Trading in hypocrisy

James Gubb, 28 November 2006

On Monday 16 October, ministers from the EU’s 25 Member States agreed to provide €2bn a year in aid to developing countries to help them liberalise as per the terms of the ‘Economic Partnership Agreements’ (EPA). Dubbed ‘Aid for Trade’ by the EU Commissioner for Trade, Peter Mandelson, the money was supposed to be evidence that the new trade agreements are a development tool to help lift thousands out of poverty. A ‘stepping stone to sustainable development’ in the oracle’s words.
Today, the FT reports the following leaked letter from EU Commission officials Stefano Manservisi (head of the development directorate) and Karl Falkenburg (deputy head of trade) to the Fijian trade minister Kaliopate Tavole:
“In your draft EPA submission, detailed development co-operation provisions form an integral part of the text,” the Commission officials write. “As you know, this is not acceptable to us.”
Correct me if I am wrong, but there seems to be a contradiction here.

The same letter also calls for aid and EPAs to be “mutually reinforcing”, but ultimately kept separate. This is worrying for developing countries. As a recent report by Oxfam highlights, while the European Development Fund’s budget has been increased to €22.7bn (2008-13), in response to African, Caribbean and Pacific (ACP) countries’ concerns about the costs of EPAs, it is estimated that €21.3bn is needed just to fund the EU’s existing aid porfolio in this period. Not much money left for the ‘Aid for Trade’ then.
And this is assuming the aid actually gets there in the first place. Botswana’s trade minister, Daniel Moroka, makes one of the understatements of the century in saying: ‘The track record of the European Commission in terms of disbursing EDF funds is not good’. Let’s be honest, it is pretty awful. An estimated 30 per cent of pledged aid is not actually delivered, and a third of reported EU aid did not actually provide any new aid for developing countries.
But why the fuss about this aid? Trade liberalisation is good right? But two points need to be considered here. Firstly the EPA, due to come into force in January 2008, signals the end to the series of ‘Lome Conventions’ that provided ‘preferential’ trade and aid to ACP countries. Under these conventions, ACP exporters were given substantial access to EU markets, while ACP countries retained the right to protect their producers from EU exporters. Now, under WTO rules that are mirrored in EPA, ACP countries are expected to compete on an equal footing with the EU: both parties must liberalise to give duty-free access to ‘substantially all’ exports within a ‘reasonable time’. Inevitably there will be heavy ‘short-run’ costs for ACP countries in attempting to compete in this way – one study estimates conservatively a figure of €9.2bn. We should also remember that virtually all countries that have developed in the past have done so employed some kind of tariff policy. Not allowed here.
But secondly, and more importantly, trade liberalisation to give duty-free access to ‘substantially all’ exports to the EU and to the ACP countries is not in any shape or form free trade and certainly not fair trade. There is no equal platform. Why? Because the EU is very effective at imposing certain non-tariff barriers to trade – something called the Common Agricultural Policy springs to mind. For example, removing agricultural export subsidies makes up around 4% of the total subsidies given to farmers in the EU. The bulk comes from production subsidies, that artificially increases the amount of food on the world market, lowers global prices and with the excess produce dumped in developing countries.
And then there are the national champions, such as Danone, the French yoghurt manufacturer, that of course deserve special protection. In the words of Sir John Sunderland, the departing chairman of the CBI, ‘the hypocrisy of [the EU] is staggering’.
Sign this e-petition to the PM: We the undersigned petition the Prime Minister to end Europe’s unfair trade barriers against developing countries, and scrap the CAP.