By Supachai Panitchpakdi
GENEVA, Jul 9 2013 (IPS)

Almost five years have passed since the global financial crisis, and the world economy is still reeling from its consequences. The main reason for this is the continued stagnation in developed countries, which is adversely affecting economic dynamism in other regions.

Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD)

Indeed, growth in the advanced economies is likely to slow down from 1.2 percent in 2012 to only 0.8 percent in 2013. If developed countries remain unable to revive their economies, there is a risk that this mediocre pace of growth may yet turn into a global recession.

At this juncture, we therefore face a dual challenge: first, we must urgently take measures to restore stable and sustained growth in the world economy, so as to truly overcome the crisis. Second, and perhaps even more importantly, we must ensure that such a devastating financial crisis cannot recur. This will require making significant reforms to global economic governance, far beyond what has been achieved so far.

Slow growth in the advanced economies and thus in the world economy is partly the natural consequence of a credit crunch and sharply reduced demand in the aftermath of a crisis. However, in many countries, these effects are being exacerbated by severe austerity policies.

Despite years of unprecedented monetary expansions in the United States, Europe and, more recently, Japan, banking credit provided to the private sector has stagnated, or even decreased. The problem is not the supply of money, but aggregate demand.

Desperately needed are measures to support demand. And yet, austerity policies are contracting demand by raising taxes and reducing expenditure, just when such expenditure would be most required. In this way, several countries that have adopted austerity policies have now been pushed into a double-dip recession.

In addition, since these austerity programmes hamper growth – and, consequently, public revenues – they do not achieve their target of fiscal consolidation either.

It is therefore time to reassess the merits of the current policy approach.

The second key challenge is to prevent a recurrence of the crisis. The financial meltdown at the heart of the financial system has reminded us of a lesson we should already have learnt after the Asian Financial crisis (1997-1998), namely that deregulated financial markets do not allocate resources efficiently and are prone to herd-behaviour and crises.

Nevertheless, after the initial flurry of measures to bail out banks and companies in need of liquidity, enthusiasm to address the wider systemic origins of the crisis quickly faded.

At the national level, there have been efforts to strengthen regulation of the financial sector in the U.S. But at the global level, reforms have been limited to a slight revision of the Basel Capital Adequacy accord, as well as a number of measures to address tax havens. It is not clear whether these measures could have prevented the financial crisis, had they been in place in 2007. And yet, even these minor steps are beginning to be rolled back.

More importantly, the reforms have not addressed the more fundamental problems of our global financial architecture. The current system based on deregulated capital markets and floating exchange rates has not prevented prolonged misalignments of exchange rates, or the build-up of large current account imbalances. It has also failed to avert the disorderly expansion of short-term capital movements, which are a major factor of economic instability.

In order to address these issues, much bolder reforms will be required. The United Nations Conference on Trade and Development (UNCTAD) has long argued that international monetary and financial relations should be governed by rules similar to those currently governing the use of trade policy measures in the World Trade Organisation (World Trade Organisation).

In a world where tariffs and international trade are increasingly governed by a set of rules to prevent “beggar-thy-neighbour” policies and foster trade liberalisation, it is incomprehensible that similar rules do not exist for the global financial system. And this is despite the fact that even small realignments of exchange rates can wipe out any gains from trade liberalisation, or that exchange rate crises have repeatedly shown themselves to have devastating effects.

A multilateral system of rules could ensure that exchange rates better reflect long-run fundamentals, and credibly prevent the build-up of imbalances.

Similarly, there is a need to rein in the large volumes of speculative capital flows. Such unregulated capital flows generate a risk not only in the recipient country, but also in the source economy, where the solvency of banks may be undermined by their exposure to asset bubbles in foreign countries.

Financial supervision should therefore be applied at both ends of capital movements. Already, the International Monetary Fund (IMF) has recently changed its position on the use of capital controls under certain circumstances. However, a multilateral arrangement (such as the “Tobin tax”) would probably be more effective.

It is clear that truly preventing future financial crisis will require an overhaul of the current system tantamount to a new Bretton Woods. Any such system must, of course, give greater voice to developing nations than they have so far enjoyed in the international financial institutions.

(END/COPYRIGHT IPS)

Excerpt:

By Supachai Panitchpakdi
GENEVA, May 9 2013 (IPS)

The global repercussions of the 2007-2008 financial crisis are a stark reminder of the economic interdependence in our globalising world. No country was spared from the shock waves that originated in the financial systems of developed economies.

Supachai Panitchpakdi, secretary-general of the United Nations Conference on Trade and Development (UNCTAD). Credit: UNCTAD.

Transmitted through both trade and financial channels, they led to an economic slowdown in most countries, and even outright recessions in others.

These recent events call for a thorough examination of the different kinds of possible shocks to the external economic environment and the channels through which they spread. We also need to better understand the factors that determine countries’ vulnerability to such shocks, and how we can strengthen the resilience of different economies.

Perhaps the most obvious case of an external shock is that of a financial crisis, such as the Asian Financial Crisis initiated in the early summer of 1997, or the most recent global financial crisis.

These shocks have demonstrated that countries need to build resilience against the shortcomings of our international monetary and financial system. The most pertinent shortcoming is the failure to avoid a disorderly expansion of short-term capital movements, which have been a major factor in creating economic instability.

Partly as a result of the experiences of the Asian Financial Crisis, many developing countries have built up their resilience and are in a stronger position today to withstand shocks originating in international capital markets than in previous decades.

Lower debt-to-GDP ratios and improved debt management have been contributing factors in this resilience. But the most important factor in shielding these countries from the volatility of capital flows has likely been their accumulation of foreign exchange reserves.

However, reserve accumulation as an insurance against the instability of capital markets is a costly policy measure, and one that is always second best to multilateral measures to better regulate these markets.

Furthermore, not all countries have been able to build up such a “war chest”. Indeed, some countries are now left with little reserves to cope with future needs that may arise in international financial markets, making them more vulnerable to external shocks.

A second external shock that has recently affected many developing countries is the sharp slowdown in demand for their exports in the developed markets after the recent financial crisis.

In the decade preceding the crisis, many developing countries were able to benefit from a trade-led expansion, allowing them to achieve growth rates that were sometimes four or five percentage points higher than those of the developed world.

This resulted in a significant shift in the balance of the world economy, with developing countries accounting for a growing share of trade and growth, and led some pundits to argue that we were about to witness a “de-coupling”, which would see developing countries continue to grow despite the unsatisfactory performance of developed countries.

However, prospects in the developing world remain heavily influenced by the growth dynamism in the developed countries. To the extent that developing countries continue to rely on exports to developed countries as their key growth driver and have to cope with unfettered capital flows generating boom and bust cycles, their economies will remain vulnerable to shocks to their external economic environment.

Most forecasts predict that the current difficult external environment is likely to remain for the near future, with only a slow recovery towards a weak growth path in advanced economies.

This suggests that developing and transition economies will need to reduce their export orientation to developed economies if they want to continue to grow and increase their resilience to external economic shocks. Instead, they will need to rely more on domestic, regional and South-South trade. Thus they will need to adapt their development strategy in order to strengthen resilience.

On the other hand, coordinated measures at the multilateral level to expand global demand would be preferable. For example, increasing domestic demand in advanced countries with a current account surplus would stimulate global demand while helping to reduce global imbalances. This would be more appropriate than the current process of global rebalancing, which is being led by demand compression in deficit countries, accentuating the risks of a global economic downturn.

These are only two examples of significant external shocks that developing countries are vulnerable to. Identifying external shocks and mitigating their impact on trade and development requires the availability of statistical tools that capture the growing interdependence of national economies.

Among the many measures that are available, the terms of trade is a key indicator of the impact of external shocks, especially in countries with a high share of external trade relative to gross domestic product.

The United Nations Conference on Trade and Development (UNCTAD) has been particularly active in this area, pursuing the development of more disaggregated terms of trade figures by estimating the contribution of different product groups to changes in the terms of trade.

All these issues require the attention of policymakers, as a better understanding of the problems will help in finding solutions.

(END/COPYRIGHT IPS)

Excerpt:

The global economy weakened significantly towards the end of 2011 and further downward pressure emerged in the course of 2012. The growth rate of global output, which had already decelerated from 4.1 percent in 2010 to 2.7 percent in 2011, is expected to slow down even more in 2012 to around 2.3 per cent. Developed economies as a whole are likely to grow by only slightly more than one per cent in 2012, owing mainly to the recession currently gripping the European Union (EU).

Supachai Panichpakdi

This contrasts with a much stronger performance in developing and transition economies, where growth should remain relatively high, at around five and four percent respectively. However, even in these economies growth is losing steam, showing that they cannot avoid the impacts of economic troubles in the developed countries.

On top of already weak private demand, fiscal tightening has been adopted in several developed countries with a view to reducing public debt and restoring the confidence of financial markets. However, these policies have further weakened domestic demand and growth, which is detrimental to the goals of fiscal consolidation and improved confidence.

Some governments are trying to stimulate growth through increasing exports, and are working to improve their competitiveness by reducing nominal wages and other costs. For several European countries within the monetary union, this would be the way to achieve a real devaluation. The danger with this policy is that it will severely damage domestic demand before it can help to regain competitiveness, thus putting into question the adjustment process.

Developed economies should therefore change the focus of their policies from fiscal consolidation and internal devaluation to restoring growth, because this is the only way in which they can avoid a recurrence of a financial and fiscal crisis. Countries with larger fiscal space and current account surpluses should take the lead by expanding their domestic demand. This would be in line with their commitments at the last G-20 Summit, and contribute to a growth-friendly global rebalancing.

Most developing and transition economies have actually supported their growth by encouraging domestic demand and pursuing countercyclical policies, including the provision of fiscal stimulus and expansionary credit. They have also succeeded in preventing a significant rise in unemployment, and have enabled the continued growth of real wages. All this, together with public transfers in several countries, has promoted private consumption, and consequently, productive investment, even though this has not always been sufficient to avoid growth deceleration.

Indeed, the developing and transition economies are being affected by slow growth or economic contraction in the developed countries. This is reflected in stagnating export volumes to those markets and a declining trend in commodity prices since the second quarter of 2011.

Moreover, financial instability and excessive reliance on monetary policies in developed countries is affecting financial flows to emerging market economies and adding to the inherent volatility of commodity prices.

Therefore, the risk of a new major shock in global financial markets cannot be excluded, with a potentially large impact on international trade volumes, asset and commodity prices, risk spreads, capital flows and exchange rates, all of which would affect developing and transition economies.

Some governments are looking to implement structural reforms to overcome the crisis. The United Nations Conference on Trade and Development (UNCTAD) has always supported the need for structural reforms, since no development process can happen without changes in economic and social structures. However, today, structural reforms are often focused on attempts to introduce greater labour market flexibility.

Yet, such reforms would undermine the incentives for investment and innovation. Indeed, if less efficient firms can compensate for their lower profits by cutting wages, they are not forced to increase their productivity to survive and expand. Such reforms also threaten to further undermine domestic demand. In order to revitalise sustained growth, governments must take measures to reduce income inequality, by assuring the participation of all social groups in productivity gains stemming from economic and technological advancement.

Labor market reforms are not a way out of the crisis, because the crisis did not originate in the labor market. Additionally, structural policies cannot be a substitute for pro-growth macroeconomic polices. Structural reforms have to address the very roots of the present crisis, namely the fragility of the financial system and the trend towards increasing income inequality.

In contrast, the structural reforms being adopted by a number of developing countries have tended to create or reinforce social safety nets and to expand the role of public policies for supporting investment and structural change. Most of these measures are countercyclical, as they aim to safeguard employment and support economic activity in troubled times.

The renewed fragility of the world economy, and the growing downside risks, including for developing countries, have brought us to the brink of a second recession. The developing countries cannot bear the burden of supporting global growth alone. Urgent action is therefore needed to restore growth, particularly in the developed world, and to take measures to prevent a recurrence of the financial and economic crisis. (END/COPYRIGHT IPS)

Supachai Panitchpakdi is the secretary-general of the United Nations Conference on Trade and Development (UNCTAD).

Although it remains the fastest growing region, Asia is already experiencing an economic slowdown, with gross domestic product (GDP) expected to fall from 6.8 percent in 2011 to slightly below six percent in 2012. Several countries – including China, India and Turkey – have been adversely affected by weaker demand from developed countries.

Supachai Panitchpakdi

Given the headwinds from the international economy, some developing countries have since relaxed their monetary conditions and many of them have applied countercyclical measures that are helping to boost household incomes and to maintain a much needed shift from external to domestic demand, alongside the role of investment.

China, for example, has played a critical role in global rebalancing, being the chief engine of world growth since 2009 and having reduced its surplus markedly (from 10 percent of GDP in 2007 to two percent in 2012) as it shifted its economy towards domestic demand.

In China and other major economies in the region, however, internal rebalancing remains unfinished as private consumption should take on a greater role relative to investment. High wage growth will help to support this goal as well as helping to promote further external rebalancing.

High and volatile commodity prices also present a risk to the rebalancing process for the Asian region, because they can be a drag on growth. Rising oil prices, for example, act as an immediate dampener on aggregate spending in fuel-importing countries, contracting spending more or less immediately, whereas any spending expansion from fuel-exporting countries occurs only after a lag.

However the main risk continues to be concentrated in the developed economies, where the United Nations Conference on Trade and Development (UNCTAD) has long been concerned that premature and excessive fiscal austerity is choking recovery and growth unnecessarily. The developing economies in Asia have played a major role stoking the engine of growth since the crisis, but this could be derailed if there continues to be a decline in consumer demand from their traditional markets in the advanced economies, and the effects of a reduction in this demand would of course have further spill-over effects if it provoked a downturn in Asian household and investment demand.

The second aspect of the rebalancing has occurred after the crisis. Global trade rebalancing has been largely due to the decrease in China’s exports and the increase in its domestic demand. Trade imbalances for many other East and South-East Asian (ASEAN) countries have not altered significantly. In 2011, the trade surplus of ASEAN as a whole had recovered to its 2007 level and it is currently similar in size to that of China, at about 100 billion dollars.

The rebalancing of the last three years has been due to a number of factors: the worsening terms of trade, especially for China, the decrease in international demand for products collaboratively (vertically) produced by East Asian countries, and the increase in domestic demand in China.

In practice, while China’s trade surplus is largely related to its trade with high-income markets, that of other East Asia countries is largely owing to trade with China. Indeed, the trade surplus of ASEAN countries with China has been increasing in the recent years.

The implications of this rebalancing are largely related to Chinese imports from the region. In this regard, the increase in Chinese domestic demand and the weak international demand for Chinese manufactures are resulting in a shift in the composition of Chinese imports. In practice, China imports relatively fewer goods to fuel its export sectors, and more consumption goods to meet the increasing domestic demand.

