply and demand trends and produce wild price fluctuations, then something obviously is wrong and needs to be fixed.

"We have seen in the past few months how the State has had to intervene to address market failures in the US and Europe," he said, adding that their response to the crisis in coming months will have a strong impact not only on world growth and development prospects, but also on macroeconomic thinking. Indeed, the emerging debate over the role of the State and the role of the market may challenge conventional thinking and some "sacred cows".

In line with its mandate to "stay ahead of the curve" and "pursue innovative solutions", UNCTAD is actively joining this debate, said Supachai, noting that the recently released Trade and Development Report takes the bull by the horns. It challenges policymakers to think more creatively about how the State can intervene not only to correct market failures, but also to deliver development objectives, including the MDGs. "We plan to build on this concept of the 'enabling state' - as opposed to the 'controlling state' or the non-interventionist' state - in current and future work," said Supachai.

On the trade front, the UNCTAD Secretary-General said that the good news is that developing countries' share of international trade has continued to expand and diversify, with manufactured items showing healthy growth. The challenge will be to maintain this trend and integrate smaller countries and smaller companies into value chains. Trade agreements can help by addressing tariff escalation, tariff peaks, rules of origin and transfer of technology - in developing as well as developed country markets.

The serious concern, said Supachai, is that the Doha Round has stalled - yet again. "This is particularly unfortunate because it delays the multilateral implementation of measures addressing the problems I just mentioned - tariff escalation, tariff peaks, trade and transit facilitation, non-tariff barriers and other issues that stifle trade development."

In his view, the Round remains the best vehicle for re-balancing the multilateral trading system and remedying long-standing distortions, such as developed countries' agricultural subsidies. Its completion is crucial to providing improved, secure market access for developing countries' exports.

"We therefore hope that WTO members will return to the negotiating table soon, to revitalize and realize the Doha Development Agenda."

The recent turbulence on world markets has highlighted the importance of the development deliverables. "We need to build on what has been achieved to date, and work definitely to phase out trade-distorting agricultural subsidies; realize duty-free/quota-free market access for LDCs; address cotton trade issues; implement Aid-for-Trade support for infrastructure and productive capacity building; and complete the already well advanced trade facilitation negotiations."

On the objectives for this session of the TDB, the UNCTAD Secretary-General expressed hope that the Board will consider and transmit clear policy signals on three specific issues: the Millennium Development Goals, the Development Finance Agenda, and the WTO.

He said that this is a very timely opportunity to contribute to the High-Level MDG event convened by the UN Secretary-General and the President of the General Assembly on 25 September. Supachai said that in his view, one of the key gaps is the low profile given to MDG 8 - particularly, the role of trade and economic development in underpinning the achievement of all the MDGs.

"We should seize this opportunity to highlight the need to re-balance international aid (including "One UN" initiatives) so that economic infrastructure and productive sectors, including agriculture, receive sufficient investment... we should also stress the need to rethink the approach to international aid to take into account the increasing donor role of the private sector and the larger emerging economies."

Regarding the upcoming Doha conference to review the Monterrey Consensus on Financing for Development, he said that a similar message should be sent stressing the need to focus more strongly on sustained economic growth and creation of productive employment.

"We should explore new ideas on the role of the public sector and international institutions. We should encourage more innovative financing tools, including a new look at how to mobilize additional funds from external and domestic sources. We should promote more effective approaches to debt management and sustainability. And we should examine how to strengthen multilateral rules and institutions."

Regarding the WTO, Supachai said that it is very timely, with senior WTO negotiators in town this week and the WTO Public Forum starting next week, to send a clear message advocating a concerted effort to reach an agreement that will deliver freer and fairer trading conditions.

At the same time, he said, it could be useful to start thinking about the possible scenarios which might apply to various timeframes for conclusion of the Round. "In the event that it takes longer than we would like to reach a conclusion, we must ensure that the credibility of the multilateral trading system remains intact," he said.

In an opening statement at the TDB, the G77 and China stressed the commitment of the Group to the successful implementation of the Accra outcomes, commencing with this session of the TDB. It said that it is ready to fully engage with its development partners to ensure that UNCTAD plays its intended and natural role in advancing the global discourse on development, including the acceleration of the accomplishment of the internationally agreed development goals, among these the MDGs.

The G77 and China said that this session of the TDB is of critical importance for the future of the organization. "We must work for a positive impact on the broader global development process. Let us seize this opportunity to ensure that this session of the Board marks a renaissance for UNCTAD."

Pointing to the rich and diverse agenda before the Board, the G77 and China said that "if we are to be true to the Accra outcomes, these discussions should lead to solid, consensus-based conclusions."

"In this regard, we look forward to discussions on how we can overcome the new and emerging challenges posed by globalization and greater interdependence so that the global economic system can be made to work better for development," said the G77 and China. +