Richard Melson

June 2006

South Bulletin No. 126

www.southcentre.org

South Bulletin 126

15 June 2006

This issue of the South Bulletin focuses on

the challenge of global leadership.

In this Issue:

The Regeneration of Africa – President Mbeki

As it marked the 10th Anniversary of the adoption of its Constitution, South Africa has entered the ‘Age of Hope,’ said President Thabo Mbeki. Addressing a joint sitting of the Houses of Parliament in Cape Town, President Mbeki reminds people of the bloody colonial past and the difficult but sure-footed march towards a better future for all.

Development through Globalization? – (II)

In continuing of the first part published in the previous issue of the South Bulletin, following is the second part of the extracts from the above titled-paper by Deepak Nayyar. This part considers some important correctives, learning from the past and present, for strategies of development. It also calls for ‘rethinking’ to understand and foster the process of development, as thinking about development - in theory and policy - has become narrower with the passage of time.

Power & Super-Power:  Global Leadership in the 21st Century

Taking a dig at the unilateralism of the United States government has normally been a preserve of the civil society organizations. So when a senior United Nations official donned that hat, there was immediate reaction from the United States Ambassador to the United Nations in New York. Address by United Nations Deputy Secretary-General Mark Malloch Brown.

US Agri Proposals: Simulation Sifts Rhetoric from Reality

A new economic simulation of the U.S. agriculture proposal at the World Trade Organization (WTO) has exposed not only the emptiness of the U.S. proposal, but also the limited space that U.S. negotiators find themselves in as the Doha Round moves forward. A recent analysis from the U.S. - based Institute for Agriculture and Trade Policy (IATP).

WTO: Assessments Predict African Loss Even in Agriculture

Several recent studies have assessed that the African continent stands to lose from any liberalization attempts in the current round of trade negotiations. An insight into these recent assessments and their analysis is provided in the following write-up by Aileen Kwa of the Focus on the Global South.

More in this issue:

Perspectives and Potential for South-South Trade

News

South Centre News

Editorial: ‘Trace Those Using South as a Toxic Waste Dump’

The Regeneration of Africa – President Mbeki

As it marked the 10th Anniversary of the adoption of its Constitution, South Africa has entered the ‘Age of Hope,’ said President Thabo Mbeki. Addressing a joint sitting of the Houses of Parliament in Cape Town on 8 May, 2006, he paid tribute to the sustained act of solidarity by the people of Africa and the world, which made such a decisive contribution to the victory being celebrated. Presented below are extracts from President Mbeki’s address, which reminds people of the bloody colonial past and the difficult but sure-footed march towards a better future for all.

"As we celebrate the tenth anniversary of our Constitution, we cannot but recall and salute the contributions of all sectors of South African society and millions across the world to the great victory of the cause of freedom and democracy in our country.

But clearly, the tenth anniversary of the adoption of our Constitution also provides an opportunity for the nation to assess the progress we have made and the problems we have experienced, as we worked to build the society and consolidate the democracy visualised in our Constitution.

The milestone we celebrate today should also serve to reinvigorate the transformation of the unity and solidarity we built during the course of our struggle for freedom, into a durable partnership for reconstruction and development, and the building of a non-racial, non-sexist, democratic and prosperous South Africa.

We adopted the supreme law of the land in1996 having traversed a long road stained with the blood of many South Africans, both black and white. It was a long road that would have seemed forbidding to the faint hearted, and appeared to the pessimists to have no possible end, except the constant repetition of a mirage that presented itself as the final destination.

Yet, to many to whom justice was not negotiable, the challenges we had to confront on the difficult march to freedom, including the desperate resistance of the forces of white minority rule, only served to steel their determination to persevere until victory was achieved.

A century ago in April 1906, when it would have been impossible to foretell the day of freedom both for ourselves and the rest of our colonised continent, Pixley ka Isaka Seme nevertheless uttered inspiring words at Columbia University in New York, which are surely relevant to our celebrations today. And this is what he said:

"The brighter day is rising upon Africa. Yes, the regeneration of Africa belongs to this new and powerful period. The African people... possess a common fundamental sentiment which is everywhere manifest, crystallising itself into one common controlling idea. The regeneration of Africa means that a new and unique civilisation is soon to be added to the world."

These words were uttered during the same month that the Bambatha Rebellion in present-day KwaZulu-Natal began, and the same year when colonialism displayed its barbarism by parading to the masses whom Inkosi Bambatha had led, what it claimed was his severed head.

Not content to capture this outstanding hero of our people, as it did, colonialism sought to cow the people into submission through the sheer terror and horror that would result from coming face-to-face with the human head of an outstanding leader of the people, deliberately and violently decoupled from the human body.

Fortunately, these heroic people, who knew that "the brighter day is rising upon Africa", refused to accept that they should abandon the war for liberation, simply because they had lost a battle. It was therefore right and proper that, as we have done, we should commemorate the centenary of Bambatha Rebellion.

Further to this, we must underline the fact that the act of the adoption of our Constitution constituted the creation of a permanent monument and an indelible tribute to the heroes and heroines of this Rebellion, as well as the countless others that sacrificed their lives so that as a people we could, today, pride ourselves on having one of the best Constitutions in the world.

As we have said before, this year we will also mark the Centenary of the launch of Satyagraha by that peerless son of India and South Africa, Mahatma Gandhi, which helped to define the course of the struggle for liberation in both these sister countries.

In addition to the struggle that marked this launch, the mineworkers’ strike and the passive resistance campaign of 1946, the women’s anti-pass march of 1956 and the treason trial arrests of that year, as well as the 1976 student uprising, all recall the sustained effort that finally made it possible for us to attain our freedom and for the Constitution we celebrate today to come into being.

The sacrifices made to bring about this outcome must instil in us an unflinching determination to uphold, respect, protect and promote the Constitution born of those sacrifices. By so doing, we would also uphold, respect, protect and promote the values and principles of those whom we honour as our heroes and heroines.

Indeed, the Constitution itself enjoins us to:

  • Honour those who suffered for justice and freedom in our land;

  • Respect those who have worked to build and develop our country; and

  • Believe that South Africa belongs to all who live in it, united in our diversity.

This Constitution was the product of the labours of South African men and women who were prepared to put aside their differences and work for the common good. We are happy that many of those who toiled day and night to give us this beautiful product are present at this august Joint Sitting of the two Houses of Parliament.

In this regard, we should never forget the outstanding dedication to their historic task of the patriots who negotiated our Constitution, the immensity of the effort that was required for us to reach agreement, and the respect for the sovereign voice of the masses of our people, which resulted in extensive popular participation in the constitution-making process. It is therefore fitting that, once again, we salute and pay humble tribute to all who were involved in this noble effort.

Through our Constitution, we laid the basis for the construction of a democratic, non-racial, non-sexist, united and prosperous society based on justice, equality, the rule of law, the inalienable human rights of all our citizens, and freedom from hunger and want.

By this means, we made the statement that no individual among us, and no sector of our society, could live in conditions of liberty, peace, prosperity and happiness except in the context of the construction of the new South Africa visualised in our Constitution.

Today must therefore serve as an occasion for all our people and echelons of our society, without exception, to recommit themselves to the national effort to uphold and promote the ideals and values of the Constitution. Indeed the Constitution can only achieve its full force as an instrument for the creation of the new and humane society we seek to build, when the millions of our people fully assume their responsibility as the principal defenders of that Constitution.

The principles and outlook bequeathed by our founding settlement as reflected in our Constitution, which ended over three centuries of a bitter and costly conflict, must be protected at all times, to ensure that we promote our unity in diversity, jealously safeguard the rights of all our people, and entrench the rule of law and respect for the institutions of state, so that we are never again confronted by the scourge of tyrannical rule.

Determined to honour the vision of those who laid down their lives for our freedom, as we adopted the Constitution we committed ourselves to work for the reconstruction and development of our country so that in time, but as quickly as possible, none of our people should be condemned to suffer from hunger, from the degradation of poverty, the humiliation of homelessness, the indignity of joblessness or the marginalisation caused by illiteracy.

We confidently stated that we will work for a society where no one would ever again experience social discrimination, racial or sexual oppression, political repression or economic marginalisation.

That seminal moment of the adoption of our Constitution reminded us that there is strength in unity, that South Africans, black and white, are capable of overcoming their differences and working together for a society whose development, success and prosperity would be brought about by a united national effort inspired by a New Patriotism.

And yet, even as we sang our songs of freedom, as we acclaimed the unwavering determination of South Africans to redefine themselves in their own terms, as all of us from different parties and backgrounds declared that we were together Africans, we were equally aware that the work of transforming and rebuilding our divided society would demand great application, selflessness and stamina.

In this regard, what President Mandela said when we adopted the Constitution, must serve to remind all of us of our Constitutional obligations to the people of this country. On that occasion he advised that:

"The new Constitution obliges us to strive to improve the quality of life of the people. In this sense, our national consensus recognises that there is nothing else that can justify the existence of government but to redress the centuries of unspeakable deprivations, by striving to eliminate poverty, illiteracy, homelessness and disease. It obliges us, too, to promote the development of independent civil society structures.

"While in the past, diversity was seen by the powers-that-be as a basis for division and domination; while in earlier negotiations, reference to such diversity was looked at with suspicion; today we affirm in no uncertain terms that we are mature enough to derive strength, trust, and unity from the tapestry of the language, religious and cultural attributes that make up our nation."

President Mandela repeated this important message when he signed the Constitution into law on International Human Rights Day, December 10, 1996, in Sharpeville, the site of the Sharpeville Massacre 36 years earlier, in 1960. On this occasion he said:

"Let us now, drawing strength from the unity which we have forged, together grasp the opportunities and realise the vision enshrined in this Constitution. Let us give practical recognition to the injustices of the past, by building a future based on equality and social justice. Let us nurture our national unity by recognising, with respect and joy, the languages, cultures and religions of South Africa in all their diversity. Let tolerance for one another’s views create the peaceful conditions which give space for the best in all of us to find expression and to flourish. Above all let us work together in striving to banish homelessness, illiteracy, hunger and disease.

"In all sectors of our society - workers and employers, government and civil society, people of all religions, teachers and students, in our cities, towns and rural areas, from north to south and east to west - let us join hands for peace and prosperity. In so doing, we will redeem the faith which fired those whose blood drenched the soil of Sharpeville and elsewhere in our country and beyond. Today we humbly pay tribute to them in a special way. This is a monument to their heroism…(Thus) we give life to our nation’s prayer for freedom regained and (a) continent reborn…"

Undoubtedly, as we adopted the Constitution, we knew that to reverse the legacy of 350 years of colonialism and apartheid would be a mammoth task.

We knew that to heed the call made by President Mandela to improve the quality of life of the people we needed to engage in a new titanic struggle truly to create a new society.

So great was the task we faced and continue to face to this day, that we knew that Pixley ka Isaka Seme had been right when he had said 90 years earlier, that our victory, and the victories of the peoples of our continent, would mean that "a new and unique civilisation…(would) be added to the world."

To "redress the centuries of unspeakable deprivations, by striving to eliminate poverty, illiteracy, homelessness and disease", as President Mandela urged us to do, means and meant that we had to change virtually everything we inherited, including our economy, which must grow with perhaps unprecedented vigour, producing wealth that must be shared by all South Africans.

To "derive strength, trust and unity from the tapestry of languages, religious and cultural attributes that make up our nations", we have to continue working for reconciliation among our people, who, for centuries, were divided and set against one another by our savage past.

In this regard, we cannot omit to mention that the Truth and Reconciliation began its hearings 10 years ago, in April 1996. This Special Session of Parliament must therefore also serve as yet another national occasion when we pay tribute to the Archbishop Emeritus, the Rt Rev Desmond Tutu, other members and the staff of the Truth and Reconciliation Commission, as well as the organisations and citizens who addressed and otherwise assisted the TRC in its vital work.

With regard to our continuing task of national reconciliation, it is worth recalling what we said when we received the Final Report of the TRC on Human Rights Day, March 21, 2003. On that occasion we said:

"The Promotion of National Unity and Reconciliation Act of 1995, which authorised the establishment of the TRC, says that ‘the Constitution of the Republic of South Africa, 1993, provides a historic bridge between the past of a deeply divided society characterised by strife, conflict, untold suffering and injustice, and a future founded on the recognition of human rights, democracy and peaceful coexistence for all South Africans, irrespective of colour, race, class, belief or sex...’

"It goes on to say that ‘the Constitution states that the pursuit of national unity, the well-being of all South African citizens and peace, require reconciliation between the people of South Africa and the reconstruction of society...There is need for understanding but not for vengeance, a need for reparation but not for retaliation, a need for ubuntu but not for victimisation...’ "

The task to accomplish national reconciliation has not yet been concluded, including the implementation of some of the recommendations of the TRC. But above all, we continue to face the challenge to achieve the balanced and mutually reinforcing outcome mentioned in the TRC Act, of "reconciliation between the people of South Africa and the reconstruction of society."

We have to continue to work for national and social cohesion among our people, who were taught that they were permanent victims of God-ordained differences that were irreconcilable. As part of this, we have to restore the integrity of our social fabric and ensure moral regeneration, affecting all aspects of human endeavour.

This must focus on the restoration of respect for the dignity of every individual among all our people, and the rekindling of the spirit of human solidarity and mutual respect that are central to the concept and practice of ubuntu.

Ten years to the day, after we met here to adopt our Constitution, we know that our estimation that we were faced with arduous challenges was correct. We know now, as we knew then, that the entrenchment and respect for the civil liberties, for the social, economic and political rights spelt out in our Constitution, would themselves demand that we engage in a continuing struggle.

We knew then, as we know now, that we faced a challenging task both to educate our people about the rights they had won through struggle, as reflected in the Constitution, and equally important, the obligations imposed on all of us by the establishment of the democratic, constitutional order.

