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Cancun:
A good idea at the time
By John Berthelsen
There are growing signs that the so-called G20+, the group of 20-odd developing
nations that brought the World Trade Organization's Doha Development Round of
negotiations to a stop in Cancun, Mexico, in early September, are going to live
to regret doing so.
It isn't necessarily their fault. The bigger concern is that the rich nations,
particularly the United States and the European Union member countries, whose
agricultural subsidies were the rock on which the talks foundered, will use
their failure as a pretext simply to dim the lights at the WTO until they
ultimately go out. The US is clearly increasingly preoccupied with conducting
preferential bilateral agreements with individual nations. The momentum for
world trade liberalization is slowing.
"I think the US and the European Union bear a heavy burden," Clyde Prestowitz,
the US trade representative under former president Ronald Reagan, told Asia
Times Online. "We can talk about the G20, but my view is that after all, if the
US and the EU want to get something done, they can make it happen. The problem
is that they haven't been able to get their act together, and the agriculture
thing in both the US and the EU [is] insoluble. The two big guys can't solve
their own domestic problems in a manner that would push the WTO forward, but
they have the clout to be able to tear it part by bilateral trade
arrangements."
Prestowitz is head of the Washington-based Economic
Strategy Institute and author of the best-selling new book Rogue Nation.
Neither he nor anybody else thinks the WTO is going to collapse and return the
world to the disaster of the 1930s, when virulent nationalism and protectionism
played a vital role in causing the Great Depression. But any progress on trade
liberalization may well be put off until at least 2005, after US presidential
elections are out of the way, and the poorer nations are going to suffer.
In the first flush of the collapse of the Cancun talks, jubilant
representatives of the developing nations said they had demonstrated
dramatically their ability to stand up to the rich. They were joined by World
Bank president James Wolfensohn, who said the emergence of the then-G22 "has
given rise to a new paradigm of global financial relations for the 21st
century, and has demonstrated that poor countries can act as an effective
counterweight to the rich".
But almost as soon as the Cancun meetings had ended, some developing-country
members were already starting to have second thoughts. Indeed, the organization
had originally been called the Group of 20, which expanded to the G21, then the
G22 before it suddenly began to shrink. Many in the group are Latin American
countries trying to put together the FTAA - the Free Trade Agreement of the
Americas - with the United States. El Salvador, for instance, bailed out of the
group even before the Cancun talks ended. Bolivia, Ecuador and Paraguay are all
increasingly jittery over statements emanating from the US implying that G20+
members would not be candidates for future bilateral trade negotiations.
Ominously enough, Republican Senator Charles Grassley, the chairman of the US
Senate Finance Committee, was quoted as saying he would use his position as
head of the committee with jurisdiction over international trade policy "to
carefully scrutinize the positions taken by many WTO members during this
ministerial".
The leaders of the G20+ are Argentina, Brazil, China, India and South Africa.
In Cancun, the group demanded - with a good deal of justification - that the
industrialized countries begin to phase out protectionist measures in
agriculture. At the same time, they refused any discussion of the so-called
"Singapore issues", which are basically a rich-country demand that the poorer
ones open up to investment, competition, transparency in government procurement
and trade facilitation.
India was the first to start feeling the pressure in the wake of the collapse
of the talks. In October, trade negotiators suddenly woke up to the fact that
issues the country had expected to resolve in Cancun were unresolved, and that
Indian consumers starting in January are going to pay substantially more for a
wide variety of goods from the US and the EU. In addition, the EU is to impose
an 8.4 percent duty on textile exports (see
India prepares for possible trade war, October 28). Indian trade
representatives in Washington, DC, declined to comment to Asia Times Online.
Almost immediately after the Cancun talks ended, the G20+ began working to try
to restart them. By October 4, the group had met in Geneva to assess the
situation. Carlos Perez del Castillo of Uruguay, chairman of the WTO general
council, said the developing countries "want to return to the process" and are
"engaged and committed" to talking about agriculture, industrial tariffs,
cotton and the Singapore issues.
