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Memorandum submitted by ActionAid
Summary and ActionAid's recommendations
Developing countries are being pressured - particularly by the EU and the US - into accepting proposals at the WTO that would lead to massive job losses and the continued dumping of agricultural products. Furthermore issues of vital importance to poor countries, such as access to medicines under the TRIPS agreement, are being sidelined by the focus on agriculture, non-agricultural market access and services.
If the final deal is anything like what is on the table at the moment, ActionAid believes that poor countries should make history and reject it.
Special and Differential Treatment· Special and differential treatment (SDT) should be applied to all developing and least-developed countries (LDCs).
Tariff escalation· Rich countries should eliminate tariff peaks and tariff escalation on products originating from developing countries.
Rules of origin· Overly-restrictive rules of origin requirements for trade preference schemes should be relaxed but care should be taken to ensure this is done with development goals at the forefront.
Non-Agricultural Market Access (NAMA) · The July 2004 NAMA negotiating text should be rejected and a full, independent assessment of the potential development and environmental impacts of the NAMA negotiations should be carried out.
Services (GATS) · Developing countries should make no commitments to liberalise sensitive service sectors until full impact assessments are made of their likely effect on poverty issues. Key sensitive service sectors - such as water, health and education - should be withdrawn from GATS altogether.
Agricultural trade liberalisation· Rich countries should eliminate all trade-distorting agricultural subsidies but developing countries should have the right to protect the livelihoods of their poor farmers.
The implications of differentiation between developing countries for the outcomes of the Ministerial. To whom should Special and Differential Treatment be applied?
1. The Doha Development Round was supposed be exactly that - a trade round that put the interests of the poorest people and the poorest countries at the forefront of the negotiations. The Doha Ministerial Declaration said: "The majority of WTO Members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration."[1]
2. For this reason special and differential treatment (SDT) should be applied to all developing and least-developed countries (LDCs) for this Round. The term 'LDC' currently applies to 50 countries. The term 'developing countries' currently applies to 63 WTO members including those markets of most interest to rich countries: Brazil, India and China.
3. The Commission for Africa says that in sub-Saharan Africa, "The number of poor people is expected to rise from 315 million in 1999 to 404 million people by 2015."[2] This is presented, rightly, as a crisis. Yet this is matched by the number of poor people in India alone (380 million). And if the number of poor people in China (220 million) is added then the number is dwarfed. (Brazil has 15 million poor people too).[3]
4. Based on a number of measurements, Brazil, China and India cannot be properly considered as 'advanced developing countries'; it is the EU that is pushing this new 'definition'. Yet it is not based on any objective development criteria but purely on commercial self-interest to gain access to these markets. Not only does each country have a significant number of poor people, but in terms of human development they rank middle to low: 63 for Brazil, 85 for China and 127 for India (out of 177 countries).[4] In terms of GDP per capita Brazil has US$7,790, China has US$5,003 and India has $2,892 (the UK figure is US$27,147).[5]
5. Even the European Commission admits that differentiation between developing countries would be almost impossible in practice. One official close to EU trade commissioner Peter Mandelson pointed out that while India was an "outspoken demandeur" on services, its agricultural sector was comparable to sub-Saharan Africa.
The extent to which tariff escalation and outdated rules of origin harm prospects for industrial development. Tariff escalation6. Tariff escalation, whereby rich countries put higher tariffs on processed goods from poor countries, is an anti-development practice. As a group, developed countries apply average tariffs of 0.4% on raw material imports, 3% on semi-finished goods and 3.4% on finished products.[6] Tariff escalation in the EU is present in many products of export interest to developing countries. For example, the average bound tariff on leather and rubber is 0.1 percent while it climbs to 2.4 percent for semi-manufactures produced in these materials and to 7 percent for final goods. The same approach is used to deter imports of textile products into the EU. Here the average bound tariff for the raw material is 2.6 percent while that of semi-processed and finished textiles are 6.6 percent and 9.7 percent respectively.
