Select Committee on International Development Written Evidence


Memorandum submitted by the Consumers' Association

EXECUTIVE SUMMARY

  Consumers' Association were and are very concerned that the collapse of the Cancún talks came at a particularly inauspicious time for the trading system. The approach of elections in many of the major negotiating parties from the USA through France and India makes progress outside of a Ministerial remote. The gap between the end of that period of elections and the putative conclusion of the Doha Development Round is so short as to make a process of catch-up difficult in the extreme.

  We are also concerned that the recent penchant of the USA for unbalanced bilateral and regional agreements will only grow with the collapse at Cancún. The potential for the EC to focus increasingly on such deals is a real one and should not be discounted. We continue to believe that multilateral processes offer the best chance of significant forward movement on a freer trade agenda for all parties. The hopes that such a momentum will build again in the near future look, however, remote.

WHY CANCÚN FAILED

  The reasons for the failure of the talks at Cancún are many and varied. They are loosely grouped into two areas: underlying factors and strategic mistakes.

  The underlying factors that contributed to the failure of talks included:

    1.  A lack of real US commitment to the WTO;

    2.  The limited, tortuous and only recently completed EU CAP reform process;

    3.  The other protected agricultural markets hiding their protectionism behind that of the EU;

    4.  Key developing countries building coalitions during negotiations;

    5.  Negotiating tactics that did not move with the mood of the talks;

    6.  The structure of the mini green rooms.

  In addition there were a number of specific strategic mistakes at Cancún that amplified the impact of the underlying problems:

    1.  An economically/morally/ethically correct but politically unrealistic agenda on cotton;

    2.  A particularly poor mini green room result on Singapore Issues;

    3.  An unexpected decision to close the conference.

  The collapse of talks at Cancún were not a victory for anyone as they have come at a time where building a positive trade agenda is about to become very much more difficult.

  The key lessons looking ahead for the WTO process are as follows:

    1.  Trade policy is a primarily domestic issue and we need to recognise this in designing liberalisation efforts.

    2.  In the US civil society groups able to form common cause with developing country exporters are thin on the ground and politically compromised.

    3.  Any Round of negotiations relies on crass mercantilism as its engine.

    4.  We need to gain greater understanding of the process of national trade policy formation in developing countries.

    5.  More basic resources, like a pool of admin staff and computers, are needed for smaller developing countries during Ministerials.

    6.  At Ministerials the segmentation of the Green Room discussions must not be absolute and efforts must be made to integrate the issue areas more fully into a single undertaking.

    7.  Geneva General Council meetings should be used more effectively by major trading parties to offer concessions ahead of Ministerials.

  Our submission is very weighty which reflects our concerns, in order to assist with assessing our views the following points will be addressed:

    1.  General Introduction

    2.  Underlying factors

    2.3  Everyone else's agriculture

    2.4  Coalition building and negotiating parallels

    2.5  Negotiating tactics

    2.6  Mini green rooms

    3.  Strategic errors

    3.1  Cotton

    3.2  The new issues green room

    3.3  Closing the talks

    4.  Conclusions on Cancún

    5.  Lessons for the future

    5.1  Trade policy is a primarily domestic policy

    5.2  US domestic reform movements are weak and compromised

    5.3  The WTO process requires base mercantilism to progress

    5.4  Developing country policy formation needs closer scrutiny

    5.5  NGOs will fill capacity vacuums

    5.6  The modified Green Room process needs to be modified

    5.7  Mechanisms for pre-Ministerial trade-offs must be developed

1.  SOME THOUGHTS ON WHY CANCÚN FAILED

  The failure of the Cancún talks has effectively put the Doha Development Agenda on ice. The impending elections in the USA, France, India etc, etc make any progress on the Doha agenda extremely unlikely. The failure however warms up the likelihood of bilateral and regional agreements becoming the main focus of US policy and the real risk that the EU will change its 1999 policy direction and focus on them as well.

  Many commentators have claimed Cancún as a great success for developing countries. In one way it was—in the sense that they appeared more united than ever before. However, the unity is still of the sort seen in Seattle—a blocking unity. The positive agenda of the developing world has not emerged. It is still surprising that the biggest developing countries seem unable or unwilling to develop the "offensive" trade agenda that the developed world has had for so long. One of the lessons of Cancún is how a worthy agenda (on cotton) can fail at the first step because of the lack of political pressure within the target country. Trade negotiators often appear to forget that trade policy is a profoundly national policy that has international dimensions, not the other way round. For trade reform to occur in the advanced developed economies the demandeurs need to be able to ride a wave of reform within those countries. The CAP process, the textile industry restructuring all helped get these issues on the international agenda. There is an urgent need here for developing country trade officials and developed country reform forces to co-ordinate their efforts.

  While the existence of a more powerful blocking group of developing countries was undoubtedly a positive move, it did have some negative outcomes. The focus of this group on agriculture did not really test the likely reach of the group and even here is started to unravel at the latter end of the talks. The divide in interest between the biggest developing economies (often the largest markets for many smaller states) and the smaller developing countries became more apparent as the week progressed.

  The lack of a positive agenda combined with the blocking style rhetoric created a spiral of opposition to progress that in the end helped stop talks, despite many capitals having authorised the giving of concessions. While some have blamed NGOs for whipping up the developing countries it is unlikely that their message would have had such an impact had the ground not been ripe for that message. While their impact may have been noted, it probably operated as a reinforcement of an underlying discontent. Those that seek to blame NGOs for the collapse need to look more closely at the underlying discontent.

  The discontent on the part of developing countries was plain for all to see. The main area of contention was undoubtedly agriculture with the half hearted CAP reforms, that fell well short of what European reformers wanted, disappointing all but the hopelessly optimistic. Added to this was the problem, exacerbated by European negotiating tactics of a division between those smaller developing countries in the ACP that benefited from preferential access schemes and those outside of this group that did not. The clear divide and rule approach, underlined by a real strategic difference between the groups, made any compromise on agriculture difficult. This was amplified by the fact that the Commission position was that its stance was a fait accompli driven by its internal reform processes. While there was more than a grain of truth in this it makes negotiations difficult.

