Memorandum submitted by Traidcraft
A. INTRODUCTORY
REMARKS
1. Traidcraft welcomes this timely inquiry
by the International Development Select Committee. The realignment
of the government's trade policy work—to be overseen now
by DFID—presents an unparalleled opportunity for the promotion
and implementation of a more sustainable and equitable approach
to overseas development. However, there are huge inconsistencies
in the government's track record on trade and development, and
there is much that should be done immediately if this new structure
is to have any impact.
2. Traidcraft is one of the UK's leading
Fair Trade organisations, with a mission to fight poverty through
trade. Traidcraft trades with and supports small producers around
the world where their circumstances effectively exclude or marginalise
them from mainstream trade. Traidcraft also seeks to influence
the wider trading environment through research, analysis and advocacy.
Our work is conducted through an innovative partnership of a trading
company (Traidcraft plc) and a registered charity (Traidcraft
Exchange). This joint perspective enables Traidcraft to square
the often competing demands of commercial opportunity and sustainable
development.
3. Traidcraft PLC is one of the UK's pioneering
Fair Trade companies, with a turnover of over £19 million.
It provides a route to market for marginalised producers, offering
them terms of trade that promote security and facilitate longer
term planning. Traidcraft PLC distributes more than 450 fairly
traded products to a highly aware customer base in the UK, with
mainstream supermarkets occupying a growing niche in its distribution
system.
4. Traidcraft Exchange is the UK's only
development charity specialising in making trade work for the
poor. Its work spans capacity building amongst producers in developing
countries, promoting market access for small producers (including
into the UK market), policy development and advocacy. Through
its Policy Unit, Traidcraft Exchange seeks to influence government
policy and business practice in the North and the South to the
benefit of the poor in the developing world.
5. Traidcraft believes that trade—if
organised and regulated properly—can contribute to poverty
reduction. Since its creation in 1979, Traidcraft has sought innovative
solutions to market access. For example, Traidcraft was one of
the four founders of Cafe direct; [23]it
established Shared Interest[24]
in order to enable producers to access pre-order financing; it
was also a founder member of the Fairtrade Foundation[25]
and of the Ethical Trading Initiative, [26]both
designed in different ways to encourage mainstream companies to
take steps to improve the impact of their supply chains in developing
countries.
6. Traidcraft is also a pioneer in social
accounting, by which companies seek to take account of their social
and environmental impacts as well as their economic performance.
Traidcraft PLC was the first public company to publish audited
social accounts. In 2006 Traidcraft won the ACCA award for the
Best Social Reporting. The commitment to the principles of transparency,
accountability and responsibility in trade underpin all aspects
of our business.
7. This submission concentrates on areas
of Traidcraft's particular competence: the inter-relationship
between trade and development; the government's weak track record
to date on coherence between trade and development policy, and
the potential for future improvements in this area. It therefore
focuses on responding to the first two questions in this inquiry
by the IDC (on "Trade policy decision-making" and "Direction
of trade policy").
B. TRADE POLICY
DECISION-MAKING
8. Traidcraft welcomes the new government
structure that, for the first time, gives joint responsibility
on trade to two government departments, the newly created Department
for Business, Enterprise and Regulatory Reform (BERR) and the
Department for International Development (DFID). The move to give
DFID a formal—as opposed to advisory—role on trade
policy is to be applauded, although it is overdue. It has long
been recognised by the UK government that trade can help people
out of poverty. However, DFID and DTI (as was) have hitherto had
an unequal relationship. The absence of a clear, formal and accountable
involvement from DFID on recent trade policy has severely limited
its ability to influence the UK government position in favour
of poverty reduction.
9. To date, DFID has had no formal role
in UK trade policy, except in an advisory capacity. We have been
repeatedly told that DFID and DTI have been as one on trade policy
matters, and the habit of joint lobby meetings and joint Ministerial
letters and declarations suggests that there has been a great
deal of coherence between the Departments. However, it is Traidcraft's
experience that DFID has very often "played second fiddle"
to DTI, and that its development concerns have repeatedly been
overruled or ignored in favour of DTI's trade promotion agenda.
10. Much of DFID's involvement in trade
policy has been as a funder and knowledge broker. For example,
it has funded trade related capacity building in developing countries,
supported information exchange and analysis and commissioned wide-ranging
research into issues such as the impacts of trade liberalisation
on particular groups or sectors, and the safeguard mechanisms
required to protect the most vulnerable. Provided that DFID guards
against the danger of co-option that is an inevitable threat in
this area, this work is necessary support to the long-term capacity
of developing country governments in trade negotiations and should
continue.