In this context, regional partners serving the Chinese export industry (those with vertical supply chain links with China) are likely to continue to be negatively affected as long as demand for Chinese exports remains weak. On the other hand, regional firms serving the Chinese domestic markets are likely to show continuous growth. However, a caveat is that China’s demand for final goods is still largely met by domestic producers, and thus the increase in domestic demand may not have large external spillovers.

A reduction in international demand for Chinese exports may also accelerate the transformation of the Chinese manufacturing industry towards higher value-added goods. This clearly depends on the extent to which Chinese firms are able to upgrade along the value chain and to capture market share in these segments.

If (or when) this occurs, it may have repercussions for the vertical integration of production processes in the region. In practice, Chinese firms could turn from vertically integrated partners into competitors of firms in more advanced countries. On the other hand, the process of manufacturing upgrading may benefit less advanced economies in the region, which are presently competitors of Chinese firms.

Ultimately, what is most important is that regional markets remain open, so that rising domestic demand in each country is met not only by domestic enterprises but also by those operating in other countries of the region. (END/COPYRIGHT IPS))

* Supachai Panitchpakdi is the secretary-general of the United Nations Conference on Trade and Development (UNCTAD).

In 2010, global biofuel production (bioethanol and biodiesel) reached 105 billion litres and is expected to almost double by 2020. Provided that oil prices remain relatively high ­ which is likely ­ the production of biofuels is expected to grow at double-digit rates for the next decade. Most of the biofuels produced are consumed at the national and local levels, with only seven percent of total production being exported. This reflects the fact that biofuels are mainly used for energy diversification and national energy security strategies.

The biofuel business model has changed dramatically over the past decade or so, in many cases because of concerns about the impact of biofuel production on land use and food security.

Fundamental changes in the harvesting methods of biofuel crops, the collection of inputs, the type of inputs used, production methods, and storage and distribution systems have all contributed to a more efficient and sustainable biofuel production process.

With today’s technologies, biofuels can be produced from a much wider range of edible crops as well as various non-edible sources like jatropha, algae, and agricultural residues. While the amount of non-food crops used in biofuel production is still low, the use of second-generation technologies may significantly change that within the next decade.

Biofuels were originally used mostly in the transport sector, but they are now used for a number of other sectors as well, from electricity generation and chemical blending to clean cooking and even aviation. These options and possibilities enhance their value for human development.

Locations and scale have also changed. Due to high prices of fossil-based energy and the incorporation of financial and procurement incentives, biofuels are now becoming an option for small-scale electricity generation in isolated areas of developing and least developed countries.

All of these developments demonstrate the growing potential of biofuels as an alternative source of energy. However, beyond this, biofuels also have important human and social development dimensions.

If carefully conceived and managed, biofuel projects and investments have the potential not only to improve energy security but also to create job and income opportunities in rural areas, boost local innovation systems, and add value to agricultural production.

This is particularly true in the case of second-generation biofuels, where the levels of value addition in the production process and the qualifications required from workers and professionals are much higher. For example, in a recent study by the United Nations Conference on Trade and Development (UNCTAD) on the contribution of biofuels to the rural economy in Mexico, there is evidence that producing biofuels from agricultural residues can result in substantial increases in employment in agriculture. Bioelectricity from agricultural residues could add more than 39,000 new jobs (direct and indirect), bioethanol more than 49,000, biodiesel 71,000, and biogas 4,000 jobs ­ all offering better wages and demanding higher qualification than the current average in Mexican agriculture.

Worldwide, it has been estimated that 1.4 million people were employed in biofuels production as of 2010, and if current growth rates continue another two million jobs should be added globally by 2020.

But this is not the end of the story. Many countries are successfully designing and adapting their biofuel production and distribution systems to address local concerns and needs, for example through initiatives to provide energy to isolated regions, or to make biofuels an explicit component of national, regional, and local development strategies. Experiences in Nepal and the Brazilian Amazon have demonstrated not only that it is economically feasible to engage in small-scale biofuel models but also that they can contribute to local job creation, social inclusion, the use of local plant species, improvement in waste management, and the provision of affordable electricity in areas without access to modern energy services.

This promising scenario has not, however, prevailed everywhere. In Peru, for example, excitement over biofuel crop production in the Amazon contrasts with concerns about the loss of tropical forests and changes in land use, the indirect effects of roads, infrastructure, and disorganised human settlements, as well as potential risks to protected areas and buffer zones. Biofuels production will become sustainable only if due consideration is given to the specific ecological, social, and economic features of the countries concerned and if there is the political will to develop and implement appropriate and effective assessment and mitigation strategies. (END/COPYRIGHT IPS)

* Supachai Panitchpakdi is the secretary-general of the United Nations Conference on Trade and Development (UNCTAD)

By - - and Supachai Panitchpakdi
GENEVA, May 31 2011 (IPS)

In the past two decades, it has often been claimed that trade liberalization can, on balance, be a positive force for development. During this time, the Least Development Countries (LDCs) themselves became some of the most open economies in the world, based on the share of their exports in Gross Domestic Product (GDP). But greater opening of LDCs markets has not always benefitted all people in these countries, and the impact of trade reforms has affected their populations differentially.

In general, trade liberalisation can have strong redistributive effects within the economy, potentially benefitting some industrial sectors and harming others. At a more disaggregated level, such effects can also magnify or reduce existing disparities among different groups based on gender, ethnicity, class, and geography. With regard to gender, trade policies can have strong differential impacts on men and women. The degree of difference will depend on a number of factors, including existing gender patterns within the division of labour, structural inequalities in the ownership of assets, educational level and entitlements, and the pattern of (traditional) gender roles.

When considering trade reforms, therefore, it is crucial for policy makers to anticipate how policy changes will affect the redistribution of jobs and wealth at a sectoral level, and to prevent the deepening of social polarisation and exclusion.

The United Nations Conference on Trade and Development (UNCTAD) has repeatedly stressed that a key feature of the last two decades was the disconnect between economic growth and social development. An era of globalisation that was defined by opening up to trade and capital flows has left many countries with increased income disparities, and rising social inequality and exclusion even in economies that recorded high levels of GDP growth and trade. The economic crisis of 2008/9 has shown that globalisation needs to be led by a development agenda, in which the State plays a stronger catalytic role through policy, regulation and institutions.

Macroeconomic policy, and trade policy in particular, can and should be used not only to promote trade but to achieve other social policy objectives, such as the better opportunities for women in the labour market. A globalisation process that leaves behind important segments of the population is not conducive to development or, indeed, to long-term, sustainable economic growth.

In the LDCs, trade policies that are aimed at fostering market integration should thus be cautiously designed so as to contribute to sustainable and equitable socio-economic development. In practice, this often calls for a balance to be struck between new, dynamic export sectors and traditional ones. UNCTADs own analysis of the gender dimension of trade policy, through a series of country case studies, seeks to assess who would benefit from trade liberalisation policies and whether there would be a gender bias in any gains arising from increased trade.

A recent study of Bhutan analyses this question, with a specific focus on agriculture and intellectual property.

Agriculture is the main source of employment in Bhutan accounting for more than 65 percent of the total work force and just over 72 percent of the female work force. Such a distribution is common in many LDCs where women are predominantly employed in the agricultural sector. Beyond subsistence agriculture, women in Bhutan are involved in producing some high-value agricultural commodities that have export potential. Carefully balanced and sequenced trade liberalisation could offer opportunities to women as producers and exporters, but attention should also be paid to food security concerns, as in other LDCs.

Trade in cultural industry goods and services can offer LDCs a strategy for diversifying their economic and export base while at the same time contributing to the conservation of their cultural heritage. One of the recommendations included in the case study is that, through strategic marketing of its global image, the country could gain brand identification and position its goods and services in high-value markets. Women would benefit enormously from this strategy, since they are involved in the production of handmade textiles and other handicraft manufactures as well as forest-based products, such as medicinal plants and essential oils. They are also employed in the tourism sector, and linkages could be established between agro-processing industries and tourism opportunities.

A further recommendation of the case study emphasised that Bhutan, and LDCs in general, could make better use of Intellectual Property Rights to identify and give additional commercial value to cultural products and services. For example, geographical indication (GIs) and trademarks can be used for this purpose to protect local knowledge, techniques, and resources.

Addressing the challenges and opportunities of pursuing a more equal and inclusive economy, in which women can equitably share in the benefits from trade and enjoy an equal share of income and assets generally, will require attention at a number of levels. Countries must seek ways of reorienting globalisation so that it better serves the needs of all. (END/COPYRIGHT IPS)

(*) Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Mar 14 2011 (IPS)

Commodity producers are again reaping the benefits of high growth, particularly from high-demand importers, like China, and are increasingly formalising their integration into global commodity value chains. There is a growing recognition that, properly managed, resource rents can provide an important tool in the fight against poverty.

At the same time however, there are serious concerns about the way in which commodity markets have been evolving in recent years. Since mid-2010, commodities have, for the second time in 3 years, been experiencing extremely high price volatility, which is exacerbating problems for producers, traders and consumers.

Volatility is an inherent feature of dynamic commodity markets, but the magnitudes we have recently seen point to speculative distortions, especially in oil, that can complicate the economic management of production and trade, in terms of the degree of exposure to risks and the uncertainties created for investment. Moreover, such volatility has huge negative impacts on vulnerable groups, such as low-income households in developing countries for whom food expenditure can account for up to 80% of household budgets.

Prices for copper, for instance, have risen 35% since the summer, and gold, sugar, and cotton all at 30 year highs. Recently, FAO´s agricultural commodity index touched just one point below its maximum level reached in 2008, clearly signaling that the 2010-11 price hikes are similar in magnitude to 2008. Certainly, some features of the current episode of high prices remain unchanged from the first episode in 2008, such as the role played by the financialisation of agricultural commodities and the activities of some commodity funds, which seek to manipulate prices.

Nevertheless, other features are different and we should be careful to distinguish what might be distinct about the current boom. Last year witnessed several major weather events, from floods in Pakistan to fires in Russia and drought in other areas of the world, which have, for example, had a major impact on the prices of wheat and cotton. It is still open to speculation whether such events are related to climate change but the balance of evidence points to the increasing impact of climatic changes on agriculture. What is beyond doubt, however, was that short-sighted policy responses by some governments, including their use of export bans, exacerbated the price rises.

Commodities continue to provide the largest source of revenue and employment for dependent countries and their principal source of foreign exchange. Agriculture provides livelihoods for 2.3 billion people globally, mainly on poor, rural, smallholder farms, often with a high participation rate of women. However, as countries seek to rebuild from the economic crisis of 2008-9 and establish job-creating growth, one should perhaps be careful to distinguish between agricultural commodities that have a higher labour intensity from many non-agricultural commodities. Countries must pay further attention to this feature of growth in the commodities sector as they seek to innovate and diversify both within the sector and away from it, for example into higher value stages of the global commodity value chain or into related industries.

Despite a contraction in commodities trade and a fall in prices in 2008-9, the historical trend is towards increasing demand, especially in high growth areas in the developing world, which have been one of the main drivers of the commodity economy in recent years. Meeting that demand in a sustainable manner, whilst ensuring a sufficient and predictable supply, poses significant challenges. Ensuring such a predictable environment is also needed to address the acute problems of food and energy security, especially in environments of extreme poverty with the potential for social and political unrest. An increasing, and increasingly young population in the developing world, coupled with what has so far been a jobless recovery and a lack of social protection in many of these countries, will not easily withstand future price rises.

Commodity booms and busts have been a regular feature of international commodity markets for generations. However, the recent emerging phenomenon of the co-movement of all commodities has started to place certain policy restrictions on countries, in terms of their efforts to diversify their commodity sector. When commodity resources and markets are well managed and regulated, risks such as price volatility and commodity dependence can be lessened, and several notable country examples attest to this, such as Botswana, Mauritius and Brazil. These countries have also successfully used technological innovation to diversify and upgrade their commodity sectors.

To begin addressing some of these issues, it is essential to mobilise support and dialogue between high-level policy makers, business leaders and other commodity economy experts. (END/COPYRIGHT IPS)

(*) Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Sep 28 2010 (IPS)

The multiple challenges now faced by the global community can perhaps be summed up in one word: imbalances. Imbalances in food, energy, housing and financial markets were allowed to grow during a sustained economic boom, becoming increasingly interdependent. These mounting imbalances generated a level of economic fragility which eventually shattered with the collapse of Lehman Brothers in September 2008. But despite the massive amount of public resources that have been mobilized to deal with the resulting collapse, the underlying forces have been left untouched in the aftermath of the crisis. They remain a toxic threat to stable and inclusive growth and the sustainability of the recovery.

Some emerging and developing countries have demonstrated relative resilience to the impact of the crisis. This is not just an accident; in several cases, it is the result of strategic actions and policies on the part of governments. The use of reserve holdings and massive economic stimulus packages, which in China´s case amounted to 7% of GDP, helped stave off a full-blown depression. It also propelled the State back into the driving seat of economic management, with industrial, macroeconomic and selective trade policies helping to shore up against widespread market collapse.

The crisis has acted as a watershed, revealing new economic powers and exposing weaker ones. It is now clear, if ever there was any doubt, that in economic terms we are living in a multi-polar world, with new and emerging sources of trade, investment, and even aid. But there have also been other structural shifts in the past 10 years, most significantly involving surplus and deficit countries and regions. The pattern of global demand and output -in which US consumers accounted for roughly 16% of world output, and developing-country savers provided the credit lines that serviced US household debt -has proved deeply destabilizing and should not be resumed.

UNCTAD’s Trade and Development Report 2010 makes it clear that dramatic declines in public spending through deficit reductions and tighter monetary policy could have disastrous consequences for recovery, and precipitate a double dip. Moreover, the large public deficits are the result of governments responding to corporate and market failure; banks and bondholders should now show patience with the unwinding of the resulting sovereign debt.

At the multilateral level, there has been little enthusiasm for changing the pre-crisis business model. Efforts at the national level have encountered opposition and a lowering of ambition, and collectively the G20 have shied away from radical change. Indeed, politicians and business lobbies still seem committed to the pre-crisis agenda of a shrinking State, the privatization of public services, and a tough stance on large deficits -all of which would be highly risky for economic growth and social well-being during this immensely fragile period.

Elsewhere, imbalances in areas such as food are also a source of serious concern. We seem unable to comprehend the suffering of 1 in 6 of the world´s population facing acute hunger, let alone the potential political and social insecurity confronting governments in those countries where household expenditure on food has risen to nearly three quarters of household budgets.

