Trading off the poor

Posted: February 2008

Goods and services have been traded internationally for thousands of years, improving the quality of life for many. But now, as the global market grows ever more extensive, questions are being raised about the impact that trade, dominated by big business corporations, is having on people - and the planet.

The exchange not only of goods but also of crafts, arts, ideas and technology has enriched lives and raised the living standards of manypeople. It has given most of humanity a much wider choice of goods, services and experiences.

Yet at the start of the 21st century trade does not seem to be helping some of the world's poorest communities to escape from poverty. Tradeliberalisation and the rules of international trade are having a detrimental impact on many of the world's poor and the environment.

International trade has encouraged specialisation of labour and products which has kept many countries as "hewers of wood and drawers of water" - as producers of primary products, which has hindered them from developing more balanced economies. While trade has helped countries such as China, South Korea and others in east Asia to reduce malnutrition and poverty, it has done little to help most of sub-Saharan Africa.

Terms of trade

"Without trade, countries would have to rely exclusively on their own production; overall incomes would be far lower, the choice of goodswould be far less and hunger would increase", says the UN Food and Agriculture Organization(FAO). Many countries in North and sub-SaharanAfrica have today become critically reliant on imports of grain. But the FAO adds that the relationship of trade to food security raises a number of complex issues and that the expansion in the volume of trade "has been accompanied by declining terms of trade for the products of developing countries, which have eroded possible gains considerably".

Some aspects of trade are therefore a mixed blessing. A number of developing countries turned to tourism in the late 20th century. Whilethis earns foreign exchange and creates jobs, the jobs are often menial, environmental costs can be high, and most of the money earned goes o the big corporations who dominate the industry. Trade in hardwood from tropical forests can earn hard currency but again often at the expense of the environment.

Globalisation

Trade liberalisation - the removal or reduction of barriers to trade - is the engine of economic globalisation. Many developing countries began to liberalise in the 1980s following the imposition of World Bank/International Monetary Fund structural adjustment policies, (see Facts and Figures.) But it is the World Trade Organization(WTO) that sets the rules of international trade. With 151 member countries (in December 2007) the WTO is the successor to the General Agreement of Tariffs and Trade. Like the GATT, the WTO is a forum for members to negotiate over trade liberalisation, and furthers the cause of liberalisation.

Advocates of liberalisation argue that it will help economic growth, which in turn will reduce poverty. Also that countries with more open trade regimes have enjoyed higher growth rates than those with protectionist policies. Another claim is that it can provide opportunities for increased market access, and thus improve export earnings for developing countries.

The argument against unregulated free trade, driven solely by market forces, is that while it has raised the living standards of most people, it has not done so for the poorest. After 20 years of intense trade liberalisation, in the 1980s and 1990s, poverty has not fallen in many countries. In agriculture, where most of the poor make a living, food imports resulting from trade liberalisation are at least partly responsible for the destruction of small farmer livelihoods, (see Facts and Figures section). This has led to the concentration of small farms into larger ones and has not helped sustainable agricultural development.

There is, indeed, much hypocrisy in the rich world's calls for free trade. While developing countries have allowed in more food imports,the United States and the European Union have not done the same.

Western farmers receive huge handouts in subsidies and are increasing their share of global markets at the expense of the world's rural poor. At the same time, the west is moving very slowly to lower its quotas on imported clothing and textiles from poor countries, while these same countries are being urged by the IMF and the World Bank to open their markets without delay. Few of the poorest countries have the industrial muscle or service sectors to compete with the flood of imports from the west.

There is now less confidence that the mainstream trading system can help the poor. "The benefits of liberalisation to low-income agricultural producers are likely to be very limited," concludes a UN Conference on Trade and Development Report report. "For more substantial gains (towards food security) countries will have to encourage the expansion of their domestic food production sectors," says a US Department of Agriculture report.

Trade in food

International trade in foodstuffs is increasing much faster than food production. It took off especially in the last quarter of the 20th century as a result of trade liberalisation under the GATT, the WTO and World Bank/IMF structural adjustment programmes. More land in developing countries now grows food for the export market, which has implications for food for local people.

