What Impact Has Globalization Had on the Nation-State?

Spring, March 2006

What Impact Has Globalization Had on the Nation-State?

“A state can no more give up part of her sovereignty than a lady can give up part of her virtue”

– John Randolph-

Introduction

It is assumed that globalization is embedded in Neoliberal theory which builds on the conviction of classical liberalism that market forces will bring prosperity, liberty, democracy, and peace to the whole of humankind and advocate the removal of state controls on prices, wages, and foreign exchange rates.[1] Such activities have challenged the political structure such as who plays the key role thus they challenge both the sovereignty and autonomy of states: does it remain the only important actor or not? Globalization, they argue, depletes political authority from nation-states, the dominant figure of political organizations in world politics. Is it true?

In the heated debate surrounding globalization, its effects on nation-state are especially controversial. Some fear a more far-reaching erosion of the nation-state; some acknowledge it; while others refuse that it means the end of the nation-state. Overall, there are five theses that must be acknowledged in the contemporary debate over the impact of globalization on the nation-state: Hyperglobalist Thesis; Sceptical Thesis; Complex Globalization thesis; New Institutionalist thesis; and Ideational Globalization thesis. Each thesis views the issue from different perspectives and emphasizes it in different ways.

To tackling the question on globalization’s impact on the nation-state, this essay discusses three main parts: globalization in contemporary politics and its debate; the debate on globalization and the nation-state; and what impact globalization has had on the nation-state.

I. Globalization in Contemporary Politics and its Debate

Globalization covers an extensive range of aspects such as economic, politics, social and cultural. Scholte wrote that globalization is a distinctive and significant feature of recent world history.[2] The aspects in globalization, although being wide, both affect and are connected to each other. Thus, it is fair to say that, among other things, political globalization involves economic globalization as activities of both aspects are related and thus, to some extent, overlapped. Basically, politics and economics are inseparable within social relations whereas politics (the acquisition, distribution, and exercise of power) is in integral to economics (the production, exchange, and consumption of resources), and at the same time economics is integral to politics, helping to determine where power lies and how it is exercised.[3] Political Economy requires analysis of both views – political and economy – in which politics shapes the economy, and of the way in which the economy shapes politics.[4]

Economic globalization refers to what happens in the world in which the moving flows of goods, capital, labour, and information and technology seem to easily advance across national boundaries which rapidly expands the political and economic interdependence. In my opinion, political globalization is what happens in world politics as a result of the increasing economic activities within that of multiple processes. However, the linkage between economic globalization and erosion of the democratic nation-state is more political than economic in nature. Although, what seems somewhat less contentious is that the political processes, events and activities nowadays appear increasingly to have a global or international dimension.

Giddens mentioned that globalization generally includes four elements namely extensity, intensification, velocity and deepening impact.[5] Extensity refers to social, political and the economic activities stretching across national frontiers. This
is possible due to the greater rapidity ensued from the advance in technology and communication. The flow of ideas and goods over the globe leads to greater interdependence i.e. intensification. That means a local development can lead to an enormous global consequence. The talk of global politics is to acknowledge that political activity and the political process is ‘stretching’, ‘deepening’, and ‘broadening’ of the process itself. Related with this is such that developments at even the most local level can have global implications and vice versa. McGrew states that a broadening of political process refers to the growing array of issues which surface on the political agenda combined with the enormously diverse range of agencies or groups involved in political decision making processes at all levels from the local to the global. [6]

There are debates on how we see the contemporary world politics. The Hyperglobalist thesis, argues that the world we live in today is different from more than twenty years ago as it is now borderless in nature, particularly in economic terms. What we are witnessing is the cumulative effect of fundamental changes in the currents of economic activity around the globe.[7] National economies are included into one global economy, in which international financial markets and transnational companies dominate. In a borderless world, for example, companies can simply pick and choose where to invest since they are no longer constrained by geography.[8] Thus what happens is a real and profoundly transformative process[9] which will gradually expand further and eventually shape a more globalized world.

The Sceptical thesis criticizes this thesis by suggesting that contemporary world is not really different from before. Hirst and Thompson, argued that the world economy is actually less open and integrated than it was before the First World War,[10] and rather than a ‘globalized economy’, it is an ‘internationalized economy’.[11] Thus, they acknowledge that globalization is a myth; that it is not a ‘globalized’ world but an ‘internationalized’ one. It conceals the reality of an international economy segmented into three major regional blocs in which national governments remain very powerful.[12] They conceive it as one in which the principal entities are economies[13]. The flow of trade and investments are far from being global, and despite there is increasing activities of Multinational Companies (MNCs) across borders, most firms remain to operate from their distinctive home country.[14]

On the other hand, the Complex Globalization theorists, such as Held and Dicken, view the globalization as a process and do not deny the globalization itself. Dicken suggested that today, fewer activities are oriented towards local – or even national – markets, more and more have meaning only in regional or a global context.[15]. According to Held and McGrew, globalization refers to a shift or transformation in the scale of human organization that links distant communities and expands the reach of power relations across the world’s regions and continents.[16] They argue that the world is experiencing a transformation, although, differently to Hyperglobalist thesis, it is not only about economic, but also covers other aspects: politically, socially, and culturally.

The New Institutionalist Thesis, such as Hall and Soskice, see resolutions of coordination and governance problems as strongly related to national political economies. Thus, they view that what happens in contemporary world is relations of continuing and increasing divergence between market liberal and social democratic regimes. They contrast liberal market economies (LMEs) such as the US and UK, with coordinated market economies (CMEs) such as Germany and Scandinavia.[17] In the former, the firm coordinates its activities primarily via hierarchies and competitive market arrangement, while in the latter they depend more on non-market relationships for coordination and the development of key competencies.[18]

Another prominent thesis is the Ideational Globalization. Among them are Hay and Marsh, known as their idea of Demystifying Globalization. Interestingly, they suggest that despite looking at the material reality of globalization, we should look at the idea of it. The way we understand the world and our ideas about the world is what shapes our behaviour. Thus, the role of ideas is important in shaping the world today. For instance, the United States (U.S.) adopted the idea advocated by Neoliberal thinking that it favors the opening of foreign markets by political mean and state always seeks to maximize its interests in all issue-areas.[19] In the case of UNCTAD I, it had opposed the schemes proposed by the developing countries since they were not something that could maximize its interests when it came to free trade. This thesis sees the discursive construction of globalization as a crucial explanatory variable in explaining policy outcomes.[20]

In sum, I would state that the contemporary world politics is different from what it was like a century ago, but not in the way the Hyperglobalists see it. The increasing importance of environmental issues in International Relations proves that it is different. What happens in contemporary world politics today is both a part and outcomes of its process. The ‘stretching’, ‘deepening’, and ‘broadening’ within the process and activity in politics is affected, particularly, by economic activities although other activities, too, has affected. It is noted by the increasing of international organizations, NGOS, the mobility of MNCs across borders, international regional integrations, and international and regional trade activities alongside the trade institutions. Thus they have modified the structure of world politics. The reconfiguring shape of contemporary world politics has challenged and impacted the nation-state.

II. Globalization and the Nation-State: The Fundamental Debate

No concept is more central to political discourse and political analysis than that of the state.[21] For most of the 20th century, the nation-state, with clearly defined borders, has been the leading political object which is considered very important in world politics. But, perhaps, since the subsequent collapse of the Soviet Union, globalization of the world economy has made political borders less important. Strategic alliances that would have been impossible during the Cold War era have developed to allow more economic and cultural interaction.

