ROLLBACK "A LOGICAL FIRST STEP" AT TRADE LIBERALISATION.

Jun 7, 1984

ROLLBACK "A LOGICAL FIRST STEP" AT TRADE LIBERALISATION.

GENEVA, JUNE 6 (IFDA/CHAKRAVARTHI RAGHAVAN)— In any new initiative at further trade liberalisations "a logical first step could be a rollback of recent restrictions on exports from the developing countries", according to the GATT secretariat.

In a note to the GATT Trade and Development Committee, which deals with trade issues of developing countries, the secretariat suggests that such a rollback could involve voluntary export restraints (VERs) and orderly marketing arrangements (OMAs), and various other illegal barriers.

But the process, the secretariat says, could of course be extended to fresh measures of liberalisation in product sectors in which the developing countries have a particular interest.

At the 1982 GATT Ministerial meeting, the U.S.A. had sought to promote a "north-south" round.

But the Third World rejected this, and ultimately as a compromise the GATT Committee on trade and development was asked to examine "prospects for increasing trade" between the two groups, and "the possibilities" in GATT to facilitate this.

In putting forward its view of what could be done, the secretariat note appears to implicitly endorse the idea of a new round of negotiations.

It refers to the "expressed support" of a number of countries for a new round of trade negotiations, but adds "launching such a round" would evidently require broad support.

A number of Third World countries, who spoke at the committee meeting Tuesday, objected to the secretariat emphasis on a new round, rather than immediate measures, and argured that this was against the negotiating mandate emanating from the Ministerial declaration according to committee sources.

All of them referred in this connection to the joint position paper tabled by the developing countries in May. India, Yugoslavia, Brazil, Colombia, Egypt, Chile and Argentina were among the countries that made such comments, according to committee sources.

All of them were also critical of the secretariat paper's equating the illegal protectionist measures of the OECD countries with the GATT sanctioned trade restrictions of the Third World, whether for protecting their industry and development or for balance-of-.payments considerations.

But the U.S., EEC and Canada among the OECD countries supported the GATT secretariat paper.

Analysing the production and trade developments in the 70's, the secretariat note says that the two oil price shocks resulted in "significant shifts" in the value and direction of trade and financial flows "with particularly adverse consequences for some of the non-oil developing countries". "But the 1980/82 world recession imposed even more severe strains on them. The declining demand for their exports, the increased resort to protectionist measures, depressed commodity prices and high interest rates on accumulated debt, have introduced severe constraints on the ability of these countries to generate foreign exchange". As a result, they have been forced to cutback on imports, affecting their domestic output and income.

During the 70's, while there had been a growth in, manufactured exports of the Third Worlds it had been from a low base, and the Third World share in world manufactured exports remained "very modest".

The growth took place in the context of a general expansion of trade in the 70's, and the growth of the developing country export of manufactures to the OECD countries was accompanied by "a vigorous growth in reverse flow".

But the cutbacks in their foreign exchange earnings have resulted in decline in their imports of 7.7 percent in volume, and nearly 10 percent in value in 1982. Since a number of these countries had already restricted consumption goods, further reduction in imports affected essential industrial inputs, leading to very low-levels of productive capacity utilisation.

While this was inevitable at that time "it is difficult to see how this can be sustained if the debt problem is to be dealt with effectively". Long-term solutions had to be found in the trading system.

While maintenance of adequate "financial flows for minimum import capacity was necessary in the short-term, in the longer term only increased production and trade provided "the viable strategy for dealing with external indebtedness".

An effective solution to the debt problem depended on effective economic policies of both debtors and creditors. Improved access to markets abroad for products of the developing countries was an important condition for the expansion of export earnings by these countries. This meant that their trading partners should refrain from protectionist measures, and allow patterns of production and composition of imports to adjust to changing external circumstances.

The GATT secretariat claims that successive negotiating rounds in GATT had made significant progress in reducing trade barriers against the Third World, but concedes that tariffs on textiles and other goods of export interest to the Third World remain high in OECD markets.

Also, throughout the post-war period the Third World has continued to spend a significant portion of its earnings from exports to the OECD countries on purchases from the latter. But this has not prevented Third World exports of labour-intensive manufactures, such as textiles and leather, being affected by strong protectionist pressures.

The post-war movement towards trade liberalisation in the developed countries "did reduce barriers to imports of a growing range of products of export interest to the developing countries".

But this movement, the note says, came to a "virtual halt", with the onset of global recession, and Third World exports began to be affected severely by direct restrictions, as also VERs and OMAs and increased resort to domestic and export subsidies.

OECD imports from the Third World, GATT says, are less important source of pressure on production patterns and employment than domestic factors such as changes in supply, demand, and technological change.

With some notable exceptions, including textiles and clothing and leather goods, imports from the Third World have accounted for "too small a proportion of domestic market in developed countries to be themselves a major source of adjustment pressures".

"The greatly increased protectionist pressures in these countries in recent years are not only a reflection of recessionary conditions, but also the increasing inflexibility of their economies ... this explains why protectionist pressures do nor appear to be declining in the context of growing signs of economic recovery".

Throughout the post-war period, the paper underlines, as Third World countries were enabled to earn more through increased exports, they imported more from the OECD countries. They maintained comprehensive tariff and import controls for both protective and BOP reasons.

As countries with shortages of domestic and external capital, and certain raw materials and intermediate inputs, the policies of the developing countries have tended "to be biased in favour of goods to meet investment and production rather than current consumption needs".

Their selective import restrictions "basically influence the composition and pattern of imports rather than their absolute volume, which continues to be determined by available earnings".

The GATT secretariat says that due to debt servicing difficulties, Third World countries have reduced imports to levels below consumption and investment needs.

Hence an increase in export earnings of these countries could be expected to reflect itself more than ever in higher purchases by them of goods produced by their trading partners. However the note advocates concessions by the developing countries to meet the concerns of their developed trade partners.

These relate to the Third World practice of using increased export earnings to import investment goods, rather than consumer goods, making Third World import regimes "more transparent" and simplifying them; and "stabilising" existing levels of protection and gradually reducing "the more excessive ones".

"The problem is that in most cases the techniques learned in the west cannot be applied in Africa", Stavgaard explains. Sebina agrees, noting that the situation is like "teaching someone to swim in a swimming pool, and later when he has to start swimming, he realises that in his country there is no water, and so he returns to the pool".

Two provincial nursing directors from Zimbabwe, meanwhile, agreed that the problem of public health is crucially linked to rural development, better access to water and development of education programmes.

One of the nurses, A. Mashamba, works in the Matebeland region where the Zimbabwean armed forces frequently clash with rebels, but she said the conflicts are "sporadic" and have not forced health workers to abandon their projects.

Both nursing officials stressed the importance of health support from the Scandinavian countries, particularly Sweden, but noted that the economic crisis has affected the west and meant cuts in aid to the Third World.

That lament has been heard this week from all the Third World participants in the seminar, and some estimated that their nations' health programmes have been set back by about four years by the international recession, which hit both their countries and their founders.

Most are doubtful that the who's slogan "health for all by the year 2000" is more than a dream.

But all seem buoyed to discover the common ground between Third World and Scandinavian countries on the question of new directions for health programmes.