Richard Melson

June 2005

South Bulletin 105

The focus of this issue of the South Bulletin

is on the Arab-South American Summit.

South Bulletin 105

15 June 2005

In this Issue:

China’s Position Paper on UN Reforms

"Development is the common pursuit of people from all countries and bedrock for a collective security mechanism and the progress of human civilization."

That view of Development taken by the largest developing country - China - was reflected in its position paper oon United Nations reforms, issued on 7 June 2005.

The Hurdles to Creating Decent Jobs in Africa - Obasanjo

"Youth unemployment remains a major challenge and unless we address this in a fundamental way, our developmental goals may be undermined," President Olusegun Obasanjo of Nigeria, and Chairman of the African Union, told the International Labour Conference on 10 June, 2005. "..Stereotypes, misinformation and refusal to acknowledge ongoing changes in Africa have continued to negatively affect investment in Africa save for a few countries," he pointed out.

Towards Practical Alternatives to the Prevailing Trade Policy

Time is running out for developing countries with shrinking policy space for development, warns Dr. Ha-Joon Chang, economist from the University of Cambridge. "Over the last couple of decades, the policy space available for the developing countries has shrunk dramatically. And if the developed countries have their way, it will shrink over the next decade or so to the extent that has not been seen since the days of imperialism, making industrialisation and economic development in the developing world all but impossible."

UNCTAD’s Trade ‘Marshall Plan’ for Least Developed Countries

On the eve of an important meeting of the Trade Ministers from the Least Developed Countries (LDCs), to be held in Zambia (25-27 June, 2005), the United Nations Conference on Trade and Development (UNCTAD) has come out with a new report: ‘Towards a New Trade ‘’Marshall Plan" for Least Developed Countries: How to Deliver on the Doha Development Promise and Help Realize the UN Millennium Development Goals?’

Denying Democracy: How the IMF & World Bank Take Power from People

The above is the title of a new study by the London-based World Development Movement (WDM) that makes a number of interesting revelations. For instance, there has been a dramatic change over the past 20 years. Increasingly, it is actually the debtor nations - developing countries and economies in transition - who pay for the running of the international financial institutions like the IMF and the World Bank.

Other articles:


China’s Position Paper on UN Reforms

"Development is the common pursuit of people from all countries and bedrock for a collective security mechanism and the progress of human civilization." That view of Development taken by the largest developing country - China - was reflected in its position paper on United Nations reforms, issued on 7 June 2005. In that paper, carried by the Xinhua news agency, and reproduced below, the Chinese government has made a comprehensive input covering a large number of critical areas of war and peace where the United Nations can play a more effective role. The paper is divided into four sections: Development; Security Issues; Rule of Law, Human Rights and Democracy; and Strengthening the UN.

With the advent of a new century, international situation is undergoing profound and complex changes. Peace and development remain the themes of the times, but uncertain and unstable elements are on the rise. We are faced with rare opportunities as well as grave challenges to realize enduring peace and common development of human society.

Against the backdrop of in-depth development of globalization and increasingly closer interdependence of states, global threats and challenges have become more diverse and interconnected. All threats, new or old, "soft" or "hard", direct or indirect, should be treated with equal seriousness and emphasis without partiality. All countries should make concerted efforts to deepen understanding through contacts, enhance trust through dialogues, and promote cooperation through communications, so as to cope with threats and challenges, especially to eliminate their root causes, by collective action.

The United Nations plays an indispensable role in international affairs. As the most universal, representative and authoritative inter-governmental international organization, the UN is the best venue to practice multilateralism, and an effective platform for collective actions to cope with various threats and challenges. It should continue to be a messenger for the maintenance of peace, and a forerunner for the promotion of development. A reformed UN with a bigger role to play will serve the common interests of humanity.

China welcomes the report of the High-Level Panel on Threats, Challenges and Change, UN Millennium Project Report and the comprehensive report of the UN Secretary-General, all of which put forward some useful and feasible approaches and proposals for the rejuvenation and reform of the UN. China is ready to work with all other parties to push for positive results of UN reforms and success of the summit in September.

China maintains that UN reforms should observe the following principles:

• ¨Reforms should be in the interest of multilateralism, and enhance UN’s authority and efficiency, as well as its capacity to deal with new threats and challenges.

• ¨Reforms should safeguard the purposes and principles enshrined in the UN Charter, especially those of sovereign equality, non-interference in internal affairs, peaceful resolution of conflicts and strengthening international cooperation, etc.

• ¨Reforms should be all-dimensional and multi-sectoral, and aim to succeed in both aspects of security and development. Especially, reforms should aim at reversing the trend of UN giving priority to security over development by increasing inputs in the field of development and facilitating the realization of the Millennium Development Goals (MDGs).

• ¨Reforms shall accommodate the propositions and concerns of all UN members, especially those of the developing countries. Reforms should be based on democratic and thorough consultations and the most broadly-based consensus.

• ¨Reforms should proceed gradually from tackling more manageable problems to thornier ones and be carried out in a way that will maintain and promote solidarity among members. For those proposals on which consensus has been reached, decision may be made promptly for their implementation; for important issues where division still exists, prudence, continued consultations and consensus-building are called for. It is undesirable to set a time limit or force a decision.


Development is the common pursuit of people from all countries and bedrock for a collective security mechanism and the progress of human civilization. Poverty, diseases, environmental degradation are also grave challenges to the international community. Serious attention must be given to the needs of developing countries, with a view to achieving coordinated, balanced and universal development around the world.

1. Poverty

• To eliminate poverty, an urgent priority is to facilitate the implementation of the MDGs. This should become the focus of UN reforms and the September summit.

• We should steer globalization toward balanced development, and strengthen developing countries’ position for equal participation and decision-making in international affairs.

• China supports developing countries’ efforts to promptly formulate and implement comprehensive national strategies in light of their own national conditions for the realization of MDGs. The international community should provide necessary assistance to support these efforts.

• International development assistance should be provided in a way that takes into full consideration the national conditions of developing countries, and increases the recipient countries’ autonomy and participation in this process for better results.

• China is in favor of the Secretary-General’s recommendations of a timetable for increasing Official Development Assistance(ODA) to 0.7% of national GDP, and believes that it is necessary to draw detailed implementation plans and set up a monitoring and assessing mechanism.

• China supports international efforts to explore innovative resources as a useful supplement to ODA, which should continue to play a major role.

• We shall reform and improve the international financial system to make it consistent with the principle of equality and mutual benefit, and monitor, and guide rational flows of international capital to fend off financial crises.

• We should establish and improve an open and fair multilateral trading system, based on full consideration of the interests of developing and new members, and eliminate agricultural subsidies and substantially reduce tariff and non-tariff trade barriers as soon as possible in accordance with the mandate provided by the Doha Declaration.

• The Chinese side supports efforts to promote an agreement on the modality of negotiations at the 6th WTO Ministerial Conference in Hong Kong in accordance with the July 2004 approximation and the mandate provided by the Doha Declaration, with a view to achieving an early completion of the Doha round and making it a genuine "development round".

• The developed countries should reduce and forgive, in real earnest, debts owed to them by developing countries, so that more capital will be available for development.

• We should encourage and strengthen public-private partnerships and mobilize more resources to promote economic growth and eliminate poverty.

• China supports to strengthen South-South cooperation, including sharing experience, expanding areas of cooperation and mutual assistance for mutual benefit, in order to enhance capacity building for development.

2. Disease

• All countries should promptly implement the UN resolutions 58/3 and 59/27 related to "enhancing capacity-building in global public health", put public health development in the context of their own development plans and activities, establish scientific and standardized public health systems, and improve the monitoring, prevention, control, treatment and reporting networks for contagious diseases. The developed world should help the developing countries in this regard.

• Relevant agencies operating within the UN system should consider incorporating public health into their activities, programs and plans, give greater support to all countries in strengthening public health capacity and promote international cooperation.

• We should strengthen the guiding and coordinating role of the World Health Organization and other relevant international organizations in disease prevention and treatment. China is in favor of more resources being channeled for the WHO Global Outbreak Alert and Response Network.

• We should make further efforts to prevent and treat HIV/AIDS. The immediate priority is to speed up the implementation of the Declaration of Commitment on HIV/ AIDS within the existing cooperation framework. The developed countries shall honor their commitments through the provision of more financial and technical support to the developing countries in the prevention and treatment of HIV /AIDS.

• Currently there is no universally recognized standards to define whether contagious diseases pose a threat to international peace and security. Given that the Security Council’s main function is to deal with issues that pose grave threats to international peace and security, it is unadvisable for it to repeat the work of other agencies.

3. Environmental Issues

• China stands for a scientific concept of development encompassing, inter alia, incorporating sustainable development and environmental protection into national development strategy and coordinating relations between economic, social development and environmental protection.

• Countries ought to engage in international cooperation for sustainable development according to the principle of Common but Differentiated Responsibilities, focusing on helping developing countries cope with environmental challenges effectively, especially such urgent issues as water scarcity, urban air pollution, ecological degradation and desertification. Developed countries ought to honour their commitments through technological transfer and provision of financial support aimed at capacity-building of developing countries.

• Sustainable development is the most effective response to global climate change. The international community should give serious consideration to the immediate needs and challenges of countries when formulating policies on energy, climate change and other related issues.

• The UN Framework Convention on Climate Change provides a fundamental and effective framework for international cooperation in response to climate change. Obligations for 2008-2012 provided for in the Kyoto Protocol, including reduction in emission of greenhouse gases, transfer of know-how to developing countries, financial support and assistance in areas such as capacity-building should be fulfilled in real earnest.

• Developed countries should take the lead in adopting measures to reduce emission after 2012 in continued compliance with the principle of Common but Differentiated Responsibilities. Meanwhile, the international community may explore a more pragmatic and flexible mechanism, promote international technical cooperation and enhance international capacity to cope with climate change.

• China is in favor of stepping up coordination and cooperation among existing environmental protection institutions and integrating resources for higher efficiency and better coordinated policies. China is open to related recommendations aimed at achieving the afore-mentioned goals.

4. Natural Disaster

China supports the establishment of worldwide early warning systems for all natural disasters at an early date, supports the strengthening of coordination and cooperation for emergency humanitarian assistance and disaster reduction at the national, regional and international levels.


We endorse the Secretary-General’s proposal concerning collective action against security threats and challenges. It is consistent with China’s proposal for a new security concept that features "mutual trust, mutual benefit, equality and coordination". To establish an effective, efficient and fair collective security mechanism, the key lies in adhering to mutilateralism, promoting democracy and rule of law in international affairs, sticking to the purposes and principles of the UN Charter, strengthening the authority and capability of the UN and safeguarding the centrality of the Security Council to the collective security system.

1. War and Conflict

• Inter-state conflict should be addressed through peaceful negotiation and consultation on an equal footing in accordance with the UN Charter and international law.

• Internal conflicts are complex. Whether they threaten world peace and security needs to be judged on a case-by-case basis. The resolution of internal conflicts should mainly rely on the efforts of the people of the State. External support should be given with caution and responsibility in compliance with the UN Charter and international law and should combine political and diplomatic measures with a prudent and responsible attitude to encourage and facilitate the resolution of problems through consultation and negotiation between the conflicting parties.

2. Counter-terrorism

• China stands for and supports the fight against terrorism in all forms and manifestations. International counter-terrorism efforts should give full play to the UN’s leading and coordinating role, address both the root causes and symptoms and avoid politicization and double standards.

• China supports a global comprehensive strategy against terrorism to be formulated as soon as possible and endorses the five pillars proposed by the Secretary-General as the foundation of such strategy.

• China supports further improvement of the existing counter-terrorism conventions and legal framework. Countries ought to consider early signing and ratifying the existing international counter-terrorism conventions and reach agreement as soon as possible on the draft Comprehensive Convention on International Terrorism in a cooperative and constructive spirit.

• China hopes for a consensus on the definition of terrorism. The definition may draw on, as appropriate, the existing international conventions and related provisions of Security Council resolutions.

• Member States and civil society must comply with the UN Charter and relevant norms of international law when participating in counter-terrorism cooperation.

• Acts of violation against human rights that arise in counter-terrorism activities should be addressed by fully utilizing the existing mechanisms of the Commission on Human Rights, conventional institutions and supervision mechanism of international humanitarian law. At present, there is no need to set up a new mechanism.

• China supports the strengthening of functions of the Counter-Terrorism Commission of the Security Council and the expansion of the mandate of its Executive Directorate, especially the reinforcement of developing countries’ capacity against terrorism and the establishment of a capacity building trust fund for this purpose.

• China believes it necessary to appoint a UN coordinator for counter-terrorism affairs.

3. Disarmament and Non-proliferation

• China has always stood for the comprehensive prohibition and thorough destruction of weapons of mass destruction (WMD) and opposed any forms of proliferation of WMD and their delivery systems. China has been actively promoting the international nuclear disarmament process.

• All nuclear weapon states should conclude a treaty on non-first use of nuclear weapons. They should also commit themselves unconditionally to not using or threatening to use nuclear weapons against non-nuclear weapon countries or regions and conclude a binding international legal instrument in this regard.

• The international community should take effective measures in real earnest to maintain and strengthen the universality and authority of the Treaty on the Non-Proliferation of Nuclear Weapons (NPT). All signatories should adopt a constructive attitude and a balanced view towards the three major goals of the Treaty.

• China supports the Comprehensive Nuclear Test Ban Treaty and hopes that the Treaty will come into effect at an early date. China will maintain its moratorium on nuclear tests and work for the early ratification of the Treaty.

• China supports the early launch of negotiation on the Fissile Material Cut-off Treaty on the basis of a balanced program of work to be agreed at the Disarmament Conference in Geneva.

• China supports the important role played by the International Atomic Energy Agency (IAEA) in preventing nuclear weapon proliferation and promoting peaceful use of nuclear energy in accordance with the purposes of its Statute. Under the current circumstances, it is necessary to discuss, through international cooperation and consultation, how to further strengthen the nuclear non-proliferation regime, which includes such an important issue as how to take appropriate measures to further strengthen the effectiveness of IAEA safeguards. China stresses the importance of IAEA Additional Protocol and hopes to see the strengthening of its universality.