It is therefore important that all institutions of state, including this and other legislatures, as well as organs of civil society, should educate our people everywhere about the basic law of our land, the Constitution we adopted exactly 10 years ago today.

Together we must strive to ensure that learners, students and educators, workers in the factories, on the mines, the farms, building sites and offices, the citizens in uniform, men and women, the young and the elderly, people with disabilities, the rural and urban communities, people of all faiths, the artists, scientists, engineers and other professionals, all understand and are able to pursue and protect the rights contained in our Constitution, as well as honour our national flag and national anthem, our coat of arms and our national orders.

At the same time, we must also strive to ensure that all of us understand that freedom does not translate into license, into an unlimited right for anyone of us to do as they please, regardless of the law. We must understand that none of us has a right to pursue what we believe is due to us by compromising the rights of another.

We must understand also that, as the Freedom Charter said, all must be equal before the law, with none among us acting as though they are above the law, acting in a manner that deliberately seeks to undermine, weaken or discredit the institutions of the democratic state.

Those who serve in government must, on a daily basis, live up to the injunction contained in our Constitution, that "All spheres of government and all organs of state within each sphere must preserve the peace, the national unity and the indivisibility of the Republic; secure the well-being of the people of the Republic; (and) provide effective, transparent, accountable and coherent government for the Republic as a whole…"

Nowhere does the Constitution we celebrate today provide that those who serve in government are permitted to abuse their power to undermine the objective to secure the well-being of the people of the Republic. Nowhere does it say that any public representative or official serves in any organ of state in order to misuse state power to enrich themselves or acquire any benefits that would otherwise not be due to them according to law.

This we must understand as well, that the freedom we have won, and the rights codified in our Constitution, mean that we have the means to address our demands and solve disputes by peaceful means, without resort to violence. Indeed it means that, by definition, resort to violence within our democracy is inherently directed against the democratic system itself.

Equally, the outstanding outcome of the heroic struggles of our people, the Constitution we celebrate today, means that we must respect the results of the exercise by the people of their right to vote and elect governments of their choice, affecting all spheres of government.

We must understand that any of our parties may win or lose elections, but that whether we win or we lose, we must always celebrate the consequence fundamental to a bright future for our country and people, that free and fair elections represent the triumph of the democracy for which many sacrificed their lives, regardless of who is in, and who is out of the seat of government.

I am certain that all of us in this chamber and millions throughout our country fully understand that we must use our gift of freedom to redress the historical socio-economic imbalances inherited from our unfortunate past that are, in part, currently characterised by a thriving First Economy, which is part of the modern global economy, and the Second Economy that has little access to modern technology and the resources necessary for its development and transformation.

If we assert, as the National Assembly and the NCOP are doing this year, that "all shall have equal rights", this means, among others, that we have to accelerate the pace of addressing the immense challenges of the Second Economy and ensure that those who subsist within this economy also have the means and opportunities to escape from the dehumanising trap of poverty and underdevelopment.

In this regard, as a country, we should be proud that we have, within the limitations imposed by our available resources, remained true to the constitutional prescriptions to strive to achieve the socio-economic rights of our people.

We have done this among other things by helping to improve the lives of the poor through social grants, the provision of houses, ensuring access to clean water and health facilities, improving the economy and opening the doors of learning and of culture to many of our compatriots.

Our system of social grants now reaches more than 10 million people, especially encompassing the most vulnerable in our society. Over 10 million people have gained access to clean water. Over 2 million housing subsidies have been granted since 1994. Plans are in place to ensure that all households have access to electricity by 2012.

Indeed, the national effort to translate our Constitutional prescriptions into tangible and palpable reality has meant that between 1994 and 2004, the real incomes of the poorest 20% of our population increased by 30%. We have therefore made bold to assert that we will achieve the Millennium Development Goals well within the time frames set by the United Nations Organisation.

Through such programmes as the Accelerated and Shared Growth Initiative of South Africa, ASGISA, we will intensify our efforts to ensure that our political freedom also translates into a growing economy that improves the standard of living and the quality of life especially of the poor in our society.

During the First Decade of Freedom the economy grew on average by 3%, higher than population growth, creating over 2 million new jobs. However, all of us are fully aware that this was not enough to reduce the unacceptable level of unemployment in our country.

Through ASGISA and other programmes, working together with our social partners, which also have an obligation to discharge their responsibilities, we are certain that during this Second Decade of Freedom, we will do significantly better with regard to the challenge of job creation and poverty reduction, than we did in our First Decade of Liberty.

Further, during the First Decade of Freedom, we have taken giant strides forward to reconstruct the state machinery, making it increasingly sensitive to the needs of the people, and ensuring that it extends quality services to all our people without regard to race, colour, gender, age or geographic location.

We have put in place Batho Pele, Project Consolidate and other initiatives, because we remain acutely conscious of the need continuously to improve the capacity of government to serve the people.

Again, during the years of Freedom, we improved the safety and security of our citizens, among other things by reducing the incidence of serious crimes such as murder and car hijacking. However, much more needs to be done.

By employing more police officers, better training, improved crime intelligence, better and prompt response from the police to complaints by the citizenry, establishing close working relations between the police and communities and enhancing the efficiency of the criminal justice system as a whole, we will continue to communicate the message that crime does not pay.

The complex of the achievements we have mentioned, and the base we have created to accelerate our progress towards the realisation of the goal of a better life for all, in all its elements, define the Age of Hope into which our country has entered.

As we mark the 10th Anniversary of the adoption of our Constitution, we must, once again, recall and pay tribute to the sustained act of solidarity by the people of Africa and the world, which made such a decisive contribution to the victory we celebrate today.

We are therefore highly honoured to have with us sitting in the House, and are happy to salute the esteemed Ambassadors and High Commissioners who represent the peoples and countries who stood with us during the difficult years when to speak of freedom was to invite death.

That act of solidarity underlined the responsibility of liberated South Africa to position itself among the forces in Africa and the world which work consistently, regardless of the scale and complexity of the challenge, to help build a better and just world order, which respects and promotes the rights of all nations.

With regard to our own continent, we will continue do everything possible to realise the prophetic vision conveyed by Pixley ka Isaka Seme when, a century ago, he said: "The brighter day is rising upon Africa. Yes, the regeneration of Africa belongs to this new and powerful period…The regeneration of Africa means that a new and unique civilisation is soon to be added to the world."

When we addressed the Constitutional Assembly and the nation from this podium exactly 10 years ago today, speaking on behalf of the African National Congress, we said:

"This thing that we have done today, in this small corner of a great continent that has contributed so decisively to the evolution of humanity, says that Africa reaffirms that she is continuing her rise from the ashes. Whatever the setbacks of the moment, nothing can stop us now!

"Whatever the difficulties, Africa shall be at peace! However improbable it may sound to the sceptics, Africa will prosper! Whoever we may be, whatever our immediate interest, however much we carry baggage from our past, however much we have been caught by the fashion of cynicism and loss of faith in the capacity of the people, let us err today and say - nothing can stop us now!"

Some may very well ask whether we continue to uphold that statement of faith, as Pixley ka Isaka Seme upheld the continent’s collective faith in Africa’s renaissance a century ago.

Were such a question to be posed, I would repeat what I said on May 8, 1996, that:

"I am born of a people who are heroes and heroines. I am born of a people who would not tolerate oppression. I am of a nation that would not allow that fear of death, torture, imprisonment, exile or persecution should result in the perpetuation of injustice.

"The great masses who are our mother and father will not permit that the behaviour of the few results in the description of our country and people as barbaric. Patient because history is on their side, these masses do not despair because today the weather is bad. Nor do they turn triumphalist when, tomorrow, the sun shines. Whatever the circumstances they have lived through and because of that experience, they are determined to define for themselves who they are and who they should be."

In reply to the challenging question that would be posed, I would say that as a consequence of all this:

I would insist and confirm that "the brighter day is rising upon Africa", and that, "whatever the setbacks of the moment, nothing can stop us now!" This celebration today, of a truly historic achievement, must communicate the message that the heroic people of our country, both black and white, have indeed entered into their Age of Hope.

On this memorable day when we celebrate the birth of our Constitution, 10 years ago, on behalf of our Government, and in my own name, I extend our best wishes to all who are gathered here today and to all our people, confident that together we will ensure that as Pixley ka Isaka Seme directed, we will, through our actions, ensure the regeneration of Africa and therefore the addition to the world of a new and unique civilisation."

Development through Globalization? – (II)

In continuing of the first part published in the previous issue of the South Bulletin, following is the second part of the extracts from the above titled-paper by Deepak Nayyar of the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi.

This part considers some important correctives, learning not only from the past but also from the present, for strategies of development. It also argues that some rethinking is essential, from different perspectives, to understand and to foster the process of development, particularly because thinking about development, in terms of both theory and policy, has become narrower with the passage of time. The paper was published recently by the United Nations University’s World Institute for Development Economics Research (WIDER). Prof. Nayyar is also a member of the South Centre Board.

Redesigning strategies: introducing correctives

The introduction of correctives in the design of strategies for development is easier said than done. Even so, some essential correctives emerge from an understanding of theory and a study of experience that recognizes not only the diversity but also the complexity of development. In this reflection, it is necessary to recognize the limitations of orthodox economic theory and policy prescriptions even if these represent influential thinking about development at the present juncture. It is just as necessary to learn lessons from the history of development experience embedded in both successes and failures without neglecting specificities in time and space.

The first limitation of orthodoxy is its unquestioned faith in the market mechanism. It fails to recognize that there is no magic in the market. Indeed, market failures are not quite an exception but are closer to being the rule. The strong belief in the market mechanism is based on the proposition that market forces, or the invisible hand, achieve a competitive equilibrium. The fundamental theorems of welfare economics establish that this is an efficient state and a desirable state. [17] In spite of analytical elegance of these theorems, such faith is not quite warranted. The scepticism extends much beyond the critics. Consider, for example, the following quotations from three distinguished economic theorists: Frank Hahn, Amartya Sen and Joseph Stiglitz.

It showed that it is logically possible to describe a world where greedy and rational people responding only to price signals take actions which are mutually compatible. The theory does not describe the invisible hand in motion but displays it with its task accomplished…The importance of this intellectual achievement is that it provides a benchmark…Now one of the mysteries which future historians of thought will surely wish to unravel is how it came about that the Arrow-Debreu model came to be taken descriptively; that is as sufficient in itself for the study and control of actual economies. (Hahn 1984: 308).

The intellectual climate has changed quite dramatically over the last few decades, and the tables are now turned. The virtues of the market mechanism are now standardly assumed to be so pervasive that qualifications seem unimportant … The need for critical scrutiny of standard preconceptions and politico-economic attitudes has never been stronger. Today’s prejudices (in favour of the pure market mechanism) need to be investigated and, I would argue, partly rejected. (Sen 1999: 111-12).

… the reason the invisible hand is invisible is partly because it’s simply not there. [18]

There are, in fact, many reasons why these results, which highlight the virtues of the market, may not hold. [19] First, there may be externalities in production or consumption which would lead to market failure. The original solution to this problem was appropriate taxes and subsidies to be introduced by the government. But this went out of fashion with the Coase Theorem, which returned the market to its pedestal.20 Second, in such a world, markets may not deliver efficient and desirable outcomes if transaction costs are too high or if there is no government that can assign and protect property rights. Third, markets may not function, as textbooks would have us believe, in situations where an enforcement of contracts is difficult or not possible. And this is a common occurrence in developing countries which are significantly different from industrial societies in this sphere. Fourth, markets may cease to function as expected if there is an uncertainty about quality. In other words, doing business in markets is difficult where goods or services are of poor quality and where quality cannot be discerned by consumers before purchase.21 Fifth, it would seem that the market mechanism needs support to function as it is meant to. The need for such support spans a wide range from taxes-cum-subsidies in the presence of externalities, and laws to enforce contracts or property rights, to certification and regulation in a world of asymmetric information. Even with such support, markets are prone to corrupt practices whenever agents engaged by institutions to enforce regulations or laws are more interested in their own welfare rather than in achieving the goals set for them by institutions established to regulate markets. [22]

The second limitation of orthodoxy is the belief that getting-prices-right is enough. Such thinking makes an elementary, but commonplace, error in the design of policies. It confuses comparison (of equilibrium positions) with change (from one equilibrium position to another). In the real world, economic policy must be concerned not merely with comparison but with how to direct the process of change. Thus, for example, even if a reduction in protection can, in principle, lead to a more cost-efficient economy the transition path is by no means clear. And the process of change should not be confused with the ultimate destination of an economy that is competitive in the world market. [23]

The third limitation of orthodoxy is the presumption that policy regimes which are necessary are also sufficient. [24] The management of incentives motivated by the object of minimizing costs and maximizing efficiency at a micro level is based on a set of policies that is intended to increase competition between firms in the market place. Domestic competition is sought to be provided through deregulation in investment decisions, in the financial sector and in labour markets. Foreign competition is sought to be provided through openness in trade, investment and technology flows. It must, however, be recognized that there is nothing automatic about competition. Policy regimes can allow things to happen but cannot cause things to happen. The creation of competitive markets that enforce efficiency may, in fact, require strategic intervention through industrial policy, trade policy and financial policy, just as it may require the creation of institutions.

The fourth limitation of orthodoxy is its stress on government failures and its neglect of market failures. However, both market failure and government failure are facts of life. For neither markets nor governments are, or can ever be, perfect. Indeed, markets are invariably imperfect and governments are without exception fallible. The juxtaposition of government failure and market failure in an either-or mode, as if there was a choice to be made, is misleading. It is important to introduce correctives against both market failure and government failure. In such a perspective, the state and the market are complements rather than substitutes. What is more, the relationship between the state and the market cannot be defined once-and-for-all in any dogmatic manner but must change over time in an adaptive manner as circumstances change. [25] In this context, it is important to remember that markets are good servants but bad masters. What is more, efficient markets need effective states.

