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UFRGS Model United Nations

United Nations Conference on Trade and Development Dear Delegates, First I would like to welcome all of you to the United Nations Conference on Trade and Development of the UFRGS Model United Nations 2005. We are anxious to meet you next November and we are truly sure you will enjoy this wonderful experience. The chair worked hard, trying not only to write a good study guide, but also to create an environment that allows some productive and innovative discussions. Our two topics cover areas in International Economic Relations, a subject with a really intense difficulty degree. In this light, we expect you to have a steady preparation, researching about the topics’ nuances, analyzing your country’s position and studying everything else you might think is worth it. But before you give up, my favorite words: “don’t panic!” The issues cover much more than technical matters; the majority of the time, we will be dealing with politically focused discussions. I also would like to advise you that both topics differ a lot between them. While the first one deals with more practical issues, the second one calls upon the delegates to reflect about the contemporary trading system. Bearing that in mind, the guides presented below give you the essential information on the topics, explaining the main concepts and ideas needed to do a good job as a UNCTAD delegate. It is up to you to go further and learn more about these exciting issues. Now let me introduce myself. My name is Philipe Eduardo, and I am a 6th semester Economics student at UFRGS. This is my fifth MUN and my second as a staff member. My last participation in a MUN was at the 8th Americas Model United Nations (AMUN), last July, where I represented the United States of America at the Board of Executive Directors of the World Bank. My major areas of interest are International Economics and Finance, Economic Development and Applied Microeconomics. For this reason, I am overjoyed to be chair of the first economic committee to be simulated at UFRGSMUN.

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However, by myself I would not have been able to accomplish such an exhaustive task. Without the help of my three assistants, the first economic committee to be simulated at UFRGSMUN would not have existed. Luis Alberto is in the last year of law school at UFRGS. He participated in UFRGSMUN 2004, yet this is the first time he is contributing to this model as a chairman. He is greatly interested in the fields of International Law, History and International Relations. Believing in the importance of world economic relations in shaping current events, it was with great enthusiasm that he accepted the invitation to help organize UNCTAD. Manoel Moreira is a 6th semester Economics student at UFRGS. He was an exchange student in the University of Western Australia in 2004. In addition, he has participated in both previous editions of the UFRGSMUN, first as a delegate of Chile in the 2003 Security Council and, second, as the representative of the United Kingdom in the 2004 International Law Commission. His interests are Economic Development and International Relations. Rodrigo Cardoso is in the 4th semester of his International Relation course at UFRGS. This is his third simulation (he has participated in AMUN 2004 and UFRGSMUN 2004), the first one as chairman. His interests are Political Economy, International Law and Sociology. According to him, MUN conferences are a great way to learn, exchange experiences and voice new ideas. That is why he got excited when he was invited to join this committee. Please, do not forget of signing up for UFRGSMUN UNCTAD’s e-group (unctad_ufrgsmun2005@yahoogroups.com), so that you can be connected with both the staff and your fellow delegates. Finally, I would like to thank all those who have supported us during these stressful months of hard work. Special thanks to the Secretariat and to Professor André Cunha, who revised this Study Guide with great care and had endless patience with us. Special thanks also to Lisa Jamhoury and Troy Taylor for their English revision. See you in November! Philipe Eduardo Schefer Berman Luis Alberto Salton Peretti philipe.berman@ufrgs.br Assistant-Director Director Manoel Gehrke Ryff Moreira Rodrigo Bertoglio Cardoso Assistant-Director Assistant-Director

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INTRODUCTION

UNCTAD’s General Background

“In a society of little economic development, universal inactivity accompanies universal poverty. You survive not by struggling

against nature, or by increasing production, or by relentless labor; instead you survive by expending as little energy as

possible, by striving constantly to achieve a state of immobility.” Ryszard Kapuscinski

The UNCTAD was created in 1962, when the General Assembly (GA) approved resolution 1785 (XVII), which proposed the guidelines that established standards for the Conference. The first conference took place in Geneva in the year of 1964 and agreed that UNCTAD should be a permanent institution. The Conference emerged due to the increased participation of developing countries as members of the United Nations (UN) at a time when the role of these countries in international trade was progressively deteriorating. This scenario created pressure for a new body to address economic concerns of such countries and to create policies to enhance development. The UNCTAD’s most important decision-making body is a quadrennial conference, in which member States are supposed to achieve a consensus concerning the world’s economic situation and developmental policies. In the four years between the conferences, UNCTAD’s work is guided by the Trade and Development Board (TDB), which convenes once a year for regular sessions and up to three times a year to deal with ad hoc policies and institutional issues. The TDB has established three Commissions that meet yearly to address policy issues in the following specific fields: (i) The Commission on Trade in Goods and Services, and Commodities, (ii) The Commission on Investment, Technology and Related Financial Issues and (iii) The Commission on Enterprise, Business Facilitation and Development.

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TOPIC AREA A

Foreign Direct Investment and Local Economies: Attaining a Mutually Beneficial Approach.

By Philipe Eduardo Schefer Berman and Luis Alberto Salton Peretti.

It is necessary to first differentiate between Foreign Direct Investment (FDI) and Portfolio investments.1 FDI involves a long-term relationship between an investor headquartered in a specific economy and another entity resident in a country other than that of the direct investor. In other words, FDI are flows of capital across national frontiers that give control of the acquired assets to the investor.2 These productive investments can be classified into three main categories: Greenfield investments are those flows aimed at creating new facilities or at expanding existing ones; mergers occur when the assets and operations of firms from different countries are combined to establish a new corporation; and acquisitions occur when the control of assets and operations of a national enterprise is transferred to a foreign company. Considering that the mere increase in FDI flows - even though it is reckoned beneficial as a rule - does not automatically engender economic development, measures for attracting investments shall not be considered for our purposes. This study guide will focus on the issue of making FDI work for development after the investment is already established in a country. In fact, several other concerns arise in view of investment attraction, such as legal predictability, bureaucracy transparence, the presence of a local development-friendly infrastructure and the skills of the local labor force and many others. For this reason we will not be considering it in our committee. 1 In portfolio investment, investors purchase the stock or bonds of national corporations, but have no control over them. 2 For further information, see the Balance of Payments Manual: Fifth Edition (Washington, D.C., International Monetary Fund, 1993) and the Detailed Benchmark Definition of Foreign Direct Investment: Third Edition (Paris, Organisation for Economic Co-operation and Development, 1996).

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1. HISTORICAL BACKGROUND AND PAST INTERNATIONAL ACTION One might say that foreign investments started only with the new globalization process that brought together regions and people that once were not aware of each others’ existence. However, the use of permanent personnel abroad became a reality back in the thirteenth century with the so-called “commercial revolution”. From the seventeenth to the nineteenth century, foreign investments were also made by European trading companies3 that were created to explore the world as a result of the discovery of the American continent and, additionally, by British-based multinational firms with offices in many countries around the world. In the beginning of the 20th century, more manufacture-oriented Transnational Corporations (TNCs) began to emerge, including the operations of German chemical and electrical companies in various European countries, the creation of foreign auto production facilities by Ford, and the foreign food and agricultural activities of British firms.4 By the end of the Second World War, the foreign investment flows started to take the shape they have nowadays with the spread of American-based TNCs around the world. Such a sudden movement towards FDI happened in part because of the new global orientation of the United States and the strength of its economy in relation to those of its war-damaged competitors5 and in part because of the prohibitions imposed to Japanese and German cartels accused of being responsible for such countries’ militarism.6 The main cause of the growing flows of FDI during the 1950s and the 1960s was that foreign corporations started to expand their operations to developing countries, not only to have access to raw materials or to expand their markets (as occurred during colonization), but also to “shift lower-skilled manufacturing production such as microchips to low-wage locations”.7 As a result, many host countries began to be more aggressive in their relations with TNCs. In some cases, host governments took over local TNC enterprises either through political measures (one example could be the nationalization, by Libya, of some oil TNCs assets after the 1973 crisis) or through military interventions (as in 1954, when the US launched a military offensive in Guatemala after the take over of the United Fruit Company). 3 Some examples would be the Dutch East Indies Company, the British East Indies Company, and the Hudson’s Bay Company. See PORTER, Tony. Globalization and Finance. London: Blackwell, 2004, p. 85. 4 JONES, Geoffrey; SCHRÖTER, Harm. The Rise of Multinationals in Continental Europe. Aldershot, Hants: Edward Elgar, 1993. 5 NEAL, Larry. The rise of financial capitalism: International Capital Markets in the Age of Reason. Cambridge: Cambridge University Press, 1990. 6 HEXNER, Ervin. International Cartels. Westport: Greenwood Press, 1946. 7 PORTER, Tony. Globalization and Finance. London: Blackwell, 2004, p. 87.

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During the 1970s, when the power of TNCs was growing and they were already becoming the main actors of the world economy, some efforts were made in order to build up international norms and laws to regulate foreign investment, rather than simply mobilizing military or political power. As a result of an intensive debate between host countries which wished to assert their right to expropriate the assets of TNCs and the USA and other industrialized countries which argued that the rights of foreign investors should be overriding, important steps regarding the relationship between TNCs and States were taken. Among them, four are of paramount importance: the Organization for Economic Co-operation and Development’s (OECD) Code of Liberalization of Capital Movements,8 in 1961; the Charter of Economic Rights and Duties of States (CERDS), adopted by the GA in 1974;9 the Center on Transnational Corporations (CTC), created by the GA also in 1974; and the OECD Guidelines For Multinational Enterprises, adopted in 1976. The OECD’s Code of Liberalization of Capital Movements provided a progressive liberalization on almost all capital movements and, having the legal status of an OECD decision, created binding obligations for the member States. The CERDS, on the other hand, represented a victory of the States fighting for the right to restrict FDI within their borders. Such GA declaration was not well received by exporting developed countries mainly because of articles 2.(2).(a) and 2.(2).(c), which state that the host country has the right “to regulate and exercise authority over foreign investment” and “to nationalize, expropriate or transfer ownership of foreign property”.10 The CTC was the result of the New International Economic Order (NIEO), an attempt of the developing countries to regulate and to supervise “the activities of transnational corporations in the interest of the national economies of the countries where such transnational corporations operate on the basis of the full sovereignty of those countries”.11 Among its main purposes, the CTC aims “to strengthen the negotiating capacity of host countries, in particular the developing countries, in their dealings with TNCs”12 and “to secure international arrangements that promote the positive contributions of TNCs to national development goals and world economic growth while controlling and eliminating their negative effects”.13 During its days of existence, one of the main contributions of the CTC was the Draft Code of Conduct on Transnational Corporations, intended to forge a positive link between TNCs and national development goals.14 In

