Toward a rational and equitable new international economic order: A case for negotiated structural changes

World Developrtlettr. Vol. 3, No. 6. June 1915, pp. 427444

Toward a Rational and Equitable New International Economic Order: A Case for Negotiated Structural Changes* REGINALD

HERBOLD

GREEN

and HANS W. SINGER

Institute of Development Studies, Sussex

1. RETROSPECT/PROSPECT Two sets of pressures are building up in the international system. The first, released by a growing sense of the global nature of the world’s complex and interlocking problems, takes the form of an unprecedented series of international conferences: UN Special Assembly, September 1975 UNCTAD IV, March and May 1976 World Employment Conference, April 1976 HABITAT, June 1976 UN General Assembly, Autumn 1976 To these should be added the follow-up to important 1974 Conferences, especially the World Food Conference. The latter, born in part of two decades of frustrated dialogue between rich nations and poor nations, in part of a sudden and measurable reversal in basic power relationships during the 1973 oil crisis, is a growing demand on the part of developing states, for more just, humane and responsible international economic relations-for a ‘New International Economic Order’.1 The danger is that if no attention is paid to the second of these pressures, every attempt in the cycle of conferences to reach orderly solutions of interest to all parties will founder in sterile confrontation and deepening hostility. So far, the Western countries, including the UK, have usually reacted to the pressure for NIEO with suspicion and fear. The negotiations leading to the Lome Convention and Mr. Wilson’s Kingston proposals leading to the setting up of the Commonwealth Group of Experts are partial exceptions, but are both unusual and incomplete enough not to alter the over-all picture. This is understandable. The pressure for NIEO has often taken both extreme and somewhat Utopian forms. The heterogeneous 421

interests of different Third World countries, especially bPEC versus non-OPEC, have been papered over by the simple device of adding the demands of different interest groups together indiscriminately. More recently, the demands for NIEO have been put forward aggressively, at least verbally presenting ultimata and fairs accomplis rather than seeking patient negotiations. These have been seen by industrialeconomy governments as being accompanied by unilateral actions, especially in respect of oil prices and supply restrictions. However, the Western countries and the UK should both recognize and show public understanding that this aggressive way of pressing for NIEO is due in large measure to exasperation with the lack of progress achieved by piecemeal negotiation and by appeals for partnership within the framework of the existing system. There is a strong feeling now among a majority of the Third World governments that only the *With the proposals, contributions and comments of a working party composed of: Barbara Ward, Rob Wood (ODI), Brian Johnson (ISIO), Carlos Fortin, Theodore Morgan, Richard Jolly, Michael Lipton, Richard Stanton, Paul Streeten (QEH), David Jones (ODD, Sam Cole (SPRU), Paul Isenman, Charles Cooper, Len Joy, Lyn Reynolds. In a joint document of this kind no participant wiB agree with each statement and especiaBy with every balance of emphasis However, this paper is presented as representing a broad consensus of the participants on the need for more serious attention to achieving major reforms of the international economic system, on the importance of serious negotiations toward agreed changes, on the need for focal issues around which particular actions can cluster and on the broad elements of a meaningful list of topics for negotiation during the next few years. 1. Subsequently abbreviated to NIEO.

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international economic equivalent of union threats to strike can move the West to serious negotiation and the acceptance of significant While this is an understandable reform. response, the NIEO Charter and related proposals for long-term systemic reform are not, as they now stand, a workable sole basis for negotiation. The Western countries’ govemments can and should put forward counterco-ordinate them, perhaps proposals-and through OECD-based upon their own interests and perceptions of joint interests, extended perhaps by accepted claims of humanity. The absence of such proposals greatly hampers international organization secretariats. They cannot service negotiations if none are agreed upon nor propose means of resolving differences except in response to a two-way dialogue. Governments, not secretariats, must agree on the broad parameters and goals of meetings and programmes if internatiohal organizations are to function effectively. The major industrial countries are entitled to see these proposals serve as one starting point for discussion with the same weight as the demands for NIEO. To date few such counterproposals have been forthcoming from them. They have either been stone-walling, disunited among themselves, or playing the game of making sympathetic noises on one or another of the various elements of NIEO, while leaving it to others of their group to vote against or voice opposition in other ways. This in turn has pushed the Third World countries further into exasperation and further toward extreme demands. Whether one agrees or not, it is necessary to realize that many poor countries, often termed ‘extremist’, sincerely believe that they wish to negotiate but are met with a flat refusal to bargain. The breakdown of the Rome talks over the issue of how to pursue meaningful, parallel, action-oriented discussions on oil and on other commodities within a common frame illustrates this point. The near absence of serious proposals by industrial-economy governments has also helped to maintain a rather non-functional unity among LDCs of a type not well suited to actual negotiation because it rests on papering over, not resolving, differences. Unity among LDCs is vital for negotiating substantive reform just as unity among union members is vital to negotiating settlements to domestic trade disputes, but it needs to be a unity based on a balancing of interests resulting in agreement on an acceptable package, not a simple addition of all proposed changes. There is, of course, another active alternative open to the industrial economies-that of overt

economic confrontation. The advocates of this approach argue that the LDCs would suffer most from confrontation and could be reduced from a unified group posing major demands to a set of isolated, weak states seeking minor concessions. This strategy is open to several objections. First, few industrial-economy governments seriously contend that no reforms are needed on grounds of equity and of mutual interest. Second, the cohesiveness of the LDCs has recently grown, not crumbled, in the face of active or passive opposition. Possibly it could be broken but probably far less easily than advocates of confrontation assume. Third, the economic costs of disruption, of developing alternative sources of supply, of adjusting domestic policies to meet new costs and new employment losses are high. The experience of the recent past with oil underlines the severity of immediate disruptions of production, employment and styles of life; the serious macroeconomic consequences in the direction of both recession and inflation; the very massive costs of developing alternative sources of supply or alternative technologies to reduce demand. Fourth, the risk of violence flowing from desperation is high. It is unrealistic to paint pictures of LDC rockets showering down on Europe. It is not alarmist to warn that policies of confrontation could easily lead to regional wars which, apart from producing international economic dislocation, could all too easily drag in the industrial economies. Still less is it unrealistic to warn that desperation leads to random violence highly disruptive to technologically complex systems and affluent life styles. In the context of economic confrontation, LDC and MDC governments could not expect to prevent increases in the levels of such violence bred of despair, frustration and desperation. Therefore, quite apart from its moral implications, overt economic confrontation would be a strategy so costly as to be unrealistic unless there were no alternative available. We believe the time has come to present constructive proposals for significant international economic reforms on which the Western countries can hope to reach agreement with the Third World. There is a need to begin to negotiate seriously, particularly though not exclusively within the framework of the coming series of UN conferences and in the follow-up to those already held. The Western-country governments, like others, will base their position primarily on what they consider to be their own interests. To assume otherwise is to engage in flights of fancy. This need not be a selfish position. In many cases their interests do

