MacroScan - Seattle and the Smaller Countries (contd.)

The Least Developed Countries and world trade

In a way, the real surprise is that more vociferous protests from smaller countries have not come sooner. The Uruguay Round negotiations resulted in an agreement that had little or nothing to offer smaller developing countries, and especially the Least Developed Countries. This was even officially acknowledged, in the form of a special clause promising "special and differential treatment" to Least Developed Countries and giving them some concessions in the matter of opening up their own economies.

However, the practice turns out to have been even worse than the written agreement. The LDCs in particular are caught in a cleft stick : if they stay out of GATT and WTO membership, they would be forced into costly and unbalanced bilateral negotiations which they cannot afford and in which they would be severely disadvantaged. But inside the WTO, they find that none of their legitimate concerns are met; that the process of implementation of the various agreements is time-consuming, costly and leads to massive domestic dislocation, that they may have to go in for expensive legal advice simply to counteract allegations in disputes; and that in general the system makes no real allowance for the very different contexts of small countries without the financial and human resources to devote to the Geneva organisation.

In addition, some of the most well-publicised promises of the Uruguay Round have failed to materialise; indeed, the reality has been completely opposite. Even as the growth in value of world trade has decelerated and even turned negative since 1995, the situation of smaller and less developed countries has worsened within the overall deceleration. The inequalities of the international trading system appear to have been strengthened, rather than diminished.

There were supposed to be very large increases in the volumes and prices of developing country exports. The WTO came into existence on 1 January 1995. In the four years that followed, the average rate of export growth of developing countries was actually lower than in the previous four-year period. The prices of the principal exports of developing countries, which were buoyant between 1993 and 1995, have since fallen very sharply. While this is true of many important manufacturing exports of developing countries, it is especially so for primary commodities, except for some food and beverages which are dominantly exported by developed countries.

Chart 1, which shows the annual rate of change of prices of non-oil primary commodities, indicates that after 1995 the dominant tendency has been that of decline. While this is bad news for all primary commodity exporters, it is particularly bad for those who are dominantly dependent upon not just primary exports in general, but on exports of a single commodity.

Chart 1 >> Click to Enlarge

This is a typical feature of the Least Developed Countries, whose lack of development essentially means that they have not been able to diversify their domestic production structures, not just to manufactured goods, but even to other primary goods. It renders them especially vulnerable to international market volatility. The disconcerting fact is that such dependence has hardly changed over nearly twenty years, the period when globalisation was supposed to transform economies all over the world.

As Chart 2 indicates, the export concentration ratios (defined as the share of only one item of exports in total export value) have remained high and broadly stable since 1980 for all LDCs, after rising somewhat over the 1980s and coming down slightly thereafter. Table 1 gives some idea of the very great dependence of several countries on particular primary commodity exports. What makes the situation even worse for many of them is that, while such exports (of any single item) may dominate their own export basket, they count for relatively little in terms of the international supply, so that they are also unable to influence world prices in a way beneficial to themselves.