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'Make trade work for the poor'

Mar 13, 2009

Coping with credit crunch, rich nations are busy bailing out their domestic constituencies and have belied promises to reduce protectionism and assist the developing world. Eveline Herfkens, Advisor on MDGs to the UNDP, lays out an agenda for G20 leaders to make way for fair global trade governance.

Since the Millennium Development Goals were agreed in 2000, many developing countries have made great strides. The world was on track to achieve at least the first Millennium Goal of halving the number of extreme poor, and it was coming close to reaching several other objectives as well.

Eveline Herflens.jpg

But the present crisis is wiping out that hard fought progress. Poor countries’ access to credit has been reduced, resulting in slower investment and growth; already pitiful overseas development assistance (ODA) levels are falling; and Africa might be robbed of its one chance in a generation to make real progress.

In the meantime, the world lacks an effective system of global governance.

The three deficits in the system I elaborate below have hampered the structure in the past, but they are especially crippling in the present situation.

Compliance deficit

Too many government officials agree on the most wonderful promises at international meetings (e.g. the Millennium Declaration), and take the plane back home to business as usual, not following through on their pledges.

It remains to be seen whether WTO will prove robust enough to cope with today’s emerging economic nationalism

The most blatant example is the 0.7% ODA/GNI target agreed at the UN more than three decades ago and every year since. Most recently, on trade, the commitment of the G-20 leaders in Washington, D.C. last November to a one-year moratorium on protectionist measures was broken by most participants within a few months.

The promise made by the G-7 Finance Ministers in Rome this February that the group “remains committed to refrain from protectionists measures which would only exacerbate the downturn,” lacks credibility in view of the reality of the “lend local” conditions in bailout packages and “buy local” conditions in stimulus packages.

In the past I have praised the WTO for its dispute settlement mechanism. It remains to be seen whether this mechanism will prove robust enough to cope with today’s emerging economic nationalism.

Coherence deficit

Global governance is fatally fragmented. Due to the lack of coherence within governments, both rich and poor countries are taking divergent positions in various international organisations and forums. Today’s world faces multiple daunting challenges: climate change, terrorism, a global food crisis, a water crisis, and an economic downturn that provokes protectionism.

These challenges cannot be dealt with separately, stove piped in different multilateral forums. Over the last several years, world leaders, in rhetoric at least, have increasingly acknowledged interdependence – not just of countries, but also of issues.

However, most countries leave the UN system to foreign affairs ministries to deal with; the UN remains at the margin of political domestic agenda’s, while the involvement of heads’ of government/state is mainly limited to photo opportunities.

They leave trade policies to trade ministers in the WTO and they leave the international financial institutions to their finance ministers and central bank governors, whose positions are more similar to their peers than to the positions taken by their foreign affairs colleagues at the UN.

The only way to deal effectively with today’s global challenges is by global collaborative action in a coherent way, instead of leaving them to fragmented separate negotiation processes in various isolated and autistic forums.

Coherence starts at home. It is high time to make trade work for development and ensure trade negotiation outcomes are consistent with the lofty, but unfulfilled promises of our political leaders.

A small concrete step within the WTO would be to broaden the Trade Policy Reviews to include a review of how trade policies impact sustainable development goals (for better or for worse) and proposals for how to integrate sustainable development concerns into trade policies.

Triple democratic deficit

The triple democratic deficit refers to the lack of voice of poor countries, lack of voice of people in general, and lack of voice for the poor in developing countries in particular.

It is time to liberate trade from the clutches of the powerful lobbies who hijack our trade policies at the expense of everybody else

The crisis might have one silver lining: global governance might become slightly more inclusive. Last year’s G-20 meeting showed that rich countries now acknowledge the need to fully involve several large countries in financial global governance.

The G-7 had paid lip service to this for a long time, but now these “newly emerging” countries have the negotiation leverage as they are dearly needed to help out in the present crisis to keep up demand.

Only a few years ago, it was the US and the EU that decided the outcome of the negotiations. If they agreed, the deal was basically done. Those days are over, as we saw exemplified in the cast of players in last summer’s breakdown of Doha Round negotiations: India and China on one side, the US and Brazil on the other, and the EU trying to find compromises.

Still some 100-plus countries hardly have a voice. It would help if these new “emerging powers” would leverage their new influence in international meetings to account for the interest of those not represented. Within the WTO itself, the traditional ‘member driven’ governance leaves the poorer and smaller developing countries with very limited institutional capabilities at a disadvantage both in analysing and negotiating issues.

Strengthening the role of the WTO Secretariat in providing the weakest countries information and analysis regarding the development impacts of specific proposals on the negotiating table would help enable more effective engagement in negotiations and could even the playing field.

Moreover, most relevant international organisations lack a parliamentary assembly, such as those for the Council of Europe and NATO. Thus, they lack a constituency and educated parliamentary involvement. Politicians will continue to get away with playing to the domestic protectionist gallery, as long as the general public and its elected representatives remain illiterate of its costs.

Pro-poor policies

It is time to liberate trade from the clutches of the powerful lobbies who hijack our trade policies at the expense of everybody else. Many developing countries fail to ensure that their own trade policies benefit the poor. “The rich make the rules at the expense of the poor” does not apply only at the international level.

Developing country trade barriers often protect the rich, at the expense of the poor. Benefits arising from preferential market access are not always used or often do not help the poor as they are captured by officials through nepotism, and export growth does not realise its potential to become pro-poor inclusive growth.

For trade to reduce poverty, complementary domestic policies are needed. The poverty reduction objective should be mainstreamed in developing countries’ trade policies, while trade needs to be integrated in national poverty reduction strategies, as no country ever developed through aid alone.

Effective policies should empower the poor pro-actively to grab new opportunities provided by market access and by investing in human capital, as education and skills are critical for integration in the world economy.

It is high time to put an end to vested interests and lobbies dominating our trade policy and to educate public opinion and increase awareness among taxpayers and consumers of the costs and perils of present protectionism. It is also time for developing countries to take responsibility for making trade work for the poor.

But most of all, it is time to make trade policies part of the broader relationship, not just with other countries, but, more importantly, of the broader agenda of challenges of global poverty, the environment, and security.

Unless we start addressing the three deficits of global governance immediately, the present crises will result not only in missing the lofty promises of the Millennium Development Goals, but set back development for decades to come.

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