May 2006

15 May 2006

This issue of the South Bulletin focuses on the

mounting challenges to the neo-liberal policies.

In this Issue:

Changing the Third World Mindset – Dr. Mahathir

"Neo-colonialism is not a fancy term coined by President Sukarno. It is real. We feel it as we come under the control of agencies owned by our former colonial masters." Those were views expressed by the former Prime Minister of Malaysia, Dr. Mahathir Bin Mohamad at the Asia HRD Congress in Jakarta. He called for completing the struggle for political independence by ‘awakening patriotic spirit and applying it to the development of our country.’

An Emerging Pan-Asian FTA?

India has concluded Free Trade Agreements with SAARC, Singapore and Thailand. It is working on similar arrangements with ASEAN, Japan, People’s Republic of China and South Korea. "This web of engagements may herald an eventual free trade area in Asia covering all major Asian economies and possibly extending to Australia and New Zealand. This Pan Asian FTA could be the future of Asia," according to Dr. Manmohan Singh, Prime Minister of India.

No Compromise on Food & Livelihood Security – Developing Countries

A majority of the developing country members of the WTO have come out against attempts to weaken their proposals on Special Products (SP) and Special Safeguard Mechanism (SSM). "No deal is possible that treats SP and SSM from a purely market access or commercial perspective, or that detracts or derogates the developmental value and dimension of SP and SSM," said Ambassador Gusmardi, coordinator of the G-33. 4

Bolivia Expands Bolivarian Alternative & Peoples’ Trade Agreements

The governments of Bolivia, Venezuela and Cuba have already embarked on establishing a Peoples’ Trade Agreement (PTA) as opposed to working on the lines of the conventional Free Trade Agreement (see last issue of the South Bulletin for a coverage of the PTA). Leaders from the three countries met in Havana (28-29 April, 2006) to expand ALBA links.

Bolivia’s Radical Realignment Under Evo Morales

The nationalization of the Bolivia’s oil and gas resources was certainly big news. Certain US media outlets even called it a ‘gas grab’. But for the resource rich country with its people predominantly poor, it seemed more like asserting peoples’ right and the country’s sovereignty than anything else. An analysis.

More in this issue

Has Globalisation Gone Too Far?

Doha Round: EU Must Not Be Cause of Failure – UK Report

Trade Liberalization and Its Consequences – Supachai

South Centre News

Editorial

"Neo-colonialism is not a fancy term coined by President Sukarno. It is real. We feel it as we come under the control of agencies owned by our former colonial masters." Those were views expressed by the former Prime Minister of Malaysia, Dr. Mahathir Bin Mohamad. He was speaking at the Asia HRD Congress (3 May, 2006) in Jakarta, organized by the PPM Institute of Management and the Specialist Management Resources, on ‘Knowledge Creation & Visioning: Changing The Third World Mindset.’ "If we struggled so hard for political independence, should we not complete the struggle by awakening our patriotic spirit and applying it to the development of our country," Dr. Mahathir said. Following are extracts from his address.

"The Third World, as we all know is largely made up of countries which had either been colonised or had been under domination of the European Imperial Powers for many centuries.

In Southeast Asia, prior to European conquests, there were many small states and powerful empires. The people were highly skilled in arts and crafts and in agriculture. Their produce were traded with the produce of other Asian countries such as India, China, the Arab countries and others. Rich maritime states were established in Java, Sumatera, the Malay Peninsular, Celebes, and the Indo-Chinese Peninsular. They were all feudal states but were quite stable. Their wealth came from their trade, domestic as well as international. They were not naked savages but were highly civilised. They bartered but they also used money in the form of coins of precious and semi-precious metal. Gold and silver coins were recognised as trading currency.

Then came the Europeans. Their idea about trade and commerce was radically different. They came as armed merchantmen. They insisted on trading agreements and monopolies. They set up fortified trading posts, and they fought each other in order to obtain exclusive trading rights. Then they conquered their trading partners, made colonies of them so that each European nation could grab all the products of these colonies for itself.

Their ways and their military strength which they frequently used overawed the people of these conquered territories and destroyed the confidence of these people. Their minds were also colonised so that they believed nothing they did was right and that the only right thing to do was to submit to, and ape the Europeans.

Thus for centuries were the mindsets of the colonial people shaped and determined. To this day many believe that unless they adopt European ways and standards, European practices, they would not succeed. For example Europeans believe in trials of strengths in order to determine the winner. Obviously the strongest would win.

This would be accepted even though the loser is in the right. And so workers resolved their oppression by the capitalist through forming huge workers unions, which developed powerful tools to challenge the capitalists. Then they introduced socialism and communism.

The colonised minds adopted all these without question. Even when our economies failed to grow and our countries were destroyed because of trade union industrial actions, socialism and communism we believed in these European ideas. Then one day the Europeans dumped these destructive unions, socialism and communism and the colonised mind rushed to do the same. But we are still looking to the ethnic Europeans and their solutions to their problems in order to shape our minds, to adopt and apply. And because we are culturally not Europeans, we cannot make their solutions, their systems and their mindsets work for us. And we pay a heavy price.

In the East for many decades Japan grew and prospered. Japan developed because the Japanese were never colonised until 1945. After their defeat in World War Two they set their minds to rebuild their nation. Their zaibatsu had been dismantled, but the pieces from the broken-up zaibatsu very quickly grew to become sogo-shoshas as huge as the original zaibatsu.

These sogo-shoshas, each with its own bank, went into every industry, adopted new standards of quality and worked closely with their Government. The workers were prepared to work initially almost for nothing in order to turn the raw materials they imported to high-value products which they exported. There were practically no strikes and they were rewarded with life-time employment.

As the country prospered workers’ wages went up but productivity was maintained. It looked like Japan was going to be number one in the world. This worried the West. The Asian upstart had to be stopped.

And so the Plaza Accord pushed up the value of the yen to reduce the competitiveness of Japanese products. Japan countered by shifting some production to developing countries with low labour cost. Its economy slowed somewhat but was still faster than the Europeans.

Then the Japanese way of doing things came under fire. Close cooperation between Government and private sector labelled as Japan Incorporated was made out to be almost criminal. Bank ownership by sogoshoshas was made out to be unethical and was stopped. Life-time employment was replaced with the sacking of employees if the company fails. Foreign capital was allowed to take over the Japanese corporations and foreign managers replaced Japanese CEO’s. Foreign companies and products entered the Japanese markets.

In the meantime Japanese democracy resulted in the government changing every two years. As each Government tried to introduce its own economic policies and solutions and finding two years too short to implement them, the Japanese economy went into prolonged recession.

Today after finally allowing a Government to stay more than two years the economy has recovered. How long it will continue to grow is not yet predictable but probably the Japanese have learnt some lessons from their experience lately.

I have dealt at length with the Japanese management of their economy because Third Word countries wishing to grow will find it useful to study the Japanese experience in order to formulate growth strategies and to develop the mindset which must go with it.

Firstly the mindset of the Government. If it wants to grow the country’s economy, it must learn to be business-friendly. It must strive to reduce bureaucratic procedures as much as possible. This applies to the politician as much as the civil servants. It should welcome the concept of the Nation Incorporated like Japan Incorporated i.e. both Government and Private enterprises cooperating in order to prosper and grow the nation as if it is a business enterprise.

The Government must banish from its mind that Government/Private Sector cooperation is wrong. It is not. It is not because Government has a share in all businesses. In Malaysia 28% of the profit belong to the Government by way of corporate tax. And the Government need not invest a single cent to get this big share. Therefore when Government cooperates with the private sector, helps it to make reasonable profits, Government is actually working for its share of that profit. This cannot be regarded as criminal or wrong.

The Civil Servants at all levels must also realise that their salaries and wages are paid by the private sector. It is obvious that if the private sector make more money, the Government will collect more revenue and the salaries and wages can be raised. Cutting back on bureaucratic procedures, speeding up all the processes of administration would save money for business and increase their profits. It would also speed up economic development and growth of the country and this will move the nation faster towards catching up with the First World.

A radical change in the mindset for the politicians and the administrators is necessary if the Government is to be private-sector friendly. This is because the results may take a long time in coming.

Because of the time this takes to enrich the country, some may be tempted to take illegal gratification because it brings riches faster for the individual. But illegal gratification slows down the economy and the growth of a country. Over time it will spread and involve everyone, from the lowest to the highest. At this stage eradication becomes nearly impossible as everyone has a vested interest to perpetuate the practice. When those entrusted with stopping this crime become involved themselves, then corruption will become institutionalised. There would be almost no way to stop it. But if the people want to stop it, they can.

The people must be taught from the time they are small to look upon corruption as filthy and criminal. In the homes, in the schools, in the universities and the work places, corruption must be fought with education on the evils of the practice, on how it stifles growth and in the end how everyone will have to pay the price.

Everyone will have to deal with corrupt officers at one time or another. Today one officer may be the receiver, tomorrow he would have to be the giver as he has to get his personal work done. He will also have to pay for the increases in prices of food and services because of corruption. And his country will remain a poor Third World country maybe forever. In effect everyone, including the receiver of illegal gratification will be poor.

These things must be understood by all the people, whatever the work he may be doing. The people in the private sector must also understand this as much as the people in the Government sector. They should neither give nor receive.

What can people do to stop corruption? First and foremost they have to change the mindset which regards corruption as inevitable, as a way of life in Third World countries where wages are low and supplementary income is needed. If the mindset is changed and corruption is regarded as criminal, as evil and as unpatriotic then the first step would have been taken.

Then anti-corruption NGO’s must be set up and all members must resolve and must refuse to pay when illegal gratification is demanded. They will suffer inconveniences of course. But this is a small price to pay to eradicate a practice that makes a Third World country unable to extricate itself from its shameful position and status.

In fact there are many things that can be done by concerned citizens with a mindset to fight corruption. Success will not come overnight. But over time, every little success will encourage others to form Anti-Corruption NGO’s and to refuse to pay.

Not too much faith must be placed in anti-corruption laws. When even the law enforcers are corrupt, laws will be ineffective. But there must be laws and there must be enforcers. For the NGO’s to succeed they will eventually need these laws and their enforcers. Otherwise there will be no fear of punishment.

But the Japanese model has many other lessons for the Third World. The Japanese workers are very productive. This is because they are patriotic, often regarding their work as service to their country. This was very strongly manifested in the days when they were rebuilding their country after the devastation following the world war. Akio Morita, the co-founder of Sony Corporation tells of how workers worked for a ball of rice and soya sauce.

When we in the colonised territories were struggling for independence we were moved by a powerful national spirit. It enabled us to actively struggle night and day without pay or compensation of any kind. We were prepared to die even in order that our country regain its independence.

