Policy space emerges as a key issue for the post-2015 development agenda at UNCTAD's annual Trade and Development Board.
As the international community defines a new set of development goals, it is vital that countries have sufficient policy space to match the heightened ambitions of any new agenda, argued experts at UNCTAD's Trade and Development Board last week.
The annual session of the Trade and Development Board, UNCTAD's highest decision-making body, runs for two weeks every September. This year member States and experts from government, academia, multilateral organisations and civil society discussed trade and development policy challenges for a sustained recovery of the global economy. Policy space emerged as a key issue during the high level segment and throughout the meeting.
This year UNCTAD's flagship Trade and Development Report emphasizes the role that proactive trade and industrial policies can play in the post-2015 development agenda. However it warns that existing multilateral trade agreements restrict the use of some trade and industrial policies by developing countries. Bilateral and regional trade and investment agreements often go even further in restricting policy tools that have proved effective in supporting industrialization, and can trap economies in low-value production.
Speaking at the session on interdependence, Richard Kozul-Wright, Director of UNCTAD's Division on Globalisation and Development Strategies, pointed to four pillars of structural transformation for developing countries: active industrial policies; greater public investment in infrastructure and human capital; stable and long-term capital flows; and greater fiscal space to finance a more ambitious policy agenda.
A key part of an active industrial policy is to incentivise high rates of capital formation by reinvesting profits, he said. Countries that have moved up global value chains, notably Germany, Japan, Korea and China, did so by creating strong linkages between exports, profits, investment and domestic demand.
Rob Davies, South Africa's Minister for Trade and Industry, agreed that structural changes were central to tackling unemployment, poverty and inequality in South Africa. South Africa was trying to "win back policy space" by reviewing its bilateral investment treaties and had decided not to renew some of them when they expired, with the aim of renegotiating more balanced treaties. Africa as a whole needed an integrated development agenda in which a continental free trade agreement was complemented with infrastructure and industrial cooperation.
Professor Giovanni Cornia of the University of Florence said that countries in Latin America and South East Asia such as Brazil and Korea had successfully pursued a "hybrid model", which other developing countries could learn from. This involved maintaining the prudent budget and monetary policies required by the IMF, while making development-oriented structural changes, such as introducing progressive tax policies and tighter regulation of domestic banks, which promoted sustainable and inclusive growth.
Kinda Mohamedieh, Advisor at the Arab NGO Network for Development, expanded on the implications of international investment agreements for developing countries' policy space: "Through investor-state dispute settlement cases, states' regulatory efforts in areas of health, environment and climate change, public safety, water, labour rights, and agriculture… have been challenged."
Several member States, including Brazil, the Philippines and Tanzania, echoed concerns about the difficulty of industrialising within current policy constraints. Argentina noted that multilateral rules governing agriculture made it difficult for developing countries to progress from commodities to processed products. Egypt pointed out that global value chains were dominated by a handful of multinational companies, and along with greater policy space, greater accountability was needed from the private sector to ensure an equitable distribution of resources and to maximise the social dimensions of investment.
An immediate concern for many experts was that within existing constraints, both developed and developing countries found it difficult to pursue policies necessary to kick start a global economic recovery. The Trade and Development Report predicts only a modest improvement in growth: after expanding by around 2.3 per cent in 2012 and in 2013, world output growth is projected to rise to 2.5?3 per cent in 2014. According to the report, "Slow growth is the result of weak global demand," and called for demand-side policies including redistribution and wage growth.
Robert Wade, professor at the London School of Economics, said that UNCTAD had been a "solitary voice" warning against the risks of austerity measures, widening inequality and lack of policy space. Organisations dominated by developed countries were now adopting ideas suggested by UNCTAD. For example, the IMF was now arguing that developing countries should be given the policy space to impose capital controls in the interests of financial stability.
