Memorandum submitted by Christian Aid
INTRODUCTION
"If we could boost Africa's share of
world trade by just 1%, then its income would increase by US$70
billion dollars a year—which is more than three times all
the aid the developed world gives, and enough to lift millions
out of abject poverty. Driving this forward at the world trade
talks in December will not be easy. But we will do everything
in our power to secure an outcome that is pro-development and
pro-poor."
Alan Johnson, Secretary of State for Trade
and Industry, Monday 26 September 2005
Christian Aid is committed to making international
trade work for poor communities. Trade has the potential to help
lift millions out of poverty. But it can also undermine livelihoods
and make people even poorer.
Current trade policy reform fails to take into
account the economics of poverty in the developing world. Most
poor people live in rural areas where the main business is agriculture,
and where services, infrastructure and alternative employment
are almost non-existent. Rapid liberalisation, which has been
the norm in many developing countries over the past 20 years,
means a glut of cheaper imports, which push local producers out
of business. So, for instance, tomato farmers are reduced to breaking
rocks for a living and Jamaican sugar-factory workers are driven
to prostitution to survive.
Christian Aid's work in more than 50 countries
has brought us into contact with numerous examples of countries,
communities and industries damaged by inappropriate trade liberalisation.
Our research estimates that trade liberalisation has cost sub-Saharan
Africa US$272 billion over the past 20 years—equivalent
to the amount it has received in aid and debt relief over the
same period, and more than enough money to pay off its debt and
finance vaccinations and education for every child in the region.
The modern economic success stories—South
Korea, Malaysia, China and Mauritius—have based their growth
on industries that were protected and nurtured as they grew. This
is the way in which every industrialised country has developed.
Christian Aid therefore argues that developing
countries should not be pushed to liberalise their markets but
should be able to set their own path to development. We are not
calling for blanket protectionism or isolationism and self-sufficiency,
but for developing countries to be given the political space to
introduce targeted policies that best contribute to poverty eradication,
whether they involve liberalisation or protectionism.
Christian Aid is joined by the 70 organisations
and over nine million supporters of the Trade Justice Movement
as well as the more than 500 organisations that make up the MAKEPOVERTYHISTORY
coalition in opposing pressure on developing countries to
liberalise their economies.
1. THE WTO IN
2005
1.1 After the G8 in July and two high-profile
conferences in the US in September, the next date on the global
anti-poverty campaigner's agenda is December, when the World Trade
Organisation (WTO) holds its sixth ministerial meeting in Hong
Kong. For many campaigners, this is the culmination of a year
of intense activity. Despite encouraging news on debt and aid
at the G8, many people feel that progress on international trade
is the real goal of 2005.
1.2 However, there is a distinct possibility
that trade will be the issue on which there is the least progress
in 2005. A pro-poor outcome from the Hong Kong ministerial meeting
of the WTO would require rich countries to make long-overdue changes
to their own trade policies, while allowing poor countries the
policy flexibility they need. At moment, the chances of such reform
seem to be receding fast. The EU and US are offering very little
but demanding a great deal in return. Developing-country delegates
feel frustrated and disempowered, and in Geneva the phrase "no
deal is better than a bad deal" is already common currency
among poor-country negotiators. There is a strong possibility
no deal will be reached, as negotiations falter in Geneva and
the mood turns more and more pessimistic. However, a failure at
Hong Kong will not be the end of the Doha round; it just means
that more progress will have to be made in Geneva next year.
1.3 Christian Aid believes that the most
important thing is to get the right deal—in Hong Kong if
possible, or later if not.
2. AGRICULTURE
2.1 The majority of the world's poor people
depend on agriculture for their living. They have been hardest
hit by many years of trade liberalisation. Poor farmers have found
themselves unable to sell their goods in local markets, because
of competition from cheaper, often subsidised, imports. Research
has shown that imports tend to rise faster than exports following
trade liberalisation, and that imports of consumer goods, such
as food, rise fastest of all. For farmers, this means losing their
domestic markets without any increase in their exports to compensate.
These farmers have no alternatives available to them—in
most developing countries there is no suitable industry to employ
large numbers of people leaving agriculture.
