Werner Corrales-Leal UNCTAD-Global Programme on Globalization, Liberalization and Sustainable Human Development Marrakech, April 2004 ENERGY CLUSTERS AND SERVICES: A STRATEGY FOR DIVERSIFICATION AND SUSTAINABLE DEVELOPMENT IN OIL EXPORTING AFRICAN COUNTRIES AN APPROACH TO TRADE LIBERALIZATION AND WTO NEGOTIATIONS FROM AN OIL EXPORTING COUNTRY PERSPECTIVE NOT AN OFFICIAL UNCTAD RECORD

LIST OF CONTENTS  An approach for making trade integration supportive of development.  Market-friendly active policies for development: An illustrative case in the Venezuelan Oil Sector.  Appendix: Illustrations of the links between effectiveness of development strategies and WTO rules

PART ONE Trade-supported Development Strategies An approach for making trade integration supportive of development

 Specific impacts on the productive bases of developing countries “Natural advantages”confirmed as bases for further specialization Most trade and FDI flows occur within TNC chains and networks External shocks: financial volatility, declining and unstable X prices  Impacts on inequalities, at international and country level Destruction of traditional SMEs’ networks with no substitutes Precarious employment conditions become structural after Adjustment SOME IMPACTS OF LIBERALISATION ON DEVELOPING ECONOMIES WORTH TO CONSIDER 40% of K flows to arbitrage; high proportion of FDI does not generate X Success story of a few countries: Active policies for competitiveness 90% of K flows to twenty “emerging markets” (50% in the 80s) LDCs marginalisation; no sign of convergence; uneven “Welfare Gains” Net positive creation of trade; trade flows grow faster than GDP An approach for making trade integration supportive of development

 Objectives in the three spheres of Sustainable Development GUIDELINES FOR A DEVELOPMENT-SUPPORTIVE INTEGRATION IN THE GLOBAL ECONOMY  Macroeconomic and international finance orientations Equilibrium in international flows and limits to volatility of K Direct investment (N+F) oriented to increase productivity and PPE  Aims and strategic guidelines for trade-supported policies Expansion of real incomes and opportunities of the citizens Sustainable use of natural resources for present and future generations Integration in global system securing long term, stable economic growth An approach for making trade integration supportive of development Increase value added, knowledge intensity and differentiation to exports Enhance efficiency in production through technology and innovation Improve internal multipliers: clustering, linkages and SMEs networking Gain market access; improve marketing and trade defense capabilities Improve social effectiveness of economic policy (e.g. Informal sectors) Mainstream environmental concerns in competitiveness policies

Basis and intensity of competition erodes capacities for reinvestment  Reduce dependency on current trade in commodities Commodity production has very limited networking or spill-over effects  Promote effective tech transfer and increase internal multipliers THE NEED FOR ACTIVE POLICIES FOR DEVELOPMENT IN OIL-EXPORTING COUNTRIES “Global Chain Optimisation”: Promote Clusters and insertion to Chains Motivate and promote domestic R&D and Technological Capacity Building A “Levelled playing field ” to negotiate alliances and complementarities Modify trends: extreme productivities and exchange rate appreciation  Modify dynamics of investment affected by the Dutch Disease Incentivate Investment towards higher value added goods & services An approach for making trade integration supportive of development

Active policies affecting Static factors: – Export growth based on market access – Rents related to productivity, based on “Best Global Practices” – Productive linkages and networking enhancing domestic multipliers  Impinge on factors explaining growth in revenues and competitiveness Active policies enhancing Dynamic factors ( Rents related to innovation ): – Knowledge-enhanced productivity; Innovation in processes and attributes … – Strategic marketing; differentiation; life cycles of products.. Effective market access: Ease traditional barriers and improve access to GVCs  Relieve constraints for “adding value” or appropriating trade surplus Diversification: Move away from extreme competition in commodities Networks and institutions: Frameworks for learning and multiplying effects Negotiations in Policy Space: Level the playing field for Supply-side Policies MANAGING TRADE INTEGRATION: AFFECT THE RATIONALE OF TRADE SURPLUS APPROPRIATION An approach for making trade integration supportive of development

MANAGING TRADE INTEGRATION: RELEVANT POLICY AREAS AND ENABLING FRAMEWORKS ENTERPISE DEVELOPMENT AND CLUSTERING POLICIES TRADE POLICIES MACROECONOMIC FRAMEWORK OF POLICIES COMPETITION POLICY INVESTMENT RULES ENVIRONMENTAL REGULATIONS INNOVATION AND TECHNOLOGY POLICIES INFRASTRUCTURE POLICIES INVESTMENT POLICIES ENVIRONMENTAL POLICIES SOCIALLY – TARGETED COMPETITIVENESS RELATED POLICIES NATIONALENABLINGFRAMEWORKS ACTIVE AND REGULATORYPOLICIES (THE TOOL BOX) An approach for making trade integration supportive of development

COMPONENTS AND AIMS OF AN INTEGRATED TRADE-SUPPORTED DEVELOPMENT STRATEGY KNOWLEDGE, INNOVATION SYSTEMS & TECHNOLOGY TRANSFER POLICIES ENTERPRISE DEVELOPMENT AND CLUSTERING, PRODUCTIVITY & INVESTMENT POLICIES POLICIES AND RULE MAKING IN INTERNATIONAL TRADE AND INTEGRATION  Trade-related policy areas  Strategic Policy Goals Enhance social effectiveness of economic policy Improve internal multipliers of export-led growth Secure equilibrium and stability in in external flows Environmental concerns as cross-cutting policy issues Increase knowledge value & diversification in exports Enhance market access and defense capabilities Improve productivity through technology & innovation An approach for making trade integration supportive of development

