Speech
29 June 2005
Secretary of State for International Development: How Can We Get Trade
Justice?
London School of Economics
I’m very pleased to be able to have the chance to talk about how we can
achieve trade justice. Probably the most important development challenge facing
us today.
I cannot remember a time when the thing we call development was more at the
centre of political debates of our age than now. We know what needs to be done.
We have the means to make a difference. And we have the opportunity.
And that is why this coming weekend in Edinburgh, thousands of British
citizens, through the Make Poverty History campaign, will be making their voice
heard loud and clear that they want us and other governments to do more to
deliver trade justice.
They are right to be angry about unfair trade rules and highly protected
markets that work against the poor. They are right to be angry about rich world
agricultural subsidies, and they are right to be passionate about the need for
change. It is vital that we all act now, at this critical time in the Doha
Round, in the run up to the ministerial meeting in Hong Kong.
Change is not easy to achieve, but with political will we can change things.
One of the most striking things about this weekend is that the thousands of
people in Edinburgh will not be calling for the G8 to go away, but will be
calling on them to use politics to make changes for the better. For example, we
have won a major and unprecedented breakthrough on aid by Europe at the
Development ministers meeting.
- A commitment to a doubling of aid by 2010, including to Africa.
- A total of $40bn dollars extra a year in 2010, bringing total EU aid to
around $80 billion a year, and a commitment by the richer EU countries to
finally reach the long held UN 0.7% target by 2015.
- And Britain has set a target of 2013.
- And we have made historic progress on debt.
- At the G8 Finance Ministers meeting earlier this month, Ministers, chaired by
Gordon Brown, agreed a proposal to cancel up to $55 billion worth of debts owed
by Heavily Indebted Poor Countries to the World Bank, African Development Bank
and IMF.
- Dropping the debt once and for all.
We look to build on these successes next week in Gleneagles.
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But aid and debt relief alone are not enough.
Why?
Because if we achieve trade justice, the world’s poorest countries will have
the chance, with the right support, to set themselves on a sustainable path to
higher growth, more jobs, and increased incomes for the poor.
Trade justice will give them the means to end their dependency on aid.
The means, ultimately to end poverty.
As the Prime Minister said last week, Europe leads the world on development.
It is time to demonstrate the same leadership on trade.
Now, for trade to work for poor people and for the poorest countries, we need
three things:
- First of all, action by developed and developing countries to reduce trade
protectionism and end unfair subsidies – which is exactly what we agreed to do
at Doha. Which, for the first time put the concerns of developing countries at
the heart of the WTO. And not before time.
- Secondly we need substantially increased aid to build the capacity of the
poorest countries to trade. To earn their way out of poverty.
- Third, action by developing country governments to create the right
conditions for trade, growth, and poverty reduction.
So let’s start with what we need to do to create more justice in
international trade. Now, we need the WTO to do this.
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I strongly disagree with those - thankfully, a diminishing number - who call
for the end of the WTO. The truth is that the problem with the WTO is not that
it is too liberal, but that it is not liberal enough, because it has not
responded sufficiently to the needs of two-thirds of its members – developing
countries. And it has legitimised some of the worst forms of developed country
trade distortions, especially in agriculture.
Uniquely, in the WTO, all countries, even the poorest, have a vote. Advanced
developing countries - like India, China and Brazil - now have real bargaining
power.
Sixty-two of the poorest developing countries – the smallest players in world
trade, in Africa, in Asia, and in the Caribbean, have also formed new alliances
to try to identify their common interests and to make their voices heard.
Only with a strong, rules based multilateral system will we provide the gains
that developing countries need. And if this system unravels, the poorest
countries will lose out.
They would be pitted, like David against Goliath, in bilateral trade
negotiations where they would frankly have no collective bargaining power.
Unlike David, they would not win.
Next month a draft document is due to be produced outlining the shape of
agreements that will be reached at December’s Hong Kong Ministerial meeting.
Anyone who is concerned about making poverty history, must want this Round of
trade negotiations to succeed. For that to happen we need to mobilise support
internationally. And that is where all our campaigning efforts should be
directed.