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coincide with Third World interests: e.g., trade expansion, secure supplies of raw materials and, particularly, in the long run, protection of our common environment, including conservation of scarce resources. It is also in the interest of the rich countries to defuse conditions threatening to lead to violence, and to prevent exasperation from leading to desperation, desperation leading to recklessness, conflict, and even atomic war (considering that in the not too distant future several poor countries will have atomic capability). In an all-out conflict the rich have more to lose than the poor. The Western countries need not fear being pressured into negotiating from a position of weakness. That is far from the true situation. Even if the balance of bargaining power among consumers and producers of oil and some other scarce commodities has shifted, even if possession of armaments and atomic weapons gives a cutting edge to international disparities, the largest share of economic power remains with the industrial economies. The West is still in firm control of technological power which the Third World knows it is lacking but will require for the achievement of true economic independence. There is, more than ever, food power: the Third World depends on North American and Australasian food just as much as the West depends on Arab oil-and for many countries more so. The West wields the power of granting or denying access to its markets which are critical to many Third World countries. The West still has predominant military power, although shared with the East. The West still has the power to grant or deny access to its capital resources. Access to foreign financial resources under the right conditions is still greatly desired and needed by Third World countries and it seems doubtful that OPEC alone could satisfy this need at least on the institutional level and in the short run, The threat of aggravated and continued depression in the Western economies is still a terrible danger for the Third World countries, as is that of continued high rates of inflation which are inevitably passed on to them in higher import prices. The West could rightfully object to a reversal of the old centre/peripherv relationship. To reverse an often inequitable and inefficient pattern of relationships is not the same thing as reforming it. However, such a reversal is nowhere in sight. All-we see now are movements towards a more equal balance of economic power which we have no right to refuse as one starting point for negotiations. To argue that significant international

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economic reform is in the mutual interest of industrial and poor countries is neither wishful thinking nor wilful cynicism. Poor people and poor countries are bad customers and uncertain suppliers. Stagnation in poor-country exports means stagnation in their import capacity. Absolute poverty breeds desperation, instability and confrontation. At the extreme the ‘life boat’ strategies stand out as absurdly unrealistic when one realizes they propose pushing overboard states with present or short-run potential access to atomic weapons. Equally it is no denial of the power of morality, the claims of common humanity or the need to seek justice and equity to observe that morality, humanity and justice are far more effective in compelling action when they are allied with and directed to areas of mutual interest.

II. THE WAY FORWARD The urgent need today is to achieve a context of serious negotiation on a number of limited, interrelated, important issqes which can, and can be seen to, improve the efficiency and equity of international economic relations and to provide a basis for continued exploration of joint interests and for negotiated resolution of divergent ones. To do that need not mean an end to discussion and debate on further changes and on goals for the year 2000. It does require recognition that whatever the desirable pattern of economic relations twentyfive years from now may be, both political realism and an honest assessment of the limits of our present knowledge indicate it can only be achieved by a series of more limited steps during the intervening period. Disagreement on the nature of the existing international economic system and on the degree of transformation needed is not inconsistent with agreement on a number of initial measures. It is in the context of agreed initial action that the chances of reaching a greater degree of agreement on the long-term dynamic of change would be enhanced. Agreement on limited reforms will not remove-although it may narrow-conflicts of interests and goals. Negotiated reforms can, however, show new areas of joint interest for subsequent negotiation and create a pattern of working relationships in which search for mutually acceptable, workable solutions is dominant. Although it would be unrealistic to suppose that the limited package of changes attainable now would end the dialogue between the demands for NIEO by

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poor countries and the defence of achieved positions by the rich, in the absence of such first steps the dialogue will assuredly deteriorate into mutual recrimination and confrontation. A shift of focus from unilateral action and debate which intensifies division to joint negotiation leading to agreed action is needed. Proposals designed to contribute to such a shift should meet four criteria: practicality, mutual interest, coherence, cumulative effect. To be practical a proposal requires not merely technical feasibility but also that those whose actions are necessary for its implementation are genuinely willing and able to implement it. Willingness to implement, in large measure, turns on perceived self-interest. Many aspects of the present pattern of world economic relations are inefficient and costly, even when viewed solely from the industrial-economy point of view. A series of confrontations would be even more costly. However, a set of proposals which were individually practical and in the joint interests of rich and poor countries might still not be adequate. Coherence and cumulative impact are also important. Coherence is needed because unrelated minor changes may in fact cancel each other out and introduce greater distortions than they remove. Further, they are unlikely to add up to a package of changes which meets the divergent minimum needs of the various groups of countries within the world community. Cumulativeness, like coherence, is needed to avoid creating new problems and to meet the far from identical needs of LDCs and MDCs. Improved market access for manufactured exports, for example, both assists in meeting the needs of poor people to secure the means to buy food, and can contribute to improving earnings from commodities by removing barriers to pre-export processing. Similarly, improving the access of poor countries to the higher savings generated by oil price changes can, by increasing their demand for industrial exports, assist in overcoming present recessionary pressures leading to unacceptably high unemployment in MDCs. Parallel action in the fields of primary commodities, manufactured goods trade, technology, financial transfers, MNCs, food production and provision of some minimum security to the poorest nations and individuals is needed to achieve an over-all result significantly beneficial to all or almost all participating states. Each negotiable action will be limited but, if taken together, the cumulative impact-including creating the context and opportunities for further change-can be significant.

One danger of an approach based on concrete negotiations is that it will fail to achieve a sense of direction or an adequate interrelationship2 of its component parts. One way to avoid this is to have one or more broad focal issues around which concrete proposals can be grouped and to whose resolution they can contribute. The most broadly accepted focal issues today are: (a) progress toward securing access to minimum decent living standards for all countries and individuals; (b) reforming international economic exchange to be more equitable and mutually beneficial; (c) easing recessionary and inflationary obstacles to growth and stability. The first focus centres on poverty with particular reference to food. The second addresses itself to facilitating rich- and poorcountry development through more equitable and efficient trade, financial resource and knowledge transfer and payment patterns. The third fIows from the fact that the 1974-5 recession in industrial economies will cause the loss of $300 billion in unachieved growth and unemployed men and resources, while rapid inflation introduces major problems, not least in combating recession. Clearly these are very major economic inefficiencies which can be reduced in ways benefiting both LDCs and MDCs. They are basically complementary, not alternative, perceptions of the requirements for creating a dynamic toward international economic reform. Together these priorities do appear to meet the criteria of coherence, cumulative effect and opportunity for constructive MDC proposals leading to negotiated progress.

III. FOOD/POVERTY: THE QUEST SECURE MINIMUM STANDARD LIVING

FOR A OF

The industrial countries should be ready to offer substantial assistance to a world-wide programme to help eliminate widespread hunger in the world, and thus give substance to the mandate of the World Food Conference. Hunger (malnutrition) is the most serious dimension of extreme poverty. A global attack on hunger is now possible. The developing countries with serious malnutrition problems,

2. The need for this was also emphasized by Mr. Wilson in his Kingston speech at the recent meeting of Commonwealth Heads of Government.

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the industrial countries, and the OPEC countries can, between them, provide the necessary technologies, funds and skills to tackle this task. This, then, can and should be a major focus of the reformed international system. It would be morally indefensible if the new international policies were to take account only of the needs of those among the developing countries who are major suppliers of primary or manufactured exports without tithe same time addressing the most pressing problem, that of: the hundreds of millions of the’ poorest and malnourished people in the world, probably over half of them children. We know now that effecting a significant reduction in hunger and malnutrition is far more difficult than we used to think. We have lost the simple faith of the fifties and sixties that all that was needed was economic growth, which would be bound to ‘trickle down’ and solve the problems of hunger and poverty. We have learned quite recently that the world’s hunger problem is primarily one of inadequate consumption of calories; the ‘easy’ answer of protein supplements or increasing the protein content of cereals has been shown to be at best partial and in part illusory, except in highly atypical local dietary situations. The ‘protein gap’ remains especially important in relation to children, particularly preschool children. We know that food aid cannot replace, and in some circumstances can hinder, domestic and thirdcountry production. Even increases in domestic food production, while 3 necessity for con-. tinuing increases in output and employment, will not solve the problem of those who do not have the money to buy the food their families need. Growth, protein supply, food aid, and, particularly, increased domestic food production, are all important, but they all leave the heart of the malnutrition problem barely touched. What is needed? Let us divide the developing countries, conceptually, into two major groups (even if, in practice, these overlap)-those where the calorie consumption of the bulk of the poorest third or half of the population is sufficient, and those where it is not. In the former case, primarily in higher-income developing countries, programmes such as direct feeding, applied nutrition, and special programmes to provide jobs or income supplements to malnourished families and communities may suffice. But in the latter case, which characterizes countries with hundreds of millions in population in South Asia alone, and scores of millions in Africa and Latin America, what is required is 3 fundamentalreorientation

