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Free trade for the poorest

Free trade for the poorest
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First Published: Wed, Sep 23 2009. 09 53 PM IST
Updated: Wed, Sep 23 2009. 09 53 PM IST
All the focus at the Group of Twenty (G-20) meeting in Pittsburgh this week will be on bankers’ bonuses. But there are other credit crunch issues that affect millions of people, yet which are not getting the attention they deserve—such as removing trade barriers against the world’s poorest countries.
The G-20 has talked big on trade but achieved little. At its London summit in April, leaders pledged to “do whatever is necessary to…promote global trade and investment and reject protectionism, to underpin prosperity”. Since then nothing has happened, except worrying signs of increased protectionism.
Although protectionism is a common reaction in times of economic uncertainty, it will hurt people even in the most prosperous countries. What’s more, it will also divert attention from some simple steps G-20 leaders could take to help citizens of the poorest countries on earth. For the latter, the failure to partake in freer trade can be a matter of life and death.
Ironically, promoting global trade and investment, as well as rejecting protectionism, won’t cost much. No expensive Troubled Asset Relief Programme (TARP) or other government bailout packages are necessary. No nitty-gritty Doha Round either. Trade is the single best route out of poverty; there are five fairly simple steps the G-20 and others can take to allow the poorest to trade their way out of misery.
First, richer countries must open their markets unconditionally to the low-income countries, as defined by the World Bank. Trade unions and activists in the West needn’t worry; the threat of competition to rich countries is minimal. The poorest nations, with people living on less than $2.70 a day, account for one-fifth of the world’s population but less than one-fiftieth of world trade.
Second, trade rules must be simplified. Complex rules of origin mean that countries that are entitled, in theory, to tariff-free access to developed markets are actually paying high tariffs or being excluded by the complications of bureaucratic barriers.
Third, rich countries’ export and domestic subsidies, which undermine poor countries’ ability to compete, should be reduced or removed. Among the worst examples are barriers erected by Japan for rice, the US for cotton and the European Union for cows.
Fourth, poor countries need to make a number of changes too, especially reducing tariffs among themselves. The highest tariffs in the world are among the poorest countries, where governments and customs officials abuse trade regulations and damage regional trade.
The World Bank’s 2009 Doing Business study shows that exporting a container from an Angolan port requires an average of 12 documents, costs $2,250 and will take a massive 68 days to clear. In landlocked Botswana, it takes 37 days; in Senegal, it only takes 14 days—better than the world average.
This is one of the reasons why less than one-tenth of African exports go to other African countries, while nearly three-fourths of European trade is within Europe.
Fifth, renewed investment is essential in roads, ports and administrative structures that would make trade possible or easier in developing countries. And it’s not just external trade: In 2006, Kenya could not get its agricultural surplus from its west to its famine-stricken north, and had to consequently rely on international humanitarian aid.
Lifting all barriers in the G-20 is cheap and easy: In practice, each G-20 country could act alone. But if the G-20 worked together and devoted only a fraction of the time and energy it will give to bankers’ bonuses at this week’s summit, the bonus for the poor would be measured not in millions of dollars but in lives.
The authors are members of the British Parliament. Comment at therviews@livemint.com
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First Published: Wed, Sep 23 2009. 09 53 PM IST
More Topics: TARP | G-20 | World Bank | European Union | Views |