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More losers than winners from WTO’s “free trade”

by Chakravarthi Raghavan

Geneva, 16 Feb 2001 --   Accumulating evidence on the relationships between trade liberalisation, the global prescription for the world’s continued economic growth and prosperity, and food security and poverty suggests that there will be more losers than winners, says a new study by John Madeley.

The study by John Madeley, “Trade and Hunger”, has been compiled from 27 impact assessments on effects of trade liberalisation from 39 countries in Africa, Asia, Latin America and Eastern Europe, and extracts from the study are in Seedling, a quarterly newsletter of Genetic Resources Action International (GRAIN).

A conclusion of the study is that the so-called “free trade” as promoted by the World Trade Organization benefits only the rich, while making the poor more vulnerable to food insecurity.

The study was done for the Church of Sweden Aid, Diakonia, Forum Syd, the Swedish Society for Nature Conservation and the Programme of Global Studies and available from its website (http://www.forumsyd.se)

Trade liberalisation -  removal or reduction of barriers to international trade in goods and services -  has become a global prescription for global economic growth and universal prosperity. “But the accumulating evidence on the relationship between trade liberalisation, food security and poverty suggests that there will be more losers than winners.”

The Madeley study examines the trade liberalisation under the World Trade Organization’s Agreement on Agriculture (AoA), the World Bank-International Monetary Fund imposed structural adjustment programmes (SAPs) - which have been going on since 1980s and led to wide-spread liberalisation of economies of most developing countries, well before the 1994 Marrakesh Agreement, and under regional free trade agreements.

Under SAPs and AoA, developing countries have to make significant changes in their food and agriculture policies, and open up their economies to cheap food imports, while reducing and limiting support for their farmers. While the AoA itself requires WTO members to reduce tariffs on food imports by 24% over a 10-year period, most SAPs require more sweeping liberalisation measures than are required under the AoA, and demand-related measures such as privatization of state-run enterprises, elimination of subsidies and price controls, and abolition of marketing boards.

Though the WTO and its agreement are billed by the WTO leaders and the secretariat as one arrived at by consensus and with the largest participation of developing countries, the AoA, Madeley points out, was a deal largely stitched up between the US and the EU, under pressure from the global transnational corporations, and tightens up the screw of structural adjustment on developing countries.

Oxfam, the British charity, calls the AoA “an act of fraud” and one that will give rise to “increased competition from imports and intensify rural poverty and destroy small-holder livelihoods.” And unlike SAPs, the AoA and its rules are binding on WTO members.

The Madeley study finds that trade liberalisation is failing the poor in a number of different ways.

The majority of the people in developing countries are from farming families -  small-scale farmers, with at best a few hectares of land and often much less. Most of the case studies bring out that these farmers and farming families are hit by cheap imports made possible by trade liberalisation.

The cheap imports come from the developed countries, especially the US and the EU, and in some cases also from other developing countries for e.g. sugar imports into the Philippines from Thailand.

The farmers are put out of business by this competition from cheap imports, which come from both commercial channels as well as through dumping  by food sold below cost of production to dispose off surpluses, and usually cheaper than commercial imports.

Ghana is one of many examples of food imports demoralizing small-scale farming. Having produced corn, rice, soybeans, rabbit, sheep and goats, the farmers cannot get an economic price for them, even in village markets, because of competition from cheap imports. This threatens domestic food production and jeopardises the entire agricultural sector.

The case studies show that liberalisation has led to increase in price of farm inputs, with small farmers forced to pay heavily for inputs, and usually receiving less for their produce. Trade liberalisation has worsened the terms of trade between output and input. But the food prices for the consumers have not fallen. According to the World Bank’s own World Development Report 2000, in Madagascar, rural people were hurt despite their increase in output,  with significant deterioration in living standards among the primarily rural poor.

Trade liberalisation has also hurt because it reduces the  government priority for the food crop sector and increasing that to crops for export.  The studies show that this has led to more land and resources being devoted to export crops and less to domestic food production. But the prioritisation for the export crop sector does not result in farmers getting better prices either. Kenya, Uganda and Sierra Leone provide examples of traders, and not government bodies, buying the crops, often offering farmers prices related to world prices. But the power of the trader is such that the farmer gets far below world prices.

But trade liberalisation is proving very beneficial to the Transnational Corporations - as shown by studies on India, the Philippines, Uruguay and Cambodia. It is just not merely proving beneficial to the TNCs, but this is at the expense of the poor. The FAO has found that this has led to concentration of farms “in a wide cross-section of countries”, to marginalisation of small producers, and adding to unemployment and poverty.

The winners of Mexico's trade liberalisation have been concentrated in the fruit and vegetable growing areas, where production is predominantly on large-scale, irrigated farms.

In Cambodia, more land has been bought and sold, leaving farmers with not enough or no land at all. In the ten years of the country’s adoption of ‘market reforms’, ten to fifteen percent of the farmers have become landless. There is also a concentration of land: the top 10% own 33% of cultivated land, while the bottom 20% own less than 4% of cultivated land.

