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Speech
Hilary Benn, Secretary of State for International Development
Foreign Policy Centre, London
10 January 2005
Can trade be free and fair?
I'm pleased to be here at the beginning of what will be a critical year for progress on the trade and development agenda.
Just over three years ago the World Trade Organisation (WTO) met in Doha and agreed the Doha Development Agenda that for the first time put developing country concerns at the heart of the WTO workplan. WTO members will meet in Hong Kong at the end of the year with the aim of moving these trade talks forward.
Beforehand, we will gather in New York for the mid-term review of the Millennium Development Goals. This will be an important opportunity to create awareness of the importance of trade to achieving the MDGs. We need to unlock the potential of trade to meet these goals. Studies show that an ambitious outcome could produce annual global benefits of up to $600 billion, and reduce the number of people living on less than $2 a day by 144 million. The major players in world trade now need to deliver on the commitments made in Doha.
Development is at the centre of the UK's trade policy. The UK was one of the first countries to call for the launch of this round of multilateral trade talks with a greater focus on development and poverty reduction. DFID is an integral part of the policymaking process on trade.
It is no coincidence that Africa, whose share of international trade fell from 5% to 2% between 1990 and 2000, now has the highest poverty levels in the world. Global trade flows are now worth $25 million a minute. Africa's are only $500 thousand a minute. This is a fiftieth of the total.
We will be working hard in 2005 to make trade work for developing countries.
This essay collection "Free and Fair; Making the Progressive Case for Removing Trade Barriers" is particularly timely.
The Make Poverty History Coalition will be leading a global campaign for Trade Justice. They are calling for fair trade and argue this is not free trade. The words free and fair can be very emotive when applied to trade. Debates will continue to rage about whether they are compatible or mutually exclusive.
The new Trade Commissioner, Peter Mandelson in his recent speech to the ACP, advocated progressive trade liberalisation. I support this view and recognise the need for trade liberalisation to be a properly sequenced process.
I believe that free trade on its own is not the answer.
The extent to which trade openness contributes to poverty reduction depends on broader economic and social circumstances and policies. Experience has shown that if a country liberalizes without putting in place the right institutions and transport and marketing arrangements the result can be a sudden surge of imports. This can wipe out small producers and increase poverty.
However protectionism is not the answer either.
There are strong links between more open trade and growth. In a group of eighteen developing countries that became much more open to trade after 1980 the average growth rate accelerated. This group includes most of the world's poor people - among the eighteen countries are Bangladesh, China, India, Ghana, Nepal, Uganda, and Vietnam. Growth in turn has led to poverty reduction. Poverty in China has decreased by two thirds since 1981 and in Vietnam poverty was halved in a decade. However, in sub-Saharan Africa where trade and growth have fallen poverty has almost doubled since 1981.
How do we support the adjustment to more open markets?
Trade barriers need to be removed in a way that is properly sequenced. Unless protectionism is phased out, industries fail to innovate and lose competitiveness, as happened in Latin America in the 60s and 70s. Governments need to resist pressure from inefficient industries demanding permanent protection - governments can't always pick winners!
Countries can end up locked into sectors in which they have no export competitiveness. When economic restructuring takes place there will be consequentially losers in the short term. People and resources will need to be transferred from sectors which are no longer competitive to new areas and this takes time and money.
Developing Countries need flexibility to introduce reforms at a pace they can keep up with and support their integration.
That is why the UK supports effective special and differential provisions in the WTO. This means giving developing countries longer to open their markets and implement agreements, more flexibility and fewer procedural burdens than developed countries.
That is why the UK welcomes the recognition by European Commission of the need for the Least Developed countries and "other weak or vulnerable developing countries" to be treated differently and asked to make less commitments than other WTO members in the negotiations.
That is why the UK Government, like the Trade Justice Movement, supports proposals from poor countries that enable them to protect special products' that are essential to poverty, food security or rural development. We are working with NGOs and developing countries to amend WTO rules to this end.
We recognise that there will be winners and losers from more open markets in the short to medium term. In the short-term, the losers from trade liberalisation will need transitional assistance- providing social safety nets for those that lose their livelihoods and helping diversification of their economies to more competitive products for export.
That's is why the UK will work to ensure appropriate support is given to those affected by the reform of the sugar regime reform. The rules on sugar arbitrarily give advantages to some producers over other more competitive suppliers, like Mozambique, Malawi, and Tanzania. For every dollar of aid given to one group of developing countries by the US and the EU, $2.75 of economic damage is done to others. We need to ensure changes to this system are accompanied by paced assistance.
That is why the UK is working closely with the World Bank on how best to design policies to give developing countries the flexibility they need to pace and sequence carefully their trade reforms so that they encourage national development.
That is why we are also working with developing country governments and other development agencies to ensure trade issues are carefully integrated into donors and nationally owned plans to reduce poverty. If they are then developing country governments should be able to access the development funds they need, for example to improve roads to improve the business environment. Since 1998 the UK has allocated £174 million to support a range of initiatives to assist developing country governments in designing these trade policies that work for the poor and as well as participate more effectively in trade negotiations.
