Memorandum submitted by Christian Aid
SUMMARY:
— History shows that interventionist
trade policies are generally more effective in reducing poverty
than trade liberalisation.
— If Doha is to be a development round,
it needs to be about providing flexibility to developing countries
in trade policy, not binding them to more liberalisation. Greater
flexibility for developing countries in WTO agreements could be
agreed as part of changes to Special and Differential Treatment
(SDT). It was agreed at Doha that negotiations on SDT would be
a key part of the new round of trade talks, but progress so far
has been almost non-existent.
— In order for developing countries
to benefit fully from current and future agreements, an agreement
on SDT guaranteeing them sufficient flexibility in trade policy
making is needed.
RECOMMENDATIONS:
On SDT:
— Rather than trying to reinvent the
wheel, the UK government should take seriously what developing
countries themselves are saying on SDT, and in particular state
clearly that the purpose of SDT is to provide flexibility in trade
policy making for as long as it is necessary.
— HMG should urge the EC and other
industrialised countries to agree to developing country demands
for a "framework agreement" on SDT in the WTO.
— The "framework agreement"
must include guarantees of policy flexibility for developing countries
in relation to current and future WTO agreements.
On market access:
— HMG should state that any market
access offered to developing countries will not be conditional
on reciprocal liberalisation in developing countries.
— HMG should push for a change of approach
in the EU and among other WTO members to cease demanding any reciprocity
from developing countries in market access negotiations in the
WTO, or in regional or bilateral trade deals.
INTRODUCTION
Christian Aid is the official development agency
of over 40 British churches and works for social justice and poverty
reduction with local organisations in 57 countries. Christian
Aid has worked on trade policy issues for over 10 years, and attended
both the Seattle and the Doha Ministerial meetings of the World
Trade Organisation.
In the UK, Christian Aid campaigns on trade
as part of the Trade Justice Movement, a coalition of more than
55 aid agencies, environment and human rights campaigns, fairtrade
organisations, faith and consumer groups. Between them TJM organisations
have over 8.9 million members. Concerned with the harmful impact
of current international trade rules on the poorest people in
the world, on the environment and on democracy, the Trade Justice
Movement calls for fundamental change of the unjust rules and
institutions governing international trade, so that trade is made
to work for all.
The preamble to the Marrakech declaration, which
established the WTO, states that the purpose of trade is to contribute
to sustainable development. Precisely how trade can achieve this
is the key question for developing countries as they negotiate
a new set of trade rules and agreements on market access in the
Doha round of trade talks.
1. WHO GAINS
FROM TRADE
AND TRADE
LIBERALISATION?
The historical record is one of the battlegrounds
in the debate on trade policy and growth. A careful reading of
the evidence demonstrates that making trade work for economic
development does not necessarily involve relying on trade liberalisation:[4]
— Almost no developed country has become
so without long periods during which domestic enterprises were
protected from competition and given incentives to export, though
the precise policy instruments used have changed over time.
— The most successful sectors and enterprises
in developing countries today are those that are operating—or
that developed—under interventionist trade regimes, where
trade was actively managed to meet development goals.
— Trade liberalisation has not, in
the past, been associated with the same kind of success in terms
of development and poverty reduction as interventionist and flexible
trade regimes.
1.1 How have countries gained from trade?
In the past, gaining from trade has involved
the development of local enterprises in new sectors to capture
new sources of comparative advantage and expand trading opportunities
into new high value areas. The earliest examples of success occurred
under very restrictive trade regimes. Most European countries,
and the US, industrialised behind high tariff barriers. Recent
industrialisers, most notably the East Asian states, have also
relied on a range of trade policy instruments to develop and maintain
their comparative advantage in new sectors. Key to this was ensuring
that the incentives faced by both local and foreign companies
encouraged innovation, export promotion and the development of
new productive capacity.
— In Taiwan, the development of new
industries was achieved through very interventionist government
policy. Rates of protection reached a high point of 55% in 1974.
Protection was accompanied by various export promotion measures,
including export subsidies, directing credit towards certain companies,
and directing foreign investment to specific sectors where technology
transfer was also enforced. Thanks to a far-reaching land reform
and other social policies, Taiwan has the fairest income distribution
in the world, and a literacy rate of virtually 100%.
— In Korea, successful companies were
given a range of subsidies and protected from competition with
foreign firms. In return, they had to meet stringent requirements
on export performance and were subject to domestic competition.
In addition, the Government invested heavily in developing a technology
infrastructure, and in education and training, to create the conditions
for high-technology export development to flourish.