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of development strategies to provide livelihoods for the poorest half of families-found mostly in rural areas-who do not have sufficient income to provide adequate nutrition for their families. The numbers are growing of those who are displaced from the land, or who have an inadequate holding on which to subsist, and who are neither absorbed into alternative productive activity nor supported by family or community. Strategies against poverty must be strategies to reduce displacement, and to encourage economic absorption. Simple arithmetic-on urban job levels and possible growth ratesshows that it will be decades, at least, before the rural poor in lower-income developing countries can be provided with productive urban jobs. Thus there must be rural development strategies which aim primarily at channelling new capital and skills into increasing the productive capacity of the poorest, which redistribute and improve tenure on the land, provide the poor with ‘marketable’ skills, provide adequate financial incentives for small farmers to make inevitably risky investments, and include provision for local planning efforts to meet region31 and local needs. Strategies required, and feasible, will vary from country to country but in general we can say that the primary responsibility lies with each country itself, that the structure and pattern of land holdings and tenure will be a key element in such strategies (because it addresses both output and distributional objectives in a complementary and surprisingly efficient manner) and that a major problem standing in the way of land reform and several other necessary steps is not technical or financial, but one of the political will to overcome the powers of vested interests (including both large landowners and others, such as urban political groups, who do not realize that excessively low short-term food prices are-by their effects on output-likely to mean excessively high long-term food costs). What then can the developed and OPEC countries do to assist? Political will is something which cannot be imposed from outside. Yet, in cooperation with those countries which have a serious interest in addressing the related problems of the production and distribution of food there is much that can be done. First, financial support should be provided for the large-scale investment needed to carry out strategies which address redistributional, employment and output-increasing objectives on a broad front (particularly since sound development strategies also require large-scale investments not only in a number of activities

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directly related to agriculture, such as rural education, health, water, implements, fertilizer production, but also in ‘formal’ and ‘informal in power generation, construction industry, etc.). A massive investment programme for food production in developing countries has been agreed on at the World Food Conference and should be vigorously taken up and supported by the MDCs, in collaboration with the LDCs. The cost of such a programme is estimated at about El0 thousand million per year. Agreement with the OPEC countries on financing need not wait until other settlements between oil producers and consumers have been reached -as demonstrated by recent Council funding. The programme would logically be directed primarily toward the areas where the mainourished are concentrated, especially South Asia and the Sahelian zone of Africa, but also toward other smaller areas of deficient food production growth. The programme should include complementary rural infrastructurerural roads, rural education and health facilities, transport, power, storage facilities, etc. The gearing of this agricultural assistance to the needs of small producers will also require revision of aid programmes so that aid becomes more readily available for credits, extension services, supply of fertilizers, insecticides and other inputs for small farmers, financing of land reform, consolidation and land settlement programmes; financing of agricultural research stations and demonstration farms; water development, etc. It would also be necessary to work through national financial intermediaries and to adjust methods of project selection and appraisal, and show no reluctance to finance local expenditure. Where properly supported, small-scale farming has frequently shown itself to be more productive than large-scale or mechanical farming, especially when productivity or efficiency is measured in terms of output per unit of land or per unit of capital employed. This is the proper yardstick in those areas (containing the bulk of the malnourished) where land and capital, rather than availability of manpower, are the governing constraint. Large-scale projects to be offered with full OECD, CMEA and OPEC support with full international financing, backed by feasibility and pilot studies-perhaps under UN auspiceswould include an effort to develop the irrigation potential of the Ganges River basin. Often the investment will be spread over so many projects and programmes that it will be more sensible to provide general ‘programme’ or ‘non-project’ support for government rural

development strategies. In all cases much or most of the investment requirements will be for local costs or for indirect import costs. For a variety of reasons related to efficiency, labour intensity and political relations it would be wrong for donors to insist that their assistance be tied directly to project import content or even to specific projects as opposed to sectoral programmes. In aid outside of agriculture MDCs can support the process of redistribution and creation of livelihoods by gearing their urban aid projects more towards the urban poor: aid for activities, site-and-service informal sector housing schemes, etc. Generally, the move towards aided or aid-induced projects becoming more labour-intensive, or strengthening the capacity of the LDCs to develop and apply more labour-intensive technologies will work in the direction of putting more money in the hands of those needing it to buy food. Similarly, action by the MDCs to induce transnational corporations to make their operations more labour-intensive, or to support the LDCs in such efforts, would work in the desired direction, and should be included in any MDC action programme. Some have argued that external assistance would only rob a country of the will and ability to address its own problems. While this could undoubtedly be true in some cases, the muchdiscussed evidence for the ‘disincentive’ effect of foreign assistance has been shown to be statistically misleading and incomplete, with actual results of foreign assistance being positive in a majority of cases. The reason for this is that the effect of foreign assistance in reducing the economic (and political) risks of policy improvements, as well as providing additional investment and foreignexchange resources, has turned out to be much more important than the effect postulated by those who think, implicitly or explicitly, that policy determination in developing countries is essentially a process of maintaining or initiating the worst possible set of policies that are viable for the short to medium term. This is not to say that there need not be vigilance for disincentive risks, especially in respect of LDC actual or potential food production for export to other LDCs, and steps taken, ranging from analysis and consultation to changes in the form or amount of assistance, to anticipate and deal with them. Second, the expansion of food aid agreed at the World Food Conference should be part of the action offered by the MDCs, in cooperation with OPEC-as exemplified in the

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present build up of the World Food Council. There is need for food aid for four major purposes: to respond to specific shortages and disasters and to the needs of specific nutritional programmes aimed at pre-school children and other priority groups; to build emergency grain reserves and co-ordinated buffer stocks, under international control; to rebuild and expand gain buffer stocks in major food-deficit developing countries, stocks which can be used not only to respond to shortages within these countries but to play a market stabilization role that increases incentives to farmers as well as insuring consumers against unavailability and unaffordability of food during times of shortage; and to provide general investment resources to meet the needs of agricultural and other specific projects, as well as to provide the basic ‘staff of life’ (i.e., the overwhelmingly important ‘wage good’) when increases in investment cause the demand for food to grow faster than its short-term supply. Food aid which falls outside these guidelines, however, risks reducing farmer price incentives and slowing the pace of domestic agricultural growth, which is the only long-term answer to assuring adequate food supplies in the countries most affected by malnutrition. There is much discussion today about the need to restrict consumption of meat, or imports of food, in developed countries, in order to assure an adequate supply for develop ing countries. Such steps would probably have a positive effect on the moral and physical health of the developed countries and might well contribute, indirectly, to helping to meet the food import requirements of some developing countries (although they would hurt the agricultural exports of other developing countries). But such steps are neither necessary nor sufficient to provide the food import (aid) needs of the developing countries. Only two things are essential: money to buy food, whether from food or financial aid or from the the developing countries’ export earnings (especially if these are assisted by the trade reforms discussed subsequently); and willingness by the major food exporting nations not to place restrictions on (aid- or cash-financed) exports to developing countries, even if domestic consumers would have to pay more for meat and bread. Without these two steps, limitations on meat consumption or on food imports in developed countries constitute but a cruel illusion of concern. The same general points apply to making fertilizer available to meet the import needs of developing countries-funds and guaranteed access to supplies are the vital points.