(i) What is the Nation-State?

It is important to explain a simple definition of what the term nation-state means. We all know that the nation-state is generally defined as a country by which it is ruled under one government. Specifically, the nation state is constituted by the government assuming a legal and moral right to exercise sole jurisdiction, supported by force in the last resort, over a particular territory and its citizens. This involves institutions for managing domestic and foreign affairs.[22] Some also refer the nation-state as a modern-state as it’s defined in Elmer Social Science Dictionary that nation-state is Modern state in which a government has sovereign power within a defined territorial area, and the mass of the population are citizens[23].

In addition, ‘Sovereignty’ in it modern form is a highly distinctive political claim which is to exclusive control of a definite territory[24] – within which the territory includes control over political and economic activities within their border – and the claim to sovereignty is the entitlement to rule over a bounded territory from state autonomy – the actual power the nation states possesses to articulate and achieve policy goals independently.[25]

(ii). How is the debate surrounding the globalization and the nation-state?

The issue of the role of nation-state in an era of globalization is highly crucial. Perhaps the most meaningful explanation of these diverging interpretations of what globalization is and how it should be defined is the result of the varying theoretical stances of academics on how best to conceptualize a nation-state. Questioning the impact of globalization on nation-state means that we have to bring up the debate surrounding the issue. Suggestions from each thesis are diverse. It is interesting to contrasting each thesis one to another.

Hyperglobalists view globalization as something that is a real force, aiming to produce a global social culture, sipping coke, watching Disney, wearing GAP, waiting at McDonalds, and a single global economy. Thus, they ensure that the effects of globalization reach the remotest societies and in its progress diminish the constraints inflicted by nation-states. They view this as a good thing, where possibilities and opportunities arise enabling societies to be 'enriched' by the phenomena of globalization. Furthermore, Ohmae believes that global market has made the undermining of nation states’ role in world economy. He assumes: in today’s more competitive world, nation states no longer posses the seemingly bottomless well of resources from which people used to draw with impunity to fund their ambitions; and further questions: Are these nation states – not withstanding the obvious and important role they play in world affairs – really the primary actors in today’s global economy?”[26] He suggests that one way to answer this question is to observe the flows of what he calls the four “Is” [27] that define it.

In contrast, Hirst and Thompson argued that “whereas tendencies towards internationalization can be accommodated within a modified view of the world economic system, that still gives the major role to national-level policies and economic actors; when firms, governments and international agencies are being forced to behave differently, but in the main they can use existing institutions and practices to do so.”[28] They choose to define economic globalization as internationalized economy, within which nation states are still the central actor, thus they take such an important account in the process.

Complex globalization theorists, Dicken assumes that in politics, “The position of the state is being redefined in the context of a polymeycentric political-economic system in which national boundaries are more permeable than the past.[29] Held et al suggest that, in fact, the nation-state remains an important actor in global political economy. Its role is, indeed, experiencing a reconfiguration. They are in the same opinion with scepticsts on the argument: while nation-state’s government is not the passive victims of internationalization but, on the contrary, its primary architects.[30] At the core of this thesis is a belief that contemporary globalization is reconstituting or‘re-engineering’ the power, functions and authority of national governments.[31]

Institutionalists note the proliferation of private and often oligopolistic networks of trans-governmental and non-governmental organizations, and the issues which they both address, and fail to address. They argue that globalization, rather than obstructs the nation-state, it may actually provide to enable it. They state that nation-state indeed may undergo common pressures, yet the existence of domestic institutions can obstruct or enable states in facing the pressures of globalization.

Hay, while approving the sceptics that there is no enough evidence that the world is globalized, suggests that globalization may play a powerful role in ideational terms, and might weaken the nation-state. Globalization may be something of a self-fulfilling prophecy in a way if policy-makers believe in globalization thus it may shape their approach whether or not globalization exists. This thesis emphasizes the demystifying globalization in a way what globalization had had impact on the nation-state depends on the way nation-state sees the globalization itself. The idea shapes the way nation-state respond and its decision-making process. So, basically, it is about an ideational term.

III. What Impact Has Globalization Had on the Nation-State?

Having discussed the debate above, I choose not to take side on any thesis. However, I would identify on some of their points where, to some extent, I agree or not agree to each of them. On the way I see the contemporary world politics, I tend to agree with the complex globalization thesis that the world has transformed, and globalization is happening. Activities in globalization, indeed, have influenced the structure of world politics. Yet, I would stress that the economic ones is particularly prominent and related to the transformation of it.

My answer to the essay’s question is that, opposite to that of Ohmae, globalization does not necessarily mean the end of the nation-state. Globalization has had impact on nation-state causing it to adapt to the process in world politics, but at the same time, national interests remain on top of its priority. What actually happens is that the nation-state remains powerful actors in the global system, yet it shares the arena with other actors such as agencies and organizations. Such actors are non-state actors: MNCs, transnational pressure groups also participate in global politics. Thus, the nation-state maintains considerable discretion in how they respond to international markets. Rather than strong convergence toward a Neoliberal ideal, they predict continuing, and perhaps increasing, diversity of state institutions and policy in the global economy.[32]

To explain my answer, I would emphasize it on three debated issues in globalization: the growing international movement of MNCs; the emerging regional integration, and the tendency of international trading regime.

The increasing process in economics globalization is assumed by Hyperglobalists as something that undermines the role of nation states thus it will finish the nation-state. According to Ohame, the strategies of MNCs are no longer shaped and conditioned by reasons of state. The mobility of MNCs across borders has had impact to economic activity in the contemporary world and is considered to influence nation states’ economic and political policies as well as the society.

In that case, I would suggest that although MNCs are the new important actor in world politics; it does not undermine the role of nation state. As an actor which has made globalization to happen, nation states have formed the regulation to maintain it. Holton argues that nation-state can not be regarded as being in decline or overrun by globalization and this is in large measure because global capital is mostly not of an anarchic variety and still requires state functions to be performed;[33] thus, we must acknowledge that some nation-states are home base for MNCs. Hirst and Thompson also argue that the MNCs are subject to the national regulation of and are effectively policed by the home country.[34] While shareholdings in various MNCs may happen to be transnational, yet they headquarters place within a single nation. Some amount of their profit are feasibly expected to be sent back to the state of the company origin., and they also hold yearly shareholders’ meetings in that nation as well as develop close relations with the nation state’s government in which they are domiciled. They depend on state structures to guarantee stable property rights or at least predictability in determining the rules of the game under which they operate.[35] To conclude, Hirst and Thompson stated that “International business are still largely confined to their home territory in terms of their overall activity”.[36]

Furthermore, it is quite clear to see that current trends suggest that countries are not just out to obtain free trade but also regional trade treaties with the idea of globalization still being a figurehead as an economic and political goal. Despite this, regionalism is also kept on a high agenda with the European Union (EU), the North American Free Trade Agreement and the African Union being examples of regionalism.