  In attempting to work through the reasons for the failure of Cancún and what should be done on a broader policy basis, we have divided the underlying issues from the strategic mistakes at Cancún.

2.  UNDERLYING FACTORS

2.1  US lack of involvement

  At Ministerials it is usually almost impossible to avoid the US delegation. This is a combination of its size—usually well over a hundred officials and observers—and its prominence around the conference. What was notable from Cancún was how low the profile of the US was. Partly this would have been triggered by the post-September 11 security situation; however, this is unlikely to be the main cause. From reports of bilaterals at Cancún between the US and other countries it appears that the US was not in full negotiating mode. The poor text on cotton was an example, par excellence, of the nakedness of the US stance. It clearly refused to give an inch to the demandeurs among African states on the cotton issue and simply imposed its enormously patronising response on the text. The recent focus of the US on bilaterals and regional agreements in Latin America was perhaps the most important driver of the US attitude in Cancún. The noises before Cancún and indeed immediately afterwards underpins this approach. In the press conference immediately following the collapse of the talks Mr Zoellick clearly stated that the US would seek market access one way or another, and in his Financial Times article of 22 September he clearly argues that the US will focus on working with countries that are willing to talk. Irrespective of the general administration scepticism of multilateralism the approach on trade clearly seems to be running to the old GATT-plus agenda around the doldrums of the Uruguay Round. The rampantly anti-Japanese rhetoric in the mid 1980s appear to be re-appearing with recent anti-Chinese rhetoric, the setting up of an "unfair trade practices unit" and the focus on Latin America for regional agreements. This approach has more parallels than just rhetoric with the mid-80s. It is clear that trade has again become part of the electoral battleground and as a bit part in the general anti-multilateralism of the administration. Once they had given way on TRIPS it was never entirely clear that the USA was really fully engaged in the Cancún process and did not appear unduly concerned when it collapsed.

  The questions/issues that arise are:

    1.  Has the US given up on the WTO process entirely?

    2.  Will the regional agreements/bilaterals be totally one sided?

    3.  What is the US agenda on trade anyway?

  Beyond the simple mercantilist (exports good/imports bad) trade-off game it has never been entirely clear what the US trade agenda is. In bilaterals/regionals the agenda tends to be quite broad and covers all manner of economic policy issues. At the WTO it appears to be basically mercantilist and little more. Whatever you think of it the EC tends to have a consistently broad agenda for regionals/bilaterals and the WTO. While both use regional/bilaterals to force through an even broader agenda it would appear that the US has very limited demands of a multilateral system. The "success" in the NAFTA on investment, social and environmental provisions showed the division between US regional and multilateral stances. Many developing countries tend to view the "real" strategy of the US and EU as being revealed in their broader demands in bilaterals; the US demands ever higher degrees of intellectual property protection and investment guarantees; the EU a closer approximation to a social democratic governance structure. The US also appears increasingly unwilling to invest any domestic political capital in the process.

  The key problem we face over the next couple of years is that there is no compelling reason for the US to engage in any way at the WTO. The 2004 election campaign has started and the stoking up of the campaigning fires has begun in earnest. The chance that the US administration will cut any deals that harm US farmers, cotton interests, industry between now and the election is pretty much zero. The timing of Cancún was ideal to squeeze the US administration, with that opportunity gone the chance of US movement is nil. The chance, however, of heavily weighted/biased bilateral/regional agreements is much higher; both as a means of boosting domestic constituencies and to force through deals that are of direct benefit to US businesses.

2.2  EU Agriculture

  Many have pointed to the EU stance on agriculture as the real reason for the collapse at Cancún. The last version of a text was rather timid to say the least. However, it did mention a phasing out of export subsidies and had a skeletal outline of an agreement that may deliver if numbers were inserted. Of course it could have been a lot better, but whether we like it or not, the EU CAP reform process had to circumscribe whatever agreement would be signed. It was here that the real reform chances in EU agriculture was lost—in Brussels not Cancún. There is also the unpalatable, but unavoidable fact that it took almost fifty years to get the EU, and its member states, to allow the GATT system to deal with agriculture at all. In effectively the only round since the Uruguay Round finished it was extremely ambitious to set an end date for the CAP or export subsidies. As much as we would have liked to have seen such a commitment it was never likely to have been made. There was a more fundamental problem for the agriculture talks in that the CAP reform process finished very near the WTO discussions; the agricultural reformers in the EU were thus too close to the deal they had negotiated to be able to step back from the WTO process and take a cool look at the negotiating positions. The tenor of Franz Fischlers remarks immediately prior to the Cancún Ministerial bore all the marks of someone who had only recently emerged from one battle who was facing another. It appeared that the EU member states and agricultural negotiators almost felt slighted that no one appeared to be giving them credit for having done something on the CAP before Cancún. Their ability to recognise the validity of opposing positions (a pre-requisite for negotiations) was thus impaired by the recent wounds of intra-EU negotiation.

  The immediate aftermath of the collapse of Cancún is the need to shore up the results of the CAP reform process. A number of Southern European countries are already talking of possibly watering down the CAP reforms as a result of the Cancún failure. It is also interesting to note that Franz Fischler claimed that he was relieved that the CAP reform process was sold on a domestic EU ticket, rather than tying it to the WTO process.

  The key lessons/issues are thus:

    1.  Any EU internal CAP process needs to be carried out some way distant from WTO talks.

    2.  The focus on EU CAP reform must be internal. That is, it must not be held hostage to WTO talks.

  The key and immediate problem with EU agriculture it to stop backsliding on CAP reform. The absence of the external pressure for reform could make the next stage of CAP reform more difficult still and this is something we need to guard against. The chance of using the possible non-renewal of the peace clause at the end of this year must be used as a negotiating chip to try and get the ball rolling on the phase out of export subsidies, although this may be easier said than done with many countries seemingly willing to try and avoid using the "nuclear option" on agriculture so soon after Cancún's collapse.

