TWN Info Service on WTO and Trade Issues  (Sept10/05)
24 September 2010
Third World Network

Trade: FTAs, Doha Round can make MDGs more difficult to achieve
Published in SUNS #7004 dated 24 September 2010

Geneva, 23 Sep (Sanya Smith) -- The United Nations Summit on the Millennium Development Goals (MDGs) from 20-22 September contained the usual statements by the developed countries that they have helped to achieve the MDGs and will continue to do so. Yet, these same developed countries are insisting on provisions in trade agreements that will make it more difficult for the developing countries to achieve the MDGs.

In his statement at the MDG Summit, the President of the European Commission, Mr Jose Manuel Barroso, speaking on behalf of the European Union (EU), said that the EU has kept the fight against poverty high on its agenda. He claimed that the EU was a reliable partner, even in times of economic downturn, and admitted that aid is not a cure and that no country has ever been transformed by aid. Therefore, it is important for developing countries to take charge of their own development, for example, by mobilising domestic resources and policies.

However, a paper released this week by the Third World Network titled "Preliminary analysis: Some ways in which MDGs are affected by North-South free trade agreements (FTAs) and the WTO" provides an indication of the way in which demands made by developed countries in the negotiations at the World Trade Organization (WTO) on the Doha Round, accession to the WTO and free trade agreements (FTAs), can actually make it more difficult for developing countries to reduce poverty, to develop and to achieve the MDGs.

Despite the statements by Mr Barroso at the MDG Summit, these demands are continuing in the economic downturn, which has itself increased poverty in developing countries.

The TWN paper analyses the impact on each MDG of lower tariffs, liberalization of services, investment and government procurement and stronger intellectual property and investor protection provisions that are often found in these trade agreements, in the context of the failure of developed countries to remove or effectively reduce their agricultural subsidies in these negotiations.

For example, the paper finds that lower tariffs lead to permanent revenue loss in developing countries, which reduces their capacity to fund the activities identified by the United Nations as being necessary to achieve the MDGs.

In addition, according to the paper, the effects of stronger intellectual property (IP) protection on development can include raising the cost of inputs for farming. This makes food security and poverty reduction in the rural sector harder to achieve, with all the effects that this has for the other MDGs such as health and education.

Stronger IP protection, such as the data exclusivity that developed countries, such as the EU and the US, are requiring developing countries to agree to in WTO accession and FTA negotiations, has been shown to increase medicine prices by 845,600%. At those prices, it is obviously much more difficult to achieve the health MDGs (such as Goals No. 4 and 6 on reducing child mortality and combatting HIV/AIDS, malaria and other diseases), as well as those dependent on good health (such as Goal No. 1 on eradicating extreme hunger and poverty and achieving full and productive employment and decent work for all).

According to the paper, some of the effects of services and investment liberalisation include increasing financial instability and thus making a financial crisis more likely (as well as making it more difficult to exit from). The current financial crisis has shown how such crises and any recession that follows cause unacceptably large numbers of people to fall back into poverty.

[According to the International Labour Organisation (ILO), 233 million more people became working poor (people who are unable to earn enough to lift themselves and their families above the US$2 per person, per day, poverty line) between 2007 and 2009. And 64 million additional people worldwide fell into extreme poverty in 2010 alone, according to the World Bank. The ILO notes that this severely undermines the prospects of attaining the MDGs.]

The TWN paper goes on to investigate the way in which other provisions in these agreements, such as government procurement liberalisation (which the EU is also proposing in the services negotiations at the WTO, for both services and goods up to 50% of the value of the contract) and investor protection, can make it more difficult to attain the MDGs.

On the other hand, the WTO has recently released a report on "The WTO and the Millennium Development Goals", in which it fails to take these types of concerns into account. For example, it claims that "The development dimension permeates all negotiating areas. When the Doha Round is concluded, the multilateral trading system will be more open - particularly for developing countries' exports".

