Skip to content

Can trade be free and fair?

Article by Rt Hon Hilary Benn MP

September 15, 2006

The relief operation is well underway, faster in Sri Lanka than in Indonesia, but both of these countries will face a difficult task as they try to recover. You would not believe it if you saw it. I have never seen anything like it.

The events of 2 weeks ago have seen the world reach out to fellow human beings in deep distress. Compassion, practical help, comfort and support for people who have become in a sense our neighbours even though they live on the other side of the world.

What matters now is to see this through. That support, compassion and determination are needed to help the people of the countries affected to rebuild their lives. And yet if we think about it, disaster of a different kind and, in a way, on a different scale, strikes poor people around the world every single day. We think about 150,000 people have died in the tsunami. No one know for sure and we are still waiting for a full assessment of the west coast of Aceh. Last year 2.5 million Africans died of AIDS; that’s the equivalent of nearly 17 tsunamis. On the same continent, a quarter of a million women die every single year unnecessarily as a result of complications in childbirth – for want of skilled medical attention; the equivalent of one and a half tsunamis.

So many people live with these deadly, silent tsunamis that also take away people’s lives that the world does not appear to see or hear. They don’t fill our television screens or thousands of our column inches day after day. And yet I refuse to believe that the generosity of spirit, the compassion of heart, the practical help we have witnessed in the past 14 days from people in the countries themselves – who have received little coverage and who are bearing the brunt of this disaster, picking up dead bodies, comforting the bereaved – and from people and governments across this small and fragile planet that is our home – I refuse to believe that we can only do this in response to one kind of disaster. I believe that our clear and moral responsibility at this point in human history is to act to save and to change lives in all the disasters there are whether on TV or not. I came back with renewed determination that it does not have to be this way.

Now we look deep into ourselves and ask what we can do to help – and developing countries and their people ask ‘what can we do to help ourselves’, rightly as their future rests in their hands. The other thing I did on my trip was to go to Nairobi for the signing of the Sudanese peace agreement. This was a historic moment. The conflict in Sudan is Africa’s longest running civil war and has left 2 million dead. They have now decided that politics should replace conflict; and hope, fear. It was remarkable to witness this – it reinforced that without peace and stability, there is no development.

So we know that tackling conflict, confronting corruption, building effective states, creating a climate in which people want to come and invest their money, action to relive debt, giving increased, predictable and effective aid – we know that this is what is needed. And so is allowing countries to earn and to trade their way out of poverty. And it is about that I want to speak today.

Now, just over three years ago the World Trade Organisation (WTO) met in Doha and agreed for the first time to put developing country concerns at the heart of the WTO. As we know, at the end this year, WTO members will meet in Hong Kong– a real political opportunity to turn words into progress. Progress we want to see.

Before that, we will gather in New York for the Millennium Summit to review the Millennium Development Goals. Everyone knows what we will say to ourselves: we are not doing well enough. If we mean it, really mean it, then we have to use the unlocked potential of trade to change lives for the better. We must seize this opportunity to make the case for trade to lift people out of poverty, help children into school and improve healthcare. Studies show that an ambitious outcome could produce annual global benefits of up to $600 billion and reduce the number of people living on less than $2 a day by 144 million. I would call that real progress if we can achieve it. The world now needs to deliver on the promises it made in Doha.

Now, we all know that the current trade rules are stacked against some of poorest countries in the world.

Take one of the worst examples – West African cotton producers. In Benin the cotton industry accounts for 85% of total exports and 20% of national income. They are very heavily dependant on cotton. Benin and three other West African cotton producers are potentially very competitive. They followed the prescriptions of the World Bank and IMF and ended all subsidies to farmers. But they liberalised into trading in highly distorted markets. They are paying the price.

Their cotton industry is now in crisis and with it, the livelihoods of over 10 million people in West Africa who depend directly on cotton. This is because they have to compete with heavily subsidised EU and US producers. In 2001, the US gave to cotton farmers nearly $4 billion in assistance – that is more than the entire GDP of Benin, to put it into perspective.

