South Centre Briefing on Global Economic Trends and Geneva Multilateral Processes

Developing country delegations filled a conference room at the UN building, the Palais des Nations, in Geneva on 13 February 2017 to reflect on the challenges of the current global political and economic environment. They also discussed prospects for Geneva multilateral processes, including in the WTO, UNCTAD, WIPO and WHO. The South Centre organized the briefing in cooperation with the Group of 77 and China and the Group of 15. This article reports on some of the key messages of the briefing.

The South Centre held a briefing on 13 February 2017 at the Palais des Nations in Geneva for developing countries on global economic trends and their linkages to multilateral processes. After welcome remarks by Mr. Vicente Paolo Yu III, Deputy Executive Director of the South Centre, Mr. Ajit Kumar, Permanent Representative of India to the UN in Geneva, opened the briefing, speaking in his capacity as the Vice-Convenor of the Council of Representatives of the South Centre.

Ambassador Kumar presented a broad outline of the emerging global economic scenario and how it may affect developing countries. He stressed the importance of South-South Cooperation as well as the Sustainable Development Goals and their relation to the right to health, the right to development, innovation and intellectual property. He spoke on the linkages between the achievement of the SDGs and the new challenges that are now facing developing countries, especially increasing protectionism and populism in developed countries.

“The 2030 Agenda for Sustainable Development envisions ending the scourge of poverty within our lifetime; it is a charter for development that comes with common but differentiated responsibilities”, he highlighted.

“The world we entered in 2017 is marked by unevenness, possibilities, uncertainties, known and unknown unknowns” he said.  “The return of economic nationalism with resulting prospects of rising protectionism may satisfy some disgruntled political constituencies but is sure to have an adverse impact on the global economy, especially the developing world”, he said.

Ambassador Kumar pointed out that developing countries will now have to live with a “new normal” that relies on boosting domestic demand and national industrialization and to rely on each other through expanding and strengthening South-South Cooperation. Ambassador Kumar also noted that, “as we have often reiterated at this forum, South-South Cooperation cannot be a substitute for North-South Cooperation and it cannot be looked through the glass of a measuring flask”.  The full statement is available here.

Panel Session 1: “Global economic conditions and prospects”

The first panel session on “Global economic conditions and prospects” was chaired by Ambassador Tehmina Janjua, Permanent Representative of Pakistan in Geneva and Vice Chair of the G77 and China (Geneva Chapter), and featured a keynote presentation by Dr. Yılmaz Akyüz, Chief Economist of the South Centre.

Ambassador Janjua is the newly appointed Foreign Secretary of Pakistan, the first woman to hold this important diplomatic post in the country’s history. In her prefatory remarks to Dr. Akyüz’s presentation, Ambassador Janjua said that “Dr. Akyüz is an economist whose analysis and insights have influenced the thinking of developing countries on international economic and trade issues”. She also recalled that as the principal author of the UN Conference on Trade and Development’s (UNCTAD) annual Trade and Development Report for many years, and in his subsequent writings, Dr. Akyüz has consistently questioned economic orthodoxy and encouraged developing countries to push for policy options that would lead to more just and equitable economic outcomes. She added that Dr. Akyüz’s writings influenced the views and perspectives of many developing countries.

Ambassador Janjua flagged three challenges which increasingly preoccupy developing countries. First, the persistent challenge of managing capitalist economies in order to maintain growth, in the face of domestic and external pressures, and addressing political and economic inequalities that affect global stability. This also means looking at financial resource flows and the role of policy space for developing countries. Second, managing of the global trade system which is now under attack. Third, addressing the challenges that emerging technologies pose and what developing countries should do to benefit from these technologies.

In his presentation, Dr. Yılmaz Akyüz focused on three main issues. First, the recent trends in the world economy (GDP, trade, trade balances, commodity prices, capital flows, reserves, currencies and markets in the South). Secondly, and more importantly, he highlighted medium term prospects, taking into account some structural systemic problems, mainly inequality, the demand gap and financial fragility and uncertainties in three key economies – the US, EU and China, issues covered in the South Centre’s recent research paper Inequality, Financialization and Stagnation (available for download here). Finally and briefly, the policy issues for developing countries in three key areas: macroeconomic policy response to shocks in the South; rethinking global economic integration; and rethinking global economic governance.

The world economy is in a bad shape.  Global growth is the lowest since the financial crisis, Dr. Akyüz highlighted. Advanced economies are in bad shape mainly because of misguided policies in response to the crisis which included fiscal orthodoxy, creditor bailouts, imposing austerity on debtors, and exceptional, ultra-easy monetary policy.

“Economic recovery in the US has been faster then in Europe but weak (GDP growth of 2% since 2009 against historical 3%) and there is growing inequality and fragility. The Eurozone was unable to resolve its financial crisis let alone economic and social crisis. The Greek debt problem is still unresolved. Recovery as a whole was completed in the Eurozone only in 2016 but income is still below the pre-crisis levels in many countries with unemployment still high and not falling”, he stated.

