Free trade for a better future
THIS WEEK, trade ministers from 148 nations are gathering in Hong Kong for negotiations hosted by the World Trade Organization, the latest in the so-called Doha development round that started in Doha, Qatar, four years ago. The aim of these negotiations has been to liberalize trade -- especially to open the world’s richest markets to the world’s poorest producers of goods and services. And the crucial issue in Hong Kong is agriculture.
The world community can look back at 2005 with some pride when it comes to helping its poorest citizens. Commitments were made to double aid for African countries and wipe out the debt burdens of at least 18 of the world’s most indebted developing nations. But as important as aid and debt relief are, the opportunities generated by trade are far more significant. Freer trade could provide the missing link to jobs and prosperity. Unless the people of Africa and other poor countries have access to markets to sell their products, they will not escape poverty nor give their children a better future.
The trade ministers meeting in Hong Kong for the Doha negotiations will be trying to rewrite the unfair rules that govern agricultural trade around the world. Seventy percent of the world’s poor live in rural areas and depend on agriculture to earn a living and feed their families. But instead of being able to freely sell what they produce, they are often denied entry into markets as rich countries protect and prop up their own farmers -- subsidizing products and imposing high tariffs on imports.
Rich countries -- primarily the U.S., Japan and the members of the European Union -- spend $280 billion annually on agricultural support. That’s $5 billion a week to protect their often-rich farmers from competition. Ultimately, it is the taxpayers and consumers in these countries who shoulder the costs of these support programs. Economists estimate that consumers pay $168 billion a year because of tariffs, and taxpayers pay $112 billion a year for direct subsidies.
But the real damage is done to farmers in poor countries, because high tariffs keep them out of key markets, and tariffs and subsidies together drive down the world price of their exports. Without the income that trade could provide, it is their children who go hungry and who are deprived of clean water, medicines and other basic necessities of life.
Tariffs also hurt poor countries by blocking them from moving up the production chain. Even though 90% of the world’s cocoa beans are grown in developing countries, they produce only 4% of its chocolate. One reason is that tariffs often escalate with the degree of processing -- in the EU, producers of raw cocoa pay a tariff of 0.5% of the value of the beans, semi-processed cocoa pays about 10% of its value and chocolate even more.
If the rich countries would agree to level the playing field, everyone would see enormous gains. The World Bank estimates that full liberalization of trade in goods alone could generate $300 billion per year for the global economy. Developing countries would gain $86 billion of this share. And these numbers can grow as producers in poor countries take advantage of new markets.
Consider the case of Rwanda. Taking advantage of the fact that coffee beans carry relatively low tariffs in most markets, Rwanda was able to boost coffee exports to the U.S. by 166% last year. Today, Rwanda’s economy is growing at about 6% a year -- in large part because of coffee exports. For the half a million households in Rwanda that farm coffee, this means an increase in income, a chance for their children to go to school or to get better healthcare.
If the Doha round does create trading opportunities, the gains will not materialize overnight. Many poor countries will need help in taking advantage of new opportunities. They will need help to build infrastructure, improve institutions and reform weak policies.
To help developing countries break down their own barriers and ease adjustment costs, international donors -- including the World Bank -- have pledged to add more resources to support the trade agenda, to help poor countries improve their investment climate, invest in infrastructure and empower people.
All countries need to contribute. The EU needs to do better on agricultural market access, and the U.S. on subsidies. The larger developing countries also need to contribute their own market openings -- in manufactured goods, services, agriculture -- if a Doha deal is to be reached.
This week, the trade ministers must remember the interests of those who aren’t at the negotiating table -- the 1.2 billion people who live on less than $1 a day. The Hong Kong meeting needs to provide the missing link -- a fair chance for the poor to chart their own path out of poverty.