Trade, Not Aid

Tuesday, March 29, 2005

Trade, Not Aid

I always found that slogan annoying. Partly it was because the phrase was deployed by a commercial entity in search of profit, and partly because it made people feel like they were doing some noble deed by buying expensive cosmetics. But, mainly, it annoyed me because the reality of poverty and development is much, much more complicated than the slogan lets on. It takes us (citizens of rich countries) off the hook, reassuring us that all we have to do is consume what we want and the world's poor will magically stop doing conscience-troubling things like starving to death.

A couple of reminders of the complexities of the situation came down the pike this month. One is an interesting position paper from the UK's Department of Trade and Industry and the Department for International Development. The paper urges the EU to avoid "mercantilist" policies in negotiating Economic Partnership Agreements (EPAs) in the Africa, Caribbean, and Pacific (APC) regions. It's a short statement in bullet-point format, good for the executive with a short attention span. Some highlights, with my comments:

We will not force trade liberalisation on developing countries either through trade negotiations or aid conditionality. [This is remarkable and seems to depart from the standard rich-country practice of requiring poor countries to adopt market liberalization policies, including growth-restricting and debtor-unfriendly monetary policies, as a condition of development aid.]

Within EPAs, the EU should make an upfront offer of complete duty and quota-free market access to each ACP regional group, with no strings attached. [Again, the absence of conditions is stressed. Most important, the UK is saying that poor countries should be able to enjoy a one-way free trade regime, in which they can export freely to the EU even before they have liberalized their own markets.]

There should be an effective safeguard mechanism for ACP countries to use if faced with a surge of subsidised EU imports. [It is surely too much to hope that the EU will give poor countries relief from the effects of the EU's appalling agricultural subsidies, which, along with similar subsidies in the US and Japan, are among the leading causes of continued misery in nonindustrialized economies.]

EPAs should be accompanied by additional resources to enable the ACP countries to benefit from trade reforms and build their export competitiveness. The EU, in coordination with international financial institutions and other donors, must provide additional financial assistance to support the ACP countries. This assistance must support them in building the infrastructure and economic capacity they need to benefit from trade with the EU and the rest of the world... [Trade plus aid, in other words. The UK recognizes that free trade doesn't help, and may hurt, the people in countries that lack the legal, political, logistical, and economic infrastructure to take advantage of it.]

The second item is an op-ed by George Soros in the Financial Times, the serious newspaper on the funny salmon-colored paper. Again, it revolves around an action of the UK's Department for International Development, in this case the Extractive Industries Transparency Initiative.

Soros notes the ongoing political and economic backwardness of many countries that are blessed with valuable commodities under their soil (oil and gas, gold, and so on). The story he tells will sound familiar: Western companies pay for the right to extract the commodities, but the money doesn't benefit the people in the country. The first step toward solving the problem, says Soros, is transparency. The public should know how much money these companies are paying and to whom they are paying it. That, he hopes, can lead to accountability about how the money is spent.

Soros points out the progress that's been made toward transparency, working from both sides of the equation: some companies have started publishing information about their payments, and some governments have started making their receipts of money from foreign companies more transparent.

But there's a long way to go. In many poor countries, things are as opaque as ever. And the UK's EITI isn't yet getting the support of some of the other key rich countries.
Other governments need to follow the UK and help expand the EITI. France appears to have done little to encourage countries within its sphere of influence, let alone ask its own companies to disclose information. The Bush administration's recent decision to initiate a parallel anti-corruption process through the Group of Eight leading industrial nations leaves the US outside the leading international forum for addressing resource revenue transparency and reinvents the wheel.
Pretty typical: the French don't give a damn about anything other than making money, and the U.S. won't play unless everyone else agrees to do it our way. The French attitude reminds me of their approach to foreign corruption; while U.S. companies are forbidden from bribing foreign officials under the Foreign Corrupt Practices Act, their froggish counterparts blithely cough up in exchange for government contracts. As for the American decision to treat the EITI as if it were the International Criminal Court or the Kyoto Protocol: if Paul Wolfowitz does become President of the World Bank, don't expect thet Bank to further the progress made by the EITI.

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