Yet, the deal currently on the table in the Doha Round does not involve cutting any of the US and EU's actual agricultural subsidies to provide developing countries with meaningful market access by allowing their exports to compete on an equal basis.

Similarly, there has still been no meaningful negotiations on cutting the substantial cotton subsidies of the US in the Doha Round, a move that would concretely help millions in the developing world achieve the MDGs.

According to an Oxfam-UK study titled "Paying the Price", more than 10 million people in Central and West Africa alone depend directly on cotton production, with many millions more indirectly affected. The Cotton-4 countries of West Africa (Benin, Burkina Faso, Chad, and Mali) are among the poorest in the world - they rank between 173 and 193 of about 208 countries ranked by the World Bank in terms of Gross National Income per capita. Furthermore, farm families are typically poorer than non-farm families in these countries.

Yet, the study notes: "America's cotton farmers receive more in subsidies than the entire GDP of Burkina Faso - a country in which more than two million people depend on cotton production. Over half of these farmers live below the poverty line. Poverty levels among recipients of cotton subsidies in the US are zero."

US cotton farmers also receive "three times more in subsidies than the entire USAID budget for Africa's 500 million people." According to Oxfam's calculations, the losses Africa experiences due to American cotton subsidies is equivalent to almost one-quarter of what it receives in American aid.

Removal of America's cotton subsidies alone would increase cotton prices by 26%. When cotton farmers say "Cotton prices are too low to keep our children in school, or to buy food and pay for health", the link between continued cotton subsidies and failure to achieve the MDGs (such as Goal No. 1 on ending extreme poverty and hunger, Goal No. 2 on universal primary education, and Goals No. 4, 5 and 6 on health) is clear.

Oxfam calculates that the higher cotton prices in West Africa due to removal of US cotton subsidies would enable:

-- MDG No. 1: one to two more children per household to be fed for an entire year. "This income could have a real impact on rates of malnutrition in cotton-growing zones of West Africa, where 40 percent of children under age 5 are malnourished. With more than 10 million people in cotton-growing households in West Africa, about half of them children, higher incomes could help feed several million impoverished children every year."

-- MDG No. 2: families to send two to 10 additional children to school each year.

-- MDG No. 4, 5 and 6: families to pay for life-saving medicines, hospitalizations, and consultations for four to 10 individuals for an entire year.

According to the Oxfam study, West African cotton producers have said with regard to the continued subsidising of cotton in certain developed countries such as the US, "Frankly, we are starting to doubt whether rich countries really want to reduce poverty in developing countries."

Yet so far, the US has refused to discuss the issue of cotton subsidies in the Doha Round (this was widely believed to be the real cause of the failure of the July 2008 negotiations: see SUNS #6546 dated 10 September 2008).

When US Trade Representative Ron Kirk visited Geneva, he made it clear that there would be no early harvest on cotton, one of the easiest ways to make substantial progress on achieving the MDGs in regions like West Africa.

The WTO's report on the MDGs also boasts that "the principle of special and differential treatment (S&D) in favour of developing countries governs all areas of negotiation in the Doha Round".

Yet in the Doha negotiations, the coefficients in the Swiss formula for tariff cuts in the current Chair's text on non-agricultural market access (NAMA) require developing countries to cut their tariffs more than the developed countries. This is special and differential treatment in favour of developed countries. For real special and differential treatment (for example, for India to cut its tariffs by two-thirds of the EU's cut), developing countries would need a coefficient of 125. They are currently being offered a maximum coefficient of 25 (in the December 2008 Chair's text) and to receive even this, they have to forego all flexibilities.

Not surprisingly therefore, the Doha Round actually results in 23 times greater gains per capita for developed countries than developing countries.

The WTO report also uses a Medecins Sans Frontieres (MSF) graph to show the fall in HIV/AIDS medicine prices from US$10,439 per patient per year (in 2000) to US$80 (in 2009), stating that since the Doha Declaration on TRIPS and Public Health in 2001, "prices for many treatments have fallen significantly, in part due to generic competition".

