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Progressive Economic Policy for Europe

06.11.2020

Progressive Trade Policy: A Global Poverty Perspective

by Eveline Herfkens



The Sustainable Development Goals (SDGs) set out all our progressive objectives and ideals in a comprehensive manner and should inform and drive all progressive policies, including trade. Of all these goals, the first one regarding global poverty is the most important and overarching goal.

A progressive trade policy must be based on the premise that trade has helped hundreds of millions of people in developing countries escape poverty and improve living standards. Trade in general has been a force for good; it enhances growth, and together with decent social policies growth helps reduce poverty.

Developing countries need more – not less – trade: and they need more, not less, access to our rich consumer markets. As the SDGs acknowledge, “international trade is an engine for inclusive economic growth and poverty reduction, and an important means to achieve the Goals. Target 11 of Goal 17 calls for “significantly increasing the exports of developing countries in particular with a view to doubling the least developed countries' (LDCs) share of global exports by 2020”. Alas, LDC exports have declined over the last years.

EU Trade Policy and Poverty during Covid-19

The Covid-19 pandemic is making the achievement of the goals even more difficult than it already was. And the EU’s trade policy in response to the pandemic has made matters worse for the poor in developing countries, already reeling from the pandemic’s impact on their fragile economies.

Developing countries have been hit by a quadruple jeopardy, not just by Covid-19 itself, but by the resulting crushing economic crisis. Commodity prices on which many poor countries depend have plunged; foreign investment and tourism have collapsed. As most people in poor countries have no social protection whatsoever and work hand-to-mouth in the informal sector, the loss of livelihoods threatens more lives than Covid-19 itself.

Lockdowns do not work that well if 56 percent of urban dwellings are in overcrowded slums, and soap and clean water are hard to come by. And while our economies can afford “whatever it takes” to deal with the pandemic, poor countries simply cannot afford to print money, or increase their debt burdens and budget deficits.

This biggest shock to development in the post-war period might wipe out many of the gains made over the last several decades; the achievement of the SDGs, particularly the one on poverty and hunger seems increasingly out of reach.

EU trade policy initially made things worse, as some EU members imposed export controls on personal protection equipment (PPE) and medical supplies and equipment; the EU Commission issued guidelines aimed at both protecting public health and ensuring the availability of essential goods and services across national borders within the EU. And it required that PPE exports from the EU to non-EU states be subject to prior authorisation. These actions hurt poor countries, especially in Sub-Saharan Africa (SSA), which have no domestic capacity to produce the equipment so urgently needed to fight the pandemic. The export restrictions that are still in place should be terminated.

EU Trade Policy and Future Pandemics

Covid-19 has made the downside of globalisation more visible than ever, and the EU must increase its resilience and strengthen its capacity to respond to future pandemics.

Former DG Trade Commissioner Phil Hogan has called for “Open Strategic Autonomy”, which he defines as “a coherent set of policies that achieve the right balance between a Europe that is open for business and a Europe that protects its people and companies.” A progressive agenda requires that, in bringing about this balance, the EU would consider the impact of its trade policies on poor people all over the world, not solely its ‘own people and companies’.

Global pandemics require global responses: the EU needs to work within the WTO (World Trade Organization) to reach agreement on measures that enhance resilience and security of access to supplies, especially with health-related products as well as food, without limiting trade. In this regard, it is encouraging that the EU supported the recent WTO Ministerial Declaration responding to the Covid-19 pandemic with open and predictable trade in agricultural and food products. The Declaration acknowledges that “the world’s poor, including agricultural workers, would bear the brunt of increased export restrictions”.

As a priority, the EU needs to make sure that patents and other intellectual property rights (IPRs) do not stand in the way of production and distribution of vaccines, treatments, diagnostics, and medical devices. Clearly, the Covid-19-pandemic fits the definition of an emergency, for which Article 73 of the TRIPS agreement allows overriding IPRs.

Long-Term EU Trade Policy

Beyond the present crisis, EU trade policy in general needs to devote more attention to the interests of developing countries, particularly low-income countries in Sub-Saharan Africa. These countries are the world’s poorest. This is a region in which Europe’s past bears a special responsibility for the future; the two continents’ dependence on each other will only grow stronger in the future. Europe needs to not only invest considerably in education, health, and infrastructure in Africa. It also needs to open its markets more for Sub-Saharan Africa by expanding preferential treatment for its exports to our markets.

