Fairtrade brings tangible and invaluable benefits to producers all over the South. However, only a small percentage of the total number of farmers, craftspeople and workers who are dependent on trade receive those benefits because the Fairtrade market, although growing, is small. Most producers operate within a system of trade which is far from fair in that they cannot make a decent living from the price they obtain for their products. Fairtrade campaigners are therefore also involved in pressing for changes in this system.
Our main aim is to address the problems which developing countries face in their trading relationships with the rest of the world, especially with the rich countries of the *G7[i]. But we also look at other issues connected to world finance and their effects on developing countries.
To do this we obviously need to take a close interest in the way the rules and regulations for both trade and finance, which are largely drawn up by the rich countries, affect poorer countries. And when we find anything which has a really serious adverse impact we decide what action, if any, we can take.
*[i] The G7, Group of Seven is a forum, created by France in 1975, for governments of seven nations of the northern hemisphere: Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States; Russia was a member of the then G8 but was suspended in 2014. The European Union is represented within the G8, but cannot host or chair.
Most producers operate within a system of trade which is far from fair in the sense that many cannot make a decent living from the price they obtain for their products. The term ‘fair trade’ defines a trading partnership, based on dialogue, transparency and respect that seeks greater equity in international trade. This is also a good enough definition of Trade Justice.
International Trade Rules and the World Trade Organisation [WTO]
The depression of the 1930s and the Second World War gave prominence to the idea that the future economic success and stability of the world would be helped by agreed rules on trade. The Bretton Woods Conference of 1944 proposed the creation of an International Trade Organization (ITO) to establish rules and regulations for trade between countries. but the U.S Senate would not accept the proposed treaty. Some historians have argued that the failure may have resulted from fears within the American business community that the International Trade Organization could be used to regulate (rather than liberate) big business.
Only one element of the ITO survived and still survives: the General Agreement on Tariffs and Trade (GATT). Seven rounds of negotiations occurred under the GATT before the eighth round, known as the Uruguay Round which began in 1984 and concluded in 1995, led to the establishment of the WTO. The GATT principles and agreements were adopted by the WTO, which was charged with administering and extending them and resolving trade disputes between member countries. Unlike the GATT, the WTO has a substantial institutional structure.
The mission of the WTO is to increase international trade by promoting lower trade barriersand providing a platform for the negotiation of trade and to their business. It was agreed that the WTO should follow these fundamental principles of trading:
According to WTO rules, all WTO members may participate in all councils, committees. In practice, most of the WTO’s decisions are made in informal meetings, often called “Green Room meetings, to which most members are not invited.
At the highest level the Ministerial Conference meets at least every two years. It brings together all 164 members of the WTO, all of which are countries or customs unions. The Ministerial Conference can make decisions on all matters under any of the multilateral trade agreements.
Trade Justice and the WTO
At the Fourth Ministerial Conference in 2001 in Doha, Qatar, The Doha Round of negotiations was launched. Its aim is to achieve major reform of the international trading system through the introduction of lower trade barriers and revised trade rules. These talks drag on without coming to any conclusion as the richer nations demand concessions from the developing countries, which in turn are refusing to yield. One reason for this is that the US in particular, but also the EU, feel threatened by the rise of China as a trading nation. Another hindrance is that changes to the rules of trade require the agreement of all WTO members.
There has been just one significant agreement and that was in 2013 on trade facilitation, which is designed to cut red tape and speeding up of port clearances.
It is apparent from this history and from the inequality of power between the richer countries and the poorer, and despite the good intention of the founders of this system, moves towards enabling poorer countries to benefit from the WTO have not succeeded. A particular example of this failure is cotton. Cotton is vital for the economies of cotton-producing countries in West Africa: Benin, Burkina Faso, Chad and Mali, known as the Cotton-Four (C-4). The exports from these countries face stiff competition from the US in particular which continues to give domestic support to its cotton growers.
The WTO is committed to the idea that free trade and competition will lead to the greater wealth of the developing world. This commitment flies in the face of the fact that the richer nations, the UK in particular, and also the US, developed under the protection of tariffs on trade from their competitors. The ideal of free trade depends on equality between countries and that equality is notably absent.
The WTO, Free Trade and the developing nations
We can see the impact of the WTO’ s commitment to free trade in the signing of Economic Partnership Agreements [EPAs] between the EU and the African, Pacific and Caribbean [ACP] countries. The need for such agreements arose from the challenge made in the World Trade Organisation to long established agreements between the EU and the ACP which had offered a degree of protection for the exports from the ACP countries, most of which were former European colonies. The agreements require trade liberalisation – the removal of tariffs – in return for continued entry for ACP goods into EU markets. There has been much criticism of the way these agreements have been pushed through under threat of the total removal of protection and diminishing levels of aid. This approach has resulted in rushed deals, removing the opportunity for appropriate expert or public scrutiny as well as debate of the content either in ACP countries or Europe.
The one benefit which has been given some added impetus by the EPAs is greater regional integration of trade. When trade is more interconnected Africa’s high number of small economies access larger markets and regional sources rather than relying on the international market. This has long been an expressed aim of African leaders but progress towards it had been slow.
The 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012, adopted a decision to establish a Continental Free Trade Area . The Agreement Establishing the African Continental Free Trade Agreement (AfCFTA) entered into force on 30 May 2019 for 24 countries . The main objectives of the AfCFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. It will also expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation and instruments across the RECs and across Africa in general.
US and the WTO
President Trump has been complaining about the treatment of the US by the WTO; in particular he sees China’s position there as undermining the US trade security. He has accused China of unfair trading practices and intellectual property theft. In China, there is a perception that America is trying to curb its rise as a global economic power.
