Cancun: fiesta or failure?
For world trade, Cancun was a stop on the way, not the end of the road, argues Adel Beshai*
Almost everything I heard and read dubbed the Cancun meeting as a failure -- and a dismal one at that. It was said that the developing countries returned home without any cuts in subsidies or tariffs. Some were dismayed by "the transformation of the WTO into a forum for the politics of protest".
In my view, Cancun was neither a fiesta nor a failure. Cancun fell midway between Doha 2001 and a hoped-for utopian world agreement by January 2005. It thus appears that many people felt that coming up short in Cancun signified the eternal collapse of world trade negotiations -- a point of no return. There were seemingly voices whispering to developing countries: "Get what you can now, no one knows how a new European Commission will behave or what impact bilateral agreements between the USA and other countries will entail."
All these forms of desperation reminded me of the agricultural economic projections we did in the late 1970s for the year 2000 -- somehow generating a feeling that the world would stop at the year 2000. But the future of world trade will not depend on achieving this or that at Cancun. It is politically naive to think that failure to achieve certain agreements signals doom and gloom on world trade and growth.
One issue which I fail to understand is the expected time frame. Why must problems and issues which have been simmering for decades be solved in two or four years? The WTO is young, only eight years old. There are two relevant and important points that must be mentioned in this respect. First, let us face the fact that most of the developing countries were still learning the game a few years ago as they joined the club in GATT. Next, in the old GATT, composed of a homogenous set of mainly of advanced economies, it took half a century to reduce the average tariff rate from 40 per cent to eight per cent.
That said, the positive aspect of the Cancun meeting -- indeed the sign of success -- is the formation of the G-21 group of developing countries who showed maturity in their deliberations. It has been said that sometimes the developing countries at Cancun talked too much and moved away from the agenda, that they should have engaged themselves in negotiation not pontification. True, there may have been verbose speeches, but this could be expected.
I would argue that there are two reasons why these negotiations were particularly difficult: one rests with the developed countries; the other lies with the developing countries. On the first point, the developed countries have engaged in negotiations with each other since 1947 under the old GATT. This meant decades of serious giving and taking. Now, here they come to Cancun, faced with sensitive issues requiring more compromise. Many of the developed countries find demands of more giving intolerable. At the same time, the developing countries found themselves in a position to voice their real problems of trade and growth -- this time not in the forum of UNCTAD where they effectively talked to each other but in the GATT-like forum of the WTO. Given that one side desired to give no more and the other wanted only concessions, the positions of both are doubly difficult.
Effectively what was put on the table represented the most difficult issues. Each side was already tired of discussion on these issues. For the developing countries access for their agricultural goods and textiles to the markets of the developed countries is the crux of the matter. The developed countries, on the other hand, had to fabricate a list of demands as a bargaining chip. This list covered the so-called Singapore issues on investment, competition, transparency of government procurement, and trade facilitation.
No economist will disagree that the rules of freer trade under WTO should allow access to the developing countries in agriculture and textiles. No one disagrees that the tens of billions of dollars in subsidies to those industries by the advanced countries are effectively "an exemption of the advanced countries from free trade". Advanced countries understand fully that they are depriving the developing countries of their comparative advantage.
So where is the problem in ironing out this issue? It is basically a political one. The political clout of agriculturists and textile industries in the USA and Europe cannot be denied. We need not go into the details of the protection measures that are used. Some are more deleterious than others. Just one example: an export subsidy is doubly harmful because (a) it encourages overproduction; (b) in effect it pays people to make them buy.
A closer look at the issues involved for developed countries illustrate how entrenched the problem is. It is embarrassing to find the USA arguing with Benin and Mali (among the poorest of the poor) over cotton subsidies. It is also an example of the problem facing free world trade. Cotton and sugar lobbies in the USA know that they lose if forced to compete fair and square against foreign farmers. Textile and apparel manufacturers also command a lot of power in Washington. In France, agriculture is not just an economic activity which would follow the economic dictum of efficiency. "Le Monde Rural" cuts across the whole geography of France. It is not just a question of one million farmers with a few million dependents. It is a way of life demonstrated by breaking the word agriculture into its roots agri- and -culture: a culture of cultivation that they revere and want protect as much as they would the flag.
What is the upshot of all this? My arguments should not be construed to mean that we are faced with unsolvable problems. My message is clear. The complexity of the issue is such that, of necessity, the negotiating process must take time. The developed countries have realised that they are now facing a strong group in the G-21, which will do better in the next meeting.
The Cancun meeting was not terminal -- it was a pause, still far from the goal of freer trade. It is meaningless to talk of defeat or a Pyrrhic victory for the developing countries. That approach misses the point. It will serve no purpose to say that big, developed economies will strike new bilateral and free trade agreements with developing countries, as if this will "scare" other developing countries. Yes, these agreements will occur, with mutual interests put on the bargaining table. But these agreements are not the solution. For instance, some of those countries with whom such agreements are intended are members of the G-21, such as Guatemala, Argentina, Costa Rica and Brazil. Ultimately, the solution lies in another realm, as alluded to in the following discussion.
One needs to recognise that an organisation such as the WTO with 148 current member countries would prove unwieldy to manage finely tuned legal agreements. All members of the WTO, developed and developing alike, must realise that talking of the liberalisation of trade is not free trade. The latter is a utopia whose starting point is a world with zero distortions. The former is a second-best policy approach which minimises net distortion, while accepting some distortions. The over-legalistic approach of the WTO seems unreal in the face of economic and political realities. The hitherto less strict approach of the old GATT is more fitting. Do the USA and France need farmers? Yes. Agriculture and food in some respects are different from motor-car production. Will countries continue to support farmers? Yes. One of the ironies of the world is that historically developed countries have subsidised their agriculture whilst developing countries have taxed it, oftentimes implicitly.
In sum, while intervention is inevitable what matters is its degree and location. A developed country may want to suppress overproduction but boost profits. A developed country that has fertile land and plentiful water cannot let this land lie idle without farmers. The WTO is faced with making sense of these needs for the whole world. Part of this involves determining the fate of subsistence agriculture.
The Cancun meeting convened as world economy wallowed in the doldrums. It also took place in the shadow of the EU's addition of 10 new countries who value protected agriculture. It nevertheless tried to strike an agreement, to find a balance between two sides where there may be none. However, if the developing countries want market access, this should not be presented as a demand. It is a natural outcome enshrined in the very principles of the WTO. Given all the difficulties I outlined, it will pay if all parties look at free trade as a process not a single act.
* The writer is professor of economics at AUC and member of the Shura Council.
