The Third World Network is very grateful to be given the opportunity to say a few words on this theme on assuring development gains from trade.
Trade has two major aspects; exports and imports. Assuring gains would require proper conditions and appropriate policies, at international and national levels, for both exports and imports of developing countries. It is important that they attain a proper balance between imports and exports.
It would be excellent if developing countries could increase their export earnings as a method for achieving growth and development. However, many developing countries are facing constraints to their exports because of their limited supply capacity, protectionist barriers including high tariffs and subsidies in the Northern agriculture sector, and a proliferation of non tariff barriers.
Trade facilitation is now being discussed in the WTO. For this concept to be meaningful for developing countries, it should first and foremost stress the facilitation of developing countries to export. For example, most developing countries require simple infrastructure such as storage facilities for farmers’ surplus crops, and rural roads to bring the surplus to the domestic urban market and to the ports for export. We therefore propose that this should be the first priority in the trade facilitation discussion, that is, the facilitation of exports of developing countries, especially their small producers.
Even when developing countries have increased their exports, this has often not been to their benefit. For example, many developing countries have expanded the volume of their exports. But since these are commodities that are facing over supply, this expansion has exerted downward pressure on the export price and the developing countries have suffered very significant real income loss due to terms of trade decline.
In the area of imports in the meanwhile, because of tariff reduction caused by structural adjustment loan conditionalities of the international financial institutions, and WTO rules, many developing countries have experienced significant increases in their import bill which have been at higher rates compared to the small increases in their export earnings. UNCTAD studies, for example in the Trade and Development Report 1999, show that export growth has lagged behind import growth in developing countries in general, leading to a significant widening of their trade deficit.
For these developing countries, there have been trade imbalances, a widening of the trade and current account deficits and the worsening of their debt situation. This condition is not sustainable for a large number of developing countries.
We therefore need a trading system that is sensitive to the needs of developing countries and that does not place obligations on them to liberalise their imports at rates that are unrealistic and which adversely affect the products of local industries or farms or cause them to close. The trading system needs to enable policy flexibility and policy space for developing countries to liberalise their imports at rates and in sectors at which the local producers can handle competition. Likewise the international financial institutions should have realistic loan conditionalities, instead of forcing the borrowing developing countries to undergo “big bang liberalisation” which in the past has caused many problems. The trading system should also enable products of developing countries to have access to the rich countries’ markets. If this happens, then the external environment would be more favourable to assist developing countries to correct the imbalance between imports and exports. At the very least the outcome of the present negotiations in the WTO should not worsen the present trade imbalance suffered by most developing countries.
The Doha Declaration has stated that development and the interests of developing countries will be at the heart of the Doha work programme. This is very welcome. For this goal to be realised, the Doha programme has to address this problem of excessive imports into many developing countries and too little export earnings for them.
Although the Doha Declaration of November 2001 in words places development concerns in its centre, in reality what has happened since then has been the downgrading and marginalisation of the “development issues” of implementation and special and differential treatment. The original deadlines of resolving these issues by 2002 have not been met, and neither have new deadlines. After the Cancun Ministerial, they fell off the radar as they were not selected as part of the four issues requiring priority attention. Developing countries look to the resolution of these “development issues” as key to correcting some of the shortcomings and imbalances in the WTO agreements. These issues must be given top priority again, especially in the “July package”. There is indeed a real danger that implementation and SDT will fall even lower down the agenda or even drop out altogether.
