New International Economic Order

(Prepared for R.J.B. Jones ed., Routledge Encyclopedia of International Political Economy; London: Routledge, 1999).

Formal proposals for a New International Economic Order (NIEO) were put forth by developing countries at derive from a summit meeting of the nonaligned movement in 1973. The origins of the NIEO however, can be traced back to the Havana Conference in 1948 and stem from economic and political tensions that had been building between the developing and developed nations.

On an aggregate level, the economic performance of the developing countries had been fairly good in the 1950s. By the early 1960s, however, many developing countries were frustrated with their growth prospects and started demanding a better deal. Rallying in such organizations as the Non-Aligned Movement they created the United Nations Conference on Trade and Development (UNCTAD) where they argued for fairer terms of trade and more liberal terms for financing development. The North responded with pious declarations of its good intentions – but also with a hard-nosed insistence that the proper forum for any economic changes continued to be the Bretton Woods institutions where they held the balance of power. By the early 1970s, however, the postures of the developing countries were changing:

  • A substantial shift occurred in the developing countries’ perception of the gains to be had from economic relations with the developed countries under the existing rules of the game; the shift was toward the gloomier side.
  • At the same time, the developing countries perceived their own economic and hence political power via-a-vis the developed countries to be sufficiently substantial to warrant a strategy of effective trade unionism to change the rules of the game and thereby to wrest a greater share of the world’s wealth and income.
  • Finally, a straightforward political desire to participate more effectively in decision making on the international economic matters was evident. Participation was demanded not merely to ensure that the developing countries’ interests were safeguarded, but equally as an assertion of their rights as members of an international community, and as a desired feature of a just international order.

The success of the oil producing countries of OPEC in increasing petroleum prices substantially, starting in 1973, served as a catalyst to pull together the developing countries in support of a call for a New International Economic Order in which their interests would be better represented. This call integrated many of the proposals that has been discussed previously at UNCTAD and other world forums.

Specific proposals for changes in the economic system were advanced at the Summit Conference of Non-Aligned Nations held in Algers in September 1973. Following that, the Sixth Special Session of the U.N. General Assembly was called hastily for April 1974. This session adopted, without a vote, a manifesto entitled “Declaration and Program of Action of the New International Order.” in December 1974 the General Assembly approved the Charter of Economic Rights and Duties of States.

The NIEO is essentially a 18 clause document that seeks certain changes in the international system that would allow less-developed countries opportunity to build their way out of the never-ending cycle of poverty. Several main clauses stand out:

  • Adoption of an integrated approach to price supports for an entire group of developing country commodity exports;
  • The indexation of developing country export prices to tie them to rising prices of developed countries’ manufactured exports;
  • The attainment of official development assistance to reach the target of 0.7 percent of GNP of the developed countries;
  • The linkage of development aid with the creation of the IMF’s Special Drawing Rights (SDRs);
  • The negotiated redeployment of some developed countries’ industries to the developing countries;
  • The lowering of tariffs on the exports of manufactures from the developing countries;
  • The development of an international food program; and
  • The establishment of mechanisms for the transfer of technology to developing countries separate from direct capital investment.

The Charter of Economic Rights and Duties of States included two basic and controversial propositions:

  • It affirmed each state’s full permanent sovereignty over its natural resources and economic activities, which was specifically set out to include the right to nationalize foreign property in disregard of existing international laws.
  • Primary product producers have the right to associate in producers’ cartels and other countries had the duty to refrain from efforts to break these cartels.

No doubt the most important provisions in the program designed to establish the NIEO deal with the management and pricing of at least ten core commodities: cocoa, coffee, tea, sugar, hard fibers, jute, cotton, rubber, copper and tin and seven other commodities with slightly lower priority: bananas, wheat, rice meat, wool iron ore and bauxite. Specifically the objectives of the commodity program were to: (1) reduction of excessive price and supply fluctuations; and (2) establishment and maintenance of commodity prices in which in real terms are equitable to consumers and remunerative to producers.

To achieve these goals, the following integrated measures were proposed: (1) the establishment of international buffer stocks, (2) the creation of a common fund to finance these stocks, (3) the signing of multilateral trade commitments, and (4) the arrangement of improved compensatory financing to stabilize export earnings.

Both of these U.N. documents affix blame for the low incomes in the South on past exploitation under colonialism and neocolonialism. These terms come from the socialist-Marxist literature that define as exploitation commercial activities in which business firms retain any part of net revenue as profits or return to invested capital rather than paying it all in the form of wages to labor employed by the firm. This proposition follows directly from the Marxist proposition that any net income not going to wages, is surplus value. Under colonialism the instruments of exploitation were the colonial administration an under the neo-colonialism they are the modern multinational enterprises.

Confronted by the far-reaching demands for reform of the world’s economic and social systems, the North responded by calling for the Seventh Special Session of the U.N. General Assembly. This session, held in September 1975, was intended to arrive at a North/South compromise, and resulted in the issue of Resolutions 3362, which was adopted by consensus. This resolution basically endorsed the demands for New International Economic Order, the ideas for price indexation, the 0.7 percent aid target, the SDR aid link, and many other provisions originating with the South Coalition. The United States and other Northern delegates attached detailed reservations to the resolution, but its passage represented a symbolic victory for the South. The negotiations leading to the resolution had the main effect of changing slightly the militant tone of the proceeding documents and led to the incorporations of some demands for changes and programs proposed by the United States.

These U.S. proposals were centered on the basic principle of maintaining the existing economic system and the provision of development assistance through increased trade liberalization, the transfer of aid and technology though international organizations outside the direct control of the United Nations and the creation of some programs for the stabilization of commodity prices and the creation of some buffer stocks, of a fund to stabilize export earnings of developing countries and of agreements on coffee, cocoa and sugar.

At the UNCTAD IV conference in Nairobi in May 1976, the proposals for the establishment of a New International Economic Order were reworded slightly in some instances, but their essence remain unchanged when they were adopted as resolutions, with only the United States and the Federal republic of Germany voting against them. Most significantly, the conference laid out a time table for the study and implementation of one of the most controversial proposals involving the integrated program for commodities, giving them a bureaucratic life of their own and raising exceptions about their ultimate adoption.

As things turned out, the NIEO never became much more than a rallying cry for the South. This failure stemmed partially from of the South’s lack of power in world politics, and partly because disparities within the South created divergent interests among the member States. Also it became apparent that many of the proposed commodity schemes were not simply a proposal for stable prices, but, instead, high prices. As such, the financial costs of implementing these programs were way beyond anything the advanced countries were willing to fund. In the 1980s, the terms of trade further deteriorated for raw material exporters, and the debt problems of many of the nations advocating the NIEO on the defensive in international forums.

See also…

International Law Issues