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CHAPTER

63
New International New International Order Economic Order (NIEO)
ORIGIN
The demand for a New International Economic Order (NIEO) by developing countries goes back to the first session of the UNCTAD in 1964. The various resolutions adopted in the subsequent sessions of the UNCTAD contain a systematic account of the various elements of an NIEO. At the root of the call for an NIEO lies the dissatisfaction of LDCs with regard to trading, financial, technological and other policies pursued by the developed countries towards the LDCs. The developed countries have oppressed the LDCs, discriminated against them, drained their income and denied them access to advanced technology. Such policies have obstructed their development efforts, perpetuated inequalities in wealth and incomes and increased unemployment and poverty in them. But there were three phenomena that gave an immediate impetus to the demand for an NIEO in the early 1970s. They were : (a) a severe energy crisis; (b) the breakdown of the Bretton Woods System in 1973; (c) the disappointment with development aid which was much below the UN target of 0.7% of GNP of developed countries; (d) the formation of the OPEC (Organisation of Petroleum Exporting Countries) in 1973 and its success in raising oil prices; and (e) the existence of unusual high rates of inflation and unemployment in LDCs. Specific proposals for an NIEO were put forward at the Summit Conference of Non-Aligned

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Nations held in Algiers in September 1973. The success of OPEC led the developing countries to call the Sixth Session of the UN General Assembly in April 1974. This session adopted, without a vote, a declaration and a Programme of Action on the Establishment of New International Economic Order based on equity, sovereign equality, interdependence, common interest and cooperation among all states, irrespective of their economic and social systems which shall correct inequalities and redress existing injustices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations. In December 1974, the UN General Assembly approved the Charter of Economic Rights and Duties of States. All these three Resolutions constitute the documents of NIEO.

OBJECTIVES (OR FEATURES) OF NIEO


The following are the most important objectives of an NIEO based on the proposals of the UN Resolutions : 1. International Trade. The NIEO lays emphasis on a greater role of LDCs in international trade by adopting the following measures which aim at improving the terms of trade of LDCs and to remove their chronic trade deficits: (i) establishment of LDC sovereignty over natural and especially mineral resources for export; (ii) promoting the processing of raw materials for exports; (iii) increase in the relative prices of the exports of LDCs through integrated programme for commodities, compensatory financing, establishment of international buffer stocks and creation of a common fund to finance stocks, and formation of producers associations; (iv) providing proper framework for stabilising prices of raw materials and primary products so as to stabilise export income earnings; (v) indexation of LDC export prices to rising import prices of manufactured exports of developed countries; (vi) increase in the production of manufactured goods; and (vii) improved access to markets in developed countries through progressive removal of tariff and non-tariff barriers and restrictive trade practices. 2. Technology Transfer. The NIEO proposals stress the establishment of mechanism for the transfer of technology to LDCs based on the needs and conditions prevalent in them. In this context, particular emphasis is on the : (i) establishment of a legally binding international code regulating technology transfers; (ii) establishment of fair terms and prices for the licensing and sale of technology; (iii) expansion of assistance to LDCs in research and development of technologies and in creation of indigenous technology; and (iv) adoption of commercial practices governing transfer of technology to the requirements of LDCs. 3. Regulation and Control of the Activities of MNCs. The NIEO declaration also emphasises on the formulation, adoption and implementation of an international code of conduct for MNCs (multinational or transnational corporations) based on the following : (i) to regulate their activities in host countries so as to remove restrictive business practices in LDCs; (ii) to bring about assistance, transfer of technology and management skills to LDCs on equitable and favourable terms; (iii) to regulate the repatriation of their profits; (iv) to promote reinvestment of their profits in LDCs. 4. Reforming the International Monetary System and Special Aid Programme. The NIEO declaration proposes to reform the international monetary system on the following lines : (i) elimination of instability in the international monetary system due to uncertainty of the exchange rates; (ii) maintenance of the real value of the currency reserves of LDCs as a result of inflation and exchange rate depreciation; (iii) full and effective participation by LDCs in the

