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The free trade
charade
By Marco Garrido
The
Group of Eight (G8) summit in Evian was not the only
gathering of global importance this month. At the same
time as the heads of state of eight of the world's
richest countries convened in Evian, France, trade
ministers from 39 of the world's poorest nations met in
Dhaka, Bangladesh.
While the Evian summit
concerned itself with global economic recovery, the
conference in Dhaka appealed to developed-country
governments to remember their commitments to
development, particularly when it came to trade. The
delegates issued a statement to be presented at the
World Trade Organization (WTO) ministerial in Cancun.
The Dhaka declaration calls on developed countries to
remove restrictions on products from poor countries and
import more from them on a regular basis.
The
call from Dhaka coincided with a similar call from
Bangkok. The Association of Southeast Asian Nations
Business Advisory Council met in Thailand to prepare its
position for the WTO ministerial. As in Dhaka, the
foremost issue on the table was trade: getting developed
countries to dismantle their enormous agricultural
subsidies and open their markets to developing nations.
If the statements from Dhaka and Bangkok sounded
an urgent note, it is merited. The Doha Round of trade
talks launched in November 2001 seems to have run
aground on the question of agriculture. Not only have
trade negotiators failed to meet a March 31, 2003,
deadline on deciding how to cut trade-distorting farm
subsidies, the negotiations overall appear to have
reached a deadlock. This is bad news for developing
countries, many of which had to be persuaded to go along
with the Doha Round in the first place. Many poor
countries had felt shortchanged after the Uruguay Round
of trade talks concluded in 1994. To entice their
participation in Doha, rich countries dangled the
prospect of significant trade concessions in
agriculture.
Although the talks are not
scheduled to conclude until 2005, if at least some sign
of progress on trade reform does not materialize in time
for the ministerial in September, not only the Doha
Round but the faith of many developing countries in the
WTO process could be in jeopardy.
G8 inaction
on global trade
For their part, the G8 nations
have made a show of affirming their commitments to the
Doha development agenda. The Action Plan on Global Trade
unveiled in Evian pledges to promote "improved access to
markets for all WTO members ... particularly the
poorest, to ensure their integration into the
multilateral system, and their development more
broadly". To this end, the G8 nations commit "to
delivering on schedule, by the end of 2004, the goals
set out in the Doha development agenda".
Their
resolve would be more convincing if it came accompanied
with concrete measures. There was, of course, talk of
action, and even a specific proposal by the French to
suspend subsidies temporarily on food exports to Africa,
but, perhaps predictably, nothing came of it. It is hard
even to say whether the proposal was made in earnest,
considering that France is one of the most ardent
supporters of the European Union's Common Agricultural
Policy (CAP), which provides for lavish subsidies to EU
farmers. French recalcitrance in reforming the CAP -
even, in fact, providing for its unmodified extension
until 2013 - is one reason the Doha talks have so far
foundered.
In perhaps a continuation of the
politics that characterized the trans-Atlantic rift over
Iraq, the French may have been counting on the United
States to object. Which, of course, the US did, balking
at the EU demand that the proposal cover agricultural
export credits and food aid, of which the US is the
biggest user. Not to be outdone, however, Washington
countered by saying it would support the French proposal
if subsidies were to be suspended for all developing
countries and not just for Africa. Not surprisingly,
nothing came of this either - which may have been the
intention behind the offer all along.
Trans-Atlantic rows over agriculture
Despite the unabashed rhetoric of solidarity coming out
of Evian, the differences that have deadlocked the Doha
Round show no signs of abating. These differences pit
the US against the EU and Japan (which tends to hide
behind the EU's position) and come down to the question
of reforming the way agricultural trade is conducted.
While agricultural trade is not the only
contentious issue, it is the main one. In keeping with
the Doha Round, the United States has offered to scrap
agricultural export subsidies over a five-year period,
to cut domestic subsidies to 5 percent of the value of
farm production, and to cap tariffs at no more than 25
percent. The EU has refused to go along with these cuts
and has instead proposed a far more gradual scheme for
farm subsidy reform. Efforts at compromise have so far
failed: the EU sees the US proposal as going too far;
the US sees the EU scheme as not going far
enough.
