CUTS 20th Anniversary

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Introduction
Adverse impact of protectionism
What's at state for poor countries?
Dismantling protectionism: Jubilee 2010/2020
Potential benefits

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Introduction

Trade is an engine of growth. Expanded international and domestic trade can add to a country’s total output, contribute to economic growth, help redistribute incomes and reduce poverty.

In 1947 the General Agreement on Tariffs and Trade (GATT) was signed to govern international trade relations. In 1995 the World Trade Organisation was set up to institutionalise the GATT. In the Preamble it adopted, inter alia, the following lofty objectives:

• Relations in the field of trade and economic endeavor should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand and expanding the production of and trade in goods and services, while…..

• Enhance the means of doing so in a manner consistent with their respective needs and concerns at different levels of economic development…..and

• There is need for positive efforts designed to ensure that developing countries, especially the least developed among them, secure a share in the growth in international trade….

• By entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade

It is seven years since the WTO came into being and it needs to be questioned whether the rich countries have followed the core values.

Adverse impact of protectionism

Did you know?

In the 1990s when the Uruguay Round was being negotiated, it was estimated that the extra income due to the formation of the WTO would be $210 to $270bn, of which the poor countries would receive one third.

Alas, the situation is quite different.

In fact, even after the establishment of the WTO, there still exists a huge imbalance in the share of world trade between the rich and the poor. The share of LDCs in international trade is still in decimals. It was just 0.49% in 2000, compared to a share of 35% for the EU alone.

Indeed if all the WTO’s objectives were followed properly, the situation would have been much better for the poor.

One major problem in the achievement of these objectives is the rich countries’ protectionism i.e. they maintain high tariffs in products of developing country interests, such as textiles and clothing; leather and leather goods; and agricultural commodities. Not only high tariffs but also tariff peaks, tariff escalation, tariff rate quotas and variable tariffs.

All these are rather technical terms, but suffice it to say that all are barriers in denying an advantage to developing country producers to sell their goods, because their own producers will be affected.

The results of these tariff peaks are quite embarrassing. For instance, the US now collects more tariff revenue from Cambodia than from Singapore. Similarly, the US buys about US$ 40bn worth of goods from the UK as against US$ 10bn from Indonesia. Nevertheless, Indonesian exporters pay US$ 200mn more in tariffs than their British counterparts.

There are other barriers also, such as technical standards, antidumping and safeguard measures which are used mischievously to deny easy market access to developing country producers.  

At the same time the rich countries keep world market prices for those same goods artificially low by subsidizing their own producers.

For example, in 1999, the total support provided to agriculture in rich countries was an estimated $361bn, which was about 40% of the total production cost.

In terms of economic welfare, rich country farm support is estimated to cost US$20bn to developing countries every year, and consumers in rich countries a whopping US$ 102.6bn.

In other words poor countries get the stick thrown at them twice.

What's at stake for poor countries?

To add insult to injury, the rich castigate the poor for their high tariff rates (read protectionism). At the same time, there are several misconceptions behind the reluctance of poor countries to lower their own protectionism. These are:

• Rich country protection is higher than poor country protection

• Exports from poor countries fail to grow because of protectionism

• Trade barriers against poor countries reflect hypocrisy on the part of rich countries

• Poor countries do not want to lift their trade barriers when there are still trade barriers in rich countries

Truly, these misconceptions need to be addressed, as the lack of action is not only hurting the rich countries.

Rich country protectionism against the labour intensive products of the poor countries is an equally important issue. It is undeniably hurting poor countries.

Whatever promises made by the rich countries, they often fail to honour their words and have mostly shied away from putting their money where their mouth is.

Every time efforts have been made to assist the poor countries, resolves have disappeared into thin air. Except when the European Union launched the Everything but Arms (EBA) initiative for zero duties on exports from least developed countries (LDCs). 

It is quite amusing to see ‘arms’ being excluded from the tariff concessions. LDCs don’t manufacture arms; rather they are juicy markets for arms manufacturers and traders for selling these arms.

However, some people have described EBA as Everything But Farms because agriculture goods will continue to attract the same rate of high duties, which are called tariff peaks in GATTese.

The European sugar industry successfully lobbied to keep free access for sugar out of the EBA arrangement until 2008. This would cost up to US$5.7bn to European consumers.

The recently launched Doha Development Agenda in November 2001 has an explicit mandate to address peaks, escalations etc. in tariffs in the rich countries.

Dismantling protectionism: Jubilee 2010/2020

What needs to done?

The Doha Development Agenda has put forward an agenda with a keyword ‘development’. This calls for more liberal trade. It must be understood that the opening up of global trade is not a substitute for economic development. It is a tool.

It is essential to deal with hurdles that confront the system. The common misconceptions that are blocking the removal of protectionism by poor countries must be addressed. At the same time, rich countries must dismantle the protectionism against labour-intensive goods of the poor countries. 

If rich countries eliminate protection from labour-intensive goods, indeed their own unskilled poor will suffer. This will putt the issue into both ethical and political difficulties. Hence, the answer must be a gradual but certain, phase-out of the protection. It should be coupled with simultaneous adjustment and retraining programmes for affected workers.

To make progress on trade liberalisation world wide, the rich must stop massive direct and indirect subsidies and protection to their producers.

Nevertheless, even when all protectionism on both sides has gone, the poor countries also need to address the important issue of their own capacity to exploit opportunities.

Thus, inspired by the success of the Jubilee 2000 movement, which brought debt relief to poor countries, the Jubilee 2010/2020 campaign aims to tear down all trade barriers.

The Jubilee 2010/2020 Campaign will ask the rich to demolish all trade barriers on poor country exports in two phases. The first phase, which is to end in 2010, will ask for total elimination of trade barriers on Everything But Farms. Realising that agriculture is a more sensitive issue in the rich countries, they must eliminate all barriers by 2020.

Lastly and importantly, these reforms should not and must not be replaced by new barriers such as anti-dumping and safeguard measures. This is necessary to liberalise genuinely and take forward the development agenda. This development agenda aims at the eradication of poverty through economic growth and proper distribution of income.

Potential benefits

Why it needs to be done?

Eradication of poverty is a shared and moral responsibility of the international community. In spite of rapid economic growth in many parts of the world, the absolute number of poor (people living on less than a dollar a day) was still steady at around 1.2 billion in 1998. On $2 per day, it would mean 2.8 billion people, or almost half of the world’s population!

Poverty has many ugly faces and effects. For example poverty is increasingly a feeding ground for violence and terrorism. Many people are so worse off that they cannot even get one square meal a day. Thus one can see problems of unemployment, and exploitation of people, especially children and women, in many countries who would rather have a job, than a job with the ‘luxury’ of social security measures.

Renewed action is required to arrest this deprivation and destitution. We need universal application of Article 25 of the UN Declaration of Human Rights, which states: “Everyone has the right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing and medical care and necessary social services”.

All this has led to the adoption of the Millennium Development Goals which seeks to eradicate extreme poverty and hunger in the world. The international community has pledged to reduce poverty by half in 2015.

Poor countries have already accepted the significance of the WTO to enable their future growth and development. This is evident in the attention and resources they devote to the WTO process. Now, the onus lies on the developed countries to make them partners in development through trade. This would help them to integrate into the global economy on fair terms.

It is not only the poor countries that would gain out of better terms of trade, but the rich are expected to gain as well. Not only people, but also the environment would gain hugely, when people have resources to protect them. It’s a win-win-win situation for all!  

EVENTS for the World Summit for Sustainable Development, 2002