Global Trade Mailing List Archive

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Poverty and Trade

I thought that I would respond to Duncan's open invitation on trade.

I saw from the majority of the discussions, that there is a lot of analysis
on the problem and how complex it is, ie what works and doesn't work. This
was part of my work from the trade angle in my last post at DFID, where I
was trying to work with the WTO and UNCTAD to design and deliver trade
related capacity building projects that actually built effective capacity in
developing countries. By this, I mean that a simple project in training
people about the WTO system was not the way to channel effective capacity.
One has to look at the negotiating process and what Africa for example,
needs in order to use their primary export (agricultural goods) to make a
difference for the poor. Sometimes people get the impression that African
negotiators don't understand how the multilateral trading system works. This
is very wrong. A couple of missions to Africa with DFID about 2 years ago
dispelled that myth comprehensively, and even senior colleagues where left
speechless by some of the questions raised at forums and by the very
articulate arguments being thrown around at workshops. One problem however
concerning the trading debate that the developing countries have is lack of
capacity in numbers. Whereas the UK can send 10-20 people with a good
understanding of the major issues at the meeting, the developing countries
are unable to match that and hence their compliant of the 500 plus meeting
held at the WTO annually - how can they cover 2 meetings on average a day
with one or two people working in Geneva.   

Concerning the links of trade and poverty, this is still a very debatable
topic. I recall that in previous discussions during my time at DFID, there
was a strong possibility that the poor could gain from trade liberalisation.
DFID acknowledge this but always stressed that the right mechanisms had to
be in place. For example, building capacity at institutions and increasing
valuable knowledge. This had to be coupled with efforts to try and influence
policy in Geneva (WTO) and amongst other bilateral donors and trading
partners.  This was part of the work carried out by my former department,
International Trade Department, at DFID, where my colleagues were working on
intelligible ways of trying to raise the profile of CAP reform and where we
worked with Simon Maxwell et al on the role of agricultural trade in
development. I believe that this is what Duncan Green is doing at the
moment. Some in the academia had acknowledged that people could loose both
in the long and short run from trade liberalisation.  However, developing
countries want to know how trade liberalisation can help the poor in their
country. We are all aware of how the developing countries have been pushed
to liberalise their agricultural sector, whilst Europe (under CAP) has
dragged its heels in practising what it preaches. However, perhaps and this
was a suggestion I heard, that if developing countries liberalise their
markets, then the appropriate ministry, usually the Ministries of Finance,
should compensate for lower tariffs by taxing another sector of the economy
(corporate tax or luxury goods) to make up the loss and transfer welfare
gains to the poor - they shouldn't think that trade liberalisation would
solve all the problems. I think it's too late for it to do so with the
complex multilateral trading system now in place. The biggest obstacle to
gaining from trade is sometimes country government themselves - we can use
Europe and the CAP as an example if we assume that most EC countries want to
reform CAP, but consensus has not been reached yet. There is clear evidence
that there is a relationship between liberalisation and growth, but not
necessarily with poverty. I am still sceptical about whether trade can lead
to poverty reduction, because even if we assumed a level playing field, the
producers in the developed countries are by far more organised and richer to
still take advantage of developing country markets - witness an example
where a US company flooded an LDC market with cheap frozen chicken resulting
in the decapitation of the local market for fresh chicken which was run by
women - I am sorry but I can't remember which African country it was, but it
was in Eastern/southern Africa (Tanzania or Malawi). In the textbooks it
might work, where every country concentrates on what it does best
(comparative advantage model), but with modern technology the richer
countries can produce goods that are not necessarily accustomed to their
climate - hence we move towards a perverted absolute advantage model, where
if rich country x cannot produce good y, it still dictates what price it
will pay for y whether poor country xx likes it or not.

If the poorer nations are to have half a chance then DFID should look at the
mechanisms needed to help exporters gain from their product or produce. For
example, the livestock industry in southern Africa (Namibia, Botswana and
South Africa) exports billions of pounds in products yearly because they are
exporting products. The money is in the product that reaches the supermarket
shelf and not necessarily in the raw commodity. I read the comments on
vanilla, a product I often buy, and wanted to relate this to the price of
vanilla extract, which has not really changed for the last 3-4 years. I wait
to see what happens next year when there is supposed to be a surplus. 

Research could be done in trying to understand the supply mechanisms in
these countries. Furthermore, DFID should push for those countries who
having gone through the process of satisfying Sanitary and Phytosanitary
(SPS) measures and standards, should be facilitated to export their goods.
This is an issue that will soon arise for livestock in Africa, as some
countries have recently been declared free from rinderpest, a condition
needed for trading livestock. 

There's more to say, but I think I have touched on a few areas of discussion
and should stop now.

 

Lameen Abdul-Malik

 

 



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