Despite good intentions, vulnerable economies remain marginalised by the West. Don McKinnon, secretary general of the Commonwealth, calls for less talk, more action.
The World Trade Organization (WTO) Ministerial Conference to be held in Cancún in September will mark a crucial stage in the process of international trade negotiations. In fact, many believe these will be the most important trade negotiations ever. The aim is to take stock of the progress made under the Doha Development Agenda, and the outcome of the meeting will be measured by real commitments made to provide increased trade opportunities to poor nations.
As the world focuses on the Cancún Ministerial Conference, let us remind ourselves of the commitments made at the end of the Uruguay Round more than five years ago: “We remain deeply concerned over the marginalisation of least-developed countries and certain small economies, and recognise the urgent need to address this issue. We commit ourselves to continue to improve market access conditions for products exported by the least-developed countries on as broad and liberal a basis as possible.” Beautiful sentiments, but where are the results?
Not just free trade, but fair trade
For many years, developing countries have been told that the only way to prosperity was through trade liberalisation.
But while poor nations heeded this advice and removed many of their trade barriers, developed countries failed to reciprocate. In precisely those sectors in which emerging markets have a comparative advantage, such as agriculture and textiles, their industrialised counterparts have protected themselves through both tariff and non-tariff barriers and extensive systems of domestic subsidies resulting in dumped exports.
The World Bank and IMF have estimated that liberalisation of trade in agricultural products would increase developing country exports by at least $30bn a year and possibly by as much as $100bn, which would make a real difference to the people of Africa. The truth is that the EU, the US and Japan have not honoured their commitments.
The current system does not work for the poor. Africa’s share of world trade halved between 1980 and 1999. Wealthy countries’ protectionist policies prevent poor nations from growing their economies and improving the lives of their people. According to Horst Köhler, managing director of the IMF: “Protectionism in industrial countries is the core problem in the fight against poverty.” It is time we stood behind our rhetoric on the benefits of trade liberalisation and give these poor countries what they were promised long ago, a transparent and equitable rules-based multilateral trading system. In other words, not just free trade, but fair trade.
That is why we at the Commonwealth have continued to argue the case for improved market access for developing member countries. That was the message we delivered at the UN Conference on Financing for Development in Monterrey in March 2002 and at the World Summit on Sustainable Development in Johannesburg in August 2002. We also have taken up this matter with the European Commission in Brussels and the WTO in Geneva.
As a truly multilateral organisation, the Commonwealth is ideally placed to represent the interests of its developing member countries in the face of the overwhelming political influence of the US and European countries in international trade. Developing countries could be smothered in the dust of conflict between these two blocs, especially over agriculture, if the Commonwealth and others did not stand up for them.
The Doha Development Agenda
The new round of trade negotiations, launched in Doha two years ago, seemed to offer fresh hope. The clear message was that agricultural subsidies needed to be phased out in order to give developing countries a fair chance to trade their way out of poverty.
But the failure of powerful WTO members to agree on modalities for agricultural reform, affordable drugs for the poor and differential treatment for developing countries have proven serious setbacks.
If we want to achieve significant progress in the fight against poverty, industrialised countries must accept that there is no alternative to phasing out agricultural subsidies. It is absurd that farmers in the developed world receive subsidies to generate goods that poor farmers can produce more cheaply and efficiently. We must realise that opening wealthy markets to the developing world and cutting trade subsidies is in everyone’s interest because:
phasing out trade-distorting subsidies would reduce real cost of food to people in the developed world;
the money saved on subsidies could be invested in health, education and public services and translate into fewer taxes;
opening markets in the rich world would allow poor countries to develop their econ-omies and provide new, untapped markets to the industrialised world;
slashing trade subsidies at home would remove the need for the poor to seek refugee status in wealthier countries.
Moreover, sharing wealth more equitably brings shared stability. Tackling global poverty is not only a moral imperative, but also a political one. We can’t make the world more stable and secure if we don’t start by making it more just.
Commonwealth’s role
Let me now highlight how the Commonwealth contributes tow-ards a more equitable international trading system, which offers the developing world real opportunities for growth.
Recognising that the challenge is to deliver on the promises made at Monterrey, Commonwealth finance ministers last year agreed on an Action Plan for Delivering the Monterrey Consensus. This plan aims at enhancing the participation and representation of developing countries in the international financial institutions and securing agreement for a new approach to debt restructuring.
Assisting Highly Indebted Poor Countries (HIPCs) has remained a Commonwealth priority. We continued to work in close collaboration with the IMF and World Bank to provide greater debt forgiveness. Our updated program for debt management was delivered to 43 countries.
Another key objective of the Commonwealth is to ensure that the voices of its smaller and more vulnerable members are heard in international forums. This is why we set up a Small States Office to facilitate the representation of our smallest member states at the UN in New York. We help our smaller member states by providing experts who assist them in formulating and implementing trade policy and pursuing their interests more effectively in international trade negotiations. In particular, our Hub and Spokes program provides training and support at both national and regional levels so as to better integrate regional policy into the international trading system.
We also promote investment in pre-emerging markets. The secretariat – through the Commonwealth Private Investment Initiative (CPII) launched by Commonwealth finance ministers and heads of government in 1995 – has sought to play a catalytic role for promoting investment into a wider cross-section of developing member countries. Under the CPII, four regional funds for Africa, Asia, the Caribbean and the Pacific have raised more than $200m from official investment agencies, development banks and private banks.
Another initiative is based on a study commissioned by the Commonwealth secretariat entitled Lowering the Threshold: Changing Private Investors’ Perceptions by Reducing the Cost and Risk of Investment in Least Developed, Small and Vulnerable Economies. Despite successful efforts to improve policy and infrastructure, vulnerable economies still have “endowed” handicaps costing them private investment: small size, remoteness and extreme vulnerability. The report suggests market-friendly financial instruments to lure investors into these markets.
The report was presented to the meeting of Commonwealth finance ministers last year and has been the subject of extensive discussion with the international finance institutions, regional development banks, Commonwealth donors and commercial banks.
One outcome so far is the establishment of a working party to develop a model facility for sharing risks associated with private direct investment in these markets.
Worthy goals
At the dawn of the new century, world leaders set themselves the goal of halving global poverty in the next 15 years, eradicating hunger, reducing under-five mortality by two-thirds and getting every child into a classroom. These became known as the Millennium Development Goals.
If promises were deeds, significant progress already would have been achieved. At the present rate, it will take 130 years to rid the world of hunger. We must do better than this. In the big picture, the cost of meeting these goals is not great: $50bn on top of current aid spending, a sixth of what the West spends on subsidising its farmers; one-
fifteenth of global military expenditure. The recent proposal for an International Finance Facility by Gordon Brown, the UK Chancellor of the Exchequer, is a step in the right direction. But more needs to be done if we don’t want the Millennium Development Goals to become the Major Disappointment Gap.
Now is the time to act. And action begins with Europe and the US making major decisions and backing their commitments with results.
