Trade Liberalization

Dec. 2008

The Impact of Trade Liberalization on Small Farmers in the Developing World:

The Promise vs. Reality

Central to the policies of IMF, World Bank and WTO, is trade liberalization which is reduction of trade barriers.  The underlying premise of trade liberalization is that increasing trade will result in economic growth and by extension will lead to development and reduction of poverty; that all trade is good trade and everyone will prosper.  Yet, protests at WTO’s 1999 Seattle Ministerial and the collapse of a series of talks in recent years at Cancun and the latest in Doha in July of this year show that this may not be the case and these policies often do not bear the expected results.  In fact, the Doha round, launched in 2001, was called the Doha Development round to emphasize the missing critical point in these talks for the devleoping countries in response to growing resentment.  At the 2003 Cancun Ministerial, Lee Kyung Hae a, Korean farmer who had attended an agriculture college and won a UN award for rural leadership climbed over a fence near the meeting and plunged a knife to his chest under a sign saying “WTO Kills Farmers.” The incident drew some attention to the plight of the small farmers around the world and the growing epidemic of farmer suicides; it mobilized some movements and marked yet another failed attempt at negotiations (Patel, 2007).

So why such strong oppositions? And what does trade liberalization translate into, in the life of the small farmers around the world?  While IMF reports uneven development in recent decades among countries, it sites India as an example of success due to its participation in global trade and embracement of trade liberalization (IMF, 2001). What it does not mention, however, is the other side of the so-called “development” where with one of the highest percentage of growth rate, the level of child malnutrition in India is almost double those in sub-Saharan Africa and 350 million people still live in desperate poverty. In fact, the actual benefits of India’s growth has gone to the top 10% of its population, as a report by Merrill Lynch counts more than 90,000 millionaires in India (Jafri, 2005).  And even though, India has millions of tons of surplus food to feed its own people, more than 20,000 people died of starvation just between 2001and 2003 (Shiva, 2003) because they’re still too poor to purchase it, which seriously brings into question the role of increasing trade and economic growth in development.

The policies of IMF’s loan conditionality and WTO’s Agreement on Agriculture is a combination of deregulation and liberalization that call for the reduction of trade barriers such as tarrifs and quotas, removing state subsidies and government support which usually means no price controls and social safety nets as in the case of unemployment. Less government intervention is supposed to reduce government inefficiencies and to allow the private investments to come in and fill the gap, while privatization of state industries and services are said to increase effiency and decrease state spending.  One example is the highly controversial attempt to privatize water in Bolivia (Shultz).  Developing and least developed countries are continually asked to open up their markets to foreign investments and corporations as they are also called on to diversify their crop production, which means moving from subsistence crops to cash crops, which makes them more and more dependent for their food and survival on foreign imports of staple food and at the mercy of fluctuations of the global market.

The 2007 World Development Report states that agriculture must be the center of development agenda. But only 4 percent of official development assistance goes to agriculture in developing countries, even though 70% of those in the developing world depend directly or indirectly on agriculture (Stiglitz, 2006, p74).   It is the main source of income for 2.5 billion people including farmers and their dependents and is critical to food security in countries that are continuously being exposed to emergencies and unreliable food aid (WB, 2008).  Whereas before the Agreement on Agriculture (AoA) countries protected themselves against import surges with high tariffs and quotas, in recent decades, there has been growing food insecurity and artificial famines, without shortage of food scarcity in the world (Shah, 2001). What happens is that by lowering tariffs, local farmers and producers are directly competing against large corporations while export subsidies encourage over production and food dumping below its true cost of production, and causing the farmers to lose their livelihood.  These trade distorting subsidies depress the international market prices and undermine the competition for the local farmers and their dependents and leading to the rise of the unemployment, which often forces people to migrate to over-exploding cities and taking lower paying menial jobs when all these farmers know is agriculture.  Another side-effect of reduced tariffs for the developing countries is a loss of government revenue, which can comprise a large portion of their national income that could be spent on schools, clinics, infrastructure or other social services.  Even the argument that it provides lower priced food for the poor does not hold, since it is usually the people who are well-off that can take advantage of those lower prices, the poor who have lost their income cannot afford even the lower priced foods.  In fact, tariffs and quotas sometimes can be the only way that poor countries can take any protective measures against import surges and food dumping, especially when they rely on agriculture as a main source of their livelihood. The reality as well as the irony of these policies has been to marginalize and squeeze out of the global market altogether the very people it wanted to bring into the fold for their benefit.  They have simply been eliminated and pushed out of the competition by unfair rules of the game, and it has proved to be a death warrant for many small farmers whose way of life and only means of livelihood has been taken away from them.

