Trade, Development and Openness
Published Monday, June 8, 2009 - 20:57
Douglas Alexander highlights both the dangers posed by the global recession, and the opportunities offered by trade in this era of interdependence â?? and how the world can move forward together.
Openness – a global opportunity
For, notwithstanding precipitous falls in global trade this year, the story of the past sixty years has been one of increasing openness and integration, brought about by both political decision-makers and the globalising effects of technology.
World exports are 27 times greater at the start of this century than they were in the middle of the last – and over the same period, world income has increased 8-fold.
This vast increase in the trade of goods and services around the world has not only increased prosperity in the West, but also helped to lift half a billion people out of poverty since 1980. Asia, the poorest continent on the planet 40 years ago – twice as poor as Africa is today – now boasts the fastest growing economy anywhere in the world, and is indeed today twice as rich as Africa.
And as I’m sure many of you in this room will testify, the emerging economies of Asia are providing vital new markets for British exports. To take one example from my own Paisley constituency, Chivas Regal has profited in recent years thanks to the growing market for premium whiskey in India and China.
While Asia is providing a market today, Africa could be the new market for tomorrow. Europe’s neighbour, a continent of 900 million people, a growing Africa would provide opportunities for all.
Indeed, with the global middle class expected to grow to perhaps as many as 2 billion people by 2030, the opportunities of openness are set to increase in the decades ahead.
This long view, however, should not blind us to the considerable challenges we face today.
Crisis threatens this opportunity
For what began as a financial crisis has quickly become a trade crisis – and indeed a human crisis for too many developing countries.
Across Asia, factories are closing as consumer demand falls away. Across Africa, mines are falling quiet as demand for commodities plummets.
By the end of next year we could see 90 million more people living in extreme poverty as a result of this global recession – effectively setting back progress towards the first Millennium Development Goal by up to three years.
It is fundamentally important that the international community provides an immediate response to revive world trade. That means managing economic policies to stimulate demand, but also stepping in to help finance trade flows – a role from which banks have retreated on a widespread scale.
So the agreement at the G20 meeting in April to provide $250 billion of trade financing over the next two years – helping to raise up to $50 billion specifically for the developing world – is a vital response to this immediate crisis.
Yet beyond these immediate measures, politicians around the world also need to stay the course on resisting protectionism.
Retreating is the wrong response
For while the effects of the global recession, and the particular plight of countries that rely on exports, have led some to argue that countries should retreat from openness, the lesson of the past 60 years is that protectionism does not protect citizens. Indeed, it impoverishes them.
Just look at the experience of two countries in the second half of the 20th century. In 1965, the citizens of both Ghana and South Korea earned, on average, roughly the same amount - some $400 a year. Yet over the last 45 years, South Korea’s openness to global trade has propelled it to become the world’s 13th largest economy, with an average income per person that is today more than ten times greater than Ghana’s.
Over the long run, developing countries – in common with all countries – stand to gain far more from playing a part in the global economy than they risk losing.
But at the same time, we cannot simply ignore the distortions in the trading system that lead many to call for protectionism.
For we know that the benefits of trade are too unevenly spread – and that the poorest countries have been marginalised for too long.
The fact that the poorest countries represent less than one per cent of world trade reflects a failure of globalisation. But the answer is not to retreat from openness, but instead to make a more inclusive globalisation.
I believe that to do so will require two major efforts from the international community: first, by levelling the playing field of world trade, and second, by helping developing countries to compete.
Levelling the playing field
Completing the Doha trade round still provides the best opportunity to create a more open and fair global trading system.
Of course this is a deal that has eluded the world for too long. I remember distinctly the feeling in Geneva – almost a year ago – of missed opportunity, as we came so close to making a deal, but failed at the last. And it was Peter, in his role as Trade Commissioner, who remarked with his characteristic brevity that the deal had been undone by a ‘coalition of the unwilling’.
The global recession gives further impetus towards building a coalition around the prizes and benefits that would help millions of people to trade their way out of poverty.
The level of political engagement I saw at the London Summit in April gives reason for hope. And with elections now completed in the United States and India – two countries vital to any deal – the path is now clearer for the sustained level of engagement needed to broker a conclusion to this round.
Helping countries to compete
So completing the Doha round – notwithstanding all of the difficulties in doing so – will be vital for levelling the playing field of world trade.
Yet business-people in the poorest countries will still face barriers to trade, because too often their own environment counts against them.
Transport costs are some 70 per cent higher in Southern Africa than here in Europe.
Setting up a business in the Democratic Republic of Congo costs four times the annual salary.
And two billion people across the developing world have no access at all to even the most basic financial services.
If we are to build a more inclusive globalisation, we need to tackle these domestic barriers to doing business.
That is why the UK Government is now stepping up its efforts to help countries trade their way out of poverty. Indeed our investment in Aid for Trade is now higher than ever – at some £800 million.
This investment – representing an increase of 60 per cent since 2005 – demonstrates our commitment to help people lift themselves out of poverty through trade.
Our investment is helping developing countries to reach into developed markets. Our support for the fishing industry in Mozambique helped to secure EU accreditation for their produce – safeguarding jobs for some 70,000 fishermen.
And our investment will help developing countries to trade not only with the developed world, but with each other. Our support for Africa’s North-South Corridor project – which will improve transport links from the copper belt of Zambia down to the ports of South Africa - could provide a boost of tens of millions of pounds a year to the African economy, and thousands of jobs across the region.
Closing remarks
Why do we continue to this level of investment at a time of economic uncertainty?
We do so because it is right, and because it is wise. Because in the words of the G20 in April, our ‘prosperity is indivisible’. And because in a world of cross-border risks and opportunities, fighting poverty is – to put it bluntly - in all our interests.
So as we begin the UK’s first World Trade Week it is fitting that we remember the words of the man who established World Trade Week in the United States, more than eighty years ago.
It was President Roosevelt who said that “the test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
A stern test indeed, but I believe the right one for our global response to these turbulent times.
