Unit – III The Regulatory Role of the United Nations in Promoting

Economic Growth and Development

The aftermath of the Second World War transformed the global political situation. It
led to the emergence of a new balance of power that hastened the final liquidation of the
extra-territorial regimes in China, Egypt, Turkey and other parts of the world. It also brought
into being the United Nations Organisation, which was charged with the primary task of the
maintenance of international peace and security.

The Charter of the United Nations also proclaimed, as one of its purposes the
development of “… friendly relations among nations based on respect for the principle of
equal rights and self-determination of peoples”. In addition, the Charter paved the way to
decolonisation on a global scale, by calling for the “self-government” or independence of
“non-self governing” territories and territories under trusteeship. As a result, with a very few
exceptions, almost all the former colonial territories became sovereign independent nations
and were accepted as members of the near-universal community of nations. The emergence
of so many free nations brought about a radical change on the international scene. Politically,
they constituted a force to be reckoned with but, economically, they were far less developed
than their former colonial rulers, their economic resources having, to a large part, been fully
exploited by the latter during their years of occupation. Thus, naturally, at the time of
independence, there existed a state of economic backwardness and deprivation. Not only had
these newly independent countries little or no local industries to manufacture goods for
foreign markets but the mainstay of their economies was the export of primary commodities.
Moreover, they were left to scrabble for their economic emancipation in an environment in
which the rules, systems and institutions militated against their interests.

The Bretton Woods Financial and Monetary System

After the Great Depression of the 1930s, the abandonment of the gold standard, in
1937, and the conclusion of the Second World War, chaos and instability reigned supreme in
the world economy. The situation called for new institutions for world finance and trade.
After the War, the United States had emerged as the dominant western power and together
with Britain it took the lead in building such institutions. At the 1944 Bretton Woods
Conference, the western powers established two central institutions for international finance
and monetary cooperation; the International Bank for Reconstruction and Development
(IBRD) and the International Monetary Fund (IMF).

The IBRD was intended to provide loans to assist the reconstruction of Europe and for
the development of developing countries whilst the IMF was intended to regulate currencies,
promote stable exchange rates and provide liquidity for the free flow of trade. Although these
institutions were open to all countries, the Western States retained control over them through
the “weighted votes” procedure, based on financial contributions made by each State.
Although India, Egypt, Ethiopia and Latin American countries were represented at the
Bretton Woods Conference, most Third World countries were not as, as that time, they were
still colonies. The concerns of the Third World countries, therefore, were not focused on, at
the Conference.

Regulatory Role of the United Nations

In view of the biased role played by these institutions and since institutional and
structural reforms were slow in coming, developing countries had to search for another forum
in which to ensure adequately that their interests would be better cared for. Since there was
no such organisation or agency on which they could rely to deal with their economic
problems, the only viable alternative they had was to turn to the United Nations. The decade
of the 1960s was adopted as the first UN Development Decade, with a view to focusing on
the orderly development of the developing countries. It is, therefore, since the 1960s that
economic issues have been in forefront in the deliberations of the United Nations. The role of
the United Nations in this sphere had an impact on the existing economic system in three
ways, i.e., at the normative, institutional and behavioural levels. At the normative level, it led
to the evolution of a number of binding norms and legislative instruments regulating
economic and trade transactions. At the institutional level, it resulted in the creation of new
institutions or the restructuring of existing ones. At the behavioural level, it is tended to alter
to alter the arterial exchanges of money, goods and ideas.

At the initiative of the developing countries, a United Nations Conference on Trade

and Development (UNCTAD) was convened in Geneva in 1964 which recommended that
UNCTAD be established as a permanent organ of the General Assembly. Through a
resolution of the General Assembly, UNCTAD became a permanent organ of the General
Assembly, in 1964. It was in this Conference that the group of 77 developing countries was
formed, in order to promote their common economic interests.
Functions of UNCTAD

The main function entrusted to UNCTAD was to promote international trade,

especially with a view to accelerating the economic development, particularly trade between
developing countries and between countries with different systems of economic and social
organisations.

Another major function assigned to UNCTAD was generally to review and facilitate
the coordination of activities of other institutions within the UN system in the field of
international trade and related problems of economic development.

