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From Cotton to Petroleum: African Economic Viability and Global Priorities

By Dena Montague

Policy Brief for the Globalization Research Center – Africa

 

Towards the end of the last decade, the world witnessed policy proposals and agreements aimed at ameliorating economic crisis in African countries. These bilateral and multilateral policy proposals sponsored by NGOs and African countries sought a new direction for African growth within the dominant global free trade system touted by the international financial institutions. The list includes the U.S. led African Growth and Opportunity Act (AGOA) [http://www.agoa.gov/], passed in 2000, the Jubilee 2000 [http://www.jubilee2000uk.org/] the worldwide grassroots movement devoted to debt cancellation for the poorest countries, the New Economic Partnership for African Development (NEPAD) [http://www.touchtech.biz/nepad/] developed by the African Union (itself a successor organization to the anti-colonial/anti-apartheid Organization of African Unity), the World Conference on Sustainable Development in 2002 [http://www.johannesburgsummit.org/], and African participation in the World Trade Organization.

As Africa is beginning to assert itself as a player in defining the terms of international trade, US policymakers should reassess ways of assisting the development of African economic sustainability by analyzing three crucial factors that are linked to US trade policy: (1) US domestic agricultural subsidies; (2) US economic policy which discourages diversification in oil and strategic mineral resource based economies; and (3) Pharmaceutical company resistance to cheap, available generic drugs for treatment of HIV/AIDS.

Events at the WTO’s 5th Ministerial meeting in Cancun, Mexico displayed a growing sense of where African states would like to locate themselves in the international economic landscape. African countries were crucial actors in putting forth a general agenda of fair trade, specifically dedicated to the elimination of agricultural subsidies by the global North. Benin, Burkina Faso, Mali and Chad presented a draft declaration proposing the elimination of domestic subsidies on cotton by the North. Although the talks collapsed, at least there is an element of victory for the Global South, including Africa, in the successful coalition formation of developing nations into the Group of 22 nations (G22). The G22, comprised of Asian and Latin American countries, plus South Africa and Egypt, demanded as a bloc that the industrialized countries begin to phase out protectionist measures in agriculture, among other demands that faced resistance from the rich nations. The G22 challenged a narrowly written draft declaration proposed by the developed nations that shied away from the agreements made in Doha, Qatar at the 4th WTO Conference held November 9-14, 2001, which set forth a goal of fair trade, absent of subsidies that cripple the economies of the Third World. In fact, Doha was to signal a new dimension to the WTO that focused on rectifying trade rule imbalances between developing and developed countries and strengthening policies for special and differential treatment for developing countries. The G22 proposal paralleled the (AU) African Union/(APC) African Caribbean and Pacific/(LDC) Least Developed Countries position on agriculture which critiqued the framework of the WTO trade resolution for failure to set up fair market access absent of high tariffs along with the elimination of subsidies.

 

Doha Hopes vs. Cancun Realities

The 4th WTO Conference in Doha, Qatar represented a hopeful milestone for developing nations. This was particularly true for Africa. Historically Africa has held a prominent place in the development of global economic systems, primarily as a producer of raw material and labor. Within the current phase of globalization embodied by the WTO, African states have become increasingly vocal in asserting themselves in global economic negotiations to encourage fairness in international economic policy to give local economies room to grow and diversify. The developed countries expressed openness to negotiating drastic changes in protectionist measures that in effect sabotage agricultural production in the Global South. U.S. Trade Representative Robert Zoellick’s statements after Doha reflected the mood of Doha and the hope for a successful negotiating round in Cancun.

“…Doha lays the groundwork for trade liberalization agenda that will be a starting point for greater development, growth, opportunity and openness around the world...we've settled on a program that lays out ambitious objectives for future negotiations on the liberalization of the agriculture market. These objectives represent a cornerstone of our market access priorities for trade and they will create a framework that will help the United States and others to advance a fundamental agricultural reform agenda. On a range of issues, such as agricultural liberalization and reduction of tariffs on non-agricultural goods, we've shown how our interests can converge with the developing world. I believe that we in the United States have an enhanced appreciation for the interests of developing nations in trade.” November 14, 2001, Office of the US Trade Representative [www.cptech.org/ip/wto/doha].

 

Emerging from the momentum of Doha were concrete policy proposals scheduling the elimination of US agricultural subsidies. In response to the crippling effects of cotton subsidies that amount to $3.2 billion a year for US cotton growers, Benin, Burkina Faso, Mali and Chad boldly proposed a measure in Cancun that would not only end subsidies over a period of three years, but would also call for financial compensation for revenue lost due to subsidies. Other African countries, with the backing of the G22, maintained a b stance in favor of such proposals. In response, US Trade Representative Robert Zoellick labeled the African position as purely political, lacking economic common sense. He cited AGOA as a preferential trade program to improve access to U.S. markets for African cotton, textiles and clothing thereby eliminating the need for such a measure. However, Representative Zoellick failed to acknowledge that AGOA only offers favorable trade on textile products that use U.S. produced fabric. Moreover, despite the fact that African economies derive 70% of their income from agriculture, in 2002, 75% of AGOA imports were of petroleum products. (See US Department of Commerce report, “US Africa Trade Profile March 2003 [www.ustr.gov/reports/2003agoa.pdf].) Three hundred billion dollars a year spent on agricultural subsidies by Northern countries entrenches the system that restricts developing countries to mining sector raw material export at the expense of agricultural development.

