Published by the Inter Region Economic Network (IREN-Kenya) Weekly Newsletter, 2004-11-10

W.T.O: Pyrrhic Victory for Poorest Nations

By PAR KRAUSE in TANZANIA

The outcome of this year’s trade talks in Geneva was described as a score for world trade in general and poor countries in particular. As expected, the World Trade Organization meeting in July favored developing countries, as the United States of America and the European Union pledged to consider a reduction of their agriculture subsidies, which distort international trade.

This was seen as victory for a group of developing countries including India, Brazil, China and South Africa. The commitment from the rich countries to cut back on their support for their farmers is expected to rid the international market of cheap agricultural products, and thus give developing countries a chance to compete fairly.

But how about the poorest, many of them in Africa, and some under the larger group of developing countries called G90? Can the outcome of the negotiations be described as a victory for them too? With a longer perspective, considering subsequent talks, the answer is No. And that is because of a decision in Geneva, which many trade negotiators including trade ministers from poor countries, mistook for a victory for the poorest lot.

The agreement at the WTO meeting last summer was that when the US and the EU cut their subsidies in the agriculture sector, the developing countries would reciprocate by trimming their tariffs on industrial goods from rich countries. A natural decision if the overall aim is more global trade among all countries. The least developed countries, though, will have longer time to slash their tariffs. But for some goods, specified as special farm goods, trade barriers can be more or less intact.

A more correct description is that the poorest nations were excluded from the deal. Even more serious is that these countries are run the risk of being ignored in future trade talks.

After being given that "gift" of also being able to protect their markets in the future, who will listen to demands from the poorest countries at the time? Who are the negotiators from poor countries to raise demands, and further threaten future trade deals?

In Geneva, the poorest countries were bought off by the other countries. Give them that and they will cause no problems in the future, so appears to have been the rallying call.

The deal, truth be told, was a pyrrhic victory for poor countries. They will certainly not be better off by protecting their domestic markets from competition.

One very common justification of trade barriers in developing countries is that they are in a phase of development where they must protect their own industries. Poor countries are not yet ready for international competition, while developing countries can open up their markets only when their industries are ready for it.

But there are two major objections to this argument. First, high tariffs in developing countries mainly affect other developing countries. Developing countries not only need to trade more with their developed counterparts, but also more and more with nations in their category. The remaining trade barriers are inhibiting intra-region trade among developing countries. Second, high tariffs make imports more expensive. Since many developing countries need to import – that’s one reason why developing countries need to export in the first place – high tariffs are actually curbing development in these countries.

According to the World Bank, over 70 per cent of the benefits that developing countries will draw from the Doha round will come from their own liberalization and more trade between themselves. This means that developing countries actually should gain the most from lowering their own trade barriers. Due to the decision in Geneva, the least developed countries may lose this opportunity. Exemption from opening up their markets is an efficient way of fortifying the marginalization of the poorest countries in global trade.