Crisis in Cancun.

Wilkinson, Rorden

In opulent surroundings, representatives of the World Trade Organization's (WTO) 146 member states met 10-14 September 2003 in Cancun to discuss progress in the so-called development round--officially the Doha Development Agenda--named after the meeting that launched the negotiations. The task at hand was difficult: to relieve the deadlock plaguing the trade agenda and in so doing agree to concessions designed to address the development concerns of the Global South, while placating the North's desire to begin negotiations on multilateral agreements on investment, government procurement, trade facilitation, and competition policy (the so-called Singapore issues). The fault line was agriculture, a notoriously awkward area. All of the usual players were in town: legions of trade officials from the industrial North; significantly fewer representatives from the more numerous countries of the South; protestors; nongovernmental organizations (NGOs); the press; organizing committee officials; onlookers; and heavy security consisting of armed police, co-opted personnel and, most formidably, three Mexican warships.

The draft declaration produced prior to the meeting failed to provide the basis on which negotiation and agreement could ensue. The production of a second draft declaration midway through the ministerial proved little better. The meeting finally collapsed when conference chair Mexican foreign minister Luis Ernesto Derbez called a close to proceedings. In spite of a rather ironic ministerial declaration that "considerable progress" has been made in Cancun, little hope exists that the round will be concluded by its 1 January 2005 deadline.

Amid all the grandstanding, commentary, protests, proposals for ways forward, suggestions for institutional reform, and calls for disbanding the WTO that inevitably accompany and follow such a meeting (especially one that collapses), a deeper and potentially more troublesome problem has been passed over. The problem arises from the answer to one simple question: What if the differences over agriculture and the so-called Singapore issues are resolved, an agreement is reached, and the negotiations are eventually concluded? This question warrants serious consideration given that the history of international trade negotiations is littered with examples that suggest that Cancun is not unique; that it is merely an expected, albeit frustrating, punctuation of the negotiations; and that the negotiations will inevitably reach a conclusion. Contemporary comment and historical evidence support this claim.

In the immediate aftermath of the Cancun meeting, conference chair Derbez came in for considerable criticism for his decision to call the meeting to an early close part way through the final day. Previous meetings have shown that it is not unusual for vigorous negotiations to begin only in the very late stages and for meetings to be extended as a result. Moreover, it appears that key member states had begun to move away from their entrenched positions. In the late stages of the meeting, the European Union (EU), whose position seemed to be set in stone, had suggested it was prepared to consider "unbundling" the Singapore issues. This would have left negotiations on the more contentious issues--investment and competition policy--to a later date in return for movement in other areas (largely agriculture).

Second, the preceding Uruguay Round was also characterized by what seemed to be a significant setback. The fallout over agriculture between the EU and the United States, mixed in with a desire to bring certain trade-related issues (intellectual property rights and investment measures) into the fray, culminated in an infamous hiatus in the round. Paralleling much contemporary comment, this hiatus led many to suggest that the demise of the General Agreement on Tariffs and Trade (GATT) was nigh. (1)

Third, the breakdown of the meeting in Cancun has succeeded in underlining developing country concerns, but a more permanent rupture in the WTO would not bode so well. Although developing countries were able to stand firm by forming large coalitions, no such comfort exists outside of the WTO. The current U.S. administration has stated that due to a lack of progress in the WTO, it will pursue its trade goals bilaterally. In such circumstances, developing states will find it harder to resist pressures to agree to open up markets and to lobby for reductions in U.S. subsidy regimes. As such, the WTO represents the best forum in which developing countries can exercise negotiating power.

Fourth, whereas the previous well-publicized breakdown in a WTO meeting in Seattle in 1999 generated sympathy for issues of development among the wider membership, the collapse of a second meeting is unlikely to produce such a result. Indeed, post-Cancun commentary from the major players suggests an acute frustration with the actions of developing states and an expressed desire to "reform" WTO procedures to ensure that such events are not a feature of future meetings.

Fifth, bargaining is at the root of the international trade regime. Trade negotiations are based on reciprocal exchange. In such situations, the outcomes are agreed only when a perceived balancing of concessions offered and received has been achieved--that is, once a bargain has been struck. It is inevitable then--particularly given the number of players involved, the complexity and breadth of the issues at hand, and the pressure to appear to be bringing a good deal back home--that negotiations will periodically break down. That said, the time and investment already exerted in WTO processes and the perceived benefits from a conclusion to the round suggest a deal will inevitably be struck.