MAURITIUS
Mauritius is an even more recent example of
successful economic development, and shows that interventionist
trade policies are still relevant today. By any standards, Mauritius
has been successful in terms of both growth and poverty reduction.
— Growth per head averaged 4.2% between
1975 and 1999, by which time per capita GDP was US$ 9,107.
Productivity has also increased. Income inequality has fallen
during this period, and life expectancy has increased by 10 years.
Mauritius now ranks 63 in the UNDP's Human Development Index.
— Manufacturing industry has been protected
from competition for relatively long periods, using both tariff
and non-tariff measures. The IMF ranked Mauritius as one of the
most protected economies in the world in the 1990s. Local producers
are treated preferentially to foreign producers, a strategy that
has contributed to the development of domestic capital to the
extent that it formed the basis for export growth. Around 50%
of the equity of firms producing for exports is nationally owned.
— Various export subsidies were provided
for firms operating in the Export Processing Zone. These included
tax breaks and some weakening of labour legislation—though
not all of Mauritius' very progressive labour legislation was
suspended in the EPZs.
— Trade policy was also used to ensure
food security for the population and protection to local farmers.
— While Mauritius has benefited from
preferential access to EU and US markets, unlike other countries
with the same market access arrangements it has employed the economic
policy instruments to ensure that the country benefited from improved
market access over the long term.
The Mauritian example shows how, even in a globalising
world, individual countries can still use a variety of trade policies
to achieve developmental aims. Mauritius was highly successful
in using a range of policy instruments to ensure that private
sector activity contributed to the country's developmental goals,
and using social policy to address the adjustment costs of transition
to an export-oriented economy. Through the use of subsidies, tariffs
and discrimination between local and foreign firms, the incentives
offered to the private sector reflected both economic and social
goals.
1.2 The impact of trade liberalisation
During 30 or more years of structural adjustment
programmes, eight years since the completion of the Uruguay Round,
and an explosion in the number of regional and bilateral trade
agreements, trade liberalisation has become the norm in most countries.
As a result, there is plenty of evidence to assess its impact
on growth and poverty. This evidence shows that faith in trade
liberalisation is not well placed.
— Evidence from multi-country studies
shows that, far from being a solution to problems of growth and
poverty, liberalisation is often part of the problem. The political
importance of this question has ensured that many studies have
been undertaken attempting to prove a link between trade liberalisation,
growth and poverty reduction. No such link has been conclusively
established—it is likely that there is no straightforward
relationship between trade liberalisation and any particular outcome.
— What is clear that, at the level
of individual countries, there are many examples where liberalisation
has failed to deliver the promised economic growth, as well as
having disastrous effects for particular groups.
Examples of the impact of trade liberalisation
on poverty include:
— In Zambia, all licensing and quantitative
restrictions on imports and exports were eliminated between 1992
and 1997. The maximum tariff level fell from 100% to 25% in the
same period. During this period, formal sector employment in manufacturing
fell by 40% and manufactures fell as a proportion of GDP.
— In Mozambique, following privatisation
and upgrading of cashew-processing factories, the stage seemed
set for successful diversification into agricultural processing.
However, liberalisation of exports of raw cashews, which was required
as part of a structural adjustment programme, led to the collapse
of the domestic processing industry and the loss of around 10,000
jobs. Producers became more vulnerable to volatile world prices
for raw cashew, and potential linkages between producer and processor,
which may have contributed to increased productivity in the production
of raw cashew, were lost.
— In Ghana, widely seen as a success
story of liberalisation, domestic industry responded well to the
first phase of adjustment, which involved liberalising foreign
exchange transactions. Increased investment and imports of essential
inputs led to rates of growth in manufacturing ranging from 10
to 24% a year between 1983 and 1987. However, industry was then
devastated by import competition following the second phase of
trade liberalisation in 1987, and by the early 1990s growth in
manufacturing was barely over one % per year while employment
in manufacturing fell from 78,700 in 1987 to 28,000 in 1993. In
the absence of high levels of investment and technology transfer,
and without government support and protection, Ghanaian industry
is failing to develop new areas of comparative advantage or even
to maintain existing levels of production and exports.
1.3 Making gains from trade
What all success stories in trade policy and
development have in common is that governments managed markets
to ensure that the incentive structure faced by the private sector
reflected development goals. Open systems where incentives are
left entirely to market forces have not had conspicuous success
in fostering growth or poverty reduction. The key seems to be
fitting the incentives to the particular development goals, then
monitoring and implementing policy flexibly to ensure that the
particular economic policy instruments continue to have the effect
intended.
