17 January 2005

Remarks by the Rt Hon Gordon Brown MP, Chancellor of the Exchequer on Trade

On Friday I called for a new deal in the relationship between rich and poor countries – rich and poor countries recognising that they have mutual obligations and indeed responsibilities to each other – and I called for all countries to open their books.

Trade justice is an essential element of that new deal.

Sub Saharan Africa’s share of our trade is in decline – from 6 per cent in the 1980s to just 2 per cent of world trade.

While aid that helps the poor is $50 billion a year, trade subsidies that hurt the poor run to more than $300 billion.

We spend as much subsidising agriculture in the European Union as the whole income of all the 689 million people in Sub Saharan Africa taken together.

And if Sub Saharan Africa could regain just an additional 1 per cent share of global trade, it would earn $70 billion more in exports – nearly five times what the region receives in foreign aid and debt relief.

While average trade barriers have fallen to 3 per cent, tariff peaks can reach as high as 15 per cent – and much higher in agriculture. The practice of tariff escalation provides effective market barriers for many products of interest to African countries. And non-tariff barriers which restrict market entry for developing countries include rules of origin, administrative procedures, customs fees, extra taxes, shipment inspections, even currency restrictions.

We are making some progress. The EU’s conditional offer last August to phrase out agricultural export subsidies is a step forward. And from this month, all textile quotas have been removed.

But we must do more.

Certain principles should drive the next stage of the Doha Round:
- creating a trading environment which removes the obstacles Africa faces in exporting its products
- ensuring Africa benefits from a rules based system
- putting in place a framework of national and regional development and trade strategies for liberalisation
- building Africa’s capacity to trade.

Developed countries should accelerate the process of dismantling our barriers; stop discriminating against goods in which developing countries have a comparative advantage; and stop subsidising our own production and dumping our surpluses so that Africa’s producers get a chance to compete.

And I believe therefore that trade justice requires a four point initiative.

First, we must maintain momentum for multilateral progress and an ambitious, pro-poor outcome to the Doha Development trade round which delivers real market access for African goods.

We must also make real movement on dismantling agricultural protectionism.

The majority of African countries do not have valuable minerals to exploit so agriculture makes up 70 per cent of African employment and provides 30 per cent of Africa’s national income. 900 million people working on the land in poor countries struggle to survive on less than one dollar a day.

And when ending the EU’s agricultural barriers and subsidies could raise the income of farmers in developing countries by more than $8 billion each year, we know we must do more to urgently tackle the scandal and waste of the Common Agricultural Policy and agree radical reform. This should make a reality of our commitment to end export subsidies.

Second, our rules of origin requirements mean that goods that should receive preferential access into the EU face a European tariff and it is important to improve developing country access to our markets not just in theory but in reality. So I also call on Europe and the developed countries to amend rules of origin requirements – requirements which instead of promoting fair trade have become a barrier to fair trade and are now identified not with fairness but protectionism. Often they involve unaffordable administration costs for poor countries. And I believe we now need simple coordinated rules of origin shared by each continent.

Developed countries should also assess the impact on developing countries when developing product standards – which are becoming new trade barriers. We must also support African countries in meeting quality standards and developing local testing and certification facilities.

Third, regional Economic Partnership Agreements between the EU and poor countries should put development first. The agreements should be designed to deliver real development benefits and permit developing countries the necessary flexibility for sequenced reform. Because I believe bilateral agreements have not always been in the interests of the poor, I call on the EU in its work on Economic Partnership Agreements in the coming months to take a non-mercantilist approach so that poor countries are able to sequence their trade reform and participate on equal terms in the international economy.

Fourth, I call on developed countries not only to improve trading arrangements but to help developing countries build capacity to trade. It is not enough to say ‘you're on your own, simply compete’. We have to say ‘we will help you build the capacity you need to trade’. Not just opening the door but helping you gain the strength to cross the threshold.

For too long, enabling countries to trade has been defined narrowly as equipping them with the capacity to negotiate. But what is more important is equipping them with the economic and infrastructure capacity they need to take advantage of trading opportunities.

Infrastructure is key. Transport costs in Africa can sometimes be a bigger burden of the cost of exporting than tariffs. Even today in 12 African countries less than 10 per cent of their roads are paved. With freight and insurance costs representing 15 per cent of the total value of African exports it is difficult for them to be competitive. And telecommunication costs are such that calls from the poorest countries to the USA are five times the costs of calls from a developed country.

So we have to recognise that developing countries will need additional resources from the richest countries to help them build physical infrastructure – road, rail, electricity, telecommunications - institutional capacity - from legal and financial systems to basic property rights - and, of course, investment in human capital to enable growth, investment, trade and therefore poverty reduction.

In my visits in Africa this week I have met farmers, clothing and cotton workers, sugar company managers and employees, and workers in transport and communications; and I have talked to Finance and often Trade and Industry Ministers in the countries I have visited.

And I believe we also need to recognise that some developing countries will face significant transitional costs as they adjust to more open trade patterns. To tackle this issue, we should ensure countries are allowed the flexibility to carefully design and sequence trade reform within their own poverty reduction strategies and consider additional grant resources to help the most vulnerable countries – and their most vulnerable people - adapt and reap the benefits of more open global markets.