According to the World Trade Organisation (WTO*), after the banking crisis of 2008, world merchandise trade slumped by 12% in 2009 followed by a record-breaking 14% surge in 2010. Then in 2011 world trade volume increased by 5%, in 2012 by 2.5%, in 2013 by 3%, by 2.5% in 2014, by 2.3% in 2015, by 1.6% in 2016, by 4.6% in 2017 and by 3% in 2018. In 2019 it is expected to grow by 2.6% due to slowing world economies and trade tensions between the US and China.
(*The WTO began life in 1995, succeeding the General Agreement on Tariffs and Trade which had regulated world trade since 1948. Its primary objective is to progressively reduce obstacles to trade across the world in goods, services and intellectual property. The WTO currently has 164 members, representing 98% of world trade.)
In 2018, in terms of US dollars, the total value of goods traded in the world was US$19.67 trillion (£16.1 trillion). Of this total E.U. countries accounted for 34%. In 2018 the world's top exporters of goods were China 12.8%, US 8.5%, Germany 8%, Japan 3.8%, Netherlands 3.7%, South Korea 3.1%, France 3%, Hong Kong 2.9%, Italy 2.8%, UK* 2.5%. The top importers of goods were US 13.2%, China 10.8%, Germany 6.5%, Japan 3.8%, UK* 3.4%, France 3.4%, Netherlands 3.3%, Hong Kong 3.2%, South Korea 2.7%, India 2.6%. (*Ships still carry 92% of Britain's exports/imports)
Africa, with 15% of the population of the planet, has only a tiny 2.75% share of world trade and of this total sub-Saharan Africa accounts for 2.0%. However, even this 2.75% of world trade generates ten times the amount received by the continent in overseas aid. Therefore expanding trade is vital for Africa where an 1% increase in the share of world trade would generate an extra US$180bn (£147.5bn) which could help transform economies and provide extra spending for vital progress in health, education and water. The top African exporting nations are South Africa, Nigeria, Algeria, Angola, Morocco, Egypt and Tunisia. Africa's exports consist mainly of oil, minerals (gold, diamonds, cobalt etc.) timber, coffee, cocoa, cotton products and primary agricultural products. (Tiny Singapore with a population of 4.3m people still accounts for more in exports than all of the 49 countries of sub-Saharan Africa put together with a population of just under 900m people.)
The above figures relate to internationally traded merchandise or visible goods. But commercial services, banking, insurance, intellectual property, (invisibles) are also bought and sold throughout the world and these have grown 60% faster than trade in goods over the past decade. The total value of services traded was US$5.63 trillion (£4.61 trillion). The top ten exporters of services in 2018 were:- US 14%, UK 6.5%, Germany 5.6%, France 5%, China 4.6%, Netherlands 4.2%, Ireland 3.6%, India 3.5%, Japan 3.2%, Singapore 3.2%. The top ten importers were:- US 9.8%, China 9.5%, Germany 6.4%, France 4.7%, Netherlands 4.2%, UK 4.2%, Ireland 4%, Japan 3.6%, Singapore 3.4%, India 3.2%.
International trade is an emotive issue which seems to provoke endless debate amongst governments, multilateral organisations and development agencies with bandwagons often being mounted and rational thinking sidelined. Below then just1WORLD attempts to clear the air and tries to analyse whether international trade adds to or subtracts from development throughout the world and whether or not it is in the interest of nations to play the trade card by subsidising domestic production and imposing trade barriers on imports.
Let us start with, as Donald Rumsfield, former US Defence Secretary may have said, a known, known. Over the past 66 years, as trade regulations have gradually been reduced, international trade has flourished.
In the last 70 years world trade* has multiplied by a factor of 290 whilst world output rose 20 fold. In this period trading in goods and services has helped bring ever rising living standards to people living in north America, western Europe and east Asia where the bulk of trade takes place. Conversely those countries which shunned trade and contact with the outside world failed to even keep up with their neighbours. South and North Korea both started from the same base in 1950 but today the outward looking South Koreans enjoy per capita incomes 22 times greater than their cousins living in the hermit kingdom in the north where emergency food aid often has to be delivered. Similarly, incomes in export-oriented West Germany were also many times greater than in the inward-looking Communist state of East Germany when the Berlin Wall came down in 1989.