8 OECD. Code of Liberalization of Capital Movements. September, 30, 1961. Available at: http://www.oecd.org/dataoecd/10/62/4844455.pdf. Last accessed: 22 May 2005. 9 UNITED NATIONS. Charter of Economic Rights and Duties of States. GA Res. 3281 (XXIX), 1974. Available at: http://daccessdds.un.org/doc/RESOLUTION/GEN/NR0/738/83/IMG/NR073883.pdf. Last accessed: 22 May 2005. 10 UNITED NATIONS. Charter of Economic Rights and Duties of States. 11 UNITED NATIONS. Declaration of the Establishment of a New International Economic Order. GA Res. 3201, 1974. 12 UNCTAD website. Available at http://unctc.unctad.org/aspx/index.aspx. Last accessed: 22 may 2005. 13 UNCTAD website. Available at http://unctc.unctad.org/aspx/index.aspx. Last accessed: 22 may 2005. 14 From another perspective, the CTC Code of Conduct sought to regulate perceived abuses in host

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general, the Code of Conduct negotiators managed to agree that “TNCs should respect host countries' development goals, observe their domestic laws, respect fundamental human rights, adhere to socio-cultural objectives and values, abstain from corrupt practices, and observe consumer and environmental protection objectives”.15 Finally, the OECD Guidelines for Multinational Enterprises - originally adopted as one part of the OECD Declaration on International Investment and Multinational Enterprises - established guidelines to ensure that TNCs operate in harmony with the policies of their host countries.16 The OECD Guidelines cover a range of topics including science and technology, general policy, competition, information disclosure, financing, employment and industrial relations, taxation, and the environment. As a matter of fact, the majority of agreements and resolutions regarding FDI adopted until the 1980s dealt with the concerns about the negative impacts of FDI flows in host countries and the rights of States to regulate and control foreign investments made within their borders. However, attitudes towards FDI began to change dramatically after the debt crisis of the early 1980s. Countries started to face productive foreign investments as a complement of their lack of domestic investments and as a new source of capital that could catalyze their industrialization process.17 The NIEO coalition broke up and the CTC closed down because of the pressure made by some industrialized countries. In its place, UNCTAD began to produce research much more favorable to the benefits of FDI than to its negative impacts. After that, new international rules were created with a different perspective: if before the debt crisis the States’ rights were the main concern of international agreements, after the 1980s, the investors’ rights became the main concern of multilateral, regional and mainly bilateral agreements.18 Attempting to create a multilateral framework regarding FDI, the OECD opened discussions regarding FDI in 1991. At the Ministerial Meeting in May 1995, it was decided that negotiations on the preparation of the Multilateral Agreement on Investments19 (MAI) would be conducted over the following two years. The MAI negotiations attempt to cover three main topics: investment liberalization, investment protection and dispute settlement. However, with a great pressure made by developing countries and even some developed countries, the negotiations were discontinued in April 1998 and the project was abandoned by the OECD. With the failure of MAI negotiations,

countries by TNCs. 15 UNCTC. Transnational Corporations in World Development: Trends and Prospects (Executive Summary). United Nations, New York, 1988. 16 OECD, International Investment and Multinational Enterprises: The OECD Guidelines for International Enterprises (Revision 2000), Paris, 1994. 17 This shift towards a more tolerating behavior was also a consequence of some emerging liberal governments in Europe and the spread of its ideas all over the world. 18 SMYTHE, Elizabeth. Your Place or Mine? States, International Organizations and the Negotiation of Investment Rules. Transnational Corporations 7, no.3, 1998), p. 85-120. 19 OECD. The Multilateral Agreement on Investment: the MAI Negotiating Text. Paris, April 1998. Available at http://www.oecd.org/dataoecd/46/40/1895712.pdf. Last accesses: 29 May 2005.

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more attention has been given to the World Trade Organization (WTO). The WTO does not have specific rules on investments, but the Agreement on Trade-related Investment Measures (TRIMS) is the cause of disputes and controversies among countries.20

2. STATEMENT OF THE ISSUE

In brief, it can be concluded that all attempts to regulate FDI have not been completely successful and most of them have failed before the end of negotiations. The main obstacle to achieving a multilateral agreement regarding investment is the dispute between host countries and home countries about the rights of States to interfere in their own economy in order to regulate FDI. As a result, a growing number of Bilateral Investment Agreements (BITs) have been signed in the past few years. Signing BITs has advantages and disadvantages. They provide countries with the freedom to choose their partners and they give more flexibility to developing countries by allowing each treaty to be signed separately. On the other hand, asymmetries in bargaining power put smaller and weaker economies in disadvantage while negotiating with large developed countries. Besides that, in order to obtain complete coverage of all UN members with BITs, it would be necessary to create more than 18,000 agreements. This extensive and costly network of treaties would be hard to administer and would emerge as a problem to FDI liberalization that could lead to uncertainty and potentially inconsistent rules and legal conflicts.21 Having this in mind, it is of paramount importance that all countries of the world work together to reach a consensus on investment-related issues. A multilateral treaty over this topic is highly needed, but several issues still remain without any solution. 2.1. Performance Requirements and Investment Incentives Among all policy options available to governments to optimize the impact of FDI, one of the most controversial is performance requirements. Such tools “are stipulations imposed on foreign affiliates to act in ways considered beneficial for the host economy”.22 These requirements can be mandatory (imposed at the point of FDI entry and subsequent expansion) or voluntary (as a condition for the provision of some kind of advantage). Their main purpose is to induce TNCs to act in a way that promotes local development by “raising local content, creating linkages, transferring managerial techniques, employing nationals, investing in less developing regions, strengthening the technological base and promoting exports”.23

20 This topic will be better explained later on the text. 21 UNCTAD. World Investment Report 2003: FDI Policies for Development: National and International Perspectives. United Nations. New York and Geneva, 2003, p. 88-90. 22 UNCTAD. World Investment Report 2003: FDI Policies for Development: National and International Perspectives. Geneva and New York: United Nations Publication, 2003, p.119. 23 UNCTAD. Foreign Direct Investment and Performance Requirements: New Evidence from Selected

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There are divergent views regarding the effectiveness of performance requirements to achieve economic development. As stated by Rubens Ricupero, former UNCTAD Secretary-General,

“performance requirements can be an important policy tool in this context, to enhance the benefits of, and address concerns related to, inward FDI. Their role in policy-making is still controversial, however. Many developing countries seek to preserve their right to utilize them, arguing that they should have the right to use tools that were available to developed countries when they were industrializing their economies. Developed countries, on the other hand, tend to associate performance requirements with interventionist strategies of the past and question their effectiveness.”24

Categories of performance requirements25 Category Performance requirement

Prohibited by the TRIMs Trade-balancing requirements; Foreign exchange restrictions related to the foreign-exchange inflows attributable to an enterprise; Export controls.

Prohibited , conditioned or discouraged by International Investment Agreements (IIA) at bilateral or regional levels

Requirements to establish a joint venture with domestic participation; Requirements for a minimum level of domestic equity Participation; Requirements to locate headquarters for a specific region; Employment requirements; Export requirements; Restrictions on sales of goods or services in the territory where they are produced or provided; Requirements to supply goods produced or services provided to a specific region exclusively from a given territory; Requirements to act as the sole supplier of goods produced or services provided; Requirements to transfer technology, production processes or other proprietary knowledge; Research and development requirements.

Not restricted All other performance requirements.

Countries. New York and Geneva: United Nations Publication, 2003, p. 119. 24 UNCTAD. Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries. New York and Geneva: United Nations Publication, 2003, p. iii. 25Adapted from UNCTAD. Host Country Operational Measures. UNCTAD Series on issues in international investment agreements. Geneva and New York: United Nations publication, 2001.

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In general, one may divide performance requirements in three main categories: the first category consists of those that are explicitly prohibited by the WTO Agreement on Trade-Related Investment Measures (TRIMs) because they are inconsistent with Articles III and XI of GATT/1994;26 the second includes requirements that are explicitly prohibited, conditioned or discouraged by interregional, regional or bilateral (but not by multilateral) agreements; and the third category covers requirements that are not subject to control through any international investment agreement.27 Investment incentives are another range of policy tools used by host countries, not only for creating a more favorable investment climate, but also to increase the benefits from FDI by stimulating foreign affiliates to operate in a desired way. Differently from the performance requirements, incentives are not mandatory. In fact, they are benefits given by a host government that expects to receive something in return from the favored TNC. They can be divided into three main categories: financial incentives (such as outright grants and loans at low interest rates), fiscal incentives (such as tax holidays and reduced tax rates) and other incentives such as market preferences, regulatory concessions (including the relaxation of regulatory standards that foreign investors would otherwise have to respect), and subsidized infrastructure or services.28 Sometimes, when countries’ policies aim at a specific developing strategy, incentives can be a good tool to pursue it. If used in a proper way, they can compensate for some deficiencies in the business environment that cannot easily be remedied. They can also help to correct the failure of markets to capture wider benefits from externalities of production. However, incentives may be harmful in some circumstances. If not used in a correct manner, they may result in competition between countries, diverting financial resources that could otherwise be more effectively used for development purposes. Moreover, there are still no conclusive studies about the effectiveness of incentives. At the same time, there are episodes showing that incentives can be crucial for FDI attraction and selection, some experiences suggest that incentives do not rank high among the determinants of FDI and that in many instances incentives can be a waste of resources.29 2.2. Technology Transfer

26 Article III relates to national treatment and stipulates among other things that “no contracting party shall establish or maintain any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportions which requires, directly or indirectly, that any specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources”. Article XI is related to the general elimination of quantitative restrictions. See UNCTAD, WIR 2003. 27 UNCTAD. World Investment Report 2003. 28 UNCTAD. World Investment Report 2003. 29 UNCTAD. Incentives and Foreign Direct Investment. Geneva and New York: United Nations Publication, 1996, p. 9-11.

