LIBERALISATION & US-EC POLITICAL ECONOMY DON'T JELL

12:22 PM Mar 6, 1997

LIBERALISATION & US-EC POLITICAL ECONOMY DON'T JELL
Geneva 5 Mar (Chakravarthi Raghavan) -- Developing countries, and international organizations promoting development and seeking to support developing countries, got two somewhat contradictory messages at a workshop of trade and development experts looking to the post-Uruguay Round future agenda for the multilateral trading system.

The two-day workshop had been convened by the UNCTAD Secretary-General Rubens Ricupero and was attended by some 30 participants, both individual and from international and regional organizations and institutions.

Originally, conceived as a workshop on research on the development impact of Uruguay Round and methodologies for country studies, by the time the workshop convened its focus had changed to looking to the future, and what Ricupero described as the start of a process for formulating a possible positive trade liberalisation agenda from the perspective of developing countries.

At a final summing up session by five panellists, some of whom had chaired earlier sessions of the two day meeting, the orthodox, mainstream economists' view came from Mr. Jeffrey Schott of the International Institute for Economics (IIE), the Washington-based liberal economic think-tank close to the administration and the Bretton Woods institutions, and the heterodox development view came from Prof. Deepak Nayyar of the Jawaharlal Nehru University, Delhi, India.

Schott's message was that in the context of an increasingly isolationist United States, with increasing scepticism over trade and trade liberalization, and a largely inward looking EC absorbed in problems of a single currency, the intergovernmental conference and the expansion and integration of East Europeans, there is not much scope for developing countries formulating any wide ranging trade agenda. Rather they should take note of this political economy, undertake some 'creative thinking' and formulate proposals that would fit into the agendas of the US and the EC. For e.g., the latter would not be able to accommodate new members from east Europe without major reforms to its common agricultural policy, and this could be used to achieve some liberalisation of agricultural trade.

The political economy of trade in Europe and the United States on trade was inward looking, except for promoting their export interests, and the scope for wide-ranging trade liberalisation of markets for developing country exports was limited. Developing countries, and institutions like UNCTAD supporting them, had to bear this in mind and do some "creative thinking" in formulating negotiating strategies to deal with a more uncertain hegemon in the post-cold war era.

The non-orthodox economics view, that in the post-Uruguay Round, and the parallel policies of the Bretton Woods institutions, had set new rules of the game to direct their domestic policies which could affect their development. But orthodox economics, linking trade liberalization with allocative efficiency of resources, ignoring technical efficiency or effects on micro- and macro-economic of developing countries, and maximising 'global welfare' without looking at development or national welfare, would have major limitations on them.

This would constrain developing countries, where the government and the market have to complement each other, and governments must play an active, and over time a varying role in this. While formulating domestic policies to subserve national objectives, keeping in mind the rules of the game of the international trading system, they need to act collectively, and through regional arrangements like ASEAN or MERCOSUR (whose role in this would be more important than regional economic integration) to expand their national and international space and change the rules coming in the way of their development.

Earlier, Ricupero said that UNCTAD was no longer a forum for negotiations. And while developing countries faced problems of implementation, and abiding by the rules of the Uruguay Round, the WTO and its technical assistance programme was better suited to help in these matters. As for improving the supply capabilities of developing countries to take advantage of the market openings, and particularly of the least developed countries, while UNCTAD was engaged in this task through its investment and enterprise development programmes, others like the World Bank and the regional development had more financial and other resources to focus on these.

Ricupero saw UNCTAD's own role as helping developing countries in the pre-negotiation process. In this context, he underlined the need to develop a positive agenda for developing countries and groups of them so as to achieve a balanced result in future trade liberalisation. Ricupero asked whether an agenda of trade liberalisation could be formulated from a development perspective or should the developing countries be compelled to continue to react to an agenda set by the OECD, the Paris-based organization of the industrialized countries?

Ricupero wondered whether the developing countries should only be reacting to the agenda for investment and mobility of capital or competition policy to open their markets to the foreign exporters? Would it be possible to envisage that mobility of capital should be matched by mobility of labour - whether across frontiers, or taking advantage of modern communications providing labour-intensive services from the countries? There were also similar, and more traditional questions like tariff escalation and tariff peaks -- issues that had been outstanding from the Tokyo and Uruguay Rounds on products of export interest to the developing world.

Schott underlined that for nearly 50 years in this century, the US Congress had set trade policy, focusing on imports and setting tariffs etc. In the aftermath of the depression and the post-war era, the focus had been turned around to promoting exports through trade policy and open trading system, setting targets and proposals, and providing fast-track authority to the President to negotiate.

