NEW INSTITUTIONAL MECHANISM NEEDS WIDER PERSPECTIVE.

Mar 14, 1990

NEW INSTITUTIONAL MECHANISM NEEDS WIDER PERSPECTIVE.

GENEVA, MARCH 12 (BY CHAKRAVARTHI RAGHAVAN) -- Any new International Trade Organisation to be set up should be comprehensive in subject coverage, universal in membership and responsive to interests of all its members and should be established through the United Nations and not on the fringes of multilateral trade negotiations, the Secretary-General of UNCTAD, Kenneth Dadzie declared Monday.

Dadzie was addressing the second part of the 36th session of the Trade and Development, which began a two-week meeting Monday.

In his wide-ranging address, Dadzie was also critical of attempts to seek policy coherence in trade, money and finance through institutional and political linkages amongst the GATT, IMF and the World Bank, ignoring the work being done in other competent organisations including the United Nations and UNCTAD.

His criticism of the reported move of the European Community to provide an institutional cloak for the General Agreement and create an umbrella Organisation to discipline governmental actions covering trade, intellectual property, investment and services, was echoed even more sharply by the Group of 77.

In his speech, Dadzie was also critical of the general drift of the negotiations in the Uruguay Round - with little attention paid so far to the market access issues of interest to the Third World but concentrating on rule-making in new areas and introducing into the trading system norms and concepts on intellectual property rights and rights of investors, linked to overall balance of rights and obligations in trade which would imply a qualitative change in the trading system.

The UNCTAD official prefaced his remarks by situating the Board discussions and the current final phases of the Uruguay Round in the context of the various ongoing intergovernmental processes: the September Paris Conference on LDCS, the UN General Assembly's Special Session an Development, discussions on the new International Development Strategy and the preparations for the 1992 Conference on Environment and Development.

Referring to UNCTAD-VIII scheduled for next year Dadzie said that his consultations on the agenda indicated a high degree of convergence on the nature and type of issues to be addressed, focussing on a few major policy issues within UNCTAD's mandate but in the context of a number of newly emerging concerns.

While the concerns were not shared in equal measure by all, the concerns included:

* Emphasis on need for sound macro-economic policies and pursuit of economic efficiency through use, as appropriate of market signals and competitiveness in promoting entrepreneurial initiative and in optimising contributions of public and private sectors;

* The national and global impacts of economic policy reforms in different countries; the effect on North-South trade and development cooperation of trends towards economic integration among ICs (post-1992 single EC market and U.S.-Canada Free Trade Agreement) and of new initiatives in East-West relations;

* And need for ecologically-responsible behaviour by economic agents, public and private.

About the changes in Eastern Europe and the efforts at full integration of these economies in the world trading and financial system, Dadzie said that while these should have favourable effects on their economic growth and those of others, "the balance of (trade) creation and diversion effects on third parties is difficult to predict".

In the long-term, the broad development objectives of the countries of the Third World and Eastern Europe were complementary and both groups of countries would benefit from supportive international environment for development.

And while market-oriented policy reforms should increase the potential for mutually beneficial trade, it had to be borne in mind that such reforms would take time to bear fruit and specific measures to promote East-South trade would be needed for some time to come.

Referring to the Third World concerns that there would be adverse effects on Third World countries in the short to medium term, as the developed market economy countries turned their attention and energy to Eastern Europe, Dadzie took note of the collective assurances of the OECD countries and pronouncements of some of its individual members that this would not diminish their high priority to cooperation with the Third World.

"Fears nevertheless persist", Dadzie said, "that support for reconstruction of Eastern Europe may absorb a significant share of private and public resources which otherwise might have gone to development finance and that the OECD countries, particularly of Western Europe, could shift some of their import demand from the Third World to Eastern Europe ... Political wisdom dictates that they should be addressed and allayed and that necessary measures should be taken to avert their realisation".

These developments would have implications for UNCTAD's mandate in inter-systems trade relations, and its future work should have to give emphasis to those aspects of relevance to the fuller integration of East European economies into the world trading system, closely follow the processes of policy reform and promote increased East-South trade cooperation.

On the EEC's post-1992 single market Dadzie said that while there was a broad consensus that on balance it would have a positive influence on long-term investment and growth within the Community, it posed major challenges to its weaker trading partners.

The benefits of growth within the EC for many Third World and other countries were not "self-evident" and in the period leading to 1992 the Community had the opportunity to adopt policy stances to assuage the concerns of Third World Countries on the effects of the single market. Also a successful outcome of the Uruguay Round could go a long way towards dispelling worries.

