23 September, 2014On UNCTAD’s 50th anniversary, its 2014 Trade and Development Report challenges the dominant theory of world trade that reducing trade barriers is the route to development
The United Nations Conference on Trade and Development, UNCTAD, has released its latest Trade and Development Report. Contrary to the prevailing free market ideology, the report argues that trade constraints are due to weak global demand, rather than to high trade barriers so efforts to spur exports through wage reductions will be counter-productive. What is needed is robust domestic-demand-led recovery at the national level.
In his overview of the Trade and Development Report, UNCTAD Secretary-General Mukhisa Kituyi sounds a loud alarm bell about the erosion through trade agreements of policy space, defined as ‘the freedom and ability of governments to identify and pursue the most appropriate mix of economic and social policies to achieve equitable and sustainable development.’ He notes that ‘Provisions in regional trade agreements have become ever more comprehensive, and many of them include rules that limit the options available in the design and implementation of comprehensive national development strategies.’
The report notes a resurgence of interest in industry policy and highlights the importance of industrial policy that is focused on development. Developing countries must have the widest possible room to develop policies that work in their particular conditions and ‘not be subject to a constant shrinking of their policy space by the very international institutions originally established to support more balanced and inclusive outcomes.’ It urges governments that are aiming, for example, to maintain macroeconomic stability by re-regulating their financial system, to carefully consider the risks in entering into bilateral and plurilateral trade and investment agreements which reduce policy space.
IndustriALL General Secretary Jyrki Raina says:
It is reassuring to know that the UN body responsible for identifying the true relationship between trade and development agrees with IndustriALL about the primary role of industrial policy in job creation, growth and development and is a strong advocate for more policy space for governments to enact laws in the interests of their own people.
UNCTAD’s head of globalization, Richard Kozul-Wright, told the Financial Times that free trade will not return the global economy to growth and that developing countries in particular need more freedom to conduct their own economic policies outside the restrictions imposed by bilateral, regional or global trade agreements. He mentioned Brazil as a country that has managed to use “vertical” industrial policies to promote individual sectors, along with minimum wage legislation and income distribution programs.
The UNCTAD report argues that countries that sign trade agreements in order to take part in global supply chains reap little, if any, benefit from these deals. Indeed it may lock them into low value-added activities due to competition on low wages, while tight control over intellectual property and branding strategies of MNCs prevent them moving up the value chain.