Memorandum submitted by Save the Children
Save the Children is actively engaged in the
debate over trade and development and welcomes the opportunity
to make this submission to the International Development Committee
(IDC). Save the Children also welcomes the IDC's decision to focus
its current inquiry on the crucial issue of trade and development.
As a result of its development work in over 70 countries around
the world, Save the Children has direct experience of the significance
of trade and trade-related issues for children's rights.
This submission examines the key issues relating
to trade, trade liberalisation and development as set out in the
notice of the inquiry. It also concludes with a set of questions
for the IDC to put to the UK Government on trade.
1. TRADE OR
TRADE LIBERALISATION?
Save the Children recognises that trade can
support development and poverty reduction. Trade liberalisation,
on the other hand, is a particular policy choice which has in
many cases led to increased poverty and underdevelopment. The
challenge is to identify the policies needed to ensure that trade
leads to genuinely pro-poor development, not increased poverty.
The UK Government promotes trade liberalisation
as the policy choice which will make trade work for the poor.
In so doing, the Government makes much use of the World Bank's
claim that an increase in trade liberalisation could raise an
additional 300 million people out of poverty by 2015 (World Bank
2002). For example, Minister for Trade and Investment Baroness
Symons cited the 300 million figure approvingly when addressing
the British-American Business Conference in April 2002, speaking
to the Textile Forum in November 2002 and responding to the demands
made by the Trade Justice Movement's mass lobby of parliament
in June 2002.
However, many trade experts have expressed serious
reservations over claims linking trade liberalisation and poverty
reduction in this way. The recent handbook on trade liberalisation
and poverty commissioned by DFID states that such links are often
"rather weak" (McCulloch et al 2001: 6). Indeed, the
World Bank itself admits that the theory behind its 300 million
figure has not been borne out in practice, and that some developing
countries have in fact experienced the exact opposite of what
the theory predicts (World Bank 2002: 182).
Moreover, analysis by UNCTAD specialists has
found that extensive trade liberalisation among least developed
countries (LDCs) during the 1990s has been associated with rising
poverty—and dramatic rises in poverty for those countries
which have liberalised most (UNCTAD 2002a: 117). This finding
accords with the large number of individual country studies which
show that trade liberalisation in the agricultural sector of countries
such as Ghana, Mexico, Uruguay, Zimbabwe, Kenya, India, the Philippines
and Haiti has posed grave threats to food security and rural development
(studies collated in Madeley 2000, Murphy 1999). As a result of
its own research into the impact of trade liberalisation on food
security across 14 developing countries, the UN's Food and Agriculture
Organization has concluded:
Where the costs involve a large segment of
the population, as in many low-income agrarian economies, the
text-book solution of redistributing the gains between winners
and losers at the national level becomes impracticable. (FAO 2000)
Indeed, there is now a growing consensus that
the pro-liberalisation model promoted in economics text books
is not suitable as a policy prescription for developing countries'
trade regimes, given its potential to cause mass long-term poverty.
The threat of such poverty has been underlined by the World Bank's
own predictions of the results of the Doha Round of negotiations
at the World Trade Organisation (WTO). While it forecasts a rise
of US$355 billion in global income by 2015 as a result of further
trade liberalisation, the Bank notes that net gains from the Doha
Round in sub-Saharan Africa and South Asia (the two world regions
with the highest incidence of poverty) are likely to be minimal—and
lower in both cases than the aggregate losses resulting from displacement
due to trade liberalisation (World Bank 2002: 174-176).
Some sections of the UK Government have also
come to recognise the threats posed by trade liberalisation to
developing countries. Chancellor of the Exchequer Gordon Brown,
for instance, introduced important qualifications to the Government
position in his address to the UN General Assembly Special Session
on Children in May 2002:
We must not rush developing countries to reduce
their tariffs without recognising the effect it could have on
both government revenues and on the livelihoods of people working
on the land.
However, other Government departments remain
committed to the full trade liberalisation model, despite the
acknowledged threats to development and the poor. DFID recognises
that trade liberalisation brings these threats but continues to
promote liberalisation as its principal trade policy prescription,
in the hope that complementary measures such as infrastructural
development, credit markets and extra training might offset the
negative effects. Yet developing country representatives argue
from their own experience that such complementary measures are
simply not practicable given the scale of the threat, and that
protection of key sectors via tariff barriers or other trade policy
interventions remains their only feasible way of safeguarding
vulnerable populations.
