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Ms. Victoria Tauli-Corpuz, executive director of Tebtebba Foundation, highlighted the relationship of human rights and climate change, which according to her presents an enormous threat to a number of human rights, including the right to water, food, land and basic survival of peoples around the world. Climate change usually affects the most vulnerable in society, including the poorest communities, the indigenous peoples, and women. They are most affected by the impact of climate change even if they have not contributed significantly to this problem, Ms. Tauli-Corpuz highlighted.
According to Ms. Tauli-Corpuz, the human rights approach compels us to look at the lives of the peoples that are most adversely affected. She highlighted the case of the Philippines that had suffered from typhoon Haiyan while climate change negotiations were taking place in Warsaw. She explained that the Philippines is a middle-income developing country, with 7.6% GDP growth achieved in the first half of 2013. Yet, the Philippines could not cope with the devastation it faced. It was estimated that a loss of 12 billion dollars resulted from the implications of the typhoon. Those affected included 4.2 million people that were displaced and more than 300,000 people that are still living in shelters despite all the contributions provided to the Philippines. Ms. Tauli-Corpuz noted that this case also affected the indigenous peoples of the Philippines.
She underlined that developing countries have not contributed to the climate change problem and the historical responsibilities do not lie with them. Yet, developing countries are being asked to carry the burden of adapting and mitigating in the face of climate change, without any support from the countries that have caused these problems.
This is the biggest tension in the negotiations, Ms. Tauli-Corpuz stressed. She added that developing countries’ interests in these negotiations have been undermined by industrialized countries.
Ms. Tauli-Corpuz went on to discuss the situation of indigenous peoples in the world, noting that they are estimated to be around 400 million, forming 5% of the world’s population and yet making up 15% of the poorest population of the world. Indigenous peoples live on 22% of the land area of the world, which contains around 80% of the biodiversity of the whole world, she explained. Most of the remaining tropical rainforest today is found in indigenous peoples’ territory. Yet, the rights of indigenous peoples who live in these areas are the ones most violated.
According to Ms. Tauli-Corpuz, the rights-based approach will preset great potential in regard to getting human rights courts and bodies to treat climate change as an immediate threat, and to get governments to improve their commitments and consider the extra-territorial impacts of their actions.
Ms. Tauli-Corpuz reflected on a few successes within the climate change negotiations, which according to her include the integration of human rights in the discussions held at the 2010 United Nations Climate Change Conference held in Cancun. She also mentioned the decision taken in regard to gender and climate change. Ms. Tauli-Corpuz also addressed the work on reducing emissions from deforestation and forest degradation (REDD) specifically installing safeguards to ensure the protection of the rights of local indigenous communities to the forest as well as to their traditional knowledge. Ms. Tauli-Corpuz noted the agreement achieved at the Warsaw Climate Change Conference (2013) on an international mechanism on ‘loss and damage’. This agreement reflects an understanding that focus should not be limited on adaptation when a country is subjected to short-term and long-term impacts of climate disasters. Some countries lost part of their territories and some islands are sinking as a result of climate change. This international mechanism would address such cases.
Ms. Tauli-Corpuz concluded by stressing that there is a lot of work that needs to be done in terms of considering human rights and climate change.
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Dr. Carlos Correa, special advisor on trade and intellectual property of the South Centre, addressed current trends related to the protection of intellectual property (IP) and made a few references to negotiations in this area. He recalled that during the last twenty-five years, the trend in IP has been inclined towards expansion and increasing protection. The Trade-related Aspects of Intellectual Property Rights agreement (TRIPs) had a very important role in globally increasing this protection, Dr. Correa noted. In addition, the World Intellectual Property Organization (WIPO) adopted two treaties in relation to copyright law that incorporate new standards in this area. Furthermore, free trade agreements contain substantive chapters on IP that incorporate a large number of TRIPs-plus standards, which increase the terms of protection for patent holders. This, according to Dr. Correa, has been part of a trend towards expanding protection of intellectual property rights.
Dr. Correa explained that this trend has been strongly supported by unilateral action from developed countries. These actions have been mainstreamed through very different means, including intervention by Ambassadors, and efforts to make the case that these protections are important to increase benefits.
Dr. Correa gave the example of the pressures facing India in order to increase protection of IP. He explained that an investigation was started in the United States against India, arguing that the latter is not fulfilling the standards that the US considers to be appropriate in relation to IP. The case argues against India’s granting of a compulsory license and attacks Section 3(d) of India’s patent act. Consequently, India is facing the threat of loosing trade preferences in the United States that are estimated to be around 4 billion USD of exports. Dr. Correa noted that this action has been prompted by business associations, including the pharmaceutical industry.
According to Dr. Correa, there are two ironies in this situation. The first irony is that the United States has granted the largest number of compulsory licenses in the world, amounting to thousands, including for pharmaceuticals. In contrary, India has granted one compulsory license for an anti-cancer drug because its price was exorbitant. A second irony is that there is no complaint submitted before the WTO claiming that India is violating WTO rules. India is being judged under the rules that the United States considers unilaterally as best for the United States’ companies. If there were violation of the TRIPs agreement by India, then there would be a case in front of the WTO. Consequently, Dr. Correa noted that such action by the United States is undermining the legitimacy of the WTO system. He recalled a statement made by the South Centre on March 4, 2014, whereby the Centre calls on WTO Members to respect the rights of other Members to avail themselves to WTO flexibilities.
Dr. Correa questioned whether the trend towards expansion of IP protection is justified by evidence that such protection would lead to more innovation and economic development. According to Dr. Correa the reply is that there is no such evidence. On the contrary, economic and academic studies, especially by American economists, have been skeptical about the role that intellectual property might play in promoting innovation.
One of the studies recalled by Dr. Correa claims that such IP protection is not promoting but might deter innovation. Dr. Correa quoted Scherer who is a reputable Harvard professor. Scherer has noted that “as economic studies have shown repeatedly, patents do not play a particularly important role in most fields of industrial innovation”. Dr. Correa also referred to Gary Becker, a Nobel prize winner, who has noted that “the current patent length of 20 years (longer for drug companies) from the date of filing for a patent can be cut in half without greatly discouraging innovation”.
Furthermore, Dr. Correa recalled Lerner’s work, who is a professor at Harvard Business School. Lerner had surveyed patent laws in over sixty countries and came to the conclusion that strengthening patent rights resulted in an increase in filings from foreign applicants with no effect on filings by local inventors.
This paradigm shift about intellectual property is growing so strong that two economists from the United States had published a study during 2013 suggesting that public policy should aim to decrease patent monopolies gradually but surely, while the ultimate goal should be the abolition of patents.
Dr. Correa stressed the importance of highlighting these trends because in Geneva the approach still insists on the old argument that intellectual property necessarily will promote innovation and economic development. Yet, what has been said and written as outcome of investigations in developed countries is leading to a different approach.
Another question raised by Dr. Correa concerned the possible limits or changes to the upward trend in IP protection that has been witnessed during the last twenty-five years. On this issue he noted that some elements may show that maybe we are at a time where relentless increase in intellectual property protection might to some extent be stopped.
Besides economists in the United States, concerns with the negative effects of patents and IP in general are increasing among businesses. For example, the Computers & Communications Industry Association (CCIA) that includes members such as Google, Motorola, Microsoft, E-bay, and Yahoo had made the following statement: “we do not think it is an accident that innovation has flourished in a society that values an open, competitive economic marketplace, nor where original independent and free speech are enshrined in law…Therefore our commitment to vigorous competition, freedom of expression, and openness is a natural product of the understanding of what has helped our industry thrive, and what it needs to continue to do so”.
These companies know that they are spending more money on lawyers than they are spending on research and development, according to Correa. They know that they could innovate better in an open system rather than in a system based on strong appropriation of innovation.
Dr. Correa also highlighted the emergence of civil society involvement in addressing the implications of an increase in protection of intellectual property, especially by organizations working on issues related to the internet. Dr. Correa referred to the anti-counterfeiting trade agreement (ACTA); he explained that there was an attempt by the United States and a small group of countries to develop a new agreement that would increase the enforcement measures in the area of intellectual property. This agreement was negotiated in secrecy, and was put forward for ratification by the group of countries that prepared it. Civil society organizations emerged against this agreement, taking into the streets in manifestation of opposing it. Many European countries, such as Poland, decided not to ratify this agreement. This movement was successful, and the ACTA did not get the number of ratifications that was needed. It was rejected by the European Parliament by a vote of 478 against 39.
