Cancun’s charming outcome

Date: 20/09/03

Champions of the world's poor are celebrating the collapse of global trade talks. Some champions

“VICTORY to the people,” cheered a press release from a globophobic activist group, Food First, after the world trade talks broke down in Cancun on September 14th. This delight is widely shared among developing-country advocates and even among many poor-country governments. Great news from Cancun? What scandalous rubbish. The failure sprang not from principle, nor even from intelligent calculation, but from cynicism, delusion and incompetence. It is going to leave most people in the world worse off - and, without a doubt, those who will suffer worst are the world's poor.

At the very least, Cancun's failure has delayed progress towards concluding a trade round that would have given poor countries the biggest economic gains. Launched in the Qatari capital, Doha, in November 2001, the Doha trade round was explicitly dedicated to helping poor countries. Its chief goal was to lower trade barriers in areas where freer trade would help poor countries most, especially agriculture. With the Doha round in tatters, the day when rich countries repeal their grotesque farm subsidies and poor countries can finally sell textiles to the rich world without facing punitive tariffs has been pushed far into the future. The chances of concluding the round by the original deadline of December 31st 2004 are now nil. To finish it within five years would be difficult.

As if this were not bad enough, the breakdown in Mexico may have dealt a mortal blow to the multilateral trading system itself - a system that, for more than half a century, has underpinned global prosperity. Since the General Agreement on Tariffs and Trade was signed in 1947, with its basic principle that tariffs must not discriminate between countries, trade has been governed by multilateral rules. The World Trade Organisation, created in 1995 as a successor to the GATT, is the system's core. With 148 members (Cambodia and Nepal joined just days ago), the WTO is the only trade forum in which the needs of the developing countries can be given full weight. Decisions there are reached by consensus; every country, no matter how small or poor, has a veto. Nowhere else do poor countries have such clout.

Cancun's collapse leaves the whole system in peril. It comes less than four years after a similar flop in Seattle in 1999, where efforts to launch trade talks failed amidst street violence. After two such abject defeats in four years, the WTO is in enormous trouble. If it becomes entirely irrelevant to the conduct of trade policy - as it may, and as many governments and activists seem to desire - the developing world will come to regret the consequences bitterly over the coming years.

Who to blame

The breakdown was entirely unnecessary. Trade ministers were not trying to come to a final agreement on the Doha round; they were not even making difficult choices about exactly how far to open their economies. The purpose of Cancun was far more limited: to be no more than a mid-course stock-taking, a time to agree on principles for taking negotiations forward. It is extraordinary, and all the more shameful, that the ministers failed even to do this.

All concerned are pointing the finger, as one might say, at each other. In fact, nearly everybody involved deserves criticism. For all the fine promises made at Doha, rich countries could see no farther than the interests of their own farmers. America's unwillingness to curb its cotton subsidies - which have an especially severe effect on poor-country producers - is unforgivable. So too is Japan's unyielding defence of its own swaddled rice farmers. And for all its ballyhooed efforts at reform, the European Union remains the most egregious farm subsidiser of all. Europe deserves added blame for trying to push poor countries into negotiating new rules on investment, competition, government procurement and trade facilitation, when most of them clearly did not want to.

Yet the rich countries did not wreck Cancun by themselves. Many poor countries saw the Doha round, and its promise to be pro-poor, as an excuse for making demands of the rich world while doing nothing to lower their own trade barriers. They forgot that trade talks require compromise. Egged on by a bevy of activists, too many third-world politicians got carried away by the thrill of saying no - ignoring the fact that poor countries actually have more to gain from lowering their own trade barriers than from persuading rich countries to lower theirs. According to the World Bank, over 70% of the benefits that poor countries might see from the Doha round would come from freeing trade with each other. By refusing to compromise, poor countries have come away with nothing.

Heading for a fractured world

Optimists, of whom there are still a few, point out that previous trade rounds have all taken longer than scheduled to complete. The Uruguay round took eight years rather than the planned three. Maybe the Doha round can be revived after all.

If so, the prospect looks remote. A presidential election is looming in America: starving peasants are not a pressing constituency. The European Union, with ten new members to absorb, is also going to be distracted. In any case, the energies of rich-country trade negotiators can always be deployed in a different - and, as they would see it, more effective - direction. Bilateral and regional trade agreements are already in favour with the Bush administration. In this setting, the poor countries have far less sway than they would have at the WTO; that is why American legislators prefer such deals. America is pursuing a regional trade agreement for the Americas, has signed bilateral deals with Chile and Singapore, has begun bilateral talks with 14 other countries, and promises many more.

This way lies a fracturing of the global trading system. Adding to the danger is growing protectionist sentiment in the United States. For the past decade, America has been the main engine of global growth: its trade deficit and its debts to foreigners have therefore been soaring. Trade deficits, particularly when jobs are scarce, increase demands for protection.

China, with its huge and growing bilateral trade surplus with America, has already been cast as chief villain. With a cheap currency, the argument goes, China is stealing American jobs. Once this scapegoating starts, protectionism follows close behind. Last week, senators from both parties introduced a bill that would put high tariffs on imports from China unless China adjusts its exchange rate. This particular measure will probably fail, but there will be others. In the mid-1980s, when America last had a huge trade deficit, demands for new protection (mainly against Japan) proved impossible to resist.

The collapse of the global trade talks may itself worsen the backlash. The prospect of a global trade round helped curb calls for new protection, making them seem disreputable; if there is to be no round, there will be less holding back. An American government concentrating on bilateral trade deals and domestic politics bodes ill for the global economy. And the idea that the EU might exercise enlightened leadership while America is thus distracted is, unfortunately, laughable.

The humbling of the WTO not only worsens economic prospects for the developing countries (as well as for the rest of the world) but also shifts the balance of global political power from poor to rich - perhaps decisively, and who knows for how many years. That is what the developing countries' champions are so busy celebrating.

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