We need to tackle trade distorting subsidises and further open our markets. Total support to agriculture by OECD countries was US$318 billion in 2002 – roughly 5 times more than all of the aid which the rich world currently gives. Agricultural protection is damaging to developing country producers. It costs them $20 billion a year by shutting them out of EU markets.

That is why the Government has been at the forefront of those pushing for further reform of the CAP, and will go on doing so.

That is why we agree with the Make Poverty History Coalition that we need to tackle export subsidies. The EU has now committed itself to abolishing all its export subsidies. But this will be of limited benefit if there is no parallel movement from other WTO members in addressing their export subsides. An end date must be agreed in the next stage of negotiations.

That is why I welcome the agreement reached in July last year by the WTO General Council. It represented a significant step forward. It is significantly better for developing countries than what was on offer in Cancun, especially in agriculture and the Singapore issues. Now that was rejected by developing countries but the good thing is that, in making their voice heard, it showed that developing countries are capable of recognising their own interests, as is right and proper.

Developing and developed countries alike stand to benefit from trade facilitation so it’s good that negotiations are going forward on that. Clearly measures should focus on well-trained staff, effective border controls and standardisation of procedures and forms in customs. For example the establishment of the East African Customs Union has created new opportunities for trade between Kenya, Tanzania and Uganda.

So development really is at the centre of the UK’s trade policy. The UK was one of the first countries to call for the launch of this round of multilateral trade talks with a much greater focus on development and poverty reduction.

It is no coincidence that Africa, whose share of international trade fell from 5% to 2% between 1990 and 2000, now has one of the highest levels of poverty in the world. Global trade flows are now worth $ 25 million a minute. Africa’s are only $500 thousand a minute. This is one fiftieth of the total.

We all of us have to work hard in 2005 to make trade work for developing countries, and that’s why this essay collection “Free and Fair; Making the Progressive Case for Removing Trade Barriers” is particularly timely.

The Make Poverty History Coalition will be leading a global campaign for Trade Justice. It is calling for fair trade and argues that this is not free trade. The words free and fair can be very emotive when applied to trade. I have no doubt debate will continue to rage about whether on one hand they are compatible or on the other, mutually exclusive.

The new Trade Commissioner, Peter Mandelson in his recent speech to the ACP, advocated progressive trade liberalisation. I support this view, but we must ensure that it is a properly sequenced process which recognises the needs and interests of developing countries, not all of which have the same needs or the same interests.

I also believe that free trade on its own is not the answer.

The extent to which more open trade helps to reduce poverty depends on broader economic and social circumstances and policies. Experience shows that if a country liberalizes without putting in place the right institutions, transport and marketing arrangements then the result can be a sudden surge of imports. And that can wipe out small producers and increase poverty.

However protectionism is not the answer either.

There are strong links between more open trade and growth. In a group of eighteen developing countries that became much more open to trade after 1980, the average growth rate has accelerated. This group included most of the world’s poor people – among the eighteen countries are Bangladesh, China, India, Ghana, Nepal, Uganda, and Vietnam. Growth in turn has helped reduce poverty. As you know, poverty in China has decreased by two thirds since 1981 and in Vietnam, poverty was halved in a decade. I call that progress. However, in sub-Saharan Africa where trade and growth have fallen, poverty has almost doubled since 1981.

So the question is how should we support the adjustment to more open markets. Trade barriers need to be removed in a way that is properly organised. Unless protectionism is phased out, industries fail to innovate and lose competitiveness; we saw that in Latin America in the 60s and 70s. Governments need to resist pressure from inefficient industries demanding permanent protection – governments, as history has shown, can’t always pick winners!

Countries can end up locked into sectors in which they have no export competitiveness. When economic restructuring takes place, there will be losers in the short term. People and resources will need to be transferred from sectors which are no longer competitive to new areas and this takes time and it takes money.

Developing Countries need flexibility to introduce reforms at a pace they can deal with. That is why the UK strongly supports – excuse the jargon – effective special and differential provisions in the WTO. This means giving developing countries longer to open their markets and implement agreements, more flexibility and fewer procedural burdens than developed countries.

That is why the UK welcomes the recognition by European Commission of the need for the Least Developed countries and “other weak or vulnerable developing countries” to be treated differently and asked to make less commitments than other WTO members in the negotiations.

