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Africa: Third World Network, 1
Africa: Third World Network, 1
Date distributed (ymd): 000202
Document reposted by APIC
+++++++++++++++++++++Document Profile+++++++++++++++++++++
Region: Continent-Wide
Issue Areas: +economy/development+
Summary Contents:
This posting and the next contain in two parts a presentation
by the Third World Network at the World Economic Forum in
Davos, Switzerland. For more information and background
analysis from the Third World Network, see the Third World
Network web site (http://www.twnside.org.sg). For earlier
statements by Third World Network Africa, enter "Third World
Network" into the search box at the Africa Policy web
site (http://www.africapolicy.org/search.htm).
+++++++++++++++++end profile++++++++++++++++++++++++++++++
Rethinking Liberalisation and Reshaping the WTO
Presentation by Martin Khor (Director, Third World Network),
at the World Economic Forum, Davos, 28 Jan 2000
I: The Need to Rethink Liberalisation Policies
We meet in the aftermath of a global financial crisis as well
as the aftermath of the collapse of the Seattle WTO
Conference. It is thus urgent and timely to examine and
reexamine what is the right approach developing countries
should take towards integration in the world economy, and to
liberalisation of trade, finance and investment.
On financial liberalisation, there are new lessons to learn
from the recent events. It is now clear that financial
liberalisation, especially when done inappropriately, was the
main cause of the East Asian economic crisis. Many of the
affected countries, which had been in the forefront among
countries of the South in global economic integration, are now
cautious and reviewing their approach to financial openness.
On trade liberalisation, the issue is even more complex. The
failure at Seattle provides an opportunity to re-examine the
record and to reformulate what is appropriate approach for
trade policy and thus also for the future role of the WTO.
There is a strong paradox or contradiction in the manner
developing countries in general and many scholars take towards
this issue. On one hand it is almost invariably repeated that
"we are committed to trade liberalisation which is positive
for and essential to growth and development." On the other
hand, many developing countries also notice and are now
actively complaining that trade liberalisation has net
negative results for their economies, or has marginalised
them.
Why are there so many criticisms that the global free-market
or free trade system has not benefited countries or people
equally? That there is a growing gap between rich and poor
countries? And that trade liberalisation has caused problems
to developing countries, especially the poorer ones?
It is often asserted in the mainstream literature that there
has been growth for all, that liberalisation has benefited
"the world" etc. But such generalisations are a fallacy.
It is simply not true that "we are all gainers, there are no
losers", as some leading proponents of the Uruguay Round and
the WTO would have it. Some have gained more than others; and
many (especially the poorest countries) have not gained at all
but may well have suffered severe loss to their economic
standing.
In fact only a few countries have enjoyed moderate or high
growth in the last two decades whilst an astonishing number
have actually suffered declines in living standards (measured
in per capita income). The UN Development Programme's Human
Development Report 1999 (pg 31) states: "The top fifth of the
world's people in the richest countries enjoy 82 percent of
the expanding export trade and 68 percent of foreign direct
investment --- the bottom fifth, barely more than 1 percent.
These trends reinforce economic stagnation and low human
development. Only 33 countries managed to sustain 3 percent
annual growth during 1980-96. For 59 countries (mainly in
Sub-Saharan Africa and Eastern Europe and the CIS) GNP per
capita declined. Economic integration is thus dividing
developing and transition economies into those that are
benefiting from global opportunities and those that are not."
One of the important things to understand about trade
liberalisation is that if it is imposed upon countries that
are not ready or able to cope, it can contribute to a vicious
cycle of financial instability, debt and recession.
A clear explanation of why trade liberalisation often leads to
negative results is found in the UNCTAD's Trade and
Development Report 1999. It focuses on the behaviour and
balance between imports and exports, and finds that rapid
trade liberalisation has contributed to the widening of the
trade deficit in developing countries in general. The report
finds that rapid trade liberalisation led to a sharp increase
in imports but that exports failed to keep pace. For
developing countries (excluding China) the average trade
deficit in the 1990s is higher than in the 1970s by 3
percentage points of GDP while the average growth rate is
lower by 2 percentage points.
This latest important UNCTAD finding corresponds with several
recent studies that show there is no automatic correlation
between trade liberalisation and growth. Countries that
rapidly liberalised their imports did not necessarily grow
faster than those that liberalised more gradually.
The problem in trade liberalisation is that a country can
control how fast to liberalise its imports (and thus increase
the inflow of products) but cannot determine by itself how
fast its exports grow. Export growth partly depends on the
prices of the existing exported products (and developing
countries have suffered from serious declines in their terns
of trade) and also on having or developing the infrastructure,
human and enterprise capacity for new exports (which is a
longterm process and not easily achieved).
It also depends on whether there is market access especially
in developed countries. Herein lies a major problem beyond the
control of the South, for as is well known there are many
tariff and non-tariff barriers in the North to the potential
exports of developing countries. Unless these barriers are
removed, the South's export potential will not be realised.