In the past 20 years, food and energy markets, and food and financial markets, have become increasingly interlinked. The deregulation of commodities trading in the 1990s and the development of complex derivative products led to the increasing financialization of commodities and the development of food as a new asset class in its own right. Whilst this provided some new hedging opportunities and price intelligence, its aggregate effect has been to increase instability in food commodities markets, distort prices through market herd behaviour, and increase the opacity of markets. In recent weeks speculation has been on the rise again. Wheat prices increased by 50% in August, and although they have since fallen back, the increase nonetheless suggests that a 2008-style food crisis -in which prices rose by 100%- is not out of the question in the foreseeable future. Export bans were one of the causes of the 2008 food price crisis, and their re-emergence this year is not an encouraging sign.

In general, inequality within, but also across, countries has been rising everywhere in the past 30 years, even as growth rates increased. In many cases, this has been associated with distorted economic structures, including the premature disappearance of industrial capacity. In Africa, by the end of the 1990s, the production structure was reminiscent of the colonial period, consisting overwhelmingly of agriculture and mining -that is, low value-added goods with decreasing returns to scale. Despite increases in commodity prices, the terms of trade for primary commodities today remain worse vis-à-vis manufactured goods and provide fewer opportunities for productivity increases or employment.

The economic crisis has represented a further transfer of wealth, as private debt was exchanged for public debt. Yet it is taxpayers and household savers -who cannot move their money easily, and who have pensions that are not easily liquidated- who are ultimately punished by having to finance corporate bailouts and endure public-sector cuts. The ultra-mobile super-rich have so far been able to protect their private affluence because of the inaction of governments and the G20 over income tax avoidance, or damaging currency speculation, such as the so-called “carry trade”. It is time to close the tax havens and put a stop to the abuses of the privileges of wealth. This needs to be done in a coherent fashion to avoid arbitrage between tax jurisdictions, and the UN has made proposals on this in its report on the financial and economic crisis. (END/COPYRIGHT IPS))

(*) Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jun 15 2010 (IPS)

This time last year, the global economy had reached the nadir of the financial and economic crisis. Since then, a succession of optimistic commentators, media reporters, economists and others has been pointing to the strength of the recovery: the resurgence in stock markets, the restoration of bank balances, and the reversals in growth rates. At the same time, data have emerged describing the full impact and cost of the crisis, particularly for developing countries, including an increase in unemployment, an additional 53 million people falling below the poverty line and over 100 million more going hungry.

The recovery is geographically variable -driven mainly by demand from Asia- and it remains weak: it is still susceptible to threats from asset bubbles and debt crises in several regions, as well as low investment and persistent unemployment. The debt crisis in Greece, which is threatening the entire euro zone, is indicative of the continuing malaise in parts of the world economy. In the Least Developed Countries (LDCs) and other developing nations, progress towards the Millennium Development Goals (MDGs) has been reversed, and it is now unlikely that all of the goals will be achieved by 2015.

Moreover, what momentum there was for the reform of international economic governance has stalled. Apart from macro-prudential regulation and some action on bankers’ bonuses and taxation, there have been no fundamental changes to the institutional architecture of economic governance. Indeed, currently some of the most significant changes are taking place at the regional level, involving increased South-South cooperation and integration. In addition, changes in policy at the national level in both developing and developed countries -for example, from tight macroeconomic policies to a looser countercyclical stance- need to be recognised by multilateral initiatives, such as the MDGs and World Trade Organisation (WTO) trade talks.

The scale of the financial and economic crisis has made it imperative that we forge a more balanced and inclusive global economy through two channels: measured government intervention in markets and strategic policy action at the national level, and better coordinated and more inclusive economic decision-making at the international level. Such an approach would put people and development back at the centre of economic activity.

For African and other LDCs, which have limited financial resources to mount national stimulus packages or mobilise domestic resources, economic and trade growth needs to be supported by the global community. Such external support should include better market access and entry conditions at the multilateral and regional levels. It should also include support to strengthen and diversify the productive capabilities of LDCs, including through the exchange of information, technology and expertise.

India is one of the large emerging economies to have granted LDCs duty-free and quota-free (DFQF) market access. The challenge for African LDCs is to utilise the trade preferences available to them. But market access is only one element in a successful development strategy for LDCs: building a strong productive base in agriculture, manufacturing, and services that can compete internationally is another essential ingredient.

Government and multilateral action is essential in this regard, to help establish a thriving productive sector in LDCs. Internationally competitive industries and markets do not establish themselves automatically: they require government investment to support strategic infant industries, and government intervention to correct market imperfections. As we have seen during the current economic crisis, the market does not always get the prices right, nor does it always provide a level playing field for firms to compete. Governments must create fair markets through the prudent use of macroeconomic policy as well as other regulatory mechanisms, laws, and policies that maintain a healthy environment in which enterprise and economic development can flourish. Competition law and policy is one such area that governments need to get right.

Inspired by our successful experiences in Latin America, UNCTAD decided to set up a Regional Programme on Competition Law and Policy for African Countries -called AFRICOMP- to assist African countries in formulating and enforcing sound competition law and policy.

With generous financial and human resources from Norway, Sweden, Switzerland, and Germany, UNCTAD has been able to launch AFRICOMP for five African countries. In addition, other cooperating partners, including France, UNDP, and the UN Development Account, are funding UNCTAD technical assistance projects for African countries. These projects will be brought together under AFRICOMP.

However, trade is not sufficient in itself to create the levels of growth and economic development that LDCs are so in need of. Establishing a strong productive sector, which can operate in fair and competitive domestic, regional, and international markets, will also be essential for LDCs. We hope our partnerships with LDCs can be strengthened through AFRICOMP and that African LDCs and India can build on their preferential trade scheme. Together, these areas of cooperation can contribute to a more mature and prosperous exchange between countries of the South and their development partners. (END/COPYRIGHT IPS)

(*) Supachai Panitchpakdi, Secretary General of the United Nations Conference on Trade and Development (UNCTAD).and former Director General of the World Trade Organisation (WTO).

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Mar 30 2010 (IPS)

The current financial and economic crisis drew attention away from the food crisis, but the latter still remains a threat to the achievement of the Millennium Development Goals (MDGs) and sends a warning of the dangers of low investment and poor policies in the agricultural sector.

The causes of the food crisis lie partially in the specific conditions of the 2008 price spike, which included climatic conditions, such as drought, and widespread speculation in commodity markets. But the food crisis reveals also an underlying and persistent crisis of development in some countries´ agricultural sectors. Addressing the long-term threat of food insecurity will require nothing short of a Green Revolution.

Using Africa as a case study, growth in the continentÂ’s agricultural sector overall has averaged 2-to-2.5% per annum since the late 1970s, with serious implications for its ability to feed itself: it is a well-known fact that having been a net food exporter until as recently as 1988, the continent is now a net food importer. The situation is compounded by price increases, which have meant that a growing proportion of export earnings is used to feed rapidly expanding populations. However, higher prices also provide opportunities and incentives for producers and for investment in agriculture.

The prices of basic food and agricultural products have dropped significantly since their peak in June 2008. They are nonetheless almost 50% higher than in the late 1990s and the earlier part of the 2000s, thus continuing to pose challenges for the most vulnerable.

As pressures on land availability grow, countries will have to depend more on yield gains than on the expansion of cultivated land. Yet there is also the potential for rapid increases in yields if better access can be provided to fertilizers and technology -not necessarily sophisticated biotech solutions, such as genetically manipulated plant varieties, but new crop varieties, tractors, ploughs and irrigation systems.

As is now widely accepted, the relative neglect of the agricultural sector in many developing countries has led to disinvestment in supply capacities, such as extension services and infrastructure. In the past, market reforms, including structural adjustment programmes, have also played a role in undermining agricultural productivity: SAPs encouraged the dismantling of extension services, marketing boards, special agricultural banks and caisses de stabilisation (price stabilization boards). The role of the State in agricultural development was significantly reduced. The result: private investment, both domestic and foreign, was diverted more into cash crops for export than into food for local consumption.

In poorer economies where domestic investment in agriculture is limited, the potential for increased investment in agriculture relies on either official development assistance (ODA) or the attraction of foreign direct investment (FDI). Yet, multilateral and bilateral ODA for agriculture declined dramatically between 1980 and 2002, by 85% and 39%, respectively. And while the greater emphasis now being placed on social and humanitarian aid is clearly justified, it has also resulted in less aid going to the productive sectors and to agriculture, with potentially disastrous consequences.

UNCTAD research has shown that FDI in agriculture (including forestry and fisheries) and food processing (including tobacco) grew more slowly than in other industries from 1990 to 2006, in both flows and stocks. Thus the shares of these industries in total FDI inflows declined during this period by nearly half, and are now insignificant in both developed and developing host countries. The agricultural sector accounted for 0.2% of world FDI inward stock in 2006, while the food processing sector attracted less than 3%. Given the very healthy long-term prospects for the agricultural sector, these small proportions are quite surprising.

UNCTADÂ’s World Investment Report 2009 explored the role that FDI can play in helping developing countries fight hunger and develop their agricultural sectors to meet the needs of their people. The reportÂ’s main message was that transnational corporations (TNCs) have the potential to play a more significant role in agricultural production in developing countries than they have done so far, but that care should be taken to avoid any negative impact of foreign investment.

Between 1990 and 2007, FDI flows into agricultural production tripled from $1 billion to $3 billion a year.

Although these flows are quite small in proportion to overall FDI flows, they represent a huge source of finance for many low-income countries. Examples include such countries as Cambodia, Ecuador and Tanzania.

TNCsÂ’ participation in agriculture can have both positive and negative effects in developing countries. On the negative side, governments should be especially sensitive to environmental and social concerns associated with their involvement, such as the crowding-out of small farmers that might create job losses, land grab, dispossession of indigenous peoples and an overdependence on TNCs.

On the positive side, TNCsÂ’ involvement can result in the transfer of technology, standards and skills, along with jobs and market access -all of which can improve the productivity of the industry, including the farming of staple foods, and the economy as a whole. The contribution of TNCs to food security is not just about supply: they can exploit potential economies of scale that can make food more affordable, and their higher level of conformity with standards enhances food safety. All of these factors depend, however, on host countries adopting the right policies that will maximize benefits and minimize the costs of TNCsÂ’ participation.

The “real” question for most developing countries, then, is not whether to involve TNCs in agriculture and agribusiness value chains, but how to establish a framework and develop national capabilities to best harness their involvement in agriculture. (END)

(*) Supachai Panitchpakdi is the Secretary General of the United Nations Conference on Trade and Development (UNCTAD).

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jan 25 2010 (IPS)

In many respects, the diffusion of information and communication technologies (ICTs) continues to be a great development success story. Over the past four years we have witnessed dramatic growth in the use of various ICT applications, notably mobile phones. Developing-country populations now account for more than half of all Internet users. Improved connectivity has also enabled more firms to gain access to critical information, finance and knowledge -all key factors for enhancing competitiveness.

But nevertheless, huge gaps remain in many areas, both between and within countries. The greatest divide is today found in broadband access. For example, Australia, a country with only 21 million inhabitants, has more broadband subscribers than the entire African continent of more than 900 million. The broadband divide is further aggravated by the fact that existing networks in many poor economies often provide lower speeds at higher costs than elsewhere.

Within countries, business use of ICTs varies a great deal as well. As shown in UNCTAD’s recent Information Economy Report 2009, large companies are more likely to use ICTs than small and micro-enterprises. This has important implications, given that the great majority of enterprises in developing countries are small. There is also a significant divide between companies in rural and urban areas especially with regard to the use of computers and the Internet. Mobile telephony, by contrast, has become more widespread in relatively remote locations.

In emerging and developed economies, improved broadband connectivity has transformed the way services are produced and traded both nationally and internationally. According to the same UNCTAD report, market estimates suggest that the value of “off-shoring of services” worldwide between 2004 and 2008 tripled from $30 billion to $90 billion -and this may well be a low estimate. A large part of this business is conducted in developing countries.

While Asian developing countries, led by India and the Philippines, still dominate exports of such services, it is encouraging to see that many new locations are emerging on the radar screen. In Africa, Tunisia, Egypt, Morocco, Mauritius and South Africa are now becoming front-runners.

A critical area that will improve connectivity between Africa and the rest of the global economy is the increased use of international fibre-optic cables. Sub-Saharan Africa has been largely excluded from the network of such cables, but it is encouraging that a number of initiatives are finally coming to fruition, such as the SEACOM cable, linking the east coast of Africa with Europe and India, and the East African Marine System (TEAMS) cable. These improvements in international connectivity will help more African industries.

In spite of the current economic crisis, it appears that the trend towards the off-shoring of services has not been overly affected. Although exports of ICT goods have fallen dramatically, trade in services has been more resilient. In fact, UNCTAD expects that the crisis will lead to a further, perhaps rapid, expansion of services off-shoring -with new opportunities for developing countries. But it takes more than infrastructure to succeed in this area. Having the right skills mix and an environment conducive to international trade in services are other key requirements.

Last but not least, a few words about the importance of poverty eradication. The increased use of ICTs, especially by business, can help fight poverty. Micro enterprises and small and medium enterprises (SMEs), many of which are in the informal sector in developing countries, appear to be the most affected by the adoption of mobile telephony. In the agriculture and fisheries sectors in many developing regions, cellphones are now used to sell and purchase goods and services and negotiate prices. In many countries they are used extensively for voice communication and SMS, and increasingly also for such applications as “mobile commerce” and “mobile banking”. In Kenya, South Africa, Tanzania and Zambia, for example, mobile phones enable person-to-person payments, transfers and pre-paid purchases without a bank account.

Governments in developing countries should therefore give more attention to ICT uptake and use by micro-enterprises and SMEs, which lag behind much larger firms. Despite increases in connectivity, various bottlenecks still prevent entrepreneurs and small firms from using ICTs efficiently, and in remote rural areas connectivity still remains poor. ICT use is often limited by technical and economic factors, such as slow connection speed and high usage costs, and by social factors including low literacy levels and a lack of local content.

It is important to explore how technological innovations and government policy can help ameliorate these problems. How can the spread of ICTs reach the poor? Anecdotal evidence shows that new applications of ICTs are helping to reduce poverty, but systematic research remains patchy. International organizations, governments, the private sector and civil society must learn from available evidence of both successes and failures. (END/COPYRIGHT IPS)

(*) Supachai Panitchpakdi is the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).

Excerpt:

By Supachai Panitchpakdi and Thalif Deen
UNITED NATIONS, Nov 10 2009 (IPS)

A major international conference on South-South cooperation is scheduled to take place early December in the Kenyan capital of Nairobi against the backdrop of a rising trend in regional economic integration in Asia, Africa, the Middle East and Latin America.

Supachai Panitchpakdi Credit: UNCTAD

“There has been a steady upward trend across all dimensions of South-South economic integration over the past two decades,” says Supachai Panitchpakdi, secretary-general of the Geneva-based U.N. Conference on Trade and Development (UNCTAD).