As the Commission for Africa noted, rich country barriers and support are
“absolutely unacceptable; they are politically antiquated, economically
illiterate, environmentally destructive and ethically indefensible. They must
go.”
Let me now turn to some of the priorities.
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Agriculture is of course crucial. And the WTO must show real ambition.
Because in no other area does the unfairness of the current system serve
developing countries so badly.
Rich country protectionism – the barriers, subsidies and support - mean that
the world supply of agricultural goods are artificially increased, and world
prices lowered.
While such protectionism continues, the poorest countries will never be able
to compete in their own or any other markets around the world against heavily
subsidised rich country products.
As a minister from a West African cotton producing country said, “we are
happy to compete with US farmers. But not with the US Treasury”
While 70% of the population of Africa work in agriculture, only a few per
cent do so in rich countries. Yet rich countries currently support their
agriculture to the tune of a staggering $279 billion a year. That’s over ten
times current aid to Africa. That’s a sum comparable to the income of the whole
of sub-Saharan Africa.
Market barriers keep out developing countries that have a natural advantage
in producing agricultural goods. Average tariffs between rich countries are only
3%, but can rise to over 200% in the US for fruit and nuts, or to 300% in the EU
for meat.
Through the Common Agricultural Policy (CAP), two fifths of the EU budget
goes on subsidies and support to Europe’s farmers who represent 5% of Europe’s
population, and produce less than 2% of Europe’s output.
Most is not spent in the poorer parts of Europe where it is needed.
Most goes to the biggest farming companies and landowners, not small farmers.
Nor does it provide incentives for farmers to modernise and compete
effectively in the global economy.
The cost to the people of Europe is high, and hardest felt by the poorest.
The cost to the average household in the UK of the Common Agricultural Policy
is £832 a year. Over 800 pounds every year lost from family income, from taxes
that pay our contribution to Europe’s budget, and the cost of over-priced food
that Europe’s agricultural policies create.
In the US, support to cotton farmers of around $3.9 billion a year,
undermines employment in West Africa where cotton is produced 3 times more
efficiently than in the US.
This must end.
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Europe cannot lead the world on development when its trade and agriculture
policies undermine developing countries’ ability to trade their way out of
poverty.
Agricultural reform is possible. A rapid but carefully managed transition
will be good for a modern Europe, and for North America, as it was for New
Zealand, where agricultural reform and an end to much of government support led
a more vibrant, growing and competitive farming industry.
And it’s important we recognise that some progress is being made. The EU has
committed itself to agree an end date for export subsides. Now the US and others
must follow suit. The UK is committed to a 2010 timetable to end all forms of
export support.
But this is only the first step.
For there to be real development gains market barriers to agricultural
products must be eliminated.
Current analysis is that we need to at least halve the agreed ceilings on
agricultural tariffs, if we’re to make an impact on the tariffs actually
applied.
In addition to this - as the Commission for Africa report recommends - our
goal is to end all trade distorting support to farmers.
The EU has agreed to cut 70% of the subsidies to farmers, that are linked to
levels of production. Other WTO members should do likewise, if we are to deliver
real gains to farmers in the poorest countries.
In addition to safeguard the livelihoods of West African cotton producers,
all trade-distorting subsidies on cotton must end with immediate effect from the
end of the Doha Round.
And we need to ensure that rich countries do not misuse protection for
so-called “sensitive products” to continue to exclude developing country goods.
While the poorest countries should be allowed to maintain tariff protection on
products that are important to food security, rural development and livelihoods.
The Kenyan Trade Minister said in London this week: “I am ready to completely
open our market in flowers and vegetables. But to open it now to imported maize
would be suicide.”
At the same time, poor countries cannot rely only on agriculture if they are
to achieve sustained growth. Diversification is key.
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If countries produce a wider range of goods, then they are less vulnerable to
down-turns in a particular area.
And they need to add more value, through processing, to agricultural
products. UK companies, for example, have invested in Sri Lankan tea production;
as a result over 90% of value-added goes to Sri Lanka. But in Kenya it is only
5%, so Kenyan tea producers get very little of the price of “English breakfast
tea” on our supermarket shelves.
And it’s vital that we rich countries do not undermine this stage in their
development through further market barriers such as tariff peaks and escalation.
