Richard Melson

March 2006

South Bulletin No. 120

www.southcentre.org

South Bulletin 120

15 March 2006

The focus of this issue of the South Bulletin is

on peaceful resolution of South-North conflicts.

Attached please find the latest issue of the 

South Bulletin no.120 in pdf and word formats. 

Focus on peacefully resolving South-North conflicts.

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Someshwar Singh

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In this Issue:

Revitalizing UNCTAD

The United Nations Conference on Trade and Development (UNCTAD) has been transformed beyond recognition in several major aspects from its original remit and scope but it still remains unique and relevant. A new report ‘Reinventing UNCTAD’ has been submitted by Boutros Boutros-Ghali, former Secretary-General of the United Nations and Chairman of the South Centre Board to the Panel of Eminent Persons on Enhancing UNCTAD’s Impact.

The Search for Policy Autonomy in the South

The South needs greater autonomy for in development policy making and greater space for its "own" diagnosis and prescription. That is a key message of a recently released United Nations Research Institute for Social Development (UNRISD) Programme Paper "The Search for Policy Autonomy in the South Universalism, Social Learning and the Role of Regionalism." Authored by Norman Girvan, a member of the South Centre Board.

South-North Conflicts in a Historical Perspective

A tenacious South-South coalition is the best course of action for the developing countries not just for the Doha round but to ensure the gradual renovation of international economic law and the institution of a new international economic order. That is the import of a recent article ‘Be Optimistic, or Be Pessimistic? - The Fork Confronting DDR and WTO after Its Hong Kong Ministerial Conference’ by An Chen, Senior Professor of Law School at Xiamen University.

Goodbye Washington Consensus, Hello Washington Confusion? – (I)

While the lessons drawn by proponents and skeptics differ, it is fair to say that nobody really believes in the Washington Consensus anymore. The question now is not whether the Washington Consensus is dead or alive; it is what will replace it. That is the view expressed by Dani Rodrik of Harvard University in the above-titled paper. This is the first part of the paper. The next issue will contain the remainder.

Political Struggles Will Determine Better Globalisation

Critical public choices and extended political struggles will determine whether, in what ways, and how far a new course of globalization will shape in the coming years, according to Jan Aart Scholte, Professor in Politics and International Studies, and currently Co-Director of the ESRC/Warwick Centre for the Study of Globalisation and Regionalisation.

More in this issue

LDCs Urge Transparency in Aid Efforts

Real WTO Negotiations in the Mini-Ministerials?

South Centre News

Editorial

Revitalizing UNCTAD

Though the United Nations Conference on Trade and Development (UNCTAD) has been transformed beyond recognition in several major aspects from its original remit and scope, it still remains unique. No other organization in the UN system has a similar mandate. That is the contention of a new report ‘Reinventing UNCTAD’ just submitted to the Panel of Eminent Persons on Enhancing UNCTAD’s Impact by Boutros Boutros-Ghali, former Secretary-General of the United Nations and Chairman of the South Centre Board. The report traces how UNCTAD has been radically transformed since its inception and where it took the wrong turns. Presented below are extracts which provide suggestions on how to revitalize the organization. The full 24-page report can be accessed at the South Centre website.

The present is the propitious time for reinventing UNCTAD as the chosen body of the United Nations for discharging its overarching and holistic functions under the Charter in the economic field. There is widespread resentment among developing countries against the discontents of globalization and the utter ruin brought to the economies of several of these countries by the indiscriminate imposition of the policies of liberalization. These countries are looking up to the UN system to provide fresh thinking and suggest alternative approaches for tackling the structural problems of development. UNCTAD is the organization in the UN system mandated to and capable of coming out with such thinking and alternatives. The developing countries have now realized that their economic problems cannot be resolved within the framework of globalisation and liberalisation. They can be dealt with only under the rubric of development, which is the domain of UNCTAD in the UN system.

In the last few years, the developing countries, particularly the LDCs, have come to realize that opening up their economies to foreign goods, services and investments has not really helped. They are, therefore offering resistance to further liberalization. They are afraid, this would result in further deindustrialization and pre-empt the prospect of the development of service industry. That is why at the Hong Kong WTO Ministerial Meeting, they so strongly resisted yielding ground on negotiations on NAMA and Services.

The developing countries have put the developed countries on the defensive on the issue of domestic agricultural subsidies. Very little is likely to happen in WTO unless there is a movement on this front. In services, developed countries seem to be interested mainly in prying open the markets of developing countries. They have offered very little by way of liberalisation of services which are of export interest to developing countries. Besides, today, trade liberalization is taking place more regionally and sub-regionally under economic integration groupings, than multi-laterally under WTO. UNCTAD has a specific mandate and has played a longstanding role in the area of sub-regional and regional integration.

These developments have exposed the limitations of WTO whose domain is fast shrinking, partly also because of its failure to be the arena for rule-making on non-trade related issues like investment and competition policy. The debacle at Seattle and Cancun and the near failure of the Hong Kong Ministerial Meeting are the symptoms of this general malaise of WTO. This provides an opportunity for UNCTAD to resume its leadership role in the field of trade and development.

The developing countries are also increasingly becoming conscious and realizing the adverse consequences of the space for macro-economic policy making that they conceded during the last quarter century, when they implemented structural adjustment programmes and followed the policy of stabilization and liberalization. They want to regain as much of this lost space as possible and weigh the pros and cons before conceding further space. UNCTAD is uniquely placed to advise and help them in making this critical choice.

The revitalization of UNCTAD very much depends upon the unity, dynamism and the sense of purpose of the Group of 77. The recent effective functioning of some of the groups of developing countries within the forum of WTO is a good augury for imparting greater dynamism and sense of purpose to the Group of 77. The G-20 and G-33 have functioned effectively in WTO mainly because of the perception of the countries, members of these groups, of the threat posed to their economic interest by the aggressive stance and the rigid positions of developed countries. These groups joined with G-90, consisting mostly of LDCs, and formed the wider G-110 to safeguard their interest. The developing countries should realize that the most effective means of safeguarding their interest is to confront the dominant ideology moving WTO and developed countries individually as well as collectively, and to put forward alternative ideas and policy approaches. UNCTAD is the only multilateral forum where such a task can be undertaken.

Suggestions for Revitalizing UNCTAD

Need for alternative views and intellectual pluralism

The first and the most important precondition for revitalizing UNCTAD is to recognize the need for alternative views on economic polices from a development angle. There is no development strategy or policy which can be applied to all regions and all countries, in all circumstances. Much depends upon the vantage point from which the problems are viewed. UNCTAD has played a commendable role by way of putting forward developmental policies and strategies which are different from those supplied by the Bretton Woods institutions. The latter views essentially reflect the interests and priorities of developed countries. Since the early 1980s, all other organizations of the UN system, including UNCTAD, have been obliged, under pressures of different kinds, to reflect this dominant view, even if there is enough evidence to show that this has greatly jeopardized the interests of developing countries. The case is now much stronger than before to resurrect pluralism in the international economic system. UNCTAD is in the unique position to undertake such a task.

- Civil society organizations and UNCTAD

Since UNCTAD has been forced to conform to the dominant view on development policies, the role of providing alternative views has been played by civil society organizations (CSOs), many of which have developed their own research capabilities on international economic issues. The CSOs have thus replaced UNCTAD in the most crucial area of its activities.

However, because of obvious limitations relating to resources and priority, with a handful of exceptions, the research work done by CSOs is often not rigorous and scientific enough to carry conviction with neutral observers and right-thinking intellectuals and policy-makers in the North. The resumption by UNCTAD of its earlier role of advancing alternative views through its work of research and analysis can bridge the gap that has developed in intellectual pluralism and lend coherence, greater rigour and rationality and hence credence to the work of the CSOs in this area. This will also enable UNCTAD to resume its role of giving greater voice to and generally empowering the developing countries in negotiations of international economic issues.

- Revival of UNCTAD’s negotiating role

The original mandate of UNCTAD unmistakably includes its playing a negotiating role. The distinction that has recently been drawn between negotiations and consensusbuilding is erroneous and deliberately designed to deprive UNCTAD of its negotiating role. For consensus-building itself calls for negotiation. The distinction is really in the kind of text that is being negotiated. This can be either in the nature of norms, principles and guide lines or legal instruments. UNCTAD has the mandate to negotiate both these categories of texts and this authority should not be allowed to be diluted. Though several legal instruments have been negotiated within the forum or under the aegis of UNCTAD, the main achievements of the organization in this realm lies in negotiating texts which can be regarded as broadly falling in the category of soft laws. In recent years, even this indispensable role of UNCTAD has been severely curtailed. UNCTAD must be allowed to resume this role in a full-fledged manner.

The developing countries have been partly responsible for the erosion of the negotiating role of UNCTAD in the realm of soft law making. They have taken to WTO issues like financial resources, debt, commodity problems and transfer of technology which are not amenable to treatment under the contractual framework of WTO. On these issues, all the concessions to be made are by developed countries, which are not expected to agree to regimes in these areas offering possibilities of retaliatory action. The only possibility that exists for developing countries to prod developed countries to move forward in these areas is by exerting political and moral pressure which is the precise purpose of soft laws.

It may be argued that these issues have been put on the WTO agenda in order to develop negotiating leverage with developed countries. But the fact is that it has worked the other way round in that it has permitted developed countries to offer verbal concessions, in the form of mere words as was done under the Doha Development Agenda, in order to wrest substantial concessions for liberalization from developing countries. Moreover, the discussion on these items has been used as an opportunity for causing splits in the ranks of developing countries. Besides, developing countries have found themselves over-stretched in WTO because of the need to deal with issues coming within the contractual framework of WTO as well as those on which, in the very nature of things, no action can be taken there. In the process, the developing countries have ended up contributing unwittingly to the design of developed countries to take away the negotiating role of UNCTAD.

Therefore, one of the important steps that developing countries can take in order to restore UNCTAD’s negotiating role, is to confine rule-making on development issues to UNCTAD and not to dissipate their time, energy and resources in discussing them in WTO. Among the items which can be taken up for developing soft laws in UNCTAD are competition policy, investment issues, conduct of trans-national corporations and transfer of technology. Besides, several of the items listed under other categories in this section can also be taken up for soft law making.

As regards negotiation of legal instruments, UNCTAD may explore the possibility of negotiating market regulating agreements on some of the commodities which are subject to severe and frequent price fluctuations as well as decline in prices.

UNCTAD should also substantively backstop and provide the forum to developing countries for discussing and elaborating among themselves their common positions on issues under negotiation in the WTO, World Bank, IMF, WIPO, etc. The gap in this area has also been filled by the CSOs, but often not very effectively and convincingly.

Finally, the distortions that have been introduced, at the behest of major powers, in the procedures of the inter-governmental machinery of UNCTAD, diluting their negotiating function, must be removed. A disconcerting development in this regard has been the conversion of the sessions of the Trade and Development Board and those of its subsidiary bodies and expert groups, into seminars where experts from outside and agency representative are invited to give lectures. This is mainly designed to dilute the negotiating and representative character of these bodies. If they are to be real negotiating forums, then there is no scope for them to delve on something else.

- Taking an over-all integrated view of global economic issues

One of UNCTAD’s advantages and unique features in the early days was the fact that it carried out an integrated analysis of key issues on the agenda of international cooperation, within a comprehensive conceptual framework. Such analysis, which was mostly reflected in the Secretary General’s Report to the Board and UNCTAD Conferences, and in the annual Trade and Development Report of UNCTAD launched in 1981, served as the basis for inter-governmental discussions, deliberations and actions.

Today this kind of analysis is nowhere present in the UN system. This needs to be revived, both at the level of research and analysis conducted by the secretariat and through the inter-governmental machinery. Therefore, UNCTAD should once again become the institutional focus for an integrated approach to international development cooperation. Various sectoral or area specific issues that are today debated in an isolated fashion in different organizations of the UN system should be pulled together by UNCTAD for an analysis on an integrated basis. The themes that lend themselves to such an analysis could be:

a. Globalization in all its aspects- its potential and discontents, its features of marginalization and homogenization, its tendency to impose uniformity of policies, its trait of being policy-driven and an instrument of domination by the powerful and dominant countries and interests from the North.

b. The energy issue in all its aspects.

c. Environment, trade, food, bio-safety, sustainability and the role of IPRs.

d. Provision and management of international public goods, resources of global commons (sea bed, space), international regulatory mechanisms for global commons, provisioning of international public goods and services.

e. An integrated analysis of market manipulation and failures, and the means to cope with them, including financial crises, commodity market failures, agricultural protectionism, and restrictive business practices.

f. An analysis of the imbalances and inequities in the international trading and financial systems. This could cover most of the "implementation issues" being discussed in the WTO. Today, inequities and imbalances are not only the traditional ones, but principally those that arise from the regimes and agreements put in place recently. A discussion in UNCTAD within an integrated conceptual framework, on the issue of inequities and imbalances can be of great help in preparing the empirical and theoretical ground and mounting pressure for the revision of these regimes and agreements.

g. A new International Trade and Development Convention, updating and codifying exceptions to the rules made for making the world economic system just and equitable and the international economic environment, supportive of development. This could integrate within a unified conceptual framework, elements from the rules relating to preferences, other affirmative actions in favour of developing countries as in Part IV of GATT (1994), Charter of Economic Rights and Duties of States, instruments and principles for commodity market organisation, and various codes of conduct to guide international economic relations.

h. A regime for Special and Differential Treatment (S&DT) for developing countries in the global trading, financial and monetary systems. It could deal with measures to protect the developing countries from the perils of indiscriminate and premature liberalization and those designed to support the efforts of these countries to accelerate development by using the needed trade and investment policies.

The above list is not exhaustive. It is also conceded that some of the above themes overlap with each other. The idea is to choose two or three of them to begin with, which could be the basis for UNCTAD mounting a major effort in research and analysis and organizing inter-governmental discussions based thereon.

UNCTAD has a well established advocacy role. Its integrated approach to dealing with the problems of development has been of great help in enabling it to play this role. This approach should be revived to rally developing countries behind a reinvigorated UNCTAD and generally for promoting international cooperation for development.

- UNCTAD’s role as a centre for harmonizing trade and development policy

UNCTAD has been assigned the role for harmonizing trade and development policy in terms of resolution 1995 (XIX). It used to play this role in its early period when it had the cooperation of developed countries in discussing the implications of their policies, for the development of developing countries and for the global economy. After the early 1980’s, developed countries pulled their own macro-economic polices out of UNCTAD’s agenda. These countries have been co-ordinating their macro-economic policies in their own exclusive groupings, such as G-7 (now G-8). They have every right to do so. But the international community, particularly the developing countries, have the right to discuss the implications of developed countries’ policies, in particular for their own economies. According to the Charter, this role is assigned to the UN Economic and Social Council (ECOSOC). ECOSOC should be enabled to start discharging this legitimate Charter function, and UNCTAD should provide substantive support to ECOSOC for this purpose.

- South-South Cooperation, including GSTP

Since its early days, UNCTAD has remained a well established place in the UN system for following developments, developing ideas and approaches and generally assisting developing countries in South-South cooperation. Recent developments call for infusing new life into UNCTAD’s activities in the area. The developing countries have acquired a growing strength in the world economy and trade. During the past decade, the average trade:GDP ratio of developing countries grew from 40% to 60%. Their share in the world trade increased from 24% to 33%. Their share of world trade in Services increased from 19% to 23%. With an increase in their share of world output and diversification of their economies, the scope of trade among themselves has greatly expanded. This is reflected in South-South trade flows which now account for 43% of all exports from the South. Some developing countries are emerging as regional or global locomotives of trade and economic growth. These factors are shaping what has now come to be known as the "new geography of international trade".

These new trends and developments were very much in the minds of the developing countries when they decided in their meeting in Sao Paulo, coinciding with UNCTAD XI, to launch the third round of GSTP negotiations. UNCTAD is providing support to this process.

It has been estimated in an UNCTAD report that if developing countries agree to reduce their average tariffs applied to each other by 50 % in the current GSTP Round, this would generate an additional $ 15.5 billion in trade. The report also states that the LDCs will gain more from preferential tariff liberalization under GSTP than under MFN liberalization under NAMA. Concessions to LDCs under GSTP have the advantage of legal security and predictability because GSTP is a contractual agreement among members and is also consistent with WTO rules. GSTP provides for special treatment to LDCs. It will be a development of great political and economic significance if under this provision, more developed among developing countries like Brazil, China and India, accord nonreciprocal, duty-free and quota-free access to almost all exports of the LDCs to their markets. Among others, it will be a major factor consolidating the unity of developing countries recently forged in G-110.

- UNCTAD in Technical Assistance

UNCTAD’s foray into technical assistance has been a negative development. It has been at the cost of its negotiating role and its research and analysis work. The UNCTAD’s TA like all other TAs in the UN system is donor-driven. This has given the donors the leverage to drastically remould UNCTAD’s other functions in the direction of their interest.

UNCTAD would have been better off without its own TA as was the case in its early years. But at this point of time, it will be unrealistic to suggest that UNCTAD should give up its TA programmes altogether. It is, therefore, suggested that UNCTAD should drastically trim its TA activities, confining them to assistance for policy formulation in areas under UNCTAD‘s jurisdiction and related intimately to its research and policy analysis work. UNCTAD should leave all other kinds of technical assistance at the country level in trade and related matters, including the development of trade infrastructure, to other agencies, particularly ITC. UNCTAD should, of course, continue to play its advisory and managerial role in ITC.

