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The
Cancún Ministerial and the U.S.: By Mark Weisbrot and Todd Tucker From: The
Post-Cancún Debate:
The September 2003 Cancún Ministerial meeting of the World Trade Organization was largely perceived as a “make-or-break” round of negotiations for US foreign commercial policy. It is clear that the result was a failure from Washington's point of view. It is important to distinguish between the official discussion of what happened and the reality of the economic issues at stake. The most widely understood notion of what happened sees the talks collapsing as a result of the United States' failure to make compromises regarding the rich countries' agricultural subsidies and -- to a lesser extent – increased access for developing countries to the agricultural markets of rich countries. While this was definitely a significant factor, the impact of U.S. agricultural policy -- and the issue of market access for developing countries generally -- has been grossly exaggerated. Furthermore, the whole notion of the WTO as an organization designed to promulgate and enforce rules for "free trade" is a misrepresentation, from a purely economic point of view. This is because some of its most important rules actually increase the most economically costly forms of protectionism, in the areas of patents, copyrights, and other intellectual property rights. Also, again from a strictly economic point of view, it is not clear that the implementation of the WTO rules and agenda as a whole would provide a net gain to developing countries. This is because the losses due to increased intellectual property enforcement, economic dislocation, and other costs could easily outweigh the projected gains for developing countries from increased access to rich countries' markets. Finally, the collapse of the trade talks also reflects the long-term development failure of the last 20-25 years, during which the vast majority of developing countries suffered a sharp slowdown in economic growth. This has led to heightened skepticism of the economic development strategies, often referred to in the Global South as "neoliberalism," that the developed countries have sought to embody in the WTO. This
first part of this paper will survey the various responses to the
breakdown of the talks at Cancún from civil society in the United States;
the second will discuss some of the most important economic issues at
stake. The “Can Do’s” and the “Won’t Do’s”: Official Response One of the most important developments at Cancún was an alliance of developed countries under the leadership of Brazil, India and China, calling itself the G20, which organized against the US and European Union positions on agricultural supports. This was generally portrayed as a failure of U.S. foreign commercial diplomacy, although it was hailed in some sectors as a significant advance in developing country coalition politics. The Bush Administration and its Republican allies publicly criticized the G20 countries, while at the same time threatening to move on to regional and bilateral deals. “Whether developed or developing, there were “can do” and “won’t do” countries here. The rhetoric of the ‘won’t do’ overwhelmed the concerted efforts of the ‘can do’ ‘Won’t do’ led to an impasse”.1 These comments from US Trade Representative Robert Zoellick summarize the Bush Administration’s take on the outcome of the Cancún Ministerial. In a column in the Financial Times on September 22, Zoellick wrote of his dismay that the WTO had been transformed into “a forum for the politics of protest” Sen. Charles Grassley, Republican from Iowa and Chairman of the Senate Finance Committee, went further: “The United States evaluates potential partners for free trade on an ongoing basis. I’ll take note of those nations that played a constructive role in Cancún and those nations that didn’t”2. The
general trend of the Bush Administration’s post-Cancún strategy was
expressed by Zoellick: “We are going to keep opening markets one way or
another. We are not waiting forever. We are moving elsewhere”3.
The move towards bilateral deals, which continues in the wake of the
similar stagnation of the Free Trade Area of the Americas following its
Eighth Ministerial in Miami in November, was accompanied by concerted
efforts to peel apart the unity of the G20. Expanding "Free Trade": the Media Response The Washington Post accused developing countries of being “under the influence of the non-governmental anti-trade groups that were out in force in Cancún.” The Post praised Zoellick’s efforts to advance on to bilateral trade deals, and accused activists and the G20 of not understanding that “trade is not a zero sum game, but rather a way of facilitating growth across the board. As the economic history of the past century has proven, countries with more open borders become richer faster: refusal to cooperate hurts no one more than the poor themselves.”4 The New York Times editorial board took a somewhat different position, faulting Zoellick’s team for not making enough concessions on market access for developing country agricultural exports. “The failure of Cancún amounts to a crushing message from the developed world – one of callous indifference”.5 While differing in their assignment of blame, the major media was nearly unanimous in assuming that the collapse of the "free trade" talks was a setback for all concerned. Some US business interests blamed the G20. The National Association of Manufacturers, which represents 14,000 companies in the U.S., claimed that the G20 had made a huge miscalculation, and that US industry was not likely to offer more in the way of concessions on non-agricultural market access. The Farm Bureau, which represents agricultural interests, said that U.S. farmers can afford to give up only so much of their subsidies without assurances that American exports will increase. Others,
including the International Chamber of Commerce (ICC), Business Roundtable
(BRT), and the Coalition of Service Industries (CSI), lamented the lost
opportunity for all. Representatives from The ICC World Council and
Executive Board – comprising CEOs and business leaders from 80 countries
– declared that, “Trade across borders is an issue close to the heart
