"Living up to our
Promises: Helping Developing Countries to Capture the
Gains from Trade"
Hilary Benn, UK Secretary
of State for International Development
Chatham House, London
It is a pleasure to be
here at Chatham House, and I am grateful for the
opportunity to talk about trade. Why ? Because trade -
and fairer trade - is absolutely fundamental to the
prospects of lifting billions of our fellow human beings
out of poverty.
This is a critical moment
for the multilateral trading system and for making it
work for the world's poor. After the talks collapsed in
Cancun last September attempts to find common ground
have inched forwards. Next week the WTO General Council
meets in Geneva to try and agree frameworks that will
allow substantive negotiations on the Doha Development
Agenda to get going.
Reaching out for the
gains that trade can offer matters to the world's poor.
Global trade flows are worth $ 25 million a minute.
Africa's are only $500 thousand a minute. This is a
fiftieth of the total proportion. Despite globalisation
and rapid growth in trade over the past decade, Africa's
share of world trade has more than halved.
My visits to DFID
programmes overseas have made me acutely aware of the
inequities - the unfairness - of the global trading
system. In March I visited Ghana. I spent a day with
cocoa producers from the Kuapa Kokoo co-operative in the
north of the country. They told me what life is like. In
Ghana as a whole, the livelihoods of over 2 million
small-scale producers depend on cocoa. Cocoa exports
make up just over a tenth of Ghana's GDP and the EU is
one of its major markets. But Ghanaian producers share
few of the gains to be made from European chocolate
sales. Whereas cocoa beans can enter the EU market at a
very low tariff, import duties on processed products -
like cocoa butter or cocoa powder - are much higher. On
chocolate bars, they are higher still. These escalating
tariffs are weighted to the advantage of richer
countries.
The longer the
multilateral system fails to deliver the potential
benefits for the world's poor of integration into global
markets, the longer poverty will persist. Failure will
limit developing country governments' ability to combat
HIV/AIDS, reduce the number of children who die before
their fifth birthday, and get all the children of
primary school age who currently don't go to school,
into school. It is no coincidence that Africa, whose
share of international trade fell from 5% to 2% between
1990 and 2000, now has the highest poverty levels in the
world. A more open trading system that is rules-based,
predictable and non-discriminatory will help us achieve
the Millennium Development Goals.
Oxfam estimates that an
increase in Africa's share of world exports of just 1%
would be worth five times as much as the continent's
share of aid and debt relief. But trade and aid and debt
relief are necessary - along with political will - to
ensure the poor benefit.
Last summer's Trade
Justice Movement mass lobby of MPs in their
constituencies - the largest ever in the UK - was a
tangible sign of public awareness and concern about this
issue. According to a recent public opinion poll on
Trade and Poverty Reduction, by the German Marshall Fund
of the US, almost ¾ of British citizens think that
making it easier for developing countries to trade their
products on global markets would be more effective than
aid in reducing poverty.
But trade won't help us
reduce poverty if the rules are weighted against
developing countries. One of the worst examples of the
complete absence of anything approaching a level playing
field is that of the West African cotton producers. In
Benin the cotton industry accounts for 85% of total
exports and 20% of national income. Benin and three
other West African cotton producers are potentially very
competitive cotton producers. They followed the
prescriptions of the World Bank and IMF and ended all
subsidies to farmers. But they liberalised into highly
distorted markets. They are now paying the price, with
their cotton industry in crisis and with it the
livelihoods of hundreds of thousand producers. This is
because they have to compete with heavily subsidised EU
and US producers. In 2001, the US cotton farmers
received nearly $4 billion in assistance - more than the
entire GDP of Benin.
This is the tip of the
iceberg: Agriculture is by far the most distorted sector
in the world market. The EU and the US together have
less than 1% of the world's agricultural population.
Twenty developing countries, including India and China,
have 70%. Whereas agriculture accounts for less than 3%
of GDP in high-income countries, agriculture makes up
half of many developing countries' economies.
The agenda for the
current trade round - agreed at the WTO Ministerial in
Doha in 2001 - for the first time put development at the
heart of WTO negotiations and opened a way forward to
tackle these distorted markets. In Doha, WTO members
promised to open their markets and reduce
trade-distorting subsidies significantly; to move
towards phasing out all forms of export subsidies and
make Special & Differential Treatment measures for
developing countries more effective.
