8:27 AM Dec 3, 1993

ASSESSING THE BENEFITS ON INCOMPLETE DOSSIERS

Geneva 3 Dec (Chakravarthi Raghavan) -- The Uruguay Round Trade Negotiations Committee met for over four hours Friday to carry out the evaluation of the results from the perspective of developing countries and see how far the Punta del Este Declaration's objectives and guiding principles about the special and differential treatment to developing countries have been carried out.

But with the US and EC still to disclose their hand in key areas, not only of concern to themselves, but to the rest of the participants, the evaluation was at best very partial.

The S & D treatment, spelt out clearly in the Punta del Este Declaration, includes a promise to developing countries of improved market access in markets of developed countries (I.A. of mandate), and of developed countries making commitments to reduce or eliminate tariffs and other trade barriers to exports of developing countries without requiring any 'reciprocity' (I.B.v).

To help the assessment, the GATT secretariat had prepared an official document, "An Analysis of the proposed Uruguay Round Agreement with particular emphasis on aspects of interest to developing economies", which several delegations described as they went into the meeting a "weak and anaemic" document.

The report is based on offers on the table in mid-November and on the Draft Final Act text of December 1991 -- and does not take account of the Blair House US-EC amendments to the agriculture text (now being further amended at the US-EC Brussels talks) or the various proposals for changes in rules including anti-dumping etc that the US is demanding.

The GATT document -- like the futuristic econometric projections of the World Bank and the OECD which have been uncritically accepted, and used in most press reports as a background paragraph or two -- has come up with a 745 billion (1992 dollar) gain to world trade in 2005 -- and an income gain effect of $230 billion addition to world income.

But the document is very sparse on how far the main requirement about special and differential treatment and non-reciprocity has been implemented.

The Indian ambassador, Balkrishan Zutshi, in fact commented that the only people who seemed to have got special and differential treatment were the developed countries -- in agriculture and textiles and clothing.

The GATT document attributes the income-gain to efficiency gains, as a result of removal or reduction of distortions of trade barriers and by increased access to markets of trading partners. It trots out the neoclassical theory (of the World Bank and the GATT and others): the more a country reduces its own trade barriers in the context of negotiations, the larger the increase in its own exports and national income -- with trading partners more willing to offer greater reduction in their own tariffs and the country concerned reducing its own distortions, increase competitiveness and economic growth and capitalize on increased access opportunities.

On the latter there is considerable agnostic and sceptic literature, based on country experiences, from other mainstream economists who have been challenging the Bank/GATT advice and theology to the developing world: open economies do better than others, liberalisation of imports benefits the importing country and increases exports, and economies with least State intervention do better than those that intervene.

MIT's Lance Taylor (with Roberto Frenkel and Jose Maria Fanelli in the G-24 papers); Cambridge's Ajit Singh in the WIDER papers; David Greenaway in the 'Economic Journal' review of the 7-volume publication of the World Bank 'Liberalising Foreign Trade' where he notes that the conclusions in the 7th volume are not borne by the facts in the six volumes); and Agosin et al in their recent book "Trade and Growth", where they cite evidence to rebut the alleged correlation between trade liberalisation and faster economic growth -- all show that the GATT/Bank trade liberalisation theory is an emperor without clothes.

The GATT report though has blissfully ignored these.

On the claim that trading partners reciprocate in liberalization, the GATT report itself, despite the considerable effort at glossing (as for example trying to add up the low tariff cuts offers on textiles and clothing to the MFA phasing out to claim better benefits), has brought out that in sectors of interest to developing countries -- and despite the considerable concessions they have made in various areas of negotiations (including TRIPs, TRIMs, Services etc) and their tariff offers on table -- there have been less tariff cuts -- textiles and clothing, leather products, fish products and several agricultural products with value added in terms of processing -- compared to the products mainly traded by the developed world among themselves.

While the GATT report almost makes it appear that the MFA phaseout (in/by 2005) is part of the S & D promised in Punta -- the agreement is the outcome of a mandated area of negotiation.

And far from the 'non-reciprocity', not only were developing countries not compensated for the 30 odd years of derogation from GATT enjoyed by the industrial world (in the cotton textiles agreement of the 60s and the MFA from 1973), but have now had to pay the price for integration into GATT in the form of higher obligations in rules, and in TRIPs etc, and new demands for opening up their own textiles and clothing markets.

The report is silent on this, and fails to make any qualitative assessment of the actual DFA text and its phase-out formulae.