He pointed out that trade and foreign direct investment (FDI) among developing countries has been growing faster than the world average.

Since 1995, South-South merchanised trade alone has grown by 13 percent per year, reaching 2.4 trillion dollars, or 20 percent of world trade in 2007, compared with the annual world trade growth of 9.0 percent.

In an interview with IPS U.N. Bureau Chief Thalif Deen, Supachai said one important new trend has been the move towards greater South-South monetary and financial cooperation.

“In some cases monetary and financial cooperation is tracking closer trade integration but it is also a response to the growing threats to economic stability from unregulated international financial flows,” he explained.

“This is something that I have followed closely in my own region [Asia] where the financial crisis of 1997 triggered a number of important initiatives,” Supachai said.

But renewed efforts at financial cooperation are also underway in Latin America, he added.

Excerpts from the interview follow.

IPS: What role does China play in the overall trend in South-South trade, finance and investment flows? SUPACHAI PANITCHPAKDI: A good deal of attention has of course been focused on the role of China in this rising trend. Closer trade links with neighbouring countries have raised integration levels in East Asia to over 40 percent of its total trade. But China has also emerged as the principle trade partner for a number of other large developing countries outside Asia, including Brazil and South Africa.

IPS: How significant are the growing trade links between China and Africa? SP: Trade between China and Africa has been growing by around 30 percent annually since 2000, exceeding more than 100 billion dollars last year as China became the continent’s biggest trading partner.

IPS: How does East Asia, Latin America and Africa fare in terms of South-South cooperation? SP: In the case of East Asia, regional trade integration has been closely tied to rising investment flows through the spread of regional production networks. This accounts for a significant portion of the increasing flows of South-South foreign direct investment (FDI).

Latin America has also seen growth in regional trade although the production profile of the region, dominated by agricultural products, resource-based manufactures and niche industrial goods, limits the extent of intra-regional trade.

In Africa, where output is dominated by commodities, intra-regional trade is still very low. However, the increase in Africa’s trade with the rest of the South has been accompanied by growing development cooperation, particularly with China, but also Brazil and India.

IPS: In a new report on “The State of South-South Cooperation”, Secretary-General Ban Ki-moon says the rapid deteriorating of the global economy has created a number of new opportunities for South-South cooperation. What are these opportunities? SP: It is clear that developing countries in general have not decoupled themselves from developments in advanced countries – indeed many least developed countries (LDCs) are now suffering the most damaging impacts of the crisis. There are some encouraging signs of economic resilience among developing countries, particularly some of the bigger economies such as China, Brazil and India which have been able to respond to shocks positively because of strong fiscal and payments positions.

This is very different from previous crises. How this divergence might play out in terms of the shape and pace of recovery is one of the critical issues facing policy makers at both the domestic and international levels. Getting back to “business as usual” – unregulated financial markets, boom-bust asset cycles and deeply distortionary patterns of income distribution – is not an option.

Moreover, many advanced countries will be facing difficult adjustments that will take time to resolve. As a consequence access to traditional sources of finance will become more difficult, aid flows will likely stagnate or fall, remittances will drop and market access will be restricted even if protectionism is resisted.

This in turn implies that developing countries will need to establish new growth levers if they are to meet their longstanding development objectives. The challenges this poses for policymakers differ from region to region.

IPS: There are several proposals for increased South-South economic integration in the next decade, including free trade areas and common currencies. How many of these proposals are feasible? SP: The kind of cooperation arrangements pursued by developing countries obviously depends, in part, on the challenges to be addressed. These are likely to differ across regions. As such South-South cooperation will need to avoid the ‘one-size-fits-all’ prescriptions that have been so damaging to development cooperation in recent years.

Indeed, it is precisely the sensitivity of developing countries to each other’s historical circumstances and their current conditions which makes South-South an attractive option. Beyond using closer economic integration to help build markets, extend the division of labour, realise scale economies, etc., the examples you mention clearly reflect very different institutional challenges.

However, it is also true that the greater the degree of economic interdependence among countries, the greater the challenges on collective decision-making. Success depends on a mixture of positive leadership, supported by targeted resources and a readiness on the part of the countries involved to make some sacrifice in national sovereignty in support of a common interest and actions. It also certainly depends on the nature of the cooperation. Free trade areas may be achieved earlier than a common currency.

IPS: What is UNCTAD’s role in South-South cooperation? How does it plan to help strengthen relations among developing nations? SP: UNCTAD has a long history of promoting South-South integration and cooperation. Indeed, it was one of the 15 General Principles for governing world trade agreed to at our first conference in 1964. UNCTAD’s work in this area reached a high point in the late 1970s and early 1980s around the Global System of Trade Preferences (GSTP) among developing countries, cooperation among state trading organizations and the establishment of multinational marketing enterprises.

This work declined after the debt crisis and the resulting reorientation of development policy and cooperation. Now UNCTAD has, as part of its allotment of posts from the development pillar, established a new unit on economic cooperation and integration among developing countries.

The object is not to revive the past agenda but to be forward looking in terms of addressing the development policy and interdependence challenges I referred to earlier and providing when requested advice to members states. Where appropriate it will also address new threats and challenges such as those arising from climate change and food security.

Other parts of the U.N. system are also adding South-South cooperation to their work programmes. So, we will also be seeking to forge collaborative ties across the system to ensure that the work we do avoids duplication, is well coordinated and widely disseminated.

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Sep 29 2009 (IPS)

The current crisis has precipitated a significant downturn in world foreign direct investment (FDI) flows which over the past year has spread to all sectors and regions. 2008 marked the end of a growth cycle in international investment that began in 2003 and reached a historic high of nearly $2 trillion in 2007.

The subsequent decline in FDI, following the initial shocks of the financial crisis, was at first quite modest and affected primarily developed countries. However, since late 2008, it has further accelerated and is now affecting many developing countries as well. UNCTAD´s most recent estimates are that global FDI declined by 14 per cent in 2008. This year, we expect an even sharper fall: recent UNCTAD figures show global FDI inflows down by 44 per cent and mergers and acquisitions by 76 per cent during the first quarter of 2009, as compared to the same period last year. In developing countries, inward FDI has declined by 39 per cent so far in 2009 and by more than 40 per cent in transition economies.

The unfolding crisis has affected firms´ investment decisions primarily in two ways: firstly, it has impacted the capabilities of firms to invest because of declining corporate profits and the lower availability and higher cost of finance. Secondly, the propensity of companies to invest overseas has been affected by gloomy economic prospects, especially in developed countries, lowering their expectations for recovery and returns.

Although FDI flows to developing countries continued to grow in 2008, this year has already started to reveal a different picture, with a serious downturn in flows across all developing regions. Many advanced-economy transnational corporations (TNCs) are reviewing their strategies of searching for efficiency gains by locating in countries with cheaper factor productivity and resource inputs to production. So-called efficiency- and resource-seeking FDI in developing countries has therefore been negatively affected by the recession in advanced economies.

The spread of the crisis to developing economies has also reduced opportunities for firms in search of greater global or regional market share -so called market-seeking FDI. UNCTAD´s World Investment Prospects Survey 2009-2011, which surveys 240 of the largest non-financial TNCs, confirms the negative outlook for 2009. It shows that 85 per cent of firms are reporting that their investment plans have already been significantly affected and that 90 per cent have a pessimistic or very pessimistic outlook for global FDI prospects this year.

The crisis is also opening new opportunities for developing countries in at least two respects. First, developing-country firms looking for outward FDI opportunities could take advantage of low asset prices to expand their international operations into markets and assets formerly out of reach. Second, as the world economy recovers, FDI flows will resume at a strong or even stronger pace for countries that have reformed their investment framework. Additionally, public investment in infrastructure and the acceleration of public works projects, associated with government stimulus packages, may help to better position countries as they seek increased FDI inflows during the recovery period.

The policy response to the crisis ­at both the national and international levels- is therefore crucial to creating favourable conditions for FDI and maximising its potential contribution to development.

Among the looming global risks that may affect TNCs´ investment plans, one concern is a rise in protectionism by home-country governments. Just as liberalisation of investment regimes in the 1990s helped many countries to attract investment which contributed to economic growth and development, so policymakers need to maintain a renewed commitment to an open environment for international investment.

In addition to private capital flows, many developing countries depend on foreign aid to support investment. In the context of the current crisis, they lack the financial resources to successfully compete with the stimulus and rescue packages put in place by advanced and emerging economies, which now amount to more than $5 trillion. In the cases of China and Australia, for example, public infrastructure spending, as a component of their stimulus packages, has been increased by 3% of GDP. The sheer scale of these measures can easily overwhelm the policies that developing countries pursue to attract and retain FDI. Developed countries should therefore take steps to help developing countries deal with the crisis.

Two immediate responses include an increase in aid flows to developing countries, and introducing a temporary moratorium on official debt repayments. In this respect, I am happy to note the recent decision by the IMF to reduce interest repayments to zero on outstanding concessional loans until 2011.

The current crisis has also exposed the need for an enhanced global framework for financial regulation and supervision. The interrelated effects of financial and investment decisions in a global market on the activities of the real economy have become all too apparent. International regulatory reform is thus necessary to reduce the scope for excessive leveraging and risk-taking, and to ensure comprehensive oversight of the finance sector. (END/COPYRIGHT IPS)

(*) Supachai Panitchpakdi is the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jul 14 2009 (IPS)

The attention of policymakers is being drawn to addressing fiscal policy and financial issues in an effort to close the credit crunch and release financial flows, especially investment.

This focus on financial flows by governments and finance ministers is understandable. They have come under tremendous pressure to secure additional financial resources to meet current and emerging needs, such as stimulating the economy in the midst of declining revenues, exports, remittances, aid and investment flows. This is a depressing situation for emerging economies and other developing countries in need of a fresh injection of funds to revive economic growth.

The situation can in fact lead countries to borrow from international markets -and possibly huge borrowings- paving the way for another debt crisis even as countries begin to emerge from the current crisis. The international community must be ready to deal with this potential new crisis. The dire situation could be aggravated by rising prices for food and fuel, as reflected in recent price movements.

Some of the lessons learnt from the Asian financial crisis that started in mid-1997 can help us find ways to mitigate or avert an impending debt and development crisis. These lessons are to borrow less so as to have little debt; to accumulate reserves through savings; and to improve policy soundness. At the time of that crisis, such actions coincided with currency depreciations that ended up improving competitiveness, and with a more favourable global trading environment, following the establishment of the World Trade Organisation (WTO) in 1995, the launch of the Doha Round of world trade negotiations in November 2001, and China’s accession to the WTO in December 2001.

On openness, it must be said that developing countries are among the most open in the world today. Openness -as measured by the export-to-GDP ratio- increased from 26% in 1995 to 51% in 2007. The level of openness is even greater for the Least Developed Countries (LDCs), for which that ratio soared from 17% to 45% over the same period. They have been good pupils of openness -yet they have also been the ones to suffer the most from the global economic crisis, through the channels of international trade and investment. All countries have been affected by the crisis, but those that are the most open -mainly developing countries and especially the weak and vulnerable among them- have been hit the hardest.

This raises the question of how to make effective use of openness. In responding, the international community should not be concerned only about protectionist tendencies, but also about the rise of rational economic nationalism, which can undermine the use of openness. A number of priorities should be mentioned on the way forward.

First, the Doha Round should be revived. Countries must be decisive about delivering on the development agenda and should even harvest some elements -such as duty-free, quota-free treatment for LDCs exports, aid for trade, the cotton issue, the banana issue, and trade facilitation, which is of key importance, especially to landlocked developing countries. In this regard non-tariff barriers, especially unjustified product standards that disrupt trade, should be avoided.

Second, trade among developing countries is still growing, but at a slower rate, because of the crisis. This growth performance is due to the fact that these countries are trading in relatively cheaper products, which are affordable to people at the income levels of developing countries -a yearly average of $2,700, compared to a developed-country average of $38,000. Thus, strengthening South-South trade, including through enhancing regional economic integration processes, can provide an avenue for a sustainable exit from the global crisis. In this regard, a point worth mentioning is the economic partnership agreements now being negotiated between the European Union (EU) and African, Caribbean and Pacific (ACP) States. These partnerships should help promote, and not undermine, regional integration among ACP States.

Third, trade financing is of critical importance to making trade flow smoothly. The April G20 meeting agreed to provide $250 billion to meet trade financing needs that emerged with the credit crunch. A key question is how this financing source will be allocated among developing countries in Africa, Asia and Latin America and the Caribbean. Will it be on a first-come, first-served basis? Even during normal periods, accessing trade financing can be difficult, so the question of easier access to these promised funds for countries in need has to be addressed.

Lastly, social safety nets are urgently needed to address the most marginalized and vulnerable sectors and people affected by the crisis, including, for example, women workers in the textile industry.

Planning an exit strategy from the global economic crisis and downturn in trade must take into account the realities existing in developing countries and how to respond to them. Such a reality check is important in identifying measures that can have a meaningful and sustained impact. (END/COPYRIGHT IPS))

(*) Supachai Panitchpakdi is the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).

Excerpt:

By Supachai Panitchpakdi and Thalif Deen
UNITED NATIONS, Jun 22 2009 (IPS)

Since the Great Depression of the 1930s, there have been more than 100 crises worldwide, says the secretary-general of the U.N. Conference on Trade and Development (UNCTAD), Dr. Supachai Panitchpakdi.

Dr. Supachai Panitchpakdi Credit: UN Special/UNCTAD

And the scale of the crisis is "unprecedented" because of its impact worldwide, said Supachai, who heads an inter-governmental body that is the primary U.N. organ dealing with trade, investment and development issues.

Asked whether the U.N. summit on the global financial crisis, scheduled to take place Jun. 24-26, will come up with answers, he said: "Given the U.N.'s universal membership, I believe this conference will be a major contribution to collective global efforts to find answers to the crisis."

"However, it would be wrong to assume that one conference could provide all the answers to such a complex global problem. Rather, resolving the problem should be seen as an ongoing process," Supachai said in an interview with U.N. Bureau Chief Thalif Deen.

Excerpts from the interview follow.

IPS: Do you consider the United Nations – not the World Bank or the International Monetary Fund (IMF) – the right forum to address the current global economic crisis? if so, why? Supachai Panitchpakdi: Initially, the distinction between the U.N. and the two Bretton Woods institutions – the World Bank and the IMF, which were created at a special United Nations Monetary and Financial Conference held towards the end of the Second World War – was artificial.

The conference was called to rebuild the international economic system and set up multilateral sets of rules, institutions and procedures to regulate the international monetary system. The distinction between the U.N. and Bretton Woods institutions is something that developed over time, especially because since the 1950s there has been an intense debate on whether the U.N. should have a financing role or not.

To some extent, the growing segmentation between these subsystems has contributed to the lack of coherence and coordination in the international economic system and the global economic problems we face today.

