530 I August 26, 1986 U.N. C'ONFERENCE ON TRADE AND DEVELOPMENT TO THIRD WORLD GROWTH I I T ESTING THE REAGAN COMMITMENT a 3 INTRODUCTION In several days, U.S. officials will be flying to Geneva to attend the 33nd meeting of the Trade and Development Board of the United Nations Conference on Trade and Development. Convening on September 1, this m eeting may be the most crucial UNCTAD meeting since Ronald Reagan took office chance to test whether UNCTADIs new officials and its Third World majority are ready to consider strategies of economic growth designed to free developing Third World economies f rom the dead hand of government It will provide the Administration a UNCTAD is an agency of the U.N. General Assembly boasting a staff of 448 and a two-year budget of $57 million. Over $14 million of this is supplied by the UnitedStates. The Trade and Dev e lopment Board meets twice yearly to carry on the work of UNCTAD between the organization's plenary meetings, which are held every three or four years. Membership on the Board is open to all members of UNCTAD This is the sixth study in a series examining U N CTAD. It was preceded by Heritage Backprounder No. 348 Cheating the Poor," April 30, 1984; Backgrounder No. 374 Blocking Economic Growth," August 20, 1984; Backnrounder No. 394 The Truths UNCTAD Will Not Face," November 26, 1984; Backprounder No. 438, "Th e Bias Impeding Third World Growth," June 4, 1985; and Backgrounder No. 477, "The U.S. Must Reassess Its Role,"

December 30, 1985.

UNCTAD was created in 1964 to help Third World nations grow and develop through expanded international trade instead of the charity.of foreign aid. Since its establishment, however, UNCTAD has done little to spur either trade or development. Instead, the organization has gained a reputation as one of the most anti-Western and ineffectual members of the U.N. family. Worse, it e m braces a philosophy of economic development.that relies almost exclusively on state control and planning and is hostile toward free market and private enterprise options As such, UNCTAD has become of increasing concern to Washington policy makers who now in contrast with the 1970s, want to encourage Third World nations to try economic strategies that have a history of success.

The Trade and Development Board meeting wil l provide U.S delegates with bsth challenges and opportunities involve defending the U.S. record as the most open of the developed market economies and countering the U.N. Third World majority's increasingly shopworn ideology of the New International Econ o mic Order, which blames the industrial democracies for the Third World's economic ills look at the strategies of Singapore, South Korea, Kenya, and other developing countries that have reaped great benefits by taking advantages of opportunities within the international economic system and have found development formulas that work. These challenges and opportunities also will arise in dealing with the most important business of the meeting-selecting the site and agenda for UNCTAD VII the plenary meeting sch e duled for next spring The challenges The opportunities involve trying to force UNCTAD to NEW LEADERS: NEW OPPORTUNITIES Over the past decade, UNCTAD has been a vanguard in the effort to create a New International Economic Order. Recently, Surenda J. Patel former head of the Technology Division of UNCTAD, frankly and accurately characterized the role of Secretariat officials in his division as that of mere llscribeslv in the efforts of radical deyeloping countries to create a statist New International Econo mic Order.

Patel's characterization of his Secretariat officials as scribes applies equally well to all of UNCTAD's divisions.

Recently, however, several members of the Secretariat who led the quest for a New International Economic Order have left UNCTAD. Gone are: Gamani Corea of Sri Lanka as UNCTAD's Secretary-General; Jan 1. Surenda J. Patel, "The Technology Transformation of the Third World: Main Issues for Action," in Michael Z. Cutajar, ed UNCTAD and the South-North Dialogue (New York Pergamon Press 1985 2Pronk, the Dutch socialist who viewed multinational corporations as neocolonial instruments of Western domination, as Under-Secretary-General; and Surenda Patel.