Development experience during the second half of the twentieth century also suggests important correctives for redesigning strategies. There are some important lessons that can be learnt from mistakes and failures of the past. [26] The first lesson to emerge from experience is that competition in the market is desirable. Such competition is essential between domestic firms, between domestic firms and foreign firms, as also between the public sector and the private sector. Industrial deregulation that removes barriers to entry for new firms and limits on the growth in the existing firms leads to competition between domestic firms. Trade liberalization which reduces restrictions or tariffs on imports leads to competition between domestic and foreign firms. The dismantling of public sector monopolies leads to competition between the public sector and the private sector. It is such competition between firms, in price and in quality, that creates efficiency among producers and provides a choice for consumers.

The second lesson to emerge from experience is that prudent macro management of the economy is both necessary and desirable. Soft options, such as borrowing by the government only postpone the day of reckoning. Borrowing to support consumption almost always leads to a fiscal crisis. The problem may be compounded by a reliance on external resources to finance development. And if such borrowing is used to support consumption, a debt crisis is almost inevitable. Even so, it is necessary to recognize the fallacies of deficit fetishism. It must be stressed that the size of the fiscal deficit or the amount of borrowings are symptoms and not the disease. The real issue is the use to which the government borrowing is put in relation to the cost of borrowing by the government. Thus, government borrowing is always sustainable if it is used to finance investment and if the rate of return on such investment is greater than the interest rate payable.

The third lesson to emerge from experience is that excessive and inappropriate state intervention is counter-productive. It is, of course, important to learn from mistakes but it is just as important to avoid over-correction in learning from mistakes, because there are dangers implicit in over-reaction. Clearly, there are things that markets can and should do. However, there are some things that only governments can do. If governments do these badly, it is not possible to dispense with governments or replace them with markets. Governments must be made to perform better. It is, therefore, necessary to reformulate the questions about the economic role of the state. [27] The real question is no longer about the size of the state (how big?) or the degree of state intervention (how much?). The question is now about the nature of state intervention (what sort?) and the quality of the performance of the state (how good?).

The fourth lesson to emerge from experience, in the more recent past, is that the speed and the sequence of change matter. For one, the speed of change must be calibrated so that it can be absorbed by the economy. For another, the sequence of change must be planned with reference to an order of priorities. The significance of speed and sequence emerges clearly in the sphere of trade policy reform and even more clearly from the experience with capital account liberalization. In both, whether speed or sequence, deregulation and openness must be compatible with initial conditions and must be consistent with each other.

Clearly, it is important to learn from failures. Recognition of where things went wrong translates easily into correctives. But it is just as important to learn from successes. And there are two important lessons that emerge from development experience in countries that are success stories. First, there are specificities in time and space which must be recognized and cannot be ignored. Obviously, one-size does not fit all. Second, latecomers to industrialization during the twentieth century, to begin with in Europe, and subsequently in Asia, that succeeded adopted strategies of development which not only varied across countries over time but also differed significantly from orthodox policy prescriptions now in fashion. [28]

Last but not least, there are some forgotten essentials that should form an integral part of any attempt at redesigning strategies of development. First, it is not quite recognized that economic growth is necessary but not sufficient to bring about a reduction in poverty. It cannot suffice to say that the outcomes of economic policies should be moderated by social policies. The dichotomy between economic and social policies is inadequate just as the dichotomy between economic and social development is inappropriate. In fact, no such distinction is made in industrialized countries. And the experience of industrialized world suggests that there is a clear need for an integration, rather than separation, of economic and social policies. Thus, it is important to create institutional mechanisms that mediate between economic growth and social development.

Second, it is often forgotten that the wellbeing of humankind is the essence of development. Thus, distributional outcomes are important. So are employment and livelihoods. Structural reforms associated with economic liberalization have important implications for employment creation and income opportunities. For one, in so far as such reforms increase the average productivity of labour, through the use of capitalintensive or labour-saving technologies, or through a restructuring of firms, which increases efficiency, it reduces the contribution of any given rate of economic growth to employment growth. For another, in so far as trade liberalization enforces closures rather than efficiency at a micro level, or switches demand away from home-produced goods to foreign goods at a macro level, it has an adverse effect on output, hence employment, which is magnified through the multiplier effect.

This has important consequences in the medium term. There is a contraction of employment in some sectors without a compensatory expansion of employment in other sectors. And, as employment elasticities of output decline, employment creation slows down. It need hardly be stressed that employment creation is the only sustainable means of reducing poverty. Moreover, employment is also essential for the wellbeing and dignity of people.

Rethinking development: different perspectives

The discourse on theory and policy in development has become narrower with the passing of time. Some rethinking on development is essential. It must incorporate different perspectives. A systematic, let alone complete, analysis of such alternatives would mean too much of a digression. Even so, it is necessary to stress the following as an integral part of any rethinking on development: the importance of initial conditions, the significance of institutions, the relevance of politics in economics and the critical role of good governance.

It is obvious that initial conditions are important determinants of development. It should also be recognized that initial conditions can and should be changed to foster development. This is an unambiguous lesson that emerges from economic history. [29] In countries that are latecomers to industrialization, state intervention creates conditions for the development of industrial capitalism through the spread of education in society, the creation of a physical infrastructure and the introduction of institutional change. This role has always been recognized. The building of managerial capabilities in individuals and technological capabilities in firms is also an important, even if less recognized, dimension of initial conditions, for such capabilities determine technical efficiency in the short run and competitiveness in the long run. This has been recognized for some time. The present juncture, however, is characterized by a widespread disillusionment with the economic role of the state and a strong belief in the magic of the market. Hence, orthodoxy neglects the importance of initial conditions. There is an irony in this situation. In the context of globalization, such a role for the state is more necessary than ever before. Indeed, creating the initial conditions is essential for maximizing the benefits and minimizing the costs of integration with the world economy.

The debate on development is, in large part, about policies. The time has come to move beyond policies to institutions. The recent recognition of the importance of institutions, even if late, is welcome.30 Yet, the understanding of institutions in the profession of economics is, to say the least, limited. Economists have treated institutions as a black box in much the same way as they treated technology for some time. What is more, orthodox economics has sought to harmonize the role as also the form of institutions across the world irrespective of space and time. This is a serious mistake, since one-size does not fit all. There are specificities in space. Institutions are local and cannot be transplanted out of context. There are specificities in time. Institutions need time to evolve and cannot be created by a magic wand. The blueprints for economic liberalization over the past 25 years have simply not recognized this reality.

The meaning of institutions is not always clear. At one level, institutions refer to the rules of the game. These rules can be formal, as in constitutions, laws or statutes. These rules can also be informal, as in norms, conventions or practices. At another level, institutions refer to organizations or entities that are not players. The role of the state is crucial in almost every dimension of institutions. In an economy, the state seeks to govern the market through rules or laws. It does so by setting rules of the game for players in the market. In particular, it creates frameworks for regulating markets. But it also creates institutions, whether organizations or entities, to monitor the functioning of markets. The development of such institutions, which cannot always develop on their own, may need some pro-active for the state, as catalyst if not leader. Of course, there are institutions that may develop through markets, as in standards or for safety, but these depend on social norms.

In a market economy, social norms are perhaps as important as laws or organizations in the world of institutions. [31] Clearly, there is a world beyond ‘methodological individualism’ which reduces all social and economic interaction simply to the self interest of the individual. This proposition is nicely illustrated by Adam Smith’s intellectual journey from the Theory of Moral Sentiments to the Wealth of Nations. The notion of society came to be embedded in a wider range of human moral sentiments. This was Smith’s composite notion of ‘sympathy’. Such sympathy was not just altruism. It was a complex range of co-existing, often conflicting, human motives that culminated in social norms such as trust in exchange, respect for contracts or reciprocity in behaviour. Some of these may also have been the outcome of longer term enlightened self-interest. In this world, exchange and production in markets is sustained by underlying, unwritten, social norms. Indeed, without such social norms, no market economy can function. Unfortunately, social norms, so essential for institutions, are no longer part of conventional academic discourse, which exaggerates the efficiency of an abstract market mechanism based on an invented auctioneer and neglects the role of the state in preserving or reinforcing these norms.

The literature does not make any clear distinction between forms and functions of institutions. There is, also, little understanding of processes of change in existing institutions or in evolution of new institutions. Much remains to be done so as to improve understanding of institutions and of institutional change in the process of development, which could be the difference between success and failure at development. Such understanding needs not only theory but also history. However, the theory must be non-ideological just as the history must be non-selective.

In every society, economy and polity are closely intertwined. It is the interaction of economics and politics which shapes outcome for people. Therefore, it is essential to explore the interplay between economics and politics in the process of development. [32] There is, then, need for a political economy that extends beyond econometric analysis at a micro level, even if it is the fashion of our times. This is easier said than done. But a beginning could be made by exploring the relationship between markets and democracy, democracy and development, and development and empowerment.

The essence of the tension between the economics of markets and politics of democracy must be recognized. In a market economy, people vote with their money in the market place. But a political democracy works on the basis of one-person-one-vote. The distribution of votes, unlike the distribution of incomes or assets, is equal. One adult has one vote in politics even though a rich man has more votes than a poor man, in terms of purchasing power, in the market. This tension may be compounded by a related asymmetry between economy and polity. The people who are excluded by the economics of markets are included by the politics of democracy. The rich dominate a market economy in terms of purchasing power. But the poor have a strong voice in a political democracy in terms of votes. Hence, exclusion and inclusion are asymmetrical in economics and politics. In reconciling the market economy and political democracy, successive generations of economic thinkers and political philosophers have stressed the role of the state in this process of mediation. The reason is important even if it is not obvious. Governments are accountable to their people whereas markets are not. In a democracy, however, governments are elected by the people. But even where they are not, the state needs legitimation from the people most of whom are not rich or are poor. [33]

The relationship between democracy and development is also complex. But it is important to reject the view that latecomers to development cannot afford the luxury of democracy. Indeed, thinking ahead, it is clear that democracy is going to be conducive to the process of development. The reason is straightforward. The essential attributes of democracy, transparency and accountability, provide the means for combining sensible economics with feasible politics. [34] The economic priorities of the people will be reflected more and more in the political agenda of parties if there is a transparency in the system. The agenda of political parties will be reflected more and more in the reality of economic development if there is accountability in the system. Once this two-way process gathers momentum, transparency and accountability will create a commitment to long-term objectives of development in the context of a political democracy where governments are bound to change through elections over time.

The problem is that democracy, while conducive and necessary, is not sufficient to actually produce development. We know that from experience. Development may or may not be provided from above by benevolent governments. It must be claimed from below by people as citizens from governments that are accountable. The empowerment of people, then, is an integral part of any process of change that leads to development. A political democracy, even if it is slow, provides a sure path for two reasons. It increases political consciousness among voters to judge political parties for their performance. At the same time, it increases participation in the political process when it leads to mobilization on some issues. This highlights the significance of Sen’s conception of development as freedom. Expanding freedoms for people at large constitute development. But the same expanding freedoms, which empower people, are instruments that drive the process of change in development.

Governance is critical in the process of development. The real issue is not about more or less government. It is about the quality of government performance. This has two dimensions. The first dimension is more obvious. It is about redefining the economic role of the state in a changed national and international context. In the earlier stages of development, the primary role is to create initial conditions. In the later stages of development, the role is neither that of a promoter nor that of a catalyst. It is somewhat different and spans a range: functional intervention to correct for market failure, institutional intervention to govern the market, or the strategic intervention to guide the market.35 In this era of markets and globalization, surprisingly enough, the role of the state is more critical than ever before and extends beyond correcting for market failures or regulating domestic markets. It is about creating the initial conditions to capture the benefits from globalization, about managing the process of integration into the world economy in terms of pace and sequence, about providing social protection and safeguarding the vulnerable in the process of change and about ensuring that economic growth creates employment and livelihoods for people. [36] In sum, governments need to regulate and complement markets so as to make them people-friendly. Thus, the role of the state in the process of development will continue to be made for some time to come, even as the scope of the market increases through liberalization in the wider context of globalization.

The second dimension, good governance, is less obvious. It is, however, more concrete and less abstract. Governance is largely about rules and institutions that regulate the public realm in civil society. A democratic system seeks to provide for equal participation of the rich and the poor, or the strong and the weak, individuals as citizens in political processes. And good governance is a process characterized by communication and consultation, through which disputes are resolved, consensus is built and performance is reviewed on a continuous basis. The basis for good governance is a democratic political system that ensures representative and honest governments responsive to the needs of people. This involves more than simply free and fair elections. It implies a respect for economic, social and political rights of citizens. The rule of law is a foundation. An equitable legal framework, applied consistently to everyone, defends people from the abuse of power by state and non-state actors. It empowers people to assert their rights. The need for good governance extends to economic, social and political institutions required for the functioning of market economy and political democracy. A vibrant civil society, empowered by freedom of association and expression which can voice diversity in views, is just as important for good governance in so far as it provides checks and balances when governments do not act as they should. In sum, good governance, where governments are accountable to citizens and people are centre-stage in the process of development, is essential for creating capabilities, providing opportunities and ensuring rights for ordinary people. Governance capabilities matter. Indeed, the quality of governance is an important determinant of success or failure at development. [37] The moral of the story is not less government but good governance.

Notes

17. For a detailed examination of the fundamental theorems of welfare economics, see Arrow (1950).

18. Joseph Stiglitz during interview on WBAI Radio, 15 August 2002, New York.

19. For a succinct discussion on why these results may not hold, see Mukherji (2005).

20. See Coase (1960). It is worth noting that Richard Coase was awarded the Nobel Prize in Economics, for this contribution, in 1991.