Now we have to develop the country that we sacrificed so much to liberate. And we know that if our country remains poor and weak we would not be truly independent. Neo-colonialism is not a fancy term coined by President Sukarno. It is real. We feel it as we come under the control of agencies owned by our former colonial masters.

Our struggle for independence is not over yet. It will only be over after we become a fully developed country. If we struggled so hard for political independence, should we not complete the struggle by awakening our patriotic spirit and applying it to the development of our country.

The Japanese recovery was due to them being very disciplined and dedicated because of their strong patriotic spirit. Our patriotic spirit should make us accept the discipline of the work place, do our work properly, ensure that we produce quality in our products, respect time so we can always meet our deadline.

Europeans who taught us to be confrontational, to have tests of strengths between workers union and the management and owners may ensure that owners and managers refrain from exploiting workers. But frequent tests of strength through strikes and other industrial actions will only damage our productivity, ender us uncompetitive against the rich countries and deter investors, foreign or local from investing in our country.

Without investments there will be no new jobs created and certainly the economy cannot grow. Workers and trade unionists must always bear this in mind and be very responsible when exercising their rights.

If the workers have the spirit of freedom fighters, if they are disciplined and hardworking and reject irresponsible demands they can ensure more jobs are created, better wages paid and prosperity for their countries and themselves.

But managers, employers and investors must also correct their mindsets. The loyalty of their workers must not be taken for granted or be unduly exploited. The Japanese used to ensure lifetime employment in appreciation of workers loyalty.

The executives in Third World countries must try to create a sense of belonging, a feeling of security of jobs and earnings for the workers. They are no longer dealing with "coolies" of old, who only contributed brawn.

Today’s workers are intelligent, knowledgeable and skilful. They should be shown respect and be amply compensated. Managers and executives must not wait until workers resort to industrial action before responding. They must be pro-active. The art of negotiation has to be highly developed among managers as among trade unionists.

They, the executives, must always keep up with the latest in management innovations. Giving themselves huge pays and bonuses as is done in the U.S. and Europe, would kill business in Third World countries. In fact even developed countries cannot continue to prosper when CEO’s take hefty salaries and bonuses.

Third World CEO’s must not have the mentality of the executives of developed Western countries. In fact they must be as patriotic as their workers, working not just for themselves but for their own country, taking pride in its progress and prosperity. They will be amply compensated by the pride and the respect they and their country would gain from the continuous success of their businesses and the country’s economy.

For a Third World country to prosper everyone must have the right mindset. It is not just the workers who need to change their mindset in order to prosper the country, to help it to grow until it joins the ranks of the developed countries.

The Government, the administrators, the entrepreneurs and investors, the management and the people as a whole must have the right mindsets.

Perhaps this is a tall order. In every group there will be the selfish and the greedy. But in every group there will also be the concerned, the responsible and the dedicated, the ones who want to see their country grow and develop; their country free and achieve developed status and be respected.

It is the second group who must take the initiative. They should hold group discussions about the situation in the country, identify the things that they themselves can do and must do and act on them.

The workers group must also determine their contribution. And so must the management, the Government, the administrators form discussion groups and identify the roles they must play to get out of the Third World label.

Of course if all the groups can be coordinated, it would be marvellous. But if it cannot those who can must do. There will be failures. But those who have tried their best must continue to try.

To do all these requires a change in mindsets. This would be the first change. And then the mindsets required to build the nation must be developed and propagated.

I have not spoken about knowledge creation and visioning. This is because the change in mindsets come first. Only if the mindsets are right will there be the serious quest for knowledge and the vision for the future."

An Emerging Pan-Asian FTA?

As an emerging economic power, India is being linked into a web of partnerships with the countries of the region through free trade and comprehensive economic cooperation agreements. "We have concluded Free Trade Agreements with SAARC, Singapore and Thailand. We are working on similar arrangements with ASEAN, Japan, People’s Republic of China and South Korea," said Dr. Manmohan Singh, Prime Minister of India in an address to the annual general meeting of the Asian Development Bank (ADB) in Hyderabad on 5 May, 2006. "This web of engagements may herald an eventual free trade area in Asia covering all major Asian economies and possibly extending to Australia and New Zealand. This Pan Asian FTA could be the future of Asia." Presented below are extracts from his address.

"India is a founder-member of the Asian Development Bank. We are proud of our record of association with the ADB and grateful to it for being our partner in development. Today, as we seek to further accelerate our growth process we look to an even more cooperative relationship with the ADB. We also commit ourselves to strengthening the ADB as an instrument of development and of improved governance in our region.

While being a regional bank, the ADB has acquired a global relevance because of Asia’s rising global profile. The ADB has played an important role in dealing with the aftermath of the Asian financial crisis and responded handsomely to the needs of the people in the wake of the Asian tsunami, major earthquakes and other natural disasters in our region. We in India value the ADB’s expertise in infrastructure financing. ADB’s loans have funded projects across India. I am particularly delighted that Jammu & Kashmir and the North Eastern States have also benefited from ADB funding.

India’s infrastructure needs in the next few years are over $150 billion. The ADB has supported projects in sectors like public transport, power and urban infrastructure. However, I am happy that the ADB is considering support in new areas like restoration of water bodies, tourism infrastructure and agribusiness. Our investment rate has climbed up to 31% of GDP. We expect to see a further increase in this and in foreign investment in India.

India has a vital stake in the prosperity and stability of Asia. We signaled our renewed commitment to regional economic cooperation with our "Look East" policy. The policy marked a strategic shift in India’s evolving perspective of the world. It helped us pick up the threads from the 1940s and the 1950s when we were actively engaged in building a new Asia. As a natural corollary of our ‘Look East’ initiative, India has variously reiterated its commitment to work with the ASEAN and individual East Asian countries. We are linking India into a web of partnerships with the countries of the region through free trade and comprehensive economic cooperation agreements.

We have concluded Free Trade Agreements with SAARC, Singapore and Thailand. We are working on similar arrangements with ASEAN, Japan, People’s Republic of China and South Korea. This web of engagements may herald an eventual free trade area in Asia covering all major Asian economies and possibly extending to Australia and New Zealand. This Pan Asian FTA could be the future of Asia and will, I am certain, open up new growth avenues for our own economy. The ADB could also study the benefits of such an economic agglomeration in Asia. India is determined to carry forward the India-ASEAN partnership to an enlarged domain for making the 21st century a truly Asian century.

With this vision in mind, we have actively pursued external liberalization by cutting down customs duty rates. The current peak rate, at around 12.5%, is quite close to ASEAN levels. India has the announced policy objective of aligning its duty rates with ASEAN levels. Given the rich reservoir of natural, technical, and scientific acumen that South-East Asia harbours, globalization offers a unique opportunity for harnessing such resources for enlarging not only national and regional, but also global growth prospects.

Our region has shown its capacity to deal with the challenge of globalisation. However, we must remain mindful of the ups and downs and the uncertainties inherent to the process of globalization. The Asian financial crisis in 1997 hit countries that had built up an enviable reputation as miracle economies. The suddenness and severity of the crisis dented the world’s confidence in globalization as well as the consensus that had seemed to be shaping up over a model of economic development. That the crisis has been managed, and importantly that these economies are all back on track, some with strong growth rates, is a testimony to the capabilities of these countries as well as the resilience of the international financial system.

As we look ahead, we need to look back to take stock of the lessons of the Asian financial crisis. With the benefit of hindsight, we now know that the crisis arose due to four important factors: First, the exchange rates were pegged at unsustainable levels. Second, the fragility of financial systems allowed companies to borrow without any regard for mismatches in currency composition or maturity profile. Third, the regulatory infrastructure, especially in the financial sector, was flawed. Fourth, governmental systems for monitoring the quantum and nature of capital flows were inadequate.

The post-crisis analysis has thrown up a number of issues such as the preconditions for capital account convertibility, the relative merits of fixed versus floating exchange rates which are all standard fare now. What I wish to focus though is on the lessons from the crisis at the international level. An important lesson coming out of the Asian crisis is the need for effective, quick and credible responses from international financial institutions in the event of a crisis.

First, it is very important for international financial institutions to inject large enough funding to economies in crisis to provide an assurance of stability. Half-hearted measures do not resolve the problem; they only aggravate it further. In the aftermath of the Asian crisis, international financial institutions came under heavy criticism for not acting quickly enough. There is a view that funding must come before rather than after the reserves bottom out. It is perceptions that fuel a crisis and it is important to manage them by acting quickly and decisively. Thus, not only the quantum of funding but also the speed with which it is channeled is an equally critical factor.

Second, the Asian crisis has demonstrated that financial crises can be contagious and that foreign exchange markets are prone to a bandwagon effect. These are a result of imperfections in capital markets, which generate information bubbles and trigger a herd mentality among investors. In panic situations, markets do not adequately discriminate between countries with strong and weak economic fundamentals and seemingly strong economies can be engulfed by a snowballing crisis. This means that international financial institutions need to be ahead of the curve, identify potential victims and go to their support in good time so as to contain the crisis. This also means that the size of the funding can be quite large.

Third, continuous vigilance and monitoring of the economy are important. This requires three things:

• credible systems for gathering, monitoring and disseminating information to markets and regulators;

• international standards for economic management;

• competent and effective regulatory systems for enforcing those standards;

In the period since the crisis, many Asian countries have built up sufficiently large reserves. While these reserves constitute a good first line of defence, the build up of these reserves does not diminish the role of the international financial institutions. They must monitor closely developments in economies across the world and advise countries on the course of action to be taken.

The role of international financial institutions becomes even more relevant in the context of growing global imbalances. The current global imbalance is reflected in the huge disparities in the current account positions of different countries. In 2005, the current account deficit of the United States stood at $ 805 billion which was as much as 6.4% of its GDP. Also in 2005, the current account surplus of Japan was $ 163.9 billion, of China $ 158.6 billion and that of the Middle East $ 196 billion.

While to some extent mismatches in current account positions are to be expected - and even desirable - in the global economy, large disparities raise concerns about unsustainability and hard landings.

The process of correcting imbalances can be disruptive if it is sudden and unexpected. The present level of global imbalance cannot be sustained forever. It calls for action both from countries having current account surpluses and those having current account deficits. A coordinated effort is necessary to correct the imbalances to prevent a sudden down turn. International financial institutions need to play a proactive role in this regard.