Protectionism is often blamed as a contributor to slow growth and poverty in LDCs (Lease Developed Countries) by excluding them from global trading, but a high percent of rural communities are marginalized in the global trade by actually participating more and opening up their markets.  The poorest countries that are already at a disadvantage are often forced to forgo the only means of protection against import surges and food dumping, which was the reason for the collapse of the most recent Doha talks at Geneva.  India and China wanted to protect their farmers against import surges by imposing tariffs over a certain threshold under the WTO rules of “special safety mechanism,” which was rejected by the US and the EU who insisted on even more access to their markets even as they continued to protect theirs (Patel, 2008). For India, reinstating quantitative restrictions on importing agricultural products is currently the only viable solution to protect its agriculture and safeguard the livelihood of two thirds of its people who are dependent on it ( Jafri, 2005).

In looking closely at these policies, the discrepancies between what they are designed to do and the actual outcome on the ground are clearly visible and outstanding in terms of the policies that are implemented in the developed countries as opposed to the developing and least developed countries.  For instance, while the policies call for reduction of trade-distorting export subsidies, it is often the poor countries that are forced to comply with rules and not the powerful ones.  The US and the EU have the highest export subsidies and although they have promised to reduce them, it will not take into effect until 2012 and 2013 (Jafri, 2005). Also most of these subsidies go to the rich farmers; a Heritage Foundation report includes Ted Turner and David Rockefeller being among some of those recipients (Reidl, 2002). In 2002, US almost doubled its farm subsidies after promising reduction at the Doha Development talks (Stiglitz, 2006, p80).

When IMF states that the Developing countries can benefit more by liberalizing their agriculture sector because of their competitive advantage in that area, in reality that is far from what takes place.  At the Hong Kong Ministerial of 2005, US offered to open up its market to most products from the least developed countried, but to products that they do not produce such as jet engines from Bangladesh rather than what they in actuality produce (Stiglitz, p83). And Africa Renewal reports that African countries like Zambia are encouraged to export technical manufactured products and things that they do not manufacture and are limited from exporting what they can produce (Fleshman, 2006).

Studies show that the number of people in poverty in Africa doubled in the last 2 decades (Stiglitz, p42).  The Food and Agriculture Organization (FAO) reports that Africa “from being a net food exporter in the 1970s…is now heavily reliant on commercial imports and emergency aid.  Some 42 African countries depend on imports in even the best of times. It is the only world region where crop yields have stagnated, leaving as many as one in three Africans chronically malnourished.” (Fleshman, 2008)  One subsidy that has attracted a lot of attention is the cotton.  US provides a $4 billion dollar cotton subsidy that has hurt farmers in West Arica by artificially lowering the international prices.  For the West African counties of Mali, Burkina Faso, Chad and Benin, the revenue from exporting cotton represents a substantial portion of their national income (Oxfam, 2002).   In July of 2008, Oxfam reported: “Cotton has become a symbol of the unfairness of the global trading system. In West Africa alone, ten million people depend on cotton for their livelihoods.” (Mazzei, 2008)  And the latest Farm Bill did not reflect a reform of the subsidies despite the illegal implications.

But Africa has not been alone in hurting from these subsidies.  There is a region in India formerly called the cotton belt, which is now referred to as the suicide belt where tens of thousands of farmers have committed suicides in the last decade.  According to the documentary, The Dying Fields, three suicides a day filled the first part of the year 2007 and farmers commit suicide sometimes for being in debt for as low as 150 dollars.  As the price of cotton has been collapsing the price of seeds and fertilizers have been rising and farmers are not allowed to save seeds due to the patented seeds under the TRIP agreement of WTO.  When the genetically modified seeds called the Bt cotton entered the Indian market by Monsanto (often under different Indian names), it promised high yield and to be pest resistant.  But it is expensive, and works best with irrigation which most farmers lack and have to rely on well-behaved monsoons.  So when the harvest goes bad, they are left with debt and in danger of losing their farms and having to fend for themselves without any government support.  In India, 700 million people are dependent on land for their livelihood. The US cotton subsidies given to agribusiness encourage over-production, which are dumped on the world market artificially lowering prices, which was instrumental to the failure of the Cancun talks in 2003.  While Brazil threatened sanctions against US and WTO, and called the subsidies violation of international law, the US did little to cut down the subsidies (PBS). (Note: an agreement was finally reached as of June of 2010, Schnepf).

