* Violently intent on keeping us in poverty: International trade policy
The North-South economic and political divide is the overriding concern in international trade relations, with the rich North creating conditions that allow for the pillaging and primitivisation of the poor South. Combined the International Financial Institutions (IFIs) and World Trade Organisation (WTO) adopt a coherent and comprehensive neo-liberal paradigm for trade and economic management, and this free trade ideology is imposed on developing countries.
There are serious deficiencies in this ideology, which are rarely given any credence, or receive at best grudging acknowledgement. The North uses the free trade ideology as a means of domination over the resources and livelihoods of the people of the South. One does not have to be a radical or a revolutionary to question the merits of their policies; simply looking at the economic history of rich countries is instructive. Do as I say and not as I did is the North's mantra.
The neo-liberal, free trade, Washington Consensus ideology is used as a tool to maintain resource flows from the South to the North. Militarily the colonisers were kicked out of African countries after bloody and horrific struggles. Neo-liberalism replaced military colonial occupation and ensures that resource flows from the South to the North continue. Instead of rule by the gun, it became: rule by trade policy. Free trade was used as the ideology to continue to maintain colonial economic relations with the South.
Trade is regulated primarily by the WTO. After the collapse of the WTO Cancun Ministerial, where developing countries refused to be bullied into accepting onerous trade and development terms, the United States of America (USA) and the European Union (EU) indicated that they would pursue Regional Trading Arrangements (RTA's) with countries.
The failure of the economic superpowers to achieve what they desired at the multilateral level must inform our analysis of what they hope to achieve at the regional negotiations level. Since many issues the North hoped to impose on the South through the WTO were rejected, it is imperative for the South to maintain this consistency in RTA negotiations simply because the issues are not in our interest. However, Southern governments, especially in Africa, are much weaker in regional and bilateral negotiations with the North than they are at the WTO simply because of their extreme (and increasing) dependence on the North.
The rational for African countries entering into RTAs are complex. There is the overriding perception that RTAs improve a country's economic development because of the alleged link between liberalisation and economic growth. However, a United Nations Development Programme longitudinal study of least developed countries found indications that liberalisation leads to de-industrialisation. One of the main reasons for entering RTA's is that regional bodies have greater representative and market power and may improve parity in bargaining. In order to benefit from the consolidation of representation, one can, wrongly, presume that there is an African regional integration plan that guides efforts in this regard.
The WTO establishes the framework for the implementation of free trade values: liberalisation is the aim of international trade. For an RTA to be WTO compliant it must result in higher levels of economic integration within a reasonable period of time, cover substantially all trade and be more liberalised than the WTO regime. This means that RTAs extend liberalisation commitments even further.
International trade is also impacted upon by the World Bank (WB) and the International Monetary Fund (IMF). The IFIs actively promote Washington Consensus values of neo-liberal economics. The principle ideology they impart is that the market allocates resources best and the state should not interfere by creating market distortions. They also promote tariff reductions and trade liberalisation generally, forcing the South to give for free what the North should bargain for in negotiations.
In the context of RTAs it is important to recognise that the combination of these factors indicates that trade policy (and development policy) is externally determined by participation with the IFIs and the WTO. These agreements regulate the development path that is open for countries to follow. The control in many instances is indirect and in many more it is quite direct.
But free trade and liberalisation were not used as policies by the North to reach their current stage of development. The Now Developed Countries (NDCs) used different sets of policies (almost the exact opposite of the Washington Consensus). Free trade and liberalisation are now mantras prescribed under the guise of being pro-development. The North used state power to regulate markets, increased the social wage, created public services, used tariffs as a means of industrial development and controlled investment flows amongst other measures.
For evaluation of African policies and global engagement, it is therefore revealing enough for us to begin our analysis in comparing the IFI/WTO prescriptions with the policies used by the North previously (historic capitalism), in order to understand what is happening to the South presently, within this form of neo liberal globalisation. One need not be a revolutionary to see that things in our countries are getting worse or that the policy prescriptions used are so divorced from reality as to be positively harmful.
Neo-liberalism treats all economic activities alike, whereas the North developed by not treating all economic activities alike. Simply put, the North recognised that investing in a casino would have a different developmental impact from say housing construction. This is a distinction the neo liberal system does not allow governments to make, so for instance subsidies under the WTO can be made to general sectors and not specific industries. Or, the General Agreement on Trade in Services (GATS) treats basic health and water services the same as tourism and gambling, when there are clearly qualitative differences.
The neo-liberal ideology also pushes for perfect competition, which is a utopian ideal that has never existed! In the early stages of development, the Northern countries actually pursued anticompetitive policies to assist with their development. Practically Northern countries followed the principle of protection of industries including infant industries and only opened their markets once a particular level of market dominance/ economies of scale were achieved. This is in direct contradiction with the arguments against infant industry protection and in favour of consumer welfare effects of liberalisation based on efficiency, which are being shoved onto African developmental agendas. Tariff liberalisation is promoted by the WTO and the IFIs when high tariffs were the primary tool used to develop manufacturing capacity in the North. In other words, the system forces African governments to prefer cheaper imported goods over job creation at a time when unemployment is rife. The recognition that imported goods contain labour is not obvious, and we continue to import labour contained in our imports and make them cheaper by liberalising tariffs.
