Outcomes

The Asia Dialogue is the second in a series of high- level regional policy-dialogues in Latin America, Asia, and Africa, that mobilized a select group of leaders from academia, business and industry, government and non-governmental organizations to strengthen policy coherence between SHD objectives and economic integration and trade liberalization paths. The recommendations of the group are provided as an input to the Preparatory Committee of the Whole for UNCTAD X and suggest ways in which the Conference could address the issue of promoting developing countries. interests and SHD objectives while assisting their integration into the world economy.

Diagnosis 

The nineties have seen intensification in the rapid insertion of most Asian domestic economies into the emerging global economy, characterized by liberalized trade in goods and services and highly mobile capital.  East Asian countries entered the decade with aggressive export-led growth strategies.  Other major regional players, namely, India and China, pursued over the nineties a rather different growth trail featuring gradual domestic market strengthening and export promotion strategies. As the decade ends, most countries in the region seem determined to thrive as they admirably bounce back from the massive financial withdraw of 1998. Real GDP growth rates range, eg., from 12.3% in the 3^rd quarter of 1999 for South Korea to 3.5% for Thailand in the 2^nd quarter; and the average annual inflation rate is running at less than 2% in the East-Asia four (Malaysia, Philippines, Korea and Thailand) and is in single digits in Indonesia after peaking at 80% at the end of 1998; industrial production growth is also strong. The regional picture for poverty, education, and health is one of stalled progress. According to recent estimates for the East Asia and Pacific region, excluding China, after reducing the number of people living on less than USD 1 a day from 417.5 m in 1987 to 265.1 m in 1996, the figure rose in 1998 to an estimated 278.3 m. In South Asia the figure has risen from 474.4 m in 1987 to an estimated 522.0 m in 1998.  Public expenditure on health and education as a percentage of GDP for 1994-5 and 1998-99 comparisons has dropped or remained constant in East Asia, with the exception of Thailand where education spending rose when the crisis hit. In this scenario, the over-riding compulsion to eradicate poverty, to confront the demographics of aging populations, and to provide social safety nets to secure sustained growth dynamics, are more pressing than ever.

East/South-East Asian economies have used opportunities offered by globalization and this process seems to have been facilitated by significant liberalization of trade policy regimes which started in the mid-1980s. However, participants at the Dialogue noted that this drive favoured the 'corporate. economy' formed by large-scale and established enterprises at the cost of the 'self-sustaining' economy -- small-scale producers or those engaged in direct extraction of natural resources -- owing to the greater responsiveness of the former to market-driven and regulatory measures.

It also transpired from the debate that changes in competition intensity and world trade patterns due to China's WTO accession would directly affect SHD in the region. Poverty, income distribution and other SHD variables would be negatively impacted in countries that lose domestic and international market share to China and other strong and growing economies in the region, as well as lose opportunities to receive capital, technology, management and technical know-how through diverted FDI. China's expected greater openness will also offer opportunities which need to be better explored.

Recommendations

The following are recommendations for developing countries. international and domestic strategies to achieve SHD objectives. They argue that international economic integration and trade liberalization reinforces the need for:  

·         Rationalizing policy interventions   by asking how a particular international trade or economic integration framework impinges on but can also promote sustainable development. Policy interventions in exporting sectors should distinguish among discreet policy goals . including poverty alleviation, income distribution, human development, and social capital. Also, the instruments used to achieve these goals should make clear reference to the type of occupation and to unregistered or officially unrecognized activities. It should be emphasized that interpreting SHD as an aggregation of goals is a problem that besets equally all attempts to optimally modify policy and market failures under globalization by any of the means usually proposed . direct controls and centralized decision-making at one extreme and pricing schemes, such as taxes and subsidies, at the other. Participants noted that, as it attempts to see globalization and SHD somehow as wholes that are greater than the sum of their parts, society may have a difficult task of choosing among a set, and, sometimes, a substantial set of otherwise discrete goals and associated policy interventions.  

·         Promoting gradual and assisted introduction of competition in developing country markets to protect the weakest by negotiating agreements to enhance the competitive edge of smaller producers who are threatened by international competition due to new global technologies and the process of international trade. Policy interventions should undertake analysis of governance structures to justify the application of particular policy instruments. For instance, trade-related incentives as used in domestic interventions may be presented as neutral economic or financial instruments, but in practice, they tend to favour the modern, large-scale sector (in the South as well as the North) which have preferential access to credit, technology and government resources. Those favoured belong to a . corporate. economy and the majority who are immediately excluded from the opportunities that such actions might create belong to a class of smaller producers. Commodity chain analysis can help to identify at each step of a production chain who is likely to benefit the most, who is likely to be hurt the most, and, if there is surplus revenue, how can it be used to bring about the desired industrial transition. Two key issues must be borne in mind. First, how to use the governing structure within each segment of the chain, and in particular how to ensure that the policy initiatives enable those who take such decisions to respond and implement them. Second, how to ensure that the result will be equitable and efficient; in other words, how to strengthen and transform governance structures towards this objective.  

