Poor Countries Tear Down This Wall!

Commentary, Agriculture, Frontier Centre

The big World Trade Organization meeting in Hong Kong next week is widely expected to be a flop, just like its predecessor in Cancun two years ago.

But it doesn’t have to be.

Ministers from 148 countries, gathering for the latest session in the Doha Round aimed at helping developing countries, should reject the fashionable story line. It goes like this:

Evil rich countries (Europe, the U.S. and Japan) refuse to cut their agricultural subsidies and tariffs, which, in the words of Oxfam, “amount to robbery against the world’s poor.” Noble poor countries, meanwhile, righteously refuse to dismantle their own trade barriers unless the rich countries move first.

The line — devised by the media, cynical politicians and powerful non-governmental organizations (NGOs) like Oxfam — has obvious charms. It’s easy to understand, and it paints rich nations as villains and developing nations as victims.

But the story line is inaccurate and dangerous. What will actually help people in developing countries the most is for their governments to cut their own barriers to trade, no matter what the rich countries do.

Yes, when the rich keep out the products of the poor, it hurts the poor. But when the poor keep out products of all nations (rich and poor), it hurts the poor far more.

Why? Because agricultural barriers boost prices paid for food by people who have little money and because, without competition, developing nations lack incentives to produce more efficiently.

A new International Monetary Fund paper, by Yongzheng Yang, advises African countries to shift their “negotiation strategy…from retaining preferences and…seeking special and differential treatment to building competitiveness” by pushing for an end to protection in their own and other high-tariff developing countries.

The World Bank has found that the total gain to the global economy from trade liberalization in agriculture — the sticking point in Hong Kong, where I’ll be next week — is $248 billion. Of this total, the gain to rich countries is $106 billion; to poor countries, $142 billion.

But out of the $142 billion gain to poor countries, the gain that comes from removing trade barriers in rich countries is only $31 billion. The gain to poor countries that comes from removing their own barriers is $111 billion — nearly four times as great.

A new report by Australian trade expert Alan Oxley for World Growth, one of the rare NGOs that promotes market solutions to reduce poverty, concludes that “trade barriers in developing country economies block more trade than barriers in developed economies.”

One reason, in fact, that many developing countries remain mired in poverty is that they don’t open up to imports. The World Bank says that average tariff rates for agriculture in the U.S. are 9 percent and in the European Union 20 percent. But rates for developing countries are much higher: for example, India, 101 percent; Venezuela, 67 percent; Philippines, 47 percent.

It’s not just agriculture. Tariffs are three times higher on manufactured imports into poor and middle-income countries as into rich. Developing countries even slap huge tariffs and taxes (61 percent in India, for instance) on medicines to fight such diseases as AIDS, TB and malaria.

The paradigm for the Hong Kong negotiations is simply wrong. Developing countries, as in Cancun, are saying, in effect, “I’ll stop banging my head against the wall, but only if you stop banging yours.”

Certainly, Europe deserves criticism for taking only baby steps toward agricultural liberalization. Last week, the EU trade commissioner, in an attempt to divert attention from this failure, fashioned a revision of an earlier agreement that will now put patent protections for pharmaceuticals — and, thus, the health of the poor — at serious risk.

The good news is that, unlike in Cancun, the U.S., which is proposing real dismantling of its agriculture barriers, is not coming to the table as Europe’s loyal ally. Rob Portman, our top negotiator, says that the Doha Round won’t succeed “unless the EU offers much larger cuts in the tariff protection it offers farmers.”

But again, unfortunately, Portman is hewing to the wrong paradigm. While rich nations may be acting like economic dolts in maintaining protection for farmers, developing nations hurt themselves even more by their intransigence. They should announce in Hong Kong that they’re ready to tear down the import walls that deny their own prosperity.