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International Trading Relationships

A New Form of Colonialism

By Carol Dorgan  
  If you are thinking a year ahead, plant a seed,
If you are thinking 10 years ahead, plant a tree
If you are thinking 100 years ahead, rnake people aware

Anonymous Chinese poet, 500 B.C.
 

If a Sabbatical Year were to be proclaimed tomorrow and Third World debt - now standing at $1.7 trillion - written off, it is unlikely that the situation of the poorest countries of the world would significantly improve in the long term. Why not? Surely an end to the draining of such a vast amount of money out of these countries would be good news? The answer is that it would ...if...

The "if" largely comprises what could be seen equally as both contributory cause and consequence of indebtedness: international trading relationships.

This paper looks at the issue of international trade as part of the debt equation, in the belief that becoming aware is the first step in generating energy for change. It will show how international trade has become a new form of colonialism today, keeping poor countries in the grip of impoverishment and dependency, and ensuring that while present trade structures remain, no possibility exists, especially for the Least Developed Countries (LDC's) -for whom manufacturing makes up not more than 10% of what they produce to extricate themselves from their present situation. As has been well said: they run in order to stand still. This paper will also look briefly at where Ireland stands, and offer some suggestions for action.

Just as for Third World Debt, the roots of present day international trade lie in the era of colonialism. Colonizing countries saw their new conquests as sources of raw materials "primary commodities" - such as coffee, tea, cocoa, rice, sugar, fruits, minerals like copper and tin, fibres such as cotton and jute, and hardwood timber. These were exported back to Europe, and this policy contributed to building up industry and living standards in the "mother countries". But it also left many Third World countries and communities reliant on the export of primary commodities, indeed sometimes only on one commodity, for economic survival. With some exceptions, this remains the case today.

Africa is the clearest example: 86% of Sub-Saharan Africa's export earnings are from primary commodities today, virtually the same for some countries as when they won independence in the mid 1960's. Uganda is a country which relies on one commodity only coffee - for 95% of its export earnings. Even in relatively industrialised Latin America, primary commodities yield 67% of export earnings.

 


All these countries are highly dependent on fluctuating or declining market prices (over which they have no control). They are also constrained by the IMF and World Bank, which require indebted countries to concentrate on exports to pay their debt service as a first priority. But the exporting of primary commodities by many countries causes a glut in world supply, thereby contributing to lower world prices, so there is little or no money available for development within these countries a good example of "running in order to stand still". So industrial growth, unless financed from outside, is almost impossible. It is instructive to note that the number of LDC's grew from 24 in 1971 to 42 in 1989 (the years when the debt crisis developed). The vast majority of LDC's are in Africa, but also include some Asian countries such as Bangladesh, and others such as Haiti and the Yemen Arab Republic. Foreign Direct Investment has declined in Third World countries from 30% in 1970 to 21% in 1988, and of this only 2.5% is located in Africa.

Some Third World countries have managed to increase the volume of their manufactured goods, but they are chiefly the so-called "Newly Industrialised Countries" (N.I.C.'s), situated, for the most part, in Asia, e.g. Taiwan, South Korea, Singapore - names we find more and more frequently when we go shopping these days. However, many of these

NIC's are "developing" at huge social and environmental costs: highly inadequate worker protection, very low wages, environmental degradation etc.

In addition to the great difficulties poor countries face in creating industrial growth, they face further difficulties in terms of access to the industrialised world's markets. This is so despite the conclusion of the Uruguay Round of the GATT in December 1993, and considered to be a "momentous success". (GATT itself was replaced by the World Trade Organisation (WTO) in 1995). The purpose of the GATT, and now the WTO, is to remove barriers to free trade. One type of trade barrier is import tariffs on processed goods. Here is an example of how these work: raw coffee exported to Europe has a tariff of 4%. If that coffee is roasted and ground before export, the tariff rises to 12%, while on coffee extracts and preparations, it is 18%. In the case of cocoa, the average tariff on processed cocoa is twice that on raw cocoa - to protect chocolate manufacturers in the West. It is the same for all other primary commodities. "This policy" says Christian Aid, "helps maintain the Third World as "hewers of stone and drawers of water". Basic industrial goods which Third World producers can make most easily, such as footwear, leather goods, toys, etc., also face barriers, which discriminate against all poor countries but do not exist for the rich ones. However the Multi Fibre Arrangement (MFA) originally set up to restrict imports of textiles from (mostly Asian) countries, is to be gradually phased out under the WTO, which will help the textile exporting countries, although the EU and other textile importers are attempting to prolong this phasing out.

Apart from trade barriers, there are other difficulties facing Third World producers:

· fluctuating and declining commodity prices, partly due to gluts, as we have seen above.

· "import substitution": industrial countries are finding replacements for many primary products: synthetic fibres replace cotton and jute, and plastics now replace some mineral product uses. In the US, maize, as a source of sugar substitute, is coming widely into use, while Europe is now the world's largest sugar exporter, at the expense of the livelihoods of sugar dependent economies such as the island of Negros in the Philippines.

Without earnings from foreign trade, and without the possibility of diversifying into other types of production and industry (for which investment would be required), the only remaining possibility is to continue borrowing to service old loans. Hence the argument of this paper - that international trade relationships must change to include the needs of the poorest countries if they are to participate eventually in sharing the earth's resources and arise out of indebtedness and dependency.

