Trade and justice: time to choose

Hilary Benn
25 July 2004

This is a critical moment for the multilateral trading system – and for making it work for the world’s poor. After the trade talks collapsed in Cancún in September 2003, attempts to find common ground have inched forwards. The general council of the World Trade Organisation (WTO) meets in Geneva on 27-30 July 2004 to try and agree frameworks that will allow substantive negotiations on the Doha Development Agenda to proceed.

The meeting is vital. The Geneva trade negotiators in Geneva face big decisions. These will determine the future of the Doha round and whether the multilateral trading system emerges stronger or weaker.

The potential gains that trade can offer are crucial to the world’s poor. Global trade flows are worth $25 million a minute; Africa’s are only $500,000 a minute – only 2% of the total. Despite globalisation and rapid growth in world trade over the past decade, Africa’s share has more than halved.

A visit to a department of international development (DfID) programme in Ghana in March 2004 made me acutely aware of the inequities, the unfairness, of the global trading system. I spent a day with cocoa producers from the Kuapa Kokoo cooperative in the north of the country. They told me what life is like.

In Ghana as a whole, the livelihoods of over 2 million small-scale producers depend on cocoa. Cocoa exports make up just over 10% of Ghana’s GDP and the European Union is one of its major markets. But Ghanaian producers share few of the gains to be made from European chocolate sales. Whereas cocoa beans can enter the EU market at a very low tariff, import duties on processed products – like cocoa butter or cocoa powder – are much higher. On chocolate bars, they are higher still. These escalating tariffs are weighted to the advantage of richer countries.

The longer the multilateral system fails to deliver the potential benefits of integration into global markets to the world’s poor, the longer poverty will persist. A more open trading system – rules-based, predictable and non-discriminatory – will help us achieve the Millennium Development Goals by the target date of 2015. But failure will limit developing country governments’ ability to combat HIV/Aids, reduce the number of children who die before their fifth birthday, and allow all children of primary school age to attend school.

Amy Barry of Oxfam sent vivid daily reports from the eleventh UNCTAD conference in Sao Paulo to openDemocracy; see “Can trade work for the poor?” (June 2004)

It is no coincidence that Africa now has the highest poverty levels in the world. Oxfam estimates that an increase in Africa’s share of world exports of just 1% would be worth five times as much as the continent’s share of aid and debt relief. But trade, plus aid and debt relief – combined with political will – are necessary to ensure that the poor benefit.

The Trade Justice Movement is a tangible sign of public awareness and concern about this issue. A recent opinion poll on trade and poverty reduction (conducted by the German Marshall Fund) offers evidence that a clear majority of British citizens believe that facilitating access of developing countries’ products to global markets would be more effective than aid in reducing poverty.

But this will only start to happen if trade rules are fair to developing countries. The experience of West African cotton producers is especially revealing here. In Benin the cotton industry accounts for 85% of total exports and 20% of national income. Benin, Mali, Burkina Faso and Chad, potentially very competitive on world markets, have followed the prescriptions of the World Bank and International Monetary Fund (IMF) and ended all subsidies to farmers.

But they liberalised into highly distorted markets, and are now paying the price. Their cotton industry is in crisis and with it the livelihoods of hundreds of thousand producers. This is because they have to compete with heavily subsidised EU and United States producers. In 2001, the US cotton farmers received nearly $4 billion in assistance – more than the entire GDP of Benin.

From Doha to where?

This is the tip of the iceberg. Agriculture is by far the most distorted sector in the world market. The EU and the US together have less than 1% of the world’s agricultural population; twenty developing countries, including India and China, have 70%. Whereas agriculture accounts for less than 3% of GDP in high-income countries, agriculture makes up half of many developing countries’ economies.

The agenda for the current trade round – agreed at the WTO summit in Doha in 2001 –put development at the heart of WTO negotiations for the first time and opened a way forward to tackle these distorted markets. In Doha, WTO members promised to open their markets and reduce trade-distorting subsidies significantly; to move towards phasing out all forms of export subsidies and make special and differential treatment measures for developing countries more effective.

