TRADE NEGOTIATIONS Developing Countries’ Public and Private Sectors Handicaps

1. TRADE NEGOTIATIONSDeveloping Countries’ Public and Private SectorsHandicaps Julio J. Nogués Cancun September, 2003

2. THESIS AND OUTLINE Success of the Doha negotiations depends on whether in the final outcome, developing countries come out at the minimum with a balanced exchange. Thesis 1: Under the pressence of sticks like 301, developing countries are helpless. Thesis 2: Differences between the private and public sectors of industrial and developing countries generate a negotiating process that is likely to result in unbalanced outcomes.

3. URUGUAY ROUND • Promises unmet (agricultural trade liberalization). • Multilateral principles not enforced (mutually beneficial reciprocity). • Non-transparent negotiations (TRIPS, dirty agricultural tariffs). In negotiations with industrial countries are developing countries prepared to: • define and negotiate their own development agendas, • demand compliance with promises, • use multilateral principles effectively?

4. DEVELOPING COUNTRIES’HANDICAPS Public Sector: • Relatively untrained, few and inexperienced human resources. • Problems of negotiating as a member of a trade group. • Barriers to effective inter-agency communication. • Inadequate/incomplete knowledge on economic impacts.

5. DEVELOPING COUNTRIES’ HANDICAPS Private sector: • Weak contributions. Reactive rather than pro-active. • Differential lobbying power in favor and against negotiations. • Weak communication with the public sector. Often fails to define the sectors’ position to the negotiators.

6. HUMAN RESOURCES Negotiating Skills: • Relative inexperience. • Wage incentives and rotation. • Severe resource constraints. Consequence: 1. Inexperience and defficient knowledge of the rules and rules-formation process, undermine the capacity to challenge industrial countries’ positions. 2. In the absence of a concrete knowledge of what a balanced agreement is, the demands for reciprocity weaken.

7. NEGOTIATING FROM A TRADE GROUP Difficulties in arriving at common positions: • Recession, NTBs and tensions between Members. • Differential intra-regional trade policies. • Differential export interests of small vs. big countries. The presumed strengthened power of negotiating from bigger groups cannot always be excercised with force.

8. INTERAGENCY COMMUNICATION • National Government:Sometimes different Ministries compete more than coordinate their work. Negotiators from different Ministries do not always function as a team. • Congress: In developing countries they are playing at best a minor role. Consequence: 1.Lack of an oversight mechanism leaves too much discretion to negotiators. 2. Public debate is weakened and remains on the sidelines.

9. GOVERNMENT’S KNOWLEDGE ON ECONOMIC IMPACTS • Excessive and risky reliance on CGE models and unrealistic assumptions. • Little or no attention paid to: • Impact on treasury revenues, • Labor reallocation and social costs, • Impact on poverty, etc. While industrial countries negotiate on the basis of detailed macro and sectoral studies, no such knowledge is available for several developing countries (blindfolded).

10. PRIVATE SECTOR: BUSINESS ENVIRONMENT Contributions by the private sector to the negotiations are weakened by the environment in which it operates: • Serious instability from major devaluations and recession. • Volatile capital flows. • Sometimes swift changes in tax and trade policies, etc. Business community is more concerned with overcoming short-run uncertainties, than projecting the impact of negotiations say 10 years into the future.

11. PRIVATE SECTOR EXPECTATIONS

12. DIFFERENTIAL LOBBYING POWER • Relatively protected and big manufacturing companies have more lobbying power than export sectors. • Agriculture and agro-industries are dispersed and relatively disorganized. They are reactive rather than pro-active. 1. Organizational weakness of export interests translates into incapacity to define a clear negotiating position. 2. Unlike industrial countries, reciprocal bargaining does not appear to balance relative power in the negotiations.

13. DIFFERENTIAL LOBYING POWER In industrial countries, lobbying is a growth industry with ample participation. Industrial countries define negotiating agendas of particular interest to them (intellectual property, trade and environment, trade and labor standards, government procurement, etc.), but developing countries remain expectators: • WTO Working Group on Trade, Debt and Finance. • Temporary Movement of Workers.

14. INDUSTRIAL COUNTRIES “The US positions were developed with input from the full range of federal executive branch agencies...Advise from non-governmental sources has been obtained primarily through the formal private sector advisory committee system...The US International Trade Commission has performed the economic analysis of the probable economic effects of an agreement” (www.ustr.gov).

15. UNBALANCED OUTCOMES IN ONGOING NEGOTIATIONS? These handicaps increase the likelihood of unbalanced outcomes in the trade negotiations. Consequence: Unbalanced outcomes may retard development and always undermine future negotiations.

16. SUGGESTIONS Can this situation be reversed? Most handicaps are structural and cannot be overcome in the short-run. They characterize a stage of development. • Principles and promises in trade negotiations: Reciprocity is a “right” that should always be demanded by developing countries countries. • Blocking: Developing countries should insist that all reasonable doubts as to benefits and costs be cleared before signing. Otherwise, they should block decisions.

17. SUGGESTIONS • Strengthen the public debate: More has to be done to strengthen the voice of the private sector and the civil society. A broader and more precise understanding is necessary in order to increase political support for the negotiations.

18. SUGGESTIONS Industrial countries and the gains from trade: The US has to show less the stick of aggresive policies like 301 and its clones, and more the carrot of its unilateral opening for its own benefit and that of the world as it did during the initial GATT years for the benefit of the West.