Successful Trade Talks Would Benefit the Poor

BRAZIL (By Alan Beattie, Financial Times) November 24, 2005 — Calls by business leaders or politicians for a successful conclusion to the Doha round tend to be buttressed by grandiose claims that the round would boost the global economy by numerous billions of dollars or lift hundreds of millions of farmers in the developing world out of poverty.

Their intent is obvious: by emphasizing the rewards of progress and success, such interventions are designed to underline the cost of intransigence and failure.

But economists emphasize that the effects of multilateral trade deals, particularly on poverty, depend on precisely what kind of liberalization is undertaken. And some, notably at the World Bank, have begun to moderate their predictions.

Thomas Hertel, a professor at Purdue University in the US, has co-edited a book to be published by the World Bank on the impact of a successful Doha round. "The big message from our book is that the poverty impacts are rather smaller than the bank thought in the past and than the numbers thrown around by others," he says.

The work reckons that a reduction in poverty as a result of full liberalization of agriculture and goods trade would be only half or a third of previous estimates partly because of a better understanding of the impact of growth on poverty reduction and partly as a result of including the effects of the special preference schemes enjoyed by many developing countries.

The authors estimate that, even in the long run, once economies have had time to adjust and freer trade has raised productivity growth, the elimination of all protection on goods and farm trade might lift 127 million people out of the extreme poverty of earning less than $1 a day. There were an estimated 1.1 billion such people in 2001.

But the limited package being contemplated under Doha would lift only 20 million out of that destitution and, if more than 2 per cent of farm products were exempted from tariff cuts, the poverty impact would be negligible.

The European Union wants 8 per cent of its products to be subject to lesser cuts.

Moreover, the gains are not evenly spread. In the case of Bangladesh, for example, a successful conclusion of Doha might increase poverty in the short term, as the value of the country's special access schemes are eroded by the reduction in tariffs elsewhere and cuts in farm subsidies increase food prices for the poor.

Estimates of gains from trade liberalization are often dependent on assuming that countries can switch labor and capital from one employer or sector to another - more likely in rich countries with efficient job markets and financial systems than in the developing world.

On the other hand, the World Bank has also thrown up surprising evidence of poverty reduction where it had often been assumed elusive.

EU countries sometimes claim that freer farm trade will benefit no-one but huge agribusinesses and food companies: Francois Loos, the former French trade minister, was fond of saying that the only beneficiary from global free trade in sugar would be Coca-Cola.

In fact, detailed work on Brazil suggests that, though the large landowning sugar and cotton barons would benefit from agricultural liberalization, so would poor and landless workers.

Economists found that a Doha success would mean the creation of some 253,000 Brazilian agricultural jobs, more than half of which would go to the poorest third of workers, and - despite the loss of jobs in manufacturing overall poverty would fall.