Since the Second World War, global politics have witnessed the emergence of a new political phenomenon that is the cooperation and integration of states on regional scale. The prime example among these regional groupings is the European Union (EU). In the EU, supranational institutions and national governments share political authority, and where market forces play an important role in the setting of standards and regulations. In term of regional organization, the EU is often referred as a perfect example for this. It has achieved substantial progresses towards with a single market and a single currency creating less trade barriers and a competitive business and market environment. Externally, economic integration has led to a common trade policy that has made the EU a key player in international negotiation.[37] This is true. However, the EU has not been succeeded in its political integration in which member states are still put their national interests above others. This means that political integration has somewhat lagged behind, and efforts at creating a common foreign and security policy have tended to promise more than they were able to deliver. For instance, in term of Common Foreign Policy, there are differences among member states’ foreign policy towards U.S.’ current invasion to Iraq. Britain as a member of the EU supported US by joining as the alliance of US in this invasion and sending its military forces to be part of the US alliance troops. Another example is that Britain remains undecided towards the single currency of EU. If we look back, the basic motivation regarding why Britain joined the European Community (EC) – which now has formed to be the EU – is based on its national interests, which if Britain did not join the EC, then it would be left out in its own region in term of economic affairs.[38] And also, its ‘so-called special relationship’ with US put Britain under pressure since the former US President, Kennedy, personally stressed that it would prefer to choose the EC over Britain if Britain would not want to join.

The tendency of international trading regime as an impart dimension of globalization is the establishment of worldwide regimes to foster rule-governed within the international system.[39] The current international economy is relatively open and has more and institutionalizes free trade through the World Trade Organization (WTO) that was formed to liberalize the world market. It is argued that free trade and globalization are rhetorical devices covering the international shift from nation-states to transnational corporations: a significant and fundamental change in international relations. However, we must note that WTO is a member-driven organization where all regulations are formulated by member states. Principally, nation-states bring their main concerns and area of its interests of its national interests to the meeting to be negotiated. Resolutions achieved in the meetings have to be implemented by all members. Unfortunately, WTO has been dominated by developed countries that always seek to maximize their interests yet they also try to maintain and protect their national interests by avoiding to negotiating unbeneficial issues for them. The voice of the LDCs is often ignored. This situation has led to what happened at the Cancun Ministerial meeting where the LDCs united together responding the force by developed countries into acquiescing with an agreement with thich most of them profoundly disagreed.

Accordingly, what really happens to nation-states in contemporary world politics today is about the power structure: the divide of North-South relations. The North, being the rich ones, has the power to dominate the world politics and world markets; and, to some extent, control it. The South, being the poor ones, has struggled to manage to overcome their problems while also strives to compete with other countries in an era where international market economy is more open and borderless. Strange assumes that what decides the nature of wealth, order, justice, and freedom is, fundamentally, a question of power. It is power that determines the relationship between authority and market thus markets can not play a dominant role in the way in which a political economy functions unless allowed to do so by whoever wields power and possesses authority.[40] This suggestion may explain why the LDCs formed a coalition in the WTO. They have sought to gain more power in voicing their interests. Such disparities between North-South have long been brought up in International Relations when the South had started their movement to create UNCTAD, especially dedicated to their economic development needs.

Conclusion

Globalization has reconfigured the world politics and its impact on nation-state has been questioned. One of the key issues in the implementation of global regulatory arrangements is the role of nation states in general and in particular the influence of the powerful nation states. Their role may be reconfigured in facing other important actors to be considered, yet it remains to have such significant roles in governing the contemporary world economy. However, the nation-state remains effective and necessary players in the global politics although globalization requires nation-state to adapt to the new environment if they are to succeed in meeting the demand of their constituents. What happens to nation-state in the contemporary politics is about power structure in which it is divided between North and South which has been the most-debated issues in International Relations.

BIBLIOGRAPHY

Books and Working Papers:

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Bhagwati, J. (2004) In Defense of Globalization. New York: Oxford University Press.

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Held, D. and McGrew, A. (2002) Globalization / Anti-Globalization. Cambridge: Polity.

Hirst, P. and Thompson, G. (1999) Globalization in Question. Cambridge: Polity.

Holton, R. J. (1998) Globalization and the Nation-State. New York: Palgrave.

Jawara, Fatoumata, and Kwa, Aileen (2004) Behind the Scenes at the WTO: the real world of international trade negotiations/ lessons of Cancun-updated edition. London: Zed Books Ltd.

Kahler, Miles and David A. Lake (eds) (2003) Governance in A Global Economy: Political Authority in Transition. Princeton: Princeton University Press.

Lamy, Stephen L. (2005) “Contemporary Mainstream Approaches: Neo-Realism and Neo-liberalism”, in John Baylis and Steve Smith (eds), The Globalization of World Politics: An Introduction to International Relations. New York: Oxford University Press.

Little, Richard (2005) “International Regimes”, in John Baylis and Steve Smith (eds), The Globalization of World Politics: An Introduction to International Relations. New York: Oxford University Press.

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Hay, Colin. and Marsh D. (Eds) (2000/1), Demystifying Globalization. London: Palgrave.

Marsh, David, Nicola J. Smith, and Nicola Hothi (2005) “Globalization and the State”, in Colin Hay, Michael Lister, and David Marsh, The State: Theories and Issues. Basingstoke: Palgrave Macmillan.

McGrew, A. (2005) “Globalization and Global Politics”, in J. Baylis and S. Smith (eds), The Globalization of World Politics: An Introduction to International Relations. Oxford: Oxford University Press.

McGrew, A. (1992) “Conceptualizing Global Politics”, in Anthony McGrew and Paul G. Lewis, et al, Global Politics. Oxford: Polity Press.

Ohmae, K. (1996) The End of The Nation State. London: HarperCollins.

Smith, N. J. (2005) Showcasing Globalisation?: The Political Economy of the Irish Republic. Manchester: Manchester University Press.

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Balakrishnan, C., “Impact of Globalisation on Developing Countries and India”, http://economics.about.com/od/globalizationtrade/l/aaglobalization.htm

Bosrock, R. M., “As Political Borders Fade, Cultural Differences Re-emerge”, http://www.globalpolicy.org/globaliz/cultural/cultur1.htm

Burke, Anthony (undated) The Perverse Perseverance of Sovereignty, Borderlands e-journal, can be found at:

http://www.borderlandsejournal.adelaide.edu.au/vol1no2_2002/burke_perverse.html

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Globalization Guide, can be found at: http://www.globalisationguide.org/01.html

Guibernau, M., “Globalization, Cosmopolitanism, and Democracy: An Interview”, can be found at: http://www.polity.co.uk/global/held.htm

Held, David and Anthony McGrew, Globalization. Entry for Oxford Companion to Politics, can be found at: http://www.polity.co.uk/global/globocp.htm

Higgott, Richard A. (Undated) Globalization: The Benefits and the Threats, can be found at:

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Maiti, Prasenjit ‘Humpty Dumpty Had A Great Fall’: Would Globalization Impact On States Dissolution?, Globalization 2001, ISSN: 1935-9794, can be found at: http://globalization.icaap.org/content/v1.1/prasenjitmaiti.html

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[1] J.A. Scholte, J. A. (2000) Globalization: A Critical Introduction, (London: Macmillan, 2000), p. 34.

[2] Ibid, p. 3.

[3] Jan Aart Scholte, “Global Trade and Finance”, in John Baylis and Steve Smith (eds), The Globalization of World Politics: An Introduction to International Relations (New York: Oxford University Press, 2005), p. 600.

[4] Stephen Gill and David Law, The Global Political Economy: Perspectives, Problems, and Policies, (Baltimore: The John Hopkins University Press, 1988), p. xviii.

[5] A. Giddens (ed.), Sociology: Introductory Reading, (Oxford: Polity, 2001).

[6] Anthony McGrew, “Conceptualizing Global Politics”, in Anthony G. McGrew and Paul G. Lewis, et al, Global Politics, (Oxford: Polity Press, 1992), p. 3.

