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Trade not aid: the dice are loaded: many developing countries find there are barriers to trading with the world's economic giants that they can't overcome unless it is to sell their natural resources at low cost.

No one expects foreign aid on its own to end global poverty. Even aid organizations say global trade is one of the key areas that also has to change if lire is to improve in the world's poorest countries. In their 2002 report on overseas assistance, Reality of Aid, dozens of aid organizations worldwide agreed that World Trade Organization (WTO) agreements rob poor farmers from developing countries of their income by heavily subsidizing their domestic products, and placing tariffs on imports. Research by the World Bank, for example, suggests that opening markets would do more to help poor countries than development assistance tan ever hope to do. An OXFAM International report also supports the view that increased exports often are more effective in reducing poverty than traditional forms of aid because it provides income directly to individuals to help them improve their own lives.

The Millennium Round of World Trade Organization talks was supposed to address some of the problems developing nations are having in penetrating the markets of rich countries. That fell off the table after the Battle in Seattle. That was in November 1999 in Seattle, Washington, when 50,000 demonstrators crowded the city, shutting down the trade talks and derailing what the protesters described as another round of corporate-managed trade agreements.

As the Las Angeles Times wrote: "On the tear gas shrouded streets of Seattle, the unruly forces of democracy collided with the elite world of trade policy. And, when the meeting ended in failure ... the elitists had lost and the debate had changed forever."

The 2001 WTO ministerial meeting at Doha, in the Persian Gulf state of Qatar, agreed to place more emphasis on development through future trade agreements. Despite that, developed countries still have high levels of protection: their markets remain closed in areas that could most benefit the poorest countries--textiles and apparel, and processed agricultural commodities. Ghana, for example, can export its cocoa beam, duty free to Europe, but has to pay more than 25 percent tariffs on processed chocolate; food processing is shifted to Europe, depriving Ghana of the manufacturing base to escape from poverty.

Another example cited in the World Bank's report, Global Economic Prospects 2003 is Chilean tomatoes: exported to the U.S. fresh, they carry a tariff of 2.2%; if they are dried and put in a package they have to pay 8.7%, and if they are made into ketchup or salsa they have to pay nearly 12 percent.

In 2002, while the average tariff on all goods exported to Canada was less than one percent, most textile and clothing products were subject to tariffs of more than 15 percent. According to Danielle Goldfarb, a policy analyst at the C.D. Howe Institute, none of the 49 least-developed countries was exempt from textile and clothing tariffs at the time, nor did they get a reduced rate.

"In other words," says Ms. Goldfarb, "Canada's tariff policy discourages exactly those types of exports that could make a significant impact on development, sexual equality, and poverty reduction in these countries.

"Furthermore, this policy keeps clothing prices in Canada unnecessarily high and limits our own innovation, resulting in lower overall living standards for Canadians."

In June 2002, Canada announced plans to change that, saying it would reduce tariff barriers on textiles from the world's poorest countries to help pull African states out of poverty. A year earlier, the European Union announced its Everything-But-Guns program to lower tariffs on its imports of African products other than armaments. Norway and New Zealand also started a similar program.

In Canada, as in other developed countries, those opposed to cutting tariffs are afraid the move damage the domestic textile and clothing industries, primarily in Montreal and Toronto. But, those who support dropping them point out that imports from the least-developed countries represent only about 2.5% of all Canadian textile and clothing imports. Besides, they add, Canada has a very healthy textile and clothing industry, which would not suffer greatly from more imports.

Critics of unfair trade policies say it's outrageous that rich countries preach free trade to the poor while lavishing over $350 billion a year on their own farmers in subsidies. This is more than the economic output for all of Africa.

The European Union and the United States are the worst offenders when it comes to farm subsidies, but Canada has also been criticized: In 2001, the United States spent $49 billion U.S. supporting agricultural producers, while Canada spent nearly $4 billion U.S., twice the Canadian foreign aid budget. The massive subsidies block one of the biggest potential export products that poorer countries could offer the world market OXFAM International estimated in 2002 that barriers to agricultural trade cost developing countries $20 billion U.S. a year.

At the United Nations World Summit on Sustainable Development in Johannesburg, South Africa, in August 2002, the World Bank's director for development, Ian Goldin, said, "Reducing agricultural subsidies is the single most important area where rich countries can do something."

In support of developing countries, the World Bank called on the U.S. and the European Union to cut subsidies and offer greater access to their markets in return for political reforms in Africa, South Asia, and Latin America. Poor regions such as Africa depend on agriculture for about a quarter of their total output, most of it coming from low-income families.

OXFAM points out the markets in sugar, coffee, cotton, and other commodities that tropical farmers can grow cheaply are distorted by subsidies of $300 billion a year to rich-world growers.

For sugar alone, the European Union (EU) puts 140 percent tariffs on many imports from Africa while supporting its own sugarbeet farmers with about $1.6 billion a year. To add insult to injury the EU dumps low-cost surpluses in overseas markets.

The international agency says there have been plenty of promises since the end of the Uruguay Round of world trade talks in 1994 but "The record of industrialized countries in the area of trade policy is one of heroic under-achievement." According to OXFAM:

* The United Nations estimates that developing countries are losing about $100 billion (U.S.) a year through unfair protectionist policies, twice as much as the receive in aid;

* Tariff barriers in rich countries are four times higher for poor countries than for industrialized countries; and,

* The world's poorest countries face some of the highest tariff barriers on their exports.

