F. Trade as aid?

Conventional approaches might at first sight not link trade issues with debt cancellation. But trade relations happen to have a marked and direct impact on economies, their productivity, balance of payments, revenue income from duties and other related issues. Hence trade affects national budgets - and therefore the (dis) ability to honour debt services, to provide investment or to be credible. This is even more so if trade relations in the global setting of today are regulated to the smallest details by bi- and multilateral agreements and domestic as well as international laws, which have a direct impact on the volume and flow of trade.

Rules and regulations negotiated and finally fixed between states are aimed to secure interests first and foremost in terms of the economic interests represented by the negotiating parties, normally on behalf of their respective governments. They often result in price regulations, definition of qualities and quantities of specified commodities, preferential treatment or exclusion of goods. At stake is the financial volume not only for the producers but also the economies. As long as global trade is skewed and to the advantage of some (normally those who have the power of definition to set the rules), it remains at the disadvantage of (most) others. Concerning debt, trade matters.

Debt cancellation, as one of the demands put on the table, is one obvious way to solve the current unacceptable situation. But at the same time it bears the risk of being misleading. It would be wrong to assume that the problem inherent in the in-egalitarian structures of the world economy are solved by such a one-time relief offered. Fairer trade would in contrast offer opportunities for moving into the direction of a more lasting sustainable alternative. Current initiatives towards further uniformity in global trade tend to suggest that they might contribute to such a development. Let’s have a closer look.

Globalisation and regional integration

It is sometimes suggested that African countries should chose between regional integration and globalisation. This dichotomy is misleading. Apologists of a liberalisation of trade argue that both trends complement each other in a positive way. But the real question is whether, under the pressure of global market forces, regional strategies remain viable at all. Regional and bilateral Preferential Trade Agreements (PTAs) are booming. Within the last 15 years the number of PTAs proliferated and has more than quadrupled to about 230. It is estimated that some 60 further arrangements are currently negotiated. This means there are almost twice as many PTAs existing and negotiated than countries officially participating in the regulated world trade.

Under the regime of the World Trade Organisation (WTO), local and regional policies are increasingly determined by global factors. One example is the New Partnership for Africa’s Development (NEPAD), which serves as the socio-economic development blueprint for the African Union (AU). Similarly, bi- and multilateral trade relations between external actors and individual African states or regional blocs are becoming ever more decisive. This is true of the USA’s African Growth and Opportunity Act (AGOA), the EU Free Trade Agreement (FTA) with South Africa and more recently the Economic Partnership Agreements (EPAs) negotiated by the European Union. All these initiatives have a potentially detrimental impact on regional integration.

In the light of current evidence it is suggested that the trade policies of both the US and the EU are anything but helpful to consolidate regional integration – in contrast to the proclaimed priorities this should have within the developmental paradigm. The notion of coherence, meaning similar policies pursued and implemented in differing but complementing areas such as foreign and trade policy and development cooperation, is a relevant tool in this context to argue for a critical re-appraisal of currently established international regimes by initiatives of the OECD countries and in particular the G 7/8.

NEPAD

NEPAD claims that its agenda is “based on national and regional priorities and development plans”, which ought to be prepared “through participatory processes involving the people” (para. 49). So far, however, no visible signs indicate that the collective (multilateral) efforts aim at a united approach of the various regions in their relations with the outside world. Nor does NEPAD, so far, translate its noble aims into practical steps. The blueprint emphasises sub-regional and regional approaches under a separate sub-heading. It stresses “the need for African countries to pool their resources and enhance regional development and economic integration … to improve international competitiveness” (para. 94). The dilemma is that the emphasis on international competitiveness comes at the expense of strengthening local economies and people.

NEPAD also claims to enhance the provision of essential regional goods as well as to promote intra-African trade and investments, with a focus on “rationalising the institutional framework for economic integration” (para. 95). But again, such an approach neglects the local/internal in favour of the global/external orientation. In the meantime, NEPAD emerges as a type of mega-NGO channelling aid-funds to developmental projects. The claim that these are driven by a desire for closer regional collaboration is hardly more than lip service. Countries, not regional bodies, implement the programmes and policies. As Patrick Bond had already suggested in his annotated critique in 2002 (“Fanon’s Warning”), NEPAD seems more to undermine than to strengthen regional institutions.