[7] Kenichi Ohmae, The End of The Nation State, (London: HarperCollins Publishers, 1996), p. 9.

[8] David Marsh, Nicola J. Smith, Nicola Hothi, “Globalization and the State”, in Colin Hay, Michael Lister, and David Marsh, The State: Theories and Issues, (Basingstoke: Palgrave, 2005), p. 173.

[9] Nicola Jo-Ann Smith, Showcasing Globalisation?: The Political Economy of the Irish Republic, (Manchester: Manchester University Press, 2005), p.13.

[10] Marsh, Smith, and Hothi, in Colin Hay, et al, p. 173.

[11] Paul Hirst, Grahame Thompson, Globalization in Question, (Cambridge: Polity Press, 1999), chapter 1.

[12] Held and McGrew, et al, Global Transformations: Politics, Economics, and Culture (Cambridge: Polity Press, 1999), p. 2. See also: Hirst and Thompson, ch.1; Ohmae, introduction and ch. 1.

[13] Hirst and Thompson, p. 8.

[14] See for instance: Ibid, chapter 3.

[15] Peter Dicken, Global Shift: Reshaping the Global Economic Map in the 21^st Century, (London: Sage Publications Ltd, 2003), p. 9.

[16] David Held and Anthony Mcgrew, Globalization / Anti-Globalization (Cambridge: Polity Press, 2002), p. 1.

[17] J. Brocker, et al, Innovation Clusters and Interregional Competition, (Springer-Verlag Berlin and Heidelberg GmbH & Co. K, 2003), p. 276.

[18] P.A. Hall and D. Soskice, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, (Oxford: Oxford University Press, 2001), p. 8

[19] Steven L. Lamy, “Contemporary Mainstream Approaches: Neo-Realism and Neo-liberalism”, in John Baylis and Steve Smith (eds), The Globalization of World Politics: An Introduction to International Relations (New York: Oxford University Press, 2005), p. 213.

[20] Marsh, Smith, and Hothi, in Colin Hay, et al, p. 177.

[21] Colin Hay and Michael Lister, ‘Introduction’, in Ibid, p. 1.

[22] Robin Cohen, Paul Kennedy, Global Sociology, (Palgrave, 2002), p. 78.

[23] Elmer Social Science Dictionary, http://www.elissetche.org/dico/index.htm

[24] Hirst and Thompson, p. 256.

[25] Held and McGrew, et al, p. 29

[26] Ohmae, p. 2.

[27] See Appendix 1.

[28] Hirst and Thompson, p. 1.

[29] Dicken, p. 122.

[30] Held and McGrew, et al, p. 6; See also Hirst and Thompson, p. 270

[31] Ibid. p. 8.

[32] Miles Kahler and David A. Lake (eds), Governance in A Global Economy: Political Authority in Transition, (Princeton: Princeton University Press, 2003), p. 414.

[33] Holton, p. 155.

[34] Hirst and Thompson, p. 9.

[35] Holton, p. 83.

[36] Hirst and Thompson, p. 96

[37] Thomas Christiansen, “European Integration and Regional Cooperation”, in Baylis and Smith, p. 595.

[38] Colin Pilkington, Britain in the European Union today, (Manchester: Manchester University Press, 2001), chapter 1.

[39] Richard Little, “International Regimes”, in John Baylis and Steve Smith (eds), The Globalization of World Politics: An Introduction to International Relations (New York: Oxford University Press, 2005), p. 370.

[40] Susan Strange, States and Markets, (London: Pinter, 1994), p. 23.

Consistency VS Rigidity in Unity at UNCTAD I: An Assessment of the Diplomatic Process during the Negotiations

Consistency VS Rigidity in Unity

at UNCTAD I:[1]

An Assessment of the Diplomatic Process during the Negotiations

"There is only one movement in life, the outer and the inner; this movement is indivisible, though it is divided. Being divided, most follow the outer movement of knowledge, ideas, beliefs, authority, security, prosperity and so on. In reaction to this, one follows the so-called inner life, with its visions, aspirations, secrecies, conflicts, despairs. As this movement is a reaction, it is in conflict with the outer. So there is contradiction, with its aches, anxieties and escapes. Out of this movement there is a generosity and compassion which is not the outcome of reason and purposeful self-denial." –Jiddu Krishnamurti-

I. Introduction

In the early 1960s, the growing concerns about the place of developing countries in international trade and their dissatisfactions with the existing international institutions encouraged many of these countries to call for the convening of a Conference specifically dedicated to tackling these problems and identifying appropriate international actions. Their movement represented an overwhelming majority of mankind which was struggling to eliminate the inequalities between the developed and developing countries. After a long road, the movement finally achieved the formation of the first Conference of United Nations Conference on Trade of Development (UNCTAD).

The negotiating environment at UNCTAD I was quite controversial in the eye of public as many perceived it as a ‘North-South Confrontation’.[2] The United States (U.S.) position in the Conference was strongly criticized by public. It came with little to offer, little was that it offered. Developing countries were united in the Group of 77 (G-77) which came into being at the first Conference They came in unity of a bloc readily ‘prepared’ to negotiate. Altogether, these countries established the group to voice their concerns.[3]

The negotiations at the first Conference reflected the North-South multilateral development diplomacy. This essay attempts to assess and analyze the diplomatic process during the negotiations. The content of the essay covers four main parts: the origin and background of the UNCTAD I including issues raised; the key actors, their interests and ideologies, and conflicting interests; the power structures and market structures; the constraints obstructing the negotiations and the negotiating situation with each player’s tactics and positions.

II. UNCTAD I: Origin, Background, and Issues

UNCTAD is a unique agency in which Governments can concert their policies and reconcile their different interests for the greater good of the international economic community and to meet the exigencies of development.[4] It was established as a result of the need to improve the development in the Third World. It gained authoritative standing as an intergovernmental forum for North-south dialogue and negotiations on issues of interest to developing countries, including debates on the New International Economic Order. Its establishment in 1964 marked the confluence of two streams of international concern and diplomatic interaction: the growing awareness of the trade world of the broadening gap in living standards between rich and poor nations and increasing claims to international economic cooperation voiced by the nations of the Third World.[5]

The first Conference contributed to the recognition of the movement of developing countries in addressing their needs to achieve a better economic development which had been through a long process. There were factors behind the movement that featured the idea of the Conference. The main ones were North-South dialogue; unevenness approach toward the developing countries in the General Agreement on Tariffs and Trade (GATT);[6] and poor economic performance of the Least-Developed Countries (LDCs).

The North-South dialogue had begun in 1946 when LDCs argued their need for increased aid. They voted to allocate the funds from the annual budget of the United Nations (UN) to provide technical assistance for them. The discussions and negotiations in the UN on North-South issues continued during the 1950s when LDCs started to focus on creation an alternative institution namely Special UN Fund for Economic Development (SUNFED). They pushed developed countries by stating, no matter what, that they would vote to create SUNFED – ignoring the opposition of Western developed countries. The U.S. responded by offering an alternative UN program to replace SUNFED because it feared being outvoted and left out. This offer, passed by the General Assembly of the UN, did not last long. LDCs later revived their pressures over their need of the increasing prominence of trade and development in the UN which resulted in an LDC-supported proposal to convene the first UNCTAD.

