BUSINESS

Road to Cancun collapse

In the week since the Cancun ministerial conference of the World Trade Organisation collapsed without an agreement, much has been written and many theories have been offered on why the meeting ended the way it did on September 14.

The expectations before the meet

WTO meetings are known to go on late into the night in the search for an agreement. At times they are extended beyond the scheduled end of the conference. Why then was the conference called off on the afternoon of the last day of the five-day conference? Who pulled the plug at Cancun? Was it really developing country opposition that was responsible for the failure? Or did the U.S. and/or the E.U. decide at the end that they had more to lose than gain from a possible agreement at Cancun?

It is futile so close to the event to look for answers, because in the murky world of multilateral trade negotiations nothing is what it seems on the surface. For now, more can be gained by assessing the processes that led up to the unfolding of the conference on September 14.

Cancun was expected to issue a ministerial declaration covering some 20-odd issues, most of which were linked to the ongoing Doha round of trade talks of the WTO. Negotiating positions on only three trade issues, however, influenced the outcome of the conference: (i) agriculture, (ii) the Singapore proposals and (iii) the West African cotton initiative.

Ingenuity of G-22 proposal

*Agriculture: Trade liberalisation of the farm sector was the driving force behind the launch of the Doha round. It was the issue which caused the biggest deadlock since the Doha round began in 2001. And at Cancun it proved to be a knot that was too complicated to untie. The U.S and the E.U. thought they had reached a deal in August on subsidies and import duties (market access), which the rest of the WTO membership would approve at Cancun. Unfortunately for the biggest trading powers, a group of developing countries (G-17 when it was first formed, G-20 when it came to Cancun and G-22 when it left for home) decided otherwise.

Where the E.U.-U.S. proposal was structured in a way that it would leave their subsidy mountain largely intact but open markets for their agricultural exports in the rest of the world, the G-22 seemed to articulate the interests of a much wider bloc of poor, middle-income and even some rich countries. Their proposal was for the E.U. and the U.S. to make a major cut in farm subsidies and reduce import duties, while the developing countries would make a much smaller reduction in their tariffs. The ingenuity of this proposal was that it married the interests of exporters like Brazil and South Africa with those of "defensive" countries like India, China and Pakistan. No wonder then that the G-22 proposal was supported by even Australia and New Zealand.

Caught by surprise, the E.U. and the U.S. did everything possible to break the new coalition. The group was accused of "pontificating, not negotiating" (on the contrary, the G-22 had a proposal on the table to which the E.U and the U.S. did not respond). Threats were issued from Washington and at Cancun to individual members of the group (El Salvador was the only deserter). And doubts were expressed about the longevity of the group (it held right through, only to emerge larger in number at the end).

The revised draft ministerial declaration that was put out on the penultimate day saw a modicum of improvement in agriculture in some areas but went back substantially in other areas of concern to the G-22. It was one last attempt to divide the G-22 and more or less leave the E.U.-U.S. package in tact. It offered a bit to Brazil (the founder and leader of the G-22) but put India in a terrible spot (the proposals were for India to slash duties on some agricultural products to 5 or even zero per cent). Brazil saw through the strategy and decided to hold the G-22 together. The intellectual and strategic leader of the G-22 was Brazil, and if it were not for its efforts, the G-22 would have collapsed. When all attempts to bulldoze the G-22 failed, the U.S. and the E.U. realised that it would not be possible to agree on a framework agreement on agriculture at Cancun.

Malaysia's lead

*Singapore issues: The WTO conference was abandoned when no agreement seemed possible on the Singapore issues of rules for foreign investment, on domestic competition policies, on transparency in government tenders and on trade facilitation (customs procedures). The E.U. had first placed these issues on the WTO plate at the 1996 Singapore ministerial conference and Cancun was to take a decision on the launch of formal talks on all four issues. Few countries other than the E.U. and, more recently, Japan had expressed much interest in these new issues, while the U.S. was supportive of only government procurement and trade facilitation. After seven years of discussion and study, the developing countries were still not convinced about the need for these talks.