of all businesses, no matter how large or small. The desire for a
rules-based multilateral trading system is common to companies in all
sectors, of all sizes, and in all corners of the globe.”6
Business
Roundtable Chairman and CEO of Boeing, Phillip M. Condit emphasized the
importance of the Cancún talks for the global economy and developing
countries stating that, “Reducing tariffs in developed countries will
help low-income countries export and grow out of persistent poverty.”7 The NGO Response U.S. NGO's mainly sympathized with the South, although they offered differing interpretations of the breakdown and its significance for developing countries. Public Citizen’s Global Trade Watch claimed that the failure of Cancún stemmed from the WTO’s “ever-growing crisis of legitimacy.” ”For the first time ever the developing countries got their say,” said Lori Wallach, director of Global Trade Watch. "The outcome is not surprising. The agenda is unacceptable.8” GTW and its allies have long argued that the WTO's incorporation of such non-trade issues as investment, intellectual property, and government procurement have made this organization a qualitative and overly intrusive change from its predecessor, the GATT (which dealt mainly with actual trade barriers); and that even its rules and procedures regarding trade disputes (e.g. the European Union's ban on hormone-fed beef) was a threat to public health and safety, inasmuch as they seek to substitute the judgment of un-elected, unaccountable WTO officials for the national regulatory agencies of developed countries. Some US civil society groups celebrated that the G20 alliance itself was held together despite the odds. “Cancún was the first time that developing countries ... united in defense of their obvious common interests,” said Njoki Njoroge Njehu, a Kenyan who directs the US-based “50 Years Is Enough Network"9. Oxfam America blamed the rich countries for the impasse, but also saw the collapse of the talks as a loss for everyone: “Ultimately, the US, like the EU and the rest of the world, will suffer from a weakening of the rules-based multilateral trading system," concluded Oxfam America President Raymond Offenheiser in a September 24 op-ed in the Financial Times. Oxfam has had a major campaign to pressure the U.S. and other rich countries to reduce their subsidies and trade barriers in agriculture. Some activist groups openly applauded the outcome at Cancún. Citizens' Trade Campaign, a national coalition of environmental, labor, consumer, family farm, religious, and other civil society groups, called it "a major victory for the social movements of the world." CTC claimed that "the collapse of these negotiations confirms that the U.S. and E.U. can no longer continue pushing their anti-development, anti-worker, and antienvironment corporate trade regime on the people of the world." Beyond organized civil society, the general public was found in the wake of Cancún to be souring on "free trade" as well. An NBC News-'Wall Street Journal' poll on the economy and presidential race found the public holding a negative view of free trade. A majority of those polled - 54 percent - said free trade was "not worth it", while 35 percent were in favor. ***** The real economic issues behind the North-South divide at Cancún were largely absent, or highly distorted, in the public debate that reached most Americans -- and indeed most of the world. The issue of agricultural subsidies and access to U.S. markets for agricultural goods was grossly exaggerated and misrepresented. Standard economic research shows that the impact of opening up the rich countries' markets to agricultural goods, and removing subsidies, is small, and in many cases negative. To put the problem in perspective: the World Bank, one of the world's most powerful advocates of removing most trade barriers, has estimated the gains from removing all the rich countries' remaining barriers to merchandise trade -- including manufacturing as well as agricultural products -- and removing agricultural subsidies. The total estimated gain to low and middle income countries, when the changes are phased in by 2015, is an extra 0.6 percent of GDP. In other words, a poor country with an annual income of $1000 per person would then have $1006, as a result of removing these barriers and subsidies.10 And this would assume that such gains were distributed equally, in proportion to per capita income, among developing countries -- which is unlikely. For example, a recent World Bank study found that the removal of all trade barriers and subsidies in the United States would have no net effect on growth in sub-Saharan Africa.11 In terms of agricultural liberalization and its effect on specific regions, one of the most widely-cited economic models (Brown-Deardorff-Stern12) projects that many developing. countries will actually lose from trade liberalization in important sectors, such as agriculture and textiles. There are three reasons for this outcome. First, some countries will be hurt by the elimination of quotas that now allow them to sell a fixed amount of exports at a price that exceeds the competitive market price. Second, trade liberalization changes the relative prices of various goods, and some countries will find that their export prices fall relative to the price of their imports (the "terms-of-trade" effect). Third, some developing countries currently benefit from access to cheap, subsidized agricultural exports from the rich countries.13 For example, the Brown-Deardorf-Stern model actually projects a net loss for South America, Mexico, Indonesia, the Philippines, and other countries from the liberalization of agriculture according to agreement of the Uruguay Round of the GATT (which created the WTO). So why did such countries as Brazil, one of the leaders of the G20 countries at Cancún, put so much emphasis on the removal of rich country agricultural subsidies and barriers? The most likely explanation is that it was a politically convenient argument to make: the rich countries were portrayed as hypocritical, not playing by the rules of "free trade" that they wanted to enforce on the developing countries. This is an argument that was accepted by powerful institutions within the high-income countries