Another example given by Dr. Correa relates to developments in the United States; there were two bills submitted to Congress – one called ‘Stop Online Piracy Act’ and another called ‘Protect Intellectual Property Act’. Those bills would have allowed the US government to block websites, even foreign ones, on the ground that there might be violations of intellectual property. There was a very strong reaction against these propositions, including a number of street mobilizations. The outcome was that these bills were not adopted.
According to Dr. Correa, these developments show that there might be some obstacles for further increase in IP protection.
Dr. Correa also demonstrated some updates from selected developing countries where legislation were adopted or court decisions were taken that mitigate the effect of monopoly rights conferred by intellectual property. For example, through the amendment of its Patent Act in 2005, India introduced a section that includes rigorous standards for the assessment of chemical and pharmaceutical inventions, on which there is already a decision and interpretation by the court that protects against ‘evergreening’ (The term ‘evergreening’ stands for granting patents for frivolous developments that are acquired to block competition by the generic industry.)
More recently, Argentina adopted a number of very specific guidelines for pharmaceutical patents based on rigorous standards in order to avoid proliferation of patents. Ecuador has also recently launched a comprehensive reform of its intellectual property system, aiming at integrating intellectual property into its wider national policies. This, according to Dr. Correa, is a good example of a country that is trying to integrate intellectual property as an instrument within its national policies and strategies and not an intervention that is developed in an isolated manner or copied from what is done in other countries.
South Africa was another example cited by Dr. Correa, where the government has announced the reform of the intellectual property system, in particular patents. South Africa is considering the introduction of prior examination of patents, in particular for pharmaceuticals. Today, patents in South Africa are granted without examination, and consequently thousands of patents are being registered for very minor developments. The government of South Africa found that pharmaceutical companies have been funding a lobbying firm in order to derail its efforts to amend the patent system.
Dr. Correa referred as well to a decision taken by the Kenyan high court overturning the counterfeiting bill due to human rights considerations. He also noted other interesting court decisions in Ecuador and Argentina that deny data exclusivity, which has been one of the demands of the US and the EU (data exclusivity refers to the protection of clinical test data required to be submitted to a regulatory agency to prove safety and efficacy of a new drug).
Some governments, including developed country governments, are increasingly becoming cautious about the upward trends of protecting intellectual property. For example, the Productivity Commission in Australia has said that “an increase in intellectual property rights in a country which is a net importer of technology is likely to benefit overseas rights holders disproportionately compared with domestic rights holders”.
In the UK, Professor Hargreaves’ Report to the government indicated that “government should ensure that development of the IP System is driven as far as possible by objective evidence. Policy should balance measurable economic objectives against social goals and potential benefits for rights holders against impacts on consumers and other interests. These concerns will be of particular importance in assessing future claims to extend rights or in determining desirable limits to rights”.
Dr. Correa also noted that some governments are being advised or are taking measures in order to avoid increased levels of protection. For example, the Marrakesh Treaty that was recently adopted in order to introduce an exception in the area of copyright for people with limited visual capacity is the first international treaty to establish an exception and not to increase the levels of protection.
To conclude, Dr. Correa underlined the possibilities for a paradigm shift in the international intellectual property regime. He stressed that there is a clear change in the way academics and governments think of intellectual property, and which has impact on the way governments act and courts take decisions. Also, the public is increasingly involved in trying to prevent the increase in the level of protection. The academic community is strongly critical of the intellectual property system, both in developed and developing countries.
While some years ago there was some sort of policy monopoly on the IP discussion by IP experts or practitioners, Dr. Correa was of the opinion that this monopoly has been broken. The simplistic argument made by the practitioners that more intellectual property leads to more innovation and economic development is not sustainable. There are many ways in which this assumption has been discredited, he added. Moreover, there is growing skepticism about the positive effects of intellectual property, including in developed countries. Dr. Correa called upon negotiators at WIPO and the WTO to acknowledge that there is a change in the way intellectual property is addressed and thought of, and to reflect this change in their negotiations.
Dr. Correa ended his presentation by referring to a proposal made by Bolivia to declare living matters non-patentable, and a submission made by Ecuador in connection to patentability of technologies that are sound for the environment. He called for looking at these proposals in light of the shift of paradigm on intellectual property.
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Ambassador Ali Mchumo, former Managing Director of the Common Fund for Commodities and former Ambassador of Tanzania to the UN and WTO, said that in the post-Bali period at the WTO, developing countries face the challenge of following up on the decisions taken in Bali, especially the unfinished areas of the negotiations. In regard to the Trade Facilitation Agreement, Ambassador Mchumo highlighted the need to address the gap reflected in the lack of financial resources necessary to implement the agreement and to ensure it results in positive outcomes for developing countries. Otherwise, as it stands, the agreement would help the main exporters rather than developing countries, Mchumo noted.
In regard to the future of the negotiations, Mchumo called on developing countries to emphasize the centrality of development in interpreting and implementing the WTO agreements. He stressed that the preamble of the WTO agreement clearly emphasizes that the main objective is to ensure that developing countries and peoples of the world have better living standards. Accordingly, Mchumo added, the question of development should be at the center of all endeavors at the WTO.
Ambassador Mchumo was of the opinion that the post-Bali negotiations should focus on completing the Doha Development agenda, and whatever has been achieved in Bali should only be part of a long process to fulfill this agenda. Mchumo emphasized the importance of giving concrete content to the special and differential treatment (SDT) provisions in favor of developing countries especially LDCs, so that they can benefit from the multilateral trading system.
Mchumo called on developing countries to stand firm against the introduction of new issues or non-trade issues, including the Singapore issues that were previously rejected (except for trade facilitation).
With regard to the process of negotiations, Ambassador Mchumo emphasized the importance of inclusivity and transparency, so that developing countries take full role in the decisions taken. He highlighted the importance of being creative during the post-Bali negotiations in order to allow issues that are important for development to be negotiated first.
Ambassador Mchumo discussed also the issue of commodities, which he stressed remains a major issue that needs to be addressed. The importance of commodities for the economies of developing countries – as a source of food and employment, as a source of foreign exchange, and as one of the main goods that many of the developing countries sell to the global markets – cannot be emphasized enough, according to Mchumo.
While commodities play such a major role in the economies of developing countries, they remain marginally considered under the multilateral trading system and in the WTO, Ambassador Mchumo highlighted. In fact, it is only in the Hong Kong declaration (2005) that commodities were mentioned for the first time as an issue of concern to the WTO.
One of the issues to be addressed in this regard is how to ensure that the producers of commodities benefit from the multilateral trading system post Bali. According to Ambassador Mchumo, there are many elements in the commodities problematique; some could be addressed by national governments, and could require a wider framework of international cooperation. These include supply side problems, assisting in infrastructure in order to ensure commodities reach the market, irrigation, and storage. These are issues that are not expected to be addressed within the WTO, but should be kept in mind as issues influencing what happens in the multilateral trading system, Mchumo explained. Moreover, among the issues that require more national attention and wider international cooperation are adding value to commodities and diversification, Mchumo added.
According to Ambassador Mchumo, there are three major concerns on commodities that should be addressed within the multilateral trading system;
First, trade distorting measures in commodities’ trade that adversely impact the producers, such as tariff peaks and escalations as well as market access and domestic support, and this of course is part of the negotiations on agriculture;
Second is the question of value chains, which remains imbalanced. It is common to see that only few multinational corporations control the procurement of commodities; for example in the area of cocoa, only three multinational companies deal with the procurement of 60% of cocoa production. In coffee trade, which is worth more than USD 90 billion, less than USD 5 billion accrue to producers. Ambassador Mchumo called for addressing this imbalance in the multilateral trading system and for empowering the commodity producers and developing countries in order to have a bigger bargaining power in the multilateral trading system.
Third is the issue of price decline and price volatility, which remains the biggest and most long-standing problem that needs to be addressed by the multilateral trading system in regard to commodities. Ambassador Mchumo recalled the thesis of Prebisch and Singer on this issue, who have highlighted that the prices of commodities in the long-term would decline compared to manufacturing. This is still true in the long-term cycle, Mchumo noted. But in the short-term cycles there could be price rises as have been witnessed during the past few years due to the increasing demand for commodities, including by China and India, Mchumo added. However over the long-term, the prices of commodities will continue to decline vis-à-vis industrial goods, according to Mchumo.