The difference at Cancun was that while in the past the developing country position on the Singapore issues would often break up, this time it was different. Perhaps taking a cue from the G-22 coalition on agriculture, a group of 16 countries (actually representing up to 70 countries in Asia, Africa and Latin America) let it be known that they would not agree to negotiations. Where earlier India took the lead, this time it was Malaysia with India's support. This was important because in some respects it was Malaysia's climb-down in 1996 that put the Singapore issues on the WTO agenda.

Yet, those who prepared the draft ministerial declaration were not aware that 2003 was going to be different. The text called for immediate talks on government procurement and trade facilitation and linked negotiations on foreign investment with progress in talks on agriculture. Yet, in closed-door discussions, the E.U., in the face of opposition by the major developing countries, had to take the extreme step of offering to remove investment and competition altogether from the Doha agenda. This was a colossal climb-down. But the offer came too late. The members of the Africa-Caribbean-Pacific (ACP) alliance were not prepared to agree to a compromise that would launch talks on government procurement and trade facilitation.

*West Africa's demands on cotton: West Africa, which has some of the poorest countries in the world, had a simple set of demands. For countries like Chad, Mali and Burkina Faso, the export of cotton was their only route to integration with the world market.

These countries were also competitive in cotton cultivation, but they were increasingly facing a major problem in the global market. Annual subsidies of $3 billion to U.S. cotton growers and $1 billion in the E.U. were pushing down global prices. West Africa asked that the U.S. and the E.U. remove their subsidies, so that their cotton growers could have a level playing field in the global market. They were, in effect, asking the two majors to practise what they preached.

However, on the eve of the Cancun conference, the U.S. cotton growers had warned their government against reducing subsidies. So the U.S., instead of responding positively to the African proposal, produced a counter-proposal. The most shameful event of the conference was that the draft ministerial communique echoed the U.S. position on cotton. The problem, the text suggested, should be addressed by West Africa investing in textile industry (to process the cotton it produced), by ending subsidies for man-made fibres (so that the demand for cotton, including from West Africa, would rise) and by removing import tariffs in all countries on cotton textiles (again to boost the demand for cotton). Not a word in the text on developed country subsidies for cotton!

The conference collapsed before the cotton issue was taken up for final negotiations. But if the proposed package had come up for discussion, the U.S. was unlikely to have found a single country sharing its perspective. (Meanwhile, the E.U. announced it would remove all export and domestic "trade-distorting" subsidies.)

The Cancun collapse therefore saved the U.S. from acute embarrassment. At Cancun, it was the U.S. and E.U. which did not engage in serious negotiations, not the developing countries which were subsequently accused of speaking the "U.N. rhetoric of the 1970s." In agriculture, the two did not accept that the G-22 had a proposal that was there to consider.

On the Singapore issues, the E.U. was blind, until it was too late, to the positions of the developing countries. (The E.U. must now be regretting that it had before Cancun even dismissed compromise proposals by some countries, including India, to negotiate on the modalities before taking a formal decision on the launch of talks.) And on the cotton issue, the U.S. showed protectionism at its worst when it refused to negotiate on its mammoth domestic subsidies.

For India, there could not have been a worse outcome than if the revised draft ministerial text had been accepted. India went to Cancun with three objectives: protect domestic agriculture, keep out the Singapore issues (with the fall-back of agreeing to negotiate on trade facilitation and government procurement) and retain the Geneva formula on market access in industrial products. The draft proposed exactly the opposite in agriculture (India would have been forced to agree to substantial reductions in tariffs) and called for talks on all Singapore issues other than competition policies. In fact, the revised draft proposals on agriculture were worse, from India's point of view, than those contained in the first draft.

At Cancun, the U.S. and the E.U. were not aware that no longer could they have their say at the WTO. The least developed and developing countries had learnt the art of negotiations. These countries joined hands with some of the middle-income countries to build alliances depending on the issue involved. And they presented counter-proposals that avoided the trap of being caught on the defensive.

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