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World trade talks collapse

Vote Quimby

TRIBE Member
Here's the Economist's take on the breakdown in talks. and keep in mind that they are in favour of liberalising trade around the world.

World trade talks

Cancún's charming outcome

Sep 18th 2003
From The Economist print edition


Champions of the world's poor are celebrating the collapse of global trade talks. Some champions




“VICTORY to the people,” cheered a press release from a globophobic activist group, Food First, after the world trade talks broke down in Cancún on September 14th. This delight is widely shared among developing-country advocates and even among many poor-country governments. Great news from Cancún? What scandalous rubbish. The failure sprang not from principle, nor even from intelligent calculation, but from cynicism, delusion and incompetence. It is going to leave most people in the world worse off—and, without a doubt, those who will suffer worst are the world's poor.

At the very least, Cancún's failure has delayed progress towards concluding a trade round that would have given poor countries the biggest economic gains. Launched in the Qatari capital, Doha, in November 2001, the Doha trade round was explicitly dedicated to helping poor countries. Its chief goal was to lower trade barriers in areas where freer trade would help poor countries most, especially agriculture. With the Doha round in tatters, the day when rich countries repeal their grotesque farm subsidies and poor countries can finally sell textiles to the rich world without facing punitive tariffs has been pushed far into the future. The chances of concluding the round by the original deadline of December 31st 2004 are now nil. To finish it within five years would be difficult.



As if this were not bad enough, the breakdown in Mexico may have dealt a mortal blow to the multilateral trading system itself—a system that, for more than half a century, has underpinned global prosperity. Since the General Agreement on Tariffs and Trade was signed in 1947, with its basic principle that tariffs must not discriminate between countries, trade has been governed by multilateral rules. The World Trade Organisation, created in 1995 as a successor to the GATT, is the system's core. With 148 members (Cambodia and Nepal joined just days ago), the WTO is the only trade forum in which the needs of the developing countries can be given full weight. Decisions there are reached by consensus; every country, no matter how small or poor, has a veto. Nowhere else do poor countries have such clout.

Cancún's collapse leaves the whole system in peril. It comes less than four years after a similar flop in Seattle in 1999, where efforts to launch trade talks failed amidst street violence. After two such abject defeats in four years, the WTO is in enormous trouble. If it becomes entirely irrelevant to the conduct of trade policy—as it may, and as many governments and activists seem to desire—the developing world will come to regret the consequences bitterly over the coming years.



Who to blame
The breakdown was entirely unnecessary. Trade ministers were not trying to come to a final agreement on the Doha round; they were not even making difficult choices about exactly how far to open their economies. The purpose of Cancún was far more limited: to be no more than a mid-course stock-taking, a time to agree on principles for taking negotiations forward. It is extraordinary, and all the more shameful, that the ministers failed even to do this.

All concerned are pointing the finger, as one might say, at each other. In fact, nearly everybody involved deserves criticism (see article). For all the fine promises made at Doha, rich countries could see no farther than the interests of their own farmers. America's unwillingness to curb its cotton subsidies—which have an especially severe effect on poor-country producers—is unforgivable. So too is Japan's unyielding defence of its own swaddled rice farmers. And for all its ballyhooed efforts at reform, the European Union remains the most egregious farm subsidiser of all. Europe deserves added blame for trying to push poor countries into negotiating new rules on investment, competition, government procurement and trade facilitation, when most of them clearly did not want to.

Yet the rich countries did not wreck Cancún by themselves. Many poor countries saw the Doha round, and its promise to be pro-poor, as an excuse for making demands of the rich world while doing nothing to lower their own trade barriers. They forgot that trade talks require compromise. Egged on by a bevy of activists, too many third-world politicians got carried away by the thrill of saying no—ignoring the fact that poor countries actually have more to gain from lowering their own trade barriers than from persuading rich countries to lower theirs. According to the World Bank, over 70% of the benefits that poor countries might see from the Doha round would come from freeing trade with each other. By refusing to compromise, poor countries have come away with nothing.


Heading for a fractured world

Optimists, of whom there are still a few, point out that previous trade rounds have all taken longer than scheduled to complete. The Uruguay round took eight years rather than the planned three. Maybe the Doha round can be revived after all.

If so, the prospect looks remote. A presidential election is looming in America: starving peasants are not a pressing constituency. The European Union, with ten new members to absorb, is also going to be distracted. In any case, the energies of rich-country trade negotiators can always be deployed in a different—and, as they would see it, more effective—direction. Bilateral and regional trade agreements are already in favour with the Bush administration. In this setting, the poor countries have far less sway than they would have at the WTO; that is why American legislators prefer such deals. America is pursuing a regional trade agreement for the Americas, has signed bilateral deals with Chile and Singapore, has begun bilateral talks with 14 other countries, and promises many more.