Another victim of liberalization has been Haiti, a member of WTO and the poorest country in the Western Hemisphere.  With a significant reduction in tariffs, US imported rice escalated drastically and 50,000 farmers were affected.  Now two-thirds of rice in Haiti is imported and two-thirds of the income of the rural community is spent on food. This is a typical example of going from food security to insecurity and dependency.  Ghana has also experienced a decrease in its level of rice production from 60 to 20 percent as a result of liberalization and a large majority of its domestic rice producers were wiped out as a result of imported subsidized rice from United States (Patel, 2008).

However, one case of defiance by the president of Malawi, a landlocked country in southeast of Africa proved successful.  In 2005, a harvest failure led to an almost starvation of 5 million people in Malawi and president Mutharika decided to start a subsidy program by providing a packet of seeds and fertilizers to farmers.  The following year, the harvest doubled and they sold the surplus to WFP and others and even donated some.  In a message to the UN in May, while asking for more help for Africa’s farmers he added: “International stakeholders like the World Bank…. . should not continue with the feeling that they have all the solutions in Washington. They should listen to policymakers at the local level and learn from that.”    (Fleshman, 2008)

This brings out a very critical point, I think, that these countries are often left out of decision making processes about the food security of their own people.  The vice president of Alliance for a Green Revolution in Africa (AGRA), an NGO headed by Kofi Annan has said “The end of government subsidies to African farmers because of structural adjustment programs was an absolute disaster,” and “Today African farmers are almost the only ones in the world who receive absolutely no government support of any kind.”   He also pointed out the $300 billion government support that the farmers in wealthy countries receive annually.  African farmers “are left on their own to sink or swim, and as we have seen they are simply sinking,” he continued (Fleshman, 2008).  So when we take a closer look at the policies, we see that the promises cannot and do not hold, and it is often those who need help the most that get left behind.

Joseph Stiglitz makes the argument that US cotton subsidies can affect the global procces and hurt the farmers in the developing world, but Jamaica protecting its milk products cannot affect the global market; and that in the developing world, due to their fund scarcity, the choice often comes down to the government either helping those who have lost their jobs or investing in other social needs (2006, p84).  In fact, while there has been so much emphasize on reduction of trade distorting subsidies, the agricultural subsidies provided by the OECD’s Organisation for Economic Co-operation and Development members (high income, developed countries) has increased from $182 billion to $300 billion from 1995 to 2005 (Bello, 2007).  Oxfam Briefing of 2003 reports that the agricultural subsidies in rich countries amount to more than the combined income of 1.2 billion who live on less than $1a day (p21) and US and EU provide two-thirds of industrialized agricultural subsidies and impose the highest tariffs with EU topping the scale (Stiglitz, p23-4). The 2004 FAO report states that the “gross imports of food by developing countries grew by 115 percent” from 1970 to 2001, which turned the trade surplus of $1 billion into a deficit of over $11 billion (p16), as a result of the combination of trade liberalization, structural adjustments and reduction of state support to farmers (Oxfam 2005, p18).

The rules of WTO are complex and for reasons that are hard to comprehend, the higher tariffs are imposed on the poorest countries.  For instance, according to Oxfam Briefing of 2003, tariffs on imports from Bangladesh to US are fourteen times higher than from France (p27).  In fact, industrialized countries apply higher tariffs on developing countries than on other industrialized countries – about 4 to 5 times higher.  Highest tariffs are also imposed on products that require more labor where the countries have a comparative advantage (Oxfam, 2003, p24).  Under tariff escalation, higher tariffs are imposed on value-added products or processed goods more than on raw materials, therefore discouraging skills and technological development in poor countries.  “This makes it more difficult for developing countries to climb the technology ladder and diversify their exports” reports Oxfam (2003, p30).  It also states that the growth of agriculture and production of smallholders is one of the strongest means of reducing poverty adding up to more than half of export incomes.  It is hard to see how the policies that systematically contribute to the destruction of small farmers can lead to rural development (Oxfam, 2003, p21).

