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| Author: | Bruce Stokes |
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March 1, 2003
National Journal
In recent weeks, the Bush administration has pledged to step up aid to poor countries significantly. The White House's fiscal 2004 budget requests $1.3 billion for a new "Millennium Challenge Account," which would be the down payment on a pledge President Bush made a year ago to increase annual U.S. foreign aid by $5 billion by 2006. Throw in the $10 billion in new money Bush has promised to pump into the battle against AIDS in Africa, Asia, and Latin America, along with the first substantial increase in U.S. funding for World Bank lending in years, and the Bush team is on course to increase U.S. foreign aid spending by some 75 percent by fiscal 2008. That's an increase the Clinton administration never came close to proposing. Internationalists, noting that the United States commits less of its national wealth to foreign assistance than any other industrial nation, say that the Bush initiatives are long overdue.
But this new Bush aid is largely old-fashioned check-writing. Got a problem? We'll write you a check. To be sure, the Millennium Challenge Account program is based on the premise that the U.S. government will dole out big bucks only if a developing nation has made progress in curtailing corruption and adopting free-market policies. But it's still foreign aid.
In the past few years, economic development experts have begun looking for new ways for rich nations to help poor nations combat poverty. Most experts agree that the principal causes of continuing neediness in much of Africa, Asia, and Latin America are self-defeating economic policies, corruption, and a failure to invest in health and education. There's a growing consensus that most of those problems can be solved only by the developing nations themselves and that the problems could take decades to fix. But development thinkers also say that rich nations share a good deal of the responsibility for the impoverishment of the poor. These critics have begun to argue that governments in Europe, Japan, and North America must take a hard look at the effects of their own domestic economic policies-in farming, trade, migration, the environment, and other areas-that they say prevent poor countries from climbing out of poverty. So far, U.S. government officials and their counterparts in Europe and Japan have largely ignored this growing movement.
But government officials probably won't be able to ignore the movement much longer. Activist groups, such as Oxfam, have targeted U.S. sugar quotas and European cotton subsidies as examples of rich-country agricultural policies that deny farmers in the poor Southern areas of the globe access to the rich markets of the North, even when those poor-country farmers are the lowest-cost producers. The World Bank is churning out studies documenting similar problems with the policies of other industrialized countries. A group of influential economists and analysts recently gathered in Cairo, under the auspices of the Global Development Network, to map out a research agenda focused on the adverse effects of rich nations' behavior. And in its upcoming May/June issue, Foreign Policy magazine will publish the first Development Friendliness Index, put together by the Washington-based Center for Global Development. The index will be an annual effort to focus public attention on American, European, and Japanese policies that harm African, Latin American, and other Asian nations. "No serious Washington policy maker can continue to ignore this," said Mark Malloch Brown, administrator of the United Nations Development Program.
The rich-country policies that can discriminate against poor countries include the following:
* Tariffs: In 2001, Bangladeshi exporters paid $331 million in tariffs to the United States. French exporters paid roughly the same amount of U.S. duties, even though their sales to the United States were 13 times greater.
* Agricultural subsidies: The German government promotes beef production in several nations of West Africa to improve nutrition there. But the European Union undermines this effort by subsidizing beef exports to these same countries.
* Health standards: A new European standard for aflatoxin (an enzyme that occurs naturally in some crops and poses a slight risk of cancer) is expected to cut African exports of cereals, dried fruits, and nuts to Europe by nearly two-thirds, making it harder for African farmers to make a living.
It is no accident that such policies are increasingly the topic of development debates. Robert Picciotto, who heads the Global Policy Project, an informal network that promotes development-friendly policies in rich nations and that organized the Cairo conference, said that in a sense, globalization has done its job. "Globalization has left most developing countries connected to the global economy" as never before, he said, and yet that has made them "much more vulnerable to the policies of industrial countries."
Change Will Be Hard
Can rich countries, when making domestic policy, really be expected to take into account the needs of poor nations?
Bush administration officials already bristle at the idea of assessing the effect of U.S. farm subsidies or environmental policies on the developing world. And the French and the Dutch-bedeviled by their own immigration politics-recently blocked a proposal that the Organization for Economic Cooperation and Development, an intergovernmental think tank based in Paris, study the consequences of industrial-nation migration practices.
