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Al-Ahram Weekly 27 Jan. - 2 Feb. 2000 Issue No. 466 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 27 Jan. - 2 Feb. 2000 Issue No. 466
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters The costs of doing business
By A. Shakour Shaalan *
Much has been written about the disturbances that took place last month on the occasion of WTO meetings in Seattle. To try and make much sense from the messages that emerged from the diverse groups of protestors is an exercise in frustration. No single theme characterised the demands of the protestors. Views and issues ranged widely. There were environmentalists who tried to promote the notion that trade laws should protect butterflies or that fishing activities that endangered the turtle population should be banned. They called for trade restrictions on such fish catches. Other demonstrators pushed for universal adherence to labour codes, including in particular using trade to enforce child labour codes.
One should not ignore demonstrations of this kind and their possible future impact on the role and shape of multilateral organisations. A broader anti-globalisation theme was evident in many of the calls for reform of the WTO. The international community has faced two similar episodes in the last decade on the occasion of the IMF/World Bank meetings in Berlin in 1988 and in Madrid in 1995. Are we seeing a new era where the rule of the jungle is replacing the rule of law?
Much as these events have been highlighted, it would be a mistake to conclude that these disturbances were responsible for the failure of the WTO meetings. Far from it. There were underlying reasons for the fiasco in Seattle, a meeting whose sole object was to agree an agenda for the next round following the successful conclusion of the Uruguay Round, itself in the making for seven years.
In my view, poor preparation for the meeting both by the host country and the WTO itself must be accorded a large part of the blame for the failure. The top managers of the WTO had just been elected or appointed but the conference could have been better prepared by the host country. It is difficult, if not impossible, to gather together 135 member countries mainly from the developing world and expect them to draw up an agenda without prior serious preparation. Moreover, the proposed agenda was overextended with a multitude of complex subjects. Finally, of course, there were serious divisions at two levels -- between the industrialised countries, particularly the US and the European Union, and between these countries and the developing world.
A quick run through the contentious issues that emerged at the meeting. First, there was the question of trade liberalisation in agriculture. Within the European Union many members engage in a wide network of subsidies to their respective agricultural sectors and effectively deny free access to foreign agricultural products. For that matter, the US also gives extensive support to farmers, but rarely with trade restrictions. The US, supported by some developing countries, pushed Europe for a commitment to the elimination of subsidies on farm products.
Both Europe and Japan resisted the US call. Instead, they proposed that non-trade factors such as the protection of the environment and of rural communities should be considered in setting farm and agricultural policies. It was clearly evident that no progress could be made in an environment of competing, complex and often conflicting demands. Besides, it would be difficult to argue that issues of the environment and the preservation of the countryside really belong in trade discussions. The arguments for maintaining the European stance makes no economic sense and is detrimental to the many developing countries that have a comparative advantage in agricultural products. Similarly, it should be recalled that outside agriculture, the US protects a number of vulnerable industries through a quota system. Here, textiles is the most commonly cited sector.
Another heated and equally complex issue is that of involving the WTO in enforcing labour standards -- which was fervently pushed by the US. This proposal elicited very strong objections from developing countries, particularly when the US proposed to enforce labour standards and non-compliance through trade sanctions. The argument has been put forward by some observers that the US position is based on the premise that developing countries have an unfair trade advantage when employing child labour under adverse working conditions. The issue inevitably brings up the question of human rights and whether the WTO is the right institution to address this issue or whether trade rules are the right instruments to address objectives which are basically social or political in nature. Understandably, the US proposal provoked anger and bitter discussions among developing countries which saw in the proposals elements of discrimination.
The rules governing dumping, that is selling goods below their domestic cost of production, was another heated subject. Many countries contended that the rules set up under the Uruguay Round were used by some countries to bar entry of legitimately priced goods. The subject has assumed added importance since the breakout of the Asian crises. Asian currencies were over-depreciated, while the region possessed an excess productive capacity. But the US opposed any reopening of discussions on the subject. Instead, it reluctantly agreed to discuss clarification of existing rules on dumping that came out of the Uruguay Round.
Finally -- an issue that was not sufficiently highlighted -- developing countries' demand to extend the time horizon to implement the trade laws agreed to in the Uruguay Round. While few can deny the benefits of trade liberalisation, both to the developed and developing countries, a case can be made for acceding to the demands of developing countries so they can participate in the benefits of free trade on a level playing field, one that takes their various stages of development into account.
The question has often been asked whether the failure in Seattle was a setback for globalisation. I do not believe that to be the case. Rather, the failure of the conference, the first of its kind on American soil, to set an agenda to guide future negotiations should not mask the fact that developing countries have, as they should, become important players in mapping out the process of globalisation so that they can reap some of the benefits and, equally important, prepare themselves to address its inherent risks.
Here, I would like to highlight two of the risks of globalisation. One of the attributes of the phenomenon is the integration of the world economy in the sense of free movement of trade in goods and services, capital movement in its diverse forms, and labour mobility. The ever-evolving new technological innovations have certainly contributed to this integration. A sharp downturn in economic activity in a giant economy can have serious ramifications for the rest of the world. In such an eventuality the developing countries are ill-equipped in many respects to integrate into this globalised world as fast as some quarters are calling for. These countries first need to build the institutional infrastructure that would permit them to have, among other things, well-regulated banking and financial sectors, clear and transparent legal systems and a strong human resource base to better cope with the risks of globalisation and to capitalise on its benefits.
My second point, closely related to the first, derives from global developments in the two years since the Southeast Asian crisis erupted. The explosive growth, in the years just before the crisis, of unregulated short-term capital flows from industrial to emerging markets was followed by massive and sudden outflows which seriously disrupted the economies of the capital recipient countries. Here, it is well to emphasise the inadequacy of the regulatory financial institutions to cope with the problems associated with liberalising the system and the related capital flows. We should also note that investors from the capital-originating countries grossly miscalculated the risks. Policies in the originating and recipient countries must be focused on monitoring and regulating these flows. Needless to say, there are certain quarters that believe such regulation or control will adversely affect the flow of the more desirable types in the form of Foreign Direct Investments. There is, however, no empirical evidence to support this contention.
During the 1990s Egypt made considerable progress in cautiously opening up its economy to the outside world. This followed a rather long period when policy was inward-looking. Egypt today is economically stronger than it was a decade ago. But that is no reason for complacency. There is more to do to build on past successes. Measured trade and capital account liberalisation that encourages foreign direct investment rather than volatile short-term capital, would be a boon to Egypt. The world is competing for such foreign direct investments. Egypt needs to build a business environment conducive to the inflow of such capital, in particular through reducing the cost of doing business in the country.
* The writer is executive director of the IMF.