themselves, including the IMF, World Bank, and the international press. It is also true that there are powerful interests within countries that stand to gain from increased market access and/or elimination of subsidies (e.g. large soybean producers in Brazil). So this became the central issue in Cancún, in spite of the fact that concessions by the rich countries would not bring any large gains to developing countries as a group, and significant net losses to some regions. Some of the most widely reported claims surrounding this debate were inaccurate. For example, it was often repeated in the press that the developed country governments spend more than $300 billion annually to subsidize their agriculture. The actual number is probably less than one-third of this figure.14 It is also worth noting that from an economic point of view, the effect of subsidies on world market prices is no different from that of an increase in agricultural productivity. The idea underlying the Cancún confrontation, that developing countries could compete if only there was a "level playing field" is a dubious claim. In many areas of production poor farmers would be wiped out by free trade just as they would by subsidized competition. A more sensible policy than simply trying to level the playing field would be to allow developing countries to use tariffs for agricultural imports, subsidized or not, as necessary to preserve their domestic agriculture. Then those who would benefit most from cheap, even subsidized food could have access to it, while others who needed to protect domestic producers could also do so. The debate also neglected to take into account that many developing countries have a large portion of their population employed in agriculture, many of whom would be displaced by liberalization according to the WTO's agenda. In China it is nearly half the labor force, and even more in Pakistan and Bangladesh. The United States took a whole century, from 1870 to 1970, to reduce the percentage of its population in agriculture from 53 percent to 4.6 percent -- and still there was considerable social unrest that accompanied this long transition. Yet the agricultural liberalization according to WTO rules would compress this transition into 10 or 15 years, or perhaps even less. The economic and social costs of displacing tens of millions of small farmers would be enormous, as well as politically explosive in some countries. It should be emphasized that the economic costs of displacement are not taken into account in the economic models described above, in evaluating the net gains or losses from agricultural liberalization. That is because the standard economic models assume full employment, and therefore that anyone displaced from agriculture would find employment elsewhere. The costs to developing countries of implementing WTO rules received very little attention, but it is likely that G20 governments took at least some of them into account in considering whether they should make further concessions. For example, the economic costs to developing countries of complying with the patent and copyright protections embodied in the WTO's TRIPS (Trade-Related Aspects of Intellectual Property Rights) could well exceed their gains from increased access to the markets of developed countries, even if the developed countries were to completely open up their markets and abandon their subsidies.15 This points to the inaccuracy of the popular understanding of the WTO as a body that seeks to promote "free trade." While there are economic arguments that can be made for patent or copyright protection16 -- that monopoly rents are necessary to fund research and development (in the case of patents) or creative activity (copyrights) -- there are economic arguments for other forms of protectionism as well. From an economic point of view, both are forms of protectionism. The main difference is that the distortions caused by patents and copyrights are tremendously larger -- often in the hundreds of percentage points, as opposed to 30 or 40 percent at the high end for a tariff. (In the case of essential medicines, such as anti-AIDS drugs, the cost of this form of protectionism has also been very high in terms of the loss of human life). There are also very significant potential costs to developing countries of complying with rules that restrict their ability to regulate foreign investment or government purchases. The high-income countries of today all regulated foreign investment, and intervened in many other ways -- including protection for their domestic industries – when they were developing countries.17 Those that industrialized later, such as Japan and South Korea, had an even stronger role for the state in their development process. The "new issues" that the G20 resisted at Cancún were widely seen as limiting the scope of action for developing country governments, and possibly preventing them from pursuing industrial or development strategies that had proved successful in the past. Finally, these differences between the G-7 and G20 countries at Cancún are also partially a result of the sharp slowdown in economic growth in the vast majority of developing countries over the past 20-25 years. From 1980-2000, per capita GDP in the low and middle-income countries grew at about half the rate that it did in the prior two decades. As would be expected during a period of sharply reduced growth, most developing countries also showed reduced progress on the major social indicators, including life expectancy, infant and child mortality, literacy and education.18 Although China and India are two major exceptions to this long-term economic decline, and were leaders of the G20, in much of the developing world they are seen as the exceptions that prove the rule. They still have among the most protected markets in the world, extensive currency controls, and in China's case, a mostly state-owned banking system. In
the Global South, this long-term economic failure has led to considerable
skepticism regarding what is called "neo-liberalism" -- a set of
policies that include indiscriminate opening to foreign trade and
investment, large scale privatization, high interest rates and tight
fiscal policies, and abandonment of industrial or development strategies.
