Stabroek News
May 27, 2001

Last week we sought to show that the seeming plausibility of comparative advantage as the standard basis for free international trade has very restricted theoretical applicability. In fact, it is more often violated than adhered to in practice. If the truth were told, in the example of agriculture, which I cited, comparative access to subsidies is at least as important in determining global trade in agriculture as differences in comparative advantage between countries.



Double standard

While preaching the merits of comparative advantage and free trade, the developed countries practise a double standard. Thus agricultural subsidies in the developed economies of the OECD amounted to over US$360 billion in 1999, or nearly one billion dollars per day. This is a staggering sum. Because of this, these countries are able to flood world markets with cheap farm products, undermining in the process our own rice and sugar sales. Yet these colossal subsidies are permitted with impunity, under existing WTO regulations.

The biggest culprits practising this double standard are of course the United States and the European Union. A good example of this is the United States, Freedom to Farm Act of 1996. This was intended to ensure market forces guided farm decisions and that subsidies to US farmers were rolled back. According to the Act, farmers who wanted to plant "row crops", that is corn, wheat, soybeans, rice, or cotton were permitted to do so, as government controls on production were removed.

While farmers responded to this freedom to choose what they wanted to produce, the effect of doing so on market prices saw them quickly retreat from the allure of free market competition. Farm prices fell and inputs costs rose. The farm lobby then succeeded in getting the US Congress to approve so-called "emergency payments". The result -- subsidies tripled, instead of declined. By the year 2000, it was estimated that subsidies for these crops totalled about US$35 billion.

When the reasons for re-introducing these subsidies are examined, we find that much emphasis was placed on social considerations, especially the need "to save the small family farm and protect the rural way of life of America". In fact however, because these "emergency payments" are based on acreage planted with subsidised crops, it was the large, not the small farmers, who benefited most. Indeed the pattern has developed in the USA where the large operators have used these payments as a source of funding the expansion of their landholdings.



The 'Carrot' and The 'Whip'

In contrast, under the 'whip' of IMF-World Bank instructions, and government unwillingness in developing countries to acknowledge the brutal reality of double standards in trade policy, developing countries have been opening up their agricultural markets. This policy is rationalised on the dubious argument that comparative advantage best determines the pattern of global agricultural trade.

Why do developing countries allow themselves to be entrapped in this way? The answer is that the 'carrot' in this arrangement is the promise of aid and other official concessional flows of finance. Estimates, however, show that aid is in fact rapidly declining. At present, it has been estimated that the removal of trade barriers to the farm exports of the Least Developed Countries (LDCs) and a reduction in agricultural subsidies in the rich countries, would provide more than three times as much income for the LDCs as the current level of official development assistance.



Aid

According to the United Nations, the LDCs have seen since 1990, development assistance cut by 45 per cent in real terms. It has been estimated that for every dollar the US provides Bangladesh with aid, it takes away seven times as much -- seven dollars -- in income through import barriers! With such occurrences it is not surprising that the real growth of the LDCs in the decade of the 1990s has been only 0.4% per year. This occurred despite the liberalisation of their trade and the pursuit of open economic policies based on their search for comparative advantage. It should also be observed, that despite rapid globalisation, the number of countries the United Nations calls LDCs, has almost doubled, from 25 in 1971 to 49 today.

Much of the aid given to the LDCs is still largely "tied aid", despite global awareness that this is notoriously wasteful and inefficient. The reason it persists is that aid is often driven more with the concern to provide benefits to the countries providing the aid, than to the recipients. In the face of mounting criticisms, a week ago the rich countries agreed to "untie" their aid. Unfortunately, the agreement has a host of exceptions to it. One such exception is that food aid, and aid for technical cooperation are not covered. Also, contracts below one million US dollars are excluded from the accord.



Campaigns

It is circumstances such as these, which have fuelled many of the global campaigns against the actual and potential dangers of globalisation. Prominent among these campaigns are those calling for reparations for the victims of slavery, debt-relief (led by Jubilee 2000) to the highly-indebted poor countries, the reform of the WTO, IMF and World Bank, as well as several others against environmental degradation, unfair labour practices, gender discrimination, and the high costs of health.

There is no doubt that these campaigns are making a mark. Already, established global institutions like the IMF, World Bank, WTO and the United Nations have been forced to respond, to some of the demands of these campaigns, no matter how reluctantly. In fact, such is the power of the public opinion that these campaigns command, that the World Bank last week had to cancel its Annual Conference on Economic Development to be held in Barcelona, Spain. In the face of planned massive protests, reminiscent of previous ones in Seattle, Prague, and Melbourne, it decided to hold the Conference over the Internet.



Second Caribbean assembly

It may be pertinent to ask in conclusion, what part are we in Guyana and the wider Caribbean playing in these global campaigns. In Guyana very little. Government pronouncements make it clear that there is no intention to challenge the established order, although if others do, it would gladly accept the benefits. There is not even local discussion of an exit strategy from the IMF after such a long period of dependence and tutelage. In the wider Caribbean, however, the Second Caribbean Assembly was held in Santo Domingo, Dominican Republic last April 20-22. The final resolution of that Assembly addressed many of the issues of globalisation and resolved:

"To call upon all the peoples of the Caribbean and their social and political movements to work unstintingly for a cancellation of the foreign debt; for the overthrow of neo-liberal globalisation and for an alternative world based on solidarity and the fight for peoples' rights: thus demonstrating that a different Caribbean is possible."