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What is needed, then, are multilateral arrangements for the provision and financing of food aid and for criteria for its allocation. Third, the developed countries can make a major contribution to increasing access to food for poor people and poor countries by diverting a very small part of their extraordinary technological and research capabilities to focus on the problem of growing more food in developing countries, particularly through labourintensive methods that can be used efficiently on small farms. Research goals might include, for example, the further development and adaptation of new plants and varieties; farming systems for specific LDC areas; small-farm technology; peasant household and other systems of improved food storage; major feasibility and pilot prolects directed to the utilization of the Himalayan ‘Water Mass’ (which could engage the co-operation of China) and water development in the Sahel area; tse-tse fly, and other health and disease control programmes directed towards increasing the productive available land basis; development of small and bullock- or hand-operated implements, etc. MDCs should also be ready to make a major research and development effort to identify and exploit new and unconventional sources of food. While such efforts will take time to yield major results, the initiation of such an effort should ‘be part of an immediate offered action programme. This would include the utilization (including achieving acceptance by consumers as well as production) of new food sources, supplements for deficient diets, methods of food enrichment, etc. The development of the resources of the sea, e.g., the use of Antarctic Krill as a major source of protein, will also depend on the technology of the MDCs. This is also included as a priority suggestion in the UN World Plan of Action on the Application of Science and Technology which also contains other recommendations aiming at better nutrition in LDCs which could be the basis of an agreed scientific and technological effort by the MDCs.

IV. AN INTERNATIONAL PACKAGE

TRADE

The international division of labour, world market access and supply, the transfer of technology, economic sovereignty and related financial flows form a trade-oriented focus of issues in which both equity and self-interest point to the need for and possibility of signi-

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ficant negotiated progress over the next year and a half. The Seventh Special Session of the General Assembly, the series of meetings leading up to and including the Fourth UNCTAD, and the IL0 World Employment Conference provide forums for making initial negotiating proposals, reaching agreement on broad areas and outlines for negotiation and identifying forums in which detailed negotiations can be carried forward. One critical element is better access of LDC exports to industrial economy markets. Without greater LDC export earnings these economies can neither generate the incomes needed to overcome poverty nor provide expanding markets for MDC growth industries. Barriers to LDC processed and manufactured imports push their industrialization policies into extreme import-substitution patterns; by protecting inefficient MDC producers they raise prices to industrial and household consumers thereby increasing the difficulty of controlling inflation. Improving the allocation and use of resources globally, within industrial economies and in LDCs, requires action aimed at halting and reversing the rise of non-tariff barriers. Over the past decade ‘voluntary’ agreements and other non-tariff restrictions have burgeoned and now cover both the bulk of present LDC textiles, manufactured exports-especially clothing, shoes and other fibre and leather products-and many potentral exporfs, e.g., processed and manufactured foodstuffs, in which many LDCs would otherwise have a comparative advantage. These barriers, together with the continued existence of escalating tariffs discriminating against processed and manufactured goods, far outweigh the gains from selective generalized preferences and special arrangements like the LomC Convention. While they could, in principle, be negotiated down primarily through GATT the procedures and record of GATT are not very attractive to LDCs. Therefore, serious dialogues at the Special Session and UNCTAD should, at the least, complement the present GATT negotiating round. Two types of action are necessary to make rapid, effective expansion of access practicable. First, a freely agreed framework allowing selective restriction of import growth for a limited period when disruption occurs, but requiring that the limitation be phased out over not more than seven years and that compensation be made to the developing countries whose exportoriented employment and investment have been frustrated, should replace both the unrealistic Present article 19 of GATT and the de facto

uncontrolled unilateralism of the ‘voluntary’ industrial economies Second, agreements. should build up transformation assistance identifying in advance workers, firms, industries and regions which will need help in adjusting their employment and production patterns. Such transformation assistance-unlike most present adjustment assistance-should be begun before import rises cause significant hardship and should be related to speeding transition to appropriate new jobs and activities, not to prolonging, and ultimately increasing, the cost and pain of change by inadequate subsidies and import restrictions. The most promising single field for significant operational achievements over 1975-7 is that of commodities. Rich and poor countries alike are concerned about stability of prices and of supplies, indexation and trade terms, compensation and market access. The 1973-S commodity price cycle, the continuing food supply shortage and OPEC have, perhaps ironically, created a greater common agreement on the need for action than has existed at any time in the past quarter century. The integrated commodity proposals of UNCTAD offer the outline of a way to take advantage of this felt overlap of interests. The proposals made at the Commonwealth meeting in Kingston, to be followed up by an expert group from Commonwealth countries, are a related approach to progress in this field. The goals in the commodity field are fivefold: to agree on fair and practicable prices in purchasing-power terms; to provide mechanisms to hold price fluctuations within an acceptable range around that fair (or parity) price; to ensure access to markets and to supplies; to facilitate forward integration of commodity products into processing and manufacturing; to utilize supporting devices (e.g., buffer stocks, output-loss compensation schemes, long-term contracts) to complement or implement the other objectives. To achieve these goals requires an integrated approach both as to coverage of main commodities and as to measures employed. The standard one-commodity, fixedmoney-price-range approach-whether on a cartel or on a global basis-is inadequate except as part of a much brqader approach. Key elements in any serious commodity negotiations should include: parallel agreements backed by buffer stocks for the 15-20 main commodities; agreed working capital provision (e.g., through a special, nonquota IMF facility) for the buffer stocks, ceiling and floor priceranges indexed to some agreed trade-price index but also subject to negotiated change; guaran-

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tees of access to supplies, perhaps backed by long-term contracts; positive assistance (including market access, technology transfer and finance) for pre-export commodity processing manufacture in LDCs: compensation and schemes-perhaps like Stabex in the. Lome Convention-to buffer export-purchasing-power losses (including those flowing from weather and for commodities not covered by agreements) of poor countries. Indexation should be viewed as a negotiable issue. Any agreement with floor and ceiling levels raises questions of appropriate norms. Indexation of the agreed floors and ceilings does not mean that their general level cannot be renegotiated if basic imbalances occur. Under conditions of rapid inflation the absence of indexed floors and ceilings implies either virtual.ly continuous renegotiation or an agreement which in no significant way stabilizes the actual purchasing power of commodity producers. Problems of how wide the allowed margins should be and of the index to be a basket of major manufactured used-e.g., goods and commodities-do exist but are by no means technically insoluble nor so inconsistent with achieving a mutually beneficial result as to justify rejecting indexation as unrealistic. To propose to fix commodity prices in absolute terms against a record of rapidly rising manufactured goods prices is precisely the type of approach which causes LDCs to doubt the sincerity of MDC negotiating initiatives and to believe that the MDCs are seeking economic confrontation. The package approach is critical. If a range of key commodities is considered at the same time, then solutions supported by common interest in equitable floor and ceiling prices, access to supplies and adequately financed stocks are much cheaper than if commodities are considered one at a time. Further, if agreements are reached for a broad range of commodities, cross elasticity problems and resulting distortions in the manufacturing as well as the commodity producing phases of economic activity will be minimized. If one metal or oilseed is the subject of an agreement and others are not, dislocations are likely to be high, but not if all major metals, or oilseeds, are the subject of agreements paying attention to maintainable price relationships. With rapid inflation and wide fluctuations in export quantities, primary exporters will accept global agreements and internationally managed stocks only if indexation protects the real value of price ranges and compensation exists for quantity shortfalls beyond their control.