For me, therefore, the important question is not which subsystem provides the "right forum" to address the current global economic crisis, but how these subsystems can work together to address the absence of systemic coherence between the international financial and trading systems and the unsustainable imbalances in the international economic system.

IPS: What is the role of UNCTAD at the conference? What are UNCTAD's contributions to the outcome document currently under negotiation among the 192 member states? SP: In answering this question, allow me first to highlight the fact that for a number of years, UNCTAD has been sending out warning signals, particularly in the three or four areas I would like to mention here.

First, UNCTAD has been one of just a few organisations to draw the attention of the global community to the fact that global imbalances have reached unsustainable levels and could create a setback to the growth trends enjoyed by many countries, including developing economies.

Second, UNCTAD has consistently raised concerns about the glaring dichotomy between the lack of financial regulation – particularly at the international level – and the tight discipline of the global trading regime. For many years, dating back to the General Agreement on Tariffs and Trade (GATT) and continuing under the World Trade Organisation (WTO), the trade regime has been subject to very stringent disciplines in all areas of commodities trading and markets.

In contrast, and despite various discussions on the need for rules, transparency and prudent regulations in cross-border financial transactions, the international financial and monetary system has remained unregulated and without strict supervisory oversight. UNCTAD has repeatedly warned of the potential pitfalls of this lack of coherence between the international trading and financial systems.

The third warning sign we have been sending is that one of the key causes of the 1997 Asian financial crisis was the over-hasty deregulation process, which led to full financial liberalisation without proper preparation of markets, particularly in terms of the maturity and depth of the key players and institutions needed to ensure the proper functioning of markets.

This time around, we have seen that even in the most advanced countries that have been known for their financial resilience, the negative effects of excessive deregulation cannot be avoided. We cannot say there have been no warnings or consideration of some of the causes of the crisis.

UNCTAD, working closely with other U.N. entities such as the Department of Economic and Social Affairs (DESA), has shared some of these experiences with the Commission established by the president of the General Assembly to help him prepare the main report of the conference.

UNCTAD's report on 'The global economic crisis: systemic failures and multilateral remedies' was submitted as input to this process.

IPS: The proposals before the U.N. summit include the creation of a Global Economic Coordination Council and the reform of the Bretton Woods institutions. How feasible are these proposals? SP: What is clear, and widely recognised, is the need for an independent coordinating forum that will examine systemic issues and ensure coherence at the international level. The case for such a body is clear. The issue now is whether this function could be performed by existing institutional structures or whether there a new institution is needed.

This, I believe, is at the heart of the ongoing negotiations, and the decision depends on the membership. As to the reform of the Bretton Woods institutions, the emerging consensus suggests that they are indeed in serious need of reform. As UK Prime Minister Gordon Brown has repeatedly said – most notably at the G20 meeting – "The IMF and World Bank will have to change their role quite dramatically. These institutions were built for a world of local capital flows, not global capital flows. The institutions we have inherited are not equipped for the tasks we have to deal with in the future".

IPS: Is the world on the right track to resolve the crisis? SP: Fortunately, this time around the world is better equipped to deal with some of the financial and economic issues, although it appears not to have learned from past experiences how to avoid making the same mistakes and address the issues more systemically in order to prevent a recurrence and foster a global economy that does not suffer from destructive boom-and-bust cycles.

This crisis has a levelling effect; it is of a systemic nature. It does not belong to any single part of the world. Unlike the Asian crisis of 1997, this one is global in nature.

It is therefore heartening to see that the immediate multilateral reaction was to address the problem at the G20 level, which includes both developed and developing countries.

This week's conference should be seen as a further step in addressing what is basically a global crisis in an inclusive manner and taking into account the concerns and visions of 192 countries.

*Not for publication in Italy.

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Apr 7 2009 (IPS)

As the global economic crisis continues to unfold, it is having severe effects on international trade. UNCTAD estimates that merchandise exports from developing countries could decline by 15.5% this year. At the regional level, we expect export growth to shrink by 16.8% in Asia, 12.5% in Africa, and 10% in Latin America.

This will certainly have a significant impact on employment as well. Some 51 million people are projected to lose their jobs this year, according to the International Labour Organization (ILO) ­ and 22 million of them will be women. The sectors that were initially hit the hardest by the crisis ­such as finance, insurance, real estate, construction and manufacturing­ were largely dominated by male workers. But the crisis is now spreading to service-oriented sectors, which in many countries are dominated by females.

WomenÂ’s widespread marginalization in the social, economic and political spheres means they usually bear the brunt of the hardships. They continue to have less access to education and other social services, less secure employment, lower wages and insufficient political representation. This situation is not only morally unacceptable, it is also an obstacle to economic development. Women make a significant contribution to the economy, to better governance, and to their communities and households. Discrimination and marginalization hinder this contribution, making societies worse off. Like income inequality, gender discrimination tends to stymie growth and development by crippling a part of our human capital.

There is ample evidence, however, that enhanced opportunities for women lead to improvements in poverty reduction and economic growth. Indeed, some studies have shown that women tend to spend a greater share of their incomes on childrenÂ’s education and other human development goals than men. It is therefore high time for gender equality to be incorporated more broadly into development policy-making.

Trade policy affects gender equality in two main ways. First, trade tends to have strong redistributive effects, favouring some sectors and social groups while disfavouring others. And since economic and social activities differ by gender, these redistributive effects will affect genders differently. A countryÂ’s socio-cultural mores may restrict womenÂ’s mobility, and may also dictate what types of jobs are considered appropriate for women. Just consider the textiles industry in many developing countries, where more than 80% of the employees are women: trade policy measures causing this industry to expand or contract will have a strong impact on their employment.

There is some evidence to suggest that, on balance, trade has benefited women. This is particularly the case for some fast-growing developing economies. There, women have been active in some of the most important export sectors, such as textiles and electronics, and trade liberalization and international integration have led to an increase in employment opportunities for these women. Being able to earn cash is a tremendous advantage, empowering women both in and outside of the household.

But there are also documented cases where women have been penalized by trade. Agricultural liberalization has often meant that small-scale farmers (most of whom are women) find it impossible to compete with international markets and are forced into subsistence activities. In other cases, women operating in import-competing sectors and small-scale enterprises have been unable to compete with foreign goods, thus losing employment.

Trade policy can disadvantage women in yet another way. The theory behind trade liberalization is that those workers displaced from import-competing sectors can be re-employed in expanding export sectors or take advantage of other new opportunities. In practice, however, those who are unable to adapt can end up worse off than before. Unfortunately, adaptation often raises particular problems for women because of their relative disadvantages in terms of education, command over resources, and access to credit, new technologies, training, and marketing networks. This problem is often more relevant in developing countries, where the differences between the genders may be greater and where the lack of efficient government institutions, safety nets and compensatory policies can make adjustments more difficult.

Given the complicated linkages between trade policy and gender equality, we need more research on this subject and greater gender sensitivity among trade policy makers. Policy makers may wish to consider including gender assessments when designing trade policies, so as to better understand their implications for women and gender equality. Gender assessments will help governments to design better complementary policies for reducing the negative impact of trade policies on women, and to identify the measures needed to help women benefit from trade. Such gender assessments may also be needed in the context of the current global financial crisis and the stimulus packages being devised to address it. Female labour fuelled a large share of the increases in trade that preceded the crisis. For this reason, women will be among the first to suffer from declining trade, lay-offs, and the repatriation of migrant workers.

However, this does not mean that there are no answers. We can factor gender considerations into the crafting of national stimulus packages and social protection measures. Micro-credit, which is affecting the functioning of small and medium enterprises that in most developing countries are run by women, should be expanded. We must also build a better enabling environment for trade, including through better trade financing. The possible use of government procurement for national development priorities, such as support for women-owned businesses, could also be considered. (END/COPYRIGHT IPS )

(*) Supachai Panitchpakdi is the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD).

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jun 9 2008 (IPS)

A fundamental transformation has taken place in the structure of the world economy. The dominant feature of this transformation is the emergence of the South. Indeed, the global expansion of the past five years has been more broad-based than even before. This has allowed many developing countries to become major players in trade and investment, wrires Supachai Panitchpakdi, Secretary-General of United Nations Conference on Trade and Development (UNCTAD) and ex Director-General of the World Trade Organization. Between 1990 and 2006, the real exports of developing countries nearly tripled, while those of developed countries grew by only 75%. Similarly, the share of developing countries in world exports rose from 24% to 37%. During the same period, our data show that the developing countries\’ share of all inward foreign direct investment (FDI) doubled, from 18% to 36%; and perhaps more surprising, their share of outward investment tripled, from 5% to 15%. The geographical distribution of skills is also shifting. In 1990, for example, developed countries accounted for 40% of all technical tertiary enrolments globally; 10 years later, that share had dropped to 28%. The unprecedented expansion in South-South economic linkages has been demand-driven. In other words, South-South cooperation has been guided primarily by viable economic factors and not by political considerations, as had been the case in the past. In many cases, demand for South-South business ties increased despite relatively higher tariff barriers imposed by partner countries.

Just consider the following statistics: between 1990 and 2006, the real exports of developing countries nearly tripled, while those of developed countries grew by only 75%. Similarly, the share of developing countries in world exports rose from 24% to 37%. During the same period, our data show that the developing countries’ share of all inward foreign direct investment (FDI) doubled, from 18% to 36%; and perhaps more surprising, their share of outward investment tripled, from 5% to 15%. The geographical distribution of skills is also shifting. In 1990, for example, developed countries accounted for 40% of all technical tertiary enrolments globally; 10 years later, that share had dropped to 28%.

As a consequence of this broad-based growth, we have also seen a phenomenal increase in South-South trade and investment flows. South-South trade in 2006 reached more than US$ 2 trillion, comprising 20% of world merchandise exports, up from just over 10% in 1995. FDI flows among developing countries are also rising: they totalled US$ 60 billion in 2004-2005, or 8% of total world investment inflows and 20% of total inflows to developing countries.

The unprecedented expansion in South-South economic linkages has been demand-driven. In other words, South-South cooperation has been guided primarily by viable economic factors and not by political considerations, as had been the case in the past. In many cases, demand for South-South business ties increased despite relatively higher tariff barriers imposed by partner countries. With this underlying demand for business expansion, South-South regional trade agreements (RTAs) may be an important instrument for boosting trade flows among members, particularly when such agreements address the so-called “beyond-tariff issues”, such as non-tariff barriers, trade in services, trade facilitation, competition policy and investment.

Of course, it goes without saying that such RTAs need to be designed and implemented in a way that they help rather than hinder the multilateral trading system embodied in the WTO. Ultimately, the aim must be the full integration of all developing countries into a multilateral trading system that takes their development aspirations fully into account.

In this context, the ongoing WTO Doha Round of negotiations should correct existing “imbalances” in the rights and obligations of the multilateral trading regime, particularly if it is to live up to its name as a “development round”. It must therefore address such key obstacles as tariff peaks on textiles, footwear and many agricultural products; trade-distorting subsidies in the agricultural sector; and intensive restrictions on the movement of natural persons in the services sector.

However, the scope for South-South cooperation goes far beyond the trade and investment arenas. There are many policy areas where regional integration and cooperation can yield significant benefits. Perhaps the most crucial need that South-South cooperation can help address is the creation of productive capacities in developing countries. Indeed, the existence of sufficient productive capacity is an absolutely crucial requirement for being able to take advantage of the trade opportunities offered by globalization and trade liberalization. For what good are tariff concessions and duty- and quota-free market access if developing countries lack the infrastructure required to bring their goods to market? In both agricultural and non-agricultural sectors, cooperation at the regional level can help spread the costs of introducing new productive techniques and technologies; investing in innovation and research; enhancing entrepreneurial, management and marketing skills; and promoting public-private partnerships. Developing countries can also cooperate on creating synergies between modern, large-scale enterprises, such as transnational corporations, and local small or medium-sized enterprises (SMEs), to make the latter fit effectively into global value chains and act as catalysts for innovation. Other promising areas for regional cooperation include trade and transit facilitation, transport infrastructure development, and investment projects in electricity, other energy sources and water supply. These initiatives are often too costly for developing countries to undertake on their own, but they may be economically viable if several countries pool their resources, including by involving developed countries’ partners in “triangular cooperation” schemes.

Another example is the development of new and innovative financial mechanisms to help mobilize domestic and regional resources. Obviously, there is a need to improve access to capital for SMEs in developing countries. To do so requires the creation and mainstreaming of mechanisms and products, such as micro-insurance and microfinance, that can overcome problems of asymmetrical information.

Climate change is another serious challenge. To tackle this problem, each and every country has to adopt proactive environmental policies. But for a developing country to do so alone is virtually impossible. Hence there is an urgent need for meaningful and predictable assistance from the international community on capacity-building, technology transfer and adaptation measures. At the same time, developing countries stand to gain a lot from closer cooperation on this emerging issue. Regional cooperation can help developing countries design solutions that cater for region-specific needs and circumstances, while also complementing relevant global mechanisms. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Mar 5 2008 (IPS)

The world economy has seen an extraordinary expansion in the last five years, and the creative industries are in the forefront as a result of the globalisation and connectivity that have been reshaping the overall pattern of cultural production, consumption, and trade and transforming lifestyles worldwide, writes Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD). In this article, the author writes that though developed countries still dominate this market, many developing-country products are already benefiting from the boom of their creative industries. Their exports of creative goods have increased astronomically, from USD 55.9 billion in 1996 to USD 136.2 billion in 2005, or about 140 percent. This rise is attributable primarily to China, which became the world\’s leading exporter of creative goods in 2005. A challenge to be faced, both domestic and systemic, is that most developing countries are not yet able to harness their creative capacities for development. In Africa, for instance, although there is an abundance of creative talents, the creative potential remains underutilised. The continent\’s share in global trade remains less than 1 percent of world exports, despite recent sharp increases. As is the case for other developing regions, this is a reflection of both domestic policy weaknesses and global systemic biases.

The creative industries are at the crossroads of the arts, culture, business, and technology. They include the creation, production, and distribution of goods and services that use intellectual capital as primary input. Today’s creative industries involve the interplay of traditional, technology-intensive and service-oriented subsectors. They range from folk art, festivals, books, paintings, and the performing arts to more technology-intensive sectors like the film industry, broadcasting, digital animation and video games, and more service-oriented fields like architectural and advertising services. All these activities are intensive in creative skills and can generate income through trade and intellectual property rights (IPRs).

In most advanced countries, the creative economy is a leading component of economic growth, employment, and trade. A recent study shows that in Europe, it is growing 12 percent faster than the overall economy. So-called “creative cities” are proliferating, particularly in Europe and North America, revitalising socio-economic growth and generating employment in urban post-industrial areas.

