UNCTAD-VII: NORTH SHOULD HELP SOUTH PREVENT CAPITAL FLIGHT.

Jul 15, 1987

UNCTAD-VII: NORTH SHOULD HELP SOUTH PREVENT CAPITAL FLIGHT.

GENEVA, JULY 13 (IFDA/CHAKRAVARTHI RAGHAVAN) – The European Community Commissioner for north-south relations, Claude Cheysson, suggested Monday that industrialised countries should help arrest capital flight by helping third world countries "monitor quality of products which they by from U.S., as well as invoice where fraud is one of the main forms of capital flight".

Cheysson made this suggestion in his speech to UNCTAD-VII, and later followed it up at a press conference, pointing out that "fraud", (under-invoicing exports and over-invoicing of imports) was one of the main forms of capital flight.

Cheysson was questioned how the EEC would help in this matter, and how he felt UNCTAD-VII could act. The questioner pointed out that when third world countries had engaged the Swiss Enterprise Societe Generale De Surveillance, and when many of them had saved billions of dollars, the U.S. had raised the issue in the customs code committee where it got support form other industrial countries, and had also started proceeding in U.S. courts under its S. 301 of the trade act.

Cheysson said that the TNCS were resisting the activities of pre-inspection of goods and invoices as by the SGS, since transfer pricing was one of the main methods used by them to maximise profits.

"But at UNCTAD we should be able to recognise that work by these pre-inspection companies are a valuable instrument for the third world to diminish flights of capital. If it is recognised in UNCTAD, it will be an important contribution to the forming of public opinion.

"If companies wish to take a certain attitude, and it runs counter to the global conclusion for north-south revitalisation, publicity by UNCTAD will have a major impact - political impact within our parameters, our governments and political parties".

Third world delegates later welcomed this statement of Cheysson, but noted that when the U.S. raised the issue within the customs code committee, all the industrialised countries, including the EEC representative, joined the U.S. in wanting actions to be taken to put an end to the pre-inspection practice.

Only the Swiss, they said, did not agree.

The U.S. had taken up the issue in the customs code committee over practices of third world countries like Indonesia who were not even signatories to the code.

When some third world code signatories protested this, and wanted to know what exactly the committee was supposed to do in respect of non-signatories, the U.S. "dropped the issue".

However, third world delegates said that because of the moves and threats, at least one third world country, Jamaica is known to have withdrawn from the pre-inspection scheme.

In his address, Cheysson noted that for the first time he had seen on TV reports on UNCTAD, and hoped that the general public would now begin to understand that the world economy was in a state or disorder, everyone was suffering, and as president Mitterand had said "it is our very future which is at stake".

Cheysson' s speech and later his responses at the press conference, in several matters showed sympathy for the position and situation of the third world countries.

Nevertheless he stopped short spelling out what the conference could do, and what the OECD countries and the EEC member-states would agree to do beyond adopting some nice final documents, that would show to the public and the third world that the conference had been a success and had taken practical measures to deal with the crisis.

A questioner noted that while Cheysson was talking at the conference about the crisis in the economy, and disorder in monetary and financial systems, the Belgian delegate as spokesman of the group B was taking a hard line, and the Group B countries in the assessment exercise were even questioning the existence of a crisis or collapse of commodity prices.

Cheysson merely contented himself by differentiating Belgium as an EEC member, and as spokesman for the OECD Group as a whole.

Without going into the causes of the crisis, and the macro-economic policies of the major industrialised countries since the 80’s that had brought about the current deflationary pressures in the economy, Cheysson said both industrial and third world countries had to shoulder their responsibilities to deal with the crisis.

Since everyone was involved in the crisis, the analysis and guidelines would have to be expressed in unison, and there should be a consensus on the assessment and common interest.

Underscoring the importance of UNCTAD, Cheysson noted this was the only universal forum where countries from the north and south, rich and poor, east and west, were able to meet and discuss all problems.

UNCTAD was unique international forum, and this opportunity must be seized by all, even though the chaos in the world economy was due to "loss of willpower".

The Conference would however only achieve part of what was expected if it went no further than analysis and general guidelines.

It must also make practical progress on specific issues, he said.

Referring to what he called the "contagion of imbalances" in the world economy, Cheysson noted it would have to be dealt with by renewed efforts of surplus industrialised countries.

But when indebted countries were obliged to maintain an enormous trade surplus – one billion dollars a month by Brazil - merely to service their debt, it would consolidate the imbalances in the world trade, he warned.

