What Mandy did next

Fair trade special - Will the new EU trade commissioner give poor countries a fairer chance to sell

Everybody supports fair trade, don't they? Even the politicians most dedicated to free trade do not sing the virtues of unfair trade. So Peter Mandelson, making his debut speech in Brussels as European trade commissioner last November, called for both freer and fairer trade. He also wanted "rules-based" trade, thus covering all possible trading philosophies (with the exception of America's special variant of using trade embargoes as political weapons).

But how free, how fair, and whose rules? The rich world has always decided what is fair. It is thought unfair to ask rich-world farmers to give up their subsidies too quickly. Yet countries that receive aid and debt relief are expected, as a condition, to allow free access to their markets. That is apparently not at all unfair. "Free" also proves a slippery idea: as a condition of access to European markets, poor countries have to sign agreements that allow multinationals to run their public utilities. As for the rules, they are supposed to be defined by the World Trade Organisation in the current Doha "development" round, due to conclude next year. This is supposed to agree a trade regime that opens borders and lifts poor countries out of poverty. With 148 members each having a right of veto, however, the WTO is getting bogged down in its own democracy. Meanwhile, the US and Europe continue to make up the rules as they go along.

All this makes the unelected and unaccountable trade commissioner rather powerful. With no electorate to answer to, only the most venal behaviour will result in him being removed from office. It did not augur well that Mandelson's first public utterance in the job was at a meeting sponsored by Nestle, the food transnational which has become almost emblematic of the baleful effect of globalisation on developing countries.

But it is fanciful to suppose that Mandelson could single- handedly make poverty history, even to please his old mate Tony. The European Commission follows what is known as the Lisbon Agenda: increased competition and greater liberalisation and privatisation of services. As Mandelson wrote earlier this month, "Jose Manuel Barroso's commission was always going to be about jobs and growth." European jobs and growth, that is.

Mandelson, however, has also said that "the road to Lisbon goes via Doha". In plain English, Mandelson means that, if Europe wants to sell its goods and services, it must first create prosperity among developing countries.

In starting to dismantle the costly and corrupt Common Agricultural Policy (CAP) - albeit very slowly and with, for the moment, new subsidies to its farmers - Europe has already taken the most important step towards creating the conditions for that prosperity. Protectionism and subsidies cheat poor countries of roughly £1.4bn a day - many times what is given in aid.

It is hard to exaggerate the harm that European and American agricultural subsidies have visited on the world's poorest people. Worldwide, such subsidies total approximately $230bn (£120bn) a year, a gross market distortion by those who claim to worship free-market economics.

Imagine, to take a case reported this month, you make cheese in South Africa. It costs you roughly E3.90/kg (£2.70/kg) to produce. But a similar Irish cheese can retail in your local shops at E1.70/kg (£1.18), though the actual costs of production in Ireland are double that. The price is lower because the makers receive EU export refund subsidies of E1,000/tonne (£690). In other words, Europe pays Irish dairy farmers to put South Africans out of business.

This very ordinary trading event came to wider public attention because the South African government decided to ban the Irish cheese. As the EU is within the current trading rules, South Africa will be called to heel, told that it is guilty of protectionism and risk some fiscal punishment by the WTO, or a reduction in aid or debt forgiveness if it continues. Now the best hope is that Europe feels there is little to gain but bad publicity from further bullying South Africa's cheese producers.

Contrast that with what happens when poor countries have the competitive advantage and wish to sell sugar, say, in Europe.

They may be denied access or face a high tariff barrier that makes their product cost more than the local equivalent. This, they will be told, is because European farmers (and their equally lavishly subsidised US counterparts) need time to adjust to the realities of a freer world trade regime.

Simply removing all subsidies and tariff barriers would benefit poor countries far more than a further decade of Millennium Development Goals and initiatives such as the commission's 2001 Everything But Arms trade gesture. The latter was supposed to give the poorest developing countries tariff-free access to Europe's markets for all commodities (apart from arms). It sounded too good to be true, and it was. According to a briefing paper from the leading non-governmental organisations involved in trade and development, published this month, the impact has been negligible. Access became contingent on difficult-to-navigate rules and safeguards.

Of the non-contentious products, 99 per cent were already theoretically allowed entry. Internal European politics made it difficult to reach deals on the very commodities - rice, sugar and bananas - where access to EU markets might have greatly helped some of the poorest countries.

So how seriously should we take the EU's commitment to reforming the CAP? Fortunately, perhaps, altruism is not the spur. Rather, EU enlargement has made too many farmers eligible for subsidy. Something had to be done. Europe's solution was to offer the CAP at Doha negotiations last year and then milk the "concession" for all it was worth. Poor countries will pay a high price for access to European markets.

Despite protests from the UN secretary general Kofi Annan, Mandelson is pushing through a programme of economic partnership agreements. These make trade liberalisation demands on poor countries that go way beyond anything ever agreed at the WTO, including the previously contentious demand that public utilities should be made available for privatisation. In effect, the weakest and poorest countries will be asked to liberalise every aspect of their economies in a time-span far shorter than that demanded by the highly developed nations for dismantling just one aspect of theirs - agricultural subsidies.

In these new free-trade states, farmers and small manufacturers would be competing within their own borders inside ten years with the richest corporations in the world. Worse still, under the EU agreements, African, Caribbean and Pacific states, including many of the world's least-developed economies, would in effect be removed from the WTO system, where solidarity between developing-country groups has, in the past, achieved some notable triumphs.

Trade justice, then, is off the agenda for now, but we should none the less demand of the European Commission a more thorough commitment to the freedom it claims to revere.

Freedom cannot be imposed. Europe should open its markets to developing-country goods because it is in all our interests that we restore to the poor their right to lift themselves out of poverty. That done, we must leave them free to decide - just as we in Europe have been free to decide - when it is right for them to privatise their utilities and open their economies to the full blast of market forces.