By using the economic analysis toolbox that the Northern countries themselves used to develop, we see a world that is violently intent on keeping us in poverty in perpetuity. The term violently is not used lightly because at present even an analysis of Africa's chances of pursuing Schumpertarian increasing return activities is heavily constrained by our international commitments, our so called level of global integration.
Since regional integration is a reality that must be dealt with, national and regional development agendas should, at the very least (but not only), incorporate the view that different economic activities have different impacts on the economy as Schumpeter pointed out.. Some activities generate positive returns (manufacturing), others are return neutral (tourism) while resource extraction and primary commodity production (after a point) generate negative/diminishing returns. In order to generate additional revenue for the state, so that it can serve its distributive function to improve the conditions of citizens, any international trade engagement must prioritise increasing return economic activities to promote revenue generation occasioned in part by tariff income losses due to imposed trade liberalisation. The impact of these losses is not discussed adequately in the public domain and there is a presumption that everything will be alright.
The WTO for instance allows tariff escalation. This means that it is cheaper and easier for Africans to export coffee beans than it is to export processed coffee. Therefore Africa does not develop beyond being coffee growers. It also allows for tariff peaks that are used to keep out goods where African countries have particular advantage like leather goods. So any move by Africans to develop manufacturing capabilities or to exploit comparative advantage to benefit meaningfully from their products meets with enormous obstacles and disincentives in Northern markets. These obstacles are legal and continue the colonial legacy of forbidding manufacturing in the colonies.
To bring about a change in the developmental pathway for Africa a number of obstacles have to be overcome, the first being the ideology of free trade that contaminates every level of policy making in many countries. Most officials and ministers do not know they do not know or are politically helpless in the face of free trade ideology.
The principles of free trade which are presented as inherently good are unsurprisingly absent in the North's approach to agriculture. In agriculture free trade is turned on its head, because the WTO allows the North to use trade distorting subsidies - state intervention that distorts the market: the ultimate free trade sin. So the system is schizophrenic, it prescribes a host of ideologies to govern trade in our countries (and thereby our development) but fails to apply it consistently in areas of interest to the South.
Because our governments are being pragmatic, they do not see the systemic and structural violence it creates and unleashes on our people. Over 70% of Africans rely on agriculture as a means of living, yet they are prevented from using this comparative advantage. South Africa in particular is giving the land back to black people but is forcing these farmers to compete with subsidised European and American imports. This is a recipe for disaster.
Many governments in Africa, however, are adopting the view that the more RTAs they belong to, the more beneficial it will be to their economies. But, for instance, the Southern African Development Community (SADC) Free Trade Agreement (FTA) is estimated to reduce Namibia's revenue by between 31 and 50 percent over the next twelve years (and these exclude the dynamic effects!). A plethora of agreements would further reduce income. This is not simply a matter for trade negotiators; it has serious implications for governmental stability especially at a time when debt levels are rising exponentially. Money for much needed social welfare is simply not going to be available because most governments rely heavily on international trade taxes for revenue.
At present though, the international trade context within which African countries operate is skewed against them because increasing return activities: - Do not enjoy meaningful market access in export markets (especially in areas where we have comparative advantage); - Do not have sufficiently protected domestic markets to promote entrepreneurship and local development; - Suffer from supply side constraints; - Face continually declining commodity/primary goods prices and unfair competition in agriculture; - Are prevented through whimsical barriers to market entry in foreign countries.
Africa's openness to foreign goods and services within the domestic market is a problem. Africa is the continent that is most open to global trade. This means that even in the domestic market, local manufacturers must compete with Transnational Corporations. African manufacturers are expected to survive without protection from the State. We are trying to compete through exports in highly organised foreign markets while surrendering our home turf and losing out in both. The policies imposed on us simply do not make sense.Africa has slavishly followed most of the prescriptions of the former colonial powers with a spectacularly tragic outcome. If most of what we are doing is so different from what the North did and things are getting worse, then it is time to look at alternatives. There are other views on development that are simply not canvassed at all by our governments. If African governments are to prosper economically and politically, we need to at least begin to look at the policies used in the past by the now rich countries. If our governments fail to even consider some of these alternatives, then democratic government or not, it is a sad day. It is even sadder when these free trade conditions are imposed by many honourable and dedicated leaders who suffered greatly to bring us liberation (Nelson Mandela included), only to compound our people's material destitution.
* Riaz Tayob works for the Southern and Eastern African Trade Information and Negotiations Institute (Seatini) in South Africa
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