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Fear after Cancun

Anti-trade activists liked Cancun because it failed through a third world walkout. The militant types cheer any WTO failure as evidence the establishment is cracking. More realistic types saw in Cancun the coming of age of the least developed countries.

india Updated: Oct 13, 2003 15:23 IST

What is nice about World Trade Organisation ministerials is that their complex agendas and glacial forward movement allow everyone to claim victory, no matter what the conclusion.

An example could be seen at Cancun last week. Those who favoured free trade joined hands with anti-globalisation longhairs to celebrate the collapse of the WTO ministerial. Normally, these two are chalk and cheese. So what happened?

Anti-trade activists liked Cancun because it failed through a third world walkout. The militant types cheer any WTO failure as evidence the establishment is cracking. More realistic types saw in Cancun the coming of age of the least developed countries.

Pro-trade activists were also pleased at the idea of Burkina Faso standing up for the rights of its cotton farmers. The world trade system is riddled with faults. The lack of a coherent stance by the poorest is one reason such inequities persist.

But what has really warmed the cockles of most free traders is that Cancun put the West's agricultural subsidies under a hostile magnifying glass.

Nothing, but nothing, distorts world trade more than farm dole.

The EU is easily villain number one. Its subsidy regime is the most damaging to market principles. The US, with a more price competitive farming sector, is normally more prepared to prune its handouts.

Unfortunately, the Bush administration has tended to see electoral gains in taking the EU path.

The EU's subsidy obsession contaminates the WTO in other ways. Most notably, to balance even the smallest cut in dole, Brussels keeps adding items to the WTO agenda that are only tangentially about trade? Hence the so-called Singapore issues.

Free traders see such issues as parasites sucking out the juices of the WTO. Trade guru Jagdish Bhagwati still complains about intellectual property rights being sneaked into the last WTO round of talks.

Both free trade and protectionism (whether environmental green or industrial grey) were okay with Cancun. Both sides put Kenyan trade minister, Mukhisa Kutiyi, who led the walkout, on a pedestal.

But the two sides diverge when it comes to future expectations. What is more worrying is that, for now, the most likely fallout is not what either side expects and one that is the most damaging to countries like India.

The anti-globalisation movement hope Cancun will either mean the beginning of the end of the WTO's Doha round of talks or that it will mean a bigger slice of the cake going to the third world.

Pro-trade activists also hope for agenda change. But this group's big hope is that the West will agree to deeper, more sincere cuts in agricultural subsidies. This would bring world trade closer to the market ideal. It would also lead to some big time economic benefits for developing countries. The World Bank estimates that if subsidies go to zero, the third world could gain by $150 to $400 billion.

Cancun may not have seen off the Singapore issues. But even if one or two of the issues make it to the agenda, at least the price for their inclusion will be much more beneficial to the poorer countries.

The problem is that all this sees Cancun in the best possible light. So far, the evidence points to the road after Cancun not walking to these fields of light but to dark and wild woods. Namely, the fallout is a hardening of sentiment in Brussels and Washington that the WTO in its present form is dysfunctional.

How the WTO's structure should be changed is unclear. But the world's largest traders seem to believe the present one country, one vote system has to be reformed.

The EU trade commissioner, Pascal Lamy, warned that the WTO was a "mediaeval" organisation whose procedures were not up to the task of producing a consensus on trade. "The decision-making needs to be revamped," he said.

His farm counterpart, Franz Fischler, said on Friday that "if we just try to relaunch the whole discussion without changing the structures and procedures, the risk of another failure is too high." Fischler wanted a restructuring of the WTO in which "new forms of cooperation with NGOs" would be found.

While he ruled out using regional or bilateral trade pacts as an alternative to the WTO, everyone knows the EU has racked the up the most number of such agreements and is perfectly placed to let multilateralism hang.

Washington probably wouldn't mind the EU being forced to lop off more agricultural subsidies. But the Bush administration's instinct is unilateral these days and that is colouring even its trade policy.

The US trade representative, Robert Zoellick, is a zealous believer in regional and bilateral trade agreements. After Cancun he declared his intention to pursue them if the WTO talks didn't get off the ground.

"The United States has an agenda on multiple fronts. We are going to keep opening markets one way or another? We are not going to wait forever. We are going to move elsewhere."

The Big Two undermining the WTO would be the worst of all worlds for the developing countries. At present, there is a belief that Washington and Brussels are essentially bluffing. But this may be wishful thinking.

First, Europe's unification project is running aground. Sweden's thumbs down to the euro, the continent's economic slowdown and the inclusion of a swathe of new members have put enormous strains on Brussels. The EU's agricultural subsidies, it should be remembered, were designed to ease the social costs of unification. When the going gets tough on the Euro-front, Brussels won't be in the a mood to pick its farmers' pockets.

Second, the buzz within the Bush administration is that the US should either push harder for regional agreements or insist the WTO become a two-tier system, with a Security Council-like body for the biggest trading nations. This buzz may become a barrage if the Doha round resists attempts at resuscitation.

In any case, most trade negotiators believe that Washington will be soon so deeply mired in its presidential elections that it won't find time to even think of Doha. President George W Bush may prefer to have a free hand in pushing through some electorally useful but trade-unfriendly measures like blocking Chinese manufactured goods.

This raises another problem. No major trading country seems interested in investing political capital in Doha. The EU has admitted it has no formula to breathe life into the WTO talks. The US is saying that what it put on the table in Cancun is its final offer, take it or leave it.

India did little other than go along with the herd, in large part because its agenda at Cancun was about elections at home rather than economics abroad. It was not a leader, except in making rhetorical flourishes. The Group of 23 of larger developing economies could agree on a negative list of trade issues, but not on an agenda to give the talks momentum. It could condemn, it could not construct.

In economic terms, India should have been more forward-thinking. It had little to lose at Cancun. Talk about being swamped by agricultural imports was an eyewash. New Delhi has an arsenal of safeguard and antidumping laws that it can use to stop farm imports, even if tariffs fall. It got a little something on intellectual property rights and public health. India could also have swallowed the Singapore issues without difficulty; whether they went aye or nay, or there was one issue or four.

However, India has an outsized stake in an international trading system governed by the WTO. When it comes to trade, India lives in splendid isolation. It has signed almost no trade agreements on the bilateral or regional level.

In addition, India has discovered a competitive edge in services. Its agenda should have been less fretting about farms and factories, but rather aggressively getting the WTO to breakdown barriers on services. The WTO would have been a good arena to take up arms against new trade barriers like visa restrictions or outsourcing bans.

It may be the case that most governments in the world have run out of the political reserves needed to go through the exhausting negotiations that accompany any WTO round. It is rising protectionism that galvanises countries to start talking trade turkey. Perhaps the world will have to wait for the protectionist alarms to ring.

In the interim, while Doha sleeps, the richest nations will continue as they were before because they are rich. The poorest nations will also be unaffected because they are so poor. It is the in-between, like India or Brazil, that will lose the most in opportunities.

First Published: Sep 22, 2003 00:00 IST