Taking their places are leaders who appear to be an unexpected improvement, notable for their balance, judiciousness, and discretion. The new Secretary-General, Kenneth K. Dadzie of Ghana served with distinction as U.N. Director-General for Development and International Economic Cooperation His immediate assistants are Deputy-Secretary-Gene r al Alister McIntyre of Grenada and Yves Bertholet of France, both of whom are widely regarded as fair and flexible. This new leadership could transform UNCTAD from a weapon against the postwar liberal economic order into a rational organization where agre ement among the developed and developing nations could be sought on the definition of trade and development problems and thei,r solutions.

The prospects for such a transformation brightened this June when the developing countries, meeting in Kuala Lumpur, decided to establish a secretariat for the G~oup of 77, the umbrella organization for some 130 Third World nations. Because the Group of 77 heretofore had no secretariat, it had used its majority at UNCTAD to transform the UNCTAD Secretariat into a secret a riat for the developing countries. As such, the UNCTAD Secretariat's efforts and studies predictably have suffered from an anti-West, pro-Third World bias producing flawed studies and one-sided agendas The Group of 77's politicization of the UNCTAD Secret ariat understandably cost UNCTAD credibility among the developed countries UNCTADIs new leadership is well aware of the price this bias has Once the imposed on the Secretariat and on the developing countries.

Group of 77 has its own secretariat, UNCTADIs n ew leaders could take control of the UNCTAD Secretariat and direct its focus toward evaluating trade and development proposals and seeking ways to encourage agreement between developed and developing countries a change would enhance vastly Western percept i ons of the credibility and utility of UNCTAD Such The major question facing UNCTAD is whether it can transform itself into an open-minded forum for studying, discussing, and genuinely considering different approaches to enhancing trade and development in t he Third World pattern of more than a decade in which UNCTAD has been a trumpet for the New International Economic Order Such a transformation would break the 2. At the first meeting of UNCTAD in 1964, there were 77 countries in this caucus 3MEETING THE C H ALLENGE OF UNCTAD NEGATIVISM ON TRADE AND PROTECTION September meetings of the Trade and Development Board always discuss the Secretariat's annual Trade and Development Renort. If this year's Report is like its predecessors, it will be filled with condemn ations of protectionism in the North, gloom and doom predictions based upon pessimistic assumptions about development prospects in the South, and pleas for more resource transfers from the Western nations.

Admittedly, the industrial nations impose more tar iff and nontariff barriers than Adam Smith and his offspring would like. Even so, no nation has opened its markets more to the goods and services of developing nations than has the U.S. And no nation has done a better job of stemming domestic protectionis t forces dramatically this, month by congressional refusal to override Reagan's veto of measures that could have imposed severe limits on U.S. textile imports In 1984, world trade'increased by 9 percent: the U.S., which represents only 6 percent of the wor ld's population, accounted for 50 percent of this increase. In 1984, U.S. non-oil imports from the developing countries totaled $80.3 billion a jump of 27 percent over 1983 and 50 percent over 19

82. Under the U.S. Generalized System of Tariff Preferences (GSP which treats developing countries particularly leniently, $13 billion worth of Third World products enterfd U.S. markets duty free in 1984 compared,to $10 billion in 19

83. Imports of manufactured goods from the developing countries totaled $46 billion in 19

84. This is 55 percent of all the manufactured goods that all Third World states export to all developed market economies. And while the rate of Third World manufactured goods imported by the European Common Market has been declining significantl y, U.S. imports of Third World manufacturers have I increased at a rate of 19 percent per year between 1980 and 1984 In view of this extraordinary record, U.S. delegates should not be on the defensive when the discussions in Geneva turn to trade and prote c tionism. Instead, they should stress that, when it comes to boosting Third World economies the U.S by: buying more Third World goods than all other industrial nations combined, is the champion This was confirmed 3. Based upon figures presented by the GATT representative at the 30th meeting of the Trade and Development Board in March 19