The policy-oriented TA of UNCTAD should include advice in the formulation of trade policy, debt management, designing national legislations to give effect to IPR obligations and for otherwise using flexibilities in trade rules. UNCTAD should generally follow a top-down approach rather than a bottom- up one in providing TA. This will mean that TA will be given for assisting developing countries for giving effect to policy decisions taken in UNCTAD and related forums rather than it originating sui generis from the country level. The assistance that UNCTAD had given to developing countries during the Uruguay Round of Trade Negotiations was a good example of a top-down approach to providing technical assistance. Above all, the developing countries should insist that the reoriented TA of UNCTAD should be financed out of the regular budget, while voluntary contributions from developed as well as developing countries should form an integral part of the overall resources available to UNCTAD for technical cooperation.

- Aid for Trade

UNCTAD should not climb the "aid for trade" bandwagon on which there is a lot of discussion in various U.N. organisations. "Aid for trade" initiative is designed to hoodwink the developing countries and exploit their vulnerability to push and legitimize the neoliberal agenda on trade. A principal component of this scheme is to offset adjustment costs incurred by developing countries for their accepting and implementing developed countries’ demand for trade liberalization. The other component is assistance for creating export-production capabilities and trade related infrastructure. It is impossible to distinguish this latter type of assistance from development assistance per se. The initiative is, therefore, only an effort to rebrand development assistance to make it appear more attractive and hide the shortfalls in living up to the ODA target. Besides, there is no reliable yardstick to verify the claim regarding the additionality of aid-for-trade, other than relating it to the existing level of ODA flows.

- Domestic measures for development vs. external environment for development

A major distortion that has taken place in UNCTAD’s functions is its almost exclusive concern with domestic development policies of developing countries at the cost of the neglect of the external factors for development. This shift has been brought about through a concerted campaign by developed countries. It will be neither possible nor desirable to reverse this trend and exclude domestic measures altogether from UNCTAD’s agenda. For, domestic measures are critical to development and even the efficacy of international measures depends on the adoption of commensurate domestic measures. That is why even during its hey day, UNCTAD’s agenda contained domestic measures. For example, measures for the mobilization of domestic resources, domestic measures for diversification etc. were included in the Final Act of the First UNCTAD. What is needed is the restoration of the balance that has now tilted heavily in favour of domestic measures. This purpose will be served by taking out of UNCTAD’s agenda, contentious and motivated items of domestic measures, and UNCTAD devoting more time to discussing and negotiating on measures designed to make the external environment and institutions supportive of development.

- UNCTAD in the area of finance

Financial flows have emerged as the most important phenomena in the global economy both as a positive and a negative factor. As a matter of fact, growth of economies from the beginning of the 1990s has been fuelled more by financial flows than by trade flows. A major disability of UNCTAD has been the virtual embargo put on the discussion of financial matters in its forums and the dismantling of its research and analytical capability in this field. This condition needs to be urgently ameliorated. The earlier functions in this area should be fully restored to UNCTAD. Besides, it should contribute to the ongoing debate on the building of a new international financial architecture. In the evolving international financial system, it will be necessary to:

i. ensure the full participation of developing countries

ii. ii. improve the response capabilities of the system in case of emergencies

iii. permit greater flexibility and autonomy to developing countries in the management of capital inflow

iv. reform the monitoring and regulatory systems

v. consider the creation of additional liquidity, generating resources for development, regional arrangements for capital control, regional common currency and regional reserves for meeting emergency situations.

The ideological framework within which the debate on this subject has been taking place has kept most of the above issues out of consideration. It is, therefore, extremely important to involve UNCTAD actively with this debate to safe-guard the interest of the developing countries. Restoration of UNCTAD’s earlier role in matters of finance will call for a manifold increase in its research capability.

- UNCTAD and UN reforms

The reforms of the UN that have been going on for the last 25 years, have been designed mainly to weaken the UN system and enfeeble the position of the developing countries in it, in order to make it subservient to the interest of major powers. This purpose has by and large been served. Among the U.N. bodies, UNCTAD has been the worst victim of this process. UNCTAD was drastically enfeebled and diminished in Cartagena and Midrand. The Secretary General of UNCTAD had stated at UNCTAD X in Bangkok in 2000 that no other UN body has been subjected to a reduction in budget, to the extent that UNCTAD was. Therefore there is nothing positive that UNCTAD can expect from the ongoing UN reforms. In fact, the future unfolding of the ongoing reform process will only further weaken the UN system and UNCTAD. In particular, the economic agenda of the UN to deal with the structural problems of the world economy and the international environment for development will be further narrowed.

There is really no point in the developing countries joining issue with the developed countries on the reform process. Their only response should have been -- and still is – to present their own pro-active agenda for UN’s restructuring. This background paper presents a blueprint for such an agenda as far as UNCTAD is concerned. The developing countries should pro-actively push this agenda rather than reacting defensively to the agenda for reforms set by others.

In the ultimate analysis, the battle for preserving UNCTAD is inextricably linked with the bigger battle to restore to the United Nations its holistic role and functions under the Charter in the economic field. The outcome of one depends on the success or failure of the other. Pursuing a pro-active agenda for revitalizing UNCTAD offers, probably, the last chance to regain the lost terrain and restore the primary role of the United Nations in the economic and social sectors.

- Securing UNCTAD’s mandate

A major task for the South in the context of the ongoing review of the role and functions of UNCTAD, should be to ensure that there is no dilution or abridgement of the existing mandates of UNCTAD. It would be futile to get involved in yet another exercise of the restructuring of the UNCTAD intergovernmental machinery or the Secretariat. What is really important is to bring about a paradigm shift in the nature and orientation of the deliberation in the intergovernmental bodies of UNCTAD and in the research and policy analysis work of the Secretariat, and in the TA programmes. For this, it will be absolutely necessary to seek the provision of adequate financial resources, mainly from the regular budget.

- Role of the Group of 77 in reinventing UNCTAD

The leveling of the playing field in international economic relations and negotiations should be an essential objective of international development policy. UNCTAD should therefore resume its earlier role of providing support for a stronger and more efficient action on the part of developing countries, as this is an essential condition for leveling the playing field. This is a contribution which this organization must make to balance the organizational support that the developed countries get from the OECD, World Bank and IMF in global negotiations with the South. Not assisting the South, the markedly weaker partner, amounts to de facto helping the North, the stronger and the dominant partner and consolidating the asymmetrical playing field. This is hardly consistent with the true spirit of the mandate of UNCTAD.

The support for collective capacity building and empowerment of the South can take a variety of forms, ranging from giving substance, through the provision of data, empirical evidence, theoretical arguments and conceptual framework, to the demands of the South, to providing organizational and logistical support for the effort of the South to formulate their common positions and otherwise prepare for negotiations. Improved capacity and empowerment of developing countries would result in more productive negotiations and balanced outcome, which will be of benefit to the North also.

Since the developing countries have so much at stake in UNCTAD, the onus of pushing a proactive agenda lies on them. The Group of 77 should therefore, as the first step, adopt the platform on the institutional revival of UNCTAD, and then begin to advocate and press for its adoption and implementation in the relevant organs of the UNCTAD as well as the UN General Assembly, regardless of the likely negative early response from major powers.

The implementation of this package ultimately depends on the availability of financial resources. The Group of 77 should insist that the requisite resources must come from the regular budget. It is through the manipulation of budgetary, administrative and personnel policies that the major powers have brought about the present state of UNCTAD. If the developing countries want to reverse this trend and reinvent UNCTAD, they will have to make concerted efforts to influence policies in the reverse direction precisely in these domains. They will have to make coordinated bids to influence budgetary, administrative and personnel policies in the relevant bodies of UNCTAD and in the Fifth Committee of the General Assembly. In this, the developing countries whose economies have done exceptionally well recently will have to assume special responsibility. The campaign of the G-77 to reinvent UNCTAD should go some way towards consolidating their own unity and cementing their coherence.

Concluding Remarks

Developed countries have made a concerted effort to change and dismantle UNCTAD over a period of nearly 15 years. It may take the developing countries many years to revive and reinvent the organization. But, UNCTAD must recover its voice and regain the support and respect of developing countries who have identified with it and its mission for decades. There cannot be a more opportune moment than now to begin a campaign to restore the pre-eminence of UNCTAD and bring it back to the forefront of multilateral effort to deal with the current complex global development challenges and build a stable, viable and genuinely democratic international community. UNCTAD’s broad mandate is singularly suited for a new age where promoting development, democracy and equity is one of the principal challenges and pre-conditions for a peaceful and cooperative world.

The Search for Policy Autonomy in the South

The South needs greater autonomy in development policy making and greater space for its "own" diagnosis and prescription. That is a key message of a recently released United Nations Research Institute for Social Development (UNRISD) Programme Paper "The Search for Policy Autonomy in the South Universalism, Social Learning and the Role of Regionalism." Written by Norman Girvan, a member of the South Centre Board, the paper refutes the claims to universal validity of neoclassical economics and of neoliberal policies, arguring that ‘social learning’ in development policy making is a crucial element. It also examines the role of regionalism and points to some of the challenges faced in making it effective. Presented below are extracts from the paper.

In the 1950s, the new subdiscipline of development economics provided a set of analytical and policy tools that responded to the political need for the development of the "underdeveloped" countries, in the context of political decolonization and the Cold War. A characteristic feature of development economics was its assertion of the existence of pervasive market failure in the poor countries and of the necessity for government intervention to ensure development. To that extent it has been characterized as neo-Keynesian, but it went significantly beyond Keynes, who focused mainly on short-term macroeconomic equilibrium in the closed economy. One branch of development economics modelled the world economy as a centre-periphery system (Prebisch 1950) and led to Latin American structuralism. Another stream investigated the factors responsible for long-term growth and non-linear development, including cultural and institutional variables (for example, Lewis 1955). Some went as far as to argue that a special economic theory, or the adaptation of existing theory, was needed for the poor countries (Seers 1963; Myrdal 1969).

For the West, development economics served the political function of providing a non-communist recipe for poor countries to use in the "catch up" game. Nonetheless, it made a significant contribution to the global South in at least two respects. It legitimized the principle that their economies should be understood on their own terms. Second, it supplemented the leverage available to the South as a result of Cold War competition by providing the intellectual justification for policies of state intervention and protection of the domestic market that succeeded in building up industrial capabilities in many countries over several decades. Although development economics has been the subject of many critiques and policy mistakes were inevitably made, the period of its predominance in the 1950s–1970s laid the basis of an intellectual tradition and a stock of policy experience that could and should have become the basis for further policy innovation.

This period also coincided with the proliferation of national universities and academic centres in the South. The United Nations (UN) system was strongly development-oriented and provided additional institutional supports, notably through the Department of Economic and Social Affairs, the United Nations Conference on Trade and Development (UNCTAD) and the regional commissions. Southern self-confidence was high, infused with the expectations accompanying decolonization and the spirit of Bandung. [1]These developments provided the impetus for a great wave of indigenous empirical research and theorizing on the economic realities of the developing world. Economic Commission for Latin America and the Caribbean (ECLAC) thinking, together with Latin American and Caribbean structuralism and dependency, as well as the Indian industrialization school and Chinese socialism, were notable expressions of Southern development perspectives at this time. In retrospect, the UNCTAD conferences of the 1960s and 1970s and the UN Declaration on the New International Economic Order were high points of Southern impact on the official discourse on international development. [2]

Neoliberalism and Its Dissidents

The neoliberal backlash came in the Reagan-Thatcher era of the 1980s. The attack was equally against Keynesianism in the North as against its presumptive intellectual offspring, developmentalism, in the South. The softening up process of the South began from the late 1970s when the Organization of the Petroleum Exporting Countries (OPEC) oil shocks, the growth of international lending and world recessions led to a debt crisis in the energy-importing, primary commodity exporting countries. The Washington-based international financial institutions (IFIs) stepped in and new forms of conditionality lending were invented to discipline countries with unsustainable deficits. The interest-rate shocks and protracted global economic downturn of the early 1980s led to a generalized Third World debt crisis. This further strengthened the IFIs, whose role in Southern policy making became widespread and pervasive.

Developmentalist theories and policies were discredited, marginalized and dismissed. As a result, there was a marked discontinuity in the accumulation of policy experience in the South. The baby of extra-market intervention was thrown out with the bathwater of government failure. As a caveat, this generalization may be more applicable to Africa, the Caribbean and Latin America than to much of Asia.

During the decade of the 1980s, governments came to power in the South convinced of "the magic of the marketplace". Northern universities and their imitators in the South trained a new generation of Southern economists in the theorems of neoclassical economics and the practice of neoliberal policies. The new dispensation ruled out the notion of an economics sui generis for the developing countries. Such a category was defined as invalid, and therefore unnecessary and irrelevant. At worst, it was dangerously misleading since it could lead to erroneous policies. Much of the South suffered a reversal of the previous gains associated with a tradition of autonomous theorizing and policy making.

In related developments, the North-South dialogue collapsed and UNCTAD was marginalized. The World Trade Organization (WTO) came to occupy centre stage, with a scope and coverage extended to embrace services, intellectual property rights and investment measures. The new rules of the game centred on reciprocal market liberalization, which would lead to trade expansion and economic growth. Where development was mentioned at all, it was assumed that this would fall into place. By the end of the decade, the collapse of the Union of Soviet Socialist Republics (USSR) and of Eastern European socialism removed one of the last sources of leverage available to the South in their relations with the North.

In the 1990s, neoliberal globalization was universally proclaimed as the "only way". China, India and a small number of Southeast Asian countries retained a degree of policy autonomy, the first two because of size and the existing level of industrial development and the latter because of the success of previous export-oriented industrialization. They too embraced market-oriented reforms, although in the case of China and India, both the pace and the content were shaped by local policy makers rather than dictated by IFI conditionalities. In the case of Southeast Asia, the IFI role was more decisive and focused on the (in)famous capital account liberalizations. In the rest of the South, the triumph of the new orthodoxy was virtually complete; the combined result of IFI conditionalities and internal ideological and political change. Where coercion stopped and conviction started varied from country to country, but the effect was largely the same. The underlying factor was the shift in the constellation of global political and ideological forces. The shift was held to be permanent and irreversible by contemporary acolytes who proclaimed "The End of History" (Fukuyama 1992).

This triumphalism, of course, was to be significantly qualified by subsequent developments. First, there was the emergence of global civil society as a new political force capable of resisting elements of neoliberal globalization and of asserting the possibility of an alternative. Events surrounding the abortive Multilateral Agreement on Investment, the Jubilee Campaign, protests in Seattle, and the World Social Forum attest to the considerable capacity of global civil society for organization and mobilization, not least as a result of its use of the new communications technologies associated with globalization itself. The movement has also drawn together hitherto disparate activist organizations concerned with issues related to gender, the environment, ethnic and cultural minorities, farmers and workers. Perhaps most importantly, it has shown the potential for global, people-based political alliances that transcend the South-North divide.

A second development was the 1997–1998 financial crises that spread from Asia to Latin America and Russia. This was directly associated with one of the extreme forms of globalization, namely capital account liberalization, but it was politically decisive in discrediting the entire ideological edifice, since the policies that led to the crises had been presented as part of a complete package that was considered foolproof. The crises threw tens of millions into poverty, served as an instrument of economic recolonization of previously "successful" developing countries and eventually exposed the technical deficiencies of the IFIs, not unrelated to their geopolitical role. The episode served to embolden the intellectual and political critics of the Washington orthodoxy while undermining the self-confidence of some of its leading exponents.

One should point here to the key supportive role of the UN system in facilitating alternative thinking during the 1990s, through the critical research of agencies such as the International Labour Organization (ILO), the United Nations Children’s Fund (UNICEF), the United Nations Development Programme (UNDP), UNRISD and the regional commissions, as well as through a series of global conferences on social and environmental issues. The UNICEF report, Adjustment with a Human Face (Cornia et al. 1987), influenced the human development approach of the UNDP in the 1990s, which provided some continuity with the basic needs approach of the 1970s. Although the Human Development Reports could not launch an explicit, frontal assault on neoliberal globalization, they relentlessly documented the growth of global inequalities and critiqued the underlying assumption of market-led global growth. These and other reports provided invaluable reference documents for civil society in their public education and advocacy activities, for governments in their efforts to prioritize spending related to human development, and for researchers and teachers on the human costs of neoliberal globalization. Further evidence that these organizations provided an outlet for critical thinking informed by the perspectives of the South is shown by the fact that the two principal intellectual godfathers of human development, namely Amartya Sen and Mahboub Ul Haq, were products of that part of the world.

Since the turn of the 1990s, there has been a noticeable shift in the political climate, as shown by political developments in Argentina, Brazil, Venezuela and other parts of Latin America and in India, at the WTO Ministerials in Seattle and Cancún, where the South was a force to be reckoned with, in the impasse over the Free Trade Area of the Americas (FTAA) and rise of anti-FTAA sentiment in Latin America, and at the World Social Forums in Porto Alegre and Mumbai. While neoliberal policies continue to be prevalent, this may be attributable as much to the constraints derived from existing international trade and financial arrangements - WTO rules, IFI conditionalities, the operation of financial markets - as it is to intellectual conviction and genuine political support. Furthermore, coherent alternative models of macroeconomic management, trade and industrial policies that countries might pursue in the current environment are yet to be clearly articulated. Nonetheless - and this is the point I wish to emphasize here - further space has been opened for academic enquiry and policy experimentation outside of the neoliberal box by elements both in the South and North. In the academic sphere, for example, UNRISD (2003) has helped to catalyse an important initiative for the rethinking of development economics. It is in that spirit that the reflections in the rest of this paper are offered.

In Celebration of Diversity

It is instructive to briefly revisit issues raised by development economics regarding the particular versus the universal as applied to the global South, beginning with an interrogation of the epistemic basis of the claims to universal applicability of neoclassical economics. Related to this is the question of the political function of these claims in the dynamic of North-South relations.

