Trade and the Millennium Development Goals

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Free trade economists argue that lower barriers to global trade result in higher trade volumes, prosperous national economies and poverty reduction. An alternative perspective observes that, in the recent era of economic deregulation, trade has become the vector which infects the world with the characteristics of laissez-faire capitalism. Having no goal other than to replicate itself, trade lurches between boom and bust, widening divisions between rich and poor countries.

Since 1995, when the current trade regime came into force, global import duties ("tariffs") and other protectionist measures have fallen to all-time lows and world trade has indeed grown handsomely at almost 10% pa. However, Africa's share of world merchandise exports has steadily fallen to just 3% in 2006, inconsistent with a region supporting over 10% of the world's population. Whilst China has been the dynamo of trade liberalisation since admission to the World Trade Organisation (WTO) in 2001, its booming economy has created only 13 million new jobs, small comfort for the 300 million underemployed in the countryside. In India too, the status of economic tiger has resonance only for the urban elites.

With similar patterns elsewhere is Asia, hundreds of millions of rural people, more than the entire population of Africa, are fighting a decline in food resources. With about 80% of Africans also dependent on farm livelihoods, the number of people in the world classified as hungry is rising, a statistic that indicts the world trade bonanza for selectivity in its wealth creation and failure in agriculture.

In both continents this rural exclusion is also forcing radical change in the traditional role of women in subsistence farming. In Asia poor women from rural regions are migrating to the ubiquitous Export Processing Zones (EPZs) where they dominate the production lines, especially in electronics and light consumer goods. Working conditions are vulnerable and largely without protection from the trade regulations that stimulate the EPZs.

Poverty, hunger and gender issues underpin the Millennium Development Goals (MDGs) and Goal 8 (Develop a Global Partnership) calls upon countries to create a trading system which "includes a commitment to good governance, development and poverty reduction". There is a contradiction between the obligations of the Millennium Declaration and WTO membership which the richer countries, as signatories to both, have chosen to overlook.

Trade and Climate Change

A recognised characteristic of a low barrier trade regime is migration of the world's manufacturing industry to a single country offering low wages and modest environmental regulations. This role is currently filled by China where low-skilled workers earn less than 5% of their US counterparts. The relevance to global warming of this displacement of production is two-fold; firstly the factory process is likely to be less energy efficient and secondly the goods require transportation over a much greater distance. Neither of these carbon footprints is costed within the trading system whose avarice for low wages ignores the impact on global warming.

Climate change will have its most immediate and severe impact on the poorest countries. Through its contribution to global warming, world trade therefore has an indirect as well as a direct impact on global poverty. Dr Rajendra Pachauri, Chairman of the Intergovernmental Panel on Climate Change, has expressed the view that a successor to the Kyoto Protocol should take into account emissions from shipping.

The Roots of Trade Injustice

The roots of the injustice that plagues world trade in agriculture lie in the aftermath of the Second World War. Self-sufficiency in food production and the survival of traditional rural communities were high on the agenda of European governments. Formation of the European Economic Community (EEC), the predecessor of the European Union (EU), led to the Common Agricultural Policy which since 1962 has offered subsidies to farmers and guaranteed prices against the risk of volatile markets.

Motives underlying the US Farm Bill, first introduced in 1949, were identical and the methods very similar. To a greater degree than Europe the profile of small family farms merged over the decades into large units attracting the bulk of the subsidies. The associated business of input chemicals, food processing and distribution also became concentrated into very large corporations such as Cargill and Monsanto which have been labelled as "agribusiness".

Although agriculture was included in world trading rules from 1995, these farm support programmes in the EU and US survived the negotiations of the "Uruguay Round" (1986-1994), a period in which developing countries were poorly equipped to punch their weight. By 2006 the OECD estimated that annual farm subsidies in developed countries totalled $362 billion, more than half the GDP of Sub-Saharan Africa. Advocates of the "liberalisation" of African agriculture should consult cotton growers in Mali, sugar producers in Uganda or chicken farmers in Ghana - whose livelihoods have been cut away by cheap produce available from rich countries. These gargantuan subsidies in US and EU protect less than 5% of the workforce whilst blocking development in the world's poorest countries where 68% of livelihoods are derived from agriculture.

In parallel to the stubborn inertia of these farm support programmes, the era of deregulation of world markets and capital flows has enabled agribusiness to extend its grip to the extent of owning about a third of the world's productive land and controlling 75% of global farm trade. Such industry concentration makes for inefficient markets and inappropriate influence over policy areas such as trade regulations.