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One of the main features of the contemporary world-economy is the important role of technology in the industrial process. With the dawn of the information age, a new production paradigm superseded the one that stemmed from the second industrial revolution, bringing a marked increase of the informational value assets vis-à-vis tangible capital.30 It is believed that technology transfer costs can presently comprise between 20 and 60 percent of total project cost.31 As an important consequence, “the developing world is facing not just rapid technical change, but also shrinking economic space and dramatically intensifying competition”.32 In fact, given its high costs, most of the innovation is carried out by TNCs,33 resulting in possession of the developed countries for the greater part of such new technologies.34 For these reasons, the most cherished of all the benefits that FDI prompts in local economies is the transference of technology that it allegedly engenders from the investment source (usually the main Research & Development—R&D—creative countries) to the receiving economy. However, taking advantage of FDI for the enhancement of a country’s technological capabilities is not a natural consequence of investment: benefits do not stem automatically as a given placement is installed On the contrary, an active governmental policy is required in order to assure that the potential brought through FDI is well absorbed domestically. In fact, technology encompasses much more than the skills embodied in the invested goods. It demands, in opposition, a new attitude towards technical and organizational innovation with an ever-increasing effort for capacity building. In other words, it requires the strengthening of national learning systems by local authorities (i.e. public investments in human capital). One of the main issues of FDI is the creation and optimization of technology spillovers, which are “externalities that arise involuntarily or are deliberately undertaken to overcome information problems.”35 When a more advanced enterprise is set up in a given market, its specialized demand drags its suppliers into a technological evolution, triggering technology advancement in all the steps of the productive network—mostly when the modern managerial practices of outsourcing parts or phases of the production are employed. As the opposite prospect of technology spillovers, it can be argued that, in some cases, steep R&D downgrading might be envisaged as TNCs acquire domestic enterprises. In

30 CASTELLS, M. A Era da Informação: Economia, Sociedade e Cultura. Volume I: A Sociedade em Rede, São Paulo, SP: Paz e Terra, 2000, p. 158. 31 UNCTAD. World Investment Report 1999: Foreign Direct Investment and the Challenge of Development. Geneva and New York: United Nations Publication, 1999, p. 203. 32 UNCTAD. World Investment Report 1999, p.196. 33 UNCTAD. World Investment Report 2003, p. 129. 34 “In fact, an extraordinary concentration of science and technology in a small number of OCDE countries. In 1993, ten countries composed 84% of the global R&D and controlled 95% of the American patents of the two preceding decades” CASTELLS, M. A Era da Informação: Economia, Sociedade e Cultura. Volume I: A Sociedade em Rede, p. 165. Free translation by the authors. 35 UNCTAD. World Investment Report 1999, p. 210.

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case such acquisitions occur in sectors already benefited by research activities, usually carried out in the home country or abroad, as in the case of global research laboratories, the technology related sectors of the purchased domestic enterprise are downsized, causing the loss of internal knowledge-generating clusters. Focusing on policy formulation, local governments’ strategies can range from local market protection, with barriers, to complete market liberalization. However, successful approaches “adopted specific strategies on technology, different from both classic import substitution and free markets.”36 Two examples of inarguable successful policy-making are the cases of the Republic of Korea and Taiwan Province of China. In Korea “the government gave approval for investment on the condition that the TNC helps its domestic suppliers to upgrade their technology.”37 In this perspective, “the technologies that were to be brought in by the investing TNCs were carefully screened and checked whether they were not overly obsolete or whether the royalties charged on the local subsidiaries, if any, were not excessive.”38 In Taiwan “those investors which were more willing to transfer technologies were selected over the others which were not, unless they were too far behind in terms of technology.”39 Besides these establishment requisites, local authorities not only bestowed incentives and assistance, but also financed local companies in order to integrate them in the production schemes of the hosted corporations. As a matter of fact, on any occasion, “the best way to raise linkages between TNCs and local firms is to raise the capabilities of potential suppliers.”40 However, most governments have shifted their policies towards more market-friendly approaches.41 They currently seek not only to attract FDI, but also to stimulate the transference of technology and its development process. That is done by means of the guarantee of intellectual property rights as well as the support of local firms’ capabilities through bargains with the intention of acquiring strategically important knowledge. In effect, governments have come to the understanding that within import substitution strategies, market protection may create an inefficient environment, thus rendering national industries backward and compromising an entire development project. Therefore, national regulation is useful if, in a reasonable period of time, infant local firms can

36 UNCTAD. World Investment Report 1999, p.196. 37 CHANG, Ha-Joon. Foreign Investment Regulation in Historical Perspective: Lessons from the Proposed WTO Investment Agreement. 2003. Available at: http://www.twnside.org.sg. Last Accessed: 30 May 2005. 38 CHANG, 2003. 39 CHANG, 2003. 40 UNCTAD. World Investment Report 1999, p. 212. 41 UNCTAD. World Investment Report 2003, p. 129.

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achieve a level of competence, allowing them to become world-class enterprises and later carry on their activities unassisted.42 For the same goal, “developing countries, as importers of technology, have tried to improve the terms and conditions of technology transfer, strengthen the bargaining position of local firms and promote technology diffusion and generation, sometimes by a relaxed application of Intellectual Property Rights (IPR).”43 That was the policy followed by the two aforementioned countries—Korea and Taiwan. Thus, a question arises about the consistency of stringent Trade-related Intellectual Property Rights (TRIPS) regulation and the pursuit of development. It is argued that TRIPS are necessary for providing a welcoming environment for FDI and, furthermore, that they support the inward transfer of technology and even the setting up of local R&D facilities. Even though the TRIPS’ discipline44 stresses greatly the importance of transferring technology—going as far as to create monitoring bodies for its own implementation in 200145—world-renowned environmental scientists and activists intensely criticize this perception by denying the IPR’s potential for increasing technology transfers. As states the Indian scientist Dr. Vandana Shiva, “the World Bank’s World Development Report 1998-99 examined the experience of more than eighty countries and found that the effect of intellectual property rights on trade flows in high-tech goods was insignificant.”46 In conclusion, from the point of view of the TNCs—and still at the multinational level—the OECD, in its above quoted Guidelines, has recognized the importance of corporate actions which are aimed at the increase of technology transfer for the improvement of economic conditions in host—mostly undeveloped—countries. In fact, through the elaboration of these guidelines, the OECD alleged the role to be played by major countries. These countries were subsequently called upon to consider the employment impacts of their handling of knowledge, to fit their technology assets to the economic development level of host countries, and to contribute to the development of local resources, where possible. 2.3. National Treatment The issue of granting national treatment to domestically established foreign enterprises is not new, but it has grown in importance since the debt crisis of the early eighties. The

42 GILPIN, Robert. Global Political Economy: Understanding the International Economic Order. New Jersey: Princeton University Press, 2001. 43 UNCTAD. World Investment Report 2003, p. 130. 44 For the agreement’s full text, see http://www.wto.org/english/tratop_e/trips_e/trips_e.htm. Last acessed 29 may 2005. 45 UNCTAD. World Investment Report 2003, p. 134. 46 SHIVA, Vandana. Protect or Plunder Understanding Intellectual Property Rights. Global Issues Series. London, Zed Books, 2001. p. 28.

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UNCTAD Secretariat has already dealt with this issue, having arrived to the following perception:

“The basic concept of national treatment is that, in principle, foreign affiliates and domestic firms in similar situations should receive the same treatment, regarding such things as establishment, ownership and control of enterprises, full access to courts and other authorities and equal protection under law, as well as taxation, labor law, consumer protection or protection of the environment, not to mention free access to credit facilities, or even government aid to enterprises. Such a list is usually meant by liberalization.”47

The main purpose of granting foreign affiliates the same status of national enterprises is to create a more favorable investment environment. However, some negative consequences might arrive due to market “crowding out” or due to “competition distortion.” Crowding out is understood as the decrease of opportunities for domestic investments as a consequence of a disproportionate increase in the ratio of investments carried out by foreign companies.48 This may occur when foreign affiliates of a specific branch are more efficient and offer better quality products. Besides that, it is also possible that the advantages possessed by foreign firms are due to inequalities in the credit and financial system of the host country, or even the engagement in anti-competitive practices by these enterprises.49 In the first situation described above, some governmental interventions might be required in the pursuit of strategically important development goals, as in the case of Korea and Taiwan, quoted earlier. Yet, such interventions may not work as desired if carried out for too long, resulting in the maintenance of inefficient economic cripples, as already stated by UNCTAD: “[…] denying foreign affiliates national treatment on infant enterprise grounds is justified only if the differentiation is limited in duration and local enterprises are able to become fully competitive”.50 On the other hand, there is little doubt that the latter situation should be intensely tackled by governments. From this, the question arises of whether foreign affiliates and local firms compete in like circumstances. In many cases, for example, TNCs offer lower credit risks than local enterprises. As a result, national banks may offer loans at lower interest rates to these foreign firms which become a detriment for domestic firms because of the lack of information about national enterprises, among other factors. Another example of the imbalance of circumstances between foreign and domestic enterprise is the case when TNCs take advantage of production opportunities in regions where labor and

47 United Nations. Exchange of information on foreign direct investment, Report by the UNCTAD Secretariat, E/C.10/1994/7, 23 March 1994, 14. 48 World Bank. World Development Report 2005: A Better Investment Climate for Everyone. New York: Oxford University Press, 2005. 49 GILPIN, 2001. 50 UNCTAD. World Investment Report 2003, p. 107.

