Free trade on a knife edge

Aileen Kwa outlines the issues that could make or break the WTO at Cancun:

September 1, 2003
7 min read

Agriculture

Agriculture will be the linchpin of the Cancun Ministerial. Developed countries have been promising to dismantle agricultural protectionism for years now. Instead, they have done the exact opposite; the support given by Organisation for Economic Cooperation and Development countries to agri-business has increased from around $248 billion to $311 billion.

Unsurprisingly, rural unemployment and poverty are on the rise in the South as small farmers are wiped out by the flooding of their domestic markets with Northern imports subsided below the cost of production. This is what is called “dumping”. It is exacerbated by IMF and World Bank conditionalities that direct debtor governments to apply very low duties on imported foods.

Now the US and EU are plotting a formula for agricultural tariff reductions that would allow their agri-corporations even more access to developing world markets but leave Northern protectionism untouched. The EU will no doubt argue that proposed reforms to the controversial Common Agricultural Policy (Cap) is evidence of compromise to the South. Not that anyone believes the remaining $50 billion of subsidies per year are not trade distorting.

However, the US and EU will face stiff competition in the carve-up of developing country markets from the Cairns Group of Southern agricultural exporters. The Cairns Group is led by Australia and New Zealand, and given strong support by Brazil, South Africa and Thailand (to name a few).

It seems obvious that developing countries must insist on an end to dumping before they even consider undertaking more tariff cuts of their own. However, developing country diplomats seem oddly resigned to complying with yet another round of liberalisation in return for limited exceptions on sensitive food-security and livelihood products.

Trips and public health

Despite the rich countries” supposed concessions on Trips (intellectual property rights) and public health at Doha, in December the US vetoed an agreement on allowing developing countries without manufacturing capacity to buy cheap generic drugs. Generics strike at the heart of the US pharmaceutical industry – one of the biggest contributors of electoral funds to the current US administration.

But the proposed agreement is no solution, either. The European Commission (supposedly the “good Samaritan” when it comes to generics) has insisted on a host of ‘safeguards” for its pharmaceutical giants. Countries wanting to export generic drugs would have to get through so much expensive red tape that it would probably be impossible for them to make a profit. Similar bureaucratic nightmares would exist for importers.

The only positive clause is that countries in trade blocks with a majority of members from “Least Developed Countries” might escape this ordeal. But this is clearly a strategy to buy off and split African countries from other developing countries.

The latest US pronouncements indicate that it will only accept the text it vetoed last year if all countries agree to use the 50 per cent solution for humanitarian purposes only. The definition of “humanitarian purposes” is still unknown, but this is clearly another attempt to narrow the coverage and flexibility of a possible solution.

The likelihood remains that any agreement at Cancun would severely limit the ability of developing countries” manufacturers to export generic drugs. Even for this non-solution to their public health crises, developing countries could be asked to pay a high price in other areas.

“New Issues”

The most controversial discussions in Cancun will be on whether to start talks on the “New Issues” of investment, competition, transparency in government procurement and trade facilitation.

The critical issues are investment and competition. The US and EU are desperate for negotiations to start in these areas so that, eventually, governments won”t be able to regulate foreign investors. Countries would have to change legislation so that foreign companies would be given the same treatment as local companies. As local companies in the South or developing nations would obviously not be able to compete with transnational giants, this would inevitably exacerbate the inequities of globalisation.

To the anger of the EU, some damage-limitation-minded developing countries are going along with the US proposal of unbundling the four issues. This means they may consent to transparency in government procurement and trade facilitation, but not investment and competition deregulation.

Even this would be bad news for the South. While “transparency” in government procurement does not currently include “market access”, the latter is undoubtedly the US and EU’s aim. Governments wanting to purchase goods or services would then have to give foreign companies equal access to contracts. This is dangerous since government procurement is often used as a development tool.

Ramming through a raw deal

Those unfamiliar with the WTO will probably wonder why developing countries persistently swallow such bitter pills, and why they seem poised to do so again come Cancun. The answer lies in the immense pressure they endure during the WTO negotiating process. This process does not involve consensus outcomes based on the demands of all 146 members. Instead, WTO decisions tend to be made by a small select group of about 25 countries. This happens in both the run-up to a ministerial and during the ministerial itself – in the infamous “Green Room” process.

The big gang of rich countries led by the US and EU will try and arm-twist and co-opt a small number of influential developing countries like Brazil and South Africa. Any decisions taken are then presented as a fait accompli to the broader membership.

Countries that dare to resist will be blackmailed, bribed or threatened. Aid and loans could be promised or withdrawn, preferential trading arrangements put on the line, even complaints and smear campaigns made against any ministers, diplomats or (in the case of India at Doha) governments.

Developing countries aren”t completely compliant, however. Last April the “Like-Minded Group” of countries (which includes Cuba, India, Indonesia, Pakistan, Sri Lanka, Uganda and Zimbabwe) was so infuriated by the exclusive, undemocratic and non-transparent process at Doha that it insisted on proper rules of procedure – including the impartiality of the WTO secretariat – before and during ministerials.

Not only were these demands ignored prior to Cancun, but the WTO has shifted into an even more secretive and non-transparent mode of consultations – what the WTO director general Supachai Panitchpakdi called “flexibility”. Instead of facilitating negotiations, the secretariat and chairs have tightly controlled them. A draft text for Cancun only emerged on 24 July, just three working weeks before the ministerial. This left developing country delegations with little time to respond to the text and coordinate among themselves. And rather than being a consensus document of the WTO membership, the draft was issued by the chair. It supposedly reflects his best judgment of a compromise between members, but clearly favours developed country interests.

In the face of such persistent Machiavellian strategies, developing countries seem to be suffering from resistance-fatigue. But unless they take the extraordinary step of standing ground under pressure, the package they will be offered at Cancun is likely to have grave implications for their people.

Ultimately, the positions taken by developing country ministers at Cancun and the outcome of the ministerial will depend on how those ministers deal with the conflicting pressures. Will the domestic pressures they face from civil society, and perhaps even national parliaments, be sufficient to counter the arm-twisting of the major powers? And will ministers be able to stand up to their convictions? For the innumerable vulnerable populations in the South, war is being waged.Aileen Kwa is a policy analyst working with Focus on the Global South


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