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Cancun, the WTO and Developing Countries

by Oliver Morrissey

I had the privilege of being interviewed by the Finnish TV news agency when I was in Helsinki for the World Institute for Development Economics Research (WIDER) conference on Sharing Global Prosperity (5-7 September 2003). They were interested in views of what the Cancun Ministerial meant for developing countries, and what the likely outcome would be. As events have not proved me wrong, and some comments in the press regarding the implications for developing countries are somewhat misleading, I offer the gist of the interview (with some hindsight) as a comment on Cancun.

Cancun was at a sensitive time for adding impetus to multilateral trade negotiations for a number of reasons. One is that the US has shown in various fora a reluctance to promote, even to pursue, multilateral approaches. Second, although it did not emerge as a major issue, there are a number of significant trade disputes between the EU and the US (GMOs is the one that has had the highest profile recently). Third, and perhaps most importantly as events transpired, strong developing country groups have emerged. In the event, the G21 lead by Brazil, China and India attracted the headlines. However, since Doha, the African countries had demonstrated an ability to act together to give their interests a stronger voice. In many important respects, the interests of the large developing countries (as represented by the G21) are quite different to those of the smaller and poorer countries (mostly, but not exclusively, the African group).

To anybody who had followed WTO negotiations post-Doha, it was no surprise that two big disputes dominated Cancun-agriculture and the Singapore issues. The developing countries had made it quite clear that they were opposed to negotiations on investment and competition (the two most contentious Singapore issues). Commissioner Lamy, in particular, showed a lack of negotiating acumen in not dropping these issues at the outset. He may have wanted to keep these as concessions to be made during the negotiations (which is what he did), but would have strengthened the EU position had he dropped these before Cancun. As it was, the US must have been secretly pleased to see the EU attract all the flak for insisting on measures seen as promoting solely the interests of multinational companies to the detriment of developing country governments. The fundamental role of the WTO is to facilitate trade negotiations. The various 'trade-related' issues (mostly introduced in the Uruguay Round at the behest of US corporations) have detracted attention from, and ultimately undermined, the core purpose of the WTO.

Even if these issues had been dropped, the disputes over agriculture would have dominated Cancun, but an ultimate agreement would have been more likely. Contrary to the impression given in most of the media, developing countries were not united over agriculture; many of the poorest countries benefit from aspects of the current regimes. No trade economist would defend the protectionist agriculture regimes in the rich countries (the EU, Japan and US in particular). Reform is desirable and necessary for a host of reasons, but the benefits to the poor in the poorest countries is not generally an important reason. The US cotton subsidies are a major exception, but serious liberalization of trade in agriculture would have very few beneficial effects for the poorest developing countries. The reason is that few of the tropical commodities they produce would be affected. The major impacts would be on world markets for temperate products, especially grains and dairy products. If the EU and US suddenly liberalized their agriculture regimes, the largest trade gains would be to the big, relatively rich developing countries (in the G21, most of whom protect their own agriculture) and the already liberalized OECD Cairns group countries (especially Australia and New Zealand). World prices for temperate products would probably increase. Some producers in some poor countries would benefit, although to the extent that they currently suffer because of subsidized imports the WTO permits countervailing measures (anti-dumping can now be applied in agriculture). However, many poor countries are net food importers because of structural weaknesses in domestic production rather than unfair competition, and these countries would not benefit.

It should also be remembered that many poor developing countries currently benefit from trade preferences in access to the EU (the major importer from those countries). For example, full liberalization of the EU Sugar regime would be costly to some developing countries (e.g. Mauritius, Cote d'Ivoire, Jamaica and Madagascar), with the benefits going to richer countries such as Brazil and even Australia. The point is not to argue against liberalization of trade in agriculture, but rather to emphasize that the effects are complex and varied across countries. In general, the poorest countries that most need benefits from world trade are the countries least likely to actually benefit. Special and differential treatment is the mechanism the WTO has to address the problems facing the poorest countries, but perhaps a fundamental principle of compensation is what is required. The failure to make progress on agriculture is a loss for everybody, although the cost is least (and may even be a benefit) for some of the poorest countries.

It can also be noted that although the WTO negotiates trade as being between countries, most trade is actually within and between multinational companies. This observation may be even more true for agricultural products than for manufactures. This is one reason why developing countries opposed negotiations on investment and competition, and any moratorium on such negotiations is a victory for developing countries collectively. It is also a reason why trade issues cannot be properly addressed in isolation from investment (a phrase in practice covering multinational companies) and competition issues. Unfortunately, the WTO is not currently equipped to address these concerns (and the aspects promoted by the EU and US are not those of the greatest importance to fair trade) because it has no jurisdiction over private companies.

Cancun would have been a success if countries had agreed to further and continue the process of multilateral trade negotiations. As negotiations are continuing in Geneva, the failure to reach an agreement at Cancun is not a failure of the WTO. In fact, in an important sense it shows that the WTO works-multilateral negotiations must accommodate all countries, and Cancun showed that developing countries can exercise their voice in the WTO. There is, however, a danger, that the 'big players' will follow the route of bilateral negotiations, and pick off developing countries one by one (or at least in small 'bite sized' groups). The US has intimated that it is willing to pursue this route, and the EU is already taking this approach with ACP countries. In fact, for a long time, the EU and US have engaged in various forms of bilateral agreement. The true benefits from trade liberalization are only realized at the global, multilateral level. It is in everybody's interest to support the multilateral process in the WTO. The most important lesson from Cancun is that the process can work, but the interests of all countries should be respected. This is most likely to be achieved if the scope of negotiation issues is limited, in particular restricting negotiation to trade. It will not be achieved if the number of negotiating countries is restricted. That is why the world needs the WTO.

Papers presented at the WIDER Conference on Sharing Global Prosperity are available at: www.wider.unu.edu

Oliver Morrissey is the Director of the Centre for Research in Economic Development and International Trade (CREDIT), School of Economics, University of Nottingham.