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Would free trade harm the rich?

November 15, 2010

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Economists love sporting terminology. There’s the elusive level playing field and, of course, firms, even whole countries, are racing to stay ahead of the competition.

So, what kind of race is it when the starter’s pistol is loaded with live ammunition and he shoots one of the runners in the back? Try the cotton trade.

According to a new report from the Fairtrade Foundation, Benin, Burkina Faso, Chad and Mali – the C4 – produce cotton more cheaply than anywhere else in the world. They also rely on it more than any other commodity for export revenues.

But they can’t trade their way out of poverty because richer countries have subsidised their producers to the tune of $47 billion since the Doha Round of trade negotiations started in November 2001.

The C4 are trapped in a vicious circle. They’re squeezed out of markets by subsidies. That means they don’t earn the revenue that would allow them to compete – physical infrastructures like roads and ports or less tangible, but equally important competencies like managerial skills or legal knowledge. (The expression often used for this is “capacity building”. )

Lack of income also means they can’t move up the value chain, for example by investing in factories to make the cotton goods so much in demand around the world.

The OECD-WTO Aid-for-Trade Initiative aims to help developing countries overcome the  limitations that undermine their ability to profit from trade opportunities.

Useful links

OECD work on development issues

OECD work on trade

OECD work on agriculture

2 Comments leave one →
  1. Michael J. Spangle permalink
    November 16, 2010 12:24

    It is saddening to see how countries that could truly contribute to the global economy are deprived of the opprtunity to do so. The irony is, if these countries were allowed to prosper, then they could easily become new markets for the goods and services from the more developed countries.


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