International trade generates extreme views. Globalisation enthusiasts ignore the role of trade in reinforcing global inequalities. They also turn a blind eye to the paradox at the heart of globalisation: the perpetuation of mass poverty amid unprecedented global prosperity. For their part, trade pessimists ignore the enormous potential that trade has to reduce poverty. They also overlook a simple fact: namely, we have the power to change trade relations between countries. Stated bluntly, trade is not inherently anti-poor, but the rules and institutions that manage the global trading system are.
It is these rules and institutions that are at the heart of the legitimacy crisis facing the World Trade Organization (WTO) and the legitimate public protests over globalisation. Last November, at the WTO ministerial meeting in Doha, governments of rich countries came close to acknowledging the need for radical reform. In committing themselves to a “development round” of trade negotiations, they promised to address the long-standing grievances of developing countries.
Will the promise be kept? Not if current practice is a guide to future behaviour. The Doha pledge itself is long on packaging and short on substance, with a conspicuous absence of concrete commitments. As negotiators get down to the real business of cutting deals, it is increasingly clear that Europe and the US are bent on maintaining a trading system that concentrates the benefits of globalisation in the hands of the wealthy. In international trade, as in other areas of development, old habits die hard.
Trade and poverty reduction
The slogan “trade not aid” contains a small grain of truth: as a mechanism for poverty reduction, trade has far greater potential than aid.
Consider the case of sub-Saharan Africa. If the region were to double its share of world exports from its current level of just 1 %, the foreign exchange gain would be equivalent to more than fives times annual aid and debt relief flows combined. Translated into increases in per capita income, this could lift more than 20 million people out of poverty and many more if income distribution improved.
Inequalities in international trade mirror and reinforce wider inequalities between rich and poor. Low-income countries account for more than 40% of the world’s population, but they generate less than 3% of exports. Meanwhile, the world’s richest countries account for more than three-quarters of world trade. Such large inequalities make it hard to close absolute income gaps. In the 1990s, rich countries increased the per capita value of their exports by almost $2000, compared with less than $100 for middle-income countries and $50 for low-income countries.
It may be true that the expansion of trade has raised absolute incomes in a large group of countries. But it is equally true that skewed patterns of income distribution mean the benefits of trade expansion trickle down to the poor at a pathetically inadequate rate, acting as a brake on the pace of poverty reduction.
Open markets for some
Rich country governments like to preach the virtues of an open market: if they practised what they preached, they could help to strengthen the links between trade and poverty reduction.
Trade barriers in the industrialised world cost developing countries $100bn a year — twice the amount they receive in aid. When poor countries export to rich countries, they face tariff barriers that average four times the tariffs faced by rich countries themselves. Behind all the free market rhetoric, the international trading system is like a hurdle race in which the weakest athletes face the biggest barriers.
To make matters worse, northern protectionism is concentrated in precisely those areas that most directly affect the poor. In agriculture, the industrialised world currently spends $1bn a day subsidising over-production and export dumping. It is a similar story in textiles and garments, the single biggest manufacturing export from developing countries and a source of employment for millions of women.
Powerful lobby groups in the industrialised countries have been successful in resisting efforts at reform. When the European Union’s trade commissioner, Pascal Lamy, proposed to provide all least-developed countries with unrestricted market access under the “Everything but Arms” proposal, big farmers and corporate interest groups immediately mobilised to delay implementation for sugar and other “sensitive” agricultural goods. “Everything but Arms” became “Everything but Farms”. The result: good news for the farmers of East Anglia in the UK and the Paris Basin, bad news for countries such as Mozambique, Zambia and Malawi.
Having failed to open their own markets, industrialised countries have used their control over the IMF and the World Bank to open up developing country markets. Loan conditions for governments borrowing from the Bretton Woods institutions routinely require rapid import liberalisation, even in sectors such as agriculture that no European or American government with an eye to political survival would contemplate.
Not content with their past achievements, industrialised countries are now pressing for another wave of liberalisation by extending WTO rules to areas such as investment and government procurement.
What needs to be done?
As the Doha round gets under way, only one thing is certain: the future of the multilateral trading system hinges on the outcome. So does the credibility of northern governments and their commitments to making globalisation work for the poor. If the rhetoric of a development round is to give way to a new trading order, radical new thinking will be needed.
Fundamental reforms will not be easy to achieve, especially within current negotiating structures. But greater democracy within the WTO and the Bretton Woods institutions is vital if developing countries — and poor people — are to have a greater voice in shaping the decisions that influence their lives. More broadly, we need to develop a popular campaign for trade that generates the energy, imagination, and mobilisation achieved through the international campaign for debt relief.
We know that change will not be easy. Realism dictates that power relations are not going to disappear from trade negotiations. But there are two sides to realism. Is it realistic for the world’s richest countries to maintain their prosperity and security in a world scarred by mass poverty, growing inequalities, and despair? And is it realistic to build a multilateral system on the foundations of hypocrisy and double standards? In today’s interdependent world, we need credible international institutions, and we need to disperse the benefits of globalisation more widely Ultimately, we sink or swim together.
Social justice, morality and enlightened self-interest combine to make a powerful case for change. In short, there is no alternative to a new world trade order. The one that we have is unsustainable. And it is not worth sustaining.