It might be recalled that economics as a discipline, along with the other branches of the social sciences, had its epistemic roots in the Enlightenment and the scientific revolution in Western Europe in the sixteenth to eighteenth centuries; and that its emergence and subsequent development were directly associated with the European Industrial Revolution and the worldwide spread of Western industrial capitalism. The universalistic pretensions of neoclassical economics can be attributed to these two features of its "original sin". As physical scientists studied the laws governing the behaviour of nature and the universe, economists sought to discover the laws that govern the functioning of the economic system. Adam Smith’s "invisible hand" appeared as the equivalent of an unseen force in the Newtonian universe. To explain the material behaviour of individuals, the mythical figure of homo economicus was invented, a totally self-serving entity whose every action, even when apparently altruistic, could be analysed in terms of a utility-maximizing calculus. Writing in 1969, Myrdal observed that conventional economic theory is still far from having liberated itself from the metaphysical assumptions it inherited from the moral philosophies of natural law and utilitarianism (p. 109).

The quest for logical precision also led to a process of analytical detachment of the economic sphere from the sphere of politics, culture and society, which became the subject areas of other social science disciplines (Sankatsing 1998). This disciplinary compartmentalization paralleled the commodification of all spheres of human activity accompanying the development of capitalism—the economy was disembedded from society (Polanyi 1957). Mathematical formalism was a further means of elevating the status of economic theory to a level on par with that of the physical sciences, in the process becoming increasingly devoid of empirical content. [3] Hence, formalism allowed what might have been essentially ideological assumptions about the way the real world operates, to be cloaked in a scientific garb.

In its concrete historical context, the tendency to universalism was buttressed by the Eurocentric assumptions that were integral to European imperialist expansion from the fifteenth century onwards (Amin 1989). Sankatsing has aptly summarized this process as the 500-year "globalisation of the local experience in the Occident", proposing that: Eurocentrism, the underlying discourse, was derived from the premise that out of the experience of the West all universals for humanity were bound to be born, since what was good for the West is best for the rest (1998:1).

Hence, the degree of advancement—"civilization", "development"—of other societies came to be rated according to a Eurocentric scale; non-European cultures and knowledge systems were, by definition, devalued. [4] As expressed in economics, this worldview meant that the neoclassical schema came to assume the role of the normative framework by which the social and cultural realities of the non-European "other" are judged, notwithstanding the fact that the ideal neoclassical world of perfectly functioning markets and optimizing economic agents is a highly unreal abstraction from the real world, even in the North. The paradigm holds that economies everywhere either actually operate like the ideal, or should be made to do so by means of enlightened policies. Diversity is allowed in the real world, but it is defined as a shortfall from the ideal. The main interest in diversity is in understanding how it can be "corrected" and ultimately eliminated.

A good example of this kind of thinking is the responses of the IFIs to the failure of neoliberal policy reforms to produce the results that they had confidently predicted for much of the South; and even to have "perverse" outcomes in the form of worsening income distribution, increased poverty, mounting debt burdens and stagnant growth. The standard response of the IFIs is that additional doses of market-oriented medicine are required. [5] Hence, the discourse shifted to a focus on the need to follow "first-generation reforms" with "second-generation reforms" and to move toward the "post–Washington consensus". In this Alice in Wonderland world, the failures of neoliberalism provide a justification for even more neoliberalism, leading to a practice that some have characterized as "adjustment without end". [6]

Development economics had the merit of insisting that an effort should be made to understand the specific characteristics of the "underdeveloped" countries and to use these as the point of departure for the formulation of policies. Further intellectual justification for this approach comes from the considerable body of non-mainstream economic literature in the subject areas of economic history, economic anthropology and institutional economics. Scholars in this tradition generally view the economic processes of a given society as being embedded in its specific historical, sociocultural and institutional context. This context conditions the behaviour of individuals, households and other social units in the material sphere of their existence. It has a bearing on the character of entrepreneurship such as preferred areas of investment, attitudes to risk-taking, the time horizon for expected returns and employee relations. It influences the economic role of the state in its management and planning capabilities, propensities to patronage and corruption, and its ability to promote social partnership.

These factors condition the responses of entities in the society to economic policy instruments. They need to be taken into account in determining the appropriate role of market instruments and state intervention in achieving desired outcomes. In other words, what works for one country at one time may work differently in another country at the same time or in the same country at a different time. There is no universally applicable prescriptive principle regarding what ought to be the role of market and state: the appropriate solution is highly context-specific.

A possible example is provided by the experience of different centrally planned economies in implementing market-oriented reforms. In Russia, the reforms were virtually directed by the IFIs and took the form of neoliberal shock treatment. The results were catastrophic; and believers in the faith then made the belated discovery that the institutions did not exist for markets to function properly. In contrast, the market-oriented reforms of Cuba, China and Viet Nam have been internally driven and carefully managed with regard to the content, scope, timing and pace. This is not to suggest that these processes have been free of errors and contradictions, but the enormous human and social costs of the Russian debacle have, in the main, been avoided.

The context-specific approach asserts that diversity, rather than universality, is the principal feature of social reality that provides the intellectual challenge to the analyst and policy maker. Intellectually, the approach is open to the objection that it does not permit rigorous analysis by means of mathematical formalization and statistical testing, and that it leaves unacceptably wide room for subjective interpretation. The idea that it is not subject to formalization and testing is debatable. More importantly, there is the question whether the acceptability of a given approach should be contingent on its susceptibility to formalization. As suggested before, the importance attributed to formalism may be due as much to the need to preserve existing power relations in the production and reproduction of knowledge as it is to a concern with rigour.

The relevant issue is that of identifying the appropriate criteria of validation for propositions related to the functioning of the human economy. In other words, there needs to be open debate as to what constitutes acceptable procedures for investigation, the generation and validation of propositions, the derivation of policy prescriptions, and the monitoring and evaluation of their application. Formalism will probably be part of the answer, but should be qualified by the necessary caveats, especially when propositions are the basis of policy interventions in the real world. In this respect, one is reminded of Sen’s observation to the effect that it is better to be partially right than to be exactly wrong.

It is here that universalism probably has a role to play. If transparadigm intercourse is to go beyond a dialogue of the deaf, then there should be common agreement on rules of procedure. If analysis of the specific is to minimize the room for subjective judgement and interpretation, then there ought to be commonly accepted methods of investigation and verification. But there cannot be any final word on this. What is universally accepted will itself be the subject of continued experimentation, debate and enrichment. Universalization, therefore, may be seen as a continuous process of expansion of consensus on method. Basic to the process are recognition of diversity, mutual cross-cultural respect and rejection of dogma.

There is also the question of the relationship between policy autonomy and the universalization of norms of human justice. These norms are represented by the provisions of the United Nations Charter, declarations by the General Assembly and by international conventions and agreements to which the world community as a whole has subscribed. More recently, these include the Millennium Development Goals and commitments made at the various world summits. Policy autonomy, however, is more about the means that are employed to achieve agreed ends of development and justice than about the ends themselves. It relates to the right of a society to work out the combination of state intervention, market organization and civil society participation that is appropriate to its reality for the achievement of goals that may incorporate norms that are elements of a global consensus. In that sense it helps to give meaning to the right to self-determination and of states to choose their own social and economic systems, rights that are enshrined in the Universal Declaration on Human Rights and the Charter on Economic Rights and Duties of States (see United Nations 1974:chapter II, article 1).

Difficulties arise where there is a real or apparent overlap between means and ends. An example is provided by the assertion that "economic freedom", defined as a regime of private property and of freely functioning markets, is an essential component of political freedom and democracy and constitutes a universal norm—an end in itself. The proper method of resolving this dilemma is by accepting that the universalization of norms of justice and of development goals should be freely negotiated among states to arrive at continuous enlargement of the content of global consensus, not imposed by one or other combination of Eurocentric epistemological arrogance, economic conditionalities and the exercise of military force.

Social Learning as a Resource

Social knowledge, in the sense of knowledge that inheres within the society and not merely knowledge about the society or of its social aspects, has a crucial role to play in the derivation of appropriate policies. Social knowledge resides at various levels of society: in its history, culture, and institutions; in society’s collective consciousness; and in the accumulated knowledge, experience and wisdom of the population. This resource needs to be recognized and validated. To take full advantage of it there needs to be open, transparent and participatory processes permitting vertical and horizontal information flows at all levels, lubricated by a culture of consultation and cooperation. An integral part of this is the existence of feedback loops by which the results of policy interventions are constantly evaluated by social actors so that adjustments can be made. Ideally, there should be a continuous accretion of knowledge and understanding of how the system works and how policy interventions can be made to achieve desired outcomes.

What we are proposing here is a kind of synthesis of the elements of the "policy cycle" with those of firm level "learning and technical change" in the literature on technology transfer. The policy cycle begins with problem definition and identification and proceeds through the elements of research, policy generation, policy implementation, evaluation and feedback, and policy modification. The process is normally assumed to be agency-based, but there is no inherent reason why it could not embrace entire areas of national life or even the society as a whole.

The literature on learning and technical change originated with the concept of the "learning curve" as applied to the problem of technology transfer. The learning curve represents the observation that the time necessary for an individual to complete a given task declines at an increasing rate from the moment when the task is first performed, and then levels off as mastery over the task reaches the maximum achievable. The same observation applies to production teams. Alternatively, the relationship can be expressed as a curve showing productivity per unit of time as a function of previous aggregate production; the curve rises at an increasing rate and eventually levels off.

However, researchers on firm-level technology transfers to developing country enterprises concluded that learning is not limited to the performance of specific tasks and in any case is not an automatic process (Hoffman 1990). A firm can learn to adapt and modify acquired technology and to innovate; but to do so it must consciously organize itself for this purpose and pursue appropriate strategies.

The same idea can be applied to a country’s policy making to achieve development objectives. A country can have as one of its objectives the accumulation of experience, distilled knowledge and intervention capacities in development policy making. It can seek to consciously organize itself to this end by broadening participation in the policy cycle to the whole society and by designating specialized institutions to be the repositories and transmission agents of this knowledge. Many developed countries show features of such a system in the mechanisms of their political process and the role of their state bureaucracies and elite universities.

It will be observed that this is a rather utopian model of development and change that abstracts from the real world of power relationships. Internally, societies have interest groups that fight for their own advantage and that frequently dominate state policy making in a dictatorial or quasi-dictatorial manner. International institutions are, on the whole, dominated by the Northern countries, which obviously use them to pursue their own agendas. But spaces for participatory policy making and learning do exist within countries as well as internationally, for example, in some agencies in the UN system and international non-governmental organizations (NGOs).

Our purpose here is to suggest an ideal that may be useful as an instrument in exploiting this space, opposing it to the universalistic claims of policy prescriptions advanced by the IFIs and other Northern-dominated agencies. It suggests an alternative approach to the structuring of development "partnerships" between the North and the South to that which characterizes, for example, the World Bank–sponsored Poverty Reduction Strategy Papers (PRSPs). In this alternative approach, the overarching goal of development partnerships is seen as that of supporting and facilitating social learning for the attainment of mutually agreed development objectives through a process of continuous interaction, democratic participation and local empowerment through the accumulation of knowledge and experience. [9]

Regionalism and Policy Autonomy

In the past two decades, the proliferation of regional economic integration groupings such as free trade areas and common markets, as well as of other kinds of regional organizations and networks, has occurred side by side with globalization. Often referred to by scholars as the "new regionalism", this development is characterized "by [the] increasing scope, diversity, fluidity and non-conformity" of regional processes, involving a variety of non-state actors (Padrigu 2004). Considerable analysis has been undertaken of the new regionalism in its different forms, levels and dimensions, with discussion of its theoretical implications, its relationship with globalization and with national sovereignty, and its implications for security and for global governance (Hettne et al. 2001, 1999; Schulz et al. 2001).

Much of the early discussion of the economic dimension of the new regionalism centred on whether it is complementary to, or competitive with, the broader thrust toward globalization (Mittelman 1999:25). Scholars now tend to agree that the two processes are interrelated. [10] Thus, a distinction may be made between regionalization, as an economic process accompanying the internationalization of trade and finance and an aspect of globalization, and regionalism as a set of intergovernmental arrangements that is part of the political response to the centrifugal tendencies of globalization. Less attention appears to have been paid to how far regionalism can enhance the policy autonomy of the South and can strengthen the South’s capacity to shape globalization in its own interest. [11] Here, both the epistemic and the instrumental dimensions of regionalism have a role to play.

The epistemic dimension relates to the accumulation of local diagnostic and prescriptive capacities for development policy making, linked to democratic participation in decision making at the national and regional levels. Special mention should be made of the merit of regional epistemic communities [12] in this context. Such communities can be constituted with the regional units of the UN system as their institutional base or focal point. As noted previously, ECLAC, under the leadership of Raul Prebisch, was a pioneer in the indigenization of development thinking that gave rise to UNCTAD. ECLAC continued to be a source of heterodox thinking from a Latin American perspective during the 1980s and 1990s, as shown by a number of seminal publications (see ECLAC 2002, 1992, 1990; Ocampo and Martin 2004). Similar examples are found in the work of other regional commissions, for example that of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP 1990). [13] Regional epistemic communities are also constituted by cooperation among academic institutes and independent think tanks, NGOs, advocacy organizations and regional professional bodies.

The Council for the Development of Economic and Social Research in Africa (CODESRIA), the Consejo Latinoamericano de Ciencias Sociales (CLACSO), the Coordinadora Regional de Investigaciones Económicas y Sociales (CRIES), the Association of Caribbean Economists (ACE) and the Caribbean Policy Development Centre (CPDC) are only a few examples of such regional networks that have opened up space for alternative viewpoints to be formulated and expressed, often linking such processes to popular education and grassroots mobilization.

There is an organic link between the epistemic dimension of regionalism and its instrumental dimension, which refers to the benefits of intergovernmental functional cooperation and of market integration. Regarding functional cooperation, regionalism offers the potential to modify the power relations in the negotiation of international economic agreements through the pooling of bargaining power and of negotiating skills among developing countries with the objective of expanding their "national policy space". As noted at the UNCTAD XI conference in São Paulo, Brazil, in June 2004, the scope for domestic policies in the areas of trade, investment and industrial development is being framed by the emergence of rules-based regimes of international economic agreements, but it is particularly important for developing countries to maintain an "appropriate balance between national policy space and (their) international disciplines and commitments", bearing in mind "development goals and objectives" (UNCTAD 2004:paragraph 8). Making this operational involves the strengthening of provisions for special and differential treatment to allow greater flexibility in the implementation of provisions such as those relating to market access, industrial protection, export promotion, performance requirements for foreign companies and the promotion of technology transfer. These are matters for negotiation, and the bargaining power of developing countries in such negotiations can be bolstered by regional cooperation as well as by cross-regional alliances.

This benefit of regionalism is of especial interest to the smaller developing countries (WICOM 1992; UNDP 1999:11). Here the experience of the Caribbean Community (CARICOM) is instructive. CARICOM’s members are 15 small countries with a combined population of 14 million. CARICOM’s Regional Negotiating Machinery (CRNM) conducts negotiations on behalf of the membership in the WTO, the FTAA, and with the EU as part of the African, Caribbean and Pacific Group of States (ACP). It commissions technical studies on issue areas and convenes seminars and workshops in preparation for negotiations. [14] The existence of the CRNM has had a notable impact on the quality, professionalism and effectiveness of the region’s external negotiations in the various forums. For example, in the FTAA, where the CRNM speaks on behalf of 14 of the 34 participating countries (although CARICOM has less than 2 per cent of the population), the region’s united stance has succeeded in drawing attention to the special circumstances and needs of the smaller economies.

Regionalism can also strengthen the bargaining position of larger developing countries, as shown by the experience of Latin America’s Common Market of the South (MERCOSUR). Its four members account for 26 per cent and 13 per cent, respectively, of the population and gross domestic product (GDP) of the FTAA countries. Led by Brazil, MERCOSUR has had a marked influence on the pace and content of the FTAA negotiations. It has also become a major player in relations with the EU, with which it has concluded a trade and economic partnership agreement, and indirectly in the WTO. Moreover, the WTO process also provides compelling evidence of the power of cross-regional alliances within the South. Coalitions represented by the G20 (agricultural exporters) and the G90 (the ACP Group, the Africa Group and the Land-Locked Developing Countries) played a decisive role in the outcome of the Fifth WTO Ministerial Conference in Cancún, Mexico, in 2003 and the "July Package" agreement of 2004 on the Doha Agenda work programme.

In the internal sphere, regionalism provides scope for efficiency gains through market integration and for synergistic benefits through cross-border investment and joint ventures by local enterprises, strengthening the competitive capabilities of local firms on regional and international markets. However, intraregional functional cooperation at the governmental level is an important, if sometimes neglected, aspect of regionalism. This is especially relevant for small countries in those sectors and activities in which economies of scale, critical mass requirements and the scope for synergies are significant (Girvan 2003:536–537); for example, science and technology, research and development, higher education and the promotion of industrial clusters. Notably, CARICOM’s functional cooperation provides support for a wide range of regional institutions, including the University of the West Indies, the Caribbean Agricultural Research and Development Institute and the Caribbean Court of Justice, which will adjudicate disputes under CARICOM Single Market and Economy arrangements.

Here Mittelman’s (1999:32) proposed distinction between "neoliberal integration" and "development integration" is of relevance. Whereas neoliberal integration emphasizes the role of efficiency gains through the operation of market forces, in development integration, state intervention plays a significant role in investment in physical infrastructure and in the coordination of production. Mittelman’s exemplar of development integration is the Southern African Development Community (SADC). In fact, the original arrangements for CARICOM integration in 1973 provided for a substantial role by state enterprises and production coordination, but like the SADC, progress in implementation was limited. Indeed, the now defunct Council for Mutual Economic Assistance of the former USSR and socialist countries of Eastern European could be regarded as a mode of development integration through central planning.

