Africa within the new world trade order

(1)

UNITED NATIONS

ECONOMIC AND SOCIAL COUNCIL

Distr.: GENERAL E/ECA/TRADE/94/20 15 December 1994 ENGLISH

Original : ENGLISH

ECONOMIC COMMISSION FOR AFRICA

AFRICA WITHIN THE NEW WORLD TRADE ORDER

(2)

AFRICA WITHIN THE NEW WORLD TRADE ORDER (WTO)

I. INTRODUCTION

The World Trade Organization (WTO) is scheduled to come into effect in January 1995. It is born out of a successful conclusion of the seven long years of strenuous negotiations within the Uruguay Round of Multilateral Trade Negotiations. Uruguay Round was itself mooted in response to contention that problems had plagued the smooth and effective functioning of the multilateral trading rules. Africa, economically weak and composed of small sized countries that yearned for fair and effective trade rules received Punta del Este Declaration with enthusiasm, hoping to get a multilateral channel that avoids bilateral pressure from stronger participants. Thus, Africa participated in the long negotiations that revamped GATT rules that had served the world trade relations for more than forty years.

The signing in Marrakech, the Kingdom of Morocco in April 1994, of the Final Act of the Uruguay Round establishes the new framework for trade into the next century. It has been hailed as a panacea that will deal with all irregularities of GATT rules, and as an instrument that will reinforce the interdependence of nations. It is therefore very important to all both developed and developing countries. But, not necessarily in the same ways. It is more prosaic but complex.

(3)

E/ECA/TRADE/94/20 Page 2

The importance of successful conclusion of the Uruguay Round cannot be overemphasized. This is why the year 1993 will no doubt go down in history as an epoch making year in international trade.

What has collectively been achieved at the end of 1993, by the long-awaited conclusion of the Uruguay Round has renewed Africa's optimism about the state of the multilateral trading system and the prospects for the world's continued economic growth.

The objective of this short note is to review and assess the possible impact the new trade body on the African trade relations.

In addition to this brief introduction, the paper in the second chapter reviews the new trade organization, its structures and role, and impact on Africa. In Chapter III the paper assesses role that Economic Commission for Africa could play in enhancing Africa's Participation in the New World Trade Order.

II. WORLD TRADE ORGANIZATION, ITS STRUCTURE AND MAJOR ROLE

The world is at a historic watershed. The coming into effect of the World Trade Organization bringing together the World Bank (WB), the International Monetary Fund (IMF) and General Agreement on Trade and Tariffs (GATT) may bring in a new serendipity in the work of the future. Africa continues to hope that the new The New World Trade Order - will be characterised by an increased flexibility in the achievements of a variety of tasks as demonstrated by individual institutions. Considerable progress in

(4)

appreciating the difficult issues of Africa in pursuit of the goals of development. As we prepare for the inauguration of the WTO, a couple of important issues come to our minds. The debt overhung, the inadequate implementation or even the absence of response to internationally agreed 0.7 per cent of GNP of rich countries resources to be transferred to Africa, such lack of response to internationally agreed decisions continue to plagued international community. The WTO is geared to reinforcing rules and will eventually resolve many of these problems. We must, nevertheless,

continue to keep vigilant eye on the progress in particular on cases relating to the LDCs issue. Moreover, an increasing number of regional trade agreements have been concluded and/or notified to the GATT, which may isolate LDCs. The World Bank, GATT, IMF will have to join hands to usher in an era where regional arrangements will complement and not compete with the multilateral trading system.

Moreover, it aims at strengthening a cooperation with the Bretton Woods Institutions. However, the future responsibilities

for such cooperation should not be allowed to disadvantage least developed countries. For instance the balance of payment provision of Uruguay Round negate the imposition of trade restrictions for balance of payment reasons that such an act would cause international trade disruption. However, such a reason too is weak to stand a test in particular against Africa. Ways and means

(5)

should be sought to compensate the development of countries that face such problems.

The establishment of WTO may be an excellent starting point for reviewing and may be abandoning practices which contravene the multilateral trade discipline born of the General Agreement. The practices had in some cases exaggerated and often arbitrarily caused implementation of measures that ultimately resulted in protectionism.

The future credibility of the WTO will depend on whether the agreement and decisions reached in all areas in particular market access, dispute settlement, protecting competition are met.

Unfortunately despite the conclusion of Uruguay Round, and the eminent coming into existence of WTO, other newer threats still exist below the surface. Africa feels that new topics such as trade and environment, workers rights are being used as pretext for applying protectionist rules.

It must be recalled that the conclusion of the Uruguay Round was a compromise. There were prophecies of mutually destructive trade war had the agreement not been reached. Therefore, the

outcome can be hailed as having averted the much feared danger.

The negotiations covered virtually all sectors of world trade.

However, the decision on market access which countries made commitment to eliminate or reduce tariff rates and non tariff

(6)

measures applicable to trade in goods is symbolic to Africa.

Symbolism aspect relates to developed countries publicly and comprehensively pledging their support for liberal trade policies.

