Globalisation and the new trade order Guyana and the wider world Stabroek News November 26, 2000 So far we have spent a considerable time on foreign investment and the TNCs. This is justified because in this series these are considered to be most dominant manifestations of globalisation. For the next few weeks we shall turn our attention to international trade, focusing on the architecture in which our external trading relationships are developing. Guyana is a very open economy. Its openness index, or the ratio of imports plus exports to GDP is more than 100. This indicates how essential trade is to our existence as a people. Indeed this has been the case, from the very early days of the colonisation of Guyana and the Caribbean. There are two prominent features to the trade architecture within which our economy operates. In the coming weeks we shall organize our discussion around these two features. One of these is that at the international level, globalisation has been accompanied with the emergence of a new dominant paradigm of international trade. Increasingly all global trade is taking place within the framework of this paradigm. The second feature is that our external trade and business relations are exceedingly complex and tortuous for a small country. As we shall see these revolve around at least a dozen clusters of obligations and agreements. The old trade order What is this new paradigm of international trade that I refer to? To answer this one must be clear about the traditional paradigm that is giving way and which still dominates the external trade of Guyana and the Caribbean. Briefly stated, the traditional paradigm of international trade embodies five features. One is the explicit acceptance that non-reciprocity in trade relations between developed and developing countries is just and necessary. This is based on the view that the international economy is not a level playing field. Countries are unequal in their capacities and performances. As a group, developing economies are not in a position to offer the same trade concessions as developed countries are, and therefore obligations need not be reciprocal. Preferences Second, because non-reciprocity is recognized as a just and necessary feature of international trade, the provision of discriminatory and preferential treatment by developed countries for developing countries exports, is acceptable. This is expressed in the familiar form of quotas to protect market access, and higher than world market prices for these exports to compensate for systemic inefficiencies in developing countries. Aid Another important feature is that trade and official development assistance (aid) are treated as closely linked. Aid flows from rich to poor countries are deemed a necessary complement to quotas and preferences, in order to promote the development of poor countries. Integration This leads to the fourth feature, which is that developing countries are encouraged to form their own integration and cooperation arrangements. Like Caricom, such arrangements are constructed to be inward-focused, as they seek to allow members to benefit from the larger regional market and the pool of national resources within the integration scheme. For such arrangements, a common external tariff, common "incentives", pooled community investments and, import-substituting activity are the typical elements. FDI Finally, in the traditional paradigm, private foreign direct investment is encouraged to play a role through flows of capital into two principal sectors in developing countries. These are the export sector and the protected domestic/regional market. The new liberal trade order The newly emerging paradigm is almost the exact reverse of the traditional paradigm. To begin with, non-reciprocity is rejected in principle (except for the least developed countries, termed the LDCs). Full reciprocity is expected to govern all trade relations between countries. Discriminatory treatment and preferences have to be phased out, after a suitable transitional period. In the new trade order tariffs constitute price barriers to trade and therefore inhibit its growth. These must therefore be reduced and eventually removed. Non-tariff barriers, however, create administrative barriers to trade. These are insurmountable and are therefore, strictly prohibited. During the transitional period, non-tariff barriers are immediately converted into tariff barriers and then reduced over time. Regional integration schemes, where they exist must be "neutral" in their effect. That is they should not cause the diversion of trade from third countries to the countries forming the arrangement. In principle therefore, such schemes should promote competition between member countries and firms and must not operate as a collective protection and discrimination scheme against non-members. State-trading is treated as a non-market intrusion into world trade. Indeed world trade should be the exclusive preserve of private agents. The expectation therefore is that state-trading will end. Trade in goods and services With the changing patterns of global production and the rise to prominence of services, trade is treaded as both trade in goods and trade in services. Furthermore, all activities directly linked to trade should follow the same rules as trade. Such activities include intellectual property rights in traded goods and services. They also include the condition under which the goods and services that are traded are produced, for example, whether child labour or environmental obligations are met during their production. Investments linked to traded goods and services are also included. Trade rules To ensure that all this works smoothly in the global economy an organisation dedicated to the creation of global trade rules and their protection should be put in place. That organisation, as we shall see, is the World Trade Organisation (WTO). It not only makes the rules, but it also provides the means for interpreting the rules and imposing sanctions for their violation. As we shall see, this capacity to enforce sanctions for rules violations represents a quantum leap in the global regulation of international trade in goods and services. Follow the goings-on in Guyana in Guyana Today