Ambassador Mchumo added that the question of price volatility is no longer a North-South issue, as there are major developing countries that play an increasing role in the export and import of commodities. Early attempts, during the 1960s, to address price declines and volatility have failed. Mchumo recalled the attempt to establish an international commodity agreement to address the supply and management of commodities. He also noted that UNCTAD’s work on management of stocks in order to achieve price stabilization was another attempt. However, during the 1980s, the interests of developed countries on price stabilization decreased.
Ambassador Mchumo called for thinking of a mechanism that allows developing countries to have a say in how to manage price stability and volatility. One of the causes of price decline is the mismatch between supply and demand, and accordingly there has been consideration of various supply management schemes. The African group in the WTO suggested in 2006 that there should be a system whereby countries can negotiate how to establish supply management schemes using provisions of Article XXXVIII of the GATT 1994. But this proposal has not been pursued since then. Mchumo also highlighted the attempts to establish compensatory finance mechanisms, which he considered to be an area that could be revisited.
Ambassador Mchumo concluded by highlighting the growing mood against the existence of institutions that would manage commodity trade. In many advanced countries, he noted, there is a feeling that commodity institutions should not be pursued and that the markets should play their role in this regard. Japan, for example, recently withdrew from the international coffee agreement. The Common Fund for Commodities is almost on its death bed. In this situation, Ambassador Mchumo stressed, think tanks should discuss how to revive the interest in the management of commodities so that developing countries and LDCs that depend on these commodities could fare better in the multilateral trading system.
Comments Off on Strong resistance to FTAs and the new issues
Ambassador Rubens Ricupero, board member of the South Centre, former minister of finance in Brazil and former Secretary General of UNCTAD, was of the opinion that countries are facing a sort of ‘no man’s land’ in terms of WTO negotiations. On one hand, they are no longer in the pre-Bali phase where there was enormous uncertainty whether the WTO would be able to conclude the trade facilitation agreement (TFA) and whether it could survive as a viable negotiating forum.
The international community believed that it could not afford a failure of the WTO, so there was a special effort made to reach a sort of success. What was achieved was a very relative and modest success, Ricupero stressed, but in a way it provided what it was expected to do, which is just to show that the WTO is still alive and should continue. Ambassador Ricupero reminded participants that we are not yet in the ‘promised land’ and do not know whether negotiations will really resume in seriousness and whether they will be conducted with a sense of urgency.
Ambassador Ricupero alluded to what was discussed by Mr. Das and supported his points. However, Ricupero highlighted that on selected areas, such as on agricultural safeguards, exporting developing countries would find difficulties in granting safeguards without any kind of conditionalities.
Ambassador Ricupero noted that most of the international interest in trade negotiations lately has focused on the Trans-Pacific Partnership (TPP) negotiations or the Transatlantic Trade and Investment Partnership (TTIP) negotiations, and not on the post-Bali prospects or even on the WTO. He added that there is very scant interest in WTO matters outside Geneva.
Regarding those two macro negotiations (i.e. TPP and TTIP), it has been interesting that contrary to the initial expectations that these negotiations would be concluded in a few months, the actual prospects are much more subdued and resistance is growing, Ambassador Ricupero highlighted. What seems particularly new and interesting is that the resistance is growing inside the main proponents of the negotiations, basically in the United States and in some European countries.
This situation brings back to mind what happened in the so-called multilateral negotiations on investment under the OECD initiative, Ricupero recalled, where there was an enormous build-up of expectations and then the negotiations collapsed. The collapse resulted from the resistance that started to grow inside the countries that were more engaged in those negotiations.
Ambassador Ricupero noted that the so-called free trade agreement negotiations are focusing mostly on negotiating extra trade issues and in reality there is very little trade in those negotiations. The old issues addressed in the Tokyo and Uruguay Rounds, such as agriculture tariff peaks and tariff escalations, remain unfinished business. Among other issues, these remain an agenda that developed countries refuse to address until these days.
Ricupero added that developed countries are forcing onto the negotiations table issues that are not purely trade matters like intellectual property, the unjustified expansion of patent owners’ rights beyond any reasonable limit. They are trying to deepen liberalization of financial services irrespective of the disaster that the deregulation of financial services brought to the US and to the countries that followed the US model in this area. Developed countries are trying to further promote the ability of transnational corporations to litigate against sovereign states, Ricupero added. These matters that are extra trade mainly reflect the interests of big corporations that want to expand their rents, Ricupero stressed.
Ambassador Ricupero positively noted the rise of public awareness and opinion on these issues. He highlighted the refusal of US senators to grant Fast Track authority because they are aware that such kind of extra-trade agreements will cost jobs and will aggravate the situation of inequality. Ricupero stressed that inequality is the basic problem that is becoming the unifying theme in building the resistance against these kinds of negotiations. People see that those negotiations will bring more inequality and more concentration of wealth and resources, Ricupero added. It is a comfort to see that experts like Paul Krugman and Joseph Stiglitz are finally starting to say what UNCTAD has been saying for forty years at least, Ricupero highlighted. Sometimes even the IMF is beginning to see the light in some aspects, according to Ricupero.
Ambassador Ricupero concluded by stressing that his message focuses on the need to go back to basics; instead of continuously bringing new issues into the negotiations, there is a need to deal with the old and indispensable issues that have been long forgotten, including agriculture, tariff peaks and escalations, the problem of cotton, along the long list of issues that wait for some degree of fairness in international economic relations.
Mr. Abhijit Das, head of the Centre for WTO Studies at the Indian Institute of Foreign Trade, addressed the outcomes of the 9th WTO Ministerial Conference held in Bali. The first key outcome he discussed was the binding agreement on trade facilitation (TFA). Mr. Das noted that the agreement is a significantly diluted version in terms of binding commitments compared to what was on the negotiating table around nine months before the conference in Bali. That was possible only because of stiff resistance and opposition by developing countries, he noted. Yet, the TFA as finalized at Bali does have a large number of difficult and onerous obligations that developing countries have to implement, Mr. Das added.
The agreement envisions a phased-in approach for implementation. It gives WTO Member countries some flexibility to self-designate, on individual basis, the provisions a country will implement upon the TFA’s entry into force, which would be considered ‘Category A’ commitments. Countries have the right to choose amongst the remaining obligations which ones to implement over what phasing period, Mr. Das noted. That is a significant flexibility that developing countries should take advantage of. There would be pressures expected on countries to limit their phase-in periods, but developing countries need to insist that the Bali text offers flexibilities that should be made use of, Das stressed.
The second decision taken at Bali that Mr. Das addressed was that on public stockholding programs for food security purposes. The decision has two parts; the first part is a commitment to set a work programme towards finding a permanent solution on this issue; and second is a due restraint provision that would apply in the interim until a permanent solution is agreed.
While the decision has some positive elements that are considered as considerable improvement over the draft text sent for the Bali Ministerial Conference, Das noted, however there are additional conditionalities included in the text at Bali that are likely to prevent developing countries from resorting to the interim mechanism. Mr. Das explained that the main assurance gained in Bali, and which was missing in the text transmitted to the Ministerial, was that the interim due restraint will remain in place until a permanent solution is achieved.
Apart from that, the Ministerial conference in Bali took a decision on tariff rate quotas (TRQs), with the objective of making TRQs more transparent and ensuring they are filled at higher rates. In respect to cotton, the mandate given in the Hong Kong Ministerial Declaration required countries to address this issue ambitiously, expeditiously and specifically. There has been no tangible progress towards reducing cotton subsidies under this mandate, Das explained. Under the Bali Ministerial Declaration, a transparency and monitoring mechanism in relation to trade-related aspects of cotton would be established, however the core problem remains unaddressed, Das noted.
In respect to duty-free quota-free (DfQf) market access, the Bali Ministerial decision does not even match the relevant decision taken at Hong Kong in 2005, Das argued. The Bali decision is considerably diluted as it merely requires countries to “seek to improve” their existing DfQf coverage, he explained.
Mr. Das concluded that the Bali Ministerial Conference did not come up with anything concrete apart from the TFA and food security decision.
There is one area where the Bali Ministerial Conference is very relevant for the next twelve months, Das noted. The Trade Negotiations Committee (TNC) has been directed to prepare, within the next twelve months (i.e. by the end of 2014), a clearly defined work programme for the post-Bali phase. However, it is not clear whether the work programme will result in cherry picking of a few issues from the Doha mandate or whether all Doha Round issues will be addressed, Das cautioned.