The future behaviour of these countries will be judged against the time. The importance of the New Trade Order is most probably in its reinforcing the international legitimacy of liberal trade policies on developing countries. The developing countries view this as a means to strengthen the influence of the current economic prescription encapsulated in World Bank controversial and universal remedies.

WTO and its Structures

Uruguay Round established a World Trade Organization as a single institutional framework to encompass the GATT, all agreements and arrangements concluded under its auspices, and complete results of the Uruguay Round. According to available information WTO will be headed by a Ministerial Conference that would meet once annually. The understanding is that the General

Council would be established to oversee the day to day operations, and will also act as a dispute settlement body and Trade Policy Review mechanism. Its permanent staff will replace the GATT secretariat.

(7)

E/ECA/TRADE/94/20 <

Page 6

The General Council will be made of a host of specialist subsidiary bodies such as the council for trade in Goods to oversee the phasing out of the MFA, a safeguards committee is envisaged to oversee operations of revised Article XIX, a council on services, and a council for TRIPS.

The detailed modus operandi of the WTO is yet to be agreed upon but it learned that, the key principles are to have:

membership of the councils opened to all signatories of the agreement;

when there is no consensus some- decisions would be taken by qualified majority (mostly three quarters or two thirds);

others will require unanimity;

voting will not be weighted;

the WTO itself will not take sanctions against transgressors but will authorize aggrieved parties to withdraw MFN treatment from them.

(8)

(e) Challenges of WTO

The WTO will face major challenges; firstly to assist all

countries digest and implement the wide ranging results of the

Round. Secondly, to monitor whether the commitments undertaken are being fulfilled and if not, to act as a credible authority for rapid settling of trade disputes and finally, to serve as the forum for concluding the negotiations agreed upon in the Uruguay Round work programme and launching work on other topic decided upon in the framework of the WTO.

WTO - and Africa's debt prohiems

While various initiatives have been designed to solve the African debt problem all of them for various reasons have proved inadequate, unsuitable or even unadaptable. Development remains fundamental answer to Africa's debt crisis. The World Bank within the new structures of the WTO could be to introduce innovation in African thinking. In particular within the development patterns to allest African countries that as long as Africa continues to consume CAPITAL, development and debt solution are not in sight.

However, it is considered that since governments will no longer be paramount economic agents, the World Bank could play a supportive role in enhancing Africa's development through infusion of capital to private sector. Achievement of credible democratization and

(9)

credible environmental measures, and solution to debt problems require policy guidance. Development remains the answer to the above.

(a) Rule based, liberal trade philosophy

The World Trade Organization scheduled to be inaugurated in January 1995 is characteristically evolutionary rather than revolutionary. An important element of its evolution is that, it will in the same way as GATT not become a free trade organization but it will promote and enforce adherence to predictable rules and the objectives of reducing barriers to trade whenever possible. It has a much more limited remit, than the ill fated international trade organization, the intended Third Pillar of the Post War economic institutional framework that was proposed to have stood along the World Bank and IMF.

The assumed universality of the liberal trade concept is evident from the altered status of LDCs. Part IV of GATT provides for special and differential treatment for developing countries.

It further lays the basis among others for the most widespread forms of trade preferences to be offered to LDCs. The concept of

special and differential treatment is more limited and time bound than previously. After the end of a transnational period LDCs (except least among them) are expected to adopt most of the same disciplines as developed countries.

(10)

One of the main innovations of the Uruguay Round is the

extension of the institutional framework to trade. The replacement of GATT secretariat with WTO reflects both the broadening of the

scope of the new agreement and the desire to strengthen the

monitoring of trade policy. The crucial questions that Africa's

ponder over include inter alia:

(i) What sort of trade regime will WTO seek to promote;

(ii) How far will the New Trade body safeguard their trade interest; and

(iii) Will the new organization impose trade policies on

unwilling African countries?

(b) Decision making within WTO

The scope for the WTO to reinforce LDCs interest, or to impose on them unwanted policies, depends on the structure of decision

making and enforcement. The use of qualified, unweighed majority

voting means that the developed countries cannot force upon LDCs

unwanted decision. But LDCs are disadvantaged. They can only

defend their perceived interest if they are aware of what is being

discussed. To ensure that the LDCs are adequately represented in

(11)

E/ECA/TRADE/9 4/2 0 Page 10

key councils, they will have to concentrate their resources and give priority to the WTO, also seek technical assistance.

(c) Rule enforcement mechanism

The enforcement of rules will continue to be symmetrical because it will be undertaken by aggrieved parties imposing penalties on transgressor. In dispute, for example, the imposition of penalties by an LDC on the developed country's export will have

far less impact than vis-a-vis.

III. CONCLUSION

The coming into effect of the WTO is poised to introduce

important changes in the international trade. With the increasing

globalization of markets, trade in goods and services will become

inextricably linked with investment and financial flows. Also, the

spread, direction and control of technological change will affect

in an increasingly direct and significant way the competitiveness

of national economies and productive structures coming into effect

of the World Trade Organization. Immediate benefits for crisis

stricken Africa are beyond dispute. The market access commitments

made, the much strengthened rules approved raise hopes and optimism

for creating conditions favourable for economic expansion through

increased trade opportunities, as well as greater stability and

predictability in the trade domain.