Perhaps the most far-reaching proposals for regionalism are those advanced by Amin, who sees it as a basic building block for the construction of a polycentric world characterized by equitable development among its constituent regions and by respect for cultural diversity.

In today’s conditions, then, a multipolar world is first and foremost a regionalized world. Regional interdependence, negotiated and organized in a way that permits nations and dominated classes to improve the terms of their participation in production and their access to better living conditions, constitute the framework for this building of a polycentric world…[T]he regions that one can imagine participating in such changes would not only be economic areas with preferential tariffs; they would also have to be built as political areas that helped to strengthen the collective social position of underprivileged classes and subregions (2003:131, 133).

Amin (2003) lists six issues for regions to address: (i) renegotiation of market shares and the rules governing their allocation (challenge to WTO rules); (ii) renegotiation of capital market systems to replace the dominance of financial speculation with productive investment in the North and the South; (iii) renegotiation of monetary systems to establish regional arrangements that provide relative exchange rate stability; (iv) moves toward a global tax system; (v) global demilitarization; and (vi) democratization of the UN.

Regionalism, however, is not a panacea, and the experience of attempts at regionalism in the South shows the formidable obstacles that need to be overcome in order to make it effective. At the root of most of the difficulties experienced is the contradiction between the maintenance of national sovereignty on the one hand and the requirements of collective regional action on the other hand. This contradiction is inherent in most, if not all, of the regional groupings in the South. For example, as noted by Mittelman (1999:31–32), neither the SADC nor the Association of Southeast Asian Nations (ASEAN) have legally binding instruments similar to those of the EU. The same is true for CARICOM. This feature underlies the recurring "problem of implementation"- that is, the failure of member states to implement decisions taken at the regional intergovernmental level. Brewster (2003a, 2003b) has called this a mode of integration through "discretionary intergovernmental cooperation", arguing that it was tried in Europe and eventually abandoned in favour of the arrangements that contain the limited supranationality that is a feature of the EU. He proposes a model of "customised transfer of sovereignty" for CARICOM. I have pointed out that the method of discretionary intergovernmental cooperation makes substantial demands on the administrative, technical and political resources of member states in their attempts to implement regional decisions, demands that fall relatively more heavily on the smaller members (Girvan 2004). Furthermore, it maximizes the opportunities for counter-mobilization at the national level by negatively affected interest groups. In effect, the decision whether or not to implement each regional agreement becomes the subject of a separate cost-benefit calculus by the national government of each member state.

Another problem area has been the adequacy of the institutional infrastructure and the related issue of funding for regional institutions. In the case of Europe, this issue has been resolved by means of the mechanism of "own resources"—funding generated by the EU’s own duties and levies that accrue directly to Brussels for the financing of EU institutions. Absence of such a mechanism in other regional arrangements has meant that each regional institution is the subject of separate budgetary appropriations and contributions at the national level. Hence, funding is vulnerable to fiscal problems experienced by member states or to national political considerations. Thus, for example, CARICOM’S CRNM has experienced cash flow problems from time to time due to the discretionary nature of contributions and to dependence on donor funding.

A third problem area is the absence of provision for financing for disadvantaged and less developed countries or regions in integration arrangements in the South. Such provisions have been a notable feature in the case of the EU and have served as a means of accelerating the development of its poorer members. In their absence, trade liberalization and market integration tend to yield disproportionate benefits for the more industrialized partners, weakening political support for the integration arrangement among the disadvantaged members.

Regionalism in the South also has to contend with the diversity of interests among member countries that result from differences in size, levels of development and economic structure. A case in point is the experience of the Association of Caribbean States (ACS), an intergovernmental organization of 28 countries located in and around the Caribbean Sea, whose objectives are cooperation for economic and social development. To the extent that shared geographic space is the criterion of membership in the ACS, cooperation has advanced in such areas as tourism, transport and managing natural disasters. On the other hand, cooperation in trade has been problematic, especially where the coordination of external negotiating positions is concerned due to wide disparities among the membership in size, trade structure, export market orientation and level of industrialization (Girvan 2003).

These disparities are reproduced within the global South as a whole. They are reflected in the diversity of coalitions that exist among developing countries in negotiations on international trade and finance. Their existence does not negate the value of regionalism or of wider South-South cooperation. Rather, they underline the need to address the concrete challenges of regional solidarity and the building and maintenance of coalitions that are an integral part of the search for policy autonomy in the South.

Notes:

1. The Bandung Conference, held in Indonesia in 1955, established the vision and principles that guided the Non-Aligned Movement, which was officially launched in 1961.

2. Blomstrom and Hettne (1984), Toye (1987) and Hettne (1995) provide useful reviews of the contributions of Southern thinkers and the evolution of the development debate in this period.

3. On this point, see especially Eichner (1983:231–236), cited by Glenn Sankatsing in a private communication.

4. This point is discussed with great insight by Wolf (1982:9) and Goonatilake (1984), and also cited by Sankatsing.

5. A recent example of this, in relation to the Argentine case, can be found in Krueger (2004). The International Monetary Fund (IMF) has since admitted its errors in Argentina (see IMF 2004).

6. The practice is reminiscent of those medieval doctors who firmly believed that the cure for certain illnesses was to draw blood from the patient. As the patient further deteriorated, additional bloodletting was prescribed, with predictable results.

7. This reflection was stimulated by a comment by Charles Gore on an earlier version of this paper.

8. Critics of the PRSP process have noted the narrowly prescribed parameters in which it takes place with respect to participation of democratically elected actors; the absence of analysis of the structural causes of poverty and the distribution of power in the society; the lack of variety in the policies proposed, which correspond closely to the framework advocated in World Development Reports; and the fact that the process conditionality of the PRSPs has not replaced or reduced the use of policy-based conditionality. See Cornwall and Brock (2004) and Toye (2004).

9. Further elaboration of this idea with some illustrative examples can be found in Girvan (1995).

10. Mittelman (1999:25), Byron (2003:71) and Padrigu (2004).

11. This may be because the most significant regional groups are either Northern-based—European Union (EU), North American Free Trade Agreement (NAFTA)—or, in the case of the South, have until recently tended to engage in multilateral trade negotiations on terms set by the North.

12. The notion of "epistemic communities" is taken from Byron (2003:66).

13. At the UNRISD conference on Social Knowledge and International Policy Making, where an earlier version of this paper was presented, it was reported that in Eastern Europe, the United Nations Economic Commission for Europe had advocated a more gradual and nuanced transition to a market economy than that adopted under the aegis of the Washington-based institutions, an approach that was apparently vindicated by subsequent events.

14. It should be noted that Cuba and the Dominican Republic also participate in the CRNM in certain areas.

South-North Conflicts in a Historical Perspective

A tenacious South-South coalition is the best course of action for the developing countries not just for the Doha round of multilateral trade negotiations but to ensure the gradual renovation of international economic law and the institution of a new international economic order. That is the import of a recent article ‘Be Optimistic, or Be Pessimistic ? - The Fork Confronting DDR and WTO after Its Hong Kong Ministerial Conference’ by An Chen, Senior Professor of Law School at Xiamen University. Prof. Chen, who is Chairman of the Chinese Society of International Economic Law since 1993, looks at the South-North conflicts in a historical perspective and argues that behind the conflicts are also Sotuh-North interdependence trends which are intensifying. Following are extracts from his article.

What will continue to happen on the Doha Development Round (DDR) after the WTO’s Hong Kong Conference? — This has still been a widely focused and disagreed problem the world over. Comments of the international media on the outcome of the Hong Kong Conference (HKC) were basically divided, mixed with good and bad terms. Some have proclaimed that the Hong Kong Conference concluded with success, laying a good foundation for the conclusion of the DDR negotiations in 2006. Some have taken the position that the Hong Kong Conference only pushed the DDR one small step ahead. Some have held that the future of the DDR after the Hong Kong Conference is still dim. Some have argued that it is better to confess to the failure of the Hong Kong Conference than to pretend that it was a success. Some have expressed the view that the Hong Kong Agreement does not fulfill the Doha Undertakings, which is a betrayal of the developing country Members of the WTO. In brief, these comments could be divided into two categories: Optimistic, or Pessimistic

Due to the fact that the South–North disagreement on the main issues has not been eliminated, by the newly set deadline of the DDR negotiations at the end of 2006 and thereafter we should definitely witness an acute round of fierce struggle between the South and the North, entailing an unpredictable future. Nevertheless, a flashback of the history and facts before and after the HKC may probably offer some clues that are of value to the discussion of the general trend after the HKC.

The Weak South versus Strong North during the Last Fifty Years

In terms of law, the World Trade Organization system, along with its multilateral rules, is an important component of international economic law. The Doha Development Round (DDR) of multilateral trade negotiations is, in essence, a multilateral consultation on the renovation of current international trade law-making on the global level, the core purpose of which is to spur the necessary renovation and amelioration of the current WTO system and multilateral rules.

The DDR negotiations have been advancing in a sluggish way since they were lauched at the end of 2001.From a historical macro-view, such a sluggish way is nothing but the continuation of a Long March started from Bandung five decades ago. The Final Communiqué of the Asian-African Conference, held in Bandung (Indonesia) in April 1955, declared to the world the goals and code of conduct of the weak and powerless Asian and African nations, which included the eradication of the evils of colonialism, the maintenance of sovereignty and national independence, and international co-operation conducted on the basis of mutual benefit and sovereignty equality. For this purpose, the Asian-African nations, "when necessary, could take collective actions and take accordant position, or institute common policy, or make forehand consultation in international negotiations so as to stimulate their common economic interest". It can be said that, from then on, the developing countries shaped clear strategic thought as to the nature of the South–South coalition under the circumstances of acute South–North contradictions and the sharp contrast in power between the weak South and the strong North.

The strategic thought and its related fighting of the South–South coalition against the strong North for the renovation of unreasonable and inequitable international economic law has experienced several significant and big rounds during the last 50 years. They include the establishment of Group of 77 within the United Nations Conference on Trade and Development (UNCTAD) in June 1964 and its successful promotion on the partial reform of GATT 1947 system during 1960’s; the adoption of Declaration on the Establishment of a New International Economic Order and the Charter of Economic Rights and Duties of States by the United Nations General Assemblies during 1970’s;the hard negotiations of Uruguay Round prolonged in 1986~1994; which to some extent improve the original multilateral trade systems but still remain inequitable and imbalanced against the South and need further reform; the failure of the Seattle Ministerial Conference in 1998 , ended in vain and with ill will significantly owing to conflicts between the South and the North; the once again failure of the Cancún Ministerial Conference especially held for DDR in 2003 ended again in disamenity due to the escalation of the North-South divergence and the emergence of Group 20 of the South in resisting the North,etc..

Therefore, it seems evident that the hard-advancing ,complicated and controversial Hong Kong Conference especially held again for DDR in 2005, is really nothing but a most recent fight of the South–South coalition against the strong North for the renovation of unreasonable and inequitable international economic law, as well as for the reform of Old international economic order.

Assessing Trend after Hong Kong

It is not hard to discern from the historical facts presented above that the South–South coalition in the South–North conflict and the renovation of international economic law has experienced ups and downs. The coalition has taken various forms and has functioned in varied degree, but the process has advanced on the rugged road with perseverance. Also, the large gap in wealth has been extended with the escalation and deepening of economic globalization while the enhancement of the developing countries’ consciousness and cohesion, the overall trend of the South–South union has been steadily enlarging and reinforcing. In the circumstances of the South–South coalition, the course of the South–North conflict is traceable.

The Historical "6C" Track of South-North Conflicts

As is well known, the development of the international economy has been characterized by struggles between two sides: (i) the maintenance and enlargement of vested economic interests, the defense of established international economic law, and the urge to stick to the old international economic order; and (ii) the striving for economic equity, the renewal of international economic law, and the institution of a new international economic order. These struggles have invariably ended in comprises on both sides, but those compromises have been followed by new contradictions that have ignited new conflicts. This cycle is eternal and spiral, not of simple repetition but of an evolutionary ascent which drives the international economic order and relevant rules to a new level and a new development phase.

The historical course can be generalized as the "6C Track" or the "6C Rule", or, in other words: Contradiction / Conflict / Consultation / Compromise / Co-operation / Coordination / new Contradiction, and so on.

After reflection on the historical facts concerning South–North conflict and co-operation during the last 50 years, we can perceive some truths that run throughout the process.

Firstly, South–North conflict will last for a relatively long period since the situation is not instantly shaped but is a strongly deep-rooted one, one that cycles and regenerates. The main reason behind this is that the chronic disease of greed of international capital and the self-serving persistence of international hegemony is hard to eradicate, let alone to cure without prescriptions. The resolution of deep complexes and the eradication of chronic diseases is not a work of one day or one night. Facing such a fundamental reality of the current international community, the countries of the South should be conscious, patient enough, perseverant and tenacious.

Secondly, in South–North contradiction and conflict, the sharp contrast in power between the weak South and the strong North will be maintained for a long period due to the time-consuming work necessary to eliminate the results of the cruel colonial rule and colonial plunder that led to the chronically accumulated poverty of small and weak nations. A single feeble nation or single developing country is certainly weak in the fight for the renewal of international economic law and the reform of the old order of the international economy, only left to be bullied and butchered.

Conversely, the more collective power the South union has, the more power it has to change the tactically inferior situation of the weak South in relation to the strong North. However, even though South–South joint self-reliance can serve to achieve cheerful results and bring about victories on specific occasions, it still cannot fundamentally transform the strategically inferior situation of the South relative to the strong North, even less to bring the powerful hegemonic adversary to the ground or make it never recover from the setback at one blow.

Thirdly, in the light of the above two reasons, the South–South coalition must set its strategic mind on the lengthy war in the South–North haggle and wrestle, never expecting to finish the arduous war in one battle or to tame the hegemonic adversary in a prompt manner. Of course, the South–South union should not inaccurately assess the situation, should not be blindly optimistic or hug itself on the basis of the tiny progress or victory on specific occasions. Otherwise, when the unavoidable twists and setbacks reoccur, it will quickly be trapped in a mood of pessimism and will slack off, even losing the belief that "tomorrow is another day". In the meanwhile, the South–South union cannot underestimate the effect of the tricks that the international hegemonists are accustomed to and will continue to play, among which are "club with carrot", "dividing and subduing", "disintegrating, then triumphing over one by one", and "employing the horizontal subdued power to cope with the vertically dissenting power". The South–South union for self-reliance should keep alert for these tricks, along with their effects, keep a close eye on them, take them seriously and respond in a timely manner.

Fourthly, the South–North conflict and South–North interdependence are phenomena that coexist. The escalation of economic globalization and the large gap between the poor and the wealthy always stimulate or deepen South–North contradictions and conflict, but at the same time they intensify the degree of South–North interdependence. Complementarities in economies and intensified interdependence due to the intersection of economic interests between the South and the North predetermine that the international hegemonies have no possibility of rivaling the developing countries to the end or of cutting them out of the economic interchange.

The international hegemonists, after weighing the advantages and disadvantages, will make certain concessions and compromises when dealing with the legitimate requests and pressure posed by the internationally weak but large community which comprises 80 per cent of the world’s population. The recurrent deadlocks in the South–North conflict will, to a certain extent, be solved through dialogue and consultation, with co-operation realized and the convergence of the adversaries, substituting the mutually destructive behavior of both sides with a win-win result. Even though the new co-operative situation may occasionally be weakened or undermined by new South–North contradictions and conflict, the contemporary trend of the escalated globalization of the world economy and the fact of South–North interdependence could revitalize South–North co-operation. In this sense, South–North co-operation might suffer from disease, sometimes even suffer from severe symptoms, but would in no case be incurable and die out. The spiral recurrence of the "6C" Track is the historical record and factual proof in this respect. Therefore, the pessimistic attitude about the dimness of the future of the WTO or the view of its quick collapse - just the same as the above-mentioned view that "the South wins and the North loses; hence, the WTO will go along a smooth way" - is deficient in historical basis and proof in reality.

For the Doha Round’s Success : No Way except through the Tenacious South–South Coalition

On the presumption that the above perspective is basically correct, it is possible to foresee the result and the subsequent direction of the new round of South–North negotiations after the Hong Kong Conference and before the deadline set for the end of 2006.

There is less than ten months’ time from now to the end of 2006. When confronted with the positive achievements of the Hong Kong Conference and the remaining unsolved puzzles, if the South and the North could be realistic and make a correct assessment of the situation, showing some strategic flexibility on the basis of their respective firmness in principle, endeavor to seek a new convergence of economic interests, make the necessary concessions and comprises and draft a feasible programme, then the roadmap determined at the Hong Kong Conference and the time schedule may be turned into reality. Both sides would reach agreements on the main topics in each stage which they were delighted to accept, or at least would reluctantly view as acceptable. Following these achievements and steps forward, the goal of the new DDR multilateral negotiation would be implemented by the end of 2006.

On the other hand, if the international hegemonists rigidly adhere to their extreme egotistic position and continue to fake benevolence, make empty promises in rubber checks, or play their "disintegrate and subdue one by one" trick in new forms, then, under the counter-attack of the South–South union, we would once again see a seesaw war break out before and after the expiration of the 2006 deadline, the negotiations would meet setbacks, and the North and the South might once again part in the WTO on bad terms. The goodwill to implement the DDR negotiations by the end of 2006, therefore, would inevitably be aborted.

As far as this author is concerned, judging from the situation and the international information up to mid-February 2006, when this article was written, the above two outcomes have equally high possibilities of occurring, with the latter enjoying a somewhat higher possibility.

