New Internationalist

Free Trade - The Facts

Issue 374

Free trade is an old idea that’s taken on new life over the past decade – January 2004 marked the tenth anniversary of the North American Free Trade Agreement (NAFTA). Free trade is part of a broad process of trade liberalization being pursued by Western governments as well as the WTO, the World Bank and the IMF.

Ebbs and flows

The vast majority of the value of world merchandise trade – about 75% – is accounted for by manufactured goods, mostly transport machinery and electronic equipment. Minerals and agriculture, the staples of the developing world, make up just 22% of merchandise trade.

• With the exception of East Asia and Central America, developing country exports have not increased significantly over the past 40 years.
• The share of South America, Central and Eastern Europe and Africa in total world exports was lower in 2002 than in 1960.
• While world exports grew at an annual rate of 6% in the 1980s, exports from the poorest countries grew at a rate of just 2% a year.

• The value of world exports of services jumped by more than 300% between 1980 and 2002 – from $400 billion to about $1,600 billion.
• Rich countries dominate the service trade, both exports and imports, accounting for 70.6% of world imports and 73.2% of exports in 2002.
• From 1980 to 2002 developing countries’ share of global service exports increased while imports dropped. Asia accounted for most of the export growth (from 10% in 1980 to 17% in 2002) while both exports and imports in Latin America and Africa plummeted.

Swimming upstream

It’s hard to get rich by trading when the value of your exports is falling in relation to your imports. Declining terms of trade are a major barrier to poor countries trading their way out of poverty. The boom-and-bust cycle of commodity prices stymies development and impedes planning.5

• From 1997 to 2001 commodities lost more than half their purchasing power compared to manufactured goods, meaning poor countries had to export twice as much to purchase the same amount of imports. Cotton prices fell 47% from 1998-2001 and coffee fell by 69%.
• Between 1980 and 1998, 19 of the world’s 25 poorest countries experienced declining terms of trade. In both Nigeria and Uganda terms of trade fell by 70%.
• If terms of trade for non-oil exporting countries in Africa had not declined over the past 20 years the current level of per capita income would have been as much as 50% higher after adjusting for inflation.6

Subsidies and protectionism

The rules of international trade are rigged to benefit the rich. Poor countries are told to lower their tariffs, exploit their ‘comparative advantage’ and trade their way to wealth. At the same time rich countries refuse to dismantle existing trade barriers and give massive subsidies to their own export industries.

• Rich countries spend $1 billion a day on domestic agricultural subsidies – more than 6 times what they spend on overseas aid every year. Since 1997 these subsidies have increased by 25%.7
US protectionism alone may cost the poor countries $50 billion a year in lost agricultural exports.8
• For key agricultural exports like sugar, rice and dairy products the major economic powers maintain tariffs of 350-900%. In contrast the World Bank and IMF have imposed steep tariff cuts on developing countries in return for ‘structural adjustment’ loans.7
• The European Union pays tomato farmers a minimum price higher than the world price while processors are also subsidized. As a result EU tomatoes ‘dumped’ into West Africa now make up 80% of the local supply and have nearly destroyed the domestic industry.
• Under the FTA agreement with the US, Central American countries are required to eliminate tariffs on rice, beans, corn and dairy products while the US refuses to lower its own subsidies on these products. This will threaten the livelihoods of nearly 5 million small and medium farmers throughout the region.9

Commodity blues

Decades after the demise of colonialism, much of the Majority World is still dependent on a handful of primary exports.
• In 1998-2000, 70 poor countries received more than half their export earnings from just three commodities.3

Top 10 poor countries most dependent on commodity exports4

Trade über alles

Free trade gives power to corporations and investors in return for the promise of economic growth. By adopting a one-size-fits-all model, governments sacrifice sovereignty and control of their own development priorities.

In Mexico after 10 years of NAFTA Exports increased 300% from 1993-2002 to $161 million.

But…
• Annual GDP growth has been less than 1%.
• More than half of manufactured exports have been from the oil industry or from low-wage maquiladora assembly plants along the US border.
• Of the 6 biggest export firms, 5 are foreign-owned and account for more than 20% of total exports.10

Miami, Florida, 1994

President George H Bush launches negotiations on a hemispheric free trade deal at the first Summit of the Americas. The goal of the Free Trade Area of the Americas or FTAA is ‘free trade from the Arctic to Tierra del Fuego’.

Santiago, Chile, 1998

Thirty-four nations set up FTAA Trade Negotiations Committee with nine working groups: agriculture, services, investment, dispute settlement, intellectual property rights, competition policy, government procurement, market access and subsidies/anti-dumping.

Quebec City, Canada, April 2001

FTAA draft text completed at the Summit of the Americas amidst mass public demonstrations.

Quito, Ecuador, March 2002

Draft text updated and re-released at the 7th FTAA Trade Ministerial.

Miami, Florida, November 2003

At the 8th FTAA Trade Ministerial, spirited public protests and strong opposition by Brazil, Venezuela, Argentina and Ecuador derail the talks. Further meetings scheduled for September 2004. Talks grind to a halt.

Washington, December 2004

Final text to be ready for heads of state, with country-by-country ratification during 2005 and implementation by December 2005.

All monetary values expressed in US dollars.

  1. Development and Globalization: Facts and Figures 2004, p51 UNCTAD.
  2. Development and Globalization: Facts and Figures 2004, p61 UNCTAD.
  3. Trade and Development Board, Background Notes, 10 October, 2003, UNCTAD.
  4. European Fair Trade Association Newsletter, Vol 1, No 5, July 2001, p9.
  5. ‘Free market freefall: declining agricultural commodity prices and the market access myth’, Gerald Greenfield, Focus on the Global South, July 2004.
  6. Trade and Development Board, Background Notes, 10 October 2003, UNCTAD.
  7. Making Global Trade Work for People, p8 Kamal Malhotra, UNDP/Earthscan, 2003.
  8. The myth of free trade as a development model, Laura Carlsen, http://www.americaspolicy.org
  9. Rights and Development, Washington Office on Latin America, March 2004, p2
  10. Lessons from NAFTA: the high cost of free trade, http://www.policyalternatives.ca

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