2.3  Everyone else's agriculture

  Of course it was not just the EU that presented problems on agriculture. The final text was far from easy for the US to live with as its' limits on subsidies appeared to cover the entire US farm bill expenditure. It is also far from inconceivable that the real reason that South Korea and Japan stuck out their necks on the new issues was that they were really worried about giving any ground on agriculture.

2.4  Coalition building and negotiating parallels

  The arrival of the Group of 21, or 23 or whatever number we ended on, has been hailed as the key step forward of Cancún. Of course we have had negotiating blocs of this sort before, but few have been as aggressive and well co-ordinated as the G21 became. There were some problems that came with the G21's arrival, though. Firstly, the group was negotiating its own stance at the same time as negotiating with the US and EU on agriculture. The tasks of building a group as well as agreeing a stance and negotiating on that basis may have been simpler had the coalition building occurred earlier. Secondly, the G21 struggled to extend its reach beyond the agriculture issue. The existence of other "G" groupings, while nothing new, made coordination difficult between the developing countries. Thirdly, the initial success of the G21 formation emboldened the negotiators to a degree probably in excess of their ability to actually effect change in the EU and US positions. The momentum of the G21 process also made some delegations reject the need for a fall back position. As all negotiators know before you can conclude a deal you must have a clear idea of your bottom line and a fall back position from your first offer. It appeared towards the end of the week that some developing country ministers, buoyed by the success of the G21 and their seizing of the agenda and moral high ground from the EU and US negotiators , had rejected the idea of a fall back position. It thus became unclear to some negotiators what the bottom line of these countries really was.

  It could be argued that some developing countries wanted to block the talks because their bottom line was that they were unlikely to gain from the deal. However, this is unlikely given both the reactions of some of the larger developing countries and the fact that in advance few countries appeared willing to block progress. This is supported by the (sotto voce) statements by Brazil and India immediately after the collapse of the talks that both saw a deal as being possible. Indeed Brazil thought a deal on agriculture was achievable within five hours. While this is unlikely it signals a couple of things. Firstly, Brazil clearly wanted to deal but was unable to get the remainder of the G21 to follow its lead. This has implications for the longevity of the grouping. Secondly, the fact that Brazil and India were prepared to deal would appear to suggest a larger split between the smaller developing and least developed members and their larger counterparts. There could be two reasons for this. Firstly, it may be simply that they had different bottom lines and strategies for the meeting and these split the group towards the end of the meeting. Secondly, and perhaps more worrying, some of the smaller countries with less physical capacity for negotiations may simply have misread the signals and thought a deal impossible. This latter explanation was seized on by some commentators as signalling "naivety" on the part of some of the smallest countries in the discussions. This problem was amplified by the apparent belief of some of the smaller African states that the Singapore Issues would be the only ones that they would be allowed to negotiate on.

  The capacity problem in negotiations is one that is rightly made much of by development NGOs. It is interesting to note, however, that the capacity problem is addressed in part by a "privatisation" of the technical assistance programme, with many NGOs offering direct "aid" to some delegates. In Cancún a number of official delegations carried NGO representatives; among the developed economies this was in a largely advisory capacity, but in some smaller developing countries the involvement was much closer. While such a development may not be necessarily a bad thing the role of many NGOs is primarily campaigning and lobbying, while developing countries need negotiation and analytical skills. The mismatch between the two perhaps amplified the momentum built up behind the G21 formation. The spiral of rhetoric appeared to develop a life of its own and may have contributed to the "last stand" mentality that seemed to pervade the process towards the end of the Sunday talks.

  The key issues/questions that arise from this aspect are:

    1.  Will the G21 remain solid (with bilateral pressure) and extend into issues beyond agriculture?

    2.  Now Brazil has failed to use its leverage within the G21 to negotiate a deal will it become embroiled in a bilateral fight with the US?

2.5  Negotiating tactics

  The stance of the G21 is analysed above, so we will not look further at that group. The EU and US maintained their usual negotiating positions of dogged refusal to budge before the last possible moment. Because the US agenda was so limited it was able to focus its efforts on agriculture and industrial tariffs. There is an unanswered question regarding the real willingness of the US to negotiate given the fact that it had just "given way" on TRIPs and public health immediately prior to Cancún. Having done this it appeared that the US was unwilling to give too much more to break the logjam. Indeed it appeared that the US was treating the TRIPs concession as part of the Cancún meeting. The US was not particularly publicly visible in the talks and tended to use bilatarels and phone calls from Washington to impress its points.

  In contrast the EC had a large agenda but a similar tactic. The signals that had emerged from many member states that unbundling of the Singapore Issues was a real option undermined the ability of the EC to successfully play a classic brinksmanship game. The bilaterals that their member states held will have further undermined this. The fact that the EC continued with a brinksmanship game right to the end both produced a text that was destined to produce failure and an atmosphere that militated against success. If the EC had signalled that it would drop investment and government procurement transparency at the start of the meeting then progress could have been made on trade facilitation and competition, as these were the two issues that ended up being least controversial. The Commission seriously underestimated both the mood of the meeting and the degree to which the outside world understood the Commission/member state bottom line.

  The questions/issues for the future:

    1.  The schism between member states and Commission on agenda and negotiations may rein in the agenda of the EC.

    2.  The Commission need to amend their negotiating style if they want real progress on the Doha agenda.

    3.  Brinksmanship only works if the opposition do not know your bottom line—in Cancún everyone knew where the Commission would end up on the Singapore Issues—except apparently the Commission.

