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Nieo : an assessment of the proposals for a new international economic order



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THE TREASURY

EMBARGO immediate Release

rr • \ X

PRESS RELEASE

, iAAj\ TREASURY ECONOMIC PAPER NO 6 ' ‘ 'NIEO : AN ASSESSMENT OF THE PROPOSALS FOR A NEW INTERNATIONAL ECONOMIC ORDER I

The Treasury released today, as the sixth in the series of

Treasury Economic Papers, an Assessment of the Proposals

for a New International Economic Order.

The paper makes publicly available Treasury's submission

of February 1979 to the Inquiry of the Senate Standing

Committee on Foreign Affairs and Defence into "The

Implications for Australia’s Foreign Policy and National

Security of Proposals for a New International Economic

Order". The submission was also presented to the

Committee on Australia's Relations with the Third World.

The paper is published as a contribution to public

discussion of the NIEO proposals and to the more general

question of economic development and the policies

appropriate to its achievement, as well as to discussion

of the conduct of Australia's relations with developing

countries

2

The paper contains appendices on a detailed assessment of

some of the NIEO proposals and on economic development

and prospects in developing countries, as well as an ’

addendum consisting of the summary and conclusions of the

OECD publication The Impact of the Newly Industrialising

Countries on Production and Trade in Manufactures»

Attached is a summary of the main points made in the

paper. The paper will be available from 3 December 1979

from Australian Government Publishing Service bookshops.

CANBERRA ACT 29 Nov 1979

SUMMARY OF MAIN POINTS IN TREASURY ECONOMIC PAPER NUMBER 6

NIEO . · AN ASSESSMENT OF THE PROPOSALS FOR A NEW INTERNATIONAL ECONOMIC ORDER

The term "new international economic order" (NIEO) refers

to proposals by developing countries in recent years for

fundamental changes in the structure and operation of the

international economic system which have been put forward

as necessary if standards of living are to be raised and

poverty reduced in developing countries.

The debate on an NIEO has largely centred on the various

fora of the United Nations, where the developing countries

have mobilised their majority voting power in order to

force particular issues to be debated. The proposals are

not new, but they were brought together in the UN in 197^

under the banner of the NIEO. They received impetus from

the economic and political circumstances of the time,

including inflated levels of demand for commodities which

were followed by a recession and subsequent period of

"stagflation".

Since 197^ economic and political developments appear to

have led developing countries to emphasise the more

"practical" aspects of the proposals for an NIEO, and to

concentrate less on ideas of radical reform. There is,

however, continuing international debate on various wide

ranging proposals of the NIEO type to change international

economic arrangements. These proposals, which cover all

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major aspects of international economic relationships -trade, private investment, aid, exchange rates and « \

institutional arrangements - are directed towards

achieving larger and more automatic resource and

-technology transfers to developing countries as well as

preferential treatment for developing countries in all

aspects of international economic relations and

organisation.

The Treasury paper suggests that to approach the subject

in these terms is to misunderstand the fundamentals of

economic development and the economic interests of

developing countries themselves, including' the benefits

to be obtained from an interdependent international

economic system. The thrust of the paper’s argument is

that the proposals for an NIEO, and the thinking on which

they are based, generally represent an inappropriate and

misconceived approach to the problem of raising standards

of living in developing countries because: /

. by placing primary emphasis on the external

•environment they help foster the impression that

the developing countries’ economic problems can

simply be solved by ’ ’concessions” at the

international level

- which obscures the fundamental point that

the economic development of a country is

primarily a function of its own actions

and policies;

■ ί

by casting economic interchange in terms of

exploitation/retribution (a zero-sum game) rather

than one of mutual benefit

- they fail to recognise that action which

reduces or inhibits economic interdependence

and its expansion is likely to damage the

economic interests of both groups of

countries; .

by emphasising redistribution rather than production

- they foster the mistaken notions that wealth

is something to be appropriated rather than

earned and that redistribution can play more

. them a marginal role in economic development;

by emphasising government intervention rather than

the operation of market forces

- they fail to recognise the mutual benefits

and opportunities that a liberal international

trading system offers and they overlook that

the economic growth achieved within this

system - by both developed and developing -

over the past thirty years is without

precedent (details in Appendix B).

In addition, the strict NIEO dichotomy of "developed" and

"developing" countries obscures the great political,

economic and cultural diversity of developing countries

and overlooks the need for development policies which take

account of the particular problems of each country.

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While the Treasury paper is thus critical of the general

NIEO approach, it, suggests that there is merit in those

proposals which seek improved market access for the exports

of developing countries, the reduction of trade barriers

generally and the removal of measures which delay industry

restructuring in the developed world. It also suggests

that there are other areas where the general aim of

certain proposals (eg greater international flows of ·

capital and technology, industrial development,

stabilisation of commodity prices) could be supported -

but not the means usually proposed to achieve those aims.

It is argued that the single most important response

Australia could make to developing country proposals would

be to start as soon as possible reducing existing barriers

to imports into Australia, giving priority to restrictions

on imports of major interest to developing countries in

the Asia/Pacific region. Beyond this the Treasury paper

suggests that it is invalid to argue that, because under

the present system there are constraints on competition

and on the "free” flow of trade, capital and labour, this

justifies further constraints. Rather, Australia's

interests generally lie in piroposals which support the

operation of a liberal, market-oriented international

economic system; in recognising that economic development

is primarily dependent on a country's own efforts; in

being prepared to express a positive development philosophy

along these lines rather than simply reacting to proposals

advanced by developing countries; and in talking account

also of possible wider implications for Australia if there

were to be significant changes to the present international

economic system. *

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Of course, the attitude taken on NIEO proposals can have

implications bearing·on Australia's political

relationships with Third World countries and Australia's

geographical position requires it to have greater regard

to relations with developing countries than most other

Western countries. The paper suggests, however, that

there seems no need for Australia to be defensive, on

either moral or other grounds, or to adopt a "compromising"

approach towards NIEO proposals not in our economic

interests, Moreover the fact that Australia's external

economic transactions have certain characteristics (eg the ~

emphasis on exports of primary products) that are common

to those· of many developing countries does not mean that

Australia's interests in these fields are the same as the

interests of those countries. Australia cannot escape the

reality that it is a developed country in most senses in

which that term is used; suggestions that it undertake a

general role of a "bridge" between developed and developing

countries need to be assessed in the light of that reality.

The approach towards economic development suggested in the

Treasury paper has been reflected in some recent

publications of the World Bank (most notably the World

Development Report) and the Organisation for Economic Co­

operation and Development; in particular the Addendum to the

submission contains the summary and conclusions of a recent

OECD publication The Impact of the Newly Industrialising

Countries on Production and Trade in Manufactures. This

publication, which appeared after the Treasury submission

to the Senate Inquiry was finalised, points to the net

benefits, in terms of increased levels both of income and

employment, that can be derived by developed countries if

they permit greater access to their markets for the

exports of developing countries; and to the importance

of allowing this to happen i,f the full development

potential of developing countries is to be realised. In

such ways the existing system could tie made to work both

more efficiently and more equitably.