Thus, trade liberalisation can (and often) causes imports to
surge without a corresponding surge in exports. This can cause
the widening of trade deficits, deterioration in the balance
of payments and the continuation or worsening of external
debt, all of which constrain growth prospects and often result
in persistent stagnation or recession.
This should lead us to conclude that trade liberalisation
should not be pursued automatically or rapidly and in a "big
bang" manner. Rather, what is important is the quality,
timing, sequencing and scope of liberalisation (especially
import liberalisation), and how the process is accompanied by
(or preceded by) other factors such as the strengthening of
local enterprises and farms, human resource and technological
development, as well as the build up of export capacity and
markets. A logical conclusion must be that if conditions for
success are not present yet in a country, then to proceed with
liberalisation can lead to specific negative results or even
a general situation of persistent recession. Thus to
pressurise such countries to liberalise would be to help lead
them into an economic quagmire.
Developing countries must have the ability, freedom and
flexibility to make strategic choices in finance, trade and
investment policies, where they can decide on the rate and
scope of liberalisation and combine this appropriately with
the defence of local firms and farms.
And this is why there should be a freeze on further steps to
impose more liberalisation on developing countries through new
issues or a new Round in the WTO Seattle meeting. The rich
countries must now correct the imbalances and inequities in
the world trading system --- they should increase their market
access to products from developing countries, but they should
not press the developing countries to further open up.
Developing countries should be allowed to choose their own
rate of liberalisation.
II. The Failure of Seattle
The spectacular failure of the WTO Seattle meeting had its
roots in both the system of decision-making and the substance
of the negotiations. In the many months of the preparatory
phase, developing countries generally were more concerned
about their non-benefits from the WTO Agreements and about the
need to correct the problems of implementation. Most of them
were not in the frame of mind to consider or welcome the new
issues being pushed by developed countries. The latter on the
other hand were aggressively promoting several new issues,
such as investment, transparency in government procurement,
competition, a new round of industrial tariff cuts, and
finally labour and environmental standards. At Seattle, the US
push for labour standards led by President Clinton confirmed
the worst fears of developing countries that the WTO was
sought to be tilted even more against them by the big powers.
The clash of interests over substance was worsened greatly by
the utter disrespect for democratic participation of the
majority of Members and the great lack of transparency in the
multitude of talks held in small groups that the majority had
no access to. This was compounded by several manipulative
tactics, including the non-incorporation of the views
expressed by many Members in the negotiating drafts. It became
clear that an attempt was being made to railroad developing
countries into agreeing to proposals and texts they had not
agreed to, had opposed or had not even seen at all. In the end
many developing country delegations made it clear, including
through open statements and media conferences, that they would
not join in a "consensus" of any Declaration in which they had
no or little part in formulating. The talks had to be
abandoned without the issuing of any Declaration or even a
short statement by Ministers.
The tasks ahead include the need to address both substance and
process. The grievances and complaints of developing countries
-- that they have not benefitted from the Uruguay Round, and
that the problems of implementation of these Agreements have
to be rectified -- must urgently and seriously be tackled. The
process of decision-making and negotiations in the WTO has to
be democratised and made transparent. "Green Room" meetings
should be discontinued. Every Member, however small, must have
the right to know what negotiations are taking place, and to
take part in them. Until the reforms to the system and to the
substance of the WTO take place, the organisation's
credibility will remain low. And for the reforms to take
place, there should be a stop to the pressures being exerted
by some of the developed countries to inject yet more new
issues into the WTO. The following sections touch on these
issues.
III: Lack Of Benefits for Developing Countries from the
Uruguay Round
Officials from many developing countries are complaining that
their countries have not benefited from the WTO Agreements of
the Uruguay Round. And that as a result the credibility of the
WTO trade system could be eroded. What is the basis of the
complaints?
Most developing countries have not developed yet to a stage
where they are able to meet the challenge to significantly
exporting to the world market. It was believed however that
the Uruguay Round would improve their chances by increasing
the market access of developing countries' exports to the rich
countries' markets.
The hopes were especially on textiles and agricultural
products where developing countries have some comparative
advantage, and also on some other industrial products. But
five years after the Uruguay Round came into effect these
expected benefits have not materialised, and as a result there
is a major sense of disillusionment or even betrayal that
developing countries in general feel about the developed
trading countries.
Some examples of this:
Market Access in Industry has not improved.
A lowering of Northern countries' industrial tariffs is
supposed to benefit those Southern countries with a
manufacturing export capacity. Even then, the reduction of
average industrial tariffs of developed countries has only
been from 6.3% to 3.8%, which means that an imported product
costing $100 before duty could enter after duty at $104
instead of the previous $106, which is not a significant
reduction. In contrast, many developing countries made huge
reductions in their tariffs and bound them. According to WTO
expert Mr Bhagirath Lal Das, India's average industrial tariff
was reduced from 71 to 32 percent, Brazil from 41 to 27
percent, Venezuela from 50 to 31 percent. "Tariff peaks" (or
high import duties on certain products) remain in the rich
countries for many industrial products that developing
countries export. For instance the US tariff for concentrated
orange juice is 3 1%. This means that some potential exports
of developing countries are still blocked.