2.6  Mini green rooms

  The decision to set up mini-green rooms for the issue specific talks and then report back to a Heads of Delegation meeting each day was generally welcomed by members. However, it may have created a problem for a single undertaking approach that was not considered at the time. While the mini-green rooms produced a text, they produced a text that was by its nature extreme. The need to separate and focus lead to an undue emphasis on particular issues (like investment) that may not have been as highly promoted had a normal trade off process occurred. The problem became even more acute when the mini-green room format was moved into the HODs meetings for concessions and negotiations. The focusing on single issues clearly undermined the single undertaking approach and forced trade-offs within groups of issues rather than across these issues. As the EC approach required them to move on Singapore issues at the same time as clawing back on agriculture, the architecture of the meetings made it almost impossible for them to come out with a satisfactory deal. The undue focus on one sub-set of issues naturally then became embroiled in the positioning of the negotiating blocs and the new found self confidence of the G21. The mini-green room approach thus created a need for every country to "win" each sub group, while the WTO process needed wins and losses to be pooled in the single undertaking.

  The key lessons/questions for the future are:

  1.  Will the mini-green room become standard process? It is in many ways a replication of the existing WTO Geneva process (that does not negotiate agreements) and includes more countries; but undermines inter issue trade offs.

3.  STRATEGIC ERRORS

  While the above factors set the tone for the Cancún meeting there were a number of specific factors and circumstances that made the finding of a deal more difficult.

3.1  Cotton

  The Cotton producers of West Africa have an unanswerable case against US subsidies. The problem is that we are only two years away from US elections and indeed are at the start of the nomination process. The chance of the US moving against cotton subsidies before an election (given the location of the cotton states) is about as likely as Chirac moving against French farmers before an election. There was never any chance that the USA would agree to a significant cut in its protection. The fact that the domestic pressure for reform is limited and indeed is not tied into any particular process and we have an interesting contrast with the EU on agriculture. Here there is pressure for reform and a process focused upon it. In the case of cotton we had a very late submission, not tabled until just before Cancún, and no domestic reinforcement process. The DG of the WTO Supachai placed a good deal of personal credibility on the cotton producers getting their way, despite being warned by secretariat staff that he was on a hiding to nothing. The late tabling, lack of domestic US backup and timing of US elections made this a non-starter. The best we could have got was considerably greater than the US was offered—but this would have taken time and coalition building with US domestic reform groups. So the question remains as to why the West Africans pushed this as a deal maker/breaker and why Supachai put so much personal prestige into it. The chances of success tend to be low for these sorts of initiatives. Add in the US political situation and its chances were always zero. Fail to build a coalition in advance and you end up with the Draft Text which was little more than an insult to the African delegations that asked for movement.

  The questions/issues that arise are:

    1.  Why did Supachai hitch his wagon to an issue that, although worthy and right, was never going to fly?

    2.  Why did no-one bother to check the US domestic political situation?

    3.  Why was the issue tabled too late?

    4.  Was any attempt made to build links with potential domestic reformers?

  The key lesson from the failure of the cotton initiative is that trade policy is domestic policy. A country can only negotiate within limits set by domestic politics. Only autocracies and countries with ill developed domestic political systems can sign agreements that are not agreed to in advance by key domestic stakeholders. If the cotton initiative is to proceed US domestic interests must be engaged to drive a wedge between the cotton growers and the US administration. In the run up to an election this is unlikely to work.

3.2  The new issues green room

  The process by which the final text was arrived at was problematic to say the least. The man responsible, Pettigrew, asked all parties for their favourite of the four. He did not ask for the ones that they were least opposed to. The answers he got dictated the text. The problem is that the ldcs and G21 refused to play ball at all and did not name any—continuing to state that they opposed any talks. Whether he could have probed and got a different answer is impossible to tell. Perhaps the question was wrongly phrased, perhaps the developing countries were simply unwilling to signal their preferences at this stage. In essence the final text reflected the priorities only of a few of the demandeurs—or rather it expressed the extreme end of the demandeurs wish list. Because they were asked to name their favourite the result was completely biased in the wrong direction. Despite being warned that investment was the least favourite of all developing countries and the most contentious, Pettigrew produced the text that focused all efforts on investment. The text made the geometry of green room negotiations very difficult, if not impossible. A number of the key developing countries clearly indicated that they could live quite happily with competition talks, as they had been described in the first draft. There was also considerably less opposition to trade facilitation and government procurement transparency. What was clear to anyone that had followed the issues for the last few years was the investment was a real deal breaker. The Commission had not built a strong case and the opposition was very clear.

  The questions/issues that arise:

    1.  Why did Pettigrew produce a draft text that was clearly unacceptable? It may have been because:

         a.  he hoped that the extreme position would focus discussions clearly;

         b.  he took a literalist view of his role as reflecting member views (even when they refused to give them);

         c.  he simply got it wrong.

  The key lesson for the long-term viability of the WTO system is that when it is time for countries to place their cards on the table—they really need to do so. Or perhaps it needs to be made more explicit that the time has arrived. It is not clear that the "final" chance to influence the text was actually seen as such by all participants. Once the text is written half the battle is over. If you allow the proponents of an agreement to have untrammelled influence over a text you are forced to rein them in rather than start from a more balanced position. The apparent unwillingness to state a final position made the final text totally unbalanced and for those countries that actually wanted a deal, it made the last few days very difficult indeed. Of course, if the country believed that the agriculture text was too unbalanced to warrant further discussion then a blocking position was sensible. The problem is that most countries both during and after Cancún appear to view the collapse of talks as a bad thing.

3.3  Closing the talks

  Perhaps the most bizarre and unexpected turn of events in the conference came when the Chair of the conference, Mr Derbez, decided to close it. The immediate chain of events came after he chose to focus on the Singapore Issues as the first group of issues of the modified green room discussions (to be followed by agriculture, nama, development issues etc). It was reportedly chosen in this order so the most contentious issues could be got out of the way first, before proceeding to the most difficult. Of course, choosing between the issues is a matter of opinion, but it may have made some sense. The final trigger for collapse reportedly came when Pascal Lamy made his compromise offer following a Council of Ministers meeting on the Sunday morning. He stated in the meeting that personally he thought that keeping trade facilitation and competition policy made most sense for developing countries, an argument that has considerable merit. However, he had been authorised to offer up competition and investment. When he offered up the sacrifice he was met with a resounding NO from the African group of countries; they wanted all issues removed. This was swiftly followed by a NO from South Korea and Japan; they wanted all four issues on the table. At this point Mr Derbez decided that no progress could be made and closed the conference.

