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"BALL
IS IN YOUR COURT," RICUPERO TELLS NORTH Geneva 19 Oct 99-- "The ball is in the court of the industrialized countries, and it is their responsibility to make the world trading system work; the developing countries can do very little," UNCTAD Secretary-General Rubens Ricupero said Tuesday. Ricupero was speaking at an informal meeting of UNCTAD's Trade and Development Board, and responding to some of the comments made during the session. The informal discussions, on "Trade, growth and external financing in developing countries", was initiated by Ricupero and heard a panel of three experts, and then discussed the nature of the global crisis and the approaches to be taken for the WTO Seattle process. Sharp differences between the protagonists of liberalization and globalization and those seeking equity and balance in the global trading system emerged here Tuesday at a meeting organized by the United Nations Conference on Trade and Development (UNCTAD). The divide ran mostly on conventional lines - between North and South. At issue was the kind of prescription the world economy needs. More free trade and greater liberalization or a stock- taking of what harm has already been inflicted and how to correct them. In the discussions, the major industrialized countries, like the United States and the European Union insisted developing countries stood to benefit from better domestic policies and by embracing liberalization even more. Developing-country representatives, on the other hand, were at pains to point out that most of the developing countries, were already facing problems and if they were given more of the same prescription, it would be just a matter of time before things snapped and that would not augur well for global trade. "The ball is in the court of the industrialized countries, and it is their responsibility to make the world trading system work; the developing countries can do very little," said UNCTAD's Secretary-General Rubens Ricupero. "Developing countries," Ricupero said, "can correct their problems in terms of national policies. But they are fragile economies. Most of them have been having serious financial problems, and they have limited possibilities in terms of opening up their markets as they have balance of payments deficits." "The ball is in the court of the exporters of capital, who have been benefiting from the trading system, and are surplus economies that have been accumulating huge surpluses through exports. If we are serious about having a balanced and effective trading system, something must come from the developed countries." The present multilateral trading system is not development- oriented, but imbued with several biases that work in the direction of creating burdens and obstacles in the integration of developing countries into the world economy, Ricupero pointed out. Underscoring the bias of the system against developing countries, Ricupero said the GATT began as a kind of club of industrial countries. The areas of advantage to the developing countries - agriculture, textiles and clothing - were excluded from the rules of the system. The first waiver in agriculture was given to the US in the early 1950s. The first derogation from the GATT on textiles and clothing, first for cotton textiles and then becoming the multifibre agreement came nearly 40 years ago. Five years after the WTO, and more than half-way through the 'transition' for agreement for integration of trade in textiles and clothing into the GATT/WTO, there had been practically no commercially meaningful liberalization. "We can honestly say that the kind of integration (by developing countries in the world economy) taking place is a cause for concern," Ricupero said. Only a few countries concentrated in a single region could be said to have successfully integrated. The reasons for this were complex. Some of the blame lay in developing countries' domestic policies. But other reasons included the slow growth of industrial countries (which also did not open up their markets enough to developing countries' products), the fall in commodity prices and terms of trade, and new forms of protectionism in the North. Explaining how developing countries had expected more from the multilateral trading system, Ricupero said: "We are not against trade or trade liberalisation, but against a certain kind of liberalisation that generates this kind of imbalance." He also recalled a warning made at the WTO Singapore Ministerial Conference that if developing countries continue to face imbalances and pressures to open their markets, the developed countries may find that they are opening up "non-existing markets" which cannot pay for their imports. In the debate, the United States and European countries stressed the importance of domestic policies for developing countries to achieve development, and advocated continuing liberalisation by these countries. Finland, on behalf of the EU, stressed that domestic policies were the key to development. He said trade liberalisation offered more gains than costs. "Although we share UNCTAD's concern for better market access to developing countries, but the international system cannot do all the work." Proper domestic framework and functioning markets were crucial. He added the EU wants a strong development dimension in a new Round. "there is no other way to help developing countries than through this new Round as developing countries have much to gain from liberalisation." The US delegate criticised the preponderance of panellists who accentuated the negative consequences of globalisation, and asked for more variety of views in panels. Elucidating on the concept of globalisation, the US delegate said that when Columbus sailed in 1492 the uneducated people thought the world was flat. Although this would change to the concept of a round world, some preferred the old system. How useful is it to spend time arguing about a flat world? he asked. It was the same for globalisation. "Yes, life was more stable, more sure before globalisation. Liberalisation is not a cure-all but it is a reality." He said those who defended the "old system" during the session talked as if they could go back to the old system. "There is no going back to a world of import substitution. We must deal with this with a forward look not a nostalgic look at yesterday." In contrast, many developing countries underlined the importance of the external economic environment, the lack of benefits to them from the trading system, the need for the North to open their markets to Southern products, and the need to remove imbalances and double standards in the WTO rules. Many asked why, if liberalisation was so beneficial, did the EU refuse to liberalise