No gains yet from the supposed phasing out of textiles quotas
The Uruguay Round's agreement on textiles and clothing was
aimed at phasing out the special treatment of the textiles and
clothing sector, in which the developing countries had for the
past quarter century had agreed to subsidise the North by
allowing quotas to be placed on their exports in this sector.
This ten-year phase-out was supposed to be the aspect of the
Uruguay Round to most immediately benefit the South, or at
least the Southern countries that export textiles, clothing
and footwear.
However, textile-exporting developing countries have been
extremely disappointed and frustrated that five years after
the phase-out period began, they have not yet seen any
benefits. This is due to the "endloading" of the
implementation of developed countries (that is, the
liberalisation of most of the products they buy from
developing countries will take place only in the final year or
years), and the benefits will accrue only at the end of the
ten year phase-out period. Although developed countries have
legally complied with the agreement by phasing out quotas
proportionately, in fact they have chosen to liberalise on
products that are listed but which they have not actually
restrained in the past. As a result, developing countries have
not benefited. They are now pressing proposals that the
developed countries improve the quality of their
implementation of the agreement on textiles and clothing.
Increase in non-tariff barriers such as anti-dumping measures
Developing countries are also concerned and bitter that the
supposed improvement of market access through tariff
reductions is also being offset by an increase in non-tariff
barriers in the rich countries. A major problem has been the
use (or rather abuse or misuse) of anti-dumping measures,
especially by the US and the EU, on products of developing
countries, including on textiles.
The use of such measures (anti-dumping and countervailing
measures) against developing countries' products has become
more frequent after the Uruguay Round. Many countries have
proposed that the misuse of these measures be curbed by
amendments to the Anti-Dumping Agreement. However this is
stoutly resisted by the US.
Continued high protection in agriculture
The Agriculture Agreement was supposed to result in the import
liberalisation and reduction of domestic support and export
subsidies for agricultural products especially in the rich
countries, and this was expected to improve the market access
of those Southern countries that export agricultural products.
As it turned out, however, the protection and subsidies have
been allowed to remain very high. For example, in the initial
year of the agreement, there were very high tariffs in the US
(sugar 244 percent, peanuts 174 percent), EU (beef 213, wheat
168); Japan (wheat 353), Canada (butter 360, eggs 236). The
rich countries have to reduce such high rates by only 36
percent on average to the end of 2000. The tariffs have thus
been still very high making it impossible for developing
countries' exports to gain access.
Also, the Agreement has allowed the developed countries to
maintain most of the high subsidies that existed prior to the
Uruguay Round conclusion. For example, they are obliged to
reduce their very high domestic subsidies by only 20%. In
contrast most developing countries had no or little domestic
or export subsidies earlier. They are now barred by the
Agriculture Agreement from having them or raising them in
future. There is a great injustice in this very odd situation.
Conclusion
As seen from these examples, from the viewpoint of countries
of the South, one of the major categories of "problems of
implementation of the Uruguay Round" is the way the Northern
countries have not lived up to the spirit of their commitments
in implementing (or not implementing) their obligations agreed
to in the various Agreements. This has led to the
non-realisation of the expected benefits to developing
countries of their joining the WTO.
IV: "Implementation Problems" Faced by Developing Countries
from the Uruguay Round
One of the reasons the developing countries are reluctant to
endorse new initiatives or new issues in the Seattle WTO
meeting is because they are still struggling with serious
problems in their having to implement the Uruguay Round.
The Uruguay Round resulted in several new legally-binding
agreements that require developing countries to make drastic
changes to their domestic economies in such diverse areas as
services, agriculture, intellectual property and investment
measures. Many developing countries did not have the capacity
to follow the negotiations, let alone participate actively,
and did not really understand what they committed themselves
to. Some of the agreements have a grace period of five years
before implementation. That period will be over end of this
year. The problems they will encounter from having to
implement these agreements are thus only starting and are
bound to get worse.
The following are some of their major general problems:
(a) having to liberalise their industrial, services and
agriculture sectors will cause dislocation to the local
sectors, firms and farms as these are generally small or
medium sized and unable to compete with bigger foreign
companies or cheaper imports; and this could threaten jobs and
livelihoods of millions;
(b) the Uruguay Round removed or severely curtailed the
developing countries' space or ability to provide subsidies
for local industries (due to the subsidies agreement) and
their ability to maintain some investment measures such as
requiring that investors use a minimum level of local
materials in their production (this is prohibited by the
trade-related investment measures agreement);
(c) the TRIPS agreement prevents local firms from absorbing or
internalising some technologies over which other corporations
(mainly foreign firms) have intellectual property rights; this
would curb the adoption of modern technology in the South;
also, prices of medicines and other essential products are
expected to rise significantly when the new IPR regime takes
effect in the next few years.
(continued in part 2)
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC). APIC's primary
objective is to widen international policy debates around
African issues, by concentrating on providing accessible
policy-relevant information and analysis usable by a wide
range of groups and individuals.
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