For example, Mr Lamy recently made a speech in Johannesburg, on 10 February 2006, entitled Concluding Doha Round: Post Hong Kong Roadmap, describing recent developments after the Hong Kong Conference with some impressive points, such as: (i) explaining the reluctant lower recalibration of the expectations for the Hong Kong Conference: "The reasons for this were quite straightforward. There was insufficient convergence in member's positions on key areas of the negotiations and therefore any attempt to force through consensus would have resulted in a failure." (ii) expressing his optimistic outlook: "[T]here is widespread commitment to making good on what was agreed at Hong Kong … there is a shared intention to move ahead across the whole of the DDA, making progress on all issues, and … all interlocutors understand that they will all have to move from their current positions and are willing to do so by moving ‘in concert’ … The good news is that we have already solved the question of ‘who makes the first move’. All members agree they have to move in concert." (iii) reminding that there still remain many key and difficult issues to be solved while the time limit is very tight: " Obviously, agriculture and industrial tariffs remain the flagships of the convoy since ministers have agreed to reach modalities by April. But no-one is in any doubt that our convoy is a large one. These two issues have an important role in leading the convoy to port, but we all know that the convoy must arrive together. Beyond Agriculture (including cotton) and industrial tariffs, we also have services, where for the negotiations to achieve real progress over the next weeks, the request/offer negotiations must be intensified. And we also have Rules, Environment, Trade Facilitation, not to forget issues such as small economies, the treatment of commodities or the erosion of preferences." (iv) forecasting that the coming road ahead will not be plain and easy: "History has taught us that trade negotiations by definition are difficult.

Trying to balance the interests of 14 SADC members in the negotiations for a SADC trade protocol was a headache as most of you will attest. Now, what about 149 countries with widely different ambitions and levels of development ? " Lamy described the difficulties in working as the WTO’s Director-General during recent months, humorously saying, "You will have noticed that I lost some hair and got some new wrinkles in the meantime!"

However, the WTO multilateral trading system would not necessarily face the fate of paralysis and collapse even if the latter situation unfortunately emerges, primarily because of the historical inevitability and the stron vitality of South–North co-operation, which was well illustrated by WTO predecessor GATT 1947’s history of development.

The General Agreement on Trade and Tariffs was signed on 30 October 1947, came into effect on 1 January 1948 and lasted until 15 December 1993, during which time eight rounds of multilateral trade negotiations were launched to modify and verify the original legally binding rules in GATT 1947 to keep pace with the times.

We can detect from the historical facts that:

In addition, the spontaneity and the collectiveness of the South–South union have been somewhat more enhanced than they were 10 years ago when the WTO was newly established. The South, confronting the crooked rules and inequitable treatment instituted by the international hegemonic adversaries, would not follow their lead or easily bow and submit to the pressure and hooks that were brought forward by them.

A consequence of this has been the repeated extension of the ultimate deadline set out in the Doha Declaration - which proposed that the new multilateral negotiations extend to the end of December 2004 - first to the end of July 2005 and then again to the end of 2006.

However, even if calculated from November 2001 to the end of 2006, the total time is only five years, no longer than the Tokyo Round or the Uruguay Round.

People around the world surely expect the early closure of the DDR negotiations, which could make the process of South–North co-operation for global prosperity less rugged but smoother and more harmonious. In that the original expectations of the Hong Kong Conference were lowered, the positive achievements made were far from realistic, the unsettled issues and the puzzles are actually of systemic significance, the sharp divide between the South and the North could not easily be compromised, and the time is limited since the deadline is now due in less than one year. Therefore, it will be hard to quickly or smoothly realize the expectations of people around the world in the foreseeable future.

Under such circumstances, we should not be overly optimistic about the positive achievements nor ignore the frustration that would definitely emerge on the way ahead. Nevertheless, we should not be impatient, pessimistic or disappointed when many important issues are unsettled and the future is full of difficulty. By examining and generalizing history, and by learning from it, people can wisely deal with the circumstances objectively. We should practice extra calmness, patience and flexibility, while being less impatient, disappointed or pessimistic. Even though there may once again be seesaw and deadlock after the Hong Kong Conference during the negotiation of unsettled puzzles, and even if setbacks and parting on bad terms may once again be anticipated, the South should, by adhering to the spirit of tenacious struggle in the South–South coalition, pursue the overall implementation of the DDR negotiations in the next round of multilateral negotiations by the end of 2006 or later.

All in all, there is no way other than through the tenacious South-South coalition to ensure the gradual renovation of international economic law and the institution of a new international economic order.

Goodbye Washington Consensus, Hello Washington Confusion? – (I)

While the lessons drawn by proponents and skeptics differ, it is fair to say that nobody really believes in the Washington Consensus anymore. The question now is not whether the Washington Consensus is dead or alive; it is what will replace it. That is the view expressed by Dani Rodrik of Harvard University in the above-titled paper prepared for the Journal of Economic Literature earlier this year. He makes a critical evaluation of a recent report ‘The World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform.’ "….the reader has to remind himself that the book he is holding in his hands is not some radical manifesto, but a report prepared by the seat of orthodoxy in the universe of development policy," observed Prof. Rodrik. This is the first part of the paper. The next issue will contain the remainder.

Life used to be relatively simple for the peddlers of policy advice in the tropics. Observing the endless list of policy follies to which poor nations had succumbed, any well-trained and well-intentioned economist could feel justified in uttering the obvious truths of the profession: get your macro balances in order, take the state out of business, give markets free rein. "Stabilize, privatize, and liberalize" became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counseled.

Codified in John Williamson’s (1990) well-known Washington Consensus, this advice inspired a wave of reforms in Latin America and Sub-Saharan Africa which fundamentally transformed the policy landscape in these developing areas. With the fall of the Berlin Wall and the collapse of the Soviet Union, former socialist countries similarly made a bold leap towards markets. There was more privatization, deregulation and trade liberalization in Latin America and Eastern Europe than probably anywhere else at any point in economic history. In Sub-Saharan Africa governments moved with less conviction and speed, but there too a substantial portion of the new policy agenda was adopted: state marketing boards were dismantled, inflation reduced, trade opened up, and significant amounts of privatization undertaken.[2]

Such was the enthusiasm for reform in many of these countries that Williamson’s original list of do’s and don’ts came to look remarkably tame and innocuous by comparison. In particular, financial liberalization and opening up to international capital flows went much farther than what Williamson had anticipated (or thought prudent) from the vantage point of the late 1980s. Williamson’s (2000) protestations notwithstanding, the reform agenda eventually came to be perceived, at least by its critics, as an overtly ideological effort to impose "neoliberalism" and "market fundamentalism" on developing nations.

The one thing that is generally agreed on about the consequences of these reforms is that things have not quite worked out the way they were intended. Even their most ardent supporters now concede that growth has been below expectations in Latin America (and the "transition crisis" deeper and more sustained than expected in former socialist economies). Not only were success stories in Sub-Saharan Africa few and far in between, but the market-oriented reforms of the 1990s proved ill-suited to deal with the growing public health emergency in which the continent became embroiled. The critics, meanwhile, feel that the disappointing outcomes have vindicated their concerns about the inappropriateness of the standard reform agenda. While the lessons drawn by proponents and skeptics differ, it is fair to say that nobody really believes in the Washington Consensus anymore.[3] The question now is not whether the Washington Consensus is dead or alive; it is what will replace it.

The World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform (2005, henceforth Learning from Reform) is one of a spate of recent attempts at making sense of the facts of the last decade and a half, and probably the most intelligent. In fact, it is a rather extraordinary document insofar as it shows how far we have come from the original Washington Consensus. There are no confident assertions here of what works and what doesn’t - and no blueprints for policy makers to adopt. The emphasis is on the need for humility, for policy diversity, for selective and modest reforms, and for experimentation. "The central message of this volume," Gobind Nankani, the World Bank vice-president who oversaw the effort, writes in the preface of the book, "is that there is no unique universal set of rules…. [W]e need to get away from formulae and the search for elusive ‘best practices’…." (p. xiii).[4] Occasionally, the reader has to remind himself that the book he is holding in his hands is not some radical manifesto, but a report prepared by the seat of orthodoxy in the universe of development policy.

The record

Here is how Learning from Reform summarizes the surprises of the 1990s. First, there was an unexpectedly deep and prolonged collapse in output in countries making the transition from communism to market economies. More than a decade into the transition, many countries had still not caught up to their 1990 levels of output. Second, Sub-Saharan Africa failed to take off, despite significant policy reform, improvements in the political and external environments, and continued foreign aid. The successes were few - with Uganda, Tanzania, and Mozambique the most commonly cited instances - and remained fragile more than a decade later. Third, there were frequent and painful financial crises in Latin America, East Asia, Russia, and Turkey.

Most had remained unpredicted by financial markets and economists until capital flows started to reverse very suddenly. Fourth, the Latin American recovery in the first half of the 1990s proved short-lived. The 1990s as a whole saw less growth in Latin America in per-capita GDP than in 1950-80, despite the dismantling of the state-led, populist, and protectionist policy regimes of the region. Finally, Argentina, the poster boy of the Latin American economic revolution, came crashing down in 2002 as its currency board proved unsustainable in the wake of Brazil’s devaluation in January 1999.

Significantly, the period since 1990 was not a disaster for economic development. Quite to the contrary. From the standpoint of global poverty, the last two decades have proved the most favorable that the world has ever experienced. Rapid economic growth in China, India, and a few other Asian countries has resulted in an absolute reduction in the number of people living in extreme poverty.[5] The paradox is that that was unexpected too! China and India increased their reliance on market forces, of course, but their policies remained highly unconventional. With high levels of trade protection, lack of privatization, extensive industrial policies, and lax fiscal and financial policies through the 1990s, these two economies hardly looked like exemplars of the Washington Consensus. Indeed, had they been dismal failures instead of the successes they turned out to be, they would have arguably presented stronger evidence in support of Washington Consensus policies.[6]

Along with this telling, if anecdotal, evidence has come a more skeptical reading of the cross-national relationship between policy reform and economic growth. Characteristically, it is the World Bank itself that has been prone to make grandiose claims on the impact of policy reform. In one particularly egregious instance cited by Easterly (2005), Collier and Dollar (2001) argued that policy reform of the conventional type could cut world poverty by half. Work by Easterly (2005) and Rodriguez (2005) show that the data do not support such claims. The evidence that macroeconomic policies, price distortions, financial policies, and trade openness have predictable, robust, and systematic effects on national growth rates is quite weak - except possibly in the extremes. Humongous fiscal deficits or autarkic trade policies can stifle economic growth, but moderate amounts of each are associated with widely varying economic outcomes. [7]

The question is how to interpret this recent experience, and how to turn the interpretation into concrete policy advice. Here Learning from Reform makes some valuable progress. I summarize some of the main conclusions below, emphasizing those that depart most strongly from the earlier approach.

The interpretation

One of the insights of Learning from Reform is that the conventional package of reforms was too obsessed with deadweight-loss triangles and reaping the efficiency gains from eliminating them, and did not pay enough attention to stimulating the dynamic forces that lie behind the growth process. Seeking efficiency gains does not amount to a growth strategy. Although the report does not quite put it in this way, what I think the authors have in mind is that market or government failures that affect accumulation or productivity change are much more costly, and hence are more deserving of policy attention, than distortions that simply affect static resource allocation. They may also be harder to identify. Focusing on the latter instead of the former results in small benefits, and could even turn out to be counterproductive when policy makers face a political budget constraint (more reform in one area means less reform in another).

A second conclusion is that the broad objectives of economic reform—namely marketoriented incentives, macroeconomic stability, and outward orientation—do not translate into unique set of policy actions. In the words of the Report, "The principles of … ‘macroeconomic stability, domestic liberalization, and openness’ have been interpreted narrowly to mean ‘minimize fiscal deficits, minimize inflation, minimize tariffs, maximize privatization, maximize liberalization of finance,’ with the assumption that the more of these changes the better, at all times and in all places—overlooking the fact that these expedients are just some of the ways in which these principles can be implemented" (p. 11, emphasis in the original). The authors go on to point out that each of these ends can be achieved in a number of ways. For example, trade openness can be achieved through lower import tariffs, but also through duty drawbacks, export subsidies, special economic zones, export processing zones, and so on. This renunciation of standard "best practice" in World Bank policy advice is quite remarkable, and must not have come without a significant internal fight.

Third, different contexts require different solutions to solving common problems. Enhancing private investment incentives may require improving the security of property rights in one country, but enhancing the financial sector in another. Technological catch-up may call for better or worse patent protection, depending on the level of development. This explains why countries that are growing—the report cites Bangladesh, Botswana, Chile, China, Egypt, India, Lao PDR, Mauritius, Sri Lanka, Tunisia, and Vietnam—have such diverse policy configurations, and why attempts to copy successful policy reforms in another country often end up in failure.

Fourth, Learning from Reform argues that there has been a tendency to exaggerate the advantages of rules over discretion in government behavior. Rules were meant to discipline the malfeasance of governments. But it turns out that "government discretion cannot be bypassed" (p. 14). Argentina’s currency board, which removed monetary policy from the hands of the government, worked well when the binding constraint was lack of credibility, but led to disastrous outcomes when the binding constraint became an overvalued currency. There is no alternative to improving the processes of decision-making (better checks and balances, better guiding principles, better implementation) such that discretion leads to better outcomes. Finally, reform efforts need to be selective and focus on the binding constraints on economic growth rather than take a laundry-list approach à la Washington Consensus. While there is no foolproof method of identifying these constraints, common sense and economic analysis can help (see below). When investment is constrained by poor property rights, improving financial intermediation will not help. When it is constrained by high cost of capital, improving institutional quality will hardly work. Experimentation and learning about the nature of the binding constraints, and the changes therein, are therefore an integral part of the reform process. Even though countries may face situations in which many constraints need to be addressed simultaneously, the report judges these situations to be rare: "In most cases, countries can deal with constraints sequentially, a few at a time" (p. 16).

Taking these conclusions at face value, what they entail is nothing less than a radical rethink of development strategies. Of course, it would be naïve to think that the World Bank’s practice will therefore change overnight. There is little evidence that operational work at the Bank has internalized these lessons to any significant extent. [8] And, as I will discuss below, there are contending interpretations of what has gone wrong and how to move forward. But the mere fact that such views have been put forward in an official World Bank publication is indicative of the changing nature of the debate and of the space that is opening up within orthodox circles for alternative visions of development policy.

The alternatives I: institutions

Around the same time that the World Bank was grappling with the lessons of the 1990s, its sister institution across the street, the International Monetary Fund, put out a document that focused on much the same issues in the context of Latin America (Singh et al., 2005). This is an equally remarkable document which shows that in Washington there is anything but consensus these days. The IMF report starts from the same basic premise—growth has been disappointing—but its basic argument could not be more different.

According to its authors, the problem was not with the approach taken to reform, but that it did not go deep and far enough. Using the report’s own words, "reforms were uneven and remained incomplete" (p. xiv). "More progress was made," the IMF report claims, "with measures that had low up-front costs, such as privatization, relative to reforms that promised greater long-term benefits, such as improving macroeconomic and labor market institutions, and strengthening legal and judicial systems" (p. xiv). The same diagnosis is expressed succinctly in the title of one of Anne Krueger’s speeches on policy reform: "Meant well, tried little, failed much" (Krueger 2004). From this perspective, the failures have to be chalked up to too little reform of the kind that Washington has advocated all along, and not to the nature of these reforms itself. [9] The policy implication that follows is simple: do more of the same, and do it well.

Several key ideas underpin this interpretation of the evidence. First, political leaders may have had the talk, but they didn’t quite have the walk: their commitment to genuine reform was often "skin-deep" and there was "lack of follow-through" (Krueger 2004). Second, and more fundamentally, even committed reformers stopped well short of undertaking the full gamut of institutional changes needed to create well-functioning market economies. Regulatory and supervisory institutions in product and financial markets proved too weak. Poor governance and corruption remained a problem. Courts and the judiciary were ineffective. And labor market institutions were not sufficiently "flexible."

Of course this second point, about the lack of emphasis on institutional reform, is itself an implicit repudiation of the original version of the Washington Consensus, insofar as the latter did not feature institutional reform of the type that Krueger and the IMF have in mind in their interpretation of the 1990s. Most of the items in Williamson’s original list were relatively simple policy changes (liberalize trade, eliminate currency overvaluation, reduce fiscal deficits, and so on) that did not require deep-seated institutional changes. Williamson did include "property rights" in his list, but that was the last item on the list and came almost as an afterthought.

What has become clearer to practitioners of the Washington Consensus over time is that the standard policy reforms did not produce lasting effects if the background institutional conditions were poor. Sound policies needed to be embedded in solid institutions. Moreover, there were significant complementarities across different areas of reform. Trade liberalization would not work if fiscal institutions were not in place to make up for lost trade revenue, capital markets did not allocate finance to expanding sectors, customs officials were not competent and honest enough, labor-market institutions did not work properly to reduce transitional unemployment, and so on.

The upshot is that the original Washington Consensus has been augmented by a long list of so-called "second-generation" reforms that are heavily institutional in nature. The precise enumeration of these requisite institutional reforms depends on who is talking and when, and often the list seems to extend to whatever it is that the reformers may not have had a chance to do—which is one of the problems that I will discuss below. Nonetheless, one possible rendition is shown in Table 1, where I have listed ten second-generation reforms to maintain symmetry with the original Washington Consensus.