They were stunned when Pascal Lamy, the European trade commissioner, said the
EU appeared in no hurry to restart the talks. Lamy, according to the Financial
Times of London on October 28, was said to want the EU first to undertake a
fundamental review of its stance toward the WTO and the Doha round. To the
dismay of some of his advisers, the FT said, Lamy has questioned whether the EU
should remain committed to multilateralism, of which the FT says it has long
claimed to be the foremost champion in trade and other areas of international
relations.
Lamy, according to associates, is discouraged and deeply pessimistic about the
future of the WTO, particularly about statements by Robert Zoellick, the trade
representative for the administration of President George W Bush, who appears
to be veering more and more toward bilateral trade agreements with individual
countries and away from additional world trade negotiations.
According to the WTO itself, the vast majority of its members are party to one
or more bilateral regional trade agreements. The surge in these agreements, the
WTO says, has continued unabated since the early 1990s. Some 250 regional trade
agreements (RTAs) had been reported to the General Agreement on Trade and
Tariffs (GATT), the predecessor to the WTO, by December 2002. Some 130 of those
were agreed after January 1995 when the WTO came into existence.
More than 170 are currently in force and an additional 70 are estimated to be
operational although not yet notified, according to the WTO. The pace is
picking up. By the end of 2005, if regional agreements reportedly planned or
already under negotiation are concluded, the total number in force might well
approach 300, the WTO says.
Bilateral agreements are cause for concern, analysts say, because they regard
them as a potential threat to global multilateral trade in that they are
trade-diverting. Because they are preferential agreements, they too often lead
to the formation of new interest groups that ultimately end up opposing
multilateral trade and bring additional clout to intra-regional protectionism.
The World Bank, in its Global Economic Prospects report in September, said
preferential agreements cover only a portion of exports from even poor
developing countries. Even when effective, the World Bank said, preferences
tend to divert trade away from other poor countries, in effect "robbing Peru to
pay Panama".
"I don't see a return to 1930s policymaking," when protectionist interests shut
down world trade and contributed strikingly to the global depression, Charlene
Barshevsky, the US trade representative under former president Bill Clinton,
told Asia Times Online. "But I do see at a minimum the rhetoric getting uglier
and uglier, with the possibility of some [domestic protectionist] legislation,
or an increase in trade cases, for example. Those pressures will increase."
Preferential bilateral agreements, she said, "can have an atomizing effect.
They create a series of islands or island economic units. We have to take a
careful look at the agreements being made and whether they present a risk of
further Balkanizing of the global economy."
Barshevsky was at pains to point out that every trade agreement for the past 25
years has failed at the first exposure. "The Uruguay Round, the global telecoms
agreement, the global financial services agreement, the information technology
agreement, all failed at first." But, she said, ultimately agreements have been
reached.
However, now there is a difference. The United States has been driving world
trade liberalization for the better part of 60 years, starting at the end of
World War II with the convening of the so-called Great Powers at the Bretton
Woods Conference of 1944. Remarkably, the conference singly laid the foundation
for a new world monetary and trade system, establishing the World Bank and the
General Agreement on Tariffs and Trade, and securing an agreement whereby the
US dollar took the place of gold as the medium of international exchange. The
European powers have joined in on trade liberalization, sometimes reluctantly,
sometimes not, and on the subject of agriculture, not at all.
Now, ominously, the impetus for continuing liberalization appears to be waning,
partly because of the lackluster global economy, which stirs protectionism, and
partly for political reasons. For better or worse, the Democratic and
Republican parties in the United States appear to some extent to have switched
their traditional positions on international trade.
The Democrats, traditionally protectionist to defend the interests of their
labor-union rank and file who see jobs going overseas, pressed throughout the
1990s under the Clinton administration to free up world trade. The Clinton
administration fought ratification of the WTO through Congress and brought
China into the organization against widespread opposition.
