Liberal Trade Regime: Result card of gains and losses

17 October 2007 - by Irfan Mufti, GCAP Campaign Manager

Globalisation has become a dominant form of pursuing goals of human development in the new world order. Some of the more euphoric admirers of globalisation describe it as a unique phenomenon, which has decoupled space and time and made cultural, economic and social barriers almost redundant. Others consider globalisation as primarily an economic occurrence, which implies the increasing interaction, or integration, of national economic systems through the growth in international trade, investment and capital flows. The process also implies a much broader process of restructuring political economies and diverse cultures into a monolithic entity.

Among many traits of globalisation there is a form of increasing consumerism and the growing power of capital to exert control over production processes. As capital has become more mobile, governments around the developing world are being compelled towards austerity in order to provide a low inflation investment climate to attract investors. It is increasingly difficult to use fiscal and monetary policies to combat higher unemployment or engage in public spending. Subsequently one sees reductions in taxes on capital gains and profits, a movement away from progressive taxes and a steady removal of financial regulations across much of the developing world.

The increasing flexibility of production processes has enabled multinationals to shift the most burdensome and least rewarding of these processes to developing countries. Trade has not really increased the incomes of the people in the world's 50 least developed countries - many of whom are surviving on less than $1 a day, half the level of subsidy given to European Union cows. A pessimistic forecast predicts that the number of people in the least developed countries living in absolute poverty, or less than $1 a day, would rise to 471 million in 2015 from the current figure of 334 million. UNDP estimates that the world's 225 billionaires have a combined wealth equal to the annual income of 47 of the poorest countries, with a combined population of 2.5 billion people.  IMF and World Bank studies provide other statistics linking liberalisation with increasing global growth. It is differing value judgments in measuring inequality underlying conflicting factual claims about how much poor people have shared the economic gains of globalisation. Though there are differeing views to which they care about relative inequality versus absolute inequality, vertical inequalities versus horizontal inequalities. The two sides in this debate do not share similar values about what constitutes a just distribution of gains from the corporate globalisation.

The economic legacies of two decades of market-driven adjustment packages are a weak investment climate, premature de-industrialisation and erratic growth, in many cases at or below population growth. Many developing countries have experienced slippages in their human development indicators in their efforts to embrace globalisation. Poor economics has had its most damaging impact on Africa, which has experienced a drop in the share of world exports from 6% in 1980 to 2% in 2002.  But far from resisting globalisation, Africa has posted the highest trade to GDP ratio of any region outside East Asia. The problem here is that Africa's growth depends on one or two primary commodities whose prices have seen a persistent decline.

The World Bank estimates medium-term welfare gains from liberalising all trade, as between $250 billion to $550 billion; one-third to two-third of these gains would accrue to the developing countries. However, such an estimate also encounters a great deal of scepticism. Luis Fernando Jaramillo, former Chairman of the Group of 77, estimates that the developing countries with more than a two-third majority in the WTO would have only 30% of the additional income to share among themselves, and they are the countries conceding the most during the Uruguay Round negotiations.  Particularly in the case of agriculture, production subsidies in developed countries depress international prices thus reducing the export revenues for developing countries. As a result of trade liberalisation in the agriculture sector, out of the total welfare gains of $122 billion only $11.6 billion will go to the developing countries, which comprise two-third of the WTO members, while $110 billion would go to the developed countries themselves.  Hence, market access has emerged as a major concern for developing countries.    Analysts and development thinkers fear that as tariffs are reduced under the WTO regime, it will lead to the inflow of cheaper products and local products in developing countries; with higher costs of unit production in agriculture and industrial sectors will be unable to compete with cheaper imports.

The poverty today has a woman’s face. Of the 1.3 billion people living in poverty, 70 percent are women. Women produce a staggering 60% of all food, run 70% of small-scale businesses and make up a third of the official labour force – in addition to caring for families and homes.  We are witnessing today that poverty is more deep-rooted for women. Exclusion are actively produced and reproduced by specific processes of production and market engagement make it an imperative for us all to address the processes of impoverishment in general and, feminized impoverishment, in particular. Feminization of poverty is a dynamic process of social exclusion and marginalization that operates differentially among women and men, involving discrimination, denial, and violation of human rights leading to deprivation and vulnerability to risks and difficulties for women.

There is considerable consensus across the world that globalisation in the form of trade liberalisation is systematically reducing women’s participation in economic activities as well as their control over resources and decision making at the community and family level. This trend is said to have particularly grave consequences in developing countries with traditional social structures.

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