Trade barriers: making the poor poorer

Where do the barriers hurt most?

In agriculture, where use of tariffs, rules, quotas and subsidies to protect producers in rich countries is most flagrant. Every year, for example, a bureaucrat in Brussels sets the price of sugar for EU farmers… at four times the market price. So those farmers produce five million tons too much sugar, making it very hard for other sugar-growing nations to compete. For every $6 the EU gives Mozambique in aid, it takes back $2 in damage done to its sugar industry. EU milk producers enjoy similar advantages: their cows are subsidised to the tune of $2.5 each a day, making them richer than half the world’s population. The excess milk is dumped on countries like Tanzania, driving small Tanzanian dairy farmers out of business.

Are the barriers confined to raw materials?

On the contrary, the problems faced by third-world producers escalate as raw commodities are processed into higher value-added goods – the foundation of manufacturing capacity at the simplest level. The EU, for example, imports raw products such as coffee and cocoa, charging few customs duties, but as soon as the poor countries try to add value by processing cocoa into chocolate, the EU slaps on high tariffs, thus making a chocolate bar from Ghana more expensive than one produced in Europe.

Is the EU the only culprit?

No. Many African economies, notably Mali, Burkina Faso, Chad and Benin, depend on cotton for employment and wealth creation. Their low-cost, high-quality output should be competi­tive, but instead they’re being driven out of business by the $4bn the US spends every year subsidising its 25,000 cotton farmers, subsidies that depress world prices and bankrupt rivals. These countries are losing more through depressed cotton prices than they receive in aid or debt relief. The Organisation for Economic Co-operation and Development estimates that farmers in the West receive more than $300bn in state help a year, six times the level of aid that rich countries give poor nations.

Doesn’t the West believe in free and fair trade?

In theory, yes; but the theory’s application is dismally one-sided. There may be environmental and social reasons for barring trade, but the only economic case for tariff barriers is that they protect fledgling industries from competition until they grow strong enough to compete on level terms. Yet it is just this kind of tariff whose removal has been demanded by the World Bank as a condition of aid. Average import tariffs have been halved in sub-Saharan Africa and south Asia, and cut by two-thirds in Latin America and East Asia, but with no compar­able shift in Western economies. So instead of benefiting poor countries, Western “free” trade policies have often worsened their plight. Africa’s share of world exports has shrunk from 4% in 1980 to 1% last year.

What would fair trade achieve?

If Africans were given fair conditions of trade, campaigners argue, they could lift themselves out of poverty in the same way millions have been lifted out of poverty in east Asia in the past 20 years. A 1% increase in Africa’s share of global trade would produce seven times more income for Africa than it currently receives in aid.

Haven’t we made any progress?

Attempts have been made, first through the GATT (General Agreement on Tariffs and Trade) and more recently through the World Trade Organisation (WTO) to address the problem of unfair trade, but all have ended in stalemate. The most recent round of talks, launched in 2001 in Doha, Qatar, was heralded as the first time that develop­ing country interests were placed at the centre of a multilateral round of trade negotiations; but hope turned to despair in 2003 when developing nations walked out of a summit in Cancun after failing to secure a commitment from Western governments to slash the subsidies of $1bn a day given to Western farmers.

Why isn’t the West prepared to give such a commitment?

Because of the entrenched power of lobby groups. Agricultural policy in the EU, for example, is controlled by an “iron triangle” comprised of executive officials (belonging to the Commission’s Agriculture DG), farm ministers and farmer groups – all of whom are intent on preserving the joys of protection. The recent reform of the CAP, hailed as a major contribution to freer and fairer trade, was in fact a deal to placate French and German farmers: it maintains the CAP at £28bn a year after inflation until 2013. In the US, meanwhile, a president who once defiantly flaunted his free-trade credentials, has been forced to capitulate to pressure groups ranging from the US cotton barons (a lobby described as making “French wheat farmers look like amateurs”) to local clothing manufacturers who recently secured the imposition of import quotas on made-in-China brassieres.