Rich Countries Urged Not to Engage in
'Black' Calculating

Economic Perspective

SHI XIAOHUI / People's Daily (Beijing) 15sep03

The Fifth Ministerial Meeting of the World Trade Organization (WTO) was concluded in Cancun, Mexico, the most difficult issue during the negotiation is nothing more than that for the rich countries to lower tariff and stop agricultural subsidy. The difficulty lies in the fact that it touches upon the two "black" abacuses used by the developed countries in world trade.

One basic fact regarding the current world trade is that the poor countries which account for the majority of the world population can only get 3 percent profit of the world trade revenue; whereas the rich countries which make up only 14 percent of the world population garner 75 percent of the world trade income. The unfairness of the trade system inflicts a loss of US$100 billion on the poorest countries annually.

How has this situation arisen? Import duty is a black abacus used by the rich countries. The tariff on the goods imported from developing countries is 4-5 times on average higher than the tariff collected between developed countries. For example, a shirt produced by Bangladesh workers, after high customs duties are collected from it when entering the US market, is more expensive than a shirt imported from Britain. Take another example. American clothes imported from India are charged 19 percent tax, whereas clothes imported from France, Japan and Germany are charged only 0-1 percent tax. The average tax rate on goods imported by the United States from Vietnam is 8 percent, whereas the tax ratio on goods imported from Holland is only 1 percent.

Rich nations often attribute poor countries' low trade income to their low VAT of their export products. But in fact, they use discriminatory tax to prevent poor countries from increasing their VAT. For instance, Cacao is the raw material developing countries can export tax free to Europe and the United States. But if they export cupu oil, its tax ratio will be increased to over 10 percent in Europe. If they process cacao into cocoa powder, the tax rate will surpass 15 percent. If they process cacao into chocolates, the tax rate will exceed 20 percent. That's why Germany, which does not produce cacao, processes more cocoa than Cote d'Ivoire; and Britain, which does not produce cacao, processes more cocoa powder than Ghana. Developing countries produce 90 percent cacao, but they can only process less than 5 percent chocolates.

Agricultural subsidy is another "black" abacus used by the rich countries. The subsidies granted by the governments of rich countries to farm owners each year reach US$1 billion on average. This figure is 6 times that of their aid to poor nations. These subsidies have resulted in enormous surplus of sugar, cotton and other farm products dumped on the world market and sold at prices lower than production costs. As a result, farmers of the Third World have to suspend production for inability to compete with such prices. Rich countries crowd out the producers of poor nations by relying on such subsidies. For example, US cotton growers get government subsidies exceeding US$3 billion a year, according to figures released by the international cotton advisory committee, these subsidies have caused a 25 percent cotton price reduction on the world market, this is disastrous to the cotton growers of poor nations. As a matter of fact, the agricultural subsidies granted by the governments of developed countries do not go to poor farm owners of these countries. In 2001, the subsidies given to 50 percent poorest farms in the United States accounted for only 5 percent of government expenditures on agriculture, while the richest 7 percent big farms got subsidies making up half of government expenditures on agriculture.

These two black abacuses cracking amidst the world "trade liberalization" have caused the wealth of poor nations to continue to be concentrated on the rich countries; while the rich countries extending aid to poor nations, the former earn double profits from the latter. While the lords of the rich countries earn fabulous profits from international trade by the use of these two black abacuses, farmers of developing countries helplessly watch their markets being ruined by European and American low-priced products. Millions of female garments makers in South Asia are enduring extremely low wages or unemployment due to high tariffs.

The article on British journal "Independence" said that while the West are promoting free trade to others, what they themselves practice is trade protectionism. Now is time for the rich countries to give up their "black" abacus of protectionism. World Bank President Jones Wolfensohn said the Doha Agreement puts the developing countries in the central position for the first time. Reform of the current trade system is already a question concerning whether or not the 2.7 billion people worldwide who are living below the level of two US dollars a day can continue their subsistence.

Economic globalization and trade liberalization can achieve mutual benefit only through reciprocity. The Doha round negotiation is an opportunity. Genuine reduction of the "tariff peak" and equalization of tariff for developed and developing countries make it possible to create an income of US$520 billion which will benefit both the rich and poor countries. This can accelerate the economic growth of the developing countries and help 140 million people to rid themselves of poverty by 2015. Abandoning agricultural subsidies to rich countries makes it possible to lighten the burden on the taxpayers of these countries and reduce unfair world market competition.

This article, written by Shi Xiaohui, is published on page 7 of People's Daily, September 15.

source: http://english.peopledaily.com.cn/200309/15/eng20030915_124316.shtml 19sep03