• China supports and actively participates in multilateral efforts aimed at strengthening the effectiveness of the Biological and Toxin Weapons Convention (BTWC) and takes a positive attitude towards the immediate resumption of negotiation on a verification protocol of the Convention. China supports the conclusion of a new biological security protocol by the State Parties to the Convention through negotiations so as to classify dangerous biological agents and establish binding international standards for the export of agents of this kind.

• China is in favor of strengthening the universality of the BTWC and the Chemical Weapons Convention (CWC). The States Parties to the BTWC should observe the consultation, cooperation and investigation mechanism of the Convention, which is a main means to deal with the alleged use of biological weapons. The Secretary-General mechanism has its own historical background and scope of application. If most States Parties agree, it may be completely reviewed through multilateral negotiations.

• China encourages all States Parties to submit information on confidence-building measures as required by the Review Conference of the BTWC.

• Countries that have chemical weapons should accelerate their efforts to destroy their complete storage of chemical weapons, old chemical weapons and chemical weapons abandoned in other countries. The verification mechanism of the Organization for the Prohibition of Chemical Weapons (OPCW) generally functions well. The States Parties can address concerns for breach through mechanisms of clarification, consultation and cooperation. If material breach happens, the Conference of the States Parties or the Executive Council may call the attention of the UN General Assembly and the Security Council to that question.

• China opposes the proliferation of weapons of mass destruction and their delivery systems, supports the strengthening of the current international non-proliferation regime and calls for the resolution of proliferation issues within the framework of international law by political and diplomatic means. Any non-proliferation measures should contribute to international and regional peace, security and stability. Like many other nations, China is not in favor of the interceptive measures taken by the Proliferation Security Initiative beyond the international law.

• The prevention of weaponization of outer space and any forms of arms race in outer space conduces to global strategic stability and promotes the process of arms control and disarmament. The international community should attach great importance to this and take vigorous and effective measures to forestall this danger. The Conference on Disarmament in Geneva should promptly set up an ad hoc committee for the negotiations and conclusion of relevant international legal instruments or work toward the objective of plugging the loopholes in the current legal regime of outer space and effectively preventing the weaponization of outer space and any forms of arms race in outer space.

• The Convention on Certain Conventional Weapons plays an important role in addressing the humanitarian concerns arising from war. China has always actively participated in all work related to the Convention. China hopes that the Protocol on the Explosive Remnants of War will come into effect at an early date and be implemented in real earnest. China will continue to support and participate in the work of Group of governmental Experts of the Convention; hoping progress will be made in related work.

• China supports the international community’s efforts in combating the illicit trade in small arms and light weapons and supports the negotiation for the conclusion of an international instrument on "marking and tracing of the illicit small arms and light weapons". The illicit trade in small arms involves many factors such as disarmament, security, development and humanitarianism and should be addressed through a comprehensive and appropriate approach. In this regard, states shall take on the primary responsibilities and strengthen coordination and cooperation, and the UN should continue to play a leading role.

4. Organized Crime

• China supports the enhancement of international and regional cooperation to crack down on transnational organized crimes. Developed countries should fulfil greater obligations of providing resources.

• China hopes to see effective implementation of international conventions on combating transnational organized crimes and corruption.

• The UN Office on Drugs and Crime should strive to help countries comply with the conventions.

• Provided that the existing international conventions concluded at the UN are effectively implemented, China does not object to the negotiation and conclusion of necessary new international conventions within the UN framework.

5. Prevention and Mediation

• China supports the establishment of the "prevention culture" by the UN and larger input into conflict prevention and mediation, especially the improvement of mechanisms and measures such as early warning and fact-finding mission.

• The Member States should give full play to the leading role of the Security Council and support the Secretary-General’s authorized good offices and mediation.

6. Sanctions

• China has always maintained that sanctions should be applied with prudence on the precondition that all peaceful means have been exhausted. Once the Security Council decides to impose sanctions, all countries are obliged to comply strictly.

• China is in favor of improving the sanctions mechanism of the UN, setting a strict criterion, making it well focused, setting explicit time limits and minimizing the possibility of humanitarian crisis arising from sanctions and its impact on a third country. The committees on sanction should regularly evaluate the humanitarian impact of sanctions.

• The international community should help developing countries build capacity for sanctions implementation.

7. Use of force

• Peaceful settlement of international disputes and non-use of force in international relations is an important principle of the UN Charter and a basic norm of international law. China consistently stands for settlement of international disputes by peaceful means and opposes the threat or use of force in international relations.

• We are of the view that Article 51 of the Charter should neither be amended nor reinterpreted. The Charter lays down explicit provisions on the use of force, i.e. use of force shall not be resorted to without the authorization of the Security Council with the exception of self-defense under armed attack. Whether an urgent threat exists should be determined and handled with prudence by the Security Council in accordance with Chapter 7 of the Charter and in light of the specific situation.

• Given the varying causes and nature of crises, it is both unrealistic and hugely controversial to formulate a "one-fits-all" rule or criterion on the use of force. Whether to use force or not should be decided by the Security Council in light of the reality of conflicts on a case-by-case basis.

• The Security Council is the only body that can decide the use of force. Regional arrangements or organizations must obtain Security Council authorization prior to any enforcement action.

8. Peacekeeping

• UN peacekeeping operations should comply with the UN Charter and all the basic principles that are proven effective, including neutrality, consent of parties concerned and non-use of force except for self-defense, etc.

• China supports the enhancement of the UN’s peacekeeping capacity and welcomes the Secretary-General’s proposal on the establishment of strategic reserves and civilian police standby capacity. China hopes that the Secretariat will specify and clarify the many aspects of the proposal as required by the Special Committee on Peacekeeping of the General Assembly. To establish a new mechanism entails cautious and thorough consideration so as to ensure its feasibility and effectiveness. Resources should be consolidated and limits of capacity respected and potential of the existing mechanisms fully tapped.

• The limited UN resources on peacekeeping should be rationally and effectively utilized. The UN may provide support, where necessary, to peacekeeping operations conducted by regional organizations in Africa.

• China supports stronger cooperation between the UN and regional organizations for better coordination and full utilization of each other’s advantages. Peacekeeping operations undertaken by regional organizations should comply with the purposes and principles of the UN Charter.

9. Peacebuilding

• China supports the establishment of the Peacebuilding Commission. The responsibilities of the Commission should focus on assisting the planning of the transition from conflict to post-conflict reconstruction and coordinating international efforts. China endorses the Secretary-General’s view that the Commission is largely an advisory body without early warning or monitoring function.

• The Commission will be responsible mainly to the Security Council, which is in the interest of its efficiency and effectiveness. China also supports the Economic and Social Council’s full participation in the Commission’s work.

• The Secretariat should follow the principles of efficiency and effectiveness in setting up the Peacebuilding Support Office.


1. Responsibility to Protect

• Each state shoulders the primary responsibility to protect its own population. However, internal unrest in a country is often caused by complex factors. Prudence is called for in judging a government’s ability and will to protect its citizens. No reckless intervention should be allowed.

• When a massive humanitarian crisis occurs, it is the legitimate concern of the international community to ease and defuse the crisis. Any response to such a crisis should strictly conform to the UN Charter and the opinions of the country and the regional organization concerned should be respected. It falls on the Security Council to make the decision in the frame of UN in light of specific circumstances which should lead to a peaceful solution as far as possible. Wherever it involves enforcement actions, there should be more prudence in the consideration of each case.

2. International Criminal Court

•China supports the establishment of an International Criminal Court characterized by its independence, impartiality, effectiveness and universality, capable of punishing the gravest international crimes.

• In view of some deficiencies in the Rome Statute of the International Criminal Court which may hinder the just and effective functioning of the Court, China has not yet acceded to the Statute. But we still hope that the Court will win the confidence of non-Contracting Parties and wide acceptance of the international community through its work.

• The Security Council should act with prudence as to whether to refer a certain situation to the International Criminal Court.

3. The International Court of Justice

• China is in favor of strengthening the role of the International Court of Justice, improving its working methods and enhancing its efficiency. The right of each country to choose freely peaceful means to settle disputes should be respected.

4. Human rights

• China is in favor of and supports the reform of UN human rights bodies. The essence of the reform is depoliticizing human rights issues, rejecting double standards, reducing and avoiding confrontation and promoting cooperation, so as to gear more resources to human rights technical cooperation projects and countries’ human rights capacity building.

• Equal importance should be given to the economic, social and cultural rights on the one hand and the civil and political rights on the other. Emphasis on one category of human rights to the neglect of the other should be redressed.

• The UN Commission on Human Rights has played an important role in the area of international human rights. Its role and contribution should not be denied.

• The UN human rights bodies must abide by the principle of equitable geographical distribution in their composition to ensure broad representation. To have a small "Human Rights Council" to replace the Commission may not possibly overturn the serious "credit deficit" in the human rights area. It is necessary to conduct serious discussions on ways to improve the work of UN human rights agencies.

• China agrees to the global program to equip United Nations inter-agency country teams to work with Member States to bolster their national human rights promotion. The "country teams" should respect the sovereignty and laws of Member States, give full consideration to the actual needs of Member States in the human rights area and take the capacity building of Member States as the objective. An annual report on the work of the "country teams" should be submitted for the deliberations of Member States.

• China supports the High Commissioner for Human Rights in playing a more active role in the UN system within his/her term of reference. The Security Council and the proposed Peacebuilding Commission can invite, if needed, the High Commissioner to participate in relevant deliberations.

• The Office of the High Commissioner for Human Rights should be granted adequate resources to strengthen its capability to perform its functions. Meanwhile, its funds should be used more efficiently. The composition of the Office of High Commissioner for Human Rights should better reflect the principle of geographical equality so as to win broader support of Member States.

• China is in favor of reforming the current reporting and reviewing system so as to avoid redundancy of various treaty bodies’ work and lighten the burden on Contracting Parties. A working code should be formulated for treaty bodies to strengthen communication and dialogue with Contracting Parties.

5. The proposed "Democracy Fund"

• The Secretary-General should first give explanations of the source, rules of use, and assessment procedure of the proposed "Democracy Fund" for the benefit of further discussions.

• China disagrees with the classification of countries into "democratic" and "non-democratic" nations.


1. The UN General Assembly (UNGA)

• The General Assembly is an important body of democratic decision-making. China is in favour of enhancing its efficiency and its decision-making capability through reforms.

• China favours the adoption of a comprehensive package of reforms to revitalize the General Assembly. We are open to proposals from any quarter.

• China favours streamlining and optimizing the UNGA agenda. Each year, UNGA may hold discussions on some major substantive issues of interest to various parties, the developing countries in particular. The unnecessary items can be removed from the agenda on a year-by-year basis and in a balanced way.

• China values the constructive role played by the civil society in international affairs, and is ready to continue discussions on setting up an interactive mechanism between UNGA and the civil society. Participation of the civil society in the work of UN should not alter the Organization’s inter-governmental nature, nor should it hamper its working order and efficiency.

2. The Economic and Social Council (ECOSOC)

• China welcomes and supports the reforms of the UN in economic and social fields, and is of the view that the reforms should comply with the orientations, principles, objectives and emphasis defined by the relevant UNGA resolutions, and should be government-led.

• The work in economic and social fields should aim at implementing the Millennium Development Goals and decisions made at other major UN summits and conferences and focus on financial assistance, technology transfer, capacity building, market access, and poverty alleviation with a view to maintaining the continuity and coordination of the policies of international economic cooperation and development, and implementing the UN economic and development agendas in a comprehensive, coordinated and balanced manner.

• China is in favour of turning ECOSOC into a high-level development forum for reviewing trends in international development cooperation and playing a coordinating role.

• China supports the leading normative and strategy-setting role of ECOSOC in mapping out a global development agenda.

• China favours holding an annual ministerial meeting to assess the progress made towards agreed development goals, particularly the Millennium Development Goals, and to discuss other development issues of interest to developing countries.

• China endorses closer coordination between ECOSOC and Bretton Woods system, WTO, UNCTAD and other UN development agencies.

• China supports the important role by ECOSOC in assessing famines, epidemics and major natural disasters and promoting collective responses to them.

3. The Security Council

The reform of the Security Council is multifaceted covering such important issues as enlarging the Council’s membership, increasing efficiency and improving working methods. The reform of the Security Council should apply the following principles:

• The reform should be conducive to enhancing the authority and efficiency of the Council and strengthening its capacity to deal with global threats and challenges.

• Increasing the representation of developing countries should be given priority. Developing countries, who account for more than two thirds of the UN membership, are seriously under-represented on the Security Council. This situation must be reversed.

• More countries, the small and medium-sized ones in particular, should be given more opportunities to enter the Council on a rotating basis to participate in its decision making process.

• The principle of geographic balance should be adhered to, with representation of different cultures and civilizations taken into consideration.

• All the regional groups should, first of all, reach agreement on reform proposals concerning their respective regions. The principle of regional rotation advocated by some countries also merits attention and consideration.

• Achieving consensus through full democratic discussions is the important principle of the UN Charter. Its purpose is to accommodate the interests of all parties, especially the small and medium-sized countries. Only decisions thus made can win the most broad trust and support.

4. Reform of the Secretariat

• China supports the efforts of the Secretary-General to make the Secretariat smaller but more efficient through reform of the management.

• China endorses a more simple and practical planning and budgetary system and a timely examination of the programs and events approved by UNGA so as to determine their relevance and ensure adequate resources for them.

• The recruitment of the staff of Secretariat should conform to the provisions of the UN Charter and take account of the principle of equitable geographical distribution and gender equality.

• China considers it necessary to further increase the transparency, credibility, efficiency and accountability of the Secretariat.

5. The Military Staff Committee

China has serious reservations on abolishing the Military Staff Committee and is of the view that reform does not mean abolition. We may, through consultation, entrust the Military Staff Committee with new mandates in peacekeeping operations and security areas.

