Global Policy Forum

The WTO under Fire

September 18, 2003

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.

More Information on the World Trade Organization Cancun Ministerial 2003
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More Information on International Trade and Development

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.