Cancún canned: lessons for EU and US

Date:18/09/03

By David Kernohan

IT IS well known in Brussels circles that Pascal Lamy, EU trade commissioner, is an exceptionally clever, hard-working man. The failed World Trade Organization (WTO) ministerial meeting at Cancún, Mexico, indicates that the EU delegation has, on this occasion, been a little too clever for its own good.

After the WTO failure at Seattle in 1999, the EU played a key role in relaunching a trade round under the development banner at Doha.

The agenda has been to attempt to prove that there are genuine benefits for the world's poorest countries from multilateral trade reform, and rebut the wilder and more pessimistic claims of the anti-globalization movement.

At Cancún, however, developing countries rejected the agricultural reforms tabled by the EU and US, and were solidly opposed to proposed rules on competition policy, foreign investment and trade procedures.

This suggests that the Doha Development Agenda (DDA) round is in danger of failing to make development issues the key priority. Why has this occurred and what are the ramifications?

Firstly, it is little surprise that Cancún resulted in an impasse, for the essential ingredients were absent. Even before the EU's Common Agricultural Policy reforms of the summer, there was little indication that developing countries had any appetite for the new issues which the EU and, with lesser enthusiasm, the US had put on the table.

The avowed intention is to protect the poorer countries from savage competition and for attracting direct investment.

However, the proposals have been widely seen as manoeuvres by the rich world to offset unavoidable long-term reform to its system of agriculture protection and subsidy - key sources of distortion to world markets.

It would seem that the EU and US underestimated the determination of developing countries to resist tactics which had previously succeeded in isolating small countries and extracting concessions.

At Cancún, a much-enlarged and better-organized group of 21 developing countries thwarted a US/EU proposal to extend food-market access only to the poorest developing countries, but not to more developed ones such as Brazil, Argentina etc.

It appears that Pascal Lamy's office, rather than push the US to reform its Farm Bill, ducked a confrontation and stitched up a deal aimed at breaking the cohesion of the Cairns Group (including Australia and Canada, as well as Brazil and China) by offering limited farm subsidy reform, and selective market access to the "deserving poor".

As a fall-back position, the EU seemed prepared to reduce the list of new issues from four to two (dropping investment and competition) to offset any shortcomings in agricultural reform. In the event, this strategy seems to have come unstuck with the unwillingness of countries - led by India - to accede to even one of the new issues.

If the WTO and multilateralism is to be saved, in a world that badly needs some global good news, the basic principles that motivated the launch of the DDA need to be dusted down and reinstated - namely a core trade agenda for least-developed country growth in trade and services, shorn of the contentious new issues, but with some progress on public health.

Here again, the perception is that US and EU trade negotiators attempted to erode the Doha declaration's provisions.

While undoubtedly modest, such a pure-trade, pro-development outcome is highly desirable for all. Looking forward, achieving even a limited deal can keep the WTO on track until reforms of international economic governance can be engineered to take the pressure off the WTO.

Nobel-prize winning economist Joseph Stiglitz has set out the key issues: the system of global economic decision-making does not reflect the interests and concerns of the majority of the world's population and trade negotiations demonstrate the power of special interests.

Having said this, the developed world outside of the poorest commodity exporters has no monopoly on virtue - and is frequently guilty of gross distortions within its own "south-south" trade.

Unfortunately, larger countries will not be able to convincingly urge such own-backyard reform until genuine attempts are made to redress current imbalances.

If the DDA process can be revitalized, albeit around a more limited set of aspirations, time will have been bought to address the grossest distortions in world markets by parallel institutional reforms spread among the three pillars of world economic governance - the International Monetary Fund, World Bank and WTO.

Similar extensions to the limited WTO construct of "special and differential" treatment are required to assist poor nations in the transition to trade reform. Too often, IMF and World Bank loan "conditionality" precludes such transition stages. It remains grossly hypocritical for the developed world to seek to protect its residual declining sectors (eg agriculture and steel) while not allowing some measure of infant-industry protection.

Back at Doha in 2001, Europe seemed to be genuine about development. The Everything But Arms initiative opened up EU markets to poor countries unilaterally, without demanding concessions in return. Now, with its mid-term review of the CAP, the EU is at least taking tentative first steps towards reforming its farm-support system. If the DDA is to be put back on track, something similar must be forthcoming from the US.

It will be a great shame if evasion in agriculture, and the insistence on incorporating new issues into trade talks, undermines that potential.

• Dr David Kernohan is head of the Trade Policy Unit at the Centre for European Policy Studies (CEPS). www.ceps.be

Dr David Kernohan is head of the Trade Policy Unit at the Centre for European Policy Studies (CEPS).