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decisions of the IMF and the World Bank; (iv) linkage of development aid with the creation of additional SDRs; (v) attainment of the target of 0.7% of GNP of developed countries for development assistance to LDCs; (vi) debt re-negotiation on a case-by-case basis with a view to concluding agreements on debt-cancellation, moratorium or rescheduling; (vii) deferred payments for all or parts of essential products; (viii) commodity assistance, including food aid, on a grant basis without adversely affecting the exports of LDCs; (ix) long-term suppliers credit on easy terms; (x) long-term financial assistance on concessionary terms; (xi) provision on more favourable terms of capital goods and technical assistance to accelerate the industrialisation of LDCs; and (xii) investment in industrial and development projects on favourable terms. 5. Interdependence and Cooperation. Above all, the NIEO declaration lays emphasis on more efficient and equitable management of interdependence of the world economy. It brings into sharp focus the realisation that there is close interrelationship and interdependence between the prosperity of developed countries and the growth and development of LDCs. For this, there is need to create an external economic environment conducive to accelerated social and economic development of LDCs. Further, it requires the strengthening of mutual economic, trade, financial and technical cooperation among LDCs, mainly on preferential basis.

IMPLEMENTATION OF NIEO PROGRAMME


LDCs have been striving hard to get the NIEO programme implemented at the various international fora in cooperation with the developed countries. But they have been successful in only limited fields. 1. Trade. In the package of proposals to readjust international trade, no wothwhile progress has been made. The implementation of integrated programme for commodities (IPCs) has been extremely slow. The principal element of this programme is the creation of a Common Fund for financing international buffer stocks. After several years of negotiations at the various UNCTAD meetings, a Common Fund for commodities of $ 4.7 billion has been created with a total pledged capital of 66.9 per cent at the UNCTAD VII in 1987, allowing it to become operational. Whether this Fund will succeed in providing adequate price support to commodities of LDCs in markets dominated by developed countries is highly uncertain. As regards international commodity agreements, the NIEO proposals relate to 18 commodities, ten of which were to be initially included in the buffer stock scheme. Of these, five agreements on coffee, cocoa, sugar, tin and rubber were negotiated. But only the agreement on rubber is still in operation. Little has been done in providing a suitable framework for stabilising prices of raw materials, and processed primary products to stabilise the export earnings of LDCs. Similarly, no steps have been taken up to implement the proposal of indexation of export prices of LDCs to rising import prices of manufactured goods of developed countries. No doubt, exports of manufactured goods from LDCs have increased rapidly, yet their share in world trade is still very small. The developed countries have agreed to give tariff preferences on the manufactured and semi-manufactured goods of LDCs under GSP (Generalised System of Preferences). GSP schemes are in operation in 29 preference-giving countries including the 15 members of the EC. So far as tariff cuts on primary and other products from LDCs are concerned, there are apparently no significant barriers to trade after the Uruguay Rounds. Products of LDCs enter the

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developed countries duty free under MFN (Most Favoured Nation). But in the case of many agricultural products of LDCs which compete with those of developed countries, tariff reductions have been nominal. Developed countries which produce agricultural products have been resorting to subsidisation of their products, while others place restrictions on imports from LDCs. Developed countries have devised new trade restrictions on the products of LDCs such as VER (Voluntary Export Restraint), OMA (Orderly Marketing Agreements), low-cost suppliers, market disruption, etc. Moreover, in the garb of non-technical barriers to trade like environmental, health and sanitary conditions, the developed countries are restricting the exports of LDCs. As regards non-tariff barriers, agreements have been reached under the GATT Rules for codes on subsidies, countervailing duties, customs valuation, technical barriers to trade, etc. But LDCs are being discriminated under the escape clauses and safeguard rules. 2. Transfer of Technology. In the area of technology transfer, UNCTAD-IV at Nairobi in 1976 approved a policy paper on the Code of Conduct on Transfer of Technology. The draft code prohibits restricted business practices. There are clauses forbidding LDCs which are the recipients of a particular technology to manufacture export-oriented goods, to introduce on its own changes in that technology, to apply it for purposes other than those specified in the agreement, etc. Such clauses prohibit the use of technologies in their own interests. The policy paper renounces the practice of transferring technology in the form of single packages of plants, equipments, materials and managerial services, etc. It also provides criteria for determining just prices of technologies. Subsequent UNCTAD meetings have been simply passing resolutions for the adoption of this policy paper with slight modifications which have been rejected by LDCs. Even the setting up of an ad hoc working group relating to Investment and Technology Transfer at UNCTADVIII in 1992 has failed to come out with a code of conduct acceptable to LDCs. UNCTAD-IX in 1996 also urged to the developed countries to give LDCs access to high technology crucial to their development. But no progress has been made to evolve a code of conduct for technology transfer by the developed countries. However, an agreement was reached in 1979 for the establishment of a UN Financing System for Science and Technology for Development. To begin with, an Interim Fund had been proposed to supplement the financial resources of LDCs. But nothing has materialised so far. 3. MNCs. The only significant development in the case of MNCs has been the efforts made by the UN Commission on Transnational Corporations in drawing up a code of conduct for the operations of MNCs. It sets out comprehensive standards of behaviour of these corporations and of their treatment by home and host governments. Besides, negotiations have been going on the code of conduct for technology transfer for establishing a general and universal legal framework for transfer and development of scientific and technological capabilities of LDCs. 4. International Monetary System and Development Aid. After the collapse of the Bretton Woods System, the present international monetary system has not failed to protect the interests of LDCs. The excessive reliance on market forces coupled with excessive exchange rate fluctuations have been responsible for financial crises in some Asian and Latin American developing countries. The IMF has failed to increase the allocation of SDRs with the result that the volume of international liquidity does not meet the requirements of LDCs. The only positive gain has been the 10th and 11th quota reviews enlarging the IMFs quotas to SDR $ 212 billion. The establishment of Emergency Structural Adjustment Loans in early 1999 to help the Asian and Latin American countries inflicted with the financial crisis, and Contingency Credit Line in April 1999