Whereas there are 0% tariffs on rubber, turning it into shoes like plimsolls
imposes an additional tax of 27% in the United States of America.
As for services, I believe that developing countries must be able to choose
whether and what to liberalise. This is how it works in the WTO. The WTO does
not force any developing country to open its service sectors. Not in water. Not
in anything.
But opening up services like telecoms can make a big difference. The lives of
poor people in rural areas can be transformed by access to affordable mobile
phones. In India there are now more mobiles than fixed lines, opening up
communications in rural areas, and increasing growth.
In Botswana, liberalisation doubled landline coverage, and mobile use
increased from 0 in 1998 to 250,000 in 2001 – serving some 16% of the
population. If managed well, with appropriate regulation, and under the right
circumstances, opening up can be beneficial.
For WTO agreements to help the poorest countries capture the gains from
trade, countries of course need flexibility in the pace and extent to which they
introduce trade reforms – to plan and sequence these reforms in line with their
own needs. This needs to be built in to each agreement.
Because their integration into the world economy should be managed as part of
their national development and poverty reduction plans. Not forced through trade
or aid conditionality. Not forced through new Economic Partnership Agreements
with Europe, not forced through the WTO.
The poorest countries should not be suddenly exposed to global markets where
they cannot compete. The WTO must support the inclusion of poor countries in the
global trading system, not expose their weaknesses and exacerbate their
vulnerabilities to change.
Nobody expects Brazil and Burundi to take on the same obligations, or China
and Chad. The poorest WTO members must have the flexibility to progressively
remove their tariff barriers – in a managed way. But they need to build the
confidence of their trading partners by binding and regularising existing
tariffs.
The purpose of special and different treatment is not to exclude them from
the benefits of liberalisation, but to help the poorest countries to build the
capacity to gain from them.
And we need the right mix of safeguards and support measures targeted at the
poorest to help them integrate at their own pace and with the right support.
Now, progress on all these areas will be the key to success in the Doha
Round.
But outside of Doha, there is more that we can do to reduce barriers.
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First, while on paper many poor countries are offered preferential access to
markets, this is often undermined by other barriers. Rules of origin, designed
to prevent fraud, can have perverse effects and undermine the ability of
countries to buy goods from competitive sources.
Yet where these rules have been relaxed, for instance by Canada, it has led
to a 50% increase in imports of garments from Bangladesh. The EU is conducting a
review of rules of origin now. So we can make a difference this year. And we
want G8 to do same.
Another example is health and other standards which are becoming a new
barrier for poor countries. It is not that these countries don’t want to meet
standards, but that the cost of doing so can be very high, and the design of
standards takes no account of their impact on developing countries for example.
African banana exports could increase by $410 million a year if the EU used
internationally accepted standards on pesticide residue, rather than their own.
There is also much that developing countries can do to remove other barriers
to trade that raise their costs and make them less competitive. The delays in
getting goods across borders is bad for everyone - developing country exporters
and UK importers.
A trade facilitation agreement, with the right support to implement it, can
help reduce transaction costs and make the goods of the poorest countries more
competitive.
What could this mean? In India an exporter needs 29 documents for clearance,
in quadruplicate, with 257 signatures along the way. Customs delays add almost
1% to the price of goods – and average delays in Ethiopia are over a month.
That’s a 30% increase in costs.
DFID support for customs reform in Mozambique, for example, has helped reduce
customs clearance to 24 hours for 80% of goods. At the same time effective
revenue collection has raised revenue from $70 million to $250 million a year.
Weak governance means that traders moving between Lagos and Abidjan, for
example, encounter a roadblock every 14 km. These costs add up – the cost of
moving a container between Accra and Lagos is three times the cost of moving it
to Europe. Transport costs in Africa are twice that of Asia.
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Secondly, even if markets are opened to the poorest countries and progress
made to end rich country subsidies, the poorest countries will not necessarily
gain.
Why?
Because they do not have the capacity to trade in goods and services that can
compete in global markets.
Working closely with developing countries, the EC, World Bank, and other
donors, the UK has led calls for increased aid to enable the poorest countries
to build their capacity to trade and adjust to a more open global trading
system. And our support must respond to the priorities they identify.