Our region has become an engine of global growth in recent years. The United States and the Euro-area will continue to display considerable resilience and will remain important drivers of global growth. However, East and South-east Asia, including India, are bound to increase their profile and relevance to the global economy. Asia will continue to increase its share of world GDP and trade, both as a source of export supply and as a source of import demand. Asia will consume more food and more energy. Asia will demand better infrastructure and seek improved services.

Given the potential for investment demand in the region, we must find ways of making better use of our savings. How can we make sure that the savings and surpluses generated in our region can find investment avenues within our region?

There is also scope for peer learning within the Asian region from the successes of other countries. The Chinese economy has performed exceedingly well over the last two decades, demonstrating growth rates which are the envy of most other countries. This has helped vast millions of people to be pulled out of the grip of acute poverty.

Further, the growth of the Chinese economy has fuelled demand for products and services of other countries and the People’s Republic of China, in many ways, has become an engine of growth for the world economy. There is a lot to learn from the Chinese economic experience and the ADB can certainly facilitate it.

Our region should also be mindful of other challenges that many of us face. I refer to the challenge of regional stability and security, and, the challenge of ensuring equity, social justice and regional imbalances in the growth process.

Our region needs a comprehensive framework of security that will ensure that the process of economic development is not derailed by the threat of terrorism, the threat to our environment and the threat to our energy security, food security and security of livelihoods. At a time when international oil prices are witnessing a steeply rising trend, it is incumbent on all major international financial institutions to pool their collective wisdom, expertise and experience to devise credible strategies to enable the world economy to cope with the increased unpredictability and volatility of energy prices and their impact on processes of economic growth.

In a globalized world, growth and progress cannot occur in isolation. Countries and international agencies must collaborate to produce welfare-enhancing synergies. The challenge before Asia today is to create and maintain a regional and international environment that is conducive to maintenance of high economic growth.

Our Governments also have a domestic challenge of ensuring that our growth process is socially equitable and regionally balanced. The under privileged sections of population must be helped to become effective partners in development. Particular attention must be paid to reduce the income gap between rural and urban areas.

We must pro-actively address the imbalances that may have emerged in the process of rapid growth. This must be done in a framework of participatory democracy. Even as we pursue policies to sustain our growth momentum, we must ensure a better balance in distribution of gains across regions and social groups.

For the past quarter century, Asia is once again on the move. Millions of people in our region have been liberated from poverty, ignorance and disease. If we can sustain this growth process, and ensure that it is equitable, we can banish poverty for all times to come.

If we can pursue economic development in the framework of an open economy and an open, democratic society, we would have succeeded in restoring to Asia its ancient glory as the land of knowledge, wisdom, creativity and compassion."

No Compromise on Food & Livelihood Security – Developing Countries

A majority of the developing country members of the WTO have come out against attempts to weaken their proposals on Special Products (SP) and Special Safeguard Mechanism (SSM) in agriculture. "No deal is possible that treats SP and SSM from a purely market access or commercial perspective, or that detracts or derogates the developmental value and dimension of SP and SSM," said Ambassador Gusmardi, coordinator of the G-33. Presented below are the joint communication by the G-33, Africa Group, the ACP and the LDCs, as well as a G-33 paper commenting on the Chairman’s Reference Paper on Special Products dated 4 May 2006.

Joint Communiqué on SP and SSM (10 May, 2006)

The July Framework was explicit in its recognition that the balance in the negotiations under the Doha Work Programme will be achieved only when the modalities incorporate operationally effective and meaningful provisions for special and differential treatment for developing country Members. It recognized the critical importance of agriculture to the economic development of developing country Members and that they must be able to pursue agricultural policies that are supportive of their development goals, poverty reduction strategies, food security and livelihood concerns.

The Hong Kong Ministerial Declaration marked the first step towards evolving modalities in Special Products (SPs) and Special Safeguard Mechanism (SSM) agreed to in the July Framework. Primacy was accorded to the self-designation of Special Products guided by indicators based on the criteria of food security, livelihood security, and rural development needs. Developing countries would thus attune their selection of SPs with their domestic policies for food security, livelihood security and rural development needs. Regarding SSM, two separately applicable import quantity and import price triggers were agreed as the core of the modalities for the SSM.

In order to advance the discussions to an early conclusion, the G-33 has presented comprehensive proposals covering each facet of the modalities for SPs and SSM. The African Group, ACP, and LDCs support meaningful modalities to secure simple and operationally effective instruments of SPs and SSM, which is also the spirit in which these proposals have been presented by the G-33. Given the diversity of agricultural systems among the countries represented in the G-33, African Group, ACP and LDCs, by necessity these proposals seek to address their common concerns.

Suggestions and proposals made recently by some overtly export-oriented Members of the WTO require the standard of substantial market access improvements to apply to both SPs and SSM. Further, they seek to limit the scope of the SSM to the extent that the mechanism becomes inoperable and to restrict SPs to a handful of tariff lines.

These proposals have thus necessarily invoked serious concern among the G-33, African Group, ACP and LDCs. These countries together account for the vast majority of people dependent on agriculture for livelihood and of the global labour force/employment in agricultural activities. These four groups also contain within them the bulk of rural and urban poor in the world for whom access to food at fair and affordable prices remains at the heart of poverty alleviation programmes. The interlinked and complex criteria of food security, livelihood security and rural development cannot be viewed through the filter of export interests of a few developed and developing country Members. The negotiating mandate cannot now be redefined.

Studies by eminent research bodies across the world confirm that reduced tariff protection in developing countries, including under structural adjustment programmes, have been the primary cause of import surge, with attendant decrease in employment in agricultural activities, lowering of returns to farmers, and increased levels of poverty in rural areas.

The absence of income and insurance safety nets compounds their problems leading to desperate and irreversible, actions by the afflicted farmers. These studies conclude that the SSM must be simple, operable, and effective, and that price triggers are as effective as volume triggers depending upon the emergency they seek to address.

Equally, for SPs, the studies conclude that the appropriateness of the number of SPs and their treatment is clearly linked to the characteristics of the agricultural sector of the designating developing country and the policies designed to meet the three agreed criteria. Some other studies make it evident that modalities of SPs and SSM aimed squarely to address these legitimate concerns of their proponents will in no way undermine the export interests of the export-focused developed and developing country Members. There is no justification for their alleged fears and apprehensions regarding these instruments.

The G-33, African Group, ACP, and LDCs could not be expected to join consensus on any package on agriculture unless their food security, livelihood security and rural development needs are accommodated effectively and comprehensively through the commitments called for from them in the market access pillar, in particular the tariff reductions, SPs and SSM.

G-33 Contribution on SP (10 May, 2006)

• This paper seeks to convey the concerns of the G-33, and encapsulates those expressed during the intensive informal discussions held on 5 May 2006 by other developing countries represented in other developing countries’ groupings, including the ACP, African Group and the LDCs, on the Chairman’s Reference Paper on Special Products dated 4 May 2006 with a view to contribute to its amendment.

• Special Products (SPs) play a crucial role in achieving the objectives of food security, livelihood security, and rural development, which are extremely important political, social and economic development imperatives, in most developing countries. The G-33 is thus firmly of the view that commercial considerations and/or the imports value of designated SPs cannot be introduced to assess the implications of the modalities on SPs. The negotiating mandate on SPs, incorporated in the July Framework, is unequivocal. The Hong Kong Ministerial Declaration has further specified self-designation of SPs guided by indicators based on the three criteria. Beyond that, any further specification of the treatment of SPs, as mandated by the July Framework, must also recognize the "fundamental importance of SPs" to the designating developing countries.

• The presentation of statistics on some selected parameters developed by the Secretariat under instruction from the Chairman with the view to guide the resolution of the crucial issue of SPs, has naturally evoked surprise and unease. The WTO Members were not aware of a request for simulations on import values having been placed in order to direct the Members’ attention to the implications of the G-33 proposal to designate at least 20% tariff lines as SPs. We have had no opportunity to discuss and agree upon the underlying assumptions, including the representative sample of Members. The assumptions used completely disregard the mandate. The scarce resources of the Secretariat should have been better utilised to assess the implications for the mandated criteria of food security, livelihood security and rural development needs of the various proposals, including that of the G-33 and the more recent ones.

• The G-33 is quite firm that the mandate can bear no re-negotiation. The suggestions included in paragraphs 8 through 10 of the Reference Paper to cumulate the application of imports values with the three agreed criteria or to draw any interpretations linked to market access improvements must therefore be removed. The Framework requires each Member to make a contribution, but not each product. The principle of substantial improvement applies to each product in the sensitive product category but not in the Special Product category. Hence, the very premise of the Reference Paper goes contrary to the spirit of the Doha mandate, the provisions of the July Framework, and the Hong Kong Declaration.

• Further, on the issue of the appropriateness of the number of SPs, the only benchmark to guide the self-designation of SPs are the criteria of food security, livelihood security, and rural development needs. This is mandated to be ensured irrespective of the imports values covered by SPs. The substantial market access improvement requirements, and therefore the aspirations of some exporting Members, might be met instead through the commitments across the three pillars. SPs cannot be expected to serve the trade-related interests of some exporting countries.

• By reference to paragraph 3 of the Reference Paper, in case there are any questions on the reliability and universality of the indicators, the G-33 is ready to respond to them, so that the indicators can play their rightful role of transparency, without any back-loading on the closure on this instrument. At Hong Kong, Ministers have already agreed that modalities on SPs must be integral to the modalities and the outcome on agriculture.

• In paragraphs 6 and 7 of the Reference Paper, it has been suggested that SPs were outside the "core [tariff reduction formula] modalities", and worse, that 20% tariff lines designated as SPs could, in fact, be used to circumvent or "effectively trump" anything that might be considered to be at the negotiating heart of the modalities. However, the G-33 emphasises that SPs are integral to the modalities and the market access package, and not a residual to the modalities. The appropriateness of the number of SPs will be determined by the application of the three criteria; only if the criteria are circumvented can the appropriateness be questioned. Accordingly, the G-33 and other vulnerable developing countries who are demandeurs of SPs cannot be expected to "come down significantly from 20%" as favoured in the Reference Paper.

• The G-33’s demand for at least 20% tariff lines as SPs is consistent with the July Framework and the Hong Kong Declaration calling for an appropriate number. This number is linked to the modalities agreed in agriculture, including the ambition of the tariff reduction formula and the balance across the three pillars in agriculture. The G-33 is deeply concerned that the ambition envisaged in some extremely ambitious proposals on market access, but which have accommodations on their own domestic support sensitivities, could decimate the rural populations of developing countries. SPs are not produced under competitive conditions. The flexibilities on SPs sought by the G-33 are meant to effectively address the prevailing structural infirmities and other vulnerabilities intrinsic to their production.

