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ROUND, MORE PROMISES - A RECIPE FOR SOCIAL CONFLICT Geneva,21 Oct 99 -- Feeling the pinch of the bitter spill-over from the Uruguay Round of Multilateral Trade Negotiations, public and parliaments in the developing world are unlikely to let their negotiators acquiesce into yet another trade round that will choke them further, an UNCTAD meeting was told here Tuesday. Delegates, NGOs and expert panellists took part in a lively debate on trade and development issues. Larry Elliott, Economics Editor of The Guardian newspaper said that the current economic model is not working as there are deep structural problems with neo-liberalism, the Washington Consensus and globalisation. The TDR99 was timely as it helped show that unbridled competition among unequals has never delivered, and there is no "rising tide" bringing everyone up. Advocating reform in the international economic system, Elliott said the current vogue in policy is for weak governments, strong capital and free markets. But desirable outcomes in the past had come when governments were strong, markets are regulated and capital weak. When the initial post-World War Two policies (fixed exchange rates, capital controls, welfare state) were abandoned, the situation worsened. Floating exchange rates led to instability, open capital markets caused problems including capital flight, and since 1973 OECD investment rates and labour productivity had fallen. Elliott said the consequences included lower growth in the South, unstable capital flows and balance of payments problems. The Uruguay Round has not benefited the South, there is severe agricultural protectionism and the WTO has been captured by corporate interests. He suggested that Japan, EU and the US cooperate to stabilise exchange rates and reduce capital flows; that the financial system be reformed towards a government-led (not market-led system); that capital controls by developing countries be seen as valid. On the world trade system, a failure of the WTO Seattle meeting would be wrong as a rules-based system is needed. Developing countries need market access and a Development Round. Chakravarthi Raghavan of the Third World Network and Chief Editor of the South-North Development Monitor - SUNS, said that whilst almost all international institutions were shy to make proposals that ran counter to the mainstream ideology, UNCTAD seemed to have got over this hurdle with its analysis, based on evidence, in the Trade and Development Report 1999 which policy makers would do well to read carefully. Perhaps the starting point is "where do we go from here". For many it seemed obvious: go to Seattle and launch a new round, whether a millennium round, or development round or whatever. Launching a round, negotiating and liberalising seems to have become an end in itself, and not what it does, and whom it benefits - apart from text-book theories." Commenting on Elliott's earlier statement about NGOs planning to protest at Seattle, Raghavan said he believed NGOs are not a substitute for governments but their role is to influence governments. Merely being invited to receptions and seminars organised by the WTO could not make NGOs participants in the WTO process. Nor could the WTO claim to become "transparent" or participatory just by allowing NGOs to submit amicus briefs in panel cases. "If the WTO and its members want transparency and public support," said Raghavan "let us start by applying the 6-week rule (of the UN system where documents and proposals should be in the hands of governments six weeks in advance). Let the public know in advance when the WTO meetings take place, what is the agenda and the proposals being made, how many and who were the delegates present and their positions and what they did or did not. "Only then can the public hold their delegations and governments to account." There was a difference between the Uruguay Round period and now because the civil society and businessmen in developing countries are now conscious of the importance of what is going on in the WTO and want to know what positions their governments are going to take, have taken or did not take. Raghavan quoted former GATT director-general Arthur Dunkel as posing the question recently, whether it was business or governments that were driving the WTO process, and Dunkel's view that civil society was ganging up against the WTO because of the public perception that the big corporations were in control, to the detriment of civil society. There was much talk about globalization and its inevitabilities, Mr. Raghavan added, recounting what Mr. Henry Kissinger, former US Secretary of State, had to say at a recent lecture at Dublin, that "what is called globalisation is really another name for US domination." The US over the past decade, Kissinger in his speech had noted, has done very well. "In economic terms it can't do better - full employment, rising real wages, increasing productivity, low inflation, non-stop growth...." "The only problem was that this US model based on capital being cheap, technology plentiful and only labour is costly, can't be exported, though US policy makers and business schools are busy doing it." "Russia was no closer to being a market economy or democracy, nor has the model succeeded in Southeast Asia and South America." In his speech, Kissinger has raised a number of questions, and concedes he has no answers, but warns that if answers are not found, the world "in the early 21st century could find itself beset by the same sort of social conflict that characterized the beginning of the 20th century." Raghavan added he did not agree that there would be a disaster if the Seattle Conference decided not to launch a new comprehensive Round, and merely came back with a work programme addressing existing problems. Before the Uruguay Round ended, wildly exaggerated claims were made on the gains that would result, including an OECD/World Bank prediction of $250 billion benefit, later in 1994 hiked up to $500 billion by the GATT secretariat, and then in early 1995, at a World Bank seminar, the global welfare gains became just $40-60 billion. This was not surprising since models were only as good as assumptions and most are wrong. There