7. The Doha Mandate calls for the reduction or elimination of tariff peaks (tariffs three times the national average tariff) and tariff escalation within the Non-Agricultural Market Access (NAMA) negotiations. Even if this did happen, developing countries' exports would still be subject to a wide array of non-tariff barriers (NTBs), including: Sanitary and Phyto-Sanitary (SPS) measures aimed at protecting public health in importing countries; Technical Barriers to Trade (TBT) such as product standards and labelling regimes; stringent rules of origin, and anti-dumping measures. Compared to tariff peaks and tariff escalation NTBs are much harder to identify and measure. And while some are arguably legitimate on health, safety and environmental grounds, others are clearly not.[7]
8. Yet even if world trade rules were reformed to take account of these problems the size and power of western corporations would remain serious obstacles to development.[8] Smaller companies in developing countries find it difficult to enter or remain in local and global markets because of the size and power of the major agrifood transnational corporations (TNCs). The corporations, with well-established brands, superior access to information, financial and technological resources and privileged access to policy-makers, are well placed to keep potential competitors out of the market.[9] For example, companies from developing countries wishing to enter the soluble coffee market would have to compete directly with Kraft and Nestle, the world's largest food manufacturers. Likewise, potential developing country entrants to the fruit and vegetable business would find themselves competing with TNCs such as Dole and Del Monte who are powerful actors in the market - particularly at the processing and distribution stages.[10]
Outdated rules of origin9. The WTO defines 'rules of origin' as: "Laws, regulations and administrative procedures which determine a product's country of origin. A decision by a customs authority on origin can determine whether a shipment falls within a quota limitation, qualifies for a tariff preference or is affected by an anti-dumping duty. These rules can vary from country to country."[11]
10. Rules of origin do not apply to exports that are made under the Most-Favoured Nation (MFN) general WTO agreement. They apply only to exports that are part of preferential trade schemes.
11. 'Rules of origin' requirements - essentially rules that specify what percentage of a good must be made in a particular country in order to qualify for trade preferences - are often too restrictive. For example the EU's Everything But Arms scheme for Least-Developed Countries has worse rules of origin that the current Lomé/Cotonou scheme for African, Caribbean and Pacific (ACP) countries, set to be replaced by Economic Partnership Agreements from 2008. This means that ACP LDCs prefer to use the Lomé/Cotonou preferences.
12. However, this does not mean that overly-restrictive rules of origin should be replaced by a global free for all. Whilst ActionAid believes that overly-restrictive rules of origin requirements for trade preference schemes should be relaxed, care should be taken to ensure this is done with development goals at the forefront. The danger of having an 'anything goes' approach is that benefits could accrue to transnational corporations rather than to poor people. If the rules require that only a very small percentage of a product is processed in a preference recipient there is little incentive for substantive production to be located there. This risks preference recipients being used merely as transit locations for goods that are, to all intents and purposes, made in more competitive regions of the world. Whilst some new jobs and some new money may reach the preference recipient country, the majority of the benefits would flow to transnational corporations able to take advantage of the preferential trade deal without putting any real investment into the country that is supposed to be the beneficiary.
The degree to which liberalisation of industrial and manufacturing sectors threatens to undermine development. What aspects of the Non-Agricultural Market Access negotiations would benefit developing countries?
13. ActionAid's recent reports have used historical and contemporary case studies to show that rich countries' proposed liberalisation of trade in industrial and manufacturing sectors under the WTO's Non-Agricultural Market Access (NAMA) agreement would be a severe threat to the development of many poor countries' economies.[12] We are concerned that the NAMA negotiations will undermine development in poor countries by: a. de-industrialisation - deep tariff cuts could expose vulnerable industries to harsh international competition, leading to bankruptcy, closure of factories and massive job losses. UNCTAD's survey of about 40 countries shows that half have experienced de-industrialisation in the aftermath of trade liberalisation;[13] b. loss of revenue - by cutting tariffs many developing countries could lose vital public revenue. For example, India relies on trade tariffs for 18.5% of total government revenue. This money is being spent on important public services, such as healthcare and education. A reduction in such revenues would have a negative impact on poor communities in developing countries; c. limiting developing countries' policy space - by pushing developing countries to bind at least 95% of their industrial tariff product lines, NAMA will limit poor country governments' ability to change tariffs to protect their industries now and in the future and to choose industrial trade policies that help them tackle poverty.