2. SPECIAL AND
DIFFERENTIAL TREATMENT
If the members of the WTO are to remain true
to the founding statement of the organisation and devise agreements
that allow trade to contribute to sustainable development, they
must consider how the lessons of the past can be applied to international
rule making in trade:
— The evidence shows that the key for
development is flexibility in trade policy, which allows governments
to tailor the incentives offered to the private sector to development
goals.
— WTO rules must therefore establish
and enhance an environment which gives developing countries this
flexibility.
— The rules on Special and Differential
Treatment will be a key instrument for achieving this aim.
Existing SDT measures are insufficient to the
needs of developing countries in a number of areas:
— They do not offer sufficient flexibility
for developing countries in a number of areas (eg agriculture).
— A number of the most important agreements
offer flexibility on a case by case basis after the expiry of
a "transition period" (eg TRIPs). Developing countries
have been subject to lengthy negotiations to gain the flexibility
they need.
— SDT provisions that require action
by developed countries are mostly not binding (eg market access).
2.1 SDT in the Doha round
The Doha round provides an opportunity to reconsider
SDT and take an approach to trade policy that is based on evidence.
The aim of SDT must be to allow developing countries to use trade
policy in an interventionist and flexible manner to support the
development of domestic industry, the diversification of the economy,
and the generation of wealth sufficient to lift their populations
out of poverty. However, the negotiations in the WTO have made
almost no progress since Doha, showing the reality of the professed
commitment of developed countries to making Doha a genuine development
round.
What was agreed at Doha?
The Doha Ministerial agreed that there should
be early decisions—by the end of 2002—on SDT, intellectual
property rights in the area of public health, and a range of questions
relating to implementation of the Uruguay Round agreements.
Early decisions would resolve these issues before
the negotiations on the "big" issues of agriculture
and services really got going—providing a demonstration
of commitment by the industrialised countries toward resolving
the problems of developing country members of the WTO, and ensuring
that the issues themselves would be addressed individually and
not be subject to complex trade-offs.
Early decisions on these issues have proved
impossible. More than 90 separate proposals for changes to existing
SDT provisions were tabled between February and July 2002. Industrialised
country WTO members have used a number of procedural tricks to
stall progress on the issues of most importance to developing
countries:
The EC, for example, was reported to have spent
a large part of the early meetings on SDT arguing over the precise
abbreviations that should appear on the documents issued by the
WTO relating to SDT. A number of countries have attempted to stall
discussions altogether, by arguing that they were taking place
in the wrong WTO committee, or that they were happening in the
wrong order, despite the clarity of the Doha mandate and subsequent
agreements on how to proceed.
By December 2002 there was agreement on only
five of the proposals made. All offered very little change, and
only to the poorest countries. It is now inevitable that, contrary
to what was agreed at Doha, negotiations on SDT will become a
part of the bargaining that will take place over the content of
agreements on agriculture and services, and over the decision
that will be taken at Cancun on whether to launch negotiations
on investment, competition and government procurement.
While it may still be possible for developing
countries to make some gains on SDT, this is likely to be at the
cost of making concessions on other things. Given the complex
trade-offs involved in the whole trade round, there is a danger
developing countries will end up paying a high price for what
they do manage to get on SDT. Any benefits they may obtain risk
being undermined by the consequences of other agreements.
2.3 The UK government and SDT
Despite presenting itself as one of the more
progressive governments in industrialised countries', the UK has
not been sympathetic to developing countries arguments on SDT.
Rather than take seriously the approach of developing countries,
DFID and the DTI have been working on an alternative proposal
for reforming SDT, based on a country-by-country approach to granting
extensions to implementation periods. This approach has a number
of serious flaws which make it an inappropriate solution to the
problem of SDT in the WTO:
— It is based on an assumption that
the purpose of SDT is to give developing countries more time to
implement the same agreements, rather than providing flexibility
to use different trade policies. This is neither backed up by
evidence nor supported by developing countries.
— A case by case approach would leave
individual developing countries negotiating with the whole WTO
membership. This already occurs in accession negotiations and
negotiations for extensions to agreed transition periods for implementing
agreements—in both cases developing countries have shown
themselves to be weak in negotiations, and vulnerable to pressures
to sign up to agreements they know are not in their interests.
RECOMMENDATIONS
— Rather than trying to reinvent the
wheel, the UK government should take seriously what developing
countries themselves are saying on SDT, and in particular state
clearly that the purpose of SDT is to provide flexibility in trade
policy making for as long as it is necessary.
2.4 The need for an SDT Framework Agreement
Despite the promises made at Doha, developing
countries will end up paying a high price for whatever they gain
in the "development round". A true development round
would not involve forcing developing countries to pay for any
gains they might make by agreeing to what is not in their interests—such
as delays in reform of industrialised countries agricultural policies.
