Sep 6, 1988

THIRD WORLD TRADE FACES MORE BARRIERS.

GENEVA, SEPTEMBER 2 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Third world countries, already facing the brunt of projectionist measures in industrialised countries are likely to face even more barriers unless the opportunity of the Uruguay round is used to rollback existing barriers to their exports, according to the UN Conference on Trade and Development.

Trade liberalisation in areas of export interest to the third world, the UNCTAD secretariat adds, would help third world growth and would also benefit the industrialised countries.

Third world countries the secretariat points out tend to spend most, if not all, their additional export earnings on imports, mainly of machinery and intermediate goods, a large share of which originate in the industrialised countries.

Hence trade liberalisation favouring the third world would result in reallocation of resources among the industrialised countries towards sectors with higher levels and rates of growth of factor productivity.

The benefits of such trade liberalisation would be even greater for the world economy. By improving third world debt-servicing capacity, such trade liberalisation would contribute to resumption of financial flows to these countries, and result in higher levels of world demand.

The working out of solutions to the export problems of third world countries could thus be an important ingredient in set of international measures to speed up world economic growth and give a new impetus to the development process.

These UNCTAD views and comments are in a section of its trade and development report, 1988, devoted to trade policy issues.

The report notes that while protectionist measures against the third world have a long history in the OECD countries, more recently, the exchange rate volatility, misalignments and trade imbalances have intensified or triggered such pressures.

The brunt of protectionism, it notes, has not fallen off those whose policy actions had contributed to exchange rate misalignments and trade imbalances.

Such protectionism has also come at a time when the third world countries were being advised to pursue policies to increase their export earnings.

The trend towards managed trade, already manifest in the OECD countries since mid-70s, and have gathered momentum in the 1980s.

Non-tariff measures have been the most preferred form of trade intervention, and of all NTMS, those allowing discrimination against specific suppliers Voluntary Export Restraint Agreements (VERS) and Anti-Dumping and Counter-Vailing (AD/CV) actions have been most preferred.

If trade in fuels were excluded, the proportion of imports in OECD countries subject to NTMS was higher in trade with third world countries than in trade among OECD countries.

The sectors most affected by such measures were those under intensive adjustment pressures in the importing countries, particularly textiles and clothing, iron and steel, food, automoviles, electronic goods and machine tools.

While UNCTAD does not expect trade tensions among industrialised countries to disappear, it sees a possible abatement because of growth of Foreign Direct Investment (FDI) in these countries, and particularly the U.S.

Since early 1980s, TNCS from Japan, and to a lesser extent from western Europe, have been engaged in "trade-replacing investment" in the U.S. Japanese companies are also planning larger investments in Western Europe.

While reasons for FDI growth are complex, and there are also other important factors, "the protectionist threat has certainly played a role in the decisions of Japanese and west European TNCS to invest in other developed market economy countries".

A consequence of such investments, UNCTAD suggests, could be a decline in protectionist pressures with respect to trade among OECD countries.

But while labour unions in the U.S. have welcomed foreign investors because they bring or save jobs, the stance of management could be changing and earlier welcoming corporate attitudes giving way to "more guarded assessment", since foreign firms have shown they are as competitive producers within a host country as in exporting to it.

Some trade frictions, it adds, could be in the process of becoming investment frictions, or trade tensions transferred to imported components used by foreign investors or producers (as in EEC over Japanese "screwdriver" plants).

The international trading system, UNCTAD points out, is already in serious disarray, and despite repeated commitments of major trading nations to "standstill and rollback", managed trade is on the increase.

The proportion of trade affected is particularly large for exports from third world, partly because their output is concentrated in sectors where output and employment in the industrialised countries has been declining.

The gradual abandonment of multilateralism in favour of bilateral approach to resolution of trade conflicts is also having serious consequences on third world countries, whose lack of bargaining power puts them at a clear disadvantage in bilateral negotiations.

While protectionism has multifaceted roots, exchange rate volatility and misalignments have encouraged moves towards greater protectionism. Hence a greater measure of international monetary stability would contribute to dismantling of controls on trade flows.

However, even if desired international monetary framework were achieved, the problem of incorporating third world countries more fully as equal partners into emerging international trading system would remain.

Third world countries, UNCTAD notes, are increasingly becoming competitive exporters of manufactures to major international markets, and their exports are giving rise to increasing trade conflicts with and adjustment pressures in industrialised countries.

Thus, in years to come, trade tensions could come to focus increasingly on the manufactured exports from third world countries.

While TNCS based in the industrialised countries, with their huge resources, are able to "skip over" trade barriers by switching from exporting to a certain market and producing domestically in that market, this possibility is not open to firms in third world countries.

"Therefore, if the problem of protectionism is not to centre increasingly on exports of developing countries to the industrialised countries, a full implementation of the long-standing international policy commitment "to make room" for exports of manufactures from third world countries would be needed.

"Such a commitment", UNCTAD adds, "needs to take concrete forms: a rollback of existing non-tariff barriers and other measures to improve market access (including the lowering of tariffs on products of export interest to the developing countries).

"The Uruguay round of multilateral trade negotiations currently under way offers an opportunity to achieve these objectives".