While there is a mention of the “work programme on the remaining Doha issues”, the intent appears to focus the work programme on a few issues, Das added. The work programme is mandated to build on the decisions taken at the Bali Ministerial Conference, particularly on agriculture, development and LDC issues. In addition there is a mention of “all other issues under the Doha mandate that are central to concluding the Round”. Yet, the language keeps a window open for cherry picking of a few issues instead of addressing all remaining issues, Das highlighted. If, indeed this is the case, then developing countries need to carefully consider whether their interest lies in abandoning the Single Undertaking concept, Das stressed.
Das argued that if the post-Bali work programme departs from the Single Undertaking, such a step would raise serious questions in regard to the WTO jurisprudence. He explained that some of the key landmark dispute cases have been decided on the basis that WTO agreements have been negotiated as part of a Single Undertaking. Accordingly, Das questioned what would happen to the jurisprudence if the post-Bali work progamme departs from the Single Undertaking.
When it comes to trade facilitation, Das called upon developing countries to take fullest advantage of the flexibilities provided in the agreement in terms of deciding which obligations to kick in upon entry into force of the agreement and which to phase in later. Developing countries need to put resources into mapping what they have of existing trade facilitation capacities and what additional steps will be required on their part for implementing their obligations, Das underlined. This is necessary so that they can seek thereafter technical and financial support.
A larger question that Mr. Das posed was whether the TFA should be implemented on a provisional or definitive basis. Das noted that there are legal grounds to argue that even if the TFA gets incorporated into the WTO acquis of agreements, it can be implemented on a provisional basis. It needs to be borne in mind that for more than four decades GATT itself was implemented on a provisional basis. If some developing countries want to take such a stand, there are legal arguments that could support such approach, Das underlined.
In regard to the issue of public stockholding programs for food security purposes, Mr. Das recalled that the draft modalities of December 2008 had an un-bracketed paragraph that would have given considerable flexibilities for developing countries. That paragraph said that government stockholding programs for food security purposes with the objective of supporting low-income or resource-poor producers would not be considered part of the Amber box (i.e. the box under the Agreement on Agriculture that usually covers trade distorting subsidies). That should be the starting point of negotiations towards a permanent solution for public stockholding programs for food security purposes, Das noted.
If that does not work, then WTO Member countries can go back to one of the alternatives proposed by the G33 (i.e. a coalition of developing countries at the WTO pressing for flexibility for developing countries to undertake limited market opening in agriculture), one of which is to pursue further elaboration of Article 18.4 of the Agreement on Agriculture (AoA), which talks about giving due consideration to the implications of “excessive rates of inflation”.
The G33 proposal proposes deflating the administered price and comparing it with the 1986 to 1988 price, or taking the other way around through inflating the 1986-1988 price based on inflation indexes and comparing that to the administered price. If the December 2008 text is not found to be generating consensus, then the consideration of Article 18.4 of the AoA could be one way to go forward, but certainly this would be a difficult issue, Das noted.
If the approach to the post-Bali work programme ends up to be a cherry picking process, Das added, then developing countries should identify the areas of key interest to them.
In agriculture, the dilemma before negotiators is whether they should consider the December 2008 text as a settled document and continue negotiations based on it. If that happens, then the possibilities for improvements in the area of Green Box subsidies (i.e. the Green Box under the Agreement on Agriculture that is considered to encompass non-trade distorting subsidies) will be lost, Das pointed out.
While the initial mandate did not talk on reducing Green Box subsidies, it did mention the need to clarify and improve the criteria of the Green Box subsidies to ensure they are not trade distortive or have minimal impact on production, Das explained. Good proposals have been put forward by the G20 (i.e. coalition of developing countries at the WTO pressing for ambitious reforms of agriculture in developed countries with some flexibility for developing countries) in 2007-2008 on the subject, but the group appears to subsequently have lost steam on this issue.
Das cautioned that if the Green Box support is not disciplined, WTO members would be missing out an opportunity to have a close examination of this area and to establish disciplines in this area, especially given that the bulk of the agriculture subsidies by developed countries have shifted from the Amber to the Green Box.
In agriculture, tariff simplification was another area tackled by Mr. Das. He explained that while most developed countries’ tariffs are on ad valorem basis, there are still a high number of tariffs that are not on ad valorem basis, but take the form of specific duties and compound duties. In the case of the EU, many tariffs are based on very complex matrixes, he added. The text on the table is rather liberal and would not result in big improvements in this area, Das noted.
In the area of export subsidies, strict implementation of what was decided in Hong Kong could give developing countries some assurance that export subsidies would be phased out, Das underlined. He highlighted that the Bali Decision provided that countries will ‘exercise utmost restraint’ in using export subsidies, and that is a fairly strong language. He called for holding WTO Member countries accountable to that strong language.
Another issue highlighted by Mr. Das was special safeguard measures (SSM). That is a new right that developing countries were trying to acquire to counter surges in low priced imports. It resulted in stringent conditionalities being imposed on developing countries wanting to use such SSM. There is a need to ensure that if the SSM is finalized it be devoid of such stringent conditionalities, Das stressed, so that it becomes a practical tool which can be implemented whenever the need arises.
In the area of non-agricultural market access (NAMA), the key challenge for developing countries is sectorals, according to Das. Sectorals were supposed to be non-mandatory, yet there have been pressures especially on emerging economies that they must join sectorals. Das acknowledged that some emerging economies might catch up with developed economies, but highlighted that such a catch up would happen in too far a future. So developing countries taking on obligations by joining sectorals at this juncture amount to taxing their future gains, Das concluded. The other challenge in this area is the request-offer approach, Das added. Instead of negotiating using a formula, the current approach appears to be shifting into a request-offer approach, whereby developing countries will be exposed to huge amounts of bilateral pressure.
Das also spoke about some important positive agenda items for developing countries, to focus on in the area of ‘implementation issues’. These, he explained, have receded from the radar and countries have not been addressing them. He tackled three important areas that could be of interest to developing countries;
In the area of the Agreement on Trade-Related Investment Measures (TRIMS), one implementation issue was that developing countries shall have another opportunity to notify existing TRIMs measures which they would then be allowed to maintain till the end of a new transition period. Another issue in this area was that developing countries shall be exempted from the disciplines on the application of domestic content requirements by providing for an enabling provision in Articles 2 and 4 of the Agreement to this effect. It is clear from the work in the subsidies committee and the TRIMS committee that even developed countries, in the area of renewable energy, are resorting to domestic content policies. So it is just justifiable that developing countries should not be forced to abide by disciplines on local content, Das stressed.
In the area of the agreement on Subsidies and Countervailing Measures, Das highlighted that one of the implementation issues to be considered could be giving a certain flexibility to developing countries in offering export credits.
In the area of the TRIPS agreement, an area of possible interest to a large number of developing countries could be the links with the Convention on Biological Diversity (CBD), Das noted. There are quite a few proposals arguing that in the case of a patent based on traditional knowledge, there must be full disclosure and prior and informed consent from the holder of the traditional knowledge as well as benefit sharing. Such proposals galvanize large support from developing countries and would hold significant commercial value for developing countries. One study, highlighted by Das, estimated that out of 111 plant-based drugs, 74% was estimated to have been in prior use by indigenous communities. Another study concluded that by using traditional knowledge as a ‘lead’, bio-prospectors could increase success ratio in trials from 1 in 10,000 to 1 in 2. Clearly such an implementation issue has a commercial value, Das stressed.
Das underlined that the Doha mandate has strong language on ‘implementation issues’, which notes that utmost importance shall be attached to these issues that shall be addressed on priority. Lots of work has been done between 2002 and 2005, after which these issues became quite dormant. Das stressed that the mandate on addressing these issues exists, yet what is required is for developing countries to take these issues as priority. He underlined the importance of reigniting coalitions among developing countries to work on some of these issues.