Developing countries had an exceptional growth until 2009 but from 2011 onwards lost momentum and there is a feeling that the crisis is moving in a third phase to the South. “The reason is that our exceptional growth performance before 2008 and rapid recovery from the crisis were due not so much to our improved economic growth fundamentals (investment and productivity) as to exceptional global conditions, both in finance and commodity prices.  When these disappeared, growth fell and converged to the depressed levels of developed countries”. Today growth in the South is half of what it was on the eve of the crisis, he concluded.

Dr. Akyüz also addressed three policy issues for developing countries in their efforts to face major turmoils – macroeconomic policy, global integration and global govenance.

“There is a need for some kind of solidarity. A common reflection may be needed among developing countries about the policy response against the next major turmoil”, Dr. Akyüz said.

“Many developing countries have become enthusiastic about globalisation”, he recalled, and referred to UNCTAD’s first report on this topic released in 1997 which concluded that “globalisation would create two things: greater inequality and instability”, and in fact this is what is happening.

“We also said that “it is likely that the North may walk away out of it as the South”. Dr. Akyüz was the Director of the UNCTAD Division responsible for the above referred report at that time. See the Trade and Development Report 1997 here.

“We (developing countries) left our development too much to global market forces”, Dr. Akyüz stated, mentioning the reliance on TNCs and international financial firms, and  excessive dependence on foreign capital and foreign markets. “In some cases we have one of the worst income distributions. Income is heavily concentrated but we have one of the lowest savings and investment rates and we expect foreign investment to come and give us a boost”.

“We need rebalancing, and I am not suggesting autarky, but strategic integration that will support your development”, he said.

Since Trump won the election in the US there is a concern among developing countries about the US retreating from globalisation, dismantling FTAs like TPP or NAFTA. TPP was not about trade, said Akyuz.   “It was more about TNCs finding a free space to enter without any interference from national or international bodies in their operations”.

On NAFTA, Dr. Akyüz said that “everybody seems to be unhappy. The US is unhappy, Mexico should be unhappy because it has had a very poor performance in growth, wages, productivity and poverty under NAFTA”.

Akyuz added:  “The question is often posed on whether trade or investment is a zero sum game among nations but I do not think that nations are the correct focus here.  I do not think it is nations that lose or gain.  It is people, corporations, workers, farmers, banks etc.  So, perhaps we should focus more on different segments rather than nations as a whole. In other words, we should move from a nations-based analysis of globalisation to a class-based analysis of globalisation” he argued.

Panel Session 2: “Linkages between key Geneva multilateral processes and the South’s development interests”

The second panel was chaired by Ambassador Ravinatha Aryasinha, Permanent Representative of Sri Lanka to the UN in Geneva and Chair of the Group of 15. It had two presentations. The first presentation on the “Outlook for WTO MC11 and key issues for developing countries” was by Ms. Aileen Kwa, Coordinator, Trade for Development Programme, South Centre and the second presentation on “Outlook for innovation and health issues and implications for developing countries” was by Dr. Viviana Muñoz-Tellez, Coordinator, Development, Innovation and Intellectual Property Programme, South Centre. Three ambassadors also took part in the panel: Dr. François Xavier Ngarambe, Permanent Representative of Rwanda; Mr. Xavier Carim, Permanent Representative of South Africa to the WTO and Mr. Guilherme Patriota, Deputy Permanent Representative of Brazil.

Ms. Kwa  focused on the emerging trends in relation to the Fourth Industrial Revolution and the digitization of the global economy – the ease of physical goods delivery; the rise of artificial intelligence and implications for marketing; the use of platforms across sectors; automation; the ‘servicification’ of goods; and 3D printing; and how these trends are radically disrupting existing business models.

On the other hand, developing countries are lagging far behind, still trying to adapt to the 2nd and 3rd industrial revolutions. They could suffer adverse impacts due to job losses and lack of competitiveness as a result of low skill levels and inadequate infrastructure. The economic advantages that automation and digitization currently bring to developed countries are being sought to be solidified by themselves and some others through their proposals on e-commerce in the WTO.

Dr. Muñoz-Tellez assessed the state of play at the World Intellectual Property Organization (WIPO) and the World Health Organization (WHO). She noted the work of these agencies falls under the framework of the UN SDGs that agree to bring good health to all and facilitate access to technology and knowledge. Both organizations face governance challenges, including maintaining member states’ decision making power in light of growing dependency on external sources of financing. The election of a new head for the WHO is an opportunity. At the WIPO the main challenges are to advance a development agenda for policy space in the design and implementation of intellectual property rules to balance protection and access, and to stir WIPO’s technical assistance towards this goal.