2.2 Some developing-country governments
are starting to take a more nuanced approach to agricultural trade
policy, protecting farmers at certain times of year, or making
imports conditional on a certain level of domestic buying. Christian
Aid's report Taking Liberties: Poor People, Free Trade and
Trade Justice, contains examples of farmers in Mozambique,
Honduras and India who have benefited from protection. However,
if WTO negotiations on agriculture lead to an agreement which
demands a high level of liberalisation, selective protectionism
will no longer be an option for developing countries—and
it is poor farmers who will pay the price.
2.3 The agricultural negotiations are of
interest to almost every member of the WTO—but for some
very different reasons. For instance, Brazil, India, South Africa
and the other big developing countries of the G20, have large
and competitive agricultural sectors and want to increase their
agricultural exports by reducing trade barriers and the support
given to farmers in rich countries. Meanwhile, the EU and US are
each trying to resist pressures to reduce the support they give
their own farmers. Both have made modest proposals to reduce that
support and improve market access for agricultural products, but
these proposals fall far short of what other WTO members are asking
for.
2.4 The poorer developing countries of the
G33, are most interested in retaining their right to protect their
own farmers. Current proposals for achieving this include defining
a group of "special products" which developing countries
would be allowed to protect, and giving those countries access
to a "special safeguard mechanism" that they could use
to defend their products from increased imports. Lower tariff
reductions for developing countries on all agricultural products
are also being proposed.
2.5 Poor countries that have been enjoying
trade preferences (special access to rich countries' markets)
stand to lose out if trade barriers come down and other countries
get similar access to the same markets. They favour less liberalisation,
introduced over a longer period of time in order to protect their
preferences for as long as possible.
2.6 Although there has been much political
blood spilt over agricultural liberalisation in the last few weeks,
in both Brussels and Geneva, a closer look at the numbers calls
into question the huge emphasis on agriculture as the key development
issue for the Doha round. Recent academic studies have tried to
put a figure on the impact in developing countries of agricultural
liberalisation in rich countries. The picture is very mixed.
2.7 Agricultural reform in rich countries
will involve both reducing the subsidies paid to farmers and lowering
the high tariffs that keep agricultural products out of rich country
markets. Getting rid of agricultural subsidies would, according
to Nancy Birdsall, Dani Rodrik and Arvind Subramanian (respectively
president of the Centre for Global Development in Washington DC,
professor of international political economy at Harvard University
and division chief at the research department of the International
Monetary Fund), lead to a rise in the price of key commodities,
such as sugar, cotton and beef, of between 2-12%.[8]
This is a marginal increase, compared with annual price fluctuations
for these products of 50-75%.
2.8 Price rises will, in general, be positive
for producers and negative for consumers. Rodrik et al argue
that these very small price rises will be of marginal benefit
to producers. A price rise for farmers in west Africa producing
export crops, which followed the 100% devaluation of the CFA franc
in 1994 (and which should have doubled prices for those farmers
producing export crops) did not significantly reduce poverty,
as much of the price increase was captured by traders.
2.9 The price rises which may follow the
reduction of agricultural subsidies in rich countries are likely
to harm countries which import food and particularly poor consumers
in those countries. Reviewing various econometric studies on this
issue, Joseph Stiglitz and Andrew Charlton conclude that following
subsidy reform, "many developing countries will find themselves
worse off, and this will be particularly so for urban workers".[9]
2.10 Other studies have looked at the overall
impact of agricultural liberalisation—the impact of improved
market access as well as of price rises resulting from reduced
subsidies. While most show some benefits, these are small and
mainly go to rich countries. Developing countries would get around
one-fifth of the overall benefits of agricultural liberalisation,
and most of this goes to just three countries: Brazil, India,
and Argentina. Many countries in Africa will suffer because of
the loss of the trade preferences they currently enjoy.[10].
2.11 None of this means that agricultural
reform should not happen. A system that takes money from taxpayers
in the EU and distributes it to large landowners, including some
of the richest people in Europe, is not a fair one, and should
not be defended. However, the equivocal nature of the effects
of agricultural reform in developing countries should lead to
two conclusions:
— Firstly, it is essential that some
of the huge financial savings that will result from agricultural
reform in rich countries are channelled into assisting the likely
losers in developing countries.
— Secondly, poor countries and those,
like the UK government, who advocate a development-friendly agenda
at the WTO should remain realistic about the likely benefits (and
possible costs) of agricultural reform.
