October, 2003: Cover Story

By Greg Rushford

Published in the Rushford Report

CANCUN, Mexico—-Who is to blame for poisoning the negotiating atmosphere that sparked the stunning collapse of the World Trade Organization’s Fifth Ministerial Meeting on Sunday afternoon, September 14? The failure here shattered — at least for now, perhaps for years — the prospects for the WTO’s Doha negotiations to lift hundreds of millions of people out of poverty.

            The conventional wisdom puts the lion’s share of the blame on the richest country in the world. “It may be more than a year away, but the United States presidential election is already throwing a long shadow,” lead off Elizabeth Becker of the New York Times in her Cancun postmortem that was filed on Sept. 15. “Here in Cancun this week, it was enough to touch off a walkout by delegates from developing nations at the World Trade Organization talks who were convinced that it was hopeless to expect any realistic negotiations with the Americans this year on farm subsidies.”

            How simplistic. First, Becker (and other respected journalists) wrongly reported that there was a Third World walkout. There was no walkout. Mexico’s host foreign minister, Luis Ernesto Derbez, who chaired the meetings that began on Sept. 10, decided to adjourn the acrimonious negotiations when it became clear to him that no consensus was going to be reached. And to assert that the United States came to Cancun unwilling to offer a realistic deal because of the 2004 presidential race is, in my view, contrary to the evidence.

            Yes, legitimate Third World resentment of rich-country protectionism, including America’s, certainly played an important role in the Cancun failure. But basically, Cancun failed because too many politicians from poor countries were more interested in scoring political points against the rich countries than in participating in setting the stage for genuine negotiations to come later. Some official delegations from African countries included members of anti-globalist pressure groups who were clearly out to sink the negotiations (see the Players column elsewhere in this issue).

           Cancun should have been easy. All the trade ministers had to do was agree to focus on broad understandings aimed at leading to final trade deal by the end of next year — a Doha Round deal where everyone would come away the richer.

            Of course, nothing is ever easy in multilateral trade negotiations. To understand global politics, always remember former Speaker of the House Tip O’Neil’s famous adage: “All politics is local.” While many politicians from poor countries made speeches against rich-country protectionism, their real agendas were geared to pleasing their own domestic lobbies that were demanding continued high tariffs and closed domestic markets. The uncompromising ministers from the Third World  were defending the lowest common political denominators in their societies — defending the very protectionist shackles that bind poor societies in their economic chains. There are good reasons why countries like India and the Philippines, to pick on two of the most misguided practitioners of poor-country protectionism, remain poor.

            As with any complex negotiations involving the WTO’s 148 members, the story behind the failure is complex. Nobody has the entire story, certainly no journalist. However, because reporters were able to interview so many people from all sides, we outsiders were in an advantageous position to see how various pieces of the diplomatic puzzle fit together. Often during the five days where everyone was jammed together inside Cancun’s convention center, I found myself swapping tidbits of intelligence with high-ranking diplomats, who also were speculating on what was really going on.

            After the ministerial meetings collapsed, I ran my account by one senior negotiator from an Asian country who participated in the so-called Green Room, where the insiders met to negotiate. I asked him how close I came to the truth. “I give you a B-plus,” he said. “But I only give myself a B, maybe B-minus,” he added, modestly. Another senior ambassador in Europe said that he had filed a report to his government that tracked an analysis that closely approximated mine. 

Celebrating failure

Perhaps the best beginning to the story of what really happened is at the end, on Sunday afternoon, Sept. 14. After the talks collapsed, the Third World countries who played a role in the failure let their hair down, revealing their true feelings.

            Many African delegates openly cheered inside the convention center when the news came down that the talks had failed. Later that evening, I watched a happy group of 45 Kenyans celebrate at one of Cancun’s best steakhouses. They toasted each other with fine red wine, tucking into a lavish spread of Argentine-style beef. I sidled up to one of the well-lubricated delegates and asked what he was celebrating. “We killed it,” he replied, referring to the Cancun  ministerial.  

            Not all developing countries celebrated.