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The logical route to processed and manufactured exports for most developing countries is based on their primary products. Resource and technology transfers in support of that process would help industrial-economy consumers and exporters by lowering costs and raising present primary-exporter import capacity. Too narrow a package is as unrealistic and politically dangerous as too utopian a vision. It is crucial to include enough elements to provide significant gains for a very large majority of LDCs and MDCs taken individually: otherwise bargaining will collapse. The assertion that not ail LDCs would benefit significantly from commodity-price, processing and market reform is true but not a valid objection to the proposed reforms. First, the changes are justified on the basis of efficiency and equity. Second, no single group of measures (other, perhaps, than a progressive global tax system) can be adequate in isolation. Third, reducing the number of economies unable to earn their own way and thus allowing concentration of concessional transfers on the most disadvantaged is a clear gain. Fourth, proposing massive additions to aid instead of commodity reform is-no matter how well meant-a plea for Eurocentric paternalism and a rejection of self-reliance based on equal bargaining and fair bargains. Resource transfers can be increased in ways which will meet the joint needs of OPEC countries and other primary-product exporters with surpluses for external investment, poor economies with external financing problems, and industrial economies seeking exports to offset recession and payments deficits. At the same time, they could facilitate the increased complementarity in production and pre-export manufacture of present primary exports cited earlier. Several OPEC members need investment outlets with some spread of risk and moderate return. This could be met through World Bank or syndicated Eurocurrency securities at 8 per cent. But many poor countries requiring investment finance tinnot afford more than 3 to 4 per cent. If they could secure finance on 3 to 4 per cent terms, their ultimate imports of industrial-economy technology, capital goods and intermediate inputs would rise by about the same amount as their net increase in borrowing. Clearly one way to capitalize on the evident joint interest is to provide a ‘third window’ facility with OECD aid used to subsidize interest on loans financed by the World Bank, Regional Development Banks, and other appropriate institutions out of the proceeds of, say, 8 per cent lO- to 25year bonds issued to

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OPEC members as a safe investment outlet. Technology transfer is a significant and rising source of export earnings for many industrial economies, including the UK. If better guidelines on sale and use can be agreed this trend should continue. Japan is consistently the world’s largest research and development importer because it can and does negotiate a fair price and obtains genuine control over, and freedom to apply, imported technology. But without agreed guidelines-perhaps negotiated from the draft proposed by UNCTAD largely on the basis of Andean Pact and Mexican experience-a real danger exists of a breakdown in contractual relationships, with patents, copyrights and other knowledge sales agreements being disregarded because the bargains driven have been unfair to poor countries. Such a situation of uncertainty and insecurity would benefit no one. The problems associated with the appropriateness of imported technology and the building up of LDC adaptation and development capacity are very real ones which should be faced by UNCTAD, the IL0 World Employment Conference and UNIDO. However, they turn more on negotiating changes in the makeup of technical assistance, on reforming international agency programmes in this field and on LDC initiatives than do the other trade negotiating issues. The UN World Plan of Action for the Application of Science and Technology and its development in the process of preparation for the coming UN Conference on Science and Technology should b.e more seriously and purposefully used as a basis of agreed action in this field. Economic sovereignty and MNC activities are of concern to industrial as well as developing economies. The spectre of sovereignty at bay in the face of uncontrolled corporate power was initially raised in Europe and is now alarming even to the United States. An international control agency for MNCs does not now seem practicable; but, at the very least, coordination of national measures and establishment of international data provision and exchange requirements are feasible. A code of conduct might be useful if it set down minimum acceptable standards and carried a commitment to support governments taking corrective action against firms in breach of it. It would be unrealistic to suppose that a complete identity of Interests in respect to MNCs exists between LDCs and MDCs any more than it does among MDCs. MNCs on balance export investible surpluses from poor to rich countries and pose far more serious threats to economic

sovereignty and macroeconomic policy in LDCs than in major industrial economies. However, because there are at least some areas of common concern, these should be identified and possibilities for joint action expiored. One area which now gives rise to mutually damaging uncertainty and unnecessary confrontation is compensation for acquired assets. In practice, the right to nationalize is accepted as is the duty to consider whether and how much compensation is payable. The old ‘prompt, adequate and effective’ rules are clearly not accepted even by industrial economies, but their repeated incantation causes uncertainty and acrimony. Serious attention should be given to negotiating new guidelines on what factors should be taken into account in assessing whether, how much and when compensation is payable. Systematic encouragement of joint ventures with a schedule and terms for ‘disinvestment’ by the foreign partner would further reduce conflict. It is a route that an increasing number of LDCs and MNCs are willing to accept. The present unwillingness of many Western countries to permit critical sections of their own industrial structure to be purchased by Arab money is proof enough that every government, rich and poor alike, wishes to safeguard control over its country’s own vital economic resources. None of the approaches in this focus on the promotion of trade and investment is new in itself. The focus as a whole, however, may offer a way forward because: (a) taken together the proposed lines of action would provide significant benefits for almost every industrial and LDC economy, even though no one proposal might offer significant gains to more than a minority of LDCs; (b) the measures are cumulative in the sense that their combined impact would constitute a major improvement in international economic equity and efficiency in a way no individual part could achieve; (c) if a successful process of negotiated reform based on common interests and concerns were begun it would create and identify further areas for negotiation.

V. RESTRUCTURING TO OVERCOME RECESSION AND INFLATION Recent estimates by Chenery indicate that the 1974-5 cost of recession in major industrial economies is likely to be at least $300 billion. The US Conference Board projects the

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loss from low growth and high unemployment over 1975-9 in the USA alone at $350 million. Rapid inflation-in double figures for many industrial economies as well as most LDCshinders efforts to overcome recession and imposes severe social and political strains nationally and internationally. It would be unrealistic to seek the sole, or even the dominant, causes of MDC recession and inflation in the area of international economic relations. The parallel industrial economy booms were already flattening and heading for at least a period of stagnation before the main oil price increases. The transient commodity price boom of 1973-4 added to inflationary pressures which were already causing accelerating price increases rather than upsetting a previously stable situation. However, mternational economic instability and confrontation have contributed to aggravating recession and inflation. In any case, the cost of continued economic stagnation and rapidly rising prices is so high that, whatever their causes, all areas of economic policy must be studied in terms of toward recontribution potential their expansion and price stability. There is a danger that the real potential interaction between international economic restructuring and MDC prosperity and stabilization will be lost sight of in a welter of short-term expedients. Economic restructuring is generally easier in a situation of expansion than in one which is stagnating or static. A context of growth provides an increment of real incomes for new investment, for incentives in money and kind (e.g.. housing) to encourage shifts between jobs, ta ease conflicts and social stresses and to encourage a buoyant and confident atmosphere. This is hardly a description of most of the industrialized countries today. The world economy is still in disarray and the main industrialized countries are still at different points of recession, pressed in different ways by long-run as well as short-run problems. The severity of these problems in many cases reinforces inward-looking tendencies. There is an almost total preoccupation among many groups, unions and employers included, with the national problems of unemployment, balance of payments, inflation and stagnation. At best, a very low priority is given to the wider consequences of domestic policy beyond one’s own national borders. This is the mood which created the beggar-my-neighbour policies of the 1930s. Yet the short-run solutions to domestic problems of recession call for expansion which

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in turn can help create the context to ease the problem of restructuring needed for a long-run world solution. To achieve this, (a) the need for long-run restructuring must be clearly recognized and (b) appropriate priorities established for allocating the increments of resources in ways which will make it possible and encourage it. In more specific terms, this means integrating domestic strategy and policy in the main industrial countries more closely with the necessary long-run changes in world production and trade. A clear recognition by the industrial countries of the need for such an approach would be a welcome first step-and could reasonably be embodied as a joint statement of intent by the OECD countries. This statement could be made specific and operational in terms of the criteria which anti-recession measures adopted by these countries would need to satisfy. Such criteria could formally be used by the OECD secretariat when undertaking their annual review of the economic policies of member states. Anti-recession measures to deal with balance-of-payments disequilibrium, unemployment and to restore growth all need to be checked against the priorities of long-run restructuring-and used to stimulate and encourage it. This would cover, for instance, differential policies encouraging expansion in some sectors and a planned decision not to stimulate domestic demand in other sectors; integrating regional and housing policy with restructuring priorities; additional support (as in Britain recently) for retraining policies, etc. The exact mix in each country can only be judged in its particular context, which would be the responsibility of its own government and of OECD to assess. Enhanced export earnings by LDCs would allow export-led expansion within industrial economies. Effective channelling of OPEC savings to investment in poor countries would have an even more rapid impact-allowing expansion to stimulate growth freed from the balance-of-payments constraints which have to date hamstrung economic policy in many industrial economies, including the UK. The trade and resource transfer focus is, therefore, one with a very large potential pay-off for the industrial economies. Similar considerations apply in respect of inflation. Phased restructuring to give access to increasing flows of processed and manufactured goods from LDCs will reduce pressures on consumer prices and, therefore, on wages.