From the very beginning, UNCTAD’s basic philosophy, in its political and ethical content, has been one of compromise and cooperation, not one of confrontation and conflict[7] – to promote economic development and trade through international cooperation. However, the 1964 conference was regarded as the first and foremost confrontation between developed and developing countries. It was dictated by the manner in which the Conference came about and by the atmosphere that characterized its travaux preparatoires.[8]

The main issues raised at UNCTAD I were outlined by its first Secretary-General, Raul Prebisch in his report “Towards A New Trade Policy for Development”.[9] There were five committees of the whole to deal with each issue. Those issues[10] are as follows:

1. Considering measures for stabilizing commodity prices at fair and remunerative levels – establishing and maintaining uniformity between prices of primary products and manufactures goods. This proposal supplemented with one calling for a compensatory financing scheme to provide resource flows to offset sudden decreases in LDCs foreign exchange earnings. This issue was tackled by the Committee on International Commodities Problems;

2. The preferential access to developed country markets for semi-manufactures and manufactures from LDCs – the newest and most controversial issue which was discussed and negotiated by the Committee on Trade in Manufactures and Semi-manufactures;

3. The costs of invisibles to LDCs. The committee focusing on invisibles was to consider ways to reduce charges to LDCs for shipping, insurance, and debt servicing;

4. Institutional arrangement, specifically the establishment of continuing machinery to focus on trade and development issues in the future;

5. Issues associated with regional economic arrangements among LDCs to promote international trade.

III. The U.S. and the Developing Countries: Different Ideologies and Interests Causing Conflicts

The key players in the first Conference were the U.S. and the developing countries – in the form of G-77. The U.S. was the most outspoken opponent in this case, while the LDCs were the unitary players who initiated and demanded the Conference alongside the proposals within.

An ideology reflected by the developing countries in the case of UNCTAD I would be the Dependency Theory[11] advocated by Prebisch as a result of a persistent trend faced in external disparity by developing countries associated with the process of development. This imbalance was mainly a manifestation of the disparity between the rate of growth of their primary exports and of their import of manufactured goods. Thus, the theory was viewed as a possible way of explaining the persistent poverty and the tendency of the terms of trade of developing countries to deteriorate over time relative to developed countries.

Prebisch's solution, which had influenced LDCs’ government policies, was that LDCs should have to reduce their reliance on primary product exports and embark on programs of import substitution so that they did not need to purchase the manufactured products from developed countries[12] if they were to realize the benefits of growth. LDCs would still sell their primary products on the world market, but their foreign exchange reserves would not be used to purchase their manufactures from abroad, and employed to protect infant industries[13] in developing countries. Many LDC governments at that time adopted policies of Import-Substitution Industrialization (ISI)[14] as a first move of their development.

To achieving these policies, LDCs demanded the establishment of international commodity agreement as their initial interest, the very idea which was vociferously opposed by the U.S. Its opposition remained until the early of 1960s when President Kennedy declared that it was willing to progress on agreements stabilizing the prices of other commodities. The political motive behind the U.S.’s softened manner was based in its concern about the presence of Fidel Castro in Cuba and the likely expansion of Cold War competition to Latin America. However, the U.S. remained indifferent about commodity agreements and strongly opposed such agreements if their objective was to raise prices above world market equilibrium levels.

Another prominent LDCs interest was the expansion of LDCs’ exports to developed countries since their pressures for increased foreign aid was not likely to achieve; and opportunities for ISI in many LDCs had already been unsuccessful because of the ineffectiveness of infant industry argument and the small scope of markets of a number of LDCs. Besides, an attempt to expand their markets through economic integration schemes was not a real success. Hence, their need to create a new international trade organization focused specifically on their concerns was increasing. The issue of better access to developed country markets had become one of favored access to those markets for LDC exports.

All these issues, which constituted main issues raised at UNCTAD I, reflected another ideology: Positive Discrimination. Basically, it was an appeal by developing countries addressed to developed countries to be positively discriminated in terms of trade and development in order to benefit the former who had no obligation to give equal reimbursement to the latter. Related to this ideology was, for instance, the issue of preferential access to developed country markets for LDCs to which the U.S. was frankly opposed. The reason for such positive discrimination was that, development was a common problem; therefore, the solution was the responsibility of the international community as a whole. For example, the appeal in the North-South dialogue on development issues in which the LDCs made proposals to developed country on a range of issues intended to promote the economic development of LDCs and employed whatever pressures they could in multilateral forums to attain developed country support for their proposals. Although the proposals were statements of broad principles, it generally indicated action by developed countries to provide benefits – mostly in term of trade and aid to LDCs. But, LDCs would not be obligated to provide reciprocal benefits to developed countries. Another example is the in the General Principle Eight of UNCTAD which recommended that developed countries should accord preferential concessions in favour of developing countries without requiring any concessions in return from developing countries.[15] Consequently, the U.S. voted against this Principle.

From my perspective, the U.S. position at UNCTAD I reflected the ideology of Neoliberalism. The United States, as the world’s largest trader at that time – and it is now – had a critical role in the international economic system.[16] The assumption that individual freedoms are guaranteed by freedom of the market and of trade is a fundamental characteristic of Neoliberal thinking.[17] The idea of freedom has played a conspicuous role in the US in recent years.[18] As a result, U.S. trade policy toward developing countries was to promote reliance on free markets in both developed and developing countries[19] as it has been the country who takes the lead in promoting a free market economy with the aim to achieve a more liberalized international market economy. To build the post-war order, the US sponsored a network of multilateral institutions committed to liberalizing trade and long term capital flows[20] - among these are IMF and GATT. Fundamentally, the basic US policy was to foster greater openness in trade and capital flows at the broadest levels.[21] Hence, long before the establishment of UNCTAD, the US had been the most outspoken opponent of international commodity agreements if their objective was to increase prices above world market equilibrium levels.

The core assumption of Neo-liberalism is that state always seeks to maximize its interests in all issue-areas.[22] The schemes proposed by the developing countries at UNCTAD I were not something that could maximize U.S. interests when it came to free trade. As Neoliberalists, presuming that a state is less concerned with gains or advantages achieved by other states in cooperative arrangements,[23] the U.S. sought to maximize its absolute gains through cooperation and was indifferent to the gains achieved by LDCs. Thus, it approached the negotiations at UNCTAD I with an aim to oppose any offer that would not benefit itself.

In foreign policy, the basic feature of Neoliberal thinking favors the opening of foreign markets by political means, using economic pressure, diplomacy, and or military intervention, individual freedoms are guaranteed by freedom of the market and of trade.[24] Such thinking has long been dominated the US stance towards the rest of the world. To promoting free trade, the U.S. compromises would be fully reciprocated by the opening of foreign markets. Its role is to create and preserve an institutional framework appropriate to such practices.[25]

The ideologies and interests of both key players in UNCTAD I were opposite to each other therefore causing conflicting interests. Such conflict affected the negotiation process at the Conference. What had been the conflicting interest in this case was basically the fact that the LDCs had been suffering the economic decline, thus they needed to achieve all those issues to improve their economic development. Unfortunately, the United States was never receptive to having the UNCTAD or some other forums acceptable to the developing countries supplant GATT.[26]

The new approach to international commodity adopted at UNCTAD I was generally opposed by many developed market-economy countries based on the laissez-faire philosophy of the Havana Charter, which argued that any regulation of the free play market forces would inevitably lead to a misallocation of resources and eventual economic catastrophe.[27] By the time of the Conference, trade and development issues were not major international economic issues for the US as its interest was focused on the Kennedy Round regarding tariff negotiations within the GATT. The U.S. believed that the demands of the LDCs were unbalanced and unrealistic, while the LDCs viewed the stand taken by the developed countries as niggardly and overcautious.[28]

III. Power Structures and Market Structures

The power structure in global politics around the time of the first Conference was divided into two blocs that was the competition between the two major ‘superpower’[29] of East and West: the Soviet Union and the United Sates – namely the Cold War. Such intense competition between them affected the negotiation process.

