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Poverty Times #4

The future of the international trading system

The Millennium Development Goals establish a global partnership to improve the lives of the world’s poor. This includes an open, rule-based, predictable, non-discriminatory trading and financial system as an essential goal. Can trade be a tool for development? In many cases current trade rules do not contribute to sustainable development. In agriculture, most relevant to developing countries, trade is heavily distorted by artificially cheap world prices. Developing countries have few tools to protect themselves from these distortions. Furthermore the current system of trade rules is far from being a predictable, consistent system. Among the main sources of inconsistency are the many bilateral and regional agreements setting different trade rules for different countries. The number of these agreements has dramatically increased since the start of the World Trade Organisation.
By Alexandra Strickner and Sophia Murphy, Institute for Agriculture and Trade Policy – Geneva Office

The major trading partners of the developed world – the United States and the European Union among others - negotiate bilateral trade agreements almost every week, while at the same time pretending to negotiate pro-development multilateral trade rules at the WTO as part of the Doha Development Round. Even for the current round of negotiations at the WTO – in particular in agriculture – but also other areas of negotiations such as services and industrial products - the proposed rules are mainly designed to further open markets, despite the damage this approach has wrought over the last 10 years. What is necessary is more detailed analysis and debate on which rules are needed to improve the lives of people in poor countries.

Global trade in agricultural produce is a mess. The mix of national policies and multilateral rules has contributed to plunging commodity prices. Farmers around the world – particularly family farmers - have been forced off their land because they can no longer make a living. Trade policy refugees from rural areas flood cities without enough jobs or housing. Every international institution, from the UN and its agencies to the WTO itself, blames the agricultural trade practices of rich countries for devastating rural communities in developing countries. Yet the same policies have damaged rural communities in developed countries too. Food security – people’s ability to feed themselves and their families with adequate and culturally appropriate food – has suffered everywhere.

The WTO is the focus of international efforts to solve this problem. No one thinks it can be the only solution, but efforts to reform agriculture in developed countries are firmly rooted there. The debate at the WTO has centred on three aspects of agricultural policy: domestic support, tariffs and export subsidies. Experts declare all three to be damaging to global agriculture and trade rules place restrictions them. But current WTO talks to tighten the rules are in deadlock. The proposals now on the table reflect the domestic politics of WTO members, especially developed countries, and the export interests of multinational agrifood firms which trade in commodities and processed food. WTO negotiators have ignored the economic and social needs of developing countries and poor people. Even if governments at the WTO were miraculously to eliminate all the trade-distorting elements of agricultural policy, world markets would not magically start to improve the welfare of developing countries. WTO efforts fail to target the biggest factor distorting markets, namely dumping, the export of products at prices below their production cost. Worse, the present WTO agricultural agreement, and proposed changes, fail to incorporate binding commitments to comply with fundamental goals such as upholding the human right to food and establishing a resilient rural sector as a basis for economic development. The WTO Agreement on Agriculture has failed rural communities around the world. It also has enhanced environmental degradation by promoting a more industrialised model of agriculture characterised by monoculture, intensive use of herbicides and pesticides, large units for breeding livestock, and heavy dependence on oil needed to ship and transport goods. The successor of the current Agreement on Agriculture, now under negotiation, is set to perpetuate this failure.

A serious attempt to achieve the MDGs would require a change in the overall direction of policies on agriculture, food and trade. International trade rules must be based on an understanding of the root causes and problems in agriculture and trade. International trade rules must include a ban on dumping and new criteria for subsidies, curtailing all subsidies supporting excess production for export. Inventory management needs to be introduced for key crops that are deliberately traded with the sole aim of increasing the price of commodities. Rules are also required to regulate market concentration and establish the right of countries to protect their agriculture from dumped imports or import surges that would harm their own agricultural production.

To achieve this the negotiation process must become more democratic, it being almost impossible to reach a good agreement through bad process. WTO negotiations go on allowing only a handful of countries to reach an agreement, leaving the full governing body only a short time to consent to a done deal. The Doha Round is typical of this approach.

For the sake of millions of people we cannot allow another bad agreement. It is high time for an objective assessment of whether WTO rules have benefited people, or merely boosted cross-border trade statistics. It is time to frame policies that discipline all sources of market distortion and to measure success against the imperative of meeting internationally agreed development benchmarks. Only such an agreement will help achieve the MDGs and reduce poverty.