The EU has long pledged to reform its
Common Agricultural Policy. It seemed particularly ready
to do so at the Doha ministerial in 2001. EU Trade
Commissioner Pascal Lamy declared that "Europe has
listened, Europe has moved, and Europe is willing to go
the extra mile" to make Doha a development round. Now it
seems that promise has largely dissipated; instead of
the extra mile, the EU has settled for a few shuffled
footsteps. Just last week, EU Farm Commissioner Franz
Fischler vowed to reject a proposal calling for the
overhaul of the CAP's subsidy regime, peddling a more
moderate reform package in its place.
As it
stands, the CAP spends US$50 billion in agricultural
subsidies annually. These subsidies can be highly
trade-distorting. They contribute to overproduction and,
as a result, export dumping (exporting at prices below
the cost of production) in developing countries. Despite
this, the EU did not hesitate to send a representative
to the Dhaka conference to soft-sell its more gradual
scheme for CAP reform to the Least Developed Countries
(LDCs). An envoy from Brussels tried to win over the
LDCs by employing, in the words of the Zambian trade
minister, "divide and rule tactics". In a bid to weaken
developing-country-bloc pressure against the CAP, the
LDCs were offered special access preferences to EU
markets not being extended to other developing countries
such as India and Brazil.
The United States is
not blameless in this matter either. Last year US
President George W Bush signed into law a farm bill
increasing government spending on agriculture by 80
percent. Conservatively, that comes out to an additional
$82 billion for US farmers over the next decade. Not
only is the amount of new farm aid massive, its coverage
is extensive. The new bill reintroduces subsidies on a
host of farm products and invents new payments related
to pricing and production that prove highly trade
distorting, so much so that some predict the US will
break its Uruguay Round commitments, never mind its Doha
Round promises.
In view on this, one cannot help
but wonder whether the US proposal to keep the Doha
Round on track is entirely feasible given the political
clout of farm states. Bush's trade negotiator Robert
Zoellick thinks so, arguing that the US is ready to let
the ax fall once the EU agrees to cut back its own
subsidy program proportionately. But this kind of
hedging fails to inspire confidence, either in the EU,
whose own commitment to trade liberalization will waver
with US backsliding, or in many developing countries,
whose disaffection with the multilateral trading system
will continue to deepen.
The EU and the US also
knock heads on the issue of genetically modified
organisms (GMOs). Last month, Bush accused the EU of
hindering the "great cause of ending hunger in Africa"
by continuing to ban GM foods. Bush argued that the
moratorium discouraged Africans from investing in GM
technology because they feared the EU would block their
GM food exports as a result. The EU has maintained that
its moratorium is simply a measure of precaution,
arguing that the absolute safety of biotechnology crops,
which have been genetically altered to become more
resistant to pests, have yet to be confirmed. Despite
the high-toned rhetoric on both sides, there is little
question that this dispute has a lot to do with the
billions of dollars in agricultural trade at stake. As
the main producer of GM foods and technology, the US is
keen on finding new markets for GM products. The EU is
equally keen on keeping its markets to itself and
keeping US products, GM or otherwise, out.
These
rows, however acrimonious, are not entirely
unproductive. Aileen Kwa, development think-tank Focus
on the Global South's WTO observer, notes that developed
country infighting, particularly between the US and EU,
may be part of a negotiation process that keeps power
within their circle. "This stalemate is not foreign to
trade negotiations: it is part and parcel of the
negotiation strategies of big players - to hold extreme
positions, to negotiate on the side with equals (the US
and EU will come to their own private deals), offer some
carrots and wave some sticks to developing countries,
and mix in a large dose of personal contact with
ministers, with heavy servings of persuasion and
coercion." While the WTO mandates consensus among its
members, controlling the process of getting consensus
can be instrumental in achieving the "right" outcome.
And certainly by keeping the debate largely on their
terms, developed countries manage to frame the terms of
consensus.
The real losers
Poor
countries lose the most from rich-country squabbling.
According to the United Nations, developing countries
lose about $100 billion a year through protectionist
policies. That's twice as much as they receive in aid.
Since their Uruguay Round commitments, developed
countries have increased, not reduced, the amount they
spend on agricultural subsidies to $350 billion a
year.
Moreover, rich countries restrict poor
countries from having fair access to their markets. The
international aid organization Oxfam claims that tariff
barriers in rich countries are four times as high for
poor countries as they are for other rich countries. In
fact, some of the highest barriers are leveled against
the poorest countries of all, the LDCs. Considering
that, according to Oxfam, "96 percent of the world's
farmer's live in developing countries, where agriculture
provides the main source of income for 2.5 billion
people", the full scale of suffering caused by unfair
trading practices on the part of developed countries
becomes apparent.
