Trade Should Be Harnessed To Ensure Development
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Dr Supachai Panitchpakdi is the Secretary-General of the UN Conference on Trade and Development (UNCTAD), a post he first took up in September 2005. Prior to this, he was the Director-General of the World Trade Organisation (WTO). A PhD in Economic Planning and Development from the Netherlands School of Economics (now Erasmus University Rotterdam), he also served as Thailand's Deputy Prime Minister, Minister of Commerce and Deputy Minister of Finance on different times. Dr Supachai was in Kathmandu recently to attend the Regional Workshop on Productive Capacities, Economic Growth and Poverty Reduction in Asian and the Pacific LDCs. In an interview with Gaurav Aryal of New Business Age, he shared his views on economic, trade and development issues of the Least Developed Countries (LDCs). Excerpts: UNCTAD is organising a series of regional workshops to disseminate the findings of its reports such as Least Developed Countries Report, UNCTADâ's Division for Africa, Least Developed Countries and Special Programmes (ALDC) etc. What are the general findings of these reports?
We are trying to concentrate on the areas of structural adjustments mainly in supporting the work of the states. We are trying to create productive capacity which means jobs creation, investment in infrastructure, investment in power plants and education. Our findings say that economic growth is needed to create social welfare for people. It does not happen automatically. So, there has to be definite development governance that would direct all the gains from growth to areas that would give people the right to participate, have transparency and decision making process as well as in the areas of trade. LDCs are essentially small economies. So, we think an LDC should make efforts to mainstream trade policy into its national development policy. The domestic markets are not enough to maintain basic demand so they need external demand too. For this, they need access in the international market. Special concessions given by the advanced countries for the LDCs will be crucial. It should be the heart of what we call early harvest for Doha negotiation.
What can Nepal learn from the experience of other developing countries?
First of all, development governance is very important. If you look at countries like Malaysia and Korea, these developing countries have actually showed the way for industrialisation process where the government has been taking the lead. They support industrial zones, put up investment policy that attract foreign direct investment (FDI) in technology related areas and create trade infrastructure in terms of ports, transportation facilities and trading firms. For example, they have trading firms that help promote the products in foreign countries. Nepal can also learn from their monetary policy that is customer focal. In the area of tourism, Nepal is doing well but it can certainly do better. More investment is required to attract tourists but it is important at the same time, to keep the negative effect of tourism under control.
Despite having ample resources, poor countries have extremely low economic growth. Could you highlight the key issues where LDCs like Nepal fail in formulating trade and economic policies?
I am not clear about Nepal but many LDCs have remained too dependent on few commodities. They have also failed most of the time to pursue positive development. This is an area in which it needs investment from the government sector for extended service, irrigation projects, water management and to build roads in the rural areas. The government also needs to provide support and subsidies for farmers in rural areas where they do not enjoy enough income to sustain themselves. LDCs also need to sustain in the areas of gender and women. In Africa, for example, women are the most underutilised productive capacity. In Asia, we still need legal reform that would put women rights, wage level, welfare treatment, education etc at par with men. LDCs can also learn from countries that have performed well in domestic resource mobilisation because one has to develop the domestic financial market. The banking system must be solid and it needs prudential supervision by the government so that more savings can be mobilised. You can have more resources here in Nepal itself and you don't have to be totally dependent on foreign aid.
You have been part of the Thai Government in the past. What should be the agenda of LDC governments on the level of policy making and implementation, to increase the export trade volume?
The LDCs will have to invest in capacity to produce, to begin with. For example, if you have some food products, you may need to process food products as well in order to add value. Similarly, if you have some minerals, then you should think of investing in the processing of minerals. In Thailand we invested in canning of tuna fish which has been doing exceedingly well. We used to produce automobile spare parts to begin with but gradually we started producing automobiles on our own. So, you have to start from somewhere and try to move up the ladder all the time. I would recommend that LDCs having niche in certain areas have to keep adding value. Importance of technology is one lesson we have learnt in Thailand. Innovation and technology depends on the quality of education. Education must be guided in a way that would promote research. In Thailand, university professors and academics are encouraged to conduct more research and innovate. Foreign companies are also being attracted to the country to learn technology from.
LDCS are largely dependent on donors and face heavy foreign debt. They also lack fundamental base of stable politics and proper policy implementation. Amid such complexities, how can countries move on the right path of development and poverty reduction?
Well, I think these are more controversial issues than the development policies. You must have growth to be able to have social investment and welfare but, of course, a loan is not enough. In order to transfer growth into social development, you probably need a policy on socio protection and inclusive development. It means that you would have to try to spread growth throughout the country. You need growth to be well distributed and not concentrated in certain areas only. It means decentralisation. You need to decentralise the authorities of the government and the investment activities. Investment has to be made into rural network of roads and means of transportation. Both skilled and unskilled people need help as well. If you look at the informal sector particularly, there are a lot of people being underpaid. You have to be able to initiate social programmes that would help guarantee employment. The employment guarantee programme in India could be one shining example. I feel that such programmes help support rural families. I also like the Bolsa Familia programme in Brazil where government financial support is given to families on condition that children must attend school until secondary education. These are some of the obvious measures that are needed to produce the impact from economic growth for social welfare.