Such reluctance to consider the effects of domestic policies on foreign nations is partly due to the clout of politically powerful domestic constituent groups. A million Americans, for example, still work in the textile and apparel industries, although developing nations can make clothes far less expensively. Most U.S. textile workers would likely lose their jobs if the administration made its apparel-trade policies more development-friendly. Similarly, U.S. sugar interests have given congressional candidates $18.8 million in campaign donations since 1990, partly because they know that foreign sugar producers can make sweeteners far more cheaply than domestic producers. Reform advocates can't match that kind of lobbying clout. Farmers in Japan have long blocked opening the Japanese rice market to cheaper imports from Thailand or China through their influence within the ruling Liberal Democratic Party. Their influence shows no signs of weakening anytime soon.
In the end, politicians in rich countries will have to assess the political tolerance for change. And development advocates will have to be realistic about their prospects for success.
To be sure, the debate over "development coherence"-that is, the effort to evaluate rich nations' policies-is still in its infancy. Most development experts remain focused on the bad policies of the poor Southern part of the globe, rather than those of the rich North. And only a few activist groups-such as Oxfam and ActionAid, another British organization-have fully embraced this innovative approach to development.
But in addition to offering fresh insights into why the poor stay poor, development coherence could open the door to marriages of convenience between development groups-which have often been long on moral outrage and short on political muscle-and business lobbyists in certain industrial-country economic sectors. Such lobbyists may care little about development but want to end the U.S. sugar quota, for example, or increase emigration for their own commercial reasons. And for the United States, such a wide-angle view of development shifts the often-contentious North-South dialogue from foreign aid-where the United States continues to trail the generosity of Europe and Japan-to trade, migration, and other policies, where America gets better marks. The debate could get ugly.
The Emerging Debate
The charge that the policies of the rich North hurt the poor in the global South is nothing new. In the 1950s and 1960s, left-wing economists denounced "imperialistic" American and European trade and investment practices and their effects on Africa and Latin America.
But in the 1980s, the free-market ideology of Ronald Reagan and Margaret Thatcher came to dominate intellectual debates about development. A new paradigm emerged-called the Washington Consensus-which held that the problems of developing nations largely flowed from their own failure to adhere to market principles. According to this thinking, if poor countries would simply privatize their economies and let markets set prices, foreign investment, trade, and the benefits they bring would follow. The current Bush administration's insistence that new foreign aid be conditioned on such performance criteria is the logical extension of this worldview.
This Washington Consensus remains the dominant development paradigm at the World Bank, at the International Monetary Fund, and in aid agencies and treasuries around the world. But on the fringes of the development community, new thinking has begun to emerge.
Much of that thinking has surfaced because of the growing realization that direct foreign aid to poor countries just hasn't done as much as other policies to lift the economies of the developing world. And foreign aid from rich countries has been declining in importance as a growth engine in the economies of the developing world. In Bangladesh, for example, official foreign development assistance in 2001 equaled only 2.9 percent of the economy, three-fifths of what it was in 1992. Remittances from overseas Bangladeshis were far more important, equaling 4 percent of the economy, as were earnings from exports, which totaled 13.7 percent of GDP.
"For the last decade, virtually all of the developing world has been trying to impose fiscal discipline, trying to get the state out of the economy, trying to open their borders," said Nancy Birdsall, president of the Center for Global Development. "But there is lots of evidence this is not working on the growth side, and it's not working to reduce poverty or narrow the divergence of income between the rich and the poor."
Moreover, there is a spreading recognition, said Nicholas Stern, chief economist at the World Bank, "that we are all responsible and we are all accountable." The concept of reciprocal obligation between rich and poor countries-explicitly endorsed at the United Nations World Summit on Sustainable Development last fall in Johannesburg-frames more and more of the public debate over development. Developing-world activists increasingly criticize rich countries for hypocritically preaching, "Do as I say, not as I do." Said Birdsall, "Because we have become a global community, the premium on fairness is becoming greater."
Picciotto, the former director general of operations evaluation for the World Bank, says it's time that rich countries look to themselves for reforms. "Virtually all performance indicators being tracked by international agencies are pointed south," he said. "No similarly integrated effort is under way to evaluate and monitor the development effectiveness of rich countries' policies. They have escaped systematic scrutiny even though they determine the amount and quality of aid, debt reduction, foreign investment, trade, migration, access to intellectual property, and global environmental trends on which sustainable development depends."
Trade
Trade practices are the first of these policies to attract new scrutiny.
At the January World Economic Forum in Davos, Switzerland, newly elected Brazilian President Luiz Inacio Lula da Silva criticized "the rich countries that continue to preach free trade but practice protectionism."
His frustration is rooted in experience. Developing countries face high, discriminatory tariffs, particularly on their textiles and apparel; barriers to offering services to industrialized countries; and obstacles from industrial-world trade laws and intellectual-property rights. It is little wonder then that in 2000, only one-quarter of industrial-country imports came from developing nations. More tellingly, the share of goods imported from poor countries by the six richest industrial economies improved only slightly in the past decade, from 2 percent in 1990 to 2.5 percent in 2000.