OXFAM says the potential for economic growth and poverty reduction is being lost because "rich-country government are refusing to extend to poor countries the market opportunities they need. Instead, they are reinforcing a system that leave countries representing four-fifths of the world's population with less than one fifth of world exports."

Critics are not against free trade. They're against the hypocrisy of developed countries that pressure developing countries to liberalize trade while they protect their own domestic markets. They're in favour of trade policies that benefit everyone.

Uri Dadush, Director of the World Bank's International Trade Department, says progress in addressing the needs of developing countries has been slow. Although WTO Ministers plan to review progress, Mr. Dadush says, "The U.S. farm bill and the announced accord (in 2002) to maintain EU spending on farm subsidies until 2013 have complicated agricultural talks."


1. In an article in The Globe and Mail in May 2002, Mel Watkins (professor emeritus of economics and political science at the University of Toronto) wrote about a promising move taken by lawyers and economists at a conference the same month in Nairobi, Kenya: through International Lawyers and Economists Against Poverty (LEAP), they offer their expertise on trade, free on request, to the smallest and poorest countries.

The key person behind ILEAP is Gerry Helleiner of the Munk International Studies Centre at the University of Toronto, and be says the objective of the exercise is not trade per se but the reduction of poverty. Find out more about ILEAP and its activities to date.

2. Mexican Trade Minister Luis Ernesto Derbez Bautista told a conference in Montreal in June 2002 that his country had been transformed in the previous decade by embracing free trade. He said that 10 years earlier, Mexico was a fully protectionist country. Since signing the North American Free Trade Agreement and other trade deals, including a free-trade agreement with Europe, Mexico has changed from one of the world's most closed economies into one of the most open. Report on what changes have taken place in the country and how it has affected Mexican citizens.

3. Countries that have lifted the most people out of poverty--including South Korea and Malaysia--have done so by encouraging open trade. Thailand, where market reforms have been hesitant, may not have grown as quickly as South Korea, but is miles ahead of next-door Laos, where market reforms have been rejected. China and India, which decided to liberalize their economies and open their borders to more trade investment since 1992, have also improved.

Research some of these countries and find out if trade liberalization was the sole answer to their problems or if it was only one of several factors.


The U.S. farm bill that was approved in May 2002 will put $190 billion (U.S.) into the pockets of U.S. farmers over the next decade.

Developing countries are losing around $100 billion a year through unfair protectionist policies.

OXFAM's Eight Broken Promises report says "the multilateral trading system is rife with double standards that favour the narrow commercial interests of the rich and powerful over the economic and social development needs of the

In Africa, East Asia, South Asia, and Latin America were each to increase their share of world exports by one percent, the resulting gains in income could lift 128 million people out of poverty, according to OXFAM International.


Between 1999 and 2002 coffee bean prices plunged 50 percent with devastating results for coffee farmers in countries such as Kenya and Vietnam. In Burundi, coffee makes up 79 percent of cash-earning exports. Ethiopia lost nearly twice as much in coffee income in 2001 as it received in debt relief. The international aid organization OXFAM says the industry needs more quality control to weed out low-quality exports, which could increase the price of coffee beans as much as 20 percent. An OXFAM spokesman said: "In the 21st century, companies are increasingly recognizing that they cannot treat the supply chain as something they're separate from. It affects their image if there is terrible misery in coffee-growing regions."

Canadians drink 402 cups of coffee per capita every year, 77 more than in the U.S., and 152 more than in Europe. We spend $2.2 billion to $2.5 billion on brewed coffee annually, including $600 million for at-home consumption. Ninety percent of the coffee sold in Canada is produced by Kraft, Nestle, and Procter & Gamble, with sales of fair trade coffee accounting for less than one percent of total coffee consumed. Meanwhile, farmers from producing countries get only six percent of the retail price of ground coffee, and only one percent of the price of a retail cup of coffee, and they are destitute. About 25 million coffee farmers struggle to survive at the bottom of the coffee supply chain from Ethiopia to Vietnam and El Salvador, while the coffee companies please their shareholders with growing profits.

Cocoa growers have problems too. There's no tariff on European Union imports of cocoa beans (raw material), for example, but cocoa paste (semi-processed) is subject to a 9.6% duty, and processed chocolate is taxed as high as 25 percent. Developing countries produce 90 percent of the world's cocoa beans, 44 percent of cocoa liquor, and 29 percent of cocoa powder. But, they only make four percent of the world's chocolate. While tariffs facing the least developed countries were eliminated under the EU's Everything But Arms program, they remain for large producers such as Ghana and Ivory Coast. Also, their dependence on raw material sales leaves developing countries vulnerable to commodity price swings.


Development Initiatives

Europaworld (Everything but Arms)--http://www.

International Institute for Sustainable Development

OXFAM International
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Title Annotation:Trade
Publication:Canada and the World Backgrounder
Geographic Code:00WOR
Date:Sep 1, 2003
Previous Article:Help through official channels: at the Bretton Woods Conference of 1944 the international community created the financial framework for development...
Next Article:Falling behind: Canadians might see themselves as compassionate souls, but some say Canada's aid to developing countries is nothing to cheer about.

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