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TWN Info Service on WTO Issues (May03/4)

Third World Network

29 May 2003

Dear friends and coilleagues,

FORMER UK TRADE MINISTER SAYS TRADE LIBERAISATION HURTS THE POOR AND THE DEVELOPING COUNTRIES

In a significant development that could influence the debate on trade liberlisation, trade policies and the WTO, the former Trade Minister of the United Kingdom has written a remarkable article in the London newspaper, The Guradian, admitting that he was wrong in believing that developing countries should undertake trade liberalisation if they want to achieve development.

Mr. Stephen Byers, the former UK trade and industry secretary, was the head of the UK delegation at the WTO Ministerial Conference in Seattle in 1999.  He was a cabinet member from 1998 to 2002, and is now Labour MP for North Tyneside.

In his article, Mr Byers says that when he was a Minister, he believed that to tackle world poverty, developing countries would need to embrace trade liberalisation.   “This would mean opening up their own domestic markets to international competition. The thinking behind this approach being that the discipline of the market would resolve problems of underperformance, a strong economy would emerge and that, as a result, the poor would benefit.

“This still remains the position of major international bodies like the IMF and World Bank and is reflected in the system of incentives and penalties which they incorporate in their loan agreements with developing countries.

“But my mind has changed.  I now believe that this approach is wrong and misguided. Since leaving the cabinet a year ago, I’ve had the opportunity to see at first hand the consequences of trade policy...It is this experience that has led me to the conclusion that full trade liberalisation is not the way forward. A different approach is needed.”

Mr Byers is one of the most senior establishment figures in the developed countries to have voiced the view that over-rapid trade liberalisation damages developing countries’ economies.   In the current WTO negotiations on “market access to non agricultural products”, many developing countries have strongly voiced their concerns that their economies have suffered “deindustrialisation” when cheap imports caused many local industries and firms to close, and to retrench thousands of workers.

However, the major developed countries have put forward proposals to drastically reduce further the developing countries’ tariffs on industrial products, claiming that this will benefit the poor countries.  Many developing countries are stating in the WTO negotiations that these proposals will result in more of their local industries having to close, thus preventing industrial development.

The divide is also taking place in the agriculture negotiations in WTO, where some developed countries are pressuring the developing countries to accept reduction in tariffs on their food and other agricultural products.  Many developing countries have voiced the view that this is blatantly unfair and riddled with double standards, especially since the major developed countries themselves maintain high tariffs and very high subsidies in agriculture.

Mr Byers’ article should be a useful contribution to the debate and hopefully can be picked up during the WTO negotiations.

Below are two documents:  (1) A report in the Guardian on Mr Byers’ article and some responses to it;  (2) The full article by Mr Byers as publoished in the Guardian.

With best wishes

Martin Khor

Third World Network

 

NOTE:  Please check the TWN website www.twnside.org.sg for more information on WTO issues.

LABOUR’S FREE TRADE POLICY HARMS MILLIONS, SAYS BYERS

By Felicity Lawrence, consumer affairs correspondent

Monday May 19, 2003

The Guardian (London)

The government’s policy of liberalising trade and removing protectionist measures such as subsidies and tariffs is dangerous for millions in the developing world, the former trade and industry secretary Stephen Byers says, showing a remarkable change of heart, in the Guardian today.

Mr Byers led the UK delegation to the world trade talks in Seattle in 1999 and was responsible for pushing the government’s agenda to make developing countries open up their markets to international competition. Removing protectionist measures is still a plank of Labour policy.

Mr Byers said he had changed his mind after a personal visit to Africa.

“I was aware of the arguments, but it’s not until you see first hand the consequences of policies, that you see they need to be changed.”

It was “getting away from Whitehall and the persuasive arguments of trade policy experts” and discovering the plight of ordinary farmers in developing countries that made the difference.

Aid organisations welcomed his comments as an important turning point in the debate on globalisation.

Andrew Pendleton, a Christian Aid spokesman, said: “This is incredibly significant. It is the first time we’ve heard from someone close to the heart of government that making developing countries open their markets is very damaging.”

Oxfam, which has campaigned against the current trade rules, called on the government to listen to Mr Byers.

“The fact that a former trade minister who helped negotiate the current trade rules has come out and rejected established trade orthodoxies is remarkable.

“This should make our government radically rethink the impact of its policies on poor people around the world ahead of the WTO [World Trade Organisation] meeting in Cancun,” said Justin Forsyth, its policy director.

Mr Byers says: “The course of international trade since 1945 shows that an unfettered global market can fail the poor, and that full trade liberalisation brings huge risks and rarely provides the desired outcome.

“The evidence shows that the benefits that would flow from increased international trade will not materialise if markets are simply left alone.

“When this happens, liberalisation is used by the rich and powerful international players to make quick gains from short term investments.”

He has been converted to a “regime of managed trade in which markets are slowly opened up ... with subsidies and tariffs being used to achieve development goals.”

His new thinking was dismissed as “ill-informed” by the former head of the economics and statistics department of the Organisation for Economic Cooperation and Development, David Henderson.

Professor Henderson said: “The widening of the gap between the rich countries and many of the poor ones cannot be blamed on globalisation.”

“None of these factors explains the current problems of, for example, North Korea under Kim, Liberia and Somalia under their respective warlords, or Venezuela under Chavez.” Internal influences, including the actions of their governments, were what had kept them poor, he said.