That is why the UK Government, like the Trade Justice Movement, supports proposals from poor countries that enable them to protect special products that are essential to poverty, food security or rural development. We are working with NGOs and developing countries to amend WTO rules to this end.

Now we all recognise that there will be winners and losers from more open markets in the short to medium term. In the short-term, the losers from trade liberalisation will need transitional assistance – providing social safety nets for those that lose their livelihoods and helping diversification of their economies to more competitive export products.

That’s why the UK will work to ensure that help is given to those affected by, for example, the reform of the sugar regime. The rules on sugar arbitrarily give advantages to some producers over other more competitive suppliers, like Mozambique, like Malawi, and like Tanzania. 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. We need to ensure changes to this system are accompanied by proper assistance.

That is why the UK is working closely with the World Bank on what policies will best give developing countries the flexibility they need to pace and sequence carefully their trade reforms so that they encourage national development.

That is why we are also working with developing country governments and other development agencies to ensure trade issues are carefully integrated into donors and the country’s own plans to reduce poverty. If they are then developing country governments should be able to access the development funds they need, for example to improve roads, to improve the business and investment. Since 1998 the UK has allocated £174 million to support a range of initiatives to assist developing country governments in designing these trade policies that work for the poor, as well as participate more effectively in trade negotiations.

We recognise, I recognise, that too often in the past low income countries have had little say over the terms under which they receive World Bank and IMF support. This has led to criticisms, including from the NGO community. This support has often been conditional on the adoption of trade liberalisation and privatisation policies. The UK believes, I believe, that aid terms and conditions must support, not “buy” reform.

For that reason I published our review of the UK’s use of aid conditionality. At this year’s Annual Meetings, the UK secured a commitment from the World Bank to review its policy and practice on conditionality and report back at next year’s Meeting. I think there is a need to address the scope and content of conditions, particularly in relation to sensitive policy reforms, such as privatisation, such as trade liberalisation.

There is a lot to do to realise the aim of free and fair trade but we are making progress. This year our presidencies of the EU and G8 give us the opportunity to put trade high up the international agenda. The Africa Commission will be producing their report in Easter. This will also create opportunities to explore how trade reform can help Africa’s development.
In 2005 we will work with partners how we can provide additional support for developing countries to meet the costs of trade adjustment and additional supply capacity. In 2005 the UK will work to reach agreement in the EU and G8 on simplifying rules of origin. This does sound techy but it has the potential to deliver real benefits for developing countries. Preferences schemes are a way of offering better access for developing countries to developed markets that are offered to others. But for many of these schemes, they have clauses that restrict take up. For example, Tanzania can’t benefit from the preferential access it receives under the ‘Everything but Arms Agreement’ to the EU market if any processing takes place in its non-LDC neighbour – Kenya. We want to see, I want to see, reform of these restrictive rules on the origin of products.

We will also be working to ensuring the EU negotiations with the ACP on Economic Partnership Agreements – an issue on which I know a lot of people have a view – to help make a tangible difference to trade working for the poor. We want to preserve the current high levels of market access for the African, Caribbean and Pacific countries access to the EU. But in return, to be WTO compatible, the ACP countries will need to offer some market access to the EU. Preferences have failed to boost exports as intended. ACP countries have enjoyed long-standing preferential access to the EU market yet by 2002, only 3% of EU imports originated from ACP states, as compared to 6.7% in 1976. We will be pressing in the EU for longer transition periods for the ACP, which will take into account the needs for the ACP countries.

In 2005 we will be also producing research to help inform the WTO negotiations.

Above all, we need political will from all WTO members. And this is my final point. If we had sat here 10 years ago, no one would have thought it possible to reach this point. 3 weeks ago, no one would have predicted that we would see the biggest humanitarian relief operation yet – but people were determined. We live in an era where it is fashionable to decry the power of politics. But I believe in that power. Look at what we have achieved in 8 years on development. This is a result of your campaigning too. So we must try this year to deliver a Round which genuinely supports development and helps change people’s lives for the better.


    Related Articles

     Join our mailing list 

    Keep informed about events, articles & latest publications from Foreign Policy Centre