How the World Trade talks in Hong Kong could affect Africa
Duncan Green, Head of Research, Oxfam
Sheila Page, OBE, Senior Research Associate ODI
Ambassador Edwin Laurent, Economic Affairs Consultant , Commonwealth Secretariat
Dirk Willem te Velde, Research Fellow, IEDG, ODI
Alice Clarke, Economist, Emerging Market Economics (eme), Ex ODI Fellow/Trade Policy Analyst in Malawi
Richard Dowden, Director, Royal African Society
The Chair welcomed everyone to the night's event, co-hosted by the Overseas Development Institute and the Royal African Society. He highlighted that with eight days to go before the start of the next ministerial meeting in the Doha Round in Hong Kong; a lot of questions still remain. The speakers will attempt to answer some of those questions, including:
# Does Africa still need to protect its markets?
# Is the West hypocritical?
# Should Africa give priority to multilateral negotiations via the WTO, or bilateral negotiations with individual developed countries?
# What about trade relations between China and Africa?
# Should African workers be allowed to migrate to developed countries?
Sheila Page said that the WTO is particularly important to African and smaller countries because it is a rule based system for international trade and rules are made to benefit weaker members. She emphasised that the WTO needs to be a place where developing countries can stand up for and learn to defend their rights. For example, Africa is dependent on the EU for both aid and trade, but through the WTO, they can take the EU to the dispute settlement mechanism. Thus, countries should give priority to the WTO negotiations; it is a serious mistake to become too involved with bilateral negotiations because this puts countries in the situation of large vs. small countries.
She said that calling the current Round of the WTO the Doha Development Round was a public relations message and that the developing countries that can gain from the Round are already competitive. In fact, many African countries already have what the WTO can provide: access (to the US and EU) and it would be hard to give them more. In fact, liberalisation via MFN reduces special access.
This is why there has been a move towards Aid for Trade provisions that are helping countries meet the cost of joining and remaining in the WTO. For many African countries, unless they get this, it will be impossible for them to make economic gains from Hong Kong, and if they don't pay attention, they may lose from the round. She said that LDCs are not being asked to open their markets further and it is developed countries that have to lower their applied tariffs.
In terms of whether the West is hypocritical, she said that the EU is using proposals for a 'development package' as a substitute for market access on agriculture, offering 'Everything But Access', but that getting better access for developing countries is the point. She said there was some prospect of an improved prospect for Africa on agriculture and NAMA, and that there might be some agreement for LDCs, but that this has to be part of a package.
With regard to China, she said that China is tremendously important for the price of commodity exports and that China is investing in Africa, but that neither of these was a WTO issue. Finally, she said that she believes that industrial policy is a good thing, and this can require high tariffs, but this means selective tariffs, and this is not a problem within WTO requirements.
Alice Clarke then presented work completed in Malawi on questions of market access for Malawi and similar African economies. Clarke outlined the many trade arrangements Malawi participated in, including bilateral, regional and multilateral agreements, and asked why Malawi was not taking advantage of the access these agreements provided. She highlighted four reasons: (1) trade policy doesn't represent the private sector in its entirety and instead is driven by large exporters of tobacco and sugar to the EU to the exclusion of local manufacturers and exports in industries such as plastics, packaging and cooking oil, (2) trade policy is not aligned with private sector development strategies, (3) policy is not focused on the future but based on past trends and experiences, and (4) there are various public sector and supply side constraints.
Regional and bilateral agreements are very important to these countries, in part because these agreements represent the wider private sector and are more beneficial for SMEs, which is why Malawi is part of COMESA and SADC.
They also place much more emphasis on Economic Partnership Agreements (EPAs) because it is the EU that is the main market for tobacco, tea, sugar and coffee. Africa does not focus on the WTO meetings as much because it is so much more difficult to organise staff and sort through information, and so tends to rely on groups for representation (e.g. Africa Group or LDC group). When attending WTO meetings, Malawi is very dependent on donor funding for travel expenses. This makes it much easier to attend regional meetings where the costs of transport are much lower. This does not mean that multilateral negotiations are not important to Malawi, simply much more resource intensive. She concluded her presentation by noting that these characteristics are not particular to Malawi; many African nations follow a similar pattern.