Das went on to discuss issues beyond the Doha mandate, whereby he noted that the most complex 21st century issue is global value chains (GVCs). Under the GVC narrative, he explained, some countries are expected to demand that WTO agreements need to be updated in order to take account of this phenomenon, arguing that an increasingly larger share of world trade is taking place through GVCs. These countries could ask for negotiating new rules on this issue. Such new rules could include zero tariffs on products that are covered by GVCs, very deep liberalization in services that centre around GVCs, and prohibition of remedies on products that are covered by GVCs, Das noted. It could also imply stringent investment protection rules and restrictions of governments’ ability to provide support to state-owned enterprises, as well as a push towards upward harmonization across countries. It could also imply something on labour standards, which was alluded to in the report of the panel set up by the previous director general of the WTO, Pascal Lamy, which was entitled “The Future of Trade: The Challenges of Convergence” (24 April 2013). Many of these issues, which developing countries have previously rejected, could come through the back door under this approach.
Das cautioned that GVCs have a large number of asymmetries; the significant portion of incomes in GVCs essentially accrues to the lead firms that are based in developed countries. There are studies that clearly indicate that developing country firms are effectively prevented from undertaking functional upgrading, which in turn limits the possibility of increasing their incomes. GVCs might be a reality, Das noted, but he questioned whether trade policy measures are preventing countries from participation in their GVCs. He rejected this assumption, highlighting that policies other than trade policy are hindering developing country participation in GVCs, calling for addressing those issues first.
On climate change, Das noted that what could happen is the demandeurs could seek flexibility whereby unilateral trade measures taken pursuant to provisions of Article 3.5 of the United Nations Framework Convention on Climate Change (UNFCCC) would not be challenged under the WTO’s Dispute Settlement Mechanism. That could pose another barrier for exports from developing countries, according to Das.
Das concluded by stressing that the 21st century issues might seem attractive, but he called upon developing countries to assess the ramifications of agreeing to negotiate these issues and to carefully study the likely outcomes and whether these outcomes will be to their benefit. Das was of the view that if there is no mutual benefit, then it makes sense for developing countries to come together like they did in Cancun and take a stand against these issues whenever they are raised.
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Ambassador Nathan Irumba, executive director of SEATINI, said that the greatest challenge facing Africa at this moment is the negotiations of Economic Partnership Agreements (EPAs) with the European Union (EU). EPA negotiations have been going on since 2002.
Ambassador Irumba highlighted the interface among EPAs, the multilateral trading system, and regional integration. He explained that the relation of the African, Caribbean, and Pacific (ACP) countries with the EU was governed by the Lome and Cotonou conventions, whereby the ACP countries enjoyed non-reciprocal trade preferences. The relationship was based on three pillars: dialogue, development and finance, and trade. The Cotonou Agreement was judged to be incompatible with the WTO rules. At the Doha Ministerial Conference, the EU and ACP countries were granted a waiver with a view to making the agreement WTO compatible. The negotiations on that track started in 2002.
Ambassador Irumba explained that the objectives of the partnership between the EU and ACP countries include ensuring sustainable development, smooth integration in the global economy, and eradication of poverty. Principles enshrined in the partnership are sustainable development, reciprocity, and special and differential treatment (SDT). As the negotiations emerged, tension was revealed among these principles, specifically the principles of reciprocity and SDT, Ambassador Irumba noted.
In terms of reciprocity, which is one of the necessities of Article XXIV of the General Agreement on Tariffs and Trade (1947) that addresses ‘Territorial Application – Frontier Traffic – Customs Unions and Free Trade Areas’, the question arises on what constitutes ‘substantially all trade’ on which duties and other restrictive regulations of commerce shall be eliminated for a free trade area to be considered compatible with Article XXIV.
Ambassador Irumba said that the EU Commission has taken advantage of the negotiations and Article XXIV of the GATT to pursue the ‘Global Europe’ agenda, whereas one would have expected the negotiations to be confined to minimum provisions that conform to the principles of the WTO. The approach under the ‘Global Europe’ agenda extends beyond the WTO requirements.
The EU Commission defined ‘substantially all trade’ as requiring liberalization up to 80% of trade by ACP countries, while the EU offered liberalization of 100% in return. That is considered quite deep liberalization, Ambassador Irumba underlined, and wondered whether it will be in the interest of African countries to undertake such liberalization.
It was noted by Ambassador Irumba that under the WTO negotiations on non-agricultural market access (NAMA), least developed countries (LDCs) and most African countries are not expected to undertake reductions under the proposed formula.
Another aspect highlighted by Ambassador Irumba is the whole question on the EU’s demand for prohibition or limitations on export taxes. The EU is worried about the appetite of China and India in regard to Africa’s raw materials, the Ambassador noted. African countries insist that they need export taxes. Yet, on the question of agricultural subsidies, the EU insists that this issue should be discussed within the WTO and should not be discussed within EPAs.
Another contentious aspect highlighted by Ambassador Irumba is the most-favored nation (MFN) principle, whereby he explained that the EU insists that any preferential treatment offered by African countries to emerging developing countries, such as India or Brazil, should be offered to the EU as well. Yet, under the WTO, trade among developing countries was supposed to be covered by the Enabling Clause (1979), he highlighted.
At all these levels, there is an attempt to go beyond what the African countries offered in the WTO and what the WTO requires.
Ambassador Irumba also discussed the question of the ‘rendezvous clause’, whereby the EU requires partner countries to commit to discussions on issues like intellectual property and trade facilitation. So far, there are no substantive negotiations on these areas, but the EU insists on a timetable in this regard, Irumba explained.
In regard to duty free quota free (DfQf) market access, Ambassador Irumba noted that this preference is offered under the Cotonou agreement. As an interim measure, the EU in 2002 established a regulation that allows African countries to continue accessing DfQf as negotiations evolve. Yet, the EU with full support of the European Parliament had lately announced that by the first of October 2014 any country that has not signed and ratified the EPA will be denied access and benefit from DfQf, Ambassador Irumba underlined.
Some countries like Kenya are pressured to sign. Yet, SEATINI is advising governments to consider the anatomy of their exports to the EU before taking a decision in regard to EPAs. Most exports by African countries to the EU are primary commodities that are covered by the Generalized System of Preferences (GSP), since the EU needs them. The only two products that will be affected are flowers and fish, Ambassador Irumba explained. In the case of fish exports, Mr. Irumba argued for prohibition of fish exports due to the threat of depletion.
Furthermore, Ambassador Irumba tackled the question of how the EPA negotiations affect regional integration. He noted that although African countries are supposed to gradually phase in tariff reductions, they would likely end up narrowing down the regional markets for African products, which would end up having to compete with EU products. Another issue highlighted by Ambassador Irumba is accumulation. African countries want to be able to cumulate with South Africa, as part of the regional integration among the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), and the Southern African Development Community (SADEC), yet the EU has been opposing this process.
Ambassador Irumba called for protecting the space for Africa’s regional integration. He cautioned that the United States (US) is monitoring the EPA negotiations and has gotten interested in seeking a trade and investment agreement with East African countries. Whatever African countries offer to the EU would be demanded by the US, Ambassador Irumba noted. He stressed that the next few months are critical as far as African countries are concerned with EPA negotiations. He called for concluding lessons from the experience of the CARIFORUM countries that have signed EPAs yet did not achieve much gains so far from the agreements.
A book launch of Catch Up, Developing Countries in the World Economy by Prof. Deepak Nayyar, Emeritus Professor at Jawaharlal Nehru University, New Delhi, India and Vice Chair of the Board of the South Centre, was held in conjunction with the South Centre Conference held on 19 March 2014 in Geneva. Below is an abstract of the book.
The object of this book is to analyze the evolution of developing countries in the world economy, situated in a long term historical perspective, from the onset of the second millennium but with a focus on the second half of the twentieth century and the first decade of the twenty-first century. It is perhaps among the first to address this theme on such a wide canvas that spans both time and space.
In doing so, it highlights the overwhelming significance of what are now developing countries in the world until 200 years ago to trace their decline and fall from 1820 to 1950. The six decades since then have witnessed an increase in the share of developing countries not only in world population and world income but also in international trade, international investment, industrial production and manufactured exports which gathered momentum after 1980.
The book explores the factors underlying this fall and rise to discuss the ongoing catch up in the world economy driven by industrialization and economic growth. Their impressive performance, disaggregated analysis shows, is characterized by uneven development. There is an exclusion of countries and people from the process. The catch up is concentrated in a few countries. Growth has often not been transformed into meaningful development that improves the wellbeing of people.
Yet, the beginnings of a shift in the balance of power in the world economy are discernible. But developing countries can sustain this rise only if they can transform themselves into inclusive societies where economic growth, human development and social progress move in tandem. Their past could then be a pointer to their future.
