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Is Equity in Trade an Attainable Goal?

As developing countries struggle to survive in the competitive global market, many wonder if the current system is inherently biased against them. Groups like Oxfam International, a prominent development organization, aim to remedy what they regard as structural failures in the world economy by reforming trade relations among nations. Globalization scholar Susan Ariel Aaronson suggests that despite their honorable intentions, these groups may inadvertently create new inequities within and among countries. Due to the complexities of the trade equity issue, writes Aaronson, the most effective remedies must be smaller-scale collaborative approaches tailored to the needs of individual economies. – YaleGlobal

Is Equity in Trade an Attainable Goal?

Laudable international reform efforts may ultimately prove a mixed blessing
Susan Ariel Aaronson
YaleGlobal, 15 September 2004
An impossible dream? The world wants a just and equitable trade policy but the gulf of difference between nations and within countries make it hard to achieve. (Photo: © Al Crespo)

ARLINGTON, VIRGINIA: The World Trade Organization (WTO) was created to regulate key aspects of globalization and address market failures created by trade. But is it possible to make global markets equitable as well as efficient?

Dominated by a few powerful, industrialized countries, the WTO has thus far failed to improve the situation of the neediest nations. Claiming that the current system is rigged against the world’s poor, the British-based non-governmental organization (NGO) Oxfam International has organized an international campaign to "make trade fairer" (www.maketradefair.org) for developing countries and their citizens. Oxfam’s effort deserves praise, but some of its suggestions, if executed, may pave the way for new inequities, both within and among nations.

A conglomeration of development organizations in 120 countries, Oxfam is calling for a number of reforms to global trade. Its campaign targets governments, corporations, and other institutions, urging those groups to adjust trade policies to level the playing field for poorer countries, particularly those in Africa, Latin America, and Asia. Key issues involve produce subsidies, market access, patent rules, labor standards, and WTO democratization.

The men and women who designed the General Agreement on Tariffs and Trade (GATT, predecessor to the WTO) hoped to create an international trade organization that would expand prosperity and create greater equity among nations because all economies would play by the rules. They recognized that trade could create new inequities among citizens within nations, but that this problem would be best addressed by domestic policies. Moreover, because nations have different resources and skill bases, it is extremely difficult to make trade equitable for all who participate in importing and exporting. After all, nations trade because of these very differences.

Since the mid-1800s, policymakers and the public have tried to ensure that trade policies strive to create greater equity within their home countries. From the repeal of the British Parliament's controversial Corn Laws to the US Progressive Party's crusade against protectionist tariffs, trade equity issues have historically generated heat in domestic politics. Today, policymakers at the national level struggle to make trade fair for their citizens, who approach trade not just as workers, but as consumers, taxpayers, friends of the earth, and shareholders. Many people believe it unfair that multinationals produce goods in countries where workers and the environment are not protected by the rule of law. But that concern has not stopped US consumers, for example, from shopping around to find the highest quality, lowest priced imported televisions, sneakers, or watches. Some US citizens may believe it is unfair that foreigners, as opposed to domestic laborers, now have jobs producing these goods. But many of the same people also believe it is unfair for producers to charge consumers higher prices that result from covert or overt trade barriers.

Who can decide which is more inequitable – jobs lost to market changes, the net welfare loss to consumers and taxpayers as a result of government favoritism, or the costs to consumers and producers of erecting barriers to foreign competition? Clearly, making trade equitable is not a simple task.

The task of creating equity for the poor is even more complicated at the global level.

According to Oxfam, inequities between poor and wealthy countries will only continue to increase unless WTO policy begins to nurture development. Agriculture, an industry that is not fully covered by global trade rules, is a case in point. The NGO notes that 96 percent of the world’s farmers live in developing countries and their livelihoods depend on whether the WTO can fully regulate agricultural trade. According to Oxfam analysis, developed countries such as the US and the EU unfairly subsidize their farmers. These subsidies are particularly inequitable because they not only distort trade, but make it too expensive for developing countries to compete in subsidized markets.

Although WTO members have recently agreed to discuss agriculture and, in particular, reducing farm subsidies, this may not help the world’s poorest farmers, who tend to farm small plots. These farmers may not be able to ensure that their products meet EU or US health and safety regulations. Moreover, if these farmers can’t sell to developed markets, they may quit farming. These men and women could flood urban areas in search of new income, bringing down wages for other relatively poor people. (This has been a major problem in Asia and Latin America). Still others may choose to try their luck (legally or illegally) in the industrialized world.

Oxfam has argued that world trade rules must be reformed to meet the very specific needs of the poorest countries. But all poor countries are not alike; they have different endowments of skills and resources. Some use their resources wisely and invest in their people and infrastructure; others do not. Some have resources that the industrialized world values (such as oil); others sell commodities where there is ample supply (sugar). Thus, to meet the needs of the poor around the world, policymakers must not only increase market access for all countries, they also need to tailor policies to individual countries' needs.

This is difficult, however, since developing countries have inadequate influence at the WTO. Oxfam has loudly advocated large-scale change in the system, but it has not delineated how this can be achieved without creating new inequities. The GATT/WTO was built on the longstanding trade principle of most-favored nation treatment: On paper, every member country is treated the same. In practice, though, nations with greater political or economic clout have greater leeway with the rules. This is true for all nations, whether developed or developing. Thus, China, the EU, the US, and India have greater clout then Honduras, new member Cambodia, and Botswana.

Oxfam concedes that the process of trade talks is inherently inequitable. The WTO is now too large to facilitate transparent trade talks that equally involve every member and address each nation’s negotiating needs. There is no way that 147 nations can easily find common ground on the parameters of negotiations. Thus, we should not be surprised that it has taken 3 years to achieve a framework for talks – an achievement made possible by negotiations between key industrialized countries joined by Brazil and India. Oxfam is quite right to insist that the process be changed to involve more of the developing countries in the most important negotiations. But WTO members may only achieve progress if they continue to work in small closed groups.

Oxfam deserves to be lauded and encouraged for its efforts to make the WTO system more equitable on behalf of the world’s poor. To make trade fair, policymakers must address the inequities among nations. This is best done through tailored foreign aid programs that build governance capacity and skill-based expertise. Trade between nations can not easily be made more equitable without fostering new inequities at the WTO. But that’s not a reason not to try.

Susan Ariel Aaronson directs globalization studies at the Kenan Institute, Kenan Flagler Business School, University of North Carolina. She is the author of 5 books on trade, including a history of the WTO, and currently writes on international investment and corporate responsibility.

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