It was empowered to initiate action, where appropriate, in cooperation with the

competent organs of the United Nations for the negotiation and adoption of multilateral legal
instruments in the field of trade.

A number of multilateral legal instruments have been negotiated and adopted under
the auspices of UNCTAD. These include the Charter of Economic Rights and Duties of
States, Agreement Establishing the Common Fund for Commodities, Convention on
International Multimodal Transport of Goods, United Nations Convention on Conditions for
Registration of Ships, International Convention on Maritime Liens and Mortgages and,
several international commodity agreements like International Agreement on Jute and Jute
Products, International Tropical Timber Agreement, International Sugar Agreement and
Coffee Agreement.

After the establishment of UNCTAD, the General Assembly, responding to the need
for the United Nations to play a more active role in removing or reducing legal obstacles to
the flow of international trade, established the United Nations Commission on International
Trade Law (UNCITRAL), as the core legal body within the United Nations system in the
field of international trade law.

The setting up of UNCITRAL was particularly welcomed by the developing nations

in their quest for the examination of the existing rules and practices in the field of
international trade and commerce and the development of norms would be suited to the needs
of the changing structure of the international community to in the post-decolonisation era.
The developing countries felt that if public international law, which regulated the conduct of
nations, was the product of the West, then the law relating to international trade and
commerce was even more a western product, as it was primarily developed by Chambers of
Commerce, trade associations and legal bodies of the former colonial powers. This was an
area where existing knowledge and expertise in developing countries needed to be pooled
together in an appropriate forum in association with the older nations in order to arrive at just
and equitable solutions. Consequently, the UNCITRAL was assigned the following
functions–

(a) coordinating the work of organisations active in this field (international trade law) and
encouraging cooperation among them;

(b) promoting wider participation in existing international conventions and wider

acceptance of existing model and uniform laws;

(c) preparing or promoting the adoption of new international conventions, model laws
and uniform laws and promoting the codification and wider acceptance of
international trade terms, provisions, customs and practices, in collaboration, where
appropriate, with the organisations operating in this field;

(d) promoting wage and means of ensuring the uniform interpretation and application of
international conventions and uniform laws in the field of the law of international
trade;

(e) collecting and disseminating information on national legislation and modern legal
developments, including case law, in the field of the law of international trade.

The work of UNCITRAL since its creation in 1966 has been impressive, both in terms
of the quality and quantity of the legislative texts it has produced. It has shown itself to be at
the disposal of both the developed and developing nations alike in the formulation of a body
of international trade law which is designed to permit parties from all regions to engage in
international trade and commerce on the basis of equality. The UNCITRAL texts have
enabled States to modernize their commercial laws and to create a legal infrastructure that
encourages international trade.

UNIDO

Another institution established by the United Nations General Assembly was the
United Nations Industrial Development Organisation (UNIDO) as a subsidiary organ of the
United Nations system, with the primary objective of quickening the pace of industrial
development in developing countries. The Second General Conference of UNIDO, held in
Lima in 1975, adopted a target for the share of developing countries in world manufacturing
to reach at least 25 percent by the year 2000 A.D.

That Conference also recommended that UNIDO should include among its activities a
system of continuing consultations between developed and developing countries with the
object of raising the developing countries’ share in the world industrial output through
increased international cooperation. This recommendation was subsequently endorsed by the
General Assembly. In 1980, UNIDO decided to establish the system of consultations on a
permanent basis. Since then, over 40 consultations have been convened covering sectors and
topics relating to agricultural machinery, building materials, capital goods, fertilisers and
pesticides, fisheries, food processing, industrial financing (in particular of small and medium-
size industries including co-operatives), iron and steel, non-ferrous metals, petrochemicals,
pharmaceuticals, leather and leather products, training of industrial manpower, wood and
wood products, vegetable oils and fats, and electronics.

A useful outcome of these consultations has been that UNIDO has formulated model
contracts and clauses, guides and checklists for contractual arrangements to facilitate
industrial collaboration in some of the industrial sectors.