• On the issue of treatment of SPs, the G-33 is concerned that the Reference Paper discounts the graded treatment proposed by the G-33 in respect of SPs. This grading in fact establishes a useful linkage with the appropriateness of the number of SPs as well. Paragraphs 8 through 10 convey the impression that all SPs are being demanded with zero tariff reduction commitment, and thereby giving legitimacy to the fears of some exporters that the SPs will have unintended consequences by denying them practically all market access.

• For the G-33, SPs and sensitive products are mandated to address entirely different objectives and conditions of production. Nevertheless, the tariff reductions on SPs would have to include zero reduction, no TRQ commitments, and logically have to be lower than those on sensitive products of developing countries. The number of SPs must be more than the entitled number of sensitive products of developing countries. Further, a higher order of flexibities on SPs should be incorporated for those developing countries that do not fully use their sensitive products’ entitlements.

• In paragraph 16 of the Reference Paper, the Chairman appears to encourage some developing Members to show their preparedness not to opt for the full entitlement of SPs. The needs of the developing countries for SPs cannot be held hostage to such voluntary actions by some other WTO Members. The foundation of SPs’ self-designation being "guided by indicators" based on the three criteria must of necessity already operate as a variable limiting factor on the number of SPs that each Member could avail of. There is no basis in the mandate to create an opt-out.

• Finally, the G-33’s proposal contains within it a balance of how the three issues of appropriate number of SPs, their selection guided by indicators, and more flexible treatment, could be achieved. It is the G-33’s expectation that any amendment to the Reference Paper will reflect the full coverage of the G-33’s approach. The linkages between the three issues inter se cannot be negotiated nor conditionalities crafted on each of them. Any such attempt could undermine the mandate on SPs, and completely disregard the legitimate expectations of the developing countries from the SPs instrument.

• In light of the above, the structural aspects of the treatment of SPs, which must consider a graded treatment, which includes no tariff reduction on some SPs, and does not require any TRQ-based market access commitments on SPs should be advanced. In parallel, the transparency through the indicators sought to be provided by the G-33 should be recognized, and the discussions on indicators directed to addressing specific concerns on any indicators as well as their usage. The appropriate number of SPs could integrally emerge out of the market access package and the application of the indicators.

• In conclusion, the G-33 urges that an amendment to the Reference Paper should be expeditiously circulated so that the direction of further negotiations on the core instrumentality of SPs can be steered to convergence fully consistent with the mandate on SPs. The G-33 is ready to participate constructively in the further work on SPs and other aspects of the agriculture modalities to facilitate convergence within the short time available.

Bolivia Expands Bolivarian Alternative & Peoples’ Trade Agreements

The governments of Bolivia, Venezuela and Cuba have already embarked on establishing a Peoples’ Trade Agreement (PTA) as opposed to working on the lines of the conventional Free Trade Agreement (see last issue of the South Bulletin for a coverage of the PTA). Leaders from the three countries met in Havana (28-29 April, 2006) and decided to expand economic links between them, expanding the frontiers of the ‘Bolivarian Alternative for the Peoples of our America’ (ALBA). Reproduced below are the general provisions for forging closer links; a joint communiqué and a rationale for Bolivia joining ALBA.

General Provisions

Article 1: The governments of the Bolivarian Republic of Venezuela, the Republic of Bolivia and the Republic of Cuba have decided to take concrete steps toward implementing the process of integration, based on the principles contained in the Joint Declaration, signed on the December 14, 2004, between the Bolivarian Republic of Venezuela and the Republic of Cuba, which are hereby accepted and embraced by the Government of Bolivia.

Article 2: The countries shall elaborate a strategic plan in order to guarantee complementary products that can be mutually beneficial based on the rational exploitation of the countries’ existing assets, the preservation of resources, the expansion of employment, market access and other aspects inspired in the true solidarity fostered by our peoples.

Article 3: The countries shall exchange comprehensive technology packages developed in their respective nations by the parties, in areas of common interest, which shall be provided for their use and implementation, based on the principles of mutual benefit.

Article 4: The countries shall work together, in coordination with other Latin American countries, to eradicate illiteracy in these nations, using efficient, tried and tested methods of mass application, which have been successfully used in the Bolivarian Republic of Venezuela.

Article 5: The countries agree to make investments of mutual interest which could take the form of public, binational, mixed or cooperative companies, joint management projects or any other form of association that they decide to establish. Priority shall be given to the initiatives which strengthen the capacity for social inclusion, resource industrialization and food security, in a framework of respect and preservation of the environment.

Article 6: In the case of strategic binational or trinational companies, the parties shall do everything possible, the nature and cost of the investment permitting, to ensure that the host country hold at least 51% of the shares.

Article 7: The countries may agree to the opening of branches of state banks of one country in the national territory of another.

Article 8: In order to facilitate the payments and charges relating to the commercial and financial transactions between the countries, Reciprocal Credit Agreements shall be arranged between the banking institutions appointed by the governments to this effect.

Article 9: The governments may use commercial compensation mechanisms of goods and services, if and when this is mutually convenient for the extension and reinforcement of the commercial exchange.

Article 10: The governments shall promote the development of joint cultural projects which take into account the particular characteristics of the different regions and the cultural identity of the peoples.

Article 11: The governments shall reinforce cooperation in the field of communication, by taking any action necessary to strengthen their infrastructure capacities in respect of transmission, distribution, telecommunications, etc; and in respect of their informative, cultural and educational contents production capacities. In this regard, the governments shall continue to support the space devoted to integrationist communication created by Telesur, by increasing its distribution in our countries, as well as its contents production capacities.

Article 12: The governments of Venezuela and Cuba acknowledge the special needs of Bolivia as a country whose natural resources were exploited and plundered during the centuries of colonial and neo- colonial rule.

Article 13: The Parties shall exchange scientific and technical know- how with the aim of aiding the economic and social development of the three countries.

Article 14: Taking into account all of the above, the Government of the Republic of Cuba, the Government of the Bolivarian Republic of Venezuela and the Government of the Republic of Bolivia, have agreed upon the following actions:

FIRST: To create a non-profit Cuban-Bolivian entity which will provide free high quality ophthalmologic surgeries to all Bolivian citizens lacking the financial resources needed to cover the high cost of this service, thus preventing tens of thousands of poor Bolivians from loosing their sight or serious and often crippling limitations to their sight each year.

SECOND: Cuba shall supply the most advanced technology equipment and the ophthalmologic specialists required in the initial stage who, with the support of young Bolivian doctors trained in the Latin American School of Medical Sciences (ELAM), working as doctors in residence, or other doctors and residents from Bolivia or other countries, shall offer attentive care to the Bolivian patients.

THIRD: Cuba shall pay the wages of the Cuban ophthalmologic specialists working in the framework of this action program.

FOURTH: Bolivia shall provide the facilities necessary to render this service, be they buildings already used to provide healthcare or others adapted to this purpose. Cuba shall increase the number of ophthalmologic centres donated from three, the number initially offered in the Bilateral Agreement signed on December 30 of last year, to six.

FIFTH: The six centres shall be located in La Paz, Cochabamba, Santa Cruz, Sucre, Potos?and the town of Copacabana in the La Paz region. Together they shall have the capacity to operate on at least 100 thousand people each year. This capacity may be increased should the need arise.

SIXTH: Cuba hereby reaffirms its offer to provide Bolivia with 5 thousand scholarships to train doctors and specialists in General Integral Medicine or other areas of Medical Science: 2 000 in the first quarter of 2006, who are now receiving basic training here in Cuba; 2 000 in the second semester of this year, and 1 000 in the first quarter of 2007. Over the subsequent years the established quota shall be replenished with new students. Included in these new scholarships are some of the 500 young Bolivians who are already studying Medicine in Schools of medical Science al over Cuba.

SEVENTH: Cuba shall prolong the stay of the 600 medical specialists who travelled to Bolivia as a result of the serious natural disaster which occurred in January of this year, affecting all the regions of the country, for as long as this sister nation deems necessary. Furthermore, it will donate 20 field hospitals equipped with surgical facilities, intensive care units, emergency services for patients suffering of cardiovascular accidents, laboratories and other medical resources, to be sent to the areas hardest hit by this disaster.

EIGHTH: Cuba shall continue to provide Bolivia with the experience, didactic material and technical resources necessary to implement the literacy program in four languages: Spanish, Aymara, Quechua and Guaran? To be made available to all sectors of the population in need.

NINTH: With regards to the education sector, the exchange and collaboration plan shall be extended to offer help in the methods, programs and techniques of the educational process of interest to the Bolivian party.

TENTH: Cuba will share its energy-saving experiences with Bolivia and shall cooperate with this country on an energy-saving program that could yield significant convertible currency resources.

ELEVENTH: During the investment recovery period, any state investment, investments made by Bolivian mixed companies or even those made with Bolivian private capital in Cuba will be tax-exempt.

TWELVETH: Cuba shall grant Bolivian airlines the same facilities provided to their Cuban counterparts, with regard to passenger transportation, freight to and from Cuba and the use of airport services or any other facilities, as well as the internal transportation of passengers and freight within Cuba.

THIRTEEN: The exportation of goods and services from Cuba may be paid for with Bolivian products, in the national currency of Bolivia or in other currencies mutually agreed upon.

FIRST: Venezuela shall encourage extensive collaboration in the energy and mining sector, including: the institutional consolidation of the Ministry of Hydrocarbon and Energy and of the Ministry of Mining and Metallurgy of Bolivia, by way of technical and legal assistance; the increase in the supply of crude oil, refined products, LPG and asphalt, envisaged in the Energy Cooperation Agreement of Caracas, by the amount needed to satisfy the internal demand of Bolivia. Compensation mechanisms shall be established with Bolivian products so as to completely cancel all debts created by these services. Technical assistance for the Bolivian Fiscal Oilfields (YPFB) and COMIBOL shall also be established, as shall the development of projects to adapt and extend infrastructures as well as petrochemical, iron and steel and chemical and industrial projects, and any other form of cooperation agreed upon by the parties.

SECOND: During the investment recovery period, any state investment or investments made by Bolivian mixed companies in Venezuela shall betax-exempt.

THIRD: Venezuela hereby reaffirms its offer to provide Bolivia with 5 000 scholarships in the different areas of interest for the productive and social development of the Republic of Bolivia.

FOURTH: Venezuela shall create a special fund of up to 100 million dollars for Bolivia to use to finance productive and associated infrastructure projects.

FIFTH: Venezuela will donate thirty million dollars to look after the social and productive necessities of the Bolivian people as decided by their Government.

