The WTO Round in Cancun

Table of Contents

Executive Summary

1 The WTO Minister Conference at Cancun
1.1 What happened?
1.2 The Way forward
1.3 Preliminary Remarks
1.4 Theory of Trade
1.4.1 Economics
1.4.2 Comparative Advantage

2 The underlying Issues - before Cancun
2.1 Political & Economic Challenges
2.2 The Benefits of Market Liberalization
2.3 Key Issues before Cancun
2.3.1 Agriculture
2.3.2 Services (General Agreement on Trade in Services - GATS)
2.3.3 Developing Country Issues
2.3.3.1 Market Access
2.3.3.2 TRIPS
2.3.3.3 New Rules
2.3.3.4 Special & Differential Treatment

3 What now - A streamlined Agenda?

4 References

Executive Summary

The meeting of WTO Ministers in Cancun/Mexico ended without reaching a consensus in September 2003. But this is not the end of the WTO. The general advisory board of the World Trade Organization is called up for December 2003 to work with the negotiated text of the conference as a discussion basis.

Key Issues for the 5th WTO Round were Agriculture, especially market access and subsidies issues, and Development Issues - over three-quarters of WTO members are developing countries.

While the aims of the Doha negotiating round had not changed, the political and economic conditio ns in which the negotiations were taking place had changed enormously in the last year. This included a slowdown in the world economy, currency instability, geopolitical differences, outstanding trade disputes, and the proliferation of bilateral and regional trade agreements. An agreement on agriculture would have been a precond ition for success for the round of WTO negotiations. Issues were the dismantling of export subsidies, the reduction or removal of market access restrictions that block imports or exports of agrifood products, harmonization of regulations and the reduction of regulatory barriers with respect to phytosanitary standards and genetically- modified organisms, and a re-definition of anti- dumping to reflect real costs of production (before and after subsidies) in all countries. Another key point of Cancun was the General Agreement on Trade in Services - GATS.

Before the round the developing countries called for the implementation of measures agreed under the last Uruguay round of negotiations: market access for agricultural and non- agricultural goods, as well as services, rules for governing special and differential treatment, procurement, and interdependence - the linkage of progress on trade negotiations with the resolution of other issues like agriculture and access to pharmaceuticals under TRIPS.

One response to the failure of the meeting has been to call for a reduction in the number of subjects that are on the negotiating table in the Doha Round. The principal target is typically the Singapore Issues and, since the collapse of the Cancun Ministerial meeting, calls for their removal have intensified. And, second, that negotiating and implementing any WTO agreement on the Singapore Issues would be both too complex and too expensive.

1 The WTO Minister Conference at Cancun

1.1 What happened?

On September 14th 2003, the meeting of WTO Ministers in Cancun/Mexico ended without reaching a consensus. According to press reports and subsequent statements by those present at that meeting, the apparent and proximate cause of the Ministerial’s collapse was a failure to agree on launching formal negotiations on the so called Singapore Issues.

Others, however, have put forward alternative explanations for the meeting’s failure including a failure to agree on the modalities for negotiations on agricultural trade barriers, export subsidies, and domestic support policies; the inability of many WTO members to negotiate or discuss many issues simultaneously during and before the WTO Ministerial meeting; and a perception that some national representatives in Cancun were not prepared to go beyond pre- determined demands of others and showed little propensity to "negotiate seriously" with other delegations (Lamy, 2003).

1.2 The Way forward

After the abort of the conference of ministers of Cancun/Mexico (10.-14.09.2003) the chairman of the general advisory board of the WTO, Perez del Castillo, and WTO General Manager Supachai undertake intensive consultations with the goal of bringing the negotiation process back in course. These concerns at the moment the work basis for the further consultation in Geneva as well as the treatment of concessions made at Cancun. For this purpose the general advisory board of the World Trade Organization is called up for the 15./16. December 2003. The work of all negotiation groups is suspended up to a further point of time (BMWI, 2003).

Content wise several World Trade Organization members expressed themselves recently to use the negotiating text of the conference as a discussion basis. A clear picture over the readiness of the members to continue the negotiations is however not yet evident. Also the European Union did not position itself after Cancun yet. At present an intensive discussion process runs between commission and member states at Brussels. Germany occurs thereby actively for an imminent resumption of the negotiations (BMWI, 2003).

