Werner Corrales-Leal UNCTAD-Global Programme on

1. NOT AN OFFICIAL UNCTAD RECORD ENERGY CLUSTERS AND SERVICES: A STRATEGY FOR DIVERSIFICATION AND SUSTAINABLE DEVELOPMENT IN OIL EXPORTING AFRICAN COUNTRIES AN APPROACH TO TRADE LIBERALIZATION AND WTO NEGOTIATIONS FROM AN OIL EXPORTING COUNTRY PERSPECTIVE Werner Corrales-Leal UNCTAD-Global Programme on Globalization, Liberalization and Sustainable Human Development Marrakech, April 2004

2. LIST OF CONTENTS • An approach for making trade integration supportive of development. • Market-friendly active policies for development: An illustrative case in the Venezuelan Oil Sector. • Appendix: Illustrations of the links between effectiveness of development strategies and WTO rules

3. PART ONE An approach for making trade integration supportive of development Trade-supported Development Strategies

4. An approach for making trade integration supportive of development SOME IMPACTS OF LIBERALISATION ON DEVELOPING ECONOMIES WORTH TO CONSIDER • Specific impacts on the productive bases of developing countries Net positive creation of trade; trade flows grow faster than GDP “Natural advantages”confirmed as bases for further specialization Most trade and FDI flows occur within TNC chains and networks 40% of K flows to arbitrage; high proportion of FDI does not generate X 90% of K flows to twenty “emerging markets” (50% in the 80s) Success story of a few countries: Active policies for competitiveness • Impacts on inequalities, at international and country level LDCs marginalisation; no sign of convergence; uneven “Welfare Gains” External shocks: financial volatility, declining and unstable X prices Destruction of traditional SMEs’ networks with no substitutes Precarious employment conditions become structural after Adjustment

5. Integration in global system securing long term, stable economic growth Expansion of real incomes and opportunities of the citizens Sustainable use of natural resources for present and future generations Equilibrium in international flows and limits to volatility of K Direct investment (N+F) oriented to increase productivity and PPE Gain market access; improve marketing and trade defense capabilities Increase value added, knowledge intensity and differentiation to exports Enhance efficiency in production through technology and innovation Improve internal multipliers: clustering, linkages and SMEs networking Improve social effectiveness of economic policy (e.g. Informal sectors) Mainstream environmental concerns in competitiveness policies An approach for making trade integration supportive of development GUIDELINES FOR A DEVELOPMENT-SUPPORTIVE INTEGRATION IN THE GLOBAL ECONOMY • Objectives in the three spheres of Sustainable Development • Macroeconomic and international finance orientations • Aims and strategic guidelines for trade-supported policies

6. An approach for making trade integration supportive of development THE NEED FOR ACTIVE POLICIES FOR DEVELOPMENT IN OIL-EXPORTING COUNTRIES • Reduce dependency on current trade in commodities Basis and intensity of competition erodes capacities for reinvestment Commodity production has very limited networking or spill-over effects • Promote effective tech transfer and increase internal multipliers “Global Chain Optimisation”: Promote Clusters and insertion to Chains Motivate and promote domestic R&D and Technological Capacity Building A “Levelled playing field ” to negotiate alliances and complementarities • Modify dynamics of investment affected by the Dutch Disease Modify trends: extreme productivities and exchange rate appreciation Incentivate Investment towards higher value added goods & services

7. An approach for making trade integration supportive of development MANAGING TRADE INTEGRATION: AFFECT THE RATIONALE OF TRADE SURPLUS APPROPRIATION • Impinge on factors explaining growth in revenues and competitiveness • Active policies affecting Static factors: • Export growth based on market access • Rents related to productivity, based on “Best Global Practices” • Productive linkages and networking enhancing domestic multipliers Active policies enhancing Dynamic factors ( Rents related to innovation ): • Knowledge-enhanced productivity; Innovation in processes and attributes … • Strategic marketing; differentiation; life cycles of products.. • Relieve constraints for “adding value” or appropriating trade surplus Effective market access: Ease traditional barriers and improve access to GVCs Diversification: Move away from extreme competition in commodities Negotiations in Policy Space: Level the playing field for Supply-side Policies Networks and institutions: Frameworks for learning and multiplying effects

8. MACROECONOMIC FRAMEWORK OF POLICIES INVESTMENT RULES ENVIRONMENTAL REGULATIONS COMPETITION POLICY SOCIALLY – TARGETED COMPETITIVENESS RELATEDPOLICIES ENTERPISE DEVELOPMENT AND CLUSTERING POLICIES ENVIRONMENTAL POLICIES INNOVATION AND TECHNOLOGY POLICIES INVESTMENT POLICIES INFRASTRUCTURE POLICIES TRADE POLICIES An approach for making trade integration supportive of development MANAGING TRADE INTEGRATION: RELEVANT POLICY AREAS AND ENABLING FRAMEWORKS NATIONAL ENABLING FRAMEWORKS ACTIVE AND REGULATORY POLICIES (THE TOOL BOX)

9. An approach for making trade integration supportive of development COMPONENTS AND AIMS OF AN INTEGRATED TRADE-SUPPORTED DEVELOPMENT STRATEGY • Trade-related policy areas • Strategic Policy Goals Enhance social effectiveness of economic policy ENTERPRISE DEVELOPMENT AND CLUSTERING, PRODUCTIVITY & INVESTMENT POLICIES Improve internal multipliers of export-led growth Improve productivity through technology & innovation KNOWLEDGE, INNOVATION SYSTEMS & TECHNOLOGY TRANSFER POLICIES Enhance market access and defense capabilities Secure equilibrium and stability in in external flows POLICIES AND RULE MAKING IN INTERNATIONAL TRADE AND INTEGRATION Increase knowledge value & diversification in exports Environmental concerns as cross-cutting policy issues

