Cosseted countries come under spotlight

By Yoke Har Lee

The World Trade Organisation must put a stop to developing countries dragging the chain on market reforms but still enjoying free access into developed economies, says a US strategist.

Dr Allan Mendelowitz, vice president of Washington-based Economic Strategy Institute, an influential policy think-tank, said developing countries had taken advantage off special treatment to retain trade barriers.

This is a legacy left behind by the predecessor of the WTO, the General Agreement on Tariff and Trade (Gatt) which provided what is known as the GSP (generalised system of preferences), offering privileges to developing countries to allow domestic industries time to get up to scratch before they are opened up to international competition.

This had led to developing economies enjoying access to developed countries without reciprocal reductions in tariff barriers.

Dr Mendelowitz is in favour of scaling back these special privileges, not necessarily in terms of market access but in allowing these countries to continue engaging in the industrial policies that contribute to excess global capacity.

An example was Korea, whose government-led industrial development in sectors such as semiconductors, steel and automotive industries came in the face of excess global capacities, Dr Mendelowitz told the Business Herald.

"I don't believe that, at least empirical evidence tells us that, government-directed industrial policies are worth doing. It has been shown that it is not worthwhile for the developed world and less worthwhile for the developing world," he said.

The election to find a new chief for the WTO underlay this split taking place between developed and developing economies, Dr Mendelowitz said.

The US, he said, supported Mike Moore as a candidate for the job because Mr Moore represented an economy that had made great progress in market reforms, overtaking even the US in the reform tracks.

"Mike Moore comes from a country with several important attributes, a country free from corruption and has a tradition of a strong rule of the law where Government and business make decisions that are at arm's length. New Zealand lives that value system that underpins the whole logic of the WTO."

As the WTO shapes up to tackle the next round of negotiations, Dr Mendelowitz said one of the most contentious issues to be addressed would be to include environmental, human and labour rights in discussions to deal with the competitive advantage issues couched in social and political agendas.

An example was child labour. While no sovereign country should be told what was the legal minimum age a child should be allowed to work, there could be debate about whether a company had true competitive advantage if it employed child labour.

Dr Mendelowitz admits that while the US is a champion of free trade, its industries have enjoyed and some continue to enjoy subsidies or protection.

But the progress made in reforms had been major, including the aviation industry, telecommunications, surface transportation and financial services among others. These had led to unparalleled growth in innovation and opened up choices for US consumers.

And while the world continues to harp on the US returning to protectionism, Dr Mendelowitz pointed out that the US with its trade deficit reaching US$200 billion remained the market of last resort, demonstrated by the recovery of Asian exports.

The same protectionism sentiment said to be rising in America was also the consumer creature that bought most of the world's products, he said.

More important for free trade detractors to remember was that no one could prosper in a trading environment if countries remained poor, Dr Mendelowitz said.

He said he was appalled by theories that the US engineered the Asian financial crisis to stop their economic prowess.

"I hear these views and am absolutely appalled that these views have currency. The reality is the US doesn't prosper if the rest of the world is poor. The US prospers more when the rest of the world is doing well. The US wants to see these countries do well, not for humanitarian reasons but because the better other countries do, the better off the US will be. No one prospers in the world trading system from someone else's poverty," Dr Mendelowitz said.

The Millennium Round of WTO negotiations should make several agendas priority. They included negotiations to make real progress in terms of removing tariffs on agriculture trade; and negotiations to remove non-tariff barriers such as discriminatory government procurement practices, Dr Mendelowitz added.

On the view that developing countries are increasingly marginalised at the WTO, Dr Mendelowitz said he was of the opinion that countries which held the view that markets should be the best allocator of resources would not be in conflict with each other.

"To the extent that a country accepts that, and its goals work towards that, then its views are compatible. A country that holds that view could be a large and developed economy like the US, or a small one like Singapore or a developing economy like Hong Kong. If there are any schisms within the organisation, I don't think that it is over support for these fundamental principles that if somehow you are from the developing country, your view is not counted."

But countries which continued to promote industrial development policies through state-directed capital or export subsidies would find their goals contradicted the WTO's underlying principle of allowing markets to decide which industries capital should be invested in.

He said there was a lot of scope for governments to pursue appropriate economic development without conflicting with the WTO's free market principles.