The Hurdles to Creating Decent Jobs in Africa - Obasanjo

"Youth unemployment remains a major challenge and unless we address this in a fundamental way, our developmental goals may be undermined," President Olusegun Obasanjo of Nigeria, and Chairman of the African Union, told the International Labour Conference on 10 June, 2005. Job creation, however, is very much dependent on investment flows, trade, international migration, the increasing integration of international production systems and the construction of productive partnerships, President Obasanjo pointed out. "..Stereotypes, misinformation and refusal to acknowledge ongoing changes in Africa have continued to negatively affect investment in Africa save for a few countries." He said that poorly timed or unduly rapid liberalization, has led in several countries to job losses, loss of specific assets, de-industrialization and political instability. "To further compound the situation, existing trade rules including in the area of agriculture and non-tariff measures are unfair and unbalanced against the broad interests of developing countries."

Following are extracts from President Obasanjo’s address.

"The year 2005 is turning out to be a very important one for deliberations on development issues. Heads of State and Government from around the world will be converging in New York in September to undertake a review of progress in the implementation of the Millennium Development Goals (MDGs), five years after they were adopted. Similarly, the Commission for Africa set up by Prime Minister Tony Blair of the UK has released its Report on what should be done to tackle poverty in Africa, and I expect that he will be bringing the Commission’s findings up for discussion at the G8 Summit taking place next month in Scotland. Equally significant is the fact that leaders of the developing world will gather in Doha next week for the 2nd South Summit taking place five years after their first meeting in Havana.

There are, of course, those who will react to these various initiatives with some skepticism because they believe that they have seen it all before. I nevertheless feel strongly that the various initiatives are useful because they are keeping development issues at the center of international discourse. The discourses are also going beyond symptoms and generalities to address fundamental structural issues as well as to those policy and institutional issues. Indeed, it cannot be otherwise, as many African countries continue to face several intertwined and related challenges in their desire to achieve sustainable growth and development and to participate actively in global economic activity. Some of these key challenges relate to the eradication of hunger and disease, poverty reduction, political and economic reform for stability, predictability and prosperity as well as deriving benefits from globalization.

The United Nations Secretary-General’s recently released Report, In Larger Freedom clearly identifies African countries as lagging behind other developing regions in progress towards the attainment of the Millennium Development Goals. The point has been made that on current trends, the target of halving poverty in sub-Saharan Africa will not be met until the year 2150! This is worrying scenario but I would argue that it is not for want of trying. Indeed, as the Director-General of the ILO observed on a previous occasion, there is no poverty of effort in Africa but rather a poverty of opportunity. We must also bear in mind that the Millennium Development Goals only form part of a wider development agenda, which is why many African countries, including Nigeria, are implementing ambitious but desirable reforms.

I should emphasize, when speaking of reform in Africa - that is usually a twin track consisting of political and economic reforms. We acknowledge the relationship between both, but more saliently, we acknowledge the importance of peace, stability, good governance, institutional reform, and focused leadership required to consolidate, deepen and sustain the gains of reform. Thus, many African countries are taking remarkable steps to reform their economies as well as their political and social institutions. Over the last fifteen years, several African countries have made a successful transition from military, one party, and racist minority rule to multiparty democracies and accountable governments. The important thing to note, however, is that these laudable changes are taking place against the background of economic reform programmes, which more often than not involve costly and quite painful adjustments that also impact on political and social stability.

A key test facing many African states therefore is how reforms can help to eradicate poverty in a meaningful way. In Africa, we have come to the realization that creating decent and productive employment is one beneficial and attractive way of achieving our desired objectives. This realization prompted African Heads of State and Government to convene an Extraordinary Summit on Employment and Poverty Alleviation in Africa in September 2004.

We recognized on that occasion that job creation had not always been considered as a major development objective and agreed to place employment creation as an explicit and central objective of our economic and social policies at all levels. We decided moreover that initiatives on employment creation and poverty alleviation should be included among the indicators for the African Peer Review Mechanism (APRM) of the New Partnership for Africa’s Development (NEPAD) initiative.

It is understood that the jobs we are striving to create have to be meaningful and dignifying if they are to have the desired effect, and this is where the decent work agenda of the International Labour Organization becomes relevant. It was in recognition of this fact that the African Union leaders endorsed the call of the World Commission on the Social Dimensions of Globalization to make decent work a global goal.

I wish to use this opportunity to express sincere gratitude to the Members of the Commission for an excellent job. Despite coming from very diverse backgrounds, they showed through their Report that dialogue is a very powerful took for reconciling divergent views and interests. The two Co-Chairs, President Mkapa of Tanzania and President Halonen of Finland also deserve our special gratitude for giving such good leadership to the World Commission.

As the World Commission Report reminds us, all level of government from local to international are important parts of the development effort. Its central theme however is that even the best of national efforts is conditioned by the international environment, which today is best defined by globalization.

The present phase of globalization is truly remarkable for the benefits it can bring in the areas of trade, finance, investment, and technology for those who are able to utilize the opportunities it provides. We cannot, however, deny that many other have been excluded from its benefits, especially as more than one billion people still find it difficult to meet their basic human needs and up to 20,000 of them die daily from poverty. Reducing poverty is therefore the most critical challenge we face today.

As I have indicated, the nations of Africa are committed to including job creation and enterprises promotion in their poverty eradication policies. Youth unemployment remains a major challenge and unless we address this in a fundamental way, our developmental goals may be undermined. The AU, through NEPAD has taken up this challenge by emphasizing skills building, agriculture, the expansion of the private sector, small and medium scale enterprise development, and retraining as ways of creating jobs for our unemployed youth and under-employed adults.

It is however obvious that we cannot achieve these objectives on our own alone as the process is very much dependent on investment flows, trade, international migration, the increasing integration of international production systems and the construction of productive partnerships. While the success of our efforts is therefore still very much dependent on the international environment, we have, on our own, initiated far-reaching socio-economic, political and institutional reforms that are designed to reposition the continent for peace, growth, development and democracy.

Today, we are better positioned to do business with the outside world and have put in place the necessary incentives and policies. African countries have endeavoured to attract foreign direct investment and in some cases have succeeded against all the odds.

It seems however that such efforts can easily be frustrated by the effect of global policies and the simplification of many technological processes. Worse still, stereotypes, misinformation and refusal to acknowledge ongoing changes in Africa have continued to negatively affect investment in Africa save for a few countries.

The effect of declining investment can be easily seen in the case of the closure of factories and job losses in some African countries engendered by the expiration of the Multi-Fibre Agreement under the terms of the WTO Agreement on Textiles and Clothing. Such developments clearly do not fit into our expectations for the decent work agenda.

The rapid increase in international migration is another feature of globalization that impacts on our desire to make decent work a global goal. While it is possible to maximize the contribution of migration to development through remittances and skills acquisition by migrants from developing countries, we should also recognize that there are some shortcomings associated with this process. These include the differential treatment of migrant workers, the attendant violation of their human rights, and the fact that many of them are engaged in 3-D (dirty, dangerous and difficult) jobs, which hardly fit the definition of decent work.

While the brain and brawn drain may have some benefits in the remittances from abroad, it still deprives the home economy of quality skills, leadership, experienced workers, and an internal holistic capacity to promote overall development. At times we tend to get carried away with remittances and overlook the huge hole that the drain creates in our development agenda.

An equally worrying aspect of increased international migration for many African countries, including my own country Nigeria, is the problem of human trafficking and child labour. This further highlights some of the social consequences of globalization and has been described in some quarters as the modern equivalent of the slave trade. There can be no cultural rationalization for child labour especially where children that ought to be in school with ample opportunities for enjoying childhood are being subjected to some of the most inhumane working conditions.

In Nigeria, we have enacted a Child Rights Act to protect children from all forms of abuse and we thank the ILO for its support for Nigeria and Africa in this area through the International Progamme on the Elimination of Child Labour (IPEC). I am pleased to note that in Nigeria, we have ratified all the Conventions related to Child Labour. Protection of our children is the surest way to build a lasting foundation for peace and development. These and other challenges to meeting our decent work objectives are also manifest in the area of trade, especially poorly timed or unduly rapid liberalization, which has led in several countries to job losses, loss of specific assets, de-industrialization and political (in)stability. To further compound the situation, existing trade rules including in the area of agriculture and non-tariff measures are unfair and unbalanced against the broad interests of developing countries.

Goal 8 of the Millennium Development Goals makes a similar call starting with the establishment of a "rule-based, predictable and non-discriminatory" system of trade and financial rules. I would expect therefore that the 6th Ministerial Meeting of the World Trade Organization taking place in Hong Kong in December 2005 will contribute to ensuring a true development outcome to the on-going Doha Round of multilateral trade negotiations.

Goal 8 also calls for international action on the debt problem of developing countries. As I have ceaselessly advocated on numerous occasions, meaningful sustainable development in these nations would require significant debt reduction and debt cancellation. The debt overhang poses a direct challenge to peace and stability, development and progress. Let us not deceive ourselves. No matter (what) our efforts, we cannot run effectively when our hands and feet are bound together. We are serious about reform and about building new paths to growth and development, but without debt relief these would be impossible.

Even though debt relief would have the effect of freeing up much needed resources for development, it will still not provide the minimum financial outlay required to speed up progress towards the realization of the MDGs.

I urge our development partners to establish firm timetables for increasing their Official Development Assistance (ODA) to the target of 0.7% of GDP and also to give serious consideration to the various innovative proposals that have been made to increase the amount of resources available for development. Promises have been made in this regard again and again and the report of the UK Commission for Africa that recommends 100 percent debt relief for low-income countries on the continent is the latest along this line. What is needed now is the political will to move forward to implementation.

In addition to fairer global rules and a more inclusive process of globalization, it is also imperative to give the developing countries the policy space to determine their own priorities and national development strategies. This should also be matched by policy coherence, especially in relation to policies being articulated in various international fora like the ILO, World Bank, IMF, WHO, UNEP and UNESCO.

Macroeconomic policies must take account of other policies to alleviate poverty including public investment, more balanced growth and the goal of placing employment creation at the heart of development priorities. The challenges facing us are great but our response should be equally vigorous.

The various initiatives being undertaken this year are part of the process but we have to honour our international commitments and implement agreed policies for these efforts to yield meaningful results. I am confident that the ILO, with its proud history and the broad reach of its tripartite constituents can continue to make substantive contribution to social and economic development through the articulation of international labour standards and implementation of the decent work agenda. I would therefore urge Governments to play their own part by ensuring that the ILO has the resources to carry out the programmes and activities that we have entrusted to the organization. It would also be desirable for the Millennium Plus Five Summit to follow the example of the African Union and seriously consider making decent work a global goal.

Before concluding my address, I would like to touch on the grave matter of HIV/AIDS. The ILO has been doing sterling work in the very critical area of combating the HIV / AIDS scourge and raising awareness about the disease. The high prevalence of the disease in the nations of Africa has had the effect of vastly compounding the disease burden on these countries. I strongly believe that the international community needs to further intensify efforts on all fronts to stem the spread of this disease, which if unchecked, has the potential of damaging the social fabric and undermining political, social and economic stability.

Let me leave you with the assurance that we are collectively building a new Africa that is anchored on democratic practice, dialogue, inclusion, tolerance, accountability, human rights, gender equality and social justice. We know the struggle will be tough but we are not deterred as our resolve, unity and focus are firm. I call on you all and on our development partners to join hands with us in this march to a new peaceful, democratic, stable and prosperous Africa.

Let us agree that new good things are coming out of Africa. We have to consolidate, deepen, widen and sustain the progress being made in Africa. Let us disseminate and celebrate the good coming out of Africa."

Towards Practical Alternatives to the Prevailing Trade Policy

Time is running out for developing countries with shrinking policy space for development, warns Dr. Ha-Joon Chang, economist from the University of Cambridge. "Over the last couple of decades, the policy space available for the developing countries has shrunk dramatically. And if the developed countries have their way, it will shrink over the next decade or so to the extent that has not been seen since the days of imperialism, making industrialisation and economic development in the developing world all but impossible." At a presentation in Bern, Switzerland, on 1-2 June, 2005, he said, "Those who are truly concerned with development, both in the South and the North, need to take a concerted action to prevent this disaster from happening." The event ‘Ten years of WTO seen from the South - What trade for what development?’ was organized by the the Swiss Coalition of Development Organisations, incuding Swissaid, Swiss Catholic Lenten Fund, Bread for All, Helvetas, Caritas, and Swiss Interchurch Aid. Dr. Chang’s views are reproduced below. Later this year, he will be publishing, in cooperation with the South Centre and Oxfam, a detailed study on the implications of NAMA negotiations on developing countries.

Free Trade – Theory and Evidence

It has been ten years since the WTO was launched with great promises. The introduction of a freer trading regime was supposed to usher in a new era of accelerated growth in trade, which in turn was supposed to accelerate growth and reduce poverty. Anyone who doubted this was criticised as those who do not understand the most elementary truth, proven by economic theory, that free trade – or at least "freer" trade – benefits everyone.

The "economic theory" that is supposed to justify free trade is the theory of comparative advantage. According to this theory, free trade guarantees that countries specialise in producing goods in which they possess "comparative advantage". The beauty of this theory is that all countries, even the most inefficient ones, possess comparative advantage in something. Even if a country is worse at producing everything than its trading partner, it is bound to have something in which it is the least bad, which is where its comparative advantage lies. And by specialising in that product and trading freely with the outside world, the country will maximize its output.

The problem with the theory of comparative advantage is that its conclusion holds only under the most restrictive conditions. The same technology is used for the same commodity in different countries whereas different commodities use different technologies. There should be perfect inter-sectoral resource mobility. There should be perfect competition both in factor and in product markets. There should be full employment of factors of production. There should be perfect foresight in the sense that an industry’s profit rate today should perfectly reflect its future prospect. And so on. And if even one of these conditions do not hold, we cannot say that free trade is optimal.

Let me explain this in more concrete terms in relation to one of these conditions that I regard as particularly critical – namely, the assumption of perfect resource mobility. According to free-trade economists, lowering protection will make imports cheaper, benefiting the consumers of the particular commodity. The domestic producers will either increase their efficiency to match those of foreign producers, or if they cannot do that they will have to exit their existing activities and move into new activities. In case the existing producers move out of their existing activities, it is assumed that this move will be achieved with no time lag and at no cost. In this way, everyone benefits from trade liberalisation – the consumers have cheaper products (either imports or domestic products that now match the import prices), the producers either raise their efficiency or move into new activities that give them at least the same levels of income as before.