            During the five days of talks, Brazil was very tough, leading an anti-Yankee coalition that was called the G-21 countries (although the actual number of the group expanded to 22 or 23 members). But diplomats who saw what Brazil was saying in private, as contrasted to its public posturing, said they don’t believe that Brazil set out deliberately to kill the negotiations. “Brazil always wants to make some political hay at America’s expense,” one Latin ambassador told me. “But the Brazilians recognize that they need to trade, and didn’t want to send the world financial markets a jittery message on that score.” Another ambassador in Europe who worked closely with the Brazilian delegation says that Brazil deserves credit for pressing the Europeans and Americans to make more generous offers to cut their trade-distorting farm subsidies.

            India is also vulnerable to criticism for adopting (all-too-typical) intransigent negotiating positions that helped inflame the negotiating atmosphere. But like the Brazilians, the Indians didn’t seem intent upon wrecking Cancun.

            I ran into several members of the Indian delegation as they were leaving the convention center a couple of hours after the collapse. They looked crestfallen, and openly worried that they may have overplayed their hands. “The Africans did this,” one delegate declared. “We are not better off without a deal.”       

            While the poor countries blamed rich-country protectionism for the collapse, in reality, retaining their own Third World protectionism seemed to be more important to many.

Demanding concessions, retaining colonial preferences

Shortly after the ministerial had collapsed, I attended an exuberant late afternoon press conference hosted by one of the key spokesmen for the group of African, Caribbean, and Pacific countries that was proudly claiming credit for helping kill the negotiations. Jayen Cuttaree, the international trade minister of  Mauritius, asserted that the rich world had offered no concessions, particularly concerning the question of dismantling Europe’s massive farm subsidies. What concessions did your group offer? I asked. “It wasn’t a question of our offering concessions,” replied Cuttaree. “We were demanding.”

            It is difficult to believe that Minister Cuttaree came to Cancun to demand the elimination of European farm subsidies. In fact, Mauritius is a beneficiary of the European Union’s notorious sugar program. As a former colony, Mauritius enjoys preferential access to European markets similar to that of French farmers. “The whole elimination of subsidies will hurt us very badly,” Cuttaree had candidly admitted on July 23 to AllAfrica Global Media, a news service based in Washington, D.C.

            Another Third World delegate, Richard Bernal of  Jamaica, told reporters that Cancun failed because the Americans and Europeans weren’t generous enough in offering to dismantle their trade-distorting farm programs. “There is nothing for us small countries in this proposal,” Bernal declared.

            But when I asked Jamaica’s foreign minister, Keith Knight (a distinguished Nelson Mandela look-alike), about his true thoughts about the implications for Jamaica should a successful Doha Round really dismantle European farm protectionism, the first thing that came to his mind was bananas.  Jamaica and other former colonies that are too small to be competitive in bananas enjoy preferential access to European banana markets. Truly competitive Central American countries like Ecuador that have a comparative advantage (thanks to their large, efficient plantations) face extremely high European tariff barriers. In grocery stores in London and other European cities you can easily tell the difference between the scraggly, cheap “imperial preference” bananas from small former colonies, and the expensive “dollar bananas” (similar to those Americans buy) from Ecuador. 

            “We are small, and need these high tariffs,” Knight told me. Alas, he’s right.  Jamaica and many other poor countries depend upon the continued existence of European farm subsidies. Cutting these welfare dependencies off the EU’s dole without a Plan B for their economies would be cruel. 

            As the foreign minister spoke, I thought of how Columbia University economist Jagdish Bhagwati has been saying for years that the wealthy countries should be working with small island countries like Jamaica to help them develop their economies beyond colonial dependency. But Bhagwati has been crying in the wilderness. Little has been done to help Caribbean countries stand on their own. In Cancun, the rich world paid the price for its neglect.

            Another poor country that was relieved that its day of reckoning with free-market forces has been postponed was the Philippines. “We are elated that our voice has now been heard,” Philippine Trade Minister Mar Roxas told reporters after the negotiations collapsed.