  There are a number of questions/issues that arise:

  1.  After the EC "blinked" and offered a sacrifice why did Mr Derbez not park the discussions in that group and move on to agriculture and NAMA? Perhaps he could have got agreement on the Singapore Issues after progress had been made elsewhere.

  2.  Did Korea and Japan really demand all four issues remain because of fealty to the four issues or because they did not want progress to occur in agriculture?

  3.  Did having the modified green room make progress across the agenda impossible? In essence taking the issues in sequence undermined the functioning of the single undertaking approach and made each country focus on trade offs within each group of issues rather than between each group of issues.

  4.  Why was the decision of one person allowed to stand? It was clear by Sunday morning that countries were after a deal; many countries signalled this willingness to talk by rebooking tickets for Tuesday from Monday. It was also reported that at least one country was flying in new negotiators to help hammer out a deal. Everyone in the conference was aware of this and was expecting progress. Given all this why was the conference not extended one day or even two?

  The key lesson from the break down in the Singapore group is cumulative. Firstly, the modified green room approach produced a disaster of a text that made progress tough. Secondly, the modified process forced trade offs within rather than across groups, undermining the single undertaking. Thirdly, no one person should be able to close a conference when a deal is still possible. It was clear after the meeting that many of the key players, developed and developing thought a deal still possible.

4.  CONCLUSION ON CANCÚN

  To recap; there were a number of underlying structures and problems that underpinned the Cancún discussions:

    1.  A lack of real US commitment to the WTO;

    2.  The tortuous and recent EU CAP reform process and its results;

    3.  The other protected agricultural markets hiding behind the EU;

    4.  Developing countries building coalitions during negotiations;

    5.  Negotiating tactics that did not move with the mood of the talks;

    6.  The structure of the mini green rooms.

  In addition there were a number of specific strategic mistakes at Cancún that amplified the impact of the underlying problems:

    1.  An economically/morally/ethically correct but politically unrealistic agenda on cotton;

    2.  A particularly poor mini green room result on Singapore Issues;

    3.  An unexpected decision to close the conference.

  The reason for the Cancún failure cannot be "blamed" on any one thing. The background factors, some of which are general, some Cancún specific, could have been ameliorated had other paths been taken. For example if the meeting had not been closed then perhaps an agreement could have been reached. This was certainly the view of some of the larger developing countries. Perhaps if the EU had not played brinksmanship right up to the end we would have had a different Singapore Issues agenda which was more palatable earlier. If the G21 had formed more solidly well in advance of the Cancún meeting then perhaps less time would have been spent on internal dynamics. Perhaps if the developing countries had been more open in the mini green room on Singapore issues then the final text would have been less traumatically poor. Perhaps, perhaps, perhaps.

  We could spend a good deal of time in "what if" territory and perhaps more than any other recent WTO Ministerial we are forced to wonder what on earth went on.

  In the rush to judgement by many commentators there has been an apparent desire to find a culprit. For many Mr Derbez fits the bill, for others the Singapore Issues. In many ways this splits the world into the pre-Hegelian "great man of history" approach to historical events and the post-Hegelian systems people. Mr Derbez obviously does bear some responsibility for shutting the meeting before all possibilities for a deal were exhausted. This was a clear mistake and potentially a very major one. How major it was we will never know.

  The position on the Singapore Issues is more complex though. They were certainly the element of the talks that became the sticking point. However, the final point of breakdown was about bigger issues than the Singapore issues themselves. In essence the debate about the Singapore Issues came to encapsulate the wider undercurrents of the meeting. The failure to deal effectively with developing country concerns, exemplified by the Cotton case, amplified the collective indignation of the G21. This fed into a structure of negotiations that militated against a cross-issue trade off game that all previous successful negotiations relied upon. Making each sub-game (mini green room) the sole focus of attention in a sequential manner raised the stake so high that every player operated on the assumption of having to "win" each sequential game. The lack of effort or ability to suspend talks in one area to move to another exaggerated this problem in a manner no one probably could have foreseen. At base the Singapore Issues became the touchstone for all the other problems of the talks. It is unlikely, given the underlying structural problems combined with Cancún specific events that a different result would have been arrived at had the first group been on agriculture or non-agricultural market access. Forcing the overall WTO negotiation game into a sequence of smaller games simply makes trade-offs between issues almost impossible. Such an approach fundamentally changes the dynamics of the negotiation process.

  So much for why we got to where we are. We need to think about where we need to go now. The lessons from the Cancún process should not be overdone. It is true that we have been here before and we have had low points in the GATT/WTO process lower than this. However, the peculiar confluence of circumstances that lead to Cancún do not appear to have dissipated and indeed they are likely to grow over time. The key lesson of the Cancún process is that, to borrow the title of a fine Robert Paarlberg book, leadership abroad begins at home. Trade policy is and always has been a fundamentally domestic policy regime. It has a peculiar external focus, but is driven by domestic considerations. The inability to shift the EU on agriculture and the US on cotton is proof positive of the primacy of the domestic over the foreign. If we want to make real progress in these areas we have to marry the external and internal reform processes more closely. This means that a WTO proposal should follow a process of coalition building for reform in advanced economies, not be the start of it.

  The second key lesson is that process matters. The more inclusive mini green room process certainly helped produce a text. It was also a lot more transparent and open—everyone go to see what was going on much more clearly. At the time it appeared that the text was similar in some ways to the doomed final text at Seattle—a large piece of work that covered a lot of ground but looked less than likely to make it through to the end. The difference with Seattle was that this time the text did not really reflect all the positions, partly because some countries point blank refused to put their cards on the table, and partly because the drafters ignored advice from wiser heads that the final text would be too unbalanced. There are two possible routes out of the this problem—an internal and external route. The internal route is to ensure that everyone puts their cards on the table, that the drafter listen to wiser heads and that we ensure a mechanism to switch between mini green room texts on a regular basis. We have to avoid a sequential game that starts from a biased text.

