Cancun losers: poor countries

The author is a Research Associate at the Philippine Institute for
Development Studies, and a PhD candidate at the UP School of Economics.

The World Trade Organization (WTO) is the only international body that
regulates trade between nations. A multilateral trading system that is
based on rules, its primary objective is to achieve freer trade by
ensuring that trade flows as smoothly and predictably as possible
through the opening up of markets.

WTO’s top level decision-making body, the Ministerial Conference, had
its fifth meeting in Cancun, Mexico last September. After almost two
years of stagnation in trade talks, the meeting was held to take stock
of progress in the negotiations and provide other necessary work.
Unfortunately, too much grandstanding, excessive politicization, and
less efforts to seek the necessary compromises to reach a consensus led
to the collapse of the trade talks.

There are three major controversial issues that divided developed and
developing countries: removal of agricultural subsidies, tariff
reduction on industrial goods, and the so-called “Singapore issues,”
which were heavily pushed by Japan and the European Union and greatly
opposed by developing countries.

These issues consisted of investment policy, competition policy,
procedures for transparency in government procurement, and
trade-facilitating policies such as customs procedures.

In both agriculture and industrial products, the main issue revolved on
how to reduce trade barriers, how much the developed countries should
give and how little developing countries should give up. The US and the
EU drew up a framework to free agricultural trade but this was refused
by the G20+ countries. The G20+ is a new bloc of developing countries
led by Brazil, China, and India that coalesced before the Cancun
meeting to counter US and EU agricultural protectionism. They demanded
rich countries to cut their subsidies and free agricultural trade more
and poor countries to offer much less liberalization.

In 2001, OECD countries spent $311 billion to support their
agricultural sectors. The US provides $3 billion subsidies to its
farmers leading to a drop in the world price of cotton and hurting more
efficient African producers. Note that developing countries’
agricultural sectors are also highly protected, not through subsidies,
which are unaffordable to them, but through very high tariffs.

While the overall tariffs on industrial goods applied by developed
countries are already low, their tariffs remain high in labor-intensive
products like textiles and other manufactures that are of interest to
developing countries. Rich countries are willing to liberalize these
sectors but they want the advanced developing countries to do the same.
However, most developing countries refuse to expose their industries to
more international competition. Countries like Brazil, which have huge
agricultural sector, would not even discuss industrial goods until
clear gains in agriculture are seen. This hardening and seemingly tough
and uncompromising position complicated the whole decision-making
process in Cancun. With the participants taking too much time to reveal
their true positions, the more it became very difficult to achieve
compromises.

The ministers could not agree on any of the Singapore issues. The
developing countries rejected all four issues outright on the ground
that no concessions should be made unless developed countries would
concede to their demands in agriculture. It is true that developing
countries have limited knowledge and little negotiating capacity in
terms of investment and competition policy. But there are gains for
both developed and developing countries from reforms in trade
facilitation as well as government procurement that would have
addressed issues like transparency, corruption, and reduction of
transaction costs of doing business with the government. In the end,
the EU was willing to forego competition and investment, although this
was deemed too late because by then, tough stances were already adopted
and nobody wanted to yield.

With the Cancun breakdown, anti-globalization groups and NGOs were
extremely delighted. Our own trade minister and chief negotiator was
elated by it. It is ironic how we could rejoice in the fact that with
the collapse of the trade talks, every country would suffer with some
having to suffer more than others. The developed countries have less to
lose, they have the resources and they can always engage in bilateral
and regional agreements where they can easily flex their economic
muscles. The real losers are the developing countries especially the
smaller and weaker ones.

Our negotiators should go beyond the rhetoric that no deal is better
than a bad deal, an all or nothing position, and the political victory
of G20+. After Cancun, there is a need to reflect on important issues
like have we made up our minds on what we really want to achieve and
what our country’s interests are. Have we made cost-benefit assessment
of our negotiating positions on market access not only for agriculture
but also for industrial goods that are of interest to us notably
textiles and clothing, footwear, leather and fish products where
developed countries’ tariffs are still high. Did we assess the
individual WTO issues and their ramifications on the Philippine
economy? Who in our economy would benefit and who would lose and by how
much? Did we forge correct alliances or did we just follow herd
mentality? Our negotiators should not focus solely on the effect of
freer trade on Filipino producers of like goods, but rather should
focus on national economic interest, i.e., the sum of all benefits to
all Filipinos who gain less the costs to all Filipinos who lose.

While regionalism and bilateralism are fast becoming an obsession at
the moment, a multilateral system based on rules is still superior.
There’s always the danger that regionalism might give rise to
substantial trade diversion while under bilateralism, small countries
have hardly any say and concessions can easily be withdrawn. Despite
its weaknesses, the WTO still provides the best solution.

A Geneva meeting was scheduled in December 2003 to revive the talks. To
get back on track, much depends not only on powerful countries like the
US and the EU but on the cooperation of weaker countries as well
recognizing that they have the most to lose if the talks collapse.
Countries should commit to more meaningful reforms. The US and the EU
should go beyond their earlier proposal on agriculture subsidies while
advanced developing countries should pursue reforms to reduce their own
trade restrictions. Currently, uncertainty still looms as the US 2004
election and the EU enlargement might dampen their interest in trade
talks.

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