FOGS GROUP TO CONSIDER GLOBAL ECONOMIC COHERENCE.

Nov 4, 1989

FOGS GROUP TO CONSIDER GLOBAL ECONOMIC COHERENCE.

GENEVA, NOVEMBER 2 (BY CHAKRAVARTHI RAGHAVAN)— The Uruguay Round negotiating group on the Functioning of the GATT System (FOGs), at its meeting here next week, is to consider issues relating to GATT’s contribution to greater coherence in global economic policy-making through strengthened GATT relationships with other relevant international organisations.

The group, chaired by Amb. Julio Lacarte Moro of Uruguay, has before it the report of the GATT Director-General Arthur Dunkel on the results of his exploratory talks with the managing director of the IMF and president of the World Bank.

The report, as third world observers see it, has missed the main point of the mandate and interpreted it to mean strengthened GATT-IMF-World Bank relationships, with the GATT secretariat as a junior partner in the triumvirate, in overseeing and guiding economic and trade policies of third world countries to further the transnationalisation of the world economy.

Some old-time GATT observers said that some of the ideas in the report had been put forward by the present GATT Director-General in 1982/83 in the GATT’s consultative group of 18 (CG-18), but had to be given up in the face of strong resistance from the third world representatives.

In criticising and ridiculing the ideas then, these representatives noted that GATT was a contract among governments with decision-making based on consensus, that the secretariat was a "contracted" party with a role limited to servicing the contract, and that it had no competence to comment on or advise individual countries on their domestic policies.

Some of these ideas were sought to be revived by the secretariat in the FOGs negotiations, and at the December 1988 Montreal mid-term review, in relation to the "trade policy review mechanism" (TPRM). But they again were shot down by the third world countries.

These ideas have now been revived in the Director-General's report, these observers noted.

The relevant part of the Punta del Este mandate in the area of FOGs called upon negotiators to develop understandings and arrangements "to increase the contribution of GATT to achieving greater coherence in global economic policy-making through strengthening its relationship with other international organisations responsible for monetary and financial matters".

Under the mid-term accord, the GATT Director-General was invited "to approach the heads of the IMF and the World Bank, as a first step, to explore ways" to achieve the objectives in the Punta mandate.

The report of the GATT Director-General is on this mandate, and was sent to the GATT Council and to the FOGs group.

The GATT Council in October took note of the report, but only after brazil and a few others had made comments which made clear their opposition to the main thrust of the report, namely the decision of the executive heads to cooperate among themselves and their staff in ways that would increase the "conditionality" for third world countries.

The Punta mandate reflected the widely shared view in the international community, and particularly among third world countries and small industrial nations, namely, that the policies, arrangements and systems in the fields of trade, money and finance (and debt) have an impact on each other, and that any effort to achieve greater coherence in global economic policy-making would need a correct appreciation of the major disequilibria on these fronts and solutions based on such an analysis.

This was the pith and substance of the "exploratory" mandate given to the GATT Director-General who was asked to hold talks with fund/bank chiefs as a "first step".

In the discussions in the FOGs group, as well as in the trade negotiations committee and the GATT bodies, over the last 2-3 years, a large majority of the participants, perhaps everyone except the U.S., have clearly identified their perceptions of the elements of macro-economic disequilibria and environment affecting global trade and the trading system.

The Director-General's report has selectively quoted from some of these concerns and views about the disequilibria and the inconsistencies between monetary, financial and trade policies.

Most of the third world participants in the FOGs argued that incoherence of policies in major economies, and their impact on the external environment for others have made coherence in their national policies difficult.

But in the report, the heads of the banks and the chiefs, perhaps reflecting the views of the weighted voting majority of their institutions, have dismissed these as "arguments" with which they could not associate themselves.

But the report is silent on whether the GATT Director-General, who is governed by the more democratic one-state-one-vote and consensus decision making of the general agreement, agreed with the fund-bank chiefs and disagreed with the dominant views of GATT members in his talks.

The heads of the IMF and the Bank, as well as the GATT Director-General have also disposed off the main mandate for the talks by saying that the three "are in broad agreement that problems of this kind are among those least amenable to improvement through actions of international agencies themselves", and that solutions to these issues should "tend to rely on cooperation at government level, especially through meetings of Ministers".

Instead, they have suggested measures for coherence at national levels (with the Fund, Bank and GATT secretariats having an advisory role in third world) and ignoring the incoherence caused by the U.S. and a few major economies over whom the Fund and Bank have no influence.

The three heads have also sought to revive ideas shot down in FOGs group like a small GATT Ministerial steering group and meetings of this group with the Fund/Bank interim and development committees.

The GATT report does not indicate if any of the three heads considered whether other international organisations, including the UN general assembly and UNCTAD etc, are involved in these matters or have views contrary to those of the three.

Third world observers have noted that similarly, the view of third world countries (now even shared by some of the smaller OECD countries) for more substantive actions including a voice for them in global economic policy-making and coordination (now confined to G-2, G-5 and G-7) do not appear to have figured in the talks either.