Conditioned access to FDI, as “benefit” in sectors reserved for national investment  Market consistent investment-related policies for competitiveness Focalized promotion; incentives to ToT, R&D, Clustering and SME development POE procurement promoting technological capacity building and SMEs clustering SOME OPPORTUNITIES FOR SUPPLY-SIDE POLICIES CONSISTENT WITH CURRENT WTO RULES Subsidies (dual pricing in gas); tariffs & tariff binding for value-added goods  Multilateral disciplines and issues involved in the immediate future Performance requirements for ToT, domestic capabilities development & clustering Energy services and GATS rules in general; Coordinated implementation of IPR, competition rules and R&D programmes An approach for making trade integration supportive of development Special and Differential Treatment; “Spaces for Development Policies” in general Eventual negotiations on investment, public procurement and competition

LINKAGES IN THE TWO DIMENSIONS OF TRADE AND DEVELOPMENT POLICIES KNOWLEDGE, INNOVATION SYSTEMS & TECHNOLOGY TRANSFER POLICIES ENTERPRISE DEVELOPMENT, PRODUCTIVITY & INVESTMENT POLICIES NATIONAL POLICIES FOR INTERNATIONAL TRADE AND INTEGRATION DEMAND SIDE TRADE- SUPPORTED POLICIES SUPPLY SIDE TRADE-SUPPORTED POLICIES RULES IN THE SPACE FOR DEVELOPMENT POLICIES MARKET ACCESS AND FAIR TRADE RULES An approach for making trade integration supportive of development

PART TWO Market friendly policies for development: An illustrative case in the Venezuelan Oil Sector

Only 15% of the engineering & capital goods procurement was national  Strategic need to reduce Technological Dependence on TNCs 1980 : MAIN CHALLENGES IN THE SECTOR RELATED TO TECHNOLOGICAL CAPABILITIES Almost inexistent R&D Capabilities in the sector (PDVSA or elsewhere)  Objective shortages in Technological Capabilities in the Country Only 5 construction management firms capable of major assignments Decision to face the program on a “Market Friendly” basis  Doubts and confidence after only 5 years of the nationalization Firm commitment of PDVSA and the Venezuelan private sector Public doubts about the success of the Capacity Building Program Pre-existing contracts for the provision of technology and engineering The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela About 20 engineering companies for projects of medium complexity

Establishment policy for Transfer of Technology on Commercial Basis  Creation of a High Quality Research & Development Organization Massive program for training human resources in research fields THE STRATEGY FOR CAPACITY BUILDING IN R&D, ENGINEERING AND CONSTRUCTION SERVICES Implementation of Quality Assurance and Competitiveness Programs  Promotion of Capital Goods Manufacturing and Service SMEs Export Promotion Program Reform of Contracting Practices introducing Project Disaggregation  Promotion of Engineering and Construction Management firms Continuous Improvement and Quality Control Practices in all Contracts Non Mandatory Performance Requirements for Joint Ventures Creation and development of INTEVEP The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela Incentives for Chains of Suppliers Development Programs

% evolution trend Investment US$ 2,500 MM/yr Very high improvement in Technological Capabilities LONG TERM EVOLUTION OF THE ENGINEERING AND CONSTRUCTION SERVICES The use of Market-Friendly Active Policies, a case of the Oil Sector in Venezuela Highly skilled jobs,sources of Added Value and backward links created Further evolution of Engineering & Construction to Integrated Services

PART FOUR Appendix: Illustrations of the links between effectiveness of development strategies and WTO rules

SUSTAINABLE DEVELOPMENT OBJECTIVES WTO FRAMEWORK OF RULES WTO FRAMEWORK OF RULES POLICY GOALS OF OIL EXPORTING COUNTRIES Substantially alleviate poverty, exclusion and social polarization Generalize access to health, nutrition and education Support micro-enterprise & coops networks’ output growth & upgrade Promote capabilities in HVA Energy Service Sectors Support Investment in R&D and innovation-based firms in clusters Support cost affordable ToT in social sectors and environment Progressive and selective M liberalization in non-energy sectors Temporary support to X capabilities of firms in non-energy sectors Promotion of development goals- targeted FDI in energy-related sectors Support consolidation of energy- based clusters of SMEs & big firms Support managerial and techno upgrade of SMEs in energy clusters Diversify production towards higher value added & knowledge Reduce productivity gaps: Social groups, regions, sectors Enhance domestic multipliers: jobs and income sources Long term sustained, trade- supported economic growth Enabling provisions in “Space for Development Policies” Traditional Commodity X: Strategic market power (OPEC) Value-added X: Support marketing improvements; defend foreign mkts Commodities X: Competition, Anti- Dumping and Subsidies; H. V. A. down-stream X: Non discrimination or trade barriers Support and actively enforce environmental adequacy of industries ILLUSTRATION OF LINKS IN A TRADE-SUPPORTED STRATEGY FOR OIL- EXPORTING COUNTRIES Benefit from sustained values and advantages of NNRR Conserve biodiversity & eco- systems; benefit from Bio-trade Secure access to environmental public goods The links between effectiveness of strategies and WTO rules