Least developed countries: The task ahead

Dr. Iftekhar Ahmed Chowdhury

LDCs are aware that the reason why the bloom went out of the rose of aid is because of perceived mismanagement both at donor's and recipient's ends. No longer are they, like Oliver Twist, simply asking for more. They remember Amartya Sen's famous dictum that famine is incompatible with free press. They are willing to test, sharpen, and hone their indigenous ideas such as the Grameen micro-credit initiatives, which have yielded such positive results. More than ever before they recognize that there is a hill to climb, waiting will not make it any smaller.

The Classical Greeks would have encouraged us to define our terms in debates and deliberations. So we ask ourselves what are the least developed countries and why are they so? There is of course technical response to the first query. The LDCs are those that the UN defines as such because of a set of criteria, there being 49 of them now. But then there is a broader reply. It is that they are the world's underprivileged that confront such structural impediments that they are by themselves unable to break the claptrap of poverty and confront the challenge of today's world. Now this sets the poor in the LDCs distinct from the poor in other larger developing countries of course there is poverty there but not the structural impediments to break that claptrap of poverty. They continue to be so because of their intrinsic inability to mobilize external and domestic resources and put them to productive use. Unable to integrate themselves into the world economy in a meaningful way they are threatened with marginalisation with a number of them slowly but inexorably sliding into a state of regress. The world must stop this now, together in partnership with them to lift them from despair and put them on the path of sustained development.

Over the past two decades the international community, the UN, as all of you are aware, organized two major conferences to try and do just that (in 1980 and thereafter in 1991, both held in Paris) and praise is owed to France for hosting them. They resulted in, first the Substantial New Programme of action in the 1980s, the famous SNPA and then in the Programme for LDCs in the 1990s. While these led to some improvement in the case of some, there was an acknowledged failure to meet the targets in any substantial way resulting in the decision to hold a third such conference hosted by the EU in Brussels in May.

Now most Least Developed Countries remain moored to agriculture, with the same narrow range of commodity based exports, vulnerable to exogenous shocks which continue to remain their bane. Even though some, like Bangladesh and Nepal, were able with moderate success to exploit their comparative advantage in labour intensive manufacturers, such as ready-made garments, their lack of manufacturing export diversity remained a measure of their LDC status. Also, these modest achievements were possible under a shelter of special arrangements, and consequently, when the textile trade is integrated in 2005,these economies will be severely threatened unless they are able to move up the value chain or diversify. This is an important point, which sets the LDC textile and clothing manufacturers apart from other developing countries. By the year 2005, when the trade is integrated, if these countries have not built sufficient backward linkages in order to translate the comparative advantage to competitive advantage, then they will lose tremendously.

A number of LDCs remain subject to a crisis of governance, manifested in the weak representative status of some regimes and governments, lack of accountability and transparency, marked by erosion of norms in their administrative system leading to social and political conflicts at worst and inability to take charge of their policy-making at best. They are unable to sequence their trade liberalizing policies undertaken in consonance with the wishes of external actors and other appropriate measures, leading to serious losses of revenue and resources, as well as to the closures of many industries and unemployment of their workers. Now, often they liberalized, even though they were not ready for it. It is obvious that under the WTO and SAR provisions, LDCs cannot expect to return to a regime that protects new entrepreneurs. Therefore all interventions designed to promote diversification in the production sector of the LDCs will need to be on the supply side for a calibrated set of intervention to enhance their competitive capacity. This is exactly what the integrated framework will help, and I wish to place on record our deep appreciation to all the governments that have decided to support it. It is important to bear in mind though that resources made available to the Integrated Framework, should not be at the expense of the totality of resources.

Market access remains a critical criterion to generate positive economic activity across a very broad spectrum. Norway's and New Zealand's offers, and the European Union's 'Everything But Arms' initiative are obviously steps in the right direction. Some apprehension that it will lead to trade diversion from developing to the least developed countries are somewhat exaggerated since these are likely to be outweighed by the increased South-South cooperation that will logically follow.

The devil, of course, is in the details, for instance, unnecessarily strict Rules of Origin could thwart benefits, but the LDCs are confident that the political will reflected in the decision will ensure that does not happen. There are also encouraging signs in the United States, Canada and Japan, which while possibly insufficient as of now, have the potential of developing into positive opportunities, although some considerable work will need to be done. But the weight of the past may show limited benefits of market access measures such as under the Lome Convention and the GSP, particularly for sub-Saharan Africa. This is largely due to the supply side constraints. Also, the burgeoning system of preferential regional trading arrangements taking place all over the world erode some of the preferential opportunities for the Least Developed Countries.