We recognise that too often in the past low income countries have had little say over the terms under which they receive World Bank and IMF support. This has led to criticisms from NGOs. This support has often been conditional on the adoption of trade liberalisation and privatisation policies. The UK believes that aid terms and conditions must support, not "buy" reforms.
That is why at this year's Annual Meetings, the UK secured a commitment from the World Bank to review its policy and practice on conditionality and report back at next year's Annual Meetings. There is a need to address the scope and content of conditions, particularly in relation to sensitive policy reforms, such as privatisation and trade liberalisation. Serious consideration is needed about whether it is appropriate to attach conditions to these policy reforms, and if so, under what circumstances.
Current trade rules are stacked against some of poorest and most marginal players in world trade. We need to make them work for the poor.
One of the worst examples of the complete absence of anything approaching a level playing field is that of the West African cotton producers. In Benin the cotton industry accounts for 85% of total exports and 20% of national income. Benin and three other West African cotton producers are potentially very competitive cotton producers. They followed the prescriptions of the World Bank and IMF and ended all subsidies to farmers. But they liberalised into are trading in highly distorted markets. They are now paying the price- their cotton industry is now in crisis and with it the livelihoods of over 10 million people in West Africa who depend directly on cotton production. This is because they have to compete with heavily subsidised EU and US producers. In 2001, the US cotton farmers received nearly $4 billion in assistance - more than the entire GDP of Benin.
We need to tackle trade distorting subsidises and further open our markets. Total support to agriculture by OECD countries was US$318 billion in 2002. Agricultural protection is damaging to developing country producers- costing them $20 billion a year by shutting them out of EU markets.
That is why the Government will continue to be at the forefront of those pushing for further reform of the CAP.
That is why we agree with the Make Poverty History Coalition that we need to tackle export subsidies. The EU has already committed itself to abolishing all its export subsidies. But this will be of little benefit if there is no parallel movement from other WTO members in addressing their own export support. An end date is to be agreed in the next stage of negotiations.
That is why I welcome the agreement reached by the WTO General Council in July was a positive step forward. It is significantly better for developing countries than what was on offer in Cancun, especially in agriculture. It consolidated other areas of progress, such as dropping 3 out of the 4 Singapore Issues.
Developing and developed countries alike stand to benefit from trade facilitation and I am pleased negotiations are going forward. Clearly measures should focus on well-trained staff, effective border controls and standardisation of procedures and forms in Customs. For example the establishment of the East African Customs Union has created new opportunities for trade between Kenya, Tanzania and Uganda.
There is a lot to do to realise the aim of free and fair trade but we are making progress.
This year our presidencies of the EU and G8 give us the opportunity to put trade high up the international agenda. The Africa Commission will be producing their report and recommendations in Easter. This will also create opportunities to explore how trade reform can best promote African development.
There are a number of challenges and opportunities in 2005 for making progress on trade and development. Taking these opportunities and rising to these challenges will help create the right environment for the WTO Ministerial in Hong Kong.
In 2005 we will explore in the EU and with G8 partners how we can provide additional support for developing countries to meet trade adjustment costs and additional supply capacity needs. Thereby providing an enabling process of integration to the multilateral trading system to those that have been marginalized by globablisation.
In 2005 the UK will work to reach agreement in the EU and G8 on simplifying rules of origin. This does sound technical, but it has the potential to deliver real benefits for developing countries. Preferences schemes are a way of offering better access to developing countries to developed markets that are offered to others. But many of these schemes have clauses that restrict take up. For example, Tanzania can't benefit from the preferential access it receives under the 'Everything but Arms Agreement' to the EU market if any processing takes place in its non-LDC neighbour - Kenya. We want to see reform of these restrictive rules on the origin of products.
In 2005 the UK will also be working to ensuring the EU negotiations with the ACP on Economic Partnership Agreements help make a tangible difference to trade working for the poor. We want to preserve the current high levels of market access for the African, Caribbean and Pacific countries access to the EU. But in return, to be WTO compatible, the ACP countries will need to offer some market access to the EU. Preferences have failed to boost exports as intended. ACP countries have enjoyed long-standing preferential access to the EU market yet by 2002, only 3% of EU imports originated from ACP states, as compared to 6.7% in 1976. We will be pressing in the EU for longer transition periods for the ACP. This will take into account the needs for the ACP countries, which are at varying stages of economic development, more time to adapt to economic change. European Commission has said that EPA's should be "tools for development". The UK will work to ensure that they are.
In 2005 we will be producing research to help inform the WTO negotiations. This will help ensure developing country views are fully taken into consideration and to further understand developmental impacts of the EU's negotiating position. For example we have commissioned work on Agriculture and NAMA to feed into negotiations. And a network of top international trade researchers will explore new ideas that could push out the boundaries of the negotiations on special measures for developing countries.
Above all, we need political will from all WTO members to deliver a Round, which genuinely supports development and creates a more level playing field in world trade. As I set out in my essay in this collection the public have a key role to play in moving the debate issues forward and maintaining pressure on WTO members to realise the commitments they made at Doha.
I believe trade can be free and fair. We will be working to hard this year and beyond to make it happen.
The
Foreign
Policy Centre, London