However, in reality this usually does not happen. First of all, if the magnitude and the speed of trade liberalisation are great, the domestic producers will find it impossible to raise their efficiencies to the international level, making it necessary to exit from their existing activities. And when they try to move into new activities, the move will not be without costs. For example, if a reduction in steel tariff results in the closure of the steel mills, the blast furnaces are likely to be sold as scrap metal (rather than being converted into tractors or computer-making machinery) and the laid-off steel workers are likely to end up unemployed or working in unskilled jobs like security guard or janitor (rather than becoming cash-crop farmers or computer engineers). Therefore, trade liberalisation often leads to scrapping of production facilities and unemployment of workers that were employed in industries that used to be protected.

Of course, even if tariff cuts lead to the destruction of domestic producers and the resulting waste of resources, the society as a whole may still gain from trade liberalisation, if the costs from the destruction of incomes and jobs are lower than the benefits to the consumers. However, even in this case, the distributional question still remains, as there is no automatic "trickle-down" from the gainers to the losers. In many developed countries, there are well-established mechanisms to re-distribute wealth from a process that brings unequal gains – the welfare state with its progressive taxation, income transfer, and sometimes re-training schemes for the displaced workers. However, in the developing countries such mechanisms are at best weak and often non-existent. Moreover, given that tariff is a very important source of government revenue in many developing countries (in some cases tariffs make up nearly 1/3 of government revenue), the already meagre abilities of their governments to make fiscal transfers to the losers will be even more impaired by the tariff cuts and the consequent fall in government revenue.

In the case of the developing countries, even more important than the distributional question is the long-term effect of trade liberalisation. In the short run, it may indeed be more efficient for these countries to get rid of those industries that cannot survive without tariffs and other protective measures and rely on agriculture and some labour-intensive industries (although the question of protection of these sectors by the developed countries still remains).

However, in the long run, it is extremely unlikely that the countries can develop on that basis. As the theory of infant industry protection, first developed by none other than Alexander Hamilton, the first Treasury Secretary of the USA and elaborated by Friedrich List, the famous 19th century German economist, shows, developing countries need to protect certain new industries first before they can have free trade with the more advanced countries. Premature trade liberalisation can kill off industries that may not be profitable in the short run but will generate higher productivity growth and income in the long run.

Indeed, as I show in my book, Kicking Away the Ladder, most of today’s developed countries relied on tariff protection, subsidies, and other measures, in order to promote their ‘infant industries’ in the earlier stages of their development. In particular, the UK between the early 18th century and the mid-19th century and the USA between the mid-19th century and the mid-20th century relied heavily on tariff protection, much more than did other countries that are usually associated with protectionism, such as Japan, France, and Germany. The Americans went directly against the advice of world’s top economists like Adam Smith, who argued that by promoting manufacturing over agriculture, where the country had the natural advantage, the Americans will only harm themselves.1* As we can see from the table in Appendix 1, the industrial tariff rates that prevailed in these countries during the periods in question were around 40-50% - rates that are higher than those prevailing in many developing countries today and rates that are several times higher than what will prevail in most developing countries if the ambitious US proposal for tariff cuts is adopted in the WTO.

More contemporary experiences also confirm the importance of infant industry protection. Successful developing countries such as Korea, Taiwan, China, and India, all developed their industrial capabilities behind walls of tariff protection and other government supports.

For example, when Korea applied for a loan from the World Bank to build a steel mill in the late 1960s, the World Bank told the Koreans that they are out of their minds. The country at the time was exporting things like cheap t-shirts and seaweed and had no comparative advantage in steel-making; it was not even producing the raw materials such as iron ore or coking coal – indeed, the nearest source of iron ore was in Australia; to make it even worse, the country wanted to set up the firm as a state-owned monopoly, as no one in the private sector wanted to take the challenge up. However, the Koreans defied the World Bank and persuaded some Japanese banks to provide loans and the steel-maker, POSCO, went on to become the most efficient steel producer in the world within 15 years of starting the operation and now is the second largest and one of the most efficient steel-makers in the world.

For an even more shocking example, there was a big debate in Japan in the early 1960s as to whether the country should keep protecting its automobile industry, because its attempt to export its first passenger cars in the late 1950s to the USA was a total failure. Many free-market economists in Japan argued that the country does not have comparative advantage in capital-intensive products like the automobile and therefore it should drop the industry and specialise in what it was good at – most importantly producing silk, which was the country’s biggest export item until the 1950s. Fortunately for Japan, the other party in the debate prevailed who argued that no country got anywhere by exporting things like silk, and Japan kept its automobile industry. However, if the free-market economists won the day, it is highly doubtful whether Japan would be one of the richest countries in the world today.

The growth records of the developing countries during the last two decade of trade liberalisation also casts doubt on the free-trade argument. For example, during the 1960s and the 1970s, the ‘bad old days’ of import substitution, per capita income in developing countries used to growth at 3.0% per year. In the 1990s, after more than a decade of extensive trade liberalisation, growth rate fell to about half that rate – 1.7%. If free trade was so good, why are these countries doing much worse than during the "bad old days" of protectionism? Things like bad institutions and political corruption, which are frequently cited by free-market economists as "explanations" of poor economic performance in developing countries, are not the answer, because, over the last two decades or so, if anything there has been a lot of improvement in the quality of institutions and the reduction in corruption in most developing countries.

Rethinking the main principles of the current world trading system

When one argues for infant industry protection, one is immediately confronted with the argument that it goes against the principle of "level playing field" that has to be at the heart of any multilateral trading system. "Level playing field" is like, as the Americans say, motherhood and apple pie. It is definitionally good that it is difficult to oppose it. But it is something that has to be opposed if we are going to build a world trading system that is truly pro-developmental.

Needless to say, level playing field is the right principle to adopt when the players are equal. However, when the players are unequal, it is the wrong principle to apply. For example, if a team of 13-year-old children are playing football against the Brazilian national team, it is only fair that the playing field is not level and that children are allowed to attack from up the hill.

Indeed, in most sports, unequal players are not even allowed to compete against each other. In boxing, wrestling, and many other sports, they have weight classes. A heavyweight boxer like Muhammad Ali would not have been allowed to box Roberto Duran, the legendary Panamanian boxer, and take away his titles, however likely his victory was.2*

Weight classes are not the only thing to prevent competition on an equal footing among unequal players. In many sports, including football itself and baseball (the "Little League"), there are age classes – adult teams are not allowed to play against children and juvenile teams. In sports like golf, we even have an explicit system of ‘handicaps’ that allows weaker players to compete with advantages in (inverse) proportion to his playing skills. And so on.

To take the boxing analogy further, the developed countries seeking further trade liberalisation today are like a heavyweight boxer who sweet-talks a host of lighter boxers into fighting games with him by promising that they will be allowed to use protective gears and then suddenly turns around and accuses the others of playing foul by arguing that they have "unfair" protection. And when the heavyweight boxer insists on wearing protective gear for his abdomen (agriculture and textile?) on the ground that it is his weak part, we begin to wonder whether there is any sense of fair play in his mind. Added to this the fact that the heavyweight boxer almost single-handedly writes the rules of the game, owns the only bank in town (and may refuse to lend money to those boxers who complain about his tactics), and also controls the town newspaper (which will assassinate the characters of those boxers who speak against him), we begin to see how absurd the rhetoric of "level playing field" is in the present world trading system.

There is, naturally, some unease with this rhetoric of level playing field among the developing countries, which the developed countries cannot totally ignore. This is why we have "special and differential treatments" (SDT) in the WTO and why the developed countries in the NAMA negotiation say that they are happy with "less than full reciprocity" (LTFR) from the developing countries.

However, there are serious problems with these "concessions" in the forms of SDT and LTFR.

The problem with SDT is the word "special". To call something "special treatment" is to say that the person getting the treatment is getting an unfair advantage. However, in the same way we would not call stair-lifts for wheelchair users or Braille writings for the blind special treatments, we should not call the higher tariffs and other means of protection special treatments – they are just differential treatments for countries with differential capabilities and goals.

The notion of LTFR should also be questioned. The notion implies that the developing countries will give ‘less’ than do the developed countries in the NAMA deal. However, the notion of reciprocity cannot be discussed without some reference to the relative positions of the parties involved. We would not say that a poor friend is being ‘less than reciprocal’ simply because he cannot buy champagne and caviar for his rich friend, as far as he is treating his rich friend often enough and generously enough, given his means. Likewise, even a small cut in tariff may be a lot to ask for a developing country desperate to preserve jobs, develop industrial capabilities, and collect government revenues, while even a relatively large cut may not be such a big burden on countries with greater wealth, higher industrial capabilities, and better social transfer mechanisms. Especially when the tariff cuts asked from the developing countries are much larger in their impacts– due to their greater absolute magnitudes and, more importantly, to their weaker adjustment capabilities and their greater needs to use the tariffs – it is absurd to say that these countries are being less than fully reciprocal because they are making less cuts in proportional terms than are the developed countries (although even that is not always the case).

Of course, one important defence deployed by the developed countries when they are faced with these attacks is to say that there is enough flexibility in the WTO that makes it possible to take into account the special needs of the developing countries. The developed countries have tried to sell certain agreements in the WTO to the developing countries on the ground that they can reserve some sectors from their commitments, although the scopes for these are supposed to be quite limited.

However, this is a very peculiar notion of flexibility, because once a sector is liberalised, there is no going back. For example, the whole idea of tariff binding in the WTO is based on this notion. The exercise is based on the belief that there is a tariff rate in a sector above which the tariff should never rise.

However, if there is going to be genuine flexibility, countries should be allowed to reverse their liberalisation, if there is a reasonable ground for it. For example, if a country genuinely under-estimated the adjustment costs when it made a decision to cut the tariff in a particular industry – as it was in fact the case with many developing countries in the Uruguay Round – it may be reasonable to allow that country to raise tariff ceilings. What is happening, unfortunately, is the reverse – instead of allowing these countries that have ‘overdone’ trade liberalisation to raise their industrial tariffs again, the developed countries are trying to lower their industrial tariffs even more.

What is to be done?

So what is to be done? To put it bluntly, we need a radical reform in the world trading system in such a way that developing country interests are better served. However, we should recognise that this is not going to be easy and going to take a long time.

Therefore, developing countries need to use the current system to the greatest possible extent. Of course, a lot of ground has been lost already, with the launch of the WTO and due to the conditionalities imposed by the Bretton Woods Institutions and the donor governments, but there is still room for manouvre.

First, tariffs. Tariffs have been cut quite a lot and been bound, but depending on the country and the industry, tariff of up to 70% are still allowed. Also, infant industry protection of up to 8 years is still allowed. There are discretionary emergency tariffs that can be imposed under conditions of sectoral or overall balance of payments difficulties.

Second, subsidies. The poorest countries can still use export subsidies There are also a number of non-actionable subsidies (agricultural subsidies, R&D subsidies, and regional development subsidies) that the developed countries use actively, and the developing countries should also use them more aggressively.

Third, in terms of regulation of FDI, TRIMS and GATS have made it much more difficult, especially banning local contents requirement and export performance requirements. However, there are some measures like foreign ownership ceiling, nationality of directorship restriction, and the rules of origin that can be used in the manufacturing sector and some service sectors that were taken "off the list" under the GATS agreement.

Fourth, intellectual Property Rights. This is an area where the room for manoeuvre has shrunk the most, but even here, we should not forget that there are still provisions for patent revocation, compulsory licensing, and parallel imports.

Last but not least, there are many "non-trade-related" policies that can be used for infant industry promotion purposes, such as subsidies on equipment investments, tax exemptions for certain types of industries, support for start-up enterprises, subsidies for investment in particular skills, etc.

Having said that there is still room for manoeuvre, we should be aware that the existing policy space is under constant pressure from those who want to shrink it. We have just fended off the threat of MIA, which would have made virtually all regulations on FDI unacceptable, but this issue is bound to come back. At the moment, the pressure point is the NAMA negotiation. There is a lot at stake here - if the developed countries have their way in NAMA, tariffs will fall to the lowest level since the days of imperialism, when the stronger countries could coerce the weaker countries into free trade through colonialism and unequal treaties.

Time is running out. Over the last couple of decades, the policy space available for the developing countries has shrunk dramatically. And if the developed countries have their way, it will shrink over the next decade or so to the extent that has not been seen since the days of imperialism, making industrialisation and economic development in the developing world all but impossible. Those who are truly concerned with development, both in the South and the North, need to take a concerted action to prevent this disaster from happening.

Appendix 1. Average Tariff Rates on Manufactured Products for Selected Developed

Countries in Their Early Stages of Development

(weighted average; in per centages of value)[1]

1820[2] 1875[2] 1913 1925 1931 1950

Austria[3] R 15-20 18 16 24 18

Belgium[4] 6-8 9-10 9 15 14 11

Denmark 25-35 15-20 14 10 n.a. 3

France R 12-15 20 21 30 18

Germany[5] 8-12 4-6 13 20 21 26

Italy n.a. 8-10 18 22 46 25

Japan[6] R 5 30 n.a. n.a. n.a.

Netherlands[4] 6-8 3-5 4 6 n.a. 11

Russia R 15-20 84 R R R

Spain R 15-20 41 41 63 n.a.

Sweden R 3-5 20 16 21 9

Switzerland 8-12 4-6 9 14 19 n.a.

United Kingdom 45-55 0 0 5 n.a. 23

United States 35-45 40-50 44 37 48 14

Source: Chang (2002), p. 17, table 2.1.


R= Numerous and important restrictions on manufactured imports existed and therefore average tariff

rates are not meaningful.

1. World Bank (1991, p. 97, Box table 5.2) provides a similar table, partly drawing on Bairoch’s own studies that form the basis of the above table. However, the World Bank figures, although in most cases very similar to Bairoch’s figures, are unweighted averages, which are obviously less preferable to weighted average figures that Bairoch provides.