Comments on the book
`Essential reading for anyone who wants to get a balanced understanding of the history of the world economy. It offers a breath-taking historical sweep. A masterpiece. ´
-Ha-Joon Chang, University of Cambridge, author of Kicking Away the Ladder and 23 Things They Don’t Tell You About Capitalism
`Nayyar analyzes lucidly the ongoing change and discusses forcefully the prospects for this great transformation, how it will be brought about, and what it will imply for the world order which will emerge.´
-Joseph Stiglitz, University Professor, Columbia University, New York, and Nobel Laureate in Economics
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Egypt’s Ambassador in Geneva, H.E. Mr. Walid Mahmoud Abdelnasser, agreed with previous speakers about the weakness of the international economy, which he saw still suffers from global imbalances and structural complexities. Several years after the onset of the financial crisis, Ambassador Abdelnasser noted, the world economy remains in a state of disorder. The burden of adjustment of the global imbalances, which contributed to the outbreak of the financial crisis, remains with the developing countries. In 2008 and 2009, there have been calls and willingness worldwide for urgent reforms of the international monetary and financial system, however, the issue disappeared from the international agenda, he recalled.
Ambassador Abdelnasser was of the opinion that the outlook for the global economy and for the international environment enabling development continues to be highly uncertain. The expansion of the world economy, though favorable for many developing countries, was based on unsustainable global demand and financing patterns, he added. Within this state of uncertainty and volatility of the international economic environment, the developing countries that adopted the export-oriented growth model began to suffer due to unilateral economic measures taken by some developed countries, he added.
Ambassador Abdelnasser stated that “development is not properly addressed in the international economic context”. He added that “there are attempts to divert the responsibility regarding development from the international scene to be confined only within the national levels, while ignoring the global imbalance and the international constraints that limit the policy space for the developing countries to identify their priorities”. As an example he mentioned the case of a developing country that would like to formulate industrial policy to enhance its productive capacity in an infant industry. He considered that such a country could be challenged by its international commitments stipulated in the multilateral trade agreements that often shrink the policy space required for development needs.
Ambassador Abdelnasser added that the attempts to further constrain this policy space are incessant. The developed countries are trying to establish norms that go beyond the development priorities of the South, he noted. Those attempts are clear in the multilateral negotiations in all issue-areas, including trade, climate change, intellectual property, investment, among others. In this context, the norm setting in various regimes focuses on establishing global rules and high standards without paying a real attention to the various developmental needs of the developing countries, Ambassador Abdelnasser cautioned.
For example, in the area of intellectual property, the focus remains on the protection and enforcement of intellectual property and not on the technology transfer and the equitable benefit sharing. It is ironic that some developing countries, such as India, are being criticized for formulating development-oriented intellectual property policy, Ambassador Abdelnasser stressed. In the climate change area, Ambassador Abdelnasser recalled the backtracking on the previously well-established principle of ‘common but differentiated responsibilities’, whereby the developing countries are being asked to pay for the historical mistakes of the others.
In the area of trade, the Doha Development Agenda has not yet been implemented after 13 years of stalemate, and there is no certainty that the previously expected developmental gains will be harvested, Ambassador Abdelnasser noted. He stated that “instead, the narrative that is being promoted in trade policy is that globalization and interdependence are driven by Global Value Chains, and the only way for any country to secure its share in the Global Value Chains is through extensive trade liberalization”. However, he added, “this approach neglects the reality that the global imbalances made the distribution of shares in Global Value Chains entirely asymmetrical”.
Ambassador Abdelnasser recalled UNCTAD’s breakdown of the distribution of the global valued-added in 2013 using OECD-WTO database, which shows the following: 67% accrue to OECD countries, 8% from Newly Industrialized Countries I (Singapore, Hong Kong, Taiwan, Korea), 3% from Newly Industrialized Countries II (Malaysia, Thailand, the Philippines), 9% from China, 5% for other BRICS (India, South Africa, Brazil, Russia), 8% for all other developing countries and LDCs. Those indicators clearly demonstrate the structural constraints faced by the small players within the Global Value Chains, Ambassador Abdelnasser stressed.
Ambassador Abdelnasser concluded that the global economy needs systemic reform to address the global imbalances. Furthermore, development must be placed at the core of the multilateral negotiations in all issue-areas.
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Dr. Charles Soludo, member of the South Centre’s board and former governor of Nigeria’s Central Bank, indicated in a general comment that in terms of the response to the crisis and lack of coordination, what has been witnessed is what one expects in the real world. This is despite what one would ideally wish for. Yet, he called for searching and identifying the countries and sectors where opportunities lie.
Dr. Soludo’s first point was that we live in a multi-polar world, and the categories of developing and advanced countries are no longer useful. Most problems, including that of unemployment and lack of jobs, poverty, climate change, energy, and inequality are faced by every country; the difference is a matter of the degree of the problem.
Dr. Soludo explained that although categories are still needed, it is important to realize that there are even least developed countries that have been achieving significant progress, for example seeing growth rates exceeding 7% over several years. There are countries getting by, while others are being left behind, he noted.
In regard to interconnectedness and intensifying spillovers, Soludo noted that trade as a share of GDP has gone up to around 35%, while capital flows intensified more than 4 times compared to 1995. Yet, the mechanisms of cooperation globally are limited, Dr. Soludo cautioned.
Increasingly, policy choices are serving narrow domestic interests and not designed taking into consideration the collective interests in a global context. Less than one percent of policy makers’ attention is focusing on issues we wish them to focus on such, as interconnectedness and spillovers, Dr. Soludo noted.
Dr. Soludo referred to an IMF calculation that showed that greater degrees of harmonization between the main economies of the world would lead to an increase in the global GDP of around 3% in the long run. Yet, reality is that democracies and domestic power bases in these countries make it impossible to respond in a way that reflects coordination and harmonization. In the end, every country resorts to self-help approaches, Soludo noted.
Dr. Soludo added that precisely at the time that the global system might need slightly inflationary policies to ensure speedy recovery, what we are getting is the reverse. This, he explained, is driven by domestic politics.
Besides few cosmetic changes, neo-liberalism is still alive and well, and dominates policy making everywhere, Dr. Soludo underlined. Recovery remains fragile and a new crisis remains probable or imminent, Soludo cautioned. It is a race to the bottom as each country seeks self-insurance, he explained. Part of this self-help is sought by the United States through the TPP and by the European Union through the EPAs, which represents a bail out sought from the African countries and ACP.
Soludo underlined the importance of China’s economy to many other developing countries. He noted that China has been considered as the new market, especially for countries dependent on commodities and oil, where much of their exports have been directed. Yet, the old model that propelled China’s growth seems to be going out of steam. The question is for how long can this approach continue, Dr. Soludo noted, and what would happen to a lot of these countries if China slows down.
Soludo was of the opinion that China may indeed need to live on bubbles for an extended period of time, especially for poorer developing countries that shifted their dependence to China to be able to continue to live. Otherwise, the greater and more devastating threat could be resulting from a slowdown in China. Dr. Soludo referred to that situation as the ‘threat from within’ in the context of South–South integration.
In terms of the outlook for countries that are increasingly left behind, Dr. Soludo referred to what he called the ‘paradox of poverty’. He explained that poor communities often have greater incentives to bond together, but also have greater resentment among them. So if some money trickles down or gets promised from the EU or another party, he noted, some countries are prepared to sell their regions and the entire coordination mechanism among them would then collapse.
Dr. Soludo cautioned that African countries could suffer from intensified levels of poverty and inequality in the next few years if their coordination vis-a-vis the EPAs falls out. This will lead to wiping out the limited manufacturing capacity in the region. He underlined that the aid promised to African countries is not additional and in fact has been declining. He added that Europe has its own crisis, and cannot support others.
In conclusion, Dr. Soludo noted that in a world with a dominant reserve currency, where policy makers are most of the time preoccupied with domestic welfare and hardly deal with global welfare, future crises happen to be almost an inevitable feature of the global economy as it is currently designed. However, Dr. Soludo stressed, not everyone will suffer in the same way.
Dr. Humberto Campodonico, professor at the National University of San Marcos in Peru, commenced his presentation by noting the lack of a unified macroeconomic response to the crisis by developed countries, leading the world to face the prospects of another financial and economic crisis.
