Free trade could be fair - if those preaching it were also practising it

The experience of developing countries exposes the gap between free trade rhetoric of the United States and European Union and the harsh realities of the rigged rules and double standards that dominate American and European international trade policies and practices.

The potential of increased international trade to reduce poverty in the developing world is being lost because the rules that govern that trade are rigged in favour of richer countries.

Australian steel workers and farmers are well aware of the double standards of the United States and European Union who, while trumpeting free trade, are not willing to practice it themselves. Tariffs of up to 30 per cent on imported steel announced earlier this year by the United States could cost jobs in Australia’s $450 million a year steel export industry.

Australia's agricultural exports have long been undercut in international markets by heavily subsidised competing products from Europe and the US, a practice that has little to do with free trade but is allowed under current WTO rules. The United States Congress’ recent approval of $170 billion in subsidies for American farmers will make the playing field even more skewed in their favour.

But it is not only Australians that are hurt by such unfair practices. In developing countries some two billion people depend on agriculture, and many of them are also being undercut in their domestic markets by unfairly subsidised agricultural imports from the US and EU. For example the dumping of highly subsidised surplus powdered milk from Europe onto the Jamaican economy has all but ruined the local dairy industry. The US has done the same by dumping its subsidized rice on Haiti, forcing thousands of poor rice farmers off the land. In Haiti’s rice-growing area, child malnutrition is now among the most severe in the country.

To highlight the injustices in the present trade regime and its lost potential to reduce poverty, Oxfam Community Aid Abroad released a report earlier this year entitled Rigged Rules and Double Standards: Trade, Globalisation and the Fight Against Poverty. At the same time it launched a three-year global trade campaign, with the theme Make Trade Fair, to call for changes.

If the full potential of trade to assist economic development and reduce poverty is to be realised, poor countries must have access to markets in rich countries. But richer countries reserve their most restrictive trade barriers for the world’s poorest people, and the labour intensive agricultural and manufactured goods they produce. Those barriers cost poorer countries some $100 billion a year – twice as much as they receive in aid. When rich nations lock poorer countries out of their markets in this way, they close the door to an escape route from poverty.

While European and North American countries keep their markets closed, poor countries have been pressured by the International Monetary Fund and World Bank to open their markets at breakneck speed, often with damaging consequences for poor communities.

East Timor’s Foreign Minister, Jose Ramos Horta, has said that while aid from countries like Australia was important and appreciated, what the new nation really needed was access to markets and fairer prices for its exports. The country’s largest export is coffee beans. But world prices for coffee have fallen by 70 percent since 1997, costing developing country exporters some US$8 billion in lost foreign-exchange earnings. In 2000-2001, developing countries sold nearly 20 percent more coffee than in 1997-1998, but received 45 percent less in export earnings due to falling prices.

If countries like East Timor try to process their coffee beans or other raw commodities, thus obtaining a higher price, they face prohibitively high import taxes at rich world ports. In the European Union and Japan for example, fully-processed food products are subject to import duties twice as high as products in the first stage of processing. In Canada, taxes on processed food are as much as 13 times higher than those on unprocessed products. Richer countries, it seems, are determined to keep the more lucrative processing for themselves.

There is no doubt that increased international trade has the potential to be a powerful motor for the reduction of poverty. But while the wealth generated by trade has been enormous, there are still 1.1 billion people struggling to survive on less than $1 a day – the same number as in the mid-1980s. The divide between rich and poor is at an all time high and getting worse. In the last decade the poorest five per cent of the world’s population lost almost a quarter of their real income while the top five per cent gained 12 per cent.

If globalised trade is to be effective in significantly reducing poverty there has to be radical reform of the international trading system:

• The cycle of subsidised agricultural over-production and export dumping by the US and EU that undermines the livelihoods of peasant farmers, has to be ended.
• Market access for poor countries’ exports has to be significantly improved and escalating tariffs on processed goods abolished.
• IMF-World Bank programs must not have conditions attached that force poor countries to open their markets regardless of the impact on poor people.
• A new international institution needs to be created to raise commodity prices to levels consistent with a reasonable standard of living for producers.