This way lies a fracturing of the global trading system. Adding to the danger is growing protectionist sentiment in the United States. For the past decade, America has been the main engine of global growth: its trade deficit and its debts to foreigners have therefore been soaring (see our survey of the world economy). Trade deficits, particularly when jobs are scarce, increase demands for protection.

China, with its huge and growing bilateral trade surplus with America, has already been cast as chief villain. With a cheap currency, the argument goes, China is stealing American jobs. Once this scapegoating starts, protectionism follows close behind. Last week, senators from both parties introduced a bill that would put high tariffs on imports from China unless China adjusts its exchange rate. This particular measure will probably fail, but there will be others. In the mid-1980s, when America last had a huge trade deficit, demands for new protection (mainly against Japan) proved impossible to resist.

The collapse of the global trade talks may itself worsen the backlash. The prospect of a global trade round helped curb calls for new protection, making them seem disreputable; if there is to be no round, there will be less holding back. An American government concentrating on bilateral trade deals and domestic politics bodes ill for the global economy. And the idea that the EU might exercise enlightened leadership while America is thus distracted is, unfortunately, laughable.

The humbling of the WTO not only worsens economic prospects for the developing countries (as well as for the rest of the world) but also shifts the balance of global political power from poor to rich—perhaps decisively, and who knows for how many years. That is what the developing countries' champions are so busy celebrating.
 

Vote Quimby

TRIBE Member
Here's their analysis.

The Doha round

The WTO under fire

Sep 18th 2003 | CANCÚN
From The Economist print edition

Why did the world trade talks in Mexico fall apart? And who is to blame?


SOME poor countries' politicians seemed to revel in the collapse of the World Trade Organisation's ministerial meeting on September 14th. The Philippine trade minister, for instance, told Reuters news agency that he was “elated” by it. Tanzania's delegate claimed to be “very happy” that poor countries had stood up to rich-country “manipulation”. But others were upset and shocked. According to one observer, the trade minister of Bangladesh had tears in his eyes. “I'm really disappointed,” he is reported to have said. “This is the worst thing we poor countries could have done to ourselves.”

Disappointment is the right reaction. For the Doha round of trade talks run by the WTO was geared specifically to help poor countries. They will be the biggest victims if the talks cannot be revived, and there seems to be scant prospect of that. The negotiations have not been officially abandoned. Diplomats pledged to continue talking in Geneva, the WTO's headquarters, with a formal meeting to be held no later than December 15th. But momentum has clearly been lost. No one now expects the round to finish by its original deadline of December 31st 2004. Some trade officials privately wonder whether it will ever finish, or whether Cancún's collapse—coming less than four years after the Seattle ministerial meeting broke down in December 1999—marks the end of the WTO as an effective negotiating forum.


The price of posturing

According to the World Bank, a successful Doha round could raise global income by more than $500 billion a year by 2015. Over 60% of that gain would go to poor countries, helping to pull 144m people out of poverty. While most of the poor countries' gains would come from freer trade among themselves, the reduction of rich-country farm subsidies and more open markets in the north would also help. That prize is now forgone.

As the scale of this lost opportunity becomes clear, the post-mortems and recriminations are beginning. Three big questions stand out: Why did the talks collapse? Who was to blame? And where does the WTO go from here?

Though the speed of the collapse caught even seasoned trade negotiators by surprise, the seeds of disaster were sown long before September 14th. The launch of the Doha round in the eponymous capital of Qatar in November 2001 was itself a nail-biting negotiation marked by acrimony between rich and poor. The rhetoric was grand: Doha would reduce trade-distorting farm support, slash tariffs on farm goods and eliminate agricultural-export subsidies; it would cut industrial tariffs, especially in areas that poor countries cared about, such as textiles; it would free up trade in services; and it would negotiate global rules (subject to a framework to be decided at Cancún) in four new areas—in competition; investment; transparency in government procurement; and trade facilitation. These four new areas are referred to as the “Singapore issues” after the trade meeting at which they were first raised.

From the start, countries disowned big parts of the Doha agenda. The European Union, for instance, denied it had ever promised to get rid of export subsidies. Led by India, many poor countries denied that they ever signed up for talks on new rules. Other poor countries spent more time moaning about their grievances over earlier trade rounds than they did in negotiating the new one. Several rich countries too showed little interest in compromise. Japan, for instance, seemed content simply to say no to any cuts in rice tariffs.

This kind of posturing meant the trade round stagnated for 22 months between the meetings in Doha and Cancún. All self-imposed deadlines were missed; all tough political decisions were put off. That placed a needlessly heavy burden on the Cancún meeting. But it was not an overloaded agenda that killed the talks last weekend. It was that too many countries continued grandstanding at the Mexican resort, rather than seeking the compromises on which trade talks depend.


