After Cancun, what?

The author is a trustee of the research and policy advocacy group
Action for Economic Reforms and a partner at the Quevedo, Malaluan
& Lumba Law Offices.

In the January 12 issue of BusinessWorld’s Yellow Pad, Rafaelita M.
Aldaba of the Philippine Institute for Development Studies judged the
collapse of the Fifth Ministerial Conference of the World Trade
Organization (WTO) in Cancun as a loss for poor countries. Others
believe otherwise.

To many, the collapse of the Cancun Ministerial represents an advance
for the struggle for a fairer world trade, to the benefit of poor
countries.

The collapse of the Cancun Ministerial cannot be weighed against some
utopian free trade benchmark. The reality is that the negotiations in
the WTO have been very political, characterized by leveraging positions
and protecting one’s interest while maximizing concessions from the
other side. In the end one decides based on what is concretely on the
table.

In the course of the Cancun Ministerial, the Conference Chairperson
circulated a reworked draft Ministerial Declaration on Sept. 13, 2003
(a day before the conference’s scheduled close) that sidelined the
position of developing countries and even worsened for them an already
bad negotiating text. In agriculture, the text did not call for serious
reforms in domestic support and export subsidies.

The Green Box, a mechanism for developed country subsidies, was not
definitely addressed, even as developing countries were told to
decrease their tariffs drastically.

In Non-Agriculture Market Access, there was no change to relax tariff
reduction commitments, even as it only weakly referred to non-tariff
barriers used by developed countries for their protection. The cotton
initiative introduced by Burkina Faso on behalf of cotton exporters
from Africa for the elimination of subsidies by major developed country
subsidizers was disregarded.

And finally capping the imbalance was the draft’s insistence on
starting negotiations on at least two new issues (trade facilitation
and government procurement) and a deadline to reach agreement on the
two other new issues (investment and competition policy) despite an
alliance of more than 70 developing countries opposing the launch of
negotiations on these new issues.

It is against this lopsided agreement, resulting from the developed
countries’ insistence on aggressive opening up in developing countries,
even as they refuse substantial reforms in their domestic support and
export subsidies, that the collapse of the Cancun Ministerial needs to
be assessed.

It is to our trade negotiators’ credit that it took the side of
emerging developing country alliances in Cancun and stood firm against
the lopsided agreement. As Joseph Stiglitz said in a talk with the
Bangladesh Metropolitan Chamber of Commerce and Industry in August last
year, ”

t is better to have no deal, rather than have a bad deal.” Beyond the
failure to agree on the details, perhaps an even more significant
outcome of the collapse of Cancun is the evidently growing disrepute of
the very theoretical foundation of the WTO, that is, liberalization
fundamentalism.

Liberalization fundamentalism holds that deep trade liberalization is
the key to economic progress and to global integration. The evidence is
inconclusive. The claim that growth is strongly linked to more open
trade policies is disputed by many economists, such as Dani Rodrik.

Rodrik notes in his article Trading in Illusions, which appeared in the
Spring 2001 issue of Foreign Policy, that economists blame failure to
liberalize as the reason for poor economic performance, when the real
reasons are often ineffective institutions and inappropriate
macroeconomic policies.

He further points out that the high performers in both global
integration and economic growth, such as China and India, combined
outward orientation with policies that are inconsistent with deep
liberalization – including high levels of tariff and non-tariff
barriers, high degrees of public ownership, export subsidies, domestic
content requirement, restrictions on capital flows, and intellectual
property infringements.

The unsystematic relationship between openness and growth is borne out
in the Philippine experience. Despite the deep, unilateral, and
universal trade liberalization implemented by government, our economy
remains in the doldrums and marginally integrated in the world economy.

As the Action for Economic Reforms observed in a recent analysis (Think
Beyond Cancun, Recast Philippine Trade Policy, Sept. 11, 2003), the
proponents of the deep, universal and unilateral trade liberalization
strategy grossly miscalculate the mobility of labor, the behavior of
foreign and local capital, and the level of entrepreneurship in the
Philippines – factors that are critical in determining increases in
competitiveness of promising firms as well as the birth of new firms
and jobs in place of dying industries. They de-emphasize the
protectionism of developed countries, which continue to pour heavy
domestic support and export subsidies on their agriculture.

They also junk wholesale the efficacy of prudent and well-targeted
institutional interventions that have helped other countries become
better able to take advantage of opportunities offered by the world
market.

What next after Cancun? For one, the government should closely watch
the Geneva process that seeks to continue work on the “outstanding
issues.” This process should not be allowed to proceed on a “business
as usual” attitude. Instead, the process must be fine-tuned to respond
to the underlying issues that precipitated the collapse of the Cancun
talks.

In other words, the process should now look beyond the Doha work
program, and instead start a reexamination of the theoretical and
institutional foundations of the WTO.

But the post-Cancun challenge on the home front is even more important.
The government must see it as an opportunity to recast its trade and
industrial policy, in fact its overall development strategy, but this
time no longer shackled by the simplistic formula of deep and
unilateral liberalization.

The result should be an autonomous program that combines market, state
and social instruments in a manner that recognizes the country
specificity of our productive forces and institutions.

The fact is, the government is finding it very difficult to raise
resources to provide the so-called safety nets to accompany deep
liberalization. The fact is, a great segment of our producers lack the
entrepreneurship, technology and capital to expect them to necessarily
respond efficiently to punishing competition.

These factors require flexibility and experimentation in state policy,
which is not possible under the restrictive global and national rules
of liberalization fundamentalism.

Given all these, government should grab the opportunity and lose no
time in re-crafting its trade, industrial and overall development
policies.

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