BusinessWorld | By Benjamin G. Defensor | March 3, 2004
After the collapse of the World Trade Organization's Fifth Ministerial Conference in Cancun, Mexico because of irreconcilable differences between their needs and problems, should there be a separate organization each for the developed and developing world?
Our fears about the collapse are now being realized. Countries of the world are now going around the WTO to pursue their own initiatives for free trade agreements (FTAs) with their trading partners. After Cancun, the impression is that the WTO is an organization of the major world economies to protect themselves.
As Razeen Sally, a senior lecturer at the London School of Economics, asks in an essay in World Economics: "Is the world trading system swinging away from non-discriminatory multilateralism towards fractured, messy and discriminatory bilateralism and regionalism?
From what we now see, the answer is yes.
Asian countries are racing to sign bilateral trade agreements with each other. Members of the Association of Southeast Asian Nations (ASEAN) are not only crafting their own regional free trade zone, but individual members are also signing FTAs with countries outside the region.
And with China looming to be an economic power that could rival Japan, its neighbors in the ASEAN are also trying to negotiate economic ties with it. As the Economist puts it, "If they are to have any hope of luring foreign businessmen these days, these countries need to trumpet their growing economic ties with Asia's next giant."
Roots. The Cancun debacle has its roots in the Third Singapore Ministerial Conference in 1996 when four issues were defined covering competition, investment, trade facilitation and transparency in government procurement. According to WTO rules, all members must agree to all four issues. Negotiations on all these were to have a January 1, 2005 deadline.
However, September 11, 2001 changed all these. In the Fourth Ministerial meeting held in Doha, Qatar in November 2001 adopted the "Doha Development Agenda," which was popularly referred to as "the Bin Laden Round."
Razeen summed up what happened as follows:
"WTO members agreed to a large, complex and ambitious agenda, with 21 subjects dealt with in eight negotiating groups, reflecting the post-September 11th mood of all-round compromise. There is a market access core to the new round; i.e., negotiations on further trade liberalization as demanded by the US, the Cairns Group (of leading developed and developing country agricultural exporters), Hong Kong and Singapore.
"Developing countries successfully flexed collective muscle with major concession, the "implementation agenda" (flexibility and assistance in implementing Uruguay Round agreements), flexibility in interpreting WTO rules on patent protection, and, more generically, a reconsideration of Special and Differential Treatment (S&D- more favorable treatment for developing countries under WTO agreements). The EU (European Union) forced other WTO members to dilute the commitment to abolish agricultural export subsidies; and extracted new commitments to negotiate on trade-and-environment and the "Singapore issues..."
"... It was agreed that the results of the negotiations (with the exception of dispute settlement and not-a-little ambiguity on the Singapore issues) would be as part of a Single Undertaking, i.e. members would have to sign up to the whole package rather than accepting or rejecting individual elements of it ..."
Formula for disaster. This was a formula for disaster considering the varied preoccupations, problems and situation of more than a hundred nations involved.
Considering the complexities of the undertaking, it was foreseen that the January 1, 2005 deadline could not be met and Cancun was just expected to keep the round alive.
In a last minute move to keep the negotiations alive, the EU agreed to drop three of the Singapore issues - investment, competition and transparency in government procurement - and limit its demands to only trade facilitation talks.
While the US offered significant concessions on agriculture, the passage of its farm bill that adds $1.8 billion in agricultural subsidies, was a slap against the cotton growers of Africa who were protesting being kept out of the world cotton market precisely because of subsidized US cotton. At the time, Uncle Sam was focused on the war in Iraq and didn't want its powerful farm lobby on his neck.
As the Economist reported:
"... Nearly everybody involved deserves criticism... For all the promises made at Doha, rich countries could see no farther than the interest of their own farmers. America's unwillingness to cut its cotton subsidies - which have an especially severe effect on poor country producers -is unforgivable. So, too, is Japan's unyielding defense of its own swaddled rice farmers. And for all its ballyhooed efforts at reform, the European Union remains the most egregious farm subsidizer 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.
Excuse. "Many poor countries saw the Doha Round, and its promise to be pro-poor as an excuse for pushing 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 trade barriers than from persuading rich countries to lower theirs. According to the World Bank, over 70 per cent 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."
UN-ization. Sally blames Un-ization as one of the contributing factors to the failure of the Cancun meet. He said:
Most of the developing countries played an overwhelming negative role in Cancun. They came to Cancun with a long list of demands, but without credible negotiating proposals of their own. They expected entitlements (such as maintenance of their tariff preferences and increased aid) and were willing to block overall progress, but were unwilling or incapable of engaging positively. Their tactics resembled those of the UN more than those of the old GATT: long-winded speechifying, populist posturing, inflammatory rhetoric and adversarial point scoring substituted for serious negotiating...
"...Day by day, the 'UN-ization' of the WTO gathers pace. Windy rhetoric, adversarial point-scoring, political grand-standing and procedural nit-picking seem to have substituted for serious decision making."