(*Since 2012 world trade, in both goods and services, has only been growing at or less than 3%, less than half the rate of the previous three decades. According to the IMF this is mainly due to a collapse in investment and a rise in protectionism.)
Singapore is another excellent example of a nation which has embraced international trade in order to promote economic advancement. With no natural resources, in the 1960's, the government of prime minister Lee Kuan Yew (1959-90) encouraged international companies to come and set up in Singapore. At the same time his government set about providing the educational system and investment climate needed to attract foreign enterprises. And so far has Singapore come in the last 55 years that it is now not only a successful trading nation but one of the wealthiest countries in the world with Gross National Income (GNI) per capita rising from $400 (£327) in 1959 to $58,770 (£48,170) in 2018.
China, too, has played a strong hand in international trade in the last 20 years with exports growing by a factor of 30 helping the country to generate economic growth of 9% per annum over that period lifting an estimated 360m people out of poverty.
And now even Africa is looking to advance trade. The African Free Trade Agreement, which all members of the African Union bar Eritrea have signed up to, is due to start operating in July 2020. It is the most ambitious trade zone project in the world. No other region has tried to fuse 54 countries into a single market and eventually a full customs union.
Embracing international trade then offers countries the chance to grow their economies rapidly which creates more jobs and leads to higher incomes which through taxation means more money is available to invest in healthcare, new schools, modern technology, greater food choices, clean water and improved sanitation. And, in recent times, no other international process has done more to generate prosperity for hundreds of millions of people throughout the globe.
International trade then is a vital tool in advancing economic prosperity and many developing countries are keen to expand export opportunities. However, even with the reduction in trade rules and regulations which have taken place over the last 65 years, there are still too many restrictions in place today. And worryingly the situation seems to be regressing as the use of protectionist measures is increasing, particularly in the US**. The reason for this is that governments feel it necessary to appease internal pressure groups in order to protect domestic industries, particularly agriculture, from international competition. As a result, in developing countries where the bulk of the population still work on the land, these measures severely dent the opportunity for people there to trade their way out of poverty. It is estimated that developing countries could benefit by as much as $200bn(£155bn) annually if rich countries removed all trade barriers. (African countries, too, should seek to make trade easier by tackling lamentable infrastructure, convoluted customs procedures, lack of trade finance etc. in order to encourage intra-African trade which currently accounts for just 10% of their total trade.)
**As of September 1 2019 President Trump has imposed tariffs on US$120bn of Chinese goods in a move which will severely dent world trade. And, of course, China retaliated. He is also promising to impose 15% duties on the remaining US$300bn of imports from China by the end of the year. Hopefully common-sense will eventually prevail here and long before the US expands this further to include other countries accused of subsidising exports.
There are three main ways in which rich countries play the restrictive trade card.
TARIFFS are taxes placed on imports which have the dual purpose of raising revenue for a country whilst at the same time protecting its domestic industries. By levying tariffs it leads to a situation where it is cheaper to produce goods in the home country even though the same goods are cheaper to import because tariffs make them more expensive.
On average tariffs on agricultural products in the EU are today around 22% whereas on manufactured goods they have dropped from an average of 40% to around 4%. In manufactured goods the EU member countries set tariff barriers against each other but those set against the developing world are 4 times greater. And in another show of solidarity against poor countries, tariff escalation means that rich countries maintain higher tariffs on imports of processed commodities than on raw materials thus depriving poor countries of revenue and preventing them from adding value to their exports e.g. it is easier for poor countries to sell cocoa beans to Europe rather than in the finished product of chocolate.