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environmental standards are lower than domestic regulations—or even nonexistent—causing a reduction in production costs and, consequently, an advantage that lies out of reach for local companies. For all these reasons, it is advisable that the principle of national treatment be applied by the host government with a certain degree of flexibility for some political choices, even though its benefits are largely accepted by the modern economic theory. As a last view, another issue is the possibility for countries to pass domestic legislation on economic matters. In fact, that prerogative stems from the concept of national economic sovereignty and it purports mainly to ecological and labor concerns. On the other hand, it is necessary to distinguish between regulatory takings from a given country and indirect taking of property. In this matter “it is necessary to strike a balance between offering reasonable protection to investors and retaining [the] right to regulate”51 as such measures might encroach on private property rights. 2.4. Home Country Measures Even though outward FDI can derive from developing countries, the bulk of FDI flow has its origin in developed economies. Developing countries thus tend to figure most of the times in the receiving end of an international investment transaction. For this reason, when focusing on the search for a more development-oriented configuration of FDI flows, it might be desirable that some actions are to be taken by the source-country itself. First, enhancing the development dimension of investment depends necessarily on the increase of the volume of placements that least developed countries receive. From this point of view, FDI can be considered as a form of economical assistance. This is achieved by the liberalization of trade flows, the encouragement of technology transfers, the grant of incentives to outward investors and by the mitigation of risk for development-oriented FDI. One might consider that these initiatives can only be driven by solidarity for they are not likely, at a first glance, to yield great economic benefit for home countries. However, it must be bore in mind that this kind of investment, mainly Greenfield investment, is a very effective form of creating new investment and trade opportunities for their business communities.52 For these reasons, countries that have grasped such potential have engaged in active promotion of FDI to developing countries. This is possible through the implementation of two main policies: spreading information on opportunities and mitigating risks. The first 51 UNCTAD. World Investment Report 2003, p. 112. 52 UNCTAD. World Investment Report 2003, p. 155.

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goal is achieved by setting up intelligence agencies, like the International Finance Corporation (IFC) and Overseas Private Investment Corporation (OPIC), which are held, respectively, by the World Bank and the US. Their target is to advertise business opportunities and to provide assistance for seizing these opportunities. The second policy depends on the creation of agencies, like the World Bank’s Multilateral Investment Guarantee Agency (MIGA) or structures designed in bilateral agreements. On the other hand, home countries do play an important role in making sure that the FDI stemming from their companies does not cause harm to foreign countries’ economies. Great benefit could be obtained through the requirement of home countries, whose legal systems are ordinarily more fit to enforce such rules that make sure that “TNCs based there conform to certain standards of good corporate citizenship”53 and also apply sanctions when necessary. The control of home countries should also include the affirmation of corporate transparency and the combat of corruption: having access to records of previous company misbehavior would be of great value. To conclude, the granting of standing to foreign governments, or, in other words, the entitlement to enact judicial proceedings at the host country’s jurisdiction, should also be considered, particularly in regard to national competition protection authorities. However, on this point, great discussion emerges on which courts should recognize foreign plaintiffs and what would be the applicable legislation. 2.5. The Social Responsibility of Transnational Corporations The awareness that the globalization process has furthered the possibilities for benefiting from business opportunities by global players has also aroused the consideration that new correspondent duties should be enforced. The emerging world society is anchored in the drawing of common global expectations. However, the disparity between the “territorially-bounded authority of national governments and the transnational reach of a TNC’s integrated international production system”54 has been affirmed as a drawback that should be dealt with. From FDI’s point of view, the importance of this situation is increased, as, in many cases, an economically small state might fall short of the means necessary to advocate its needs in the face of an investor’s interests—mainly if, proportionally to the host economy, the bulk of investment is at stake. Even though some might consider that “the business of business is business,”55 the recognition that several externalities bind any enterprise to its social background has justified the belief in a “social contract” that should guide the dealings between the two.56

53 UNCTAD. World Investment Report 2003, p. 156. 54 UNCTAD. World Investment Report 1999, p. 350. 55 UNCTAD. World Investment Report 1999, p. 347.

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The construction stemming from this viewpoint was developed especially in the realm of environmental concerns. It was markedly in the Rio Declaration of 1992 that this notion of a social contract was adopted by the UN through the recognition of civil society’s rights to engage in discussions on this matter and also the admission of stakeholders’ participation in decision-making processes.57 In fact, having this origin, these notions are most intensely linked to environmental matters and issues surrounding human and workers’ rights, but debate on the strictly economical sphere has also been engaged, and this matters greatly to the FDI discussion. As a consequence, the concepts of good corporate citizenship and corporate social responsibility emerged. Even though they are considered as different constructions, the latter “addressing economic aspects more explicitly,”58 for the purposes of this Study Guide, they must be treated equally as the latter encompasses the former. It is in the logic of both perspectives that the expectations of TNCs are to further legal binding obligations, ensure consumer rights, keep information disclosure as well as fiscal and commercial probity, create linkages with local enterprises, raise employment opportunities, raise local skill levels, and support the transfer of technology. Moreover, respect for labor and environmental regulations can also be envisaged, in a broader concept. In addition to domestic regulations on the matter of FDI, the notion of “corporate social responsibility rises above this required floor to incorporate standards of behavior that may be expected, but they are not required, under a society’s legal statutes.”59 These standards normally state civil society’s demands of active corporate engagement for the pursuit of development goals and the fair compensation of host communities. As a consequence, pressure from consumers and home country citizens is one of the decisive considerations for the acceptance of such responsibilities. One instructive case was the adoption of a policy of corporate responsibility by Nike in order to dilute reputation blemishes caused by some of its partners’ management.60 However, some companies lay beyond the range of public watch and are thus also speared from public pressure, which might render ineffective the formulation of such voluntary guidelines. Nevertheless, the premises of social enterprise accountability may not always be clearly recognizable. Hence, generally applicable standards need to be developed by international institutions in order to frame corporate conduct. The main instruments created on the matter are the 1976 OECD Guidelines for Multinational Enterprises, the 1977

56 UNCTAD. The Social Responsibility of International Corporations. Available at: http://www.unctad.org/en/docs/poiteiitm21.en.pdf. p. 11. Last accessed: 27 May 2005. 57 WEISS, T. G., FORSYTHE, D. P. and COATE R. A. The United Nations and Changing World Politics. Boulder: Westview Press, 2001, p. 275. 58 UNCTAD. World Investment Report 2003, p. 164. 59 UNCTAD. World Investment Report 1999, p. 347. 60 UNCTAD. World Investment Report 1999, p. 362.

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International Labor Organization’s Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, and the UNCTAD Code on Restrictive Business Practices, adopted by the GA in 1980. Besides the instruments quoted above, one of the greatest plans to link the private sector goals to the States’ national development strategies is the Global Compact, an initiative launched by UN Secretary General Kofi Annan in July 2000. As stated on its website, “the Global Compact seeks to promote responsible corporate citizenship so that business can be part of the solution to the challenges of globalization.”61 Seeking to contribute to a more sustainable and inclusive global economy, the Global Compact’s ten principles62 serve as a guide to companies, so they can “embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labor standards, the environment, and anti-corruption.”63 Despite the creation of these codes and initiatives, the responsibilities in this area are not definitely ascertained, which is the reason why countries are still expected to “enshrine good corporate citizenship principles in non-binding instruments.”64 Nevertheless, in many cases, government intervention may be the only way of pushing these matters forward. One possibility for making the principles stated above effective would be the creation of binding domestic procedures for monitoring the implementation of internationally established standards. Another approach would be requiring that incentives be subject to compliance with good corporate citizenship standards. Apart from behavioral demands, one tool for advancing social responsibility is the creation of certifications on these matters. The International Organization for Standardization, even though it is not part of the UN framework, has acquired great reputation in issuing corporate compliance certificates, of which the ISO 1400065 is an example. It is a label awarded for correct environmental management with conspicuous international reputation. Emulating this concept and bringing it into the field of FDI, Social Accountability International, a NGO based in the US, has conceived a certification, drawn on international conventions on labor and human rights, aiming specifically at corporate responsibility interests: the SA8000.66

61 United Nations Global Compact Website. Available at http://www.unglobalcompact.org. Last accessed at: 29 July 2005. 62 The chair strongly suggests you to take a look on the Global Pact’s ten principles. 63 United Nations. The United Nations Global Compact: Advancing Corporate Citizenship. New York, 2005. Available at: http://www.unglobalcompact.org/content/AboutTheGC/EssentialReadings/gc_overview.pdf. Last accessed at: 29 July 2005. 64 UNCTAD. World Investment Report 2003, p. 166. 65 International Organization for Standardization Website. Available at: http://www.iso.org/iso/en/ISOOnline.frontpage. Last accessed at: 30 May 2005. 66 Social Accountability International Website. Available at: http://www.cepaa.org/SA8000/SA8000.htm. Last accessed at: 30 May 2005.

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Nevertheless, the application of rules on this matter may also create great difficulties with regard to development. In fact, calls for change coming from the home countries might be disagreed upon by developing FDI hosting countries. It is possible that, in practice, a given prescription hinders strategically important national development goals, even though advisable in theory. Countries might be willing to sacrifice some assets in the short-term in order to reap greater benefit afterwards. Also in this line of reasoning, it might be argued by FDI source countries that such dispositions diminish economical efficiency and thwart development at the end.

3. BLOC POSITIONS Given the complexity of the issue at hand and due to the extensive range of approaches that a single country might adopt accordingly to the circumstances, it is not possible to draw clear distinguishable blocs with shared interests. Two countries can agree in one subject and strongly disagree in another, as the issue deals with different dimensions of international economical relations. At the same time, as the degree of economic development grows in a certain country, this very country might not only defend host countries’ policies, but it may also pursue the interests of its own TNCs. Hence, our discussion is not aimed at finding a peremptory solution to a specific issue, but at enhancing the overall benefits that can come together with FDI and its distinct aspects.

4. QUESTIONS TO PONDER Despite the fact that the resolutions issued by UNCTAD are not legally binding to signatory States, they do perform an important role in international economic relations. Establishing a forum for global discussion, the resulting analyses are referable to the world society, thus offering foundations for prospect economical actions. In the case of FDI, various aspects of this complex practice might be diversely interpreted, according to, mainly, the political implications for each participating country. Delegates are expected to discuss and agree, when possible, on the possibility of enhancing the role of FDI for the development of local economies, transforming their findings into a resolution’s articles which are meant to deal with the important aspects of the phenomenon, as the ones listed below: A. To what extent do policies that impose the transfer of technology cause the loss of

prospective investors?

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B. How can domestic regulation trigger greater acquisition of technology without artificially nurturing inefficient local enterprises?

C. Should governments engage in the discussion of policies designed to spur good

corporate citizenship or is it preferable to leave the conception codes of conduct to civil society for voluntary adoption?

D. In considering issues of corporate social responsibility, is it appropriate that home

countries intervene on host countries policies by imposing requisites and sanctions to the TNCs established in their jurisdiction that choose to set up activities in countries with lower legal standards?

