Global Policy Forum

By Ian Gillson*

Freer trade brings growth and is a panacea for poverty - or so the headlines would have us believe. The Africa commission has said that successful completion of the Doha round of trade negotiations would increase global income by $400bn (£230bn), with some $150bn of that being for developing countries. This would translate into 144 million fewer people living on less than $2 a day, with sub-Saharan Africa seeing the greatest reduction, of 60m.

But for African development in particular, trade alone cannot be the answer. Even if developing countries gain as a group, most of the benefit will go to the largest and most competitive suppliers in Asia and Latin America. Sub-Saharan Africa would receive only between $10bn and $20bn, equivalent to 5% of its gross domestic product. Some countries may even lose due to "preference erosion" on exports of products that attract high preferential margins, such as textiles, bananas and sugar.

There are also doubts about whether African countries even have the capacity to increase their exports. Since 1980 Africa's share of world exports has declined from 4% to 1%. Part of the blame lies with poor infrastructure, weak institutions and the failure of African countries to liberalise trade themselves.

There is also the continuing problem that Africa remains dependent on primary commodities and is vulnerable to depressed and volatile prices. Several countries depend on just one commodity for more than half their foreign exchange earnings. This is particularly serious since over the past 30 years, commodity prices have been falling.

A key question is whether significant liberalisation will happen. The failure of the World Trade Organisation's ministerial meeting at Cancún in September 2003 showed that there was deep disagreement over the global trade liberalisation agenda. Agriculture became the focus of the north-south divide in Cancún, and a major cause of the session's collapse. The European Union, having just reformed the common agricultural policy, refused to liberalise agriculture any further.

There was also limited commitment from the United States, as it dismissed the pleas from the five cotton-producing states in west and central Africa to eliminate cotton subsidies. At the same time, developing countries were building strong coalitions that promised not to deliver anything unless their interests were addressed.

After Cancún, a political message was needed to show the Doha round was still alive. It came on July 31 2004, when WTO members agreed a trade package in Geneva. Crucially, consensus was reached on a framework for agriculture.

But there are already several bumps in the road to the Hong Kong ministerial meeting this coming December. First, there are the trade issues themselves. The agreement made in July proposed no more than a way forward for the negotiations. The details of any agreement remain a crucial challenge.

Second, there are a number of outstanding political issues. For the EU, splits among the member states in the wake of the French "no" vote on the European constitution appear to make any agricultural reform unlikely. For the US, there is more optimism, given that the climate is less politicised than in past talks, although there will continue to be angry disputes with the EU on issues such as Airbus and Boeing.

Third, there is the continued proliferation of regional agreements with the perceived failure of multilateral negotiations, resulting in a "spaghetti bowl" of opaque, overlapping and discriminatory trade procedures that are costly to administer and negotiate.

But notwithstanding these problems, an ambitious western trade agenda would be in the interests of Africa, and all countries more generally. This should consist of multilateral trade liberalisation in products of export interest to African countries - particularly agriculture but also in new areas such as services; the development of financial mechanisms to compensate African countries adversely affected by preference erosion, and major investments for trade-related capacity building, infrastructure and the investment climate in Africa, in order to increase its ability to benefit from a more liberal trading environment.

About the Author: Ian Gillson is a research fellow at the Overseas Development Institute in London.

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