Tragically, while
international trade has the potential to generate
enormous wealth (and it surely has for rich countries),
the modalities by which it operates have, in the cases
of many poor countries, led to a squandering of that
potential and even to the entrenchment of poverty. The
problem inheres in the regime governing international
trade. The Uruguay Round Agreement on Agriculture (AoA)
legalizes trading practices that enable rich countries
to skew the benefits of trade in their favor. Through
various rationalizations, the AoA allows rich countries
to subsidize their agriculture to the point of gross
overproduction and dump the resulting surplus in
developing-country markets. Export dumping has the
pernicious effect of displacing local producers who
can't compete with the artificially depressed prices of
the subsidized imports.
For example, US cotton
subsidies have devastated the cotton industries in
Central and West Africa. If trade were free, countries
such as Burkina Faso, Mali and Benin would dominate the
world market in cotton. According to the World Bank,
these countries are among the lowest-cost producers of
cotton. It costs US cotton farmers three times as much
to produce a kilogram of cotton than it does farmers in
Burkina Faso. However, while Burkina Faso may have the
comparative advantage in terms of efficiency, the United
States clearly enjoys the advantage in terms of
subsidies. How can Burkina Faso possibly compete when,
according to Oxfam, the US spends more on subsidies for
its 25,000 cotton farmers than the entire GDP of Burkina
Faso? Every hectare of cotton farmland in the United
States is subsidized by $570. US cotton farmers received
a total of $3.9 billion in 2001-02. These government
transfers exceed the actual value of the output, so
cotton in the US is produced at a net cost. As a result,
world prices for cotton are kept artificially low. This
has a debilitating effect on nations dependent on cotton
production: Burkina Faso loses 1 percent of its GDP and
12 percent of its export earnings as a consequence.
Hence, more than half of its 2 million cotton farmers
remain mired in poverty.
Another example: When
half the world's population lives on less than $1 a day,
according to Oxfam, the EU spent 16 billion euros in
2001 to subsidize its dairy industry - an amount that
comes out to $2 per cow per day. EU dairy subsidies
undercut the livelihoods of small farmers in Jamaica,
the Dominican Republic and Kenya in much the same way
that US cotton subsidies wreak havoc on Central and West
African economies. However, unlike US cotton subsidies,
much of the EU's dairy subsidies go not to production,
but to promoting its dairy products abroad. Export
subsidies aimed at expanding market shares have the
effect of fostering import dependence in developing
countries (for goods that can be locally produced) and
undermining these countries' own capacity to
export.
Although developed countries like to
portray agricultural subsidies as a way to protect their
small farmers, large traders and transnational
corporations are really the ones who benefit the most.
According to Oxfam, three-quarters of US cotton
subsidies go to the largest 10 percent of cotton farms.
In 2001, 10 of these farms received payments totaling
$17 million. The same is true for EU dairy subsidies.
Although the CAP provides for the protection of farm
incomes, since the EU's dairy subsidies exist largely to
promote exports, they go directly to dairy-processing
and trading companies. Every year these companies
receive more than a billion euros just in export
subsidies. Meanwhile, Europe's small farmers are left to
suffer lower dairy prices. In a telling sign of the
effect these subsidies are having, while the number of
EU dairy farmers has diminished by 50 percent over the
past decade, the average herd size has increased by 55
percent.
Moreover, while protecting their own
markets, developed-country members of the WTO invoke the
AoA to force developing country members to open their
markets. Oxfam provides the example of Haiti: "Under
pressure from the IMF [International Monetary Fund] and
US, Haiti cut its tariff on rice to a mere 3 percent. As
a result, rice imports - mostly subsidized rice from the
US - have increased thirty-fold. The price of rice in
Haiti has hardly fallen [as liberalization advocates
argue], and malnutrition now affects 62 percent of the
population, up from 48 percent in the early 1980s."
Certainly, developing countries do not enjoy similar
access to developed-country markets.
Cheap
tricks and inimical aid
The basic problem is that
rich nations set the global trade rules. That these
nations go to great lengths to disguise their
self-interest only confounds this problem. Being able to
expound upon the virtues of free trade on the one hand
while subsidizing one's agriculture to the point of
deliberate surplus on the other is simply a marvel of
doublespeak that the EU and the US have perfected.
George Monbiot writes in The Guardian that the AoA,
while designed to limit the amount of subsidies
developed countries could confer, is so riddled with
loopholes that all these countries have to do to keep
within its letter is call their subsidies by new names.