10. An approach for making trade integration supportive of development SOME OPPORTUNITIES FOR SUPPLY-SIDE POLICIES CONSISTENT WITH CURRENT WTO RULES • Market consistent investment-related policies for competitiveness Conditioned access to FDI, as “benefit” in sectors reserved for national investment Focalized promotion; incentives to ToT, R&D, Clustering and SME development POE procurement promoting technological capacity building and SMEs clustering Coordinated implementation of IPR , competition rules and R&D programmes • Multilateral disciplines and issues involved in the immediate future Subsidies (dual pricing in gas); tariffs & tariff binding for value-added goods Performance requirements for ToT, domestic capabilities development & clustering Energy services and GATS rules in general; Special and Differential Treatment; “Spaces for Development Policies” in general Eventual negotiations on investment, public procurement and competition

11. ENTERPRISE DEVELOPMENT, PRODUCTIVITY & INVESTMENT POLICIES KNOWLEDGE, INNOVATION SYSTEMS & TECHNOLOGY TRANSFER POLICIES RULES IN THE SPACE FOR DEVELOPMENT POLICIES MARKET ACCESS AND FAIR TRADE RULES An approach for making trade integration supportive of development LINKAGES IN THE TWO DIMENSIONS OF TRADE AND DEVELOPMENT POLICIES SUPPLY SIDE TRADE-SUPPORTED POLICIES DEMAND SIDE TRADE-SUPPORTED POLICIES NATIONAL POLICIES FOR INTERNATIONAL TRADE AND INTEGRATION

12. PART TWO Market friendly policies for development: An illustrative case in the Venezuelan Oil Sector

13. The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela 1980 : MAIN CHALLENGES IN THE SECTOR RELATED TO TECHNOLOGICAL CAPABILITIES • Strategic need to reduce Technological Dependence on TNCs Pre-existing contracts for the provision of technology and engineering Only 15% of the engineering & capital goods procurement was national • Objective shortages in Technological Capabilities in the Country Almost inexistent R&D Capabilities in the sector (PDVSA or elsewhere) Only 5 construction management firms capable of major assignments About 20 engineering companies for projects of medium complexity • Doubts and confidence after only 5 years of the nationalization Public doubts about the success of the Capacity Building Program Decision to face the program on a “Market Friendly” basis Firm commitment of PDVSA and the Venezuelan private sector

14. The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela THE STRATEGY FOR CAPACITY BUILDING IN R&D, ENGINEERING AND CONSTRUCTION SERVICES • Creation of a High Quality Research & Development Organization Creation and development of INTEVEP Establishment policy for Transfer of Technology on Commercial Basis Massive program for training human resources in research fields • Promotion of Capital Goods Manufacturing and Service SMEs Implementation of Quality Assurance and Competitiveness Programs Export Promotion Program Incentives for Chains of Suppliers Development Programs • Promotion of Engineering and Construction Management firms Non Mandatory Performance Requirements for Joint Ventures Reform of Contracting Practices introducing Project Disaggregation Continuous Improvement and Quality Control Practices in all Contracts

15. Investment US$ 2,500 MM/yr 100 90 80 70 evolution 60 trend % 50 40 30 20 10 0 80 82 84 86 88 90 92 94 96 98 2000 The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela LONG TERM EVOLUTION OF THE ENGINEERING AND CONSTRUCTION SERVICES 1980 - 2000 Very high improvement in Technological Capabilities Highly skilled jobs,sources of Added Value and backward links created Further evolution of Engineering & Construction to Integrated Services

16. PART FOUR Appendix: Illustrations of the links between effectiveness of development strategies and WTO rules

17. Traditional Commodity X: Strategic market power (OPEC) Commodities X: Competition, Anti-Dumping and Subsidies; Long term sustained, trade-supported economic growth Progressive and selective M liberalization in non-energy sectors Enhance domestic multipliers: jobs and income sources H. V. A. down-stream X: Non discrimination or trade barriers Temporary support to X capabilities of firms in non-energy sectors Reduce productivity gaps: Social groups, regions, sectors Value-added X: Support marketing improvements; defend foreign mkts Diversify production towards higher value added & knowledge Promotion of development goals-targeted FDI in energy-related sectors Support consolidation of energy-based clusters of SMEs & big firms Enabling provisions in “Space for Development Policies” Substantially alleviate poverty, exclusion and social polarization Promote capabilities in HVA Energy Service Sectors Generalize access to health, nutrition and education Support managerial and techno upgradeof SMEs in energy clusters Secure access to environmental public goods Support Investment in R&D and innovation-based firms in clusters Conserve biodiversity & eco-systems; benefit from Bio-trade Support cost affordable ToT in social sectors and environment Benefit from sustained values and advantages of NNRR The links between effectiveness of strategies and WTO rules ILLUSTRATION OF LINKS IN A TRADE-SUPPORTED STRATEGY FOR OIL- EXPORTING COUNTRIES POLICY GOALS OF OIL EXPORTING COUNTRIES SUSTAINABLE DEVELOPMENT OBJECTIVES WTO FRAMEWORK OF RULES Support micro-enterprise & coops networks’ output growth & upgrade Support and actively enforce environmental adequacy of industries