21. This proposition was developed by Akerlof (1970) in a seminal contribution.

22. See, for instance, Banerjee (1997).

23. Bhaduri and Nayyar (1996); Nayyar (1997).

24. See Nayyar (1997); Stiglitz (1998).

25. For an analysis of the relationship between the state and the market, from this perspective, see Bhaduri and Nayyar (1996).

26. The discussion on lessons in the following paragraphs draws upon Nayyar (2004).

27. For a discussion on the economic role of the state, see Stiglitz (1989); Killick (1990). See also Lall (1990); Shapiro and Taylor (1990).

28. See Amsden (1989); Lall (1990); Wade (1990); Chang (2002a).

29. For a fascinating historical analysis of the development experience of latecomers to industrialization, see Amsden (2001); Chang (2002a).

30. See for example, North (1990); Chang (2002b).

31. For a lucid discussion on the importance of social norms in market economies, with particular reference to Adam Smith, see Bhaduri (2002).

32. This is stressed by North (2001) in a short essay on understanding development.

33. The discussion in this paragraph draws upon Nayyar (2003b).

34. For a more detailed discussion, see Bhaduri and Nayyar (1996).

35. Nayyar (1997); see also Bhaduri and Nayyar (1996).

36. 36 See World Commission on the Social Dimension of Globalization (2004).

37. A striking illustration of this proposition is provided by the wide diversity in economic performance across states in India, despite common policies, similar institutions and the economic union. There are even more striking examples that emerge from a comparison of economic performance across countries in the developing world.

Power & Super-Power:  Global Leadership in the 21st Century

Taking a dig at the unilateralism of the United States government has normally been a preserve of the civil society organizations. So when a senior United Nations official donned that hat, there was immediate reaction from the United States Ambassador to the United Nations in New York. Following is the address by United Nations Deputy Secretary-General Mark Malloch Brown on the above titled subject that caused a diplomatic row. Mr. Brown was speaking at the Century Foundation and Center for American Progress -- Security and Peace Initiative, in New York, on 6 June, 2006.

"Thank you for allowing me to speak to you today on Power and Global Leadership.  I often get asked to talk about leadership, but rarely about power.  I wonder why.

With that thought as my starting point, I am going to give what might be regarded as a rather un-UN speech.  Some of the themes -- that the United Nations is misunderstood and does much more than its critics allow -- are probably not surprising.  But my underlying message, which is a warning about the serious consequences of a decades-long tendency by US Administrations of both parties to engage only fitfully with the UN, is not one a sitting United Nations official would normally make to an audience like this.

But I feel it is a message that urgently needs to be aired.  And as someone who has spent most of his adult life in this country, only a part of it at the UN, I hope you will take it in the spirit in which it is meant:  as a sincere and constructive critique of US policy towards the UN by a friend and admirer.  Because the fact is that the prevailing practice of seeking to use the UN almost by stealth as a diplomatic tool while failing to stand up for it against its domestic critics is simply not sustainable.  You will lose the UN one way or another.

 

Founders’ Vision

Multilateral compromise has always been difficult to justify in the American political debate:  too many speeches, too many constraints, too few results.  Yet it was not meant to be so.

The all-moral-idealism-no-power institution was the League of Nations.  The UN was explicitly designed through US leadership and the ultimate coalition of the willing, its World War II allies, as a very different creature, an antidote to the League’s failure.  At the UN’s core was to be an enforceable concept of collective security protected by the victors of that war, combined with much more practical efforts to promote global values such as human rights and democracy.

Underpinning this new approach was a judgement that no President since Truman has felt able to repeat:  that for the world’s one super-Power -- arguably more super in 1946 than 2006 -- managing global security and development issues through the network of a United Nations was worth the effort.  Yes it meant the give and take of multilateral bargaining, but any dilution of American positions was more than made up for by the added clout of action that enjoyed global support.

Today, we are coming to the end of the 10-year term of arguably the UN’s best-ever Secretary-General, Kofi Annan.  But some of his very successes -- promoting human rights and a responsibility to protect people from abuse by their own Governments; creating a new status for civil society and business at the UN -- are either not recognized or have come under steady attacks from anti-UN groups.

To take just one example, 10 years ago UN peacekeeping seemed almost moribund in the aftermath of tragic mistakes in Rwanda, Somalia and Yugoslavia.  Today, the UN fields 18 peacekeeping operations around the world, from the Congo to Haiti, Sudan to Sierra Leone, Southern Lebanon to Liberia, with an annual cost that is at a bargain bin price compared to other US-led operations.  And the US pays roughly one quarter of those UN peacekeeping costs -- just over $1 billion this year.

That figure should be seen in the context of estimates by both the GAO and RAND Corporation that UN peacekeeping, while lacking heavy armament enforcement capacity, helps to maintain peace -- when there is a peace to keep -- more effectively for a lot less than comparable US operations.  Multilateral peacekeeping is effective cost-sharing on a much lower cost business model and it works.

That is as it should be and is true for many other areas the UN system works in, too, from humanitarian relief to health to education.  Yet for many policymakers and opinion leaders in Washington, let alone the general public, the roles I have described are hardly believed or, where they are, remain discreetly underplayed.  To acknowledge an America reliant on international institutions is not perceived to be good politics at home.

However, inevitably a moment of truth is coming.  Because even as the world’s challenges are growing, the UN’s ability to respond is being weakened without US leadership.

Take the issue of human rights.

When Eleanor Roosevelt took the podium at the UN to argue passionately for the elaboration of a Universal Declaration of Human Rights, the world responded.  Today, when the human rights machinery was renewed with the formation of a Human Rights Council to replace the discredited Commission on Human Rights, and the US chose to stay on the sidelines, the loss was everybody’s.

I hope and believe the new Council will prove itself to be a stronger and more effective body than its predecessor.  But there is no question that the US decision to call for a vote in order to oppose it in the General Assembly, and then to not run for a seat after it was approved by 170 votes to 4, makes the challenge more difficult.

More broadly, Americans complain about the UN’s bureaucracy, weak decision-making, the lack of accountable modern management structures and the political divisions of the General Assembly here in New York.  And my response is, "guilty on all counts".

But why?

In significant part because the US has not stuck with its project -- its professed wish to have a strong, effective United Nations -- in a systematic way.  Secretary Albright and others here today have played extraordinary leadership roles in US-UN relations, for which I salute them.  But in the eyes of the rest of the world, US commitment tends to ebb much more than it flows.  And in recent years, the enormously divisive issue of Iraq and the big stick of financial withholding have come to define an unhappy marriage.

As someone who deals with Washington almost daily, I know this is unfair to the very real effort all three Secretaries of State I have worked with –- Secretary Albright, Secretary Powell and Secretary Rice -– put into UN issues.  And today, on a very wide number of areas, from Lebanon and Afghanistan to Syria, Iran and the Palestinian issue, the US is constructively engaged with the UN.  But that is not well known or understood, in part because much of the public discourse that reaches the US heartland has been largely abandoned to its loudest detractors such as Rush Limbaugh and Fox News.  That is what I mean by "stealth" diplomacy:  the UN’s role is in effect a secret in Middle America even as it is highlighted in the Middle East and other parts of the world.

Exacerbating matters is the widely held perception, even among many US allies, that the US tends to hold on to maximalist positions when it could be finding middle ground.

We can see this even on apparently non-controversial issues such as renovating the dilapidated UN Headquarters in New York.  While an architectural landmark, the building falls dangerously short of city codes, lacks sprinklers, is filled with asbestos and is in most respects the most hazardous workplace in town.  But the only Government not fully supporting the project is the US.  Too much unchecked UN-bashing and stereotyping over too many years -- manifest in a fear by politicians to be seen to be supporting better premises for overpaid, corrupt UN bureaucrats -- makes even refurbishing a building a political hot potato.

Making Reform Work

One consequence is that, like the building itself, the vital renewal of the Organization, the updating of its mission, its governance and its management tools, is addressed only intermittently.  And when the US does champion the right issues like management reform, as it is currently doing, it provokes more suspicion than support.

Last December, for example, largely at US insistence, instead of a normal two-year budget, Member States approved only six months’ worth of expenditure -- a period which ends on June 30. ; Developing and developed countries, the latter with the US at the fore, are now at loggerheads over whether sufficient reform has taken place to lift that cap, or indeed whether there should be any links between reform and the budget.  Without agreement, we could face a fiscal crisis very soon.

There has been a significant amount of reform over the last 18 months, from the creation of a new Ethics Office and whistle-blower policy, to the establishment of a new Peacebuilding Commission and Human Rights Council.  But not enough.

The unfinished management reform agenda, which the US sensibly supports, is in many ways a statement of the obvious.  It argues that systems and processes designed 60 years ago for an organization largely devoted to running conferences and writing reports simply don’t work for today’s operational UN, which conducts multibillion-dollar peacekeeping missions, humanitarian relief operations and other complex operations all over the world.  The report sets out concrete proposals for how this can be fixed while also seeking to address the broader management, oversight and accountability weaknesses highlighted by the "oil-for-food" programme.

One day soon we must address the massive gap between the scale of world issues and the limits of the institutions we have built to address them.  However, today even relatively modest proposals that in any other organization would be seen as uncontroversial, such as providing more authority and flexibility for the Secretary-General to shift posts and resources to organizational priorities without having to get direct approval from Member States, have been fiercely resisted by the G-77, the main group of developing countries, on the grounds that this weakens accountability.  Hence the current deadlock.

What lies behind this?

It is not because most developing countries don’t want reform.  To be sure, a few spoilers do seem to be opposed to reform for its own sake, and there is no question that some countries are seeking to manipulate the process for their own ends with very damaging consequences.  But in practice, the vast majority is fully supportive of the principle of a better run, more effective UN; indeed they know they would be the primary beneficiaries, through more peace, and more development.

So why has it not so far been possible to isolate the radicals and build a strong alliance of reform-minded nations to push through this agenda?

I would argue that the answer lies in questions about motives and power.

Motives, in that, very unfortunately, there is currently a perception among many otherwise quite moderate countries that anything the US supports must have a secret agenda aimed at either subordinating multilateral processes to Washington’s ends or weakening the institutions, and therefore, put crudely, should be opposed without any real discussion of whether they make sense or not.

And power, that in two different ways revolves around perceptions of the role and representativeness of the Security Council.

First, in that there has been a real, understandable hostility by the wider membership to the perception that the Security Council, in particular the five permanent members, is seeking a role in areas not formally within its remit, such as management issues or human rights.

Second, an equally understandable conviction that those five, veto-wielding permanent members who happen to be the victors in a war fought 60 years ago, cannot be seen as representative of today’s world -- even when looking through the lens of financial contributions.  Indeed, the so-called G-4 of Security Council aspirants -- Japan, India, Brazil and Germany -- contribute twice as much as the P-4, the four permanent members excluding the U.S.

Prime Minister Tony Blair acknowledged exactly this point on his trip to Washington last month, and it is something which does need to be addressed.  More broadly, the very reasonable concerns of the full UN membership that the fundamental multilateral principle that each Member State’s vote counts equally in the wider work of the UN needs to be acknowledged and accommodated within a broader framework of reform.  If the multilateral system is to work effectively, all States need to feel they have a real stake.

New Global Challenges

But a stake in what system?

The US -- like every nation, strong and weak alike -- is today beset by problems that defy national, inside-the-border solutions:  climate change, terrorism, nuclear proliferation, migration, the management of the global economy, the internationalization of drugs and crime, the spread of diseases such as HIV and avian flu.  Today’s new national security challenges basically thumb their noses at old notions of national sovereignty.  Security has gone global, and no country can afford to neglect the global institutions needed to manage it.

Kofi Annan has proposed a restructuring of the UN to respond to these new challenges with three legs:  development, security and human rights supported, like any good chair, by a fourth leg, reformed management.  That is the UN we want to place our bet on.  But for it to work, we need the US to support this agenda -- and support it not just in a whisper but in a coast to coast shout that pushes back the critics domestically and wins over the sceptics internationally. America’s leaders must again say the UN matters.

When you talk better national education scores, you don’t start with "I support the Department of Education".  Similarly for the UN it starts with politicians who will assert the US is going to engage with the world to tackle climate change, poverty, immigration and terrorism.  Stand up for that agenda consistently and allow the UN to ride on its coat-tails as a vital means of getting it done.  It also means a sustained inside-the-tent diplomacy at the UN.  No more "take it or leave it", red-line demands thrown in without debate and engagement.

Let me close with a few words on Darfur to make my point.

A few weeks ago, my kids were on the Mall in Washington, demanding President Bush to do more to end the genocide in Darfur and President Bush wants to do more.  I’d bet some of your kids were there as well.  Perhaps you were, too.  And yet what can the US do alone in the heart of Africa, in a region the size of France?  A place where the Government in Khartoum is convinced the US wants to extend the hegemony it is thought to have asserted in Iraq and Afghanistan.

In essence, the US is stymied before it even passes "Go".  It needs the UN as a multilateral means to address Sudan’s concerns.  It needs the UN to secure a wide multicultural array of troop and humanitarian partners.  It needs the UN to provide the international legitimacy that Iraq has again proved is an indispensable component to success on the ground.  Yet, the UN needs its first parent, the US, every bit as much if it is to deploy credibly in one of the world’s nastiest neighbourhoods.

Back in Franklin and Eleanor Roosevelt’s day, building a strong, effective UN that could play this kind of role was a bipartisan enterprise, with the likes of Arthur Vandenberg and John Foster Dulles joining Democrats to support the new body.  Who are their successors in American politics?  Who will campaign in 2008 for a new multilateral national security?"

