PRIME MOVERS OF TWENTYFIRST CENTURY

5:59 AM Nov 11, 1994

PRIME MOVERS OF TWENTYFIRST CENTURY
by Bhagirath Lal Das* TWN Feature

Geneva Nov (TWN) -- The Ministers of the developing countries have recently given a call, through a declaration of the Group of 77 in New York, for convening an International Conference on South-South cooperation. It is a timely call as the new and emerging features in the world economy give a new importance to the cooperation among developing countries and their role in world development.

The industrialised countries have been the engines of growth in the world economy so far, but their capacity in this respect is getting diminished. Their growth rate is slowing down and their share in the world output is decreasing. The recently published Survey of the Global Economy in the Economist (1st October 1994) has brought out some significant facts. In the next ten years, the average growth of real GDP in the developed countries is projected to be only 2.7 per cent per year -- the terminal year growth being merely about 2.5 per cent. Their share of the world output is likely to be less than 40 per cent by 2020.

With low growth rate and stagnant population, the demand in these countries is likely to flatten out. One main factor in the growth of their demand has been the diversification of consumer products and introduction of higher sophistication in the industrial products. But all this has a limit. For how long will the consumer continue to change a house-hold durable every few years merely because the new product has certain marginally additional features?

Over time, the enthusiasm and urge for the change of consumer products is bound to dampen. It is very likely that the stagnant or, at best, very slowly rising demand in the developed countries will not be sufficient for sustaining the production process in those countries. In that situation any support by this demand on a large scale to the production process in the other parts of the world is highly unlikely.

As against it, the picture in a large number of developing countries is more optimistic. The same Survey of the Economist projects the average growth rate of real GDP of developing countries for the next ten years at 4.8 per cent per year, with the terminal rate expected to be about 5.5 per cent. Their share in the world output is expected to be above 60 per cent by 2020. Further, according to this projection, by 2020 the position of the first five economies in the world will be taken up by China, US, Japan, India and Indonesia, in that order.

This picture of the developing countries as a whole hides many unpleasant truths; for example, the extreme poverty in a large number of them and abysmal economic condition of many countries in Africa and elsewhere does not get reflected in this over all picture at all.

But a number of developing countries which are on the growth path do bring promise to the world through their expected contribution to the world growth. What should these countries and other developing countries do in this situation?

The international environment is not sympathetic and friendly to the developing world.

The Uruguay Round results have shown that they have received a raw deal. The concerns of the major industrialised countries have been more to extract concessions from them rather than be accommodating towards their needs and compulsions. The industrialized countries have been quite forthcoming in reducing tariffs on the products in their mutual trade rather than on the products of particular interests to developing countries.

The UNCTAD Trade and Development Report 1994 brings out, in its Table 26, that for the US, the average MFN tariff on all imports is 3.4 per cent after the Uruguay Round, whereas it is 5.5 per cent for the imports from developing countries. This means maintenance of tariff on an average of about 60 per cent higher for the products from developing countries. For the European Union, these respective figures are 4.6 and 6.9 per cent, implying an increase of about 50 per cent in the average tariff for the products of developing countries. For Canada, these figures are 4.4 and 7.4, i.e., an increase of about 68 per cent.

Only for Japan is the situation different. Here the average tariff for all imports is 6.2 per cent, whereas the tariff for developing countries' products is 4.7 per cent.

Apart from tariffs, the major developed countries have also applied many other measures disproportionately against the imports from developing countries. For example, the incidence of anti-dumping cases has been quite high. One can argue that anti-dumping is but a defense against unfair trade. But it does show that there is a reasonable ground for the growing fear that the opportunities of developing countries may be stifled in many major developed country markets if they launch on the path of increasing their exports significantly. This will be further spurred by the protectionist pressures in those countries which have every sign of rising rather than falling.

The Uruguay Round has not succeeded in stemming the tide of protectionist pressures, much though many protagonists of the Round wished and promised.

In this background the most prudent way for the fast growing developing countries as also other developing countries appears to be to look up to themselves and give a new impetus to the increase of trade and economic relationship among themselves.

The fast growing countries can find new and assured markets in other countries of their group and also in other populous and growing developing country markets. The latter group should see the advantage in sourcing their imports from the fast growing developing country markets which will be perhaps less costly. In any case there will be a distinct advantage in diversifying the import source. The production linkages among these countries will also be helpful in expansion of economies and sourcing of supply as well in expanding the markets.

If necessary, there should be a departure from the traditional form of Global System of Trade Preferences (GSTP). Perhaps groups of countries with similar levels of development or with potentially similar levels of development as also groups of countries with demand and supply linkages could form themselves into economic areas and eliminate or substantially reduce their mutual trade barriers and other economic barriers. The objective should be to evolve compatible linkages of production and consumption within and among these groups of countries. Geographical contiguity could be a consideration, but not an over-riding one; what should really matter is the pattern and level of economic development at present or in medium term future.

Linkages of this type will help these countries to grow faster. Thereby they can provide stimulus to the development of the poorest among the poor countries.

With faster growth of all these countries, the developed countries will also find that their opportunity gets expanded. Their products will find larger markets, their capital will have wider opportunities, and they will have further diversified sources for their own supplies.

What is needed is a change of the political mind set in the developed countries and acceptance of the fact that areas in the world other than theirs can also provide vital stimulus to the overall growth of the world. The developing countries, particularly the fast growing ones, have also to change their thinking in the sense that they have to come out of the morass of their diffidence, recognise their own strength and opportunities and willingly assume the new role of being the engines of world growth.

(Bhagirath Lal Das is former Indian Representative to GATT and UNCTAD and former Director of UNCTAD's International Trade Programme. He wrote this article specially for SUNS)