FAIRNESS AND PREDICTABILITY NEEDED IN TRADING SYSTEM.

Jun 4, 1986

FAIRNESS AND PREDICTABILITY NEEDED IN TRADING SYSTEM.

GENEVA, JUNE 2 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Unless the third world countries could count on "greater predictability and fairness" in the international trading system, their potential to export manufactures would not be fully realised, a top official of the U.N. Conference on Trade and Development declared Monday.

The deputy Secretary-General of UNCTAD, Alistain Mcintyre was speaking at the opening meeting of the 11^th. session of UNCTAD's Committee on Manufactures, after it had elected Dr. Adnan Yonis of Iraq as its chairman.

The Committee, Mcintyre said, was meeting in the context of "uncertainty" in the international economy, though there was now a "modest, albeit uneven, revival" in world trade.

Some third world countries had taken advantage of vigorous growth in 1984, but their export growth and dipped again in 1985, and it was still uncertain what would be the outcome in 1986.

Exports, specially of manufactures, by the Newly Industrialising Countries (NICS) had often been seen as an engine of growth for them, but the issue before the international community was whether this path of export expansion could be sustained, and whether such a pattern of development could spread to a large number of countries in the third world, Mcintyre said.

An UNCTAD Secretariat report before the Committee has however questioned the advice to third world countries for adoption of export-led industrialisation strategies and adoption of outward looking open economies, following the so-called east Asian development model.

The Secretariat report has said that in the current prospect of sluggish growth in OECD countries, such a policy might not be successful for a large number of third world countries, specially if all of them were to attempt it simultaneously.

The world economy, Mcintyre said, was undergoing rapid structural change, and the third world countries had to get a grip on these fundamental changes.

It was clear that in the future human skills would play a more important role in strengthening the competitiveness of countries, as against the past when natural resource endowments and accumulated capital stock determined these factors.

There was also need for third world countries to encourage actively "indigenous entrepreneurship", and ensure that all major sectors of society accept responsibility to earn foreign exchange and ensure its effective use for priority development needs, rather than being net spenders as was now happening in too many cases.

Other factors influencing export competitiveness included high rate of domestic savings and efficient maintenance of capital stock, including physical and economic infrastructure, and the important role of modern and efficient service sectors.

But to enable the third world countries to find lines of export production that they could exploit, the international trade and financial system should give them adequate opportunities.

These countries were now facing "many external constraints", and the GATT open trading system was "being set aside by major trading countries that employ a number of devices to manage their trade with other partners".

Some, like the MFA, have been "explicitly designed" to place discriminatory limits on third world exports, while others leave little room for new entrants and "debar" third world countries from moving ahead with new lines of production.

"We must all hope that the new trade round will mark a decisive break with these practices, and that the initial phase of negotiations will concentrate on implementing the still unfulfilled commitments to a standstill and rollback of protectionism", Mcintyre underlined.

Commitment to trade liberalisation was also needed to be reinforced by macroeconomic and financial policies to secure high rates of economic growth in the industrial world, favourable rates of interest and less volatile exchange rates.

While some steps in this direction had been taken in the plaza agreement and the Tokyo summit, in an interdependent world discussion of macro-economic policies and setting of objections were "matters of global concern", and would benefit from contributions by other interested parties in the world economy.

Underlining also the need for third world access to larger flows of external finance, despite some recent initiatives, anxieties continued as to whether third world countries, specially the indebted ones, would secure necessary foreign exchange to meet basic development needs.

Possibilities of infusion of capital to finance new investment seemed to be even further away, especially in the manufacturing sector.

Referring in this connection to the "renewed international interest" in foreign direct investment, Mcintyre outlined its purported advantages over borrowing, and added: "each country has to assess for itself what the benefits and costs of foreign direct investment are, and what forms of foreign investment are compatible with its economic and social objectives".

Several third world countries, he noted, were also showing interest in "new investment forms", involving minority or no equity participation by foreign firms, and with special emphasis on international collaboration arrangements, including joint ventures and subcontracting based on intra-industry specialisation.

"Developing countries will have to consider how far such arrangements can be helpful to the expansion of their exports of manufactures without getting locked into patterns of labour-intensive industrial development and exports that may ultimately evoke protectionist action".