Pro-poor deal could end poverty for many, writes World Bank president James Wolfensohn
Trade ministers are gathering in Cancun, Mexico, for the World Trade Organisation (WTO) ministerial meeting to review progress and negotiate the next stages in the Doha Development Agenda. The question everyone is asking is whether the "development promise" of the Doha agenda can be realised?
Will the member states of the WTO muster the courage and political will to reach compromises that would help lift millions of people out of a crushing poverty?
The answers matter a great deal to the world's poor. The round of trade talks, which began in November 2001 in Doha, Qatar, marked the first time that developing countries' interests were placed at the centre of multilateral trade negotiations. As such, the current round of talks has the opportunity to remove many of the inequities in the global trading system that put developing countries at a disadvantage.
But, for much of the past two years, negotiations have been deadlocked over issues of fundamental importance to developing countries - market access in agriculture and labour-intensive products, intellectual property in medicines, and the nature of special and differential treatment for developing countries.
It is encouraging that the US and EU recently agreed on joint proposals for the agriculture negotiations, and also that the EU, US and Canada have found common ground on non-agricultural market access. However, the tough work still lies ahead and the promise for a truly pro-development outcome in the Doha talks hangs in the balance.
A "good" pro-poor Doha agreement, which lowers tariff peaks and averages in rich and developing countries, could produce up to $520 billion in income gains, with rich and poor countries gaining substantially.
Such an agreement would increase growth in developing countries and would lift an additional 140 million people out of poverty by 2015.
But realising these gains will not be possible unless the trade ministers find a way to break the deadlock. While this will require action from all countries, rich countries must show leadership by reducing protection and abandoning policies that lower growth prospects in developing countries.
And the stakes are huge. On average, people living on $2 a day or less - more than 2.7 billion people - face double the trade barriers that confront rich people.
Yet many rich countries continue to jealously guard trade-distorting policies, especially in agriculture. Cotton subsidies in the US amount to more than $3 billion annually and, together with subsidies from other countries, drive down world cotton prices by 10-20 per cent, costing West Africa alone $250 million annually in foregone export earnings.
Direct budget subsidies to producers by the EU cost around $100 billion annually and depress world market prices in sugar, dairy and wheat. Japanese support to rice amounts to 700 per cent of production cost, which shuts out exports from developing country producers.
Total subsidies from rich countries to their farmers are greater than the gross domestic product of Africa, while total support to OECD farmers is six times the level of overseas aid. At the same time, this rich country protection costs the average working family in the EU, Japan, and US more than $1,000 a year.
In the absence of meaningful steps by rich countries, developing countries are reluctant to further open their markets or tackle their trade barriers, which would reduce the price of imports, increase productivity and help expand exports.
Trade is, however, a two-way street and the fate of the Doha agenda does not rest solely in the hands of rich countries. A successful Doha deal will benefit rich and poor countries alike and all will have to shoulder their respective responsibilities.
Middle-income countries have generally lower and less distorting protection in agriculture, but have high average tariffs in all sectors, and are more restrictive in services.
As south-south trade increases in importance, this protection not only undermines poor trading partners, it also tends to undercut their productivity growth. In manufacturing, 60 per cent of total tariff payments by east Asian exporters are paid to other developing countries.
Latin American exporters face average tariffs that are seven times higher than those faced in industrial countries. Developing countries clearly have much to gain from their liberalisation.
Low-income countries would benefit from non-discriminatory market access to every market in products where they have a comparative advantage (rather than special preferences to some markets and exemptions from rules), from appropriate timetables for adopting international regulations and from development assistance with implementing trade reforms and coping with possible adjustment costs.
Moreover, they can use trade to improve domestic productivity by opening their markets in the context of a well-designed growth and poverty reduction programme.
Reducing barriers to trade is not enough to fulfil the development promise of Doha. Trade must be part of a larger development strategy for each country that includes attention to macroeconomic policy, infrastructure, education and health, as well as accountable and responsible governance.
One small example is reforming customs procedures - reducing port and customs transit times by one day has nearly the same value as reducing tariffs by 1 per cent.
The World Bank is committed to supporting a pro-poor Doha outcome, helping developing countries to take advantage of any new market access that emerges from the multilateral negotiations. We are adapting existing tools and designing new programmes that will provide resources for countries reforming their trade regimes, improving their trade-related institutions, and investing in infrastructure necessary to get the products of the poor and others to markets.
A pro-poor outcome in the Doha Development Agenda is only one step towards a world more supportive of development. But it is an important one.
The international community has worked hard to create this opportunity. Policymakers in Cancun should not it let it slip away.