INCONCLUSIVE MEET OF WTO AT CANCUN

The failure of the Fifth Ministerial Session of the World

Trade Organization (WTO) should be no cause for
rejoicing. The ministers could not break the impasse at
Geneva: the multilateral trade negotiations will remain
stalled for some more time. The outlook for the Doha
Round to conclude by 1 January 2005, never very bright,
looks even dimmer now. This is bad news for the world's
trading nations and particularly so for India. Not being
linked to any major industrialised economy by a regional
arrangement, India would have liked world trade to
receive a strong dose of non-discriminatory trade
liberalisation, sooner rather than later. No victors
emerged from the Cancún meet. There were only losers.
The debate at Cancún was focussed on negotiations for
liberalising agriculture and developing new multilateral
disciplines on the Singapore issues. The latter refers to
four disparate subjects - investment, competition policy,
transparency in government procurement, and trade
facilitation - which were proposed by the European Union
(EU) and Japan for inclusion in the agenda of the Doha
Round.

Agriculture
WTO members are divided on the level of ambition for
liberalisation of agriculture. When the negotiations
began, the US and the Cairns Group were demanding
deep reform in world agriculture. In the other camp were
the EU, Japan, Norway, Switzerland and Korea, which
could envisage only gradual liberalisation, keeping in
view their non-trade concerns. India also emphasised
liberalisation by the major industrialised countries, but
the focus of its attention was on preserving its own
agriculture policies. In the run-up to the Cancún
meeting, a major realignment of members took shape.
The US and the EU announced that they were nearing
agreement on a joint position on agriculture, which, in its
preliminary outline, seemed to be lacking in ambition.
INCONCLUSIVE MEET OF WTO AT CANCUN

The negotiations were not set to conclude at Cancún and

more than a year of negotiations remained. But the
incipient EU-US accord spread alarm among the
developing countries' exporters of agricultural products.
The situation was reminiscent of 1992 when the Blair
House agreement between these two major players had
shrunk the Uruguay Round package on agriculture. An
alliance of 21 developing countries (G-21) emerged, with
Brazil, China and India at the core. Most developing
country members of the Cairns Group, like Argentina,
South Africa and Thailand, joined, along with some
influential ones like Egypt and Mexico. The new alliance
demanded fundamental reform.

The G-21 would like a maximum tariff level to be

prescribed, trade- and production-distorting domestic
support to be sharply lowered, with limits established in
product-specific terms and export subsidies to be
abolished. The US and the EU are willing to bring down
their agricultural tariffs and reduce domestic support as
well as export subsidies, but they are not willing to go as
far as the G-21 would like them to.

A feature of the G-21 proposal is that different

modalities would apply to developing nations. In market
access, they would undertake lower reduction
commitments especially for products deemed to be
crucial for food security and they would also have access
to a new special safeguard mechanism. Existing
exemptions for developing countries in domestic support
and export subsidies would also continue.

In the past, African countries never took a strong stand

on the liberalisation of agriculture. In fact, they
discouraged the non-discriminatory reduction of tariffs
that would erode the tariff preference they enjoy from
the EU under the existing preferential arrangements. But
INCONCLUSIVE MEET OF WTO AT CANCUN

this time four African countries - Benin, Burkina Faso,

Chad and Mali - the economies of which are heavily
dependent on cotton, demanded that all export
subsidies and domestic support to cotton provided
mainly in the US and the EU must be eliminated in three
years. Also, in the interim, they must be given financial
compensation for the loss of export earnings. This has
bolstered the G-21 position.

