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A rigged game.

Aid activists say the rules of world trade leave the globe's poorest people, "Robbed, ripped off, and ruined."

The group Make Poverty History backs up this provocative claim.

"You may not be aware of them, but trade rules control how countries do business with each other. They are agreed at the international level, and are supposed to make sure nations compete openly and fairly.

"In reality, they don't.

"That's because the rules are rigged--loaded in favour of the wealthiest countries and their business interests.

"So, no matter how hard people work in the developing world, or how much their countries produce, trade relationships benefit the rich world most."

Make Poverty History points the finger of blame at the usual suspects--the World Trade Organization (WTO), the World Bank, and the International Monetary Fund (IMF). Anytime these three organizations hold meetings they attract a large crowd of protesters.

The complaint is that the "Big Three" force "poor countries to open up their markets to foreign imports and businesses, and sell off public services like electricity--even when this is not in their interest. They're also banning poor countries from supporting vulnerable farmers and industries, while wealthy nations continue to support their own."

Okay. That's all pretty one-sided stuff. The WTO, World Bank, and IMF are not total ogres; they all do some excellent work in and for the developing world. That said, there is some room for improvement. As we showed in our International Finance publication (ISBN: 1896490646) in September 2003, the World Bank and IMF have done a lot of reforming recently.

The focus for 2005 is on the World Trade Organization. Negotiations on a new set of trade rules are supposed to finish up in Hong Kong at the end of 2005. But, this has been a troubled round of talks. It began with the Battle in Seattle in 1999.

The talks were to have started in the U.S. west-coast city but massive street protests shut them down. Thousands of anti-globalization activists caused enormous chaos.

Licking their wounds, the top brass of the WTO returned to head office in Switzerland to re-think their strategy. The plan that emerged was to relaunch the trade negotiating round in 2001 in Doha, the capital of the Persian Gulf state of Qatar. A good choice if the WTO wanted to make it difficult for protesters, a poor choice if the organization wanted to impress defenders of democracy and human rights.

"The WTO has selected a country for its next summit where freedom of assembly is nonexistent," said Kenneth Roth, executive director of Human Rights Watch in January 2001. "This looks like an effort to avoid the noisy demonstrations of the past year by picking a country that bans demonstrations. The WTO should be striving to build the global economy on a foundation of respect for such basic human rights--not hiding behind governments that systematically violate those rights."

Whatever the merits of the venue, the talks launched the so-called Doha Round.

The goal of the protesters has been to get the WTO to change the way it does business. Its decisions have been strongly influenced by the world's richest nations. The wealthy can and do organize small armies of lobbyists, lawyers, and trade specialists whose job it is to get the WTO to make decisions in their favour.

According to the trade organization, free trade is the way to benefit everybody in the world. That means getting rid of all government action aimed at protecting certain industries from foreign competition. But, in agriculture, the WTO has not been able to pull off a free trade deal. Rich countries aggressively subsidize their farmers.

A subsidy is a government gift that is aimed at benefitting the public. In the case of agriculture, a benefit to the public is to lower the cost of food. But, cheap groceries are really an illusion because the subsidy is paid by the public through their taxes. In fact, critics say food costs 25 percent more in Europe than it would if there were no subsidies.

One of the most generous subsidy programs is that of the European Union (EU). Its Common Agricultural Policy (CAP) swallows about half of the EU's entire budget, or close to $75 billion a year. The CAP gives Europe's farmers a guarantee of a minimum price for what they produce. The idea was to encourage farmers to grow enough food to feed all of Europe's people. But, the subsidies have been so generous they have triggered massive overproduction.

What to do with the surplus?

The answer has been to sell it elsewhere in the world at low prices. In the world of international trade this is called "dumping." It usually causes the country being dumped on to have a hissy fit and launch massive complaints to the World Trade Organization. Rich countries have put up an effective campaign to block WTO attempts to banish agricultural subsidies. The result is that cheap food from rich countries puts farmers in the Third World out of business. They can't sell their products competitively in local markets and barriers prevent them from getting access to markets in the developed world.

In this way, the CAP and subsidy programs like it in the United States and elsewhere increase Third World poverty. And, according to a study by the Centre for the New Europe, the CAP indirectly kills 6,600 people in developing countries every day.

For these and other reasons protesters hit the streets any time international trade and banking groups meet. The activists demand that these groups fix the problems of inequality in the rules. The Centre for Global Development points out how these inequalities penalize developing countries: "In 2001, the United States collected more in import duties from Bangladesh ($331 million U.S., mainly on clothing) than it did from France ($330 million U.S.), despite importing 12 times as much from France in dollar terms.

When trade ministers gathered for an important WTO meeting in Cancun, Mexico in September 2003, they were greeted by the usual noisy crowds outside. But this time, there were plenty of vocal protests indoors as well.

The rich countries wanted to open talks on new topics. Developing countries saw the new issues as attempts by large corporations to gain more access and control of their economies. About 70 of the poorer nations banded together at Cancun. They dug their heels in and refused to talk about the agendas of the rich nations. They said their longstanding and ignored trade issues, such as agricultural subsidies, were going to have to be dealt with first. Agriculture typically comprises between 17 and 35 percent of GDP in developing countries, compared with less than three percent in rich nations.

