Cancun failure: the poor will pay the highest price

“We would have gained; all of us. We have lost; all of us” Pascal Lamy 14 September 2003

Lamy, the lead EU negotiator at the WTO Ministerial Meeting in Cancun is no friend of free trade as his Union maintains damaging and highly distorting trade restrictions. However Lamy is correct that we have all lost; unfortunately African countries have lost the most.

Almost every commentator, journalist and negotiator was surprised that the WTO negotiations ended so abruptly and unexpectedly. If the talks were ever going to fail, almost everyone agreed that they would fail over agriculture. Rich countries continue to protect their agricultural sectors, maintaining subsidies and other restrictions that depress the world prices of commodities and keep poor country products out. Agriculture is so important to poor countries because they have a comparative advantage in the sector and increased agricultural trade is the fastest way for them to escape poverty

Yet the talks collapsed not over agriculture, but over the refusal of some of the leading poor countries, particularly Brazil, China and Malaysia, to discuss some new issues, including the easing of customs regulations and transparency in government procurement. The new issues were contentious because many poor countries did not feel that they had sufficient capacity to negotiate on them. The EU, most keen to negotiate on these issues, made a major concession by dropping two of the most important items, investment and competition rules, leaving relatively minor issues on the table.

The Cancun talks were notable for the strong alliance formed by developing countries in the so-called group of 21 (G21), which was led by Brazil, China, India and South Africa. The strength of this coalition took many by surprise and it is indeed important that poor countries form stronger negotiating positions. Yet this alliance is partly to blame for the failure of the talks.

Negotiations are all about give and take. Everyone knew that neither the US nor the EU were in a position to meet the ambitious G21 demands for agricultural liberalisation. Given the situation, the countries should have tried to get as much as possible while keeping the negations going and on track. Yet the negotiators didn’t even get a chance to complete the discussions on agriculture because the talks failed at an early stage and did so over the two relatively minor issues.

The failure points to poor management of the talks by the Mexican chairman, Luis Ernesto Derbez, who probably should have brought the agriculture discussions, or at least part of that agenda, to the table sooner. But perhaps more importantly, the failure was caused by poor negotiation skills on behalf of the African countries. Alan Oxley a trade expert and former Australian Ambassador to the General Agreement on Tariffs and Trade (GATT – the predecessor of the WTO) considers the failure an indication that African countries either didn’t have a well-planned negotiating position or didn’t really care about achieving an agreement.

The failure of the talks is doubly frustrating because an agreement on agriculture was in sight. Both Pascal Lamy and the EU agriculture commissioner Frans Fischler were adamant that they would have reached agreement if they had been able to negotiate. Of course they could easily say that after negotiations ended, but many trade experts considered it highly likely that progress would have been made.

That Brazil was instrumental in the failure of the talks is not really surprising. Brazilian negotiators pushed a hard line on the opening of EU markets but would make no commitment to opening its own markets. Brazil is highly competitive in the production of several agricultural products such as chicken, pork and orange juice, yet wanted to be treated as a developing country and allowed to maintain its own domestic support in these sectors.

Removing domestic trade barriers is one of the most effective ways of increasing economic growth. The weight of empirical evidence from around the globe shows that those countries that have opened their economies and reduced their own trade barriers have grown faster and become wealthier more rapidly than those that have not. Frans Fischler shed some light on the attitude of most negotiators when he said that “Rich countries need to shoulder a greater share of the burden of liberalisation.”

Fischler’s statement reveals clearly that there is almost no recognition that trade liberalisation and the free exchange of goods and services has positive consequences for the majority of citizens of all countries. Influenced by special interest groups at home, the negotiators all consider it a negative, or at least zero sum game. What may be a burden for politicians and the interests they represent is of enormous benefit to economies, particularly developing economies. However, even representatives of developing economies appear to see themselves as emissaries of their producers and display very little concern for their consumers. And it is consumers in both developed and developing economies that would benefit most from global free trade.

Lamy is right that we all lose. But African countries needed the WTO more than Europe or the US. Without progress there is even less chance that Africa will be able to access rich-country markets. The celebrations by the leftist NGOs in Cancun when the talks failed shows how little they care for the welfare of Africans and how driven they are by ideological opposition to free trade and liberalisation, no matter the cost.

African negotiators should be discomfited at letting the talks fail over such minor issues. The fact that they never even got to discuss agriculture means that they failed their citizens and will keep the continent poorer for longer. For the sake of Africa’s poor, let’s hope the talks get back on track as soon as possible and that African representatives will recognise that lowering their own trade barriers is just as important as the EU lowering its barriers.

Author: Richard Tren is an economist and freelance writer and is the Executive Director of Africa Fighting Malaria. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Article of the Week\16 September 2003