The DTI, which leads on trade for the UK Government,
is even more committed to promoting trade liberalisation in developing
countries, and has made clear that the poverty implications associated
with that model are not its concern. DTI civil servants—and
Baroness Symons herself—have confirmed that their overriding
goal in international trade negotiations is to promote UK commercial
interests, not the needs of the world's poor. By contrast, Save
the Children believes that the UK Government has a duty to respect
the rights of children and the development of developing countries
as key priorities of its international trade policy, and that
commercial interests of the domestic business community must not
be allowed to override the UK's obligations to children throughout
the world.
In place of increased trade liberalisation,
there is now growing respect for the principle of "selective
intervention" as a key development strategy for poorer countries.
For example, UNCTAD's recent report on economic development in
Africa has called on the international community to support selective
intervention rather than further trade liberalisation as the means
to encourage growth-enhancing policies on that continent (UNCTAD
2001). While countries will obviously identify and select the
forms of intervention most appropriate to their particular situation,
examples of such intervention include infant industry protection,
incentives to move exporters towards products with greater market
and productivity dynamism, or subsidies to encourage linkages
with other sectors of the domestic economy.
While much interest has focused on the need
to protect vulnerable rural populations through selective intervention
in agricultural trade regimes, the analysis applies equally strongly
to the industrial sector. As the Zedillo Report to the Financing
for Development Conference held in Monterrey, Mexico, in March
2002 concluded:
However misguided the old model of blanket
protectionism intended to nurture import substitution industries,
it would be a mistake to go to the other extreme and deny developing
countries the opportunity of actively nurturing the development
of an industrial sector.
2. MARKET ACCESS
AND PRO-POOR
TRADE
The promotion of trade liberalisation by the
rich countries of the industrialised world has been widely identified
as hypocritical, given the high level of protectionism which those
countries maintain in their own trade regimes. Save the Children
calls on the rich countries of the North to stop promoting a model
which they neither followed in their own path to development (Chang
2002), nor follow now.
Save the Children also joins with other civil
society organisations and developing country representatives in
calling on the North to open its markets to exports from the South.
It is clear that such export opportunities have in several cases
allowed countries to achieve both development and poverty reduction.
Enhanced access to key markets in the North—particularly
the major markets of the Quad (EU, USA, Canada and Japan)—would
indeed create the potential for development and poverty reduction
in some areas of the South.
It is far less clear, however, to what extent
the world's poorest countries and poorest communities will be
able to benefit from such market opportunities, especially if
they are presented under the "free trade" model favoured
by advocates of trade liberalisation. A general reduction of tariff
and non-tariff barriers in the North will pit developing countries
and communities against each other in the struggle for finite
market access opportunities. Ultimately, only those countries
and communities with the supply-side capacity to compete in the
toughest international markets will be able to capture the welfare
gains.
Much new analysis of where these gains might
go has been generated by interest in the impact of China's increased
engagement in world markets, particularly in the context of its
accession to the WTO at the end of 2001. China's acknowledged
power as a competitor provides a key indicator of how far other
developing countries can hope to benefit from finite third markets,
and commentators predict largely similar outcomes (Shafaeddin
2002, Ianchovichina and Martin 2001, UNCTAD 2002b). Countries
such as Mexico, Costa Rica, the ASEAN states or the newly industrialised
economies of East Asia all stand to face stiff competition from
China in respect of capital goods exports. Poorer countries with
similar export structures to China in light manufactures (especially
clothing and textiles) are also particularly vulnerable.
Bangladesh's clothing sector is perhaps the
most familiar case of a successful export industry developed on
the basis of trade preferences and now threatened by trade liberalisation—in
this case, the phasing out of the Multifibre Arrangement by January
2005. It is feared that Bangladesh may lose the greater part of
its export industry as a result of increased competition from
China and other developing countries—a loss which will have
serious poverty implications, given that most of the 1.5 million
workers who have found employment in the clothing sector are women
from low-income households.
Market access through the free trade model of
trade liberalisation thus offers increased opportunities to those
countries and communities strong enough to compete in global markets,
but does little to encourage exports from the numerous less powerful
economies of the developing world. Many of these poorer countries
and communities are marginalised from the global economy as a
result of inherent supply-side constraints which will not admit
of easy resolution, including such immutable issues as size, geographical
location and natural resource base, as well as the equally pressing
problems of infrastructural underdevelopment common to a wider
range of poor economies. While trade may offer the possibility
of real gains to such countries, trade liberalisation will not.