Little movement has been
achieved, however, over the past 2½ years on the Doha
Agenda - especially on the issues of most concern to
developing countries: agriculture, non-agricultural
market access and special & differential treatment.
Developing countries and NGOs express cynicism about the
prospects of achieving a true 'development round'. After
the collapse of talks in Cancun, the chances of
completing the round by the deadline of the end of next
year have become increasingly slim.
That is why we need
concerted political will to ensure we deliver on the
promises we made in Doha. But the state of the WTO round
shouldn't blind us to the fact that reaching agreement
on the Doha Development Agenda was in itself a
significant step forward. If we look back 50 years to
the creation of the General Agreement on Trade and
Tariffs, it was completely dominated by developed
countries and only concerned with what mattered to them:
tariffs on industrial products. Agriculture was only
included in world trade negotiations in the Uruguay
Round. These concluded less than 10 years ago and led to
the setting up of the WTO.
Now Agriculture is the
main issue in the round. The WTO has expanded to 147
members, two-thirds of them developing countries. One of
the most positive developments in the run up to the
Cancun ministerial was that for the first time
developing countries organised themselves into
negotiating groups to strengthen their bargaining power.
The first of these is the so-called 'G20' - i.e.
originally 20 of the more advanced developing countries,
including China, India, Brazil and South Africa. This
grouping, which wants much greater access to developed
country markets, came together in reaction to the EU/US
agriculture proposals.
But 62 of the poorest and
most vulnerable WTO members - that have in the past
lacked a voice in the negotiations - also came together
to form the so-called 'G90'. The name comes from the
adding up the overlapping memberships of the African
Union; African, Caribbean and Pacific and the Least
Developed Country groupings, and I am pleased that DFID
was able to play a small part in providing financial
support to facilitate their meeting prior to Cancun.
The emergence of a much
stronger developing country voice over the past year is
a great step forward. For all the criticism the WTO
attracts from NGOs and others, it works on the basis of
one member one vote with decisions taken by consensus.
So if developing country members don't like what's on
the table, they can say no. But if they choose to do so,
it is developing countries that stand to lose most.
And that's why next week
matters so much. In less than 7 days, trade negotiators
in Geneva will face some big decisions. These will
determine the future of the Doha round and whether the
multilateral trading system emerges stronger or weaker.
The WTO is the only forum
that can make and enforce global rules to tackle the
trade barriers and trade-distorting subsidies which are
most damaging to developing countries. If next week's
General Council doesn't agree frameworks for the
negotiations, it's unlikely we'll see movement this year
because of the US elections and the change in European
Commission. Many WTO members are currently hedging their
bets, putting their energies into negotiating regional
and bilateral agreements. And I simply say that a
retreat from multilateralism will make the global
trading environment less predictable; and will leave
developing countries that are marginal players in global
trade at the mercy of more powerful negotiating
partners.
Ambassador Oshima, chair
of the WTO General Council, has just circulated his
proposed text for the framework agreements. This will be
vital for moving the DDA forward. He makes clear that
there are still considerable differences of view in some
important areas, and intensive informal negotiations are
needed to close the gaps. The EU and other WTO members
are now studying his proposals All WTO members will need
to show flexibility if we are to build the necessary
consensus we hoped to have achieved in Cancun.
From a development
perspective, there is a lot that is positive in the
texts. Strong emphasis is given to the need for Special
& Differential Treatment for developing countries,
including: lower tariff reductions and longer
implementation periods; no reduction commitments for
LDCs; the need for expanded technical assistance and
support to losers from preference erosion. The
agriculture text proposes a common end date for all
forms of export competition; "substantial and
effective" cuts in trade-distorting farm subsidies
and special safeguards for developing countries.
On the 'Singapore' or
'New' issues, it's proposed that there are no
negotiations in the round on Investment, Competition or
Transparency in Government Procurement.
All WTO members will now
need to show flexibility if we are to build the
necessary consensus to reach agreement at the General
Council - on the frameworks we hoped to have agreed in
Cancun. On agriculture, all except LDCs are being asked
to make brave steps in the round. It is the richest WTO
members that need to make the greatest movement in the
negotiations. The outcome of the Uruguay Round benefited
the developed world disproportionately. The recent
Stiglitz report for the Commonwealth Secretariat
concludes that there was a 70:30 split in the balance of
benefits in favour of developed countries. We need to
redress this imbalance, and now is the time to do it.