(12)

Uruguay Round negotiations will continue into the next century to extend the application on the agreed rules to trade policy and

to lower barriers to trade. It envisages further negotiations which are to build upon the consensus already reached. Some of the measures of interest to developing Africa will be phased in over a period extending in some cases beyond the years 2002. The predicted benefits are in the trade partners fulfilling what is in the spirit as well as the letter of the commitments they have made.

However, past experiences provide room for scepticism. Prudence is the order of the day. The reality will produce success when the

hopes will begin to be matched by concrete results.

Finally, Africa will have to take active part in the upcoming

tasks and therefore requires to be strengthened. Developing Africa

will face serious difficulties in almost all the negotiated issue

not only their implementation but also understanding. Safeguard

action of GATT for example allows members to take safeguards

measures impose restrictions to protect a domestic industry from

negative effects of an unforeseen import surge. The new Agreement

prohibits the use of such action where they constitute "grey area"

measure such as orderly marketing agreement, voluntary export

restrain. Within 4 years of WTO grey areas measures are to be

phased out. On issues, like safeguard investigation,

discrimination, developing countries will be under the mercy of

their trading partners. Granting protection by other trading

(13)

partners is tantamount to leaving Africa at the laters mercy. In the world of competition ushered in by the Uruguay Round such grey areas will continue to mystify the whole system.

(e) Challenges of WTO

The WTO will face major challenges; firstly to assist all countries digest and implement the wide ranging results of the round. Secondly, to monitor whether the commitments undertaken are being fulfilled and if not, to act as a credible authority for rapid settling of trade disputes and finally, to serve as the forum for implementing the negotiations agreed upon in the Uruguay Rounds work programme and launching work on other topic decided upon in

the framework of the WTO.

Dispute settlement

The WTO is scheduled to bring dispute settlement under a single system. The understanding seeks to limit unilateral determinations that trade rules have violated by allowing members themselves to make determination that violation occurred. The WTO in this respect is to protect interest of LDCs and other developing

countries.

WTO is to provide predictability and security to the

multilateral Trading system. Dispute settlement provided by WTO is

(14)

a great improvement to the previously applied GATT dispute settlement system. Dispute settlement is one of the major functions of WTO. The importance of ECA in relation to its contracting member States of WTO will be to alert the member States of their obligations and rights, in particular with respect to dispute settlement procedures involving Least Developed countries.

The legally complex dispute settlement rules and procedures

require substantial preparations and considerable organizational

efforts. African countries have less than adequate professional

and administrative support to defend their trade interests in the

multilateral setting. African countries will without doubt expect

WTO to come forward with legal assistance. In this context it is

to be expected that Africa will continue to rely on the good

offices of the ECA for assistance. Africa to take advantage of

these opportunities that could enhance transformation and improve

productivity, changes may have to be introduced both at national

and ECA levels. ECA may have to review its own objectives,

policies and structures to ensure that it offers Africa required

technical assistance in dealing with the new challenges. This is

also true for other regional commissions. But what is most

disturbing in ECA is the way recruitment and advancement in levels

has always played down educational background. The importance of

investing in staff training has been underestimated.

(15)

There is a strong evidence that the raw Trade Organization will require collaboration between UN agencies for interpretation of articles of the Uruguay Round rendering technical assistance to least developed states ECA will be called upon to take necessary follow up measures, to ensure the speedy adaptation of African countries' economies to institutional reforms introduced by WTO.

This implies giving high priority to the development and utilization of human resources.

Firstly, a survey will have to be undertaken of available skills within the ECA with a view to preparing modus operandir for technical assistance to Africa. The ECA will definitely require to be revitalized so that it can play a prominent coordinating role in promoting this new approach. Because African States are themselves ill equipped personnel wise and administratively, proposals should be put forward for enabling ECA adapt to the new realities including upgrading skills where possible, so as to enhance its effectiveness in playing a coordinating role in the New Trade

system's efforts to promote trade and development.

Interpretation of the uniform rules - ECA#s responsibility to Africa

The importance and the international character of the

provisions and the need to promote uniformity in their application

and the observance put great responsibility on the Economic

(16)

Commission in the context of assisting African countries to master and eventually to be enacted as pieces of national legislative instruments. The correct interpretation of the provisions calls for relevant skills and experiences that would provide useful guidance to national authorities in particular, the LDCs. This will be important in order to avoid different set of interpretations. The coming into effect of WTO will also encourage the use of new communications, technologies, the objectives of which will be to enhance trade through transactions utilizing modern commercial methods. Africa will without doubt look up to ECA for guidance in the application and transfer of such

technologies.

There is growing convergence on the need for good governance

nationally. An obvious corollary is good management in the

international sphere. The centralized interest of WB, IMF and GATT

in WTO would most obviously reinforce some discipline in

channelling assistance to governments that adhere to the principle

of good governance and respect for human rights. Issues of poverty

alleviation external debt, trade policy reform will substantially

increase the interdependence among countries and sector. The

future role of WTO may result in better management of resources,

enhance interplay between investment, production and trade.

(17)

E/ECA/TRADE/94/20

Page 16