Focus on farming

Agriculture was the toughest issue dividing negotiators both before and during the Cancún meeting. After months of stalemate, and at the behest of many developing countries, in August America and the EU drew up a framework for freeing farm trade. Though it involved some reform, the plan was much less ambitious than Doha had implied. Export subsidies, for example, were not to be eliminated after all.


Angered by this lack of ambition, a new block of developing countries emerged just before the Cancún meeting to denounce the EU/US framework as far too timid. Led by Brazil, China and India, this so-called G21 (see table) became a powerful voice. It represented half the world's population and two-thirds of its farmers. It was well organised and professional.

Although it spanned diverse interests—India, for instance, is terrified of lowering tariffs on farm goods, while Brazil, a huge and competitive exporter, wants free trade as fast as possible—the G21 stood together and hammered one message home: rich countries, as the most profligate agricultural subsidisers, should make bigger efforts to cut subsidies and free farm trade. The level of support given to farmers by the rich countries of the OECD has remained more or less unchanged (at over $300 billion) for the past 15 years.

While the fight between Europe, America and the G21 received most attention, another alliance of poor countries, most of them from Africa, was also worried about agriculture, but for different reasons. They feared that freeing farm trade would mean losing their special preferences. (Europe's former colonies, for instance, get special access to the EU's markets for their bananas.) They were even more worried about cutting tariffs than India, fretting that imports would ruin their small farmers. And many, particularly a small group of countries in West Africa, worried most of all about cotton.

Prodded and encouraged by non-governmental organisations (NGOs), especially Oxfam, a group of four West African countries—Benin, Burkina Faso, Chad and Mali—managed to get cotton included as an explicit item on the Cancún agenda. Their grievances were simple, and justified. West African cotton farmers are being crushed by rich-country subsidies, particularly the $3 billion-plus a year that America lavishes on its 25,000 cotton farmers, helping to make it the world's biggest exporter, depressing prices and wrecking the global market.

The West African four wanted a speedy end to these subsidies and compensation for the damage that they had caused. Though small fry compared with the overall size of farm subsidies, the cotton issue (like an earlier struggle over poor-country access to cheap drugs) came to be seen as the test of whether the Doha round was indeed focused on the poor.

But the draft text that emerged halfway through the Cancún meeting was a huge disappointment. The promises on cotton were vague, pledging a WTO review of the textiles sector, but with no mention of eliminating subsidies or of compensation. Worse, it suggested that the West African countries should be encouraged to diversify out of cotton altogether.

This hardline stance had American fingerprints all over it. Political realities in Congress (the chairman of the Senate agriculture committee is a close ally of the cotton farmers) made American negotiators fiercely defensive of their outrageous subsidies. For the Africans, the vague text was a big blow. It caused “anger and bitterness” said one delegate. As a result, the poorest countries dug in their heels when it came to the other big controversial area: that of extending trade negotiations into the four new Singapore issues. Along with many other poor countries, the Africans had long been leery about expanding the remit of the trade talks at all.

Some of their concerns, such as the fear of overloading their few negotiators, were reasonable. Others made less sense, such as the worry (fanned by many NGOs) that rich countries would use these rules to trample on poor countries' sovereignty. Two days into the conference, over 90 countries signed a letter saying that they were not ready to move into these areas.

Unfortunately, the EU and others who cared about the Singapore issues (a group that did not include the Americans) refused to compromise. Only 24 hours before the meeting was due to end, Pascal Lamy, the EU's chief negotiator, reiterated that negotiations had to proceed in all four areas. Only on Cancún's final morning did he budge, offering to give up two of the Singapore issues. There were even hints that Europe could jettison three, leaving only negotiations on trade facilitation on the table.

Rationally, no country should have objected to that, least of all poor countries. The trade blockages that these rules are designed to minimise cost them far more than tariffs. According to the World Bank, the costs of transporting African exports to foreign markets are five times higher, on average, than the tariffs paid on those goods. Complex, inefficient and corrupt customs procedures make up a big share of these transport costs.

By this time, however, reason was playing little role in the progress of the meeting. The group of embittered African countries refused to negotiate on any of the four Singapore issues. South Korea, by contrast, said it could only accept negotiations on all four. At that point, Luis Ernesto Derbez, Mexico's foreign minister and chairman of the Cancún gathering, said he saw no basis for compromise and declared the meeting over. At the centre of all the negotiations between the different factions, Mr Derbez was better placed than anyone to make that judgment.

Within minutes, delegates who had been set to argue all night over agriculture scrambled to catch earlier flights home. Within hours, the Mexican technicians were dismantling the equipment at the conference centre.


The blame game

Who bears responsibility for this? Some delegates, especially from Europe, blamed Mr Derbez for cutting off discussion too hastily. One British politician claimed his action was “utterly unexpected” and “premature”. Conspiracy theorists claimed that Mexico ended debate at the behest of the Americans who wanted the meeting to fail all along.