Indeed, NEPAD defines the strengthening of African regional markets as a steppingstone towards greater integration into the global economy rather than as a goal in itself. Accordingly, its market access initiative advocates an external orientation. NEPAD identifies a need to negotiate for “more equitable terms of trade for African countries within the WTO multilateral framework” (article 188). This is deemed “an historic opportunity for the developed countries of the world to enter into a genuine partnership with Africa, based on mutual interest, shared commitments and binding agreements” (article 205). One wonders to what extent the NEPAD architects had lost their sense of reality when they drafted such obviously “wishful thinking”.

AGOA

Originally adopted as Title I of the Trade and Development Act of 2000 under the outgoing Clinton administration, AGOA was meant to apply the “trade not aid” paradigm. President Bush has extended its duration twice. As a US-law, AGOA was neither negotiated with its African beneficiaries nor based on any agreement with them. Its applicability is at the exclusive discretion of the US-administration. The current “AGOA Acceleration Act of 2004” had been enacted by the Senate and House of Representatives of the United States of America in Congress on 21 January 2004.

It should come as no surprise that US trade policy is not really geared to support Sub-Saharan economic development, but rather to provide access to potential markets. This would be fine if it only resulted in mutual benefits in the interest of all partners. But the bulk of African countries will not reap any such harvest. To a large extent, AGOA centres on oil and related commodities. African oil exports already amount to more than one fifth of the annual supply in the USA.

AGOA delivers benefits to countries according to their resources. Ironically, external capital (from mainly East Asian countries) has managed to exploit the opportunities created for supplying the US market with textiles from those African countries that rank as “Lesser Developed Beneficiary Sub-Saharan African Countries” in the AGOA context. These countries include those with a gross national product of less than US$ 1,500 in 1998 (as measured by the International Bank for Reconstruction and Development) plus Botswana and Namibia (which in itself represents an interesting indication of politically selective preferences dished out).

These AGOA recipients are granted preferential treatment (such as reduced import taxes). However, the mostly unqualified and underpaid workforce in African sweatshops is hardly reaping any benefits. Rather, people are being super-exploited. Nor do the governments of the countries affected register much additional revenue. After all, initial investments and even running costs tend to be heavily subsidised with public funds whereas profitable operations normally enjoy tax exemption.

This setting makes neighbouring countries compete for foreign investors rather than foster common growth strategies. Asian companies exert pressure on African governments in the pursuit of the most attractive investment opportunities under AGOA. Officials strive to offer foreign investors the best incentives for projects of an ultimately dubious nature. Often enough, existing legislation to offer minimum protection of the labour force and the natural environment is simply ignored or declared non-applicable to meet the interests of such investment. At the end, the praised enhanced local production and trade boils down to nothing more than mere elite pacts, in which local African administrations and Asian capital gain from providing US markets with cheap goods at the expense of workers who hardly earn enough to survive.

Empirically, AGOA has slim positive impacts in only a few of 37 eligible countries, among them Kenya, Lesotho, Madagascar, Mauritius, Swaziland and South Africa. This is mostly attributed to the textile and apparel sectors: Only in Kenya and South Africa, did exports from other sectors (primarily agriculture) rise substantially. After the Multi-Fibre Agreement (MFA) ran out early this year, the textile and apparel industries in China, India and other Asian countries will be able to compete much more freely with African products favoured by AGOA. The predictable result will be a decline – if not collapse – of the short-term industry seeking temporary gains.

Once the AGOA bonanza is over, internationally operating capital and a handful of local compradors will turn out to have been the only winners. The much hailed investment opportunities then turn out to have been those for the haves, with no lasting assets created for the national economies and the benefits of the majority of the people participating in them. What is left behind is more likely to be a more damaged environment, while the detrimental effects had even been subsidised from the local public purse, which on top will have to deal with limiting further damage.

