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UNCTAD and Development: The Way Forward Globalization for development As the UNCTAD report for this topic states, various policy developments and a favourable international economic environment have resulted in a substantial rise in developing countries’ share in world trade, from 24.3 per cent in 1990 to 33.5 per cent in 2004. The Economist recently noted that over the past five years, GDP per head in emerging economies has grown by an annual average of 5.6% compared with only 1.9% in the developed world. The world is benefiting from the institutional and macro-economic reforms of the 1990s and ongoing trade liberalization. We agree with UNCTAD on the importance of addressing supply side constraints and in fact see this as the greatest contribution of UNCTAD. UNCTAD should influence the leaders of developing countries to take appropriate actions unilaterally and should also participate in the coordination of “aid for trade” to make it effective and efficient. UNCTAD lists five supply side constraints: weak institutions; burdensome administrative and legal processes; poor trade-related physical infrastructure; high costs of inputs to production and trade; and low productivity. The first two require political will in the developing countries. It takes leaders whose top priority is to enable citizens to become productive members of society, including through basics such as education and health care but also through ease of doing business. The role of “aid for trade” is to address all five supply side constraints, but donors will rightly want to provide aid where it can do the most good at the least cost, and where the political will is already evident. We note that the World Bank’s “Doing Business” report shows a high correlation between countries that have reduced the burden of setting up and maintaining a legal business and economic success. Many of the changes suggested in the “Doing Business” report can be accomplished for a minimal investment. The World Bank’s research and findings are fully transparent being published on their “Doing Business” website and the Bank stands ready to work with any country wishing to improve its business environment. As an issue for discussion under this topic, we are asked to suggest ways to secure greater development benefits from workers’ remittances and foreign direct investment. We would point out that both remittances and foreign direct investments are private funds, and any decision to use these funds in a manner that benefits long term economic development must come from the worker or investor who earned the funds. The likelihood that the worker or investor will decide to start a business that will eventually lead to employment for others is much higher if the regulations and property rights are clear and simple. The State has a vital role in creating conditions to attract investment and foster an environment conducive to entrepreneurship. The goal of investors is profit. The State can tax those profits and use them to achieve social goods. Investments in infrastructure and the inputs to production and trade require financing, as UNCTAD notes. However, the UNCTAD report mentions only debt reduction, official development assistance, remittances, and foreign investment as the source of financing for development and in doing so, it provides an incomplete picture of those instruments and an incomplete picture of resources that can contribute to development More importantly, the report neglects what we believe should be the most efficient and predictable of available resources: domestic savings and untitled real estate capital.
The UNCTAD report also neglects to mention another major contribution to economic development, the very heart of UNCTAD’s mandate, trade. Developing countries’ exports of goods were $2.6 trillion, over one-third of their GDP. This could increase significantly with a reduction in tariffs. While the U.S. has reduced tariffs to developing countries and is committed to the Doha round where we anticipate further reduction, we note that
Coherence between National Development Strategies and International Economic Processes This section of the UNCTAD report asks if there is a way for developing countries, with a professional bureaucracy and an efficient information exchange, to have an effective, pro-active trade and industrial policy. To the extent that the government helps the private sector learn where it is lacking in competitiveness or where markets have shifted, we see that there can be a pro-active role. For example, trade in coffee has grown, and some countries, such as Rwanda that we discussed yesterday, have a policy that encourages their coffee producers to move up from subsistence farming to providing high quality, washed, sorted, and packaged beans worth far more in the market. It does so through marketing support, direction of AID flows to support the private sector and technical assistance, but NOT tariffs. As noted in the Trade and Development report, there is a great deal of scepticism about developing countries ability to pursue proactive trade and industrial policies, since they are associated with failed inward-looking import substitution strategies and a high risk of protracted rent-seeking. We heard in several interventions at the Trade Development Board that developing countries lack sufficient policy space and the report in front of us makes the case that the international system limits developing countries options or “policy space,” in particular by restricting the use of subsidies and prohibiting imposition of performance requirements on foreign investors. Director General Lamy responded to each of these particular concerns, and also pointed out that through participation in multilateral negotiations, “smaller countries with little or no influence on world markets can influence negotiated outcomes.” While any negotiated agreement requires Governments to accept some constraints, the benefits of trade agreements are clear. The World Bank has reported that in the 1990s, per capita real income grew nearly three times faster (5.0% per year) for developing countries that lowered trade barriers than for developing countries that didn’t embrace trade liberalization (1.4% per year). Also according to the World Bank, elimination of goods trade barriers alone would increase annual income in developing countries by another $142 billion. UNCTAD, UN reform and development As UNCTAD members know, the U.S. has been a leader in calling for UN reform. Many UNCTAD delegates have rightly criticized the fact that too much aid goes to consultants from developed countries rather than to help the people in developing countries. We agree, and see UN reform as a way to make our aid work more effectively in developing countries. Regarding UNCTAD’s role, we disagree with the conclusion expressed in the issues paper under discussion today, that reform has placed undue emphasis on what should be done at the national level. When each nation has a good national development plan in place and the field offices of multilateral and bilateral agencies are working together to see where each organization fits into the development picture, we will have better development outcomes. The work of the Secretary General’s Coherence Panel, the Integrated Framework, and the Paris Declaration are all steps towards such improved coordination. We suggest that UNCTAD is crossing the boundary of UN mandates in attempting to address the international structures for finance. We have international financial institutions for that, and those institutions are undergoing their own reforms, including giving more voice to developing countries. We found many recommendations in the UNCTAD Eminent Persons’ Panel report worthwhile, and would like to see further discussion of which recommendations would improve the linkage of UNCTAD’s analytical, consensus-building, and operational roles, and how UNCTAD can identify its products of comparative advantage and ensure they are widely known and used. As we have advocated in the past, we see an important role for UNCTAD in “aid for trade”, and support the idea of enhancing UNCTAD’s relationship with UNDP, UNOPS, and other country teams in order that they make greater use of UNCTAD’s expertise. I would like to thank UNCTAD for providing a forum to discuss these important issues.
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