Global trade injustice impedes development

By Medicine Masiiwa

AFRICA enters the new millennium as the poorest continent in the world. It has the highest number of people living on under US$1 per day while nearly two thirds of its population suffer f

rom chronic hunger and about a third of its population are infected with the deadly HIV.

Yet Africa has massive developmental potential, considering its wealth in natural resources. Naturally, trade can create prosperity for Africa as it has done in other regions. But trade has not benefited Africa primarily because terms of trade for Africa are determined outside the continent.

Trade injustices against Africa started about six centuries ago when its people were forcibly bound into ships for free labour in America and Europe. Trade injustice took a less brutal form during colonisation but the effects are equally damaging. Trade during this period was centred on the plunder of African natural resources for the development of colonial powers. The exported natural resources created wealth for Europe and North America at the expense of Africa itself.

It is also the continued trade injustice that pushed African countries to seek independence. The belief was that African self-rule would automatically create wealth for its people. Potential areas of development were social and physical infrastructure as well as the manufacturing industry.

Notwithstanding the political independence, socio-economic development eluded Africa for the larger part of the post-colonial period. Instead of broadening the export base, this period saw the entrenchment of trade injustices that forced African countries to increasingly export raw materials, whose prices continued to decline on the global market. Prices of finished products on the other hand continued to escalate.

A credible attempt to create a development-oriented trading regime was done in the early 60s under the Lomé Agreement. Newly-independent Francophone African countries agreed to continue exporting natural resources, but this time in exchange of developmental resources from their former colonisers. The United Kingdom and its colonies joined in 1973.

A major advantage of the Lomé Agreements was that it provided African countries non-reciprocal trade preferences in the form of reduced tariffs and commodity protocols. Zimbabwe benefited from the beef (granted a quota of 9 100 tonnes) and sugar protocols.

In the last two decades however, a number of political and economic events happened which fundamentally changed the nature of EU-African co-operation. Chief among these are the end of the cold war, the implementation of the IMF/World Bank-sponsored structural adjustment programmes and the establishment of the World Trade Organisation (WTO).

The end of the cold war meant that Africa had lost its attractiveness as a strategic partner for Europe in the fight against communism. Further, the end of the cold war created new poor countries nearer to the EU, whose problems drew more attention than Africa.

In the 1980s-90s most African ACP countries agreed on IMF/World Bank-sponsored economic structural adjustment programmes (Esaps). These essentially involved opening up African economies to foreign competition and reducing the role of the state in running the economy in return for financial aid from the two institutions.

However, by signing Esaps, African countries had eroded the benefits they enjoyed under Lomé. More fundamentally, the conclusion of the Uruguay Round of Talks and the establishment of the WTO rendered the ACP-EU co-operation agreement problematic.

In the light of the Most Favoured Nation principle of the WTO, preference treatment of ACP members by the EU became illegal because it discriminated against other countries. This was a major argument used by the EU to justify termination of Lomé IV and negotiate a new partnership which was WTO compatible.

A new ACP-EU co-operation agreement (Cotonou Agreement) was signed in 2000. Notable about this agreement is the fundamental departure from its Lomé developmental approach. The Cotonou Agreement is based on the principle of reciprocity which is a major source of trade injustice for Africa.

Research has shown that due to supply side constraints, benefits in a Free Trade Agreement (FTA) between developed and developing countries flow to developed countries. Despite this observation, the EU insists on signing Economic Partnership Agreements with African group of countries under the Cotonou Agreement.

However, there is justifiable fear that such an agreement will lead to farm and company closures in Africa, leading to high unemployment and poverty. Since EU agriculture is subsidised and its companies more efficient producers, African farmers and companies cannot compete with those in the EU. This obviously results in cheaper EU goods flooding African markets, thereby destroying its production base.

The unfair trade practices are further entrenched in the World Trade Organisation (WTO). This is a multilateral agreement among countries, providing a forum for negotiating trade concessions and removing of trade barriers, monitoring the multilateral trade system and developing a rule based trading system.

However, agenda setting and decision-making on key issues under the WTO is seen to be dominated by powerful economies and this makes it difficult to implement fair trade rules.

African countries have noted with concern that virtually all senior positions in the WTO are occupied by personnel from developed countries. This explains why some rules in WTO are against African interests. For instance, commitments to reduce tariffs (customs tax) under the WTO ignore the fact that tariffs in Africa have a multiple role — protecting domestic industry and generating revenue for the government. The revenue is further channelled into the development of social sectors such as health, education and infrastructural development. A drop in customs revenue collection thus compromises the development of these sectors, much to the detriment of the people. The role of customs tax to developed countries on the other hand is marginal due to a diversified income revenue base.

Tariff reduction under the WTO further ignores the fact that African countries had already reduced their tariffs under Esaps. This essentially means that African countries reduced their tariffs more than their developed counterparts.

Agricultural subsidies in developed countries are also a major concern for African countries. A subsidy is some form of payment or price support or a financial contribution by the government or public body. Developed countries still subsidise their agriculture, giving the products an unfair global market advantage. For instance, the US government subsidises its cotton producers at the expense of poor African farmers who rely solely on cotton production for income. The EU’s Common Agricultural Policy (Cap) also allows it to grant huge subsidies to its farmers.

Dumping is a practice that has seriouly affected the development of African countries, particularly that of small-scale industries. Dumping is a predatory practice aimed at eliminating competition and increasing market-share.

A product is “dumped” on the export market if its export price is less than the normal value. Normally, a country can institute corrective and punitive measures against a country dumping goods in its territory. What makes dumping dispute rules unfair is that the disputes have been taken away from the WTO Dispute Settlement Body. This makes it very difficult and expensive for poor African countries to prove or contest dumping cases (cause and injury). Therefore, it is essentially developed countries who benefit from the anti-dumping rules because they have the money and human skills to use the facility.

*Dr Medicine Masiiwa is a researcher with the University of Zimbabwe and Trade and Development Studies Centre (Trades Centre).