The effort by the heads of government of the seven largest industrialised countries (G7) to rebuild the global economic architecture, so there is less overlap among economic institutions, is part of the process of clearing away the undergrowth ahead of the next trade round.
By creating greater institutional clarity it is hoped that the next trade round, to be launched in Singapore at the end of the year, will move ahead more smoothly to address some of the important omissions - including aviation and maritime services - which were abandoned in the General Agreement on Tariffs and Trade (Gatt) talks because of a lack of concessions.
Although the Uruguay round was hailed as a triumph, because of the creation of the World Trade Organisation (WTO) and the sweeping abolition of tariffs on a range of manufactured goods, it was also rooted in the past. Nowadays, manufactured goods represent just 25 per cent of the world's output and wealth yet account for upwards of 70 per cent of world trade. The remaining 75 per cent of world output consists of services barely covered by the Uruguay round, including transport, telecommunications and investment. It is ironic that air travel, which has shrunk the globe for most businesses, remains one of the few areas of world commerce still dominated by bilateral agreements rather than multilateral ones.
The path to Singapore is complex. One of the immediate institutional tasks is to carve out a fresh role for the United Nations Conference on Trade and Development (Unctad), following the creation of the WTO. In the recent past Unctad has been viewed by the G7 as a wasteful bureaucracy with a tendency to be obsessed by the old north-south divides and cold war attitudes. However, it is now reforming itself on the understanding that its budgets will be slashed by the West unless it adopts a more positive approach. This consists of forming liaison groups to work with the WTO on trade matters which particularly impinge on developing countries.
Among other things, Unctad will be examining the impact of direct foreign investment on the trade of developing countries; factors which determine the competitiveness of developing economies compared to their more industrialised counterparts; the possibility that environmental policy could be used as a disguised protectionism; and the role of transnational corporations as agents of change and trade in developing countries.
If Unctad's director general Ruben Ricupero, the former finance minister of Brazil, can keep Unctad focused then there is a strong possibility that it could come to represent the trade view of developing countries much more strongly in Singapore and beyond. The encouragement of a plain and level-headed developing country viewpoint is essential if this bloc wants to play a serious role in the next trade round, which is certain to be post 2000.
Even as Unctad is struggling to survive and come to grips with a developing country agenda, the leading industrial countries already are seeking to frame and dominate the agenda for Singapore. The US, which took the initiative in the Uruguay round, already has indicated several broad areas of interest. Having made progress at the Uruguay round in starting to demolish agricultural subsidies - which it reckoned mitigated against the US agricultural machine - it wants to go the whole hog in the next round and create a free market in farm goods.
Such a move may still meet resistance in Europe, which is still using the Common Agriculture Policy as a device for redistributing income across the European Union, as well as in the developing countries, which are far more dependent on agriculture and would not want to see even more competitive American marauders taking over their traditional markets.
The US is also anxious to bring a labour dimension into free trade: it wants to develop a range of sanctions against countries which fail to meet minimum international requirements for working conditions in factories and plants - a proposal which would no doubt win support from the other developed nations.
At the Organisation for Economic Cooperation and Development, which represents a broader band of 28 industrialised countries, a major study of barriers to free investment flows in global markets is underway. This picks up on one of the unfinished items of business which originally was in the frame for the Uruguay Gatt round but was never completed. It should be reasonably easy to put this into the broader trade agenda given that Unctad, recognising the globalisation of investment and financial markets, is taking a strong interest.
In fact it is the service sector and derivative industries such as audiovisual and telecommunications which are likely to be most important in the next trade round. Last time a bitter dispute between France and the US over audiovisual access almost brought the whole edifice tumbling, but this issue will have to be tackled at Singapore and beyond.
It is also recognised that the aviation, maritime, services and investment sectors need to be brought within the purview of the WTO so that there are clearer markets and an understandable set of rules to govern multilateral arrangements in these areas.
This does not mean that there will be new multilateral agreements over air services anytime soon. But the Singapore round may offer an opportunity to start breaking down the barriers which have prevented such agreements being reached on a broad scale, and which have stopped some of the more ambitious carriers - like Singapore Airlines - from gaining access to new markets.
Alex Brummer
Source: Airline Business