2.12 This is of crucial importance, given
that the EU and US are demanding so much from other WTO members
in return for the minimal agricultural reforms they are prepared
to make. The EU's most recent offer to reform Europe's agricultural
regime came with the caveat:
Europe's major partners need to understand that
this offer is conditional on immediate movement in negotiations
on trade in industrial goods and services as well as in other
areas of the agricultural negotiation.
European Commission, 28 October 2005
2.13 These trade-offs are potentially disastrous
for developing countries. The EU is saying to poor countries that
unless they agree to liberalise vital services and lower tariffs
on industrial products, they won't get the minimal agricultural
reform that they have been promised. The benefits of that agricultural
reform far from certain—and indeed there may be costs rather
than benefits for some countries, And if, in return, developing
countries do liberalise services they will be unable to guarantee
their citizens access to the essential infrastructure—such
as transport, energy and banking—that make trade possible.
And if they give up the right to use industrial tariffs they will
jeopardise any chance of industrial development in the future.
3. NON-AGRICULTURAL
MARKET ACCESS
(NAMA)
3.1 A second pillar of the WTO talks is
the non-agricultural market access (NAMA) negotiations. Developing
countries face two dangers in these talks. Many of their existing
industries are under threat if the eventual agreement requires
that they reduce their tariffs very steeply and quickly. Countries
in Africa and Latin America that have liberalised rapidly have
lost tens of thousands of manufacturing jobs and seen developing
industries collapse. They will be much less able to develop new
industries if they are not able to use tariffs and other protection
to support them. In almost every country that has industrialised
successfully, protection was a key factor in giving new industries
the space to become competitive and productive. For developing
countries today, a degree of protection is often key in attracting
investors to a new sector (see Taking Liberties, which
you can download at www.christianaid.org.uk/indepth/409trade/index.htm
for an example of this in the Mozambican sugar sector).
3.2 In the words of one negotiator, the
NAMA talks have been "held hostage to agriculture".
Nonetheless, the key fault-lines in the negotiations are clear.
The EU and in particular, the US, want to reduce tariffs as far
and as fast as possible. The US has even floated the idea of zero
tariffs on industrial products in every WTO member. Developing
countries are resisting these pressures, arguing that they need
to retain the ability to increase industrial tariffs if necessary
to support emerging industries.
3.3 As in agriculture, the discussions have
centred around how much tariffs should be reduced by, and what
exceptions there should be. The main disagreement is over whether
those countries with higher tariffs (generally developing countries)
should cut their tariffs the most, or whether it should be richer
countries that make the steepest reductions.
3.4 Current proposals, from the US and the
EU, would mean that the highest tariffs would be subject to the
steepest reductions. This would require developing countries to
reduce their tariffs by more than richer countries. In a particularly
damaging development, developing countries are being asked to
trade off overall tariff reductions against the number of exemptions
they have. In other words, if they succeed in limiting their overall
tariff reduction they will be asked to pay by applying that reduction
to all products. The US and the EU are being particularly insistent
on this point.
3.5 Least developed countries are mostly
exempt from making any reductions, but whatever is agreed will
probably start to affect them in future rounds of trade negotiations.
Countries which have a low level of "binding" on their
tariffs (meaning that they have not agreed maximum tariff levels
at the WTO for the products the tariffs apply to), will be asked
to bind their tariffs at the average developing-country tariff
level. For some, this is likely to mean reducing tariffs on particular
products, where there is an existing tariff higher than the developing-country
average.
3.6 Countries that receive trade preferences
are also concerned about the effect of general tariff reductions
as a result of a WTO agreement, and have proposed that products
which receive preferences are liberalised more slowly. Other developing
countries do not support this idea, arguing that preferences benefit
some developing countries at the expense of others.
3.7 The EU and, in particular, the US are
negotiating very aggressively in the NAMA talks. This is partly
because they know they will have to make concessions in agriculture,
and are determined to get the best deal possible in other areas
to compensate. It is also because they see an opportunity for
their exporters to get access to some big developing-country markets.
4. SERVICES
4.1 The third main area of WTO talks is
services, which are being discussed under the General Agreement
on Trade in Services (GATS). A number of rich countries, including
the UK, hope the talks will help their financial and other industries
gain access to new markets.
