Mar 27, 1987


GENEVA MARCH 25 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Problems of protection and structural adjustment need new international policy initiatives, and the forthcoming UNCTAD-VII could be used to move ahead in this area, a senior official of the UN Conference on Trade and Development has suggested.

The Director of UNCTAD's Division on Manufactures, B.L. Das was addressing the trade and development board's sessional committee considering trade issues.

Introducing the reports on protectionism and structural adjustment, Das said that protection and structural adjustment problems have reached new heights because of the difficulties experienced by the world economy.

The reactions of some governments to these problems "have raised important questions about the nature of the present national and international economic systems", Das declared.

In the international context, the weakest members of the International Community, the third world countries, are being made to bear "a disproportionate burden" of the process of structural adjustment.

In the national context considerations of efficiency and equity have been relegated to the background, and there is a tendency for some governments to be more responsible to "the obvious needs of special interest groups even to the disadvantage of the longer-term economy-wide interests".

A salient feature of trade actions in the 1980's has been resort to bilateral solutions to trade frictions among OECD countries - in response to large trade imbalances and increased competition as in high-technology goods.

Far from the notion that third world countries receive in practice differential and more favourable treatment, protectionist measures have been directed disproportionately against them, especially in the 1970'S.

UNCTAD estimates showed that in 1986 over 30 percent of third world exports of manufactures to the OECD countries were subject to non-tariff measures, compared to less than 18 percent of exports from other industrial countries.

Also, 22.7 percent of all non-fuel imports into the OECD countries were subject to non-tariff measures (NTMS) in 1986, compared to 19.6 percent in 1985.

The increase in coverage of NTMS was attributable to maintenance of traditional restrictions on textiles, clothing and food products, and rapid increase in new types of restrictions, like voluntary export restraints (VERS) and orderly marketing arrangement (OMAS) covering iron and steel and certain high technology sectors.

The intensity of application of NTMS in the OECD countries has been especially high on many products of interest to the third world, and the sectoral bias of the NTMS reflect the perpetuation of semi-permanent systems of sectoral protection.

Protectionist measures have become a major instrument of bilateral arrangements for managed trade, and these sometimes interact with competition-restraining practices at corporate level.

Since beginning of the 1970's support measures have proliferated in industrial countries in effort to preserve employment in a growing number of industries, while increasing attention is being paid to interventions for promoting new industrial activities considered to have high growth potential.

"Industrial policies of developed countries have become a heterogeneous mixture of measures of growing complexity", Das commented.

In the socialist countries, changes in planning are being introduced, with centralised decisions increasingly concentrated on main parameters of economic and social development and greater powers being delegated to lower decision levels.

Enterprises are being given greater freedom on volume and pattern of their production, and the right to engage in foreign trade activities.

Das hoped that this acceleration in pace of structural change in these countries "could create conditions for a widening of Eastern European markets to encourage labour-intensive manufacturing exports from developing countries".

Structural adjustment policies in the third world were more closely connected to the overall development process.

The case against intervention and protection in these countries, the UNCTAD Official said, should be "tempered by the fact that the motivations for protection are quite different than in industrialised countries".

Restrictive trade measures in third world countries appear to be designed for revenue purposes, balance-of payments protection, infant-industry protection, or a combination of them.

The NTMS of third world countries have very little sectoral bias and little discrimination as to supplying countries.

Due to their severe external payments problems, most third world countries are now determining their trade policies, not for development objectives, but by the need to react to adverse movements in terms of trade, changing exchange rates, interest rates, investment patterns and capital flows.

These have affected the real economy of these countries, and their efforts to cope with external problems "have been further exacerbated because of the malfunctioning of the international trading system".

The problems faced by governments in adjusting to structural changes, and the complexities and conflict of interests involved, argue for policies affecting trade flows to be administered within framework of institutions operating under clear guidelines.

Policies of protection or structural assistance would need to be seen as policies serving the economy-wide interest, and not of particular interest within the community.

All these problems called for new policy initiatives at international level, Das suggested.

There was scope for improving the manner in which measures affecting production and trade are evaluated by national authorities, through institutional arrangements that would permit claims for protection to be evaluated in an economy-wide context and for programmes of structural adjustment to be systematically formulated and implemented.

There could also be a rolling review of current state of protection to see if changed circumstances have rendered obsolete previously accepted protection policies.

It was also necessary to move from non-transparent discriminatory practices of protection, by converting present non-tariff barriers into tariff protection.

These steps would strengthen the hands of governments in resisting protectionist pressures, and would reduce the incidence and intensity of protectionist pressures.

but basic and long-term solutions, Das argued, could come only by improving and strengthening the trading system, which was under increasing strain.

Its basic MFN principle was being weakened, while its mechanism for enforcement of rights and obligations was not proving useful for weaker trading partners.

There was no consensus on a comprehensive safeguard system. Reciprocity as basis for exchange of concessions had its own limitations, while principle of multilateral reciprocity (the basis of GATT) was itself being eroded.

External factors - exchange rate instability, massive capital flows unrelated to trade, fast developments in technology, role of the TNCS, etc. - were significantly contributing to the strains on the trading system.

"All these basic issues of the trading system have to be examined and deficiencies have to be remedied in order to find a lasting solution to the problems of protectionism and structural adjustment", the UNCTAD official concluded.