Developing World Voices Doubts on Globalisation

By Martin Khor, Third World Network, October 1999

At an important Ministerial Meeting of the Group of 77 held recently in Morocco, leaders of many developing countries voiced their disillusionment with globalisation and questioned the benefits or wisdom of their countries' rapid integration in the world economy. Some, like the Indonesian Trade Minister, questioned the IMF-World Bank policies whilst others hit out at the WTO trade system for not benefiting the developing countries. (First article on the recent G77 Ministerial Meeting)

Developing countries are getting a raw deal from the world trading system, and the World Trade Organisation must be made more balanced and equitable if these countries are to get any benefits.

For a start, the WTO's Ministerial Conference in Seattle starting 30 November must address the problems and should not worsen the situation by putting more new issues on the agenda.

This is the gist of the theme that emerged from a Ministerial Meeting of the Group of 77 (which comprises over 130 developing countries) at Marrakech, Morocco on 14-16 September.

Attended by Trade Ministers and senior officials from about 80 countries, the meeting was the last occasion for the G77 as a whole to meet at such a high level before the WTO Ministerial Conference.

It was thus an important opportunity for the South to voice their views on how their countries have been affected by the trading system, and what needs to be done at the WTO to overcome the problems.

The official aim of the meeting was for the G77 to prepare for the 10th conference of UNCTAD (the UN Conference on Trade and Development) to be held next February in Bangkok. In reality, it was the WTO and its forthcoming Seattle Conference that was on everyone's mind.

The Chairman of the G77 set the tone at the opening session, calling on the Seattle Conference to focus on a process of what he called the Three Rs, or 'review, repair and reform' of the WTO.

Mr Clement Rohee, Foreign Minister of Guyana, said any new round of negotiations should right an existing imbalance. Developing countries should not be expected to 'pay' for this by agreeing to negotiate new issues.

Rohee said the international trading system is central to globalisation. The functioning of the WTO must thus be responsive and sensitive to the development needs of all its developing members.

He said the developing countries need two things: Firstly, the full implementation of existing liberalisation commitments made by the North. 'In this regard, many developing countries suggest that the Seattle Conference should be a time to initiate a process of "review, repair and reform" (the Three Rs).

'The issue for any new round of negotiations is that of righting an existing imbalance. This should not become something developing countries are expected to "pay" for in negotiations on new issues.

'Secondly, the provisions for special and differential treatment must be emphasised in recognition of the disadvantages faced by many developing countries by virtue of their low level of development.'

Rohee noted that the G77 conference was being held against a background of great uncertainty for the developing world. Under globalisation, key decision-makers are concentrated in a few major industrial countries, often in the hands of a few major corporations and individuals. National governments are increasingly marginalised as economic sovereignty is refedined and market forces become ascendant.

'For most developing countries the globalisation process of rapid trade, financial and investment liberalisation has not fully lived up to its promise despite their adoption of profound structural reforms. Developing countries are ever more vulnerable to pressures from the most powerful players in the international order, whether these be states or transnational companies. The current global agenda is almost bereft of the concerns of the South.'

The WTO's new director-general Mike Moore, who was at the meeting, sought to win over the developing countries by telling them, 'I am your servant and will do my best to shape the WTO so it can help make the next century a century of persuasion unlike so much of this century which often was a century of cooercion.'

He pledged to assist participants get the most balanced outcome from new negotiations, to advocate for benefits to great and modest nations.

But when put to the test at a press conference, Moore indicated he would not put his powers of persuasion to use in dissuading the rich countries from putting new issues on the WTO agenda.

Moore was answering a question whether, if he wanted to help developing countries in the WTO, he would ask developed countries not to insist on new issues in the current WTO negotiations. Developing countries were already unable to cope with the problems of having to implement the existing Agreements and their interests would be damaged if they also had to negotiate new agreements proposed mainly by the North.

Moore was also asked to comment on the call by the Chairman of the G77 to make the next Round focus on a 'review, repair and reform' of the WTO, without developing countries having to give in to new issues in return.

Moore replied that he will not attempt to persuade the developed countries against taking up new issues because such issues would benefit developing countries.

'I will not influence the developed countries against new issues,' he reiterated. He agreed however that developing countries were facing problems trying to absorb policy changes.

In another session, UNCTAD secretary-general Rubens Ricupero said a few years ago, it was thought private inflows alone could provide the South's financial needs. Another exaggeration was in relation to foreign direct investment (FDI), that it would grow so fast that it would easily compensate for decrease in aid.

'We now know this is not true. FDI is highly concentrated in a few countries, for example, China, Brazil and Mexico alone account for 50% of FDI in recent years. Last year of total FDI that went to developing countries, less than 1% went to the 48 least developed countries.'