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to protect other LDCs from the contagion of crisis are welcome measures by the IMF. Despite these, the management of international monetary system by the IMF, World Bank and its affiliates continues to be guided by ad hocism. Over the years, the various UNCTAD meetings have failed to solve the problems of debt and development aid to LDCs. At best, they have been fora for exchanging ideas and passing resolutions rather than getting issues solved. As regards the flow of official development assistance to LDCs by developed countries, it continues to be nearly half of 0.7% of their GNP target. The IMF and the World Bank have been trying to solve the debt problem of LDCs but with little success because of the paucity of funds with them and strict conditionalities. However, some European banks have been rescheduling debts and a few governments have started debt cancellations. The emphasis continues on tied aid or programme assistance. Several donor countries continue to use aid increasingly as an instrument of promoting their exports to LDCs. 5. Interdependence and Cooperation. The first step towards economic cooperation among LDCs was taken at the Ministerial meeting of G-77 held at New York in October 1982 when it decided to launch the Global System of Tariff Preferences (GSTP). GSTP is a major initiative undertaken in 1987 by developing countries to expand mutual trade through grant of tariff and non-tariff concessions and other measures. This is being achieved by the ASIAN, SAARC and NAFTA countries. Besides increasing trade, UNCTAD-VI recommended the initiation or strengthening of a number of cooperative measures in the fields of research and development, design and engineering among LDCs. The possibilities of cooperation for technological transfer among LDCs exist for particularly the following four sectors : capital goods, human skills, energy, and food production and processing. The developing countries are helping the least developed countries in these areas. It also proposed a simpler payments unechanism under a common clearing system. This is another area which provides considerable encouragement to cooperation among LDCs. Further, the developed countries insist that the existing international institutions like the IMF and World Bank should be strengthened financially so that they may provide larger aid to LDCs to tide over their balance of payments and debt problems. But the LDCs call for the setting up of a new financial institution which should exclusively cater to their special financial requirements in fields such as joint ventures, development projects, export credit, commodity price stabilisation, and regional payments support, and long-term investment to expand trade in food and primary products, and for storage, processing and transport. So far no progress has been made in this direction. UNCTAD-VIII set up a new Standing Committee on Economic Cooperation among developing countries to study report on all facets of co-operation. But nothing has come out of it. There are many factors which stand in the way of economic cooperation among the LDCs. The economies of LDCs are highly competitive in nature. They have limited import capacity, inadequate credit facilities, chronic foreign exchange shortage, and prejudice against the goods traded among themselves. Consequently, they prefer to trade with developed countries even though goods manufactured by LDCs are cheaper and of high quality. However, some LDCs suffer from other limitations which prevent them from entering into trade with other LDCs. These are technological backwardness, shortage of key inputs, high cost of production, lack of competitive strength, and weak marketing structure. The various problems listed above can

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be overcome by mutual help and trust among LDCs of a region and working in close cooperation among themselves. CONCLUSION Besides the lack of economic cooperation among the LDCs, the developed countries have explicitly and implicitly tried to oppose NIEO programmes. This is apparent from the trade and escape clauses, phasing out of concessions to LDCs and other agreements forced upon LDCs under the GATT Rules and WTO Agreement at the Uruguay Round. To overcome the opposition of developed countries, LDCs require greater unity and solidarity and broader use of all types of cooperation in their struggle for NIEO at all international fora.

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