2. These are very approximate rates, and give range of average rates, not extremes.

3. Austria-Hungary before 1925.

4. In 1820, Belgium was united with the Netherlands.

5. The 1820 figure is for Prussia only.

6. Before 1911, Japan was obliged to keep low tariff rates (up to 5%) through a series of "unequal

treaties" with the European countries and the USA. The World Bank table cited in note 1 above gives

Japan’s unweighted average tariff rate for all goods (and not just manufactured goods) for the years

1925, 1930, 1950 as 13%, 19%, 4%.

1* In his Wealth of Nations, Adam Smith wrote: "Were the Americans, either by combination or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness" (Smith, 1973 [1776], pp. 347-8).

2* Duran is one of only 4 fighters to hold 4 different world titles— lightweight (1972-79), welterweight (1980), junior middleweight (1983) and middleweight (1989-90).

Appendix 2. An Op-ed Piece published in the Brazilian Newspaper, Valor Econômico, 5 November, 2002 (original English version) By Ha-Joon Chang

With the October 31 ministerial meeting for the Free Trade Area of the Americas (FTAA), the debate on free trade is hotting up again in Latin America.

Interestingly, few participants in this debate seem to be aware of the historical double standards that the USA, the standard bearer for free trade, is adopting. In the 19th century, when most of its industries were behind the European ones, the country took the view that free trade was not in its national interest. Indeed, for about a century until the Second World War, the US economy was the most heavily protected in the world.

The historical double standards adopted by the USA do not end with free trade. This is clear from looking at American currency, which carries the pictures of politicians whose policies would have come under severe criticism from the World Bank and the WTO.

On the one-dollar bill is the first President, George Washington. He insisted on wearing American clothes over higher-quality British clothes in his inauguration ceremony – a potential violation of the proposed WTO rule on transparency in government procurement.

On the rarely-seen two-dollar bill, we have Thomas Jefferson, who strongly argued against patents. He believed that ideas are "like air" and therefore should not be owned by anyone.

The other statesmen who appear on US currency are even bigger offenders on the issue of free trade.

On the five-dollar bill, we have Abraham Lincoln. He was a well-known protectionist and after the Civil War raised tariffs to the highest level ever.

On the ten-dollar bill, we have the first US Treasury Secretary, Alexander Hamilton. Hamilton is the person who invented the so-called "infant industry" doctrine, which says that less developed countries need to protect their industries against competition from more developed countries.

Benjamin Franklin, on the hundred-dollar bill, did not share Hamilton’s infant industry doctrine, but he insisted on high protection as a measure against "social dumping" from the then lower-wage countries of Europe.

On the 50-dollar bill, we have Ulysses Grant, the Civil War hero-turned President. In defiance of the British pressure on the USA to adopt free trade, he famously remarked that "within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade".

That leaves Andrew Jackson on the 20-dollar bill. At first glance, Jackson, a wellknown advocate of small government, may seem to fit the current policy orthodoxy.

However, he was not very good at protecting property rights in land – he evicted many native Americans from their homelands. And he was hostile to foreign investors – he famously killed off the country’s first de facto central bank, the (second) Bank of the USA, partly on the ground that it was largely owned by foreign (mainly British) investors.

Thus, judging from US currency, the most revered politicians in US history seem to be precisely the ones who pursued policies the current development orthodoxy vehemently rejects. However, historical double standards are not the monopoly of Americans. Virtually all of today’s rich countries – from Britain down to Korea and Taiwan – used tariff protection and subsidies for industrial development. In the earlier stages of their development, they did not protect intellectual property rights, especially those of foreigners. Switzerland and the Netherlands did not have a patent law until the early 20th century.

Once they became rich, these countries started demanding that the poorer countries practice free trade and introduce "advanced" institutions such as strong patent law. Friedrich List, the great 19th-century German economist, argued that such practice amounted to rich countries "kicking away the ladder" with which they climbed to the top and thus denying the poorer countries the chance to develop.

After the Second World War, thanks to post-colonial guilt and Cold War politics, such "ladder-kicking" was at a low ebb. However, during last two decades, developing countries have been under enormous pressure to adopt free trade, open their capital markets, and adopt "best practice" institutions such as strong patent laws. When applying such pressure, the rich countries rarely acknowledge that they are preaching what they did not practice.

The result has been a marked slowdown in the growth of the developing countries. The growth of per capita income in the developing countries has been halved from 3 per cent annually during the 1960-80 period to 1.5 per cent during the 1980-2000 period. In light of this, a radical re-thinking on today’s development orthodoxy is warranted. In practical terms, this means re-writing the international rules so that countries can adopt policies and institutions that are more suitable to their conditions. The past twenty years’ records suggest that this may give the developing countries a better chance for growth and development.

UNCTAD’s Trade ‘Marshall Plan’ for Least Developed Countries

On the eve of an important meeting of the Trade Ministers from the Least Developed Countries (LDCs), to be held in Zambia (25-27 June, 2005), the United Nations Conference on Trade and Development (UNCTAD) has come out with a new report: ‘Towards a New Trade ‘’Marshall Plan" for Least Developed Countries: How to Deliver on the Doha Development Promise and Help Realize the UN Millennium Development Goals?’ The 46-page report, by Lakshmi Puri, Director of UNCTAD’s Trade Division, is timely. It provides the basis for some concrete steps that can be taken by leaders of relatively more prosperous nations – at foras like the G-8 in July and the Millennium Development Goals Review summit in September and the Hong Kong Trade Ministerial in December. By fleshing out the steps that can easily be taken in favour of the LDCs, the report, the full version of which is available on UNCTAD website, a critical tool to test the resolve of the international community to make good on its own commitments to fight poverty. Presented below are extracts from the report.

"A decent provision for the poor is the true test of civilization." - Samuel Johnson

"Global challenges must be managed in a way that distributes the costs and burdens fairly in accordance with basic principles of equity and social justice. Those who suffer or who benefit least deserve help from those who benefit most." - Principle of Solidarity of the United Nations Millennium Declaration, 2000

In 1947, millions of people in Europe were on the verge of starvation. On June 5, 1947, US Secretary of State George C. Marshall spoke at Harvard University and warned that substantial aid was needed to prevent further economic and political deterioration. He said, "Our policy is directed not against any country or doctrine but against hunger, poverty, desperation, and chaos." Between 1948 and 1953 the Marshall Plan contributed more than $13 billion [1] (nearly $100 billion at 2005 US conversion rates) of economic and technical assistance toward the recovery of 16 European countries (an average of $1.25 billion per beneficiary country annually). The Marshall Plan was part of the "politics of prosperity" and a clear manifestation of the "principle of solidarity" between developed countries against the threat of poverty and political instability. It was an attempt to raise levels of industrial productivity in Europe by creating an international consensus for economic growth.

It is nearly 60 years since the Marshall Plan and its successful execution, but one could hardly find words that would depict better than Marshall’s the situation of LDCs today. As many as 50 countries - labelled the least developed countries - find themselves unable to escape a vicious circle of underdevelopment, poverty and structural weaknesses. Unlike many developed and developing countries, they have been unable to transform their economies and accelerate their growth through trade-led export strategies. There is, therefore, a strong moral case, a political consensus, an economic rationale and the legal, institutional and financial wherewithal to fashion a new Marshall Plan for LDCs.

At no time have our civilization and the principle of solidarity been tested more than today, when one sixth of the world’s population lives in abject poverty and 50 countries, big and small, are categorized as least developed and caught in a seemingly endless poverty trap. Transposed into the realm of trade and development policy and cooperation at the national and international levels, making a "decent provision" for developing countries in general, and LDCs in particular, implies giving new life and meaning to the concept and practice of differential and more favourable treatment or, as it is known now, special and differential treatment (SDT). A trade "Marshall Plan" for LDCs would be in the enlightened self-interest of all countries and key to achieving what the Secretary-General of the United Nations has called the larger freedoms comprising the inter-related trinity of development, security and human rights (United Nations, 2005).

As part of SDT for "less developed countries", an even more favourable treatment for LDCs has long been recognized as a guiding principle in the multilateral trading system It is linked to their special situation and inherent characteristics because of which they find themselves in the category of LDCs. Three key criteria have been established and used by the Economic and Social Council of the United Nations for identifying LDCs. These are low income, human resource weakness and economic vulnerability.

The economic vulnerability criterion involves a composite economic vulnerability index based on indicators of instability of agricultural production and exports of goods and services, the low economic importance of non-traditional activities and modern services in GDP, and merchandise export concentration in a few commodity sectors (UNCTAD, 2004a: xiv). These indicators clearly highlight the constraints faced by LDCs in terms of inadequate physical, social and trade-related infrastructure on the one hand and supply capacity, competitiveness and value addition in agriculture, manufactures, services production and exports on the other. Their specially disadvantaged position in the international trading system is thus the basis on which a case for special treatment to them rests.

As of 2004, LDCs share in world trade stood at 0.68 per cent (approximately $131 billion) of total world exports of $9.46 trillion.[2] However, LDCs have been increasingly marginalized in world trade. Over the last four decades, their share in world exports decreased constantly from 3.06 per cent in 1954 to 0.42 per cent in 1998 (UNCTAD, 2001a). In the last two decades, their trade performance continued to worsen. From 1980 until 1994, there was a persistent tendency towards increasing marginalization of the LDCs in world trade. Even though since 1994 the decline in the LDCs’ share in world exports has actually ceased, in 2001 their share in world exports of goods and services was only 0.63 per cent, 31 per cent lower than their ‘share in 1980 (UNCTAD, 2004a). This is particularly true for the majority of LDCs that are exporters of non-oil primary commodities. Their export growth rates have been negatively affected by declining prices of their most important commodity exports. For instance, in the first half of 2003, the price of coffee was just 17 per cent of its 1980 value, cotton was 33 per cent and copper was 42 per cent.

SDT in trade is aimed at enabling LDCs to compete fairly in the context of a liberalizing multilateral trading system. It assumes accepting lesser obligations or receiving exemptions from obligations, or enjoying preferential treatment in market access over and above that received even by other developing countries from their developed-country partners. Indeed, it is widely recognized that such treatment is a sine qua non of upholding and safeguarding the equity aspect of an open, ru1e based, predictable- and non-discriminatory multilateral trading system - an aspiration reflected in the UN Millennium Declaration and the UNCTAD XI Sao Paulo Consensus. It is expected to foster the increased participation of LDCs in international trade and their beneficial integration into the global economy, enabling them to use trade not only as an engine of economic growth but also as a means to reduce poverty and advance social development.

Preferential market access by developed countries to developing-country exports has been a notable way of providing SDT as affirmative action in the multilateral trading system, analogous to disadvantaged groups’ receiving special treatment in many democracies. The principle is the same: to provide the extra support and incentives that would enable disadvantaged countries in the trading system to compete on a less unequal basis. This was inspired, among others, by the Prebisch-Singer hypothesis of declining terms of trade of developing countries and the need for sectoral intervention and non-reciprocal tariff preferences to foster manufactured and other exports from the developing countries. In a departure from the most favoured nation (MFN) clause and based on the principle of non-reciprocity, an exception has been made in favour of developing countries. The rationale has been that "treating unequals equally simply exacerbated inequalities" (UNCTAD, 2004b), whereas preferential treatment at least attempts to level the playing field somewhat.

Over the years, LDCs have been granted preferential market access in developed countries first through Generalized System of Preferences (GSP) schemes, then through specific targeted schemes like the Lome and Cotonou Conventions, and most recently by Everything But Arms (EBA) and the African Growth and Opportunity Act (AGOA). Under these preferential schemes, LDCs have received some measure of duty-free, quota-free treatment for exports of their agricultural and manufactured goods.

For a number of reasons, this treatment has been partial. Schemes have not been comprehensive in terms of product coverage, have been cumbersome to use and have not matched the export capacity of LDCs in all respects. Moreover, their "autonomous" non-binding nature did not lead to secure, predictable market access, which is the most important guiding principle of the multilateral trading system Hence, the objective of granting duty-free and quota-free treatment (DFQFT) to all LDCs for all products has been a rallying cry ever since the UN Millennium Summit in 2000, when it was pronounced as a "deliverable" of Goal 8 on the international partnership for development as it relates to trade. It is also the part of the WTO Doha Ministerial Declaration representing a commitment of all WTO Members to work towards the objective of DFQFT. It has found prominent mention in the report by the Secretary-General of the United Nations on the follow-up to the Millennium Summit, in which he has posited the provision of duty-free and quota-free market access for all exports from LDCs "as a first step" towards "fulfilling the development promise of the Doha Round of multilateral trade negotiations" (United Nations, 2005).

LDCs, while reiterating their demand for DFQFT by all developed countries to all least developed countries and in respect of all products, have also asked that such treatment be bound in the context of the Doha Round. Such demands fit in with the development premise of the round as well as with its mission to make SDT for developing countries, especially LDCs, "effective, operational, and precise" (WTO, 2001a, paragraph 44). Bound DFQFT is also a means of making the concessions more predictable for both domestic and foreign investors and traders so as to stimulate investment in and sourcing from these countries.

So far such requests have not been acceded to, although in a number of influential quarters they have struck a sympathetic chord. This paper seeks to put the issue of DFQFT in the larger perspective of current efforts to assure development gains from international trade and trade negotiations for LDCs and provide them with better opportunities to achieve their Millennium Development Goals (MDGs). The remainder of the paper is organized as follows: Section 1 briefly describes the systemic evolution and conceptual and legal background of SDT, with special emphasis on LDCs; Section 2 assesses the state of play in terms of the extent and effectiveness of such treatment being provided to them; Section 3 describes how DFQFT can specifically help LDCs overcome handicaps, meet their needs and achieve their MDGs; Section 4 advances a series of proposals to improve preferential market access for LDCs; Section 5 discusses what elements are required in the trade and development policies of LDCs themselves, of developed countries and of other developing countries so as to complement, supplement and enhance the impact of DFQFT. The last section presents a series of considerations on how development gains from international trade and trade negotiations can be assured for LDCs, as provided for in the Sao Paulo Consensus of UNCTAD XI.