14. The EU's current negotiating strategy of tying its low ambitions in agricultural trade reform to such high ambitions in NAMA, and services trade, is being rejected by many developing countries as it is clearly a threat to their development interests. Both the Brazilian and the Indian trade ministers have recently criticised the EU's proposal for being far too aggressive and for undermining the Doha principle of 'less than full reciprocity' as it will require developing countries to make greater reduction commitments than developed countries.[14] Even EU negotiators have admitted that their offer is over-ambitious and very unlikely to be accepted.
15. New research by ActionAid shows that even in India, which is often held up as an example of successful liberalisation, past trade reforms have been far from painless for poor people in its manufacturing sector. Millions of workers in the textile and leather industries have suffered falling incomes, increasing debt and job losses because of increased competition from cheaper imports and scarcity of raw materials because of rising exports. Decreasing tariffs and the elimination of export restrictions have contributed to many of these problems. Many families have faced malnutrition, starvation and some workers have even been driven to suicide as a result.[15]
16. Some rich country negotiators have argued that an ambitious NAMA agreement would be positive for developing countries as it is likely to increase south-south trade. Yet developing countries argue that south-south trade is already growing quickly (at approximately 11% a year) without the assistance of further trade liberalisation in the Doha round, due in part to regional integration. It appears that rich countries are using this as a smokescreen to hide their own commercial interest, and divert attention from northern protectionism.[16]
17. On the positive side a pro-poor NAMA agreement should eliminate tariff peaks and tariff escalation, or at least severely curtail the ability of rich countries to use this form of protectionism, by lowering the top rate of tariffs on manufactured goods.
The benefit of including GATS Mode IV, the temporary movement of labour, in the services negotiations for developing countries. Whether or not developing countries should be making more 'ambitious' offers in the services sector.
18. Poor countries are under intense pressure in GATS negotiations to open their service markets and 'progressively liberalise' key sectors - such as water delivery - to foreign corporations. However, ensuring access to affordable basic services like water and sanitation for poor people is crucial for poverty reduction and experience shows that the logic of the profit motive that underpins liberalised water delivery has reduced access to water for many poor communities worldwide.
19. New ActionAid research in South Africa shows that recent water privatisations involving two multinationals - UK-based Biwater and French-based Suez - are having a disastrous impact on the rights of poor people to clean water. Price hikes and disconnections have hit poor families and many vulnerable people have lost access to adequate water supplies.[17]
20. ActionAid believes that developing countries should make no commitments to liberalise sensitive service sectors until full impact assessments are made of their likely effect on poverty issues. Key sensitive service sectors - such as water, health and education - should be withdrawn from GATS altogether.
The extent to which developing countries will gain from agricultural trade liberalisation.
21. Developing countries would benefit from the elimination of trade-distorting agricultural subsidies because this would lead to a reduction in dumping. ActionAid estimates that the EU currently gives about 64 billion euros per annum in trade-distorting domestic subsidies and that under the 2003 CAP reform this should fall to approximately 55 billion euros per annum by 2012. The EU's recent proposal on agriculture at the WTO do nothing more than offer to lock-in the 2003 CAP reforms.
22. ActionAid anticipates that the elimination of trade-distorting subsidies would also result in slightly higher world prices (there are provisions within the WTO to compensate net food developing countries and least developed countries from higher import bills but this agreement needs overhauling and implementing).