4.2 Rich countries have defended the GATS
agreement as being especially "developing country friendly"
because it works on a voluntary basis—countries make requests
of each other to liberalise particular services sectors, and make
offers of liberalisation in successive rounds of negotiations.
This voluntary framework has been threatened recently by a number
of rich countries (the EU, Japan and a few others), who are dissatisfied
with the progress to date and have proposed a new structure for
the negotiations.
4.3 They call for "complementary approaches"
which would fix the number of services that each country had to
liberalise. The WTO has established 163 different categories of
services (banking, insurance, water provision, etc) and the European
Commission has proposed that developing countries be required
to liberalise more than half of these—at least 93 of the
163. Which categories were included in the 93 would in theory
be up to individual countries to decide, though the EC has made
it clear which sectors it would like to see liberalised.
4.4 This proposal, previously called "benchmarking",
is a response to what the EU and others see as inadequate offers
from developing countries to liberalise. In other words, they
have not got what they wanted from the existing structure, so
are attempting to change it. Changing the rules halfway through
negotiations does little to inspire confidence in the motives
of rich countries. Quite rightly, developing countries are outraged.
It is as if one of the teams in a football match proposed widening
the opposition's goal at half-time because they were not scoring
the goals they thought they deserved.
4.5 The EU's demand for more liberalisation
from developing countries is somewhat galling, given that developing
countries have actually made more offers during negotiations to
liberalise their services than rich countries. Brazil has gone
as far as to claim that the EU is looking for a "round for
free" in services.
4.6 The proposal for "complementary
approaches" has been rejected by a number of developing-country
groupings at the WTO, including the African Union, least developed
countries, Arab trade ministers and several Latin American countries,
including Brazil. Despite this overwhelming rejection, the EU
is still strongly pushing this proposal.
5. SPECIAL AND
DIFFERENTIAL TREATMENT
5.1 A key aspect of the Doha round was meant
to be the consideration of developing countries' interests in
a separate set of talks on special and differential treatment
(SDT). The idea was to review existing agreements and see what
changes needed to be made for them to truly support development.
Rules were also supposed to be set to guide future agreements,
ensuring that basic developmental principles were followed.
5.2 This area of the talks was supposed
to be completed quickly, so that the development credentials of
the "development round" could be firmly established.
However, they have been dogged by controversy and have made almost
no progress in the four years since the Doha ministerial meeting.
This slowness has largely been because of the reluctance of rich
countries to make any concessions to the poorest, and their determination
to hold out and extract the maximum negotiating capital from whatever
agreement is made.
5.3 This is unacceptable in a round where
the focus is supposed to be development. WTO members must agree
to give developing countries what they were promised in Doha.
They must sort out the problems with existing agreements, while
putting in place deals which ensure that the special rights of
developing countries are respected in any future agreement.
5.4 One issue that has dogged the talks
has been that of "differentiation"—that is, which
groups of countries should benefit from particular SDT provisions.
Many developed countries—including the UK—have argued
that they cannot agree to much of what is being asked for in SDT
negotiations because of concerns over who would be eligible. It
is often argued that "you can't expect us to treat Brazil
in the same way as Ghana".
5.5 There is an element of truth in this
position. However, developing countries are rightly suspicious
that talk of differentiation is an attempt to weaken the important
political alliances between developing-country WTO members, and
to ensure that any SDT offered carries absolutely no cost to richer
countries.
5.6 It is particularly unfortunate that
agreements that allow for a more flexible approach—and that
may be a suitable model for SDT in the future—are being
undermined by those same countries that are most concerned about
differentiation. The GATS approach, calling for different commitments
from each country, allows for differentiation between individual
states. The call for special products in the negotiations on agriculture
provides for a set of criteria that can identify trade polices
that affect crops, which are of importance to specific groups
of poor people, regardless of which developing country they are
in.
5.7 Special products and GATS both allow
for a flexible and pragmatic approach to SDT, based on a country's
actual economic circumstances. However, the flexibility of the
GATS is currently undermined by rich-country proposals on benchmarking
which will impose a more rigid system with less differentiation
between countries. And the idea of special products has received
a lukewarm reception at best from rich countries at the WTO.