its agricultural sector and why textiles were still protected in the North. The Indian delegate said there seemed to be a "disconnect" between the discussions here at UNCTAD and down at the WTO (about half a kilo-metre away), "as if there were thousands of miles of distance between the two rooms." "Here we are discussing what is wrong with liberalisation and there we are rushing headlong to a new Round." The Indian delegate noted the common strand of the three panel experts, that unregulated trade would not bring about benefits. There were three major problems faced by developing countries in the WTO: the promised benefits of the Uruguay Round have not materialised, the special and differential treatment provisions are a "dead letter", and there were serious imbalances in some agreements (such as TRIMS and TRIPS) that positively impede technological and growth possibilities. Yet, developing countries were being asked to "pay" (in terms of additional concessions) for the changes to agreements that they had proposed. Moreover, non-tariff barriers had offset tariff reductions in the North, resulting in developing countries not benefitting from the Uruguay Round. He added that developing countries were now stating in the WTO that the present problems have first to be rectified, before considering new issues. In proposing new issues such as investment, competition and procurement, developed countries were only looking for market access for their companies, and these would not benefit developing countries. Moreover, studies showed there was no link between FDI and growth or between increased capital inflows and development. The delegate of Argentina said the multilateral trade agenda was out of balance. Although the concept of a "Development Round" had been repeated, on looking at the agenda, developing countries it seemed were being asked to enter commitments in the very areas where they have implementation problems. The Ecuador delegate agreed with Ricupero that the multilateral trade system was not geared to development as it does not take into account the needs of developing countries although they are in the majority. "We feel there is a new form of protectionism in developed countries that is exquisitely and most skilfully drawn up," he said. He cited as an example the emergence of a very dangerous concept, "multi-functionality of agriculture", put forward by some developed countries as a new form of protectionism. This euphemism was to enable agriculture to be protected on environmental grounds. He added that the dispute settlement system was supposed to be the linchpin and the most solid foundation stone of the WTO for developing countries. But he must now disagree with those who think it was a solid stone. Ecuador had a bitter experience to the contrary, as it had taken part in the dispute settlement mechanism to overcome an incredible protectionist barrier and yet the EU banana regime remained intact. It was also time for the WTO to tackle the debt problem as developing countries find it impossible to service debt and pay for imports when they had balance of payments difficulties, especially when there is an exchange rate problem. The problem is related to many WTO rules. "We cannot advocate markets to open up when it impacts on indebted countries' capacity to service their debts." In response to criticisms that the TDR and the panellists had seemed negative on trade liberalisation, Ricupero said that he was a believer in a positive attitude of developing countries in trade negotiations and using the trade system and trade as a tool for development. "Our disagreement starts in whether what has happened so far confirmed the expectations, and whether the prospects for change are encouraging. The best way to settle it is in the WTO negotiations to show by acts not words, to find solutions to the aspirations of developing countries." Ricupero said the TDR and UNCTAD were in reality in favour of trade. It was UNCTAD's founder, Raul Prebisch, who coined the slogan "trade not aid." An update of this slogan would be "Export expansion and market access, instead of hot money." Explaining this, Ricupero said: "We want the means to pay for our imports through exports instead of through the use of hot money to compensate (for the shortfall in the trade balance) to pay for imports." He said what was important was not trade theories but the practical questions: "Is it happening in reality? Can it happen in future?" Ricupero said he felt "divided" when he heard how the next Round should be a development Round, something which Clare Short (UK Development Minister) had proposed at an UNCTAD forum. He had felt encouraged when Mike Moore (WTO director general) had mentioned it at Marrakech (Group of 77 meeting). "It would be splendid," said Ricupero, "if something can come out of this. If not there will be a bitter disappointment. Developing countries feel the benefits of the Uruguay Round have been very slow in materialising. Only a few countries took advantage. How can we make this more widespread, so that 80 or 90, not just 7 or 8 developing countries benefit?" Ricupero said it would be better for developed countries too if the developing countries were more successful. He recalled what China's chief WTO negotiator had said at the Singapore Ministerial, that if there was continued imbalances and developing countries were pressured to open up, "you may open up to non-existing markets which cannot pay for your imports." This, said Ricupero, had already been borne out by the Asian crisis. Growth in world trade volumes fell between 1997 and 1998 because the affected Asian countries had to compress their imports to adjust their balance of payments, as they were unable to export more despite their devaluations. This was regrettable because they should have adjusted through exporting more, in which case they could then continue to import. Brazil, despite the devaluation of up to 50 percent, was still struggling with a trade deficit and adjustment will most likely come also from import compression. "It will hit you (developed countries) as your exports will suffer" said Ricupero, adding: "We are not against trade or trade liberalisation, but against a certain kind of trade liberalisation that generates this kind of imbalance." The informal meeting, on an agenda item, "Interdependence and global economic issues from a trade and development perspective: trade, growth and external financing in developing countries." It first heard a panel of three experts, and then discussed the nature of the global crisis and the approaches to be taken for the WTO Seattle process. (SUNS4535) The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.
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