was again talk of the benefits of a new, comprehensive Seattle Round. But such forecasts would no longer work to draw the public's support. The public were now concerned about the false promises and claims that liberalisation can deliver social good. "If the public feels there has been no benefits, and that is a reality after 5 years of UR and the WTO, you cannot pull off another Round," he said . Raghavan agreed with some speakers that developing countries were better off with multilateral rules then no rules. But rules were only as useful (or useless) as they were fair and balanced and equitable. Commenting on the previous day's statement by Switzerland that Seattle would be a failure if developing countries did not commit themselves to further liberalisation, Raghavan said: "We are now told it depends on the developing countries to liberalise more, and that it will do them good. And neo-liberal trade theorists also tell us those who liberalise, even unilaterally benefit. "If that were so, why don't the industrialized countries themselves liberalise? Why does not the EU commit itself to liberalise agriculture fully, or the US commit itself to liberalise textiles and clothing? Why don't they set an example now, without even going to Seattle to do so? They don't need a new round to do it: they could do it here in Geneva at the WTO, created to be a permanent forum. They should do so if they themselves really believe that liberalisation is so good for everyone." Raghavan warned that governments and secretariats should not make exaggerated promises of benefits for a new Round as then, "we will be in for a lot of trouble." The Guatemala delegate, referring to the US statement about globalization and free trade, said nobody was arguing against free trade per se. "We know the world is round, not flat. We want to improve the system of free trade. It is better to have a win-win situation rather than one where the winner sweeps the board the others lose all." Guatemala did not agree that the Trade and Development report only highlighted negative aspects of foreign investment. The report rightly pointed out that there were positive effects but only a few countries attracted FDI flows whilst most investments comprised hot money and short-term flows. Finland (for the EU) agreed with the US that globalisation cannot be reversed. The issue rather was how to get this process onto the "human face" path (as advocated by the UNDP Human Development Report). He added that the missing link between globalisation and development was appropriate domestic policy (such as good governance and enforcement of laws). In fact, he argued, domestic policy was the key whilst a good external environment is needed. Ethiopia's delegate refuted the charge that those who questioned the effects of globalisation were advocates of protectionism, as the aim was to turn globalisation towards maximising benefits and minimising costs. "If globalisation had no inherent weakness, how can we explain the financial crisis which has cut $2 trillion in global output? How can we explain the crushing impact of this crisis on even the advanced developing countries? ... It is hard to justify the righteousness of the development policies of the last 15 years when 1.3 billion people live at less than one dollar a day. If we only paint a rosy picture of globalisation, how can we explain why three of the world's richest people have more wealth than the incomes of people in the poorest 48 countries?" South Africa's delegate said the TDR99 had shown how the competitive sectors and industries of the South have to compete with the subsidised uncompetitive industries of the North.If developed countries are really committed to growth in developing countries, they must undertake their own structural adjustment and eliminate the sectors where they no longer enjoyed comparative advantage. The Malaysian delegate said he was struck by the EU's view that management of globalisation required sound domestic policies. He cited the example of Malaysia's exchange rate and capital regulations as domestic policies to overcome the ill effects of global speculative capital flows. Yet when Malaysia took such domestic measures, it was criticised for not conforming to the norm. "Yet what we did was to be more pragmatic and to have policies to ride over the crisis," he said. He also urged developed countries to take appropriate domestic measures to prevent global economic problems. The Argentine delegate took issue with the EU view that domestic policies of developing countries were preventing growth. Taking the example of agriculture, he said there were privileges that developed countries enjoy such as credit, low interest rates, cheap loans and the right to be subsidised, generating over $320 billion of subsidies in OECD countries for agriculture. This had negative effects for international trade as well as the environment and on poverty. "We must eliminate the scandalous privileges and instead give privileges to developing countries through special and differential treatment." The Indian delegate said the key issue was that sustainability could only be brought about by equity and the challenge was to have greater balance. There should be meaningful market access for developing countries, as the Uruguay Round left unresolved the sectors (agriculture and textiles) of interest to developing countries. Gains in market access for developing countries were also nullified by use of trade remedies. "It seems alright for developed countries to subsidise agriculture but not so for developing countries to help their industries to become internationally competitive." He added it did not make economic sense that developed countries equipped with safety nets should seek new walls of protectionism. Also, good domestic policies could not address inequities in the trade system. "We live in an unequal world where not all countries can take advantage of globalisation. Thus, the special and differential provisions must be an integral part of WTO obligations." Martin Khor of the Third World Network said the TDR99 showed there was no automatic link between trade liberalisation and growth, but that import liberalisation could cause development problems. For developing countries as