Briefing Papers Number 5, August 2008 | Page 2

T he United States spends more than any other country on international development. In 2007, the U.S. foreign aid budget exceeded $20 billion.1 But foreign aid is not the only indicator of a nation’s commitment to development. The Center for Global Development’s Commitment to Development Index (CDI) looks at a range of policies on trade, foreign investment, migration, the environment, security, and technology transfer. The CDI ranks developed countries according to how much they “help poor countries to build prosperity.”2 On a list of the 21 richest donor nations, the United States’ rank was 14. Achieving the Millennium Development Goals (MDGs), which were adopted by virtually every country in the world in 2000, requires commitment to a broad set of issues and policies. The MDGs set specific targets for reducing poverty and hunger, increasing school enrollment, empowering women and girls, reducing child mortality, improving maternal health, halting and then reversing the spread of deadly diseases, and ensuring environmental sustainability. To help meet these targets, the MDGs call for countries to create a “global partnership for development” that includes commitments to improve trade rules, fairly address the unsustainable foreign debt owed by developing countries, and provide better access to key technologies, especially in the areas of essential medicines and communications. But thus far many developed countries, the United States included, have been less than steadfast in their commitment to meeting the MDGs. In three areas in particular—trade, migration, and intellectual property rights—the United States could do a better job of aligning its policies and programs with the MDGs. This would not only be consistent with the objectives of U.S. aid, but also would improve the aid’s effectiveness. Trade U.S. agricultural policies are sorely in need of reform. Between 1986 and 2006, the government spent nearly half a trillion dollars on U.S. farm programs. (Over the same period, the 15 countries of the European Union spent well over a trillion dollars in support of their farmers.3) Farm payments shield U.S. farmers from loss during periods when prices for basic commodities such as rice, corn, wheat, and soybeans are low. This protection allows farmers to continue planting even when it would otherwise be unprofitable, leading to large surpluses and an increase in U.S. exports. Both of these reduce prices in world markets. Farmers in the developing world simply cannot compete against these heavily subsidized farmers. Cotton is a good example of a crop where smallholder farmers in developing countries have been harmed by policies 2  Briefing Paper, August 2008 in developed countries. In West Africa, smallholder farmers grow cotton for local, regional and even global markets. These countries, and the region as a whole, would benefit from higher, more stable prices. But cotton p rices remain low compared to the early and mid 1990s, partly because heavily subsidized U.S. cotton farmers are able to sell their product at an artificially low price. Between 2001 and 2003, the U.S. government spent some $7.2 billion supporting U.S. cotton farmers.4 These trade-distorting payments cost farmers in Mali, Burkina Faso, Benin, and Chad $400 million in lost revenues over the same period.5 In addition to subsidies, barriers to market access—such as tariffs—also conflict with development goals. Tariffs in the United States and other high-income countries have been lowered for manufactured goods, a move that has helped to fuel the growth of the manufacturing sectors in countries such as China, Vietnam, and Bangladesh. But tariffs on agricultural products remain four to seven times higher than those on manufactured goods.6 Tariffs hit developing countries particularly hard. A study that examined the average tariff applied to U.S. imports from Ethiopia, Tanzania, Guatemala, Namibia, and Thailand found that all of these countries faced higher average tariffs than France, Germany, and the United Kingdom.7 Yet it is developing countries rather than industrialized countries that could benefit most from greater access to U.S. markets. High tariffs on agricultural products are one problem. Tariff escalation—increasing tariff rates as products become more highly processed—is another that affects developing countries seeking to export value-added products. An example is soybeans. Unprocessed soybeans can enter the United States duty free, but there is a 20 percent tariff on soybean oil.8 Many other crops grown in developing countries—cocoa and sugar among them—face higher tariffs in their processed forms. Tariff escalation discourages entrepreneurs in developing countries from producing and exporting more lucrative value-added products. In 2001, the World Trade Organization (WTO) launched a new round of trade negotiations, often referred to as the Doha Round. Recognizing that “international trade can play a major role in the promotion of economic development and the alleviation of poverty,” WTO members, the United States among them, agreed to place trade and development “at the heart of the work program.”9 A successful conclusion to the Doha Round could significantly benefit developing countries, with one study suggesting up to $30 billion in gains.10 Most would be captured by a small number of countries, notably India and China. But the gains to other countries, in particular the world’s least developed countries (LDCs), would increase if they had unlimited market access to developed country markets. The International Food Policy Research Institute estimates that an ambitious trade deal that