One Caribbean trade minister was quoted as saying "What kind of organization is this? Who does it belong to? Who does the drafting? Who appointed them? Why waste our time engaging seriously in consultations only to find our views not there at all in the draft?"

The revolt was led by Brazil, South Africa, India, and China. The United States and the European Union were livid. Their pet projects had been blocked and the WTO meeting broke up. The Doha Round had been derailed.

But, there is too much at stake for the world's industrialized economies to let the WTO fail, so the Doha Round has been put back on track.

The European Union has agreed to end its agricultural export subsidies as part of a final agreement. There's a condition attached to that offer. There has to be an agreement on trade in services and non-farm market access.

The developing nations learned an important lesson in Cancun; by acting together they are stronger. The rich countries will find it harder now to push the poorer states around in trade negotiations.

Throughout 2005, trade ministers from the 148 member-states of the WTO will be bargaining. The aim is to have a draft agreement ready for signing in Hong Kong in December 2005. However, reports the British Broadcasting Corporation, "Many observers believe that a breakthrough is unlikely before 2007."


Poor countries sometimes are their own worst enemies. That's the conclusion of a World Bank report called Doing Business in 2005. The report details the ways in which developing countries make it difficult for foreign investors to conduct trade in their countries.

On average, doing business in a poor country involves three times the administrative costs and two times the number of bureaucratic procedures as rich countries. An example given is that only one step is required to register a property purchase in Norway. Do the same thing in Algeria and there are 16 steps. Another comparison is the time it takes to incorporate a business; in Canada, it's done in about two days, in Mozambique it takes 22 weeks.


Sugar from cane is a commodity produced in abundance in the developing world. Sugar from beets is produced in large quantities in the European Union (EU). Farmers in Europe enjoy large government subsidies that enable them to sell five million tonnes of sugar in world markets at low prices. At the same time, African, Brazilian, Thai, and other developing-world sugar producers face trade barriers that limit their access to European markets.

According to an Oxfam study, the EU's sugar policies make winners out of "big farmers and corporate sugar refiners such as Sudzucker and British Sugar. The losers are the poor. European consumers and taxpayers are financing a system which denies vulnerable people a chance to escape poverty and improve their lives. Reforms are needed to stop European dumping and improve market access for the poorest countries."

Oxfam says the EU subsidies to farmers and sugar refiners amount to hundreds of millions of dollars. Losses of the same size are suffered by the sugar industry in poor countries.


Microsoft is a company that millions love to hate. Perhaps they would be a bit less hostile if they knew more about the work of the Bill and Melinda Gates Foundation. The Foundation was set up by Bill Gates, the man who started Microsoft, and his wife Melinda. It is endowed with $28 billion, most of it the Gates' own money.

In January 2005, the Gates Foundation gave $750 million (all figures here are U.S.) to the Global Alliance for Vaccines and Immunization (GAVI). This is just the most recent of many gifts to help fight disease in the developing world. The Foundation's money alone has almost doubled the amount spent on research into malaria. Bill and Melinda Gates have also set up what they call the Grand Challenges in Global Health: these are fourteen "roadblocks" to better health. The organization is funding research projects to come up with ways to overcome these challenges.


In 2003, the Ghanaian government said it was going to protect its poultry and rice farmers from subsidized imports. Within days, the International Monetary Fund applied pressure to Ghana to reverse the decision. Loans to the impoverished country are conditional on its opening its agricultural markets. Ghana's government quickly changed its mind. As a result, local rice production has dropped and imports of subsidized rice from the United States have increased greatly.


The East Timor Sea divides the rich from the poor. On the southern side of the Sea is Australia with an annual Gross Domestic Product (GDP) per person of $34,800. To the north is East Timor with an annual GDP per person of $600. Underneath the Timor Sea are some big oil and gas reserves.

The two countries disagree about where the international boundary between them should be. The drawing of the boundary determines who gets access to most of the oil and gas. At stake are tens of billions of dollars in oil and gas revenues. East Timor desperately needs money. The country has a 90 percent unemployment rate and no possibility of building the schools and hospitals it needs.

Usually, a dispute of this sort would go to the International Court of Justice or the International Tribunal on the Law of the Sea for a decision. But, two months before East Timor became independent in 2002, Australia withdrew from both these organizations. So, no independent solution to the boundary dispute is possible.

In November 2004, the government of Prime Minister John Howard put a take-it-or-leave-it offer on the table. Australia would give $3 billion to East Timor in return for East Timor giving up all claims to future oil and gas discoveries in disputed areas. According to the group Timor Sea Justice, "This arrangement would leave Timor some $5 (U.S.) billion short of its entitlement under international law." The aid group Oxfam Australia said the Howard government's stance might "push East Timor to the brink of becoming a failed state." Foreign Minister Alexander Downer responded by saying this was "emotional claptrap."


The United Nations has estimated that unfair trade rules cost poor countries $840 billion every year. With just 0.01% of this returned to them, blindness could be prevented for 30 million people.
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Title Annotation:World Trade
Publication:Canada and the World Backgrounder
Geographic Code:1USA
Date:Mar 1, 2005
Previous Article:Setting targets.
Next Article:Relief in sight?

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