We see in some of the stated examples, the pattern that emerges makes the promise of trade liberalization totally inconsistent with its outcome.  Trade liberalization, as it has been practiced under the current policies and rules, is not a path to development and alleviation for poverty and hunger.  In fact, it has exacerbated the misery around the world for the most volunerable.  It is about the freedom of corporations gaining access to third world markets and not the freedom of the small farmers to protect their means of livelihood.  In other words, it has been more about market domination than participation.  A one-sided license of freedom for the big and powerful corporations making local and small businesses non-competitive and driving them out literally by their sheer size and political weight and trampling on their freedom and their way of life.  These policies have created an increased food dependency and food insecurity in LDCs as well as contributed to the global food crisis.  The promise and model of trade liberalization, that presupposes increasing trade is good for all, has resulted in more poverty and deaths around the world, as growth is pursued for its own sake and treated as an end in itself and not necessarily for a better and more fulfilling life.  And yet the policies are still pushed under the banner of development for the poor, where in fact, it has put them at a great disadvantage in many cases.  Advocates of trade liberalization seem to think that one policy fits all without considering the special needs of a country and pushing for the same policies regardless of the direct consequences on a particular economy. The LDCs need simply more than opening their borders to foreign goods and corporations in order to grow and benefit from trade liberalization, they need the right advantage to even be able to compete, such as technology, infrastructure and education – the very basis and foundation of true development. There is a vicious cycle that the poorest countries get trapped in as they open their markets to increasing agricultural imports and lose their rural livelihood, which is a significant part of their national income.  They become more indebted to IMF and World Bank and are further exposed to the same policies all over again, forcing them to liberalize their markets even more.  And as their export earnings decline and import bills rise, these countries find themselves more and more in debt to the same institutions that started the cycle. The ultimate hypocrisy in the current policies of trade liberalization is protectionism for the developed countries, most notably the US and the EU and a continuous push for market access and liberalization for the developing countries.  And since complete protectionism is not a viable option, the developing world can still benefit from participating in the global economy if there is a reform of policies that are not specious and do not undermine their development by making them mere pockets of opportunities to be exploited.

According to WTO’s website, “economic theory” points out strong links between free trade and economic growth and that “all countries, including the poorest” can benefit by trading goods and services and to compete abroad, but it does not expand on what kinds of trade and their actual impact on specific countries.  The key phrase here is the imposition of the “economic theory,” which is an example of mental model crystallization, i.e., blind adherence to a theory that denies the reality. The ideology of all trade and economic growth being good for development and prosperity for all as advocated by WB, IMF and WTO is similar to that of Benjamin Friedman’s argument for economic growth in The Moral Consequences of Economic Growth, which does not explicate how much growth is necessary before prosperity can be shared by all.  Economic growth is seen as a solution to all social and economic ills.  But the reality paints a different picture, and rather than modifying the model or their application, they reinforce the same failed policies.  Some of the glaring discrepancies between what IMF and WTO profess to do and the actual reality on the ground are due to the policy loopholes that are often taken advantage of by the developed world.  Joseph Stiglitz comments: “It is exports – not the removal of trade barriers – that is the driving force of growth.  Studies that focus directly on the removal of trade barriers show little relationship between liberalization and growth.” (Stiglitz, p72)   But we need to be clear about the distinction between growth and development; they are not as directly linked as some of its advocates would like to portray.  Growth can be grossly unequal and imbalanced and is not an accurate measure of prosperity for a nation.  Stiglitz comments: “If economic growth is not shared throughout society, then development has failed.” (p45)  Jean Ziegler, a Member of the UN Human Rights Council’s Advisory Committee and former UN Special Rapporteur on the Right to Food, states that there are: “recent signs that hunger and food insecurity are increasing despite strong economic growth.” (UN, 2006)  Thus increased trade is not a panacea for development and poverty and what is often glossed over is that not every country is on the same level-playing field.  A new paradigm is needed for international trade that fosters interdependency rather than dependency.  The rules that have been designed under the logo of development have failed many developing countries in this regard who need to have more weight in negotations that effect the lives of their people.  Every country has to be able to take protective measures to provide food security for its own people and small farmers should not have to compete for their livelihood and life with large agribusiness corporations.  With food being the basic right to life, food security should be central to all agricultural trade negotiations and agenda.  Food security means availability and access to food, but it is more than having enough food around, it is having access to it, which means being able to afford it.  For example, India, as mentioned previously, has food surplus without food security for millions of its people (Paget-Clarke).