Ongoing policy-oriented research and analysis by UNCTAD (United Nations Conference on Trade and Development) also finds the creative industries are among the most dynamic emerging sectors in world trade. Over the period 2000-2005, trade in creative goods and services increased at an unprecedented annual average of 8.7 percent.

World exports of creative products reached USD 445.2 billion in 2005, as compared to USD 234.8 billion in 1996, according to our preliminary figures. Creative services in particular experienced fast export growth – 9.1 percent annually between 1996 and 2005.

Developed countries still dominate this market. Nonetheless, many developing-country products are already benefiting from the boom of their creative industries. Their exports of creative goods have increased astronomically, from USD 55.9 billion in 1996 to USD 136.2 billion in 2005, or about 140 percent. This rise is attributable primarily to China, which became the world’s leading exporter of creative goods in 2005. The dynamic creative economies of other developing countries, mainly in Asia, have also begun to bear fruit, thanks largely to policies aimed at strengthening their creative capacities and improving the competitiveness of their creative goods and services. Some of the creative products enjoying rising popularity in world markets include Indian movies and software, Mexican TV stations, and Korean digital animation products.

Design – and arts and crafts – are the most competitive creative goods from developing countries in world markets. Overall, world exports of audio visuals tripled, and exports of visual arts doubled, between 1996 and 2005. While such figures cannot possibly capture the magnitude of the contribution of the creative industries to national economies, especially in developing countries, the trend is indeed very important. The lion’s share of creative revenues is generated by copyrights, licences, and marketing and distribution. Unfortunately for the developing countries that produce the products or services, however, most of this revenue accrues to large companies abroad. An UNCTAD study found that in the mid-1990s, for example, Jamaican reggae artists and producers received only 25 percent of worldwide income from reggae recordings.

This particular figure will have changed since then, due to revolutionary developments in new media and use of the Internet. The underlying problem, however, will probably not have altered substantially. Innovative solutions are thus needed to correct these systemic market distortions, such as reinforcing competition policies, addressing lacunae in the current IPR regime, and developing effective collecting societies for creative-industry revenue.

But there is another challenge to be faced, one that is both domestic and systemic. Most developing countries are not yet able to harness their creative capacities for development. In Africa, for instance, although there is an abundance of creative talents, the creative potential remains underutilised. The continent’s share in global trade remains very marginal, at less than 1 percent of world exports, despite recent sharp increases. As is the case for other developing regions, this is a reflection of both domestic policy weaknesses and global systemic biases.

At the domestic level, developing countries in general will have to upgrade quality throughout the productive value chain, set up institutional and financing mechanisms to support independent artists and creators, and create policies to attract investments that facilitate joint ventures and co-productions. Public/private partnerships will need to be promoted; competition policies enhanced, and awareness of IPRs stepped up. Opportunities must also be created to access advanced technologies and increase the use of new business models and Information and Communication Technologies (ICT) tools to reach new markets, including South-South trade.

There are, however, constraints at the international level as well, related to market access and non-competitive business practices that arise from the oligopolistic market structure, especially in the audiovisual and digital industries. The concentration of marketing channels and distribution networks in a few major markets; limited access to regional and multilateral credit; and technological exclusion all combine to jeopardise the competitiveness of creative products and services from developing countries in world markets.

But there is no doubt as to the potential, and it would be a shame not to exploit it. The fact that the creative economy is driven as much by creativity as by capital makes it particularly well suited for countries that are rich in cultural heritage and creative talent, even if they lack skilled labour, basic infrastructure, and foreign direct investment. It is high time to help developing countries make the most of these new opportunities. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jul 24 2007 (IPS)

Many economic, social, and environmental goals could be fulfilled by increased production, use, and international trade of biofuels, writes Supachai Panitchpakdi Secretary General of the United Nations Conference on Trade and Development (UNCTAD). The author writes in this analysis that biofuels could slow global warming and provide an opportunity for developing countries to diversify agricultural production, raise rural incomes, and improve the quality of life. They could also enhance energy security, reduce expenditures on imported fossil energy, and foster other technological developments. But it is also important to consider the possible economic and environmental impacts of biofuels, the compatibility of biofuels with existing fuel delivery infrastructures, and competing uses for arable land. For example, the amount and type of primary energy consumed in producing biofuels – and the related emissions of greenhouse gases – vary enormously. And as long as current technology is used, the fast-growing demand for biofuels will mean devoting an increasing amount of arable and pasture land to the production of energy crops, which implications for food security.

While biofuels have thus far displaced around 1 percent of the fossil fuels used in the transport sector, the International Energy Agency estimates that their share could reach 7 percent by 2030. New technologies now under development -and particularly those that use wood materials, such as ligno-cellulosic ethanol- could enable biofuels to play an even bigger role.

Economic, social, and environmental goals could be fulfilled by increased production, use, and international trade of biofuels, provided that this is backed up by the right strategy of resource allocation. Biofuels could slow the process of global warming, for example, and provide an opportunity for developing countries to diversify agricultural production, raise rural incomes, and improve the quality of life. They could also enhance energy security, reduce expenditures on imported fossil energy, and foster other technological developments.

Several developing countries endowed with the land to devote to energy crops production, a favourable climate to grow them, and a relative abundance of labour are already, or are considering becoming, biofuel producers. Before they do so, however, these countries will have to take some crucial decisions and answer some important questions. For example: Is biofuel production intended for transportation fuel security, or for broader energy replacement? What are the land requirements? What is the desirable level of technological sophistication?

These countries will also have to consider the possible economic and environmental impacts of biofuels, the compatibility of biofuels with existing fuel delivery infrastructures, and competing uses for arable land. For example, the amount and type of primary energy consumed in producing biofuels – and the related emissions of greenhouse gases – vary enormously. Powering refineries with coal has a much less beneficial environmental impact than powering them with sugarcane residues.

We also know that as long as current technology is used, the fast-growing demand for biofuels will mean devoting an increasing amount of arable and pasture land to the production of energy crops. This may have implications that require careful assessment, especially for food security. Before embarking on biofuels production, countries also have to identify the support measures needed to get the biofuel industry off the ground and flourishing; the most appropriate investment promotion measures; the type of regulatory framework likely to ensure job creation and rural development; export prospects and possible markets for biofuels; and existing trade flows, tariff regimes, and market access- and entry-related issues affecting international trade in biofuels.

UNCTAD’s BioFuels Initiative is intended to help developing countries answer these questions. For example, an UNCTAD team was recently in Guatemala to help the government formulate a national biofuels programme – one that addresses vital concerns related to food security, water availability, reliable and predictable access to export markets, and improved energy access, especially for rural and isolated communities. Similar country assessments will be undertaken in other regions, and an international expert advisory group has recently been set up to provide guidance on the Initiative.

According to UNCTAD studies (

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Mar 3 2007 (IPS)

The extent and pace of growth of foreign direct investment (FDI) from emerging economies heralds a new role for these countries in international production systems and the world economy as a whole, writes Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD). In this article, the author writes that FDI from the South is also opening up new sources of finance, technology, and management know-how, critical ingredients for economic development. From the perspective of developing host economies, FDI from other developing countries presents a potentially broader range of sources of capital, technology, and management skills. South-South FDI has several advantages over North-South investment, including the fact that the technologies and business models of developing-country TNCs often have a lot in common. The emergence of new sources of FDI requires attention from policy makers and investment promoters in countries at all levels of development. In order to maximise the development impact of this it is important for officials and experts from both developing and developed countries to exchange views and share experiences.

The phenomenon of FDI from Southern transnational corporations (TNCs) is examined comprehensively in the World Investment Report 2006 of the United Nations Conference on Trade and Development (UNCTAD). The report looks at factors that cause the rise of FDI from developing and transition economies, maps the key players, examines the potential costs and benefits, and discusses the role of national and international policy-making in enhancing development gains from the process.

The most notable feature of FDI from the South is its rapid acceleration over the past 15 years. Total FDI flows by firms from developing and transition economies reached USD 133 billion in 2005 – the highest level ever recorded, and 10 times more than in 1990. This represents about 17 percent of world outward flows in 2005, as opposed to 5 percent in 1990 – in just 15 years. The rise in the number of large TNCs from developing and transition economies is a reflection of this trend: In 1990, only 19 such companies appeared on the Fortune 500 list of the world’s largest corporations; by 2006 that number had risen to 57. The trend is led, of course, by Asia, where three quarters of the top 100 TNCs from developing countries are headquartered.

This development has not gone unnoticed by investment promotion agencies in developed and developing countries alike, many of which have adopted specific strategies to attract FDI from the South. An UNCTAD survey of the World Association of Investment Promotion Agencies (WAIPA) members last year showed that 74 percent of them target FDI from developing and transition economies. The survey also indicated that investment promotion agencies from developing countries attach particular importance to FDI from the South. China is the most favoured target, followed by India, Malaysia, the Republic of Korea, and South Africa. A number of investment agencies have set up offices in selected developing and transition economies to attract FDI, especially in Asia; China is again the preferred choice from both developed and developing countries.

For policy makers and investment promoters it is important to understand the motives underlying the expansion of developing-country TNCs, be they ”market-seeking”, ”efficiency-seeking” or ”created asset-seeking”. Overall, market-seeking is the most popular motive. Natural resource-seeking strategies are also very common, especially because of the rapid economic expansion of many developing countries in recent years. The best illustrations of this are the large-scale resource-oriented projects initiated by Chinese and Indian companies in resource-rich countries, from the Americas to Africa and Central Asia.

From the perspective of developing host economies, FDI from other developing countries presents a potentially broader range of sources of capital, technology, and management skills. South-South FDI has several advantages over North-South investment, including the fact that the technologies and business models of developing-country TNCs often have a lot in common. This enhances the scope for linkages and technology sharing and spillovers. Developing-country TNCs also tend to use greenfield investments more than mergers and acquisitions as a mode of entry, making their investments more likely to add immediately to the host country’s production capacity. Another advantage of South-South investment is its greater employment-generating potential. The main reason for this is that developing-country TNCs may have a greater presence in labour-intensive industries and may be more inclined to use simpler, more labour-intensive technologies, especially in manufacturing.

The emergence of new sources of FDI requires attention from policy makers and investment promoters in countries at all levels of development. In order to maximise the development impact of this it is important for officials and experts from both developing and developed countries to exchange views and share experiences. Among the factors driving FDI from the South and its potential impact, dialogue together with increased awareness and understanding are needed. UNCTAD and other international organisations have a major role to play in this context by providing analysis, technical assistance, and a forum for discussion and consensus-building. The ultimate goal is to enable developing countries to realise the greatest possible benefits from the rise of South-South investment. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Dec 12 2006 (IPS)

Though the current state of the global economy is good, there are five areas of concern, writes Supachai Panitchpakdi, Secretary-General of UNCTAD (United Nations Conference on Trade and Development). In this article, the author writes that the first is the current impasse in the Doha Round talks, which hurts the world\’s poorest most acutely. The second concern is poverty. Globalisation and trade liberalisation have had a mixed impact. Some nations have been even further marginalised as a result, with poverty and income distribution in some cases worsening. The third area of concern is migration, which is sometimes perceived as a threat to jobs and to host societies ill equipped to absorb vast numbers of migrants. The fourth is energy security. The author calls for a well-structured, coordinated system of global economic governance that is beneficial to all countries and would help avoid potentially disastrous global imbalances and also avert distortions in international trade relations.

The developing countries have been a big part of this good news: their GDP growth has exceeded 6 percent for the third consecutive year. The recovery in Latin America has continued, and even the poorest region, sub-Saharan Africa, is likely to expand its income by about 5 percent this year. Many middle-income nations have strengthened their competitiveness in world markets for manufactures. Asia has enjoyed particularly phenomenal success

But not all countries have benefited, or benefited equally, from these developments. While the trend has created some undeniable opportunities, I see five main areas of concern:

The first is the current impasse in the Doha Round of the World Trade Organisation negotiations. Expectations were high that the Round would contribute to poverty reduction and better income distribution, but unfortunately this does not yet seem to have been the case.

The suspension of the talks hurts the world’s poorest most acutely. If the current impasse persists, it could reduce their confidence in the multilateral trading system. It could send a negative signal on the future of the world economy and might even encourage a resurgence of protectionism. Bilateral and regional trade initiatives with deeper commitments are already proliferating.

The second area of concern is poverty. Globalisation and trade liberalisation have had a mixed impact. Some nations have been even further marginalised as a result, with poverty and income distribution in some cases worsening.

It is true that although some countries are struggling, the overall picture has improved. Extreme poverty — defined as living on less than a dollar a day — has declined worldwide, by 130 million between 1990 and 2002 alone. The fastest progress has been registered in China and Eastern Asia, where the proportion of people in extreme poverty has plunged from 56 percent to 17 percent in just two decades and gross domestic product per capita has more than tripled. But this good news must be placed in perspective, as some 700 million Asians overall, representing two thirds of the worlds poorest people, remain trapped in extreme poverty.

The third area of concern is migration, which is sometimes perceived as a threat to jobs and to host societies ill equipped to absorb vast numbers of migrants. These fears are real. But like other apparent threats, migration can also be an opportunity. Services account for some 40 percent of employment in developing countries and up to 70 percent in the industrial world. Liberalising trade in services, which are often provided by migrant labour, thus holds great potential for increasing global welfare.

The fourth challenge facing the world economy is energy security. With demand growing for oil and other commodities prices have been rising to unprecedented, and some would say unsustainable, levels. For countries that export oil and commodities, this is good news. African government oil revenues, for instance, jumped by USD 15 billion between 2003 and 2004. But for oil-importing countries, many of which are heavily indebted to boot, the news is less good. The higher fuel costs they are paying eat into the resources available for feeding and housing their people and building much-needed infrastructure. All of this could have a negative impact on both consumers and the macro-economy. The long-term sustainability of our energy sources — not to mention the environmental health of the planet — is in jeopardy.

My final concern about today’s world economy are the persisting imbalances. East Asia, South Asia, and certain Latin American countries are enjoying record current account surpluses. By stabilising their exchange rates at low levels, they have accumulated large amounts of dollar reserves, but the dollar now appears vulnerable. More and more developing countries, especially in Asia, have stopped relying on foreign savings and aim instead at generating trade surpluses as the engine for investment and growth.

A correction of these imbalances requires that both surplus and deficit countries play their part. It would not be good to deflate the former without calling on the latter — and notably Europe and developing Asia, with their great potential for increased demand — to expand and provide much-needed stimulus to the world economy.