Now after the Uruguay Round, Nafta etc, and despite the end of the cold war and buoyant economy, there was increasing scepticism in the Congress about trade and trade liberalisation. Great differences had arisen whether the President should be given fast-track authority to negotiate, and if so what should be its terms. The Republican leadership was sceptic over any agreement linking trade with environment and labour, while important sections of the Democratic Party want trade conditionality as their number one agenda for future trade negotiations. This made it very difficult for the Clinton administration to reach a consensus with Congress for fast track authority and future trade liberalisation.

The US had now become increasingly isolationist and losing its traditional hegemon role of supporter of an open system. Side by side, there was also increasing lack of support for achieving objectives through a carrot approach of positive measures of international cooperation, centred around the UN and its system of institutions, and much more support for a 'stick' approach of trade sanctions.

The counter view to the orthodox, liberal economics of Schott (and earlier in the private workshop meetings from IMF, World Bank and the WTO participants) came from Prof. Deepak Nayyar of the Jawaharlal Nehru University, who suggested that the view of orthodox mainstream economics about trade liberalisation and efficiency gains, and the need for developing countries to liberalise trade and open their economies and integrate into the world economy to benefit from globalization or lose by marginalisation did not provide adequate answers, and was not borne out by actual development experience.

The orthodox view about openness of developing countries to the world economy, and less intervention by the state in the market, promised prosperity to those who joined and deprivation for those who did not, Nayyar said. This was at best a partial or selective view, looking at the static rather than the dynamic, focusing on supply and not demand, and on maximising global welfare, and not national welfare. It did not pay sufficient attention to the impact of trade liberalisation, say on micro- or firm-level: does it lead to increased technical efficiency or to closures. At least in the short-term in developing countries, trade and import liberalisation leads to switch of demand to foreign goods, and does not create a demand effect on the domestic economy as a whole. As such it does not result in national welfare.

The Uruguay Round and its rules of the game, and the other rules of the game set by the conditionality policies of the World Bank and the IMF, limited the degree of freedom in the domestic space of developing countries. Trade policy now dictated domestic policies and economics. The Uruguay Round was a reality, and neither governments of developing countries nor others do much about it now. However, in formulating domestic policies, they should still focus on national objectives, bearing in mind the limitations of their international commitments to the trading system.

Current orthodox economics, Prof. Nayyar said, promoted developing countries opening their markets to goods and services from abroad, but did not pay attention to the access of developing countries to technology markets. It sought to provide for capital mobility, but not labour mobility. He regretted that developing countries at Singapore, in dealing with the Northern agenda of investment, labour rights and environment, had not mooted their own agenda of labour mobility. Even in terms of the international trade in services under GATS, which provides for movement of natural persons, very little had been done.

At least in looking to the future, while their individual voices are unlikely to be heeded, they should collectively formulate strategies and policies that would not merely be reacting to agenda of others.

In other comments, Ms. Sheila Page of the British Overseas Development Institute, suggested that even in terms of implementation, UNCTAD could play a useful role in enabling developing countries to exchange their experiences in this area and how they were able to overcome the problems. Ms. Page also raised the issue of the least developed countries (LDCs), and noted that the UN classification of LDCs, based on per capita incomes, education levels etc, had some relevance and use in terms of aid and other considerations. But she was not sure of its usefulness as a concept for trade policy classification.

Mr. Samuel R. Dixon-Fyle, a former GATT secretariat official and now running a Sierra-Leone based Business Opportunities bureau as part of an economic consultancy and business advisory service, said that in his trips around African countries, he had found much criticism from governments, academics, public and business groups, about the advice to them coming from the IMF/World Bank and the WTO, and the way it was given. These institutions and their officials should "restructure" their relationships with the countries and be more diplomatic, eliminating "arrogant, overbearing attitudes". Dixon-Fyle said that while it was desirable for developing countries to integrate themselves into the world economy, they should not be pushed too much into this or forced to it in haste. These countries, he suggested, by their Structural Adjustment Programmes and other reforms had already made "tremendous contributions" to integration into the world economy. Pushing them further would be a great mistake, he said.

Amb. Federico Alberto Cuello of the Dominican Republic noted that parts of the Uruguay Round accords favouring developing countries had not been implemented. He cited in this connection, Article IV of the GATS for increasing participation of developing countries in the international trade in services. On investment, while others were focusing on rights of foreign investors etc, UNCTAD should pay attention to the issue of incentives to promote investment which was now flowing unevenly. Similarly, in respect of competition policy, there should be focus on restrictive practices of corporations, and instanced the case of the shipping cartels under maritime services -- as a result of which a container exported from the Dominican Republic to the US paid the same freight as to Europe, across the Atlantic.