Developing countries and the international trading system:

The experience of  the UR  had made developing countries  more  wary  of engaging  in another Round of MTNs.  Their fears were enhanced by attempts of the developed countries  to include environmental and labour standards in the agreements as well as investment, government procurement, competition policy and trade facilitation into  the agenda. Developing countries  either  feared that standards such as labour and  environment standards  may  be used  to protect industries in  the developed countries, or the issues  were  not  very germane to their trading concerns. What are  the  main trading concerns  of developing countries?

A major problem developing countries face is the decliningprices ofprimary  commodities as well as fluctuations  in their prices. A second problem  is the barriers  to  trade that  they  face in commodities of interest  to them, a third is standards that are being imposed, and fourth is the cost of compliance with the various provisions of the WTO agreements. The  international policy making community has tried  to avoid the  issue of commodity prices.  For  long it was denied that  there was a tendency for the terms of trade of primary commodities to worsen; when it has now become obvious that such a tendency  exists,  and  has  been  responsible  for the substantial decline  in export earnings and growth  in Sub Saharan  Afiican  (SSA) countries, the problem is ignored.  For instance, one has only to compare the importance given  to the problems caused by capital flows  to Mexico or Brazil or Russia or the East Asian  economies; merely  a  handful  of  economies, compared to  the neglect of the primary commodities; question  that affects almost a hundred countries, and is of the utmost importance for the 49 least developed countries for whom manufactures are only a third of their export earnings. The cumulative loss from decline in their terms of trade during the period  since 1975 has been  117 percent of GDP and almost cancels the 180 percent that they received in aid.  The structure  of the GATT/WTO may make it difficult to tackle the problem of commodity prices. Also it is not clear that commodity agreements can solve the problem.  However,  the  problem  of commodity prices  is aggravated by  the policies adopted by  the  developed countries.

At  the same time developed countries continue to protect  their agriculture by very high rates of duties and by providing very high subsidies  to their producers.  These policies insulate their own domestic markets and so force  the  international markets  to  bear all the  burden  of  adjustment aggravating  instability there. Also, as is well documented, subsidised exports by the developed  countries hurt farmers in developing countries.  So  reform of agricultural  trade is very important for developing  countries.  

It was argued by some that developing  countries had not benefited much from the liberal trading order established  at the end of the Second World War as  they had not engaged in the give and take of negotiations. Once  they participated in these negotiations they could expect  larger gains.  But  the experience since the beginning of the negotiations for establishing the agenda for the UR  does not support this agreement.

The limited capacity of the developing countries that  limits their ability to engage  in extensive negotiations makes it extremely  expensive  to make all the changes in  laws required by  the agreements  and  to meet  the  sanitary and phyto-sanitary standards. Firstly, they have little say in  the establishment of these so-called international standards. Secondly,  there is often little basis for these standards so that  these act as nothing but  bamers  to  imports.  For instance, Mauritania could not export cheese made from camel's milk to the EU because EU  regulations just  refused  to recognise that cheeses could be made  from camel's milk. In  another case cut flowers exported by Kenya  to Germany were re-exported to the US. The US initiated an anti-dumping case against Kenya rather than Germany. It just wasn't worth it for Kenya to fight the case.

Till the UR  developing  counties may not have got many positive benefits  fiom the GATT agreements.  But they were able  to convince  the contracting parties of their special needs, and were allowed to adopt policies they thought were conducive to their development, and get some limited benefit  fiom schemes such as  the GSP. The UR  experience was a chastening  experience. The agenda and the end results were largely fashioned by the developed countries. Their experience with the implementation of the UR agreements was unsatisfactory.

Uptill now in  the Dop  Round, they have been successful  in preventing inclu- sion into the agenda of items  inimical to their interests.  It is an open question whether they will be able  to achieve positive benefits. Since most developing counties have liberalised, a more open trading system is in their interest, and they need to pursue liberalisation more vigorously.

A solution that is often proposed in India is that India should walk out of the WTO. We  do not  believe that would be a wise decision. As  long as  India participates in world trade this trade would be governed by some  rules. Even though the rules of  the WTO may be  skewed against developing countries, they are better than  the rules a particular country would be able to negotiate with powerful countries on its own. For instance, as long as China was not a member of the WTO it had to go through annual pressure from the US before its MFN  status was renewed. The rule of law does protect the weak against arbitrary action by a powerfill  country. The solution, which  is not  easy,  is developing counties must  have a better analysis of  their interest and adopt better negotiating strategies  that take account of their long term  interests and not look merely at short  term  gains. Developing counties have  to  learn  to think strategically.