5.8 Rather than allowing SDT talks, and
the wider discussion around how developing countries should be
treated in the negotiations, to be held hostage to some arbitrary
and politically sensitive notion of "differentiation",
more attention should be paid to working out how WTO agreements
and existing proposals differentiate between countries already,
on the basis of economic criteria that are relevant to the particular
sector in question. There can be no overarching system for differentiation,
but the key criteria must always be how to ensure that poor people—in
whichever country they live—will benefit from whatever agreement
is on the table.
6. THE ROLE
OF THE
UK GOVERNMENT IN
2005
6.1 The UK government has put development
issues firmly on the agenda in 2005. On trade, the government
has made many encouraging statements about the need to stop forcing
liberalisation on developing countries, and the need to reform
agricultural subsidies and high tariff barriers in rich countries.
6.2 The government has announced changes
in two areas of trade policy: the Economic Partnership Agreements
between the EU and its former colonies, and the practice of demanding
that countries liberalise in return for aid. Neither announcement
has resulted in changes in practice yet, but both were welcome
as statements of intent. The government has failed to set out
its policy position on the WTO with the same clarity, where the
negotiating position of the European Commission contradicts their
stated position of "no forced liberalisation".
7. A GOOD DEAL?
7.1 There has been much talk in Geneva recently
that "no deal is better than a bad deal". A good WTO
deal for developing countries—whether reached at Hong Kong
or many years down the line—is one that will extract big
concessions from rich countries, while guaranteeing poor countries
the right to use trade policy to further their development goals.
Specifically, it would:
— end all trade-distorting agricultural
subsidies in rich countries;
— increase access to rich-country markets
for all developing-country products—agricultural and industrial;
— guarantee developing countries the
right to control agricultural trade in order to protect poor farmers
and promote long-term development;
— guarantee developing countries the
right to control trade in industrial products in order to support
emerging industries; and
— guarantee developing countries the
right to control and regulate trade and investment in services,
in order to ensure that poor people have access to the services
they need—both public services such as health and water,
and essential infrastructure such as banking.
8. RECOMMENDATIONS
8.1 The UK should make a clear public statement
about its position in relation to the WTO negotiations. It should
invest real political capital into changing the stance of the
EU. The UK should make the minutes of the 133 committee public,
so that member states can be held accountable for their role in
formulating the EU's common position.
AGRICULTURE
8.2 Developing countries should have the
right to protect poor farmers. They should be able to fully exempt
crops that are vital for ensuring their people have enough food
from any liberalisation. And they should be allowed to regulate
trade to support agriculture, protect livelihoods, and deliver
rural development and long-term growth.
8.3 An early end date for export subsidies
should be announced as soon as possible.
8.4 Domestic support for agriculture in
developed countries should also be reformed, so that it does not
distort trade and is only given where it provides clear benefits
for rural development and sustainable farming.
NON-AGRICULTURAL
MARKET ACCESS
8.5 Whatever deal is agreed, it must allow
developing countries to reduce their tariffs by much less than
developed countries, in recognition of the more fragile state
of their economies.
8.6 Developing countries must have the flexibility
to exempt certain sectors from tariff reduction altogether, and
leave tariff levels for sensitive products unbound.
SERVICES
8.7 Developing countries must retain the
right to regulate all service providers as necessary to promote
their development objectives. The role of regulation in ensuring
that poor people have access to the services they need must be
clarified and confirmed in the GATS.
8.8 Developing countries should not be required
to commit any public services, supplied by the state or the private
sector, to binding liberalisation in the GATS. It is essential
that developing countries retain the right to provide and regulate
public services as necessary to meet their development goals.
8.9 Current European Commission proposals
that countries liberalise at least 93 out of the 163 categories
of services go against the EU negotiating mandate and the national
sovereignty of developing countries and should be scrapped.
November 2005
8 Nancy Birdsall, Dani Rodrik, and Arvind Subramanian,
How to Help Poor Countries, Foreign Affairs Journal, volume
84, number 4, July/August 2005. Back
9
J Stiglitz and A Charlton, "The Development Round of Trade
Negotiations in the Aftermath of Cancún", Commonwealth
Secretariat, 2004. Back
10
See F Ackerman, "The Shrinking Gains from Trade: A Critical
Assessment of Doha Round projections", F Ackerman, Tufts
University Global Development and Environment Institute, Working
Paper No. 05-01, 2005, for a review of recent econometric studies
on this issue. Back
| 