Genuinely pro-poor market access, on the other
hand, can provide valuable export opportunities for developing
countries unable or unlikely to benefit from the free trade model.
Notable examples at the local level include the impact of the
EU's banana import regime on family farms in the Caribbean, or
the numerous fair trade schemes which bring the benefits of guaranteed
trading premiums direct to the producers. At the national level
there is the growing and positive trend of providing duty-free
and quota-free access to exports from LDCs. Countries now offering
such terms to all LDC exports include New Zealand, Norway, Hungary,
the Czech Republic, Slovak Republic and (from 1 July 2003) Australia.
Several other countries have extended duty-free and quota-free
access to all but a few LDC exports, including three of the four
Quad economies: Canada, Japan and the EU.
The impact of such action in favour of the poorest
countries contrasts positively with the results of market access
provided under the free trade model of trade liberalisation, from
which few LDCs stand to benefit. Although it is still too early
to obtain data on increases in LDC exports as a result of the
new preference schemes listed above, CGE modelling has indicated
the scale of the gains which LDCs should expect as a result of
free access to the markets of the Quad. With all Quad countries
providing duty-free and quota-free market access to all LDC exports
except arms, Tanzania, Malawi and Bangladesh would see increases
in their exports of around 8-10%, while sub-Saharan Africa as
a whole would gain over US$1 billion in extra income from trade.
Any losses experienced by the Quad economies themselves—and
by other developing countries—would be "negligible"
(UNCTAD 2002c: 62).
While these figures give an indication of the
benefits which some poor countries can achieve as a result of
pro-poor market access, they also need to be put into perspective.
The extra US$1 billion in income which sub-Saharan Africa would
gain as a result of full duty-free and quota-free access to the
markets of the Quad needs to be seen in the context of the approximately
US$100 billion which that region already earns in goods and services
exports each year, and its total GDP of well over US$300 billion.
Similarly, while the predictions indicate that
Tanzania, Malawi and Bangladesh could benefit as described above
and that Uganda and Zambia could expect a smaller increase in
exports (of around 2-3%), it is unclear to what extent the other
44 LDCs would gain from the increased opportunities. While pro-poor
market access initiatives may have important consequences for
the small number of LDCs with the supply-side capacity to take
advantage of them, the majority of poorer countries and communities
may still be in no position to benefit from international trade.
3. SPECIAL AND
DIFFERENTIAL TREATMENT
OR NEW
ISSUES AT
THE WTO?
Despite the threats posed by trade liberalisation
to the most vulnerable communities, developing countries are still
faced with an extensive liberalisation agenda at the WTO. The
Doha Ministerial Declaration in November 2001 launched a wide-ranging
programme of new liberalisation talks at the WTO, including market
access negotiations in services, agriculture and non-agricultural
goods.
Many developing countries have expressed concern
that this liberalisation programme poses a serious threat to their
economies. There have been concerted calls for the pace of negotiations
to be slowed so that developing countries can assess what level
of liberalisation is actually of benefit to them. For example,
developing country representatives have repeatedly called for
an assessment of services liberalisation as a prerequisite of
their meaningful participation in the GATS negotiations at the
WTO. They have also managed to secure agreement that "appropriate
studies" will be conducted to assist the poorest countries
to participate effectively in the market access negotiations on
non-agricultural goods.
Developing countries have also made repeated
calls for exemption and non-reciprocity in the trade liberalisation
talks at the WTO. "Less than full reciprocity" was enshrined
in the Doha Ministerial Declaration as a key element of the non-agricultural
market access talks. Similarly in relation to agriculture, the
Declaration affirmed that special and differential treatment (SDT)
for developing countries "shall be an integral part of all
elements of the negotiations", building on the growing pressure
for a "development box" in the Agreement on Agriculture
to protect food security and rural development from the threat
of trade liberalisation. In the GATS negotiations, LDCs have submitted
a joint call that they should not be exposed to the same level
of liberalisation requests as more developed countries, given
the damage which such liberalisation could cause to the service
sectors of their economies.
