South needs special institutions to cope with WTO

By Bhagirath Lal Das, 6 October 1998

The nature of the World Trade Organisation negotiations and the environment in which they take place are constantly changing and are too complex for any one government ministry of a developing country to handle, says the writer. He recommends the establishment of an institution to specially examine the issues involved in the negotiations and contribute to the decision-making process.

The process of these negotiations and their results will have an important impact on the developing countries, and hence they need to prepare for it effectively. As in the past, inadequate preparations are most likely to involve grave risks for them.

Experience has shown that developing countries have generally not been effective in the WTO, either in pursuing their own proposals or in defending themselves against the proposals of others. They have been succumbing to pressures from the major developed countries and making concessions in the WTO negotiations, without asking for commensurate concessions from them. If this trend continues, the developing countries will lose a great deal in the 1999 process. It is necessary to take corrective steps right now.

There may be several reasons why developing countries are facing this adverse situation in the WTO; but one major reason is that the decision-making process in their countries has not kept up with the fast changes in the nature and environment of the negotiations.

There have been two major changes in the nature of these negotiations.

First, they have become much more complex. The subjects dealt with have deeper and wider implications for the economy of a nation. And very often, they involve harmonisation of various clashing domestic interests.

Second, the role of developing countries has undergone a basic change. Earlier, they were negotiating for getting concessions; now the negotiations are more about getting concessions from them. Such negotiations are naturally much more difficult: one has to find a balance between minimum concessions from one's side with the maximum satisfaction of the demands.

The environment in which negotiations are now taking place has also changed significantly. In the 1960s and 1970s, the developed countries perceived the developing countries as partners in economic progress and growth. The problems of developing countries received sympathetic and serious consideration on the basis of enlightened self-interest.

But since the mid-1980s, the developed countries are proceeding with a new confidence in their capacity to solve their economic problems by proper coordination of their own macroeconomic policies. In this respect, the role of the developing countries is seen as very much diminished.

As a result, the problems of the developing countries are now at best seen as minor irritants to be dealt with, as issues at the fringe and not at the centre stage. The enlightened interest of the developed countries has been replaced by apathy and lack of concern. In this new environment, the developing countries naturally have to push very hard to put focus on their problems and issues of interest to themselves.

All this calls for an effective and strong decision-making process in the developing countries. The interests of the country in respect of specific issues have to be identified in a rational and firm way, and this will lead to a stronger will to pursue them in any forum. In this process, differing interest groups in industry and trade as also between the sectoral interest and the economy as a whole, need to be harmonised, so that the real national interest in respect of any particular issue can be identified.

For example, at present, generally the subject of international trade, particularly WTO negotiations, are being handled in developing countries by some specific ministries, for example, the ministry of commerce or international relations or external affairs. But the complexity of the subjects now having to be addressed makes it difficult for any one ministry to handle them.

Often, the implications and even the coverage of the subjects are spread over the jurisdiction of several ministries and they may have differing interests.

On the question of liberalising the import of a product, for example, the ministry in charge of the use of the product may favour it, whereas the ministry in charge of its production may not - as liberalised imports may have an adverse effect on the domestic industry. Likewise, different sections of trade and industry may have differing, and often clashing, interests on almost every subject relating to the WTO. In the instance cited above, the producer industry of the product whose imports are to be liberalised will be adversely affected, but the user industries or consumers will benefit.

Taking another example, that of liberalisation of the import of financial services, the domestic providers of the financial services may apprehend an adverse effect on themselves, whereas the industry and trade may welcome it, as it will widen their choice of obtaining such services.

Then we have new subjects, like investment and competition policy, knocking at the doors of the WTO. The impact of multilateral rules on these may be different on different parts of the domestic economy.

If foreign investors are given totally free entry into a country, they would naturally like to invest in sectors and areas where they can get quick and high profits with minimum inconvenience. This may prompt the proliferation of consumer industries, like fast food chains, in or around big cities.

This may please the rich consumers, who will have varieties of foreign food. It may also please the local government, because economic activities in the area will be enhanced. But it may have an adverse impact on the economy of the country as a whole, since there will be an outflow of foreign exchange through the repatriation of profits, without any commensurate inflow of foreign exchange through such activities.

Similarly, if the proposals regarding high competition standards are made applicable, consumers and big firms may gain as the former will have the opportunity to get better-quality goods at lower prices and the former will have fewer competitors. But the smaller firms may stand to lose as they may find it difficult to compete with big firms.

