Trade-Not-Aid

The trade-not-aid strategy is based on the idea that if developing countries were able to trade more freely with wealthy countries, they would have more reliable incomes and they would be much less dependent on external aid to carry out development projects. International trade would raise incomes and living standards as poor countries were able to export their way to economic development by selling their products to rich countries eager to buy their goods.

Unfortunately, most wealthy countries have higher tariffs on goods that developing countries export, such as clothes.  These countries end up paying higher tariffs compared to developed countries, which exports lower-tariff goods. Developed countries also subsidize their own industries – keeping out competition from poorer countries.

For example, Middle Eastern countries faces average tariffs of 15 percent on clothes⁴ on the $4.2 billion worth of goods it exports to the United States each year,⁵  even while France faces only two percent tariffs on manufactured goods⁶ on $34 billion in annual exports to the United States.⁷ According to Progressive Public Policy Institute, although Middle Eastern countries export less merchandise to the United States, they pay just as much in taxes.  This is because the United States charges morehigher taxes on clothes than on manufactured goods – creating a disadvantage for developing countries, whose main exports are clothes.⁸

Likewise, subsidies to European farmers have caused the decline of the Brazilian and Jamaican dairy industries and the South African sugar industry. The $265 billion per year in subsidies by the rich world to its own farmers⁹ is three and one-half times more than the aid given to developing countries by OECD countries.¹⁰ In fact, every cow in Europe gets more money in EU subsidies per day (an average of $2.20) than 20 percent of the world’s population earns in daily income.¹¹ Eliminating those subsidies, many analysts say, would make development aid much less necessary and allow poor countries to develop their own economies without need for charity.

The Uruguay Round of trade negotiations, completed in 1994 (which created the World Trade Organization) ,was intended to open developed countries' markets for agriculture and textiles. Poor countries were disappointed, therefore, when it did not result in as much access as they had hoped. They agreed to another round of negotiations at Doha, Qatar, in November 2001 only if their needs were specifically addressed. The round was therefore dubbed the "Doha Development Round" and was intended to focus on the needs of developing countries for access to the import markets of developed countries. Particularly important was the end of agricultural subsidies, which were supposed to be gradually lowered and eventually eliminated.

But in the nine years since the Doha meeting, negotiations on agricultural trade have progressed slowly. In the summer of 2003 the United States and Europe finally promised a reduction in subsidies, but it was not enough for the developing countries. The whole round of negotiations stalled, then, in September 2003 when the developing countries refused to go forward with discussions on other areas of trade, such as rules for foreign investment. Since then, little has changed and few negotiations have been determined from Doha.

In 2006 because of continued disagreement and stalled negotiations the General Council for the Doha Rounds agreed to suspend the talks, and the latest meeting in 2008 signaled the conclusion of the Doha Round.¹² The general consensus remains that the Doha Rounds did very little, in the end, to significantly implement the Trade-For-Aid strategy or decrease agricultural subsidies in OECD countries.