At the third General Conference of UNIDO, held in, New Delhi in 1979, the
proposals of the developing countries designed to facilitate the realisation of the Lima target
were rejected by the developed countries. Since then, the only notable progress made in
UNIDO was the unanimous recognition that Africa was the least developed of all developing
regions and consequently the 1980s should be proclaimed as the industrial development
decade for Africa. The period 1980-90 was then proposed by the United Nations General
Assembly as the first Industrial Development Decade for Africa (IDDA). IDDA-II for the
period 1991-2000 was proclaimed by the General Assembly on 22nd December 1989. At the
fifth regular session of UNIDO, held in Cameroon, in 1993, the organisation reaffirmed its
commitment to accord high priority to the industrialisation of Africa and to the realisation of
the objectives of IDDA-II.

New International Economic Order (NIEO)

At the beginning of the 1970s, the world economy was marked by high inflation in
several countries as prices of grains and capital goods rose sharply. The monetary system had
already weakened when the convertibility of the dollar into gold was abundant in August
1971 and the post-War rules for the management of exchange rates were given up in 1973.
As a result, developing countries had to cope simultaneously with problems of inflation,
unemployment and balance of payments.

In December 1973, the sharp increases in the price of oil became a watershed in
North-South relations. Oil exporting countries organised since 1960 in the Organisation of
Petroleum Exporting Countries (OPEC), announced a series of price hikes which quadrupled
the price of crude oil in 1973-74. This rudely shocked the world’s industrial economy, a
major part of which was oil-based. Oil exporting countries found themselves with large
financial surpluses, while oil importing countries suffered a sudden deterioration in their
balance of payments. The results were serious in the industrialised countries and disastrous in
most developing countries.

The oil crisis boldly demonstrated the following features that characterised the World
economic order:

 failure of the traditional economic order to solve the problems of poverty and
backwardness of the developing countries;

 prolonged stagnation in developed market economy countries and the strengthening of

protectionist tendencies; and

 deterioration of the terms of trade of developing countries caused by falling export

prices and rising import bills and the consequent worsening of their balance of
payments situation and mounting indebtedness.

These factors cumulatively forced developing countries to press for a Special Session
of the General Assembly to redress their grievances.

Accordingly, the Sixth Special Session of the General Assembly was convoked in
May 1974 to redefine the existing structures and rules of the global economy in the interest of
general equity. The General Assembly adopted a Declaration on the Establishment of a New
International Economic Order (NIEO) in which the United Nations members solemnly
proclaimed their determination to work urgently for– “… the establishment of a new
international economic order based on equity, sovereign equality, interdependence, common
interest and cooperation of all States, irrespective of their economic and social systems,
which shall correct inequalities between the developed and developing countries and ensure
 steadily accelerating economic and social development in peace and justice for the present
and future generations.”

The Declaration enumerated the following principles on which the NIEO was to be
based on:

(i) Sovereign equality of all States;

(ii) International cooperation;

(iii) Full and effective participation on the basis of equality of all States in striving of
world economic problems;

(iv) The right of every country to adopt the economic and social system suited to its all
needs;

(v) Full permanent sovereignty of every State over its natural resources and all
economic activities,

(vi) The right of all territories under foreign occupation to restitution and full
compensation for the exploitation of depletion of their resources;

(vii) Regulation and supervision of the activities of multinational corporations;

(viii) The right of the developing countries and the people under colonial domination to
achieve their liberation and to regain effective control over their natural resources;

(ix) Rendering of assistance to developing countries or territories under colonial

domination to obtain for their economic rights and independence;

(x) Just and equitable relationship between the prices of raw materials, primary
products, manufactured and semi-manufactured goods exported by developing
countries and the prices of these commodities when imported by developed
countries;

(xi) Extension of active assistance to developing countries by the whole international

community free of political or military conditions;

(xii) The reformed international monetary system to promote the development of

developing countries and to ensure adequate flow of real resources to them;
 (xiii) Improve the competitiveness of natural materials facing competition from
systematic substitutes;

(xiv) Preferential and non-reciprocal treatment for developing countries;

(xv) Securing favourable conditions for the transfer of financial resources to the
developing countries;

(xvi) Transfer of technology on equitable terms;

(xvii) Avoidance of waste of natural resources, including food products; and

(xviii) Mutual cooperation among developing countries to facilitate the role of

Producers’ Association.

The General Assembly also adopted a Programme of Action for the establishment of
the NIEO which called for providing emergency relief and development assistance to
developing countries.

