12:18 PM Nov 18, 1996

THE "GOOD NEWS" FOR LDCS FROM WTO

Geneva 16 Nov (Chakravarthi Raghavan) -- "I have some good news for all of you," WTO Director-General, Mr. Renato Ruggiero told the assembled Ministers and senior officials of the Least Developed Countries attending the Ministerial Meeting of the LDCs at the WTO on Friday.

If the ministers pricked up their ears, hoping that their journey to Geneva and 3-days of meeting (funded by Norway, Korea and the Czech Republic) would enable them to go back to their governments with some positive and beneficial news from the WTO on their trade front, they were disappointed.

Mr. Ruggiero was merely able to announce that enough funds had been secured to enable the WTO to finance the trip of LDC Ministers to Singapore for the first Ministerial Conference.

That some Ministers cheered this "good news" was itself a commentary on the state of the LDCs, one of the participants later said.

"Our Ministers are not going back with any assurance of concrete measures either to implement the Marrakesh Declaration and decisions on the Least Developed Countries or any guaranteed duty-free, quota-free market access for our exports that Mr. Ruggiero has been talking about; our Ministers are going back with an air ticket to Singapore," the LDC ambassador in Geneva remarked.

A common theme in the various lectures and addresses over the three-days, another participant said, all led up to the issue of why investment was linked to trade and why it was thus an important topic for the WTO to take up negotiations for a multilateral investment agreement.

One frustration felt by LDC Ministers and senior officials was the lack of opportunity for them to put forward their own views for discussions.

An LDC official from the capital accompanying his Minister said that most of the time over the three days was taken up in statements and presentations of the speakers. And while at the end of each presentation, "questions from the floor" were invited, there was no time for actual discussions and debates.

At a pre-lunch morning session Friday, devoted to an Overview of the Singapore Ministerial Conference and Work Programme, the WTO Deputy Director-General, Jesus Seade, spoke of the new issues that had been proposed for the WTO trade agenda and future work programme, and talked of the majority of the WTO members being in favour of the investment issue being put on the work programme.

In his speech at the final session, Ruggiero repeated his proposals to the G-7 Lyon Summit in June for commitments as substantive goals -- proposals which the G-7 have turned down.

The LDC exports are mainly of agricultural products, fish products, and labour intensive products of textiles and clothing, footwear etc -- where competitive imports are not welcomed by the North. As a result, the WTO's Committee on Trade and Development has only been able to have a recommendation for autonomous actions to favour imports from the LDCs. Such schemes, whether under GSP or Lome accords have not proved secure.

* full and rapid implementation of the Marrakesh Declaration on LDCs;

* Improving market access by working towards elimination of all tariffs and non-tariff barriers on LDC exports;

* helping improvement the investment climate faced by the LDCs, by creating a more level playing field through negotiating, at the appropriate time, multilateral rules on investmen; and

* helping build human and institutional capacity by improving the effectiveness and coordination of technical cooperation.

But beyond saying that he had been putting forward these ideas at every opportunity, and raising it in national capitals and with visiting ministers, Ruggiero could only assure he would continue to press for a coordinated effort in technical cooperation at a conference proposed to be held in 1997.

A Ministerial Declaration the LDCs had adopted -- after discussions among themselves on 13 November, and which was presented to the WTO meeting on Friday by Bangladesh (as the spokesperson of LDCs) -- made no reference to the idea of multilateral rules on investment that Mr. Ruggiero has been pushing, almost ever since he took office last year.

But the Bangladesh Commerce and Industry Minister, Mr. Tofael Ahmed, in a speech at the meeting, addressed this issue, placing it in the context of the major obligations undertaken by LDCs under the Uruguay Round Agreements (URAs), and the higher import costs and adverse effects on the BOP position of these countries.

"Indeed one might say," Tofael Ahmad said, "that the cost of obligations under the URA, in effect takes back by two hands, what it gives by one, leading LDCs even poorer. Support measures are therefore urgently needed .... Clearly, a net transfer of resources to LDCs is absolutely necessary to reduce the growing gap between poverty and development... WTO cannot be allowed to relegate itself into a policing organization aimed only at keeping the defaulters in check."

The Bangladesh Minister then went to speak on the investment issues, and said that FDI from TNCs and developed countries were welcome in LDCs who had been taking measures in individual economies to increase inflow of FDI, whose many positive effects -- such as employment generation, technology transfer and promotion of modern management skill -- were widely accepted.