But such stimulus may not be possible in present circumstances. While the multilateral trading system contributes to certainty and predictability in international trade, the same does not hold true for current international monetary and financial arrangements. They are not organised around a multilateral rule-based system, and this lack accounts in large part for the disorder and imbalances we see at work today. All of this suggests the need for a well-structured, coordinated system of global economic governance that is beneficial to all countries. This would help avoid potentially disastrous global imbalances and also avert distortions in international trade relations. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jul 1 2006 (IPS)

Despite the relatively favourable evolution of the terms of trade of many developing countries, complacency must be avoided, writes Supachai Panitchpakdi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD). In this article, the author argues that one of the most important challenges for national policy makers and for the international community is to ensure a fair distribution of the revenue arising from primary production and its proper use in financing development. Strengthened macroeconomic policy coordination is also necessary to improve the coherence between the international trading and financial systems. There is a striking asymmetry in existing multilateral arrangements between trade on the one hand, and monetary and financial relations on the other. A global monetary authority like the IMF could play an important role in strengthening the international institutional framework in the monetary and financial area. It would have to focus on international monetary and financial stability. In principle, surveillance could play a significant part in promoting a more stable and reliable system of exchange rates to ensure a predictable trading environment. But in order to fulfil that role, surveillance would need to become more effective and also symmetrical across all countries

The recovery in the world economy that started in 2002 continues unabated. High oil prices and the increasing cost of industrial raw materials have apparently not had the negative impact on the recovery that many expected. The economic upswing has brought about a major improvement in the living standards and employment situation of hundreds of millions of people in developing countries. However, this undeniable economic success should give rise to caution as to the possible negative repercussions of a major imbalance in the global economy.

In many respects, developing countries have been the pace-setters for this success story. As in previous years, rapid growth in China and India is largely responsible for this outcome. Other parts of the developing world have also shown resilience and will continue to grow relatively fast. During 2006, a growth rate of 4.5 per cent in Latin America and 6 per cent in Africa and the Commonwealth of Independent States should be possible.

In West Asia, growth will probably remain around 5 percent. With monetary policy freed from unsustainable exchange rate regimes, Latin America has succeeded in transmitting the external stimulus into its domestic economies without reviving inflationary tendencies.

Another remarkable feature of the global recovery has been the ability of many African countries to maintain high growth rates since 2003. Higher government and enterprise revenues following the hike in the prices of many commodities appear to be spilling over into the domestic economy and stimulating spending as well.

Since 2003, the terms of trade of many developing countries have changed considerably, with substantial gains by countries specialised in extractive industries but drastic losses by those countries that depend more on exports of manufactures and imports of raw materials, especially oil. Changes were less dramatic in countries that are mainly exporters of manufactured goods but that also rely on primary exports, such as Brazil, Malaysia, Mexico, South Africa, and Vietnam. The terms of trade have varied the most among agriculture exporters, reflecting large differences in the movements of prices for specific products and also differences in the share of oil in their imports. For instance, in 2005 the terms of trade of coffee exporters improved, while those of exporters of cotton and vegetable oils deteriorated sharply.

Despite the relatively favourable evolution of the terms of trade of many developing countries, complacency must be avoided for a number of reasons. First, the prices of non-oil commodities in real terms remain clearly below the levels of some 30 years ago. Second, commodity prices are dependent on factors beyond the control of the producer countries, such as demand from large emerging economies and global economic growth in general. Third, volatility in markets has risen recently, posing the danger of a reversal of the price hike. Fourth, several of the poorest countries are not benefiting from buoyant demand for their export commodities, either because their trade structure is heavily biased towards those commodities least in demand or because part of the gains from higher export prices is being absorbed by fuel imports and profit remittances to developed countries.

Thus, one of the most important challenges for national policy makers and for the international community is to ensure a fair distribution of the revenue arising from primary production and its proper use in financing development.

Although, as mentioned above, the commodity price hike did not result in a slowdown of the world economy, the current international situation could still deteriorate abruptly if the prevailing global trade imbalances are not properly managed. If no pre-emptive action is taken, the widening of deficits and surpluses may culminate in a disorderly adjustment of the world’s leading currency, with a negative impact on global growth and poverty reduction. The lack of a multilateral approach to ensuring a smooth adjustment is an ongoing concern. It would be prudent to pursue expansionary policies in surplus economies of a critical size, and particularly in those countries that are growing below their potential. The latter applies mostly to the European Monetary Union and Japan.

Strengthened macroeconomic policy coordination is also necessary to improve the coherence between the international trading and financial systems. There is a striking asymmetry in existing multilateral arrangements between trade on the one hand, and monetary and financial relations on the other. While international trade is now organised around a rules-based system with certain core principles applying to all participants, this is not the case in international money and finance. This asymmetry is all the more important given that adverse international spill-overs generated by self-centred national monetary and financial policies can be much more damaging than those created by trade policies, particularly for developing countries.

A global monetary authority like the IMF could play an important role in strengthening the international institutional framework in the monetary and financial area. It would have to focus on international monetary and financial stability. In principle, surveillance could play a significant part in promoting a more stable and reliable system of exchange rates to ensure a predictable trading environment. But in order to fulfil that role, surveillance would need to become more effective and also symmetrical across all countries. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, May 1 2006 (IPS)

These are difficult times — both for the United Nations, and for the world. It is thus all the more imperative to ensure that development remains at the top of the global agenda, writes Supachai Panitchpakdi, Secretary General of the United Nations Conference on Trade and Development (UNCTAD). There are increasing pressures on developing countries to open their markets, with the promise that this is the key to making the biggest gains. Such promises should not be allowed to disguise the fact that there are still serious trade barriers to the key exports of developing countries as a whole –both tariff and non-tariff barriers– that need to be addressed. Indeed, a worrying trend is the resort to new forms of protection as tariffs and quantitative restrictions have come down.

The recommendations of the September 2005 World Summit of the United Nations along with the related processes of UN reform are now in the midst of implementation. Although we have a good understanding of many of the elements, we have yet to see how all of this will play out.

Nonetheless, a clear message emerged from the Summit, as world leaders recognised that ”democracy, development, and respect for all human rights and fundamental freedoms are interdependent and mutually reinforcing”.

But is the world community doing enough to address the fundamental development problem?

The success of a few players doesn’t hide the fact that in the past 20 years, the number of the Least Developed Countries (LDCs) has doubled. We read daily of new threats of hunger and famine. Over a billion people are living on less than one dollar a day. War and civil strife prevail in many parts of the developing world. And a number of low-income countries, especially sub-Saharan African nations, LDCs, and those developing countries with small and vulnerable economies, remain marginalised from the trading system. Many of them are still commodity-dependent, unable to escape the negative terms-of-trade and poverty trap. The LDCs and African countries account for a paltry 2 percent share in world exports of both goods and services. Clearly, not enough resources are being devoted to solving these problems, which are a blot on the face of the international community.

One area where we have recently seen some modest progress is in the ongoing global trade negotiations at the World Trade Organisation (WTO). The developing countries won a few concessions at the Hong Kong Ministerial Conference in December 2005.

On the other hand, though, there are increasing pressures on developing countries to open their markets, with the promise that this is the key to making the biggest gains. Such promises should not be allowed to disguise the fact that there are still serious trade barriers to the key exports of developing countries as a whole –both tariff and non-tariff barriers– that need to be addressed. Indeed, a worrying trend is the resort to new forms of protection as tariffs and quantitative restrictions have come down. Exports today face new hurdles, such as sanitary and phytosanitary measures, anti-dumping and special safeguards, all of which are hard to quantify and hard to beat. They are also highly discriminatory and pose a considerable challenge for developing-country exporters.

Of course, the pressure on developing countries arises largely from the fact that the North has realised the potential of accessing developing-country markets for its own goods and services. It is this recognition that lies behind their argument that the market reforms they are demanding from the developing world are beneficial in their own right. But now we have learned a thing or two about reform — namely, that while it has brought notable success to some countries, others have been left wallowing in stagnation and even greater impoverishment.

Indeed, it is extraordinary that after 20 years of reforms, the world community still has no magic formula for development success. We need to advance our thinking and understanding of these complex and rapidly evolving areas. We need to support our proposals with real efforts on social safety nets, infrastructure, institution- and capacity-building. Aid for trade can make a difference in this regard, and is on the whole to be welcomed. But if it is to be effective, it will require real new resources and coordinated activity by the donor community.

South-South trade is an area to which we have traditionally devoted considerable attention. It is encouraging to see the phenomenal growth in this trade, which I understand has outstripped that of world trade in recent years, expanding at about 11 percent a year. Developing countries’ share in world trade in goods has risen from 24 percent in 1990 to 33 percent in 2004, and from 19 percent to 23 percent for trade in services. And while most of the exports of developing countries still go to the North, some 43 percent is destined to other developing countries.

Even more South-South export opportunities could be exploited by mutually lowering tariffs and other market access barriers. The third round of the Global System of Trade Preferences Among Developing Countries (GSTP) negotiations launched at the XI United Nations Conference on Trade and Development (Sao Paulo, June 2004) provides a useful vehicle in this regard. It could be a valuable complement to developing countries’ efforts to achieve greater market access in the North, where progress is often slow.

South-South cooperation can also facilitate investment in much-needed infrastructure for trade — investment that is often too costly to be borne by one country alone. This is particularly important for building crucial transport linkages, such as roads and ports.

These are difficult times — both for the United Nations, and for the world. It is thus all the more imperative to ensure that development remains at the top of the global agenda. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Mar 1 2006 (IPS)

Global Foreign Direct Investment (FDI) flows increased in 2004, following three years of decline, as reported in the World Investment Report 2005, writes Supachai Panitchpakdi, Secretary-General of the United Nations Conference onTrade and Development (UNCTAD). In this article the author writes of a new trend in the global economy that could be considered one such \”new form\” of Foreign Direct Investment — namely, the internationalisation of research and development (R&D). Some developing countries in Asia and transition economies are now attracting highly-advanced R&D activities. And this trend appears to be on the upswing. More than half of the world\’s top R&D spenders already conduct R&D activities in China, India, and Singapore. And what do developing countries in particular stand to gain from this sort of investment? It opens the door to the transfer of the actual process of technology creation and enables them to engage in important technological learning. In addition, it creates new job opportunities for local engineers and scientists, helping to mitigate the risk of \”brain drain\”.

Global Foreign Direct Investment (FDI) flows increased in 2004, following three years of decline, as reported in the World Investment Report 2005. Inflows to developing countries in particular were up by some 40 percent and accounted for 36 percent of world FDI inflows in 2004. Inward FDI to developed countries, by contrast, fell.

Meanwhile, there is a new trend in the global economy that could be considered one such “new form” of Foreign Direct Investment — namely, the internationalisation of research and development (R&D). Some developing countries in Asia and transition economies are now attracting highly-advanced R&D activities. In many cases, these activities are being integrated into the core innovation networks of transnational corporations (TNCs), which now represent something like 70 percent of all R&D spending in the private sector. And this trend appears to be on the upswing. More than half of the world’s top R&D spenders already conduct R&D activities in China, India, and Singapore.

I believe it is worth looking closely at some of the broader questions raised by this trend. Let me raise two fundamental questions. Why is R&D considered so important? Why should a country seek to attract transnational investment in R&D?

It is through research and development that we extend the frontiers of knowledge, generate new products, and upgrade existing technology. R&D investment allows firms and countries to better assimilate knowledge and technology developed elsewhere, and to remain competitive in today’s knowledge-based economy. It stimulates a culture of innovation, generates knowledge spillovers, and adds to the skill level of the local population.

And what do developing countries in particular stand to gain from this sort of investment? It opens the door to the transfer of the actual process of technology creation and enables them to engage in important technological learning. In addition, it creates new job opportunities for local engineers and scientists, helping to mitigate the risk of “brain drain”.

Investment in R&D can also pave the way for the attraction of other high value-added, high-quality FDI. This helps countries move up the value chain and strengthen their innovation systems, thereby fostering competitive enterprise. In short, this kind of FDI is a major contributor to economic development.

Small wonder, then, that in the past, TNCs tried to keep many of their R&D activities close to home. But more and more of those activities are now being located abroad. Why? Our research identifies a number of push-and-pull factors driving this trend. Among the push factors are competitive pressure to innovate, cost implications, and skills shortages in the home country. The pull factors include growing markets, an expanding pool of talent, cost advantages of locating abroad, and a favourable policy environment.

It is important to note, however, that only a handful of developing countries have benefited from this new internationalisation of R&D, many of them in Asia. Countries that have succeeded in attracting R&D investment have tailored education to the needs of industry. They have encouraged collaboration between public and private R&D. They have innovation systems and targeted incentives in place that encourage R&D activities, such as the creation of science parks and a conducive intellectual property regime. To attract investment in R&D, cooperation with the key stakeholders who shape research, technology and innovation policies is essential. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Mar 1 2005 (IPS)

Only the WTO can improve global rules for the conduct of trade, which is so necessary to complement development and poverty-reduction strategies, writes Supachai Panitchpakdi, Secretary-General of the World Trade Organisation. The WTO\’s Doha Development Agenda is a single undertaking which we will not be able to conclude unless we make progress across the board, the author writes in this analysis. We cannot afford to wait for results in agriculture before making further advances in tariffs on industrial products, services, rules, and the other areas. With respect to agriculture, while far-reaching commitments were agreed on domestic support, export competition, and market access, there remain a number of gaps to be filled and thorny issues to be resolved. On export competition, despite the important commitment to eliminating export subsidies, we still need to fix an end date. With respect to domestic support,the actual level of commitments still needs to be carefully negotiated. On market access, we still need to negotiate the actual percentage of reductions. We also need to establish which products can be designated \”sensitive\” and \”special\” and agree on disciplines to ensure that flexibility in this area is not used to circumvent market access commitments. The road ahead could still be a rough one. The DDA is still behind schedule and every new delay weakens its credibility and value. We need to approach our work over the coming months with a sense of urgency and determination.

There is a global consensus on the importance of trade for development and the fact that only the World Trade Organization (WTO), realising the November 2001 Doha Development Agenda (DDA), can push through the development-friendly reforms that are urgently needed, such as the elimination of agricultural export subsidies, substantial reductions in trade-distorting domestic support, and substantial improvements in market access, including the reduction of tariff peaks and tariff escalation. Only the WTO can improve global rules for the conduct of trade, which is so necessary to complement development and poverty-reduction strategies.

Over the last few weeks, a number of trade ministers have confirmed to me that there is a high degree of political commitment to the process leading up to the Hong Kong Ministerial Conference in December and that we need to achieve significant results before it begins if the Doha Round of world trade negotiations is to conclude in 2006.

My consultations indicate that there is a high level of convergence regarding the need for a substantial breakthrough in Hong Kong in five key areas: modalities in agriculture; modalities in tariffs on industrial products; market opening offers in services; rules and trade facilitation; and a proper reflection of the dimension of development. But there are a number of potentially intractable problems ahead, and we should not underestimate them.