Also, though the GATT Director-General and the heads of the fund and the bank have interpreted the latter two as the sole "relevant international organisations", this is certainly not borne out by the Punta mandate. If this were the intent of GATT CPs, they would have just mentioned only the IMF and the Bank.

They knew others were involved and hence adopted the general language of "international organisations responsible for monetary and financial matters". Hence too the decision to invite not only the Fund and the Bank as observers for the FOGs, but also UNCTAD.

In fact the interdependent issues of trade, money and finance and development, and greater coherence in global economic policy making has been the focus of attention in UNCTAD since its third session at Santiago in 1973.

The involvement began with the collapse of the international monetary and financial systems in 1971. Since then every session of the UNCTAD Conference and its annual board meetings have been addressing the issues of interdependence of "trade", "money", "finance" and "debt", and the problems of coherence in global economic policy making.

Some of the ideas in this direction, put forward from time to time by UNCTAD and its secretariat, have now begun slowly to gain acceptance, as reflected in the 25th anniversary declaration issued by the board at its October meeting, as also the resolution adopted on debt.

The issue of debt-trade linkages, a matter very high on the agenda of third world countries, higher even than the Uruguay Round, would never have perhaps advanced to the current stage when debt write-off is accepted as a concept, but for the involvement of UNCTAD in monetary and financial issues and the influence it has brought to bear on the work of other organisations and global economic decision-making.

In pushing for coherence in aims of monetary, financial and trade policies, third world countries had neither intended nor agreed to make GATT responsible for monitoring and surveillance of the conditionalities imposed on them by the Fund-Bank arrangements.

Some of them have "flagged" the issue of getting "credit" in the round (and thus not having to make more concessions or contributions for the success of the MTNs) for their unilateral trade liberalisation measures initiated under the fund-bank structural adjustment programmes.

This is an issue for the concerned negotiating groups.

But the GATT Director-General, and the fund-bank chiefs appear to have turned this suggestion around and have put forward the idea that the "conditionalities" initiated by the fund-bank arrangements, and which would have to be kept in place only so long as the programmes are in place, should be made permanent by "bindings" in GATT.

This would mean that if the fund bank import liberalisation conditionalities, which benefit the major ICS, are ever reversed by a different third world government, it would automatically be disciplined through GATT retaliation.

The Director-General's report is also on the premise that GATT is an international organisation and institution.

The Havana charters and its international trade organisation was given such a characteristic, but the charter and the ITO were aborted by U.S. refusal to ratify. A subsequent effort in 1955 to give an institutional character to GATT and its secretariat also failed.

GATT which came into being as a temporary arrangement through the protocol of provisional application, continues in this status as only a contract among governments, with some limited institutional characteristics for servicing the contract that have been added on from time to time by consensus decisions of contracting parties.

But the report implies that GATT is an "institution" which can look at "trade policies and practices of individual governments" thus laying the groundwork for a future role along with the Fund and the Bank.

GATT’s involvement with monetary and financial policies of individual countries, and any cooperation with IMF, is very limited and solely in relation to import restrictions for balance of payment purposes.

To conclude from this that GATT has a role to advise individual governments on macro-economic policies would be unwarranted, third world GATT participants say.

There are also other parts of the report, which appear to be laying the ground for the GATT to open field offices, like the fund and bank, in countries, and a Washington office for the three secretariats to liase better.

In fact, some GATT participants say, before Montreal, the GATT secretariat had readied plans for its Washington office and had even chosen the staff member. But the idea did not find favour even with Europeans who were concerned about the likely greater influence of Washington over the GATT secretariat and its thinking.

The proposals for cooperation in the report appear also to imply that far from the talks being "exploratory", the three heads have already decided on cooperation among themselves and their staff. They have also agreed to remain in touch, keep one another informed, and "make their constituents in the trade and financial communities, both in government and in the private sector aware of such policy inter-linkages".

Though mere executives of intergovernmental bodies, the three have thus assumed a "supra-national" role in viewing the national and transnational private sector as their "constituents", third world observers point out.

There are proposals that GATT should be consulted in formulating Fund-Bank loan programmes to countries (which are now only third world countries). This would give the secretariat a further role as a "junior policeman" in enforcing trade policies advocated by the Fund-Bank institutions.

There are also proposals for reviving a fund-bank role in the Uruguay Round, which was rejected by the trade negotiations committee in regard to "observers" as well as "technical assistance" to third world countries in the negotiations.

At that time, many third world countries (and the community) were so concerned over the Fund/Bank role that they opposed the two being given observer status in all the negotiating groups, and for this reason sacrificed UNCTAD having a role.

The revival of this proposal for bank role in technical assistance in the round is seen by some third world delegations as an effort to undercut the currently effective and meaningful assistance that these countries and their negotiators are currently getting in the only technical assistance programme favoured by the third world, the UNDP financed UNCTAD technical assistance project for Asia, Africa and Latin America.