And although there seems to be some agreements about the necessity of investment in the agriculture sector in the developing world, the policies have not changed to support that.  Robert B. Zoellick, the World Bank’s president expressed in 2007, that “We need to give agriculture more prominence across the board…, while civil society groups, especially farmer organizations, need more say in setting the agricultural agenda.”  (WB, 2007)   But the industrialized countries continue to hold all the cards and control the votes.  The undemocratic process of agricultural trade negotations marginalizes smallholders in the poorest countries by making them non-competitive.  LDCs and in some instances the developing countries do not have the necessary leverage in international trade negotiations, especially when they are under strict loan conditionalities; many carry a great burden of debt which usurps half of their exporting income that could be better spent on building infrastructures, health and education.  So they are forever trapped in a cycle of poverty (Stiglitz, p15).  Stiglitz reports that even with the debt forgiveness of 18 poorest countries by G8 in 2005, in 2006 the developing countries still shouldered about $1.5 trillion in debt to IMF and the World Bank. It often takes a crisis for a badly needed change to come about.  The multinational trade negotiations seem to be experiencing their portion of crisis as the developing countries try to make their voices heard.  Is this the crisis point that will turn the tide and result in a fundamental shift of priorities and policy transformations where the developing countries can not only sit at the table but have some leverage and genuine input about their own fate?

The Oxfam report of 2003 makes some recommendations for agricultural policy reform.  The poorest countries should not be forced to liberalize their agricultural imports specifically in regard to the staple foods for food security and poverty reduction.  LDCs should not be pushed to open their markets, but allowed to participate and integrate in the global market as it fits into their development agenda.  Special Products which are crops that are important to food security, livelihood and rural development should not be subject to liberalization, but protected under Special Safeguard Mechanisms that allow tariffs to be imposed against import surges. And finally trade liberalization should not undermine efforts to reduce poverty and development. (Oxfam 2003, p18).

In conclusion, what is the most minimal application of morality if not refraining from harm?  Balance of minimizing harm and maximizing freedom can provide the ground in which a life can be nurtured to fulfill its potentials, and that is not only true of individuals, but societies and nations.  If we take the no harm principle and the greatest good (not happiness) for the greatest number of people as our moral compass for the purpose of the topic here – by the greatest good, I mean at least the basic rights to life which entails the minimum necessities that is needed to preserve that life – we have to recognize that the right to life cannot be considered without the conditions necessary for it to exist and the first and foremost of those conditions are food and water. However, the extreme imbalance of power in the world has resulted in extreme imbalance of resources and opportunity, with millions losing their right to life.  We are not concerened with policies that slightly favor one side over another here, but an imbalance that pushes millions off the cliff.  So what does morality entail in a globalized world?  Where are the bounds and limits of responsibilities?  It lies on the same principle for countries and institutions as it does for individuals.  All trade cannot be good trade when benefits of some come at the expense of others, which in this case is lives of others.  In the last few decases, millions of farmers have been robbed of their livelihood, culture, family heritage, dignity and the opportunity to thrive in the pursuit of their own happiness, freedom and ultimately life.  The policies that are being implemented are not just leaving people to be perished – a passive crime of injustice by act of omission, but a deliberate and aggressive imposition of policies that lead to demise of millions of lives through an active form of injustice and participation.  Yet they are human constructs that can be changed and need to be adjusted.  Simply adhereing to an ideology of “free trade” no matter how well-intentioned without a thorough evaluation of their acutal outcome for good or bad in human terms is not only harmful, but disastrous.  Increased trade and growth have not led to real development and prosperity for all, yet the model of free trade has been idealized and zealously applied in the face of alarming repercussions. However, it is not just flawed models that are being applied, but the evidence of the contrary outcomes of these policies for which they profess to be at least partly invented shows a deliberate mis-representation.  Can pleading ignorance buy exemption here in the face of such overwhelming evidence?

3000 people died on 9-11 and the world gasped in horror; you can still hear the cascades of events reverberating around the world to this day.  Yet everyday, 24,000 children die of hunger related causes (Shah) and the silence is deafening. So when international financial insitutions say that they care about development and poverty reduction, you have to wonder!  If some of the points made here appear obvious, and yet there are not enough people committed and willing to modify these policies, then perhaps this points to a deeper moral issue.  Does morality get corroded inside the boardroom?  Or is it that it is never allowed access to the boardroom – only to be confined within the walls of the church, the mosque or the synagogue or empty rituals, and kept separate from the every day fabric of life?

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