NON TARIFF MEASURES include safeguards, anti-dumping measures etc. but mainly take the form of quotas. Quotas are a quantitative restriction on the amount of goods of any one kind that are allowed to be imported. Here a barrier will descend as soon as the numbers imported are reached. In January 2005 a major breakthrough occurred in this field when the Multifibre Arrangement (MFA) on quota limits on textiles from the developing world was abolished allowing open access everywhere. However, such was the increased volume of cheap imports, particularly from China, that domestic producers in EU countries immediately complained and regrettably, even after 10 years to prepare for the abolition of textile quotas, the EU sought to appease their clothes manufacturers by re-introducing limits. This, however, in turn provoked EU retailers to complain that they would be penalised for orders which had not yet been delivered whilst, at the same time, customers would be faced with higher prices. And so a compromise was agreed with China agreeing to 'limit' exports.
that still need to be tackled in regard to quotas include Japan being
allowed to reserve 93% of its rice market for domestic farmers whilst
rice farmers in poor countries like Haiti lose their livelihoods through
cheap subsidised imports as the World Bank pushes them to open up their
PRODUCER SUBSIDIES come in the shape of support prices which subvert the workings of the international trading system. There is no better example of this than the EU Common Agricultural Policy (CAP). Established in 1962, this keeps food prices in Europe high above world levels and operates throughout the EU to boost farming productivity, guarantee food supplies and ensure a 'fair' standard of living for farmers. For example it is estimated that every cow in the EU is subsidised to the extent of $2(£1.50) per day - the same amount as almost half the world's population lives on. As a result those heavily subsidised cows go on producing record amounts of milk. Also, in 2016 the average UK farm made just £2,100 from agricultural activity but this increased to £30,400 with subsidies added. (Currently UK farmers produce 62% of what the country consumes.)
One of the most contemptible examples of producer subsidies being used to appease a domestic pressure group was in the US in 2002 when President Bush caved in to the 25,000 cotton farmers there and granted them support totalling $3bn(£2.25bn) per annum in order to compete in price with cotton farmers in Burkina Faso, the country seventh from bottom in the 2018 UNDP Human Development Index, where cotton grows naturally. This action by the most powerful economy in the world is surely one of the most pernicious and contemptible pieces of protectionism ever passed on Capitol Hill and the US government should hold its head in shame. In Burkina Faso cotton represents over 50% of the country's exports and 2 million people depend on it for their livelihood. A pound of cotton can be produced in Burkina Faso for $0.21(£0.15) compared to $0.74(£0.55) in the US but now thanks to American insularity, living standards for cotton farmers in Burkina Faso have plummeted. Thankfully, however, in a case brought by Brazil, the WTO has recently accepted that US support for cotton violates global trade rules and this subsidy will eventually have to be unwound.
EXPORT SUBSIDIES are the final guarantee that farmers in rich countries do not make a loss even when they overproduce. In the case of surplus milk production this is made into dried milk powder and dumped on the world market forcing prices down and throwing thousands of poor farmers in countries like the Dominican Republic out of business and into the cities.
According to the Organisation for Economic Co-operation and Development (OECD), in 2016, government support for farmers was $239bn (£180bn), well down from $350bn (£258bn) in 2003. In 2016 this financial help ranged from 0.5% of farm receipts in New Zealand, 2% in Australia and Chile, 7% in the US, 20% in the EU, 49% in Switzerland, 53% in Norway to 56% in Japan. All in all crop and livestock prices were on average 21% higher in OECD countries than world market prices.
Although support is well down from 2003 levels with OECD members turning slowly away from farm support measures this still undermines fundamentally the efforts of farmers in developing countries to earn a living and represents a $730 million per day tax on poor countries.
At the same time agricultural support in rich countries adds an extra £15 to the weekly shopping basket of a family of four in the EU, increases taxation, provides no guarantee of food quality and produces surpluses which are regularly dumped on world markets putting farmers in poor countries out of business. Furthermore, 70% of support for farmers goes to the largest 25% of the farms and to cap it all the whole system is so bureaucratic that EU auditors recently discovered that only 40% of farm support actually reached its destination.