Aid for trade is no substitute for a round that does not achieve real
benefits for developing countries. Both are necessary if we are to achieve trade
justice.
The poorest countries will need investment to improve infrastructure, ports,
road, rail, and in energy, water and tele-communications. Support for investment
to create a healthy and skilled workforce.
The Commission for Africa estimated Africa’s infrastructure needs at around
$10 billion a year, rising to $20 billion a year necessary to achieve the 7%
growth that Africa requires if it is to halve the proportion of people living on
less than a dollar a day by 2015.
Infrastructure, however, is not all that is needed, other priorities for help
include trade facilitation, policy reform, and adjustment to loss of
preferences.
Some developing countries that are net importers of food will need help
because food prices will rise when subsidies reduce.
Some countries will experience budget difficulties, since tariff income can
make up to a third of their total revenue, and will reduce as tariffs are
reduced.
I hope we can get all the G8 to agree at Gleneagles next week that we need
increased aid to build the poorest countries’ capacity to trade. And that at the
September meetings of the WB and IMF we can firm up this support and agree the
details of how these funds would be spent.
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But, thirdly, reduced protectionism and increased aid will not achieve
results without strong action by developing countries themselves to create the
right environment for trade and development.
- Sound policies and institutions.
- An environment where the private sector – from farmers to firms – can operate
with the right support; and where there’s a fairer return for poor producers.
- An environment attractive to local and foreign investment.
- Social structures that ensure that people are provided with opportunities,
through good education and health care, to take part in, and benefit from the
economy. To provide for their families. And social structures which offer a
safety net when times are hard.
Having set out what I think needs to be done, let us recognise that this will
not be easy.
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Trade is not a cure-all. Increased trade alone will not lift millions out of
poverty – it must be accompanied by peace and security, by appropriate economic
policies, good governance, investment in health and education. People, and above
all, poor people need to be provided with the opportunities for productive
employment.
For the poorest countries the challenge is greatest.
We need to back their efforts with our support, and do more to assist those
in particular in fragile states, where many of the world’s poorest people live,
and are excluded in so many ways from development.
Nor am I advocating that poor countries should be forced to liberalise. The
poorest and most vulnerable countries do face the biggest challenge, and that is
why they need time and help.
We should not underestimate how hard it will be to achieve the concessions
that are needed in the WTO. Those that benefit from the status quo will resist
change. Change is painful.
For example, sugar reforms in Europe affect our farmers, and also vulnerable
sugar producing countries. But the truth is, doing nothing would be even worse.
The surge in exports of Chinese textiles has led to a protectionist backlash.
But what is good for Chinese textile workers, and good for African farmers, is
also good for European and North American consumers and taxpayers. Many Asian
countries rose to the challenge of diversifying into more specialist clothing
before the end of the Multi Fibre Arrangement in January. But many European and
US manufacturers didn’t – and now want trade barriers back up again.
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The progress above is going to demand one thing above all - political will. I
am greatly encouraged by the efforts of Peter Mandelson, who spoke here in
January, and Jose Manuel Barroso who spoke here in May, to make development and
the needs of the poorest countries a priority for Europe. Political leadership
is essential. From the EU, from the US, from Japan, and other big players in
global trade such as Brazil, India and China.
And the poorest countries in the G90 too – to approach the negotiations clear
on what they want, on their red lines, but clear on the opportunities especially
if they use the strength they have in numbers.
And in the end, though, this is about the choices we make. And it is politics
– I come back to the point I made at the beginning, as I look forward to the
demonstrations this weekend - it is the political process which determines these
choices. That’s why the G8 meeting at Gleneagles next week, the UN Millennium
Review Summit in September, and the WTO ministerial in Hong Kong, all matter so
much.
The UK will do its utmost, working with the European Commission, with our
European partners, and during our Presidency of the EU which starts on Friday,
to take this forward. To engage with our developing country partners. To ensure
the Doha Round meets their needs.
A Round that actually delivers the bold commitments made in Doha.
I think that many people really recognise that a Round that creates real
trade justice for poor people and for the poorest countries – would really be
something worth campaigning and also voting for.
And it is up to us to demonstrate that we have the capacity to deliver it.
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