Conversely the Bush administration, whose Republican Party antecedents have
traditionally represented industrialists seeking global markets and cheaper
labor overseas, pushed through two of the world's biggest protectionist
measures since coming to the White House in 2000. One was a 30 percent tariff
imposed on foreign steel to protect domestic steel producers and steelworkers.
The measure has backfired on the administration, costing steel end-users vast
amounts of money and laying the administration open to retaliatory measures by
the European Union. The administration is now considering repealing the
measure.
The second was a massive US$100 billion agriculture protection package that
raised the level of US subsidies by more than 80 percent and increased
subsidies for soybeans, wheat and corn. It also increased new supports for
dairy farms, peanuts, chickpeas and lentils and reintroduced programs for
honey, wool and mohair that had been killed by the Clinton administration in
1996.
Thus any momentum for world trade liberalization that would allow poorer
countries to increase their exports seems to have been slowing, The first blow
against in the modern era occurred in Seattle, Washington, in 1999 when the
so-called Seattle Ministerial ended among violence by protesters. The Clinton
administration, on its last legs and facing a presidential election with vice
president Al Gore as its candidate, backed away from liberalization at the
behest of its trade-union constituency.
To placate the developing world, another round of talks got under way in Doha,
Qatar, in 2001 and was designed to slash trade barriers, particularly on
agriculture, stimulate trade and raise incomes in the poorer nations. The
Cancun Ministerial was the place where these issues were presumably to be
resolved. But the developing nations discovered to their anger that now the
rich countries were demanding that they open their doors on the Singapore
issues.
"The Singapore issues have always been loser issues," Barshevsky said. "They
continue to be loser issues. The poorer countries don't want competition or
investment included at this juncture. They can't absorb these rules. Europe was
on notice well before Seattle that they were non-starters for the rest of the
world. Well, Europe has the message now."
The developing nations, Barshevsky said, should continue to fight for the
agricultural liberalization. "Here the developing world should insist on the
complete elimination of subsidies without exceptions. The numbers are too big.
You could halve the European agricultural subsidies and you would find that the
developing world still couldn't compete. Cutting $7 billion in half is $3.5
billion, and that is still too big."
Indeed, the World Bank, in its August Global Economic Prospects report prior to
the Cancun talks, argued that "subsidies in OECD [Organization of Economic
Cooperation and Development] countries amount to US$330 billion - of which
US$250 billion goes directly to producers". The effect is to stimulate
unnecessary food production and shut out potentially more-competitive products
from poor countries.
US subsidies to cotton producers totaled $3.7 billion in 2002, three times the
United States' entire foreign aid to Africa, reducing the incomes of thousands
of poor farmers. "The net effect of subsidizing the relatively rich in wealthy
countries at the expense of adverse price penalties for the products of the
relatively poor in developing countries is to aggravate global income
inequalities." The result, the World Bank said, "is to make the relatively rich
even richer and the poor even poorer".
So where does the world go from here? The developed countries have found it
convenient to blame the G20+ for the failure of the Cancun talks. With their
politically potent farmers basking in vast subsidies, the developed countries -
Japan, the US and the EU - are happily prospecting for bilateral preferential
treaties that highlight their trade advantages and minimize their
disadvantages. The poor countries are on the outside looking in, and
susceptible to being picked off one at a time.
World trade in the meantime is stagnating. The WTO said world trade is expected
to grow a weak 3 percent this year, prompting the director general, Supachai
Panitchpakdi, to call for everybody to come back to the table. It would not be
wise to hold one's breath. Zoellick, who could be expected to lead America's
world trade liberalization parade, has made it clear that the United States
intends to use bilateral agreements to reward America's friends and presumably
to punish its enemies.
"I think one of the problems we ran into [in Cancun] is that a number of
countries just thought it was a freebie," he told reporters. "They could just
make whatever points they suggested, argue and not offer and give, and now they
are going to face the cold reality that that strategy comes home with nothing."
(Copyright 2003 Asia Times Online Co, Ltd. All rights reserved. Please contact
content@atimes.com for information on our
sales and syndication policies.)
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