a whole, the liberalisation-induced surge in imports was not matched by export increases, thus widening their trade deficits, contributing to debt problems and recession. Developing countries should thus not be pushed into liberalisation but must retain the ability to combine liberalisation with the defence of their local sectors. Khor said this had profound implications for the WTO negotiations. The existing agreements should be reviewed and rectified to offset imbalances and negative development effects. "Surely the WTO rules were not meant to render the South's domestic firms and farms to be unviable and condemned to oblivion." He urged that new issues should not be introduced in the WTO through the Seattle process. He said the new issues like investment, competition, procurement and industrial tariffs were designed to further the interests of the North and drastically open up the markets of developing countries, whose firms would not be able to survive the resulting entry of big foreign corporations and their products. It would also cause a worsening of trade deficits and external debts of developing countries, repeating the cycle of balance of payments crises and recession. "Thus if the EU and other developed countries are sincere about the next Round being about development, they would allow developing countries to lead a process in the WTO to correct the existing agreements to enable development to take place, they would improve market access to products from the South, and most importantly they would refrain from pressurising the WTO to take on the new issues designed to open up developing countries for their companies." Commenting on this, Finland (on behalf of EU) said the TDR99 had used the current balances of developing countries being unsustainable, "as intellectual justification for resurrecting infant industry-argument for developing countries. This is counter-productive." However the EU agreed that new industries were crucial in developing countries. Creating favourable conditions for them is the vital task. The US said the UNCTAD secretariat had explained its "positive trade agenda" approach quite well. But the way it was cast suggests a zero sum game where gains go either to the North or the South. In reality, competition has been between a mixture of North and South countries on each side, as the banana dispute had shown. UNCTAD should continue to prepare the South for better participation in the WTO but to be more sophisticated so as not to look at a North-South level only. He said this suggestion was not a "divide and conquer" tactic but to enable a more complex basis for preparations for Seattle and UNCTAD X. In a summing up part of the session, Larry Elliott said "we don't have free trade today but a mercantalist system, where the North-South gap is wide and the North has to ask what it can offer the South. The EU must answer what it will do to eliminate the scandalous privileges given to its agriculture. There is a double standard here when the EU says liberalisation gives more benefits than costs." Prof. De Castro of Brazil said "we are living in a deep identity crisis of development policy. Where do we go from here? Possibly one or two developing countries like China or India know where they are. We don't even know where is "here", we don't know what are our possibilities. We need strategies for our firms, sectors, macroeconomy and countries.. Whatever we do must be tailored to our circumstances." UNCTAD deputy secretary general Carlos Fortin, responding to the US comment on UNCTAD's "positive agenda", said UNCTAD had called it "positive" because developing countries had entered the last Round in a reactive mood. The positive agenda was to enable developing countries to identify their own objective so they can get to a positive sum game. Commenting on the TDR99 earlier, UNCTAD's Secretary-General, Mr. Rubens Ricupero, said that the report had presented a balance,a view characterised by moderation, but truth. The analysis showed that for developing countries, there was a constant increase in trade and current account deficits with less growth in developing countries -- "the worst possible framework." The report had brought out that trade liberalization, under the right circumstances, might bring important dividends in terms of development. Prof. Barros de Castro, of BOTOFAGO, Brazil, said the main lesson was that sudden integration into the world economy produces a macroeconomic cycle of capital inflows, and overvalued exchange rates ending with speculative attacks, devaluation, inflation and the need for more adjustment. On the microeconomic side, it was important to see how enterprises cope, for instance, whether they closed, restructured and survived, or expanded. The outcome was different in different countries. In Brazil, most local enterprises restructured and survived. But the environment had become very unstable. In respect of industrial policy, it was now agreed that no macroeconomic disturbance may be introduced as the economies and firms are very vulnerable. Prof Sunanda Sen of Jawaharlal Nehru University said that since 1980 developing countries had liberalised their trade but this had not increased their growth, thus raising questions as to why trade integration does not lead to higher growth. Also, deregulation of finance and the inflow of several types of capital did not generate growth. She added trade did not lead to development because of higher import content and dependence, in that the same amount of imports or trade deficit generates less growth now than in the past. For most developing countries, there was also no link between efficiency growth and exports. She also noted with concern that a large part of FDI inflow to developing countries was in the non-traded service sector, which would not generate export earnings. (SUNS4535) The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor. [c] 1999, SUNS - All rights reserved. May not be reproduced, reprinted or posted to any system or service without specific permission from SUNS. This limitation includes incorporation into a database, distribution via Usenet News, bulletin board systems, mailing lists, print media or broadcast. 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