This focus on institutions has also received a strong boost from the (largely unrelated) rediscovery of institutions as a driver of long-term economic performance in the empirical literature on economic growth. In particular, Acemoglu, Johnson, and Robinson’s (2001) important work drove home the point that the security of property rights has been historically perhaps the single most important determinant of why some countries grew rich and others remained poor. Going one step further, Easterly and Levine (2003) showed that policies (i.e., trade openness, inflation, and exchange rate overvaluation) do not exert any independent effect on long-term economic performance once the quality of domestic institutions is included in the regression. Often, this work has taken a form that may be called "institutions fundamentalism"— to relate it to (and distinguish it from) the earlier wave of "market fundamentalism." Getting the institutions right is the mantra of the former, just as getting prices right was the mantra of the latter. The Augmented Washington Consensus derives its academic support largely from this work on the primacy of institutions.[10],[11]

Taken to its logical conclusion, the focus on institutions has potentially debilitating side effects for policy reformers. Institutions are by their very nature deeply embedded in society. If growth indeed requires major institutional transformation—in the areas of rule of law, property rights protection, governance, and so on—how can we not be pessimistic about the prospects for growth in poor countries? After all, such institutional changes typically happen very rarely— perhaps in the aftermath of war, civil wars, revolutions, and other major political upheavals. The cleanest cases that link institutional change to growth performance occur indeed at such historical junctures: consider for example the split between East and West Germany, or of North and South Korea. But what are poor countries that do not want to go through such upheavals to do?

Learning from Reform pays lip service to the importance of institutions, but to its credit it steers clear from too much institutions determinism. That is wise because the Augmented Washington Consensus’ focus on institutional change proves to be largely a dead-end upon closer look. There are two major reasons for this, which I summarize here. First, the cross-national literature has been unable to establish a strong causal link between any particular design feature of institutions and economic growth. We know that growth happens when investors feel secure, but we have no idea what specific institutional blueprints will make them feel more secure in a given context. The literature gives us no hint as to what the right levers are. Institutional function does not uniquely determine institutional form. If you think this is splitting hairs, just compare the experience of Russia and China in the mid-1990s. China was able to elicit inordinate amounts of private investment under a system of state ownership (township and village enterprises), something that Russia failed to do under Western-style private ownership.

Presumably this was because investors felt more secure when they were allied with local governments with residual claims on the stream of profits than when they had to entrust their assets to private contracts that would have to be enforced by incompetent and corrupt courts. Whatever the underlying reason, China’s experience demonstrates how common goals (protection of property rights) can sometimes be achieved under divergent rules. This is a theme that Learning from Reform loudly trumpets.

Second, we should not forget that Acemoglu et al.’s (2001) work and other related research focused on long-term economic performance. The typical dependent variable in this line of literature is the level of income in some recent year, not the rate of economic growth over a particular period. When institutional indicators are introduced in growth regressions, the results are much weaker and less robust. Empirical work focusing on transitions into and out of growth has found little evidence that large-scale institutional transformations play a role (Hausmann et al.2005, Olken and Jones 2005).

To take two important examples, China embarked on rapid growth in the late 1970s with changes in its system of incentives that were marginal in nature (and certainly with no ownership reform or significant change in its trade regime early on), and India’s transition to high growth in the early 1980s was preceded (or accompanied) by no identifiable institutional changes. These and other experiences suggest that a policy maker interested in igniting economic growth may be better served by targeting the most binding constraints on economic growth—where the bang for the reform buck is greatest—than by investing scarce political and administrative capital on ambitious institutional reforms. Of course, institutional reform will be needed eventually to sustain economic growth. But it may be easier and more effective to do that when the economy is already growing and its costs can be spread over time.

In the limit, the obsession with comprehensive institutional reform leads to a policy agenda that is hopelessly ambitious and virtually impossible to fulfill. Telling poor countries in Africa or Latin America that they have to set their sights on the best-practice institutions of the U.S. or Sweden is like telling them that the only way to develop is to become developed—hardly useful policy advice! Furthermore, there is something inherently unfalsifiable about this advice. So open-ended is the agenda that even the most ambitious institutional reform efforts can be faulted ex post for having left something out.

So you reformed institutions in trade, property rights, and macro, but still did not grow? Well, it must be that you did not reform labor-market institutions. You did that too, but still did not grow? Well, the problem must be with lack of safety nets and inadequate social insurance. You reformed those, with little effect? Obviously the problem was that your political system was unable to generate sufficient credibility, lock-in, and legitimacy for the reforms. In the end, it is always the advisee who falls short, and never the advisor who is proved wrong.

Notes

[1] Paper prepared for the Journal of Economic Literature. I am grateful to Roger Gordon for his encouragement and comments, to Ricardo Hausmann, Lant Pritchett, and John Williamson for their reactions, and to Roberto Zagha for the many insights he has shared with me over the last few years. John Williamson reminded me that my title is far from original, having been used in almost identical form by Moises Naim (1999). In its present form, the title also makes allusion to the classic paper by Carlos Diaz-Alejandro (1985).

[2 ] To cite just one example, fifty percent or more of the state-owned enterprises were divested during the 1990s in the Central African Republic, Cote d’Ivoire, Gambia, Ghana, Guinea-Bissau, Kenya, Mali, Tanzania, Togo, Uganda, and Zambia (Nellis 2003). On the extent of trade reform in Africa, see Ancharaz (2003).

[3] In a book edited with Pedro-Pablo Kuczynski in 2003, John Williamson laid out an expanded reform agenda, emphasizing crisis-proofing of economies, "second-generation" reforms, and policies addressing inequality and social issues (Kuczynski and Williamson, 2003).

[4] Roberto Zagha led the team that prepared the report. Members of the team were J. Edgardo Campos, James Hanson, Ann Harrison, Philip Keefer, Ioannis Kessides, Sarwar Lateef, Peter Montiel, Lant Pritchett, S. Ramachandran, Luis Serven, Oleksiy Shvets, and Helena Tang.

[5] According to World Bank estimates, there were roughly 400 million fewer people living below the $1 a day poverty line in 2001 compared to two decades earlier (Chen and Ravallion, n.d.).

[6] See Rodrik (2005a) for an interpretative survey of recent growth experience.

[7] See also Rodrik (2005b) for a general methodological critique of growth regressions with policy variables on the right-hand side.

[8] Along with Ricardo Hausmann and the lead author of the World Bank report, Roberto Zagha, I have been involved in an effort to bring some of these implications to bear on the country operational work at the Bank. One thing we have discovered is how difficult it is to wean the Bank’s country economists away from the Washington-Consensus, laundry-list, best-practice approach to reform.

Table 1: The Augmented Washington Consensus

Original Washington Consensus

"Augmented" Washington Consensus

- the previous 10 items, plus:

 

1. Fiscal discipline

2. Reorientation of public expenditures

3. Tax reform

4. Financial liberalization

5. Unified and competitive exchange

rates

6. Trade liberalization

7. Openness to DFI

8. Privatization

9. Deregulation

10.Secure Property Rights

 

11. Corporate governance

12. Anti-corruption

13. Flexible labor markets

14. WTO agreements

15. Financial codes and standards

16. "Prudent" capital-account opening

17. Non-intermediate exchange rate regimes

18. Independent central banks/inflation

targeting

19. Social safety nets

20. Targeted poverty reduction

LDCs Urge Transparency in Aid Efforts

Bangkok, 15 March --- The Meeting of the Regional Review on the Implementation of the Programme of Action for the Least Developed Countries for the Decade 2001-2010 has called on their trading partners to provide bound, duty- and quota-free access to all exports, and to simplify rules of origin, according to the UN Information Service.

Fourteen LDCs are in the Asia-Pacific region and they are Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao People’s Democratic Republic, Maldives, Myanmar, Nepal, Samoa, Solomon Islands, Timor-Leste, Tuvalu and Vanuatu.

Over 60 representatives from the region’s LDCs attended the meeting to review their progress towards the attainment of goals of the Programme of Action adopted at the Third United Nations Conference on Least Developed Countries in Brussels in May 2001.

The Prime Minister of Lao People’s Democratic Republic, Mr. Bounnhang Vorachith, stated that today about 120 million people in the Asia-Pacific LDCs still live below national poverty line and this number is projected to increase should the international community not muster the necessary political will to fulfill the commitments in the Brussels Programme of Action .

Mr. Kim Hak-Su, Executive Secretary of UNESCAP said, "In these countries, implementation of macroeconomic policies may be less than effective, owing to human resources and institutional constraints. External sector performance may be erratic, given their reliance on a narrow range of commodities and trading partners. Provision of government services may be limited or costly." Full implementation of the Programme of Action by both the LDCs and their development partners is critical if these countries are to attain their internationally agreed development goals, Mr. Kim emphasized.

Political Struggles Will Determine Better Globalisation

Critical public choices and extended political struggles will determine whether, in what ways, and how far a new course of globalization will shape in the coming years, according to Jan Aart Scholte, Professor in Politics and International Studies, and currently Co-Director of the ESRC/Warwick Centre for the Study of Globalisation and Regionalisation. In a recently published article by the United Nations Research Institute for Social Development (UNRISD) - ‘The Sources of Neoliberal Globalization’ – Prof. Scholte reflects on the future of neoliberalism, while examining what sustains it. Following are extracts from that article.

Neoliberalism plus

Concerns about adverse consequences of neoliberalism, together with pressure from protest movements, have in recent years provoked considerable discussion about changes of policy toward globalization. Already a number of reforms have attenuated the ultra-liberal marketism that prevailed in the 1980s and the first half of the 1990s. As of late 2002, it remained far from clear how deep these revisions would go. However, the relative modesty of policy alterations to that date suggested that neoliberalism would retain general primacy in our (mis)management of globalization. No full-scale shift of approach is in immediate prospect.

Most changes of the last five years regarding the regulation of globalization have fallen in the mould of what has been called the post–Washington consensus or, as Rodrik (2001:15) has more aptly described it, the "augmented Washington consensus". In this vein, globalization-by-marketization has been pursued with greater attention to institutional contexts and social consequences. Even an arch-neoliberal like Milton Friedman has conceded that his earlier call to "privatize, privatize, privatize" needs a supplementary injunction to couch the market in solid institutional arrangements (Friedman 1991). Privatization, liberalization and deregulation remain the order of the day, but these core neoliberal policies are now undertaken in tandem with more measures that address corruption, transparency, financial codes and standards, unsustainable debt burdens, the timing and sequencing of capital control removal, social safety nets, poverty reduction, corporate citizenship and so on. Recent trends have also seen some technocrats reduce their earlier inclinations to take a one-size-fits-all approach to the application of neoliberal policies and to give greater attention to the diversity of cultural, economic and political contexts.

However, "Washington Plus" has still had neoliberalism at its core. Thus, anti-corruption drives, information disclosure schemes, and other so-called good governance measures have had the primary aim to improve market efficiency. The Poverty Reduction Strategy Papers spearheaded by the Bretton Woods institutions since 1999 have continued to centre on marketization through privatization, liberalization and deregulation. Concerns about "moral hazard" in the marketplace have severely constrained creditors from extending more substantial debt relief to poor countries than a handful of bilateral cancellations and the grudging heavily indebted poor countries (HIPC) initiative on loan repayments to the IMF and the World Bank. Capital account liberalization remains a key macroeconomic policy objective, even if it is approached with greater caution. Corporate citizenship is an exercise in market self-regulation and often has the aim—implicitly if not explicitly of pre-empting greater public sector interventions to secure social and environmental standards in business behaviour. The second generation neoliberal framework has more or less ignored issues of social inequality, ecological integrity, cultural protection and democracy. In all of these respects there has been limited "post" in the post–Washington consensus.

True, certain ideas recently promoted in some policy circles have implied a more substantial reorientation away from neoliberalism in the direction of redistributive global social democracy. Discussion of global public goods funded through global taxes has fallen into this vein, as has talk of creating an Economic and Social Security Council at the UN. A vision of global social democracy has also underpinned notions of "decent work" developed at the ILO, conceptions of a "rights-based approach to development" pursued at the United Nations Development Programme (UNDP) and elsewhere, and ideas of a new "global social contract". However, to date this reformist discourse has not translated beyond words into significant concrete rules and regulatory mechanisms to govern the global economy. Indeed, neoliberal regimes have shown considerable adeptness in co-opting reformist themes and draining them of their force for significant change. This fate has already largely befallen notions such as sustainable development, social capital, ownership and participation.

Dissatisfaction with the harms and omissions of neoliberalism has also of late generated greater interest in transformist approaches to globalization. For example, radical socialists have seen the contradictions of neoliberalism as an opportunity to transcend capitalism. "Dark green" environmentalists have promoted ecocentric alternatives to neoliberal economism. Religious revivalists have offered spiritual renewal as an antidote to the cultural voids that privatization, liberalization and deregulation are not designed to fill. Yet transformist ideas of these kinds have extended little beyond fringe movements that remain very far removed from the core regimes that govern the global economy.

Other reactions against neoliberalism have taken protectionist-mercantilist forms. These rejectionists have dismissed globalization of any kind - neoliberal or otherwise - and seek to construct some form of regional, national or local autarky as the way to secure the good society. Calls for de-globalization have come from highly diverse and often otherwise opposed circles, including the farmers of Vía Campesina, the Communist Party in Russia, neofascist movements in Western Europe, and middle-class professionals in the San Francisco-based International Forum on Globalization.

Some observers have wondered whether this accumulation of reactions against neoliberalism signals the start of a Polanyian "double movement" in relation to contemporary globalization. Sixty years ago Karl Polanyi observed that ultra-liberalism in the nineteenth century world economy produced social dislocations that generated demands for reform and an eventual reregulation of capitalism (Polanyi 1944). Followers of Polanyi would expect the failings of neoliberalism—as the marketist phase of capitalist development in the past quarter-century—to provoke a turn toward a more socially sustainable regulation of globalization.

It is plainly too early to call this outcome. Unadulterated, naive neoliberalism has fallen from grace in most quarters, but "neoliberalism with knobs on" has thus far held sway over reformist, transformist and mercantilist alternatives. To date we have witnessed only tinkering at the margins rather than a Polanyian great transformation. For the time being, then, policy makers and citizens-at-large still need to understand the forces that have kept neoliberalism in place.

Dynamics of Neoliberalism

The forces that have generated and sustained neoliberal policy frameworks over the past quarter-century are located in four interrelated areas: governance, production, knowledge, and social networks. Regarding governance, the key shift advancing neoliberalism has been a move, with globalization, from statist to decentred regulation. Concerning production, the main trend has been the rise of supraterritorial capitalism—more specifically, neoliberal policies have responded to, and reinforced, certain expanded fields of surplus accumulation such as finance and information, and certain new forms of capitalist organization such as transborder firms and offshore arrangements. With respect to knowledge, neoliberalism has thrived in an environment dominated by rationalist constructions of knowledge, particularly in the form of modern economic science. In terms of social networks, neoliberalism has been furthered through the consolidation of a global managerial class, namely, transborder elite bonds that have interlinked powerful official, corporate and intellectual circles.

These four principal forces behind neoliberalism in practice have generated the doctrine together and through their combination. Thus, the explanation does not lie in one factor that operates before the others as an independent variable. Instead, all four aspects—and more particularly their interconnections—have been crucial to the production and entrenchment of neoliberal policies. Other developments like the end of the Cold War have provided further impetus to the rise of neoliberalism in the late twentieth century, but their role has been secondary to the core four-faceted dynamic.

Social networks: A gobal managerial class l

A fourth key general development that has underpinned the rise and continuing strength of neoliberalism has been the growth of transborder connections between, and solidarity among, regulators, business managers and knowledge producers who promote neoliberalism. To speak of a global managerial class is not to say that perfect harmony has reigned among its many elements. Nor, to repeat an earlier disclaimer, is it to suggest that this class has embarked on deliberate global conspiracies to create the harms of neoliberalism. However, these transworld social networks in and between official, corporate and academic circles have helped to consolidate a powerful general elite consensus behind neoliberal policies.

In governance circles, for example, dense connections have come to link economic policy makers across state and suprastate agencies. Prior to 1950, trans-state networks were mainly limited to the diplomatic corps. Now transgovernmental links between finance and trade officials are often equally, if not more, dense than those of foreign ministries (compare Slaughter 2000). Through regular encounters in multilateral forums, as well as frequent communications in between these meetings, many economic policy makers have come to have closer relations with their counterparts in other states than with colleagues in other ministries of their own state. Likewise, staff of different multilateral economic institutions have developed close ties with each other and with national policy makers for finance, trade and industry, while often having relatively few links with officials in social, cultural and environmental agencies. These transworld economic governance networks have provided key channels not only to spread neoliberalism across the planet in the first place, but subsequently also to provide continual reinforcement of the doctrine.

Significant social networks have also interlinked business elements of the transworld managerial class, with their keen capitalist interests in promoting neoliberal approaches to globalization. Partly these corporate connections have developed through everyday entrepreneurial dealings. In addition, a number of transborder associations of financiers, industrialists, traders and large farmers have brought business leaders together to discuss more general policy issues. Some of these forums date from earlier in the twentieth century, such as the International Chamber of Commerce, the International Organization of Employers and the International Federation of Agricultural Producers. Others like the World Economic Forum (WEF), the Institute of International Finance and the Bretton Woods Committee were created in specific response to questions of globalization. The WEF in Davos has figured especially prominently as a channel for transworld business networking, and one that has very actively and explicitly championed the neoliberal cause.

Meanwhile, transborder networks of knowledge producers have interlinked the many universities, research institutes and think tanks that disseminate neoliberal ideas. Relevant academics and policy researchers have had continual contacts—both face-to-face in countless conferences and remotely through electronic communications. Some of these connections have been institutionalized, for example, in the American Economic Association (AEA), the African Economic Research Consortium and the Economic Research Forum for the Arab Countries, Iran and Turkey. All of this academic networking has produced a transworld "epistemic community" (Haas 1992) that has helped to give mainstream economic science in general and neoliberal thinking more particularly much of the power described in the preceding section.