11. What DFID has not yet been able to do,
however, is exercise authority over trade negotiations. There
has been no mechanism through which it could insist, for example,
that its research findings should be acted on or that the increasingly
vocal complaints of developing country governments should be responded
to. With no authority over the range and scope of trade negotiations,
DFID's programme of work could have been seen as "tokenism".
12. This lack of authority has been exacerbated
in the way trade negotiations have been structured. For example,
although EPAs are meant to be "instruments of development"
there is no mechanism within the ongoing technical EPA negotiations
to take account of development findings. This has been a huge
missed opportunity to create a new dynamic in trade policy. EPAs
have been particularly controversial, attracting profound criticism
from ACP and EU civil society, as well as increasingly from ACP
governments themselves. This criticism has turned to frustration
because the EPA negotiations, and those driving them—DG
Trade in the European Commission—appear blithely to ignore
the mounting evidence of the consequences of EPAs for development
and poverty. As one example from many: even though the EC's own
Sustainability Impact Assessment of EPAs has been poor both in
process and content, it identified potentially huge development
concerns—including, in its earliest findings, the threat
that liberalisation through EPAs "could lead to the collapse
of the manufacturing sector in West Africa".[27]
It was a failing in the structure of the EPA talks that such warning
signals did not constitute "lines in the sand" which
negotiators were not permitted to cross. A truly pro-development
trade negotiation would enable development benchmarks to inform—and
if necessary veto—the ongoing content of negotiations.
13. DFID's primary focus to date has been
on trade policy rather than seeking to engage in any strategic
way with companies. Pro-poor trade rules, of course, would only
set the framework, but it is companies that impact on poverty
directly, through their supply chains and terms of trade. DFID
has not yet developed a coherent strategy for harnessing the potential
of the private sector for development, and this a major gap. Similarly,
DFID has not scrutinised areas of policy which relate to corporate
practice. For example, it was not evident that DFID was engaged
at all in the recent UK Companies Bill, which was the largest
review of company law in recent times. This, again, suggests a
lack of vision or commitment to improve the impact of trade on
poverty. Many civil society groups, including Traidcraft, were
engaged in the company law review process since it began in 1997,
and were advocating for the inclusion of requirements for UK companies
to report on their social and environmental impacts. Throughout
the process attempts were made to engage DFID in the debate, seeking
a champion for poverty reduction at a government level, without
success.
14. A further problem in bringing about
coherence between UK government trade and development policy,
of course, is the delegation of trade issues from EU Member States
to the European Commission. Despite the economies of scale and
impact that are the logic behind this arrangement, the fact of
the UK being only one of now 27 voices is a serious hindrance
in the area of making trade work for development. This has materially
limited the ability of the UK government to influence the outcome
of both WTO and EPA negotiations.
15. It has also meant that certain trade
reforms have been approved in the name of "harmonisation",
without sufficient focus on the development needs of developing
country farmers. The process through which the EU last month denounced
the ACP-EU Sugar Protocol is a case in point. This arrangement
had been in place for 32 years and was a cornerstone of ACP-EU
relations. However, reform was driven more by the need to respond
to WTO challenges and to change the unsustainable internal EU
sugar system. Impact in ACP countries was clearly not a priority,
compensation has been inadequate and the EC is relying on the
fact that countries will sign EPAs to ensure even current levels
of market access are maintained for non-LDCs.
16. Whilst this decision was technically
a Brussels competency, it has such far-reaching impact on ACP
sugar producers that wider consultation should have been undertaken
on how to manage the consequences. Traidcraft is also concerned
about how this process is being used in relation to the ongoing
EPA negotiations. Non-LDC sugar producing countries such as Swaziland
or Guyana will at present only retain their sugar market access
into the EU if they conclude an EPA. A more pro-development approach
would have been to ensure that these two processes are not conflated
and that a proper plan is put in place for a managed transition
to a successor to the Sugar Protocol that would promote development
and that is not dependent on countries signing up to an EPA.
17. However, EU Member States are able to
play a much stronger individual role on development issues. This
is thus an opportunity to increase domestic scrutiny of EU trade
issues where they directly relate to development. This is something
the UK government has not chosen to do and represents something
of a "democratic deficit". Development issues and concerns
are a higher priority for the UK voting public than in some other
EU Member States—witness for example the scale of mass mobilisation
in the Make Poverty History campaign and the run-up to the Gleneagles
G8 in 2005, or the fact that the UK is now the world's leading
market for Fair Trade. There is a clear public mandate for a robust
UK government position on matters of international development.