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Commodity agreements which include ceiling prices and assurances of supplies will facilitate macroeconomic planning and reduce the danger of sudden shortages and disruptions. The impact of the 1973-4 commodity boom on the United Kingdom’s balance of payments and the severe disruptions caused by the absolute shortages of some commodities-notably, but oil-demonstrate that these not exclusively, potential gains are not negligible. Further, if commodity prices do collapse under the weight of MDC recession in 1975-6, the long-term effects on both production and attitudes wilI be such as to lead to an explosive rise by, say, 1977 when industrial economies are likely to emerge into a period of more rapid growth. A roller-coaster pattern of that type is not economically efficient in terms of commodity production and supply, of containing and reducing inflation, nor of providing a framework within which any country-rich or poor, MDC or LDC-can construct a macroeconomic policy for stable growth. The three focal issues are, therefore closely related : (a) an effective set of measures to overcome the poverty of low-income countries and low-income groups within them wilI require that these- countries and groups raise their levels of income and of import capacity; (b) improved LDC trade access to markets, commodity trade arrangements and financial transfers can make a contribution to augmenting employment, incomes and ability to import from MDCs; (c) higher exports to LDCs which significantly ease MDC balance-of-payments constraints on employment and output expansion, based on more effective financial resource flow mechanisms; and stabilization of commodity trade, together with easier access to LDC-processed and -manufactured goods can play at least a useful supporting role in reducing recessionary and inflationary pressures.

VI. NEXT STEPS A negotiating strategy requires a set of basic objectives, detailed proposals for moving toward these objectives, authority and capacity to negotiate on the basis of the proposals, negotiating forums and someone with whom to negotiate. This paper has sought to make out a case for a negotiating strategy toward a Reformed International Economic Order, and to identify three focal themes for such a strategy.

The Annex seeks also to provide a checklist of some of the points on which detailed proposals could be built. It is likely-even if not certain-that if the industrial countries do make a set of serious proposals for international economic reform, most developing countries will respond by engaging in a negotiating dialogue. Certainly the ACP/EEC negotiations leading to the Lome Convention are evidence of a sustained will to a worthwhile negotiating negotiate when agenda existed. Equally, the Commonwealth Heads of State from poor countries did not reply to Mr. Wilson’s Kingston proposals by confrontation, but by agreeing that an expert group be set up using Mr. Wilson’s suggestions and Mr. Bumham’s NIEO proposals as basic inputs into a dialogue aimed at reaching agreement on a negotiable package. Insistence on negotiating in parallel on several major topics is both consistent with declining to accept a single-topic agenda and with wishing to avoid confrontation. The question of forums is more complex. Many initiatives can be (and some must be) taken nationally, e.g., adjustment assistance. Others are appropriate topics for bilateral negotiating initiatives leading to regional dialogue, e.g., the United Kingdom proposals in respect of commodities at the Commonwealth Heads of State conference. Yet others can be the substance of dialogue and negotiation between groups of countries. e.g., the Lome Convention. However, even in many of the foregoing cases, global negotiations would also be useful, while on other topics-e.g., Law of the Sea-a global approach is a sine qua non. Coordination by MDCs on broad packages of proposals would also be of value. If OECD is not a practicable forum, then the concept of a group of likeminded MDCs agreeing on a ‘highest common denominator’ package and maintaining continuing liaison during the international conference series is worth further attention. The 1974-6 series of major international conferences on Food, Population, New Economic Order, Trade and Development, Employment, Habitat, and Law of the Sea can be seen as an occasion and an opportunity to launch a bargaining strategy. Few of the ‘conferencesthe Law of the Sea is an exception-can possibly negotiate detailed agreements. What they can do is: (a) provide opportunity for an initial dialogue aimed at identifying fruitful areas for negotiation and means of elaborating these in greater detail; (b) secure genuine commitments to negotiate

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(e.g., on an integrated commodity programme): (c) identifv forums for negotiating and appropriate -international bodies to service and assist in the negotiating process. It would of course be idle to suppose that the series of conferences can be confined to negotiable issues and preparations for negotiations. The pressure to meet demands to place topics of special concern to particular countries on agendas and the drive for declarations of long-term aspirations are too strong for that. Indeed, that is not in itself a bad thing-the commodities field would not now be a promising one for negotiation had there not been continuous discussion and declarations of goals over past years: the road to the Law of the Sea Conference was shortened by Malta’s special concern with ocean resources. What is critical is that clear distinctions be kept in mind between statements of goals, discussion of long-term perspectives, dialogue aimed at identifying common issues and concerns for negotiation, and negotiation proper, and that the final two categories be given at least equal weight with the former. If international conferences and agencies are to be used as vehicles and agencies toward a major package of negotiated reform, several procedural and institutional questions wiIl need serious attention: (a) identifying which critical negotiable issues and what progress in relation to each should be sought through each major conference. For example, the Trade Package is of particular relevance to the over-all work programme of the ILO; the World Food Council’s successful launching is a critical part of the poverty and food focus, some elements of which could also be pursued at Habitat; adjustment assistance, MNC regulation and restructuring out of recession and inflation are topics which ILO’s tripartite govemment/employer/labour structure makes especially relevant to the World Employment Conference; (b) considering what follow-up to conference dialogue and agreement will be needed. The special Commonwealth Expert Group following Kingston and the former Committee of 20 of the IMF, are examples of useful devices once a number of basic positions have been tabled and the need to reach an operational synthesis from them agreed. Such groups are small enough to have a chance of reaching agreement. Perhaps more important, they allow each participating LDC to focus its attention on

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the group, and provide a representative who is as technically competent as MDC members and briefed to a comparable extent. This implies more use of the constituency principle, with each member representing (and taking into account the views of) several countries. Such an approach can help LDCs by limiting the number of specialized groups in which any one participates, thereby allowing more concentration of expertise and preparation. That, in itself, is beneficial from an MDC point of view because the prepared, qualified representative will be far surer of his ground and far more willing to negotiate seriously than the overworked, sketchily prepared generalist trying to service twenty committees. Further, with a constituency approach, approximately equal LDC and MDC membership of groups can be achieved, avoiding the psychological barriers often raised by systems basing votes on wealth or on one vote per country; (c) re-orienting the UN specialized agencies to serve as forums for, catalysts toward, and providers of technical servicing to, negotiations. For example, any serious commodities programme will require at least a score of agreements of different types. Use of the constituency system can lead to securing effective negotiating teams, but the success of the negotiations will turn to a considerable degree on UNCTAD’s ability not merely to service the meetings in a formal sense but to provide data, technical analyses, and indications of potential areas for resolving differences. To do this for a substantial number of parallel negotiating groups will require changes in personnel and resource allocation and in the priorities set by the governing body; (d) identifying which negotiations are suitably assigned to which forums. For example, commodity long-term purchase contracts may often be best negotiated bilaterally between one MDC and one or more LDC suppliers-as in some of the Commonwealth Sugar Agreements-so long as they are consistent with and complementary to broader commodity stabilization agreements. The latter, however, need to be global because the creation of a series of ‘regional’ commodity markets with highly divergent international trading prices is not very satisfactory, as illustrated by, the past history of International Sugar Agreements. If a ‘third window’ resource transfer scheme could be agreed at the Special