But little has been done in the past two and half years to fulfil the Doha agenda – especially on the issues of most concern to developing countries: agriculture, non-agricultural market access and special & differential treatment. Developing countries and NGOs express cynicism about the prospects of achieving a true “development round”. After the collapse of talks in Cancún, the chances of completing the round by the deadline of the end of 2005 are becoming increasingly slim.

That is why concerted political will is needed to ensure that the promises we made in Doha are delivered. But the state of the WTO round shouldn’t blind us to the fact that reaching agreement on Doha was in itself a significant step forward. The creation of the General Agreement on Trade and Tariffs (Gatt) in 1947 was dominated by developed countries and only addressed what mattered to them: tariffs on industrial products. Agriculture was included in world trade negotiations only in the Uruguay round; these concluded in 1993 and led to the establishment of the WTO.

The WTO has expanded to 147 members, two-thirds of them developing countries. One of the most positive recent developments is that developing countries are organising themselves into negotiating groups to strengthen their bargaining power. The first of these is the G20 – originally twenty of the more advanced developing countries – including China, India, Brazil and South Africa. This grouping, which wants much greater access to developed country markets, came together in reaction to the EU-US agriculture proposals.

openDemocracy writers – from Anita Roddick, Naila Kabeer and Ann Pettifor to Kevin Watkins, Barry Coates and Jean-Pierre Lehmann – explore the themes of trade, development, ecenomics and justice here

Meanwhile, sixty-two of the poorest and most vulnerable WTO members have also come together to form the G90. The name comes from the combined, overlapping memberships of the African Union, the African, Caribbean and Pacific, and the least developed country (LDC) groupings.

The costs of retreat

The emergence of a much stronger developing country voice over the past year is a great step forward. The WTO, after all, works on the basis of “one member, one vote” with decisions taken by consensus. So if developing country members don’t like what’s on the table, they can say no – though if they choose to do so, they also stand to lose most.

The WTO is the only forum that can make and enforce global rules to tackle the trade barriers and trade-distorting subsidies which are most damaging to developing countries. Progress here, in the year of the United States election and a new European Commission president, is centrally dependent on the Geneva general council meeting setting frameworks for new negotiations.

Many WTO members are currently investing energy in negotiating regional and bilateral agreements. Such a retreat from multilateralism will make the global trading environment less predictable, and will leave developing countries – marginal players in global trade – at the mercy of more powerful negotiating partners.

From a development perspective, there are many positives in the preparatory texts for the Geneva meeting. The agriculture text, for example, proposes a common end-date for all forms of export competition, “substantial and effective” cuts in trade-distorting farm subsidies and special safeguards for developing countries.

On the “Singapore” (or “New” issues) it is proposed that there are no negotiations in the round on investment, competition or transparency in government procurement.

All WTO members need to show flexibility in order to build the necessary consensus to reach agreement at the general council – on the frameworks we had hoped to agree in Cancún. It is the richest WTO members that need to make the greatest movement in the negotiations. The outcome of the Uruguay round benefited the developed world disproportionately (the recent Stiglitz report for the Commonwealth secretariat concludes that there was a 70:30 split in the balance of benefits in favour of developed countries). Now is the time to redress this imbalance.

Developed countries need to start practising what we preach to developing countries. We need to open our markets too to achieve freer and fairer trade; and to remove glaring anomalies, such as the United States collecting almost the same level of duties on imports from Bangladesh as it did on those from France in 2001, despite French imports being worth twelve times more.

Leading by example

The more advanced developing countries also need to open their markets to their poorer neighbours to encourage south-south trade. This trade now accounts for more than one third of developing country exports – approximately $650 billion. The World Bank estimates that since 1989, developing countries’ own liberalisation has facilitated their export growth and encouraged regional integration.

One example is the East African Customs Union that has helped stimulate trade between Kenya, Tanzania and Uganda. Yet despite the potential benefits, around 70% of the tariffs faced by developing country exporters are applied by other developing countries. In recognition of the disparity between their market power and the development constraints each faces, China and Brazil can be expected to reduce barriers to trade faster and by greater amounts than Chad or Burundi.