The skepticism is partly a result of the fact that the introduction of
these policies coincided with the economic slowdown. This is especially
true in Latin America, where per capita income grew by 80 percent from
1960-79, but only 11 percent from 1980-99; and has barely grown at all
over the last 4 years.19 Brazil,
one of the leaders of the G20, had its worst decade of growth in the whole
20th
century
in the 1990s, and found many allies in Latin America for its confrontation
with the United States in Cancún. Implications for the Future The
collapse of negotiations at Cancún raises serious questions about the
future of the WTO. It may be that the G-7's ambitious project of binding
the world to a set of rules governing non-trade issues such as
intellectual property, investment, government purchases, and competition
policy will prove to be impossible. At this point it is not even clear
whether the United States, Europe, or Japan has the political will or
ability to make the concessions regarding agricultural subsidies or market
access in order to move the talks forward. But even if they did, it is not
clear that it would be in the interest of developing countries to make
further concessions on issues that could easily cost them more than they
would gain from market access or the elimination of agricultural subsi-
dies. The World Bank only recently made a preliminary effort at estimating
the cost to some developing countries of complying with the TRIPS
agreement; if such estimates had been available 10 years ago, or if the
WTO agreement had been the subject of public and legislative discussion in
more of its signatory countries (including the United States, where most
of Congress probably had little idea of what they were voting on), it may
not have been approved. As more of the real economic issues -- especially
costs and benefits -- become clearer, or even part of the public debate,
the further implementation of the WTO's rules and agenda will probably
become increasingly problematic. Mark
Weisbrot is Co-Director and Todd Tucker is a Policy Analyst at the Center for Economic and Policy
Research in Washington D.C. Notes1 Chicago Tribune, September 15, 2003. 2 Tayler, Letta, “Talks Collapse At WTO Summit; Signals growing power of developing nations”, Newsday (NY), September 15, 2003. 3 Knowlton, Brian, “Failed Cancún talks give way to Bilateral Deals”, International Herald Tribune, September 23, 2003. 4 “Cancún Collapse”, The Washington Post, September 9, 2003. 5 “The Cancún Failure”, The New York Times, September 16, 2003. 6 “Businesses large and small launch campaign to push for renewed WTO talks”, News Archives of the ICC, September 17, 2003. http://www.iccwbo.org/home/news_archives/2003/stories/chambers_wto.asp 7 “Foot-Dragging Behavior Will Lead to More Bilateral and Regional Trade Agreements”, Press Releases Business Roundtable, September 9, 2003. http://www.businessroundtable.org/newsroom/document.aspx?qs=5606BF807822B0F1DD1409167F75A 70478252 8 Bussey, Jane, “Talks collapse as countries clash on issues“, The Miami Herald., September 15, 2003. 9 Dagher, Sam, “Rich nations must break trade impasse to fight poverty, says Wolfensohn”, Agence France Presse, September 23, 2003. 10 World Bank, Global Economic Prospects and the Developing Countries 2002. Washington, D.C.: The World Bank 2002. 11 “Unrestricted Market Access for Sub-Saharan Africa: How Much Is It Worth and Who Pays” [http://econ.worldbank.org/files/1715_wps2595.pdf] 12 Brown, D., A. Deardorff, and R. Stern, CGE Modeling and Analysis of Multilateral and Regional Negotiating Options, Ann Arbor, MI.: University of Michigan, School of Public Policy 2001. 13 This and much of what follows is explained further in Mark Weisbrot and Dean Baker, The Relative Impact of Trade Liberalization on Developing Countries, Center for Economic and Policy Research: Washington 2002 (www.cepr.net) 14 The $300 billion figure includes the increased costs to consumers from tariff and non-tariff barriers in agriculture, which cannot accurately be described as a government subsidy to producers in the high income countries (in fact some of it, e.g. quota rents, accrues to producers in developing countries. 15 Mark Weisbrot and Dean Baker, op.cit. 16 These arguments have become much weaker as the costs of this protection have multiplied; half of US biomedical research is already undertaken in the public and non-profit sector, and the savings from funding the rest through public sector, and allowing generic competition (and free international trade) would be enormous -- see Dean Baker and Noriko Chatani, Promoting Good Ideas on Drugs: Are Patents the Best Way? The Relative Efficiency of Patent and Public Support for Bio-Medical Research, Center for Economic and Policy Research, Washington 2002 (www.cepr.net). 17 See Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective, Anthem Press: 2000. 18 See Mark Weisbrot, Dean Baker, Egor Kraev and Judy Chen, The Scorecard on Globalization 1980- 200: Twenty Years of Diminshed Progress, Center for Economic and Policy Research: Washington 2001 (www.cepr.net). 19 See Mark Weisbrot and David Rosnick, Another Lost Decade? Latin America's Growth Failure Continues Into the 21st Century, Center for Economic and Policy Research: Washington 2003 (www.cepr.net) |