Trade, Aid, and Security: An Agenda for Peace and Development

In theory, trade and aid practices should support and enhance fragile states' political and economic stability. In reality, however, poorly designed and implemented trade policies are prolonging violent conflicts; and aid programs, as they are currently constructed, are not achieving their stated goals of alleviating poverty. While aid and trade are never the sole factors leading to conflict, Oli Brown of the International Institute for Sustainable Development (IISD) noted conflict is often intertwined with international trade and aid policies: illegal timber shipments out of Liberia, diversion of food aid to militias in Somalia, mineral exploitation in the Democratic Republic of the Congo by neighboring countries, to name just a few. "The extent to which the international community is supporting wider conflict prevention and avoidance of armed conflict is dependent on the structural conditions established by their trade and aid policies," he said. Drawing on the examples from his new co-edited book, Trade, Aid, and Security, Brown addressed the links among trade, aid, and security at an event sponsored by the Environmental Change and Security Program and the Program on Science, Technology, America, and the Globalized Economy on July 11, 2007.

Trade Structures and Negotiations

Trade has the potential to be a conduit for finance, ideas, and influence, said Brown. However, existing trade structures are "fundamentally unfair and biased toward rich countries and their corporations." For example, tariffs and quotas in developed countries protect their own products, while denying developing countries vital market access to sell their products, particularly agricultural goods. Protectionist behavior by developed countries has put greater pressure on developing countries, he noted, to "adopt uncompromising market liberalization, which can reduce government revenues and undermine employment, increasing the prospects for political instability and competition over natural resources." Additionally, he cited the breakdown of the Doha round trade talks as an example of the increasingly unbalanced nature of trade negotiations: "The European Union has a 200-person negotiating team which can easily back smaller countries into a dark corner."

Policy Reform: Six Recommendations

Rather than focusing on isolated policies, Brown and his colleagues' book identifies six goals for trade reform. Within each of these broader objectives, the authors focused on practical recommendations for the international community. "If wealthy countries are serious about peacebuilding and conflict prevention around the world, they must first ensure that their policies are at least doing no harm," he said.

The first recommendation is to design conflict-sensitive trade policy, which would help end exporting countries' dependence on commodities with historically volatile prices, remove trade barriers that prevent diversification of their economies, and create more capacity-building mechanisms. The creation of a special group within the World Trade Organization to tackle these issues, particularly greater trade policy flexibility, would benefit burdened and fragile states.

Conflict-sensitive development aid, the second recommendation, would allow development agencies to:

• Integrate aid into peacekeeping activities;
• Recognize resource dependence before it becomes a "curse"; and
• Help countries bounce back from price shocks.

While good governance—recommendation three—has always been a goal of donor countries, Brown noted that the ultimate objective should be designing aid and trade policies with real incentives: "But unfortunately, many of the mechanisms used to date have proved neither constructive nor influential." Instead, they have been dangerously destabilizing. He suggested replacing predetermined agendas with targeted, constructive ones that would suit individual countries. The key, he said, is "to be patient, realistic, and consistent. There are very few quick wins when talking about governance reforms."

Brown's fourth recommendation tackles conflict resources. Natural resources are an easy source of cash to bankroll conflict. It is the international community's responsibility to create structures to prevent this manipulation, which can incite violence. He noted that certain highly valued resources such as oil can increase the likelihood of conflict, while other resources like gemstones or narcotics can help prolong conflict. The success of resource exploiters, he argued, depends on their access to external markets. Therefore, the international community must take away the ability for these groups to "earn returns on the resources so that motivators fall away." The United Nations Security Council, he argued, should be encouraged to institutionalize its consideration of resource-influenced security. In addition, the Security Council should create a clear definition of conflict resources, and also continue to strengthen existing mechanisms like the Kimberley Process. A more direct approach, he said, would be to improve natural resource management in peacekeeping missions.

The fifth recommendation, Brown said, is increasing business investment in conflict zones. This practice is positively correlated with reducing risks, raising economic growth, creating jobs, and pushing up living standards. Unfortunately, he said, "there is little doubt that market actors investing in fragile states have engaged in self-regarding or even predatory economic activities. Companies have helped violent factions raise money through the sale of conflict resources, reinforced power of predatory states, and disproportionately benefited narrow social or political groups." Therefore, he called for stronger international agreements and norms to establish clear rights, responsibilities, and liabilities of companies operating in fragile states. He also suggested market rewards for companies that voluntarily adopt conflict-sensitive business practices.

Finally, Brown recommended better management of aid and revenues from natural resources. Overdependence on aid and resources undermines a country's governance, he argued. The reliance on aid shifts the government's accountability from its people to its donors, while reliance on resources also corrodes accountability to citizens. Foreign aid and natural resource revenues have interesting parallels: both are forms of rents, and both have problems with transparency and accountability of revenue management. Therefore, Brown and his colleagues propose helping countries prudently manage their revenues so that they do not become "a prize of power."

One means of accomplishing this goal is to strengthen the International Monetary Fund's guide on resource revenue transparency, which could lead to an international extractive industry agreement. The second policy suggestion is to build an effective revenue management mechanism that would increase accountability and transparency of resource and aid revenues. Finally, Brown suggested renewed debate over income stabilization mechanisms. While most people focus on cartel pricing and supply management, history has shown that volatility of commodity prices has a "tremendous impact on economic and political stability of countries dependent on those revenues."

Drafted by Alex Fischer.