This essay also highlights the importance of power structure in the multilateral development diplomacy at UNCTAD I where the position of a group is presented by a spokesman or coordinator who presents the views of the States members of the group. At the Conference, developing countries united in a form of a “bloc” namely the G-77 – composed of African, Asian, and Latin American states – against the US. The G-77 was the first coalition of the world’s developing countries; banding together, forging common positions and proposals and seeking to apply concerted leverage, so as to increase their bargaining power in the negotiations vis-à-vis the developed countries.[30] The group of the Western countries, also referred to as the developed-market economy countries, was dominated by the United States. Another group was the Eastern European States, also referred to as the socialist countries of Eastern Europe. However, the distribution of power that dominated the Conference was characterized by an opposition between the Gr-77 and the United States – the most forceful country to oppose the former. The U.S. could not ignore the force of other actors within the United Nations when they united together despite being formed of developing countries.

The market structure in the years of the establishment of UNCTAD I is best described as a free market economy. The conventional perception about international trade then was grounded in Neo-classical Political Economy. Classical economic theory holds that free trade is the surest way to make an economy grow, but that says nothing about who benefits from the growth. It asserted that spontaneous forces were always tending towards a benevolent equilibrium, and that any motion a self-correcting process of adjustment.[31] In addition, full employment, economic growth and the optimal use of resources were assured. In reality, the rules and principles on which the post-war international economic institutions were founded and functioned assumed that the expansion of trade to the mutual benefit of all merely required the removal of obstacles to the free play of market forces in the world economy.[32]

The power of initiative and change rested with the developed countries at the centre of the world economy, while the LDCs at the periphery merely responded passively to the motivation generated at the centre. The hegemony of the centre was manifested both in the composition of its trade with the LDCs and in the terms on which that trade took place.[33] Structural inflexibility in the composition of trade between the developed countries and the LDCs had major implications for the growth and the terms of trade in developing countries – which led to the Dependency Theory argued by Prebisch.

IV. The Negotiating Environment and the Constraints:

Consistency VS Rigidity in Unity

The negotiations at UNCTAD I were a type of developmental diplomacy which refers to the processes whereby developing countries attempt to negotiate improvements in their position in the and largely takes the form of bargaining with the developed countries.[34] The diplomatic scenario of the confrontation at UNCTAD I was rather simple and straightforward. Some of the most vital decisions of the Conference were the result of informal negotiations among the three groups – either avoiding the vote or following one,[35] which were presented in a joint resolution by LDCs to elaborate a unified position in the Conference.

(i) Constraints Obstructing the Negotiations

Negotiating international trade agreements has become a full-time job for developing countries who often negotiate in a group or regional groups where they make up the majority of members.[36] The unity of the group was an important aspect for the negotiations. There were variable aspects of the negotiation process that affected the outcome and were considered as constraints obstructing the negotiations. Altogether those variables shaped the process and in turns it outcome. The first constraint is the wide disparities – economic, political, social, and cultural – within LDCs which obviously existed among most of the member countries of G-77 that attended the first Conference.

In their effort to prepare themselves on the issues, and to manage their negotiating positions and strategies prior to the conference, they had met regionally to produce common positions. It was difficult to shaping a common position among them with such diversities of economic needs, goals, and conditions since every country had to have something to gain which was not equally the same. For example, the issues of foreign aid and commodity stabilization was important for the poorer country, while the most prominent issue for the more advanced ones was of trade preferences.

The unity among the G-77 particularly on the issue of preferences was fragile since the countries that had already enjoyed the preferential access to developed country markets were unwilling to give it up. These countries were a group consisting mainly of Commonwealth countries and a number of African countries that had just committed to continue their preferential access to the European Economic Community[37] (EEC) market. Conversely, the Latin Americans were strongly against preferences for special groups of LDCs. Yet, they had made appeals for a special preferential access to the U.S market.

Another constraint related to their disparities was language differences on which language on especially contentious issue was left unclear. It was related to the role of information wherein the role that information plays in accounting for crisis behavior and outcomes is crucial. It considers the difficulties of bargaining under conditions of incomplete and asymmetric information, and the counterintuitive relationship between preferences and outcomes that can arise under uncertainty.[38]

Those disparities caused a condition on which the G-77 approached UNCTAD I in a remarkably weak position to negotiate with developed countries. Because of the large numbers of compromises they already contained, their positions were rigid. The fact that the negotiations would be virtually public further reduced the flexibility of the group because of their need to carry on solidarity. They did not want to appear to be obedience to the demands of the developed countries. Thus, they approached the UNCTAD I negotiations on condition of rigidity in unity.

(ii) The Negotiations: Tactics and Positions

In my opinion, differences in the perspectives of a conceptual and substantive nature blocked, to some extent, the entire process of negotiations. The issues raised at the negotiations were so numerous and complex and the negative and hostile posture of the U.S. – as regards as both new substantive ideas and the notion of setting up a new UN Nations body on trade and development – was so strong. Given the time constraints, it was perhaps unavoidable that many of the decisions of the Conference were taken by vote.[39] The developing countries had realized that the Conference would not be able to deal in any but a preliminary manner with the substantive issues before it. Thus, they decided to attach the highest priority to the establishment of permanent machinery for the further formulation and implementation of the new trade policy for development.[40]

The most prominent issue in the negotiations was the establishment of UNCTAD. Other two issues emphasized at the negotiations are: international commodity problems; and the issue of preferential access to developed country markets for semi-manufactures and manufactures form LDCs. The latter issue was the most debated issue during the negotiations as there was a controversy on whether preferences would really provide developing countries with significant benefits. Another debate on the institutional question was that the U.S. insisted and pressed hard for a system of a weighted voting[41] since the developed countries was called upon to offer more aid and the market access, and they accounted for a greater proportion of world trade and industrial and financial power as well, thus, from the side of U.S., it should be reflected in the decision-making power.

The situation at the negotiations accordingly ranged heatedly not only over fundamental issues, such as the nature of the regulatory instrument and the adjudicative participation; but also over specific practices covering membership, trade participation, freight rates and so on.[42] The G-77 had an important function in the multilateral negotiations. The group system has one fundamental advantage as it enabled a large number of delegations to speak with one voice.[43] Their position was demonstrated by a degree of unity and solidarity which had never happened before in international affairs. For them, as the small and poorer players, achieving their objectives is a daunting challenge.[44] Repeatedly, they made use the tactic of voting against the developed countries, realizing that they held the voting majority in the conference. The developed countries were taken by surprise by the forcefulness expressed by developing countries.

U.S. delegation to UNCTAD I was George Ball, Under Secretary of State for Economic Affairs, who strongly supported the liberal free trading system and was renowned to have limited interest in the Third World. On economic issues, he took a hard line against international economic proposals that did not fit into a liberal free trade framework or that required expanded government management of international markets although he was urged by the White House not to appear negative and indifferent to the aspirations of LDCs. The U.S. and other developed countries tried whatever pressures they could to block some meaningful compromises. Therefore, U.S. position at UNCTAD I was that of consistent opposition to almost all of those proposals supported by the G-77. The flexible position adopted by the U.S. was only on the creation of UNCTAD.