On 12 December 1974, the General Assembly adopted by a massive majority the

Charter of Economic Rights and Duties of States. The basic purpose of the Charter was to
promote the establishment of NIEO based on certain legally-binding norms and to lay down
fundamental principles that should govern international economic relations.

The Charter enunciated the sovereign and inalienable right of every State to choose its
own economic system without outside interference, coercion or threat.

In the exercise of its full permanent sovereignty of a “… all its wealth, natural
resources and economic activities”, a State was assured the right to regulate and expertise
authority over foreign investment and supervise the activities of transnational corporations
within its jurisdiction.

The Charter also provided that “No State shall be compelled to grant preferential
treatment to foreign investors.”

It also forbade transnational corporations from intervening in the internal affairs of

host countries.

According to the Charter, the State also had the right to nationalise, expropriate and
transfer the ownership of foreign property with ‘appropriate compensation’ to be paid by the
State, according to “… its relevant laws and regulations and all circumstances that the State
considers pertinent.”

In cases where the question of compensation is controversial, the Charter provided,

“… it shall be settled under the domestic law of the nationalising State and by its tribunals,”
unless it was freely and mutually agreed that other peaceful means be sought.

Since the adoption of these instruments, several rounds of negotiations between the
developed and developing countries covering the entire spectrum of international
development issues have been held within and outside the UN framework aimed at realising
the promise and substance of NIEO.

Loss of appeal of the NIEO

There are number of factors and perceptions which appear to have accounted for the
loss of the appeal of the NIEO in the present-day world. The first one is the political and
commercial unworkability of the whole concept.

NIEO had a very strong “Statist” bias as it placed stress on State paternalism and
welfare socialism.

Secondly, it perceived transnational corporations as a prime vehicle for maintaining

developing countries in a subordinate stage of development and therefore sought to restrict
their activities.

Thirdly, it has sought to establish a new international legal system based on central
planning and restriction of business activities, with primacy shifting from commercial
freedom to State regulation.

In effect, NIEO was conceived as the rule of bureaucracy over business and this led to
a proliferation of State enterprises in almost every sector of political economy in the
developing world. Most of these conceptual parameters were not workable but they were
tolerated in the West as it was felt that outright rejection of them would impel the developing
nations towards communism.

Perceptions of developing countries themselves have changed dramatically since the

near total collapse of communism or its transformation elsewhere, such as in China or
Vietnam. The socialist model is no longer seen as an alternative to the capitalist model. The
Statist model of development sought by NIEO has over the last few years been discredited in
a number of developing countries in the Asian, African and Latin American regions.
Practically everywhere the State has retreated from the economic field and the current trend is
in favour of economic liberalisation, deregulation and privatisation.

The NIEO paradigm was born out of the experience of unequal economic and
political relationships between the developed and developing nations. It has now led, on both
sides of the game, to a more mature, and perhaps more rational and pragmatic view of the
interaction.

Developing countries have gained an understanding and developed an experience of

world’s economic system and its main actors; foreign investors have learnt to take host
States, their aspirations, attitudes and sensitivities more seriously. The confrontational
approach seems to have been replaced by one based on the concept of partnership between
the North and the South aimed at ushering in a new era of economic cooperation.

The Cartagena Commitment

Partnership for cooperation adopted by UNCTAD, the General Assembly Declaration

on International Economic Cooperation, in particular the revitalization of Economic Growth
of Developing Countries, the International Development Strategy for the Fourth United
Nations Development Decade and the United Nations New Agenda for the Development of
Africa in the 1990s, all appear to follow this approach.

In the present unipolar world, it is the United States that largely sets the world trade
and economic agenda. The collapse of the Soviet Union and the Warsaw Pact has ushered in
a situation where ignoring the principles, doctrines and theories of the world order, could be
fraught with grave damages. Already, the United States, in communion with the European
Union, has asked the WTO to include on its agenda the so-called “social clauses” intended to
regulate the linkages between trade and environment, trade and labour standards and trade
and human rights. The developing countries have understandably characterised these attempts
as a new form of protectionism aimed at robbing them of the comparative advantage which
they have painstakingly built up in a few sectors of the world economy. The WTO also
threatens to be more powerful than the United Nations because it, along with the World Bank
and the IMF would conceivably control the “purse strings” of the world.