Studies on Kenya, Ghana, Uganda, Zimbabwe, Mexico and Jamaica bring out that trade liberalisation impacts heavily on women and accentuating gender inequality. In Uganda, for example, the local parastatal depot is closed, and producers have to move out of their village to a local market to sell produce. Failing that they have to sell to a village trader, who benefits at their expense. And women are faced with a heavy workload, giving them little time to go to the local market to sell, and are forced to sell in the village at lower price or to a trader.

In Africa, where women produce about 60-75% of food, they have been affected disproportionately by the elimination of subsidies, drying up of credit and surge of food imports. In Mexico, male labour migration has increased the work load on women and children, with a sharp increase in frequency of women migrating to work as day labourers.

“To the extent that liberalisation accelerates these trends, it will exacerbate problems of inequality and rural poverty,” says the Mexican case study.

While trade liberalisation could have some positive effects, by enabling women to engage in micro- and small enterprises, as in Kenya, the studies show that the negative effects far outweigh the positive.

There are no worldwide figures on how many people have lost jobs as a result of trade liberalisation. In Mexico, the study finds that 700,000 to 800,000 livelihoods, or 15% of the economically active population, will be lost as corn prices fall. In India, 3 million edible oil processors lost their jobs, while in Sri Lanka 300,000 jobs were lost as a result of onion and potato imports, the case studies show.  Extrapolated, it would not be unreasonable to estimate 30 million job losses in developing countries because of trade liberalisation and related factors.

In India, thanks to a government initiative in the 1980s and early 1990s, self-sufficiency in edible oils was achieved within a decade - once considered impossible. This was due to the introduction of soybean whose production increased from 0.4 million tons in 1980-81 to 6.2 million in 1998-98, making India the fifth largest producer after the US, Brazil, Argentina and China.

But in 1999-2000, the production will be sharply lower, to about 5.2 million tons and reduction of acreage by 12%  - all thanks to a series of recent policy changes: sharp reduction in import tariffs, between 1995 and 1998, from 65% to 15%, though the AoA itself enabled India to maintain the tariffs at 45%; non-tariff restrictions were also lifted.  But the changes were essentially due to India not being able to avail of the BOP cover and restrictions, and having to lift the non-tariff barriers, partly in an effort to ward off disputes at the WTO, and later as a result of rulings, Indian farmers, the study finds, have also been forced to pay higher seed prices and other inputs. Apart from losses to the farmers, the solvent extraction industry has also been hit, operating now at about 30% of capacity. Livelihoods of at least 3 million people have been destroyed, according to a 1999 study by Binu Thomas for Actiion Aid, India.

The Philippines provides an example of environmental damage due to liberalisation and the extensive use of agrochemicals in export crop production.

Also, with liberalisation under SAPs going hand in hand with reduction in government support for farmers, including services, people are left free to face the economic forces: people with money may survive, but the poor lose out. The Philippines is typical of this experience, the study finds.

In a number of countries, the liberalisation of the markets has meant increasing participation by private firms and individuals in the food trade, unlike in the past when public institutions dominated. While in theory, the liberalisation should lead to increased employment opportunities, in practice it does not seem to be happening. In Uganda for example, traders have invaded whole villages and used their bargaining power  and need of farmers for cash (to buy inputs for e.g) to buy harvested crops at low prices. This puts most pressure on farmers and endangers household food security.

Changes in other economic sectors have also impacted on food security, the study finds.

In Kenya, the liberalisation of textiles and footwear brought in cheap imports, leading to “a drastic decline in production of cotton, and a loss of income to cotton producers, exacerbating problems of food security for most households in rural and urban sectors."

In the Philippines, financial liberalisation resulted in higher interest rates, lower investments and higher costs of food inventories and stockpiling.

The author of the Thai study (in the country assessment studies) says: “Many have been saying for a longtime that unchecked, liberalized global trade is a disaster waiting to happen. No one listened. Now it has happened.”

Small-scale farmers, John Madeley says, are bearing the brunt of this disaster. But consumers too are vulnerable. In free trade theory, production will allocate to where costs are low and consumers - poor as well as rich - will benefit from low prices. “The reality is more complicated however. If trade liberalisation gives more power to monopolies, then consumers eventually stand to lose.”

Much of the trade liberalisation of the last two decades is based on the hope that agricultural production in developing countries will switch to high-value export crops, enabling them to import food. But trade liberalisation - in Sierra Leone, did not lead to benefits from cocoa or coffee exports;  Bangladesh and Ethiopia have experienced problems in meeting food security needs through imports.

Agriculture is the main source of livelihood for hundreds of millions of people in developing countries. If small-scale farmers are outcompeted without an alternative source of livelihood, availability of cheap imports is of no help. But, “governments seem to be misled or pressured to subscribe to trade liberalisation, or do it too quickly, without adequate preparation.

Trade liberalisation is only one factor exacerbating problems for the poor in many countries. There is often an interaction of factors that affect food security - such as privatization, domestic, economic and financial policies, and incidence of HIV/AIDS. But the studies indicate, says author Madeley, trade-based food security for the poor is - at least for the time being - more a mirage than a fact.

“Yet liberalisation is a policy choice. It is not inevitable. A fundamental review of the dominating policy paradigm is needed, and at the very least, WTO rules need to be changed so that developing countries can provide domestic support and other regulations to protect the livelihoods of smallholders and promote food security.”-SUNS4838

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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