Nov 16, 1989

UNCTAD HOPES EXPERIENCE MAY PROMPT ALTERING THEORIES.

GENEVA, NOVEMBER 14 (BY CHAKRAVARTHI RAGHAVAN)— The top trade-policy official in the UN Conference on Trade and Development (UNCTAD), Mr B. L. Das, gently suggested to the industrialised countries Tuesday that their long-held theories and expectations in the area of trade policy may need revision in the light of experience.

Das, Director of UNCTAD’s International Trade Programmes, was speaking in the UNCTAD committee on manufactures and responding to some points raised in the committee over the secretariat's report analysing factors affecting exports of manufactures and semi-manufactures from third world countries.

From a survey of the experience of some 32 countries, the report had concluded that there was little to support the contention that import liberalisation was necessary to stimulate exports growth of non-traditional exports.

The survey showed that of the eleven countries with more than annual ten percent growth rates in exports of manufactures, only two (South Korea and Mexico) fell in the category of countries with major trade policy changes in the 1980’s and with low tariff and non-tariff measures.

But Mexico with a 23.8 percent export growth rate had a negative 6.3 percent growth in imports over 1980-1987 and just 0.5 percent in manufacturing value added (MVA).

South Korea was the only country with a growth rate in manufactured exports of 15 percent, an import growth rate of 10.3 and MVA of 10.9 percent.

And while Malaysia with low tariff and non-tariff measures since 1980’s had a manufactured export growth rate of 17.2 percent, Chile with low tariff and non-tariff measures had only a 3.3 percent growth rate in manufactured exports, a negative three percent in import growth and just 1.3 percent in MVA.

Of the seven countries with an annual over ten percent growth rate in manufactured exports, four fell in the category of countries with substantial relaxation of non-tariff measures but s till with high tariffs (Turkey, Sri Lanka, Mauritius, Thailand) and three those with important remaining non-tariff measures (Indonesia, Morocco, and Pakistan).

Venezuela with a 19.2 percent growth in manufactured exports fell in the category of countries with less significant reductions in tariffs and non-tariff measures.

In the committee debate last week, the spokespersons of the OECD group of countries, the European Economic Community and the United States had found fault with the secretariat conclusion that import liberalisation was not a necessary concomitant of export growth.

Responding to their views, Das said Tuesday that the secretariat had looked at the issue "without prior theoretical expectations".

"We just wanted to see", he said, "what the experience of the 1980’s showed. The fact is that most countries introducing drastic policies of import liberalisation, either in the 1970’s or 1980’s did not perform particularly strongly, either in terms of GDP growth or in terms of growth in manufactured exports".

"On the other hand", Das added, "most of the countries that recorded the fastest growth of manufactured exports and output were selective with regard to their trade and industrialisation policies: while some of them liberalised their import policies, very few abandoned inter-industry selectivity, and all tried roughly to equate incentives to produce for domestic and foreign markets".

"Most of them managed to maintain rough real exchange rate stability. This is what the record of the 1980’s shows. The rich experience gathered in recent years on this subject may prompt altering of some long-held theories and expectations".

Responding to the U.S. criticism of the secretariat's adverse comments on S. 301 of the U.S. trade expansion and competitiveness act of 1988, Das took note of the U.S. delegate's view that critics should focus on how the act was being administered rather than its provisions, and that the act did not mandate retaliation under the so-called "super 301".

But the secretariat's understanding of the act, Das said, was it did "instruct" the U.S. trade representative to self-initiate S. 301 like investigations in 1989 and 1990 against trading partners found to be following trading practices considered "objectionable" by the U.S., and that it did establish a timetable for completion of consultations and negotiations with offending countries.

Also, if the trading partners of the U.S. did not agree either to gradually eliminate the practices or provide compensation for them, the USTR, "may" retaliate against those, countries.

"Thus, clearly there is a provision for retaliation, though it is not mandatory", Das noted.

He added: "we do hope that retaliation will not be resorted to, and we are gratified by the statement of the U.S. representative which implied that the U.S. will rely on international procedures for resolving disputes and-seek agreed interpretations of what is unfair, rather than unilaterally making such decisions".

"This", Das added, "would be a welcome feature, since there has been unilateral action in the second half of 1988 under the provisions of the trade act before the 1988 amendments".

On the complaint that the secretariat had over-estimated the problem of protectionism in industrialised countries, Das agreed that on the face of it the trade coverage ratio (TCR) of imports from the third world subject to non-tariff measures in the three major industrial markets (U.S., EEC and Japan) had risen only from 29 percent in 1981 to 29.4 percent.

But the reason why the TCR on imports from the third world did not rise much in the period was only because the trade restrictive measures in footwear were reduced significantly early in the 1980’s, particularly in the U.S.

In most other sectors of interest to the third world countries - such as chemicals, textiles, iron and steel and clothing - the trade coverage ratios rose and pressures for protection in footwear sector remained high, and "we hope that governments will resist them", Das said.

He however added: "more broadly, the main cause for concern is that, whenever a developing country becomes a significant exporter to developed country markets, protectionist pressures - and, in many cases, measures - are not far behind. In an environment where protectionism is becoming an increasingly acceptable form of dealing with competitive pressures, this does not bode well for exports of developing countries".

While it was true that that there were possibilities for opening up south-south and east-south trade, and that the present established third world exporters were now moving upmarket making space in markets for traditional manufactures to new comers, it was also true, that "the trading environment now is considerably less open now than what it was two to three decades ago when the now established exporters began their export drives".

"And this very important factor is certainly not favourable to significantly larger exports from developing countries", Das added.

The situation was also "discouraging" if one looked at the rise in protectionist actions in industrialised countries.

After the launching of the Uruguay Round, with its reiteration of standstill and rollback commitments, UNCTAD documentation showed that there had been as many as 40 new protectionist actions. Of these nearly 35 were in the form of quotas, quantitative restrictions, voluntary export restraints, import suspensions, import bans, increased duties, etc.

"This spate of restrictive measures during the ongoing important process of Uruguay Round does not give cause for optimism".

As for protection in third world countries, the UNCTAD official said that while trade-restrictive measures in industrial countries tended to be "defensive", in third world countries trade policies were part and parcel of development and industrialisation strategies.

Also, given the foreign exchange constraints faced by the overwhelming majority of third world countries and the crucial importance of imported goods for their economic growth, "trade measures lead to a change in the composition of imports rather than to a reduction in their absolute levels".

"In fact, in most developing countries", Das added "tariffs and non-tariff measures are heaviest on consumer good imports, but favours imports of capital and intermediate goods, supplied overwhelmingly by developed countries".