Instead of paying farmers production subsidies,
for example, the EU has taken to giving them direct
grants based on the land they own and how much they
produce. The level of subsidization remains the same,
but while production subsidies are considered
"trade-distorting", direct grants are not. Hence the EU
would seem to abide by the terms of the AoA. The US has
been similarly ingenious in repackaging its subsidies.
Through "export credits", the US can depress the cost of
its exports by providing cheap insurance for exporters.
The world trade system makes for contradiction
on another level as well: foreign aid. While G8 leaders
in Evian remained vague about trade, they did not
hesitate to pledge higher amounts of overseas
development assistance (ODA) to Africa as a show of
their commitment to development. The delegates in Dhaka,
however, had a different idea: "We need market access
more than anything else," said Bangladeshi Commerce
Minister Amir Khasru Mahmud Chowdury. "The motto now is
'trade not aid'."
The difference, of course, is
that aid affords developed countries more control. It
can be granted and withdrawn at their pleasure and can
be directed toward sectors that complement their own
interests. In any case, the damage caused by unfair
trade outweighs the benefits of aid. While Mali received
$37 million in ODA from the US in 2001, it lost $43
million as a result of lower export earnings due to
competition from subsidized US cotton. In fact,
according to Oxfam, the US spends three times as much in
cotton subsidies as the entire USAID (United States
Agency for International Development) budget for Africa.
These subsidies have the effect of making aid
seem meaningless. In the face of unfair trading
practices, aid can also seem irrational. While the EU
has spent millions of euros helping to develop the
Indian dairy industry over the past 30 years, its own
dairy subsidies undermine this effort.
But the
most insidious use of aid is when it does coordinate
with trade, when it becomes, in effect, a kind of
subsidy. Monbiot writes how aid is being used by the
United States as a way to penetrate developing-country
markets. While most major donors give aid in terms of
money with which aid organizations can buy food in local
markets, the US insists on sending its own food. The US
Department of Agriculture (USDA) is unabashed in
admitting that this program is "designed to develop and
expand commercial outlets for US commodities".
Consequently, those nations that "demonstrate the
potential to become commercial markets" receive the most
aid. According to Monbiot, "this is why, for example,
the Philippines currently receives more US food aid than
Mozambique, Malawi, Zambia, and Zimbabwe put together,
all of which, unlike the Philippines, are currently
suffering from serious food shortages".
Even
worse, food aid is sent when it is least needed. Oxfam
has produced a graph showing how the volume of US aid
rises when world food prices fall. Such flagrant
agricultural dumping seems aimed less at aiding
developing countries than at gaining access to their
markets.
A flagging
faith
International trade as it now operates is
neither fully free nor fair. The record of cases that
attest to this saps the credibility of the free-trade
rhetoric perennially coming out of such forums as the G8
summit. At the same time, it makes backing that rhetoric
with genuine reform all the more urgent.
If the
deadlock in the Doha Round talks remain, the Cancun
ministerial in September could end up another empty
exercise. Nicholas Stern, chief economist at the World
Bank, warns that "movement of sufficient scale and speed
has yet to materialize, and Cancun is at serious risk".
Of course, some groups, because of either
cynicism or self-interest, would see the collapse of
Doha as predictable and even opportune.
Anti-globalization activists would find confirmation of
their larger indictment of the WTO as an irreparable
institution designed to subjugate developing-country
economies. Certain agricultural and industrial lobbies
would read evidence of the ineffectualness of the WTO
process, if not of the WTO itself. US lawmakers
sympathetic to the domestic steel industry have already
called for the United States to withdraw from the
organization.
But should Doha fail or fall
short, the most serious casualty would be the faith of
many developing countries in the WTO process. As it is,
this faith is flagging. Many developing countries are
concerned that while the ministerial will behold them to
open their markets even further, their efforts will not
be reciprocated by developed countries in terms of
greater market access and the reduction of
trade-distorting subsidies. Philippine Trade Secretary
Manuel Roxas expressed ambivalence about whether he
wanted the ministerial to even push through. "We will
not be unhappy if there was no new WTO round at all," he
said.
Developing countries are caught between
cynicism and hope. The Doha Development Round holds out
the promise that agricultural trade can be made to work
better for poor countries. But it is a promise that,
while consistently affirmed in the rhetoric of G8
leaders, needs to be fulfilled in order to be fully
believed.
(Copyright 2003 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
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