Trade Briefing
Introduction - WTO - Poverty - Environment - Conclusion
The World Trade Organisation
The WTO promotes and regulates international trade under the doctrine of trade liberalisation. Countries that join the WTO have to agree to abide by the rules. In principle developing countries should be in a strong position at the WTO, over 65% of members are from developing countries [1] and the organisation operates on the basis of one member-one vote. But, often developing countries simply cannot compete with the experience, technical expertise and sheer economic clout of the North.
What does trade liberalisation mean?
Trade liberalization aims at expanding the global economy by freeing trade policies as widely as possible. WTO members have to participate in competitive, free trade and cannot protect their producers and industries by putting up barriers to goods entering their markets. Wealthy countries in the North do very nicely from this arrangement, but poor countries often find that they do not have the knowledge and expertise to cope with competition, from wealthy, more efficient competitors. However not being a WTO member means no access to global markets, so developing countries have little choice than to join; and the more markets integrate the less choice individual governments have about participating in international trade.
Commodity Production
Many developing countries have little or no industry and can only hope to get export earnings, vital for economic growth, by producing primary commodities for the North, such as coffee, timber, cocoa and cotton. These 'colonial trading patterns' are encouraged by the WTO, and the World Bank and International Monetary Fund often only give aid and loans to developing countries that agree to trade liberalisation and commodity production.
However, the complicated tariff system imposed by the WTO is often not in the interests of developing countries. Low tariffs keep down the price of manufactured products that many developing countries cannot afford in any case. Yet high tariffs are placed on agricultural products - the main exports of poorer countries - making them more expensive to importing countries, so exporters have to sell them as cheaply as possible to counteract tariffs. Also, struggling farmers in the South, have to contend with unfair competition from subsidised agricultural produce from the North - sugar, tomatoes, cotton, and dumping that often occurs.
This can have a devastating effect on livelihoods and economic stability in the South. Dependence on a few primary commodities makes developing countries vulnerable to a fall in prices. Lots of countries producing a commodity can cause a glut, and too much of a particular commodity on the market pushes down prices. The result is the paradoxical situation where more has to be produced to earn less - great for the North, not so good for the South. For example, between 1995 and 2000, prices paid to coffee growers fell by over 50% [2]. When that commodity is the country's main export, it has a devastating impact on the economy and available government spending for health, education, housing and food programmes.
The WTO now wants to extend its trade liberalisation policies to services: this is known as the General Agreement on Trade in Services. Services are famously defined as anything that you can't drop on your foot: it could be water, health, education, tourism, finance, leisure, telecommunications, gardening - it neatly covers just about anything.
If WTO proposals go ahead, developing countries will have to open every aspect of their economy to outside competition, leaving them with even less control over their economies and their destinies. For more information, read our What's wrong with GATS briefing.
It is true that trade liberalization has brought considerable economic growth in some developing countries, particularly in East Asia, but through manufacturing, not agriculture. Poor developing countries are unable to develop into industry, and those that do have fledgling industries are not allowed to protect them from overseas competition, and the industry rarely survives.
What
is the link between trade and poverty?
References
1. Bhattacharjea, 2004, p14
2. UNCTAD, cited in Mackintosh, 2004, p54