23. However, at a more general level, a large part of the pro-liberalisation argument within agriculture are the income gains based on the use of econometric techniques. Depending on the degree of agricultural liberalisation, as an example, five studies estimate that these gains from the new trade round at the WTO would range from $6-142 billion.[18]
24. ActionAid has always been sceptical about these figures. The first issue is about who gains and the distribution of these gains. Most of these models predict that the major beneficiaries will be rich countries. Our own experience on the ground is that benefits to developing countries are accruing to a smal number of nations that are large agricultural exporters; and even here few if any of these income gains within countries are reaching poor people. We would contend that there is little trickle-down of income generated from trade expansion - rather ActionAid argues that generated "wealth can circulate and expand within geographical and economic class boundaries to the exclusion of those outside."[19] The main beneficiaries appear to be companies rather than poor people.
25. There is a growing body of academic evidence to support this view. UNCTAD have raised questions regarding the trade-poverty relationship and whether there is trickle-down because of the growing level of inequality within countries: "it is apparent that there is some evidence that export expansion is less likely to translate into poverty reduction in countries with a high level of inequality".[20] Rising inequality is evident across the developing world.
26. The second factor is about import liberalisation in developing countries and the opening of markets to foreign competition. Even without subsidies, many products continue to be either dumped in poor nations' markets[21] or excess production in developed countries results in import surges in poorer nations with devastating impacts on domestic producers. In such circumstances, foreign companies crowd-out local competitors. These costs are rarely taken into consideration of the likely gains/losses of agricultural liberalisation.
27. The third issue is about the modelling techniques themselves. According to Yilmaz Akyüz, former UNCTAD Chief Economist, the computable general equilibrium (CGE) trade models used by the World Bank and others suffer from major shortcomings: "[They are] based on the neoclassical paradigm of competitive equilibrium where markets are always clear and resources are fully employed. These estimates do not provide a reliable guide to what might happen in reality...it is often the underlying theory and assumptions that determine what the numbers show. For this reason it is almost impossible to find any CGE model fashioned on traditional trade theory which does not predict gains from trade liberalisation... and estimates based on CGE models provide little guidance to the impact of liberalisation."[22]
28. More recent modelling studies have tended to dramatically reduce the benefits from trade liberalisation as the models have become more sophisticated and/or make adjustments for costs incurred during liberalisation. The latest models are beginning to reveal that ActionAid's original concerns were well founded (admittedly this includes non-agricultural liberalisation):[23] · 70% of the gains would go to developed countries, up from 40% in 2003; · a small number of the largest developing countries would capture most of the developing country benefits; · in a "likely Doha scenario" of reforms, developing country gains amount to less than a penny-a-day per capita; · poverty impacts are very small, with projected reductions of less than one percent in the number of people living in poverty.
29. As the Frank Ackerman concludes: "the benefits are distributed very unequally, with losses rather than gains resulting from the scenario in at least Mexico, Bangladesh, the Middle East and much of Africa .... Small wonder, then, that the effects of trade liberalisation on global poverty turn out to be much less than originally advertised." (Our italics).
30. Some of the reasons why agricultural liberalisation has failed to bring about real gains to many poor nations are also the subject of this inquiry - rules of origin, tariff escalation and value added for example - but the other reasons include corporate concentration, supply-side constraints, unequal land distribution and tenure, declining commodity prices, and exacting product standards.