In this manner, perhaps there is hardly any subject covered by the WTO which does not involve a clash of interests in the domestic economy. This requires a comprehensive examination of the issues so that various interests involved are properly weighed, and a balanced position is worked out in the best interest of the country as a whole. Then there may also be the need of weighing the short-term and long-term interests of the domestic economy.

Comprehensive and detailed examination of the issues has to be undertaken, based on economic and social considerations, keeping in view the differing interests and linkages with different aspects of the economy as also with the overall macroeconomic factors. All this needs serious analytical work based on available and researched information and also wide consultation with different wings of government, various interest groups and economic operators. In several important cases, there may be a need for wide dissemination of information and consultation with different sections of the intelligentsia and public in general.

These tasks are too enormous and complex to be handled by the normal machinery of any particular ministry in any government. It will be much beyond its scope and professional competence.

There is a need for a new form of institution in each country to handle these issues and provide input into the decision-making process. One such institution may be in the form of a commission comprising one to three members who should be persons of experience, integrity, objectivity and courage, and in whom the government machinery, trade and industry and also the public in general would have confidence.

This commission should take up specific issues, examine various aspects, hold wide consultations with relevant persons and interest groups and give its own final recommendation which should form an important input into the consideration of the issues at the decision-making level of the government, for example, the minister, the council of ministers, or the cabinet committee.

In its functioning, the commission should be independent of any specific ministry and it should, in fact, be located outside any specific ministry, though it could be serviced by the apparatus of a particular ministry. It should have enough funds and resources for conducting deep examination of the issues, either in-house or in specific institutions and universities, for holding wide consultation with the relevant persons and interest groups and for wide public contact through the media.

The subjects of examination may be selected in advance, maybe a set of subjects in a particular year, depending on the assessment of the need, supplemented by an ad hoc selection of subjects on short-term basis, if there is an urgent need for the commission to deliberate on some new issues immediately. An appropriate mechanism could be worked out for the selection of the subject. It could be done by the ministry handling the subject or by the commission itself. During ongoing important negotiations, there may be a need for a continuing examination of the relevant issues that need the approval of the government.

The commission should not be a substitute for the present decision-making body or for the normal machinery which advises the decision-making body at present, and is also responsible for the implementation of government decision. The commission's role will be to provide independent, objective and substantial input into the decision-making process. By the very nature of its composition and functioning, it should carry weight with the decision-making authority and should be depended upon for the quality and objectivity of its advice. It will substantially relieve the current machinery which advises government on policy formulation.

Rational and practical ways can be evolved to have a smooth interaction of the commission with the current normal machinery and remove any potential friction in order to ensure that the two work in full harmony. The current normal machinery should have the responsibility of placing the recommendations of the commission before the decision-making body. Normally, it will hardly have anything substantial to add to the recommendations. Its own information and other inputs would have been provided to the commission earlier at the time of examination of the issues, and the commission would have taken all this into account.

In matters relating to the negotiations, there will also be a need for proper coordination with the negotiating machinery of the government. The commission would need the input of the negotiators to know the lines of other parties in the negotiations, so as to assess the country's room for manoeuvre.

Further, during the process of negotiation, there is a need to work out fall-back positions, depending on the progress of negotiations. Here the negotiating machinery and the commission have to remain in close touch so that the line of the country in the negotiations evolves depending on the need. Appropriate methods for the coordination between the commission and the negotiating machinery will have to be worked out. The contact between the two could be either direct or through the current normal machinery.

The major benefits expected to flow from the new institutional system in terms of systematic and comprehensive examination of the issues from the angle of the interest of the economy as a whole have been explained above. Besides, there may be some important strategic benefits as well.

A decision taken after such elaborate examination with full transparency and participation of the interest groups and analysts will have a solid foundation from the national angle. Within the country, it will generate full confidence among the various interest groups, economic operators and the public in general, about the policy decisions of the government.

And, of course, its projection and championing outside will be strong and convincing. Those responsible for doing it will feel fully confident of their stand from the national angle. Besides, this process of decision-making will naturally be a safeguard against any softening or weakening of the negotiating personnel.

The commission-type of institution may be relevant and useful also in some other areas in the developing countries. For example, there are similar special features in the areas of industrial policies and even macroeconomic policies, and a commission in each of these areas may be able to provide substantial input into the decision-making process.