The biggest outcome of the Conference was the establishment of UNCTAD, while issues constituted in the Final Act were still broad and required continuing review within the machinery of UNCTAD. In the end, the consistency of U.S and the unity of developing countries resulting the condition in which the issues at UNCTAD I were not negotiated among contending parties but were resolved through voting on resolutions. The ‘victory’ of the developing countries at UNCTAD I, I would say, was a case of “majority rules”. It is because within negotiations in such a Multilateral Conference, voting must be in favor of a proposal for proposal to be adopted. In other words, the positive votes must outnumber the negative votes. It was required a simple majority of the representatives present and voting for all decisions of procedure and a two-thirds majority of the representatives present and voting for decisions on substantive proposals.[45] In UNCTAD I, the majority votes were in favor of the developing countries. Thus, the United States, having the voting minority in the Conference was outvoted by developing countries.

V. Conclusion

Different ideologies and interests between LDCs and U.S. caused conflicting interests. The decision to set up UNCTAD did not come about easily with a great deal of reluctance and resistance by U.S. and other major developed countries. They had the strongest objection to the creation of any new United Nations machinery in the field of trade and development as the GATT had already been established. Eventually, the decision adopted in August 1962 to convene the first Conference of UNCTAD I was finally agreed.

At the Conference, the developing countries began a strong diplomatic offensive behind broad demands which had never before been obtained and had never before been voiced with so much support. Their power was not laid on the financial and economic one, but on their majority of votes. By maintaining their unity, they ware able to collect large voting majorities on each resolutions. The U.S was left to express their opposition by voting against such resolutions, although they were not obliged to implement resolutions they did not support. Nevertheless, the unity among the G-77 had some constraints causing rigidity and reducing flexibility of the group in negotiations. Interestingly, the opposing position adopted by U.S at UNCTAD I was undoubtedly a consistent one – even before the conference was held. Yet, it was a “disgrace consistency” for the LDCs fundamental needs of economic development.

For the LDCs, the outcome of UNCTAD I was like “winning the battle, but not yet winning the war”. Although they won the negotiations to establish the UNCTAD by gaining the majority of votes, the outcome was not what they had wanted at the beginning. The first conference could not draw up in any detail the new trade policy for development due to the extensiveness of its endeavors, the complexity of the issues involved, and the controversies that characterized the discussion of some of its basic doctrines.

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http://sshi.stanford.edu/Conferences/2001-2002/GlobalTrade2001/love.PDF

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[1] This essay is based on the Online Case Study of International Economic Diplomacy, Case 108, by Carol Lancaster, An Irresistible Force Meets an Immovable Object: the United States at UNCTAD I, ISBN: 1-56927-108-9, (Washington D.C.: The Institute for Study of Diplomacy, Georgetown University, 1992). http://data.georgetown.edu/sfs/programs/isd/

[2] The confrontation referred to the North-South dialogue. For 40 years the north-south dialogue has been carried out in the context of the east-west struggle. Even the names commonly used to combine the unique realities of scores of nations, "the third world" and the "non-aligned nations", were products of the cold war encounter. Walter L. Owensby, The Churches and the North-South Dialogue in the Post-Cold War World, Reformed World, Volume 42/No. 43, September 1992, can be found at: http://www.warc.ch/pc/rw923/02.html

[3] The group today has 131 members.

[4] Diego Cordovez, UNCTAD and Development Diplomacy: From Confrontation to Strategy, (Journal of World Trade Law, 1975), p. 2.

[5] Ibid, p. 144.

[6] .[6] In GATT rounds, Third World interest was at best luke-warm or marginal. Beyond that, in the 1950s and 1960s, GATT appeared to have little relevance for most developing countries – since it excluded raw materials, agricultural products and fisheries from tariff reduction negotiations and refused to deal with price stabilization proposals. John Loxley, Interdependence, Disequilibrium and Growth: Reflection on the Political Economy of North-South Relations at the Turn of the Century, (Canada: International Development Research Centre, 1998), p. 89.

[7] United Nations, The History of UNCTAD 1964-1984, (New York: United Nations Publication, 1985), p. 10.

[8] Cordovez, UNCTAD and Development Diplomacy, p. 146.

[9] Joseph L. Love, Latin America, UNCTAD, and the Postwar Trading System, November 2001, can be found at: http://sshi.stanford.edu/Conferences/2001-2002/GlobalTrade2001/love.PDF

[10] The first two issues were the most debated issues at the negotiations.

[11] The Prebisch’s Dependency Theory is different to that of Marxists’. A brief summary of Prebisch argument of his theory related to global commodity problem at that time is further discussed in: United Nations, the History of UNCTAD, p. 56-57.

[12] Vincent Ferraro, Dependency Theory: An Introduction, July 1996. Can be found at: http://www.mtholyoke.edu/acad/intrel/depend.htm

[13] Allocating both tariffs and quota to be employed to protect and subsidize infant industries is known as the infant industry argument. Further explanation on the argument can be found at Appendix 2.

[14] A brief definition and origin of ISI can be found at Appendix 3.

[15] United Nations, the History of UNCTAD, p. 107.

[16] Robert T. Green and James M. Lutz, The United States and World Trade: Changing Patterns and Dimension, (New York: Praeger Publishers, 1978), p. 1.

[17] David Harvey, A Brief History of Neoliberalism, (Oxford: Oxford University Press, 2005), p. 7.

[18] Ibid,p. 5.

[19] Ernest H. Preeg (Editor), Head Bargaining Ahead: U.S. Trade Policy and Developing Countries (US – Third World Policy Perspectives), (New Brunswick: Transaction Publishers, 1985), p. 38.

[20] David A. Baldwin (Editor), Neorealism and Neoliberalism: The Contemporary Debate, (New York: Columbia University Press, 1993), p. 77.

[21] Ibid, p. 77.

[22] Steven L. Lamy, “Contemporary Mainstream Approaches: Neo-Realism and Neo-liberalism”, in John Baylis and Steve Smith (eds), The Globalization of World Politics: An Introduction to International Relations (New York: Oxford University Press, 2005), p. 213.

[23] Ibid, p. 214.

[24] David Harvey, A Brief History of Neoliberalism, p. 27.

[25] Ibid, p. 2.

[26] Margaret P. Karns, Karen A. Mingst (Editors), The United States and Multilateral Institutions: Patterns of Changing Instrumentality and Influence (Mershon Centre Series on International Security & Foreign Policy), (London: Routledge, 1992), p. 147.

[27] United Nations, the History of UNCTAD, p. 57.

[28] Hans W. Singer and Javed A. Ansari, Rich and Poor Countries: Consequences of International Economic Disorder, (London: Routledge, 1988), p. 146.

[29] A superpower is a state with the first rank in the international system and has the ability to influence events and project power on a worldwide scale. Can be found at: http://en.wikipedia.org/wiki/Superpower

[30] United Nations, the History of UNCTAD, p. 23.

[31] Michael Zammit Cutajar (Ed.), UNCTAD and the South-North Dialogue: the First Twenty Years (Essays in Memory of W. R. Malinowski), (Oxford: Pergamon Press, 1985), p. 10.

[32] United Nations, the History of UNCTAD, p.

[33] Michael Zammit Cutajar, UNCTAD and the South-North Dialogue, p. 11.

[34] Brian White, “Diplomacy”, in John Baylis and Steve Smith (eds), The Globalization of World Politics: An Introduction to International Relations (New York: Oxford University Press, 2005), p. 394.

