Where the Uruguay Round got it wrong

With the WTO ministerial meeting slated to be held in Seattle next month, the release of the United Nations Trade and Development Report ...

With the WTO ministerial meeting slated to be held in Seattle next month, the release of the United Nations Trade and Development Report TDR has offered timely support to the case of developing countries. These countries, as has been rightly pointed out by the report, can substantially increase their foreign exchange earnings through increased exports, much more than they can through foreign direct investment FDI inflows, if tariffs on items which are of interest to them are rationalised. These countries have been raising their voice on this issue and the UN report is likely to strengthen their case.

Building on this logic, the UN report has pointed out that the developing nations will progress much faster than they have been able to via the foreign direct investment route if the international trade system is rationalised. For instance, it has pointed out that closer integration of these countries into the global trading and financial system has brought about increased external deficits and instabilityrather than faster growth. Much of the policy environment in place today in developing countries was fashioned after the debt crisis of the 1980s 8212; in response to recurrent payments crises 8212; when liberalisation was seen as a panacea. However, according to the report, while annual growth in developing countries in the 1990s has accelerated beyond the 1980s rate, it remains 2 percentage points lower than the figure for the 1970s, while the average trade deficit has risen by almost 3 per cent.

Making a case for the developing countries, the report has stated that the time has come to take a long, hard look at the international trading system and identify the shortcomings of the Uruguay Round Agreements and their implementation, in order to establish the appropriate basis for new multilateral negotiations or of a development round. It has said that attention needs to be focused on market access. Tariff levels and the frequency of tariff peaks are still high in many areas of export interest to developingcountries. In agriculture, for example, excessively high rates are applied in developed countries, mainly to products that offer potential for export diversification in the South. Moreover, the subsidisation of agricultural output in the North not only shuts out imports from developing countries but also leads to unfair competition in the latter8217;s own markets, the report points out. The items identified as of interest to developing nations are: footwear, leather and travel goods, textiles and clothing, toys and sports equipment, wood and paper products, rubber, plastics and agricultural products.

Especially startling is the figure forwarded by the report for large overall export gains by these countries in the event of rationalisation of tariffs on such items. The report has stated that it is estimated that an extra 700 billion of annual export earnings could be achieved in a relatively short time. Agricultural exports could add considerably to this figure. All in all, the increase in annual foreignexchange earnings could be at least four times the annual private foreign capital inflow in the 1990s. Moreover, unlike a large part of such flows, the resources would be devoted to productive activities, with beneficial effects on employment, the report has pointed out.

The report has noted that though tariff peaks are not as high in traditional, low-technology manufactures as in agriculture, northern producers continue to benefit from protection. Clothing and textile producers are still protected both by high tariffs and by stringent quantitative restrictions on imports from developing countries, and they will continue to enjoy high tariff protection even when all quota restrictions are removed in 2005. The preferential rates for clothing under the European Union8217;s GSP scheme amount generally to 11.9 per cent. The US excludes most textiles and clothing products from its scheme, and its Most Favoured Nations MFN tariffs range from 14 per cent to 32 per cent for most synthetic, woollen and cottonclothing. Canada applies MFN rates of about 18 per cent and the GSP rates of Japan range from 6 per cent to 11 per cent.

Developing countries also continue to face extremely high tariff barriers in footwear, leather and leather goods. Neither the US nor Canada accords preferences for these products under their GSP schemes, and MFN rates range from 38 per cent to 58 per cent for certain sports goods, rubber, plastic and textile shoes in the US and from 16 per cent to 20 per cent for all footwear in Canada. Tariffs on footwear in the EU are generally at 11.9 per cent for GSP beneficiaries and 13 per cent for other suppliers.

It has been argued that more flexibility should be granted to developing countries in the design and implementation of policy. Building competitive industries holds the key to overcoming external constraints not only by boosting export capacity but also by reducing the import content of growth. The report has also pointed out the limitations to promoting exports through direct support,stating that the pioneers of export-led growth had made their successful entry into world markets. However, it has stated that the considerable financial resources employed by the world8217;s richest countries to support their mature producers provides sufficient grounds to retain the infant-industry concept as an integral part of trade policy discussion.

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It has pointed out that the success of the East Asian and other fast-growing developing economies shows that an export push often followed the build-up of domestic production capacity that replaced imports.