Jul 9, 1987


GENEVA, JULY 8 (IFDA) – The normative policy advises in the trade policy area, put forward by the World Bank staff in the 1987 World Development Report (WDR), were challenged here this week by senior diplomats and negotiators from both the north and the south.

Only the United States apparently gave unqualified support and praise.

The challenge reportedly came at a briefing on the WDR given to the diplomats by Constantin Michalopoulos, the Bank’s Director of Policy Analysis and Research.

The Brazilian delegate, Amb. Paulo Nogueira Batista, reportedly noted that the WDR was advocating "liberalisation per se", arguing it was in the best interests of the third world in any event. Third world countries looked upon "liberalisation" as merely an instrument to be used to the extent it contributed to their development.

Beyond theoretical arguments, there were no convincing arguments for the Bank’s view, and the experiences of different groups of countries that had undertaken liberalisation had been different. Middle and upper middle income countries, after liberalisation, had been forced to restrict imports in order to maintain debt servicing.

The Malaysian delegate reportedly felt that the WDR view about the proper role of government in the economy and industry appeared to be an academic one, and in third world countries governments had an important role in the development process.

Michalopoulos reportedly replied that the Bank had not advocated "liberalisation", but only "outward-orientation". The Bank staff had done a number of country-studies, and their views in the report were based on these.

EEC representative, Amb. Tran Van-Thin, said the issues dealt with were in the negotiating process, and there was hence need for caution.

The WDR for example had claimed that the schemes of generalised system of preferences (GSP) had not benefited the third world countries at all. This was wrong, and there was enough evidence to prove the contrary.

The negative impact on trade of monetary and other external factors had not been dealt with in the WDR. Its statements about article XIX "safeguard" actions against China were also incorrect, since China was not a GATT CP and there was no question of use of article XIX.

The Bank official said if Bank economists were to be as cautious as diplomats, they would be unable to say anything. These were issues affecting development, and as academic economists it was their duty to analyse and put forth a view.

The Indian delegate, Amb. S. P. Shukla asked what definition of "services" and "trade in services", the Bank staff had adopted from an academic and development perspective?

Since the Bank was advocating a multilateral framework as being of advantage to the development of the third world, and basing itself on comparative advantage, had the Bank staff carried out any studies as to where absence of a multilateral framework in services had harmed development.

Also, the entire theory of comparative advantage rested on "factor immobility" (of land, capital and labour) and "mobility" of the product (goods).

But since the Bank’s advocacy of comparative advantage in services was based on factor mobility, what were the studies on which they based their views?

Again in the development perspective and services, how did the Bank staff not deal with the issues of technology, and the role of TNCS and their restrictive business practices?

Michalopoulos reportedly acknowledged these were important issues, but the services issue had occupied only a very small part of the WDR. On the matters raised there were not enough material available, nor had there been any staff studies.

Shukla then asked how the Bank had put forward normative conclusions and policy advises to third world countries without any studies or material to back up their viewpoints.

The representative of the ILO reportedly noted that the Bank staff had referred to the short-term costs of the new policies advocated, and wanted to know how these had been assessed, and whether the short-term costs, including the political costs of changing policies had been studied.

The UNIDO representative reportedly noted that WDR advocated "outward orientation", without considering the theory of "fallacy of composition". If all countries were to engage in outward orientation and export promotion simultaneously, where would the export products go or be absorbed?

While the Bank official pointed out that the WDR had not advocated "export-led growth", but only "outward-orientation" and better policies for allocation of resources, and UNCTAD staff member suggested that even a generalised prescription of inward- or outward-looking strategies for all countries would not work.