Developed countries need
to start practising what we preach to developing
countries. We need to open our markets too to achieve
freer and fairer trade. And to remove glaring anomalies,
such as the United States collecting almost the same
level of duties on imports from Bangladesh as it did on
those from France in 2001, despite French imports being
worth 12 times more.
As my Cabinet colleague,
Patricia Hewitt, said at the launch this month of the
Government's new Trade & Investment White Paper -
Making globalisation a force for good:
"It is time to end
the mercantilist style of negotiations which treat
opening markets as concessions that have to be battled
over. Poorer countries should not be expected to pay a
price for any concession on subsidies, tariffs or
marketing opening by a developed country - as trade
negotiators too often imply. Developed countries should
make reforms willingly because all have something to
gain."
Advanced developing
countries also need to open their markets to their
poorer neighbours to encourage South-South trade. This
now accounts for more than one third of developing
country exports - approximately $650 billion. The World
Bank estimates that over the last 15 years or so,
developing countries' own liberalisation has been the
main channel for their export growth and encouraged
regional integration.
For example, the
establishment of the East African Customs Union has
helped stimulate trade between Kenya, Tanzania and
Uganda. Yet despite the potential benefits, around 70%
of the tariffs faced by developing country exporters are
applied by other developing countries. In recognition of
the disparity between their market power and the
development constraints each faces, China and Brazil can
be expected to reduce barriers to trade faster and by
greater amounts than Chad or Burundi.
Building on their recent
meeting in Mauritius, the G90 will also need to make
concessions too, but far fewer. EC Commissioners Lamy
and Fischler have taken a lead in proposing that the G90
should only be expected to agree ceilings above which
they won't raises their tariffs and not block
negotiations on Trade Facilitation.
Implementing measures to
facilitate trade should be in developing countries'
interests. Poor customs and complex bureaucracy increase
administration costs and slow the time products take to
get to market. For perishable products these delays can
be devastating. Despite a cut in import duties, an
overhaul of customs management in Mozambique led to
customs revenue almost trebling between 1996 and 2000.
If poorer and more
vulnerable developing countries are to seize the
opportunities of more open markets, they will need to
overcome the obstacles to their ability to compete in
global markets. We need to assist developing countries
to seize these opportunities. There will be losers as
well as winners from trade liberalisation in the short
and medium term.
Some of the ACP countries
that are heavily dependent on a few commodities and
preferential access to the EU market will face
particular difficulties. But maintaining preferences is
no long-term solution. Preferential market access
encourages some developing countries to subsidise
production of commodities that they would be unable to
sell in an open market. Preferences are also uncertain.
They can be withdrawn.
And there is clear
evidence of the longer-term benefits to countries that
have managed liberalisation from the experience of Korea
in the 1960s; to Chile in the 1980s; and more recently,
China and India. All these countries experienced a rapid
acceleration in growth after they adopted trade reforms,
including substantial reductions in barriers to foreign
trade.
In the short-term, the
losers from trade liberalisation will need transitional
assistance to provide social safety nets for those that
lose their livelihoods; to help them diversify their
economies and produce more competitive products for
export. DFID is working closely with the World Bank on
how best to design policies to give developing countries
the flexibility they need to pace and sequence carefully
their trade reforms so that they complement national
development and poverty reduction strategies.
We have also worked with
the IMF on the Trade Integration Mechanism they launched
after Cancun to help developing countries that suffer
short-term balance of payments problems as a result of
trade liberalisation.
It is not enough to
reduce tariff barriers and improve trade rules. National
policy reforms are key to ensure that increased trade
benefits the poor.
That is why we are
working with developing country governments and other
development agencies to ensure trade issues are
carefully integrated into nationally owned strategies to
reduce poverty. If they are then developing country
governments will be able to access the development funds
they need, for example to improve roads to help poor
producers get their products to market, without having
to rely on middlemen who pay them less. There are many
other obstacles to making trade work for the poor. They
include weak institutions, bad policies and lack of
investment in small enterprise development.
Since 1998 DFID has
allocated £174 million for trade-related capacity in
developing countries. One example is a new £12 million
regional trade facilitation programme with spanning 14
countries in Southern Africa. This will help streamline
customs procedures and develop a common set of standards
for goods and services across the region. It will also
address the particular needs of poor producers and
small-scale traders.