The dispute has moved out of the WTO as the US and China impose tariffs on hundreds of billions of dollars worth of one another’s goods. Negotiations are ongoing but have proved difficult. In January, 2019, the two sides signed a preliminary deal but some of the thorniest issues remain unresolved.
Faultlines in the WTO
What Trump has succeeded in doing is putting WTO reform on the agenda: in October 2018 Canada hosted trade officials from the European Union, Japan, Australia, Brazil, Chile, South Korea, Kenya, Mexico, New Zealand, Norway, Singapore, and Switzerland for two-day talks aimed at shaping reforms to the global trading system. The Director-General, Roberto Azevêdo, participated in the G20 Ministerial Meeting on Trade and Digital Economy in June 2019 in Tsukuba, Japan, which resulted in a commitment by ministers to “work constructively with other WTO Members to undertake necessary WTO reform with a sense of urgency, including the functioning of the dispute settlement system consistent with the rules as negotiated by the WTO Members”.
The EU has put forward reform proposals to make dispute settlement more efficient, agree new rules on investment, competition and tech transfer and make subsidies more transparent. However, Lu Xiankun, a former senior Chinese trade negotiator and now professor at the University of International Business and Economics and Wuhan University, argues that the rulemaking parts of the EU’s WTO reform proposals are widely viewed in China as ‘appeasement’ of Washington, ‘a vivid reflection of what Mr Trump wants’.”
Reform will prove difficult because criticisms come from countries with different perspectives, and for any change in the rules there needs to be agreement between all 164 members. Wealthier countries are critical of China’s self-identification as a ‘developing country’: it sees its role as preventing any bullying of the poorer countries by the EU and US. Poorer countries have for years attempted to challenge the ability of the richer countries to get round the rules as far as agricultural subsidies are concerned. The U.S. government presently pays about $25 billion in cash annually to farmers and owners of farmland. the largest 15 percent of farm businesses receive 85 percent of the subsidies. The EU spends 59b Euros on farm subsidies in the form of Single Farm Payments, and this is a link to a video telling you whom they go to. https://farmsubsidy.org
Trade Justice and Brexit
A trade justice issue hit the headlines in 2015: negotiations between the US and the EU for a Transatlantic Trade and Investment Partnership [TTIP]. These negotiations ground to a halt towards the end of 2016. They were carried out mostly in secret with nearly all information on negotiations coming from leaked documents and Freedom of Information requests. TTIP was seen by those of us who campaigned against them to be about reducing the regulatory barriers to trade for big business, things like food safety law, environmental legislation, banking regulations and the sovereign powers of individual nations.
All the aspects of TTIP which are troubling are likely to be included in a Trade Treaty between the UK and the US after Brexit. Campaigners are calling for transparency and openness in trade agreements, a strengthened role for parliaments with opportunities for revisions before and after the conclusion of agreements, an expanded role for civil society organisations and the prevention of corporate capture of trade negotiations. http://tjm.org.uk/trade-issues/developing-an-alternative-trading-system
The UK won’t automatically be able to keep its current WTO terms of membership on leaving the EU: the UK cannot simply ‘cut and paste’ the terms of its current membership (as part of the EU) and carry those terms over. Depending on the terms of Brexit, at least some of these schedules will need to be rewritten, because leaving the EU will affect the EU’s own commitments to other WTO members. Agreeing the UK’s new schedules will involve negotiations between the UK, the EU and other WTO members to resolve sensitive issue such as limits on agricultural subsidies and the size of tariff quotas (where certain quantities of imports are charged lower tariffs).
There will be questions about how existing EU-wide quotas – of which there are currently almost 100, mostly on agricultural products – are divided up between the UK and the EU post-Brexit. In theory this will allow the UK to take an independent and supportive position on tariffs with developing countries. There is an opportunity after leaving the EU for the UK to ensure a better deal for developing countries in trade agreements by ensuring that such agreements do not undermine developing country competitors, and that UK trade and investment policies are compatible with international commitments on the environment, climate change, human rights and the Sustainable Development Goals. The UK could try to ensure that trade treaties recognise developing countries needs, such as the boosting of regional trade and value-added production.
Traidcraft has published a briefing paper putting forward a range of measures which the government could implement to mitigate the risks and maximise the opportunities of Brexit for trade with developing countries. This paper can be sent to MPs to awaken them to this possibility:
The Government has stated that the UK will continue its relationship with the Least Developed Countries which has been expressed in the Everything But Arms agreement giving LDCs duty free quota free access. A start has been made to the negotiation of new trade arrangements with developing countries. Trade continuity agreements are currently being signed by the UK covering countries accounting for £89 billion of the UK’s trade. For example, the UK has now initialled an Economic Partnership Agreement with the Southern African Customs Union and Mozambique. The agreement allows UK businesses to continue to trade on preferential terms with South Africa, Botswana, Lesotho, Namibia, Eswatini and Mozambique. It also includes a promise that the UK to support the economic development of these Commonwealth partners laying the foundations for new trade and investment in the future. These nations are an important market for UK exports of machinery and mechanical appliances worth £409 million in 2018, motor vehicles worth £335 million, and beverages including whisky worth £136 million. Consumers and businesses in the UK will continue to benefit from more choice and lower prices on goods imported from these countries: major imports to the UK last year included edible fruit and nuts (£547 million) and motor vehicles (£409 million).
WTO and COVID19
In April 2020, a report from the WTO forecast a contraction in trade of between 13% and 32% in 2020. The wide range of possibilities reflects the uncertainties about the health crisis. The report says the impact on trade is likely to exceed the slump caused by the financial crisis just over a decade ago.
The WTO’s director general Roberto Azevedo described the figures as “ugly”. “There is no getting round that”, he said. He said the situation was first and foremost a health crisis and he acknowledged that governments had to take steps to protect people’s lives. “The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself,” he added.