CANCUN: by Colin TeeseNews Weekly
Why the WTO's free trade agenda collapsed
, October 4, 2003
A week or so back, in the Mexican seaside town of Cancun, the World Trade Organisation's Ministerial meeting failed to reach agreement on a framework for a new round of trade negotiations.
The aim of the Ministerial Meeting was to bind the negotiating countries to a set of agreed guidelines for the continuation of the negotiating process. In the end, participating governments were unable to agree on what those guidelines should be.
No agreement means that progress on a new round of negotiations is - for the time being at least - impossible. It does not mean, as many ill-informed commentators have insisted, that the talks have collapsed. Or that the so-called Doha Round of negotiations, has failed.
Once the dust has settled, the permanent Secretariat of the WTO - led by its Thai Director General Supachai - will begin the task of constructing a revised package capable of bringing the parties together again.
Ordinarily, on the basis of previous negotiations, it could be fairly confidently predicted that the talks would be restarted fairly quickly, and would have proceeded to some kind of outcome.Condition
Restarting the talks always depends upon how much the big players want the WTO - not how much they say they want it, but how much they really do. And because of the US, a new variable is now in play.
The question is, has the US changed its attitude in the matter of international co-operation? If it has, then restarting the talks may be more difficult. But more of that later.
Meanwhile we need to take a look at the reasons why this meeting ended in failure. Superficially, these are easy to catalogue - though it is true that they may have surprised many, including our own negotiators.
To have read our mainstream newspapers in the weeks leading up to the Ministerial Meeting, it was possible to form the view that agriculture was the only possible stumbling block. And here the difficulties would lie principally with the intransigence of the US, the EU and Japan over agricultural protection.
To have accepted the EU, Japan and US conditions would have meant accepting the equivalent of the Multilateral Agreement on Investment (MAI) which Australia and many other nations rejected several years ago.
As it turned out, and somewhat to the embarrassment of the Australian Delegation, agriculture wasn't the make or break issue at all. The talks failed because a coalition of developing countries refused to accede to rules on foreign investment and competition policy advanced by the European Union and Japan.
The strength of the poorer countries' resistance to these demands appeared to take the EU and Japan - and, quite possibly, the rest of the WTO - by surprise. This unexpected show of strength by a group of developing countries could turn out to be a watershed in the history of the WTO.
The position of the US on all of this is puzzling. On the face of it, and given its interest in the subject of foreign investment in all its discussions with Australia, we might have expected to see the US up there beside the EU and Japan, putting the pressure on developing countries.
Instead, they confined themselves to maintaining that - while supporting the EU and Japan proposals in principle - they considered that these issues should not draw the main focus of the talks away from agriculture.
Mr Zoellick, chief negotiator for the US, was leading the charge for banning the use of export subsidies for agricultural products. Mr Zoellick believed, without the complicating factor of the investment and competitive policy issues, his objective was a realistic possibility. According to Mr Zoellick that outcome would have been enormously beneficial - especially to developing countries. He seemed peeved that he was not given developing country support.
Whatever may have been the position of developing countries on agriculture, the US strategy was very much driven by self interest. It is true that, unlike the European Union, little of the US's massive support for its farm sector is devoted - directly - to funding export subsidies.
But the fact remains that propping up US farmers' income - as do the US subsidies - obviously allows producers to compete better in export markets. In practice, the US income support subsidies have much the same effect as the direct export assistance offered by the EU.
Latin American countries which have signed up for Free Trade Agreements (FTAs) with the US know this only too well. The FTA's have compelled them to open their markets to cheap, subsidised US farm products only to see their own farm industries destroyed in the process.
Mr Zoellick is also reported as saying that if progress cannot be made in the multilateral context of the WTO, then the US will be left with no alternative but to pursue a bilateral strategy along the lines of what is being pursued with Australia. His remarks appear not to be confined merely to agriculture, but to apply to the WTO negotiations overall.
Whether or not export subsidies most harmed poorer countries is questionable. Certainly, evidence in support of this belief is not easy to find.
What is clear is that the focus of the work on agriculture has been aimed at curtailing the subsidy programs of Northern Hemisphere temperate agricultural producers.