Warning against the risk of an "unbalanced outcome" in the Uruguay Round that might not command the full adherence of all parties, Dadzie noted that the negotiations thus far had consisted mainly of "interactions among economic heavyweights", though its outcome was of concern to all trading countries, large or small and hence should respond "equitably" to the interests of all participants.

Broad trends in the trade policies of major market economy countries did not give cause for optimism, Dadzie said.

"Managed trade had become entrenched and there are no signs that the surge of protectionism of the last two decades is about to subside".

"Even the relatively strong growth of the past years has not generated the political will to turn that tide - and this despite the burgeoning of export-oriented trade and development policies in the developing countries ... If the continued expansion of world output and trade is to be broadly shared, protectionist barriers must be dismantled, particularly those that affect developing countries. This is undoubtedly a key issue for the Uruguay Round".

Now that the Round was entering into its final phase, one could not help being concerned over its general drift. Negotiations so far had paid less attention to market access issues of interest to the Third World than to rule-making either in "new" areas (like services and intellectual property) or areas in which, in the view of some participants, rules needed to be strengthened (like antidumping code or the BOP provisions in Art XVIII).

There was also the resurgence of proposals (as in safeguards) which could introduce additional discriminatory mechanisms into the multilateral system in conflict with its fundamental unconditional MFN clause. Weaker trading partners had the most to lose from a weakening of this principle.

An important aspect requiring careful examination was the initiative to introduce into the international trading system norms and concepts with regard to intellectual property rights and rights of investors and link these to the overall balance of mutual rights and obligations in the area of trade.

"Such linkages", Dadzie underscored, "would imply a qualitative change in the present trading system. It would have a special impact on national development objectives of developing countries, which are net importers of technology and foreign direct investment".

"This issue should be seen in the context of the growing importance which technological transformation has assumed in industrialisation and international competitiveness ... If developing countries are to modernise their economies and enhance their participation in international trade, they will have to be supported in their efforts to gain better access to foreign technology and to develop their domestic technological capacities".

In the area of services the negotiations had to balance the interests of exporters of capital-intensive services with those of exporters of labour-intensive services (like many Third World countries) implying movement of their citizens across borders.

But the importance of services did not merely lie in their rising share in international transactions.

As with technology, the development of a modern service sector was a key element in the infrastructure of the export sector of an economy and "the mix of foreign and national ownership in this sector is a strategic decision".

In these areas, as in others, a balanced outcome of the Uruguay Round supportive of growth and development would need to take fully into account the specificities of the Third World countries - including their need to build the infrastructure of development and international competitiveness and to pursue legitimate national development policies without fear of retaliation or discrimination, Dadzie added.

Drawing the board's attention also to the work being done in the Uruguay Round on strengthening policy coherence in areas of trade, money and finance, Dadzie recalled the GATT Director-General's address to the Board on UNCTAD's 25th anniversary when he had stressed UNCTAD's successful promotion, since its inception, of the "trade-finance-development link".

UNCTAD, Dadzie said, had been promoting intergovernmental deliberations and convergent perceptions on "interdependence".

So far, the discussions in the Uruguay Round on policy coherence had centered on the need for institutional and political linkages between GATT, IMF and the World Bank.

"No doubt, before reaching conclusions on this highly important question, member-States will wish to consider the roles of all competent intergovernmental mechanisms at their disposal, including the role of the United Nations under its Charter and, within it, the role of UNCTAD".

Referring to the problems of commodity dependence among Third World countries, Dadzie said the fact that international commodity problems were only party covered by the Uruguay Round was a reminder of "the incompleteness of institutional arrangements for dealing with international trade".

Both the GATT and UNCTAD, he recalled, were responses to the failure of governments to agree in the 1940’s on the establishment of a comprehensive international trade organisation. Such an organisation, as envisaged in the Havana Charter, would have dealt with questions of economic development, foreign investment, restrictive business practices and international commodity Policy as well as the issues of commercial policy incorporated in the GATT.

When UNCTAD was set up, it was mandated to study matters related to the establishment of such an organisation and this issue had been discussed at sessions of the Conference until UNCTAD-VI.

"It has now resurfaced", Dadzie said, "with somewhat different parameters, on the fringes of the multilateral trade negotiations".

"It would indeed be welcome if the international community, through the United Nations, were to agree, in a new wave of commitment to multilateralism to work towards an international trade organisation which would be comprehensive in subject coverage, universal in membership and based on agreed objectives and norms of behaviour. It should also be responsive to the interests of all its members, equitable in decision-making and organically linked to related institutional arrangements in the areas of money and finance".

"It is to be hoped", Dadzie concluded, "that this ambitious aim will be kept firmly in view in current discussions and that the establishment of new institutional mechanisms in the area of trade will be seen not in relation to a specific negotiating process but in this wider perspective".