31. Yet it begs the bigger question as to whether agricultural liberalisation is a laudable goal if it ultimately means that access to food is left to the vagaries of the world market rather than producing food locally. ActionAid believes that significantly more gains - and reductions in poverty - could be achieved if developing countries were allowed the right to protect the livelihoods of their poor farmers, and achieve food security and rural development. Agriculture is critical to reducing poverty, because growth in the smallholder economy is the most effective way of alleviating rural poverty.[24]
November 2005 [1] Doha Ministerial Declaration adopted on 14 November 2001, WT/MIN(01)/DEC/1. [2] Our Common Interest: report of the Commission for Africa report, page 95. [3] These numbers are calculated by the percentage of the population below US$1 per day at purchasing power parity (UN MDG project: http://unstats.un.org/unsd/mi/mi_results.asp?crID=76&fID=r15) against the total population of the country (CIA World Factbook: http://www.cia.gov/cia/publications/factbook/rankorder/2119rank.html). As such they are a rough estimate of absolute poverty - they do not take into account poverty below the national poverty line (likely to be considerably higher). [4] UN Human Development Report 2005, page 219-222. [5] UN Human Development Report 2005, page 219-222. [6] Fernandez de Cordoba, S. et al (2004), page 6. Tariffs quoted are trade-weighted applied tariffs calculated as the ratio of total tariff revenue to total value of imports. Previously cited in ActionAid (2005), Bound and tied: the developmental impacts of industrial trade liberalisation negotiations at the World Trade Organization: http://www.actionaid.org.uk/wps/content/documents/WTOreport4_1972005_03218.pdf [7] See ActionAid (2005) Bound and tied, page 13. [8] See ActionAid (2005) Power hungry: six reasons to regulate global food corporations: http://www.actionaid.org.uk/1498/corporates.html [9] Page, S. & Hewitt, A. (2001) 'World commodity prices: still a problem for developing countries?' London: ODI; UNCTAD (2002) 'Diversification of production and exports in commodity dependent countries, including single commodity exporters, for industrialization and development, taking into account the special needs of LDCs', Geneva: UNCTAD. Both previously cited in ActionAid (2005) Power hungry. [10] Humphrey, J. (1999) 'Adding value to food exports: a value chain approach', concept note for the workshop at the Institute for Development Studies, September 1999. Previously cited in ActionAid (2005) Power hungry. [11] See: http://www.wto.org/english/thewto_e/glossary_e/glossary_e.htm [12] ActionAid (2005) Bound and Tied and ActionAid (2005) Looming crisis: the threat of industrial trade liberalisation negotiations at the WTO on India's textile and leather industries: http://www.actionaid.org.uk/wps/content/documents/looming_crisis_report.pdf [13] Shafaeddin, M. (2005) Trade policy at the crossroads: the recent experience of developing countries. [14] India's Industry Minister, Kamal Nath described the EU position on agriculture and NAMA as 'giving an inch and asking not just for a foot but a mile' and said the EU proposals on NAMA were a 'non-starter', taken from Third World Network email update, 8 November 2005. Brazil is reported to view the EU's linkage of its agriculture proposals with such high demands of developing countries in NAMA as unreasonable and unacceptable to developing countries, taken from Third World Network news, 31 October 2005. [15] ActionAid (October 2005) Looming crisis. [16] Joint NGO briefing paper (November 2005) Non-agricultural market access (NAMA) talks threaten development: six reasons why a fundamentally different approach is needed, page 9. [17] ActionAid (2005) Down the plughole: why bringing water into WTO services negotiations would unleash a development disaster: http://www.actionaid.org.uk/wps/content/documents/GATS_report.pdf [18] See DTI (2004) Liberalisation and Globalisation: Maximising the Benefits of International Trade and Investment, DTI Economics Paper No. 10, July 2004, page 89. [19] Jacobs, M., (1996) The Politics of the Real World: Earthscan, London. [20] UNCTAD (2004) The Least Developed Countries Report 2004: Linking International Trade with Poverty Reduction', United Nations: New York and Geneva. [21] Dumping without subsidies happens primarily through the actions of private companies; for example, poultry parts are sold in West Africa at less than the cost of production simply as a means of easy disposal. This is because there is significantly less demand within developed markets such as the EU for certain parts of the chicken (i.e. legs). [22] Akyuz, Y. (2005). The WTO Negotiations on Industrial Tariffs: what is at stake for developing countries. TWN. [23] See Ackerman, F. (2005) The Shrinking Gains from Trade: A Critical Assessment of Doha Round Projections. Tufts University: http://ase.tufts.edu/gdae/pubs/wp/05-01ShrinkingGains.pdf [24] Lipton, M (2004) 'New directions for agriculture in reducing poverty: the DFID initiative', Poverty Research.: http://www.sussex.ac.uk/Units/PRU/new_directions_agriculture.pdf |