E. In which cases will there be economic retribution to be drawn by the investing country

from the FDI placed in Least Developed Countries (LDCs) as a result of home countries’ incentives?

F. How can home countries' policies contribute to the promotion of corporate

transparency, the struggle against corruption, and the assurance of shareholders’ rights?

G. What are the factors that can be taken into account for the admission—or not—of FDI

flows, without engendering unjustifiable discrimination? In which cases are such discriminations legitimate?

H. What are the limits for rightful regulatory takings by host countries so that investors’

assets are respected? I. How can a foreign affiliate be considered to be in “like circumstances” to a domestic

company? In cases where circumstances are unequal, what can host governments do to eliminate competitive distortions?

J. In what degree are incentives and performance requirements acceptable? How does the

national treatment clause interact with investment incentives and performance requirements?

L. Is it necessary to review the TRIMs Agreement as stipulated in its Article 9? Should

countries leave the treatment of performance requirements as it is or should they reopen the negotiations over its provisions?

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5. REFERENCES CASTELLS, M. A Era da Informação: Economia, Sociedade e Cultura. Volume I: A Sociedade em Rede, São Paulo, SP: Paz e Terra, 2000. CHANG, Ha-Joon. Foreign Investment Regulation in Historical Perspective: Lessons from the Proposed WTO Investment Agreement. 2003. Available at: http://www.twnside.org.sg. Last Accessed: 30 May 2005. GILPIN, Robert. Global Political Economy: Understanding the International Economic Order. New Jersey: Princeton University Press, 2001. HEXNER, Ervin. International Cartels. Westport: Greenwood Press, 1946. INTERNATIONAL MONETARY FUND. Balance of Payments Manual: Fifth Edition. Washington, D.C., 1993. JONES, Geoffrey; SCHRÖTER, Harm. The Rise of Multinationals in Continental Europe. Aldershot, Hants: Edward Elgar, 1993. NEAL, Larry. The rise of financial capitalism: International Capital Markets in the Age of Reason. Cambridge: Cambridge University Press, 1990. OECD. Code of Liberalization of Capital Movements. September, 30, 1961. Available at: http://www.oecd.org/dataoecd/10/62/4844455.pdf. Last accessed: 22 May 2005. OECD. Detailed Benchmark Definition of Foreign Direct Investment: Third Edition. Paris, 1996. OECD. International Investment and Multinational Enterprises: The OECD Guidelines for International Enterprises (Revision 2000). Paris, 1994. OECD. The Multilateral Agreement on Investment: the MAI Negotiating Text. Paris, April 1998. Available at http://www.oecd.org/dataoecd/46/40/1895712.pdf. Last accesses: 29 May 2005. PORTER, Tony. Globalization and Finance. London: Blackwell, 2004. SHIVA, Vandana. Protect or Plunder? Understanding Intellectual Property Rights. Global Issues Series. London: Zed Books, 2001. SMYTHE, Elizabeth. Your Place or Mine? States, International Organizations and the Negotiation of Investment Rules. Transnational Corporations 7, no.3, 1998), p. 85-120. UNCTC. Transnational Corporations in World Development: Trends and Prospects (Executive Summary). United Nations, New York, 1988.

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UNCTAD. Host Country Operational Measures. UNCTAD Series on issues in international investment agreements. Geneva and New York: United Nations publication, 2001. UNCTAD. Incentives and Foreign Direct Investment. Geneva and New York: United Nations Publication, 1996. UNCTAD. The Social Responsibility of International Corporations. Available at: http://www.unctad.org/en/docs/poiteiitm21.en.pdf. Last accessed: 27 May 2005. UNCTAD. World Investment Report 1999: Foreign Direct Investment and the Challenge of Development. Geneva and New York: United Nations Publication, 1999. UNCTAD. World Investment Report 2003: FDI Policies for Development: National and International Perspectives. United Nations. New York and Geneva, 2003. UNITED NATIONS. Charter of Economic Rights and Duties of States. GA Res. 3281 (XXIX), 1974. Available at: http://daccessdds.un.org/doc/RESOLUTION/ GEN/NR0/738/83/IMG/NR073883.pdf. Last accessed: 22 May 2005. UNITED NATIONS. Declaration of the Establishment of a New International Economic Order. GA Res. 3201, 1974. UNITED NATIONS. Exchange of information on foreign direct investment, Report by the UNCTAD secretariat, E/C.10/1994/7, 23 March 1994, 14. WEISS, T. G., FORSYTHE, D. P. and COATE R. A. The United Nations and Changing World Politics. Boulder: Westview Press, 2001, p. 275. WORLD BANK. World Development Report 2005: A Better Investment Climate for Everyone. New York: Oxford University Press, 2005.

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TOPIC AREA B

Market Access Measures and Market Entry Conditions as Obstacles to Development. By Manoel Gehrke Ryff Moreira and Rodrigo Bertoglio Cardoso.

1. HISTORICAL BACKGROUND

Market barriers have already had many approaches, for every world’s economic perspective brought a new interpretation of the issue. This Study Guide will focus on two opposite views in order to introduce the current comprehension of the subject. The first one dates from the end of the 18th century to the beginning of the 20th century, and although it did not form a concise theory, its framework can be clearly contrasted to the contemporary approach. It handles market access measures and market entry conditions in a more pragmatic way, for there was no international standardization nor trade’s regulation when it was first developed. Thus, such a view can offer a cold analysis on trade taking into account a less cooperative (or institutionalized) international system, having many of today’s industrialized countries as examples. The second approach is the contemporary open-market perspective that praises trade-deregulation and liberalization as development’s engine. In this historical background, the focus will be mainly the birth and evolution of such a perspective, since its problems will be addressed in the following section. 1.1. The Former Perspective The fundamental question to be addressed, as a historical perspective of market barriers is concerned, is what role market access and market entry conditions played for countries’ development. Looking back in history, the answer is that they made quite a difference for

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development. Market barriers were of a great importance for the development strategies adopted by the countries that today are known as developed, for the lack of international organizations for trade allowed them to take advantage of a wider range of trade policies. In other words, market barriers were more acceptable in the past than nowadays. However, it must be highlighted that those market barriers were also able to promote development. Developed countries’ history is extremely conducive to understand this precise feature. They show how conscious technological, industrial and trade policies can lead to economic growth and social development.

1.1.1. Successful Past Protectionists Experiences Until the beginning of the 17th century, Great Britain used to import technology from the continent67 and its exports were limited to rustic wool. Because of its low level of development, Great Britain had been left behind by other European countries. However, things started to change with Edward III, the first English monarch to set a development strategy for the wool industry. He assigned foreign, skilled workers, centralized crude wool production and established barriers for wool cloth importation.68 As the famous writer Daniel Defoe tells, the Tudor dynasty also promoted infant industry protection.69 Henry VII and Elizabeth I reached successful industrial development through the use of restrictive trade policies as they imposed higher tariffs for crude wool and even forbid its exportations.70 The importing-dependent Great Britain became one of the most effective wool producers in the world due to its development strategies that had protectionist policies as some of its main instruments. The 1721 legislation by Robert Walpole, minister of Jorge I, meant an extraordinary change in English policies. According to the minister, the importation of raw material and exportation of manufactured goods contributed to the welfare of the population. Thus, raw materials tariffs have decreased or had been suspended, customs refunds were implemented for key products of the exportation industry, most of the manufactured goods exports taxes have been eliminated, foreign manufactures were heavily taxed and some export goods were subsidized.71 Some other market barriers could still be mentioned, as the Wood Act that forbade the colonies wool export and the 1700 market access barrier imposed to Indian’s wool products. 67 Data extracted from KINDLEBERGER, C. World Economic Primacy: 1500 to 1900. New York: Oxford University Press, 1996 p.109 68 DAVIES, N. The Isles – A History. London, Brasingstoke: Macmillan, 1999. 69 DEFOE, Daniel. A plan of the English Commerce. 1728 70 Long legislation’s research about the issue can be found at Ramsay (1982). 71 More details in BRISCO, N. The economic policy of Robert Walpole. New York: The Columbia University press, 1907. P.131-3;

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The good’s subsidization and tariff protection did not stop during the post-Industrial Revolution years, and the period even experienced an increase in the protectionism by the British policymakers.72 Only later on, when Great Britain had already established a technological gap between its economy and the competition’s did a liberal perspective emerge.73 Following the same pattern of British history, the United States also resorted to trade barriers, high tariffs and a vast amount of restrictive trade policies in its developing stage. By the time the American Congress was able to settle national tariffs in 1789, there was a single tariff of 5% for most of the products. Some years later, however, the conflict with Great Britain made the tariffs rise up to 12,5%.74 Although the quarrel with Great Britain was over, new policies arrived in 1816 and high tariffs did not decrease. Thus, American wool, iron goods and cotton were sheltered by protectionism75 and most manufactured goods had 35% tariffs.76 In 1820, the average tariff for manufactured goods was 40% and tariff increases followed in 1824, 1828 and 193277. Taking into account the costs of international trade, even the average tariff of 27% implemented in the following period was trade-restrictive and, once again, as civil war approached, tariffs were enormously increased. In a general way, this example shows that American industry was constantly sheltered by high tariffs until World War I, and implies that the United States employed a conscious development strategy through infant industry protection. As in the two examples given above, Germany also developed itself by making use of trade barriers. Although the prime policy used by the German government in the catch-up period was a direct intervention in the key industries, other trade restrictive policies were also implemented. By the time of Prussian State, tariff protection was commonly used in order to protect national production and, apart from that, monopoly provision and raw material subsidization were also common practices.78 However, despite German preference for governmental intervention, tariff policy should not be disregarded as heavy industry cartels were only possible through tariff protection.79

72 DAVIS, R. The Rise of Protection in England, 1689-1786. In: Economic History Review, v.19, n.2, 1966. 73 BAIROCH, P. Economics and World History – Myths and Paradoxes. Brighton: Wheatsheaf, 1993. P. 20-21 74 GARATTY, J; CARNES, M. The American Nation – A History of the United States. 10ed. New York: Addison Wesley Longman, 2000. P. 153-5 and BAIROCH (1993) P.33 75 GARATTY, J; CARNES (2000). P. 210. Also COCHRAN, T; MILLER, W. The Age of Enterprises: The Social History of Industrial America. New York: The Macmillan Company, 1942. P. 15 76 BAIROCH (1993) P. 33 77 GARATTY, J; CARNES, 2000. 78 TREBILCOCK, C. The Industrialization of the Continental Powers, 1780-1914. London, Now York: Longman, 1981. P.26 79 TILLY, R. German Industrialization. In: TEICH, M; PORTER, R (Ed.). The Industrial revolution in National Context – Europe and the USA. Cambridge: Cambridge University Press, 1996