We have analyzed to a certain extent the reasons why the two LDC conferences could not produce the desired results. Now LDCs share the disappointment of the failure of Seattle as well. It was clear that what was stopped at Seattle was the unfettered march of the market without a human face. It was less clear what caused it to stop.

One thing that was certain is that it was not just the demonstrators. It was more likely that it was the preponderant sentiment among the vast majority of delegations that there was sufficient intellectual inconsistencies implied in the rhetorics and urgings of the key players to strengthen the perception of developing countries that new negotiations, instead of levelling their playing fields in trade, would further slope it against their interests. Green policies yes, green rooms no. Today if that perception is not eradicated, not just by promises but also by action, any fresh round of negotiations, despite demonstrated advantages, might sadly be rendered into what that bard from Stratford-upon-Avon would have called 'a consummation devoutly to be wished'.

So what are these intellectual inconsistencies that must be removed? If free trade is preached, that is what must also be practiced by the preachers. Trade distorting subsidies, CVDs, tendency to project special interest as national interests, unilateral trade sanctions, purported support of global 'public gods', disguised protectionist measures, be it in the name of 'defence' or otherwise, tend to reduce the credibility of the argument that the end of the negotiating process can yield an outcome that is closer to a Pareto improvement that is, everyone is better off after negotiations.

So, in order to persuade the developing countries and also the LDCs that benefits from negotiations are not a zero-sum game, and some will not benefit to the loss of others, the ground must be prepared. How can this be done, best done?

First of all, trade must be seen to have a broader agenda than mere trade liberalization and must be used as an engine of development. For developing countries it should be more than simply the exploitation of gains from comparative advantage of static economic efficiency, but must also be made vital to the dynamics of successful development by ensuring that the benefits are spread among the people, giving them wider choices, expanding their capabilities and thereby alleviating their poverty. In other words, the essence of poverty alleviation is not mere rises in income but empowerment, which will help trade and overall global integration.

Secondly, the implementation of past Multilateral Trade Agreements, particularly in the area of interest to the developing countries and LDCs, must be accorded priority. Developing countries and LDCs have higher costs of liberalising as the Agreements seek. Allowing for longer transition times for implementing measures for developing countries lowers the cost of adjustment, as do special and differential treatment. In addition to this concession, the more developed countries should consider establishing a formal programme of trade adjustment assistance. Finger and Schuler have shown that implementation of just a few of the Uruguay Round Agreements can eat up a year's work of development assistance in a country. Also, interest must be shown in the implementation of elements of an agreement that directly interest developing countries. For instance in the Agreement on Agriculture, the Marrakesh Ministerial Decision for Net Food Importing developing countries should be concretized; or in the GATS, the Moment of Natural Persons that benefits construction industries and, therefore, developing countries, should be facilitated.

Thirdly, capacity-building in the LDCs must be assisted and this must be done across a broad spectrum human resources, infrastructure, debt-forgiveness to relieve resources for productive use. Good governance and democratic pluralism must be encouraged, but not just in their hardware, that is, not just in the institutions, but also in their software, which is appropriate policies. No investments or capital will flow into societies where governance is suspect at worst, or weak at best.

Fourthly, since it is unlikely that there will be a significant inflow of resources through other means, aid remains a critical need. The current dip in ODA must be reversed, and since reforms and other measures would be expected to improve utilization, global public opinion would hopefully be supportive. Modalities must be improved. Untying of aid, as the UK has praiseworthily announced all their future assistance will be, would be of enormous benefit by enhancing effectivity, efficiency and transition cost reduction. It is hoped that the OECD, the European Union and others will follow suit. However, it must not lead to a decrease in quantum, for that would take away by one hand what the other hand is giving.

Fifthly, there are many LDCs who are heir to great historical traditions and still enjoy considerable, what we call, non-technological resources, that is intellectual resources, who should be encouraged to take advantage of the IT Revolution. I know Mark Malloch Brown makes a very strong point with regard to this. It holds tremendous prospects for them, including the possibilities and potentials to leapfrog stages of development. However, once again let me introduce a modicum of caution. This is best gently done. For some amount of resistance in some of these countries may be culturally motivated and allowances must be made for fears of potential revenue-losses.

And finally, to bear in mind that transparency and honesty make good economic and practical sense particularly at an age when human intellectual capacity to discern hidden agendas, if any, is fairly developed. Unless benefits are mutual, and seen to be mutual, it will NOT be possible to engage all concerned, which is essential to do given the rule of consensus we operate by in global rule-making. In contemporary society we must try and forge the right kind of partnership between governments, international organization and the civil society, who have a crucial role to play, individually and collectively.

