Speech
21 July 2004
Living up to our promises: Helping developing countries to capture the gains from trade.
Hilary Benn, UK Secretary of State for International Development
at 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.