  The external approach relates to the range of issues covered in mini green rooms. One simple way of limiting the chance of a sequential game is to limit the number of issues up for discussion. The effective unbundling that the Commission proposed for the Singapore Issues did not work in breaking the process. On a structural basis the failure of Cancún makes a stronger case for the unbundling of the Singapore Issues and the breaking of the link between them and the single undertaking.

  The third lesson is that something must be offered up to get some progress. It is extremely unlikely that anything will happen between now and Hong Kong. The timetable for the Doha Development Agenda (DDA) is well behind and the chance of playing catch-up is remote. In many ways the EC and the USA are in a position where they will have to make a pre-emptive move to get us back to the situation pre-Cancún, let alone move ahead. Realistically the US is unable to offer anything on cotton ahead of an election. It could, however, offer a less offensive text than the appallingly self-serving nonsense it served up in Cancún. For the EC the chance of offering more on agriculture is similarly circumscribed, first of all by the bounds of the CAP reform process and perhaps more urgently by the upcoming French elections.

  The chance of progress can only be grasped if the EC and US can be given room to offer some concessions in a way that does not involve too obvious a climb down. They need to climb down, but need to be given a comfortable ladder. Of course a natural reaction to this on the part of many developing countries and development groups is that the EC and US should be forced to climb down. While attractive this is not constructive. In the current political climate and with the existing election timetable we have no choice but to find a constructive way to get ourselves out of this situation.

  Unfortunately we have a problem of what the starting point for the climb down should be. For some the final offer of the EC should be that starting point. This would kill all discussions on competition and investment policies. However, as Pascal Lamy himself argued it would have made more sense to offer up government procurement and investment as the sacrificial lambs. So do we take as the starting point the desperate last throw of the dice or the more considered considerations of what actually makes most development sense. It is clear a sacrifice must be made, the choice is which one.

  For consumers trade liberalisation can only bring benefits if domestic markets are sufficiently competitive to ensure that those benefits are passed through to them. Anything that can help to foster a wider and deeper competition culture must be supported. The work of the existing competition working group has been impressive in building support for domestic competition enforcement and indeed forging links between agencies. From a development perspective the competition agenda offers the possibility of going after international private cartels that cost developing countries billions of dollars a year. The alternative fora for this agenda simply does not exist in a manner that will deliver benefits for developing countries and for consumers in all countries.

  In contrast the development case for the investment talks is very low. The fact that the majority of investment is already covered by the GATS and the rest covered by bilateral deals has always presented a problem for investment talks proponents. They essentially had no case for a WTO agreement, or a weak one at best.

  On trade facilitation there is a pretty iron clad defence on there being a benefit for developing countries. Indeed some saw this as the biggest possible gain from Cancún. Getting customs procedures more efficient can offer large benefits. For government procurement transparency talks there is a residual suspicion that this is a market access agenda in transparency clothing. A friend on one of the African delegations recounted a conversation with a trade diplomat that started on transparency and slipped into market access quite easily. While this may have been an inadvertent slip it certainly raised the concern level on the issue.

  Given this mixed bag on the Singapore Issues we need to make a case to ensure that we do not throw the baby out with the bathwater. The case for effective competition enforcement and action against cartels is strong from a development perspective as well as from a consumer perspective. The combined need to make a public sacrifice but not damage the long-term focus of the trade system requires as a bare minimum an accepted unbundling of the Singapore Issues. Investment talks should be abandoned even at a working group stage. Competition discussions should continue on the basis of the draft Cancún text, which simply requires the group to report to the Hong Kong meeting. Trade facilitation and government procurement discussions should continue in working group mode, although government procurement may well have been holed below the water with the suspicion that this is a market access agenda in disguise. Commissioner Lamy was right to argue for trade facilitation and competition as being in the interest of all parties. The agenda is a long-term one, but one that can deliver outside of the DDA process. It must be time for the Commission to follow its instincts and drop investment and transparency in procurement.

  In contrast the US has to offer something on cotton which goes beyond the paltry and insulting offer in Cancún. However, there is no chance of this happening before the election. This has to be recognised and discussions should be held in a totally untransparent way to allow the US to signal the chance of movement.

  In summary:

    1.  The WTO system will effectively be in stasis for some time because of upcoming elections.

    2.  If we want to make progress on cotton and agriculture we need to build coalitions between developing country exporters and developed country importers and civil society groups.

    3.  The mini-green rooms can only work within a single undertaking if we either strip the agenda right down to its bare minimum or create a more explicit mechanism to allow cross issue trade offs to be offered and made earlier in the process.

    4.  The EC must sacrifice investment talks and possible government procurement to engender some good will and the US must be more emollient on cotton subsidies—even if has to be done on a private basis.

    5.  We must not over-react by killing the potentially beneficial working groups on competition and trade facilitation if we are to underpin the long-term viability of the trade regime.

5.  LESSONS FOR THE FUTURE

  The rush to judgement on the meaning of Cancún was almost impossible to resist for the multitude of commentators that were present and indeed those that were not. Much of the commentary has been facile and focused on the specific of the Cancún meeting itself.

  The reasons for the failure of Cancún are many and varied. However, as we know from Karl Marx, history has a tendency to repeat itself: "Hegel remarks somewhere that all great, world-historical facts and personages occur, as it were, twice. He has forgotten to add: the first time as tragedy, the second as farce[59]." If the failure of Seattle was the tragedy then the failure of Cancún was truly the farce. Few who were there for the premature ending of the talks or the chaotic scenes as delegates were held at the bottom of the escalators to the Heads of Delegation meeting when the closure was announced.

  If we are to avoid this farce again there are a number of factors we need to take into account.