Developing countries can benefit greatly from facilitating trade, through such measures as improving customs services and lowering administrative costs. For example, despite a cut in import duties, an overhaul of customs management in Mozambique led to customs revenue almost trebling between 1996 and 2000.

Moreover, there is clear evidence of the longer-term benefits to countries that have managed liberalisation from the experience of Korea in the 1960s; to Chile in the 1980s; and more recently, China and India. All these countries experienced a rapid acceleration in growth after they adopted trade reforms, including substantial reductions in barriers to foreign trade.

Since 1998 DfID has allocated £174 million for trade-related capacity in developing countries. One example is a new £12 million regional trade facilitation programme spanning fourteen countries in Southern Africa. This will help streamline customs procedures and develop a common set of standards for goods and services across the region. It will also address the particular needs of poor producers and small-scale traders.

DfID also supports a range of initiatives to assist developing country governments in designing pro-poor trade policies and participate more effectively in trade negotiations. To avoid overburdening developing countries’ limited capacity promoting a more co-ordinated approach by multilateral and other bilateral donors is fundamental to our approach.

There is also a need to promote policy change outside the WTO. Product standards can also act as a barrier to developing country exports. Low- and middle-income countries report that between 1996-1999 more than half of their potential exports of fresh and processed fish, meat, fruit and vegetables were prevented from entering the European Union market because of sanitary and phyto-sanitary standards.

Standards are of course necessary to protect consumers. But in some cases they penalise developing country produce unnecessarily. For example, it was estimated that the impact of changes in the EU standards on aflatoxin levels in food would reduce the health risk to the EU by approximately 1.4 deaths in a billion – yet this one rule reduced African exports of cereals, and dried fruits and nuts, by more than 60, a loss of $670million.

The United Kingdom is working with EU partners to promote greater coherence between the EU’s trade, development and agriculture policies, including further reform of the Common Agriculture Policy (CAP).

One example of the need for progress, and of the high political sensitivities involved, is the current reform of the EU’s sugar regime. The importance of reform is highlighted by Mozambique, where three-quarters of the rural population live in poverty. Sugar, the biggest industry, employs half the people it could and generates $150 million less than it could because of EU export subsidies and barriers to imports.

The EU is giving Mozambique £136 million in aid – less than the country would make for themselves if we tackled EU subsidies and opened our market. It makes no sense to give with one hand and then take away with the other. The rules on sugar arbitrarily give advantages to preference-receiving producers over poorer and more competitive suppliers, like Mozambique. For every dollar of aid given to one group of developing countries by the US and the EU, $2.75 of economic damage is done to others.

A reform that would allow tariff and quota free access to imports from the least developed countries, as the EU does under the “everything but arms agreement” (though not until 2009 for sugar) has the potential to increase the poorest countries’ participation in world trade and help their economies diversify.

We would like to see other developed countries offer LDCs the same access to their markets, with schemes free of the clauses that often restrict their application. For example, Tanzania can’t benefit from preferential access to the EU market if any processing takes place in its non-LDC neighbour Kenya. Such restrictive rules on the origin of products act as a brake on both regional integration and integration into global value chains.

Lesotho, by contrast, has been able to benefit from the more relaxed rules of origin offered by the United States. These allow Lesotho to source textiles from anywhere in the world while still classifying its exports of garments as originating from Lesotho. Since 2001 Lesotho’s exports to the US have quadrupled to US$320 million, making the garment industry the largest employer in the country.

High stakes, clear options

The stakes for trade and development in the coming period then are high. If the WTO general council does not make progress at Geneva, the main losers will be those the Doha development round was designed to assist – developing countries and their citizens.

If we don’t reach agreement, we risk undermining developing countries’ faith in the rules-based multilateral system. We risk withdrawing into bilateralism and weakening the rules-based multilateral system – from which all stand to gain: rich and poor. We risk undermining global security by not tackling inequities in our global order. It is no coincidence that the Doha agenda was agreed just three months after 9/11: we were moved to reach out to our neighbours.

These risks are very real and present. Three years on can we ignore the promises we made?

This is an edited version of a speech given on 21 July 2004 at the Royal Institute for International Affairs, Chatham House, London.

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