Trade and Poverty Reduction

The prime concerns today of most of the poorer developing countries - food security and the protection of rural communities - are precisely those that gave rise to the unfair competition they now face. Trade rules need to replace the vision of more trade for its own sake with a vision of countries whose people can first secure their basic needs of food, health services and education. Such needs are enshrined in international human rights law as well as the MDGs. The UN special rapporteur on the right to food, Olivier De Schutter, has said that "the subsidies in the developed countries are ruining the developing countries' producers."

This is not to deny that radical reform in Africa is essential. Investment is required not only in agriculture itself but also in the infrastructure of transport and administration demanded by export markets. Small-scale farmers and fisherfolk need help to compete with multinational agri-business, for example in the formation of cooperatives. "Aid for trade" could support these objectives alongside international trade rules framed from a genuine development perspective.

Enlightened trade regulations might also have calmed the reaction to the surge in food prices that occurred during 2008. Instead, most of the countries struggling with food security have intensified a drive towards self-sufficiency in food, backed where necessary with barriers to trade in either direction. Such strategies run counter to the argument that, facing the uncertain impact of climate change on water availability and crop yields, global food production should be optimised through locating crops in their most suitable growing environment, regardless of national boundaries. Trade could make a vital contribution to food security if only a more sensitive regime could be created.

Trade Rules

Unfortunately the world trading system has become so complex that it is difficult to identify either the rules in force for a particular country or those on offer under constant rounds of negotiations. And the rules themselves frequently fail to achieve their intent. Moreover, if a free trade philosophy is to work for poor countries then it must first work for agriculture. The removal of EU and US farm subsidies is the cornerstone for this ambition; all other intricacies of the rules are minutiae by comparison.

Most of the world's poorest countries are now members of the WTO, but they are also increasingly party to regional and bilateral trade agreements which are allowed to override WTO rules. Additionally there are preferential agreements designed to help poor countries, both inside and outside the WTO structure, some of which are restricted to countries classified by the UN as LDCs (Least Developed Countries). These various concessions enable about 80% of LDC exports to enter developed countries duty free. However, this percentage has barely changed since 1996 and strategically critical duties tend to remain firmly in place.

There are also 79 African, Caribbean and Pacific (ACP) countries which, as former colonies, have historic concessionary trading terms with the EU. These ACP terms were ruled as discriminatory by the WTO in 2002 and the EU has offered replacement agreements known as Economic Partnership Agreements (EPAs). Development agencies such as Oxfam have argued vigorously that these EPAs will damage the development interests of the ACP countries. As a result, negotiations have overrun the original WTO deadline of 2007.

Out of this muddle one fundamental is clear - that the US and EU are in no mood to concede ground on the core issue of farm subsidies. Instead of offering unconditional phased removal of this structural fault line, they are prepared to offer subsidy reductions only as bargaining chips. They aim to leverage greater access to emerging markets in developing countries, not just in manufacturing but also to internal services such as utilities, health and education.

Apart from raising questions about the democratic right of poorer countries to control their own industrial strategy (in line with the established model of history), this bargaining approach threatens to rebound on agriculture. Poor countries are allowed to nominate crops regarded as crucial for internal food security and protect them with tariffs against external competition and price volatility.

These "special products" and "special safeguard mechanisms" are traded off in negotiations, creating especial difficulty for countries such as India whose geographic territory embraces a wide variety of critical food produce.

The Politics of Trade and Poverty

The political prospects of clearing this impasse in the interests of the LDCs are not good. The richer countries are now focused more intently on gaining access to markets in the successful developing countries such as Brazil and Malaysia - who in turn seek access to northern markets in agriculture.

These new middle income countries have been able to organise themselves more effectively in WTO negotiations, the G20 group headed by Brazil being the most important.

An LDC Group has also formed but tends to be excluded as talks reach critical stages or deadlines, one of the reasons why the WTO is accused of being undemocratic. Whereas in the past the G20 were natural allies of the poorest countries, there is anxiety now that their export strength is becoming as much a threat to LDC domestic markets as the traditional colonial relationships.

Fair Trade

Mocking the dysfunctional Doha negotiations, Fair Trade is booming amongst the consumers of 20 countries of northern Europe and North America.

Products endorsed with the Fair Trade label guarantee that the grower has been paid a price influenced by the cost of production rather than volatile commodity markets; furthermore that farm workers are protected by appropriate labour standards and that a premium has been paid to contribute to community projects.

In 2006 Fair Trade reached about 7 million farmers and their families in poor countries.

Fair Trade is constrained by its application to export products such as coffee and bananas. It faces a range of criticisms, for example that it is a selective subsidy for which the poorest farmers are unlikely to qualify. And climate change issues have not yet been absorbed into the Fair Trade model.

However such views miss the point that the buyer has started out with a vision of dignity and rights for the seller. Fair Trade creates an inspiring linkage between everyday consumers in wealthy countries, global trade and the challenge of world poverty.