Even though trade issues will continue to be negotiated centrally
through the EC, the UK government could step up its domestic engagement
on matters of development, even where they relate to trade. For
example, given the controversy around EPAs and their impact on
poverty, the UK government could implement its own development
review before agreeing to ratification, to ensure that its development
objectives for the ACP will be met. There is no reason why this
could not include a debate in parliament, given the importance
of the UK's ties with the ACP—historical, cultural and developmental,
as well as economic.
C. DIRECTION
OF TRADE
POLICY
18. The new structure in the UK government
presents an opportunity to review UK trade policy in its entirety,
to ensure that it has poverty reduction and sustainable development
at its centre. Traidcraft believes the following principles should
underpin the work of the new cross-departmental committee:
19. Ensure UK and EU trade policy is
non-mercantilist in reality as well as rhetoric. The government's
past approach to trade policy has favoured liberalisation and
free trade as a response to poverty. It is Traidcraft's experience
that this theory frequently does not work in practice and it is
often the poorest people who suffer most as a result. It is not
the unlimited liberalisation of trade, but the appropriate sequencing,
pace and scope of trade reforms that will make a difference to
poor producers. The evidence from developing countries forced
to liberalise, particularly in Africa and Asia, has shown that—rather
than creating wealth—opening up too soon to imports from
more efficient and/or highly subsidised foreign producers has
had a devastating effects on jobs, poverty, livelihoods and the
potential for domestic economic growth. [28]Developing
countries should have the right to nurture and protect vulnerable
or infant sectors of their economies from free and unfettered
trade until they are able to be competitive regionally and internationally.
No country, the UK included, has developed without protection.
This pragmatic—rather than theoretical—approach should
be the bedrock of UK trade policy. The UK must insist that it
will veto any EU trade policy which will make it harder for vulnerable
producers to survive and compete, and champion policy that is
grounded in the reality of the economic circumstances of producers,
farmers and workers in poor countries. If the UK is serious about
its commitment to develop sustainable trade that benefits everyone,
development should be made a fundamental concern of its trade
policy.
20. Clarify new ministerial responsibilities.
While the new role of joint Minister is a welcome move, there
is a danger that this brief will be everything and nothing in
that it will have to manage potentially conflicting interests
of a number of different Whitehall departments. In order to ensure
that the development focus is not lost, this role should include
specific performance indicators related to the UK government's
objectives on poverty reduction and the achievement of the Millennium
Development Goals. Where UK trade policy seems not to be taking
account of poverty impact—as is the case in EPAs, or the
EC's recent denouncement of the ACP-EU Sugar Protocol—the
joint Minister should be accountable. Similarly, clarification
is needed over responsibility for Commodities. DEFRA has a major
role in this area, but given its responsibility for other issues
such as consumer safety and UK farming, there are potential tensions
with UK government international development objectives (such
as the risk of increasing EU consumer standards becoming a non-tariff
barrier for developing country producers). DFID will need authority
to identify and manage these tensions. In each area the responsibilities
of the Minister should include a clear mandate to establish development
benchmarks that must be achieved and not compromised through any
trade negotiations, and to ensure that they are respected.
21. Champion the potential for trade
to alleviate poverty. For development to be truly enshrined
in HMG's policy, the new trade minister should become a "champion
of poverty reduction" across government. This should be achieved
in the following ways:
(i) By implementing an immediate and public
review of all current and ongoing trade policy negotiations (both
bilateral and multilateral). Where negotiations are not yet concluded,
and where controversy over development impact exists, the Minister
should make it clear that the UK government will veto ratification
of any negotiations that have not fully taken account of poverty
impact.
(ii) Given the imminent deadline for conclusion
of EPA negotiations, the UK government should as a matter of urgency
ensure: that ACP countries are not forced into signing EPAs, either
by threats of tariff imposition or loss of funding; that they
have sufficient time to research and conclude pro-development
agreements; that the EU honours its Cotonou Agreement commitments
that market access will be maintained; that alternatives (such
as GSP+) should be properly investigated and proposed.
(iii) By ensuring that no future trade agreements
will be initiated by the EU before robust and participatory impact
assessments have been carried out on their potential impact on
poverty, in order to establish development benchmarks. Consultation
should be wide-ranging, public and accountable. This would entail
not just the usual liaison with private sector on the UK's economic
interests, but the inclusion of other stakeholder assessments,
development research and data that would ensure a better economic
and developmental balance in our positions.
