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Trade Injustice for whom? Not really for Africa!

We are told repeatedly that unjust international trade rules for developing countries, particularly in Africa prevent them from growing out of poverty. Listen to Gordon Brown’s UNICEF lecture on 29th June:

Unfair trade rules not only prevent poor people from throwing off the shackles of poverty, but shackle poor people and poor communities still further. ... Think of the Cameroonian farmer whose bananas cannot be sold to European consumers because he is denied access to our markets, even though his products are better than ours. Think of the Mozambican sugar producer who cannot compete with European sugar beet farmers because the subsidies the Europeans receive enable them to sell more expensive goods at a cheaper price. Think of the Ghanaian cocoa producers who cannot process their beans themselves because tariffs mean it is cheaper to process them in Europe.

The Chinese would have heard this with incredulity, if delivered during Gordon Brown’s pre-General Election visit to Beijing. Twenty-five years ago China was poor. Its exports were a mere 0.9% of world exports. Today its exports are 6% of the world total, and it is a middle income country. Meanwhile, sub-Saharan Africa’s share of world exports has fallen from 3.9% to only 1.5%. Korea and Taiwan were as poor forty years ago as Africa is today. Now their high technology firms dominate world markets.

So are African countries especially victims of trade injustice?

Recall that, of Africa’s exports, 50% go to the EU, less than 30% to the US and Canada, and 30% to other developing countries. The‘trade justice’ movement calls for:

  • Open markets in the North for developing countries’ manufactured and processedexports; removing the ‘peak’ tariffs which hit textiles and leather goods, and seasonal and processed agricultural goods for which developing countries have a comparative advantage. But African countries are less affected by these than the successful Asians because they have generous trade preferences – in the EU over the last 30 years with Lomé and Cotonou, and in the US more recently with AGOA. The Commission for Africa found that ‘tariff escalation’ – a trade justice bête noire – was only really serious for certain coffee products sold to Japan. The Ghanaian chocolate case is an old canard: the tariff it bears in the EU is on the sugar content (see below), not the cocoa.
  • Removal of Northern agricultural protection and export subsidies. The North protects mainly its cereals, livestock and dairy products, and sugar - though the US also heavily protects its cotton, groundnuts and tobacco. But, the worst affected developing country exporters are in South America and South East Asia where there are competitive, export-oriented producers, whose export prices are reduced. Sub-Saharan Africa’s main agricultural exports – coffee, cocoa, tea, oil seeds, vegetable oil, cotton and rubber – are, except in the US, barely affected. Moreover:
    • As a net importer of cereals and dairy products, Sub-Saharan Africa benefits from the Northern subsidies which lower its import prices. Yet this terms of trade gain is construed as ‘unjust’because it lowers prices for local, mostly commercial, farmers – who are often better-off than food-deficit poor consumers!
    • On sugar, African countries are, on balance, the beneficiaries, not victims, of trade injustice. Sugar farmers in Mozambique, Mauritius, Swaziland, Zimbabwe, Malawi, etc have privileged access under the Sugar Protocol to the EU market at three times the world price. The EU, having lost a WTO dispute brought by Brazil, will now drastically reduce the price paid to its farmers and to Protocol country producers. Trade justice for Brazil, and perhaps for Ghanaian chocolate makers, but lower prices for Protocol countries.
    • The EU’s Banana Protocol also makes ACP producers benefit from trade injustice. Ecuador won a WTO case against the Protocol; the margin of preference will fall, and Protocol beneficiaries, including Cameroonian banana farmers, will now be a bit worse off.
  • Freedom for Southern countries to keep their trade protection (which is still higher than in the North). This is odd, as close to 50% of developing countries’ exports go to other developing countries – 30% for Africa. It is supposed to foster ‘infant industries’ which will soon become competitive and income generating. The South has had protection for 30-40 years, breeding many more ailing geriatric dwarfs than South-based corporate giants. It is time for Justice to be impartial, about all protectionisms.

Trade justice advocates, in their rush to anathematise Northern protectionism, play light with the facts of Africa’s trade privileges, sustaining the illusion, shared by Northern politicians but not by the more realistic African leaders, that Northern liberalisation will be as good for Africa as for the rest of the world.

The Commission for Africa’s approach is sounder. It emphasises lowering Africa’s numerous internal barriers, trade facilitation, and building product standards and trade capacity in order to better to cope in markets which trade justice will make more competitive.