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1.2. Contemporary Perspective The underpinning of the current debate on the relation between market access and development was the economical and political transformations, which happened by the end of the 1980’s and the beginning of the 1990’s. As the Union of Soviet Socialist Republics (USSR) went into crisis and dissolution, the market-oriented capitalism seemed to have reached the last frontier: once the USSR yielded unaccompanied, economic liberalization and free markets came to be seen as the most perfect structure among the majority of academics and policymakers. This new social concept has shaped all the knowledge spheres, having a deep influence in the conception of market access. Therefore, market liberalization in developing countries became the solution, the only possible answer to the development and poverty related problems since the fall of the USSR. Economic liberalization, reduction of the State, privatizations, and opening of internal markets: this set of measures would eliminate productive imperfections through the competitiveness among rational and self-interested men. Revolutions would be put aside and history would resume itself to improve the established model, once the summit of perfection of social institutions had already been reached.80 In the international scope, institutionalism gained a new impulse with the empowerment of the United Nations after the Cold War, the creation of the World Trade Organization (WTO) in 1995 and so on. Even protest activities or reformist movements were replete in the institutional standard form, as in the explosive growth of international organizations or in the rediscovery of forums already forgotten, such as the UNCTAD. In a resembling way, the concepts of market access and development shaped themselves according to this new environment. Market access became an unswerving synonym of development through the profits obtained via comparative advantages.81 If the prevalent problem of development was market distortions, economic competition would cure those distortions. In the same way, lack of market access – or trade barriers – were blamed for obstructing social and economic development. The world economic integration post-USSR also altered the weight of trade as a variable of development: if the world production grew in this new era, trade would grow even more than proportionately.82 This way, many countries opened their markets to progress once development was framed in a liberalization formula.

80 FUKUYAMA, Francis. The End of History and the Last Man. London: Penguin, 1992. 81 The important concept of comparative advantages will be better explained in section 2.6. 82 GILPIN, Robert. Global Political Economy: Understanding the International Economic Order. New Jersey: Princeton University Press, 2001.

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2. STATEMENT OF THE ISSUE The past two decades have been shaped by a radical shift in development thinking and practice. In the wake of the debt and development crisis of the 1980’s, a new policy approach looked to liberate enterprise from state intervention, deferring to the invisible touch of global market forces. The promise was for an end to macroeconomic chaos, stop-go development cycles, and debilitating levels of debt, ushering in an era of sustainable growth and poverty reduction. The collapse of the Berlin Wall gave this agenda a global reach. The agenda was embraced with particular enthusiasm in Latin America, and with the success of the Brady Plan, the floodgates opened to foreign capital markets in the 1990’s.83 The green light from international capital markets encouraged a quickening pace of reform, attracting direct foreign investment and making international competition the engine of renewed growth. But after some initial signs of success, familiar structural constraints have resurfaced. Most countries have failed to accelerate capital formation and technological progress, and to diversify themselves into more dynamic sectors. As spending outpaced the expansion of productive capacity and imports boomed, the growing reliance on external capital left many countries exposed to external policy shocks with increasing frequency. Latin America has endured a “lost half-decade”, recalling the disappointing developments of the 1980s. And as stated by Rubens Ricupero, former UNCTAD Secretary-General:

“[…] Fanaticism, according to the Spanish philosopher George Santayana, calls for doubling of effort in the face of failure. Despite its pantheon of critical and creative minds, economics is also susceptible to such thinking. Indeed, as inflation has subsided and market forces enjoy an increasingly freer reign, the call for developing countries to pursue greater fiscal discipline, more deregulation and ever-faster liberalization has intensified, even as growth prospects have dimmed in many places have risen. […] Open-minded, tolerant and pragmatic approaches to the development challenge, consistent with today’s increasingly interdependent world, are urgently needed to place economic policy again at the service of social justice and stability.”84

Taking into consideration Mr. Ricupero’s words, it is possible to say that the way of dealing with trade which presumably arose after the Berlin Wall collapsed (i.e. after the fall of the USSR) did not achieve its proposed objectives concerning development. However, while some may say this happened because of the trade deregulation, others may defend the idea that this happened because there is still not a free trade framework

83 EICHENGREEN, Barry. Globalizing Capital. A History of the International Monetary System . Princeton University Press, 1996. 84 UNCTAD. Trade and Development Report 2003. United Nations: New York, 2003.

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established. Having this in mind, the key-issues on market access barriers and market entry conditions are addressed in the following sections. 2.1. Tariff Measures Tariff measures are import taxes that become market barriers since they increase the price of international commodities in the internal market and protect the national production. The market distortion is not only caused by the price alteration, but also because of its influence in consumption. The fact that the production of a good is competitive does not assure it a market share. The countries, in this sense, abdicate from benefiting its own production even when it is competitive and, depending on the sector and on the kind of products, the revenue which is no longer generated can hinder development. The market access tariffs have been discussed in various ways and situations. The Uruguay Round was certainly the main forum of discussion, and, if added to bilateral and other multilateral discussions that took place during the same period, it sums the most significant advances in the topic. There have been great advances. Due to their direct influence over trade, tariff measures have been highly planned and regulated. The main branches of trade and the majority of products of highly developed countries have been linked to a maximum of tariff binding,85 a great amount of tariff peaks have been removed, and there has been an adequate liberalization process considering the necessities of underdeveloped countries. The limitations, on the other hand, seem to be even greater. An analysis of the implications of a wider regulation and trade liberalization needs to include their supposed effects and their real effects over development. First, the results of tariff measures had a distorted evolution over the last decade. The aim for liberalization in high added value and technological sectors was successful in the first round of negotiations (even before the creation of the WTO). However, the same thing did not happen for two sensitive areas that are closely related to development: (i) agriculture, that was greatly neglected in the discussions at the Uruguay Round and still is a taboo in terms of bilateral relations among developing countries; and (ii) textiles, that in the case of the extinction of the Multifibre Agreement86 also has a longer prospect of discussions (10 years). Even if it is not considered that liberalization did not happen in all countries as well as the inequality of the distribution of its benefits, there was still the maintenance of protectionism through others tariff instruments.

85 WTO glossary: “Commitment not to increase a rate of duty beyond an agreed level. Once a rate of duty is bound, it may not be raised without compensating the affected parties.” 86 WTO Glossary: “Multifibre Arrangement (1974-94) under which countries whose markets are disrupted by increased imports of textiles and clothing from another country were able to negotiate quota restrictions.”

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2.2. Tariff Peaks Tariff peaks are relatively high tariffs, usually on sensitive products, amidst generally low tariff levels. They allow many products to be highly protected without a necessary loss in the country’s average taxes. The existence of a significant variance among the different taxes is very common even in every sector of the economy. Low variances, which are understandable and acceptable, are by no means sufficient to explain what happens in reality. The frequency, as much as the intensity of these peaks, is still a matter of worry. Even after Uruguay Round, tariffs frequently get to more than 30% ad valorem: in the United States, these taxes represent 1/5 of the market; 1/4 in the European Union and in Japan; and 1/10 in Canada. In almost all developed countries, the tariff peaks are especially frequent in the agricultural sector, in fresh and processed food, commodities, textiles and shoes. In this way, adding to the high averages of sectors which interest developing nations, the tariff peaks seem to go further over specific goods such as bananas, sugar, leather, meat, and cocoa, which suffer barriers like the rice in Japan (550%).87 2.3. Tariff Escalation Tariff escalation refers to the situation where tariffs are zero or low on primary products and then increase, or escalate, as the product undergoes additional processing. An example would be a five percent tariff on coffee beans but a ten percent tariff on ground coffee. The general purpose of that tariff would be to protect the domestic industry by enabling them to import the basic raw material tariff-free or at low rates to enable the value-adding process to go on behind these tariff walls. In other words, tariffs rise with the level of processing and thus reduce the demand for processed imports. Sectors like metals, textiles, clothes, leather, carpet, wooden products and furniture are especially propitious for this kind of tariff. In spite of the pro-development rhetoric, this kind of tariff behavior goes completely against industrialization and the increase in the added value of products. It seems also to influence a significant share of the markets, an influence estimated by a study from the Food and Agriculture Organization (FAO) to be around 50% of the already negotiated tariffs.88 In high-income countries, tariffs escalate sharply especially in agricultural products. Among Quad89 countries, the European

87 ECONOMIC AND SOCIAL COUNCIL Market access: developments since Uruguay Round, implications, opportunities and challenges, in particular for the developing countries and the least developed among them, in the context of globalization and liberalization 1998. 88 FOOD AND AGRICULTURE ORGANIZATION. Commodity Market Review, 2003-2004. Available at: ftp://ftp.fao.org/docrep/fao/006/y5117E/y5117E00.pdf. Last accessed: May 30 2005. 89 The name used at the WTO to describe the four major industrialized-country markets: the United States, Canada, the European Union and Japan.