This experience illustrates the importance of
having an overarching agreement on SDT that will cover all WTO
agreements, present and future. Developing countries cannot be
expected to pay over and over again for SDT. They must be sure
that they will always be in a position to interpret or implement
future agreements in ways that meet their development needs rather
than undermining them.
They also need some protection against "bad"
agreements. There is no guarantee, given the weakness of developing
countries in WTO negotiations, that all future agreements will
be development friendly. As the scope of the WTO continues to
widen, an agreement on SDT that makes clear the special status
of developing countries with regard to all WTO agreements becomes
ever more necessary.
Christian Aid is calling for WTO members to
negotiate an overarching agreement on SDT along the lines of the
"framework agreement" proposed by a number of developing
countries before the Doha ministerial. A framework agreement on
SDT must contain the following elements:
— A framework agreement should confirm
the importance of ensuring that developing countries have flexibility
within each WTO agreement for development purposes.
— There should be a binding commitment
to negotiate agreement-specific criteria and mechanisms for delivering
this flexibility. Agreement-specific criteria are already the
basis for the proposal by various developing countries for a "development
box" granting countries with certain economic and social
characteristics exemptions from provisions in the WTO's Agreement
on Agriculture. This is a model that could be extended to other
areas.
— Where developing countries are experiencing
difficulties in implementing WTO agreements, total flexibility
should be allowed where this does not cause harm to any other
country.
RECOMMENDATIONS:
— HMG should urge the EU and other
industrialised countries to agree to developing country demands
for a "framework agreement" on SDT in the WTO.
— The "framework agreement"
must include guarantees of policy flexibility for developing countries
in relation to current and future WTO agreements.
3. MARKET ACCESS
Industrialised countries often appear to see
market access as the beginning and end of pro-poor trade policy.
However, attempts to quantify the benefits improved market access
may bring have proved extremely difficult. In 1999, the UN Conference
on Trade and Development estimated that improved market access
for developing countries would be worth $700 billion per year.
In 2001, an academic study reported that it would be worth about
$43 billion per year.[5]
The two figures differ by a factor of more than 15, and there
is a whole range of estimates in between. One key source of this
difference is varying assumptions about whether and by how much
developing countries will increase their production in response
to access to new markets. In other words, market access in itself
is not the answer—it's what you do with it that counts.
According to one of Christian Aid's partners in Ghana, "The
idea that we have a stockpile of products simply waiting for better
market access is a myth".
Unless improved market access is combined with
economic growth and diversification, the benefits to developing
countries will be limited. Improved market access must be combined
with the kind of flexibility in trade policy making that has contributed
to successful development strategies in the past. However, many
offers of market access on the part of industrialised countries
are conditional on developing countries reducing their own barriers—an
action that would be likely to negate any potential benefits market
access may deliver. During his trip to Africa early in 2002, Tony
Blair argued strongly for industrialised countries to open their
markets to goods from the world's poorest countries, but also
said African countries had to "be prepared to play their
part in opening up their markets", a process which he acknowledged
would cause "pain all round".
Christian Aid believes it is unacceptable that
the poorest people in the world must pay for being offered the
right to sell their extremely limited wares to the richest people
in the world.
RECOMMENDATION
— HMG should state that any market
access offered to developing countries will not be conditional
on reciprocal liberalisation in developing countries.
— HMG should push for a change of approach
in the EU and among other WTO members to cease demanding any reciprocity
from developing countries in market access negotiations in the
WTO, or in regional or bilateral trade deals.
CONCLUSION
The story of the first year of the Doha negotiating
agenda has not covered the WTO with glory. Procedural tricks,
a lack of willingness to discuss key issues, the breakdown of
trust between delegations and the extremely slow pace of discussions
have all shown how much work remains to put the development into
the "development round".
The story of WTO agreements up to now has mainly
been one of developing countries being forced to accept the agenda
of the industrialised powers. If that happens again in the Doha
Round—and in particular if it happens on issues as central
to developing countries' concerns as SDT—they will be entirely
justified in walking away from the WTO altogether. It is the responsibility
of the industrialised countries to make sure that this does not
happen.
Christian Aid
January 2003
4 See "What Works: Trade, Policy and Development",
Christian Aid, 2002 (attached). Back
5
UNCTAD, trade and development report 1999, Geneva Anderson et
al, The Cost of Rich (and Poor) country protectionism to Developing
countries, CIES Discussion paper No 0136, Adelaide University,
Australia. Back
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