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Session or at UNCTAD, and the decision included setting it up as a new IMF non-quota facility, then the Interim Committee of the IMF would be the appropriate forum for subsequent negotiations. But if it were to be through a World Bank programme loan approach, a new specialized body for negotiation of detailed implementation guidelines might be needed since the IBRD lacks any parallel to the IMF’s Interim Committee. Institutional and procedural questions of this type are of considerable importance. Certainly there are no unique right answers, but there are wrong ones in the sense that some procedures and institutional patterns (perhaps including those of many recent international conferences) are not well designed for turning confrontation into dialogue, demands into negotiations, general discussions into orderly progress toward stated ends within an identified framework. Equally, these questions cannot be answered rigidly and uniformly, but they need to be faced and tentative agreements arrived at among MDCs, LDCs, international organizations when agendas are drafted, organizational programmes set, and initial decisions taken. Otherwise disagreements on procedure will quite needlessly exacerbate divergences on substance, make orderly narrowing of gaps and identification of mutual interests harder, and leave decisions dangling in the air because it is unclear who is responsible for carrying them through the detailed, technical negotiation stages.

ANNEX

A Checklist of Issues and Areas fbr Negotiation No checklist can seek to provide a complete negotiating agenda, much less a set of briefs for negotiators. What this list seeks to do is to identify a number of areas and issues on which combinations of common ground, joint interest and world economic conditions are adequate for significant reforms to be potentially negotiable in 1975-7. It is an agenda for the more intensive study of selected topics for the 1975-7 International Conference/Negotiating Forum series and for identifying topics on which negotiating briefs containing substantive proposals are needed, not a conference outline or a negotiating document. Nor can a checklist be a complete, inter-

related package which will produce instant transformation if all elements are implemented and nothing at all if even one is left out. Any negotiating strategy will find some efforts are delayed or fail, while new areas for advance show themselves in the course of dialogue. On the other hand, because no one issue is adequate or absolutely vital, it is crucial to see that enough progress is made on enough issues to have a package with significant total impact and substantial pay-off for all or almost all states. Random collections of unrelated measures and mindless pragmatism are no less inadequate and unrealistic approaches to a Reformed lnternational Economic Order than unexamined utopianism and the demand for achieving longterm goals without identifying means and sequences. However, while probably not all the items in the following checklist will be capable of constructive negotiation in the next two years or so, most of the items that can and should be negotiated, are likely to be found on it. A. Commodities 1. A set of parallel agreements for at least the majority of the major commodities identified by UNCTAD is needed to maximize the number of states with perceived common interests in reasonable price floors and ceilings and guaranteed access to supplies as well as markets; 2. Financial provisions (including access to adequate working capital, e.g., by a non-quota based IMF facility) is crucial to the initial viability of buffer-stock schemes, but once floated they should and can be self-financing; 3. Compensation schemes to lessen losses in export proceeds (especially those due to quantity declines and also in commodities not covered by agreements) are important complements to commodity agreements; 4. Systematic encouragement (starting with removal of tariff and non-tariff barriers) to pre-export processing and manufacture of present raw material exports can improve both industrialand poor-country economic efficiency as well as allowing balanced increases in trade; 5. Extended and improved data collection by either international agencies, exporting-country or commodity-agreement technical organizations or producer-operated marketing agencies should be encouraged to help reduce present oligopolistic and destabilizing elements in commodity markets which are damaging to industrial economies as well as to primary producers; 6. Long-term contracts for purchase and

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sale may afford useful supplementary gains within an over-all commodity package; 7. Because meaningful stabilization must relate to purchasing power, the agreement (and long-term contract) floor and ceiling prices should be indexed in relation to some over-all world-trade price indicator, as well as providing for periodic over-all review of price ranges in the light of supply and of evolution of uses; 8. The Lomd Convention, the Commonwealth Heads of State discussions and the UNCTAD Integrated Commodity Programme offer a number of insights into what is needed, now it can be achieved and where joint interests can be strengthened. B. Manufactured exports of poor countries 1. The prime need is for effective access to the markets of the industrial economies. Preferences for limited quantities, especially if subject to unilateral withdrawal or limitation are much less valuable; 2. Non-tariff barriers to access are often more critical than tariff barriers, and action leading to their control and negotiated removal should parallel the elimination of tariff discrimination against the processed and manufactured forms of present primary exports and labour-intensive consumer goods; 3. Management, not application of rigid rule books. is crucial to rapid expansion of manufactured goods imports from developing economies. Certainty of access, allowable growth rates, review provisions, and timing are all issues which must be resolved to provide the security of expectation needed for LDC investment in export-oriented manufacturing, and for allowing projections of transformation needs and timing required for adjustment assistance in the industrial economies: 4. Neither the rigid article 19 of GATT nor the de facto unilateral ‘voluntary’ agreements provide adequate management frameworks; greater flexibility, genuine negotiation and concentration on minimizing the disruptions arising from hindering (as well as from rapidly increasing) trade is needed. C. MNCs 1. The concern with MNCs’ ability to escape from national regulations and to act in ways undermining both national and global macroeconomic stability is one which the more and less developed countries share. A more fruitful dialogue would follow if that area of common interest were the basis from which analysis and proposals were mounted; 2. An international regulatory agency for

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MNCS-much less a new body of international law designed to control them-is premature; co-ordination of national policies, international data collection and analysis (backed by national disclosure requirements) and agreement on minimum standards of conduct, violation of which by MNCs would justify corrective and punitive action by any injured state are more immediately negotiable; 3. The present state of compensation and nationalization theory and practice maximizes uncertainty and confrontation; progress toward agreed guidelines, balancing the right to acquire with a duty to negotiate on payment for acquired assets and the duty to consider present asset value with the right to take other circumstances into account, could help adjust stated principles to underlying practice and reduce the present levels of risk, potential conflict and dangers of losses to all parties. D. Firlancial transfers 1. Viable proposals for increasing short-term resource transfers should meet three sets of needs: those of countries with foreign earnings surpluses for secure, moderately remunerative investment outlets; of poor countries for lowcost programme and project finance; of industrial economies for export expansion to reverse recession and to meet payments deficits; 2. ‘Third Window’, ‘Trust Fund’ and other interest subsidization schemes meet these requirements: 8 per cent interest via a special IMF, IBRD, Regional Development Bank Facility or use of IBRD’s guaranteed powers is likely to draw significant investment flows. If re-lent at 3-4 per cent these flows would be consistent with poor countries’ external debt servicing limitations and industrial economies’ export expansion needs; 3. If, in practice, OPEC countries are to provide the flow of funds over and above their present aid programmes (which are already well above OECD target levels in relation to GDP) then OECD members must stand ready to provide the bulk of the interest subsidy; 4. Access for imports of manufactured goods, and terms and schedules of financial transfer payments could in some cases be negotiated jointly, building on the pattern of the mineral industry in which supply contracts provide both the security on which loans are raised and the foreign exchange flow for servicing them. E. Monetary system In the next two years total reform of the international monetary system is not a realistic

