The Hindu : Chronicle of a collapse foretold

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Monday, Sep 29, 2003

Opinion

Opinion - Leader Page Articles

Chronicle of a collapse foretold

By C. Rammanohar Reddy

"Victory" or "failure" are wrong words to describe the outcome of the Cancun meeting. Cancun was just one event in a continuing struggle over the role of the WTO in the economies of the world.

CANCUN WAS not the first ministerial conference of the World Trade Organisation to end without an agreement. It was not even the first review meeting of a GATT/WTO round of negotiations to collapse. The 1989 ministerial review in Montreal of the Uruguay round was, for its time, a spectacular failure. But within four years, in 1993, the controversial Uruguay round had been completed. "Victory" or "failure" are therefore wrong words to describe the outcome of the Cancun meeting. Cancun was just one event in a continuing struggle over the role of the WTO in the economies of the world. This struggle between rich and poor countries, and between domestic and global business, neither began nor ended at the Mexican beach resort.

The seeds for the Cancun outcome were planted as far back as in December 1996 during the WTO's first ministerial in Singapore. Less than two years after the implementation of the Uruguay round had begun, Leon Brittan, then the Trade Commissioner of the European Commission, proposed the launch of a new set of trade negotiations, which he christened the "Millennium Round". The proposal was for talks on further liberalisation of industrial tariffs, services and agriculture. The talks would also bring into the WTO new issues such as investment and competition policies. If the E.U. proposal seemed peculiar at a time when countries, big and small, were beginning to feel that too much had been agreed to in the Uruguay round, there was a simple logic to it. Countries had earlier agreed to begin fresh talks on liberalising trade in agriculture in 2000. Since the E.U. would have to travel the farthest in agriculture, the only way concessions in this sector could be made palatable would be to add other sectors to the negotiations. Play off one sector against another and the E.U. interests would be protected.

The new round was to be launched in Seattle in 1999 during the third ministerial. By then the U.S., initially lukewarm to the E.U. proposal, had been brought round to the idea. However, Seattle 1999 was a collapse on a bigger scale than Cancun 2003. Of the many reasons for why the WTO was brought down in Seattle, one was particularly important for the struggle to shape the organisation. Many developing and least developed countries refused to endorse the proposal for a new round unless they had a greater say in setting the agenda and unless their demands to correct the imbalances in the Uruguay round were addressed. With each passing year, resentment was growing in the South about two features of the WTO. One, that the real beneficiaries of the Uruguay round were the advanced economies and the others were only paying the costs. (Incidentally, that the developing countries have increased their share of world trade during the 1990s does not refute this argument.) Two, the full force of the WTO intervention in reducing the scope for autonomy in domestic policy was becoming apparent.

Whether in industrial policy or in intellectual property protection for seeds or in adherence to WTO rulings on trade disputes, the WTO/GATT agreements were constraining domestic autonomy. There was a justifiable fear that a new round of talks would only further curtail the scope for independent domestic policy formulation.

Mr. Brittan's "Millennium Round" was finally launched in November 2001 at the fourth ministerial in Doha. The issues that exercised the developing country membership before and at Seattle had neither been settled nor had they disappeared. A confluence of events, however, helped overcome opposition. Two specific measures to supposedly benefit the weaker members of the WTO were prepared and announced at Doha. One was the Declaration on TRIPS and Public Health and the other was a concession on subsidies for the members of the Africa, Caribbean and Pacific (ACP) group of countries.

Most important, the Doha conference took place two months after the terrorist attacks in the U.S. in September 2001. This event was cynically manipulated to stress the need for a new bout of trade liberalisation.

The agenda for the Doha round of trade talks contained all the proposals made by the E.U. in 1996, and more. It was obvious even in 2001 that it would prove even more difficult to negotiate than the Uruguay round. First, the Doha agenda was arguably longer and covered more areas than the Uruguay agenda. Second, the WTO of the Doha round was much larger than the GATT of the Uruguay round. Third, it is doubtful if more than a handful of countries were fully aware of the complexity of issues in the Uruguay round. However, the extended membership of the WTO was now much aware of the trade issues involved and of the obligations that an agreement would entail. There was therefore always the possibility that the Doha round would collapse under the weight of its agenda.

In the event that is what happened at Cancun. All the contradictions within the WTO burst out into the open. With the resentment about unequal rights and obligations (for example in agriculture), the fears about a further contraction of the space for independent domestic policy (for example in the Singapore issues) and the anger about developed country hypocrisy (for example in the U.S. reaction to west Africa's cotton proposal), there was no chance of any agreement. There is then a continuity in the tussle at the WTO, stretching back from Cancun to Seattle and maybe even to Singapore when countries first raised their voices about an unequal say in decision-making. The Cancun collapse was foretold when the Doha round was launched.

Does Cancun then mark the end of the multilateral trade system as contained in the WTO? In the fortnight since the meeting ended, two kinds of suggestions have been made, reflecting either the U.S. or the E.U. position. The U.S. has spoken of turning away from the WTO and using bilateral and regional agreements for furthering its "aggressive" agenda. This is only a threat, because the U.S. cannot get what it wants without multilateral agreements. Foremost on its agenda now is greater market access in agriculture.

This it would like to obtain in exchange for a limited reduction in domestic farm subsidies. The more astute observers have pointed out that this can be done only within a multilateral system. Can the U.S. negotiate, say, greater market access with China offering to reduce in return domestic subsidies for only that part of U.S. agricultural production that could be in competition with China?

The fact is that the U.S. (and the E.U.) has as much of a stake in the multilateral system as the developing countries. Bilateral and regional deals are useful only up to a point.

A more dangerous argument that has been made is to overhaul the "medieval" negotiating structure of the WTO. Pascal Lamy, the European Trade Commissioner, has used these words; others have filled in what this could mean. WTO negotiations should be confined to a small bloc of countries (depending on a share in global trade?), with the results of the talks being offered to the rest. This, in effect, would kill the multilateral trading system and create a new rich country club like the OECD.

All countries want the multilateral trade system and its administrator, the WTO, to continue. This is as true of the developing and least developed countries as it is of the middle-income and advanced countries. The big difference between countries is not over trade issues, it is about what powers the system should have, specially when it comes to interference with domestic policy. These differences exist also within countries, rich and poor, between citizens' groups, business interests and lobbies on the one side and Governments on the other.

The question now is not if the Doha round can be saved; it is instead, does the WTO have a future in its present form? It does not. The only way the WTO can contribute to "a rules-based multilateral trading system", as it did until the mid-1990s, is if the all-powerful role in which it was cast in the mid-1990s is taken away from the organisation. That would mean a more narrowly defined remit for the WTO, which does not interfere in domestic policy. That may go against the dictates of globalisation, which sees no area of domestic policy as outside the influence of global economic forces. It may even seem impossible because a WTO with its powers shrunk would not be in the interests of the U.S. and the E.U., both of whom in the late 1980s saw the organisation as a vehicle to further their economic interests across borders. But do the members of the WTO have any choice other than to change direction at the organisation?

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