The Department for International Development maintains that free and fair trade is best achieved by removing barriers through the WTO.

Guardian Unlimited © Guardian Newspapers Limited 2003

http://www.guardian.co.uk/guardianpolitics/story/0,3605,958731,00.html

http://politics.guardian.co.uk/labour/story/0,9061,958878,00.html

 

“I WAS WRONG.  FREE MARKET TRADE POLICIES HURT THE POOR”

The IMF and World Bank orthodoxy is increasing global poverty

By Stephen Byers

Monday May 19, 2003

The Guardian <http://www.guardian.co.uk>

In November 1999, during the World Trade Organisation ministerial conference in Seattle, I watched from my hotel room as thousands demonstrated against the evils of globalisation.

Anarchists clad in black marched alongside grandmothers dressed as turtles and steelworkers from Philadelphia. They saw international trade as a threat - to their jobs, the environment or simply as part of a capitalist conspiracy.

As leader of the delegation from the United Kingdom, I was convinced that the expansion of world trade had the potential to bring major benefits to developing countries and would be one of the key means by which world poverty would be tackled.

In order to achieve this, I believed that developing countries would need to embrace trade liberalisation. This would mean opening up their own domestic markets to international competition. The thinking behind this approach being that the discipline of the market would resolve problems of underperformance, a strong economy would emerge and that, as a result, the poor would benefit.

This still remains the position of major international bodies like the IMF and World Bank and is reflected in the system of incentives and penalties which they incorporate in their loan agreements with developing countries.  But my mind has changed.

I now believe that this approach is wrong and misguided. Since leaving the cabinet a year ago, I’ve had the opportunity to see at first hand the consequences of trade policy. No longer sitting in the air-conditioned offices of fellow government ministers I have, instead, been meeting farmers and communities at the sharp end.

It is this experience that has led me to the conclusion that full trade liberalisation is not the way forward. A different approach is needed: one which recognises the importance of managing trade with the objective of achieving development goals.

No one should doubt the hugely significant role that international trade could play in tackling poverty. In terms of income, trade has the potential to be far more important than aid or debt relief for developing countries.  For example, an increase in Africa’s share of world exports by just 1% could generate around £43m - five times the total amount of aid received by African countries.

This has led President Museveni of Uganda to say: “Africa does need development assistance, just as it needs debt relief from its crushing international debt burden. But aid and debt relief can only go so far. We are asking for the opportunity to compete, to sell our goods in western markets. In short, we want to trade our way out of poverty.”

The World Bank estimates that reform of the international trade rules could take 300 million people out of poverty. Reform is essential because, to put it bluntly, the rules of international trade are rigged against the poorest countries.

Rich nations may be prepared to open up their own markets, but still keep in place massive subsidies. The quid pro quo for doing this is that developing countries open up their domestic markets. These are then vulnerable to heavily subsidised exports from the developed world.

The course of international trade since 1945 shows that an unfettered global market can fail the poor and that full trade liberalisation brings huge risks and rarely provides the desired outcome. It is more often the case that developing countries which have successfully expanded their economies are those that have been prepared to put in place measures to protect industries while they gain strength and give communities the time to diversify into new areas.

This is not intervention for the sake of it or to prop up failing enterprises, but part of a transitional phase to create strong businesses that can compete on equal terms in the global marketplace without the need for continued protection.

Just look at some examples. Taiwan and South Korea are often held out as being good illustrations of the benefits of trade liberalisation. In fact, they built their international trading strength on the foundations of government subsidies and heavy investment in infrastructure and skills development while being protected from competition by overseas firms.

In more recent years, those countries which have been able to reduce levels of poverty by increasing economic growth - like China, Vietnam, India and Mozambique - have all had high levels of intervention as part of an overall policy of strengthening domestic sectors.

On the other hand, there are an increasing number of countries in which full-scale trade liberalisation has been applied and then failed to deliver economic growth while allowing domestic markets to be dominated by imports.  This often has devastating effects.

Zambia and Ghana are both examples of countries in which the opening up of markets has led to sudden falls in rates of growth with sectors being unable to compete with foreign goods. Even in those countries that have experienced overall economic growth as a result of trade liberalisation, poverty has not necessarily been reduced.

In Mexico during the first half of the 1990s there was economic growth, yet the number of people living below the poverty line increased by 14 million in the 10 years from the mid-1980s. This was due to the fact that the benefits of a more open market all went to the large commercial operators, with the small concerns being squeezed out.

The evidence shows that the benefits that would flow from increased international trade will not materialise if markets are simply left alone.  When this happens, liberalisation is used by the rich and powerful international players to make quick gains from short-term investments.

The role of the IMF and World Bank is also of concern. The conditions placed on their loans often force countries into rapid liberalisation, with scant regard to the impact on the poor.

The way forward is through a regime of managed trade in which markets are slowly opened up and trade policy levers like subsidies and tariffs are used to help achieve development goals.

The IMF and World Bank should recognise that questions of trade liberalisation are the responsibility of the WTO where they can be considered in the overall context of achieving poverty reduction and that it is therefore inappropriate to include trade liberalisation as part of a loan agreement.

This represents a departure from the current orthodoxy. It will be opposed by multinational companies who see rich and easy pickings in the markets of the developing world. But such a change would benefit the world’s poorest people and that’s why it should happen.

·        Stephen Byers is Labour MP for North Tyneside. He is a former trade and industry secretary and was a cabinet member from 1998 to 2002.

 


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