Unfortunately, our relationship with Sub-Saharan Africa is still defined by “undigested history; structural dependency and vested interests”. This has soured over the last decade, because of our pushing Economic Partnership Agreements – which Africans resent – and over migration issues. As the International Crisis Group phrased it: Europe’s “fortress approach coupled with ham-fisted diplomacy has alienated Africa.”

Sub-Saharan Africa accounts for a miniscule two percent of world trade, half its share in the 1980s. It needs to expand exports to create jobs, to raise incomes and, ultimately, to reduce poverty and aid dependency. Thus, it needs more generous access to our rich consumer markets to spur investment in labour-intensive export sectors.

Taking the region's interests seriously in our trade policies can start off by including in the “Sustainable Development Chapters” of trade agreements consideration for the impact of these agreements on poor countries and global poverty. We also need to make sure that the issues which these chapters presently address are properly balanced with needs and realities in poor countries:

  • Labour standards: Every country should comply with the ILO’s (International Labour Organization) core standards. We must protect our workers from unfair competition from countries who do not comply with these standards. The EU has proven that inserting these issues in trade agreements does indeed improve the lot of workers in countries with which we trade. But we must be careful not to abuse such provisions for protectionist purposes. And we must acknowledge that labour costs are per definition lower in poor countries – as they are poor, and that that is a legitimate comparative advantage of these countries.
  • Trade and the environment/climate change: A progressive trade policy must be tailored to help discipline certain types of actions that contribute to, rather than combat, climate change. The burning of fossil fuels constitutes the greatest source of greenhouse gas emissions from human activities. The EU should ensure that WTO rules regarding subsidies and competition also apply to the more than 425 billion US dollars in subsidies globally channelled to both production and consumption of these fuels, and instead promote renewable energy. In this connection, Europe might also reconsider its subsidies to the second largest sector emitting greenhouse gases: agriculture. Reform of the Common Agricultural Policy would also help to further limit its negative impact on producers in poor countries. And with regard to carbon border taxes, i.e. charges levied at the border on imported products based on their level of embedded carbon when this is higher than domestic production and rebated at the border to exporting domestic producers, poor countries which are responsible for only a tiny share of global emissions should be exempted.
  • Regulatory standards: We need to examine the extent to which our regulatory requirements pose unnecessary barriers. We rightly cherish our high standards, but some of them might be outright protectionist. And we should be aware of and prevent standards from excluding smaller producers who do not have the capacity to comply or obtain certification.

As Sub-Saharan Africa’s domestic markets are simply too small to enable local industry to achieve economies of scale, it must rationalise the various regional trade agreements within the region and accelerate the achievement of its own common market: two years ago, the African Union launched the African Continental Free Trade Area, with a huge potential to increase growth, raise welfare and stimulate industrial development on the continent.

The EU has traditionally paid lip-service to the need for Africa to create its own common market. However, the Economic Partnership Agreements with the various African regional groupings are not helpful, as they interfere with Africa’s own regional integration. Instead, we should offer the whole region unrestricted access to the European market, as we now only do the least developed countries.

Our show of solidarity should not be limited to trade policies. We should also provide Africa with more and more effective aid. Fifteen years ago, the EU promised to finally deliver on its promise to spend 0.7 percent of its gross national income (GNI) for Development Cooperation by 2015, the year the Millennium Development Goals were supposed to be reached. Today the check is still in the mail: only Denmark, Sweden, and Luxembourg (next to the U.K. and Norway) do so. Just as important is the fact that promises to improve aid effectiveness, by focusing aid on poor countries and delivering financial resources in a manner that would enable these countries to effectively reduce poverty also have been broken.

As the Covid-19-pandemic has once again underscored: what happens somewhere else also impacts our own lives, and now is the time to act. If we want to help in Africa’s economic transformation, and help lift millions of people out of poverty, it is time for us to generously support the region, including by offering similar asymmetric access to our markets for the region so that our trade policy can also help achieve the SDGs.
 


About the Author

Eveline Herfkens, Former Minister for Development Cooperation in the Netherlands, Founder of the UN Millennium Development Goals Campaign.


The views expressed in this article are not necessarily those of Friedrich-Ebert-Stiftung.

 

 


Editorial Board

Division for Economic and Social Policy

Dr. Andrä Gärber
Sina Dürrenfeldt
Max Ostermayer
Dr. Robert Philipps
Markus Schreyer

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