In agriculture, the problem is well known, of how high subsidies and high tariffs in the North prevent the developing countries from having market access. However, even more attention should be paid to the problem of how loan conditionalities and the WTO agriculture agreement have pressurised developing countries to lower their agricultural tariffs, leading in many countries to import surges of several products, which are threatening the markets and livelihoods of the small farmers. The applied tariffs in many countries are too low in many developing countries as a result of structural adjustment and conditionalities make it difficult for them to exercise the flexibilities allowed by the WTO to raise the applied rates nearer the bound rates. There is now a new threat that the present negotiations will oblige developing countries to significantly reduce their agricultural tariffs further. This is especially if a non-linear formula or a tiered linear formula (both requiring higher tariffs to be cut by a higher rates) is applied to developing countries. Such an approach will cause the bound rates to be brought down closer to or even lower than the present applied rates, thus removing the available flexibilities and permanently hinder the ability of developing countries to protect their small farmers. This is especially inappropriate if high domestic subsidies and high tariffs are maintained in developed countries. There will then be a lethal combination of lowered tariff in the developing countrues and continued high subsidies in the North. Small farmers that are more efficient in some developing countries would then have their markets and livelihoods damaged by cheap (because subsidised) imports from less efficient farmers. The WTO negotiations should not result in such an ironic and unfair outcome. The July package should therefore effectively curb both export and domestic subsidies in the rich countries, whilst allowing developing countries to maintain at least the present flexibilities in relation to tariffs, and establishing new mechanisms such as special products and a special safeguard mechanism to deal with import surges.
On non-agriculture market access (NAMA), the developing countries face an equally tough if not tougher challenge. Many developing countries have been experiencing de-industrialisation, or the closure or reduction of business of local industries, due to excessive import liberalisation of industrial products, largely resulting from loan conditionalities. This deindustralisation process may soon accelerate and spread to more developing countries, if the present trend in NAMA negotiations continue. There are strong pressures from the industrialised countries to: (a) oblige developing countries to bind almost all their tariffs; (b) to drastically lower their industrial tariffs generally through a non-linear formula (where higher tariffs are cut by higher rates); and (c) to have fast-track elimination of tariffs in several sectors. Such an approach would be counter to the Doha exhortation to place development at the centre of the Doha programme. Thus, in the future NAMA negotiations, the developing countries must fight to maintain the policy flexibilities that previous Rounds allowed them to maintain, including the flexibility to choose which tariffs to bind, which tariffs to reduce and at what rates. At most, the Uruguay Round approach should be followed, i.e. that a target be set for developing countries to reduce their bound tariffs by an overall average rate (the Uruguay Round target was around 27 per cent).
Finally, a critical decision will have to be made whether or not to expand the mandate of the WTO to new areas, i.e. the “Singapore Issues” of investment, competition, transparency in government procurement and trade facilitation. The first three of these are not even trade issues and it is inappropriate for a trade organisation like the WTO to establish new treaties on such issues. Principles such as national treatment and pressures towards rapid liberalisation that were developed in the context of trade in goods may not be and in fact are not suitable to be applied to the three non-trade issues of investment, competition and government procurement. Treaties on these subjects along the lines advocated by the proponents would severely curtail the policy space required by developing countries to choose between various policy instruments to meet their development goals. Most developing countries have opposed the introduction of negotiations on these issues and at the Cancun Ministerial Conference, the major proponent (the European Union) had offered to drop two and even three of these Singapore issues from the WTO agenda. It would be a great relief if at least the three non-trade Singapore issues are dropped from the WTO agenda as an outcome of the July package. This will enable the members to focus their attention on the existing WTO issues, and it will eliminate the most contentious issues that have split the organisation fro so many years. As for trade facilitation, although it is a trade-related issue, it is also not appropriate to establish new binding rules that oblige developing countries to allocate considerable amount of their scarce resources to facilitating faster clearance of imports, as many of these countries may want to allocate their limited funds to more pressing issues. Any guidelines that may emerge should be balanced, and not bind developing countries to commit to measures which they are unable to implement due to lack of capacity, resources or inappropriateness.
In conclusion, the next phase of negotiations in the WTO will be crucial in determining whether the Doha programme will live up to its development promise. For that to have a chance, (i) the development issues of implementation and special and differential treatment have to be restored as high-priority issues that should in fact be resolved first; (ii) the frameworks for modalities for agriculture and NAMA have to be oriented to development concerns and should not oblige developing countries to have further excessive import liberalisation; and (iii) a decision should be made to drop at least the three non-trade Singapore issues from the Doha and the WTO agenda.
We hope that the discussions at this session on assuring development gains from trade for developing countries will contribute towards this direction in the future negotiations in the Doha programme. It is important for the UNCTAD secretariat to continue and expand its research and technical assistance work on the Doha programme and on the multilateral trade system in general, and that UNCTAD continue to be a forum where delegations and NGOs can meet to have discussions on the trading system. Thank you.