85. TD/B/l049, March 1985, p. 95 4. The figures are taken from the UNCTAD document, Salient Features of Trends and Policies in Trade o f Manufactures a nd Semi-Manufacture& TD/B/C.2/223 (Part I), April 3 1986 4TAKING ADVANTAGE OF OPPORTUNITIES IN PREPARING FOR UNCTAD VI1 At UNCTAD's September session, delegates will select the site and set the agenda for UNCTAD VII continue the Reagan Administration's policy of deferring to t he wishes of Group of 77 concerning the site, they should make it clear that, if Havana is selected, the U.S. will not attend While the U;'S. delegates should As for the UNCTAD VI1 agenda, the U.S. should insist that significant, sustained attention be gi v en to.trade and development policies that work come for an UNCTAD plenary meeting to take a llpro-growthll and spurred growth in the past quarter century. And the State Department at its top levele, should enlist Western European backing of these points T o date, every UNCTAD plenary has focused on alleged lgexternalll barriers that impair Third World trade and'development. UNCTAD has citsd such culprits as: tariffs that treat developing countries and developed countries equally; nontariff barriers levied a g ainst Third World exports: synthetic products such as polyester fabrics and research on synthetics that create cheap substitutes for the Third World's natural products; multinational corporations, patents, and trademarks; alleged declining tenus of trade' and unstable commodity prices; alleged restrictive business practices; alleged inequitable transfers of technology; debt and debt servicing costs; and of course Ilinadequate" aid from the developed Western countries nonmarket

lsolutionsll to these problem s has been steamrollered into resolutions over the opposition or abstention of the handful of developed countries. These resolutions, among other things, called I for: expanded tariff preferences for the Third World; codes of conduct to regulate multinati onal corporations, business practices, and transfers of technology; a ''Common Fund" to regulate commodity prices a new aid facility to fund projects for processing commodities; more foreign aid; new allocations of l

paper gold; a new Compensatory Financin g Facility to llcompensatel' Third World countries for shortfalls in commodity income; and schemes for international taxation such as a "brain drain" tax The U.S. delegates must.insist that the time has tlpro-developmentlt posture by focusing on those str a tegies that have And at every UNCTAD plenary since 1964,'a timeworn series of Repeatedly, the Group of 77 has submitted volumes of lldocumentsgl of what it insists are obstacles to development. In response, the 5industrial countries have either voted agai nst resolutions embodying these propgsals, ignored them, or forced watered-down, compromise proposals.

World some developing nations were doing very well economically a decade U.S. delegates have tried to persuade UNCTAD to look a t the strategies used by these developing nations to advance. But UNCTAD's agenda remained closed to discussion of such examples. Now, however the Group of 77 may be ready to open UNCTAD a bit and allow it to address the questions that it has ignored dete r minedly for more than a o What strategies have increased exports and export income in the o What development strategies have increased real wealth and led These resolutions have yielded no economic growth in the Third Yet while UNCTAD meetings were produc ing rhetoric and paper For almost decade. The two key questions are developing wor1d.h the past two decades to higher standards of living in the developing world?

For those who really want to know how to expand trade, material for case studies abounds.

Ex ample: Ten countries have expanded their exports of manufactures by over 30 percent per year in current prices between 1970 and 1984: Singapore, Thailand, Indonesia, Venezuela the Dominican Republic, Sri Lanka, Saudi Arabia, Bahrain, Mauritius, and El Sal vador. UNCTAD should be asking: What strategies produce such statistics?

Example: One UNCTAD study mentioned in passing Brazil's startling success in the manufacturing and food processing sectors in recent years. Between 1980 and 1984, manufactured goods r ose from 44 to 54 percent of that nation's exports. In 1980, Brazil exported virtually none of the motor vehicles it manufactured: four years later, it was exporting 20 percent. In addition Brazil provides 35 percent of the world's exports of fruit juices and is the world's largest exporter of concentrated orapge juice, controlling 60 percent of the world trade in this product. UNCTAD should be asking: Are there lessons to be learned from Brazil's gains 5. For a summary of the "accomplishments" of UNCTAD, s ee Stanley J. Michalak, YNC TAD. An Organization Betravinn Its Mission (Washington, D.C The Heritage Foundation, 1983 6. See Salient Featu res of Trends a nd Policies in Trade of Manufactures an4 Semi-Manufacture& TD/B/C2/223 (Part I), April 3, 1986 7. Pr o tectionism and Structural Adiustment TD/B/1039 (Part 11 January 1985, p. 5 6 U.S. and other' Western delegates should insist that the UNCTAD VI1 agenda include a lengthy panel discussion on the startling successes that some countries have been enjoying in various export sectors. Appearing on such panels should be Third World entrepreneurs, civic leaders, and economists. UNCTAD's Secretariat could then conduct follow-up studies on successful strategies of trade promotion and export diversification. The entr epreneurs and expert panelists at UNCTAD VI1 might serve as an initial core of technical experts to advise officials and entrepreneurs in other countries.

