Saturday, February 17, 2007

How is trade like motherhood?

To climb out of extreme poverty, poor countries need to build a healthy economy. So, it is good to see that the EU is in the process of negotiating with 77 African, Caribbean and Pacific (ACP) countries for a timetable that will progressively remove trade barriers. The first step is due to take place on 1st January 2008.

As might be expected, many countries are cautious. Uganda says they will not will not immediately allow duty-free European Union (EU) products when trade deals being negotiated take effect on January 1, 2008. So while the EU will progressively reduce duties and tariffs, it does not mean that the ACP countries will cut tariffs on goods from Europe immediately.

The EU’s Trade Director Peter Thompson said,

We need to ensure that implementation is done in a sensitive phased way, which will lead to a profiled market access that is compatible with the country’s development level and done in conformity with the World Trade Organisation’s rules.

A particular challenge for the negotiations has been the regional trade blocks that are supporting local integration. In Africa these include the East African Community, Common market for Eastern and Southern Africa (COMESA) and South African Development Community.

This means that EU negotiators need to work with individual countries and also regional trade communities. Very complex!

But it must be done. There is strong evidence that countries with more open economies grow faster. Jeffrey Sachs in The End of Poverty has some useful graphs that compare growth rates over the past 30 years amongst poor countries with higher tariffs and those with lower tariffs. Most of the lower tariff countries have left poverty behind or are well on the way.

A 2003 report on Trade and Food Security by the Food and Agriculture Organisation of the UN has the following cautions.

  • Liberalization of agricultural trade is expected to drive up prices for most agricultural commodities. This could have a negative impact on food security in some developing countries, as most are net importers of food. Prices are expected to rise more steeply for the food products that developing countries import than for the commodities they export.
  • Many developing countries are expected to benefit, however, from reductions in tariffs and subsidies in developed countries. Improved access to markets in the industrialized countries and reduced trade distortion should boost rural incomes and employment and stimulate production and supply from local agriculture, particularly of food for domestic markets.
  • Overall, however, the lion’s share of benefits from trade liberalization is expected to go to the developed countries themselves (see graph). That is because developed countries have applied tariffs and subsidies mainly to protect the temperate-zone commodities that they produce themselves. Developing countries that export “competing” commodities, such as rice, sugar and cotton, should benefit if those protections are reduced. But the least developed countries, very few of whom export temperate-zone or competing products, would generally be worse off.
The following graph from the report shows that while low-income countries will benefit, it is the high-income countries that will benefit most.

Source: FAO

So, those of us who support initiatives that will help the poorest countries like Tanzania climb out of poverty, need to be well-informed. We need to advocate for good policies and we need to recognise that broad policies need to be adapted for each situation. Individual countries can be harmed by policies that benefit the majority. What do we see when we look at globalisation and the Doha Round talks through Tanzanian eyes?

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