Poorest nations warned against aid traps

A much-touted "development package" offered recently to the world's least developed countries is "rife with tricks" and could be far more limited than originally publicized because the United States maintains the right to deny the promised duty-free access to some of those countries' most important exports, a new study says. The development package was announced at the December 2005 World Trade Organization (WTO) ministerial meeting in Hong Kong. It has made headlines as a breakthrough in the stalled talks and was trumpeted by officials from rich nations as evidence that the negotiations have a development component. Under the deal, rich countries offered 32 so-called Least Developed Countries (LDCs) in Africa, the Caribbean and Pacific regions 97 percent duty-free access to agricultural products such as bananas, sugar and tea by 2008. The package also includes an increased infusion of funds for the "aid for trade" program, designed to increase poor countries capacity to trade. But the report by two development groups, ActionAid International and the Washington-based Public Citizen, says the plan was actually designed to soften up countries that have resisted opening their markets as part of the global free trade talks, known as the Doha Round, to imports from rich nations. "LDCs would do well to abide by the precautionary principle, and 'first, do no harm' to their countries' interests by not trusting empty US government 'development package' promises in the Doha Round trade negotiations," the report says. "These are designed to divide the developing countries so as to ease the completion of a Doha Round that has been broadly predicted to harm developing countries even more than the decade of existing WTO damage." The 24-page analysis shows that Washington maintains the right to exclude certain products under a "three percent" loophole, in effect giving only minimal additional market access to the poorest nations. "By focusing the three percent exclusion on the tariff lines under which the greatest value of LDC exports enter the US market, the United States could maintain tariffs on a significant share of total LDC exports that now face tariffs," says the report. The study, "The WTO's Empty Hong Kong 'Development Package,'" finds that under WTO most-favored nation (MFN) rules or various unilateral preference programs, 27 of the 32 LDCs who are members of the WTO already have, or could have, duty-free access to the US market on more than 97 percent of their exports. Of the 1,538 products, worth $16.3 billion, that LDCs sell to the US market, 1,007 products, worth nearly 11 billion, are automatically duty-free under either WTO MFN rates or preference programs such as the African Growth and Opportunity Act, the Caribbean Basin Initiative or the Generalized System of Preferences. The report's authors caution that the package may not benefit poor nations because many of their export earnings are concentrated in only one or two products that could be barred under the three percent provision. It explains that the top-selling 46 items which make up the top three percent of tariff lines among the 1,538 different products accounted for 92 percent of the total value of the LDC exports, or $15 billion. Textile and apparel exports from Bangladesh, Cambodia and the Maldives, which do not now have duty-free entry, are precisely the categories that the United States is seeking to exclude in the three percent of tariff lines in the package despite being the most important exports for those poor nations. The report also criticized promises made at the Hong Kong meeting for $2.8 billion in "aid-for-trade" funding by 2010. It says rich nations double counted some commitments that were already made and applied "fuzzy math" that considers some government expenditures as "trade capacity building." In addition, it notes that Japan is actually doling out loans rather than "aid," while the US pledges remain subject to Congressional approval, which is unlikely under the current climate of war expenditure and deficit. "Given that the 'aid-for-trade' funding proposal is contingent on a Doha Round being completed effectively, the proposal involves short term quantitative offers of money to 'buy' permanent qualitative policy changes on trade that may not be in the long-term interest of the poor countries involved," says the report. The LDCs are the world's poorest nations and their economies are so fragile that locking them into a privatization and liberalization agreement could wipe out their local industries and agriculture, development activists warn. The world's 50 LDCs–34 of which are in Africa–comprise about 12.5 percent of the world's population, but their contribution to world trade hovers at just half a percent. They include Angola, Benin, Burkina Faso, Djibouti, Gambia, Guinea Bissau, Haiti, Myanmar Togo, Uganda and Zambia. Rich nations, however, appear determined to crack open resistance to the Doha Round free trade deal. On June 21, the US-European Union summit in Vienna concluded by saying the two most important economies in the world will work together on global trade liberalization. Both EU and US business lobbies continued to press developing countries, notably Brazil and India, to break the logjam and reach agreement on meaningful cuts in tariffs and other trade barriers on manufactured goods, agricultural products and services. Ministers plan to meet in Europe at the end of this month.