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goal. Interim measures of some importance which are negotiable include: I. creating non-quota, medium-term faciiities within the IMF for use by LDCs with particularly severe problems of adjustment, development and crisis resolution; 2. revising the IMF approaches and procedures which impose artificially short (and therefore inefficient) adjustment time-tables for economies with major structural problems, especially when these result from exogenous economic changes or natural disasters (e.g., grain, fertilizer, oil price changes and sustained droughts, flood or other climatic setbacks). Dialogue on the parameters of a new international monetary should receive system priority over 1975-7 to allow identification of broadly agreed principles for more detailed elaboration and implementation in subsequent years. Among the salient targets are: 1. funding of present reserve currency (dollar, rouble, pound, franc) balances held by monotary authorities; 2. introduction of a single, internationally managed reserve unit and international standard of value (i.e., International Drawing Right) to replace reserve currencies, gold, SDRs; 3. determination of procedures for managing 1DR creation to avert excess liquidity problems of the type associated with reserve currency standards, and to avoid hampering the expansion of domestic and world production and trade by artificial reserve asset scarcity; 4. either allocation of all resources paid for 1DRs to a facility with powers to determine their use and a voting structure more democratic than that of the IMF, or their allocation to individual countries on the basis of population and (lowness of) GNP per cnpira. i.e., a 100 per cent Link between resources generated by necessary monetary expansion and internationally redistributive growth promotion. F. Environment and human settlement 1. Environment and habitat issues must be seen in the context of access to minimum needs, husbanding of scarce resources and avoiding deterioration of sustainable levels of the quality and quantity of living standards if they are to lead to acceptable, operational programmes; 2. Rich-country support for food stocks, supply and production programmes is integral to environmental’ progress relevant to poor countries and people; 3. Concern with both absolute poverty as the most serious source of environmental pollution in poor countries and with greater equality

among and within countries require restructuring knowledge and resource transfers from -ich to poor countries; 4. Decentralization, intermediate technology, use of locally available materials and energy sources, labour-intensive techniques (especially in construction and services), city planning are all areas in which appropriate present transfers are still negligible and are more than outweighed by inappropriate ones; 5. The Human Settlements Conference (HABITAT) affords the following opportunities: (a) transfers of aiddby grant or subsidized loans-for such basic human needs as shelter, including site and service loans. and urban infrastructure with special emphasis on water and sewerage; (b) co-operation in inventing and developing new forms of settlement-building and resource-saving technologies, e.g., solar energy, small-scale construction improvement, building from local materials and techniques, small-scale food storage units. These will not be major individually, but as a package they could reorient the impact of knowledge transfers toward redistributive growth, economy in scarce-resource use, production-employment creation, secure access to minimum human needs, with decentralization making participat ton in decisions possible; (c) assistance in both finance and research to a ‘systems’ approach to settlement planning, with particular emphasis upon the conservation of energy and the increased production of and broad access to food. G. Food A constructive approach by MDCs has been outlined in the preceding paper as one ‘focus’ for negotiation. Among the concrete steps which could be taken or at least firmly initiated during the coming eighteen months are the following: 1. Follow-up of the Resolutions of the World Food Conference; development of the World Food Council; strategic approach; beginning of negotiations on a policy of nationally held, but internationally coordinated, grain stocks. 2. An agreed increase in food aid with corresponding financial contributions from OPEC and the EEC specifically following through on the precedent set by the recently established EEC Food Aid Programme; strengthening the UN World Food Programme; channelling of food aid to feeding vulnerable

TOWARDANEWINTERNATIONAL groups, particularly children, and to projects directly related to agricultural development; accepting the 1O-million-ton target of the World Food Conference as a starting point. 3. Establishment of emergency stocks under international control and strengthening of the international machinery to deal with emergencies. 4. A special programme, jointly with OPEC, to finance additional fertilizer production in LDCs, and also set up machinery to allocate fertilizers under aid programmes or on concessional terms to LDCs. 5. An internationally supported programme to improve storage capacity in LDCs, both in the form of modem silos for national stocks and at least equally at the farm and village level where the bulk of storage losses take place. 6. The strengthening and extension of the general system of preferences (GSP) to include agricultural products and processed agricultural products while at the same time improving the GSP by phasing out quota and ceiling hmitations. 7. Revision of the EEC common agricultural policy (CAP) to make it compatible both with maximum production and supplies from LDCs and linking it more closely .with expanded food aid and expanded commercial food exports to LDCs without balance-of-payments difficulties or without possibilities of producing enough domestically for their own use. 8. A guided and nationally supported programme to change consumption habits in MDCs or to change methods of feeding cattle so that additional grain can be made available for commercial or concessional purchases by LDCs. H. Technology 1. The technological resources of MDCs should be oriented away from R & D expenditures on synthetic materials replacing products of LDCs, and towards research geared towards food production in LDCs, especially by small farmers. 2. The MDCs should accept the UN World Plan of Action for the Application of Science and Technology, at least in broad outline, as the basis of a commitment to devote more resources to priority problems of LDCs and to permit a more extensive, cheaper and more appropriate transfer of technology to the LDCs. The discussions within the OECD could be strengthened and accelerated, but LDC consultation and involvement at an early stagepresumably within the UN framework and as part of the preparations for the UN World Conference on Science and Technology planned

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in 1978-is equally crucial. A success at this conference could be a historical turning point, but concrete and active preparations must start immediately for any such positive outcome to be attained. 3. Technical assistance to LDCs geared to developing food production, and also to enhancing foreign-exchange-earning exports, (e.g., to take advantage of a broadened GSP or of reductions of tariffs and non-tariff barriers negotiated under GATT and UNCTAD) would be more valuable than the present concentration on import or employment substituting consumer amenity and luxury goods. 4. Reduction of defence R & D should be part of any concrete progress in disarmament, with a planned diversion of such R & D resources to increase food production. 5. Conclusion of triangular agreements to increase food production in LDCs, under which Western countries supply the technology, OPEC countries the finance and developing countries the local resources needed. This should raise LDC access to food production and the incomes to be derived from it, give OPEC access to food imports and investment outlets and MDCs access to expanded exports and more secure food supples. I. Adjustment assistance 1. The MDCs-presumably through OECD, where discussions have already started-need to develop effective national programmes of Adjustment Assistance, satisfying agreed minimum standards for facilitating transformation toward more flexible economic structures including permitting maximum imports of labour-intensive products from LDCs as well as meeting immediate employment problems. 2. The regional policy of the EEC towards depressed regions, as well as the national policies of member countries, could usefully be devoted to building up in depressed regions efficient industries satisfying the import demand of LDCs arising from trade and resource transfer changes, and also the additional domestic demand arising from such additional incomes and from demand for new high technology products, rather than in subsidizing industries competing with imports from LDCs. 3. As part of such adjustment assistance, full employment, development of social services, and strengthened retraining facilities should be adopted by each MDC, ,preferably within an agreed set of international minimum standards. 4. MDCs should invoke local disruption

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clauses and other escape clauses under GSP or otherwise only on a temporary basis with phased reductions during the period of restriction, and should submit any such invocation to international adjudication. LDCs affected by restrictive measures under such clauses should receive compensatory trade concessions or else special adjustment assistance compensation in addition to normal aid. J. Law of- the sea The Law of the Sea Conference has increasingly tended toward deadlocked confrontation between rich and poor countries over a number of complex issues. Further, a number of results not optimal from an economic reform focuse.g., 200-mile ‘exclusive economic zones’ de facto allocating 90 per cent of sea and seabed resources to coastal states-appear necessary if any global treaty is to emerge.

Certain guidelines for attainable negotiating goals can, however, be identified: 1. A seabed authority with a structure and powers designed to harmonize environmental protection and sustainab!e economic use objectives; 2. Forms of resource exploitation agreement-whether by the Authority, joint ventures or licensing-which include environmental protection provisions, are consistent with equitable commodity price maintenance, and provide the highest attainable level of royalties or operating surpluses; 3. Allocation of the Authority’s net revenues as incremental aid to the poorest states and groups; 4. Specific fishery agreements negotiated by the Authority genuinely incorporating safeguards and-unlike the present marine mammal agreements-readily enforceable in support of conservation requirements.