Yet, it fails to mention that the reason that HIV/AIDS medicines used to cost US$15,000 per patient per year was because of patents. The requirement to issue patents - a 20-year monopoly - on medicines was introduced for all WTO Members by the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

(Least-developed countries later exercised their rights to extend the transition period before they have to apply the substantive provisions of the TRIPS, such as on patents.)

Prior to TRIPS, the United Nations found that most of the developing world, as well as the Soviet Union and the former socialist countries in Eastern Europe, Austria, Canada, Italy, Japan and Switzerland did not allow patents on medicines. Therefore, it is the WTO and its TRIPS agreement that are responsible for imposing enforceable requirements to allow patents (and therefore, monopoly prices, such as the US$15,000) on medicines. This part of the story was omitted from the WTO report.

The WTO report also claims that "Countries without sufficient manufacturing capacities can make effective use of compulsory licensing through the so-called Paragraph 6 System', which gives poor countries an additional flexibility under the TRIPS Agreement to gain access to affordable essential drugs."

Yet, this system has been widely criticised by generic medicine manufacturers, i. e. the intended users of the system, as unworkable and too burdensome to use. In the seven years it has been in operation, it has only been used once.

On achieving MDG No. 7 on environmental sustainability, the WTO Secretariat's report asserts that the negotiations to liberalise trade in environmental goods and services will help achieve this goal.

It however fails to mention that countries that wish to have cheaper access to environmental goods and services and believe that this can be done through liberalisation, can unilaterally lower these tariffs and liberalise these service sectors tomorrow. There is no need to wait for negotiations at the WTO to do it. Its assessment of the links between the WTO and MDG No. 7 also does not include the way in which the intellectual property protection required by TRIPS makes environmental technology (including to deal with climate change) unaffordable for many developing countries and therefore puts MDG No. 7 further out of reach.

(The role of TRIPS in making technology unaffordable and the way in which liberalisation under the General Agreement on Trade in Services can prevent the requirement of technology transfer is also not mentioned in the WTO's discussion of technology transfer in its report).

Finally, the WTO report carefully cites studies (such as the 2009 Peterson Institute for International Economics Working Paper), which show large projected benefits from the Doha Round, without including the comprehensive critiques of these studies (for example, by Tufts University and published by the South Centre:

The WTO Secretariat fails to include in its report the results of a United Nations Conference on Trade and Development study (titled "Now What? Searching for a solution in WTO industrial tariff negotiations") that found that tariff losses for developing countries in NAMA alone are predicted to be $63.4 billion. These predicted losses for developing countries, from NAMA alone, are 16 times greater than the total projected gains from the whole Doha Round for developing countries (using the adjusted World Bank estimates of gains from the Round of 0.25 US cents per person per day in developing countries).

Speaking at the MDG Summit on Wednesday, President Barack Obama said that he believes that development should allow people to take control of their own destiny and offer nations a path out of poverty. This echoes statements by the G8, for example, at the Gleneagles Summit where they declared that "We agreed that poor countries must decide and lead their own development strategies and economic policies." This would entail developed countries allowing developing countries to liberalise at the pace they wish.

President Obama also announced a new US Global Development Policy at the Summit. This Policy includes using US trade and investment policies for development and touts his food security initiative that helps develop agriculture in developing countries.

Yet, later in the same speech, he said that the US would keep pushing for a Doha Round that is "ambitious and balanced" - exactly the same phrase USTR Kirk used in May 2009, before the new US Global Development Policy was launched, which was going to harness trade for development in a new way.

(In trade circles, "ambitious" is kind of code language for deeper liberalisation by developing countries to provide market access to developed countries' firms and industries.)

According to President Obama, "the days when your development was dictated in foreign capitals must come to an end" and he called for donor countries to "resolve to put an end to hollow promises that are not kept."

It remains to be seen whether this rhetoric (and that of other developed countries) is matched by their behaviour in current and future trade negotiations with developing countries.

[The paper by Third World Network can be found at