Published: The Hindu Business Line, April 16, 2004,

By Pranav Kumar

IN a few weeks the XI Conference of the United Nations Conference on Trade and Development (Unctad) will be held at Sao Paulo, Brazil, to formulate policy guidelines and set work priorities vis-Ć -vis global trade and development. The “Conference” is Unctad’s highest policy-making body which meets every four years at the ministerial level. The X Conference was held in Bangkok in February 2000.

Founded in 1964 as a permanent inter-governmental body, Unctad is the UN’s principal organ in the field of trade and development.

Many profound changes have occurred in global trading over the past four decades. These include the ever-increasing economic interdependence of nations, the emergence of several new regional trading blocs, the further deepening of such existing ones as the EU and, above all, the establishment of the World Trade Organisation (WTO) in 1995. Thus, the rationale that led to the creation of Unctad in 1964 remains as valid today as then.

Many experts, in fact, feel that Unctad’s role is more relevant now than ever before. Unctad was created to bring about changes in the world economic to allow developing countries to participate more actively and, thus, benefit from a prospering world economy. In view of the ever-widening gap between the rich and the poor, the need for cooperative effort has increased manifold.

Unctad’s early years coincided with economic growth in many developed and a few developing countries. However, a majority of the developing countries faced increasing marginalisation on the global trading landscape. They experienced worsening terms of trade for their exports, especially for commodities, and an increasing income gap between developed and developing countries.

The gap between the “haves” and “have-nots” has further widened. While the richest 20 per cent of the world’s population had 30 times the income of the poorest 20 per cent in 1964, the gap has now doubled to 60.


Whether Unctad has realised its full potential or not is a matter of debate. Nevertheless, Unctad should be given credit for many achievements. Among the most significant achievements is the agreement on the Generalised System of Preferences (GSP). Introduced in 1971, over $70 billion worth of developing countries’ exports receive preferential treatment in most developed country markets every year under the GSP.

The utilisation rate, however, in total GSP preferences given by Quad countries in 2001 was very low at 39 per cent. In fact, in 1994, this average utilisation rate was higher at 51.1 per cent and has shown a constant decline since.

The idea of granting developing countries preferential tariff rates in the markets of industrialised countries was originally presented by Raul Prebisch, the first Secretary-General of Unctad, at its very first Conference in 1964. The GSP was adopted at Unctad II in New Delhi in 1968.

Besides the GSP, the setting up of the Global System of Trade Preferences among developing countries in 1989; the adoption of the set of Multilaterally Agreed Principles for the Control of Restrictive Business Practices in 1980; negotiations of International Commodity Agreements, including those for cocoa, sugar, natural rubber, jute and jute products, tropical timber, tin, olive oil and wheat; and the negotiation of the Common Fund for Commodities (1989) ā€” set up to provide financial backing for the operation of international stocks and for research and development projects in the field of commodities ā€” are some other notable achievements of Unctad.

Role in LDCs’ development

Perhaps, the biggest failure of Unctad has been its inability to put the least developed countries (LDCs) on to the self-sustaining growth path. Unctad has been concerned with special problems of the LDCs since its establishment in 1964.

Its work led to the creation of the list of LDCs, and there is now increasing awareness of their special problems, particularly within the WTO. The “Partnership for Growth and Development” adopted by Unctad IX defined LDCs as a cross-cutting issue in its work and stated that the LDCs should be given priority in the assistance provided by Unctad.

Unctad is also the focal point for LDCs of the UN. Unfortunately, the results have not matched expectations.

While the structure of developing country exports, taken as a whole, has changed significantly over the past two decades, the LDCs have remained heavily dependent on a few primary commodities for their export earnings.

The LDCs remain vulnerable to market vagaries and weather conditions. Price volatility, arising mainly from supply shocks and the secular decline in real commodity prices, and the attendant terms-of-trade losses have exacted heavy costs in terms of incomes, indebtedness, investment, poverty and development.

According to the UN LDC report of 2002, prepared by the Unctad Secretariat, the incidence of extreme poverty is rising in the LDCs as a whole.

In the LDCs for which there is data, about 48 per cent of the population were living on less than $1 a day in 1965-69, compared to 50 per cent during 1995-99. This means that the number of people living in extreme poverty in the LDCs has more than doubled over the last 30 years, from 138 million in the second half of the 1960s to 307 million in the second half of the 1990s.

Furthermore, the share of LDCs in world exports of goods and services declined by 47 per cent between 1980 and 1999, and stood at only 0.42 per cent of total world trade in latter year.

As regards FDI, while its flow to developing countries have increased, the LDCs’ share in total FDI flows stood at less than 0.5 per cent in 1998.

Challenges ahead

Leave aside the achievements what so ever, the question arises as to whether Unctad has to date fulfilled all the major expectations raised at the time of its creation.

The fact that most developing countries, especially the LDCs, landlocked and island countries still facing huge problems in expanding their trade, such as declining terms of trade and export earnings; persistent tariffs in the forms of tariff escalation and tariff peaks and emergence of new types of non-tariff barriers such as concerns for food safety, health care; poorly functioning international commodity agreements, and so on are certainly indicative of the major limitations confronting the international community, including Unctad in the discharge of its mandate. One of the biggest challenges for Unctad in the coming years will be to reverse the trend of decline and instability of world commodity prices and the resulting terms-of-trade losses that have reduced the export earnings of many developing countries, particularly the LDCs and the African countries.

Most African countries depend on two-three main primary commodity exports for the bulk of their foreign exchange earnings, and as a result they have to contend with the problem of short-term instability of primary commodity prices.

Further, value retention by developing countries producers of commodities is decreasing, and their participation in international and domestic value chains is a major challenge.

Hence, there is need to give renewed impetus to the problems of commodity-exporting countries, which includes improving terms of trade and diversification of their exports. This issue has been very rightly identified as one of the sub-themes for Unctad XI.

In the beginning of the new millennium, some major international conferences were held which came out with comprehensive sets of agenda, identifying not only goals but also outlined the plan of action as well in the field of trade, finance and sustainable development.

To begin with, in 2000, the UN in its Millennium Declaration identified eight Millennium Development Goals (MDGs) that includes, inter alia, halving the proportion of people living in extreme poverty and hunger, and achieving universal primary education by 2015.

In 2001, the Third UN LDC Conference was held at Brussels, which was followed by Fourth Ministerial Conference of the WTO at Doha to launch a new round of trade negotiations. In 2002, first the UN sponsored Financing for Development Conference resulting in Monterrey Consensus and then the Plan of Implementation agreed at the World Summit on Sustainable Development (WSSD) held at Johannesburg in South Africa.

The major challenge, however, is the implementation of the outcomes of these global conferences. Unctad is, therefore, expected to make a substantial contribution towards their implementation.

It has also been reiterated in the Pre-Conference Negotiating Text of Unctad XI that it should specifically aim at contributing to the implementation of the Programme of Action for the LDCs agreed at the Third UN Conference on the LDCs, the Monterrey Consensus, the Plan of Implementation agreed at WSSD as well as the Doha Development Agenda to help achieve the internationally agreed goals contained in the Millennium Declaration.