Tricks of the trade war

There is almost no chance of a global trade deal favourable — or at least palatable — to Africa being put in place by 2005, when the Doha round of international trade talks is due to end, says South African Institute of International Affairs (SAIIA) research manager Steven Gruzd.

This is bad news for Africa, he adds. “The longer things stay the same, the longer Africa will suffer.”

The Doha “development round” of trade talks is aimed at finding ways to create a freer and fairer international trade system, in the hope that this will increase world commerce and consequently spark economic activity and growth in developing countries.

But, in fact, it would be a pleasant surprise if any international trade deal was in place before the talks are due to end, says a SAIIA trade report, Africa after Cancun: Trade Negotiations in Uncertain Times, released before a meeting of World Trade Organisation (WTO) representatives in Geneva on December 15. The meeting will try to find a way to restart the stalled talks.

The trade talks collapsed mainly over the effective refusal of the European Union and the United States to reduce or remove government subsidies to their farmers.
These subsidies make farm produce from the advanced economies extremely cheap, resulting in agricultural goods from the developing world — often their main products — not being competitive in these rich markets.

In the SAIIA report, the institute’s Peter Draper and Razeen Sally point out that the US presidential and congressional elections have effectively already begun, and this is likely to prevent any further movement on agricultural subsidies in that country before 2005. The US has a powerful agricultural lobby, which is particularly influential in states of strategic importance to the Bush administration.

They also point out that 10 new countries will join the EU midway through 2004, and this will occupy much of the union’s attention. Also, the newly acceded countries, having tasted subsidies and due to receive progressively more until 2013, might well oppose agricultural reform. The EU has an annual share of no less than 85% of all notified agricultural subsidies among WTO members.

But Africa in particular and the developing world in general are not without legal weapons which, used with care, could be utilised to try and force the world’s advanced economies to do more to open their markets.

Ironically, the biggest gun in the developing world arsenal is the expiry of the “peace clause” — Article 13 of the WTO Agreement on Agriculture — at the end of 2003, says London-based trade lawyer Olu Fasan.

The “peace clause” commits developing countries to not challenging the right of others to subsidise their farmers, under other WTO trade agreements, such as the General Agreement on Tariffs and Trade or the agreement on Trade Related Intellectual Property Rights. As a result of the breakdown of the trade talks at Cancun, the world’s trade ministers did not agree to extend the “peace clause” and it is now due to expire at the end of this year.

This opens the way for developing countries to use the agreements and international law to try and force the advanced economies to drop subsidies to their agricultural industries and improve access to their markets.

WTO law also has countermeasures, by which weak states can hit back at the powerful, says Fasan. The report gives an example where a WTO arbitration panel affirmed that Ecuador could retaliate against EU quotas on its banana exports by refusing to protect the exclusive copyrights of EU music producers and artists.

Ecuador successfully argued that, given its relative economic weakness, this was the only way it could hurt the EU. Other developing countries could similarly threaten to end protection of intellectual property as a “retaliatory weapon”.

However, Africa must be prepared if developed countries react to these challenges by using all sorts of economic pressure, he warns. Most African countries depend on the EU for aid and special trade concessions. To openly challenge EU subsidies, Africa must be willing to bear the risk of retaliatory cuts in aid or special bilateral trade access. Members of the EU and the developing world have repeatedly shown themselves willing to do this when their political or economic interests are at risk, says Fasan.

Consequently, the use of an aggressive strategy by developing countries would be best supported by a broad coalition, such as the G20+, which includes heavyweights like Brazil and India, he advises.

But retaliation by the advanced economies may not necessarily follow. Fasan points out that the US acceptance of a WTO panel decision in favour of Costa Rica came about because the US did not want to be accused of trampling on a small, poor country.

So the court of international public opinion may be more powerful than self-help in terms of retaliation. All that an African country may require is the confidence to take on a major trading nation or bloc, observes Fasan.

Gruzd also points out that at present, international trade is as a much popular political issue in the US and the EU as it has ever been. “I’d like to see ambassadors go on local radio talk shows and mobilise public opinion in these countries in favour a better, fairer trade deals with developing countries,” he says.

Fasan would also like the African Union to be more proactive. On agricultural subsidies, as on other WTO issues, the AU should pool legal, technical and financial resources to challenge the developed countries on policies that stifle or undermine Africa’s development.

He also warns that African countries need to sort out divisions between agricultural exporters, including those benefiting from agricultural trade preferences, and food importers, who fear higher food prices if subsidies to their suppliers in the advanced economies are stopped.

The report is available online

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