Dr. Campodonico tackled the ‘de-coupling thesis’ that was put forward in 2006/2007/2008, including by the IMF, which assumed that the newly industrialized countries (i.e. the BRICS) could take the relay when the developed countries were faltering.
Dr. Campodonico noted that in a globalized world one cannot speak of complete decoupling. What it essentially means, he added, is that a group of economies move from dependence on other economies, and have new engines of growth different from the old engines. He noted that the consequences of the lack of unified response to the macroeconomic crisis and the implications left on the BRICS countries and others is a clear demonstration that de-coupling has not been the case.
In regard to the role of the United States, he noted that today there is no hegemony from one economic power anymore. The world has witnessed such hegemony in 1944, when the Bretton Woods system was created, Campodonico noted, and the world economy functioned with this drive during 35 years. Yet currently the global context reflects a lack of such hegemonic forces. On the political side, Campodonico referred to the cases of Ukraine, Syria, and the drive of China, which according to him reflect a lack of such hegemonic force. He also referred to the economic arena, where he reflected on the situation at the WTO and in the Doha Round. He noted that when there were disputes between the BRICS countries and the United States, European Union, and Japan at the WTO, the move was towards free trade agreements where WTO-plus rules have been pushed, including for example the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP). Yet, this cannot be a solution on the longer term, Campodonico stressed.
After the 2009 UN Conference on the World Financial and Economic Crisis, the policy proposals addressed there have not been fully taken on, Campodonico cautioned. The US is not giving the IMF support in order to assume the role of lender of last resort.
Campodonico discussed the context in Latin America, where he highlighted the divide between the free trade and market policies adopted by the countries of the Pacific Alliance (Chile, Columbia, Mexico, and Peru) in comparison to what are called ‘Atlantic policies’ involving Venezuela, Brazil, Argentina and others. The latter adopted more development-focused policies directed towards domestic markets and South-South trade, he explained. This, according to Campodonico, is a confrontation that extends beyond economic policies and involves geo-political aspects.
Another issue raised by Dr. Campodonico was the growing debt of private corporations. He noted that Latin America’s problems during the 1980s were mainly due to external public debt. Yet today, numbers show that private corporate debt is very high. He referred to new data released by the Financial Times, which shows for example that Peru’s external private debt has grown from 7% of GDP to 14.2%, which is bigger than external public debt. That is the case in other Latin American countries.
Campodonico noted that if tapering of the US ultra-easy monetary policy begins, and financial flows falter, and interest rates rise, the outcome could be problematic. He explained that the problem would be limited in the case of mining companies or other companies trading in international currency compared to the case of companies selling in the local markets, whereby the mismatch will be very hard to cover. There is very little data on these aspects given that the debt is in the private sphere, Campodonico added.
Dr. Campodonico noted that governments in Latin America considered that current account surpluses and solid fiscal positions would help them be shielded against systemic risk. Yet, these surpluses could evaporate very quickly, he stressed, especially that some of them are not current account reserves but borrowed money, including cash reserves accumulated at banks.
Dr. Campodonico added that Latin America has witnessed improvements in terms of trade like nothing seen since twenty or thirty years ago, in addition to an increase in financial flows since 2003. The question he raised was about the way in which these improvements have been used.
The degree of utilization of these inflows in order to have structural reform and in order to diversify the productive base has not been very strong in Latin America, Campodonico explained. In this regard, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) considered that Latin America has lost the decade. Latin American countries have been mostly very complacent about this super cycle.
He also called for distinguishing between export-led growth that involves a big component of industrialization and state intervention, such as the practice in South East Asia and China, compared to export-led growth in Latin America that has been orthodox-based and focused on natural resources. The statistics show a de-industrialization of Latin America. UNIDO’s statistics show that Latin America diminished it values-added in manufacturing of developing countries from 35% in 1992 to 17% in 2010.
Besides cautioning of potential difficulties ahead, Dr. Campodonico pointed out that Latin America cannot be seen in one case or scenario and he addressed a few country cases that he considered successful in their policy choices. He discussed the cases of Bolivia and Costa Rica that he considered have fared very well. Dr. Campodonico explained that Bolivia undertook important reform with oil and gas companies over the last two or three years. Real GDP has been growing (6.7% in 2013) and the overall fiscal balance improving, at a consistent pace, and without current account deficits. In Costa Rica, policy has been oriented towards attracting innovation technology companies. Costa Rica has explicitly stated that they do not want to depend on raw materials for their growth.
Dr. Campodonico summarized that the revenues gathered in recent years from natural resources have mostly been already spent. There has not been inter-temporal funds or pension funds, like in Norway, and most of the revenues have been spent quickly in infrastructure and current flows. So the bonanza has already passed and has not been sufficiently taken into account, because the main framework of appreciation was expecting these trends to last many years. In the meantime, industrial policies were not instituted.
Dr. Campodonico concluded by referring to the technological revolution that the world is witnessing. He questioned whether these trends in technological innovations could create long-term cycles of economic growth and whether they would leave positive long-term implications on the economic situation.
Dr. Richard Kozul-Wright, director of UNCTAD’s division on Globalization and Development Strategies (GDSD), commenced his presentation by underlining the likelihood of a much more difficult macroeconomic environment that could face the economies of the South in the medium-term. He was worried that policy makers in the South have been slow to register the kind of changes in the global economy and systemic weaknesses that have been documented by Dr. Yilmaz Akyuz. UNCTAD over the last few years has been critical of the ‘de-coupling mythology’, as he called it, which developing country policy makers themselves have bought into. UNCTAD has been warning that there are hard choices to be made in macroeconomic policies and strategies in the coming years.
Kozul-Wright explained that GDSD’s work identified four broad scenarios facing the world economy:
The first scenario is a ‘muddling-through’ scenario, which is a continuation of slow growth, driven by efforts to rebalance private sector balance sheets and continuance of fiscal austerity in advanced economies. This is likely to be a world of sluggish investment and persistently high inequalities, continuing to hold back economic potential. This would come with a vague hope that somehow the ‘confidence fairy’ will return to the private sector and reinvigorate private demand in a way that could keep the recovery on track;
The second scenario is of unsustainable economic growth, essentially faster growth driven by the build-up of debt in the private sector, in which housing booms would be a most likely source of expansion. Injection from those asset booms of demand into the global economy would allow some economies to contemplate export-led recoveries based on which they would be able to revive their growth possibilities. This would be a world in which global imbalances are likely to grow and financial fragilities are likely to re-emerge;
The third scenario is an instability scenario in which the recovery would be derailed by unruly unwinding of the monetary stimulus, which would likely lead to recurrence of financial shocks and to a combination of currency and banking crises. This would present serious policy challenges in emerging economies, with highly contagious possibilities. The role of the Federal Reserve of the United States and the way it proceeds is pivotal in this kind of scenario;
The fourth scenario would be a coordinated recovery scenario, in which a combination of monetary and fiscal measures would be used to stimulate demand and to generate more expansionary response to economic adjustments. This would be a scenario in which strong financial regulations are used to reorient the nature of the financial system from asset speculation towards boosting productive capacities in the real economy. Redistributive measures would be used to deal with inequalities that could hold potential destructive implications for the world economy. Such kinds of policies are viable and would have win-win consequences for all parts of the global economy. This was the scenario that the G20 promised to deliver when it was re-established in 2009/2010.
Kozul-Wright underlined that such a scenario of coordinated recovery has been far from what has been seen in practice. It is possible to attribute some success to the G20 in regard to preventing a spiral down of the crisis, and bringing stability to the financial system. But there has been no sign that the G20 operated effectively to bring about a broader effective recovery, he stressed.
This situation begs the question on why this kind of coordinated response has failed to materialize. UNCTAD attributes that to four reasons, Kozul-Wright explained. First factor is the persisting dominance of unregulated finance in shaping the larger policy environment. Most reforms to the financial system have been cosmetic and in many instances non-existent. Second factor is the heavy reliance on monetary policy of unconventional nature, which restricted the policy options necessary for a balanced and coordinated response. Third factor is the continued dominance of the US dollar at the same time that the US has essentially forfeited its leadership role in the global economy. Fourth factor is that South-South cooperation, which has been flagged as a new hope for development in terms of coordinating efforts in the global economy, has yet to provide a meaningful alternative, both in terms of policy coordination in the South and in terms of a wider model for global policy coordination. Despite the optimism that many have in regard to South-South cooperation, it would be naïve to consider that as currently practiced it offers a serious alternative, Kozul-Wright noted.
