Steamrolled in trade talks

Poorest nations can't fight poverty - and help us, too - if richer ones won't make concessions

Kevin P. Gallagher is a professor of international relations at Boston University. His recent book is "Putting Development First: The Importance of Policy Space at the WTO."

August 20, 2006

It got short notice in the media, but world trade talks aimed at helping the poorest countries compete collapsed late last month. This means no change in the worldwide system of trade whose reform is critical to improving the lives of the 3 billion people around the globe who live on less than $2 per day.

The theme of the talks was to make global trade work to benefit the poor. On the blackboard, this is done by dismantling tariffs and other restrictions on imports, freeing each nation to produce as much as it can sell of the goods that it produces best, relative to other products and countries. If every country did that, producers would get access to more markets, and consumers would have a maximum level of choice, low prices and high quality. All nations would benefit.

On the blacktop, however, when giant corporations, especially multinationals, can dictate prices, the whole system goes awry. Just a few American companies, for instance, control U.S. corn exports. Their near monopoly allows them to demand low prices for corn from U.S. farmers and then dump the corn at high volume and low prices all over the world.

This brings huge profits to agribusiness, at the expense of small farmers in rich and poor nations alike. Giant companies control the market in many of the most fruitful sectors of the global economy, such as high-technology goods, automobiles, banking and retail sales.

At the trade talks, developing nations were asked to open their doors to the global corporations with major reductions in import tariffs and investment rules, while the United States and Europe made limited cuts in agricultural tariffs and subsidies.

The poorer nations saw themselves as a group of kindergartners playing the Italian national soccer team: Their domestic farmers and industrial capitalists would just fall by the wayside. World Bank estimates showed that developed countries would have earned five times as much as the developing world, where income gains would have been less than a penny a day per person on average.

In theory, after five years of negotiations there was a bargain to be had - developing countries could have access to rich countries' agricultural markets in exchange for rich countries' having access to developing countries' industrial markets. Benin could sell its cotton to the Gap. The United States could sell its pharmaceuticals in Brazil.

Except that the Western nations where most of the mega companies are headquartered were demanding that developing countries open their markets immediately. The poorer countries saw that as a policy of "do as we say, not as we did." They look at the example of the U.S. and European economies, and more recently South Korea and China, all of which moved into the world marketplace slowly, shielding some products that were key to their domestic economies from tariff restrictions and nurturing them into world markets.

China's computer maker, Lenovo, is an example. The company was created by the government and protected for years; it recently purchased IBM's PC division and is now a world leader in high-technology electronics. Acer Computer from Taiwan and Kia Motors from South Korea followed similar paths.

Developing countries got the shorter end of the stick in these talks because they form a small part of global markets and thus have less negotiating clout, though the whole point of the negotiations was to consider this.

Three reforms would go a long way toward that end.

First, the United States and Europe should agree to honor World Trade Organization rulings that have deemed their subsidies for cotton and sugar to be in violation of existing trade rules that forbid exporting products at prices lower than what it cost to make them. This would give a real boost to farmers in West Africa and Latin America.

Second, Western nations should take seriously the proposal by many poorer nations to tame global businesses that demand unfair prices for resources used in farm production and reap billions in profits on the sale of final products.

Negotiators should recognize the long-standing World Trade Organization principle of "special and differentiated treatment" for poorer nations. Developed nations should roll back patent laws that impede poorer nations from manufacturing cheaper generic drugs, and they should allow poorer countries to exempt staples of their local economy such as corn, rice and wheat from deregulation.

Helping the world's poor isn't just about charity. In 2005, more than half of U.S. exports went to nations outside Canada, Japan and all of Europe. The more developing countries grow, the more markets we'll have for our products. The less they grow, the less we grow.

Copyright 2006 Newsday Inc.