Duncan Green said that it was important to protect African markets if they are interested in industrialising, strengthening agriculture, and moderating the power of South Africa. Protection can be good, but isn't always. It must be coupled with an effective development strategy to have influence. 'Unfettered free trade' is not likely to happen in our lifetime due to the difficulty of reforming the CAP and many other barriers (e.g. Northern standards) and the haphazardness of economic models and numbers used.
He also noted that trade is increasingly constrained by structures within markets (e.g. value chains). This in itself hinders the implementation of a free trade model. When removing trade barriers, though, there are static gains to consumers. History suggests that simply opening markets and hoping for the best is not the most effective means of liberalisation.
He summed up the response from the West in the saying, 'you liberalise, we'll subsidise', noting that the West is indeed hypocritical in its liberalisation strategy if it continues with its subsidisation schemes. As an example, the US had tariffs of 40% when it developed and is now asking countries to rid of tariffs all together. Green also said there is a case for focusing both on multilateral and bilateral agreements. Multilateral negotiations are effectively irreversible, provide a floor for other negotiations, and allow for alliances between developing countries. In contrast, bilateral agreements often take the floor set by multilateral negotiations and attempt to go further. The direct impact is often greater.
In terms of China, he thinks people are over-estimating the threat, as history has shown with the emergence of Russia and Japan. He also noted the work being done to show how China may be reversing the traditional thinking that producing commodities will lead to prolonged poverty while manufacturing is the way of it. At the same time, there is uncertainty about China and human rights.
Ambassador Edwin Laurent said that instead of asking ourselves if the west is hypocritical or not, we should instead be asking what are the driving forces behind Western trade policy. While they preach free trade (Ricardo), in practice developed countries adhere more to policies of mercantilism. Countries within the WTO want to maximise their own national interest.
He noted that while he has attended an array of recent meetings regarding the WTO, he would not want to speak on behalf of Africa, but he said that Africa had been performing badly (about 2% of world trade), and that it was good that African trade negotiators are becoming more assertive and more demonstrative, similar to the Cairns and Latin American negotiations.
Laurent noted that Africans want to be able to determine their own policy options; there is growing resentment to pressure from the outside. He also said that African countries had defensive and offensive trading interests, and that their offensive interests are not unique. Among defensive interests, he discussed safeguarding of preferences, but said that preferences were illogical in the African context due to supply side constraints.
Support for supply side constraints had been gaining popularity among developing countries; the Brazilian trade minister had supported aid for trade recently for the first time.
He also brought up a point on multilateral vs. regional trade negotiations. As part of the ACP, African countries are committed to negotiating with the EU on Economic Partnership Agreements. He said this contradicts economic orthodoxy. Such agreements will distort trade making multilateral agreements a much more efficient option. He emphasised that countries needed to be compensated for the trade diversion (as a result of Economic Partnership Agreements) when they are exporting under preference schemes.
Dirk Willem te Velde
Dirk Willem te Velde said that there were three important types of negotiations going on in the current Round: on agriculture, NAMA and services. Possible outcomes of the Doha Round in NAMA means that some countries will win (e.g. China and India) and African LDCs will lose because they will lose preferences that they already had. He then said that effects of negotiations on agriculture varied by product, but that Sub-Saharan Africa as a whole is likely to lose out (particularly LDCs) from agricultural negotiations. Developing countries on the whole are likely to gain, but Africa is likely to lose and Aid for Trade could be an answer to this.
He then went on to discuss services in greater detail. He said that the General Agreement on Trade in Services (GATS) is very flexible because it is based on a request and offer approach; Approximately 5 African countries have offered services liberalisation.
The EU put forward a proposal to stipulate the number of service sectors they wanted liberalised, but that this was not a useful way forward because it doesn't stipulate which sectors have to be liberalised. He said that African countries were interested in maintain the request and offer approach. In terms of substance of the negotiations, it is useful to think in terms of modalities or types of services negotiations. African countries have offensive interests in GATS related to migration (or the temporary movement of natural persons in WTO language, Mode 4). This is because they have a comparative advantage if labour in services and labour costs are lower. However, there have been two objections put forward. First, by developed countries, where protectionism has meant that people equate Mode 4 with stealing jobs rather than helping to increase growth. Secondly, developing countries have argued that Mode 4 is equated to 'Brain Drain' because it means that skilled workers leave to provide services. He said that this is not true, because 'Brain Drain' is a by product of long term migration, whereas GATS is about temporary migration and it actually decreases Brain Drain by enhancing channels of temporary migration, which in tern can bring benefits like remittances. He said that it was worth thinking about this on a regional scale.