Dr. Kozul-Wright stressed that the onus is much more on developing country policy makers to rethink their policies and pursue more selective and strategic policies, including better mobilization of domestic resources. He added that in the case of Latin American and African economies that have been heavily dependent on external flows, there is clearly a need to re-orient policies to focus on internal markets as drivers of demand.
Dr. Kozul-Wright stressed the importance of limiting dependence on external markets, while increasing wages as engines for growth. In this regard, Kozul-Wright made reference to interventions such as minimum wage legislation and income policies. He also stressed the importance of raising public spending and public investment, and the ongoing need for industrial restructuring, along the need to revisit technology policies, and the role of development banks as an important source of credit expansion for longer-term affordable credit.
Dr. Kozul-Wright underlined that the Post-2015 agenda does open up real possibilities to articulate such kind of strategies in the multilateral context. Yet, he argued that at this stage developing countries have a lot of homework to do in order to ensure that these issues galvanize their positions in New York, since many of these issues are still not on the radar of developing countries’ negotiating positions in that forum.
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Dr. Deepak Nayyar, emeritus professor of economics at Jawaharlal Nehru University and member of the South Centre’s board, addressed the situation of developing countries in the aftermath of the financial crisis, while focusing on their real economy variables. He noted that developing countries on the whole have fared better than industrialized and transition economies in the aftermath of the crisis. Yet, some high-income emerging economies that depend on exports to the United States and the European Union were hard hit, Nayyar noted. In contrast some large developing countries did not fare badly. For example, the growth performance of Sub-Saharan Africa and some least developed countries has been robust.
Dr. Nayyar explained that the impact of the global crisis was less adverse due to four factors, including the robust initial conditions before the crisis, specifically macroeconomic stability, moderate inflation, and large foreign exchange reserves combined with economic growth. All of these factors provided for structural stability at macro and micro levels, Nayyar noted. Other factors include the fact that the financial liberalization was somehow restrained in many developing countries, safety nets for the poor and vulnerable were in place, and domestic consumption was helpful in many of the large economies.
Professor Nayyar noted that the economic recovery of most developing countries was faster for three reasons. First was the fact that they adopted expansionary countercyclical macroeconomic policies, which have been unusual till then in the developing countries. Their response to the crisis was effective and fast. Second, the size of the home market made a difference, and the increase in demand came from segments of the population with a high propensity to consume. Third, the financial sectors were less fragile and more regulated than elsewhere, and did not absorb scarce resources from stimulus packages or bailouts. Easy monetary policies in these countries meant lending to the real sector, Nayyar underlined.
Generalizations are difficult when the underlying factors are different, Nayyar cautioned. Yet, there is little doubt that initial conditions, policy responses, and domestic demand shaped resilience, Nayyar added, while prudence in deregulation and liberalization of financial sectors made a difference along with fiscal space available to governments.
The significant increase in the share of developing countries in world income and trade meant that there were external resources and markets available to them, other than the industrialized countries.
This performance of several emerging economies led some analysts to the wrong conclusions, whereby they proposed that these countries could drive the recovery in the world economy, Nayyar cautioned. Yet, the ‘decoupling’ theory does not hold, Nayyar stressed. It is clear that these countries cannot turn into engines of growth for the world economy, and none of these countries could provide resources for development, finances for investment, or needed technologies as Britain did in the 19th century and the United States did in the 20th century, he added. Thus, the prospects and pace of recovery in the world economy depends on the pace and nature of recovery in the industrialized world, particularly in the United States.
Nayyar noted that recovery has been slow, uneven, and fragile, and prospects uncertain. It would seem that the problem has been compounded by the return to orthodox economic policies everywhere, he added. The United States and Japan seem an exception, whereby there is a recovery in output but not much in employment. In the European Union countries, decisions to sharply reduce fiscal deficits are being implemented. Nayyar noted that he sees those approaches as possibly turning out worse than the problem.
Many of the large developing countries, and the so-called ‘emerging economies’ such as Argentina, Indonesia, Turkey, China and others have experienced slowdown in growth attributed to the great recession in the developed economies, Nayyar explained. For China, the slow recovery in the United States and recession in the European Union have been challenging factors, given that exports to those markets were critical for China.
However, the slowdown in other larger developing countries is attributable significantly to their own mistakes, Nayyar stressed. Macroeconomic policies are back to being pro-cyclical, high interest rates have stifled investments, attempts to reduce fiscal deficits have curbed public spending and domestic demand, strong exchange rates to sustain portfolio investment flows have effected export performance, and the dependence on these inflows of capital is currently greater. Nayyar pointed out that given this reality, it is not a surprise that the announcement of the phase-out of monetary easing in the United States is having such strong impact on these economies.
Again, these recent developments have led some analysts to hasty conclusions. In August 2013, Morgan Stanley presented Brazil, Indonesia, South Africa, Turkey, and India as the ‘fragile five’ economies, for they were too dependent on foreign capital inflows to finance their current account deficits and support their growth. Soon after, an asset management firm in Boston called ‘Fidelity’ coined the term ‘MINTs’, standing for Mexico, Indonesia, Nigeria, and Turkey. According to ‘Fidelity’, the ‘MINTs’ are emerging economies with a promising future since the BRICS (i.e. Brazil, Russia, India, China and South Africa) were running out of steam. Interestingly, Indonesia and Turkey feature in both groupings. It is clear that such thinking is shaped by the conjecture and framed in the shorter-term perspective, Nayyar stressed.
In the medium-term perspective such thinking is inappropriate, if not misleading, Nayyar stressed. He pointed out that in contemplating the future of the world economy, it is essential to focus on a larger group of developing countries and a longer-term perspective rather than the next quarter or next year. The time horizon to consider should be 2025 instead of 2015, according to Nayyar.
Nayyar underlined that there is much that developing counties can do in terms of correcting their policies; they could redefine macroeconomic objectives and policies to make employment and growth the central objectives rather than focusing on managing inflation. They could also recognize that external markets are at best complements rather than substitutes to domestic markets. They could also begin to correct market fundamentalism and recognize the role of the state as critical for recovery and sustained growth.
In regard to the future prospects for larger developing countries, assuming that these corrections are introduced, Nayyar noted that there is potential for growth but with real constraints. The determinants of potential growth in developing countries are a source of good news, according to Nayyar, and in principle these countries could sustain high rates of growth for some time. These determinants include their population size that is large and income levels that are low. Thus, possibilities of growth are greater. Moreover, their high proportion of young people means that the increasing workforce is conducive to growth provided education spreads across society. Furthermore, their wages are significantly lower than the rest of the world, which is an important source of competitiveness.
In practice, the developing world will not be able to realize this potential due to constraints that may differ across space and time, Nayyar cautioned. There are some general constraints such as poor infrastructure, weak institutions, inadequate education, unstable politics, and poor governance. There are constraints that may arise from the process of growth such as economic exclusion, social conflict, and environmental stress. There are other constraints that are external, such as worsening terms of trade, inadequate sources of external finance, restricted market access, possible crisis in the world economy, in addition to other country specific constraints.
Nayyar stressed that developing countries need to introduce correctives in the management of their economies, although this is easier said than done. The biggest challenge lies within, beyond policies and institutions that are the focus of conventional wisdom, Nayyar noted.
Nayyar called upon developing countries to address problems of rising inequalities that could be the dominant constraint on growth in the future. They must ensure that benefits of economic growth are distributed more equally among peoples across and within countries.
Nayyar cautioned that economic growth could not be sustained in the long-term if it does not improve the living conditions of ordinary people. This is the only sustainable way forward because it will enable them to mobilize people for the purposes of development and reinforce the process of growth through a virtuous cycle of cumulative causation, recognizing that there is an interaction between the supply and demand sides. Wages could be seen as costs on the supply side, which is what orthodoxy chooses to focus on, Nayyar noted. But wages are also incomes on the demand side that could drive growth, Nayyar stressed. He called for combining economic growth with human development and social progress.
In this process the real checks and balances come from political democracies. Nayyar concluded that in contemplating the future of developing countries, there is need to concentrate on a larger group of developing countries and not only emerging economies, think of longer-term horizons, and shift the focus from short-term equilibrium to longer-term growth and from the financial sector to the real sector of the economy.