US Agri Proposals: Simulation Sifts Rhetoric from Reality

A new economic simulation of the U.S. agriculture proposal at the World Trade Organization (WTO) has exposed not only the emptiness of the U.S. proposal, but also the limited space that U.S. negotiators find themselves in as the Doha Round moves forward. A recent analysis from the U.S. - based Institute for Agriculture and Trade Policy (IATP), published on 8 June, looks at how the U.S. negotiators have been ‘Boxed into a Corner at WTO.’

A new economic simulation of the U.S. agriculture proposal at the World Trade Organization (WTO) confirmed what NGOs and developing countries have been saying for months: the proposal has so many loopholes it may actually increase the allowable amount of domestic agriculture spending in the U.S. The new simulation exposed not only the emptiness of the U.S. proposal, but also the limited space that U.S. negotiators find themselves in as the Doha Round moves forward.

The May 19 economic simulation was prepared at the request of trade negotiators from the European Union, the U.S. and nine other WTO members. It assessed the main agriculture proposals from the U.S., EU, G-10 and G-20. It found that under the U.S. proposal, U.S. agriculture spending could legally increase to $22.5 billion a year, from last year’s estimated $19.6 billion, simply by re-categorizing existing payments. The shift in payments would be made from a further restricted Amber Box to non-product specific and product-specific de minimis payments and into an expanded Blue Box.

When announcing its agriculture proposal in October, the U.S. Trade Representative characterized it as "bold," "ambitious" and "substantial." IATP and other NGOs quickly examined the fine print and reached conclusions similar to the new simulation model. Throughout the negotiations, developing countries like Brazil and India have been highly critical of the numerous loopholes in the U.S. proposal.

The new economic simulation also reveals the weaknesses of the WTO box system to restrict domestic support. Additionally, the U.S. and the EU have not notified their domestic payments to the WTO since 2001. So, the simulators had to use domestic payments going back into the 1990s, before the current Farm Bill was even passed. Currently, there is no penalty for late reporting.

In addition to losing credibility with its agriculture proposal, the U.S. raised the ire of many WTO members when it attempted to undermine a critical tool for development in poor countries with an April 6th framework paper on Special Products (SPs). Special Products are a tool to help poor countries protect their food security and rural development priorities through targeted tariffs on specific crops.

The U.S. proposal would shrink the number of tariff lines allowed for SPs to five (out of 2000 on average per WTO member), and set tougher criteria for SP treatment. The U.S. proposal is regarded by the G-33, the Africa Group, the Africa-Caribbean-Pacific Group and the Least Developed Countries as a slap in the face that runs counter to the small bit of progress that was made on the issue in the July 2004 Package and the Hong Kong Ministerial Conference of December 2005.

Given the reaction to these recent proposals, questions are being raised about whether the U.S. is serious about completing the Doha Round this year.

The tight box the U.S. finds itself in at the WTO is the direct result of powerful domestic agriculture lobbies combined with an unpopular President and growing discontent over current free trade policies.

On agriculture, the U.S. Trade Representative (USTR) is caught between the lobbying of U.S. based agribusiness exporting companies (which want more market access, especially to emerging markets in developing countries) and domestic commodity groups (which want to maintain high domestic support payments and have grown skeptical that greater market access will benefit them). This political division was not present at the time of the Uruguay Round, when the larger commodity groups allied more closely with agribusiness.

This division came to the fore last week, when the USTR met with the big farm groups in the wake of the simulation report. The USTR asked the commodity groups to accept further cuts in domestic support.

The big farm groups flatly refused. In a letter to President Bush, the groups wrote: "we believe that it is important to make clear that American agriculture will not support any deeper cuts in domestic support than those already proposed by the administration.

If negotiators are forced to scale back the level of ambition from the U.S. proposal on agricultural market access in order to reach an agreement, the level of ambition in cutting trade-distorting domestic support must be commensurately reduced from the U.S. proposal."

And for those wondering where the controversial U.S. proposal on SP came from, the big commodity groups spelled it out: "The treatment of . .`special’ products for developing countries must be limited in order to preserve the market access gains achieved through overall tariff reductions."

Support for free trade is mixed at best in the U.S. The policy changes initiated following the Uruguay Round, particularly the 1996 and then 2002 Farm Bills, have proved expensive failures.

The government now spends far more on agriculture than it did through the mid-1980s, while farm incomes are stagnant and in most cases falling. The U.S. share of the agricultural export market is falling too, while the sale of agricultural commodities at below cost price in world markets (a practice called dumping) continues.

The decade-plus track record of the North American Free Trade Agreement (NAFTA) and the effects of the 1996 Farm Bill’s deregulation of agricultural markets are much more apparent to a variety of sectors today, including many Congressional members from states that have experienced major losses in farm income and related rural employment. Congress has experienced a number of bruising battles over trade recently. Trade Promotion Authority (Fast Track) barely passed in 2002, is set to expire in 2007, and remains highly contentious among congressional leaders and their constituencies.

Regional Free Trade Agreements have either been stalled (for example, the Andean Free Trade Agreement and the Free Trade Area of the Americas) or have barely passed (the Central American Trade Agreement – CAFTA passed by only two votes) at the expense of splits within the national political parties. These national and regional disagreements around trade are prevalent and serve as a backdrop to the U.S. input at the WTO.

Some members of Congress have even taken an aggressive stance towards other countries in the WTO negotiations. For example, Charles Grassley, the Iowa Republican who is the powerful chairman of the Senate Finance Committee, threatened Brazil and India with terminating their benefits under the General System of Preferences, blaming them for holding up the WTO negotiations with their refusal to make offers in non-agricultural market access (NAMA). Some Congressional members have mentioned the possibility of extending both the U.S. farm bill and Fast Track Authority until WTO talks are concluded. But there is currently no great support for these extensions.

The record-low public support for President Bush is also important in this context. The Bush Administration faces a number of domestic concerns including: the war in Iraq, a huge budget deficit, and a number of highly damaging public scandals. Many Republican congressional representatives are distancing themselves from the Administration, worried that President Bush’s unpopularity may cost them the election in November.

These domestic spurred President Bush to reassign the politically adroit U.S. Trade Representative, Robert Portman, to the Office of Management and Budget. The reassignment of Portman takes away someone who was highly skilled at navigating Congress - a necessity for the passage of an eventual WTO deal. Portman’s replacement - the also skilled but relatively unknown trade bureaucrat, Susan Schwab - doesn’t have Portman’s contacts on the Hill.

While WTO Director General Pascal Lamy is still pushing for some agreement by late June, it seems the multilateral arena is rapidly shrinking for this U.S. administration. The U.S. government would of course like a Doha deal to be concluded, and there is a considerable pressure at the WTO to do just that. But there is no clarity on what such a deal needs to contain to make it work -- the recent simulations from the agriculture negotiations suggest that the U.S. can offer very little substance to match its rhetoric of opening markets.

Developing countries have little reason at this point to be satisfied that this round will fulfill its development mandate. With fall elections on the horizon, members of the U.S. Congress and the President are more inclined to be cautious in supporting any trade proposals, including those at the WTO, which might require significant sacrifice. The increasingly cantankerous debate over the previously dominant free trade agenda in the U.S. could have important implications for the future of the Doha Round.

Resources

iatp/library/admin/uploadedfiles/Why_is_the_Doha_Round_failing.pdf

letters/PDFS/06_02_06NCGA-AgJointLetterPresidentBushWTO.pdf

WTO: Assessments Predict African Loss Even in Agriculture

Several recent studies have assessed that the African continent stands to lose from any liberalization attempts in the current round of trade negotiations. An insight into these recent assessments and their analysis is provided in the following write-up by Aileen Kwa of the Focus on the Global South. If, in a so-called Development Round, that is going to be the fate of some of the poorest countries, some serious reflection is warranted on the systemic forces that produce scant benefits for nations most in need.

A number of recent studies have predicted losses for Africa from the Doha trade round, in the industrial sector, but also in agriculture. This is contrary to the conventional view that many African policy makers have – that even if they lose out in the industrial sector, in the long run, their agricultural sectors will benefit from the reforms undertaken by those who are now heavily protecting agriculture – namely the US and EU, as well as Japan.

Contrary to these expectations, however, research from the World Bank, the Carnegie Endowment, the European Commission, and also the FAO, reveal that the majority in Africa will be faced with losses in both agriculture and industrial goods liberalisation. Even if agricultural export markets were open to Africa, the majority of African farmers – subsistence farmers – will not be in a position to compete. In addition, they will lose through having to open their domestic markets in the negotiations.

The poorest countries in Africa will be worst hit – many are LDC countries in Sub- Saharan or East Africa. Technically, LDCs do not have to lower tariffs in the Doha Round, but because of regional customs arrangements with non-LDC African countries, imports will easily find their way to LDC countries.

World Bank

Before the Hong Kong Ministerial, the World Bank revised its estimates of global gains from the Doha Round. From a sky high $832 billion in global gains, this was readjusted to $287 billion globally, and to a modest $96 billion in a "likely Doha" scenario. But more worrying was the message for developing countries – gains were only $16 billion and this would not be evenly distributed.

Instead, the Bank concluded that the gains were expected for only a few large developing countries such as Argentina, Brazil, India. "Bangladesh and many African countries benefiting from preferences are likely to face losses".[1]

In addition, before Cancun, the Bank had claimed that even if developed countries remained intransigent on domestic supports, developing countries would gain from liberalizing agriculture. More recent studies by the Bank, however, reflect an opposite position. Developing countries would see a greater improvement in their net food trade (exports minus imports) if rich countries liberalized their agricultural markets, but developing countries do not. As a group, gains would amount to $142 billion from improved exports.

However, if developing countries are also made to liberalise their markets, the biggest winner in terms of redistributed farm income will be the US, followed by gains for Argentina, Brazil, and other Latin American countries, Australia and New Zealand. Sub-Saharan Africa may experience some small gain, whilst China, India and the rest of South Asia would be net losers. [2]

The World Bank model, however, remains flawed. The model assumes full employment of all labour, including unskilled labour. Some corrections were made to it in the Carnegie study.

Carnegie Report

The Carnegie study "Winners and Losers: Impact of the Doha Round" by Sandra Polaski improved on modeling exercises by incorporating actual unemployment rates. It also treats agricultural labour markets separately from urban unskilled labour markets in developing countries.

The findings in the Carnegie study run "counter to the commonly held view about the Doha Round, namely that agricultural liberalisation benefits developing countries and therefore is key to achieving the development goals of the Round. In fact, agricultural liberlaisation benefits only a relatively small subset of developing countries" (Polaski 2006; 25)

Those benefiting include Brazil, Argentina, most of Latin America, South Africa, and some Association of Southeast Asian Nations (ASEAN) member countries, notably Thailand. However, the losers in agricultural liberalisation include "many of the world’s LDCs, including Bangladesh and the countries of East Africa and the rest of Sub-Saharan Africa." The Middle East, North Africa, Vietnam, Mexico and India and China also experience losses.

A valuable contribution made by the study is its simulation if developing countries shield their agricultural products from liberalisation. The scenario modeled was an "outer bound" of any agreement that might be reached under the Hong Kong framework, in which developing countries are permitted and choose to shelter all their agricultural products from liberalization under the "Special Products" provision.

Two interesting conclusions are drawn:

1) There are only minor reductions in other countries’ income gains if all products are classified as Special Products, even for the group of exporting countries that are most affected (eg. Argentina, Thailand).

2) Bangladesh and East African countries still experience losses if all products are classified as SPs. The losses experienced are slightly smaller than if there were no SPs.

The conclusion Polaski draws is that "Unless special measures are taken on their behalf" that is, over and above SPs, "Bangladesh, East Africa, and the rest of Sub-Saharan Africa are adversely affected in every Doha scenario modeled, regardless of whether the level of ambition is modest or high". [3]

This conclusion is similar to Polaski’s findings in an earlier paper, "Agricultural Negotiations at the WTO: First, Do No Harm", where she points out that the special and differential treatment the poor countries in the WTO are asking for remain inadequate:

"Alternative approaches, such as allowing developing countries to make smaller tariff reductions on a limited number of special products or allowing longer transition periods to implement tariff cuts, do not offer adequate flexibility for countries with significant labour concentration in small-scale agriculture".

The "Winners and Losers" report gives three main reasons why most developing countries lose out in the agriculture talks:

1) Many poor countries are net food importers.

2) With liberalisation, many will also lose the advantages of the current preference programmes. (Eg. the ACP countries’ preferential access to the EU market)

3) Low productivity, small-scale subsistence farming makes up the large portion of agricultural activity in many developing countries. The products of susbsistence farmers are generally not competitive on the global market.

Polaski explains:

"Forcing poor farmers to compete with global agriculture will not hasten an increase in their productivity if they do not have sufficient land, access to credit, high-yield seed, water, technical assistance, and other necessary inputs… For any crop, there may be many countries, both developed and developing, that can produce at lower costs than those of subsistence farmers elsewhere, due to economies of scale, mechanization, superior inputs, climatic conditions, government subsidies, or a range of other factors". [4]

Even for competitive agricultural exporters (such as Argentina, Brazil and Thailand), the gains from the agriculture negotiations are small. The highest gains amount to only $358 million for Argentina.

Overall, the gains from the Round are modest – a one time increase in world income of between $40 – 60 billion. Developing countries receive $21.5 billion (with China accounting for 10.6 billion from manufactured goods liberalisation). The majority of African countries lose out as a result of liberalisation of both agriculture and manufactured goods. Sub-Saharan Africa, according to Polaski, "loses world market share in some or all manufactured products" [5] This is due to lower world prices in manufactured products which will affect the labour-intensive sectors in LDCs.

In exports, the poorest developing countries, including LDCs will experience an overall decline as a result of the Round. Similarly in incomes, losses are expected – the biggest losses (0.8% of GDP) go to East African countries, Tanzania, Uganda and Malawi. Polaski concludes that other Sub-Saharan countries whose economies share similar structures and endowments as these countries are likely to experience a similar magnitude of losses.

