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By Suchita Vemuri The Trade and Development Report 2007, released by UNCTAD recently, evaluates the relative benefits of regionalism and globalisation, highlighting the gains as well as the risks from regional cooperation and multilateral agreements, especially for developing countries
The ‘Globalisation Years’ between 2003 and 2007 have seen the per capita gross domestic product (GDP) of developing countries increase by 30%. Less than 10 of the world’s 143 developing nations are likely to see a fall in real per capita income in 2007. The real exports of developing countries have more than doubled between 1998 and 2006, with East and South Asia, led by China and India, increasing exports (in terms of volume) by about 160%. The share of developing countries in total global trade rose from 29% in 1996 to 37% in 2006, the bulk of the growth in manufactured goods. Yet, according to UNCTAD’s Trade and Development Report 2007 (TDR 2007), global imbalances still await a solution. The recently released Report emphasises that even as the environment for growth has benefited developing countries, it continues to be marked by net capital flow from developing countries to the developed world. The Report evaluates the benefits of regionalism vs globalisation, describing the gains as well as the risks to developing nations from regional cooperation and multilateral pacts. UNCTAD has, in recent years, focused on the impact of the increasing number of regional trade agreements. TDR 2007 includes a categorical statement based on its analysis of the trend: “Regional cooperation among developing countries has the potential to support national development strategies and, to some extent, fill the gaps in the global economic governance system.” The Foreword to the Report by UN Secretary General Ban Ki-moon says equally bluntly: “By working together more closely and building on common and complementary interests, partners in the same geographical region can significantly strengthen their efforts to meet the challenges of globalisation.” At the same time, UNCTAD warns that this “new regionalism” is a risky departure from multilateralism, in that they “reduce the options for developing country policymakers to carry out proactive policies in support of industrialisation and structural change.” Another key area that influences global imbalances, which may continue to be ignored in the absence of multilateral agreements, is exchange-rate arrangements. The number of reported bilateral and regional trade agreements increased from 20 in 1990 to 86 in 2000 and 159 in 2007. Such agreements are focused on trade alone, whereas multilateral agreements, including those under the World Trade Organisation, address structural and equity issues. And this is where the risk lies. To mitigate this risk, UNCTAD strongly proposes that “Regional cooperation should also include coordinated and joint action in policy areas that strengthen the potential for growth and structural change in developing countries, including macroeconomic, financial, infrastructure and industrial policies.” It emphasises that “regional monetary and financial cooperation can fill some of the gaps in global financial governance.” The fundamental problem with the UNCTAD position is not so much with the arguments it presents as with what it fails to state. What the Report ignores is the impact of politics on trade arrangements, on regional monetary cooperation and on joint infrastructure and macroeconomic initiatives by neighbouring countries. Regarding the impact of politics on trade, the Report points out that lack of diversity and balance in trading partnerships leaves countries vulnerable. For example, it says, while China and India are setting the pace for growth, the main risk they face in the near future is “that a major recession in the United States could sharply curtail these countries’ exports.” But it does not discuss why, when almost all other regional pacts have proved remarkably successful, the South Asian Association of Regional Cooperation (SAARC) and the South Asian Free Trade Area (SAFTA) have not taken off even decades after the launch of the former. This failure is clearly due to political factors. However, UNCTAD hesitates to point out that politics can contribute to the success or failure of such arrangements. Regarding politics and regional monetary cooperation, the Report ignores the impact of the European monetary union on the US dollar and, therefore, on US foreign policy decisions culminating in military actions. It is well known that Iraq’s decision to link its currency (and, therefore, its then substantial oil trade) to the Euro -- along with other factors, including Europe’s increasing links with Iraq’s then-planned energy-related infrastructure development programmes -- was a significant trigger for the US decision to invade that country. And, with regard to joint infrastructure and macroeconomic initiatives by neighbouring countries, the UNCTAD report fails to acknowledge the political repercussions of cooperation between nations to share expertise to develop nuclear power infrastructure. It also fails to mention the reaction of countries such as Russia, France and the US, among others, to such an initiative by Iran or, for that matter, by India, Iran and Pakistan in developing an oil pipeline from Iran to India, through Pakistan. It is all too evident that the reaction of “developed” countries to such proposals is shaping political, economic, financial and other relations between nations. InfoChange News & Features, October 2007
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