TCS Daily

Road to Failure?

By Roger Bate - June 5, 2003 12:00 AM

The three-day G8 meeting of the major economic powers is over. President Bush barely spent 24 hours on the ground and British Prime Minister Tony Blair appeared distracted for the entire time he was there. But at least Bush and French President Chirac shook hands, which hadn't looked likely a few weeks ago, given their disagreements over the Iraq war.

As usual the meeting was long on rhetoric - announcements and platitudes were made on numerous issues ranging from structural macro-economic reforms to promoting E- Government - but short on dealing with the issues that need to be resolved to improve global growth, and especially the development of the poorest countries. For example, there were messages reinforcing existing UN goals such as to halve the number of people without access to clean water and sanitation by 2015, but there was little promotion of methods to do this, such as widespread water privatization. Indeed, the G8 say they will 'offer to share best practice in the delivery of water and sanitation services', but neglect to mention that they (the G8 Governments) don't actually own the knowledge of best practice. It is assumed that private water companies will simply give their technologies and management systems away, without being able to make the lion's share of any potential profits.

The G8 members agreed to 'pursue urgently' a list of broad trade-related objectives. The next World Trade Organisation Ministerial meeting is in Cancun, Mexico in September and a G8 press release said that they would take 'all decisions necessary to reach' the 'goal' of agreement. But of all the G8 leaders only Tony Blair individually mentioned a need for success of a new trade round. Part of the problem is that the nations appear to be in denial about their differences. In the trade press release there was not even a mention of intra-G8 disagreements such as the US challenge over the EU moratorium on genetically modified foods.

It is therefore not surprising that the largest stumbling block preventing a WTO agreement is agricultural reform. Another main disagreement is on access to medicines for the poor. Neither of these matters is substantial in global economic terms, but they affect key players in various political debates, and lack of agreement on them will hold up trade worth billions of dollars to the poorest countries.


The US farm bill is a thorn in the side of the otherwise moderately free trade US position. The US is the world's largest cotton exporter and it spent over $3 billion subsidizing its 25,000 cotton farmers last year. This is more than the entire national budget for Mali, and its hundreds of thousands of cotton farmers. US subsidies lowered world prices by at least 20%, costing West African countries, like Mali, at least $150m in foreign exchange earnings.

Yet US support for its farmers pales in comparison with the EU Common Agricultural Policy. The EU farm commissioner Franz Fischler says that he is hopeful that he can persuade EU countries to 'de-couple' farm support to help the third world. His idea is to subsidize rural development and environmental improvement schemes rather than production-driven subsidies. The latter drive down prices, making developing country produce less competitive in world markets. Of course, any subsidy perverts the market, and makes no sense in wealthy European nations, but at least de-coupled subsidies would not hurt developing countries as much. However, the French President says he will not countenance even discussing a change in CAP policy until 2006 at the earliest, when the current agreements run their course. The French have been pressuring Fischler to weaken his de-coupling reforms, but he is standing firm: 'A reform without de-coupling is no reform', he told the Financial Times on Monday. If French intransigence continues, which is likely, there will be no new trade round agreed.

Pascal Lamy the EU Trade commissioner may not be too concerned by his countryman's intransigence because he was able to sidestep the issue before by focusing attention on drug access, and making the US the villain. The US was holding out on maintaining strong patent protection for its drug industry, and although this was sensible policy, the world's liberal media attacked it. The signs from Evian are mixed, but it's possible that Lamy will be able to perform the same trick again.


Practically the only nice thing that President Chirac could say to President Bush was that he was impressed with Bush's $15 billion AIDS initiative. Mind you the French liberal daily, Le Monde, claimed the US was obstructing a G8 statement that wanted to say that 'the price of medicaments may be the principal obstacle to improvement in health'. Le Monde's claims, no doubt leaked by the French delegation, may have been correct in the opposition of Americans, but they were not correct in the substance - the price of drugs is not the main cause of lack of health improvement. Lack of infrastructure and medical personnel are far more important.

In the end the G8 statement positively discussed the use of drug company price-discounted drugs, encouraged poor countries to reduce 'tariffs and fees on discounted and donated products' and acknowledged the 'complexity of increasing access to medicines'. Whether it was US influence or not, the statement made a lot of sense, and hopefully paves a way for an agreement at Cancun, at least between the G8 countries, on medicines for the poor.

Most interestingly, the statement said that 'we will take the steps necessary to prevent the diversion of those medicines away from the countries or regions for which they were intended'. A key problem is that the drugs that companies donate end up being re-imported and sold in the markets in which they make profits. Not surprisingly, the rich countries (especially the US) are worried about a loss of profits for their companies and they want to ensure that donated drugs are not diverted from their intended targets. The developing countries, somewhat understandably, don't want to have to monitor potential diversion because it reduces the amount of resources they spend on healthcare, and they claim it is unnecessary.

At the same time as this statement was being written, its necessity was demonstrated. The Ugandan National Medical Stores is in 'the advanced stages of re-selling for export a consignment of AIDS drugs imported from the UK at subsidized rates' (reported in The New Vision Web site in Kampala - see here). It's uncertain whether the drugs will be sold, since the Inspector-General of Government opposes the resale 'because it is not viable and likely to have negative effects on Uganda'. But even if this sale doesn't occur, it demonstrates that such diversion could occur (and in the country with one of the best records on AIDS), and the G8 are right to be concerned about it. Numerous diversions probably occur every month; customs officials do not pick up most.

Disagreement in Cancun is likely to hinge on the diversion monitoring required by the G8 nations. And given their previous stance the chance of agreement from the poor countries is not good.

An agreement on drugs is more likely than on agriculture, but total failure on both is a distinct possibility. That would be devastating to the poor countries of the world, and deprive the rest of us from increased growth.

Dr Roger Bate is a fellow of the International Policy Network.

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