SIXTH: Venezuela will donate asphalt and an asphalt mixing plant to contribute to road construction and maintenance.

SEVENTH: Venezuela will notably increase the imports of Bolivian products, especially those that contribute to the increase of its strategic foods reserves.

EIGHTH: Venezuela will provide fiscal incentives in her territory to projects of strategic interest to Bolivia.

NINTH: Venezuela will provide preferential facilities to Bolivian aircraft on Venezuelan territory within the permissible limits of her legislation.

TENTH: Venezuela will place at Bolivia’s disposition the infrastructure and equipment for air and sea transportation in a preferential manner in order to support the economic and social development plans of the Republic of Bolivia.

ELEVENTH: Venezuela will provide facilities for Bolivian public or joint companies to establish themselves for the transformation of raw materials, down-stream.

TWELFTH: Venezuela will collaborate with Bolivia in research projects on biodiversity.

THIRTEENTH: Venezuela will support Bolivia’s participation in the promotion of endogenous development nuclei, using the experience of Mision VuelvanCaras.

FOURTEENTH: Venezuela will develop agreements with Bolivia in the field of telecommunications, which may include the use of satellites.

FIRST: Bolivia will contribute the export of her mining, agricultural, agro-industrial, livestock and industrial products as required by Cuba or Venezuela.

SECOND: Bolivia will contribute to the energy security of our nations with its available surplus production of hydrocarbons.

THIRD: Bolivia will not charge utility taxes on any state or mixed venture investments formed between Bolivia and the Venezuelan and Cuban States.

FOURTH: Bolivia will contribute its expertise in the study of native peoples, both in theory and in research methodology.

FIFTH: Bolivia will participate together with the governments of Venezuela and Cuba in the exchange of experiences in the study and recovery of ancestral knowledge in the field of natural medicine.

SIXTH: The government of Bolivia will actively participate in the exchange of experiences in the scientific research on natural resources and genetic agricultural and livestock patterns.

FIRST: The governments of the Bolivarian Republic of Venezuela and the Republic of Cuba will immediately proceed to remove tariffs and other non-tariff barriers that apply to all imports within the tariff universe of Cuba and Venezuela whenever the apply to products originating in the Republic of Bolivia.

SECOND: The governments of the Bolivarian Republic of Venezuela and the Republic of Cuba will guarantee the purchase of amounts of oil- based products and other agricultural and industrial products exported by Bolivia, that may not have a market as a result of the application of a Free Trade Treaty or Treaties initiated by the government of the United States or by European governments.

THIRD: The governments of Venezuela and Cuba offer financial, technical and human resource collaboration to Bolivia so that a genuine national Bolivian State airline may be established.

FOURTH: The governments of Venezuela and Cuba offer Bolivia their collaboration in the development of sports, including facilities for the organization and participation in sports competitions, and training centres

in both nations. Cuba offers the use of her facilities and equipment for the control of anti-doping in the same conditions that are offered to Cuban athletes.

FIFTH: The governments of Cuba and Venezuela, in coordination with Bolivia, will promote actions needed to support the just Bolivian demand for the unconditional cancellation of her foreign debt, since it constitutes a serious obstacle to Bolivia’s struggle against poverty and inequality.

New economic and social measures may be added to this present Agreement by the three signing Parties.

Bolivia, Venezuela and Cuba will struggle for the unity and integration of the peoples of Latin America and the Caribbean.

Bolivia, Venezuela and Cuba will struggle for peace and international cooperation.

Evo Morales Ayma President of the Republic of Bolivia

Hugo Chavez Frias President of the Bolivarian Republic of Venezuela

Fidel Castro Ruz President of the Council of State of the Republic of Cuba

Havana, April 29, 2006.

Joint Communique

On the occasion of the official visit to Cuba of presidents Hugo Chavez Frias and Evo Morales Ayma on April 28 and 29, 2006, there was a broad-ranging dialogue with the President of the Council of State of the Republic of Cuba, celebrating the first anniversary of the agreements launching the implementation of ALBA, the Bolivarian Alternative for the Peoples of Our America, which is bolstered by the proposed Peoples’ Trade Agreements (TCP, by its acronym in Spanish). This dialogue included the analysis of the current international situation and, particularly, the challenges facing the peoples of Latin America and the Caribbean in the present political, economic and social circumstances marked by an increase of the popular struggles against the failed neo-liberal policy and the search for new ways and means toward development with social justice in the framework of genuine fraternal Latin American and Caribbean integration.

The subject of ALBA, the Bolivarian Alternative for the Peoples of Our America, was discussed by the three leaders as it is the basis of the exchanges and collaboration between the Bolivarian Republic of Venezuela and the Republic of Cuba implemented since December 2004 with excellent results for both nations.

There was discussion of the initiative proposed by President Evo Morales regarding the TCP (Peoples’ Trade Agreements) which shall be an instrument for cooperative and complementary exchanges between the nations whose goal it is to benefit their peoples, in direct contrast to the Free Trade Agreements which continue to increase the power and dominance of the transnationals.

The needs of the Bolivian people’s development were analyzed as were the challenges faced by the 3-month old government of President Evo Morales, after winning an impressive electoral victory allowing, for the first time, the native communities and the indigenous peoples to participate in the government of their nation. The three leaders share the conviction that strong solidarity, mutual cooperation and aid between their peoples must prevail, free from any interest in business or market profits. In the particular case of Bolivia, they shall work on the complicated task of transforming the present reality of severe shortages of basic social services such as education and healthcare, while making the best possible use of natural resources such as gas, oil and others, for the development of its agricultural potential and the training of skilled human resources, so that the benefits may improve the lives of the poor, the exploited and the discriminated.

The leaders agree that only a new and genuine integration based on the principles of mutual aid, solidarity and respect for self- determination can provide a suitable response to the level of social justice, cultural diversity, equity and the right to development which all peoples deserve and claim for. Such integration is conceived as a political and economic relationship that is in stark contrast with that which has been established by FTAA and the free trade treaties.

For all the preceding reasons, the three leaders agreed that Bolivia, represented by her President, Evo Morales Ayma, should become part of the process of constructing and implementing the Bolivarian Alternative for the Peoples of Our America, starting with the development of the TCP among the three countries and to reiterate the Joint Declaration signed by the governments of the Bolivarian Republic of Venezuela and the Republic of Cuba on December 14, 2004, in which the first guiding principles of ALBA were presented and which are presently joined by President Evo Morales Ayma and his nation.

The Republic of Bolivia Joins and Signs the Joint Declaration Signed in Havana on December 14, 2004 by the President of the Council of State of the Republic of Cuba and the President of the Bolivarian Republic of Venezuela.

Recognizing that the implementation of neo-liberal plans and policies has led to the proliferation and deepening of dependence, poverty, the pillage of our natural resources and a state of social inequality within our region, the genuine integration among the nations of Latin America and the Caribbean is an indispensable condition for sustainable development, alimentary security and sovereignty, in order to meet the necessities of our peoples, only the united actions by the Latin American and Caribbean nations, based on principles of cooperation, complementation, mutual aid and solidarity will allow us to preserve our independence, sovereignty and identity, and to be successful in our opposition to unilateralism and hegemonic aspirations, thus strengthening a Peoples’ Trade Agreement. The struggle to improve the lot of human beings, friendship, solidarity and peace among all nations of the world must constitute the moral obligation of each and every government, convinced of the need to promote a genuine fraternal, complementary and human integration amongst our nations and our peoples. In the name of the Government of the Republic of Bolivia we would like to contribute to this process with the initiative of the Peoples’ Trade Agreements, making the goals, principles and ideological bases of ALBA, the Bolivarian Alternative for the Peoples of our Americas our own, contained in the joint declaration signed in Havana on the fourteenth day of December in the year two thousand and four, by the President of the Council of State of the Republic of Cuba and the President of the Bolivarian Republic of Venezuela.

Given in Havana, on April 29, 2006.

Evo Morales Ayma, President of the Republic of Bolivia.

Bolivia’s Radical Realignment Under Evo Morales

The nationalization of the Bolivia’s oil and gas resources was certainly big news. Certain US media outlets even called it a ‘gas grab’. But for the resource rich country with its people predominantly poor, it seemed more like asserting peoples’ right and the country’s sovereignty than anything else. The following analysis of the latest events by Roger Burbach, director of the Center for the Study of the Americas based in Berkeley, CA, was published by the Bangkok-based Focus on the Global South.

With the nationalization of Bolivia’s natural gas and petroleum resources President Evo Morales, the country’s first Indian president, is dramatically reshaping his country’s destiny. On 1 May he proclaimed "an historic day has arrived. Now the gas and oil that flows from our land will no longer belong to foreigners." This came just after his return from Havana, Cuba where he signed the People’s Trade Agreement with Fidel Castro and Hugo Chavez of Venezuela.

Until these dramatic steps, it was somewhat unclear what direction Morales was moving in during his first three months in office. He and his foreign minister held at least four talks with the US ambassador David Greenlee in which both sides seemingly extended the olive branch. As Greenlee said in March after one meeting, "we have a constructive dialogue with the government of Bolivia over a wide range of themes and mutual interests."

Two factors compelled Morales to seize the country’s national resources and to realign the country internationally: the militancy of the country’s peasant, worker and indigenous movements, and the decision of the United States to foist free trade agreements on Colombia and Peru that severely damaged Bolivian exports to other Andean nations.

Evo Morales and his political party, MAS, the Movement for Socialism, took power in January 2006 with a clear popular mandate. Social uprisings, starting in 2000, demanded that the state nationalize the country’s natural gas and petroleum so the lucrative profits of these industries could be used to help lift South America’s poorest country out of poverty. Three presidents resigned or were forced out of office by these popular protests.

Until 1 May, some of the country’s popular movements felt that Morales had reneged on his campaign promises as he did little more than state that Bolivia already "owned its resources." His approval ratings dropped from 80 to 68 percent.

But as one observer in La Paz notes, "Evo is a masterful politician." Morales chose this moment to act because of the elections for the Constituent Assembly that are scheduled for July. The assembly will have the power to redraft the country’s constitution and reshape its political institutions.

As Vice-President Alvaro Garcia Linares has noted, the goal of MAS is "to achieve hegemony," and the Constituent Assembly is central to this process. Bolivia has been unstable for years because of poverty, military revolts, and the conniving of the country’s political elites as they loot the public treasury. As in Venezuela prior to Hugo Chavez’ election, the traditional parties are viewed as bankrupt. Evo and MAS want to breathe new life into the country’s political and social institutions, to give voice to the country’s indigenous poor who have been exploited by the "caras," the faces of white oppression that have dominated Bolivia since the Conquest.