5.1  Trade policy is a primarily domestic policy

  There is a fundamental mistake made in trade policy discussions. Many participants are under the mistaken impression that trade policy is foreign policy with a domestic impact. It is not; it is domestic policy with a foreign impact. This is enormously important for how one views negotiations. The whole history of multilateral trade policy has been predicated on the mutual interplay of domestic policies and agendas. Even when the policy that over-rode trade was military (the US essentially paying to get Japan into the GATT) it is unavoidable that trade policy was driven by domestic policy imperatives.

Conclusion 1: trade policy has to be more fully integrated into domestic reform efforts

  If we are to embed domestic reform efforts and embed trade policy that aims to bolster this we need to bring the two together. Efforts have to be made to be more strategic in building coalitions able to bolster reform at home to allow it to be offered to demands from abroad. Similarly, more effort needs to be made with overseas companies to build domestic links to help channel demands for improved market access.

  Proposal 1:

    —  Northern consumer and other civil society groups need to focus on building alliance with southern producer groups and administrations.

    —  Anti-dumping cases and WTO panels offer the most immediate route to such alliance building.

5.2  US domestic reform movements are weak and compromised

  In what is a reverse of the position in Europe, there appears to be little effort among non-governmental groups in the USA to attack domestic subsidy and support regimes from inside. There are few groups who take the stance of the combined forces of Europe's NGOs that reform of agricultural support is in the domestic interest of the country concerned. This lack of a constituency for domestic reform weakens the ability of other countries to lobby for reform. Only when reform is based on an assessment of domestic interest can trade negotiators trade away domestic protection in return for a similar effort in other countries. Each trade demand from a third country is in essence a domestic deregulation demand for the receiving country. The chances it will be accepted can only be enhanced if the constituency receiving the protection is under attack domestically. This attack can be a market attack (retailers importing from abroad) or political (CAP reform coalitions).

  What is perhaps interesting about the US political situation is that there is less apparent willingness on the part of those groups working on trade to attack domestic sources of protectionism. Indeed many of the groups "most likely" to fill that role are compromised by being close to labour unions, small framer groups or other sources of opposition to trade liberalisation. The reason for this is not clear, but in Europe there is a clear and broad coalition of groups that effectively act as an adjunct to demands from third countries for trade liberalisation. They may be weaker in most cases than those seeking protection (a golden rule if ever there was one!) but at least they are present. In the US they appear to be almost absent. This leaves the field empty but for the domestic market actors seeking to maximise their returns. While important, such groups either do not occupy the moral high ground or are unable to express their impulses in any other way than references to their bottom lines.

Conclusion 2: US groups have to be lobbied to tackle domestic reform

  Without a civil society bolstering demands for domestic US reform it is unlikely that efforts to tackle domestic US protectionism will be successful in "problem" areas. The inability to make progression cotton subsidies is a case in point. There is a case that US groups working on trade matters would be better placed working on domestic reform efforts. This would be a much better guarantor of improved developing country access to their market.

  Proposal 2:

    —  Pressure must be placed on US civil society groups working on trade to focus more aggressively on internal politics as a route to delivering reform

5.3  The WTO process requires base mercantilism to progress

  The argument that the Doha Development Agenda is a development round and therefore fundamentally different to preceding rounds is dangerous. This is because the fundamental architecture of the multilateral trading system has remained the same. Whether we like it or not the WTO system depends on base mercantilism to work. It is only through a mutual exchange of bids and offers (bolstered by domestic constituencies seeking more liberal trading conditions) that progress can be made. The muddle of Cancún across many delegations appeared at least in part from a political desire to avoid having too explicit a mercantilist agenda for fear of being branded anti-development. This left things like NAMA as almost an afterthought to the talks because it did not really fit the model of talks that participants almost wanted to believe they had.

  The sad truth is that the WTO system requires countries to be self centred and mercantilist. Without that self-centredness the system simply cannot move forward. Once we start to undermine the base mercantilism that built the system we either have to widen the agenda ever more to accommodate the needs of developed world negotiators to come away with "something" for their efforts, or fundamentally change the WTO system does business.

Conclusion 3: a development round depends on self interested mercantilism

  Giving the Doha Round a development-friendly name does not change the fundamentals of the system. It is a bit like renaming Windscale to Sellafield—it is still the same place whatever name you give it. To move forward in trade negotiations you either have to rely on bid/offer or widen the agenda to allow unilateral disarmament on the part of those with most to give. In the case of the former this requires each country to aggressively negotiate from a classical "national export interest" position. Pretending that a national export interest does not exist does not make it so. If the system is based on mercantilism then the primary agenda must be a mercantilist one. Secondary agendas based around one off disarmaments (such as TRIPs) may be useful in a development agenda—but cannot be the centrepiece of the process as they do not fit into the fundamental architecture of trade talks. It could be argued that part of the reticence of the US was exactly the fact that they saw the TRIPs agreement as part of the bid/offer process and were expecting something in return.

  Proposal 3:

    —  The need for crass mercantilism as the motor of trade rounds should be explicitly recognised. The primary role of trade negotiators should be focused here.

    —  A development agenda can only piggy back on a mercantilist trade negotiation without fundamental and unrealistic reform of the WTO process.

5.4  Developing country policy formation needs closer scrutiny

  We generally know a good deal about how trade policy is formulated in the advanced economies, although probably more about the USA than the EU. There is considerably less knowledge about how trade policy is formed in developing countries. One would assume that the formation of policy mirrors the wider political system and is subject to the usual pressure of domestic coalitions and interest groups. There is no reason to believe that developing countries are any less prone to doing the bidding of interest groups. Indeed there is evidence that they are more likely to do so. This is because the economic systems of most developing countries are focused on a small number of sectors. The links between these sectors and the political systems tend to be close. There is, of course, nothing particularly new or surprising about this. However, there appears to be a belief prevalent among many NGOs that it is only the developed world negotiators that have vested interests to protect. The argument runs that developing countries represent their populations while developed world politicians represent the interests of industries only. While this is rather an unlikely position it is not immediately capable of being countered without any clear research based arguments.

Conclusion 4: greater study must be carried out of developing country trade policy formation

  Given the funds available for research and capacity building more needs to be funnelled to investigate the manner in which trade policy is made in developing countries.