This final point is the most troubling. That a bargain will eventually be arrived at--probably consisting of an agreement to move forward on one or two of the Singapore issues in return for movements in agriculture--is perhaps not startling news. What is more illuminating is the consequence that such a settlement will have when laid upon the existing foundations of the international trade regime.

The WTO's system of regulation is built on a series of legal agreements that better suit the economic needs of the industrial states than their developing counterparts. More than that, it is a system of regulation that favors the economic preferences and legal customs of its founding members (contracting parties, as they were known under GATT). It is instructive to note that as each new layer of regulation is added, whether in terms of rules and disciplines in new areas or tariff reductions and other concessions, the asymmetry in WTO rules is amplified. In this way, the WTO's legal framework resembles a poorly layered cake. This asymmetry cannot, however, be fully appreciated by examining the content of bargains struck at set moments in time; it can be comprehended only when set within the context of a wider understanding of the evolution of multilateral trade regulation under the GATT/WTO.

The current system of international trade regulation over which the WTO presides builds on the disciplines first developed under GATT. Though itself originally intended to be a provisional agreement paving the way for a more extensive system of regulation administered by the International Trade Organization (ITO), GATT put into place a system of international trade law based on two principles. These principles--most-favored nation (MFN) and reciprocity--had in various guises been at the root of most international commercial agreements since the mid-nineteenth century and had been utilized to great effect by the principal commercial powers.

GATT also set out to regulate a relatively small segment of commercial activity--trade in goods. Early on into its history, this commercial remit was constrained further. By the early to mid-1950s, the growing competitiveness of newly independent and other developing states in agriculture and in textiles and clothing saw GATT's original contracting parties seek to exclude these areas from the liberalization process.

The consequences of these early developments continue to have important ramifications for the trade regime. First, international trade regulation was established around a set of economic and legal principles that its founding members were familiar with and had often utilized. Second, the arena of commercial regulation was kept artificially small. Agricultural and textile and clothing producers in the industrial states were protected from the growing competitiveness of developing and new independent producers. Nevertheless, producers in industrial states were able to benefit from negotiated reductions in barriers to trade in manufactured, semimanufactured, and both low- and high-technology goods. The result was to build into GATT's evolutionary trajectory "first mover advantages." (2)

Efforts to redress these imbalances were few and far between and lacking in substance. Part IV of GATT, introduced in 1966, was lackluster; and the special and differential provisions that were introduced thereafter were too little to be of significant economic benefit. But there were other problems. The relative lack of export earnings, coupled with fierce competition in emerging sectors, prohibited developing states from diversifying their economies. Instead, they remained largely dependent on the production of raw materials, agriculture, and textiles and clothing and benefited only from the limited preferential treatment offered by GATT and other international agreements.

By the time GATT entered its eighth and final round of negotiations, the Uruguay Round, it had become clear that the General Agreement could no longer maintain its current form. Pressures, on the one hand, to extend further the remit of international trade regulation and, on the other hand, to reverse the exclusion of agriculture and textiles and clothing, as well as extend special and differential treatment, resulted in the creation of a much larger legal framework and the establishment of an organization--the WTO--charged with its administration. The inclusion of agreements on agriculture and textiles and clothing came as part of a bargain that also included the introduction of rules on services, on trade-related investment measures (TRIMs), and on trade-related intellectual property rights (TRIPS). Two aspects of this bargain are notable: each of the new agreements conformed to the now standard GATT model wherein most-favored nation and reciprocity form the core principles; and the substance of agreements on services, intellectual property, and investment measures reflected a negotiated outcome of the legal rules, norms, and customs in place in the leading industrial states.

However, Uruguay was not a panacea. While the inclusion of agriculture and textiles and clothing rectified an existing imbalance, the introduction of new rules in services, intellectual property, and investment measures extended the trade agenda further. Not only were the industrial states better suited to taking advantage of these new rules, but their ability to utilize the market opportunities those rules presented enabled them to develop a competitive advantage over future market entrants. The creation of the WTO had brought with it a new set of first-mover advantages.

