Jamaica has lost much of its dairy industry. Its farmers found it impossible to compete with cheap subsidised milk powder imported from the EU. Likewise, in the poor countries of the world, millions of small farmers growing products such as cotton or rice face extinction if exposed to world markets.
Many of these countries are heavily dependent on the export of a single commodity or raw material. With some exceptions, such as crude oil, copper and nickel, the prices of these products have been in long-term decline. For example, the price of coffee, in real terms, is little more than half of what it was in 1980. Coffee represents 60 per cent of Ethiopia's export earnings and 80 per cent of Uganda's.
What economists refer to as the "terms of trade", how much exports a country has to give up to pay for its imports, are definitely in favour of exporters of "knowledge", manufactured products and services; the great majority of these originate in the advanced countries. There is little new in all this. Way back in the early 1960s, Raul Prebisch, a Latin American economist, wrote extensively on this issue. He also pointed out that due to "tariff escalation", rich countries impose higher tariffs on processed products, the chances of poorer countries adding value to their exports is severely limited.
Prebisch's work led to the convening in 1964 of the first United Nations Conference on Trade and Development (Unctad). Its slogan was "trade not aid". Forty years later, five out of every six people living on earth still earn less than €3 a day; one in four live in absolute poverty.
The 1990s were hailed as the decade of market economics and liberal democracy. The collapse of the Soviet Union and its bloc provided the backdrop to the Uruguay Round of trade negotiations. These lasted for eight years and were concluded in 1994. Many of the poor countries came to accept that there was no alternative to free trade and globalisation and offered unilateral cuts in their tariff structures. They believed that it was just a question of time before they developed and became prosperous just like the more advanced economies.
Two years later the World Trade Organisation was set up. Gradually it became clear that the net winners from the Uruguay Round were the rich countries. When the subsequent round of trade negotiations were launched in Doha five years ago, the rich countries promised to remedy some of the inequities in global trade, branding it the round for "development".
The rich countries spend some €250 billion on agricultural subsidies. Much of this money goes to large multinational processors and exporters. A few years back, the EU had a problem with its "butter mountains" and "wine lakes". Now no more. This excess farm produce is being dumped on Third World markets.
In an article entitled Doha Is Too Important To Fail (The Times, June 30), Peter Mandelson, the EU's Trade Commissioner, made a number of proper statements. "A successful and ambitious Doha round would offer a €100 billion annual shot in the arm to the global economy." "The trade round is about global politics as well as global economics." "The development argument deserves better than dogma."
Presently, the Doha Round is stalled. It has missed yet another deadline. The latest failed meeting was held in Geneva last month. The issue crawled onto the G8 agenda in St Petersburg. Sadly, it appears increasingly unlikely that an agreement can be found on making trade fairer. Observers claim that the World Trade Organisation is now on the verge of a major crisis. The key to unblocking the negotiations is the EU and the US agreeing to significant reductions in agricultural subsidies and tariffs on farm imports.
Mr Mandelson continues to write politically correct stuff, but the EU is failing to walk the talk. So is the US. The money spent on farm subsidies by the EU, the US and other advanced economies is more than six times what they give in global aid. This while consumers have to pay artificially high prices for agricultural products which are protected from world competition.
Growing protectionism, especially in the US, is spreading the fear that the rich countries are losing their appetite for a multilateral deal; preferring to strike bilateral agreements with their "allies". This would take the world trade system to the days of the Cold War era.
Perhaps, President George Bush feels cornered. The fast track trade negotiating powers conceded by Congress expire on June 30, 2007. (This may seem a long time away, but a deal of this kind requires months of technical work.) After that date, the US Congress would surely block any form of deal, and President Bush will not be able to offer a take it or leave it package.
Economic development continues to delude the poor countries. The rich countries, while preaching the gospel of free trade, continue to defend obsolete trade-distorting subsidies and tariffs to their farmers. Farm trade presently accounts for only 10 per cent of global commerce, but the outcome of these negotiations will have an enduring impact on the pro-trade debate and the future shape of the world trade system.
fms18@maltanet.net