The European Commission’s Sustainability Impact Assessment

The European Commission’s own sustainability impact assessment (SIA) of the Doha Round, carried out by the University of Manchester shows results that are quite similar to those of Carnegie and the World Bank.

Overall, the SIA reports that:

1) The world’s poorest countries, such as "in Sub Saharan Africa for example, poverty may worsen as they stand to lose economically from trade liberalisation and face severe supply side constraints". [6]

2) The adjustment period – associated with increased unemployment or underemployment – "can be severe …where social protection is weak or absent." These adverse effects may continue into the longer term in the absence of appropriate policies to support the creation of new employment opportunities. [7]

3) Countries can also face "a significant loss of tariff revenues, with possible negative indirect social impacts". [8]

4) Global environmental impacts are expected to be negative – from adverse effects on climate change to global biodiversity. More pressures as a result of increased agricultural production will be put on biologically sensitive areas, once again, affect developing countries more negatively. [9]

Specifically on agriculture, the SIA concludes:

· Countries that are globally competitive will gain from increased market access. However, "the majority of developing countries are unlikely to derive any significant direct benefit… The countries that will derive the least benefit, and may even incur losses, are those in which domestic agriculture has the least capacity to export, or are net food importers". [10] (The majority of African countries are net food importers.)

· Where rural production is uncompetitive, "liberalisation can lead to increased lower cost imports which compete with domestic producers. The decline in agricultural production will be associated with significant adjustment costs". [11]

The Research & Information Systems for Developing Countries (RIS) Policy Brief

In addition to these sobering implications for developing countries, Timothy Wise and Kevin Gallagher of Tufts University in their RIS Policy Brief #22 "Doha Round and Developing Countries: Will the Doha Deal Do More Harm than Good?" have pointed out that the global trade simulation models have overestimated the gains from Round simply because they have not taken into account the losses in tariff revenues countries will experience from liberalization. Wise and Gallagher estimate that the total losses for the developing world, only under the NAMA negotiations, could be $63.4 billion – ten times the gains for developing countries as a whole in NAMA ($6.7 billion)! These losses will again be most difficult for the poorest countries to bear. Income from tariffs account for more than 20 per cent of government revenue in more than half of Sub-Saharan African countries, more than 50 per cent for Niger and the Gambia, and more than 40 per cent for Benin, Lesotho, Madagascar, Mali, Togo and Uganda. [12]

The economic models assume that governments’ fiscal balances are fixed i.e. that revenue losses are made up for through domestic taxes. Historical evidence has shown that this is simply not the case. Many developing countries with large informal sectors cannot be taxed efficiently. And whilst the VAT has generally been introduced to replace losses from trade taxes in poor countries, the IMF estimates that it has on average replaced less then 30 per cent of the revenues lost. [13]

FAO on Preferences

The concerns the World Bank, Carnegie and the EC’s SIA regarding the loss of preferences by poor developing countries, as a result of MFN (most favoured nation) liberalisation, is echoed by the FAO:

i) "If the current trade liberalization process does not pay particular attention to the situation of the preference dependent countries, in most cases the resulting costs to them may be larger than the benefits". [14]

ii) Past financial instruments to address such problems "are considered to have lacked sufficient scale" and "concessionality". [15]

iii) Aid alone is not sufficient: "Progress on adjustment assistance might be approached in addition to, not in place of, the design of an improved preferential regime for specific countries." [16]

FAO’S Recommendations on Agricultural Policies for Low Income Developing Countries

In a recent technical note "No. 14: Towards appropriate agricultural trade policy for low income developing countries", the FAO made these observations and recommendations for the poorest Members of the WTO:

1) Widespread Market Failures in Poor Countries Require State Intervention Including Border Protection

Reviewing the agriculture development literature, the FAO concludes that it is well established that agricultural producers in many developing countries face widespread market failures. As a result, they cannot generate investible surpluses, which are then used to facilitate the generation of higher value activities. This process is essential for moving towards greater diversification.

The widespread market failures include weak input and output markets, lack of seasonal financing, limited risk management instruments etc. [17] Such a transition is "not likely to occur where market failures are pervasive without "significant government intervention at early stages of development".

There is therefore no evidence that a laissez faire trade liberalisation policy will bring the development countries are looking for. In fact, Dorward and Morrison’s 2001 study "The agricultural development experience of the past 30 years: lessons for LDCs", found that countries which have sustained agricultural growth were the ones that did not adopt a liberal policy stance from the start, but "lift(ed) the constraints to continued growth in a sequential manner, while at the same time intervening to secure the necessary favourable environment for the transformation of their agriculture sectors".

It is "during phases of border production" that "instances of induced innovation have been observed, with productivity growth rates exceeding those that might have been achieved in more liberal environments". [18]

2) Strong Evidence that Agriculture Is an Engine for Broad Based Growth, But Linkages to Local Economy Required

The FAO found that there is a high degree of correspondence between patterns of agricultural growth and patterns of poverty reduction across developing country regions. Agricultural growth can have disproportionately positive impacts since it can stimulate increased domestic demand, through increased rural incomes, hence supporting growth in other sectors. "In practice also, there are few obvious alternatives to agriculture as drivers of broadly-based growth in countries still in the early stages of development". [19]

However, in order to have such positive outcomes, the sector has to have "substantial linkages with the local economy", and such ""linkage rich" agricultural development will generally be encouraged by labour intensive, rather than capital and / or specialist knowledge intensive methods of production, by more equitable distribution of income, by local consumption patterns favouring local rather than imported goods and services, and by links to wider produce markets that can continue to absorb production increases without large falls in produce prices". [20]

Gradual and sequential lifting of constraints to growth of the sector has to be supported by conducive institutional arrangements in the political, legal and economic spheres.

3) Exports Alone Is Not the Solution to Poverty Reduction

If it is taken as a given that the productivity of local producers should be increased in order to increase incomes and purchasing capacity, should this be through an export promotion strategy or an import substitution strategy?

When measuring the impact of the export model, the FAO concludes that the size of the sector matters. "Where the agricultural sector is a large part of the economy, rapid reduction in protection for the sector as a whole may generate significant unemployment and rural–urban migration. On the other hand, where the sector as a whole is a modest part of the whole economy and a fortiori, where it is a modest part of the rural economy, any unemployed labour may be rapidly reabsorbed". [21]

"In some cases of export led growth there is evidence that consolidation into larger farms has displaced the livelihoods of small producing households. The number of individuals absorbed into alternative employment is likely to be less than the number displaced". [22 ]

In the case of Chile, for example, where the share of agriculture in total employment and the share of agricultural exports in total merchandise exports are less then 20 per cent, the impact on the distribution of income may be negative for only a small proportion of labour. However, in countries with larger agricultural sectors, the negative income distribution effects would be more visible. In Latin America, agricultural employment generally only makes up less than 20 per cent of overall employment. This ratio is significantly higher in Sub-Saharan Africa (66 per cent) and Asia (56 per cent).

Citing Foster and Valdes (2006), the FAO notes that even in Latin America, it is observed that the export strategy did not contribute to the reduction in poverty. Even though the region as a whole is a net food exporter, only six out of the twenty-two countries are net food exporters (Brazil, Argentina, Uruguay, Paraguay, Bolivia and Nicaragua). Whilst exports did not leave the sector as a whole worse off, it did not benefit all sections of population within the sector either.

Those that have not benefited include small farmers and farmers in low productivity areas. The growth of the sector is currently limited by domestic demand and remains dependent on exports.

4) Employment is More Important than Cheap Food

Protection in developing countries is often discouraged by neo-liberals as detrimental because it leads to higher food prices, affecting the urban poor. The FAO however, concludes that the impact of policy intervention on real income is more important than its impact on price levels. The major concern of poor urban households is employment income (and the availability of employment), rather than the price of food products. This is similarly the case for those in the rural economy. [23]

5) Importance of Local and Regional (Internal) Markets

In poor countries, such as in Sub-Saharan Africa (SSA), there is no viable domestic market for higher value products. FAO notes that international markets for these products are also difficult to access, given the distortions in the OECD.

In contrast, the majority of rural poor in SSA are in staple food sectors which compete with imports.

There is therefore "considerable potential for growth" in these staple sectors (obviously only if tariffs are high enough to keep imports out) and the domestic market "is likely to provide a more promising outlook in the short to medium term than international markets". [24]

For small farmers, production for the local and regional markets, as a trade strategy, is less risky for small scale peasant farmers. It also avoids the problems of quality standards etc. [25]

The FAO also cites evidence in Asia to illustrate the importance of large domestic internal markets - they have often been a pre-requisite to agriculture based growth in Asian economies.

These internal markets facilitated the marketing of surplus commodities to deficit areas, helping to ensure stability of prices (Indonesia before the 1997 financial crisis is an example). Today, domestic markets – such as those in the SSA - are relatively small but regional markets can play the same role.

6) Full Trade Reform in Sub-Saharan Africa Could Lock Countries into Low Value Production

Finally, the FAO technical note also cites research by Achterbosch et al (2004) suggesting that Africa will embark on the road to de-industrialization if there is full trade reform. Rather than facilitating diversification, contraction of higher value added – of light and heavy industrial and services sectors – is a likely consequence. This leaves Africa only with the option to expand production in traditional agricultural commodities.

The effect is that these countries become locked into production patterns reflected by their current comparative advantage, rather than being allowed to develop a comparative advantage in higher value activities. (A point not highlighted by the FAO paper is that demand for traditional agricultural commodities tends to be inelastic – hence production increases have in part led to long term price declines. Such declining terms of trade will only add to the economic woes of these countries.)

Citing Dorward et al (2004), the FAO concludes that "Many of the contemporary poorer countries have by-passed a critical stage of support to their agricultural sectors. Many of these countries are now left with relatively liberal trade policies, but weakly developed agriculture sectors, the development of which policy makers are now less able to support in the longer term and which, by virtue of low levels of applied border protection, are also more susceptible to short term external shocks". [26]

Notes

1. Anderson and Martin 2005 "Agricultural Trade Reform and the Doha Development Agenda", World Bank.

2. World Bank 2005 "Global Agricultural Trade and Developing Countries", p. 124-25.

3. Polaski ibid. p. 32.

4. Polaski S 2005 "Agricultural Negotiations at the WTO: First, Do No Harm", Carnegie Endowment for International Peace, June.

5. Polaski 2006 "Winners and Losers" p. 27

6. Kirkpatrick C, George C, and Scrieciu S 2006 "Sustainability Impact Assessment of Proposed WTO Negotiaitons: Final Global Overview Trade SIA of the Doha Development Agenda", University of Manchester, Consultation Draft. p. iv. http://www.sia-trade.org/

wto/FinalPhase/GLOBALOVERVIEW_FINALMay2006.pdf

7. Kirkpatrick et al, ibid, p. iv.

8. Kirkpatrick et al, ibid, p. v.

9. In addition to the EC’s SIA, the World Watch Institute recently issued a sobering brief "The Irony of Climate" highlighting the impact of climate change on agricultural production. As temperatures rise, crop productivity decreases. In rice, wheat and maize, grain yields decline by 10 per cent for every 1 degree C increase in temperature over 30. There are predictions that grain yields in the South East and South Asian region might fall as much as 30 per cent over the next 50 years, during a period when the region’s malnourished population has been projected to increase by 44 per cent. Also as a result of global warming, the incidence of pests increase, again impacting more negatively in the developing world residing in the tropics. (Halweil, B 2005, Excerpted from the March /April 2005 World Watch magazine).

10. Kirkpatrick C et al, ibid. p. 50.

11. Kirkpatrick C et al, ibid. p. 50

12. Osakwe, P 2006 "Emerging Issues and Concerns of African Countries in the WTO Negotiations on Agriculture and the Doha Round". Paper presented at the FAO Workshop on WTO Rules for Agriculture Compatible with Development. 2 – 3 February 2006, FAO, Rome, cited in FAO Trade Policy Technical Notes No. 14 "Agricultural Trade Policy for Low Income Developing Countries".

13. Baunsgaard, T and Keen M 2005 "Tax Revenue and (or ?) Trade Liberalization". Working Paper 05/112, IMF, Washington D.C.

14. FAO Non-Reciprocal Agricultural Trade Preferences: Trade Policy Brief No.7 on Issues Related to the WTO Negotiations on Agriculture, Rome. p7. ftp://ftp.fao.org/docrep/fao/008/j5424e/j5424e00.pdf

15. FAO ibid. p. 9.

16. FAO ibid. p. 13.

17. These market failures are never taken into account in the global trade simulation models, where it is assumed that resources move effortlessly from traditional agricultural activities into higher value added activities (FAO 2005 Technical Note No. 14).

18. FAO 2005 "Towards Appropriate Agricultural Trade Policy For Low Income Developing Countries", FAO Trade Policy Technical Notes on Issues Related to the WTO Negotiations on Agriculture. No. 14. p. 3.

http://www.fao.org/

documents/show_cdr.asp?url_file=/docrep/009/j7724e/j7724e00.htm

19. FAO ibid. p.3

20. FAO ibid. p. 3

21. FAO ibid. p. 6

22. FAO ibid. p. 6

23. Morrison and Sarris 2006, Dorward et al 2004 and Poulton 2005 cited in FAO, ibid. p. 5

24. FAO, ibid. p. 6

25. FAO ibid. p. 6

26. Dorward et al 2004, cited in FAO ibid. p. 8

Perspectives and Potential for South-South Trade

Despite receiving greater attention as being more dynamic than world trade itself, South-South trade still remains underdeveloped. There is a need to harness the great potential of South-South trade to stimulate growth and development of developing countries and reduce their dependence on the markets of the North. A study by Rashid S. Kaukab, Head of the Strategic Policy and Planning at the South Centre, looks at some of the critical elements involved. The paper was presented recently at the 2nd annual conference on "International Trade and Development: WTO and Beyond", organized by the International Trade Law and Development Institute (IDCID) on 22-23 May in Sao Paulo, Brazil.