Most tariffs in rich countries are relatively low, certainly lower than the average duties developing nations impose. The problem is tariff peaks-high duties that industrial countries place on selected goods. These selective tariffs affect about 5 percent of all developing-country exports and 11 percent of the exports from the poorest of the poor economies. For many developing nations, the tariff peaks most dramatically affect these nations' exports of textiles and clothing, on which industrial nations place an average duty of 28 percent.
Developing countries are also increasingly the targets of anti-dumping actions by industrial countries. In 1990, anti-dumping investigations of textile imports, largely from the developing world, accounted for barely 5 percent of the total number of cases worldwide. By 2000, they composed more than 11 percent. And developing-country producers worry that the volume of such actions will skyrocket after 2005, when current textile and apparel quotas are lifted.
The tariff code is also full of carefully crafted provisions designed to protect individual products, often at the expense of developing-country producers. For example, an everyday drinking glass made in a poor country and worth less than 30 cents incurs a 38 percent tariff when it is shipped to the United States. But high-end, expensive glasses valued at more than $5 apiece, and often made in a rich industrial country, incur only a 5 percent tariff. Such discriminatory duties penalize low-cost glassmakers in the developing world. In addition, specific tariffs often reinforce poor countries' role as commodity producers and inhibit their development of value-added manufacturing or processing activities. Take tomatoes. The U.S. tariff on fresh tomatoes is a small 2.2 percent, and we buy lots of tomatoes from overseas. The tariff on tomato sauce, however, is a relatively high 11.6 percent, and we don't import much tomato sauce.
New rules on intellectual-property rights that industrialized countries pushed through the World Trade Organization are also frustrating for the developing world. Once such rules are fully in force, the poorest nations are expected to have to pay American patent, trademark, and copyright holders fees that would be nearly double what these developing economies currently get from Washington in foreign aid. Moreover, greater intellectual-property protection has yet to stimulate innovation in the developing world-one of the supposed benefits of the new rules-because the poorest societies lack the necessary technological capacity. More specifically, intellectual-property protection has done little to spur development of pharmaceuticals aimed at preventing or treating diseases endemic to poor countries, because residents in those countries lack the incomes to pay for such drugs.
Finally, the sheer expense of complying with current world trade rules simply exceeds the expected benefits for many of the poorest nations. The World Bank estimates that the budgetary cost of implementing trade commitments that require domestic regulatory changes exceeds the annual development budget of eight of the least-developed nations.
Yet even a relatively modest improvement in poor countries' access to developed-world markets would have a widespread effect on poverty. Oxfam estimates that if industrial countries liberalized trade to achieve a 1 percent increase in poor countries' share of total world trade, and if that 1 percent were evenly distributed among all poor nations, 128 millionpeople could be lifted out of poverty. For Africa, the $70 billion in increased export earnings it would gain under such a liberalization would be nearly five times the funds the region receives annually through foreign aid and debt relief, and it would raise average incomes by one-fifth. (Developing countries would gain even more if they would also lower barriers to each other's exports.)
The potential gains from liberalizing trade in services could be even greater than those for goods, because existing service protection tends to be higher. For example, a 25 percent reduction in barriers to trade in services would add an estimated 1.4 percent to the GDP of India, where commercial-service exports already account for a greater portion of exports than in the European Union or the United States.
In recent years, rich countries have grudgingly begun to lift obstacles to imports from developing countries. And when these obstacles are lifted, trade expands.
In 2000, for example, the United States granted duty-free access to selected products from 35 African nations. American imports from Africa subsequently soared. But thanks to arm-twisting by domestic interests, only "nonsensitive" products qualify for the U.S. program, and garments imported from those 35 countries must use U.S. fabrics and yarn.
The European Union's 2001 "Everything But Arms" initiative was similarly intended to open Europe's markets for all nonmilitary exports from less-developed countries. But after a backlash by European producers and traditional Caribbean suppliers, free access to the EU for three important developing-country products-rice, sugar, and bananas-was delayed for up to eight years.
In the current Doha Round of multilateral trade negotiations, the Bush administration has proposed eliminating all tariffs of 5 percent or less by 2005 and bringing all duties on consumer and industrial goods to zero by 2015. Such an initiative would improve market access for developing nations, but a dozen years is a long time for the poor to wait. And since Europe and Japan oppose the U.S. initiative, what finally emerges will be something less than the Bush proposal.