The farm bill signed by President Bush in May of 2002 allows for $118 billon in subsidies to cotton farmers over a period of six years. Cotton prices on the world market continue to decline to record lows. Large U.S. subsidies help to depress these prices. Although, the IMF and World Bank estimate that the elimination of U.S. subsidies could increase revenue of cotton producing African states by $250 million, the U.S. insists on maintaining subsidies that allow some farmers to receive $750,000 or more a year in subsidies. For Mali, a country that can ill afford large subsidies, yet relies on cotton for half of its export revenue, U.S. subsidies mean entrenched poverty and the continued lowering of cotton prices.

AGOA does little to support African agriculture and instead concretizes a system geared towards oil and strategic mineral production. It can be argued that the most influential trade items concerning Africa are its raw materials, which are strategic and vital for most Western countries’ economic survival, including the US. According to the Commerce Department report, only a handful of African countries, namely Nigeria, Angola, Gabon and South Africa, which supply substantial amounts of crude oil or strategic minerals to the U.S., gain financially from trade benefits. This in turn, places politically fragile countries at risk of resource conflict as in the case of the contentious Niger Delta of Nigeria and the recently ended 30-year civil conflict in Angola.  Oil profits typically spell the economic decline of the populace, suffering under oil dependent systems with extreme income disparity along with mismanagement of the economy behind the politics of oil corruption. Oil generates billions of dollars in revenue for those African countries with oil resources. However, instead of improved health, education, and infrastructure, petrodollars can worsen poverty. See Catholic Relief Services report, “Bottom of the Barrel: Africa’s Oil Boom and the Poor”, [http://www.eireview.org/EIR/eirhome.nsf/(DocLibrary)/30210235DEE3DD5E85256D79001C8F72/$FILE/oil_report_full_CRS.pdf .] According to the report, oil money tends to discourage investment in other industries, hurt exports by inflating the local currency and create a trove of easy money that leaders use to buy off opponents and pacify the populace with civil-service jobs and low taxes. When oil prices crash, oil economies fall too, often helping to incite rebellions in countries such as Sudan and Congo-Brazzaville.

African countries are also faced with the HIV/AIDS pandemic. Seventy-two percent of youth living with AIDS are in Africa. Few have access to life-prolonging drugs. On August 30, 2003, the WTO General Council agreed to implement paragraph 6 of the Doha Ministerial Declaration on TRIPS (Trade Related Aspects of Intellectual Property Rights) and Public Health [www.cptech.org/ip/wto/doha] to ostensibly open wider access to cheap drugs for countries dealing with immediate health crises. Although some AIDS activists have welcomed the measure, it remains controversial. Its complexity threatens to undermine the goal of easy access to cheap life saving generic drugs. According to Third World Network [http://www.twnside.org.sg/], “The WTO took a 52 word mechanism that was endorsed by the European Parliament in 2002 and created a 3200 word maze of red tape that is plainly designed to frustrate and undermine the objective of protecting public health and promoting access to medicine for all.” Critics cite constraints on generic manufacturing companies, the maintenance of patent privilege and the complexity of a process which will slow down the transfer of much needed drugs, as hindrances to a measure that in its simplest and unrestricted form would be greatly beneficial to those in dire need of immediate and affordable health care. The heavy hand of Western, namely U.S., pharmaceutical companies have been extremely influential on global HIV/AIDS drug policy, including the formation of paragraph 6 to protect their ability to secure profitable returns as well as patent privilege.

Conclusion

Uncompromising African unity, underscored by the extraordinary alliance between civil society and government, helped to inspire strong leadership among the G22 countries in their principled stance against economic policies that have ravaged developing economies. Unfortunately, the talks collapsed as the Global North proved its dedication to a protectionist domestic agenda, thus undermining the spirit of the Doha round to incorporate development as a factor in WTO negotiations. The Global South is forcing a re-analysis of the theoretical and practical definitions of fairness in global trade.

African states that were active at the WTO are expected to continue to maintain a firm stance on subsidies and access to generic drugs for their populations. As the distortions of multilateral policies under WTO and bilateral policies such as AGOA become more evident, the discussion of the impact of extractive sectors on African economies and sustainable development will also come to the forefront as issues that will have to be addressed by policymakers interested in free trade and global prosperity. There exist viable policy proposals concerning agriculture, economic sustainability and HIV/AIDS, which some Northern countries have already endorsed in previous rounds of trade negotiations. Recently, representatives and Ministers of Trade from 12 African countries issued a call for the resumption of WTO negotiations as soon as possible. The December WTO senior ministerial in Geneva is approaching, with the goal of addressing the potential for progress on agriculture issues and whether or not to abandon an end-2004 deadline for the conclusion of the WTO's Doha Round of free trade talks. If the Bush Administration and US policymakers truly believe in the benefits of global free trade and its promise of economic prosperity for all and reject the role of global authoritarian tyrant focused on domestic protectionism, the following recommendations must be adopted:

·      Maintain commitment to the multilateral process for negotiating free trade agreements by endorsing African proposals presented at Cancun that would eliminate agricultural subsidies. See “Agriculture Negotiations at the WTO: Post Cancun Outlook Report” [http://www.ictsd.org/issarea/ag/products/AgricultureNegotiations9.pdf]

·      Rewrite paragraph 6 of TRIPS in order to explicitly state the intent to facilitate easy access to cheap generic HIV/AIDS medications.

·      Begin to formulate policies to analyze the nature of US imports of African oil and mineral resources with the aim of mitigating their negative impacts on African sustainable development.

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