CAIRO: A UN report has warned against the plethora of trade agreements between developed and developing countries which could prove a hindrance to third world development goals.
The 2007 Trade and Development Report released by the United Nations Conference on Trade and Development (UNCTAD) stated that bilateral agreements, rather than multilateral ones that would abide by international trade rules, would lead to stipulations that would affect developing countries’ policy plans.
Additionally, “the gains for developing countries from improved market access are far from guaranteed, whereas the loss of policy space is certain, the report stated, and that it is “in the interest of developing countries that the multilateral trade negotiations advance, but with a stronger development dimension built into international trade rules.
As an alternative, the report recommended that more agreements be struck between developing economies to form a power bloc. This would enhance their negotiating position as regional cooperation is key to avoid stunting development goals.
The report was launched in 12 countries, Egypt being one of them, on Sept. 5, where a presentation of the report was given at the Foreign Ministry’s Diplomatic Institute.
First Economics Affairs Officer at UNCTAD Mahmoud Elkhafeef presented the report, saying “the main message of the report is that UNCTAD is warning against bilateral North-South agreements because it weakens the developing countries’ position and affects development goals.
“Why does UNCTAD warn of this? he added, “Because development depends too much on external factors and the institutions of any country must be capable of countering any crisis, which, in the case of developing countries, they are not.
The flurry of bilateral agreements has been coined the “new regionalism, where accessing developed markets and attracting foreign direct investment from developed nations is considered the way to enter the world economy as opposed to relying on multilateral economic agreements, the World Trade Organization (WTO) and the Doha Rounds.
“What developed countries cannot take through multilateral agreements or the WTO, they are taking from these bilateral agreements, and even more, Elkhafeef said, “developed countries gain greater concessions through bilateral agreements than through the WTO. These concessions go beyond mere trade agreements and stipulate conditions of investment.
“The alternative, Elkhafeef said, “is to strengthen South-South cooperation and more multilateral agreements with developing countries forming an economic bloc and negotiating together, rather than separately.
The report also warned of the effects of speculative capital movements on exchange rates, pointing out that developing countries are at risk. If this continues, then policy intervention will have to take place.
“Arbitrary exchange rate shifts should be managed just as tariffs and export subsidies are, and in the absence of such controls, the report says, regional cooperation may provide developing countries with some security against abrupt corrections, a UNCTAD press release stated.
“In recent years there have been several cases – for example in Germany, Japan and Switzerland – where current account surpluses have been accompanied by a real depreciation of the exchange rate, rather than an appreciation, as conventional theory would predict. Such movements in the “wrong direction tend to increase, rather than reduce, the underlying imbalances, it continued.
“Big institutional investors such as hedge funds are able to trigger an appreciation in the exchange rate of a country with a higher nominal interest rate by shifting financial assets from currencies with lower nominal interest rates. They thereby increase by themselves the return on their own investments. In this way, carry trades break the link between interest rate differentials and the risk of currency appreciation, the release stated.
Elkhafeef called for the creation of a governing body to monitor capital movements and prevent speculation from affecting the global economy.
According to the report, the global economy has sustained its growth for the fifth year running and is expected to grow by 3.4 percent in 2007. China and India lead the way for developing countries.
Additionally, there has been a 30 percent increase of per capita income in developing countries over the last four years. The gap between developed and developing countries has narrowed somewhat: In 1980, per capita income of developed countries was 23 times that of their third world counterparts while in 2007 the figure is 18.
The reason for this decrease is the accelerated rate of growth in South East Asia Elkhafeef said, although the status of South American economies had deteriorated.
Additionally, the growth of the US economy had declined due to the mortgage crisis but that was offset by strong growth in the EU and Japan. Africa is expected to continue to see growth of 6 percent but South America will see a decline in growth due to its economic relationship with North America.
As for Egypt specifically, trade with Arab countries is on the rise reaching 18 percent of total trade in 2005 as opposed to 10 percent in 2002. Egyptian trade with Africa has also increased to 6 percent in 2005 compared to 3.5 percent in 2002.
Egypt’s economic growth rate rose to 7.2 percent in the third quarter of 2007.