Ambassador Ngarambe of Rwanda spoke of the need for developing countries to rethink what globalization and neoliberal trade liberalization have meant for them, especially for Africa which did not benefit enough from the commodities boom and whose share in global trade and in global manufacturing essentially remained stagnant or even contracted. At the same time, at the WTO, the cost of accession is known to all and is expressed in onerous concessions especially on tariffs; but what are the benefits for a developing country to be a Member of the WTO? Our permanent engagement is time, resources and it is energy consuming, at the detriment of other needed engagements in areas which are more connected to development.

He added that twenty years after our massive and enthusiastic accession to WTO, it is high time to conduct an impact assessment of that accession and evaluate the return of our investment in WTO. Africa has been asked to liberalise, without first being competitive. “We have been excited to trade before producing”. He said that this is leading to ‘a survival approach’, where Africa has depended on extracting its resources in order to match its growing imports. Aid is used to fill the gaps. In this way, Africa has become very vulnerable to external shocks, the price of commodities, and international finance.

On the digital economy and digital trade, he noted that we all need to quickly get on board and participate. However, we cannot make the same mistake again and put the cart before the horse. We first need to cover our countries with electricity, develop infrastructure, IT, customer protection rules etc. We first need to have the conditions to participate before we can talk about new rules.

For Africa to have a voice in the multilateral trading system and push its development agenda, it is important to focus on those determining factors of productivity, diversification and competitiveness which are mainly the following: reliable, effective and efficient infrastructure; well governed institutions; innovation, skills development to fill the technology gap.

Ambassador Carim of South Africa stressed that African Trade Ministers in their last meeting emphasized that in any discussion at the WTO, reaffirmation of the development mandates of the Doha round remains essential and that any discussion in the WTO should not adversely affect Africa’s continental integration ambitions. He said that at the recent meeting of selected Ministers in Oslo and Davos, there were divergences regarding the Doha mandate.

Some framed issues within the Doha mandates, others wanted the Doha Round to be consigned to history, and to deal instead with new issues. Whilst there were overlaps in possible deliverables for the next Ministerial, there was no unanimity.

There is also uncertainty as to the policy orientation of some key Members in light of changes in political leadership around the world. Hence, he said, it is very difficult to see a clear path forward for deliverables at the Buenos Aires Ministerial in December. There is a general understanding that Members will engage and look at the areas convergence can be found, yet as it now stands, it is not clear they will be successful.

On E-commerce, he noted that it is undeniably a significant development which Members need to understand better. It is transforming the global economy but it is a very uneven process. Many countries do not have the infrastructure to participate effectively and the digital divide is very evident. He noted that Members will have to engage to understand the very profound implications for their industrial development and employment before being in a position to negotiate new rules at the multilateral level. In this context, it would not be far fetched to consider that an outcome at the Ministerial simply carrying on the existing work programme could not be considered a success.

Ambassador Patriota, Deputy Permanent Representative of Brazil, gave an overview of the trends and challenges affecting the WHO. He noted that the increased outsourcing of financial contributions in the WHO as in many other agencies, and bilateralization, as opposed to multilateralism, are not positive trends. This has a huge impact on intergovernmental governance and the capacity of governments to be the main stakeholders. There is a risk of agenda capture from excessive outsourcing of funding. A framework for engagement of non-State actors (FENSA) has now been put in place, but the question is open as to whether it will help or make it more difficult for the WHO to fund certain activities.

The WHO is undergoing a reform process, said Mr. Patriota.  This includes the establishment of a new pillar for preparedness and response to health emergencies. This poses a challenge for the WHO to deliver on its traditional mission, focused on the development of global standards and guidelines. The new emergency pillar is expensive and hard to fund. The agenda on addressing antimicrobial resistance (AMR) is also taking increased prominence in the WHO. This is part of a larger agenda outside WHO. The issue of AMR links animal use and human use. Ambassador Patriota cautioned that the AMR agenda (if not properly handled) may unduly place constraints on access to medicines, through the emphasis on control of sale of antibiotics and creating suspicion of generic medicines. He also noted that the WHO agenda on AMR includes promoting innovation in new antimicrobials, having recognized that intellectual property is not providing the incentive. This discussion may create a positive entry point to consider alternative non-intellectual property based innovation models and issues of delinking research and development from prices.

Ambassador Patriota also noted that the Foreign Policy and Global Health (FPGH) initiative launched by the foreign ministers of Brazil and others will be promoting at the UN GA a new resolution on the issue of vulnerable groups and health of migrants.

Ambassador Aryasinha of Sri Lanka in his closing remarks stressed the key role played by Geneva in the implementation of the outcomes of various multilateral development-related processes. “Three years ago when the G15 and South Centre held a meeting on the discussions on SDGs, the Executive Director of the South Centre, Mr. Martin Khor said that while most of the discussions take place in New York, most of the cooking and the working and implementation actually happen in Geneva” he said. Ambassador Aryasinha stressed the important and major role that representatives of developing countries have to ensure fairer and more meaningful outcomes for developing countries in the multilateral discussions and negotiations.

For more information on this South Centre event, please go here: https://www.southcentre.int/south-centre-conference-13-february-2017/