The beneficiaries - if there are to be any - would thus be confined to those countries producing temperate agricultural products for export. Mostly these are developed countries.
Sugar is, perhaps, an exception. And here, Brazil - who could possibly be the largest beneficiary from a reduction of EU and US subsidised production - is itself heavily subsidising its sugar exports by means of its ethanol support program. Other than Brazil, the only significant low cost producer to benefit would be Australia.
Developing countries obviously do not see the trade in agriculture as a matter of supreme importance to them. Otherwise they would not - quite rightly - have chosen to make opposition to the investment and competition policy demands of the EU and Japan the break issue for them.
All of this, of course, leaves aside the broader issue: to what extent fully opening markets generally confers real benefit to any economy, let alone that of a developing country? Certainly, this proposition seems to be receiving serious attention in the US.
Nobody denies that lowering tariff barriers, in some cases, does provide consumers with cheap goods. But this benefit comes at a price. Local industries are certainly put under pressure in the face of intensified import competition. Some are driven out of business. And so the question being asked is whether contemporary capitalism is best served primarily by price competition.
With profit margins shaved to the bone, can those industries lucky enough to survive save enough to fund future investment in new product development?
Further, is it a viable long-term strategy for the US to pay others to produce its needs, while running down its own industries?
And financing its imports of consumer goods with huge overseas borrowings. At this moment the US is to push down the value of the dollar. A low dollar makes US industries more competitive - both at home and abroad.
And if the US is reconsidering its commitment to open markets, then its enthusiasm for the WTO could be cooling. Initially, the driving force behind its earlier enthusiasm was the incentive to extend the reach of open markets beyond the trade in goods and to open up, in other countries, markets for the trade in services, which gave the US new opportunities. Presumably the question now is, are these gains enough to justify sacrificing so much of its own manufacturing industry base?
There is also another issue of no lesser importance. Is the US losing patience with the international organisations generally, for the disciplines they now impose on US hegemony?
We have seen with the United Nations, on the issue of Iraq, that when the US seems to lose control of the agenda of an international agency, its support for the agency weakens. And Mr Zoellick makes it clear that the US was unable to control the agenda at Cancun.
The fact is that control of the WTO agenda at Cancun was not even contained by the traditional joint controllers - the US, the EU and Japan. For the first time a coalition of developing countries - acting as a self interested group - was able to impose its will on WTO proceedings.
Whatever may be the attitude of the US, all the evidence suggests that the EU and Japan remain as committed as ever to the WTO processes. They even seem willing to concede to the developing countries a say in control of WTO proceedings far in excess of anything they have had before.
There may be well founded, cynical reasons for this turnaround. For example, at any resumed talks, the EU and Japan may agree not to press their point on investment and competition policy - providing they are given their way on agriculture.
The coalition of developing countries - given their indifference to the agriculture issue - may well decide to accommodate them. If so, and taking what Mr Zoellick said on agriculture seriously, then it could be that the unity of the big three players in the WTO, who, between them, have dominated past WTO agendas, could be shattered.
In this circumstance, Director General Supachai and his Secretariat may be facing a tough job in getting the talks restarted.
Supposing the talks collapse, what will be the consequences for Australia? Well, based on the figures being bandied around there is about US$4 billion in possible gains if all agricultural protection is removed. Of course, nothing like that is likely to happen. And we can't even guess what Australia's share of a much smaller gain might be. But, in the context of the size of our economy, it won't be much. And remember any gains will certainly be contingent upon the opening of our agricultural markets to import competition.
Aside from that, any further inroads into manufacturing industry protection is likely to open up our economy to the same problems the US has identified.
It is just possible that if all the upsides and the downsides are taken into account, Australia may not stand to lose or gain much, no matter what happens.
Some will insist that the WTO rules give us protection against arbitrary acts by larger and more powerful trading partners. Experience over the last decade doesn't seem to support that contention. Our action against the US on lamb, while technically successful, did not seem to give us much satisfaction. Nor did WTO rules prevent the US from imposing an unbalanced settlement on us in the matter of our leather exports to them.
Surely it is worth asking the question; as to how much better (or worse) off would we have been without the benefit of WTO protection?
- Colin Teese was Deputy Secretary of the Department of Trade and Australian negotiator at GATT