G20: Bonus for the poor?
Wednesday 23 September 2009 / by the Trade Out of Poverty founders: John Battle MP, Sir Menzies Campbell MP, Lord Hastings, Peter Lilley MP and Clare Short MP
All the focus at the G20’s meeting in Pittsburgh this week will be on bankers’ bonuses. But there are other credit-crunch issues that affect millions of people, rather than hundreds, and which are not getting the attention they deserve—like removing trade barriers against the world’s poorest countries.
The G20 has talked big on trade but achieved little. At the G20 London Summit in April this year leaders pledged to “do whatever is necessary to (…) promote global trade and investment and reject protectionism, to underpin prosperity.” Since then nothing has happened, except worrying signs of increased protectionism.
This will hurt people even in the most prosperous countries. But it will also divert attention from some simple steps G20 leaders could take to help citizens of the poorest countries on earth. For them, the failure to join in trade can be a matter of life and death.
Ironically, promoting global trade and investment, as well as rejecting protectionism, won’t cost much. No expensive TARP or other government bailout packages are necessary. No nitty-gritty Doha Round either. Trade is the single best route out of poverty and there are five fairly simple steps the G20 and others can take to allow the poorest countries to trade their way out of poverty.
First, rich countries must open their markets unconditionally to all the poorest countries (the UN-defined Low Income Countries, including Ghana). Although protectionism is a common reaction at times of economic uncertainty it will hurt rich and poor in the long run. The threat of competition to rich countries is minimal: the poorest people, with people living on less than $2.70 a day, account for one fifth of the world’s population but less than one fiftieth of world trade.
Second, trade rules must also be simplified. Complex rules of origin mean that countries that are entitled in theory to tariff-free access to developed markets are actually paying high tariffs or being excluded by the complications of bureaucratic barriers.
Third, rich countries’ export and domestic subsidies which undermine poor countries’ ability to compete should be reduced or removed. Among the worst examples are Japanese rice, US cotton and European Union cows.
Separately, poor countries need to make a number of changes too, especially reducing tariffs between themselves. The highest tariffs in the world are between the poorest countries, where governments and customs officials abuse trade regulations and damage regional trade.
The World Bank’s latest Doing Business study shows that exporting a container from an Angolan port requires an average of 12 documents, costs $2,250 and will take a massive 68 days to clear, while in landlocked Botswana it takes 37 days yet in Senegal it only takes 14 days—better than the world average.
This is one of the reasons why less than one tenth of African exports go to other African countries, while nearly three quarters of European trade is within Europe.
Finally, renewed investment is essential in the roads, ports and administrative structures that would make trade possible or easier in developing countries. And it’s not just external trade: in 2006 Kenya could not get its agricultural surplus in the West to the famine-stricken North, which had to wait for international humanitarian aid.
Lifting all barriers in the G20 is cheap and easy: in practice, each G20 country could act alone. But if the G20 worked together and devoted only a little of the time and energy it will give to bankers’ bonuses at this week’s Summit, the bonus for the poor would be measured not in millions of dollars but in lives: poverty kills but trade saves.
Messrs. Battle, Campbell, Hastings and Lilley and Ms. Short, members of the British Parliament, are co-chairs of the cross-party Trade Out of Poverty campaign.