Help us to complete OneWorld Guides
Some important development issues are missing from our range of Topic Guides. OneWorld wants to fill these gaps but we need financial help. If there is a topic that you would especially like to see included, then you could make it happen...... find out more

Trade and the Millennium Development Goals

© Television Trust for the Environment

Free trade economists argue that lower barriers to global trade result in higher trade volumes, prosperous national economies and poverty reduction. In aggregate the evidence appears supportive: during the period of the current trade regime – which has since 1995 seen global import duties (“tariffs”) and other protectionist measures fall to all-time lows - world trade has indeed grown handsomely at almost 10% pa, the world economy is robust by historic standards and per capita incomes are rising. However, this comforting picture is betrayed by Africa’s share of world merchandise exports which has steadily fallen to just 3% in 2006, inconsistent with a region supporting over 10% of the world’s population. The poorest countries have become poorer.

Concerns about the impact of trade on human development are not confined to Africa. Since its admission to the World Trade Organisation (WTO) in 2001, China has been the dynamo of trade liberalisation. Yet only 13 million new jobs have been created in this boom, 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.

Saipan factory workers

In both continents this rural exclusion is also forcing radical change in the role of women. The integral nature of women’s engagement in traditional subsistence farming cannot be reproduced in the more modern agriculture which is the consequence of opening up to trade. 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

Moves at the 2007 Bali climate change conference to finance an Adaptation Fund reflect the recognition that climate change will have its most immediate impact on the poorest countries. Through its contribution to climate change, world trade therefore has an indirect as well as a direct impact on rural poverty. This is not a reason to abandon the promotion of trade but its omission from the global warming agenda makes no sense.

A recognised characteristic of a low barrier trade regime is migration of the world’s manufacturing industry to a single low cost country, currently China where wages are about 2.5% of the US equivalent. 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. The trading system’s avarice for low wages is blind to the impact on global warming.

Smog from commercial ship

There is further irony in that shipping, which carries 90% of this artificially swollen global trade, has located a blindspot in climate change negotiations, being excluded from commitments under the Kyoto Protocol. The contribution of shipping to carbon dioxide emissions is thought to be about 5% of the world total which is more than aviation and, with a staggering 20,000 new container ships on order, likely to increase at least as fast.
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. An early output of the European Economic Community (EEC), the predecessor of the European Union (EU), was the Common Agricultural Policy which since the mid-1950s 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 broader 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”.

Sorting cotton in Mali © Betty Press/Panos

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. Each European cow is believed to attract an annual subsidy several times greater than the average earnings of an African farmer. 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 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

Guinea-Bissau depends on cashew nuts © United Nations' Integrated Regional Information Network

Ironically the prime concerns today of most of the poorer developing countries – food security and the protection of rural communities in the face of global price volatility - are precisely those that gave rise to the unfair competition they now face. If trade is to play any role in addressing these concerns, then the elimination of the US and EU farm subsidies is a necessary condition to level the playing field - this was the most passionate plea of the Africa Commission established by the UK government to make recommendations on African development to the 2005 G8 summit. Trade rules need to be sympathetic to economic profiles which are dominated by agriculture and 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.

This is not to deny that radical reform in Africa is essential. Land reform is desperately needed in many countries where tenure is uncertain or where farm sizes have diminished to ridiculously uneconomic scale. Investment is required to improve productivity and quality control demanded by export markets. Small-scale farmers and fisherfolk need help to compete with multinational agri-business, for example in the formation of cooperatives. Inevitably a proportion of the rural workforce will migrate to new urban livelihoods, especially from areas of poor crop yields. International trade rules could act as a valuable catalyst for such evolution in agriculture but only if framed from a genuine development perspective, with preferential treatment that works properly so that the process can amount to transition rather than turmoil.
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, especially those making concessions to poor countries. However, 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 imports to enter developed countries duty free but this percentage has barely changed since 1996 and strategically critical duties tend to remain firmly in place.

EU Trade Commissioner Peter Mandelson © Guardian Unlimited

There are also 79 Africa, 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 with a deadline for amendment by the end of 2007 – negotiations for controversial replacement agreements known as Economic Partnership Agreements (EPAs) have spilled over into 2008.

Farmer in Punjab © Centre for Science and Environment

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 to leverage developing countries into allowing greater access to their own markets, 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. These “special product” tariffs are now under pressure, 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

WTO Director-General, Pascal Lamy

The prospects of clearing this impasse in the interests of the LDCs are not good. The political dynamic of international trade negotiations has evolved since the Uruguay round began in the 1980s. The richer countries are now focused more intently on gaining access to the successful developing countries such as Brazil and Malaysia. 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.

In 2001 it seemed as though the LDCs might find an unlikely new champion in the shape of the WTO. Startled by the vehement protests of the anti-globalisation movement at the 1999 Seattle ministerial, the WTO decided to name a new of round of negotiations as the “Doha Development Agenda”, proclaiming priority for poverty reduction. The painful reality is that the WTO itself has no capacity to deliver pro-poverty strategies. Unusual in offering no formal mission statement, the WTO describes itself simply as “an organization for liberalizing trade”; it facilitates negotiations and enforces the rules.

In 2006 the Carnegie Endowment for International Peace published a damning report Winners and Losers which projected that the Doha proposals would generate a net loss for the poorest countries. For richer countries such an outcome is self-defeating; a 1% increase in Africa’s share of world trade would generate revenues of five times the current value of foreign aid to the continent. For the WTO, the outcome lends credibility to the longstanding demands of trade campaigners for its abolition.

The talks were duly suspended in July 2006 with subsequent fitful and unsuccessful attempts to restore them. It should be no surprise if the LDCs conclude that the international trade rules are best confined to countries of relatively comparable economic status, with their own trade initiatives emerging through national poverty reduction strategies.
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 people in poor countries.

Fair Trade has been criticised as amounting to a subsidy and encouraging over-production but such views miss the point that the buyer has started out with a vision of dignity and rights for the seller. Fair Trade is constrained by its application to export products such as coffee and bananas but it creates an inspiring linkage between everyday consumers in wealthy countries, global trade and the challenge of world poverty.