High-level Round Table on Trade and Development: Directions for the Twenty-first Century

* The views expressed in this paper are those of the author and do not necessarily reflect the views of the UNCTAD secretariat.Executive Summary This paper addresses the issue of whether late industrializing countries, including those with modest manufacturing experience as well as those which have successfully promoted manufacturing over the last 50 years, can continue to build their manufacturing sectors under new World Trade Organization (WTO) rules. The answer to the question is as follows. First, new WTO rules give ample opportunity for countries to promote their manufacturing sectors. Whatever else WTO laws are designed to do, they may be construed as being in favour of advancing science and technology (S&T). The most technologically advanced countries continue to promote their industrial competitiveness by subsidizing research and development (R&D), regional development and environmental protection. In addition, their up-and-coming firms benefit from special incentives offered for locating residence in " science parks " and industrial estates. Moreover, WTO law is not inflexible with respect to tariffs. It contains safeguards and other measures that allow countries to protect specific industries threatened by a surge in imports (for up to eight years) and to protect against all imports if they are at a level which jeopardizes their balance of payments (for an indeterminate time period). This is not to belittle some concerns that developing countries have articulated about the WTO. Such concerns relate to trade in agriculture and services, including financial services, intellectual property rights; labour standards; and the environment. There is, however, no shortage of methods that can be used by less industrialized countries to promote their industries even under new WTO laws. Second, countries that make use of WTO rules to promote their industries should be aware of the " reciprocal control mechanisms " that successful late industrializers utilized in order to ensure that subsidies and other supports to business were used productively. Nothing was given away for free. Subsidies of all sorts were tied to monitorable performance standards. Countries that begin promoting their industries under WTO rules should be certain that machinery is put in place to ensure that the principle of " reciprocity " obtains and that all promotional measures are tied to results-oriented performance standards. After examining the principle of reciprocity in action (we focus on Thailand), we argue that new WTO laws are compatible with a continuation of this principle, although Governments are more constrained in setting …