A further reason why governments of developing countries now trade foodstuffs is that people abroad can afford to buy them, unlike many in their own country. Lack of purchasing power in developing countries is a major reason for the continuation of poverty.

The patenting of food crops species by transnational corporations (TNCs) is of concern to small-scale farmers who fear that such corporations will have monopoly control over seeds which are crucial to them. Over a thousand patents have been taken out on the five crops that account for 70 per cent of the world's food supply in rice, wheat, maize, soybean and sorghum. The four major agrochemical corporations - Du Pont, Mitsui, Monsanto and Syngenta - own most of the patents.

Also of concern are the social and environmental consequences of small farmers being driven off their land. In Latin America, especially, displaced farmers have left the countryside to swell the shanty towns and favellas (slums) of growing cities, putting an additional strain on resources such as water.

A further threat to the poor lies in the expansion in developing countries of crops being grown for fuel, mostly to power vehicles in Western countries. "Biodiesel and ethanol may make up 7 per cent of world demand for liquid fuels in 2030, with consumption rising fourfold to 36 million metric tonnes a year from today's level of about 8 million tonnes', reported the FAO in November 2007.

Crops for fuel - sugar and palm oil are among those considered suitable - could be grown on land which at present grows food for people. They could also be planted on forest areas and contribute to a degraded environment, including a worsening of global warming. Biofuel programmes could result "in a concentration of ownership that could drive the world's poorest farmers off their land and into deeper poverty" says a UN report. (See John Vidal, Global rush to energy crops threatens to bring food shortages and increase poverty, says UN. The Guardian, 9 May 2007)

Manufactured exports

Under globalisation, the makers of manufactured goods locate their factories in countries where wages are low; they compete fiercely with each other in what has been called "a race to the bottom". In so called "free trade zones", millions of people work for long hours and low pay to make some of the world's most expensive consumer products - such as clothing, toys, shoes, and electronic equipment. Environmental standards in free trade zones are often low and even non-existent.

Affiliates of trans-national corporations (TNCs) account for over half the total output of manufactured goods. The use of child labour in manufacturing units in developing countries to help make goods for export was highlighted in the early 1990s by disclosures about young children being employed in rugmaking factories in India, Pakistan and Nepal.

Traded services

Services make up approximately 25 per cent of total world exports. The WTO lists 160 international traded services. They break down into different categories, including tourism, financial services (such as banks, insurance companies), shipping, telecommunications, labour money remitted by nationals working abroad), public services (such as health care, sanitation and education), and public utilities like water, electricity and gas. For developing countries, earnings from trade in services accounts for about 20 per cent of their overall export earnings.

The widespread privatisation of services could have considerable repercussions for the poor. The privatisation of water supply has already had detrimental effects on people in a number of developing countries, for example in Bolivia, where streets riots erupted following the imposition of charges which hit hardest at the poor.

Western countries now want to extend the WTO's General Agreement on Trade in Services (GATS) which governs the trade. The end of barriersto trade in services could be a major flash point between rich and poor countries. TNCs are pressing for such liberalisation.

Trade and environment

Trade, especially in agricultural, forestry and related products, has environmental costs.

  • Crops grown for export usually require the application of more chemicals than food crops, raising questions of long-term sustainability. Around a quarter of pesticide applications are sprayed on cotton alone.
  • Bananas, the world's most popular fruit, are also heavily sprayed when grown on plantations.
  • Coffee, one of the world's most popular drinks, is sprayed by growers in many countries.
  • Land in some countries has been cleared to grow food for export in an unsustainable manner, leaving long-term damage.
  • Flying food around the world demands more fuel and adds to global warming.
  • Tropical forests are axed and turned into logs for international trade; some are burned to clear the land to graze cattle that are destined for export markets.
  • Poorly regulated - and frequently subsidised - international trade in fisheries again has environmental costs, decimating fish stocks and destroying local fishing grounds.
  • Tourism is a major part of international trade in services, often with environmental costs.

The role of big corporations is a key factor. Under the North American Free Trade Agreement, (Canada, Mexico and the United States) environmental protection laws enacted by the three governments are in danger of being overturned by transnational companies.