With the government’s expropriation decree, fifteen corporations have been nationalized, with foreign capital from a wide variety of nations, including the United States, Spain, Great Britain, Brazil, France and the Netherlands. Seizing control of these enterprises goes hand in hand with Bolivia’s audacious steps in the trade arena. MAS and Morales view neo-liberalism, US trade agreements, and corporate-driven globalization as major obstacles to the country’s development. This year Colombia signed a so called "free trade agreement" with the United States that is particularly harmful to Bolivia. Sixty percent of Bolivia’s major agricultural export - soy beans - currently goes to Colombiaa. The US-Colombian accord means that cheap, subsidized US grains will flood Colombia, driving out Bolivian soy production.

Peru has also just signed a trade agreement with the United States that will have an adverse impact on Bolivian exports to Peru. These accords have ruptured the thirty-seven year old Andean Community of Nations, a trade pact that included Venezuela and Ecuador as well as Bolivia. Hugo Chavez announced in April that Venezuela is withdrawing from the pact because the United States has "fatally wounded" the community. Evo has also stated that Bolivia is reconsidering its membership.

This discontent with the Andean community led to the signing of the People’s Trade Agreement between Cuba, Venezuela and Bolivia on 29 April. The accord is particularly favorable to Bolivia as Cuba and Venezuela have agreed to take all of Bolivia’s soy production as well as other agricultural commodities at market prices or better. Venezuela will also ship oil to Bolivia to meet domestic shortfalls in production while Cuba will send doctors to Bolivia.

The trade agreement and the nationalization of Bolivia’s natural resources mark a dramatic shift in hemispheric affairs. Morales is serving notice on Washington that he is becoming part of a radical bloc of nations in Latin America that are no longer subservient to the United States.

Has Globalisation Gone Too Far?

A spate of recent refusals by the industrialized countries to takeover bids by firms in the developing world raises the question of whether the process is meant to be just one way. In the following above-titled article, Nagesh Kumar, Director General of the Research and Information System for Developing Countries (RIS), offers his personal views which were posted online in the Financial Express on 28 March, 2006. The writer says the time has perhaps come to debate the recent spurt of western protectionist resistance to globalization.

The past few months have witnessed a number of high-profile cases of western countries stopping acquisitions of domestic companies by foreign corporations. The world had barely absorbed the news of a number of European governments speaking against Mittal Steel’s 22 billion euro bid for Luxembourg-based Arcelor. And then, Dubai Ports World had to agree to divest its container terminals in the US to an American entity under pressure from the US Congress. Earlier, the Chinese oil company, CNOOC, was prevented from taking over Unocal in the US.

These are not isolated cases. They fit into a pattern. There is growing resistance in the developed countries to foreign takeovers of national enterprises. Earlier, rumours about a takeover by Pepsico of Danone, the French dairy company had received similar resistance. It was also visible when the Chinese Lenovo acquired IBM Corporation’s personal computer business in 2005 for $1.25 billion.

Another point that is clear from these cases is the fact that these are not being stopped on the basis of pure business considerations, but by protectionist intentions. For instance, the Arcelor CEO used the perfume versus eau-de-cologne analogy to describe his company and Mittal Steel, rather than claiming the offer was unattractive. Therefore, racist overtones have been used to block the deal rather than pure economic logic. This reminds one of an earlier instance of a bid made by Daewoo of South Korea in the privatisation programme of Thomson Multimedia in the late 1990s, when the deal was stopped in order to retain the European identity of the company in question.

The governments of developed countries are acquiring powers to protect their national champions from foreign takeovers. On the eve of January 1, the French government published a decree listing 11 sectors that can be protected from foreign takeovers on the grounds of security. Most of the EU members retain powers to stop foreign takeovers. In the US, the President can veto any deal that is perceived to threaten ‘national security’ under the Exxon-Florio Amendment. The term ‘national security,’ however, has not been defined. This provision has been used to stop deals such as CNOOC-Unocal.

This trend is to be seen against the backdrop of the demand of developed countries, especially the EU, for a multilateral framework on investment (among the other so-called Singapore Issues) within the ongoing Doha Round. That framework, if agreed upon, would (as per the proposals of the proponents) have, among other issues, granted a national treatment to foreign investors and their investments. In other words, foreign investors would have got the right to establish and acquire any business entity in any country.

Obviously, the proponents of the treaty were seeking to write WTO rules that would assist their enterprises to strengthen their global reach. They had apparently not realised that they themselves would be on the defensive on this count. They should be grateful to developing countries who resisted the launch of negotiations on investment under the Doha Round and had it dropped off the Round in the July 2004 package. Otherwise, it would be doubly embarrassing for the developed countries to stop such acquisitions by foreign enterprises and go against the WTO rules that they themselves had sought!

• Recent cases of the West blocking acquisitions by foreigners fit a pattern

• Developed countries pursue globalisation only when it helps their case

• This selective attitude has affected the pace of negotiations in the Doha Round

What comes out is that the developed countries support and pursue globalisation only when it helps them and not when it tends to go too far. In that context, one can recall the outrage on outsourcing of services from India some time before in the US, with some US states imposing taxes to discourage outsourcing. The US government, along with the EU, has been the most vocal champion of liberalisation of trade in services. However, when it hurts them, there is resistance.

In any case, their own record in liberalisation of movement of natural persons under Gats has hardly been encouraging—with very few commitments being made, if at all, and almost all with conditions or limitations that render them ineffective. The double standards are in evidence in many other ways as well. The developed countries have practiced regionalism and bilateral FTAs, while preaching to the world the virtues of multilateralism. Now that developing countries, especially those in Asia, have also started to evolve their own regional trading arrangements, there are proposals seeking a moratorium on RTAs.

They have similarly preached the virtues of trade liberalisation to developing countries, while maintaining high peak tariffs and specific duties on products exported by developing countries, such as food products, textiles and clothing, and leather products, among others.

It is this selective attitude to globalisation that has affected the pace of negotiations in the Doha Round. Developed countries seek ambitious proposals for market access for their products and services. However they are not willing to undertake ambitious commitments to reduce distortions in the agriculture sector. It is evident that two significant agreements reached at the Hong Kong Ministerial viz. phase out of export subsidies on agriculture and duty-free-quota-free market access for least developed countries were accepted after a lot of haggling.

The progress since the Hong Kong Ministerial in respect of the Round has not been encouraging at all.

Perhaps the time has come to take a pause and launch a dispassionate debate on the process of globalisation that is provoking widespread resistance in the North and the South.

Doha Round: EU Must Not Be Cause of Failure – UK Report

"The EU mandate explicitly demands liberalisation of developing country markets as a condition for opening EU agricultural markets further — something it has long promised to do. This is contrary to the idea of a development round." That is the observation of the International Development Committee, appointed by the UK House of Commons in its latest report ‘The WTO Hong Kong Ministerial and the Doha Development Agenda.’ It says the G-20 and G-90 came together to form the G-110 because they felt the EU and the US were trying to ‘divide and rule’ the developing countries. "Certainly, as we have said, the EU mandate does attempt to do so. The Commission should step back and ensure that it is not abusing its position in the WTO." Following are extracts from the report.

Progress with the Doha Round has slowed down since December. Ian Pearson told us he was planning to hold talks with the Brazilian and Indian commerce ministers to help move the Round forward. A meeting between President Lula de Silva of Brazil and the British Prime Minister on 9 March produced a joint statement which said that, ‘current offers on the table fall well short of the deal we want.’ A subsequent meeting of the G6 — US, EU, Brazil, India, Japan and Australia – produced no new outcomes and led some delegates to suggest that Members were unlikely to be able to meet the end of April deadline for agreeing numbers for tariff and subsidy cuts in agriculture and nonagricultural market access (NAMA), and that their chances of doing so were decreasing by the day.

There may well be value in joint statements with developing countries such as Brazil — demonstrating that the Government shares the concerns of developing countries. However, unless the EU position changes, and this requires changes in member states positions, the April deadline will be missed. The Government should therefore prioritise high level meetings with its EU member state partners.

The Doha Round was labelled a development round because there was a consensus that multilateral trade rules were unbalanced in favour of developed countries. The intention, according to Pascal Lamy, Director General of the WTO, was to address these imbalances, particularly in agriculture and in industrial products of interest to developing countries. Much has been made by the Government of the potential benefits for developing countries of a successful round.

New research has begun to express reservations about the precise benefits of the Round for the developing countries, especially if only minimal changes are made to existing rules. Initial World Bank assessments about the value of trade liberalisation were revised during 2005 to reveal that the gains would not be as great as had originally been predicted. In 2003 the Bank had predicted gains of US$539 billion to developing countries; in 2005 the gains for developing countries were now estimated at US$90 billion. Much of this downgrading of the estimate was due to the use of a different base year, 2001 instead of 1997, and from incorporating trade agreements reached up to 2005 whose effects can not be counted as resulting from the Round. Research from the Centre for Global Development using a different data set, produces even lower estimated gains for developing countries and has also thrown into question the precise benefits of what is on the table for developing countries.

However, what both studies show is that ‘gains as a share of national income are higher in developing countries’ and that roughly 60 per cent of the potential gains from free trade come from liberalising agriculture, because that is where the major distortions are. Developing countries’ share of gains from liberalisation are estimated at between 30–50 per cent depending on whether countries such as Hong Kong, Korea, Singapore and Taiwan are included.

An important caveat is that these gains assume full liberalisation. Gains from a Doha scenario — limited and qualified liberalisation — both reduce the benefits and skew them toward the developed countries. The developing countries which gain the most in a Doha scenario are competitive Latin American exporters. A few lower income developing countries will lose because of preference erosion and higher food prices. Some of these will be able to compensate by moving factors of production but a few will gain too little to compensate for the loss of preferences.

Current offers on the table for improved market access fall far short of what is required for developing countries to benefit. Agricultural liberalisation has to be better structured so as to increase the benefits for developing countries. One aspect of the EU offer is the potentially devastating consequences for the Round if too many products are designated as sensitive by the EU. Pascal Lamy indicated to the Committee that the areas which the EU was likely to designate as sensitive would be so deemed precisely because they were products which other non-EU countries also produced, for example sugar. While these sectors would not be immune from tariff reductions, the basis for the reduction — for example, as a percentage of existing imports, or of domestic consumption, or of the existing tariff rate quota, — and the quota of imports allowed in, are as important as the overall number of products.