It was "an extraordinary situation, verging on nightmare, that south was now providing net financial flows to the north".

Another contagion was when a country (U.S.) with a large budget deficit and insufficient savings, kept interest rates high in order to attract savings from abroad.

This meant that resources were diverted from productive investment to financial markets, and often for speculative purposes.

The technological progress that was welcomed was now responsible for other imbalances. Biotechnology, for example, was going to pile up agricultural surpluses, and substitutes were shrinking the markets for minerals.

The sufferers were third world countries.

All this underscored the need for strong political will to work towards international cooperation to solve such problems.

Adjustment had to be made by everyone according to his economic and political importance, and industrial countries must be willing to accept "reciprocal surveillance" (in the IMF). Economic concentration with the south should also no longer be criticised, and it must be recognised that the monetary area concerned both the north and the south.

Outlining the community’s efforts to help the third world, including through the GSP schemes and increasing ODA, etc., Cheysson noted the Community was undoubtedly also responsible for creating problems such as through agricultural surpluses.

It was however trying to assist third world countries to attain national self-sufficiency in food.

While the Community viewed the latest U.S. proposals on agriculture trade as "not realistic and too much long-term", the Community was committed to take systematic and painful to cut its production of animal and vegetable products.

Some actions had already been taken in dairy and meat production, and it would soon be extended to cereals and vegetable oilseeds.

The community and other industrialised countries should also assist the third world in other ways by increasing the trade with them, reducing protection, and providing export credits.

At his press conference, Cheysson however supported such inspections to check the activities of TNCS and other international trade transactions, which were used to secrete away capital from the third world countries.

In other speeches at the conference, the FAO Director-General Edouard Saouma said that at the top of all international agendas should be "a visionary approach" for tackling the foreign indebtedness of third world countries and a concerted world-wide strategy to improve the trade environment.

"The links between money, finance and trade problems and development call for integrated approaches to their management and solution" Saouma declared.

Many third world countries, he said, had taken very courageous steps to reform outmoded or insufficient institutions and remove the bias against agriculture.

Yet their efforts had been thwarted by fundamental imbalances in the global environment – the foreign debt of these countries and the continuing spread of protectionist policies.

He welcomed the move to tackle the protectionist issues in the Uruguay round, but said the first test was strict adherence to the standstill and commitments, and rapid progress in the negotiations on agriculture as well as tropical products.

But trade liberalisation alone would not be enough, he said.

Sudden shocks in supply and demand could remain "sources of excessive volatility on markets and damage the orderly development of trade", and cited in this connection the experiences of sugar, tea and jute.

He hoped that the conference opportunity would be used to revitalise multilateral efforts to deal with market stability.

The Foreign Trade Minister of Netherlands, Mrs. Yvonne M. C. T. Van Rooy felt new and more effective ways would have to devised for resumption to deadlocked north-south dialogue.

She supported in this connection the views of the Pakistan Trade Minister, who Friday had blamed the UNCTAD secretariat and the G77 for the present situation.

Mrs. Van Rooy, in other remarks, called for differentiation among the third world countries.

She supported special measures to deal with the debt problems of Sub-Saharan African and the least developed countries, but insisted that the financial problems of the major debtor countries in Latin America was "primarily a matter for private capital markets". She thus appeared to rule out any action or even general recommendation out of UNCTAD on this issue.

The Commerce and Industry Minister of Morocco, referred to his country's external debt problem and said this was entirely due to the deterioration in commodity markets, erratic behaviour of exchange rates, high interest rates and exceptional drought.

While Morocco had carried out a thorough revision of its economic policy, its leeway for coherent measures was narrower every day, causing serious economic and social disruptions.

On the problems of Africa, the Moroccan Minister said Africa needed the support of the international community. The debt problem of these countries had to be solved from the viewpoint of their capacity to repay.

Tian Jiyun, the Vice-Premier of the Chinese State Council, said that while third world countries now formed "an independent and significant force", they still suffered from inequitable north-south relations.

In recent years there had been little progress in the north-south dialogue, the exports of third world countries was facing increasing protectionism, and there were impediments to transfer of technology to them.

The fundamental solutions to the problems faced by the south lay in the establishment of the new international economic order.

Tian Jiyun said China supported the demands of third world countries for better terms for commodities, manufactures and semi-manufactures, and for effective measures at UNCTAD-VII to speed up the full implementation of the integrated programme for commodities.