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Union’s and Japan stand out for their high tariffs for processed agricultural commodities of the Quad.90 Cocoa products might be a good example of tariff escalation. In 2003, the European Union applied zero tariff for cocoa raw material (beans), but cocoa paste (semi-processed) was taxed in 9.6%. Processed chocolate, on the other hand, faced tariffs that could amount to 25%. The consequence of such escalation is that most of 90% of cocoa beans are produced in developing countries, but chocolate as final product only accounts for 4% of their production.91 2.4. Technical Barriers for Trade92 Technical regulations and industrial standards are definitely important to ensure the quality and safeness of tradable goods. However, as each country had its own set of norms, international trade could be hampered by this huge variety of technical requisitions. Therefore, the WTO’s Technical Barriers for trade Agreement (TBT) was signed. It had not only the intention to make already existing regulation valid, but also to clear and unify those standards. Unfortunately, this objective failed in some crucial points. The technical norms, initially created as regulations for production and quality control in a more integrated international system, have also been used as market barriers. Even though the initial purpose of the treaty was to establish some homogeneous, clear and impartial technical requirements, the contrary seemed to happen. If the participation of developing countries in the creation is taken as insufficient, their concordance was almost compulsory. The implementation of these regulations have not been efficiently accomplished yet, and there is not an assistance program capable of helping less developed countries to take the necessary measures to follow them. 2.5. Sanitary and Phitosanitary Measures (SPS)93 Every country that imports food, animals or plants is highly concerned with contamination. Trading organic organisms encompasses an enormous variety of risks for importing countries: viral or bacterial contamination, exotic plants’ effects on native environment, food management standards and so on. That was the main reason why Sanitary and Phitosanitary Measure Agreement (SPS) was created within the WTO scope. However, to acknowledge and to allow trade-restrictive legislation also favors this situation to be misused as obstacles to market access. And so it has been done. 90 INTERNTIONAL MONETARY FUND. Market access and the World’s Poor In: Global Economic Prospects. P.46 91 Source: International Cocoa Organization. 92 More details can be found at WTO website: http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm 93 For a brief overview, WTO website is quite useful: http://www.wto.org/english/tratop_e/sps_e/sps_e.htm

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Having in mind the regulation of the consumption and commerce of plants and animals, the SPS treaty has shown to be a way of innovating in terms of market barriers. It is not only the regionalization of control rules that failed in March 2005 that allows even a small or isolated region to commit the status of a whole producing country as a place of diseases (like foot-and-mouth disease and the mad cow disease), but also how different countries have enforced rigid rules in sectors that need production such as the meat in the United States, agricultural products in Japan, wheat in Greece, food products in Thailand, grapes in Australia, etc.94 2.6. The Ideas behind International Trade It is unavoidable - for the understanding of the importance that trade has in development - to look back to the ideas that have guided the discussions among countries in all kinds of multilateral forums. David Ricardo and the Comparative Advantages: certainly, the most influential theory guiding trade relations has been the Ricardian’s Theory on Comparative Advantages. This static theory is part of the tradition of mainstream economics and is a relevant aspect of the general equilibrium theory. Its legacy is paramount for the understanding of the theories that have guided the discussions. The vital component of this theory is a major specialization in international scale. If every region of the world specialized in the products in which they have comparative advantages, the result would be an improvement in the methods of division of labor and, thus, an increase in productivity. The economists who defend this theory argue that factors of production are fully flexible and that the efficiency of their production is the parameter which the market follows, showing what each country should import and export. There should be no tariffs because every trade barrier causes dead weight losses and that means a loss of social benefits and a reduction of competition. This argument is based on the fact that international specialization maximizes resource allocation, causes economies of scale and creates incentives for innovations. Theorists who follow this perspective sustain that trade is capable of structural transformations since it transmits a dynamic impulse for development in terms of productivity and technology. Furthermore, the market has mechanisms in order to equalize the income of factors of all countries, and consequently, the income differences tend to disappear when there is open trade. Summarizing, for the Ricardian Comparative Advantage Theory, and all the improvements that followed it, free trade is the best 94 WTO. How to Apply the Transparency Provisions of the SPS Agreement. Geneva, 2002. Available at: http://www.wto.org/english/tratop_e/sps_e/spshand_e.pdf. Last accesses at 30 May 2005.

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approach, in terms of efficiency and equality, for transactions of goods and services among countries. Following the theory strictly, all economic phenomena, being national or international, are determined and controlled by one single theoretical instrument, the market forces.95 Historical perspective: history has shown that countries can use trade as a significant part of their national development strategies and policies. Developed countries such as England, Germany, the United States and Japan used pragmatic protectionist measures in their industrialization process. Critics, which cite to the 19th century German economist Friedrich List96 and United States Politician Alexander Hamilton, argue that the vindications for trade liberalization does not fulfill the promises made. In the 20th century, Raúl Prebisch, the Argentinean economist who was UNCTAD founder and first Secretary-General, accomplished an analysis of the consequences of trade in the dynamics of development. Prebisch created the terms “center” and “periphery”, reflecting elements concerning the different realities of underdeveloped and developed countries.97 This alternative theory is based on the fact that international trade has operated in the sense of allowing the wealth to be concentrated in favor of industrialized countries because of the long-run deterioration of the products’ value of countries specialized in exporting primary goods. This happens because of the income elasticity of the demand for agricultural goods and the effects of technical progress over the demand for means of production. The “periphery”, therefore, is more fragile to the impact of fluctuations in international trade. Prebisch supported that the only solution for “peripheral” countries would be to use some strategies for advancing industrialization, reducing their level of dependency. Dependency theory: this theory, which is considered as the set of ideas of a group of intellectuals including Fernando Henrique Cardoso, Andre Gunder Frank and Enzo Faletto, has criticized the economicist view of development, proposing a more social centered analysis. There should be a precise analysis about the structural contexts of social relations and the power structure, the relevant internal factors and also the external pressures that determine them. Taking this into consideration, every country should find solutions for their particular condition, and then create strategies for development. The international insertion of a country and its autonomy are key concepts since they influence the kind of relations forcing a country to follow certain rules. The competitive forces, the new productivity norms, quality criteria and labor standards impel in such a way that they

95 KRUGMAN, Paul; OBSTFELD, Maurice. International Economics: Theory and Policy. Reading: Addison-Wesley, 2000. 96 LIST, Friedrich. The National System of Political Economy. Longmans, Green, and Co. London. 1909. Translated 1885 from German. First published: 1841. Available at The Library of Economics and Liberty: http://www.econlib.org/library/YPDBooks/List/lstNPEtoc.html. Last accessed May 30 2005. 97 PREBISCH, Raúl. Towards a Dynamic Development Policy in Latin America. United Nations, New York, 1963.

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diminish the countries’ autonomy to choose their own development policies. Ricardo states that the development would be achieved by market oriented policies; Cardoso and Faletto, on the other hand, state that as a result of its dependency level, a nation could be hampered to proceed towards development.98 Import Substitution Industrialization (ISI): a strategy that concerns international trade is commonly known as Import Substitution Industrialization (ISI), i.e. countries take protectionist measures, restricting the import of some manufactured goods, in order to achieve higher levels of internal production of this kind of items. According to ISI, the national economic management should be responsible for selecting the crucial products and analyze the case for protection of “infant industries” in which there can be a potential advantage. This protection is usually temporary, used practically until the new industries are competitive. The reason given is that the consequences for national well-being are superior to liberalization, and this is the only possibility for a change in the structures of the international division of labor. Other economic reasons against free trade grounds on the fact that there are particular characteristics in developing countries (like the costs of means of production) that do not reflect themselves in market prices. When there is a structural exceeding labor force, wages are fixed, and the real cost of capital is influenced by government intervention and arbitrary exchange rates. Furthermore, other factors are the inequality among sectors, the existence of a traditional and a dynamic sector, and regions of developing countries, dualities that prevail since colonial times. Another problem is that the total exports of unindustrialized economies usually depend on one or only a few commodities. The industrialization process is mainly based on these stages: firstly, the substitution of durable current consumption and some durable consumer goods and capital goods; secondly, the substitution of intermediate inputs, durable consumer goods and capital goods that require a wider market; and, thirdly, the production of capital goods, designated to generate differentiation of the productive systems.99 Export-led growth: another strategy for development is considered the export-oriented growth which East-Asian countries have been using over the past decades. The governments - which played an important role in applying such strategy - lowered barriers with criteria and used exchange rate management, always considering the creation of jobs, opportunities for technological improvements and entrepreneurship promotion as crucial factors.100 98 CARDOSO, Fernando Henrique & FALETTO, Enzo. Dependência e desenvolvimento na América Latina: ensaio de interpretação sociológica, 5ª ed. Rio de Janeiro, Zahar, 1979. 99 CONCEIÇÃO TAVARES, Maria da. Da substituição de importações ao capitalismo financeiro. São Paulo: Zahar, 1974. 100 STIGLITZ, Joseph. Globalization and its discontents. New York/London: WW Norton & Company, 2002.

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3. PAST INTERNATIONAL ACTION As it was said in the previous section, the notion that the market access is itself a safe path for development has just recently been prevailing. Previous international actions mostly follow the liberal paradigm, and although there are some alternative theories, less has been done to apply them. Among purposed and applied suggestions, major relevance is given to the multilateral negotiations at the World Trade Organization (WTO), namely the Uruguay Round and the Doha Round. 3.1. The Uruguay Round The Uruguay Round certainly was a historical milestone in trade multilateral discussions. Still under the General Agreement on Tariffs for Trade (GATT) regime, the Uruguay Round was initiated in 1986 and had as its main goal the regulation of international trade according to a new economic perspective. During seven years of negotiation, the Uruguay Round mainly focused on market access and taxation for all kinds of products. Through a process called “tariff binding”, the import taxation for each product (tariff line) acquires a certain limit.101 Apart from the tariff scope, the Uruguay Round also succeeded in the non-tariff access to markets, regulating import quotas, quality standards, food safety and subsidies, etc.102 The achievements of these discussions were remarkable. Before the Uruguay Round, almost no tariff line was bound, for no benefits or reciprocity would arise from any unilateral action. After 1994, when the round was closed, around 78% to 99% of developed countries tariff lines were bound, the same happening to the amount of developing countries bound tariffs which ranged from 21% to 73%. Besides the benefits of regulating tariff limits, there was a decline in the applied tariffs which before were 40% in developed countries and 25% in the developing nations.103 Regarding sensitive issues to developing countries, there were vast achievements. For textiles and clothing, the Multifiber Agreement (MFA), which supported quotas restrictions, was to be phased out before the 1st of January 2005, according to the

101 UNCTAD. Market Access Developments since the Uruguay Round: Implications, Opportunities and Challenges, in Particular for Developing Countries and Least-Developed Countries in the Context of Globalization and Liberalization. United Nations, Geneva, 1998, E/1998/55. 102 WTO website: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact5_e.htm 103 UNCTAD. Market Access, Market Entry and Competitiveness. United Nations, Geneva, 2003, TD/B/COM.1/65.

