Mennonite
Central
Committee

The Effect of Trade Liberalization on Developing Countries (Condensed)

By Rev. Malcolm Damon, Director, Public Policy Liaison Office, South African Council of Churches. Presented at a meeting of the Interfaith Working Group on Trade and Investment, September 2000, in Washington, D.C.

In this paper I want to explain the effect of economic globalization, especially as manifested by the trade liberalization regime. Globalization and trade liberalization has led to greater food insecurity, an increased wealth gap between rich and poor countries and within countries, and growing domination by transnational corporations (TNCs).

Impact on Food Security

Trade liberalization has led to increased food insecurity. Previously, most agricultural activity focused on the local market production. It has shifted toward export crops. The theory of comparative advantage propagated and encouraged by the World Bank and International Monetary Fund (IMF) has led to a shift from subsistence farming to cash crops. Commercial growers and some smallholder farmers are not producing for national consumption but for the international market. This means farmers are subjected to the instability of the market causing more problems and hardships.

A study by Fellowes Miaisela of the Christian Council of Tanzania showed the impact of trade liberalization on food security and Tanzania's economy. In 1996 young farmers diverted from traditional crops like sorghum and millet because 15 kg. tomatoes were selling for $6. In 1997/98 the price dropped to 16 cents (from 3000 - 4000 Tshs to 100 Tshs).

The same study notes that in 1992/93, farmers were encouraged to produce tegemo (a variety of sorghum) which sold for 10 000 (Tanzanian). In 1994/95 the price fell to 7000, and in 1994/95 there was no market for tegemo; not even the seeds were available.

Trade liberalization has had a profound effect women in Africa. Women are traditionally the providers of food to families. They cultivate their garden plots, work the land and provide for the well-being of the family. Africa governments provide subsidies to large-scale farms while women and small-scale farmers are neglected. Small-scale farms used to be the back-bone of agriculture in Africa, but are not part of the focus of public policy. Instead governments concentrate on large-scale farms, which do not consider the environment, the local needs or culture of communities.

The Zeist declaration (A Statement issued at a Food Security Conference in April 1999 attended by 57 civil society organizations from Africa, Asia, Latin America, North America and Europe) declares:

Food security is a basic human right. Trade liberalization and structural adjustment are threatening this right . . . Trade liberalization is displaying a bias against small producers and for larger producers and export crop production. Agribusiness transnational corporations have reaped the gains from trade liberalization, and have become even more powerful. Trade liberalization has thus been accompanied by growing land alienation, declining food entitlements, a growing number of hungry people and reduction of bio-diversity.

A Widening Gap

Globalization and trade liberalization have not turned the tide against poverty. In fact the gap between rich and poor countries and wealth disparities within countries have increased. The UN Human Development Report (1999) showed that the rich have become richer while the poor have become poorer. In 1960 20% of the world's richest earned 34 times more than the 20% of the world's poor. In 1997 it was 74 times more. The assets of the three richest people in the world are worth more than the GDP of the 48 least developed countries. The net worth of the 200 richest people has increased from $440 billion in 1994 to 1 trillion in 1998.

It has been acknowledge that all the major targets to reduce poverty have failed. Furthermore, the notion that export-led growth is the answer has failed. Friends of the Earth International exposed the myth that export growth has led to overall economic growth. FOE analyzed four countries: Cote d' Ivoire (Ivory Coast), Philippines, Ghana and Indonesia. The exports of Ivory Coast increased from $3 billion to $5 billion between 1980 to 1995. In spite of this, its Gross Domestic Product (GDP) remained stagnant at $ 10 billion from 1980 to 1995. At the same time its external debt skyrocketed from $7 billion to $19 billion. In 1980 the primary products that form the bulk of Ivory Coast's exports — coffee and cocoa — collapsed. Since then, Ivory Coast has had to increase exports tremendously in order to generate the same amount of income. Ivory Coast is not going to "export its way out of debt and into development". Instead the quality of life is diminishing. Not only are the poor worse off in most developing countries, but globally the rich are getting richer and more powerful.

Transnational Corporations Rule

In this era of trade liberalization and globalization, transnational corporations (TNCs) undermine the sovereignty of developing countries. Today’s global trade rules, enforced by the World Trade Organization WTO), gives TNCs powers to overturn and override the policies of elected democratic governments.

This is illustrated in the case of the banana dispute between the United States (USA) and the European Union (EU). The Clinton administration filed a WTO complaint against the EU, which was importing bananas from Carribean and Pacific countries under a special agreement. The USA, serving as an agent of Chiquita, argued that the EU was discriminating against Chiquita by setting aside a small portion of its market for banana imports from the Carribean and Pacific countries. What makes this case more absurd is that Chiquita already had 50 percent of the EU market, whereas the Caribbean and Pacific countries combined have only 8% of the EU market. The USA, which does not grow bananas commercially, instituted this complaint days after a $500,000 donation to the democratic party, by Chiquita.

On the other hand, in the Caribbean island nations of St. Lucia, Dominica, and St. Vincent and the Grenadines, banana exports account for between 63% and 91% of export earnings. In St. Vincent 70 percent of the population are involved in the production and marketing of bananas. These farms are controlled mostly by families and are an integral part of the economy of these islands. The WTO in 1997 ruled in favor of the USA (Chiquita), and after the EU pledged to keep to their quota system, instituted tariff penalties against the EU.

Existing corporate-dominated trade rules have not only undermined the rights and responsibilities of developing countries but also of the United States. The USA in 1988 banned tuna caught by encirclement nets. Tuna in the East Tropical Pacific congregate under schools of dolphins. The fishing industry used mile long encirclement nets which are drawn shut and trapping dolphins and tuna alike. Over a period of 30 years 7 million dolphins were killed by such tuna fishing. The USA's Marine Mammal Protection Act banned tuna caught by encirclement nets, whether by local or foreign fishers. In 1991 the WTO’s precurser institution ruled that the US law contradicts international trade agreements which forbid discrimination of products on the basis of where or how they are produced.

These cases demonstrate the power of the WTO and the ability of transnational corporations to use trade laws to benefit their policy of profits at any cost. The developed countries where most of these corporations have their headquarters, reaped the benefits of greater market domination. On the other hand, poor developing countries have no power to implement their mandate to govern for the benefit of the people.

Conclusion

Economic globalization is a human construction. It is a process driven by powers and authorities, transnational corporations, international financial institutions and the rich countries of the world. People of faith can have a vital role in shaping new economic relationships in which justice prevails.

The Hebrew prophets and the teachings of Jesus are very clear about the commitment of people of faith toward the poor. The prophet Micah (6:6-8) makes it plain that true worship requires doing justice and loving kindness:

With what shall I come before the Lord,
and bow myself before God on high?
Shall I come before him with burnt offerings,
with calves a year old?
Will the Lord be pleased with thousands of rains,
with ten thousands of rivers of oil?
Shall I give my first-born for my transgression,
the fruit of my body for the sin of my soul?

He has showed you, 0 man, what is good;
and what does the Lord require of you
but to do justice, and to love kindness,
and to walk humbly with your God?