That is nonsense. Given the Mexicans' determination to finish the Cancún meeting on time, the Europeans probably made a tactical mistake in retreating so late on the Singapore issues. But Cancún's failure goes deeper than miscalculations on timing. It happened because of intransigence and brinkmanship by both rich and poor countries; because of irresponsible and inflammatory behaviour by NGOs; and because of the deeply flawed decision-making system of the WTO itself.

The instant post-mortems blamed rich countries most. NGOs accused them of wrecking the talks by pushing poor countries too far on the Singapore issues and giving too little on agriculture. There is much truth to both claims. Europe's ideological attachment to negotiations on investment and competition is hard to fathom, particularly since no European industries were clamouring for them.

On agriculture, moreover, the rich world's concessions were too timid and too grudging. America's bold promises were belied by its actions. Last year's outrageous increase in American farming subsidies, and the cave-in at Cancún by American negotiators to their domestic cotton growers, made far more of an impression on poor countries than Washington's high-minded words about freer farm trade—and rightly so.

Europe was stymied not just by its desire to mollycoddle its own farmers, but by the EU's cumbersome decision-making process. Only after its own internal reforms were agreed to in June could Brussels offer concessions on agriculture, and even then they were meagre. Given the mess that their farm policies create, rich countries should have done far more.

But poor countries, too, bear some responsibility for Cancún's collapse. Although a few emerging economies were tireless negotiators, too many others did no more than posture. Some of the posturing was tactical: for all their public rhetoric, for instance, the G21 group was actively negotiating with both America and Europe. But others, particularly some African countries, could not get beyond their radical public positions. Anti-rich-country rhetoric became more important than efforts to reach agreement.

NGOs, who were at Cancún in force, deserve much of the blame for this radicalisation. Too many of them deluged poor countries with muddle-headed positions and incited them to refuse all compromise with the rich world. The NGOs' main mistake, however, was to raise poor countries' expectations implausibly high. Shout loudly and long enough, they seemed to suggest, and you will get your way. That proved a big miscalculation.

Finally, blame belongs to the WTO's own decision-making procedures, or rather the lack of them. Mr Lamy, with reason, called the WTO a “medieval” organisation whose rules could not support the weight of its tasks. Its predecessor, the old GATT system (which was folded into the WTO in 1995), was run by rich countries. Poor countries had little power, but also few responsibilities.

The WTO, by contrast, is a democratic organisation that works by consensus, but with no formal procedures to get there. Any one of the organisation's 148 members can hold up any aspect of any negotiation. Efforts to create smaller informal groups are decried as “non-transparent” by those left out. Not surprisingly, this lends itself more to grandstanding than to serious negotiation. The worst problem, though, is that the WTO's requirement for consensus makes it virtually impossible for it to be reformed.


Headed for oblivion?

Can any of these failures be addressed and the Doha round be revived? Some countries are more optimistic than others. The G21, for instance, left Cancún determined to stick together and fight another day. Brazil, in particular, is convinced that sooner or later rich countries will be forced to reform their outrageous farm policies. One weapon it points to is the expiration of the “peace clause”.


As part of the trade round before Doha, the Uruguay round, countries pledged not to file formal WTO complaints over the dumping of farm products as long as each country stuck to its (limited) farm-trade commitments. That peace clause runs out at the end of this year. The ensuing flood of disputes, claim some Brazilians, will at last force the Americans and Europeans to negotiate seriously on farm trade.

Optimists also point to the fact that previous trade rounds all took far longer to finish than planned. The Uruguay round, for instance, took eight years rather than three. According to this view, Cancún's collapse is just par for the course. Maybe. But the risk is that trade momentum will simply move elsewhere.

Even before Cancún's failure, the global trade-negotiating process faced unprecedented competition from bilateral and regional trade deals. Last weekend's events can only reinforce that trend. Bob Zoellick, America's top trade negotiator, claimed that countries were approaching him to push for bilateral deals even as the meeting was crumbling. From a global economic perspective, a tangle of such deals is far inferior to freer multilateral trade. For the poorest countries in particular, the chances of getting from a bilateral deal with America what they failed to get from the Doha round are nil.

If the momentum in trade negotiations moves away from the WTO, the consequences for the organisation itself could be grave. There would then be little political impetus to make it more effective, and the WTO's Geneva headquarters could quickly become no more than a court where disputes on existing trade rules are slowly adjudicated. Far from building a stronger multilateral system, the WTO would quietly sink into oblivion as a negotiating forum. Everyone would lose from this but, once again, the biggest losers would be the poor countries.

Cancún's collapse does not make any of these outcomes inevitable, but it does make them much more likely. That is why it is such a tragedy.
 
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