            The Philippines has a famously uncompetitive sugar industry. Philippine sugar oligarchs have been hanging on thanks to the guaranteed generous access to the American market that comes with the U.S. sugar quotas. At the same time they eke out an export living on these quota rents, the Filipinos keep out foreign sugar with tariffs as high as 80 percent. This leads to the ridiculous situation that it is cheaper to import chocolates into the Philippines than their principal raw ingredient. Foreign candy has only a 10 percent tariff.

            Manila also protects its uncompetitive corn and rice industries with high tariffs. And like their subsidized counterparts in the United States and Europe who basically earn money by farming their government, the farm lobbies in Manila have clout. 

            Inside the Cancun convention center, the official Philippine trade delegation was lobbied hard by representatives of a Filipino anti-globalist pressure group that calls itself the Stop The New Round Coalition. This lobby gets a lot of press in Manila. Thanks to the collapse in Cancun, Trade Minister Roxas, an attractive politician who has ambitions, doesn’t have to worry about being charged with selling out Philippine tariffs on corn, rice, or sugar. The way to advancement in Philippine politics is to advocate the continuation of high tariffs, not cutting them. (In Manila, President Gloria Macapagal Arroyo, an economist who says that she isn’t running for another term, was not elated that the talks had failed. Arroyo expressed her “disappointment” that Cancun had failed.)

The “Singapore issues.” Machiavellian politicking?

The immediate collapse of Cancun turned not on rich-country agriculture subsidies, but on the four so-called Singapore issues that have been pressed upon the Third World mainly by the Europeans since the 1996 Singapore Ministerial: (1) negotiating multilateral rules governing the rights of investors overseas; (2) rules to deal with cartels and anti-competitive practices; (3) rules geared toward achieving transparency and non-discrimination against foreign bidders for government contracts; and (4) “trade facilitation,” which translates into attempts to streamlining cumbersome, non-transparent customs procedures.

            At first impression, there is nothing wrong with the first two Singapore issues. Poor countries could benefit from more transparent rules that would attract foreign investors. But in reality, the Singapore issues are geared toward causing political mischief. Like it or not, opening their markets to foreign multinationals and cracking down on domestic cartels is anathema to important Third World countries like India and Malaysia. Some sophisticated trade-watchers like Guy de Jonquières of the Financial Times believe that the EU devised the Singapore issues as a bit of Machiavellian mischief aimed at diverting attention from Europe’s trade-distorting farm subsidies. 

            In Cancun, however, European top trade negotiator Pascal Lamy agreed to drop the first two Singapore issues (although opinion is split over whether he did so too late in the talks to cool overheated emotions; after Cancun, some observers questioned whether the traditional brinksmanship that the Europeans always bring to these confabs has become outmoded). It is said that the Europeans were also likely to drop the third Singapore issue — although one would think that it is not unreasonable to insist that governments agree to award their contracts honestly. This left only the trade-facilitation issue really alive as of Sunday afternoon, Sept. 14.

            You wouldn’t think that anyone could possibly oppose measures aimed at eliminating red tape and corruption at the borders. But this was exactly the position taken by Rafidah Aziz, Malaysia’s sharp-tongued trade and investment minister, according to multiple reports from diplomats who were dismayed by her performance in the so-called Green Room where the ministers assembled. Trade facilitation might sound like mere good governance to most everyone, but the last politician in Malaysia who advocated good governance in Malaysia — Anwar Ibrahim — is still in prison.

            After the Cancun talks failed, Rafidah seemed delighted. “Unless they listen to countries, unless they listen to the problems we have in meeting some of the demands of the developed countries, this is what will happen,” she exuberantly told reporters.

            “I just don’t understand why Malaysia seems to go out of its way to help poison the atmosphere in every international trade negotiation it participates in,” sighs one European ambassador.

           The final political straw — or was it a grain of rice?

            Malaysia and India might have been the leaders in opposing the four Singapore issues, but the proverbial straw that broke Cancun ’s back came at the hands of South Korea . Or perhaps it was really a grain of political rice.