Core Actions for Implementation of a New Trade «Marshall Plan» for LDCs

• Bound duty-free, quota-free treatment (DFQFT) is granted by developed countries to all commodities and manufactured products of all LDCs.

• Preferential schemes are upgraded through harmonized and simplified rules of origin and administrative procedures and removal of conditionalities.

• Other developing countries in a position to do so provide preferential treatment, including DFQFT, to LDCs in the context of the ongoing GSTP negotiations.

• Action is taken to discipline non-tariff barriers and market entry barriers facing LDCs, especially in the area of SPS/TBT measures, and help build effective standards-related capacity and infrastructure in LDCs to deal with and overcome such barriers.

• A targeted S&D package in services operationalizes LDC priority areas. This would entail two elements: (i) measures to support supply-side capacity and technology transfer, and (ii) commercially meaningful expansion of market access in Mode 4 at all skill levels and in sectors of key interest to LDCs.

• Additional finance is provided to help meet compliance and adjustment costs, facilitate trade-related infrastructure building and enable supply-side and export-competitive capacity building in commodities, manufacturing and services.

• This can be achieved through technical assistance, ODA initiatives and public-private partnerships. A specific mechanism to meet a chunk of these financial requirements could be met through the creation of an Aid for Trade fund with seed money of $1 billion. This money can have a multiplier effect, generating development finance up to 15 times its initial value (i.e. $15 billion) within two to three years.

It is estimated that the above measures could help mitigate trade diversion and financial outgoings in LDCs as follows:

* Welfare gains from the grant of DFQFT up to $8 billion, representing annual growth of around 4 per cent for LDCs.

* Export gains: up to US$6.4 billion (10 per cent of total LDC exports).

* Gains from a targeted services package: US$10-20 billion.

* US$15 billion from Aid for Trade Fund in 2-3 years.


This paper has highlighted some key components and initiatives that should be an integral part of a Trade "Marshall Plan" for LDCs. The main planks of this plan are

a. bound duty-free, quota-free treatment for LDCs to provide secure and predictable market access,

b. effective standards-related capacity building in LDCs to overcome the major market entry barriers that are becoming ever more pivotal to market access,

c. measures to operationalize the promised "special priority" and "special consideration" for LDCs in trade in services, especially through enhanced market access commitment in their favour,

d. increased aid-for-trade funding, legally connected to the WTO, to provide an additional and predictable stream of resources through strengthening and refocusing of existing mechanisms, as well as fostering of innovative and additional facilities, and

e. support for productive supply capacity building in the commodities, manufactures and services sectors, trade-related infrastructure and adjustment with adequate funding and technical assistance.

An attempt is made at what Jeremy Bentham called "moral arithmetic" - that is, replacement of general principles by exact calculations and specificity so that policy makers can make the right decisions regarding the form and level of ambition of development solidarity. As was pointed out earlier, the grant of DFQFT will bring the equivalent of $4 to $8 billion in additional welfare gains annually and represent a 5 to 10 per cent increase in exports for LDCs, depending on the assumptions. Since elements of DFQFT are already present in many preferential tariff schemes of developed countries, binding comprehensive treatment for at least 10 years will be a virtually cost-free option for developed countries. Since it is not based on direct transfers but on "trade for aid" logic, it should be politically more saleable. On the Analogy of Neil Armstrong’s first step on the moon, bound DFQFT is a small step for developed countries but a big step in trade and development solidarity vis-à-vis the LDCs. Mode 4-related liberalization in favour of LDCs is estimated to yield more than $10 to $20 billion in welfare gains for them, judging by the dependence of many LDCs on remittances, their latent capacity to provide temporary workers (especially in the lower-skilled categories) to developed countries, and ex ante estimates in this regard.

The situation in which LDCs find themselves today is similar to that of Europe in the aftermath of the Second World War. At current conversion levels, a "Trade Marshall Plan" for LDCs should deliver development gains in the range of $62.5 billion per year. Bound DFQFT and preferential access on services could yield almost half of the amount. Additional "aid for trade" funding at, say $1 billion for 50 LDCs would be a small-ticket item compared to the original Marshall Plan outlays and might have a multiplier effect on trade and supply capacity in LDCs. It would have the advantage of covering most aspects of the trade-related enabling and empowering that LDCs require in order to reap real development benefits. It would cushion adjustment shocks and build productive capacity, competitiveness and critical infrastructure. It would stimulate export expansion and improve terms of trade; spur economic growth, employment generation and poverty reduction and gender equity; and register efficiency gains. In a symbiotic response, these LDCs, in turn will become new and viable markets for other countries, including the developed ones, and contribute to the sustainability of the "global enterprise".

We stand at a rare juncture in history when we have the possibility to combine clarity of goals - in terms of the MDGs, for example - with the perfection of the means to achieve them. At least in the case of LDCs and in the realm of "trade justice", such means are at hand and goals within reach. At the MDG + 5 summit in September 2005 and at the Sixth WTO Ministerial Meeting in Hong Kong (China) in December 2005, a clear indication of political will to seize the occasion must be given by all concerned.


[1] All references to "$" are to US dollars.

[2] As reported in the WTO trade statistics database available on

Denying Democracy: How the IMF & World Bank Take Power from People

The above is the title of a new study by the London-based World Development Movement (WDM) that makes a number of interesting revelations. For instance, there has been a dramatic change over the past 20 years. Increasingly, it is actually the debtor nations - developing countries and economies in transition - who pay for the running of the international financial institutions like the IMF and the World Bank. As the IMF itself states, "administrative expenses and target net income are effectively financed by debtors". Yet, the developing world has little say in how these IFIs are run. Presented below are adapted extracts, which show the changing face of ‘conditionality’ imposed by the IFIs, their lack of internal democratic functioning, and how that undermines democracies in developing nations. Please refer to the WDM website for the full report, authored by Tim Jones and Peter Hardstaff.

This report is concerned with democracy; a complex issue at the best of times, made even more complex not only by the many local, regional and national struggles for self-determination across the globe but also by the development of supra-national decision-making bodies that are many times removed from individual citizens. It is this latter complexity, and in particular the actions of the two principal International Financial Institutions (IFIs) – the World Bank and International Monetary Fund (IMF) – that provides the focus for this report.

While on the one hand it could be argued that during the 20th Century several key advances were made in terms of citizen participation in politics (eg, universal suffrage in many countries), on the other it could be argued that the same period also saw the creation of a range of international institutions that reduced the ability of individuals to participate in decisions affecting their daily lives; from the United Nations and its many sub-sections to the World Bank, IMF and World Trade Organisation (WTO). It is the latter three that have been the subject of the fiercest public protest and, although much recent attention has been focused on the WTO, it is the World Bank and IMF that have been the target of the most sustained criticism over the past two to three decades.

In response to this criticism, the IMF and World Bank have, in recent years, adopted new ways of working and new rhetoric on ‘country ownership’ and ‘participation’. This report is therefore intended as an update; a fresh look, in light of these developments, at how the IFIs impact on democracy.

Conditionality – the basics

Conditionality is a term used to describe what a poor country must do in return for receiving loans, aid or debt relief. The Articles of Agreement of the IFIs say nothing specific about conditionality and do not require the IFIs to impose free market economic policies on the countries to which they lend/grant money. It is a practice that has steadily become a standard feature of Bank and Fund lending as they have increased their role in the developing world since the 1970s.

For many years, the policy conditions attached to loans were called ‘structural adjustment’ with World Bank loans being called ‘Structural Adjustment Credits’ and IMF loans being called its ‘Structural Adjustment Facility’. But after over a decade of protest and criticism, the term ‘structural adjustment’ became synonymous with failed policies and undermining democracy, leading the World Bank to rename its various structural adjustment credits as ‘Poverty Reduction Support Credits (PRSC) and the IMF to rename its ‘Enhanced Structural Adjustment Facility’ (ESAF) as its ‘Poverty Reduction and Growth Facility (PRGF). Despite the name change, these lending mechanisms have continued to operate in the same way as previous lending instruments; loans are given on the condition that certain policies are implemented by the recipient country.

More recently, donor governments, with the IMF and World Bank, created the Heavily Indebted Poor Countries (HIPC) initiative designed to relieve a proportion of the debts of the poorest and most indebted countries in the world. This also comes with strings attached; one of which is to draw-up and implement a Poverty Reduction Strategy Paper (PRSP).

So poor countries are now faced with an international financial landscape where loans, debt relief and aid are all subject to meeting economic policy conditions determined by the IMF and World Bank and their political masters in the developed world. To obtain concessional loans from the Bank and Fund, a country has to agree to a programme with economic conditions attached. To receive debt relief through the HIPC initiative, countries must have an IMF programme in place, implement further conditions contained in their ‘decision point document’ (agreed with the Bank and Fund) and create and implement a PRSP. And many donors often require a country to be ‘on-track’ with an IMF programme before they will disburse aid.

The UK’s Department for International Development (DfID) states, "Donors, including the UK, have traditionally relied on an IMF programme to indicate that a country’s macroeconomic policy stance and strategy are satisfactory before granting aid." However, in March 2005, the UK’s DfID signalled it is departing from this approach, announcing that, "an IMF or World Bank programme going ‘off track’ will not automatically lead DfID to suspend its assistance". It is yet to be seen to what extent this de-links UK aid from Bank and Fund conditions.

Economic policy conditionality can also be more subtle. The International Development Association (IDA) - the World Bank’s most concessional lending arm - allocates its lending on the basis of Country Policy and Institutional Assessments (CPIA’s). This scorecard ranks countries on the basis of the policies a country follows. ‘Good’ policies that give a high rating include: an average trade tariff of 10 per cent or less; no foreign exchange restrictions on long-term capital inflows; equal treatment of foreign and domestic investors; and the bulk of Government revenues coming from ‘low-distortion’ taxes such as VAT and property tax. By allocating money on the basis of already implemented economic policy reforms, policy scorecards are a form of conditionality in disguise.

Ultimately, what all of this means is that because many of the poorest countries are dependent on external finance they have little option but to submit themselves to IMF and World Bank economic policy conditions, whether overt or more subtle. And this is where the Bank and Fund impact on the ability of citizens, parliamentarians and governments to participate in the political process.

Poverty Reduction Strategy Papers

In 1999, the World Bank and IMF created the concept of PRSPs as a new condition for access to debt relief and their concessional loan programmes (through IDA and the IMF’s PRGF). This was a response to the criticism that policies were being forced upon countries.

PRSPs supposedly set out a government’s strategy for reducing poverty over a three-year period, and are developed in consultation with civil society in a country. The IFIs and donor governments, such as the UK DfID, suggest that PRSPs are ‘country-owned’ documents developed between governments, civil society and the private sector in countries, which donors then decide to fund. Hilary Benn, UK Secretary of State for International Development, says, "we have no doubt that Poverty Reduction Strategies (PRS) are a major step forward in the relationship between donors and poor counties … They … promote a more equal approach, in which conditions are genuinely agreed by all parties."

However, in practice it has been extremely difficult, if not impossible, for the poorest countries to truly determine their own development strategies for several key reasons. First, the content of PRSPs is influenced by already existing World Bank and IMF programme conditions. Rather than start afresh, these IFI determined policies are generally ‘cut-and-paste’ into the PRSP with no further analysis or scrutiny. For example, in the Gambia, Ghana, Guinea, Malawi, Mali, Mozambique, Nicaragua and Yemen, water privatisation was already a condition of a Bank and/or Fund programme before being included in the PRSP. These countries had little choice but to include water privatisation within the document. In theory then, IMF and World Bank policy conditions are determined by the content of PRSPs, but in practice, in many cases the PRSP content is determined by already existing IMF and World Bank conditions.

Second, even in the absence of previous conditions, representatives of the World Bank and IMF tend to have significant influence over the content of the PRSP. There are numerous examples of IFI staff telling country officials of policies that need to be included, and changes that need to be made, in the final PRSP document. Third, and perhaps most tellingly, the final PRSPs are signed-off by the Boards of both the IMF and World Bank. If country directors on the Board do not like the content of a PRSP, they can just reject it. The PRSP will then need to be redrafted to meet the Board’s expectations, and debt relief, aid and new loans will be withheld until it is.

However, the IFI boards may not need to take such drastic steps. The requirement for sign-off already ensures the government produces a document likely to be acceptable to the Bank and Fund, and after a decade or more of structural adjustment in most countries, governments are fully aware of what the IMF and World Bank expect. As one Finance Minister has revealed, "We don’t wish to second guess the Fund. We prefer to give them what they want before they start lecturing us about this and that. By doing so, we send a clear message that we know what we are doing – ie, we believe in structural adjustment." The World Bank’s Operations Evaluation Department (OED) has itself concluded, "The Bank management’s process for presenting a PRSP to the Board undermines ownership. Stakeholders perceive this practice as ‘Washington signing off’ on a supposedly country owned strategy." This problem is compounded by the structure and functioning of the IMF and World Bank boards.

Homogenous policies

"The Washington consensus is dead."

James Wolfensohn, World Bank President, 2003

"The fact that the content of PRSPs is very similar to previous adjustment packages suggests that little real change has occurred through this process." - Frances Stewart and Michael Wang, University of Oxford, 2003

WDM has analysed the 42 PRSPs signed-off by the IMF and World Bank and made publicly available by March 2005, 24 of which are in HIPC countries and 18 in non-HIPCs. Looking at nine fairly standard policy prescriptions that have comprised a major part of the so-called ‘Washington Consensus’ imposed on poor countries by the IFIs during the 1980s and 1990s, WDM assessed whether each policy was clearly mentioned in the PRSP, not mentioned in the PRSP or whether what could be considered an ‘unorthodox policy’ or a review of the policy had been included in the PRSP. While not intended as an exact guide to all the economic policies of PRSP countries, this exercise has yielded some striking results.