Promotion of South-South trade is an area of great interest to many - both in the developed and developing countries. There is a rich and diverse body of literature on political and economic dimensions of such trade. This concept has strong political appeal, particularly among many politicians, intellectuals and policy makers that favour third world nationalism and South-South solidarity to face the political and economic power of the rich North. But it is not only political ideology that drives the agenda of South-South trade. There are many good economic reasons to promote trade among the countries of the South as it can stimulate growth and development of these countries and reduce their dependence on the mature markets of the North.

However, and despite many initiatives in the second half of the 20th century mainly in the form of sub-regional and regional trade agreements among developing countries, South-South trade still remains underdeveloped. Identifying the causes for this and finding appropriate and effective solutions is the main challenge for the proponents. This is a formidable task and the present paper can not claim to meet the challenge. However, this is an attempt to provide a very brief outline of the issue through a three-step analysis – potential, performance and promotion of South-South trade. It neither covers complete discussion of all aspects of South-South trade, nor can this paper claim to present a comprehensive survey of all the existing literature. It is based on the data in the relevant UN and WTO publications but does not attempt any econometric analysis.

Potential for South-South Trade

A basic question for both the proponents and sceptics of South-South trade is: how much potential is there for such trade? In other words, whether the South-South trade has real economic value or is this merely a political ideology from the bygone days. A positive answer to this question is important if further efforts and resources are to be devoted to promote South-South trade.

Several indicators can be presented to argue that there is substantial potential for South-South trade. Conceptually this can take the form of a comparison between what is and what can be - given the state of some important economic and other indicators. Table I presents such a comparison. Based on the statistics in this table, at least three arguments can be made to demonstrate that there is significant potential for South-South trade. One, the present share of developing countries in the world trade is much less than their share in the world population. Moreover, the rate of growth of population is substantially higher in the developing world. This points to both the currently unmet demand and the growth potential of developing country markets.

Two, developing countries have been growing at a much faster pace than developed countries and this trend is expected to continue in the future. This means that the growing markets of developing countries are going to be more prosperous as well and hence will have greater purchasing power than now. Three, developing countries` import and export rates are substantially higher than those of developed countries and hence their share in world trade will continue to increase.

South-South Trade: Actual Performance [1]

Examination of the trends and developments in South-South trade in the last decade presents an interesting and mixed picture. On the positive side, the share of South-South trade in world merchandise trade almost doubled between 1990 (6.5%) and 2001 (10.7%). Moreover, during this period the South-South trade expanded twice as fast (10%) as world trade (5%). In 2001, for example, 37% of developing country total exports were going to other developing countries as compared with 28% in 1990. However, the performance was uneven among various developing country regions, during different time periods, and in relation to various products. A more detailed examination of this uneven performance across regions, time periods and product groups can reveal the underlying causes which promote or hinder South-South trade from realizing its true potential. The data presented in Tables II.1 and II.2 below is a very preliminary effort in this regard.

Table II.1 compares the performance of the three developing country regions over two time periods (i.e., between 1990-95 and 1995-2000) and in the context of the respective sizes and rates of growth of their GDPs. Some conclusions seem easy to draw from this table. One, generally the rates of growth of merchandise exports were higher in the period 1990-95 than in 1995-2000 (only exception being average annual growth of African merchandise exports to the world). This seems to be related to the rates of GDP growths which were higher in the period 1990-95 but came down later due to the East Asian financial crises and its effects on other developing country regions. Two, developing Asia clearly leads the way in South-South trade. The most important sign of this is the share of developing Asia in the total South-South merchandise exports (81%) which is substantially higher than its share in the total South GDP (61%). Three, the rates of average annual growth of exports to the South, and to the region itself, by developing Asia which were much higher than the rate of average annual growth of its exports to the world in the period 1990-95, came down to the same level in the period 1995-2000. In fact this trend seems to be even stronger in Latin America where the average annual growth of merchandise exports to the world did not change much between 1990-95 and 1995-2000 whereas the average annual growth of merchandise exports to the South and the region itself was sharply down in the later period. Does this signify a stronger relationship between GDP growth and South-South trade expansion rates?

Four, contrary to the common perception, Africa is not necessarily the laggard in South-South trade, particularly when compared with the performance of Latin America in merchandise exports. This can be seen by comparing the share of Latin America in the total South-South merchandise exports (13%) with its share in the total South GDP (31%). Five, by the same token Africa does not seem to be doing too badly as its share in the total South-South merchandise exports (6%) is only slightly less than its share in the total South GDP (8%). However, this should be qualified with two other observations: i) average annual growth rates of African merchandise exports to all the destinations in the table (world, South, the region itself) in both the periods are lower than the respective rates for developing Asia and Latin America (except for the average annual growth of African merchandise exports to the South in the period 1995-2000); and ii) this is the only region where the average annual growth rate of merchandise exports to the region itself became actually negative (-6% in the period 1995-2000). [2]

Perhaps, and while recognizing that this short paper does not attempt to examine the performance of any particular region in much greater depth, it will be useful to say a little more about Africa, particularly the composition of its exports as it may have a strong link with its pattern of trade with the North and the South. Almost all African countries (with the exception of South Africa) are overwhelmingly dependent on commodity exports. Therefore, it is not surprising that Africa does not trade much amongst itself as its exports are destined for advanced centers of manufacturing in the North and now increasingly China. On the other hand, those countries that do have a competitive advantage in agricultural exports have to compete not only with efficient producers in the Cairns group, notably in Latin America but often much more with heavily subsidized agricultural producers in the North. On top of this, Africa’s commodity exports are generally controlled by foreign multinational corporations, with their own production networks and marketing channels.

Finally, the number of regional trade agreements (RTA) among the countries of a region does not seem to have any impact on the rate of growth of South-South trade

Table II.2 is a preliminary attempt to understand the reasons behind the performance of leaders in South-South trade. According to the WTO World Trade Report 2003, South-South trade is concentrated on a few leading traders. Hence in 2001, five countries, namely, China, Chinese Taipei, Malaysia, Republic of Korea and Singapore, accounted for 50% of South-South exports and 41 % of South-South imports. According to the same Report, the leading sectors in South-South trade are chemicals, machinery and transport equipment, and clothing, as average annual growth of South-South exports in these product groups in the period 1990-2001, were respectively 12%, 16% and 11%, i.e. higher than the 10% average annual growth rate for all South-South merchandise exports in the same period. Could there be a link between leading countries and leading product groups in South-South trade via the mechanism of lower tariff regimes?

This does not seem to be the case as the simple sectoral average of MFN applied tariffs in these product groups in all the five leading countries is not systematically lower than their simple average MFN applied tariffs for all non-agricultural products. In fact in many more cases the sectoral simple average MFN applied tariffs are higher than the simple average MFN applied tariff for all non-agricultural products. These include: textiles and clothing (China, Chinese Taipei, Malaysia, and Republic of Korea) and machinery and transport equipment (China, Chinese Taipei and Malaysia)

This discussion only confirms the complexity of the issue where it is not easy to clearly identify and generalise the causes that promote or hinder South-South trade. What comes out though is that: the South-South trade is already quite important for some regions and many countries; and the pattern and depth of integration varies among countries, sub-regions and products. Not only that much more analysis is required to fully understand these causes, one suspects that many non-economic factors may also be at play here.

Promotion of South-South Trade

There is much potential for South-South trade; a fact that is borne out of actual performance of South-South trade that has been growing almost twice as fast as the total world trade in the last decade. The lessons learnt from this performance can be used to exploit the potential and promote South-South trade. However, as the above discussion demonstrates, the situation is complex and drawing lessons for general application is not at all easy. This Section therefore can offer some preliminary thoughts only.

Economic Factors: The main economic factor at play here seems to be the rate of GDP growth. South-South trade grew rapidly in the periods and the regions experiencing faster GDP growth rates. This simple, and one would say common sense, finding raises another interesting question. What is the direction of causal relationship between GDP growth and South-South trade growth? While in many cases, higher GDP growth rates seem to be driving up the South-South trade, can the reverse be true as well? The answer to this question is important as many hope that greater South-South trade can provide the means to faster growth, particularly for smaller developing countries. Perhaps political, institutional and facilitation factors as discussed below can be combined to generate economic stimulus and South-South trade for growth and development of a large number of developing countries.

Political Factors: Political stability within the countries as well as stable and friendly political relationships among countries is important both for GDP growth and South-South trade. Political instability, wars and civil strife have clearly been relevant factors in holding back many African countries from realizing their true economic potential. Similarly, hostile political climate among countries of the region has been largely responsible for not allowing regional trade to fully develop in South Asia. On the other hand, the recent initiative to bring India, Brazil, and South Africa (IBSA) closer together in trade and economic partnership builds on good political foundations. [3] Can this example be extended, particularly to envisage stronger trade and economic partnerships among countries of very different sizes also? For example, can there be a South Africa-centric regional bloc that is based on full realization of the needs of smaller countries in the region and allows the balanced growth and development of all countries through deeper integration and associated South-South trade in the region?

This can be imagined only if there is political stability and strong political commitment so that the closer trade and economic ties are built gradually to allow necessary adjustments, and are based on arrangements that make smaller countries feel comfortable and secure.

Governing Structure Factors: The main question regarding governing structure factors can be framed as: what institutional framework can better promote South-South trade – multilateral or regional? Many, particularly the neo-liberal economists as well as the WTO favour multilateral approach. But as seen above there is little evidence that multilateral trade liberalization through MFN tariff reductions play any significant role in promoting South-South trade. Similarly, while the total number of regional trade agreements among countries of a region does not seem to be related to the rate of growth of South-South trade, some RTAs have seems to have led to more trade among their members, particularly in the first decade after their establishment. Some rather dramatic examples of this are given in Table III.

Therefore, the role of RTAs among the countries of the South in promoting trade among their members cannot be ignored. What is needed is a better understanding of why some RTAs have been more successful than others and why has their performance fluctuated during different time periods. The reasons may not be entirely economic or political. Instead there may also be certain governance and structural features in some RTAs that work better to promote trade among members and hence can be employed in other RTAs as well.

The discussion on governance structure factors as related to the promotion of South-South trade will not be complete without mentioning the Global System of Trade Preferences (GSTP) among developing countries. This is the only global mechanism for exchanging trade concessions among potentially all developing countries. But the progress has been quite limited. Some governance structure-related reasons for this poor performance include: lack of a permanent and well-staffed secretariat and under-developed institutional structure (e.g., at political level and for dispute settlement). It will be useful to examine whether better governance structure-related provision can facilitate GSTP in realizing its full potential.

Facilitation Factors: Trade can not take place without necessary infrastructure, both "hardware" (e.g. physical infrastructure including transport and communication links) and "software" (e.g., customs procedures, financing arrangements, market information, contract enforcement mechanism and business relationships). While economic, political and institutional factors generate and sustain the potential for trade, infrastructure or facilitation factors make sure that the potential is realized. The total lack or inadequacy of trade infrastructure or facilitation factors may be playing a much bigger role in hindering the growth of South-South trade. This may very well be the main reason for underdeveloped regional trade in Africa and trade within the South more generally. For those involved in international trade in developing countries, it is often much easier to trade with developed countries (often based on past colonial, historical and political relationships) than with their neighbouring developing countries. This impediment can be overcome through the development of adequate trade infrastructure. Admittedly this is a time and resource consuming exercise. But if there is economic potential and political commitment, development of trade infrastructure should be a central element in the South-South RTAs. Within the broader set of trade infrastructure or facilitation factors, two must receive priority attention: adequate financing facilities and business-to-business relationships. Trade is conducted by the private sector. The private sector will make the most of the opportunities if connected to their counterparts in other developing countries and provided adequate financing facilities

Concluding Remark

A brief analysis in this paper shows that there is substantial potential for greater South-South trade; the South-South trade has been growing at a much faster pace than the world trade; and a number of factors, including economic, political, institutional and facilitation, can promote or hinder the growth of South-South trade. An intriguing possibility that emerges from this analysis is the potential for closer trade and economic ties among Southern countries of different sizes and rates of GDP growth. Such arrangements (perhaps within the context of an RTA), if accompanied with political stability and strong political commitment, and adequate institutional and facilitation mechanisms, can realize the full potential of South-South trade and its contribution to the growth and development of the countries of the South.

Notes

1. This Section draws upon some of the discussion and data in the World Trade Report 2003 of the World Trade Organization.

2. This variance in African export performance also raises an intriguing question: is it due to trade diversion from within the region (growth rate dropping from 12% to -6%) and from other Southern regions (growth rate dropping from 12% to 9%) to the rest of the world (over all growth rate increasing from 0.3% to 2%)? If so, what is causing this diversion?

3. If we assume that building regional integration amongst countries at similar stages of development is founded on intra-industry trade then there is some scope within BISA for this. But it will be important to identify which sectors hold the most promise. Furthermore, consideration would have to be given to the role played by multinational corporations in those sectors. Do they inhibit South-South trade through licensing agreements (e.g. some South Africa – based automotive producers are only allowed to export into Africa)? This also points to the fact that not all barriers to trade can be eliminated through RTAs.

Selected Bibliography

Table I

Shares and Growth Rates of Selected Indicators in Developed and Developing Countries

(in per cent)

Developed Countries

Developing Countries

Share in world population (2001)

14

80

Average annual population growth rate (1990-2001)

0.6

1.7

Share in world GDP (2001)

76

20

Average annual GDP growth rate (1990-2001)

2.4

4.7

Average annual expected GDP growth rate (2003-2015)*

2.5

4.7

Share in total world trade – imports and exports (2002)

64

30

Average annual imports growth rate (1990-2000)

5.8

8.2

Average annual exports growth rate

5.7

9.1

? This forecast is from the World Bank Global Economic Prospects 2003; other figures in this table are based on UNCTAD Handbook of Statistics 2003. The statistics for developed countries pertain to developed market economies and do not include countries in Central and Eastern Europe.