  Proposal 4:

    —  Development departments should fund an in-depth programme of research to allow us to understand the process of policy formation in developing countries.

5.5  NGOs will fill capacity vacuums

  Being the policy entrepreneurs that they are many NGOs have sought to fill the vacuum in policy making that exists among developing country delegations. The offer of help from an NGO must be seductive; their message is pitched as being in the interests of the developing country. The seemingly selfless agenda of the NGO endears it further. Given the resource constraints in many developing country trade authorities any offer of help will be welcomed, particularly if it appears to be "free" advice. While many of the NGOs that offer such help do indeed possess expertise in some of the areas they are not focused on the same goal as the countries themselves. There is a fundamental mis-match between the desire of an interest group to further a particular campaign and the much more nuanced position of a country seeking to negotiate a trade agreement. What became clear at Cancún was that there was a blurring of these roles as the momentum of the G20+ generated a nose-thumbing atmosphere that was fed by the campaigning focus of the NGOs that had inveigled their way into the orbit of the national delegations. Some Ministers from the smaller developing countries indeed seemed to run their negotiations more as a campaign than a negotiation.

Conclusion 5: More basic resources are needed for smaller developing countries

  While the technical assistance programmes are important for building capacity in developing countries for negotiations they cannot plug all the holes. What was clear at Cancún was that many developing countries did not have access to simple support services. Some NGOs ended up doing the typing for some developing countries because they had no secretarial support. The lack of computer facilities (the NGO centre had more than the conference centre) forced many delegates to use the computers in the press room.

  Proposal 5:

    —  Every developing country that meets established funding criteria should be provided with secretarial support, computer equipment and support and other basic support materials.

    —  The WTO needs to establish a formal process to identify truly global and representative NGOs and involve them more closely in consultations. The UN system has a model that would allow the truly representative organisations to be separated.

5.6  The modified Green Room process needs to be modified

  The desire of the WTO to be more inclusive in the Green room discussions at Cancún was laudable. However, the partitioning of the Green Room into discrete subject areas had the unintended consequence of segmenting the single undertaking. This had the effect of making a single negotiation, with trade-offs across the range of issues, into a sequential negotiation game that focused discussions so closely on individual issue areas to such an extent that it undermined the ability to get trade-offs across groups. The problem in the Singapore Issues group exemplified this problem. In advance we knew that a number of the leaders among developing countries were primarily concerned about investment and secondarily about government procurement (for fear of a market access wolf in transparent sheep's clothing). There was less concern on competition and trade facilitation. The faulty text that emphasised all the wrong things made a deal difficult, but the structure of the modified green room imbued discussions with an importance they probably should not have had. The ability to make cross-issue trade offs was always going to be the "saviour" of discussions on the Singapore Issues as the real targets of all parties, agriculture and Nama required some give on the secondary agenda to make progress. This "saviour" was important for the EU to be able to offer concessions on agriculture (no matter how measly they were). In a normal green room such a trade-off would have been easier; with the issue specific green rooms this was made more difficult. The atmosphere generated in the Singapore discussions then appeared to block any possible progress in the other issues when their mini green rooms were mooted.

Conclusion 6: negotiating architecture must be able to provide trade-off opportunities

  We cannot return to the lack of transparency and exclusivity of the Green Room discussions. Conversely we cannot have a process that segments and separates the trade-offs and thus makes an overall deal that much more difficult to achieve. Operating the entire agenda through one Green Room is probably unwieldy. The openness of the new process is good—but makes a deal more difficult.

  Proposal 6:

    —  Concurrent talks across mini Green Rooms is probably impossible given the small size of many developing country delegations.

    —  Perhaps each subject group should stake out positions at the start of a Heads of Delegation meeting and only then a front runner picked.

    —  As soon as an impasse is reached or appears in one group, then the next should start immediately.

5.7  Mechanisms for pre-Ministerial trade-offs must be developed

  Many complaints were made in Cancún that the end result and indeed the earlier drafts were little advanced from the position in Geneva before the delegations boarded their flights. The same problem arose at Seattle. The difference with Cancún was that in a sense we had the political stalemate of Seattle over-riding the preparatory work of Doha; we had the preparation but not the will. There was considerable criticism of the brinksmanship played, in particular, by the EC in its negotiating stance. This brinksmanship relied on the willingness of other negotiating parties to recognise a concession when it was offered and a willingness to reciprocate. That willingness was simply not there.

  Part of the reason for that lack of will came from the fact that the Commission and its member states signalled some way ahead of Cancún that it was either willing to offer concessions, particularly on the Singapore Issues, or would be forced to do so. In many ways the Commission got itself into the bind that the Indian government are accused of—it said no right up until the last minute and was then forced to concede more than it wanted to because of an unwillingness to negotiate seriously until the last minute. The fact that Commissioner Lamy clearly signalled that his personal choice of a sacrifice was not the one on the table shows how little control the Commission had over the process at the end. This must raise questions about a strategy based on brinksmanship in an atmosphere not conducive to such tactics and a ever increasing group of countries wishing to engage in a negotiation.

Conclusion 7: the Geneva process must allow earlier concessions

  There is no sign that the number of developing countries wishing to engage in negotiations is going to decrease. There is also no sign that the basic rules of the WTO will be amended to allow weighted voting or a legislative role for the General Council. If this is the case then a strategy based on brinksmanship at ministerials must be under severe question. If ministerials are to work in the future or indeed the trade system is to progress then more use must be made of Geneva negotiations to clear up more basic ground for negotiation. If the EC had agreed to drop investment talks from its demands for Cancún it is unlikely that we would have ended up in the mess we did.

  Proposal 7:

    —  The EC and other major states should use the General Council meetings in the run-up to Ministerials to offer concessions ahead of the meeting.

October 2003






59   The Eighteenth Brumaire of Louis Bonaparte (1852; repr. In Karl Marx: Selected Works, vol. 2, 1942). Back


 
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