By the time the WTO met to convene its Third Ministerial Meeting in Seattle, significant tensions had begun to emerge. Industrial members, particularly the United States and the EU, had dug in their heels to forestall any unraveling of their elaborate agricultural subsidy systems and to prevent the opening of markets in this area. Significant problems had emerged with the implementation of Uruguay Round commitments. Pressure was growing from the United States and the EU to further extend the remit of WTO rules (to include the four Singapore issues) and to launch a new round, dubbed the Millennium Round. Moreover, much consternation emerged over persistent calls by the United States and the EU to explore the possibility of a linkage between trade and labor standards within the WTO and to expand the participation of civil society organizations. Set against the backdrop of a run-up to a U.S. presidential election and disruptions caused by mass demonstrations, the meeting collapsed.

The next stop on the WTO road trip was Doha, in November 2001. The tensions that had emerged in Seattle prompted a change in the way supporters of a new trade round marketed their aim. The round was to be "development-centered." Even so, in the run-up to the meeting it was unclear whether the ministerial conference would give its support to a new set of negotiations. However, the events of September 11, just two months before the meeting, cast a different light on the meeting. Few states wished to be seen to be offering opposition in such a tender political climate. The result was the launch of the Doha Development Agenda (DDA).

From the point of view of the developing states, agreeing to the DDA was a fundamental error. It firmly married a commitment to revisit the Uruguay Round agreements with a movement forward in four new areas (the Singapore issues) and possibly a fifth (e-commerce). Moreover, the DDA put in place a specific time frame: negotiations would commence on the Singapore issues, subject to minor clarification, after the midterm review of negotiations in Cancun. The broad-based consent that under-pinned the DDA ensures that any movement forward on those issues of concern to the South will automatically trigger pressure for a movement forward on those important to the North.

The consequences of adding a further layer to the WTO's existing legal framework should the DDA be concluded are significant. On the other hand, many developing states will consolidate their production of agricultural produce, textiles and clothing, and some low-technology goods at a rate of profitability directly related to the rate at which agricultural subsidies and tariff barriers are wound down in the United States, the EU, and Japan, among others. Little industrial diversification will occur among the poorest or smallest economies, because the costs of moving away from established industries and investing in new sectors will be prohibitive. This is irrespective of any massive increase in technical and other assistance. After all, it does not make good business sense to enable competitors to develop comparative advantages in sectors in which one is competitive. The leading industrial states will nevertheless be able to benefit from any WTO movement into the new areas. Not only are these new areas already of key importance to many industrial states, and insignificant to many of their developing counterparts, the consequence of their utilization will be to put in place yet more first-mover advantages. The result will be a reinforcement of the comparative advantages of industrial states in a wide variety of economic areas.

As a final point, the greater the number of sectors in which an economy has, at a minimum, developed a presence or, at most, established something of a comparative advantage, the better able that economy is to weather periods of economic downturn. While the onset of recession may hurt industrial states, the pain will be exponentially greater in their developing counterparts, with the most vulnerable populations suffering the worst. The real problem, should a political settlement be agreed post-Cancun, is that the vulnerability of developing states is likely to be exacerbated. The only way forward both to address this potential danger and to remove some of the inertia plaguing the WTO is to put in place a moratorium on negotiations in these new areas at least until after the conclusion of the current round and concentrate instead on addressing the development dimension of the DDA. The problem for the United States, the EU, and the remainder of the industrial world, of course, is that to do so would be politically damaging. But for the most vulnerable, maintaining the present course brings with it greater risks.

Notes

Rorden Wilkinson is senior lecturer at the University of Manchester and visiting associate professor at both Brown University and Wellesley College. He is also coeditor of the Global Institutions Series of books forthcoming from Routledge. The author attended the Cancun ministerial meeting as a representative of the Academic Council on the United Nations System (ACUNS). He gratefully acknowledges the financial assistance of the British Academy.

1. J. Michael Finger, "That Old GATT Magic No More Casts Its Spell (How the Uruguay Round Failed)," Journal of World Trade 25, no. 1 (February 1991): 39-53.

2. Robert O. Keohane, Power and Governance in a Partially Globalized World (London: Routledge, 2002), p. 253.