The Obama administration should offer African countries that govern well an opportunity to participate in reciprocal free trade agreements.
12:00 AM, Aug 4, 2009 • By ROD HUNTER
President Obama rightly observed in his speech to the Ghanaian parliament last month that "development depends on good governance." When Secretary of State Hillary Clinton and Trade Representative Ron Kirk attend a trade summit with African leaders in Nairobi this week, they should make good on Obama's observation by announcing they will negotiate trade agreements with African countries meeting governance criteria used in U.S. development policy. Such a trade and development initiative that harnesses incentives could spur reform, liberalization and prosperity on the continent, where so many previous development efforts have foundered.
Since President Truman launched development policy with his 1949 inaugural address, the West's generosity has been at best mixed bag for its beneficiaries, especially in Africa. Truman confidently claimed we possess "the knowledge and the skill" to relieve the suffering of the "more than half the people of the world . . . living in conditions approaching misery."
Western social engineers proceeded over decades to minister $2.3 trillion in technocratic medicine on their charges. Too often, Western largesse fueled dependency and corruption as the monies flowed in the face of mismanagement and malfeasance--indeed, the calls for aid were all the more urgent, the worse the management. While China and other Asian reformers have made stunning progress by embracing markets, much of Africa remains mired in abject poverty. After fifty years of earnest effort, about half the world's population still lives on $2 a day or less, and nearly 900 million people, mostly Africans, live on $1 a day or less.
Fortunately, over the past decade, failure has inspired promising experiments in Africa and among donors aimed at making better use of incentives and markets. In 2000, President Clinton signed into law the African Growth and Opportunity Act or AGOA to kick start growth by eliminating tariffs on many African products. These preferences, along with better macro-economic management in Africa, have contributed to the continent's five percent annual growth this decade.
However, the preferences are one-sided affairs that allow African nations to leave their markets closed. Global trade talks, the WTO's Doha round, similarly would require little liberalization by African governments. The cruelty of this rich country's kindness is that African citizens are denied the key benefit of open markets--the increased competition that expands consumer choice, and lifts productivity and wages to international levels.
Another important innovation is the Millennium Challenge Corporation, launched by President Bush in 2004, to restructure aid incentives. The MCC directs funding to countries that govern well, as assessed on the basis of 17 criteria relating to political and economic freedoms, corruption fighting and investments in people. About ten sub-Saharan countries are implementing MCC projects of their own design, frequently targeting infrastructure farmers need to participate in the global economy. It may be too soon to count MCC a complete success, but the initiative has at a minimum prompted countries to make reforms to lift their MCC ratings.
The Obama administration should build on these innovations by offering African countries that govern well an opportunity to participate in reciprocal free trade agreements. We have no more powerful economic development tool than our trade agreements, which require FTA partners to open their markets, and are in truth rigorous micro-economic reform programs. Moreover, the rule of law protections and U.S. imprimatur that come with a trade accord provide foreign investors with the confidence to bring the capital and know-how that Africans need to lift themselves out of poverty.
In concrete terms, the administration could begin with a country that scores highly on MCC criteria. Ghana, a well-governed West African country of 24 million people with a $550 million MCC project, is a good place to start. After decades of misrule, Ghana has implemented political and economic reforms since the early 1990s. As Obama noted during his visit to Accra last month, Ghana's improving governance has been accompanied with impressive economic growth. A trade accord, together with MCC and other aid such as the Obama administration's plans to increase agricultural funding, would reinforce Ghana's hopeful trajectory and provide a foundation for regional expansion.