By Rubens Ric. Secretary-general of the UN Conference on Trade and Development

Developing countries are suffering from persistent biases in the multilateral trading system.

The Financial Times is wrong to suggest that developing countries are suffering from trade liberalisation fatigue (Poor Trade, September 21 1999). But developing countries are tired of being told to open up even more. This is what they have been doing for most of the last 15 years, much more quickly than countries in the Organisation for Economic Co-operation and Development. The truth is that the adoption of economic policies promoted by the international community following the early 1980s debt crisis - and persistent biases in the multilateral trading system - have failed to deliver stability and rapid growth in the developing world.

Although growth has recovered in the 1990s, it is not much higher than in the second half of the 1980s, and well below the 6 per cent averaged in the 1970s. Significantly, this recovery has been accompanied by a worsening of external deficits, on average higher by almost 3 percentage points of gross domestic product. Severe payments imbalances and vulnerability to external shocks are again hindering growth prospects across the developing world. The countries affected include those with a history of sound domestic policies, good education systems and competent administrations.

With more liberal trading regimes now in place throughout the developing world, growth sucks in more imports. Attempts to close the trade gap through exports to developed countries run up against sluggish markets, protectionism and adverse movements in the terms of trade.

As a result, growth momentum in the 1990s has increasingly come to rely on attracting foreign capital. For a while, the resurgence of private capital to developing countries raised hopes that a new development paradigm was evolving. This reflected a good deal of wishful thinking. Much of the renewed flow simply marked a return to trend after the blighted 1980s.

These capital inflows are increasingly concentrated in a small group of 20 or so emerging markets, which received over 90 per cent. Even in these countries, much of the money is absorbed by activities that add little to productive capacity. Nearly a quarter is taken out by residents, and a fifth is set aside for foreign exchange reserves.

Even before the Asian crisis, these flows fell far short of what is needed to return growth to that achieved in the 1970s. According to the Trade and Development Report from the United Nations Conference on Trade and Development, 6 per cent growth in the developing world would require annual capital inflows at least 50 per cent higher than those in the 1990s.

What is needed to improve matters? Reform of the global financial architecture is an urgent priority. There is an even greater need for official financing, orderly debt work-outs and full debt relief for the poorest countries. For now, there are no grounds for further opening the capital account in most developing countries.

Given the endemic payments problems facing developing countries, and their limited benefits from the Uruguay Round, the focus should be on the trading system. Negotiations must concentrate on market access in areas where developing countries already have, or could quickly establish, a competitive advantage. The panorama of protectionism in industrial countries is wide. The frequency of tariff peaks and tariff escalation are problems for many developing countries, while subsidies to OECD agriculture shut out imports from developing countries. The threat of markets being penetrated by producers from developing countries is prompting new forms of protectionism within the framework of various World Trade Organisation agreements.

Correcting this requires a collective effort on the part of developing countries. The preparatory process for the upcoming meeting in Seattle has already demonstrated their willingness to assume a much more active attitude than in the past.

Improved market access is only part of the solution. A shortcoming of recent trade negotiations has been to assume that competition requires only fair rules and an impartial arbiter. For most developing countries, weak supply-side capacity remains an overriding constraint. This is why developing countries need special treatment and tailored transition periods that will allow them to catch up.

Adam Smith argued that, in a world of asymmetric trade relations and low labour mobility, "the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection". Critics who deny this should remember it has been almost 50 years since farmers and cotton textile producers in the OECD first received such treatment. They still appear to believe OECD farmers have not had enough time to adjust.

With peace and prosperity still eluding much of the developing world, it is time for the rich countries to bear the full share of their responsibilities in making openness work.