In turn, these networks of official, corporate and intellectual circles have been deeply interlinked in an overarching global managerial class. The three sectors regularly intersect, for instance, at WEF events, WTO meetings, AEA conventions and conferences of national bankers associations. The different elite elements also have constant casual encounters in hotel lobbies, airport lounges, cocktail parties and social clubs. Indeed, the people concerned have generally attended the same elite universities and often also send their children to the same schools. Both deliberately and subtly, these continual interactions have provided a strong social basis for neoliberal discourse.

Through these various networks the global managerial class has lived in relative isolation from other parts of society. Cocooned in airplanes, high-rise offices and exclusive seminars, these officials, corporate executives and researchers have been able to exchange mutual congratulations that all proceeds well in the neoliberal world, while largely avoiding confrontations with the counter-evidence. The recent headline anti-globalization protests have therefore come as a genuine surprise in much of these ruling circles. Unaccustomed to working outside their own box, these elites have struggled to understand the challenge to neoliberalism, let alone to respond effectively to it. Some sections of the global managerial class have attempted to engage with the criticisms along post-Washington lines. However, the complacent elements have indulged temptations to dismiss the opposition to neoliberalism as a temporary blip caused by "a few cranks" and to spin the cocoon still tighter.

Such ostrich responses will be sustainable so long as the global managerial class lacks a powerful counterpoint. Indeed, to date critics of neoliberalism have lacked the resources and in many cases, also the political imagination to form effective transborder opposition blocs. Labour movements have so far failed to use regional and transworld networks to mount more than feeble challenges to global capital. Other social movements—of anarchists, environmentalists, feminists, indigenous peoples, peace activists, religious revivalists, etc.—have likewise had nothing approaching the resources and cohesion of the global managerial class. Indeed, many non-governmental organizations have sooner been co-opted into the global elite. Initiatives of recent years like the World Social Forum—as a counter-point to the WEF—and the Hemispheric Social Alliance—as a counter-point to the Free Trade of the Americas Agreement—confirm that some fertile ground exists for transborder formations to challenge the global managers, but as yet these projects remain very fragile.

So a core fourfold dynamic has strongly promoted neoliberalism in contemporary globalization. Other developments have further reinforced these principal forces. As mentioned earlier, the end of the Cold War removed a significant counterpoint to neoliberalism and reduced the pressures on market capitalism to address social justice issues. In addition, a general climate of consumer culture has discouraged many people who could have grievances with neoliberalism from turning to political action against it. All in all, then, the sociohistorical dynamics behind neoliberal globalization over the past quarter-century have been very powerful indeed.

Conclusion

This paper has offered a historical-sociological understanding of neoliberal globalization. Its core argument is recapitulated below.

1. Globalization is a transformation of social space that occurs with the spread of transplanetary—and in contemporary times often also supraterritorial—connections between people.

2. Globalization and neoliberalism are not the same thing: the latter is a policy approach toward the former.

3. Neoliberalism prescribes that globalization is an economic process that should be managed with marketization through privatization, liberalization and deregulation.

4. Neoliberalism has in various cases promoted gains in efficiency and material welfare, but it has also tended to neglect other important issues and to produce or exacerbate a number of cultural, ecological, economic, political and social harms.

5. Neoliberal policies have been generated by a powerful combination of forces related to decentred governance, supraterritorial capitalism, modern economic science and global elite networks.

It remains in these concluding remarks to look to the future. Strong though the forces behind neoliberalism have been in contemporary history, there is of course nothing inevitable or permanent in the primacy of this policy framework. The world was once without neoliberalism, and at some point the doctrine will again recede. Nothing in history is forever fixed. The question is not whether neoliberalism will yield as the reigning approach to increasing globality, but when, how and to what.

With regard to the "when" question, current prospects seem relatively modest for a full-scale shift of policy tenets away from neoliberalism in the short term. As discussed in the preceding section, a ubiquitous, multilayered and diffuse world governance structure is at present mainly and powerfully aligned to neoliberal formulas. Similarly, predominant forces in contemporary capitalism strongly favour a laissez-faire course of globalization. Liberal economic science currently faces little challenge in ruling circles, which are quite firmly interconnected in a transworld managerial class. In the present environment, therefore, it has proved extremely difficult to press through even the most morally compelling cases for deviation from neoliberal principles. For instance, consider how hard it has been to obtain a relaxation of global intellectual property rights on anti-retro-viral drugs to combat HIV/AIDS among destitute people in Africa.

To be sure, neoliberalism has its vulnerable points in the current situation. For one thing, there is the previously reviewed evidence that qualifies and sometimes also outright refutes the promises that global free markets would yield a good society of material prosperity, ecological care, cultural integrity, social cohesion, justice and democracy. Awareness and experience of these limitations and flaws could well encourage more criticism of economistic and marketist worldviews. In addition, some - albeit usually weak - sites in governance of the global economy, such as certain governments and UN agencies, are relatively amenable to consider alternatives to neoliberalism. Even some financial and trade regulators harbour increasing doubts about the laissez-faire approaches that they have heretofore embraced. Meanwhile, downturns of recent years in certain areas of global capitalism such as finance, information technology and mobile telephony could perhaps dampen some enthusiasm for free markets, particularly among smaller investors, and particularly if substantial losses on investments persist over a number of years. Furthermore, unilateralist and mercantilist tendencies in the United States—heightened under the George W. Bush administration—might well increase rejections of neoliberalism as hegemonic ideology. Even the global managerial class has experienced some tensions, for example, over several US protectionist trade measures. However, these various weak spots in the ruling policy orthodoxy must not be overestimated.

Indeed, not only does neoliberalism remain substantially entrenched, but also at the same time most alternative visions of globalization—whether rejectionist, reformist or transformist in character—are today still underdeveloped. For example, rejectionist mercantilism seeks the unrealizable with its aim to erase globality and return to a territorialist world. Telecommunications, transborder ecological challenges, electronic finance, transworld human rights movements and the like are not going to disappear in any foreseeable future, so regionalist, statist and localist options that deny supraterritoriality are non-starters. Good arguments might exist for greater subsidiarity in the governance of global relations, but the notion that globality itself can be eliminated is unsustainable.

Reformist global social democracy offers some appealing ideas like global public goods and redistributive global taxes. However, this alternative thus far lacks sufficiently large and powerful constituencies to make major headway. Moreover, the project has not yet adequately addressed cultural diversity and the intercivilizational character of global relations, so that global social democracy can be something by all and for all, rather than yet another Western and imperialist imposition, however well-intentioned.

Meanwhile, transformist impulses for a revolutionary globalization have to date rarely gone beyond general aspirations to a specific vision of a postcapitalist or postmodern future, let alone a well-developed strategy to achieve such a new society. Moreover, not all projects of radical re-globalization have been particularly attractive, as in the case of religious fundamentalisms and transborder neofascist networks. In any case, movements for a revolutionary globalization have thus far attracted only small and often ephemeral followings. To be sure, some transformist ideas can provide valuable stimulus to strivings for progressive social change. However, the time would not seem ripe to exploit the new geography to achieve a wholesale reconstruction of society.

What, in these circumstances, should people who seek to move beyond neoliberal globalization do? The following seven general recommendations might be offered.

1. Nurture an understanding of neoliberalism as choice

The environment for change would be enhanced inasmuch as citizens and governing authorities appreciate that policy decisions matter. People could shape globalization so that it develops in different directions. Politicians and officials have more room for manoeuvre in this regard than they often acknowledge or realize.

2. Advocate ethical cases for different globalizations

It is important to press home at every possible juncture the normative rationales for abandoning neoliberalism. Policies on transworld relations should have the priority goals of enhancing cultural vitality, democracy, ecological integrity, material welfare, social cohesion and social justice. These objectives should take precedence over those of economic efficiency and the GDP growth per se. Rises in production and productivity should serve the higher aims and do not become ends in their own right. The transcendence of neoliberalism requires a major shift in prevailing values among policy-making communities and the general public.

3. Continue to document and publicize the limitations and failings of neoliberal policies toward globalization

As seen earlier, both logic and ample empirical evidence suggest that neoliberalism not only neglects various important aspects of human development, but also often does not deliver its own promises. In addition, critics can continually put the spotlight on the contradictions between neoliberal rhetoric and many actual practices of those in power. As policy makers and citizens-at-large become more aware of the various flaws of neoliberalism, they will be more ready to explore alternatives.

4. Devote greater energies to developing alternatives to neoliberal globalization

It is crucial to combine negative protest with positive proposal, deconstruction with reconstruction. People will be more ready to reject neoliberalism when they see clear and attractive replacements. Efforts to rethink policies can be pursued through a number of channels, including:

5. Build constituencies for change

Critics of neoliberalism can give more attention than in the past to public education and other citizen outreach regarding policies toward globalization. An informed and effectively mobilized public is needed both to exert pressure for the abandonment of neoliberalism and to promote creative and practicable alternatives.

6. Promote more democracy in the governance of globalization

If more channels of public participation and public accountability were available in respect of globalization, then policy-making processes would offer more space to voice critiques of neoliberalism and to advocate alternative courses. To obtain this increased public involvement and control, citizens need on the one hand to better exploit the democratic potential of already available instruments, like plebiscites and representative institutions. In addition, however, the democratization of globalization requires the construction of new political mechanisms - in forms still to be determined - that are specifically suited to the new geography.

7. Nurture intercultural dialogue about global futures

Alliances against neoliberalism will be stronger, and alternatives to neoliberalism will be more viable, to the extent that they attract the support of diverse cultures. Given that expanded supraterritoriality has drastically reduced geographical buffers between different civilizations, the need to develop constructive modes of intercultural communication and negotiation is more urgent than ever.

These seven suggestions offer neither a specific nor a quick fix. Just as neoliberalism did not reach its peak overnight, so its full-scale retreat and replacement are likely to require several decades. Likewise, the details of postneoliberal policies must be worked out over time.

Those details would need to cater to diverse contexts and constituencies. One of the core lessons of the neoliberal experiment has surely been that, apart from certain technical harmonizations, globalization must not be approached with one-size-fits-all policies. The goal of alter-globalization movements should not be to supplant neoliberalism with another universalist dogma.

In any case, the point of this paper is not to prescribe precise blueprints for change, but rather to affirm that major change is possible. Recall, after all, that few people in the 1910s envisioned a fully-fledged welfare state 30 years later. Few people in the 1930s anticipated worldwide decolonization 30 years later. Few people in the 1960s imagined wholesale neoliberalism 30 years later. So it is not fanciful to imagine that substantially different regimes of globalization will have replaced neoliberalism 30 years from now. Whether, in what ways, and how far the new globalizations turn out to be better ones will depend on critical public choices and extended political struggles.

Real WTO Negotiations in the Mini-Ministerials?

As the WTO trade negotiations pick up speed after Hong Kong, with imminent deadlines set in different trade topics, a number of small group meetings have also been taking place outside the Geneva headquarters of the multilateral trade body. According to Aileen Kwa of the Focus on the Global South, many feel that the real negotiations may have moved out of Geneva and are being led by a handful of nations. In the following article, prepared on 9 March 2006, Aileen presents a snapshot of the current state of play in the WTO negotiations.

Even as the talks for the Doha Round negotiations escalate to their most critical point, and there is a flurry of activity in Geneva with more frequent "negotiating weeks" in agriculture, NAMA and services, many have the distinct feel that the real negotiations are taking place outside Geneva amongst 6 – 10 Members.

Agriculture

The agriculture negotiations seem to especially typify this characterization. According to delegates, during the agriculture week of mid February, the formal and informal plenary sessions in the WTO were very brief. As one delegate put it: "The process is moving out of Geneva. This week, it is London (referring to the upcoming Ministerial meeting between the G6 – i.e. US, EU, Brazil, India, Australia and Japan to be convened on 10-11 March.) Last week, it was in Paris (G6 senior officials meeting on agriculture which ran from Feb 27 – March 1). A lot of these meetings are going on. The "bottom-up" approach is no longer being followed. The Chair (of agriculture) waits for these meetings, and feeds them back to the plenary supposedly for our input, but the sense we get is that he is simply reporting back. There are now so many variations of the small groups. There is the G10 (ten countries involved in the NAMA and agriculture tariff reduction simulations - U.S., E.C., Australia, Canada, Japan, Norway, Brazil, India, Egypt and Malaysia.), the G6, the FIPS (five interested parties) and the FIPS plus."

Even the Geneva process of negotiations has become more exclusive. During the agriculture week, three "Room F" meetings were held, amongst only about 24 delegations. These were on 1) Market access (treatment on sensistive products, and the basis for the expansion of tariff rate quotas); 2) Domestic support (discussion on the green box, product specific AMS, blue box and the base period for product specific AMS); and 3) Export competition.

In the plenary session, Sri Lanka made the point that the process last year under Tim Groser had been more inclusive: The plenary session would be followed by "Room D" discussions where all delegations could be present, and only after Room D discussions would more focused discussions take place in Room F only amongst a smaller number. The negotiations now have moved directly from the plenary to only a selected number in Room F.

Process from Now Till April

The Chair, New Zealand’s Ambassador, Falconer will be preparing some reference papers as of this week. These reference papers will be the building blocks for the agriculture modalities. The reference papers to surface before the next agriculture week (starting 20 March) will include i) Green Box ii) Special safeguard mechanism (SSM), iii) Sensitive products and iv) food aid. The one on sensitive products will provide options since there is as yet no agreement - the G10 is asking for 15% of products to be categorized as sensitive, the EC wants 8% and the US is only prepared to concede 1%.

Outstanding Issues – Key Issues for Developing Countries

Apart from the main issue of the tariff cuts, which will be the focus of discussions at the mini ministerials, there are still many outstanding areas, and unfortunately, these are all the issues of most importance to developing countries: Special products; commodities; tropical products; preferences and the entire Special and Differential Treatment component of all three pillars. The green box is also unsettled. The US and EC have been quite explicit that the green box must remain intact, and the Canadians and the G20 are pushing for tighter Green Box disciplines since this is where the bulk of US and EC are subsidies are being classified.

However, the real negotiations will be in the mini-ministerials. The simulations on tariff reductions by the G10 should now already be completed and will be the topic of discussion amongst the G6 ministers in London.

NAMA

The current Chair of the NAMA negotiations, Canadian Ambassador Donald Stephenson, has indicated that he will be focusing on the following issues in the hope that these will be resolved by end April:

· Coefficients for the Swiss tariff cutting formula, as well as the number of coefficients. [1]

· The flexibilities for paragraph 8 [2] (of the July framework) countries – there is still no agreement here, with developing countries or NAMA 11 stating that these flexibilities are separate from the formula, and developed countries stating that they are linked to the formula.

· The treatment of unbound tariffs for para 8 countries [3]: para 17 of the Hong Kong Declaration states that there will be a "non-linear mark up" of the applied tariff rates before the formula is then used to bring down these rates. The number for this mark up from the applied level has to be negotiated. Whilst this seemed like a victory attained in Hong Kong, the reality is that the "mark up" really makes little difference to the final bound rate since the marked up tariff will still be subjected to tariff cuts through the a formula. (Some NAMA 11 countries are fighting for a more lenient formula for these unbound tariffs than the simple Swiss). The formula and coefficient applied will be the greater determining factor of the final bound rate as the coefficient in a simple Swiss formula gives the upper ceiling to the final bound tariff rate.

This list will leave unresolved other issues which are critical to Africa / Caribbean countries:

· The Treatment of tariffs for "paragraph 6" countries: Paragraph 6 countries are those that have less than 35% of their tariff lines currently bound in the WTO. Para 6 of the July framework states that these countries should bind their tariffs, but will not have to apply the Swiss formula. However, the paragraph stipulates the level at which they should bind these tariffs – at the current overall average of bound tariffs for developing countries i.e. 27.5%. The Africa Group has submitted a proposal suggesting that they should be able to bind at a level of their choosing, but to date, this issue has not been given priority in the negotiations.

· Treatment for Small and Vulnerable Economies (SVEs): It was agreed in Hong Kong that they would be given special flexibilities. One of the proposals of the SVEs was to have linear cuts of 10-15% per tariff line rather than the more agressive Swiss formula.

· The preference erosion [4] issue – the Africans have said repeatedly that they want preference erosion to be dealt with as part of the solution to the formula (e.g. through a correction coefficient for the developed countries providing the preferences). This must therefore be dealt with at the same time as the negotiations on the coefficients. Many G90 countries are angered that instead of dealing directly with the preferences issue in the main negotiations, a workshop has been planned in May (after the April modalities) on preferences. Most suspect that in this workshop, aid and technical assistance will be offered to African countries for capacity building to appease them in place of actual modalities on preferences.

· Sectoral negotiations: whilst the bulk of G90 members are not involved in these negotiations, the outcome – bringing tariffs down to zero or near zero – will have a major impact on many countries’ exports, and may impede their ability to export in the future.

· Non-tariff barriers: an issue that was raised in the first place by the G90 countries to be resolved in these negotiations since many face obstacles in terms of standards when they export. Unfortunately, due to capacity constraints, it has been a difficult exercise for these countries to identify the exact NTBs implemented by their trading partners.

The sectoral negotiations which are voluntary seem to have multiplied in number since Hong Kong, although the groups are at very different stages of talks – many still at a nascent stage. For most of these sectoral negotiations, the ambition of the demandeurs (exporters) is to bring down tariff rates to levels lower than the results of the formula cuts. Given that these talks are voluntary, many of the groups have not yet attained the "critical mass" of trade in that sector (usually defined as 85 -90% of trade). Those that do not reach this critical mass in the months ahead are likely to eventually disband. It makes no sense, for example, for the US to liberalise and to multilateralise this liberalisation, for example, in chemicals, if their target markets refuse to be part of the sectoral and are not doing likewise.

