LONDON, 15 September 2003 — If any emerging country thinks that membership of the World Trade Organization (WTO) is some sort of deliverance from economic and trade woes, then it only has to look at the obscenity that unfolded in the last few days at the Cancun round of world trade talks in the Mexican resort city.
The developing countries offered their now mandatory mantra of can-can (that the rich countries can remove the outrageous subsidies to their farming sector totaling an estimated $390 billion a year if they really wanted to); and the developed countries rendered their archetypal reposte of won’t-won’t, but perhaps maybe-maybe (because farmers are a powerful vested interest in North American and European politics, and no European prime minister or American president would dare to take them on especially a year-or-so away from the US presidential elections).
Perhaps the WTO should time their meetings more judiciously. They should hold it immediately after the US presidential elections, thereby giving the new or incumbent US president some leverage to adopt longer-term policies that enhance so-called “fair trade”. After all, the US is by far the most powerful and richest nation on earth.
But the US is not the main culprit in this nefarious trade in agriculture and commodities. The EU subsidizes its farmers to the hilt — one estimate puts it at more than $100 billion a year. The Common Agricultural Policy (CAP) is perhaps the most entrenched anti-free trade and anti-free market policy in the history of mankind. Not even the “Iron Lady” Margaret Thatcher could get to grips with it. Not necessarily because of the “Non” of successive French governments, but also because of her own rural constituency in Britain, which are overwhelmingly traditional Tory (Conservative Party) supporters. At the same time, US cotton farmers, for instance, alone are subsidized to the tune of $3 billion a year.
Indeed, the rich countries are past masters at fighting among themselves when it comes to protect their trade. Post 9/11 President Bush slapped on extra tariffs against steel imports, which incensed the EU. Despite the US assertion that its action was legitimate under WTO rules, it was blatantly obvious that the Bush administration was trying to protect the steel industries of Middle America during a stubborn US recession precipitated not by 9/11 but by bubble economics and the dotcom boom of the 1990s.
The US in turn is still engaged in a “banana war” with the Europeans. American firms owning the vast banana plantations in central and south America want equal access to the European markets. These “dollar bananas” are much cheaper than the subsidized bananas from the former British, French, and Dutch colonies in the Caribbean. The argument goes that the American firms are engaged in large-scale intensive farming and pay exploitative wages to their local plantation workers. This is both against the spirit of fair trade and environmentally unfriendly.
It would be wrong to blame the woes of world trade entirely on the rich nations in North America and Europe. The developing countries ironically are still the world’s largest producers of agriculture and commodities. What they lack is unity, agricultural technology, research and development, transport and distribution, processing, and marketing expertise. Their biggest assets or inputs are land and labor. Yet, they have failed to capitalize on this.
Saudi Arabia, for instance, has been subsidizing its wheat and barley farmers for years, paying well above the world commodity prices to local farmers. In the same process, it has been depleting valuable underground fresh water resources. It was also subsidizing the exports of surplus wheat, and even trying to pay farmers incentives to grow barley, of which the Kingdom is the world’s largest consumer. Riyadh was forced to reduce subsidies because of real economics, pressure on the budget, and the sheer folly of a policy that was more to do with a misguided notion of food security and self-sufficiency, than the realities of cost of inputs and subsidies.
Developing countries such as India are also too keen to capitalize on “importing employment” without even allowing a single foreign worker to set foot on Indian soil. The call-center commercial revolution is reshaping the employment world. Global giants are capitalizing on the cheaper labor, set-up and running costs; in return, locals are employed and are capable of earning much higher salaries than they would normally have been able to do.
The reasons for this are manifold. Many developing countries are dysfunctional states, with entrenched corruption and misuse of resources. Others follow misguided policies including over-spending on defense and building white elephant projects, more for prestige and for the possibility of getting commissions and kick-backs. Sometimes, these countries are forced to adopt policies by international agencies such as the World Bank and the International Monetary Fund (IMF) often discredited Structural Adjustment Programs (SAPs), whose net effect is more to do with raising commodity prices including very often staples such as bread, sugar, and milk. This ignoring the high unemployment rate, low wages, low growth, the huge gap between rich and poor, and so on.
The problem with SAPs is that they are usually imposed from the point of view of the IMF and the World Bank’s prescription for resolving a particular developing country’s economic woes. SAPs have proven disastrously wrong in the past for some countries, and even the first Mandela government in South Africa following the fall of apartheid rejected the overtures of the World Bank and the temptation to seek loans from the IMF.
The IMF and World Bank of course would not dare to take on the EU’s CAP and the US’ Export Promotion Program (EPP), simply because these two regions are the paymasters of the Fund.
The 2003 Global Corruption report published by Transparency International (TI) stresses that research shows that there is a strongly positive correlation across countries between per capita income and the quality of governance. This correlation is governed by six dimensions — control of corruption, rule of law, government effectiveness, voice and accountability, regulatory control, and political stability. In the TI’s Bribe Payers Index 2003, agriculture as a sector scored a relatively high incidence of bribery along with other economic sectors such as fisheries, although the arms trade, oil and gas, telecoms, mining were the most affected sectors.
It would be naive to think that world trade is an easy North-South issue. It is complex and much wider than the usual arguments relating to subsidies and access to markets. One of the major issues that never seems to make it to the negotiating tables is that of processing. In the context of the developed world, a Welsh farmer will get as little as two pounds for a whole lamb from a British supermarket. And yet this supermarket will sell two lamb chops only for more than 2.50 pounds to the consumer. Even allowing for transport and processing costs, the profit margin is bordering on the criminal.
Translate this to a developing country, the logistics are even more obscene. It costs a pittance to produce a banana or a designer pair of trainers in a developing country. The cost to the consumer in Los Angeles, London, Tokyo, or Jeddah reflects almost entirely the marketing cost and profit margin.
This is true of almost every commodity ranging from coffee, cashew nuts, tea, sugar, rice, and so on.
The multinationals ruthlessly protect their patches. Should an Indian cashew nut producer suggest that it would market, process, and package its own cashew nuts for sale in the West, the usual reposte was that the Western consumer would not buy the product because they won’t trust the hygiene standards of the producer.
Thanks to globalization and the diaspora of groups such as the Chinese, Indians, Turks, Hispanics, such prejudices and commercial chauvinism are being successfully confronted. But it still has a long way to go. Why, for instance should Colombian and Brazilian coffee beans be processed in Trieste in Italy, and not in Bogota or Sao Paolo? Why should a Coffee Latte cost up to $5 when the beans cost a pittance. Developing countries should leverage on their commodity wealth and start demanding a profit share from the end product, especially if they cannot process the commodity at home.
Next time you go into a Starbucks, or Coffee Republic, or Cafe Nero, think of the sheer consumer power you can effect. Consumers can play an equally important role in enhancing free and fair trade, just as the WTO and the governments.