The DDA is a single undertaking which we will not be able to conclude unless we make progress across the board. A breakthrough in agriculture will unlock the DDA, but we need to have progress in the other areas of the negotiations. We cannot afford to wait for results in agriculture before making further advances in tariffs on industrial products, services, rules, and the other areas.

The following are some of the key negotiating areas where I believe we will need more focused attention:

With respect to agriculture, while far-reaching commitments were agreed for all three pillars of the negotiations –domestic support, export competition, and market access– there remain a number of gaps to be filled and thorny issues to be resolved. On export competition, despite the important commitment to eliminating export subsidies, we still need to fix an end date. With respect to domestic support, while it is accepted that countries with higher subsidy levels will reduce much more than those with minimal subsidies, the actual level of commitments to be assumed still needs to be carefully negotiated. On market access, while it was agreed that reductions would be made according to a tiered formula, we still need to negotiate the actual percentage of reductions to be made by developed and developing countries. We also need to establish which products can be designated as “sensitive” and “special” and agree on disciplines to ensure that flexibility in this area is not used to circumvent market access commitments.

Progress is also being made on the cotton issue, particularly with respect to the development-related matters. The trade-related aspects are currently being addressed as part of the work on agriculture modalities. I am hopeful that we will find an acceptable way to give specific treatment to the cotton issue.

With respect to tariffs on industrial products, the framework is only a half way point on the way towards a final agreement on modalities. We need to make more progress here, particularly as some countries have indicated that agricultural reform will be conditional upon market opening for their industrial goods. Much work remains to be done and many difficult decisions need to be taken.

With respect to services, while progress has generally been made in the negotiations, the number of initial offers remains quite low. This is very worrying. The services negotiations are a key element of the overall negotiations, and a mediocre result in services could prevent members from finding the balance necessary to conclude the round with high levels of ambition in other areas. If members do not act now to redress the situation, there will not be a successful outcome in services for Hong Kong.

On development issues, we must work hard to ensure that the Doha Development Agenda lives up to its name. As regards special and differential treatment, we still face the challenge of fulfilling the Doha mandate. We are, however, seeing a new approach in the discussions. I tend to subscribe to the view that it may be more productive if we identify and discuss the underlying issues that the proposals are seeking to address.

The road ahead could still be a rough one. The DDA is still behind schedule and every new delay weakens its credibility and value. We need to approach our work over the coming months with a sense of urgency and determination. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jul 1 2004 (IPS)

The Doha Development Agenda of the WTO is at a crucial juncture: by the end of July we need to secure a framework package for agriculture and industrial products and an accord which better defines how we address cotton subsidies and the so-called Singapore Issues (investment, competition, transparency in government procurement, and trade facilitation), writes Supachai Panitchpakdi, Director-general of the World Trade Organisation. In this article, the author writes that if governments and their constituents lose faith in the ability of the Doha Development Agenda to deliver results we will see a growing imbalance between multilateral and bilateral deal-making. This could shake the foundations of non-discrimination and transparency upon which the multilateral trading system is built. Common ground must be found, and quickly. International business and the global trade machine will certainly not wait for us to move. Discriminatory market access arrangements will become commonplace and the law of the jungle will prevail. The losers every time will be the poorer, developing countries.

The Doha Development Agenda, launched in 2001 by the member countries of the World Trade Organisation (WTO), is at a crucial juncture. By the end of July we need to secure a framework package for agriculture and industrial products, and an accord which better defines how we address cotton subsidies and the so-called Singapore Issues (investment, competition, transparency in government procurement, and trade facilitation). These were among the most difficult areas faced by ministers at our 2003 Ministerial Conference in Cancun. It is clear that without movement on these issues there will be no movement at all.

Though July is not the end of this round of negotiations, agreement on a framework package by this date is indispensable if they are to have a successful outcome. Otherwise significant progress during the remainder of the year will be impossible, which would mean a highly uncertain future for everyone.

All the 147 WTO member countries –which comprise 92 per cent of the world’s population and 95 per cent of world trade — are engaged and starting to show flexibility in key areas. At this stage, our challenge is to translate these general expressions of political commitment into concrete progress.

In agriculture, for instance, we have now on the table an historic offer from the EU to eliminate all export subsidies — a ground-breaking move in an area which has been controversial for many years. Of course, some differences remain, but the important point is that we need all participants to make a real effort to narrow gaps so as to enable deals that are acceptable to all.

Anything which distracts attention from achieving a successful package will be counter-productive and would risk forfeiting the advances made so far. For once we have a real chance to achieve substantial reform in trade in agricultural products, a sector which is very important to many developing countries. Breakthroughs that we only dreamed of just a few years ago could actually become reality if we all work together. A breakthrough in agriculture will unlock the Round.

On the other hand, in agriculture and non-agricultural market access, WTO members are ready to accommodate the different capacities of developing countries. There is also increased understanding that we should not overload the weaker and more vulnerable members. For example, in agriculture, the prevailing view is that less developed countries (LDCs) should be exempt from commitments to reduce tariffs and that the preferential access which developing countries enjoyed in other markets should be taken into account.

Furthermore, in non-agricultural market access, LDCs are not expected to apply any agreed reduction formula to their tariffs or to necessarily take part in any sectoral approach. In both areas there is recognition of the need to meaningfully address the question of erosion of preferences. Moreover, recent signals from major players have also given an indication of their relatively modest levels of expectation from the smaller and more vulnerable developing countries. There is also a growing body of opinion among WTO members that favours including in the July package the important work, which will be ongoing, to make existing special and differential treatment more precise, effective, and operational. We now need a constructive response to strengthen the sense of convergence for a July package.

We should be mindful that there are no guarantees that this window of opportunity will still be open if framework agreements are not secured by July. The global political landscape is continually evolving. Failure to secure a framework agreement may mean the unravelling of commitments made by developed countries to eliminate agriculture export subsidies and other subsidised forms of export competition.

If governments and their constituents lose faith in the ability of the Doha Development Agenda to deliver results we shall, no doubt, see a growing imbalance between multilateral and bilateral deal-making. This could shake the foundations of non-discrimination and transparency upon which the multilateral trading system is built. These core principles not only help level the playing field between developed and developing countries, but also make the international trading environment a more predictable and less complex place to do business.

Common ground must be found, and quickly. Otherwise the world trading system will have failed at some of its most important objectives. International business and the global trade machine will certainly not wait for us to move. Discriminatory market access arrangements will become commonplace and the law of the jungle will prevail. The losers every time will be the poorer, developing countries. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, May 1 2004 (IPS)

2004 is a crucial year for the Doha negotiations of the World Trade Organisation and the multilateral trading system in general, writes Supachai Panitchpakdi, Director-General of the World Trade Organization. In this article, the author writes that since the beginning of this year, starting with the instrumental efforts by US Trade Representative Robert Zoellick, we have witnessed a number of very important initiatives and inputs to help move the process forward. I personally saw a much- needed new level of political commitment at important ministerial gatherings such as the Paris Ministerial Conference of the OECD and the Less Developed Countries (LDC) Ministerial Conference in Senegal. WTO Members are showing a remarkable sense of political urgency and realism, combined with the willingness to negotiate substance, and they are determined to reach framework agreements by July. The WTO and the multilateral system are under pressure again to deliver results. I have consistently argued that if governments and their constituents lose faith in the ability of the Doha negotiations to deliver results, we can expect to see a growing imbalance between multilateral and bilateral deal-making, widening the gap between stronger and weaker countries. The foundations upon which the multilateral trading system is built — non-discrimination and transparency — are at stake here. These core principles make the international trading environment more predictable and less complex. If we don\’t make sufficient progress in these negotiations and conclude them successfully, it is the poorest countries that will lose the most.

At times of global economic uncertainty and instability, the multilateral trading system has faced many challenges and setbacks. But the system has always been the safe haven to which its ever growing and diverse membership returns, because the World Trade Organisation (WTO) has been extraordinarily successful in preserving peaceful trading relations between nations, and generating the necessary conditions for economic growth. This is what brought WTO members to their decision to launch the Doha Development Agenda in 2001, the latest round of trade negotiations in the WTO.

But times change quickly and memories tend to be short. The 147-member WTO and the multilateral system are under pressure again to deliver results. I have consistently argued that if governments and their constituents lose faith in the ability of the Doha negotiations to deliver results, we can expect to see a growing imbalance between multilateral and bilateral deal-making, widening the gap between stronger and weaker countries. The foundations upon which the multilateral trading system is built, non-discrimination and transparency, are at stake here. These core principles make the international trading environment more predictable and less complex. If we don’t make sufficient progress in these negotiations and conclude them successfully, it is the poorest countries that will lose the most.

2004 is a crucial year for the Doha negotiations and the multilateral trading system in general. We are again at a crossroads. Since the beginning of this year, starting with the instrumental efforts by US Trade Representative Robert Zoellick, we have witnessed a number of very important initiatives and inputs to help move the process forward. I personally saw a much- needed new level of political commitment at important ministerial gatherings such as the Paris Ministerial Conference of the Organisation for Economic Cooperation and Development (OECD) and the Less Developed Countries (LDC) Ministerial Conference in Senegal. WTO Members are showing a remarkable sense of political urgency and realism, combined with the willingness to negotiate substance, and they are determined to reach framework agreements by July.

This became particularly clear when European Commissioners Pascal Lamy and Franz Fischler recently unfolded their courageous plans, evoking solution-oriented and forward-looking responses from important groups, such as the G-20. The atmosphere and political environment in which we are working today have clearly changed and will no doubt, be further influenced by upcoming Ministerial gatherings, such as those of the African Union in Kigali and the APEC (Asia Pacific Economic Cooperation) countries meeting in Chile. Progress is there for all to see.

But we must not be over-confident. We are still faced with a number of very real and complex difficulties. The strong and unequivocal message of political confidence and determination that has come out of recent international gatherings needs to be translated into concrete action and solid progress at the Geneva negotiating table. We only have very limited time. Nor should we forget that, if we fail to seize this opportunity, we run the risk of losing the rest of this year, as well as most of 2005. It is important thus that WTO members balance their ambition with realism.

At moments of apparent success, it is tempting to seek more than is feasible and pre-empt the final outcome of the negotiations. But the July package is not the end of the Doha negotiations. We are looking for framework-level agreements which will provide a solid platform to conclude the negotiations subsequently. As I said in Paris during the recent OECD Ministerial Conference, the Doha mandate will still be there after July and it is against that yardstick that we all will have the chance to judge the end result before agreeing to it. (END/COPYRIGHT IPS)

Excerpt:

By - - and Supachai Panitchpakdi
GENEVA, Jan 1 2003 (IPS)

Multilateralism is the only sustainable way to secure our global future, writes Supachai Panitchpakdi, Director-General of the World Trade Organisation. At Doha in November 2001, in a climate of dangerous international uncertainty, WTO members showed the determination to make multilateralism work. What the world needs today is a reaffirmation of this choice of multilateralism over unilateralism. In this article for IPS, the author writes that trade liberalisation is a powerful ally of sustainable development. Improving market access for products of particular interest to developing countries, such as agriculture goods and textiles, will make a huge difference to the lives of millions. We should also remember that trade is not a zero-sum game. Developed countries also stand to gain from trade liberalisation in these areas. For instance, agricultural support in developed countries, which comes close to USD 1 billion every day, represents a significant cost to developed country tax payers and consumers. In the WTO, developed country members have committed themselves to respond to the concerns of developing countries, but more could be done.

Multilateralism is the only sustainable way to secure our global future. At Doha in November 2001, in a climate of dangerous international uncertainty, World Trade Organisation (WTO) members showed the determination to make multilateralism work. What the world needs today is a reaffirmation of this choice of multilateralism over unilateralism, of stability over uncertainty, consensus over conflict, and rules over power. Trade liberalisation is a powerful ally of sustainable development. Given that trade barriers harm the poorest, removing trade barriers helps alleviate poverty. But while trade offers one solution, for sustainable development to work, we will also need solutions in other areas, and we need these solutions now and not in some hypothetical future. Finding solutions begins with recognising that shared problems cannot be solved by unilateral approaches. There is great expectation about the results of the Doha negotiations and for good reason. The World Bank’s Global Economic Prospects 2002, estimates that abolishing all trade barriers could boost global income over a ten year period by USD 2.8 trillion. Of this, developing countries stand to reap more than half, and an additional reduction in global poverty of 320 million people by 2015. These are rough estimates, but they provide us with a clear indication: freer trade, accompanied by appropriate domestic macroeconomic policies and a sound legal framework, is vital in helping poor countries grow their way out of poverty and move on to the path of sustainable development. The share of developing countries in world trade has grown to around 30 per cent and it could be made to grow even higher. One way to do this is by improving market access for products of particular interest to developing countries, such as agriculture goods and textiles. This one action will make a huge difference to the lives of millions. We should also remember that trade is not a zero-sum game. Developed countries also stand to gain from trade liberalisation in these areas. For instance, agricultural support in developed countries, which comes close to USD 1 billion every day, represents a significant cost to developed country tax payers and consumers. In the WTO, developed country members have committed themselves to respond to the concerns of developing countries, but more could be done. The prospects to conclude the Round and to make the results serve each and everyone are good, though time is limited: ministers at Doha agreed that the current negotiations shall be concluded no later than 1 January 2005. The Doha Development Agenda has been under negotiation now for over one year, with mixed results. The good news is we have moved forward and the level of participation by Members is rising. However, there is a certain unevenness in progress among the different areas of the Work Programme. At the end of last year we succeeded in establishing guidelines to facilitate the accession of less developed countries to the WTO. However, we were not able to meet the deadlines related to special and differential treatment for developing countries and access to essential medicines for poor countries lacking capacity to manufacture such drugs themselves. Failure to meet these deadlines has been quite disappointing. These two issues are of great importance not only to developing countries but to the Organisation itself and to the broader trade negotiations that are part of the Doha Development Agenda. Nonetheless, I have been informed of the Members’ commitment to continue to work to find agreement in these complex and difficult negotiations, and I am hopeful a solution can be found in early 2003. In preparation for the Fifth Ministerial Conference, slated for September 10-14, in Cancun, Mexico, a number of further deadlines have been set which should bring a needed sense of urgency to the negotiations. By spring 2003, we will face deadlines in the negotiations on agriculture, services, and market access for non-agricultural products. By the end of May 2003, agreement on improvements and clarifications to the Dispute Settlement Understanding will be required. If these deadlines are not met, we run a real risk of overloading the agenda at Cancun, which is already very substantial. The WTO has moved from the failure of Seattle to the success of Doha. To ensure that we continue to be successful and conclude the Round with balanced outcomes, all members have to understand and accommodate the needs of their partners. Richer countries need to fulfil the promise of a development Round. Developing countries, for their part, need to ensure through their positive engagement in the negotiations that they make the most of their opportunities. A strengthened multilateral trading system is in the interest of every country. (END/COPYRIGHT IPS)

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