In the discussion that followed, the following six questions were asked.
(1) One audience member noted that China is presenting itself as the leader of the developing countries and wondered whether this stance was influencing its behaviour in WTO negotiations.
Page noted that China is a RAM (or recently acceded member of the WTO) and therefore is not participating heavily in the round partially because it doesn't want to have to make any more commitments than those it made when it joined. It is a member of the G20 and is not working particularly with the small developing countries. Laurent commented that China is considered is one of the large forces in the WTO right now based on its size and power.
(2) A second member of the audience asked what would happen if Africa were to pull out of the WTO, and noted that China is currently a friend to Africa through investment, loan and trade patterns. He also noted that even if more access is given to Africa, Africa would be producing goods that Europeans are not interested in buying, implying that Africans should look inward towards regional agreements.
Page said that it is not reasonable at this point to not be a member of the WTO, as most countries are now included. It would be difficult to survive without inclusion. Laurent said that if the African countries did decide to pull out of the WTO, it would most likely make little difference to the institution but would certainly make a difference to African countries. Te Velde noted that by remaining in the WTO, African countries can bring new issues to the floor and obviously cannot if leaving. He and Laurent, like Page, believe there is no benefit by leaving.
(3) One participant thought that preferential trade agreements for African countries weakened the position of regional trading agreements because of the developed countries' 'divide and conquer' policies. She asked specifically whether the Laurent could comment on this.
Laurent said that it is the job of the African nations to remain united in the face of pressure. Negotiations like this are about winning and, if it is necessary, taking advantages of rifts within communities, which implied that there was nothing inherently wrong with the divide and conquer policy. Clarke pointed out that the US' African Growth Opportunities Act (AGOA) allows African countries to source materials from other member states, forging regional links instead of multilateral ones.
(4) Is Africa more powerful than we think in WTO negotiations? They were part of the reason why the Cancun ministerial fell apart.
Page did not agree with this statement on Africa; instead, she thinks it was the US that caused the collapse of the Cancun meeting because it did not want to give up anything on agriculture, particularly cotton. Most African countries did not want it to end and wanted to continue negotiating. The EU went along with the US, further adding to the collapse when putting in its demand for including investment, competition, and government procurement in the WTO agenda. Laurent agreed with Page that blame should not be placed on the African countries for the collapse of the Cancun meeting.
(5) Would it be a good thing for Africa if the CAP were reformed? What would be a good negotiating position for Africa in the round? We should be trying to figure out what it is that Africa has that Europeans want.
Green said the problem of subsidies could be solved if the consumers would realise how inefficient subsidies actually are. Developing countries could also bring legal suits under the WTO's dispute settlement mechanism against the developed countries given the current illegality of some subsidies, as said in a report released by Oxfam last week. In the long run he said that there was hope for CAP reform. Page commented that it is not the job of the WTO to solve poverty in Africa. Getting rid of subsidies is most important; we need to work on the efficiency of the European market to balance out trade distortions. Clarke said she agreed that agricultural subsidies in the North are not the main reason for problems with agricultural exportation in the South. It is standards and quality issues that need to be reformed and restructured in a way that will allow producers to gain access into European and American markets. The Ambassador said the CAP is bad economics for Europe itself. It will be the domestic imperative that will drive reform in the long run, not multilateral pressure. He broadened the topic and asked if Africa would be helped by agricultural liberalisation. Based on a study by the World Bank, he said that it will be the developed and only a few developing countries that will benefit. He said it is not up to the West to decide the best strategy for Africa. Africa has tremendous potential power in the WTO that it has not used. Aid for Trade and a more effective integrated framework are in the best interests of the WTO. In concluding his thoughts, he said that unity cannot be forced for the outside. Te Velde again stressed the importance of the free movement of people as a tool for African countries in GATS negotiations.
(6) Africa itself isn't a unified front at all. Not much has been said about the governments of these countries and how they are hindering rather than helping progress. The audience member commented on the condition of Malawi.
Page commented on her upcoming book on Trade and Aid and how they can support each other. Trade can be a help, but is not the only way towards development.
The Chair concluded the meeting by thanking everyone for attending and contributing to such an enlightening evening.
This event looked at the World Trade talks in Hong Kong and how it may affect Africa and its markets, as the WTO is particularly important to Africa and smaller countries.