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What should be the role of the development partners in addressing the issues of development and poverty reduction in the LDCs? Development partners normally provide financial means. They have a target to meet - a contribution of 0.15 to 0.2 per cent of the GNP - which has to be given to the LDCs. However, they are giving only 0.09 per cent which is too low. I think the target should be met. The development partners should work on transfer of technology. This is not in financial terms but in terms of intellectual property rights. There should be some sort of open software system that can be accessed by the LDCs so that proprietorship could be opened up for people to search. I would say, in the trade areas as per the Doha agenda, they can give concessions to the LDCs as an early harvest. They don't need to wait until the end of the round to give concessions in the form of duty- and quota-free concessions for trade facilitation and in the areas of outsourcing of services. These are some of the areas which, I believe, could be done in terms of green economy. I also expect the green fund for the LDCs or the green development mechanism to be established. Some of these arrangements would pay special attention to the roles of the LDCs and they should be granted special assistance in these funding ranges.
How do you view the current debate on aid for trade?
Aid for trade is a good programme to mainstream trade into development. For us at UNCTAD, aid for trade means aid for trade for development. So, trade should be harnessed for serving this purpose. We have been talking about the need for more productive investment and investment in trade infrastructure, development training of skill negotiators, the need to setup the right commercial institutions and the right legal framework. You must have the legal people who understand the Trade-Related Aspects of Intellectual Property Rights (TRIPS) issues. You may also need to have the IT court. The aid for trade should also help in the areas of providing capacity to accomplish more work in environment and trade. UNCTAD believes the new areas of green economy would provide for opportunities to invest in renewable and energy products. I think ‘aid for trade can help pave the way to support transfer of technology and training of scientists and engineers. This would also help in bringing the LDCs to new rounds of opportunities courtesy the green economy.
In poor countries, the governments try to tread a middle path between the models of controlled economy and free economy. How do you evaluate Nepal's trade and more specifically, its economic policy?
To be fair to the government in Nepal, I am not qualified enough to emphasise on what Nepali economy should be doing. But I do see the role of the government being evolved here. I hope it will evolve in a way where there won't be too many controls. It is important for the Nepali government to be balanced in its role along with its evolving policies. The direction we would like to advise is to go into what we call development governance. This will help policies being directed at getting the development strategy right. The government should not look at market reform, competition and pricing policy only. It must have the market work so as to attract new projects that would create employment. Productive investment should be encouraged. Nepal needs a monetary policy that would mobilise more funds and keep interest rates not too high. It would mean the fiscal policy will have to be directed at needs to create the perfect infrastructure. It will also mean that the exchange rate policy needs to be flexible. And you have to have the exchange rate at a level that will be stable and will help make your products competitive.
Questions are often raised in poor countries about the value and benefit of being WTO members. Anti-WTO activists accuse that WTO policies are pro-rich and poor countries simply can't afford to abide by WTO policies. What do you have to say?
Well, being a WTO member is not enough. It won't help a country if it doesn't work on it to make itself strong in competition. So, being a WTO member is like being presented with opportunities to take advantage of the markets around the world. Taking advantage from the market depends on domestic policies. The domestic policies must drive forward to do more work in the areas of trade infrastructure, business improvement, skills training, development of science of the exported products and standard of products that would meet international standards. The technical barriers to trade and technical standards of manufactured products are also important. You also need the right laws to take benefits from the membership of the WTO. Being the member of the WTO is not a free ride, for sure.
What's the equation between UNCTAD and WTO in terms of policies?
UNCTAD and WTO follow similar policies and support and complement each other. For instance, UNCTAD has been doing a lot of work in the area of capacity building while WTO is doing the same in the area of trade. We support the WTO in areas of trade facilitation and negotiation and trade and environment negotiation. We do the work on investment policies that WTO cannot do due to the lack of investment agreement at WTO. Being the focal point for investment policy for the UN system, we have been giving advice on investment policies to developing countries around the world. We advise them on investment agreement, investment promotion, policies etc. So, this actually complements WTO on what it cannot do. Also in the area of competition laws and consumer protection which WTO could not agree, we are providing assistance for countries to establish competition laws and consumer protection. Therefore, I think we do play a complementary role. The pace of trade liberalisation might have been a little too fast for developing countries. They may have not been able to reap benefits because they were not well prepared. The WTO also agrees now that in order to garner benefits from trade liberalisation, well preparedness and trade mainstreaming into the development process are essential.
How would you like Nepal to take advantage from huge and growing markets on both sides of its borders?
Asia is now the growth port of the world. This is an area where growth is maintained at a very high level and quite stably. I think Nepal is situated in the right place with major countries surrounding it like India and China and South East Asia within close proximity. There should be a definite government policy to direct trade cooperation with all these countries. Such endeavours are supported by Asian Development Bank also. Cooperation is not always easy among neighbouring countries. However, you must concentrate on joint projects like transportation or regional projects taking part in joint programmes like tourism promotion etc. I think you should make use of having a deeper integration with South East Asian and North Asian countries in the region besides China and India.
Will it be sustainable for LDCs to look for export trade only?
No. Sustainability is more than just export trade. It means you must have social equality, look after ecology and environment and invest in forestation to keep forests alive and growing. You have to invest in water management and human resources that will make for sustainable development. Therefore, it's not only export trade that would drive you. You must have a combination of inclusive policies that would shape the benefits of growth and trade equally.
