Trade can power battle against poverty

Updated: Aug 4 2005, 05:30am hrs
The recent G-8 meeting in Scotland has drawn attention to the amount of international assistance reaching Africa. This is understandable in the light of the continents poverty, seemingly endless conflicts, prevalence of HIV-AIDS and other infectious diseases. If properly targeted and conditioned on reforms, international aid can make a difference.

But aid is no panacea. That problems persist despite billions of dollars of assistance and years of effort is a sad reminder that aid can allow governments to undertake foolish investments, or be siphoned off by corrupt officials. Moreover, aid is inherently uncertain.

Another problem with the emphasis on aid is that the political effort to increase it absorbs attention that would be better spent on a more powerful instrument of economic development: trade. The all-but-forgotten weapon in the battle against poverty, trade can provide more help to the poor than aid can. If rich countries, particularly, the United States, the 25 members of the EU, and Japanreally want to help the poor, they will open their markets to what poor countries produce, especially textiles, apparel, agricultural products, and commodities.

Phasing out tariffs and import quotas for poor countries exportsand phasing out subsidies for their own producers of agricultural productswould have a dramatic effect on the lives of millions in Africa and elsewhere. Private businesses would develop, jobs would be created, and incomes would rise.

Trade benefits the world in many other ways, providing a major boost to the advanced economies. Incomes around the world would rise from liberalising more global trade in both goods and services. Trade is also an engine of political and economic reform. What countries must do to join the WTO is precisely what they must do to become productive and democratic: accept the rule of law, reduce corruption, become accountable and transparent. Increased trade can sustain a middle class which often stands at the forefront of movements for democratic reform.

Trade has a strategic benefit too: it gives countries a stake in good relations with one another and in maintaining order and stability. A China that trades extensively with the US and its Asian neighbours will think twice before it pursues any policy that would place risk those relationships. Likewise, trade between India and Pakistan could contribute to the normalisation of ties between these estranged neighbours.

But if the case for expanding world trade is compelling, the prospects for doing so are clouded, owing to a simple but fundamental political reality: those who gain from trade, which is almost everyone, are not always aware of it. The benefits of freer trade, such as jobs, lower inflation, and greater consumer choice, are often invisible or only partly visible.

By contrast, those who lose from trade, or who fear they could lose, while relatively small in number, are anything but invisible. They feel the threat and act accordingly, often dominating their countrys political process. What is needed is a pledge by governments to give global trade liberalisation much higher political priority. This will happen only if the major trading countries demonstrate a commitment to play by the rules.

For China, this means respecting and enforcing intellectual property rights, allowing non-Chinese firms to compete on an equal basis, and setting its currency at a fair level. For the US, EU and Japan, it means ending massive subsidies to farmers and curtailing protection provided to uncompetitive sectors.

Governments can take these steps if they introduce and expand programmes to assist those who would be jobless as a result of trade liberalisation. Displaced farmers and workers must be provided with the education and training for new jobs, as well as the funds, health care, and other services they need to tide them through the transition. There is urgency in all of this. The Doha round of global trade negotiations is behind schedule; the next session, in Hong Kong, is only months away. Where are the people who benefit from trade, including the celebrities who care so deeply about alleviating poverty and promoting development Live Trade, anyone

The writer is president of The Council on Foreign Relations and formerly director, policy planning, US state department.

Copyright: Project Syndicate