Peter Mandelson has indicated to us that there may be some room for a reduction in the number of sensitive products within the limits of CAP reform, provided new commitments are forthcoming from other players. We would welcome an offer to reduce the number of products which the EU designates as sensitive, otherwise market access for developing countries will be severely limited and Doha will not be a development round. In making this offer conditional upon the actions of other states, the EU is going against the spirit of the Round. This improved offer should not, under any circumstances in this Round, be conditional on actions by developing countries.

In industrial sectors, estimates of gains are similarly heavily qualified and depend entirely on what formula is used to reduce industrial tariffs. Most of the debate is, rightly in our view, focused on allowing developing countries sufficient policy space to tailor a country specific industrial policy. Joseph Stiglitz in his recent book, Fair Trade for All, argues that the Round has concentrated on the wrong things if the intention is to promote development. In his view, a true development agenda should go beyond agriculture and encourage industrial development, especially in the poorest countries so that they are not consigned to producing primary commodities for export. We agree with Stiglitz’s recommendation that the WTO needs to promote a culture of robust, impartial and publicly available economic analysis of the effect of different initiatives on different countries, and groups within countries, if it is to effectively identify pro-development proposals and promote them to the top of the agenda. Mechanisms must be found to facilitate industrial diversification. We urge the Government to ensure that the formula for tariff reductions in NAMA does not discriminate against this.

In the book, Poverty and the WTO, World Bank authors conclude somewhat pessimistically: ‘the impact of global trade reform on global poverty, as measured by the model in this chapter, is modest.’ This is partly because in many developing countries changes in prices at the world market level do not always translate to the household level. These internal blockages are significant but they cannot be addressed by the WTO.

How then can the developed countries best ensure that developing countries reap the benefits of liberalisation? It should be noted that the existence of losses for some developing countries in some areas should not be taken as evidence that reform is not needed, but rather that more gradual liberalisation by developing countries might help and/or that assistance is necessary to help developing countries benefit from the reforms.

The idea of a more gradual approach to liberalisation for developing countries is part of special and differential treatment (SDT). The report by the previous Committee in the last Parliament, Trade and Development at the WTO: Issues for Cancún, proposed general principles to inform discussions about SDT. Since then, research by the ODI and the Swedish Ministry of Foreign Affairs has indicated that it remains important to make SDT more effective and to do so by agreeing a revised framework agreement in the WTO. While Pascal Lamy’s idea of a ‘round for free’ for the LDCs is a recognition of the need to treat the poorest differently, questions about who else should be eligible for SDT have made further discussion difficult. This question is made more complicated by the fact that some non-LDC countries in Africa, the Caribbean and the Pacific will lose as the value of their preferences are eroded by multilateral liberalisation.

There has been limited discussion of SDT in the negotiations, despite a commitment to ensure that SDT would be part of all areas of negotiation. To some extent this is to be expected, since SDT is usually agreement specific and without numerical formulas it is impossible to calculate what SDT might be in any given case. Nevertheless, recognition of SDT is important, and the UK Government should work to ensure that once numerical formulas are agreed for agriculture and NAMA, effective SDT is possible according to the needs of developing countries. Particular attention should be paid to the needs of smaller, low income developing countries, especially those which will lose because of preference erosion.

Some adjustment assistance will be necessary in order to help developing countries benefit from trade liberalisation. One aspect of the Commission’s development package was enhancing aid for trade. Aid for trade describes several categories of assistance, only some of which are relevant to the WTO. According to Oxfam, its objectives include: ‘enhancing worker skills, modernizing customs systems, building roads and ports, and improving agricultural productivity and export diversification. Aid for trade should also help developing countries to meet the adjustment costs of implementing trade agreements, together with preference losses and more expensive food imports.’ This latter interpretation is the most important one in the current WTO context — compensating developing countries for losses incurred as a result of a new agreement. A wider predevelopment agenda would also include appropriate assistance for labour and social security policies to enable developing countries to properly tackle the social and developmental costs of rapid change in their domestic economies, as well as trade facilitation.

Member states of the EU have promised to spend almost €3 billion a year by 2010 and the UK Government has £100 million per year by 2010. However, this money is part of the Government’s Gleneagles pledge to increase aid. It is not new money. If the Government, or the EU, enters into agreements which harm developing countries, for example by eroding preferences, it should seek to compensate developing countries for those losses. The reason for giving money — compensation — is distinct from the reason development assistance in general is given. The EU contribution is welcome. The WTO, should as a matter of priority, turn its attention to how the aid for trade mechanism will work and provide a clear mandate by the end of the year as agreed in the Doha time line. This should be done with input from potential beneficiaries in developing countries. There is also the need to clarify the relationship between aid for trade assistance and general development assistance. Aid for trade should be additional to and not simply a diversion of aid monies already pledged. We do not believe that the Government should consider aid for trade as part of its general aid budget.

Making multilateralism work for developing countries

One positive outcome of Hong Kong was that all members agreed to keep negotiating, and not to walk away as they had in Cancún. This is a success for the principle of multilateralism. The multilateral system is particularly important for small developing countries who can protect their interests better in a rules-based rather than a power-based system. As Pascal Lamy told us, ‘if you are a developing country, if you are poor, if you are weak, if you are small, getting a bit of the EU market or the US market or of the potential Chinese market is so important for you that you will concede things you would not concede around a multilateral table.

In addition, there are an increasing number of bilateral and regional trade negotiations which are not always in the best interests of developing countries, or of the multilateral system. We were told, ‘it is not obvious that the two things are compatible and complementary, preferential trade agreements may be undermining agreements reached in the WTO and there is a question of whether the WTO is going to try and exert some sort of multilateral discipline on the formation of these agreements.’ We consider the multilateral system to be important for developing countries and are pleased that the Doha Round did not collapse in Hong Kong. The Government should work to ensure that the EU does not in any way prejudice a successful and timely conclusion to the Doha Round.

Cancún saw the emergence of developing country coalitions, capable and willing to exert pressure on the developed countries. The collapse of the Cancún Ministerial is attributed to coalitions of developing countries being unwilling to accept the deal which was on the table. Hong Kong saw the continuation of this practice. Of particular note was the formation, at the request of Brazil, of the G110, combining the influential G20 and the group of poorer developing countries the G90. Whereas the interests of the two groups are far from identical, the groups came together because they felt the EU and the US were trying to ‘divide and rule’ the developing countries. Certainly, as we have said, the EU mandate does attempt to do so. It is not clear whether, or for how long, such a coalition will last. However, the formation of the G110 should not be seen as just a trade union, as was suggested by Pascal Lamy, rather as a response to an attempt by the developed countries to exert pressure on developing countries to agree to things which they did not feel were in their interest. The Commission should step back and ensure that it is not abusing its position in the WTO.

One aspect of the process which gives us concern is the practice of mini-ministerials, or meetings of select members of the WTO. The London mini-ministerial was attended by only two developing countries, Brazil and India. There were no representatives from Africa. We accept that the use of smaller ministerial meetings make for easier decisionmaking but consider this an unrepresentative approach in an organisation which has facilitated greater participation and ownership by developing countries than its predecessor the GATT. It is not good from the point of view of either transparency or accountability. The Government should not condone such a practice, especially if a development agenda is still the goal of the Doha Round.

In summary, whilst it is good news that the Doha Round, and the principle of multilateralism, did not collapse at Hong Kong, much remains to be done in order to bring the Round to a successful conclusion. The minimum criteria for a successful agreement would be one which does not differentially hurt developing countries or provide disproportionate benefits for developed countries. At present we have concerns that sufficient progress is not being made.

Peter Mandelson says that any further margin of manoeuvre in agriculture could only be considered if other key players make offers in manufacturing trade and services. The Commission position must change, and there is good reason for the Commission to act pre-emptively on this since, in the WTO, nothing is agreed until everything is agreed. Such action would demonstrate leadership and political commitment to a development round. The developing countries have much to gain from an ambitious outcome. The EU must not become the cause of failure.

The outcome of the development agenda is not a forgone conclusion. Much work remains to be done now, and subsequently after the formulas for tariff reductions are finally agreed. Despite overall commitment to multilateralism, it is still not clear that members will make ambitious new offers.

A development round will not be the result of a gradualist approach. While the LDCs have secured a (limited) deal in market access, the remainder of developing countries have not. There is no more time to lose. As a key player within the EU, the UK has a major role to play. This role must be to encourage the EU member states to put the interests of developing countries first in this case. This will be the true test of a development round.

Trade Liberalization and Its Consequences - Supachai

"If a free society cannot help the many who are poor, it cannot save the few who are rich." That statement by John F. Kennedy, in a sentiment echoing Franklin D. Roosevelt, was quoted by Dr. Supachai Panitchpakdi, the Secretary-General of UNCTAD while addressing the above-titled theme. Speaking at the Stanford University in California on 26 April, 2006, Dr. Supachai added, "I believe that trade can, and should, contribute to this goal." Following are extracts from his statement.

"Having long been an admirer of the intellectual and economic work emanating from Stanford, and particularly your Center for International Development, I am very honoured to be addressing you this evening on the relationship between trade and development. This subject is, as you know, the centrepiece of my own career.

Tonight I would like to tackle this relationship by focusing on the impact of trade, liberalization and globalization, particularly on developing countries. How can these countries benefit from the trends towards greater global integration, and what should their developed-country partners do to assist in this process? Does trade in fact accelerate growth in the developing world, and can that role be made even more positive, contributing also to sustainable development and poverty reduction? What does all this mean for the multilateral trading system, and what future for the trade talks?

First, let me briefly review recent trends in trade and investment flows worldwide, with which I am sure you are all familiar. While it is generally true that the contribution of trade to any given economy is largely a function of the size of that economy, it is evident from the recent trends and experiences that trade remains a growth engine for developing countries. This is good news.

Worldwide, merchandise exports grew by 22.5% in current dollars in 2004, partly due to increasing volume and partly to rising dollar prices, e.g. for oil and other commodities. As for developing countries, they now account for about a third of global trade, and some 40% of all their trade is between themselves. This South-South trade is also growing about three times faster than world trade. China and India, of course, are garnering a large share of this rise in trade, accompanied by soaring GDP. China´s average export growth rate rose fairly steadily - barring a few blips - from 12.8% in 1980-90 to 31% in 2003-04. In the same period its GDP has stayed largely on a growth course, climbing from 7.5% in 1980-90 to 9.5% in 2003-04. The Indian figures follow much the same pattern.

Generally strong and rapid growth also characterizes recent flows in foreign direct investment. According to UNCTAD estimates, global FDI inflows last year were up 29%, to $897 billion, generated by the world´s 70,000 transnational corporations (TNCs) and their 690,000 affiliates abroad, employing 57 million people worldwide. Here as well, developing countries are getting a bigger and bigger piece of the pie. FDI inflows to these countries surged to $233 billion in 2004, up 40%, and by a further 13% last year. South-South investment flows now represent more than a third of all investment flows to the South, where 20,000 TNCs are based.

