This panel was convened at 9:00 a.m., Friday, April 11, by its moderator, Sylvia Kang'ara of the University of Washington School of Law, who introduced the panelists: Ross Leckow * of the International Monetary Fund; C.L. Lim of Hong Kong University; and Timothy A. Canova of Chapman University School of Law.
THE TURN TO TRADE
By Chin Leng Lim ([dagger])
Coming from Asia, saying that government policy matters to growth is motherhood. This is not just an East Asian viewpoint either. Someone from the Harvard Business School wrote recently: "Every country has a strategy for economic development." (1) In other words, all governments will have their own internal strategies for growth and development. The domestic space which governments have in the direction of their chosen development policies therefore becomes important.
A second big issue today is that, taking the International Monetary Fund (IMF) as example, there is now a third group of some seventy-five middle-income and emerging market economies, including some East Asian nations, that lies between the traditional two groups of lender nations and borrower nations. (2) Because these middle-income countries typically have regular access to private capital markets, their reliance on Fund lending is not as predictable, certainly not outside moments of crisis. Partly to halt such countries from "drifting" from the IMF, (3) the IMF decided in its annual meetings in 2006 in Singapore on ad hoc increases in the voting shares of China and South Korea, as well as increases in Mexico's and Turkey's voting shares. (4) When it comes to the specific problem of a potential "Asian drift," one question today has to do with how you get China or South Korea to remain committed to the Fund. I will not be talking about that. I would like to focus on a wider "drift" problem, one that encompasses the whole range of developing countries, towards the World Trade Organization (WTO) as the central forum for the treatment of development concerns.
In short, I wish to address three points. First, a general drift towards the WTO as a serious forum for discussing development. Secondly, the issue of domestic policy space which, as I shall try to argue, was a large part of what the New International Economic Order (NIEO) was about. Thirdly, the contemporary revival of the NIEO, now centred in and around the WTO, and what that might tell us, more generally, about how the International Financial Institutions (IFIs) have fared in the eyes of developing countries.
WHO KILLED THE NIEO?
People say the problem with the NIEO was that the developing countries were not helping themselves, and that one great difference today is that developing countries have now moved on to a self-help model. To quote the textbook I use to teach my class: "most developing nations are presently more interested in joining the developed world than in leading the developing world." (5) According to this telling of the story, developing countries learned an important lesson after the debt crisis of the 80s, and somehow realized, with some additional prompting, that trade and investment liberalization, deregulation and privatization would be more beneficial to them. In this way, the NIEO soon became an anachronism.
Perhaps it was the McNamara era which really killed the NIEO. As they moved away from integrated rural development projects to structural adjustment lending, international agencies initially advised developing countries to devalue their currencies to boost exports and cut government spending in order to pay their petrodollars. But this soon became the basis for ever broader prescriptions to remove trade barriers, free prices and cut back state direction of the economy. (6)
THE NIEO'S EQUAL PARTICIPATION DOCTRINE
I do not wish to quarrel unduly with this view of what happened to the NIEO, but only to mention that one thing has remain unchanged throughout. The newly decolonized nations had wanted an equal voice in global law and policy-making. Colonialism happened in Africa and Asia partly because the European law of nations did not give them that. So the institutional framework of the United Nations became a new venue for the newly decolonized, developing nations of Asia and Africa to air their views. The General Assembly, in particular, allowed majoritarian voting on new standards and legal policies that would, or so the developing countries of Asia and Africa hoped, alter the general character of the legal order altogether. They believed that without this restructuring, there could be no real promise of political and economic self-determination. In short, what we came to see as a failed struggle for a NIEO centred, appropriately, around the UN and specifically the General Assembly.
PARTICIPATION EQUALS DEVELOPMENT
Unlike some standard critiques coming from the Third World Approaches Movement today, I believe this explains the eventually high degree of acceptance of international law by the developing country nations. (7) Developing countries were participating in re-making the legal order in pursuit of their own developmental objectives. Taking charge of changing the rules of the game became linked to development. Eventually, it became virtually synonymous with development.
A MORE APPROPRIATE FORUM
What is noteworthy today is that little of this has changed. Developing countries have only shifted their attention to the WTO to deliver on development. Why is that? After all, no trade lawyer will tell you that the WTO is a development organization, and you are talking about people who care about the Doha Development Agenda. One important reason, I believe, is that the WTO allows developing countries to participate on an equal footing in law-making.
To be more precise, the international rules they want are those which will fit their economic strategies and national policies for development. Neo-liberal reforms pushed by the IFIs and constrictions of domestic policy space could be countered by moves in WTO rule-formulation which, if carefully thought through, might restore lost policy flexibility. In a sense, developing countries have learned to forum shop and to arbitrage comparative size differences in international and domestic policy space in order to restore policy flexibility at home--flexibility which they would require to formulate their own strategies for growth and development. Take the exemption of developing and least developed countries from WTO prohibited subsidies (Art. 27.4 of the SCM Agreement). (8) Developing countries were exempted for eight years, subject to extension, whereas least developed countries still enjoy the original exemption. We can see the special significance of the carve-out following the Appellate Body ruling in the U.S. Foreign Sales Corporations Tax Case. (9) Tax incentives to lure inward foreign direct investment have now become legally questionable under WTO law. So it has become ever more urgent for developing countries to negotiate Article 27.4 extensions following the lapse of the eight-year period. (10)
In doing so, developing countries are involved in shaping and reshaping consensually-derived, and highly predictable, rules. Shaping the rules of the game to suit their economic policies is something developing countries consider that they do not get to do with the IFIs, at least to the same extent and probably not to the same effect.
OTHER TRADE ADVANTAGES
Of course there are other advantages to trade as well. With the IFIs, developing countries do not get to create economic opportunities. Money is good. But market access creates economic opportunities, whereas with the IFIs, there is simply no real way of knowing if the money you take is worth the reforms you are asked to make.
This is not necessarily the fault of the IFIs. In 1960, Walt Rostow advocated the financing gap theory. Foreign assistance would provide sorely needed capital to build huge state-owned industries. But while East Asian countries used their capital to back successful exporters, African and Latin American nations sold at home. (11) Again, the choice of economic strategy mattered. But, today, developing countries have all gone for export-led growth, and export-led growth means shaping your own economic strategies and getting the sort of market access which fits those strategies.
In addition, market access is fairly quantifiable. Focusing on market access means you do not simply have to fit into the economic strait-jacket prescribed by someone else which may, or may not, always work for developing countries. Special and differential treatment, introduced as far back as the 1965 GATT amending protocol, also meant that you do not have to assume the same set of obligations as developed countries. (12)
Instead, the rules to which developing countries consent also bind the developed countries. When you compare that to the IFIs the tables are turned. Apart from restricting the domestic policy space of developed countries in relation to developed country markets, trade disciplines also offer rule-predictability and a sense of enduring legality. So you cannot say that developing countries are "against international law." Developing countries want to talk about international law when they talk about development. They want to discuss domestic subsidies, domestic support and trade remedies at the WTO.
Finally, everyone is a sinner at the WTO. Developing countries get to say: "Just look at the scandalous amounts farmers in rich countries get, and how rich countries skew dumping rules to protect sunset industries." They get to do some of the lecturing too, and developed countries do not just look like saints all the time.
TRADE AND DEVELOPMENT
This shift to a trade-centred model of development probably explains why developing countries reacted badly at first to increased NGO participation in the WTO. To say to developing countries that a Government-to-Government internal...