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Global trade is currently neither free trade nor a level playing field

By James Ensor - posted Wednesday, 15 August 2001

With the prospect of a new round of world trade talks emerging from the WTO’s upcoming meeting in Qatar, James Ensor outlines why many developing countries are reluctant to come to the table.

Trade has the potential to contribute to human development and the reduction of global income poverty. However, the current global trading rules are resulting in few winners and many more losers. In particular, the 600 million people in the world’s 48 least-developed countries (LDCs) remain largely excluded from the benefits of international trade. Their prospects under the next phase of multilateral trade liberalisation will be bleak unless the new approach is brought to trade negotiations by the industrialised world.

Worldwide, trade is becoming increasingly important to creating prosperity. The 1998 World Trade Organisation Annual Report boasted that growth in world trade had consistently exceeded growth in world income over the past ten years. Yet some countries and communities have fared better than others, while others have lost out overall. Exports from the world’s 48 least-developed countries (LDCs) – home to 10 per cent of the world’s population – have almost halved in the past two decades, now making up just 0.4 per cent of world trade. In contrast, the US and European Union – with roughly the equivalent population – account for nearly 50 per cent of world exports.


The gap between rich and poor countries is rising with expanding world trade. Between 1990 and 1997, global per capita GDP increased annually by more than one per cent. Yet 60 countries have grown steadily poorer since 1990, and more than 80 countries still have per capita incomes lower than they were a decade ago. More than 800 million people are still malnourished, despite an increase of nearly 25 per cent in global food production per capita between 1990 and 1997. And astonishingly, the assets of the three richest people in the world are greater than the combined wealth of all 48 least-developed countries, with a population of 600 million.

The last round of trade agreements was completed in Uruguay in 1994. The UN Commission on Trade and Development estimates that LDCs will lose between US$163 and US$265 million in export earnings as a result of their implementation, while paying between US$146 and US$292 million more for their food imports. The agreements have forced tariffs down, undermining Southern countries’ export markets. The value of primary commodities – raw materials which are the majority of these countries’ exports – have continued to fall, while food prices have risen with implementation of the WTO Agreement on Agriculture.

International food and agriculture trade is highly distorted, manipulated by the powerful trading nations. Governments in Europe and the US like to wax lyrical about their free-trade principles. Yet when it comes to agriculture trade, there is a big gulf between what they say and do. For decades, the US and European Union (EU) have been restricting agricultural imports, subsidising their own farmers, and dumping highly-subsidised surpluses on world markets at prices that undermine other producers, including farmers in Australia and the South. In 1998, subsidies and other support to agriculture in the OECD countries (the 19 wealthiest countries in the world, including Australia) amounted to US$353 billion. This is three times total foreign aid, and more than twice the amount of foreign direct investment in developing countries. So much for a level playing field.

The WTO rules on intellectual property are also working against the interests of many developing countries. As they now stand, WTO patent rules are skewed in favour of rewarding innovation by wealthy companies and countries, and against the needs of poor communities who most need the benefits from advances in medicine, agriculture and other technology-rich areas. There are also concerns that the rules hinder technology transfer from North to South, preventing poor countries from competing in an increasingly knowledge-based global economy.

Access to essential medicines is already a major problem for a third of the world’s population. WTO patent rules have a real impact on the health of literally millions, particularly given the growing burden of disease in many Southern nations. There is now some flexibility in the rules for poor countries to protect public health, but not nearly enough.

In most Southern countries, patients and their families pay more than 60 per cent of the costs of medicines. Many such countries reduce these costs by granting process patents to local companies, who then produce generic drugs equivalent to the patented product, but at a cheaper price.


Fluconazole is a drug used to treat potentially fatal meningitis, contracted by one-sixth of HIV patients in Thailand. Its price fell from US$14 to US$1 after local companies began making it. Augmentin, a treatment for gonorrhea, costs US$66 in the USA, but US$17 in India because local companies now make it. These strategies give millions in poor countries access to affordable medicines that will improve or save their lives. Yet the WTO’s Trade Related Intellectual Property (TRIPs) Agreement is being used by large drug companies to stop Southern governments producing affordable drugs in this way.

Clearly a major challenge for the WTO is to change the rules so that the benefits of trade are more equally distributed. In order for this to happen, the balance of power must shift within the WTO itself. The corporate and political interests of the world’s most powerful countries – the so-called G7: the US, UK, Canada, Germany, France, Italy and Japan – now dominate at the expense of poor and disadvantaged communities.

The mantra of globalisation is increased competition. Yet more competitive international markets do not guarantee equity or protect the environment. More research needs to be done on the relationship between trade liberalisation and issues like sustainable development, the rights of women, and the livelihoods of Indigenous and poor communities. The least developed countries cannot be expected to compete against industrialised countries, or even other developing countries for export. It is not a level playing field. These countries must be given technical and financial support in order to take advantage of new trade opportunities.

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About the Author

James Ensor is Director of Public Policy at Oxfam Australia.

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