Managed trade doesn't work

By Alex Singleton | 25 May 2005

From today's Times:

For Oxfam, fair trade really means fair subsidy, a rigged market in which the poorest get more for their produce or a bigger share of the market than their weak position might otherwise command. It sounds nice and the EU obliges with a fiendishly complex system of trade preferences to regulate which poor countries get the sweetest deals.

Unfortunately, the sweetheart deals and market rigging help no one. The poor stay poor and the prices stay high.

The evidence is in a report this week from the European Commission on access by poor countries to the EU market, Opening the door to Development. The Commission's research shows that decades of preferred access for the very poor under the Lome Convention and the more recent Cotonou Agreement have failed to improve their lot. They remain impoverished, single commodity exporters.

Madsen Pirie's take:

A more accurate name for [managed trade] would be 'managed poverty,' because it seeks to sustain existing producers in its favoured poor countries. Free trade, by contrast, offers opportunities to new and unknown producers in other poor countries to become richer by selling us their goods more cheaply.

As the free traders are winning the argument, and the EU itself moves to renegotiate its past agreements in favour of wider access, the NGOs raise strident voices against it. As with markets everywhere, the outcome of free trade is unpredictable. Some existing producers will lose their position to new ones elsewhere. But it is the countries that have seized opportunities and traded which have grown richer. Instead of maintaining a few clients in a secure poverty, we should be extending those opportunities to others.