Fair trade needed
The Trade Commissioner of the European Union, Pascal Lamy, proudly announced a deal in February that will allow the 48 poorest countries in the world free access for their products to EU markets.
There were a few ifs and buts. Access for some products will gradually be made freer over a eight-year period. Several developments NGOs voiced concerns that this deal would not lead to more imports into the EU but rather replace imports from somewhat more developed countries with those of the 48 included in this deal. Nevertheless, the EU should be commended for taking this step. Hopefully, the US and Japan will follow this good example and the deal will be expanded to include all developing economies.
Until now, the playing field in free trade negotiations has been far from level. Western countries have lobbied hard to create a free market for capital and services. These are the areas where developed economies have the edge: they have the better products for a lower price and have superior marketing. In the area of industrial products, there was more reluctance to move towards totally free global markets.
In those areas where developing economies might have the competitive edge because of cheaper raw materials and labour, the large Western trading blocks (USA, EU and Japan) tended towards protectionism.
Agriculture
In the area of agricultural products, a policy that combined high duties on imports, import quotas and high subsidies on domestic products was used by all Western countries to protect local farmers. The consequences are many and mostly negative. For example, European Union taxpayers need to cough up more than $40 billion a year to cover the costs of the Common Agricultural Policy (CAP). In addition to that, the CAP means that many products are sold over the world market prize. A double whammy for the average household.
Claims by the European Union that their policy was about quality have been undermined by all the recent brouhaha about dioxin chickens, BSE and most recently foot and mouth disease. Whether the Union wants to admit it or not, consumer confidence in agricultural products has all but disappeared.
The United States and Japan are not doing much better. US farming subsidies are at roughly the same level as those in the EU. Japan's market for agricultural products is so closed that at times rice is sold for eight times the world market prize.
All in all, developing countries that have not much more to export that agricultural products are suspicious about Western calls for free trade. Not without justification, they feel that rich countries have been setting the rules mostly to benefit themselves.
Labour & Environment
Developing countries generally reserve the same suspicion for anti-globalisation protesters and their demands for labour and environmental standards to be included in free trade agreements. In itself it is very noble to protect the environment and workers' rights. In practice it will hinder economic development of countries that already are poor. By hindering economic development, by perpetuating poverty in developing countries, sound environmental and social policies are made impossible. One should not forget that Western countries only developed labour standards when their economies were so developed that they could afford them. The same largely applies to environmental policies.
Developing countries see labour and environmental standards mostly as another device from rich countries to further manipulate the global market place to their advantage.
Disenfranchised
The multilateral process of liberalising global markets within the World Trade Organisation needs to be advanced soon. The ministerial meeting in Seattle became a failure. The EU and the US have been blaming each other for this failure but in fact share responsibility for it. The US administration, facing elections, went too far in pushing environmental and labour standards. The EU, fearing a backlash at home, refused to make much progress on liberalising trade in agricultural products. And those are only two of the many reasons why Seattle became a failure. Nevertheless, the result has been that developing countries feel increasingly disenfranchised from the process of establishing a global free market.
This needs to be addressed in a next round of trade negotiations. The grievances of developing countries need to be listened to. And real action needs to be taken to address those problems.
What Now?
In a next round of multilateral trade negotiations, progress needs to be made to free global markets for those products where developing countries have the competitive edge. Generally, this means opening up markets for textiles, agricultural products, cheap industrial products and labour-intensive products.
Naturally, this will also need adjustments in the industrialised countries. Current agricultural policies will come under pressure. Some parts of agricultural industry will disappear altogether, unable to compete with cheap imports. Other will need to choose new products and markets (the market for organic products is growing fast). Labour intensive industries such as textiles will increasingly move to low wage countries.These adjustments will sometimes be painful but they can hardly be more painful than the adjustments we demand from developing countries. And they can hardly be more expensive -for governments, consumers and taxpayers alike- than the current policies.
Keeping the developing world engaged in the process of establishing a global free market and bringing those countries the benefits of that global free market will demand some effort, some sacrifice, from the industrialised countries. In the long run, however, workers, consumers and entrepreneurs in developed and poor countries alike stand to gain much from this process. So let's get started!
Jan Weijers is Secretary General of Liberal International. This article originally appeared in issue 40 of the London Aerogramme, the Magazine of Liberal International.