So, any programme of action on Trade for LDCs must contain the following elements: first, bound quota-free duty free market access for all products originating in the LDCs, and the EBA is a god start. The market access for LDCs remain the most lasting service which the international system can provide to the LDCs. It will stimulate both investment and technology inflows guided by the impetus of marketforces. How this is important? I belong to that generation of the new school of LDC officials who view development in purely non-ideological terms. Because I believe, we believe, that whatever modest gains my system, my country have achieved has been due to the conformity to that paradigm. Now such a regime of uninterrupted market assistance for all LDCs should aim at the quota free, duty free tariff, it should revise the Rules of Origin requirement for preferential treatment under various GSP schemes to suit the development of the local manufacturing capacities in the LDCs. In the Agreement on Textiles and Clothing, we must try and bring the integration of the MFA forward by one stage in order to provide the LDCs with a quota-free regime in trade and clothing beginning 1 January 2002. This will erode some of the threats that are there already for them when the whole trade is totally integrated; and we must put a moratorium on the imposition of safeguard measures, such as countervailing duties on products exported by LDCs and integrate them into the WTO. It is also true of course, by the very nature of the LDC exports, that they are not seen as threats to any major markets and, therefore, they have very few countervailing duties imposed on them.

But nonetheless, it would be appropriate proper and politically right and it would make much sense to put it down as an air bound undertaking at this point in time. We must ensure that real issues and now issues like labour standards, competition policy and the environment are not only done, but even seen to be done, and not used as protectionist measures. Commonsense will tell us that any attempt to launch a new round of agreement thereafter would be barred, that's why I referred to the rules of consensus in rule making. So we have to be very very careful with regard to that each of them is very important issue. In my own country we have made tremendous progress in terms of child labour. We have made agreements with the ILO with regard to taking these children to schools. But each issue to the foreign born you cannot take and use as an instrument of trade protection and it would also be unfair, very unfair, to use this as an instrument against the world's poorest.

Technical assistance must address supply side constraints because many countries particularly in sub-Saharan Africa are not in a position to take advantage of these market openings. So you need to operationalise the IF initiative for technical assistance to LDCs and this has been done. Now, this should seek formalisation of specific commitments for countries, which have already articulated their technical assistance needs under IF. A Global fund should be set up for this purpose to underwrite concrete programmes and to bring matching grants to LDCs. Compliance should be ensured by developed countries that LDCs with article 66.2 of the TRIPS Agreement. This is a very indirect form of assistance because 66.2 requires them to provide assistance to their own industries to facilitate the transfer of technology to LDCs. Assisted in the Dispute Settlement Mechanism, whether their new mechanism in the dispute settlement, the legal advisory body, is to be an advantage or not, we do not know yet, but at some point in time if it provides legal assistance to the least developed countries, yes, it could be of some assistance.

Not so long ago the problem of development was seen to be a problem of growth, a growth that must be fostered by a combination of macro-economic stability, trade liberalization and privatization the so called Washington Consensus. It was thought that those who slipped from the model could be helped with aid. But then we began to seek a better quality of life, and widen our goals; and so those narrow instruments had to be expanded, resulting in what Joseph Stiglitz and others have called the Post Washington Consensus. Geneva proffered the idea that trade was to be, not an end in itself, but the means to the end that was development. Mahbubul Huq famously warned that human development, unless engendered, would be totally endangered.

So, after the said tale from Seattle, key players began to subscribe to what was known as the New Development Paradigm, with its focus on poverty alleviation, an appropriate mix of quantity and quality of growth, and what I would call "humanomics" for want of a better word. No, it's not that goal posts have been moved; yes, it is that we have evolved ourselves to a higher plane of global moral and ethical responsibility.

It is this responsibility that is so happily evidenced in the heightening of global interesting LDCs. The LDCs themselves are most eager to contribute to this. They are aware that the reason why the bloom went out of the rose of aid is because of perceived mismanagement both at donor's and recipient's ends. No longer are they, like Oliver Twist, simply asking for more. They remember Amartya Sen's famous dictum that famine is incompatible with free press. They are willing to test, sharpen, and hone their indigenous ideas such as the Grameen micro-credit initiatives, which have yielded such positive results. More than ever before they recognize that there is a hill to climb waiting will not make it any smaller.

The article is based on the text of a statement made by Dr. Iftekhar Ahmed Chowdhury (formerly the Bangladesh Ambassador to the United Nations in Geneva) Special Advisor to Secretary General of the United Nations Conference on Trade and Development (UNCTAD) at the Ministerial Round Table on Trade and Poverty held at the British Foreign Office in March.

Source: The Daily Star, Dhaka, July 17, 2001
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