by Someshwar Singh

Geneva, 5 Apr 2000 -- The rules of international trade need to be changed to harness them for poverty reduction, just as the international financial institutions have begun to make a link between external debt and poverty, says a UNDP report.

Released Tuesday, the UNDP Poverty Report 2000, written by staff policy experts Perry Mckinley and Stephen Browne, argues that unfair rules of the game in global trade works not just to the disadvantage of the poorer developing countries but actually contributes to the continuing poverty of billions of people worldwide.

The UNDP, say the authors, favours a Millennium Round of trade negotiations that will help open markets to developing country exports - critical for improving the prospects of meeting international poverty reduction targets.

Despite an increasing export orientation, many of the poorer developing countries remain unable to penetrate major export markets, says the report. "As a result, they lack the foreign exchange to purchase many essential imports - a major reason for their indebtedness and a contributor to their widespread poverty."

If poor countries are to benefit from the opportunities offered by global trade, the rules and institutions governing it must be transparent and fair, the report affirms. And poor countries must have the capacity to negotiate more favourable agreements, such as during the rounds of the World Trade Organization (WTO).

These developing country concerns were not addressed at the WTO meeting in Seattle in late 1999, which was convened to lay the groundwork for a new round of international trade negotiations, says the report. "Lack of attention to these concerns was a major reason for the Seattle meeting's failure to produce concrete results."

As an example, the report cites the current WTO trade rules governing agriculture. Under the existing WTO agreement on agriculture, countries are obliged to lower tariffs, convert quotas to tariffs and reduce subsidies to their agricultural sectors.

But developing countries argue that industrial countries have used both tariff and non-tariff barriers to restrict access to their agricultural exports - leading to annual losses in export earnings of $700 billion.

And industrial countries continue to charge higher tariffs on processed than on non-processed foods, frustrating developing country efforts to add value to agricultural exports.

Developing countries also maintain that existing WTO exemptions on subsidies allow rich countries to provide direct income support to agricultural producers, the report says. Under these exemptions, governments can provide unlimited support to general services - including subsidies to infrastructure, research and marketing. In 1995, these subsidies in rich countries amounted to $46 billion.

Under conditions of unfair competition, developing countries fear that their population's food security - its access to enough food to meet nutritional needs - will be jeopardized by lowering barriers to agricultural trade.

Who will bear the immediate brunt of this liberalization? The rural poor - the marginal farmers and landless labourers relying on small-scale agricultural production for their livelihoods, the report points out. "These concerns have led many developing countries to call for a moratorium on further liberalization of agricultural markets."

They have argued that unforeseen fluctuations in international prices could compel many poor countries to borrow to pay for food imports, worsening their balance of payments, increasing their external debt or making them more dependent on food aid.

Indonesia, which depends on imported food - 20 million tonnes of rice a year, two-thirds of the world rice trade - found itself, in the midst of its economic crisis, with inadequate supplies of locally produced food and a severely devalued rupiah that sent the price of imported rice skyrocketing.

According to some estimates, more than 100 million Indonesians joined the ranks of the poor as a consequence.

"If trade expansion is to begin benefiting the poorer developing countries, the international rules of the game must be made more fair," according to the UNDP report. "Eliminating protectionism that is biased against developing countries should be a high priority."

The international costs of protectionism - to everyone - are huge. The cost of protecting agricultural production in industrial countries amounted to a staggering $353 billion in 1998, seven times official development assistance.

As a standard procedure, those proposing further liberalization of agricultural trade should demonstrate the potential impact on poverty and food security before the proposals are considered for multilateral negotiation, the UNDP report suggests.

Much more also needs to be done to strengthen the bargaining position of developing countries in international trade negotiations, the report suggests.

"They have much less power than industrial countries, in part because they have fewer human and technical resources to deploy in negotiations. Tellingly, during the WTO's analysis and information exchange process - on the agreement on agriculture - South Africa was the only African country to make a submission. Most Sub-Saharan African countries are still trying to implement the agreements reached in the previous Uruguay Round."

One way to bolster the negotiating capacity of developing countries is by promoting regional coalitions, ensuring not only greater bargaining power but also some economies of scale in deploying scarce technical expertise, the report suggests.

To produce more equitable results, the WTO and similar global governance structures should become more transparent and participatory, the report observes. "That is particularly important at a time when industrial countries and many multilateral institutions are exhorting developing countries, in the name of good governance, to be more accountable to their citizens."

For its own part, the UNDP cites a few of its projects aimed at promoting poverty-reducing trade. For example, it is assisting developing countries in building national and regional technical capacity to negotiate trade-related agreements and to benefit from the opportunities offered by trade expansion. With five other agencies, it is co-sponsoring a programme - the Integrated Framework for Technical Assistance for Trade and Trade-Related Issues and Least Developed Countries - that has played an important role in helping poor countries, such as The Gambia and Haiti, to prepare for donor meetings on trade policy issues.

Another UNDP programme 'Globalization, Liberalization and Sustainable Human Development', implemented in partnership with UNCTAD, helps build national capacity and international coalitions to prepare for negotiations at global trade forums.

In 1998 the programme organized an international workshop on a range of issues, such as the multilateral investment framework and the implementation of the Uruguay Round agreements, to assist least developed countries in preparing for the WTO meeting in Seattle.

UNDP's regional programme for trade capacity building in Sub-Saharan Africa, on the other hand, is designed to build the governments' capacity to develop strategic trade policies in consultation with the private sector, and to help policy-makers obtain trade-related information and support services.

The organization has also strengthened the institutional capacity of the Economic Cooperation Organization - which includes Afghanistan, Azerbaijan, the Islamic Republic of Iran, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkmenistan and Uzbekistan - to foster regional economic cooperation through increased trade and investment. (SUNS4642)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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