Despite growing awareness of the threats posed
to developing country economies by the WTO's liberalisation agenda,
however, industrialised countries have blocked progress on SDT
talks at the WTO. On 20 December 2002 WTO Director-General Dr
Supachai expressed his disappointment at this failure to reach
an agreement on SDT, and called for extra commitment from governments
to achieve a resolution of the issue early in 2003. Save the Children
believes that the UK Government should support the position of
developing countries in the SDT debate and should call on EU representatives
at the WTO to do the same.
Instead of respecting developing countries'
desire to temper the pace and the scale of trade liberalisation
negotiations at the WTO, the countries of the industrialised North—and
particularly the EU—have pushed hard for an expansion of
the WTO's agenda into the new issues of investment, competition
policy, transparency in government procurement and trade facilitation
(otherwise known as the Singapore issues). Despite the consistent
opposition of developing countries to this expansion of the WTO
agenda in the run-up to the Doha Ministerial, the EU secured mention
of the new issues in the final Doha Ministerial Declaration and
continues to press for negotiations to start on these issues following
the WTO's Cancun Ministerial in September 2003.
It is important to note that the decision on
whether to begin negotiations on the new issues remains to be
taken at the Cancun Ministerial itself. Despite the assertion
by EU representatives that the decision was already made at the
Doha Ministerial, the Chairman's statement to the final plenary
at Doha is clear that each WTO member still has "the right
to take a position on modalities that would prevent negotiations
from proceeding".
The UK Government acknowledges the extreme pressure
which the current negotiating agenda places on developing country
representatives at the WTO. In addition to the argument that the
WTO is not the appropriate forum for negotiations on the new issues,
many developing country representatives have argued that they
will simply not be able to take on a new raft of negotiations
on top of those already mandated by the Doha Ministerial Declaration.
Revelations of the pressures which face developing country delegates
in their work at the WTO (see Kwa 2002) raise further doubts that
the negotiations would be handled fairly.
Save the Children believes that the UK Government's
continued promotion of negotiations on the new issues is a clear
example of policy incoherence across Whitehall. The Government
has provided substantial contributions to enhance the capacity
of developing countries to participate effectively in the already
extensive range of WTO negotiations. By contrast, expanding those
negotiations yet further to include the four new issues of investment,
competition policy, transparency in government procurement and
trade facilitation (all of which are highly contentious and time-consuming)
threatens to undermine developing country negotiating capacity.
As a matter of policy coherence, therefore, Save the Children
believes that the UK Government should respect the opposition
of developing countries to the expansion of the WTO's agenda along
the lines currently being demanded by the EU.
4. QUESTIONS
FOR THE
IDC TO PUT
TO THE
UK GOVERNMENT
In questioning the UK Government over its international
trade policy, the IDC has a unique opportunity to remind the Government
both of the developmental impacts of trade and of its obligations
to the world's children under human rights law. In so doing, the
IDC must ensure that it receives full responses to its questions
not only from its traditional addressee within the Government,
namely DFID, but also (and perhaps more importantly) from the
Government department which leads on trade: the DTI. In particular,
Save the Children believes that the IDC should address its questions
on UK Government trade policy to the Secretary of State for Trade
and Industry, as it is her department which takes the lead role
both in formulating that policy and leading on it within the EU
and the WTO. It may also be appropriate for the IDC to question
trade experts from other Government departments, notably the Treasury,
Foreign Office and DEFRA.
Save the Children suggests that the IDC's questions
to the UK Government include the following:
— Given the Chancellor of the Exchequer's
acknowledgement, in line with numerous studies and research findings,
that trade liberalisation can have negative consequences for poorer
countries and communities, and the experience of developing countries
that complementary measures are insufficient to deal with the
scale of the threat, does the Government not believe that developing
countries must have the flexibility and policy space to resist
uniform trade liberalisation and to intervene selectively in their
economies so as to protect their most vulnerable populations?
— How will the UK Government support
developing countries in their efforts to secure genuine special
and differential treatment at the WTO?
— How is the UK Government's support
for expanding the WTO's agenda beyond the capacity of developing
country delegates consistent with its own efforts (through DFID's
financial contributions) to build developing countries' capacity
to such a level that they can participate effectively in the full
range of WTO negotiations as they stand now?
— Will the UK Government confirm that
in no circumstances will it be associated with the threats and
pressures which have been documented against developing country
representatives at the WTO, and that it will call for a similar
public commitment from EU negotiators at the WTO?
Save the Children
January 2003
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