The Hindu Business Line : Pyrrhic victory at Cancun

THE collapse of the trade talks at the WTO's ministerial meeting at Cancun, Mexico, is being profiled as a moral win for the Third World, a harbinger of future unity. But a strategic retreat should not be confused with a decisive victory. Despite losing the battle of Cancun, the war may still be won by the rich countries. Celebrations are premature.

Cancun was supposed to be a re-run of Doha. As before, it was expected that the developing countries would cave in to pressure from the industrialised countries.

Few had forgotten the outcome of the final day, late-evening `meeting' between Qatar's lead negotiator and India's minister, Mr Murasoli Maran. India, which had held out for its interests and taken a stand for the rights of other developing countries, capitulated and agreed to go along with the `majority'.

This time, there was a difference. The lessons of Doha had been learnt. Quite obviously, away from the spotlight, the developing countries had been working to ensure that pressures at Cancun could be withstood.

The Third World leaders formed the Group of 21. India's leadership has come in for praise, especially in fashioning an unexpected alliance with China and Pakistan. The role of Brazil — now led by a trade unionist, Mr Luis Inacio Lula da Silva, and governed by the Workers' Party, allied with the powerful Landless Workers Movement — was along with India pivotal in ensuring the developing countries did not cave in.

For once, the homework had been done, away from the glare of publicity. Within the South, differences were ironed out and policy arguments carefully worked out. The G-21 worked, largely as a cohesive unit.

In sharp contrast were the developed countries. Over the last year, the political relationship of the US and the European Union has become strained.

In the vitiated political climate after autumn 2002: the `natural' partnership of the EU-US is fraying. In all previous multi-lateral negotiations, EU-US spoke with one voice. Differences, such as over steel subsidies, were handled with finesse, as a bilateral matter, behind closed doors. Unity at multilateral financial negotiations was important.

At Cancun, the strains in the EU-US relationship showed. For almost the first time, the Europeans did not feel the need to support the US at every stage.

Failed text: While the unified, well-formulated negotiating stands of the developing countries were a pleasant surprise to many, there were other reasons why the negotiations failed this time.

Inclusion of the so-called `Singapore Issues' in the final draft text — conference jargon for relaxing developing country rules on foreign investments, government procurement, Customs duties, and so on — has been blamed for the final break-down of negotiations.

The introduction of these issues was a surprise. For the US, principal mover of the contentious paragraphs, the Singapore issues are not an unmixed blessing. But perhaps their introduction was done deliberately to break the negotiations. For in the face of a united opposition from the Third World, rejection of any draft that included the `Singapore Issues' was a foregone conclusion.

And, in reality, no developed country wanted to negotiate the end of farm subsidies. Failure was necessary.

Seeds of failure: Cancun is the second failed WTO conference since the world body was created in 1995. Talks had earlier collapsed at the third meeting of trade ministers in Seattle, US, in 1999. Then, massive street protests had ensured the talks could not be held.

The failure at Seattle was seen as a wake-up call. For the first time, NGOS, non-professionals and those affected by trade decisions attempted to get their voices heard and their points of view incorporated. That did not happen. But, perhaps to satisfy the western voters among the protestors, the next round of trade talks scheduled for 2001 were billed as a global effort to ensure that trade helps eradicate poverty. The announcement was expected to co-opt the voices of dissent.

But trade talks to accelerate poverty reduction meant liberalisation of trade in agriculture was firmly on the agenda. Ever since, the rich nations have been on the defensive. With reason. Everyday, the EU and the US combined spend $1 billion on subsidies for their farm sector. Japan imposes a 1000 per cent tax on rice imports, to ensure domestic produce remains competitive.

Liberalisation makes economic sense, as trade pundits in both the rich and the poor countries agree. However, in the real world of farm lobbies and looming elections, economics gives way to the politics. Doha was witness to politics wining over economics.

Potential harvest: So, for all the 146 delegations at Cancun, the stakes were high. On the agenda this time was agriculture. The International Institute of Food Policy Research (IFPRI), in a recently released study, has quantified the adverse impact of rich nations' agricultural policies on poor countries.

Based on a computer model of the world economy and using 1997 data, IFPRI developed a new estimate of the immediate damage to the economies of the world's poor countries by simulating the elimination of the current policies by industrialised countries.

According to their study, protectionism and subsidies by the rich nations cost developing countries about $24 billion annually in lost agricultural and agro-industrial income. The study also measures the impact on individual countries. China, Brazil, Argentina, Thailand, and India suffer the largest losses in absolute value due to the illiberal agricultural policies of the developed countries.

The losses incurred range from $1.1 billion in India to about $2.3 billion in China. However, in percentage terms, smaller countries in South America, Central America, and the Caribbean, as well as several countries in sub-Saharan Africa, are the most affected, with losses of about 10-15 per cent of total agricultural and agribusiness incomes.

Who is to blame? Of the total amount of agricultural trade displaced by industrialised country policies, EU countries are responsible for more than half. Somewhat less than a third is due to the policies of the US.

Japan and other high-income Asian countries, such as South Korea, cause another 10 per cent, with the balance due to other industrialised countries.

The IFPRI model predicts that an end to rich-country support in agriculture would generate annual gains of $40 billion for developing countries, with Sub-Saharan Africa, the world's poorest region, alone gaining $3.3 billion. The gains result from an increase in exports (especially for Latin America) and import substitution effects.

Moral victory: That the trade talks in Cancun would fail was pre-destined. Powerful farm interests in the industrialised countries could not be affected, especially in the run-up to a Presidential poll in the US and crucial by-elections in Europe and the richer Asian nations.

So, for the Third World, Cancun will be remembered not as a turning point in impacting the power balance in international economic relations but for what it was: A rich people's resort, where for a brief period, the poor were allowed to enter, and mingle.

When the poor countries left, as in the past, they left empty-handed. The bright lights shone, only to deceive. Their efforts had brought no gains. Only, this time, they felt like victors.

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