(iv) By proactively seeking those policy
discussions or regulatory processes that will have development
implications. In addition to the more established ground of development
and trade policy, this would also include UK government strategy
on corporate accountability, company law, standards setting and
UK market concentration.
(v) By ensuring that government interventions
(both technical and financial) are coherent across different Whitehall
departments. This is not always the case at present. The UK's
current emphasis on trade liberalisation, for example, risks undermining
certain (UK government funded) enterprise development projects.
For instance, EPAs are likely to increase the vulnerability of
small producers in a number of sectors, including dairy farmers
in Kenya and cotton growers in Malawi—farmers in both sectors
have been supported by DFID. [29]Tomato
growers in Ghana are similarly exposed, yet DFID has been supporting
Unilever in addressing marketing problems faced by tomato farmers
through its Ghana Business linkages Challenge Fund. [30]
22. Improve the impact of the private
sector on poverty. Despite the commitments in previous White
Papers (see for instance, Chapter 5 of the 2005 White Paper Making
Governance Work for the Poor), DFID has yet to develop an
action plan for harnessing the private sector for development.
A strategy in this area is essential and should include the following
elements:
(i) an analysis of trends in mainstream international
trade, with the purpose of assessing the quality of international
trade and its impact on producers in developing countries. This
would ideally be high-profile and seeking substantial stakeholder
participation (private sector, producer groups and civil society).
Without this baseline understanding, a strategic engagement will
not be possible.
(ii) A commitment to policy coherence, identifying
and advocating for development needs across the range of government
policy (both domestically and internationally).
(iii) A detailed strategy for donor intervention,
with clear targets (in terms of products, sectors or producer
groups) for intervention. This will help build a broad understanding
within HMG, with business and throughout the development sector
of what the problems are and what is possible. It would make sense
of what is currently project-based funding. There is no stated
link between, for instance, government support to Fair Trade,
to the Ethical Trading Initiative (ETI) or to the Extractives
Industry Transparency Initiative (EITI). Critically, this would
also facilitate shared learning between stakeholders and between
initiatives. At present, government plays little part in supporting
such learning.
23. However, engagement with the private
sector should not extend to subsidising multinational companies
in their efforts to improve their supply chain impacts. Challenge
funds and other financial incentives are potentially valuable,
but only when they have the potential for scaleability. UK government
funding to large multinationals will be seek as tokenistic if
it is not linked to very substantial commitments by the company
to implement project learning broadly across its supply base.
24. Increase domestic engagement on
EU trade policy. If the new UK government structure on trade
and development is going to work in practice, more scrutiny of
EU policy-making will be required in the UK. There is still a
lack of transparency and accountability within the UK on how EU
trade policy is made. 133 Committee membership and agendas, for
example, are not publicly discussed, and civil society in the
UK continues to struggle to obtain specific, timely and accurate
information from the UK government on what is being negotiated
in the UK's name. The new Minister should commit to much greater
public accountability on how UK trade policy is decided upon.
This should include an increased reference to the UK Parliament,
not only through submission to Select Committee scrutiny but also
through reference to the wider membership of both Houses on the
impact of trade proposals on poverty.
23 www.cafedirect.co.uk Back
24
www.shared-interest.co.uk Back
25
www.fairtrade.org.uk Back
26
www.ethicaltrade.org Back
27
Sustainability Impact Assessments (SIA) of Trade Negotiations
of the EU-ACP Economic Partnership Agreements, Mid Term Report
Working Draft, 1 October 2003 http://www.sia-gcc.org/acp/download/summarized_mid-term_report_
final_doc_light.pdf, accessed Autumn 2003. Back
28
See, for instance, Traidcraft's publication Why free trade
won't help Africa at http://www.traidcraft.co.uk/NR/rdonlyres/53BD19CC-07A8-40B4-B84C-2CE57BBB0F9D/0/campaigns_epas_free_trade_wont_help_africa.pdf Back
29
Business Linkages Challenge Fund, project started in September
2003 and ended in August 2006. Linkage partners were Great Lakes
Cotton Company (GLCC), Clark Cotton Malawi (CCM), Chemical and
Marketing Co (C&M), Syngenta AG, NASFAM, the Balaka Smallholder
Farmers Organization (BASFA). Grant amount: £295,000. Back
30
http://www.challengefunds.org/ghana/newsgblcf.htm Back
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