DOING LESS BUT DOING IT IN GREATER DEPTH Over the years, UNCTAD plenary agendas have been of laundry list length, ranging trom such central and crucial topics as commodities and debt to the lesser problems of landlocked countries and such nongermane topics as disarmament and the 811iberation11 of Palestine.

Some of the reasons for the lengthy agenda are understandable-the Group of 77 consists of many kinds of developing nations with a wide range of problems. In fact, the coalition is frequently cemented by creating agendas and proposals that contain "something for everyone.11 The nongermane items, meanwh i le, stem from the general politicization of U.N. agencies and the desire of the nonaligned movement to turn every agency of the United Nations into a mini-General Assembly Given the changes in UNCTADIs leadership and heightened prospects for a changing st r ategy by the Group of 77, however, UNCTAD VI1 may be able to limit the number of issues it explores and to examine them in much greater depth which includes one or two broad topics to be examined in great detail interrelationship among trade, finance, pro t ectionism, and development prospects successful trade.and development strategies The U.S. delegates should push for an agenda The developing countries probably will want to focus on the This item might be coupled with a Western item on Other agenda items c ould focus on' UNCTADIs record in such areas as commodities, manufactures, trade preferences, invisibles and financing related trade, shipping, technology, and, economic cooperation among developing countries--all of the main subdivisions of the organizat i on's working units. The Secretariat could provide status reports in each of these areas, detailing what problems have been tackled and with what impact, which are still being considered and where current discussions now stand. Panels might be organized in each of these areas to allow Secretariat members, government experts and independent scholars to comment on UNCTADIs past experience and to make suggestions for UNCTADIs future work I If UNCTAD needs anything, it is awareness of the ideas of independent s c holars and experts. Sessions allowing audits of UNCTAD's work from autonomous individuals would be refreshing to 7delegates and Secretariat officials alike representatives from developed and developing countries might work with Secretariat officials in cr eating a tentative and realistic work agenda for the three or four years until UNCTAD VIII.