SOME POSITIVE DEVELOPMENTS
years some tentative progress has been made by the richest countries in
opening up their markets to the poorest nations:-
numerous bilateral trade agreements have been signed and encouraged by countries like US, Morocco, New Zealand, Singapore and Chile.
at a WTO meeting in Nairobi in December 2015 it was agreed that export subsidies in developed countries would be reduced by half by the end of 2017 and eliminated altogether by 2020.
All of the
above agreements certainly help to increase export opportunities but in
a world context they represent only a trickle in the river of trade. And
so it is important that the present round of trade talks under the auspices
of the World Trade Organisation (WTO) reach a successful conclusion.
A constructive outcome will require all the main players to come back to the negotiating table and be willing to give up ground in vital areas so that a breakthrough can be made. However it seems that no important player in the talks is willing to make the first important move and the Doha Development Round which promised much at the outset is set to drift into oblivion.
However, this should not be allowed to happen as trade, as we have seen, is vital in challenging and defeating poverty. A new deadline should be set and if there is no progress by that date then in order to break the deadlock, just1WORLD offers this constructive solution - ALL rich countries would have to reduce all subsidies/ tariffs/ non-tariffs but only by 10% per annum. This would have a double beneficial effect - it would give producers in rich countries time to adjust and it would mean that all trade support by rich countries would be eliminated in 10 years ensuring that there would be no more need for any more rounds of world trade talks. Developing countries would be expected to do the same.
This may be a rational way forward but you can just imagine the furore - US farmers would scream about losing their traditional livelihoods, President Macron would might not be too happy at the thought of French farmers having now to compete to sell their produce with the beginning of the end of the CAP and the Japanese government would protest that Chinese rice imports would overwhelm domestic producers. However, the important outcome would be that world trade in general, and developing countries in particular, would be given a tremendous boost. At the same time in rich countries taxpayers would benefit from the elimination of subsidies, consumers would have more money to spend thanks to cheaper food and EU auditors might finally get to grips with the EU accounts!
In the coming months then hopefully common sense will prevail and there will be a positive conclusion to the Doha Round on trade which could help lift hundreds of millions of people out of poverty in the more progressive developing countries. However, even the most positive of outcomes is unlikely to help the least developed countries mainly to be found in sub-Saharan Africa for the following reasons:-
countries in most of Africa have neither the expertise nor the capital to take immediate advantage of more open trade opportunities.
the costs of transport by air and sea, bad roads and railways, poor communications, customs delays, refrigeration for meat products and insurance all add to the cost of sending imports abroad. For example, the World Bank has calculated that it can take up to 25 days for a container of car parts to pass customs officials into the Democratic Republic of Congo. At the same time these problems preclude intra-African trade which represents only 9% of overall African exports.
minimum standards, health legislation and quality controls will all have to be met before consumers in rich countries make their choices.
many poor countries are net importers of food and will probably come off worse as the removal of export subsidies will increase the price of food on world markets. Tariff reductions will also hit them as they pay none at present and their removal will only help their competitors.
countries then, most of which are in Africa, will initially suffer and
governments there will need outside help both with finance and expertise
in order to be able to start to take advantage of a more open trading
environment. Thankfully rich countries are already aware of this and more
of their overseas aid budgets are being directed towards helping poor
countries increase crop yields and improve infrastructure.
By the end of 2016 there were a total of 625 Fairtrade Towns, 1,178 Fairtrade Schools and 150,000 supporters. see www.fairtrade.org.uk
According to Tony Blair's Commission for Africa Report in 2005 'trade barriers are politically antiquated, economically illiterate, environmentally destructive and ethically indefensible.' We agree. And the sooner all trade restrictions are lifted the better for the following reasons:-
1. to bring an end to the scandalous waste, overproduction, inefficiency,
bureaucracy, corruption and expense they bring just to placate pampered
pressure groups like farmers that governments, for the most part, are
too frightened to stand up to.