Mar 26, 1987

"SERVICES" FRUSTRATE THIRD WORLD EFFORTS AT DEBT SERVICING.

GENEVA MARCH (IFDA/CHAKRAVARTHI RAGHAVAN) -- "Efforts of developing countries to maintain the positive trade balances necessary to meet their debt servicing requirements are being largely frustrated by negative balances on services account", according to the UN Conference on Trade and Development.

The fact that the most successful third world exporters of goods are also net exporters of "other services", UNCTAD says, "would seem to demonstrate that a strong services sector is a condition for, not an alternative to, maintaining a competitive position on manufactured exports".

Neo-classical economists, and particularly those promoting U.S. interests, have been advising third world countries to leave the services sector to the industrial countries, and instead concentrate on the manufacturing sector while liberalizing and importing the needed services.

The UNCTAD report now questions the wisdom of such a course for the third world.

In the area of trade in goods, the report says that there is an emerging contradiction in the international economic system between the increasing export needs of third world countries and the mounting reluctance of some industrialised countries to pursue expansionary policies and accommodate expanded exports from the third world.

This calls for a reassessment of the export potential of third world countries and the underlying structural factors.

In a report to the trade and development board on protectionism and structural adjustment (TD/B/1126), the UNCTAD Secretariat refers to the services issue and notes the persistence of statistical limitations and conceptual problems obstructing analysis of international service transactions.

Currently, it says, many governments, as well as the UN Statistical Office, are making efforts to improve their statistics on production and trade in services. UNCTAD is also collaborating with other international organisations in this area.

Advances in communications and information technologies, UNCTAD says, have served to increase the "trade-ability" of certain services and their transnationalization, as well as facilitating penetration of foreign markets through investment mechanisms.

These have exacerbated the conceptual and statistical problems since the boundary between "trade" and "investment" are becoming blurred, and more of the services, like data services, are being traded among subsidiaries of TNCS and remain unrecorded in the bop accounts (of the IMF which provide the only data on services transactions).

The IMF data, UNCTAD comments, thus provide "a far from complete, or even adequate picture" of international services transactions, though they provide the only internationally comparable statistics on such transactions.

The overall figures are however distorted by inclusion of items that could not at all be defined as "trade", such as for example, "other investment income" related to debt servicing.

In the area of trade in goods, the report suggests that problems recently witnessed over structural adjustment raise important questions as to the extent to which the interests of actual and potential exporting countries could be safeguarded by current international economic arrangements when the major importing countries experience a reduction in growth rates, and along with have difficulties of structural adjustment.

The international trading environment, UNCTAD notes, is characterised by uncertainty and friction - reflecting slow growth in world output, continued imbalances in bilateral trade and debt crisis of the third world.

The value of total world trade between 1980-84 declined by an annual 2.2 percent, and trade in manufactures increased marginally by an annual one percent.

This contrasts with the annual 19.5 percent growth in world trade, and 17.7 percent growth in trade in manufactures between 1973-80.

And while third world countries as a group did relatively well, expanding manufactured exports at an average annual 10.5 percent rate between 1980-84, this was not dispersed equally across individual countries and regional groupings.

The salient feature of trade actions and application of existing laws during 1980-84 has been "the continued resort to bilateral solutions" among industrialised countries as well as between them and third world countries.

These have involved application of non-tariff measures (NTMS), particularly voluntary export restraints (VERS) and orderly marketing arrangements (OMAS).

These have been extended now to trade in such products as semiconductors and machine tools, as well as steel, textiles, footwear, chemicals and agricultural products.

And while there have been tariff reductions in some industrial and third world countries, those in the industrial countries have concentrated on products traded among themselves.

Many industrial countries have demonstrated positively in observing standstill commitments, but the OECD countries as a group have made no progress in rolling back protectionist actions.

The standstill itself, UNCTAD adds, has been "seriously endangered" by introduction of new restrictions on additional products under the MFA-4.

Antidumping (AD) and countervailing (CV) investigations during 1985-86 decreased, compared to the previous year. But CV investigations initiated against imports from third world countries still accounted for a majority of all actions.

AD actions against imports from third world countries also grew, and where AD investigations did not result induties, they were replaced by VERS and price-undertakings.

A detailed analysis of the tariff and NTMS, UNCTAD says, cast doubts on the notion that third world countries as a group have in practice received differential and more favourable treatment (assured them by GATT provisions).

"There is evidence that in a number of developed countries, the treatment of developing countries as a whole has been less favourable than that afforded to other developed countries".

Even when taking account of preferential trading arrangements with third world countries, the trade-weighted average applied tariff rates by OECD countries in 1983 against imports from third world countries of all food items, chemicals and manufactures (including leather, textile yarn and fabrics, clothing and footwear), were higher than those against imports from all countries.

Also, official intervention through NTMS affected a larger part of non-fuel imports into OECD countries originating in the third world than of such imports originating in other OECD countries.

On the trade in agriculture, UNCTAD says that given the sensitivities of the past, "its is unlikely that there will be any rapid dismantling of trade restrictions, especially on imports, although domestic budgetary considerations may yet provide to be decisive in respect of continued large-scale subsidized exports or surpluses".

"Excessive optimism with respect to the prospects for early liberalization could lead to a protectionist backlash or even a resumed trade war if expectations in this respect are not realized quickly", it warns.

The report also poses the question whether full trade liberalization in the agricultural sector would be uniformly beneficial to all countries.

Several studies, it says, have shown that gains to third world countries from trade liberalization would be far from uniform.

According to these studies, removal of part or all of trade barriers and liberalization of trade in agriculture by OECD countries would result in an increase in world prices.

While price increases would vary, the highest rises would be in the most protected commodities - sugar, beef and dairy products. Price rises could also be expected for cereals.

This would mean that food importing countries would face a higher food import bill, and face a likely "welfare loss" from trade liberalization.

However UNCTAD studies, based on its won models, show that liberalization in tropical products would benefit third world countries and confirm the importance attached by these countries to this sector.

And while liberalization of trade in cereals could have initial detrimental effect for food importers, the associated price increases could well provide a stimulus for local food grain production.

Referring to the textiles and clothing sector, UNCTAD says that on balance the MFA-4 (concluded in august 1986) "appears more tilted towards a higher level of restrictiveness and discrimination, while foreclosing possibilities for development of trade in new products.

Importing countries have obtained extended coverage and extended duration for unilateral access levels and special consideration for certain exporter commitments that already existed in the arrangements.

Liberalization of tariff and non-tariff barriers in the textiles and clothing sector, UNCTAD predicts on the basis of its simulation, would lead to increase of imports from the third world of the order of 14.9 billions - approximately 40 percent of all potential gains from liberalization of all tariffs and NTBS in major markets.

In any trade liberalization effort designed to help the third world, "there is little question that this sector is potentially the most important".