            Whatever one’s choice of cliché, Cancun’s fate was sealed when a delegate from Botswana, a messenger for African, Caribbean and Asian countries, sent in a message declaring that it was not enough for the Europeans to give up only some of the Singapore issues. The ACP countries insisted that all of the Singapore issues be dropped.

            At this point — somewhere around 2:30 p.m. , Sept. 14 —- Hwang Doo-yun, South Korea ’s trade minister, saw an opportunity to stick the knife in the negotiations, deep. Hwang — putting a certain emotional force into his voice —  flat-out said that Korea would insist that the Africans accept all four Singapore issues, or there would be no deal.

            That was the moment that Cancun ’s fate was sealed. Chairman Luis Ernesto Derbez, Mexico ’s foreign minister, called for adjournment, declaring that there was no way out of the impasse.

            The collapse, of course, was convenient for the Koreans, who came to Cancun with the ambition of protecting Seoul ’s powerful farm lobby, particularly rice. The Singapore issues became the knife that killed off any possible deal on agriculture. 

            Japanese Prime Minister Junichiro Koizumi must also have breathed a sigh of relief, thanks to the Koreans. Japan came to Cancun prepared to negotiate a reasonable deal — except perhaps regarding the question of agreeing to anything that would lead to a substantial reduction of its 490-percent rice tariffs. During the Cancun meetings, Koizumi had to be mindful that he faced a looming challenge for the presidency of the ruling Liberal Democratic Party. The Prime Minister was running against rivals including Takao Fujii. Fujii comes from the LDP’s largest

faction, and one that has extremely close ties to Japan’s protectionist farm lobby. Happily for Koizumi, he was reelected as LDP president the following week without having to explain away a possible compromise in Cancun that might have involved rice.

 

Zoellick: the politics of

cotton

What about Zoellick?

            Overall, the USTR was widely credited for turning in his customary impressive negotiating performance, despite the fact that Zoellick came to Cancun with a weak negotiating hand. Thanks to the massive US farm subsidies that President Bush has embraced, and the president’s steel tariffs, the U.S. has lost a measure of moral authority in the WTO. But Zoellick is a consummate negotiator who is at home in international settings, and it showed here. When other trade ministers were inflaming the atmosphere with hot speeches, Zoellick was widely credited with trying to calm the waters, urging members to think beyond their parochial interests and make Cancun — and the Doha Round — work.

            (Apart from the representatives from the usual good-guy suspects in trade negotiations who did their best to negotiate in good faith — Canada , Australia , New Zealand , Britain , Ireland , Hong Kong , and — a pleasant surprise — China — there isn’t much more credit to spread around. Some Latin countries like Chile and Costa Rica also were said to have tried to calm the waters behind the scenes.)

            In my view, Zoellick made one big mistake. We are talking cotton.

            Perhaps the most sympathetic group of countries that made themselves into a symbolic force in Cancun — at least until it became apparent what they were really after —  were Benin , Burkina Faso , Chad , and Mali . There can be little doubt that these four little African countries — among the poorest on the planet — have been hit hard by the U.S. cotton program. As the international human rights advocacy group Oxfam has rightly pointed out, some 25,000 American cotton producers are raking in $3.6 billion annually from the Bush farm program, which is “more than three times the US foreign assistance to Africa ’s 500 million people.” Nobody has convincingly refuted Oxfam’s charge that the American cotton subsidies hurt the livelihoods of some 12 million African cotton farmers by driving down world prices. This is a moral issue. The four African countries came to Cancun seeking relief.

            In Cancun , the Africans got the back of the rich world’s hand. The draft negotiating text (widely viewed as America ’s handiwork) had some bland language about recognizing “the importance of cotton,” and claiming there was an understanding of  “the need for urgent action to address trade distortions.” But the suggested urgent action turned out to be an insult.

            The draft negotiating document encouraged the Africans to work with the World Bank and other international financial institutions “to effectively direct existing programs and resources toward diversification of the economies where cotton accounts for the major share of their GDP.”

            In so many words, the Africans were told that if they objected to the American cotton program, they could tell their farmers to get out of cotton and into other commodities (hopefully, not coffee). Talk about an insulting colonial relic. It inflamed opinion in the Third World , and helped the Africans kill Cancun .

