UNCTAD suggests new technique to discipline global trade

Written by ASHOK B SHARMA | New Delhi, Sep 9 | Updated: Sep 10 2007, 04:18am hrs
UNCTAD has added a new dimension for disciplining multilateral trade by a new code of conduct to prevent manipulation of exchange rate, wage rate, taxes or subsidies.

It said that changes in the nominal exchange rate that deviate from fundamental (such as inflation differentials) affect global trade in exactly the same way as do changes in tariffs and export subsidies.

Consequently, such real exchange-rate changes have to be subject to multilateral oversight and negotiations. Reasons for the deviation from the fundamentals and the necessary size of the correction have to be identified by an international institution and enforced by a multilateral body, it said

In its Trade and Development Report-2007, UNCTAD further said that such rules could help protect all trading partners against unjustified overall losses or gains from competitiveness and developing countries could systematically avoid falling into trap of overvaluation that has been one of the major impediments to prosperity.

UNCTADs suggestion is relevant when negotiations on multilateral farm deal are already under way in Genava and the WTO has already initiated a formal investigation intoallegations by US and Mexico that China is unfairly subsidising exports tax breaks and other initiatives.

Indian exporters have also complained that artificial exchange rate in China has given an added advantage to that country.

The UNCTAD report has said that commodity exchanges in China and India are becoming major players in the global commodity trade.

Even though interest in commodities as financial asset remained strong in 2006, there are some indications of a possible change in the attitude of financial investors vis--vis commodities, reflected in the market correction of January 2007.

It further said that China would continue to play a key role in commodity markets, not only from the demand side but also from the supply side.

UNCTAD has suggested that developing countries should strengthen regional cooperation amongst themselves, but proceed carefully with regard to North-South bilateral preferential trade. It suggested that multilateral trade arrangement as a better option than FTAs and RTAs.

The report noted that South Asia Association for Regional Cooperation (SAARC) conceived in 1985 has not been followed up by fast growth in regional trade.

Trade flows may be driven not only by formal agreements, but also by de facto regional networks.