In looking at ways to finance development, Ricupero said most of the investment has to come from domestic sources which formed over 80% of finance in most countries.

Ricupero also spoke about the doubts that had arisen over the effects of developing countries' integration in the world economy. This was because the recent financial crisis hit the most integrated developing countries. Mexico and South Korea, which had just graduated to the OECD (Organisation for Economic Cooperation and Development), were among the countries most directly affected.

'This is a paradox. If development is a process that supposedly reduces vulnerability of countries to external shocks, how come South Korea or Mexico and others so advanced in integration were so severely affected?

'My conclusion is that much depends on the quality of your integration, the appropriate sequencing of your integration, the way you deal with that.'

Ricupero noted that those countries affected were exactly the countries that were more successful in trade. Some of the Asian countries that were successful in exports of manufactured goods, did not prove so successful in financial integration. He said it showed that 'the only thing in common between trade and financial integration is the name integration.'

'Integration into the world financial market is something different from integration in the trade system. It is delicate and few countries succeed fully.

'When you hear that all countries should have full convertibility in the capital account (or total mobility of capital flows, which is an IMF goal), you must remember full convertibility was only reached quite recently in developed countries. In 1983 only three countries had full convertibility (the US, UK and the Swiss).

'Even Germany and Japan reached it later and France and Italy only in 1990. It is very difficult to have total mobility in the capital account as this requires many conditions including political and economic stability.'

Ricupero said it was now clear that short-term capital will always prove highly volatile. But long-term foreign capital can also prove dangerous as sometimes it adds to the volatility.

He called on the developed nations to open their markets to the South, which could then expand their exports and growth. 'Then developing countries don't need to be dependent on short-term finance. I don't see any other way.'

Several Ministers voiced their disillusionment with their countries' lack of benefits from globalisation.

Rahardi Ramelan, Indonesian Minister of Industry and Trade, said the benefit of globalisation, liberalisation and integration is under continuous debate because while a number of developing countries benefited, the majority remain excluded and marginalised.

'Even for those developing countries that successfully integrated themselves into the global market, the sudden and crippling reversals of some as a result of the recent economic crises have shattered their confidence in the approach to development called the Washington Consensus,' he said.

(The Washington Consensus is a code for the policies of the IMF, World Bank and the US administration, which stress tight monetary measures, austerity budgets and extreme liberalisation.)

Rahardi said liberalisation, privatisation and deregulation can stimulate growth. 'But if in the process about 75% of the world's population are condemned to marginalisation and many others are exposed to the unprecedented risk of having their hard-won development totally crippled, this overall approach must be seriously flawed.'

Stating that the recent crises result less from traditional macroeconomic imbalances and more from the liberalisation process and the exposure of the private sector to phenomenal risk, he called for a new financial architecture to ensure developing countries are less susceptible to a crisis.

Rahardi said the rapid integration of developing countries into the global economy and their effort to meet their WTO obligations led them to many development challenges that are not balanced by opportunities.

'Export products of developing countries have been subjected to frequent antidumping measures by major trading countries, causing trade disruption... It is our firm view that the agenda of the Third Ministerial Meeting of the WTO should focus on problems around the full implementation of the Uruguay Round results, and not be diluted by non-trade-related issues.'

Bangladesh Minister for Commerce and Industries, Tofail Ahmed, said developing countries are beset by risks of marginalisation, economic insecurity and instability. The changes brought about by global economic integration have rendered weaker economies more vulnerable to economic exclusion and impoverishment.

Tofail added: 'The benefits of enhanced trade volumes resulting from liberalisation have been unequally shared, with the lion's share of benefits accruing to developed countries. Developing countries, especially LDCs, have been marginalised in the process. The gravity of the risks of integration into the global capital markets has been demonstrated by the East Asian economic crisis.'

He said developing countries need a fairer multilateral trading system that ensures a more equal sharing of benefits. 'A sharp North-South divide regarding the issues to be discussed at Seattle is already visible. The WTO is already committed to renegotiation of agriculture and services. However some developed members want the Seattle meeting to launch a new comprehensive round that would go beyond the built-in agenda.

'Some members are also proposing that the WTO should frame rules on direct investment flows irrespective of our domestic regulations. This is tantamount to asking us to cede our sovereign power to accept or reject foreign capital.

'I would like to stress that the Seattle meeting should focus on implementation issues rather than embark on a consideration of new issues,' he said.

Egypt's Trade Minister Ahmed Goueli said the implementation of the services agreement in the WTO was not to the benefit of developing countries as the developed countries pushed open sectors that were in their interests and did not show any interest to open up in sectors of interest to developing countries.

'In general, the WTO agenda is overburdened and the commitments of developing countries exceed their capacity. Therefore we firmly believe that there is no point in addressing any new issues, especially before getting to learn their full implications and impact on development.' - Third World Network Features