What about the Uruguay Round, now taken over by the WTO? In Ireland we possibly associate it with the role Peter Sutherland played in the final negotiations leading to its conclusion in December 1993. It was genuinely hailed as a victory for freer world trade and good news for the world economy. Apart from the very important question of how this improvement is being defined in a world whose natural resources are being depleted, the special needs of indebted countries were only partially addressed, and there has been no sign in this Round that anything has changed in the dominating role of the industrialised world, in particular the US and the Transnational Companies.

The decision to cut subsidies on cereal and beef production could, however, have some positive effect, in that it will do away with dumping of these products onto Third World markets at prices lower than the costs of production. This has been a serious disincentive to local agriculture in that it led to lack of demand for local produce and depressed prices. However, the fact that many African countries have become cereal importers will adversely affect them. One estimate puts the overall loss to Africa under the WTO deal at $2.6 billion a year. By contrast, some Latin American exporters of these products will gain.

In addition, the principle of tariff escalation increasing tariffs on processed goods remains, and nothing has been done to protect further falls in the prices of primary commodities. Coffee, for example, has been forecasted to decrease in price by 6%, which could be disastrous for a country like Uganda.

Another element of the WTO, "Trade Related Intellectual Property Rights", could have particularly serious long term effects on developing countries. This measure protects the Western multinational companies which have a monopoly on high-technology products (drugs, computers, etc) and applies

more stringent patenting laws which will prevent poor countries from imitating these innovations. Since these countries are not in a position to develop their own research and development facilities, this measure could prevent them from having access to modern technology unless by paying prohibitive royalties. Another related measure is the issue of ownership of plants, seeds and their products. According to Christian Aid: "International seed companies may try to claim royalty payments on some of the seeds that farmers buy. Farmers who have received no reward for parting with the raw material that makes genetic manipulation possible, may be asked to pay royalties". It is obvious that these measures illustrate the dominating relationship exercised by the rich countries over the rest. Nevertheless, according to one commentator, the alternative to the WTO agreements would probably have been worse a trade war - which would have put the poor countries in an even weaker position.

Ireland's place in all of this is largely determined by the EU and by the WTO. The reform of the Common Agricultural Policy (CAP) is bringing about a decline in support for agriculture, which will lead to higher prices as subsidies are cut. We have seen how this will have both positive and negative effects on Third World countries, at least in the short term. However our own overall trade with developing countries is actually declining in importance. Excluding OPEC, only 4% of our exports went to developing countries in 1987, and our imports from them only amounted to 6%, due mainly to an increase in the amount of manufactured goods in our imports over the years.

Conclusion

Developing countries remain weak and marginal partners in world trade, accounting for less than 25% of all merchandise exports and about 10% of all manufacturing exports. This pattern has remained unchanged for the past three decades.

The interest which poor countries have to pay in debt service to Western banks means that they are exporting the money they so badly need for their own development. We mentioned above some of the obstacles put in place by the powerful trading nations to inhibit the progress of industrialization by the weaker members of the world community. Global markets and unfair trade cost them $500 billion a year - and this is 10 times what they receive in aid.

Industrial development is a pre-requisite for these countries to extricate themselves from debt and become more independent. It is essential that they be given this chance. The argument that this would lead to job losses in the industrialised world cannot be sustained. Already estimates put the number of job losses in Europe due to lack of demand in poor countries at 3 - 5 million.

Some ideas for practical action.

Action can be taken at different levels, including both personal and institutional levels. Starting with the personal level: · Where possible support fairly traded products. There are a number of outlets, such as Oxfam shops, throughout the country. The Irish Fair Trade Network could also be contacted. (Address below)

· Support local shops and industries as well as local organic food producers. This is a way of by-passing the products of multinational companies, which all too often have a history of destructive environmental policies, exploitation of labour and other malpractices in developing countries. It also puts money back into the local community.

· See about simplifying life-style. Consumerism today tries to persuade us "to have more so as to be more". Much of what we consume today is at the expense of the poor and of the earth. We cannot continue to do this.

· Continue to be informed about these issues, and share what you have learnt.

· Form a group locally to discuss the issues and encourage your local shops to stock fairly traded goods. Health Food shops are often stockists.

At institutional level here are some things one can do:

Write to the Minister for Foreign Affairs asking that Ireland demand:

· Incorporation into the World Trade Organisation's articles minimum International Labour Organisation (ILO) recommendations on labour rights, especially for women, which would include: the right to association, membership of free trade unions, minimum wage support and appropriate regulation of the new "flexible labour markets". Also demand a prohibition on child labour, and an agreement that all alleged violations would be investigated by ILO panels.

· Institutional reform of the WTO to allow for (a) more effective integration of development and environment concerns into trade rules, including an explicit recognition of the failure of market prices to reflect environmental costs, and (b) the primacy of poverty reduction and environmental sustainability over free trade.

· State your concern that the EU has failed to withdraw some of the most arbitrary and discriminating protectionist measures targeted at developing countries. In particular, the EU's attempt to circumvent the spirit of the WTO/Uruguay Round agreement on the Multi Fibre Arrangement, by reducing the volume of imports eligible for liberalisation, is regrettable.

  Address: Irish Fair Trade Network, Little Orchard House, Newpark, Kilkenny. Tel.056 - 63733, Fax: 056 - 636220

Trocaire, Christian Aid and Oxfam can also be of assistance.

Carol Dorgan wrote the above as a briefing document for the Debt and Development Coalition Ireland. The Coalition is contactable at: Dalgan Park, Navan, Co. Meath.
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