The Group of 77Is past strategy of steamrollering resolutions unacceptable to the developed countries, and'then using succeeding UNCTAD meetings to rebuke the devel oped countries for not executing resolutions that were unacceptable'to them in the first place, has done nothing to advance trade and development. It thus would serve UNCTAD well if the organization would avoid passing broad resolutions and instead focus o n creating research programs mutually acceptable to developed and developing nations From such sessions FOCUSING ON THIRD WORLD OBSTACLES TO DEVELOPMENT As part of the preparation for UNCTAD VII, Washington should insist that UNCTAD spotlight an increasin g ly significant obstacle to development created by developing countries themselves-the flight of scarce capital from the elites in developing countries to financial institutions in the developed nations Aid and other resources that flow from Worth to South and then boomerang right back Worth do little for trade or development. The I1resource flight" from the Philippines during the final stage of the Marcos regime appears to be just a whiff of the total problem flight from developing countries to industrial . states has been much greater than the amount that would have been transfered to the Third World under UNCTAD's most grandiose schemes for redistributing international wealth. According toathe Wall Street Journal capital flight in the past decade includes R ough estimates make it clear that capital Argentina 26 billion Brazil 10 billion India 10 billion Indonesia 5 billion South Korea 12 billion Malaysia 12 billion Mexico 53 billion Nigeria 10 billion Philippines 9 billion Venezuela 30 billion 8 Flight Capit a l's Destination Often Is U.S The Wa 11 Street Jou rnal, May 27, 1986 p. 2. aor Western banks or declining terms of trade, but by the ruling elites in the developing countries was starkly presented in the World Bank's World Development Report 1985 The sign i ficance of these extractions According to the Bank's data, capital outflows as a percentage Next month's Trade and Development Board meeting and next year's UNCTAD VI1 will be told, probably endlessly, about the crushing burden of Third World debts. While the burden and problems of this debt cannot be denied, U.S. delegates should point out that part of the responsibility for the debt problem lies with the Third World. UNCTAD has commissioned experts to determine how much the brain drain is costing develop i ng countries, and members of the Group of 77 are preparing to propose a tax on Western countries to which Third World experts migrate from developed to developing countries drain and the potential yields from any brain-drain tax pale compared to the resou r ces lost to development through capital flight of Experts to study "Resource Flight From Developing C~untries It could compile bibliographies, take testimony, commission case studies clarify issues, explore alternative solutions, and report to the Trade a n d Development Board through UNCTAD's Committee on Invisibles and Financing Related to Trade I I This tax could transfer about $500 million a year Yet the net cost of the brain U.S. delegates should insist that UNCTAD VI1 create a Committee CONCLUSION At n e xt month's Trade and Development Board meeting in Geneva the U.S. should seek to blunt UNCTAD's sterile negativism and reliance on government of the past and move the organization into more positive and balanced directions. The U.S. delegates. should 9. W orld DeveloDment ReDort 1985 (New York: Oxford University Press), pp. 62-63 10. Tyler Bridges With its 70's oil spree over, Venezuela looks to mopping up debt,"

The Christian Science Mo nitor, September 9, 1985, p. 25 9 o Emphasize the positive U.S. record in trade to counter the gloom and doom assessments that will probably appear in this year's Trade and DeveloBment Renort 1986 o Oppose efforts of the Group of 77 to transfer more resources from developed to developing countries through such schemes as a n ew compensatory financing facility, generalized debt relief programs, and brain-drain taxes o Insist that the UNCTAD VI1 agenda include an examination and discussion of strategies for trade and development that have succeeded during the past quarter centu r y o Seek an agenda for UNCTAD that concentrates on a relatively few core items to be ,explored in depth o Insist that items on UNCTAD VII's agenda be open to the views of Secretariat officials, independent scholars, and experts who act in their capacity a s professionals o Call attention to, and seek to have placed on the agenda of UNCTAD VII, a consideration of the problem of capital flight which robs developing countries of resources for development and exacerbates their debt problems o Oppose efforts by t he Group of 77 to load the agenda with unrelated, politicized items such as those designed to isolate and delegitimize Israel and to provide support for terrorist national liberation movements o Declare that, if Havana is selected a.8 the site of UNCTAD V II the U.S. will- not participate o Press Japan and West European countries to back U.S. efforts to make UNCTAD a more effective agency.

For well over a decade, UNCTAD has been pushing a series of statist schemes that have failed the developing countries t he organization was created to serve. If UNCTAD's ideologues were to have their way, developing nations would remain poor forever. In fact, experience now confirms that growth through government leads only to the growth of government and bureaucracy.

Incr easingly, developing nations are discovering the power of market incentives and private entrepreneurship. Nations that have based their development strategies on the risks and opportunities of national and international markets are doing well in terms of g rowth and development at those development strategies that have succeeded and those that have failed The time thus has come for UNCTAD to look carefully 10 For almost six years, the Reagan Administration has been trying to turn UNCTAD into an open forum w h ere all approaches to development are examined and tested Development Board and next spring's UNCTAD VI1 will test how well the Administration's strategy has been working. If UNCTAD VI1 turns into a mere replay of its previous conferences, the Administrat ion should reassess U.S. strategy and considering disassociating itself from UNCTAD Next month's meeting of the Trade and Prepared for The Heritage Foundation by Stanley J. Michalak Professor of Government Franklin and Marshall College 11 I