[35] United Nations, The History of UNCTAD, p. 44.

[36] John S. Odell (Editor), Negotiating Trade: Developing Countries in the WTO and NAFTA, (Cambridge: Cambridge University Press, 2006), p. 1.

[37] European Economic Community (EEC) is the former name of the now-called European Community (EC).

[38] Kenneth A. Schultz, Democracy and Coercive Diplomacy, (Cambridge: Cambridge University Press, 2001), p. 23.

[39] Ibid, p. 44.

[40] Diego Cordovez, UNCTAD and Development Diplomacy, p. 148.

[41] Weighted Voting means a separate majority of developed and developing countries for decision-making, for equality of voting of all member states. United Nations, the History of UNCTAD, p. 47.

[42] Michael Zammit Cutajar, UNCTAD and the South-North Dialogue, p. 212.

[43] Diego Cordovez, UNCTAD and Development Diplomacy, p.

[44] As for practical purposes of diplomacy, winning is only possible through cooperation with other players. David C. Rosen, The Game Diplomacy and International Relations Theory, p. 4-6, can be found at: http://www.diplom.org/Zine/S1996R/Rosen/dippap.html. Each player seeks the same goal; while draws are possible, and unavoidable in stalemate positions, winning is the goal. David C. Rosen, Diplomacy and Game Theory-Part 2: Rational Choice, can be found at: http://www.diplom.org/Zine/S1997R/Rosen/dippap2.html

[45] M.A. Boisard and E.M. Chossudovsky (eds), Jacques Lemoine (Ed.), Multilateral Diplomacy/La Diplomatie Multilaterale: The United Nations System at Geneva, (Netherlands: Martinus Nijhoff Publishers, 1998), p. 132.

APPENDICES

Appendix 2

Infant industry argument

From Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Infant_industry_argument

The infant industry argument is an economic reason for protectionism.

Reasons for protectionism

Fledgeling industries typically require protection from the government in the form of tariffs, quotas, or subsidies in order to survive the lower prices and higher quality of the good or service produced by the industry on the international market. Proponents of the infant industry argument theorize that protectionism will allow the infant industry to grow and develop to the point at which it can compete on the international market without protectionist measures. Nurturing infant industries and import substitution policies often occur in developing nations which are aspiring to greater economic diversity.

Though this view is often criticized, it is true that such policies were pursued by many now-developed countries during their formative stages. The recent history is mixed. Though some countries that pursued infant industry promotion in Asia (Korea, for example) were very successful, others were less so, especially in Africa and Latin America. The degree to which the economic "miracle" in Asia is due to protectionism generally and infant industries in particular is a matter of heated debate in academic circles.

Among theoretical academic economists, the infant industry argument is often derided, whereas applied economists and economic historians are generally more charitable.

Reasons against protectionism

Infant industries are by definition those that are not strong enough to survive open competition — they are dependent on government largesse and protectionism in order to survive. At a given point in time, protectionist policy, along with inefficient industries leads to higher prices and lower quality goods for the consumer than if the good or service produced by the industry was produced on the international market.

For these reasons the infant industry argument is often criticized. Firstly it is hard for governments to know which industries will ultimately turn out to have growth potential. A lack of domestic capacity or unforeseen emergence of (even more superior) foreign rivals may, in fact, prohibit industries from becoming competitive in the long run. It is often the case that rather than developing or innovating, the protected industry becomes complacent, due to a lack of competition from the international market.

Appendix 3

Import Substitution Industrialization (ISI)

From Wikipedia, the free encyclopedia

http://en.wikipedia.org/wiki/Import_substitution_industrialization

Import substitution industrialization also called ISI is a trade and economic policy based on the premise that a developing country should attempt to substitute products which it imports, mostly finished goods, with locally produced substitutes. The theory is similar to that of mercantilism in that it promotes high exports and minimal imports to increase national wealth.

The policy has three major tenets: an active industrial policy to subsidize and orchestrate production of strategic substitutes, protective barriers to trade (namely, tariffs), and a monetary policy that keeps the domestic currency overvalued. Hence import substitution policies are not favored by advocates of absolute free trade.

Latin America

Import substitution policies were adopted by most nations in Latin America in the 1930s and 1940s because of the great depression of the 1930s. In the 1950s the Argentine economist and UNECLA head Raul Prebisch was a visible proponent of the idea. Prebisch believed that developing countries needed to create forward linkages domestically, and could only succeed by creating the industries that used the primary products already being produced by these countries. The tariffs were designed to allow domestic infant industries to prosper.

The policy was very successful from the 1950s to the 1970s in creating economic growth in Latin American countries. ISI was most successful in countries with large populations or high living standards. Latin American countries such as Argentina, Brazil, Mexico, and, to a lesser extent, Chile and Uruguay had the most success with ISI. Smaller and poorer countries such as Ecuador, Honduras, and Dominican Reoublic were not very successful in implementing ISI policies.

In those Latin American countries where ISI was successful it was accompanied by structural changes to the government. Old neocolonial governments came crashing down replaced by more or less democratic governments. Banks and utilities and certain foreign owned companies were nationalized.

However, the ISI strategy ultimately failed for most countries. A lack of comparative advantage in many industries led to gross inefficiencies, not to mention that their domestic markets were neither large nor strong enough. Government subsidies to support domestic production led to a lack of incentive for innovation and improving efficiency.

East Asia

ISI was rejected by most nations in East Asia in the 1960s, and many economists attribute the superior performance of East Asia in the 1970s and 1980s to this difference in policies. Typically, import substitution policies resulted in inefficient industries.

In addition, the focus of import substitution in promoting industrialization typically resulted in policies which benefited industrial workers at the expense of farmers which made up most of the population of the nations involved. For example to reduce the cost of industrialization, the cost of food was often fixed at an artificially low level. In addition the licensing schemes required for an import substitution strategy led also to rent seeking behaviors which increased economic inefficiency.

In order to build up their manufacturing bases, many countries imposed high tariffs on manufactured goods, so that multinational companies would instead produce or assemble them locally. One example of this was in the motor industry, in which manufacturers exported vehicles in 'completely knocked down' (CKD) kit form, for local assembly. This often resulted in products that were of poorer quality and more expensive than those imported 'completely built up'. It also became increasingly inefficient for manufacturers to have identical products assembled locally in several countries in the same region, which only served to duplicate resources and reduce economies of scale.

South Korea

One strategy that Korea adopted to boost its competitiveness in the 1970s were export oriented and import substitution industrialization strategy. Investments were made into heavy and chemical industries, such as shipbuilding, steel and petrochemicals.

Perceived failure

The policy began to fail in the early 1980s, as a result of overspending by the governments involved, mostly from spending foreign exchange reserves trying to keep the currency stable. As the Latin American governments failed, they began to default on their debts and were forced to turn to the International Monetary Fund for help. The failure of ISI led to the rise of the Washington Consensus.

However, some economists have pointed out that the failure of import substitution should not necessarily be taken as an endorsement of globalization. They note that most East Asian countries while rejecting import substitution also maintained high tariff barriers. The strategy followed by those countries was to focus subsidies and investment on industries which would make goods for export. The focus on export markets allowed them to create competitive industries although these policies later created inefficiencies and other problems, as seen during the Asian Financial crisis.

By the end of the 1990's, the Washington consensus was being questioned. Nevertheless, there has not been a return to import substitution as a developmental strategy.