EPAs and FTAs

The EU is currently negotiating EPAs with African, Caribbean and Pacific countries (ACP). The goal is to replace the Cotonou Agreement with separate sub-regional accords and to, thereby, make existing EU-ACP relations compatible with WTO rules. Observers accuse the EU of using EPAs to push through agreements on a number of sensitive matters (such as investment, procurement and competition policy) that were rejected by developing countries at the WTO ministerial meeting in Cancun in 2003. In any case, such agreements will reduce the policy space for African governments.

The EU is striving for separate deals with each region, and no country may negotiate in more than one block. For EPA purposes, the Southern African Development Community (SADC) is accordingly reduced to half of its actual member countries. What could make the inbuilt conflict between regionalism and global perspectives more obvious? As an outcome of current negotiations, developmental space is likely to shrink. Official discourse does not even deal with issues of internal and regional integration anymore. Even experts at the International Monetary Fund (IMF) seem reluctant to generally consider EPAs as beneficial. Their blessing is currently depending on a number of positive assumptions made, which are not implemented so far within the ongoing negotiations.

These negotiations on future EPAs cause serious implementation problems and a negative impact on regionalism within the ACP group in general and its African members in particular. Regional organisations will suffer from capacity problems in the process. The matter is further complicated by the fact that all regions involved are made up of LDCs and non-LDCs, to which, so far, different rules have applied. The preferential clauses existing to the benefit of LDCs are not honoured so far in a similar extent under the EPA negotiations.

The EU’s FTA negotiated with South Africa during the second half of the 1990s has already had a divisive effect on the Southern African region. The fact that a single country entered a preferential trade relationship exacerbated regional tensions that result from divergent economic interests. In many respects, South Africa, the monetary zone, the South African Customs Union (SACU) and SADC are already not in harmony.

The EU intervention adds to the friction. While the FTA might indeed have some beneficial effects for South Africa, that is no convincing argument in favour of more FTAs with other – less industrialised – countries. The current negotiations by the USA for a US-SACU-FTA seemingly try to win back what is perceived as a lost territory in comparison with the EU-SA-FTA. But it is as questionable to what extent this would strengthen the regional interests in contrast to the South African and US American ones.

South African interests are by no means identical with those of the region. While regional integration would (and should) certainly not be at the expense of the hegemonic power, it would include the interests of the junior partners in the neighbourhood. The political economy of such regionalism depends on constantly (re-)negotiated arrangements, with shifting boundaries and changing coalition of interests. The EPA configuration process, as much as the FTAs with the central role of the South African economy as the point of departure does not seem to strengthen such alternative routes.

Conclusion

Recent trends indicate a less rather than a more conducive international environment for regional cooperation and integration. This is so, at least in macro-economic terms, among the members of bodies as SADC. Ironically, as a recent Swedish study submitted by developmental economists to the government had pointed out: While the EU, through its enlargement, is collecting the European states into an increasingly strong unit, EU’s African policies may have the opposite effect.

This brings the demand for policy coherence on the top of the agenda as a priority for further discussions also among those EU member states, which try to offer more than mere lip service to improved relations with the South aiming at offering a fairer share. If regional integration and collaboration remains a cornerstone in the developmental paradigm, with the declared aim of supporting the efforts to reduce detrimental dependencies in the South from the global market and its structural discrimination, trade as aid would have to be more than a mere euphemism for continued exploitation and discriminatory practices. It would require embarking on a different set of strategies as those currently imposed.

As long as this is not the case, such trade reforms will also have no lasting positive impact on the chances for smaller or weaker economies to overcome the structural dependency. Instead, by seeking a pseudo-way out, they continue the avenue, which turns out to be a cul-de-sac. All too often, this results in fatal survival strategies based on credits instead of genuine gains from trade.

* This is a revised version of an article in “Development and Cooperation”, vol. 32/no. 2, March 2005. More analyses offers: Henning Melber (ed.), Trade, Development, Cooperation: What Future for Africa? Uppsala: The Nordic Africa Institute (Current African Issues, no. 29). The volume is accessible at the Institute’s web site (www.nai.uu.se) and can be downloaded free of charge. Dr. Henning Melber is Research Director at The Nordic Africa Institute in Uppsala, Sweden. From 1992 to 2000, he was Director of The Namibian Economic Policy Research Unit (NEPRU) in Windhoek. He is currently a Vice-President of the European Association of Development Research and Training Institutes (EADI).

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