East Timor and rigged trade rules

With East Timor now gaining full political independence, the question of its economic future becomes crucial. In a recent interview, the country’s new Foreign Minister, Dr. José Ramos Horta, said that while aid from countries like Australia was important and appreciated, what poor countries like East Timor really needed was access to markets and fairer prices for their exports. He noted that while prices to growers of coffee, East Timor's largest export, had fallen, prices for consumers had not dropped.

Being dependent on coffee for export earnings is not a good situation to be in. World prices 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.

The problem is not of course unique to East Timor. In Ethiopia, the country in which coffee originated, export revenue from coffee slumped from $257 million in 1999-2000 to $176 million in the following year, from a combination of lower production and falling prices. This loss outweighed the benefits of aid and debt relief. In 2002, Ethiopia’s projected saving on debt servicing (from debt relief measures) will be just $58 million.

Compounding the situation are escalating tariffs on processed goods. Many countries like East Timor and Ethiopia become locked into producing raw primary commodities like coffee beans because when they begin to process them, thus obtaining a higher price, they face high import taxes at rich world ports. Richer countries, it seems, are determined to keep the more lucrative processing for themselves. 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.

To highlight the injustices in the present trade regime and its lost potential to reduce poverty, Oxfam Community Aid Abroad recently released a report 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.

As Jose Ramos Horta has pointed out, the full potential of trade to assist economic development and reduce poverty cannot be realised unless poor countries 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 rich 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.

And the goods they are being forced to allow in are often unfairly subsidised by rich governments keen to promote their own exports. 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.

As Ramos Horta has noted, "More and more rich countries subsidise their agricultural prices, and the farmers in small countries lose their livelihood because of that". The US and EU subsidise their own farmers to the tune of $1 billion a day - which leads to over production that is then dumped onto the world market, suppressing prices which poor farmers cannot compete against.

There is no doubt that increased international trade has the potential to be a powerful motor for the reduction of poverty. But that potential is being lost because the rules that govern it are rigged in favour of the rich. If globalised trade is to be effective in significantly reducing poverty there has to be radical reform of the international trading system:

• A new international institution needs to be created to raise commodity prices to levels consistent with a reasonable standard of living for producers.
• 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.
• 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.