The Hindu Business Line : Politics of Cancun failure — US stance hardens towards G-20+ Nations

THE CANCUN negotiations, crucial for a new global trade paradigm, failed as poor and rich nations could not agree on the key issue of agricultural reforms. A new alliance of developing countries, including Brazil, India and China, consisting of about half of world's population, dubbed as G-20+, emerged as a major force and stood united on its stand not to include four new, so called Singapore Issues — investment, competition policy, transparency in government purchasing and customs processing in the agenda without their demands on farm subsidies being met by rich nations.

Developed countries are blaming G-20+ nations for the failure of Cancun talks due to their refusal to compromise to keep Doha round of global trade negotiations going. The Malaysian Prime Minister, Dr Mahathir Mohamed (also chairman of the Non-Aligned Movement) has expressed his apprehension that developing countries, blamed for the collapse of world trade talks, risked an economic backlash from rich nations. There are already signs of hardening of attitude of the developed world, especially of the US towards G-20+ nations.

The US has complained that the Group of 20+ did not adopt a "give and take" approach. Just before announcement of the failure in Cancun, the US Trade Representative, Mr Robert Zoellick, said: "I think one of the problems, we ran into was that a number of countries just thought, it was a freebie. They could just make, whatever points they suggested, argue and not offer and give and now they are going to face the cold reality that that strategy comes home with nothing."

While Washington said that Beijing played a constructive role in Cancun talks, in reality China appears to be the first target of the US backlash. Sharp criticism of China by the US Commerce Secretary, Mr Donald Evans, on its trade policy being unfair and China failing to implement several pledges it had made to join the WTO has escalated trade tensions between US and China. America's largest manufacturing group has said that it would file a trade complaint with the Bush administration over China's currency policy, increasing pressure on Beijing to revalue the yuan, now pegged to the weak US dollar and blamed by manufacturers for the loss of American jobs.

The complaint would be the first under Section 301 of US trade laws aimed to settle a currency dispute. It could lead to negotiations at the WTO and might prompt sanctions, if a settlement cannot be reached. The US administration is also creating an unfair trade practices team to combat illegal product dumping and other abuses by trading partners — mainly China, that allegedly contribute to loss of jobs in the US. Admittedly, the US actions are partly attributable to criticism at home on job losses that is threatening to become an election issue next year. But the sudden increase in the US activity against China immediately after break down of Cancun talks in unmistakable.

With the support of farm states and recouping of 2.5 million lost manufacturing jobs being crucial for the presidential election slated next year, the US President, Mr George Bush,is under much pressure to find new markets for US manufacture to spur growth in jobs without yielding much on farm subsidies. Stung by the collapse of Cancun talks and limited prospects of world-wide access for American products, US officials have vowed to push forward on bilateral and regional agreements to create a coalition of the economically willing countries ready to support the US' trade agenda.

Free trade agreements (FTAs) are used to further not only economic goals but also political and strategic objectives. Kantathi Suphamongkhon, Thailand's trade representative, has expressed the fear that "They (the FTAs) can be used to undermine the WTO, or used as a threat to get the WTO moving". Mr Zoellick has made it clear that the FTA would be used to reward friends. After Cancun talks broke down, this was reiterated by Mr Charles Grassley, Chairman of the Senate Finance Committee, which plays a key role in congressional approval of US trade agreements, "I would take note of those nations that played a constructive role in Cancun and those nations that didn't".

The US was negotiating FTAs with several countries that were members of the G-20+ alliance before the launch of the Doha Development round but the break down of talks in Cancun may lead to re-thinking on them. For instance, Mr Charles Grassley has questioned if such countries as South Africa, Colombia, El Salvador, Egypt, which were part of G-20+, had enough of a "commitment to free trade" to be rewarded with special access to the US market. The most ambitious FTA, however, that is being negotiated is the Free Trade Agreement of the Americas (FTAA), which aims at creating world's most formidable trading bloc in the Western hemisphere, consisting of a vast open market of 34 nations by 2005.

However, in the backdrop of Cancun debacle, there is apprehension in the US that Brazil, which led G-20+, might create similar obstacles during negotiations for FTAA this year in Miami where agriculture is a hot issue with Latin American countries pushing for cuts in US farm subsidies. Realising the obstacles, US might even follow `incremental approach' to free trade advocated by the Florida Governor, Mr Jeb Bush, which means having small bilateral deals with willing partners instead of having a hemisphere-wide deal. Not only the US, even the EU is negotiating regional trade agreements with 73 African, Caribbean and Pacific countries. There is apprehension that progress of the EU FTAs with those nations that were part of G-20+ group might be affected.

American negotiators are criticising leaders of the G-20+, especially Brazil which is one of the world's largest agricultural producer of soy beans, beef, oranges and coffee, for posing as less-developed countries when their economies are, in fact, relatively advanced. Brazil and other large countries in the coalition are seeking the same market access as the poor countries. "One of the things we've said to Brazil is, `Hey, let's have a definition of what a developing country is and then we will treat real developing countries one-way and treat you another'," US Rep Bob Goodlatte, Chairman of the House Agriculture Committee, said during the Cancun talks.

While India is not negotiating an FTA with the US, the EU or Japan, it should be prepared for hardening of their attitude towards New Delhi's leadership role in G-20+ sticking to its guns in Cancun. India's case is not helped by the fact that it outright refused to accommodate persistent US requests to provide Indian military personnel to assist in Iraq.

It is significant that the US is India's largest trading partner and premier export destination. India may face increasing protectionism against its textiles and other products in the US, where India is already getting pushed out by Mexico and China.

Already resentment is building against India in the US and the EU over job losses due to outsourcing from India. Since India is not part of any major FTA initiative with the developed world, it is facing pressure even on current market access due to existing bilateral trade agreements. This is only likely to intensify if instead of multilateral trade, bilateral and regional agreements will carry the day.

No doubt developed nations will try to use their trade and aim policies as carrots and sticks to break or at least pressure the G-20+ alliance into being more amenable to their demands in the next trade talks.

This was acknowledged by Dr Mahathir Mohamed, "I'm quite sure, tremendous pressure will be brought to bear on the group of developing countries which have made a stand."

However, trade analysts warn that this kind of strategy by Washington may worsen anti-US sentiments globally. While it is true that everybody has come back empty handed from Cancun, so far developing countries have maintained their unity and if they continue to stick to their stand, they will be able to negotiate from relative strength. At the same time, given their different needs, different stages of development and often-conflicting priorities, the developed world would definitely try to exploit these differences to their advantage to break the group. Therefore, maintaining unity in the G-20+ group will be an uphill task but not an impossible one.

(The author, a Director in the Planning Commission, New Delhi, is a Visiting Research Fellow at the Institute of Southeast Asian Studies, Singapore. The views expressed are personal and not of the organisations to which she belongs.)

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