Current situation. So what is the situation at the moment?
From Sally's point of view, "Since Cancun, the US has manifestly given priority to bilateral and regional trade negotiations (with Central and South American countries, Morocco, Australia and Thailand) in preference to the WTO. As far as the Doha Round is concerned, the (US) Administration has passed its maximum point of flexibility. Despite the recent US initiative to breath life back into the round, protectionist pressures ahead of elections in late 2004 will severely narrow (the US's) room for maneuver, especially in making concessions in sensitive areas like agriculture, textiles and clothing, and anti-dumping regulation.
"The EU's post-Cancun commitment to the WTO must also be in some doubt. The Commission's Doha Round strategy has blown up it its face. It seems uncertain what to do next, whether in the WTO or with bilateral and regional initiatives. It is also evident that several major developing countries have been turning political attention and negotiating resources away from the WTO and towards new (PTA) preferential trade arrangement initiatives. This is particularly noticeable in Southeast Asia where ASEAN...members are pre-occupied with an expanding set of resource-intensive and 'ASEAN-plus' trade negotiations with third countries..."
Many first world producers now have to compete hard with domestic producers of their overseas market. And they are asking for a "level playing field" where tariffs that keep out foreign products would be removed. But the more egregious examples of these are actually tariffs set up by developed nations against products of other developed nations with the developing nations caught in-between.
The main objection raised by developing nations about untrammeled free trade is that many of them cannot compete with developed nations in a level playing field. But since the theory is valid, nations with the same capabilities have agreed on free trade arrangements among themselves.
This is why the ASEAN is forming its own free trade zone. AASEAN has a population of 500 million and an annual foreign trade of $700 million. Composed of Brunei, Cambodia, Laos, Vietnam, Indonesia, the Philippines, Singapore, Myanmar, Malaysia and Thailand, the group plans to achieve a single production base and market by 2020 with a free flow of goods, services and investments in the region.
By helping each other, ASEAN countries may be able to develop and compete in the bigger world market where many countries subsidize their own primary producers to the disadvantage of less developed and poor nations who cannot afford to do so.
Scenario for the future. This appears to be in line with Sally's prognosis of the WTO crisis.
"WTO members have to come to terms with ...uneven and hardboiled global realities, not least the increasing differentiation and divergence within the developing world. The politically correct pretense of a democratic, inclusive, participatory WTO must be dropped. Maintaining such a posture is a recipe for continuing deadlock and irrelevance. Rather, the necessity of a two-tier or multi-tier WTO must be recognized - which would only be consonant with the real world outside the rarefied atmosphere of international bureaucracy in Geneva.
Stated baldly: Only a minority of the WT) membership have the bargaining power and capacity to advance negotiations. There are the OECD countries and about a score or so of advanced developing countries (most of them in the G20). Hence the key liberalizing and rule-making deals in the WTO must be done by the 30-plus countries (counting the EU as one) that account for over 80 per cent of international trade and an even bigger share of foreign direct investment... This core group must concentrate first and foremost on market access, i.e. negotiations on agriculture, non-agricultural goods and serv ices. New issues (such as the Singapore issues and trade-and-environment) should be dealt with plurilaterally through opt ins- or opt-outs. This would give developing countries the comfort zone to join negotiations only if and when they feel ready to do so.
"The remaining 100-plus developing countries should be accorded generous S&D - essentially a free ride. Through Most Favored Nation status, they should have rights to whatever liberalization is negotiated by others; and preferably duty- and quota-free access to OECD and leading developing country markets. At the same time, they should not be obliged to reciprocate with own liberalization, nor should they be under pressure to sign up to other new obligations if they feel unready to do so.
There should be a 'peace clause' on dispute settlement: an understanding that they will not be taken to court, even if in breach of existing obligations... Finally, WTO members could settle on a 'graduation' principle: an understanding that if countries reached a certain level of development, they would be expected to participate in reciprocal negotiations and adhere to stronger rules and obligations.
"These terms should not pose a problem for the core group of 30-plus. The 100-plus second and third division developing countries are of minimal commercial interest and not of significant strategic-political interest to the major developed and developing country powers. However, these terms should be conditional on the countries concerned, not blocking overall negotiation progress. They must be left in no doubt that, as free riders, they will be on the sidelines, not at the center of decision-making.
"Modern political correctness in the WTO also extends to seemingly limitless indulgence of so-called civil society, the noisiest elements of which are well-organized, well-funded, Western anti-market NGOs.
"Their economically nonsensical arguments against trade liberalization and associated market-based reforms in developing countries have been a notable feature of the Doha Round. This molly coddling of all the wrong sorts of NGOs has to stop. Their rising influence in trade negotiations must be arrested and reversed. Not to put too fine a point on it, the barbarians really should be kept outside the gates."BusinessWorld:
