Mexican Standoff: Trade Talks in Crisis

Collapse at Cancun Points to Deep Divisions

CANCUN, Mexico, SEPT. 20, 2003 ( Developing countries look like the main victims of the collapse last weekend of the World Trade Organization talks. Representatives from 146 nations had gathered in this seaside resort to continue the Doha round of negotiations launched in Qatar in late 2001.

Cancun was meant to be a milestone in efforts to wrap up by the end of 2004 the round of talks and emerge with a new global trade accord. Many contentious points remained to be settled when delegates arrived in Cancun. The subsequent collapse of the meeting came when developing countries refused to launch negotiations over trade-enhancing measures such as investment rules and antitrust policies that the Europeans and Japanese said were key to their overall aims, the Wall Street Journal reported Sept. 15.

The critical issue focused on whether rich countries were willing to slash their $300-billion-a-year subsidies to agricultural producers. Both the European Union and the United States showed little signs of budging. In the end, faced with the high political and social costs of cutting subsidies, rich countries preferred to pursue their national interests.

What was at stake

Before the meeting, World Bank president James Wolfensohn, writing in the Financial Times on Sept. 8, commented that “the Doha round marks the first time developing countries’ interests have been placed at the center of multilateral trade negotiations.”

He noted that a successful round that leads to lower tariffs and stimulates trade could lead to $520 billion in income gains. The stimulus to economic growth in poorer nations could potentially lift an additional 140 million people out of poverty by 2015.

Wolfensohn observed that it is not only the richer countries that need to reform. Many middle-income countries have high average tariffs in all sectors. This protection undermines their trading partners and impedes their own productivity growth. “Latin American exporters, for example, face average tariffs in Latin America that are seven times higher than those faced in industrial countries,” the World Bank leader noted.

Writing in the Wall Street Journal on Sept. 8, U.S. Trade Representative Robert Zoellick explained that over the past decade, exports accounted for 27% of U.S. growth. According to Zoellick, two major trade agreements of the 1990s — the Uruguay Round and NAFTA — increased the income of an average U.S. family of four by $1,300 to $2,000 a year. Similarly, incomes in developing countries that lowered trade barriers the most grew three times faster in the 1990s than earnings in countries that remain closed, World Bank research shows.

U.N. Secretary-General Kofi Annan, writing in the British daily Guardian on Sept. 8, commented that the decisions taken in Cancun “could make the difference between opportunity and poverty, perhaps even between life and death, for millions of people in poor countries.” He also noted that even in the rich countries, poor farmers benefit least from subsidies, since the lion’s share of government funds go to the biggest farms and the largest producers. “For humanity’s sake, these subsidies must be phased out as fast as possible,” Annan said.

Factors behind the failure

Before the Cancun meeting, the European Union’s agriculture commissioner, Franz Fischler, had already made clear EU resistance to subsidy reforms. According to the Guardian on Sept. 5, Fischler said Brussels would strongly defend its farmers. Fischler also accused developing countries of demanding that developed countries make drastic changes while they themselves did nothing. As for the United States, commentators observed, it would be political suicide for George W. Bush to cut subsidies just before a presidential-election year.

Failure in Cancun throws into doubt the target date of finishing the negotiations by next year. The meeting saw the formation of a new negotiating bloc of some 20 developing countries, led by Brazil, India and China. Some analysts opine that this will make it more difficult to reach agreement. Others fear that the United States will lose interest in the WTO, preferring to follow the course of bilateral treaties with its main trading partners. Those more optimistic recall that past trade talks have gone through rough patches and sometimes have taken years to conclude.

According to Richard Bernal, a delegate from Jamaica, a group of African, Caribbean, Asian and Latin countries felt they had little choice but to quit the talks, the New York Times reported Sept. 15. The United States and Europe, he said, were not generous enough in reducing their agriculture subsidies. “There is nothing for us small countries in this proposal,” Bernal said. A spokesman for the group, Brazil’s Foreign Minister Celso Amorim, said those nations had shown they were a new force in the trading organization.

A Sept. 15 commentary by the analysis group Stratfor said that in addition to growing discontent by developing countries, the breakdown at Cancun was also due to the fractured U.S.-European relations. In past rounds the United States, Europe and Japan have generally cooperated to move talks forward. But this time, Stratfor noted, the United States and the European Union failed to develop a common agenda leading up to Cancun and instead spent most of their time trying to paint the other as the bigger offender of developing countries’ interests. “In doing so, they succeeded in undercutting their combined ability to strong-arm less powerful countries at the negotiating table,” Stratfor observed.

Protests fizzle out

An interesting footnote to the Cancun meeting was the absence of the large, often violent protests that have marked recent international trade and finance meetings. Troubles were limited to the suicide of a South Korean farmer and some minor skirmishes between protesters and police.

Before the meeting, the Cancun peninsula was cordoned off by 20,000 police and troops, backed by helicopters, naval patrols and steel fences, the London Telegraph reported Sept. 10. Yet, only 5,000 to 10,000 protesters showed up, far fewer than expected. Protesting trade talks aimed at helping poor countries is clearly not a popular cause. And the lack of popular support also revealed that the more extreme protest groups are essentially small bands interested only in destruction.

The note on the Cancun meeting published by the Holy See in L’Osservatore Romano on Sept. 10 asked for delegates to remember that “international trade must be based upon the principle of the inalienable value of the human person, source of all human rights and every social order.”

The Holy See commented that free trade be conformed to the principles of social justice and that it can truly be called fair when “it allows developed and developing countries to benefit in the same way from the participation in the global trading system and enables them to foster the human development of each and all of its citizens.”

The note observed: “The challenge is to create a legal framework for trade which gives developing countries both the economic surplus and the political autonomy to achieve human development goals, while respecting legitimate concerns regarding labor, social and environmental standards.” Points to keep in mind as negotiators now try to resuscitate trade talks.

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