·         Adjusting allocative priorities among economic sectors at the domestic level by changing policy frameworks and current expenditure commitments to promote social capital and higher labour productivity. Among others, export-led strategies must recognize that gains in per capita income are contingent upon investment in human development (health, nutrition and education, mainly) as well as productivity investments. In particular, investments in such areas as equipment and production methods, upgrading work conditions and skills, and removal of gender biases would strengthen the Asian countries. export prices and terms of trade. Whilst experience has shown that investments in health (biomedical technology, population and environmental policies) positively influence such principal areas of SHD as poverty eradication and advancement of employment and sustainable livelihoods, one of the merits of the Asia Dialogue was that it argued direct increased benefits to outward-orientation from investment in health.  To complement any structural advantages, including demographic ones from the contribution to productivity that comes from the population growth and age structure of an economy, Asian countries could affect technological change, terms of trade, increase savings, improve time preference rates and even bring about favourable adjustments to world interest rates through investment in the health of their populations. 

·         Enhancing governance on investment rules by promoting sectoral strategies that make effective use of the package of benefits offered by foreign direct investment (capital, technology, management, technical know how, etc.). These will need investing in social absorption capabilities of host countries (eg., availability of skilled labour, technological infrastructure, social capital) in order to enhance the contribution of SHD-friendly FDI, and social safety nets to keep financial spillovers in check. Recent studies undertaken for UNCTAD have demonstrated evidence that this ability or endogenous capability to assimilate and take advantage of technology inputs is created by good macro-economic policies, an adequate institutional setting, the availability of skilled human resources, and efficient management and organizational routines at the firm level. Participants recommended investments in particular in human resource training, technological infrastructure, and domestic measures, including approaches that use governance structures (see second recommendation above), to increase the competitiveness of local suppliers. The contribution of multinational corporations (MNCs) in this area also depends on MNC strategies, market orientation, structures, technological and environmental practices, etc. Participants recommended that strategies for obtaining 'desirable FDI' should involve government incentives as well as indigenous social capital (natural environment, cultural environment, social relations and civil society, etc.) and indigenous entrepreneurs in MNC-driven partnership and community development projects. Examples of the former include tax incentives from national governments or points of . merit. to be earned by companies (eg., points given by intergovernmental organizations). 

·         Promoting fair trade and sustainable development in GATT/WTO by overhauling Special and Differential Treatment (SDT) through a logical economic basis that recognizes hard linkages between trade and investment policies and the causes of poverty, natural resource use and broader factors of social welfare. Attempts to establish statistical causation between exports and growth have had mixed success, and there are strong arguments that rapid liberalization in developing countries helped by anachronistic SDT will not bring about SHD. For example, liberalization-induced specialization in a subset of product ranges may have a positive net effect on the environment/health if expanding sectors are less polluting on average than contracting import-competing sectors, and negative if the opposite relation holds. Also, as this . composition. effect will shift as comparative advantages in . dirty. production shift, it is by no means guaranteed that the next generation of higher-income or least-developed countries will benefit from structural changes that have helped countries contract polluting production. Similarly, in the present setting of new technology, new financial instruments, and multinational firm growth, it is trickier for governments to impose effective capital controls, harder to erect effective trade barriers, and more difficult to anticipate financial spillovers into the real economy via wages, food prices, interest rates for small businesses, etc. Moreover, as the financial crises in East Asia and Russia have shown, the benefits of globalization may be lost quickly, while the high stakes of commercial, political and legal, cross-cultural and currency/financial risks remain.  

·         Beyond GATT/WTO: controlling external shocks and poverty by providing the poor with insurance and credit against the irreversible effects that imperfect capital markets and lasting economic downturns can have on health, schooling and nutrition. Participants noted that while there is general agreement on national-level pre-emptive steps to moderate the impact of future crises under globalization, there is no consensus on international or regional level actions. At the regional level, participants highlighted the need for a lender of last resort, comprehensive global financial supervision and regulation, design of orderly debt renegotiations, and an Asian Fund. Financing commitments are also required for supply-side strengthening, diversification, export capacities, and human and technological capacities that would reduce impacts on poverty due to countries. reliance on primary commodity exports, their vulnerability to price variability in international markets, and variability in external finance.