            The four African countries were asking for the elimination of all cotton subsidies by 2006. That doesn’t sound like an unreasonable opening negotiating position, and Zoellick said repeatedly that he was ready to start dealing. But there was a catch.

            The Africans were also asking for immediate “transitional compensation” to compensate their cotton producers for their losses while the U.S. subsidies were phased out. Translation: give us somewhere between $250 million and $1 billion in cash.  Considering the unhappy fact that some of these countries are among the most corrupt in the world, as well as among the poorest, Zoellick must have wondered how many Mercedes Benzes and Lear jets could be bought for $1 billion. I don’t see any workable way that the USTR, much less Congress, could go along with this demand.

            As the negotiations progressed, it appears that Africans themselves didn’t seem much interested in finding a reasonable compromise that would help their farmers start down the road to prosperity.

            As Washington trade lawyer Gary Horlick rightly observes, “Basically, Zoellick made it clear he wanted to get rid of the cotton subsidies. It’s the developing countries which stopped him.”

            A senior ambassador who participated in the closed-door negotiations agrees. “Zoellick was ambushed,” he says.

 

The view from Europe : a deal was possible

Like his friend and fellow long-distance runner Robert Zoellick, Europe ’s Pascal Lamy is a highly skilled trade negotiator who seemed to be in his natural element in Cancun . And like Zoellick, Lamy has been accused by representatives of poor countries of being unwilling to make any concessions to reach a deal. Beatrice Matumbo, Tanzania ’s delegate, for instance, told reporters that he was “very happy” that Cancun failed. “I was afraid I would have to go back to my people and say we didn’t get anything.”

            But in fact, Lamy seemed prepared to offer concessions, and not just those limited to giving up at least two of the four Singapore issues. On the key issue of the EU’s agriculture export subsidies, Lamy and Franz Fishler, Europe ’s agriculture commissioner, at least expressed a willingness to negotiate.

            “On export subsidies, our position is clear,” Fischler told a press conference on Saturday evening, Sept. 13, as he and Lamy prepared for a long night of negotiations. “Negotiate a list of products of interest to developing countries for which all form of export subsidies will be eliminated, substantially reduce the rest.”

            The next evening, after Cancun had failed, Lamy insisted that the negotiations could have succeeded. “We stood ready to eliminate export subsidies,” he declared. “An agreement on agriculture was nearly there.”

             To be sure, Lamy and Fischler clearly were constrained in their negotiating mandate, and it isn’t clear how much they really were prepared to offer. They never said when they would eliminate export subsidies, for example. The political responsibility for this seems mainly to rest with the stubborn attitude of French President Jacques Chirac, the most important political player on EU farm subsidies. And during the Cancun meetings, the attitude of a Group of Nine nations also helped inflame the atmosphere. We reporters called them the Naughty Nine.

            The Naughty Nine countries were Bulgaria , Iceland , Taiwan , Norway , Switzerland , Liechtenstein , Israel , Japan and Korea . (The group became ten, after Mauritius joined it.) Their goal was simple: as net food importers, they wanted to keep their high tariffs and subsidies for politically sensitive commodities (which weren’t named, but turned out to be nearly everything these countries produce).

            Talk about priorities. Rich countries like Norway , Liechenstein, and Switzerland came to Cancun talking about the importance of protecting their farmers and pristine Alpine meadows — heedless that people in poor African farm communities are starving.

            Sooner or later — probably much later —  reason will return and the Doha Round will get back on track.

            The next opportunity to advance the Doha Round’s ambitions trade liberalizing agenda could come in December. There has been some talk that trade ministers will meet in Geneva to see if they can begin to undo the harm they did in in Cancun . But don’t bet on it.

            While the rest of us wait for the politicians to summon more political will than they displayed in Cancun , it is useful to keep in mind the observation of the savvy Eamonn Butler, the director of the London-based Adam Smith Institute.  “The WTO talks in Cancun remind me that free trade is like getting to heaven,” Butler says. “Everyone wants to get there, but not too soon.”

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