In contrast to the above claims of the outgoing World Bank President, the policies contained within PRSPs bear striking similarity both to each other and to the standard prescriptions of the supposedly defunct ‘Washington Consensus’. Out of the nine standard IMF and World Bank policies, PRSPs contain an average of six. Furthermore, there are very few instances of unorthodox policies being mentioned. It is also worth bearing in mind that most of the standard policies are reforms – in other words once enacted, they will continue until another reform takes place – meaning that if a policy area is not mentioned in a PRSP, then the same policy will continue as before. Given that many of these countries have been liberalising their economies under IFI adjustment programmes for the last 15-25 years, it is likely that liberalising reforms have already taken place and continue unmentioned in the PRSP.

The results of this research can be summarised as follows.

• There are further trade liberalisation measures in 30 of the 42 PRSPs on top of the significant trade liberalisation that has already happened in many of these countries. According to the United Nations Conference on Trade and Development (UNCTAD), trade liberalisation undertaken by the Least Developed Countries (LDCs) during the 1990s was associated with rising poverty, rising unemployment, increased wage inequality and reductions in average wages, with the countries worst affected being those that had liberalised most. Despite such compelling evidence, in only two cases is what might be considered an ‘alternative trade policy’ included in the PRSP; Ghana mentions holding a review of trade liberalisation policy, whilst Laos recognises a need for protection of certain sectors.

• 38 of the 42 PRSPs include privatisation, and 27 of these specifically include water privatisation/greater private sector involvement in water supply services. The persistent failure of the private sector to deliver better water and sanitation to the poor has led UN-Habitat – international experts on urban development – to conclude, "[Increasing private sector involvement] is not a ‘solution’ that should be promoted internationally in the name of those who currently lack adequate water and sanitation." Again, despite this evidence, none of the PRSPs include a review of any privatisation policies or a specific goal to keep water and sanitation under public management.

• 26 PRSPs include investment deregulation and none mention the possible need to regulate investors to ensure re-investment of profits in the country, joint ventures with local companies, technology transfer or employment of local people; policies recognised by development policy analysts as potentially useful in creating spill-over benefits for domestic economies from Foreign Direct Investment (FDI).

• 40 out of 42 PRSPs include fiscal stringency; normally that the government should not resort to borrowing from the domestic economy. Vietnam’s PRSP does not have detail on its fiscal policy, whilst Tanzania’s is the only one that explicitly says a fiscal deficit is allowed, stating it should be maintained "at a modest level". This stands in stark contrast to developed countries such as the UK and the USA which consistently maintain fiscal deficits. The UK has had a yearly fiscal deficit since 2002, which in 2004 stood at 3.1 per cent of GDP, £35.8 billion (US$68.8 billion). In 2004, the US had a deficit of 4.4 per cent of GDP, US$513 billion. These countries recognise that borrowing from the domestic economy is a vital tool for governments to smooth expenditure from year-to-year, rather than being limited to spending only what is received through taxation. As Cambridge economist Ha-Joon Chang argues, "Historically, periods of rapid economic growth in Continental Europe, the USA and Japan were associated with large programmes of public expenditure and even large budget deficits." Denying governments the ability to borrow domestically seriously hinders their ability to manage the economy.

• The specific mention of trade liberalisation, investment deregulation and agricultural liberalisation policies is higher in non-HIPC country PRSPs than in HIPC country PRSPs. This is likely to be because 9 of the 18 non-HIPC countries are in Eastern Europe and Central Asia and are relative newcomers to IMF and World Bank programmes so there is ‘more to do’. Many of the HIPC countries have already implemented significant changes to their trade, investment and agriculture policies as conditions for receiving aid, loans or debt relief over the past few decades, often to the detriment of their people.

The homogeneity across PRSPs in widely differing countries, and the dearth of alternative policy approaches on these key economic issues, suggests that ownership of the economic policies in such countries is still a pipedream.

The internal democratic deficit: A barrier to change

Beyond citizen, parliamentary and government participation in and control over decisions at the national level, key democracy issues relate to the internal decision-making processes of the World Bank and IMF.

The creation of international institutions, such as the World Bank and IMF, during the 20th Century has presented new challenges for democracy because such institutions are a long way, physically, politically and legally, from those whose lives they affect. The governance of these institutions relies on the participation of member government representatives who are then accountable to the citizens of their home country for their actions. In the World Bank and IMF, this governance takes place through their respective Boards.

Critical elements to facilitate democratic decision-making in this international context are therefore: fair representation on the Boards of the IFIs for those countries affected by IFI decisions; transparent decision-making so that the citizens of affected countries can know how their government has acted (and how other governments have acted) so that politicians can be held to account; and transparent ways of working so that the bureaucracy functions in the public interest and legal accountability so that citizens have some form of recourse if the actions of IFIs infringe their rights. Sadly, both the World Bank and IMF largely fail on all of these issues.

The rich control the IFIs…

Industrialised countries effectively control the IMF and World Bank through their voting shares on the Executive Boards of the two institutions. The G8 states hold 48 per cent of votes in the IMF, whilst industrialised countries as a whole hold 64 per cent. When the IMF was created, each member state was allocated 250 basic votes plus one vote for every US$100,000 of quota subscribed to the institution (later changed to the equivalent in Special Drawing Rights). Basic votes accounted for 11 per cent of votes in 1945, but with the 37 fold increase in quotas since then, basic votes now make-up just 2 per cent of total votes.

Looking at the difference between various regions’ per centage share of IFI votes and per centage share of the world’s population, EU states, the US, Canada and Japan are most overrepresented within the IFIs, with the Middle East and North Africa, non-EU Western Europe and Australasia also overrepresented. East Asia and South Asia are most underrepresented, whilst sub-Saharan Africa, Latin America and Eastern Europe and Central Asia also receive less than their fair share of votes.

In 1944, quotas were allocated to ensure a certain power distribution in the IMF. As Ariel Buira, Director of the G24 Secretariat, outlines:

"The formula developed by R. Mikesell in 1943 had the political objective of attaining the relative quota shares that the US President and Secretary of State had agreed to give the "big four" wartime allies, with a ranking which they had decided: Thus, the US was to have the largest quota, approximately $2.9 billion, the UK including colonies an amount about half the US quota, the Soviet Union a quota just under that of the UK; and China somewhat less."

This was achieved through a confusing formula using various economic indicators. Mikesell states that when he was questioned on how the distribution of quotas had been reached;

"I … gave a rambling twenty-minute seminar on the factors taken into account in calculating the quotas, but I did not reveal the formula. I tried to make the process appear as scientific as possible, but the delegates were intelligent enough to know that the process was more political than scientific."

It is clear then that the inequality of voting power that exists today is the result of a 60 year-old carve-out based on post-war politics and a world dominated by colonialism.

The World Bank is made up of five different institutions, the IBRD, IDA, International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and International Centre for the Settlement of Investment Disputes (ICSID). The IBRD is the central institution of the World Bank, and lends to middle-income countries. IDA lends to low income countries. IFC lends to private companies in Bank borrower countries. MIGA provides political risk insurance for companies undertaking projects in poor countries and ICSID is a tribunal overseeing international investment disputes where companies can seek redress if they believe a government is not complying with a bilateral investment treaty. In the World Bank group, votes are also determined by the quotas and initial subscriptions to the two institutions. This means the general pattern of rich country dominance is maintained, although there are variances between the five institutions (ICSID does not have a voting method of governance).

The voting rights in the Fund and Bank determine the make-up of the 24-member group of Executive Directors, the day-to-day decision making body of the two institutions. By having over 2.5 per cent of votes in the IMF, the US, Japan, Germany, France, the UK, China, Saudi Arabia and Russia are able to have one Executive Director each. Other states have to band together and share an Executive Director. A group of 24, primarily Francophone African countries, share one Executive Director; a group of 19 primarily Anglophone African countries share another. In the World Bank, again the US, Japan, Germany, France, the UK, China, Saudi Arabia and Russia all have one Executive Director. 46 countries, on the other hand, have to share two Executive Directors between them.

...And the poor pay for them

It is often stated that at the IMF and World Bank, money buys votes. Rich countries have high voting quotas because they supposedly pay for the two institutions. Yet the situation has changed dramatically over the past 20 years. Increasingly, it is actually the debtor nations – developing countries and economies in transition - who pay for the running of the IFIs. As the IMF itself states, "administrative expenses and target net income are effectively financed by debtors". Since the start of the 1980s, debtor nations have been covering an increasing proportion of the costs of the IMF.

Relative contributions to the IMF:

In 2003, interest and charges received from borrowing countries and other income totaled US$3.3 billion. Of this US$800 million was used for administration, including staff salaries, travel expenses and supplies. In effect, the poor pay for an institution they have little say in controlling.

The increase in debtor contributions to the running of the IMF has come in a period when there has been a large increase in overall costs. For instance, between Financial Year 2001 and Financial Year 2003, costs increased by 30.6 per cent. One reason for this is the new mandates the IMF has been given in areas such as increased financial surveillance, anti-money laundering schemes and controlling the financing of terrorism.

Another is the decision to increase the IMF’s reserves because of increased risks. These risks have come from the various financial crises (due in part to IMF-imposed capital account liberalisation), resulting in a few countries owing a large amount of money. Argentina, Brazil and Turkey account for two-thirds of debt owed to the General Resources Account. As one commentator has noted, "Much of the increase in costs results from an increasing number and variety of mandates imposed upon the institution by the IMFs major shareholders by virtue of their dominant majority voting power." In other words, rich creditor countries have given the IMF a greater role, but passed on the bill to poor debtor states.

The cost to creditor countries may in effect actually be lower. The UK Government calculates the cost of its membership of the IMF assuming that a portfolio of conventional reserves would be needed to be held outside the IMF if it were not a member. Holding reserves, either in the IMF or individually as a nation, both incur costs through income foregone. The difference between these two reserve costs comes from currency fluctuations and interest rate differences. Therefore, the net cost of membership actually fluctuates around 0 from year to year. For instance in 2001-02, the UK gained £56 million pounds from being an IMF member. The net cost of the IMF to creditor countries is therefore negligible.

Developing and transition countries have almost 80 per cent of the World’s population, provide 75 per cent of IMF income, are subject to 100 per cent of IMF programmes yet only have 36 per cent of the votes on the IMF board.

In a similar way to the IMF, costs in the World Bank are also largely borne by developing countries. The Bank’s main income is from issuing bonds on international capital markets. It sells these bonds at a low interest rate given its AAA credit rating, which is achieved due to initial quotas of members that do not need to be replenished.

In giving loans from the IBRD, interest rates charged are at close to market rates. In 2003, the IBRD’s net income from loans was US$5.7 billion. Of this US$1 billion was spent on covering the institution’s administrative expenses. IBRD borrowers, mainly middle-income countries, bear the costs of running the institution.

Other parts of the World Bank Group are also self-financing. Subscriptions of capital are made to the IFC by member countries in accordance with their shares in the institution; the current subscribed capital is US$2.45 billion. The IFC then lends money to private companies on a commercial basis. Indeed, it has made a profit in every year since its inception. MIGA has a capital base of US$1.8 billion, of which US$1.65 billion comes from subscriptions from members, and US$150 million from the IBRD. This capital is then able to cover its operations and financing; since its inception, only one insurance claim has been filed with MIGA, which was paid.

The concessional loans of IDA are different as not all their costs are met by debtor countries. Typically, IDA loans carry no interest, do not require any repayments for 10 years, and are fully paid off after 40 years. Taking into account a discount rate to convert future repayments into today’s prices, the World Bank estimate IDA borrowers repay 40 per cent of the costs of an IDA loan. Therefore, the money available to IDA needs to be replenished by donors; IDA does require additional financing from rich countries. IDA financing, in addition to the money received back from loans to IDA countries and grants from donors, is also supplemented by transfers from the IBRD. Overall, over the three years July 2002-July 2005, IDA will spend US$23 billion, of which US$13 billion (57 per cent) will come from donor countries, US$9 billion (39 per cent) from within IDA - repayments from debtor countries - and US$900 million (4 per cent) from the IBRD. Donor countries, IDA borrowers, and IBRD borrowers all contribute to the costs of IDA, yet it is the donor countries which hold a majority of the votes.

The overall picture, in terms of the government-to-government lending arms of the World Bank (IBRD and IDA), is that donor countries contribute about 20 per cent of World Bank annual income and debtor countries contribute about 80 per cent.

President/Managing Director selection process

For their entire history, Managing Directors of the Fund and Presidents of the Bank have been selected through an agreement between the US and European states; a US national has always been President of the World Bank, a European has always been Managing Director of the IMF. Their respective voting powers have allowed the rich western states to maintain a stranglehold over the nationality of the top positions in the two institutions.

This process was repeated in 2004, with the selection of Rodrigo Rato as the new head of the IMF. In the spring of 2004, a recruitment process for Managing Director of the IMF was unexpectedly initiated when Horst Kohler resigned in order to stand for the German Presidency. The G24 group of developing countries called for a "democratic and participatory process based on merit regardless of nationality". The G-11 group of countries in Asia, Africa, Latin America, and the Middle East issued a joint statement with Russia, Australia and Switzerland saying that the process for selecting a new managing director should be open and transparent. IMF staff even expressed concern over the process. Jack Boorman, Head of Policy Development and Review wrote an email to other staff members stating, "The Fund cannot preach transparency, good governance and other virtues to the membership and to the international community more broadly unless it is willing to apply those virtues in its own decision making."

Despite all these concerns, EU governments took it upon themselves to select the Managing Director from Europe. In its 2000 White Paper on Globalisation the UK Government had stated, "the UK favours open and competitive processes for the selection of top management [of the IMF and other international financial institutions]. This could include a definition of the competencies for the post, selection and search committees and a clear process for taking the final decision, in which competence would be put above consideration of nationality."

However, when it came to the actual recruitment process, the UK supported the continuation of appointing a candidate from the EU, and engaged in horse-trading between EU governments to ensure it was the European that they wanted. Reports throughout the process indicated that the UK Treasury, led by Gordon Brown, was backing Spanish Finance Minister Rodrigo Rato for the post. Mr Rato did duly win the EU nomination after UK support helped see off candidates from Italy and France. With the EU agreed on one candidate between themselves, the US maintained the quid pro quo, leaving the rest of the world unable to influence the decision. The process was far from transparent, open or democratic.

