Inequity in world trade and the crisis of development in Africa

The equity deficit in trade agreements
The clause concerning the most favoured nation – any exporting country enjoying this disposition automatically gets the most favourable custom rate – is the basis of world trade relationships. This clause, usually considered as the pillar of multilateralism, fulfils two essential functions: firstly, it prevents discrimination and secondly, it secures commercial agreements. Subsequently, the expected effects from agreements cannot be put into question by a preferential agreement. The clause concerning the most favoured nation therefore corresponds to one of the obligations that nations signing an agreement commit themselves to respect in order to create conditions of fair trade, and by that favour a perfect liberalisation of world trade. The spirit of this clause may be compatible with the requirements of free trade. It is however appropriate to point out the difficulty inherent in its application, especially when the interests of the most powerful actors of the system such as the United States (US) and the European Union (EU) – more than 80 percent of transactions are carried out in one of their two currencies – are threatened. Generally, these actors impose their rules of law on principles that govern the trade agreements elaborated by the World Trade Organisation (WTO). Their influence on most of these principles is manifest, conveying the equity deficit in these agreements. Equity is founded on a liberal philosophy of law, and privileges in its commercial aspects the relationships between producers, without considering the interest of third parties like consumers. It therefore has as its aim the protection of producers from measures or behaviours considered as ‘abnormal’, and which could put them in an unfavourable position vis-a-vis competitors. However, this deficit can be verified on three main aspects: 1) the commercial legislation of the US, 2) the introduction of certain norms in agreements, 3) the exceptions inscribed in agreements.

It is surprising to note that the American commercial legislation takes precedence over WTO agreements, as the ratification of the Marrakech accord explicitly stipulates that the US is free to leave the WTO if it is condemned three times by the WTO’s conflict settling organ. This commercial legislation goes further, allowing the US to play the double role of player and referee. In effect, the US has the possibility to ignore agreements elaborated by the WTO, and make recourse to the dispositions of ‘section 301’ of the trade legislation which allows them to take retaliatory measures against countries that they judge guilty of “unjustifiable, unreasonable or discriminatory” practices which would place their trade in difficulties. The objective of these dispositions is to favour the development of fair trade, the advocates of which consider that the form in which trade is practised in order to profit from the comparative advantages constitutes a sort of pre-trade condition. The supremacy of the American commercial law permits the measurement of the scope of equity problems in trade agreements and one can understand why certain critics consider the WTO an instrument at the service of American interests.

The equity deficit in trade agreements is also in evidence when we study certain norms which are taken into consideration: social and environmental norms. The clause on social norms leans on the idea that certain developing countries carry out social dumping, which is at the origin of artificial advantages in exchanges with industrialised countries. How can we consider that trade between poor countries and rich countries is affected by social differences which could be the source of a sort of biased competition? As we can observe, this clause levels out conditions for competition and poses the question of protectionism towards developing countries. The EU and the US demand negociations on the establishment of such a social clause, whereas the developing countries are opposed to this perspective which they consider as increased protectionism in disguise. Environmental norms constitute another aspect of protective barriers erected against poor countries, all of which contribute to throwing more light on the weak level of equity in world trade relationships.

This problem is also found at the centre of exceptions or derogations tolerated by texts governing the WTO. In effect, although these texts do not resolve the problem of unfair competition posed by exports on the markets of developing countries, they do, however, recognise the possibility of resorting to subsidies, whose contribution to developed countries is to render their production competitive, notably by favouring the sales of excesses on the world market. Nevertheless, the sales of the excesses of the EU and the US provoke a fall in the prices of many agricultural products, bringing about an instability of these prices and precariousness in the development of poor countries, the majority of which depend on these products.

In sum, the framework governing world trade relationships is fundamentally unequal, given that the strong dictate their rules to the weak. The latter can only bear the suffering from the point of view of their development and we will now point out the consequences.

The consequences of equity deficit in trade agreements
The main objective of the WTO is to ensure the liberalisation of world trade with the aim of favouring economic growth. Yet, concerning less developed countries in particular, there exist doubts on the link between external opening up and growth, and the absence of this link could be interpreted in the light of the equity deficit that we have previously presented. As most developing countries depend on agriculture, it is mainly from this sector that we will appreciate the consequences of inequitable trade agreements on their development. We will successively study aspects of these agreements related to subsidies, progressiveness of rights and preferential agreements.