The Singapore Issues

From the outset, a number of developing countries, led
by India, have opposed expanding multilateral
disciplines to cover investment and competition policy.
While transparency in government procurement and
trade facilitation are not new subjects for the WTO, they
suffered from being bundled with investment and
competition policy and faced opposition from developing
countries. The compromise at Singapore in 1996, when
the proposal was first made, was that the subjects would
only be studied. The matter came to a head at Doha
when the ministers were launching a new round of
multilateral trade negotiations, and the matter was
temporarily resolved in the classical manner of
doublespeak, which is resorted to in international trade
diplomacy. While the ministers recognised the need for
multilateral frameworks in these areas and agreed to
negotiations, they stipulated that negotiations would
begin only after there was "explicit consensus" at the
Cancún Session on the modalities for the negotiations.
No one was clear on what the term "modalities" meant
and there are unresolved differences on whether they
refer to procedural or substantive aspects. The need to
approve modalities through "explicit consensus" gave
the opponents the opportunity of blocking the
negotiations once again at Cancún. India was flexible
and indicated its willingness to consider negotiations in
the areas of transparency in government procurement
INCONCLUSIVE MEET OF WTO AT CANCUN

and trade facilitation. Later, the EU asked for an

agreement to begin negotiations in trade facilitation. But
the African, Pacific and Caribbean nations and the least-
developed countries (LDCs) pulled the plug, saying that
they were already overburdened with too many
agreements.

The Assessment
There is a fundamental soundness in the position taken
by the G-21 on the reduction of support and protection
by the major industrialised countries. A trading system
that allows some countries to continue with tariffs, that
are in multiples of 100%, on agricultural products and to
aid farmers to capture markets on the basis of domestic
support and export subsidies that sometimes exceed the
unit value of the produce, is a travesty. The G-21 have
fairness, equity and good economic sense on their side.
The fact that the big three developing countries have
taken a united stand along with some other important
players in the developing world has great potential in
future negotiations. Where they are not right is in over-
emphasising special and differential treatment. In
agriculture what they need is equal, not more
favourable, treatment. Why cannot a common maximum
tariff level be proposed for developing and developed
countries alike? Why cannot both accept a common cap
on domestic support of, say, 5% of the value of
agricultural production? Only one or two developing
countries (not in the G-21) have higher levels of
subsidisation. Why cannot they accept that export
subsidies be abolished for all countries? Going by the
notifications made to the WTO, only a few developing
countries subsidise exports, and that also to a very small
extent.

As for the Singapore issues, the objection should not

really be that agreements would necessarily be against
INCONCLUSIVE MEET OF WTO AT CANCUN

their interest. Those who feel that a multilateral

agreement on investment would encroach upon the
development space are guilty of scare-mongering. There
would be enough opportunity to provide for the
development dimension in future negotiations. The real
issue is the absence of mutuality of interest between
developed and developing countries in possible
agreements in these areas. Developed country investors
would certainly gain from an agreement on investment,
for instance, but what about developing nations? Then,
there is the question of institutional overload. The WTO
framework cannot go on extending multilateral
disciplines to cover new areas without concern for the
capacity of most of its developing country members to
cope with them. This is not a problem so much for the
likes of Brazil, China and India. It is a problem for the
LDCs and for the African and island developing
countries. The Singapore issues simply deserve to be
dropped from the agenda of the Doha Round.

The Outlook
Will the discord at Cancún give a fresh impetus to
regionalism, weakening the multilateral trading system?
Will it cause a surge in protectionism in the
industrialised countries? When the Uruguay Round was
on the brink of failure, many people had predicted a
resurgence of regional arrangements. The Uruguay
Round succeeded and regional arrangements still grew.
Such arrangements will increase, broaden and deepen,
as they are propelled by geo-political forces that are
unstoppable. The US has been pursuing the Free Trade
Area of Americas, even as it has been actively engaged
in the Doha Round. EU's expansion into EU25 and further
to a Euro-Mediterranean Free Trade Area will go ahead.
Protectionism could have been a danger if the
multilateral trading system had collapsed, but the failure
of one meet does not amount to a collapse of the world
INCONCLUSIVE MEET OF WTO AT CANCUN

trading order. The Uruguay Round succeeded after

failures at Montreal (in 1988) and at Brussels (in 1990).
It is a pity that the Cancún meet did not have a positive
outcome. But there could be a positive fallout if the
industrialised countries realise that they cannot hope to
prevail in global negotiations even when they are wrong,
as they have been for a long time on agriculture (and
textiles). They would now be challenged by a coalition of
developing countries, which has a configuration that will
not easily disappear.