The unwillingness of European countries to abandon this anachronistic charade in 2004 returned to haunt them in 2005 with the ‘appointment’ of Paul Wolfowitz – well known ‘hawk’ of the Bush administration – as the President of the World Bank. Although many European governments were reported to be unhappy with the nomination of Wolfowitz as James Wolfensohn’s replacement, they were in no position to demand an open and transparent selection process given US support for Rodrigo Rato in 2004.

While the selection process for the heads of these institutions is not as important as the make up and operation of the Boards, the fact that it remains a political carve-up rather than an open and transparent process is symbolic of EU and US hypocrisy in preaching good governance and democracy to the rest of the world but refusing to practice it themselves.

As for the UK Government, despite the five year old commitment to an open and transparent selection processes, and despite a similar recommendation being made by Tony Blair’s Africa Commission, it has remained unwilling or unable to influence either Europe or the USA on this matter.


Many of the countries investigated in this report - primarily from Africa, Eastern Europe and Central Asia, Latin America and South Asia - are fledgling democracies. For instance, a wave of democratisation spread across sub-Saharan Africa through the early 1990s, beginning with Benin in 1989. Now, all African nations have a parliament, and most elect both their parliament and government.

This report has demonstrated that this hard won democracy is being undermined. Although current world politics is dominated by far-reaching foreign policy decisions sold to the public on the basis of rhetoric around freedom and democracy, the same governments that claim to be ‘defenders’ of freedom and democracy are responsible for systematically denying it to most developing countries through the World Bank and IMF.

Despite the rhetoric on ‘country-owned’ PRSPs, the process has been characterised by a series of flaws that reduce, rather than increase, the influence people in developing countries have over the policies implemented by their governments. From the insertion into PRSPs of pre-determined economic policies resulting from previous IMF/World Bank programmes to the fact that the Boards of the IMF and World Bank have the final say on whether or not a PRSP is ‘acceptable’, developing countries and their citizens are far from able to claim ownership over their development strategies. And perhaps most damning of all is the fact that making provision of development finance conditional on implementing the policies contained within PRSPs denies parliaments their essential role in scrutinising, changing and even reversing proposals made by the executive branch of government.

The gaping democratic deficit in the World Bank and IMF has been exposed time and again by the public and by parliamentary resistance to the policies imposed by these institutions. Yet such opposition – which in the industrialised world forms an integral part of the political process and can lead to policy change - is routinely ignored by the Bank and Fund which have no real accountability to the citizens of poor countries.

This report has demonstrated that even some governments, despite the enormous pressures under which they are placed, are voicing their opposition to Bank and Fund imposed policies. On critical issues, this leaves the IMF and World Bank as the de-facto government – but a government that has no parliament to scrutinise its policies and no electorate to whom it is ultimately accountable. In other words, the IFIs are like an autocratic regime, albeit one based in Washington DC rather than in the country concerned.

This report has also exposed the lack of democracy within World Bank and IMF decision-making. Despite the fact that developing countries and countries in transition are home to most of the world’s population, provide most of the IFI’s income and are subject to all IFI programmes they still have less than 40 per cent of the votes in these institutions.

Similarly lacking is the transparency in decision-making of the IFIs, with citizens and parliamentarians across the world unable to hold their governments to account effectively because there is no public record of what their government representatives have done in IFI board meetings. And the selection of the heads of these two institutions continues to be based on a sixty year old political stitch-up rather than an open, transparent and competitive recruitment process.

The extent of this ongoing denial of basic democratic rights for the poorest countries and their people means that it cannot be regarded as accidental or an unintentional by-product of history. It is intentional and systematic; from the very top decision-making bodies of the IMF and the World Bank down to the imposition of policies on the ground. And it is ultimately the responsibility of governments in the industrialised world to practice what they preach.

If the US, the UK and the rest of Europe were really concerned about ‘freedom’ and ‘democracy’ they would fundamentally change the way the IFIs work. No war would have to be fought. Tens of billions of dollars would not have to be spent on soldiers and armaments. Thousands of innocent people would not have to lose their lives. ‘Freedom’ and ‘democracy’ could be secured through often relatively simple, but fundamental, changes to the way the World Bank and IMF operate.

WDM believes such changes should include:

• An end to all economic policy conditionality (including an end to the implementation of economic policies in PRSPs being a condition for loans, aid and debt relief).

• Board voting shares based on a combination of one-member one-vote and population weighted votes.

• Ensuring no single country has a veto on any IFI decision.

• Publishing the minutes of IFI board meetings including votes cast by members.

• Creating open, transparent and competitive recruitment processes for the heads of IFIs.

Democracy is hard to define and even harder to put into practice, but key to democratic decision-making is effective and active participation by citizens and their elected representatives in the decisions that impact on their lives. It is high time the World Bank and IMF – and their political masters in the industrialised world – made good on this principle.

South Centre News

South Summit - The Convenor of the Council of Representatives of the South Centre, Mr. Luis Fernando Jaramillo led a small team - that included the Executive Director Prof. Yash Tandon and Mr. Branislav Gosovic, Secretary to the Board - to Doha to follow the deliberations of the Second South Summit on 12-16 June, 2005.

New publication on U.N. Reforms

On the eve of the Second South Summit in Doha (12-16 June 2005, the South Centre brought out a publication entitled What U.N. for the 21st Century? A New North-South Divide.’ It is a collection of South Centre policy papers and comments related to the ongoing efforts and debates on U.N. reforms.

Staff Seminar - Mr. Umberto Mazzei from the Institute for International Economic Relations (IREI), visited the Centre on the 13 June and gave a South Centre staff seminar focusing on trade agreements within the Latin American and Caribbean region. Mr. Mazzei reviewed briefly the history and features of the trade agreements negotiated between the 50s’ and the 90s’ and also the emerging trend of Free Trade Agreements with the United States. He also referred to new conceptual approaches to south-south cooperation in the region.

IP & Development Programme

Coordinator of the Program, Prof. Carlos Correa, attended the Conference on New Approaches to Intellectual Property, organized by The Initiative for Policy Dialogue and the TransAtlantic Consumer Dialogue, New York, 13-14 June 2005.

Trade & Development Programme

1. Participation in conferences and in meetings outside the centre

• During a World Bank Seminar entitled "Preference Erosion: impacts and policy responses", held on June 13 and 14 at the WTO, the Centre exchanged ideas with other intergovernmental organisations as well as with NGOs and developing country delegates about some of the options available to assist developing countries in coping with the erosion of trade preferences which will result from MFN tariff liberalisation in the WTO.

• Staff participated in the Ministerial Meeting of the G33 held in Jakarta, Indonesia, on 11-12 June 2005. The meeting brought together ministers of the G33 for the first time after the Cancun Ministerial Conference of the WTO in 2003. Ministers highlighted the importance of this meeting in boosting the solidarity of the group and enhancing their cooperation at a critical moment of the WTO negotiations.

They emphasised the need for an ambitious development outcome of the negotiations under the Doha Work programme that would contribute to the development endeavours of countries of the group. Ministers agreed to strengthen their cooperation at the political level and their organisation at the technical level to enhance the effectiveness and influence of the group. They also stressed their desire to closely collaborate with other developing country groupings in the negotiations. Ministers reiterated that food security, livelihood security and rural development are the core of the development agenda of the group in agriculture. In that context, they reiterated the importance of provisions such as Special Products (SPs), Special Safeguard Mechanism (SSM) and the de minimis support for developing countries.

Ministers also highlighted the importance of the formula for tariff reductions and expressed their interest in working together in guaranteeing that the formula finally agreed does not undermine the special and differential treatment for developing countries. Ministers issued a Communiqué and a press statement made during a joint press conference held at the end of the Ministerial meeting.

2. Programme of work with delegations in Geneva

• An informal working lunch meeting on policy and strategic issues for developing countries regarding the future work programme of the Standing Committee on the Law of Patent of WIPO was held on 30 May 2005. Several delegates and one capital-based expert from developing countries participated in the informal meeting. A representative of CIEL was also present. An informal background note entitled ‘The Future Work Programme of the SCP: Policy and Strategic Issues for Developing Countries’ was prepared and distributed to developing countries missions.

• An informal background note was prepared jointly by the South Centre and the Center for International Environmental Law (CIEL) on the 8th Session of the WIPO Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore (IGC) that took place from 6 - 10 June in Geneva. Staff attended the meeting and held various consultations with delegates from developing countries in order to achieve a desirable outcome from the meeting.

• A working lunch on the TRIPS and CBD checklist of issues and recent developments in TRIPS Council of the WTO was held at the South Centre on 6 June 2005

• South Centre’s comments on the Sutherland report was circulated by to various developing country delegations in Geneva on 9 June to assist in their preparations for the ambassadorial-level informal retreat in Geneva organized by the WTO Secretariat to discuss issues relating to WTO institutional reform arising from the Sutherland report.

• On 9 June, staff prepared an informal note on a possible proposal on technical assistance and capacity-building needs in the Trade Facilitation negotiations for the African Group Focal Point for Trade Facilitation.

• On 6 June, staff were requested by the Permanent Mission of Barbados to provide technical assistance and research support on issues relating to Small Economies for possible future discussion in the meetings of the Committee on Trade and Development’s Dedicated Session on Small Economies.

3. Meetings in the Centre

• On the 1 of June, a representative of the Commodities and Trade Division of FAO (Jamie Morrison) visited the Centre and met with officers working on related issues. Apart from sharing information on current work programs and identifying areas for collaboration, references were made to the challenges faced in modeling the impact of negotiations and to disseminate, in a timely manner, the results of analysis to delegations to help them take informed decisions. In this regard, it was agreed to exchange information regularly on the state of play of agriculture negotiations, on relevant analysis and on possible gaps of information for future research.

• Graduate students from the New York-based New School University visited the Centre on 2 June and met with staff to discuss the work of the Centre.


LDC Trade Marshall Plan: Small Price for Big Gains

When so many international commitments to eradicate poverty have faltered, including the mostly slipping targets encapsulated in the Millennium Development Goals, it takes a lot of courage to come up with yet more plans. Yet, the United Nations Conference on Trade and Development (UNCTAD) has done just that. On the day the Second South Summit began in Doha, Qatar, the UNCTAD launched a report in Geneva calling for a ‘Trade Marshall Plan’ for the Least Developed Countries.

The onus of implementing such a plan - which relies essentially on the trade route to development and prosperity for the 50 poorest nations on our planet - lies essentially with a handful of industrialized countries and a number of other developing nations, particularly those in a position to help. But the price is not big. In fact, as of 2004, LDCs´ share in world trade stood at 0.68% (approximately $131 billion) of total world exports of $9.46 trillion.

UNCTAD´s proposed Trade Marshall Plan rests on three pillars. The first pillar is the provision of WTO bound, duty-free and quota-free treatment by industrialized countries for LDC exports, coupled with effective standards-related capacity-building in LDCs to overcome market entry barriers. This alone is estimated to bring welfare gains of as much as $8 billion and could increase LDC exports by an additional $6.4 billion, or 10%, a year.

Preferential market access schemes for LDCs, which have been provided by the industrialized countries since the early 1970s, have had mixed results, mainly because of the non-binding nature of the schemes, the exclusion of particular countries and products from the programmes, stringent and complex rules of origin and the linkages between preferential tariff treatments and non-trade issues, such as the enforcement of environmental, social and labour standards, intellectual property rights protection, and the fight against drugs.

Binding the duty-free quota-free arrangement with the LDCs in the WTO would make for a predictable regime that can spur investments in the LDCs – given the fact that with a predictable market access for the next ten or twenty years, there would be incentives to invest in LDCs in infrastructure and production, including for exports.

The second pillar is a liberalization package in services that would include measures to operationalize LDC priority areas, specifically in Mode 4 access (movement of services providers), in sectors of special interest to them, such as tourism, entertainment and sporting services, and in such other areas as the issuance of visas and work permits.

Coupled with a capacity support package in trade in services for LDCs, UNCTAD estimates this could generate $10-to-$20 billion per year. Right now, there is no legal basis for providing discriminatory trade preferences in favour of LDCs under the current framework of the General Agreement on Trade in Services (GATS). One way to address this shortcoming could be a WTO ministerial declaration or decision to provide a legal basis for allowing preferential market access on services for the LDCs.

Of course, there are sensitivities with respect to migrant workers but it has been pointed out that in the case of the LDCs, certain categories of occupation have been identified, like entertainment, performers, professional health care and caring services, technicians, and construction workers - a whole range of services which are needed in the industrialized countries.

And where they can fill the gap, it will be mutually beneficial.

The third pillar seeks to create a $1 billion Aid-for-Trade Fund, which would be in addition to aid for development.

The fund would provide much-needed finance ($15 billion over two-to-three years) to meet adjustment costs arising from trade reform and help provide the hardware and software of trade-related infrastructure, supply capacity and competitiveness-building in commodities, manufacturing and services.

It is also suggested that some commitments should be included in the ongoing trade negotiations to ensure that the obligations deriving from existing and future trade deals will be coupled with the financial resources needed to comply with such obligations.

Of course, this Trade Marshall Plan should not absolve the industrialized world from continuing to attempt to honour its commitment on official development aid - which was made around 25 years ago – of reaching a target of 0.7 per cent of their national income.

Nor should it be confused with meaningful initiatives to reduce onerous foreign debt of the LDCs.

It should in fact be seen as the minimum that can be done, and easily at that.

The plan should be seen as the power of trade to influence Development. Its strength and usefulness lies in the fact that it fleshes out a commonly agreed plan to help the LDCs.

Operationalising it on the lines suggested is actually possible on many occasions this year, especially during the September Summit of world leaders in New York and the Hong Kong Trade Ministerial in December.

Attached please find the latest issue of the 
South Bulletin no. 105 in pdf and word formats.

Best regards,

(See attached file: bulletin105.pdf)
(See attached file: SouthBulletin105Word.doc)



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Someshwar Singh:

Senior Editor
South Centre
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Latest issue of the South Bulletin no.105

Wednesday, June 15, 2005