The current sectoral discussions include:

· Auto / Auto-parts (coordinated by Japan)

· Bicycle and related parts (coordinated by Chinese Taipei)

· Chemicals (coordinated by US). To date, 25 Members (15 developing countries) have participated.

· Electronics / electrical parts (coordinated by Japan)

· Fish and fish products (coordinated by Norway)

· Forest Products (coordinated by Canada) Demandeurs also want the inclusion of pulp and paper products.

· Gems and jewelry products (coordinated by Thailand)

· Raw materials (coordinated by United Arab Emirates)

· Sports equipment (coordinated by Chinese Taipei)

· Pharmaceuticals and medical devices (coordinated by the US). This has been the latest initiative launched on 27 February by US, Singapore and Switzerland on the elimination of import tariffs and non tariff barriers for medicines and medical technology products.

· Textiles – a preliminary meeting was convened by the EC to hear the views of some section of the EU and US textile industry. Media reports have indicated that, unlike the sectoral discussions, parts of the US and EU industry would like less than formula cuts in this sector. So far, USTR Portman has said that they have yet to finalise a position on this. Up till now, no one has proposed a sectoral negotiations to attain less than formula cuts.

The discussions in the sectoral negotiations have mostly focused on i) product coverage ii) critical mass; iii) tariff reductions; and iv) non tariff barriers (NTBs) in that sector.

The NTB negotiations have been categorized into

i) bilateral negotiations between parties, and the results are then offered to all on a Most Favoured Nation (MFN) basis

ii) Vertical NTBs referring to NTBs which pertain to that particular sector eg. labeling standards for garments.

iii) Horizontal NTBs – rules pertaining to all products across all sectors. In its latest proposal, Japan has identified export restrictive measures as an NTB and is proposing enhanced disciplines. (Their proposal was rejected by China, Argentina, India, Thailand, Brazil, Korea, Malaysia on the grounds that export restrictions are a legitimate tool for industrial development).

The coming NAMA week (20 – 24 March) will be centered on the formula, treatment of unbound tariffs and flexibilities. However, like the agriculture negotiations, the critical NAMA negotiations are likely to take place in the up-coming exclusive Mini-ministerial meetings of the G6 et al. Although the formula simulation exercise is supposed to have been completed by the G10, none of the results, as yet, have been leaked.

Services

Plurilateral Negotiations

The plurilateral requests by demandeurs have been sent out to the target countries in the past two weeks. Whilst there are no clean North South lines, the requests have largely been driven by developed countries and directed towards developing countries. For the most part, the demandeurs are US, EC, Canada, Australia, Japan, Korea, Norway and Switzerland, with the inclusion of a few developing countries such as Mexico, Chile, Hong Kong China, and in some cases, Singapore, Taipei, Peru and India.

The target countries have been about 20 -25 countries. These are mostly the major developing country economies including India, Brazil, Indonesia, China, Argentina, Nigeria, Egypt, Malaysia.

So far, the following requests have been received: Energy (coordinated by EC); Environmental Services (coordinated by EC); Construction (coordinated by Japan); Computer Related services (coordinated by Chile); Telecommunications (coordinated by Singapore; Architectural and Engineering services (coordinated by Canada); Financial Services (Canada); Martime Transport (Japan); Legal Services (Australia); Logistics (Hong Kong China); Audiovisual (Taipei); Postal (US).

The target group is expecting more requests to come in the coming weeks including in the areas of Education (New Zealand); Online Recreation (US); Mode 3 (Switzerland / EC); Air Transport; and Distribution.

India is in the midst of preparing requests on Mode 4 (from developing to developed countries), as well as a request in Modes 1 and 2. Argentina is preparing a plurilateral request on Services related to Agriculture, also from developing to developed countries.

Most of the plurilateral requests from the demandeurs so far have focused on modal schedules – modes 1-3 and especially in mode 3 (commercial presence). Many of these requests seem to ask for the adoption of reference papers [5], such as in the telecommunications and financial negotiations in 1997. The reference papers are really about harmonizing countries’ legislation so that the sector is opened up to foreign corporations.

Controversy

Organising the plurilateral, however, has landed even the demandeurs in some controversy. Whilst the exporting countries have high ambitions in terms of the market access they want, they are not willing to open up their own economies to the same degree. This has created quite some uncertainty in Geneva as to how the plurilateral negotiations are to be conducted.

The EC has told developing countries that if they are making requests, they should also consider their own request as an offer. However, subsequently, it became clear that the EC itself is not willing to undertake liberalisation to the extent they are asking in their own plurilateral requests.

As compared to the bilateral request-offer process, the pressure is now on, although the inability of demandeurs to make very ambitious offers themselves in certain sectors, has taken a slight edge off from this pressure.

Whilst the EC is still fully committed to the plurilateral process, the US continues to indicate the high importance they give to the bilateral request-offer, possibly because the US is unable to move at all in the Mode 4 plurilateral request India et al are now preparing.

The targeted countries have also, in Geneva, taken objection to the fact that the demandeurs have kept their target group a secret. Whilst a plurilateral request reflects the names of the requesters, those targeted are not named. Several delegations in Geneva have complained to the Chair about such a lack of transparency. It has been an unnecessary hurdle for those countries targeted to organize themselves collectively to respond to the requests.

Sensitive Areas for Demandeurs

There are certain sensitive sectors where the developed countries have very different interests, and due to splits amongst them, the sectoral negotiations are likely to hit deadlock. These include Audiovisual; Maritime; Education; Air Transport; and Postal services.

However, the areas where there is common ambition amongst the demandeurs to open up developing country markets, and where pressure will be strongest include: Telecommunications; Financial Services; Energy; Environmental Services; Logistics; Distribution; Construction and Computer Related Services.

In the final analysis, the extent to which these plurilateral / sectoral negotiations are taken depends on whether in fact the negotiations attract a "critical mass" and here, the demandeurs are racing against the clock. Organising such negotiations is time intensive. Most of the G90 countries so far have steered clear of this process. Services trade after all, remains a sector which is highly segmented – up to 78% of exports are from the developed countries. Even the large developing countries are wary of embarking in this new game where the power imbalances seem to have increased exponentially. For example, if 5 developing countries present a plurilateral request to 9 developed countries, they would be sitting in meetings where the 5 requesters are facing about 50 experts from the developed countries in these meetings.

Domestic Regulation

On the sidelines of the plurilateral process, the working group on domestic regulation is taking place. The negotiations here –putting in place horizontal disciplines which cut across all sectors – are possibly even more worrying for the majority of developing countries than the plurilateral negotiations. Brazil, in the last services cluster, presented a "job" document which was supported by the Philippines. The Brazilians are attempting to water down the existing necessity test [6] which is in Article 6:4 of the GATS.

Apart from the necessity test, the domestic regulation negotiations are moving in the direction of instituting SPS (sanitary and phytosanitary standards) and TBT (technical barriers to trade) type standards for services trade. If agreed upon, this will have major implications for developing countries’ exports in services in the future, in the same way that exports of developing countries in agriculture and industrial products are now being impeded by non-trade barriers. Whilst developed countries may reflect a very open regime in their services schedules, licensing and other technical standards will effectively keep their markets shut.

Text-based negotiations in domestic regulation are slated to begin in the coming month and must be closely monitored. Any necessity test will obstruct developing countries’ policy space and national priorities, as the necessity test will subordinate these objectives to the demands of liberalisation.

Whether a country has struck the right balance can then be subject to the decision of a WTO dispute panel, discounting any democratic decision-making process at the national level.

Losses for Africa

If Chairs in this game continue to do what Chairs in the WTO have been doing – producing texts "on their own responsibility", which reflect the interests of the G6, rather than the entire Membership, the results of the current round will be even more imbalanced and disastrous for the G90. In fact, losses for Africa have already been predicted by the World Bank.

Even before the Hong Kong Ministerial, the World Bank downgraded the figure of gains from the Round to a mere $96 billion. And developed countries are predicted to receive the bulk of this – 80 billion, with developing countries receiving only 16 billion, or less than a penny a day per person. [7] Even between developing countries, the outcome is highly uneven. Surveying the range of scenarios and simulations, Frank Ackerman of Tufts University concludes that "the benefits are distributed very unequally, with losses rather than gains resulting from the (Doha) scenario in at least Mexico, Bangladesh, the Middle East, and much of Africa…"[8]

He goes on to state that "Bangladesh and many African countries benefit from existing systems of trade preferences, and might face greater competition in a more liberalized future". [9]

Yet African countries today seem to be held hostage – by their aid dependency and by threats that if they reject a bad package, the multilateral system will collapse. The Africa Group and the Caribbeans will have to struggle to rise above the external threats and internal divisions, and find leadership from within. Letting others play that role, including the G-20, may not guarantee their interests being frontally safeguarded or promoted.

Notes

[1] The July Framework had stipulated that tariffs would be reduced through a non-linear formula, and as a result, developing countries formulated a variety of Swiss-type formulas, such as the ABI (Argentina, Brazil and India formula) and the Caribbean formula which gave them multiple coefficients and more favourable treatment than the simple Swiss formula. The Hong Kong declaration took negotiations a step further and endorsed the "Swiss formula" with coefficients, leaving the window open for the possibility to still negotiate multiple coefficients (i.e. a Swiss-type formula). The simple Swiss formula is a harmonizing formula, bringing high tariffs down by a larger extent and lower tariffs down by a smaller degree. The coefficients that are plugged into the simple Swiss formula establish the ceiling for the final bound rate. E.g. a coefficient of 20 applied to an initial tariff of 600 brings the tariff level down to 19.4%. When applied to an initial tariff of 60, the final tariff rate is 15%. If the negotiations result in two coefficients, it means that the formula will be a simple swiss formula, with one coefficient for developed and another for developing countries. If there are more than two coefficients, it means that there is agreement on one of the Swiss-type formulas.

[2] Paragraph 8 countries are those which have more than 35% of their tariff lines bound in the WTO. These countries have to apply the Swiss formula. The July framework stipulates that they are to be given some flexibility to have 10% of their tariff lines subjected to half the formula cuts, if this does not exceed 10% of their imports, or to have 5% of their tariff lines unbound, if this does not exceed 5% of their imports. (These numbers in the July framework are in square brackets). After July 2004, the developed countries have argued that these flexibilities should be linked to the formula – if the formula is stringent, they would have more flexibility, and if the formula is lenient, there would be less flexibility. The group of NAMA 11 countries (Argentina, Venezuela, Brazil, China, Egypt, India, Indonesia, Namibia, Pakistan, Philippines and South Africa) have consistently argued that there should be no such linkage.

[3] Prior to Hong Kong, it was not so clear how the currently unbound tariffs of paragraph 8 countries – those which have to apply the Swiss formula - would be dealt with.

[4] Trade preference programmes have allowed some WTO developed Members to provide preferential access to certain developing countries, particularly the G90 (African and LDCs). These programmes include the Generalized System of Preferences, the EU’s Everything But Arms and the US’ African Growth Opportunity Act. Rather than have their exports treated with the Most Favoured Nation (MFN) tariff rate, preference receivers are allowed access to developed country markets under a lower tariff rate. This margin of preference is being eroded when MFN tariffs are liberalised.

[5] For exporters, the crowning glory of the telecommunications negotiations in 1997 was its "Reference Paper" which signatories to the agreement accepted in whole or part (most of them in whole). The reference paper represents the regulatory component of the basic telecoms agreement. It contains a set of guidelines for a regulatory framework that countries should follow to support the transition of their telecoms sector to one which allows foreign companies guaranteed access to their market. This reference paper is now used as a "best practice" guide to negotiations in other sectors. For instance, the insurance industry is pushing for a similar reference paper in their sector.

[6] The necessity test in Article VI :4 stipulates that regulatory disciplines such as those pertaining to qualification requirements and procedures, technical standards and licensing requirements "do not constitute unnecessary barriers to trade in services…Such disciplines shall aim to ensure that the requirements are… not more burdensome than necessary to ensure the quality of the service". The WTO Secretariat has characterised the Article VI:4 necessity test as "the means by which an effort is made to balance between two potentially conflicting priorities: promoting trade expansion versus protecting the regulatory rights of governments" (WTO Job No. 5929).

[7] Ackerman, F 2005 "The Shrinking Gains from Trade: A Critical Assessment of Doha Round Projections", Tufts University, October.

[8] Ackerman, ibid.

[9] Ackerman, ibid.

South Centre News

Trade & Development Programme

The Staff of the TADP participated in:

· Presenting and defining a negotiating strategy for Asian developing economies in the WTO environmental goods and services negotiations for the ICTSD Asian Regional Dialogue on Environmental Goods and Services held in Boracay, Aklan, Philippines, on 2-3 March 2006.

· Meeting with Oxfam in light of their new work on trade related services issues on 1 March.

· On 10 March, meeting with a group of Geneva based NGOs wishing to create a network on trade related services issues in order to exchange information.

They will also be participating in a meeting on "Aid for Trade" that the Commonwealth Secretariat and UNCTAD will jointly host on March 21 and 22. The TADP has prepared a Policy Brief on "Aid for Trade Architecture", to be posted on TADP section of South Centre website.

.- In the program of work with delegations in Geneva, assistance has been provided to:

· A number of delegations, including small and vulnerable economies and Brazil (separately) on domestic regulation issues in the context of services negotiations at the WTO. Meetings have taken place on 1 March and 13 March.

· The LDCs on implementation of the LDC Services modalities – a follow up meeting was held on 3 March

· Delegates on the plurilateral request process in the GATS negotiations on 7 March to exchange information

Presentations were also made to students from the School for International Training (SIT) relating to WTO decision-making and Southern perspectives on foreign direct investment and development on 13 March 2006.

Editorial

Enhancing UNCTAD’s Impact

The Panel of Eminent Persons appointed by Mr. Supachai Panitchpakdi, the UNCTAD Secretary General, on enhancing the orgnaization’s impact has been given a stimulating input by way of a submission from the South Centre. A 24-page report ‘Reinventing UNCTAD’ takes a hard look at the organization, its history and its likely future if nothing is done to stem its progressive decline. A concerted effort by major economic powers to deprive the United Nations of its Charter functions in the economic field and whittling down its role and authority in general, began in the early 1980’s and has continued since then, says the report. As a result, the functions, agenda and the mode of discourse of the UN bodies in this field have been altered and core competencies of the secretariats of these bodies have been downsized. UNCTAD has been a part of this process, in fact the principal target of the onslaught. As a consequence, the inter-governmental deliberations in UNCTAD have been reduced to a charade and its research and policy analysis work has lost its earlier élan, punch and distinctiveness.

The Cartagena (1992) and Midrand (1996) Conferences gave the finishing touches to the demolition job begun a decade earlier, the report notes. At these Conferences, the mandate and functions of UNCTAD were drastically pruned, and its policy direction and inspiration was shifted away from its original remit and scope reflected in the Final Act adopted at UNCTAD I in 1964.

A number of facts have been presented to support the contention that UNCTAD has been transformed beyond recognition in several major respects. It has lost its negotiating role and has instead been reduced to attempting only consensus building. This has happened not only in the field of trade where WTO has been dominant, but also in other areas like money, finance, invisibles, transfer of technology and restrictive business practices. It is no longer permitted to put forward an overall integrated and comprehensive approach to development which used to be its hallmark. In the name of coherence, it is being required to conform to the mainstream views espoused by developed countries and their preferred international organizations i.e. IMF and World Bank, on globalization, liberalization and development strategies. It is not being allowed to question the existing world order or to bring out its inequalities and imbalances.

Thus, UNCTAD’s role has been reduced to assisting developing countries in integrating with the world economy under starkly unequal terms in order to derive maximum advantage from the globalization and its handmaiden liberalization process. A corollary of the above is that UNCTAD now concentrates on domestic policies of developing countries and mainly issues "do-it-yourself" prescriptions. As a result, technical assistance (TA) has acquired the most prominent salience in UNCTAD’s activities. UNCTAD’s TA is donor-driven and is used by the donors to ensure that the beneficiary developing countries follow correct policies from the former’s angle. Also, UNCTAD has virtually withdrawn from its earlier function of offering direct support to the Group of 77, and generally of playing a role in enabling them to maintain their unity and cohesion.

Faced with such a reality, the UNCTAD Panel indeed has an enormous challenge before it. It may be useful to recall here a few of UNCTAD’s significant achievements. It helped in keeping alive the issue of creating additional liquidity under IMF, by linking it to the provision of additional resources for development. It simulated discussion in the World Bank on Supplementary Financing which had far-reaching implications for the strategy the Bank subsequently adopted for supporting development in developing countries. Its decisions helped in operationalizing the ODA target, while its work on external debt led to the creation of the Paris Club and measures to alleviate the debt burden. Through its research and policy analysis work, UNCTAD became the breeding ground for new ideas. Through this work, it highlighted the inequities and anomalies prevailing in hitherto secluded and unexplored recesses of the world economy like insurance, shipping, technology transfer etc. Its studies documented declining terms of trade of the developing countries, the cost of tied aid for the beneficiary countries, the importance of non-tariff barriers, and the gap between the effective and nominal tariff rates. If there is today a greater transparency in the world economic system, it is in no small measure due to the relentless manner in which UNCTAD, particularly in its initial years, went about exposing the unfairness of the system.

If the UNCTAD Panel comes out supporting the original mandate of the organization, and thereby supporting the United Nations Charter in the economic field, it will have to recommend ways of not just arresting a decline but suggest ways to reconstruct the organization so that it can make meaningful contributions again in ways that no other international institution can do.

Latest issue of the South Bulletin no. 120

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singh@southcentre.org

Wednesday, March 15, 2006