DFID is also supporting a
range of initiatives to assist developing country
governments in designing pro-poor trade policies and
participate more effectively in trade negotiations. To
avoid overburdening developing countries' limited
capacity promoting a more co-ordinated approach by
multilateral and other bilateral donors is fundamental
to our approach.
We also need to promote
policy change outside of the WTO. Product standards can
also act as a barrier to developing country exports. Low
and middle-income countries reported that between
1996-1999 more than half of their potential exports of
fresh and processed fish, meat, fruit and vegetables
were prevented from entering the EU market because of
sanitary and phyto-sanitary standards. Standards are of
course necessary to protect our consumers. But in some
cases they penalise developing country produce
unnecessarily. For example, it was estimated that the
impact of changes in the EU standards on aflatoxin
levels in food would reduce the health risk to the EU by
approximately 1.4 deaths in a billion. Yet this rule
reduced African exports of cereals, dried, fruits and
nuts by more than 60% - a loss of $670million.
The UK is working with EU
partners to promote greater coherence between the EU's
trade, development and agriculture policies. We are at
the forefront of those pushing for further reform of the
Common Agriculture Policy. Reform of the EU Sugar Regime
is now under active discussion. It is a politically
highly sensitive issue. The importance of reform is
highlighted by Mozambique, where three quarters of the
rural population live in poverty. Sugar is their biggest
industry. It employs half the people it could and
generates $150 million less than it could, because of EU
export subsidies and barriers to imports. It costs us
twice as much to produce sugar in the EU as it does in
Mozambique. We're giving Mozambique £136 million in
aid. This is less than they would make for themselves if
we tackled EU subsidies and opened our market. It makes
no sense to give with one hand and then take away with
the other. The rules on sugar arbitrarily give
advantages to preference-receiving producers over poorer
and more competitive suppliers, like Mozambique. For
every dollar of aid given to one group of developing
countries by the US and the EU, $2.75 of economic damage
is done to others.
But giving tariff and
quota free access to imports from the Least Developed
Countries, as the EU does under the Everything But Arms
Agreement - though not until 2009 for sugar - has the
potential to increase the poorest countries'
participation in world trade and help their economies
diversify.
We would like to see
other developed countries offer LDCs the same access to
their markets. But these schemes have clauses that
restrict take up. For example, Tanzania can't benefit
from preferential access to the EU market if any
processing takes place in its non-LDC neighbour - Kenya.
We want to see reform of these restrictive rules on the
origin of products, which are acting as a brake on
regional integration and integration into global value
chains. Lesotho has been able to benefit from the more
relaxed rules of origin offered by the US. These allow
Lesotho to source textiles from anywhere in the world
and its exports of garments still classify as
originating from Lesotho. Since 2001 Lesotho's exports
to the US have quadrupled to US$320 million, making the
garment industry the largest employer in the country.
Finally, I come to next
year. 2005 will be a critical year for moving the trade
and development agenda forward. Our presidencies of the
EU and G8 give us the opportunity to put trade high up
the international agenda. The work of the Africa
Commission will also create opportunities to explore how
trade reform can best promote African development. The
mid-term review of the Millennium Development Goals is a
further important opportunity to create awareness of the
importance of trade to achieving the MDGs.
Trade will be a priority
for us in 2005. We want to reach agreement in the EU and
G8 on simplifying rules of origin, getting a good
development outcome from reform of the EU's Sugar Regime
and ensuring the EU negotiations with the ACP on
Economic Partnership Agreements help make a tangible
difference to trade working for the poor.
We will lead in
encouraging all WTO members to deliver on the bold
ambition of the Doha Development Agenda.
The stakes for
development are high.
If talks collapse next
week, the main losers will be those the DDA was designed
to assist - developing countries and their citizens. We
risk undermining developing countries' faith in the
rules-based multilateral system if we don't reach
agreement.
We risk withdrawing into
bilateralism and weakening the rules-based multilateral
system - from which all stand to gain: rich and poor.
We risk undermining
global security by not tackling inequities in our global
order. It is no coincidence that the Doha agenda was
agreed just 3 months after 9/11. We were moved to reach
out to our neighbours.
These risks are very real
and present. Three years on can we ignore the promises
we made?
As the Director General
of the WTO said last month at UNCTAD: "It is now
time to take the right step in the right
direction".
And that is what we must
now do.