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Agreement on Agriculture. Furthermore, any voluntary restriction to imports was prohibited at the Uruguay Round. The unequal division of bound tariffs among countries, the duty-free lines and the situation of sensitive sectors for developing economies are issues remaining to be addressed. By the time the Uruguay Round was finalized, the proportion of bound and unbound tariffs was highly uneven. While Hong Kong and Macau had their tariffs stabilized around 100%, European states had around 80% and Gabon was the only African nation that had more than half of bound tariffs.104 This fact does not necessarily reflect lower or higher tariffs for there are variations between applied and bound tariffs. The unbalance among countries was clear. While some countries like Switzerland (17%) and Japan (50%) compromised to bound their tariffs to zero, others fixed their limits much above the ones they applied, what even allowed them to increase tariffs without crossing the purposed limit. An example of this is the Latin-American countries and their bound tariffs ceiling.105 Concerning sensitive sectors for developing economies, especially textiles, clothing, leather and transportation, the tariffs were still high even with the Agreement on Agriculture. Special market shares, apart from being in the Agreement, still benefit from even higher protection like fish and fishery products in Scandinavian and European countries. Two other subjects of the Uruguay Round which still remain unaddressed are tariff peaks and escalation tariffs. The European countries, the United States and Japan kept high protection after 1994 and, among them, the EU was the one which presented the higher level. Escalation tariffs are still a conflicting issue in international trade. Some countries like Canada, Turkey, Norway, India, Thailand, South Africa and Tunisia seem to have an even higher incidence of such distortion. In addition, some sensitive products for developing economies (textiles, clothing, leather, cocoa, coffee, cotton and soybeans) always incur in escalation tariffs. Indeed, the Uruguay Round has helped to stabilize and standardize international trade, although the truth is that little has been achieved to turn market access universal. This means that every little achievement can be explained by central countries’ interests or they have a counterpart that nullify the every possible benefit. Tariff lines were bound in determinate limits, but they were commonly fixed way above the applied rates. The number of bound tariffs increased enormously, but the tariff dispersion allows some goods to receive differentiated (protectionist) treatment. Many tariffs were bound to zero 104 UNCTAD. Market Access Developments since the Uruguay Round: Implications, Opportunities and Challenges, in Particular for Developing Countries and Least-Developed Countries in the Context of Globalization and Liberalization. United Nations, Geneva, 1998, E/1998/55. 105 There are a little description of this process and tables where it can be visualized in: UNCTAD Post-Uruguay Round market access barriers for industrial products United Nations, New York and Geneva, 2001.

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(duty free line), but such occurs due to the extreme competitiveness of the country in that specific sector. The Agreement on Agriculture could express the goodwill of the international system regarding developing causes, but tariff peaks and escalation for sensitive products seems to defy it. Apart from that, the consequences for distribution were highly unequal among sectors: while telecommunications and bank systems were rapidly liberalized,106 traditional sectors do not obtain similar advances. This means that, aside the extension and benefits of the Round, it had several limitations. 3.2. The Doha Round The WTO Doha Round, which is still taking place, aims to complete the Uruguay Round in order to establish a more fair, market oriented trade system. Besides the discussions already present at the previous round, Doha extended the negotiation topics. After the tariff binding process, national governments made an effort in the development of creative non-tariff methods to maintain the protection level of specific products. Those new methods, considering their relevance, should be addressed. The Doha Round presented a clearer project over agriculture and standardized some aspects of international trade.107 However, the discussions still have not find any progress, and all hopes are being deposited in the next Ministerial Meeting that will take place next December, in Hong Kong. In what concerns agriculture, the Uruguay round was reviewed under the Agreement on Agriculture and multilateral approaches were attempted to reduce tariffs. There were four main proposals to restructure agricultural trade: the “Swiss” formula or “harmonizing” formula; the EU proposal or “flexible” proposal; Mr. Harbinson’s proposal and the blended formula. All the proposals considered a significant reduction on tariffs, depending on deadline, countries affected and tariff lines. The problem was that all these proposals, which were included in the single undertaking, did not reach the necessary consensus for prevailing.108 Ironically, the opposite has happened in the service sector. This sector was liberalized not only in developed countries, but also the poorest countries had their markets opened to foreign capital flows.109 The Doha Round returned to the discussions of enlarging liberalization and regulations that happened before the creation of the WTO. In other

106 HUFBAUER, G. C.; WADA, E. Unfinished Business: Telecommunications after the Uruguay Round. Washington DC: Institute for International Economics (IIE), 1999. 107 SRINIVASAN, T. N. Developing Countries and the Multilateral Trading System after Doha. Yale University Economic Growth Center Discussion Paper: 842; New Haven, CT: Yale University, 2002. Available at: http://www.econ.yale.edu/growth_pdf/cdp842.pdf. Last accessed: 30 May 2005. 108 For a very detailed explanation, see UNCTAD. Shifting sands: searching for a compromise in the WTO negotiations on agriculture. United Nations, New York and Geneva, 2004. 109 UNCTAD. World Investment Report 2004: The Shift Towards Services. United Nations, New York and Geneva, 2004.

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words, economical sectors in which developed countries are highly competitive have reached successfully its liberalization process. Another working field of the Doha Round is the non-agricultural products, more specifically the manufactured and industrialized ones that have been facing trade barriers. The Doha Round proposals have achieved a similar result to the agricultural products, but for some agreements and standardization as SPS, Technical Barriers for Trade (TBT) and Trade-Related Intellectual Property Rights (TRIPS). However, this normative impulse does not relate proportionally to fairer trade architecture because it does not accomplish the development objectives.

4. BLOC POSITIONS Even if countries defend more free trade in the multilateral meetings all over the globe, what happens in reality is the opposite. As stated above, the progress made on Uruguay Round was enormous, but there is still are a lot to be done. The problem lies on domestic pressures both in developed and developing countries. Even though countries’ positions distinguish a lot among themselves, it is possible to differentiate two main groups with shared goals in the recent debates. Succinctly, in developed areas like the United States and Europe the agriculture lobby is strong enough to make their governments to keep protectionists measures in order to not allow the imports of cheaper products from Latin America, Africa and Asia. On the other hand, in these poorer regions - where agriculture still remains as the most productive sector - local governments impose tariffs on services and on manufactured goods with the hope that domestic industries can mature themselves and become worldly competitive.

5. QUESTIONS TO PONDER A. There is a major disagreement concerning export-led growth and import substitution

industrialization. Some defend that trade is just a reflection of internal development processes, while others state that economic growth is only brought by the contribution of international trade. Is exporting according to market force enough to promote development?

B Most developed countries defend liberalization as the quickest way to development.

However, some of these countries are protectionist in their national interest. Does this fact jeopardize their argumentative impartiality?

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C. Bearing in mind that some countries have strong interest in maintaining the current

status quo, can the developmental thoughts become adapted to today’s context? D. Considering all that has happened in the last decades, what can be done so it is possible

to assure that developing countries can find the path that leads to development? E. What are the market barriers a country can use as a strategy for development and how

to deal with them? F. Considering that if there was excessive protectionism throughout the world

international trade would be endangered, what are the limits of development-oriented barriers?

G. What are the existing market barriers that should be lifted and what are the ones that

should be stimulated? What would be the logic behind these decisions: the stage of development of the particular country or the essence of the barrier?

H. In that case, what would be the relation between the decision process of market barriers

and the political and economical powers behind international decision-making?

6. REFERENCES CARDOSO, Fernando Henrique & FALETTO, Enzo. Dependência e desenvolvimento na América Latina: ensaio de interpretação sociológica, 5ª ed. Rio de Janeiro, Zahar, 1979. CONCEIÇÃO TAVARES, Maria da. Da substituição de importações ao capitalismo financeiro. São Paulo: Zahar, 1974. EICHENGREEN, Barry. Globalizing Capital. A History of the International Monetary System. Princeton University Press, 1996. FOOD AND AGRICULTURE ORGANIZATION. Commodity Market Review, 2003-2004. Available at: ftp://ftp.fao.org/docrep/fao/006/y5117E/y5117E00.pdf. Last accessed: May 30 2005. FUKUYAMA, Francis. The End of History and the Last Man. London: Penguin, 1992. GILPIN, R. Global Political Economy: Understanding the International Economic Order. New Jersey: Princeton University Press, 2001. HUFBAUER, G. C.; WADA, E. Unfinished Business: Telecommunications after the Uruguay Round. Washington DC: Institute for International Economics (IIE), 1999.

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KRUGMAN, Paul; OBSTFELD, Maurice. International Economics: Theory and Policy. Reading: Addison-Wesley, 2000. LIST, Friedrich. The National System of Political Economy. Longmans, Green, and Co. London. 1909. Translated 1885 from German. First published: 1841. Available at The Library of Economics and Liberty: http://www.econlib.org/library/YPDBooks/List/lstNPEtoc.html. Last accessed May 30 2005. PREBISCH, Raúl. Towards a Dynamic Development Policy in Latin America. United Nations, New York, 1963. SRINIVASAN, T. N. Developing Countries and the Multilateral Trading System after Doha. Yale University Economic Growth Center Discussion Paper: 842; New Haven, CT: Yale University, 2002. Available at: http://www.econ.yale.edu/growth_pdf/cdp842.pdf. Last accessed: 30 May 2005. STIGLITZ, Joseph. Globalization and its discontents. New York/London: WW Norton & Company, 2002. UNCTAD. Market Access Developments since the Uruguay Round: Implications, Opportunities and Challenges, in Particular for Developing Countries and Least-Developed Countries in the Context of Globalization and Liberalization. United Nations, Geneva, 1998, E/1998/55. UNCTAD. Market Access, Market Entry and Competitiveness. United Nations, Geneva, 2003, TD/B/COM.1/65. UNCTAD. Post-Uruguay Market Access Barriers for Industrial Products. Geneva, 2003. Available at: http://www.unctad.org/en/docs/itcdtab13_en.pdf. Last accessed: 29 May 2005. UNCTAD. Shifting Sands: Searching for a compromise in the WTO negotiations on agriculture. Policy Issues in International Trade and Commodities, Study Series No. 23. New York and Geneva: United Nations, 2004. UNCTAD. Trade and Development Report 2003. United Nations: New York, 2003. UNCTAD. World Investment Report 2004: The Shift Towards Services. United Nations, New York and Geneva, 2004. WTO. How to Apply the Transparency Provisions of the SPS Agreement. Geneva, 2002. Available at: http://www.wto.org/english/tratop_e/sps_e/spshand_e.pdf. Last accesses at 30 May 2005.