African Development for the Completely Bloody Ignorant

One of the most common arguments you hear against increasing aid to Africa can be summed up in a single slogan: “trade, not aid”. It’s by trading with other countries, the argument goes, that formerly poor countries in Asia have transformed their economies and slashed poverty. Simply supplying more aid might help keep people alive, but not give put countries on the long-term path out of poverty.

It’s certainly true that international trade has worked well for Asia. China and India have seen millions lifted out of poverty since they opened up their economies in the late 1970s and 1990s respectively. But the UN Millennium Project argue, in their 2004 report on strategies to meet the Millennium Development Goals, that the idea that trade and aid are somehow opposed is a myth, and “the slogan ‘trade, not aid’ is misguided.” (p46)

Instead, the report argues, trade reforms go alongside investment and social programs, funded by aid, in helping poor countries meet the Goals. We’ve already looked at the report’s investment plans, so now let’s see its recommendations for reforming the way international trade is carried out.

The report makes explicit its belief that, in the long term, free trade is in everyone’s best interest. It suggests the world adopt a “conveniently distant” target - perhaps 2025 - for the total removal of barriers to trade in goods, and a substantial reduction in barriers to trade in services (such as banking services). This puts the report somewhat at odds with the Commission for Africa, whose own report emphasised poor countries’ right to protect their economies.

This is a long-term framework, though. More immediately, the report calls for several changes:

Abolish agricultural subsidies. You’ve probably heard of schemes like the Common Agricultural Policy in the EU, which heavily subsidise farmers in order to support their livelihoods and the countryside. As well as being extremely expensive, these schemes harm poor countries by making exports from rich countries cheaper for many Africans than goods grown at home! As well as ending such subsides, the report calls on rich countries generally to reduce barriers to agricultural trade, and particularly to end specific taxes on imports of certain goods, such as cotton, which are primarily made by developing countries. (p46)
Manufactured goods made in poor countries, such as clothes, don’t generally have to compete with subsidised goods from rich countries. However when exported to rich countries, they often face crippling import tarrifs that make them too expensive to succeed. Because rich countries have agreed various free-trade initiatives through groupings like the EU, many place higher tarrifs on goods from poor countries than on goods from other rich countries. And the barriers developing countries put up are also a problem. Although they’re designed to prevent goods flowing in from rich countries, they also act against trade between poor countries - preventing, for example, trade between neighbouring African states. Such trade could not only help those economies grow, but may help reduce conflict between African states. Therefore, the report calls for a quick reduction to zero of tarriffs on imports of nonagricultural goods. However, the report does give developing countries more time to adjust, proposing a deadline of 2025 for the removal of their barriers, against 2015 for rich countries. (p46-7)

Free trade in services has been a controversial idea, with many arguing that poor countries could be forced to sell off their remaining public services and to remove regulations on things like banking to fulfil the requirements of the World Trade Organisation’s GATS initiative. The report suggests a trade - that developing countries should lessen their opposition to allowing in foreign services, in exchange for rich countries loosening their restrictions on temporary labour, which is also part of GATS. The idea is that the gains to poor countries from remittances from workers abroad - which currently total $300 billion a year - outweigh the risks of liberalising services a little. It’s one of the report’s most striking recommendations. The Africa Commission, too, however, broadly endorses GATS for poor countries and says further liberalisation of temporary labour could benefit Africa to the tune of $14 billion a year. (p47)

Of course, there are already some systems in place in the international trade system to make allowances for poor countries. They’re known as “special and differential treatment“, and allows exemptions and delays to the implementation of free-trade agreements for countries meeting certain requirements. The report calls for this measure to be expanded, and crucially, for the exemptions offered to usually be longer, to give poor countries time to adjust. (p47)

In addition, the report notes, much of the focus of aid-funded investment should be to improve the competitiveness of poor countries’ exports. Investment in transport infrastructure such as roads, for example, can slash the costs of taking goods to market, letting farmers sell them cheaper and still make more money. At the same time, however, efforts to make poor countries’ exports more competitive (i.e., cheaper) shouldn’t be made at the expense of the environment, or of labour protections like minimum standards for working conditions. (p47)

Trade is a highly complex issue, and the report’s recommendations have to be put in the context of the wider discussion at the time it was written. The immediate context was the Doha Round of WTO negotiations, which was an attempt to agree international trade rules. Despite being billed as a “development round” that would put poor countries first, the deal ultimately fell apart under opposition from many developing countries, largely over the rich countries’ refusal to reduce agricultural subsidies. Some pundits said the Round’s collapse was a tragedy for poor countries, while others said that the likely deal would have made matters worse. The report’s general support for Doha suggests they are in the first category. Later, we’ll look at the trade conversation in more detail and see how these proposals differ from other sets of recommendations. The key things to remember however, are that the report explicitly supports free trade as part of the solution to meeting the MDGs, and calls on both rich and poor countries to take steps to liberalise trade; but it asks for more time for developing countries to make the necessary adjustments.

Having discussed both trade and aid, you’d think the report had covered the changes to the international system needed to meet the Goals. Well, not quite. Next time, we’ll look quickly at its recommendations regarding “regional and global public goods.”