But other studies done for the developing world, though not made public, show that under the Uruguay Round textile and clothing accord and phase-out formulae, the US and EC need do nothing in terms of MFA phase-out, i.e. need not remove existing quota restrictions on imports from developing countries, till year seven of the 10-year transition; they can also keep most of the restrictions on 'very sensitive' products till the very end of the 10th year.

The GATT also makes the claim that the income gains estimated by it are broadly based across participants -- a claim countered by two other studies approving cited by the GATT itself, one by the World Bank/OECD Development Centre in September (by Goldin, Knudsen and van der Mansbrugghe), and a more recent one by the OECD Secretariat itself -- which have more or less used the same assumptions except for the tariff cuts where the GATT report is based on 'offers' on table as of 19 November rather than the assumed average 30% cut in the others.

The Mansbrugghe study which put the world income gains at $213 billion (in a 30 trillion dollar GDP in 2002) of which gains to the developing world was put at $73 billion while that for the 22-member OECD countries was put at 140 billion.

The OECD secretariat study puts the total world gain (including by liberalisation of nontariff barriers) at $274 billion of which the gains to the 22-member countries of the OECD is 187.7 billion and for the rest of the world at $86.4 billion.

The GATT report itself has added a line about need to view its $230 billion, as other figures, with 'considerable caution' since these are figures of more than a decade from now and more orders of magnitude. But like the 'cautions' and caveats in the other reports this too gets to be drowned.

Nevertheless it has used these figures as a substitute in making an assessment as to how far the Punta del Este Declaration's promises to the developing world have been implemented and implies a positive outcome.

But Third World negotiators and decision-makers, if they had gone beyond the trade news pages of the Financial Times Thursday, and had looked at the book review column, they would have got some sobering advice about such econometrics.

The GATT press office which produces a press review every day for its own officials and informally for delegates, did not include the book review column.

The column by Michael Prowse on Page 14 of 2 December issue of the FT carried a review of the book - "Lost Prophets" by Alfred Malabre - who wrote in it of his 35 years experience as an economic and business reporter for the Wall Street Journal which, like the FT, is mainstream, pro-business oriented.

"Malabre," says Prowse, "fears economists have sold the public a false bill of goods. Through the use of computers and high-powered mathematics the profession has created a largely fraudulent aura of scientific competence. At the same time practitioners have made large sums by pretending to be able to predict the economic future. Yet their forecasts have proved anything but accurate. Moreover, economists have made grandiose claims for a succession of mutually inconsistent theories -- Keynesian economics, monetarism and supply-side economics..."

Malabre's advice to public and policy-makers: 'stop listening to those charlatans and follow your gut instincts'.

And another visiting WSJ reporter wrote recently that (despite the free trade liberalisation doctrine preached by the GATT secretariat), delegates to the GATT function on the basis that "exports are good, imports are bad".

According to the GATT report "casual empiricism suggests that periods of more rapid world economic growth have coincided with periods of trade liberalization".

But the evidence of the past three GATT rounds is quite ambivalent.

World output fell after the Dillon Round concluded in 1962, but rebounded afterwards (when in fact the US under Kennedy and Johnson actually followed Keynesian expansionism). The liberalisation of the Kennedy Round came when the world economy was having a high-growth decade, and growth continued for two years after too, though other economists now blame the Johnson era domestic expansionism and financing of the Vietnam war for the subsequent inflation and other ills.

But the Tokyo Round concluded in 1979 was followed by recession which reached its bottom in 1982 when both output and trade actually fell.

There is though much evidence of demand creating economic growth and economic growth creating demand, with trade spreading its benefits around and trade liberalization accommodating the increased world output and growth and all these influenced by macro-economic policies and state intervention to stimulate growth.

A senior economist in another international organization privately put it thus: if other macro-economic factors are right -- with more investment, lower interest rates and stable exchange rates, more employment and incomes and thus more demand, then trade can spread the benefits and trade liberalization accommodates the growth. But trade liberalisation by itself does not create demand -- atleast there is no evidence -- and makes it a zero-sum game where A's gains are B's loss.

If the GATT view (in the report) about unilateral liberalisation benefiting those liberalising be correct, then the whole effort at negotiation and bargaining for reciprocal concessions and agreements is misplaced wasted effort. The developed countries who are experiencing sluggishness and little or no growth should liberalise anyway, and so should all other GATT members, saving on expensive negotiations and staff for it.