Cancun Collapse: Opportunities And Threats

Published: The Hindu Business Line, October 01, 2003
By Pradeep S Mehta

Can the developing countries sustain the solidarity they forged at Cancun? In that lies the answer to the future of the WTO and what it stands for — equitable trade. The developing countries can do it if they first start trading among themselves more, says Pradeep S. Mehta.

IT IS a hat-trick for agriculture. First, it caused a serious crisis during the Uruguay Round, delaying its conclusion. As per the original schedule, the Uruguay Round was to be completed by 1990 but it got extended by three years and concluded in 1993.

The second time at Seattle, talks failed mainly because there were serious differences over liberalisation in agriculture. Labour standards, however, were made the scapegoat. And, finally, at Cancun, it was agriculture once again. However, this time the blame was passed on to the Singapore issues, especially investment.

In the run up to the Cancun Ministerial, many predicted yet another Seattle. But no one expected such a well-planned `Seattle’. The entire show was very skilfully masterminded by the US. Immediately after the formal announcement of the collapse of trade talks by the chairman, many NGO activists from developing countries were chanting slogans, “We Won, We Won”.

But in the true sense it is the developed countries that were the ultimate winners. Their main intention was not to agree on any concession on agriculture and somehow maintain the status quo.

This is also evident from the EU Agriculture Commissioner, Mr Franz Fischler’s reaction to the G-21 proposal. According to him, developing countries were asking for the moon. Now Mr Fischler joins the chorus that the World trade Organisation’s system for negotiations needs reforms, as it will be difficult for it to reach consensus with 148 countries in the room.

Agriculture dominated the first three days of the Cancun ministerial. The tug of war between the G-21 group and the EU over farm subsidies overshadowed all other issues including the Singapore issues. Both the EU and the US tried their best to break this alliance.

When they could not, they brought in, as it were, “Plan B”: Antagonise the developing countries so much as to lead to the ministerial’s collapses. The inclusion of Singapore issues in the second revised draft ministerial text (the first during the ministerial), particularly investment, was a part of this strategy. The developing countries fell into the trap.

Following the failure of the EU and the US in breaking the G-21 ranks, the way the negotiations were conducted gave enough indication that the result was fixed by developed countries, especially the US. The delay in bringing in the second revised draft ministerial declaration, the tying up of investment with agriculture, and the final hasty wrap up of talks by the chairman, all raise questions in people’s minds, puzzle trade analysts and deserve clarification.

Last time at Doha, when the developed countries were determined to launch a new round of trade negotiations, the ministerial was extended by a day to arrive at a consensus. But at Cancun, when developing countries managed to putting the developed countries in the dock on agriculture subsidies, the latter bulldozed the entire ministerial.

Why the delay in bringing out the revised draft ministerial declaration? The text was released at noon on September 13, and the next afternoon the chairman announced the failure of the ministerial. Less than 24 hours were given to reach a consensus on such contentious issues as investment, competition, trade facilitation and transparency in government procurement.

Was the chairman not aware that in seven years (since the Singapore Ministerial of 1996) neither the protagonists nor the antagonists would budge from their positions? How, then, did he expect a consensus in less than 24 hours?

At Doha, the ministerial revised draft was put out on November 13 and the Ministerial concluded on the 15th. So three full days were devoted for negotiations before the final consensus. At that time, the developed countries were clearly interested in making a success of the ministerial because they were interested in launching a new round of trade negotiations, environment was part of the agenda and, more important, new issues were included in the Doha Work Programme. So, they did everything — from arm-twisting to giving sops to developing countries.

The inclusion of investment in the revised text at Cancun puts a big question mark on the role of the facilitator. Of the 146 WTO members, more than 70 have on record said no to launching negotiations on Singapore issues. Sixteen said no in writing to to negotiations on Singapore issues. If, yet, the draft declaration proposed negotiations on Singapore issues, clearly his mind was set. Moreover, the language on investment, the most contentious issue, was strongest. There was no talk of linking investment with agriculture. If there was any talk of quid pro quo, it was between investment and mobility of labour. Among the new issues, some trade analysts were hoping to strike a compromise on competition rather than on investment. A consensus on investment was beyond anybody’s imagination. Furthermore, on investment there is no unanimity even among EU members or their businesses.

Why investment was included in the revised draft declaration? One answer could be that as the G-21 was acting tough on agriculture, the EU wanted to counter it by pushing investment onto the agenda. The second possibility is that as investment was the most contentious Singapore issue, the developed nations zeroed-in on it only to antagonise developing countries and lead to the failure of the talks. And this is what happened.

Fingers are also being pointed at the chairman, who abruptly announced the collapse of ministerial, when the situation was definitely not like Seattle. There was not a slight, but in fact a fairly good, chance of reaching a consensus, had the chairman extended the time for negotiations. Be that as it may, the timely release of the World Bank’s Global Economic Prospects 2004 has come as a shot-in-the-arm of developing countries to expose their extremely high domestic farm support given by the rich countries.

According to the report, on cotton the US provides the greatest support to its producers: $3billion annually. The EU provides about $0.6 billion each year to its producers. While the US and the EU were maintaining high support, several cotton-producing developing countries (especially those in Africa) undertook substantial policy reform to raise the efficiency of their cotton sector.

Price and export prospects of developing country exporters — especially in Africa — would greatly improve if support in developed countries were reduced or eliminated.

Incidentally, cotton subsidies were high on the agenda at Cancun. The WTO Director-General, Dr Supachai Panitchpakdi, was himself facilitating the talks on cotton. The economies of four African countries (Chad, Burkina Faso, Mali and Benin), which brought this issue to the negotiating table at Cancun, are heavily dependent on cotton.

Although this issue was raised separately, it was in tandem with the G-21 demand for the complete phasing out of farm subsidies. The four African countries demanded a separate commitment from the US on cotton, while the latter insisted on discussing it only under the Agreement on Agriculture. In view of the uncertainty over agriculture, the four African countries were quite justified in raising this issue separately.

In the aftermath of Cancun, uncertainties arise on two fronts — first on the ongoing Doha Round and, second, on the future of the WTO. As for the first, there are no two opinions that it is now impossible to conclude it on time.

On the future of the multilateral trading system, it all depends on how developed countries take the challenge of the new-found solidarity of developing countries.

For long the Bretton Woods institutions have been virtually the hand-maidens of developed countries, which dictated the policies of these two organisations. If the WTO is not allowed to remain a similar tool in their hands what will be its future?

Many people are speculating a fresh spurt in bilateralism and regionalism. They are already proliferating. The 1990s saw the signing of the maximum number of RTAs. The setting up of the WTO hardly had a negative impact on it. In fact, the newfound solidarity among developing countries may have some impact on bilateral and regional trade negotiations too.

Developing countries have realised their new strength to negotiate on more equal terms. Till now developed countries have had the upper hand in such trade treaties.

For example, the US has its own template of bilateral trade agreements in which it tries to include labour and environment, two highly contentious issues in the multilateral trade negotiations.

The collapse of the Cancun ministerial provides both opportunities and threats to developing countries and the overall world trading system. For the first time developing countries have not succumbed to developed countries’ pressures. If the former take this forward, there is a real good chance of reforming the WTO to make it more transparent, democratic and equitable — everything the world body’s preamble promises. Second, in the world trading system a country draws its strength from its share of the world trade.

Two-thirds of the world trade takes place among developed countries. For the developing countries to translate their new solidarity into real power they will have to enhance South-South trade. Only then can they sustain before the combined might of the US and the EU. Ultimately, it is economic power that counts.

Copyright © pradeepsmehta. All rights reserved.