But there is worrying news as well - namely, that not all developing nations are benefiting from this growth. Much of it is concentrated in a handful of countries, with many others becoming increasingly marginalized. Merchandise exports of sub-Saharan Africa, for example, have declined as a percentage of world exports, from 1.6% in 1990 to 1.35% in 2004. The share of the world´s 50 poorest countries - which we at the UN call the "least developed countries" - rose minimally over the same period, from 0.56% to 0.64%. The services picture is similarly bleak. These figures are extremely alarming, given the intertwined evils of poverty, economic instability and terrorism.

However, assuming we agree that trade in fact promotes development and economic growth in much of the developing world, then we need to ask why it is that some countries gain more, and others gain less, or even lose, from trade liberalization and globalization. Aside from the sheer comparative advantage of some countries in terms of location, natural resources and so forth, it would appear that trade liberalization has had its costs - and that openness to trade is simply not enough. There have been some optimistic forecasts of tremendous income gains, export revenue gains and new jobs to come from the expiration of the ATC, for instance. But there have also been some dire predictions of how devastating these same reductions in trade barriers, and removal of preferences, will be for a number of textile-producing nations.

Thus, as I said, openness alone is not enough. What else should developing countries do to ensure that liberalization boosts trade and helps them to generate higher income, which is essential to kick-start development and reduce poverty? UNCTAD´s Trade and Development Index, introduced last year with the active support of Professor Lawrence Klein, attempts to measure the complex relationship between trade and development in a precise and quantitative manner. It shows that, in addition to trade liberalization measures, other factors are needed to guarantee that openness brings concrete benefits. These include macroeconomic discipline, good governance, infrastructure, skills, institutional capacity and investments in health and education. In effect, this implies that in conjunction with liberalization, developing countries must develop their comparative and competitive advantages and their capacity to deliver goods and services efficiently. They must also diversify and move away in particular from volatile commodity markets. They must increase their share of the global export revenues, move up the value chain by tapping into world distribution networks and create backward linkages from multinational investments to the local economy. Furthermore, they need to reduce their dependence on fossil fuels, especially given the rise in oil prices as well as environmental imperatives.

At the same time, they must aim to attract the right kind of foreign investment and avoid the wrong kind. By the right kind, I mean investment that brings know-how and transfers technology; investment that creates skills at home and prevents brain drain. The right kind of FDI, in short, creates a virtuous circle: it brings capital and knowledge that stimulate domestic investment (both public and private) in productive capacity, skills and physical infrastructure, thereby building a strong nation. The wrong kind means investment that favours enclave development, where profits tend to be repatriated back to the home country and where there is no value-added or know-how passed onto the local economy, whether in terms of new skills, new industries or new enterprises.

I referred at the outset to the future of the global trading system, and the more immediate future of the current Doha Round of trade talks. Most would agree that this ambitious Round, intended as the so-called "development round", achieved only modest progress at Hong Kong last December. The next deadline is April 30, but it appears there will be further slippage. Accordingly, there is much to do if the negotiations are to be completed before the expiry of the US fast-track negotiating authority next March.

Naturally, we at UNCTAD - and I imagine all of us in this room tonight - hope the Round will create ever-greater opportunities for developing countries. Rising trade trends suggest that the multilateral trading system is indeed working. What is missing is the political will and commitment to see through the rest of the negotiations and realize the development objectives promised in the Doha Ministerial Declaration.

The delays in concluding the Round are especially frustrating for poor nations, such as the cotton producers in West Africa, who had hoped the trading system would lift them out of the poverty trap. Brinksmanship does not help to yield the development dividend.

However, let me take issue with one argument that is often heard these days. It is said that the inability to reach agreement will affect the credibility of the WTO as an institution. I do not believe that this is a fair assessment of the situation. In fact, today the WTO-centred multilateral trading system has become the main body of law governing international economic relations across a wide spectrum of activities. The institution and the body of WTO law provide for security and predictability in international trade and investment. It provides for scrutiny through its Trade Policies Review Mechanism, and it offers a forum for resolving disputes in the Dispute Settlement and Appellate Bodies, in a system that was unified and made binding as a result of the Uruguay Round negotiations. This framework facilitates trade and investment as the foundation for sustainable economic growth, and apart from some further spelling out of rules, none of this will change as a result of the current negotiations, no matter what the outcome.

Regardless of how the Round turns out, developing countries will still require help in coping with the ongoing reforms and meeting the costs of adjustment to market openness and globalization. Removing subsidies, barriers and preferential trade terms can be harmful, causing the loss of livelihoods and tariff revenue as well as greater vulnerability for infant industries. International support is desperately needed to help poorer economies build their capacity to compete, retrain the workforce, shore up their infrastructure and facilitate trade. It is also essential that such funding be in addition to current levels of international aid, and that it not create new debt.

In this regard, it is timely that at the Hong Kong ministerial conference, "Aid for Trade" was recognized as necessary for facilitating the smooth integration of developing countries into the international trading system. But if aid for trade is to be meaningful, it must be relevant, targeted and adequate and, as I just said, it must be additional to resources currently being made available. As the case with all aid for development, aid for trade should also reflect the priorities of the recipients. It must be demand-driven.

At a recent UNCTAD meeting on this subject, I said that aid for trade is not a panacea for all trade-related problems. Nor should it substitute for development benefits that must arise from a successful outcome of the Round, as the Hong Kong declaration itself pointed out. It must, rather, complement any such outcome; it must, in short, keep the development promise of the DDA. That means that if it is adequately designed, managed and implemented, it can help developing countries to really use trade and trade liberalization as an engine of development and poverty reduction. We look forward to the recommendations of the Aid for Trade Task Force established by the WTO´s Director-General, pursuant to the mandate given in Hong Kong last December.

And this brings me to my final point this evening. We hear a lot in the news these days about creeping protectionist tendencies in both developed and developing countries. An op-ed in the Financial Times of April 6 warned that eroding the WTO principles could "risk unleashing a vicious spiral of beggar-my-neighbour nationalism" and increase the risk of "economic conflict". Some fears of job losses, high adjustment costs and so forth are well founded; but others are simply not justified. I am reminded of the famous satire by the 19th-century French economist Frédéric Bastiat, who wrote of candle makers petitioning Parliament to block out the sun because of unfair competition. But the sun can be stopped no less than the relentless march of globalization. As the Federal Reserve Bank of Dallas wrote in an April 10 op-ed in the New York Times, "nations can no longer sit within their borders and pursue policies incompatible with an increasingly integrated world economy".

In the long run, I think that we as internationalists would agree: protectionism is a dead end. The Dallas Bank article said that "the more globalized nations tend to pursue policies that achieve faster economic growth, lower inflation, higher incomes and greater economic freedom".

The bottom line is self-interest, which must be enlightened. John F. Kennedy, in a sentiment echoing Franklin D. Roosevelt, famously said that if a free society cannot help the many who are poor, it cannot save the few who are rich.

I believe that trade can, and should, contribute to this goal."

South Centre News

Trade for Development Programme

The South Centre staff:

Innovation, Access to Knowledge & Intellectual Property

- Recent research and publications

The programme staff participated in the following conferences and meetings:

Prof. Carlos Correa, Special Advisor on Strategy and Research, was interviewed for the May issue of the Bulletin of the World Health Organization on the Subject of "Do patents work for public health?" In the same issue, Sisule Musungu, Acting Program Coordinator, wrote an article on "Benchmarking Progress in Tackling IP and Access Challenges in Developing Countries."

Global Governance for Development

- The programme staff also participated in meetings:

Globalisation’s Growing Woes

Had globalization donned a ‘human’ face, nothing indeed could have obstructed its relentless march. These are indeed troubled times for those who have championed the neo-liberal model of globalization across the globe. The inequity spawned by the supremacy of the market and its corporate leaders has thrown up political alternatives which are beginning to strike at the root of ‘private’ property. The recent nationalization of the Bolivian oil and gas resources, with a promise to take over more branches of the economy has unsettled more those nations and institutions which continue to champion the neo-liberal policies. It rustled few feathers in Latin America itself. In fact, the leaders of Bolivia, Cuba and Venezuela actually signed partnership agreements that promise to blaze a new trail in regional cooperation. The central plank of such cooperation is to bring the benefits of development to the people of their countries, as opposed to running an economic machine that guarantees the profitability of big companies which invariably siphon them off from the region that generates them in the first place.

At the European Union and Latin American summit just held in Austria, the discomfiture of some of the European leaders with left-leaning leaders from Latin America was palpable. The trouble is that the developed world pretty much was an ‘observer’ as the people of Bolivia were denied the power of their own natural resources. Now that the State steps in to take majority control, there is little to criticize beyond pointing out that long term investments could possibly suffer. But even that is difficult to imagine if the benefits from nationalization are actually ploughed back into people’s welfare and to strengthen the economic base of Bolivia.

While at the EU-LATAM summit, in answering questions posed by the television media, President Evo Morales made it clear that it was not a case of starting any vengeance. "It is about realizing the hopes and aspirations of our indigenous peoples who for so long have been marginalized, humiliated, impoverished and even threatened with extinction." Alive to such reality, there is little to reproach President Evo Morales. He has the moral high-ground. And he has his peoples’ best interest at heart. He is fortunate to be nationalizing resources like oil and gas at a time when they are in great demand and therefore commanding more than decent prices. As Bolivia develops, the state control over natural resources could eventually be relaxed – it may well be in public interest then to let the state enterprises compete with private counterparts – as is happening in so many places in the developing world which are showing impressive economic growth rates.

The Vienna IV EU-LAC Summit Declaration of 12 May, 2006, on the subject of energy, makes the following observation: "While acknowledging the sovereign right of countries to manage and regulate their natural resources, we will continue and strengthen our cooperation with a view to establishing a balanced trade framework and more compatible regulatory regimes. We underline the importance of developing and investing in the necessary energy infrastructure in order to ensure availability and access to reliable and affordable energy systems. Efforts shall be maintained and cooperation increased to accelerate the development of environmentally sustainable energy technologies."

The latest report by the UK House of Commons’ International Development Committee on the state of the Doha Round of trade negotiations, referred to in this issue, talks plainly of the attempts by the EU to use ‘divide and rule’ tactics to get more out of the developing countries even in a Development Round meant more for them. The report makes it clear that the onus of making meaningful moves rests more with the industrialized countries than with the developing ones.

Latest issue of the South Bulletin no.124