TCS Daily

Beware the World Aid Organisation

By Richard Tren - September 13, 2003 12:00 AM

CANCUN, Mexico -- Three days into the WTO Ministerial meeting in Cancun it is still unclear if any progress will be made in liberalising global trade in agriculture. Developing countries seem to be well coordinated at this meeting and the Group of 21 developing countries, led by Brazil, China and India are reported to be pushing a harder line on the agriculture issue, than the US or EU expected. One of the most important issues that should be resolved is the protectionism that rich counties, particularly the US give to cotton farmers. West African cotton producers have made a firm stand against cotton protectionism, but the compensation that they demanded sets a dangerous precedent.


The position that the West African cotton producers of Mali, Benin, Chad and Burkina Faso have on subsidies is entirely justified. It is estimated that on average every U.S. cotton farmer gets an annual subsidy of $100 000, which costs the U.S. taxpayer around $2bn every year. This encourages an over production of cotton, depresses world prices of the commodity and keeps African cotton out of this lucrative market.


The Ministers of Trade for these four countries made an impassioned plea for more liberal cotton trade on day two of the Cancun meeting. With these cotton subsidies in place, their farmers cannot compete globally and have few, if any ways of lifting themselves out of poverty. The Ministers brought home the point that all they were seeking was that the trading rules of the WTO be respected. Without resolution of the issue, they maintain, the credibility of the WTO system should be questioned; along with their continued participation in the forum.


The Ministers seemed particularly aggrieved because their heads of state had made a 'pilgrimage' to the G8 nations to explain the plight of their cotton farmers. The point was drummed home to President Bush on his recent Africa tour and despite the fine sentiment expressed by the G8 leaders, little progress has been made.


Free traders and advocates of open markets no doubt strongly support these countries as they clearly have a comparative advantage in the production of high quality cotton. But the West African countries may lose support among free marketers because of their request for compensation for their cotton farmers.


The countries want at least $300 million from the countries that subsidise cotton farmers, primarily the US, for their cotton farmers. It is difficult to know how serious the West African countries are in their demand and many will sympathise with their demand. The Ministers were at pains to point out that the compensation to their farmers should not be seen as aid, yet it surely will end up as such.


Government to government aid transfers over the past 50 years has a dismal history. Most aid has not gone to those in need rather it has propped up often vicious dictators in Africa and has promoted disastrous, often leftist, economic policies. For some African countries, such as Malawi, foreign aid accounts for more than 25% of their GDP which means that the government is even less accountable to the people that put them in power (assuming elections were democratic).


There is no guarantee therefore that the compensation will actually get to the unfortunate farmers. It is also likely that these countries will suddenly register a lot of new cotton farmers, eager to cash in on the transfer. Compensation claims for aid do not auger well for trade in the long run as it is likely to create a slew of special interest groups and elites in the recipient countries who will lobby for aid and trade restricting policies in all sorts of other areas.


The idea that the West African cotton producers should seek compensation may have come about as a result of technical assistance offered by western governments to poor nations. There is no doubt that African countries need to strengthen their negotiating skills and could benefit from a more coordinated and strategic position in the WTO. Yet most of this aid is channelled through the donor agencies; through individuals who are keen to keep themselves in jobs. Aid agencies that are supposed to support negotiations to reduce trade barriers will find it hard to ignore their own penchant for aid and in any event may not be ideologically committed to free trade in the first place.


The UK Government announced yesterday that they were committing a further £50million towards assisting poor countries in their WTO negotiations. The amount is really rather pitiful, especially given the fact that it will be divided between a great many countries. But the irony is that while the UK is supposedly supporting developing countries with technical assistance, its partners in the EU are doing everything possible to restrict trade and keep poor country products out of Europe.


There is a sense in Cancun that the anti-globalisation movement has had the wind taken out of its sails. As the G21 argue ever more vehemently for reduced protectionism, it is clear that most anti-WTO activists were only ever representing vested interests, such as labour unions and environmental groups, in rich countries. Poor country governments need to keep up the momentum that favours free trade and any movement away from trade and towards aid is a dangerous step in the wrong direction.


If the UK and other rich country governments really wanted to provide technical assistance to the WTO negotiators from poor countries, they should channel it through think tanks and private sector organisations that are truly committed to the noble aims of free trade, liberty and prosperity.


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