Many developing countries have incurred foreign debts to finance international trade. The debt crisis is one of the biggest single factors keeping people in poverty. Debt repayments often leave governments with no option but to switch money away from social and environmental improvements.

Sustainable trade?

Some goods are produced for export with environmental factors brought into consideration - organically grown crops for example, or the certification of forest and marine exports. Whether such "environmentally driven" or "environmentally factored" trade will be sustainable depends not only on government and corporation policies, but on wider factors such as consumer education and demand and thecost of transport fuel.

Some of these issues were discussed at the Earth Summit at Rio in 1992. This has been described as "a process that was at least partially aimed at reshaping the global economy to make it less environmentally harmful and more socially equitable".

The Agenda 21 document, agreed in Rio, includes a section on international co-operation. This says there is need for "agreement between producers and consumers that established fair prices for commodities, including those such as cocoa, coffee, sugar and tropical timber". A failure of the last ten years has been the total absence of any such agreement.

NGO action

Formed in 2001, the Trade Justice Movement is a group of UK-based organisations which are concerned with "the negative impact of international trade rules on the poorest people in the world, on the environment, and on democracy". Among its members are ActionAid,Christian Aid, Consumers International, The Fairtrade Foundation, Friends of the Earth, Intermediate Technology Development Group, Oxfam, Save the Children, VSO, War on Want, Women's Environmental Network and the World Development Movement. The group is calling for"fundamental change to the unjust rules and institutions governing international trade, so that trade is made to work for all."

One of the changes the movement wants to see is the regulation of transnational corporations. Two-thirds of international trade is between these mega-companies. It is therefore corporations rather than countries that do most of the trade. Should trade be furtherliberalised, it is TNCs who will be the chief beneficiaries. The effects on the poor, and on the world's natural resources, could be damaging.

WTO's Doha Round

Launched at a WTO Ministerial meeting in Doha, Qatar, in November 2001, the Doha round of trade talks were supposed to be concluded within 3 years - by the end of 2004. Six years later, at the end of 2007, they were still dragging on, with talk of concluding them before the end of 2008. The Round is supposed to be a development round, to help the development efforts of poor countries, But it became clear at an early stage in the talks that Western countries see them as a way of furthering trade liberalisation. The Doha Round has become largely irrelevant to the poor in world trade. It does nothing to help primary commodity producers, and nothing to tackle the power of TNCs. Alternative approaches to trade have become increasingly attractive.

Fair trade

In view of the problems with conventional South-North trade, interest has grown in alternative trade, also known as ethical or fair trade. Under alternative trade, producers in developing countries are guaranteed a price for their produce that gives them a decent return.

Resource-poor farmers, for example, are among those who are benefiting from fair trade. Around five per cent of coffee growers are receiving a guaranteed price in an alternative market. They have grouped together in farmers' organisations to sell directly to coffee roasting companies who have been granted the "Fairtrade Mark", issued by the Fairtrade Foundation. The companies pay the farmers' groups a price which covers the cost of production and allows a margin for social investment. Sales of "Fairtrade" coffee in the UK are rising by over 40 per cent a year, (see also Facts and Figures section).

Fairtrade Labelling Organizations International (FLO), which consists of fair trade organisations in 20 countries, announced in June 2007 that consumers worldwide spent £1.1bn on Fairtrade Certified Products in 2006. This is a 42 per cent increase on the previous year directly benefiting over 7 million people - farmers, workers and their families in developing countries.

Alternative trade originally covered mostly food products but has now widened to include for example clothes, furniture, footballs. A growing number of alternative trade products are now available in large stores and supermarkets in western countries.

This overview was prepared by John Madeley, a British journalist and author with a special interest in trade and sustainable agriculture. His latest book is '50 Reasons to Buy Fair Trade' (with Miles Litvinoff (published by Pluto Press, UK (£7.99).

He is also the author of '100 Ways to Make Poverty History', published by SCM-Canterbury Press, UK (£5.99); 'A People's World: Alternatives to economic globalization' published by Zed Books (£9.99). 'Food for All: the Need for a New Agriculture', (£9.99) and 'Hungry for Trade: how the poor pay for free trade', (£9.99) all published by Zed Books, UK.