Table II.1

South-South Trade: Comparative Performance of Developing Asia, Africa and Latin America

In % terms

Developing

Asia

Africa

Latin

America

Average annual growth of merchandise exports to the world

1990-1995

1995-2000

 

13

6

 

0.3

2

 

9

8

Average annual growth of merchandise exports to the South

1990-1995

1995-2000

21

6

12

9

16

4

Average annual growth of merchandise exports to own region

1990-1995

1995-2000

21

6

12

-6

18

5

Average annual GDP growth

1990-1995

1995-2000

7

5

1.6

3.5

3.5

2.9

Share in total South GDP in 2001

61

8

31

Share in total South-South merchandise exports in 2001

81

6

13

Number of notified RTAs

6

9

6

This table uses data from the WTO World Trade Report & UNCTAD Handbook of Statistics- both 2003.

Table II.2

MFN Applied Tariffs on Leading Product Groups in Leading Countries in South-South Trade

(simple sector average in per cent)

Non-agriculture products

Chemicals

Machinery & transport equipt

Textiles and clothing

China (2002)

11.3

8

12

18

Chinese Taipei (2001)

6.3

4

7

9

Malaysia (001)

8.1

4

10

14

Republic of Korea (2001)

7.5

7

6

10

Singapore (2001)

0

0

0

0

This table uses data from the WTO World Trade Report 2003.

Table III

Growth in Intra-Regional Export Shares after the Establishment of RTAs

 

RTA

Year in Force/Founded

Share Before

(% and year)

Share After

(% and year)

ECOWAS

1975

2.9 (1970)

9.6 (1980)

GCC

1981

3.0 (1980)

8.0 (1990)

Andean Group

1988

3.2 1985)

12.2 (1995)

Mercosur

1991

8.9 (1990)

20.7 (2000)

SADC

1992

3.1 (1990)

11.9 (2000)

ASEAN/AFTA

1992

19.0 (1990)

23.0 (2000)

This table is calculated from the data in the WTO World Trade Report 2003.

News

Helsinki Process: The Changing Context of Globalisation

The high-level Consultative Network of the Helsinki Process on Globalisation and Democracy convened for its first meeting in Helsinki on 6-7 June. The meeting was cochaired by the Foreign Ministers of Finland and Tanzania, Erkki Tuomioja and Asha-Rose Mtengeti Migiro and attracted about 50 participants from different stakeholder groups. The broad theme of the meeting was the "Changing Context of Globalisation" and the participants discussed three topical issues that have affected globalisation in recent years.

During the first day the network elaborated on the potential of the new United Nations Human Rights Council as well as new macroeconomic thinking, such as focusing on job creation in order to promote economic growth. The main theme of the second day was the link between climate change and the increasing demand for energy. The opening remarks were presented by Thomas Hammarberg, High Commissioner for Human Rights of the Council of Europe, Robert Vos, Director of the Development Policy and Analysis Division, Department of Economic and Social Affairs, United Nations, R.K. Pachauri, Director General of the TATA Energy Research Institute, and Jagdish Bhagwati, Eminent Professor of Economics, Columbia University.

In addition, the network addressed the aims and initiatives of the second phase of the Helsinki Process, launched after the Helsinki Conference of September 2005.

The meeting concluded that the open and inclusive multistakeholder approach of the process can bring value-added to identifying solutions to global problems and contribute to the improvement of North-South relations. It was noted that the process also seeks to support existing initiatives and proposals, for example by contributing to the development of a stable and equal Human Rights Council. The empowerment of marginalised voices and the inclusion of parliamentarians both at the local and the global level were seen as key tasks for the process.

One of the greatest challenges raised was the mobilisation of political will to address the issues of climate change and energy in a way that would not put the greatest burden on the poorest people living developing countries. During the first phase of the Helsinki Process, Finland and Tanzania brought together a Group of Friends of the Helsinki Process consisting of thirteen states. In the second phase, this group is responsible for taking forward the commonly agreed aims in various international fora.

The Helsinki Process was initiated by the governments of Finland and Tanzania in 2002 to search for new approaches to global problem-solving.

Africa Fertilizer Summit Sets Up Fertilizer Finance Mechanism

Abuja, Nigeria 14 June--The Heart of Africa today maintained- her- big- brother-, keeper role when President Olusegun Obasanjo told his colleagues from the continent that "we must reconfirm our belief in the fact that Agriculture must be the engine for growth and prosperity" and announced the setting up of Africa Fertilizer Finance Mechanism with a donation of ten million US dollars.

Obasanjo said Nigeria believed that the continent of Africa must join hands together to make agriculture lucrative, attractive, productive, rewarding, satisfying, competitive and sustainable, and emphasized that the continent had no reason to fail to achieve this position if posterity was to forgive the leaders.

He described the First Africa Fertilizer Summit as an honest and fresh beginning designed to uplift the people of the continent at addressing food security which according to him was one of the chronic and debilitating problems facing the people of Africa.

The Nigerian leader said that in order to get out of the problem, Africa must be ready to embrace new ideas, new technology, new work practices, and new Partnership and agreed that it was not going to be easy to dismantle and reconstruct debilitating institutions.

Admitting that some progress had been made in the area of food security in Nigeria, the Nigerian President noted that Nigeria would continue to intensify measures aimed at redressing existing adverse conditions militating against the availability of quality foods on a sustainable basis the provision of infrastructure in the rural areas.He stressed that the country’s vision for the fertilizer sub sector was to sustain timely provision of good quality fertilizers to farmers in the most cost effective manner.

President Olusegun who chaired the summit declared that Nigeria had a mission to ensure that Nigerian farmers had easy farm gate access to affordable high quality fertilizer to increase agricultural production and enhance the quality of life of rural farmers.

In appreciating the enormous role of women in the feeding of the huge population of Nigeria, the President said the administration’s promotion of women vehicles for agricultural development was a deliberate policy of government for Women in Agriculture (WIA) units had been established in the State Agricultural Development Programme to undertake activities that ensure their increased participation.

President Olusegun Obasanjo had earlier in his address noted that Africa’s low Fertilizer use was environmentally unsustainable stressing that it did not only lead to depleted soils, but it also contributed to deforestation and that with poor productivity from existing farmlands more forestland were felled to fuel fire for cooking and warming for the growing populace.

South Centre News

Trade for Development

- The Services project staff:

· Provided specific assistance to LDCs and developing countries on country specific GATS interests and capacity building issues on services.

· Met informally with an LDC delegate on 8 June to discuss strategies for the recent revised collective request on mode 4 and the Understanding on Special Priority with an LDC delegate.

· Held 2 meetings on domestic regulation with a group of delegates on 30 May, 6 June and 14 June to work towards common positions in the negotiations for disciplines on domestic regulation. Also discussed was developing country’ views on the recent LDC proposal for an Understanding on Special Priority.

- The Programme staff members also participated in:

· A Training Event organized jointly by OXFAM and the South Centre in La Paz (Bolivia), from 5 to 7 June. The audience included Government Officials from the Ministry of Foreign Affairs, the Ministry of Agriculture and Rural Development Planning and parliamentarians as well as a few representatives from civil society. The state of play of agriculture and Non-Agricultural Market Access (NAMA) negotiations and information on relevant aspects of the multilateral trading system were presented.

· A workshop organized by the Development and Peace Foundation on "Multilateralism in Transition, Fragmentation, Informalisation and Networking" in Dresden Germany 8-9 June.

· Meeting with a researcher from the University of Barcelona on 13 June to discuss development issues in the context of education services.

Innovation, Access to Knowledge and Intellectual Property

- Recent research and publications

The programme jointly published with the WHO Department of Technical Cooperation for Essential Drugs and Traditional Medicine, a book in the South Perspective series titled "The Use of Flexibilities in TRIPS by Developing Countries: Can they Promote Access to Medicines?"

The study was originally commissioned by the WHO Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH). Authored by Sisule Musungu (Acting Programme Coordinator) and Cecilia Oh (Technical Officer, WHO), the study examines: the use of TRIPS flexibilities by developing countries for public health purposes; reviews the extent to which the trade policies of major industrialized countries such as the United States take adequate account of the public health priorities of developing countries; and the practical effect and implications of recently concluded bilateral and regional free trade agreements (FTAs) for public health protection in developing countries.

- The programme staff participated in meetings on:

· "FTA’s and Sustainable Development: The Example of EFTA and other Upcoming Challenges", 26 June 2006, Geneva. The discussion was hosted by the Berne Declaration and the Geneva office of the Center for International Environmental Law (CIEL) and focused on issues of intellectual property and financial services, as well as negotiations for a free trade agreement between EFTA and Thailand and Indonesia.

· "Access to ARVs in SADC: TRIPS-Related Concerns in the SADC Region" 6-8 June 2006, Johannesburg, South Africa. Three presentations were made - on "Overview of Public Health-Related TRIPS Flexibilities", "Recent Developments at WTO’s TRIPs Council, in Particular, the Permanent Amendment of Article 31 of TRIPS" and "TRIPS Flexibilities and Safeguards: Opportunities for SADC".

Global Governance for Development

- In work with delegations in Geneva, the Programme staff:

· Prepared an informal note on strengthening UNCTAD on 9 June 2006, which was distributed for the use of the G-77 and China in the UNCTAD XI Mid-Term Review’s 2nd session on 12-16 June 2006

· Provided technical assistance on trade facilitation to various developing country groupings such as the Core Group, the ACP, and LDCs

· Participated in an ICTSD/GIAN meeting on "The Mexico Soft Drinks Dispute: Implications for regionalism and for trade and sustainable development" at the WMO, Geneva, on 30 May.

· Attended UNCTAD XI Mid-Term Review’s 2nd session from 12-16 June 2006.

· Took part in the Services Project meeting on 6 June which addressed developing countries’ views on the recent LDC proposal for an Understanding on Special Priority.

· Held discussions on EPAs with two representatives of the West African Trade Union’s Working Group on 9 June.

Editorial

‘Trace Those Using South as a Toxic Waste Dump’

On the occasion of the World Environment Day this year (5 June), a United Nations Special Rapporteur, Okechukwu Ibeanu (of Nigeria) drew the attention of the international community to the question of impunity for violations of human rights around the world due to the illicit movement and dumping of toxic and dangerous products and wastes, resulting in unmitigated deterioration of the environment, particularly in the developing countries. His message is indeed thought-provoking.

But it is not just the environment – ultimately it is millions of people in the developing world who stand exposed to these hazardous products, resulting in all kinds of diseases and disabilities.

The UN Human Rights expert points out that economic growth and demand for energy and consumer products have led to unprecedented levels of industrial production, thereby increasing the problem of toxic wastes that have to be disposed of. In the industrialized countries, the classic disposal options, namely land filling and incineration, are being subjected to restrictions, bans or phase-outs, principally because they are widely rejected by the population. Therefore, there is an increased pressure to export waste to poor and remote areas.

Over the last four decades, at least 50,000 tons of obsolete pesticides have accumulated in stockpiles across the African continent. For decades, these chemicals will continue to threaten the environment and surrounding communities - often the poorest and most vulnerable - through the contamination of food, water, soil, and air. Added to this is the emergence of new phenomena such as the export of polluted vessels to developing countries for ship-breaking, with the recall of a French ship from off the coast of India recently being a dramatic development!

There is also a growing trade in electronic waste. A recent photo-documentary report entitled "The Digital Dump: Exporting High-Tech Re-use and Abuse to Africa," exposes the dark side of what is thought to be an escalating global trade in toxic, obsolete, discarded computers and other e-scrap collected in North America and Europe and sent to developing countries by waste brokers and so-called recyclers.

In Lagos, while there is a legitimate robust market and ability to repair and refurbish old electronic equipment including computers, monitors, TVs and cell phones, the local experts complain that of the estimated five hundred 40-foot containers shipped to Lagos each month, as much as 75 per cent of the imports are "junk" and are not economically repairable or marketable. Consequently, this e-waste, which is legally a hazardous waste is being discarded and routinely burned in what the environmentalists call yet "another cyber-age nightmare now landing on the shores of developing countries."

In addition, says the UN expert, there is the transfer of industries producing large quantities of waste and the export from industrialized countries to developing countries of near obsolete products, ranging from cars to medicines. Products that are banned, taken off the market, strictly regulated or not permitted in industrialized countries continue to be produced and exported to developing countries where their use is encouraged through advertising, linking their use to project financing and aid, or falsification and manipulation of data.

It was in 1995 that the Commission on Human Rights adopted its first resolution specifically concerning the adverse effects of the illicit movement and dumping of toxic and dangerous products and wastes. It decided to appoint a Special Rapporteur with a mandate to investigate and make recommendations on control measures and to compile a list of the countries and transnational corporations engaged in such practices, in addition to a list of victims. Mr. Okechkwu Ibeanu, a professor of political science at the University of Nigeria, was appointed to this function in 2004.

In his appeal to all governments, he calls for implementing procedures to trace toxic wastes from their production to their disposal, including all parties that intervene in that process; to clearly establish the parties that are to be held accountable and responsible for the disposal of toxic wastes and for eventual harm to human rights of individuals or communities; to conduct scientific and medical assessment of all products that may potentially generate biological and environmental hazards, and to set up legislation that halts production of toxic wastes for which there are no established disposal means without endangering human rights.

He has also invited the civil society to bring to his attention such cases of violations of human rights to forward to now the Human Rights Council. But for this enormous North-South dumping – that damages the health and the environment - to be arrested, a string of penalties must begin soon and be high enough to pinch!

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Thursday, June 15, 2006