Agriculture
Farm policies in Europe, Japan, and the United States-production and export subsidies, import quotas, and other government interventions in the market-are particularly harmful to some of the world's poorest citizens, who have little to sell to the industrialized world but the crops they grow.
In 2001, rich countries gave their farmers and agribusinesses $311 billion in direct and indirect subsidies. And this figure is likely to rise, because the U.S. farm program approved in 2002 increases American farm support by 80 percent.
Lacking such government help, developing-country farmers find it hard to compete, both in the world marketplace and in their own backyards, which are often flooded with low-priced, subsidized commodities from Europe and the United States. For example, the European Union subsidizes milk-powder exports to India. This subsidy undercuts milk producers there (who, ironically, are also getting production assistance from Brussels).
In addition, Europe, Japan, and the United States often protect their farmers even more than they do their manufacturers. The average industrial-nation tariff on agricultural products is four times that on industrial goods. And Europe and the United States restrict imports of sugar, cotton, peanuts, oranges, and other commodities that poor countries can most efficiently produce.
Moreover, the food standards of rich countries can hurt poor-country farmers at the same time they protect American, European, and Japanese consumers. The makers of camel's milk cheese in Mauritania learned this the hard way after recently winning a prize at a German trade fair for their product. They soon had an offer to sell their exotic cheese in luxury shops in London and Paris. Such exports would have helped alleviate poverty in the poor North African nation, because the cheese's main ingredient, camel's milk, is collected from nomad producers, most of whom live on less than $1 a day. But the European Union blocked sales; for sanitary reasons, it requires mechanical milking for imports of all dairy products. In Mauritania, that was impossible.
For the more than three dozen developing countries that depend on agriculture for more than half of their export earnings, the effect of such farm policies has been devastating. Agricultural imports as a share of total rich-country imports from poor countries are actually declining. In 2000, their proportion was only two-thirds what it was in 1990.
If Europe and the United States were to cut farm subsidies and, together with Japan, open up their markets to agricultural products from the developing world, poor countries would add nearly $50 billion to their economies, according to Vangelis Vitalis, chief adviser to the round table on sustainable development at the OECD. Even narrow reforms could pay benefits for the poor. Lower U.S. protection for American cotton growers would raise exports for many countries in West Africa and Central Asia by up to 2 percent, according to the International Monetary Fund. IMF studies suggest that such export increases could substantially lift rural incomes in Africa.
In the Doha negotiations, rich countries have offered a down payment toward helping farmers in poor countries. The United States has proposed capping trade-distorting farm supports, scrapping export subsidies over five years, and reducing average farm tariffs from 62 percent to 15 percent. The European Union has offered to cut domestic subsidies by 55 percent, to cut export subsidies by 45 percent, and to cut farm tariffs by 36 percent, the latter offer matched by Japan. It's a start. But more would need to be done to put a real dent in developing-world poverty.
Charity Begins at Home
The debate over development coherence has just begun. Much more research is needed if officials are to better understand the effects of rich-country policies on the poor. The OECD is the logical place to do such work. But some members are balking. Initial work may have to be left to the World Bank and to independent researchers, such as those in the Global Policy Project.
"Information is not the problem," observed an international civil servant working on development coherence. "It's the political will. I am not persuaded that people are yet taking a serious look at how to measure industrial-country policies. I don't sense the political uptake. In fact, there is a lot of political anxiety about it. A lot of countries are not keen to be shown up in this way."
Developing countries have some leverage. They have threatened to hold up the Doha trade negotiations until their concerns about farm subsidies, intellectual property, market access, and other issues are addressed. If they hang tough-something they have failed to do in past negotiations-they may be able to force greater change in rich-country policies.
In the end, it's too early to know whether this new focus on development coherence will lead to a major rethinking of how the world tackles poverty. "How much difference would it really make?" asked Birdsall. "We don't know. The fundamental impediments to growth in the poor countries are still, principally, domestic and institutional constraints. On the other hand, if it takes 10 to 20 years for them to reform, how do we make it easier to sustain that reform momentum? If the rich don't start to become more friendly to the development needs of the poor, then they will undermine the capacity [of developing-country reformers] to politically sustain what are difficult
policies."
Given the worries among rich countries that poor, struggling countries are apt to become breeding grounds for terrorists, and given the need for industrial economies to gain developing-country markets, the industrial North has a real interest in doing what it can to see that reforms in the poor and rural South succeed-even if that means the rich must look to change themselves.
Explore international efforts to curb nuclear proliferation with a new interactive from CFR's program on International Institutions and Global Governance.
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