Global Policy Forum

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. 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."

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