As for subsidies, they have perverse effects on the economy of poor countries as they do not only artificially stimulate world production, bringing about overproduction (and by consequence, a fall in prices), but also, they permit farmers of the EU and the US to better resist falls in prices. Limiting ourselves to the case of cotton, it has been established that the value of the subsidies distributed to 25,000 American farmers is higher than the value of their production. In 2001, the cotton they produced was valued at 3.5 billion USD, while during the same period, they received subsidies amounting to 4 billion USD from the state. Elsewhere, the size of these subsidies is double the 1.9 billion USD authorised according to the rules of WTO. In total, American farmers, whose cost of production is double the international sale price, enrich themselves to the detriment of the ten million African peasants who have only very limited means of subsistence. This situation is of such concern as cotton alone constitutes a vital resource for many developing countries: it represents respectively 75 percent and 60 percent of export revenues in Benin and Burkina Faso; it constitutes more than one third of the Gross Domestic Product (GDP) in Burkina Faso.

We can also observe the consequences of equity deficit in trade agreements on the development of poor countries from a second aspect, the progressiveness of rights. The progressiveness of rights intervenes when tariffs increase in relation to the stages of transformation. It constitutes a protection for domestic transformation industries, allowing them to increase, in an artificial manner, their value added compared to that of more efficient international competitors. This disposition inscribed in agreements on agriculture is not favourable to poor countries, in the sense that it risks confining them to the exportation of primary products. Considering the fact that they are characterised by a non-dynamic specialisation, with less diversified exports and centred on primary products, such a confinement is not consistent with the phenomenon which is at the heart of globalisation. In effect, this process is accompanied by a world trade marked by an important domination of manufactured products: these represent about 80 percent of this trade. To this effect, primary goods which represented a little more than one third of exchanges just after the second World War, lost their ground and represent now only 10.3 percent of exchanges at the beginning of the third millennium. In sum, the structure of exchanges has been modified and it is difficult, in practice, to build a harmonious development of poor countries on primary goods, especially at this time, when grey matter constitutes the main determinant of development.

If world trade has to be governed by principles of free trade, it is logical that it should not suffer from market frictions. Preferential agreements correspond to such frictions, and their analyses permit us to see the extent to which they constitute a source of impediment to the development of poor countries. Let us consider the case of the system of generalised preference payments in the framework of the United Nations Conference on Trade and Development (UNCTAD) and the Lomé Convention, adopted by the European Economic Community and ACP countries (Africa, Caribbean, and Pacific). Although the objective of these preferential agreements was to help ACP countries to increase their exchange with European partners, the unexpected impact has been a further isolation of these economies from international competition. In other words, these agreements have killed the incentives to increase efficiency in production and trade, and also the competitiveness of these countries, particularly African countries. This can be explained by the fact that the main part of Africa’s advantages in external trade derives from the mechanisms of these agreements: about 60 percent of Africa’s exports go to Europe; 20 percent go to the US and Japan, and these three poles accord Africa privileges of the generalised preference system.

Conclusion
Free trade is assumed to be beneficial to participants in world trade. But, this is not the case in practice, due to differences in strength, which bring about inequitable situations, prejudicial to the development of countries whose weight does not influence the negotiation of commercial agreements. There is therefore a need for collective awareness of the stakes involved and the acceptance by each and every one to make immediate concessions in order to promote a common approach in the framework of world trade. The best way is, however, to redesign the process of multilateralism which can promote an equitable opening of world trade and permit the population of the whole world to benefit from the opportunities and wealth that it can provide. In this regard, African initiatives such as the New Partnership for African Development, Tony Blair’s initiative such as the African Commission, and current EU-ACP relations have to pay closer attention to how Africa’s development can be tied to greater commitment to promoting equity in their trade relations with the continent .

Selected reading
Bhagwati J., “Protectionism, Old Wine in New Bottles”. In Journal of Policy Modeling, no. 7, 1985.

Brand D. and R. Hoffmann, “Le Débat sur l’Intro-duction d’une Clause Sociale Dans le Système Commercial International: Quels Enjeux?”. In IFO-Schnell-dienst, translated in Problèmes Economiques, no. 2400, 1994.

Coughlin C., “US Trade-Remedy Laws: Do They Facili-tate or Hinder Free Trade?”. In Federal Bank of St. Louis Review, July, 1991.

Food and Agriculture Organization of the United Nations, Les Conséquences de l’Accord sur l’Agriculture du Cycle d’Uruguay pour les Pays en développement: un Manuel de Formation. Rome: FAO, 1998.

Rainelli M., L’Organisation Mondiale du Commerce. Paris: Editions La Découverte, Collections Repères, 2002.

Rodrick D., “Les mirages de l’Ouverture Extérieure” In L’Economie Politique, 2nd trimestre, 2001.

Siroën J.M., La Régionalisation de l’Economie Mondiale. Paris: Editions La Découverte, Collections Repères, 2000.

Stiglitz J.E., Quand le Capitalisme Perd la Tête. Paris: Edition Fayard, 2003.