"However, its long term effects and its link to trade are complex and difficult to measure. The implications of a multilateral investment framework, on the capacity of host Governments to guide FDI flows towards high priority national development objectives, are uncertain. Equally unclear is the range of possible benefits and the cost of FDI on the globalisation process and the accompanying prospect of marginalisation".

Till recently, he said, a large share of foreign investment was available to LDCs in the form of ODA and soft-loans from multilateral financial institutions. But due to well-known geo-political changes, ODA flows had become smaller; there had been a rollback of soft-term loans. On the one hand LDCs were undergoing painful changes in their economies at the request of development partners, while on the other, promises of new assistance in ODA and benefits of liberalised trade had not appeared. As a result the LDCs' own small but useful programmes in support of their poor had been affected and the trickle-down drops of benefits forecast have not appeared.

Ahmad noted that the developed nations of the OECD would like to put in place a Multilateral Agreement on Investment which would gradually cover the entire FDI. And there was a belief in some quarters that MAI could alleviate the need for ODA.

"However, we feel that, based on the trend of present FDI flows, most LDCs would remain outside the mainstream of TNC investments. MAI would expect its signatories to open all areas of their economies to global investors. But there is no way to direct even a part of FDI to areas of national economy, which may be of priority interest to an FDI host country... some developing countries, who are economically closer to the OECD will benefit more from this new FDI prospect.

"Thus, there is a real threat that the marginalisation of the poorest of LDCs is likely to continue."

The Bangladesh Minister also challenged the view that FDI could compensate for smaller ODA and said this claim was not supported by facts. "It is certain that market forces will finally govern FDI flows to areas of high profit, which presently may not available in the small LDC economies. The proposed MAI obligation range would also include taxation, labour standards, company laws, environment and other related legislations of a signatory country. These laws would have to undergo changes without respect to its principal national interests... Our small and medium scale enterprises would be pushed out of the market by the large TNCs. This threatens our existing social safety nets, thus pushing more of our poor to the pains of poverty.

"There may, therefore, be truth in the fear that FDI through MAI may cause more harm than good to us, unless measures are taken through ODA and other means to assist LDCs, at least in the short run. In the long run, as J.M.Keynes said, 'We are all dead'."

UNCTAD Secretary-General Rubens Ricupero, also spoke at the final session about the future prospects of the international trading system and the features that should characterize the post-Singapore trading system said the most important was that developing countries and LDCs in particular should have a greater role in decision-making in the multilateral trading system.

This, he said, would mean a significant increase in the ability of all countries to cope effectively with the system, to carry out their development strategies in the framework of their obligations, the universalization of the WTO through the accession of non-members and constructing a balanced negotiating package containing elements of interest to all countries.

Ricupero recalled that the Singapore Trade Minister speaking sometime ago of what should be expected of that meeting -- "consolidation, balance and progress, in that order."

Ricupero added: "In reality, one could say that balance is the most important of the three, because it should not only produce a general outcome where consolidation and progress would be balanced but the same aspect of equilibrium should be present in each of the other two."

Referring to the new trade agenda and the investment question, Ricupero said that in accordance with the mandate given at UNCTAD-IX, "we are beginning to identify and analyze the implications for development of issues relevant to a possible multilateral framework on investment."

The proposals to include such issues on the new trade agenda, he said, had arisen in part from a perception that the remaining differences in regulatory regimes crete unfair advantages.

"This leads to the question of what could be considered as the logical 'frontier' of the multilateral trading system. To what extent does future trade liberalization need to involve a further extension of multilateral trade disciplines into new policy areas? It is important that any such extension be a conscious decision of the international community taken with the emphasis on the development perspective and the need for balanced and equitable approaches. For that goal, it is important that future trade initiatives, that is progress, incorporate as an inherent component the measures necessary to assist, in particular the LDCs, who are not well positioned to extract benefits from the world trading system if they are left to fend for themselves."

Ruggiero's own prepared text, apart from references to his proposals to the G-7 (including his pet MIA proposal) had little to say on these fundamental questions. He however repeated the argument, put forward by the World Bank in a recent report about integration into the global economy and said that "all developing countries can advance rapidly if they are prepared to integrate themselves into the global marketplace and if they are willing to undertake the necessary structural changes."

But that World Bank report, and the facts on which those conclusions had been drawn, were publicly challenged at a symposium during UNCTAD-IX, and its authors conceded that they need to do more research.

UNCTAD reports and studies, including on the East Asian experience, and some ECLAC studies, have shown that it is rapid growth that enable countries to undertake structural changes in the economy and integrate into the global economy and market place, but that they should take the integration measures in a measured way.