Paul Vallely: We can lift millions out of poverty by ending the hypocrisy of world trade

It was not as I walked among the skeletal children of the Ethiopian famine camps that I realised what the real problem was for the world's poorest people. Nor was it as I traversed huge areas of drought-ridden marginal land in Chad and Niger. Nor even when I saw Sudanese families starving beside fertile land which had once been the region's breadbasket but was now given over to state farms producing cotton, though that gave me a clue.

No, my moment of epiphany occurred in Covent Garden, in the offices of a pressure group called the World Development Movement (WDM).

Everywhere I had gone I had met people complaining about the International Monetary Fund and the "structural adjustment" packages it was imposing to help the Third World repay its debts. Looking at the WDM's figures - for the first time in a country by country comparison - I could see that they shared a common underlying problem.

It was obvious they had difficulties with the IMF strategy to liberalise their economies and boost production of their export crops. It was obvious that Third World Debt had become a tool to keep Africa subservient to the will of the West. But I could also see that the problem went deeper - into the very way that the international trading system operated.

Behind the complexity lies a stark moral issue. The West preaches free trade and, under the threat of cutting off aid and loans, we force Third World countries to open their markets to our goods. And yet at the same time we slap taxes and tariffs on what they sell to us.

Worse than that, the system is rigged so the poorest pay the most.

Today in Cancun 5,000 delegates from 146 countries meet to try to address that scandalous inequity. The gathering marks the halfway point of World Trade Organisation (WTO) round of negotiations begun in November 2001 in Doha. From the outset the aim of the discussion was proclaimed to be "development" for the poor world. Cutting tariffs and other technical impediments would give them the level playing field they need.

There will be two sticking points in the negotiations. Poor countries want an end to the massive subsidies the US and EU give to their farmers who then sell their produce on the world market at a price far below the production cost. The unsubsidised farmers of the Third World can never compete against that.

By contrast the rich nations, most particularly the EU, want poor countries to lift the few remaining controls over how foreign investors can spend their money in the Third World. Quite why the EU trade commissioner, Pascal Lamy, is so keen on this is not clear since European businesses are not pushing for it, and nor are many member governments, including Britain. Perhaps M. Lamy, a French socialist, hopes a row over that will hide the fact that Europe is prepared to move so little on agricultural subsidies. The Americans are holding back because they want something stricter later.

To understand why, we need to look back to the Great Depression of 1929. To protect itself from the worldwide slump the United States more than doubled tariffs on all imports. Other nations responded in kind. The global protectionism which ensued led to the Second World War. After that the great powers said "Never Again" and set up a series of institutions, including the IMF and World Bank, to establish an international system to avoid a repeat of the disasters of the Thirties.

But the bad habits of protectionism were hard to shake. The United States vetoed plans for an International Trade Organisation to bring tariffs down. Instead a series of negotiations began under the rubric of the General Agreement on Tariffs and Trade (Gatt). Over the next 40 years - in theGeneva, Kennedy, Tokyo and Uruguay rounds of talks - tariffs on industrial goods were steadily cut. But textiles and other Third World products were excluded for fear that a "flood of cheap imports" would drive Western garment-makers out of business. Nor was the problem of agriculture addressed, for fear it would do the same to Western farmers.

This double standard has woven hypocrisy into the institutions of international trade. It meant that after the interminable Uruguay round, which took seven years to conduct the world's poorest region, Africa, was worse off.

This is why there was such a row at the next round, in Seattle, where the Gatt was transformed into the WTO. All the publicity went to the anti-globalisation protesters who brought the city to a halt. But the talks broke down because African trade ministers walked out when the US and Europe tried to browbeat them into signing a deal which was not to their advantage - which is what the big powers had successfully done at the end of the Uruguay round where they instituted a system by which the could declare many of their subsidies as "non-trade distorting". Around half of American farm subsidies have now been reclassified in this way.

The Doha "development round" was supposed to address all this. But negotiators missed last December's deadline for finding ways of getting cheap medicines to the poor. Then they missed the March deadline for an agreement on subsidies. Then they missed the May deadline for a deal on tariff cuts.

There have been some signs of movement. In June the EU agreed to reform the Common Agricultural Policy (CAP) to "decouple" farm subsidies from actually producing crops. Last month the US offered a deal on allowing poor countries to import cheap generic drugs without paying huge licence fees. Also in August the US and EU signed an agreement on agricultural trade reform.

The danger always is of weasel words. Like taking an abnormally high year as the basis from which to make cuts, as was done in the past. Or not keeping promises: under the Uruguay round half of all import quotas on textiles should have been eliminated but the US has removed just 10 per cent, Canada 20 per cent, and the EU 27 per cent. Or saying, like Washington does, that it has no export subsidies on cotton, even though US farmers somehow manage to export it at a third of what it costs them to produce it. The EU pulls a similar trick with cereals.

In Cancun the world's trade ministers have just five days to break a two-year stalemate. Failure could spell the end of the WTO. In its place would come a series of bilateral and regional accords which the United States has already hinted it will turn to. These would undoubtedly be even worse for the poor.

If the rich countries want the poor to play the globalisation game then Cancun may be their last chance to win co-operation. But it will not come so long as the poor are expected to pay 15 times more in trade taxes than the rich do. Nor will it be sustainable if the poor continue to be asked to sell things at a price which is higher than it costs them to produce the stuff.

Trade can lift millions out of extreme poverty, but only if it is restructured so that it becomes part of the solution rather than part of the problem.