1.3 Preliminary Remarks

Some other preliminary remarks are in order. First, it is important to note that the failure to reach consensus at the Cancun Ministerial does not mean tha t previously agreed commitments by WTO members are no longer binding (of course, the degree to which WTO members feel compelled to adhere to those commitments is another matter.). Therefore, the expiry of the so- called "peace clause" on disputes on agricultural subsidies will still go ahead. Second, the failure to reach consensus at Cancun will not result in the shutting down of the WTO’s relatively small secretariat in Geneva; nor will it see the end of dispute settlement cases between WTO members. Moreover, ongoing negotiations among WTO members are technically supposed to continue, although the enthusiasm to complete them may well have diminished. The third point to bear in mind is that WTO Ministerial meetings have failed before. According to some observers, of the nine meetings of Ministers from members of the General Agreement on Tariffs and Trade (GATT) and the WTO, four have been branded “failures”. Inevitably, some old hands have claimed that “we have been here before”. In short, failure to agree is neither uncommon; nor will it formally undermine the legal and organisational foundations of the world trading system (Evenett, 2003).

1.4 Theory of Trade

1.4.1 Economics

In economic theory, free trade benefits everyone, even the least advantaged. Unfortunately, the real world falls short of trade theory. In the real world, economic competitors use governments to shape national policies and to negotiate the rules of International Trade. From another direction, non-profit champions of social and environmental causes seek to establish rules that limit or redress the social costs of liberalized trade. The permutations of conflicting interests are endless, as are the angles they play in trade negotiations. In the contest over trade rules since the 1950s, leading countries as well as global institutions such as the WTO, the World Bank, and the International Monetary Fund (IMF) have exerted their power to broaden and deepen states’ commitments to the liberal international trading system as the best way to produce overall gains. Yet, the intense discord from Seattle to Doha and now Cancun suggests that large numbers of people are losing faith in both economic liberalism and the judgment of the Bretton Woods institutions. Some do not like the environmental, cultural, and other effects of the type of economic growth produced through this system. Many dislike the distribution of benefits, arguing essentially that the rich get richer and the poor get poorer - between countries and within them.

Because free trade is so hotly contested, its propone nts have developed concepts and phrases that explicitly or implicitly defend it against charges that practice falls short of theory. But the catch phrases of international trade -“comparative advantage,” “the development round,” “trade not aid,” and “level playing field” - hide tough choices that developing and developed governments must make to ameliorate concerns that the existing trade system is not living up to its promise. True amelioration and affirmation of free trade will come only if the concepts reflected in these terms are enacted in the real world. For this to occur, rich and developing countries alike must devote much greater political will to living up to the principles and commitments they claim to support. The “invisible hand” of the market will not create the benefits that people around the world demand unless the visible hands of governments and trade negotiators correct the distortions and failures of the global marketplace.

1.4.2 Comparative Advantage

The theoretical basis for believing that trade liberalization is good for everyone is the notion of comparative advantage. This theory posits that when states trade, each will adjust to do what it is relatively better at. Rather than trying to provide all its economic needs on its own, state A can make more money specializing and selling what it does best while buying from states B and C what they produce best. Everyone will gain based on their relative efficiency. The problem with the theory is that some states may be so efficient that they are able to supply the needs of all in multiple markets. For example, it is widely believed that China has the capacity to supply the entire world with apparel and to do so with greater efficiency than any other country. Suppose at the same time that some big agricultural producers are so efficient - or so well subsidized by their rich governments - that they can sell food more cheaply than the poorest developing countries. That would leave many states without any effective comparative advantage and with domestic economies that are too weak to create new global niches. In theory, a person, company or country that loses its comparative advantage to a rival will then adjust and find a new comparative advantage. However, in reality, some countries - like some unemployed workers or failed companies - may not be able to adjust within a tolerable time frame and may be left worse off than they were before trade liberalization. Without special provisions in trade rules or other related affirmative action, some poor countries will be unable to compete in the global economy.

2 The underlying Issues - before Cancun

WTO officials claimed that negotiatons in the Doha round had made reasonable progress, given the structure of the WTO as well as in comparison to other rounds of multilateral trade negotiations. But, they stressed that negotiations would have to pick up pace and resolve more contentious issues before the Cancun ministerial convened in September.

Key negotiating deadlines had not been met, but WTO and other trade officials all stressed that the fact that negotiations are still underway is a sign of some progress. Mini- ministerial meetings were being held prior to Cancun (in Cairo during the last week of June and in Montreal during the last week of July) to attempt to resolve outstanding issues. The resolution of two broad issues was the key to achieving the success of this negotiating round:

1. Agriculture , especially market access and subsidies issues. Agriculture is a big linkage issue - an agreement here will unblock other doors. The lack of agreement on agriculture has slowed down progress on all other negotiating issues.
2. Development Issues: Over three-quarters of WTO members are developing countries. Key priorities are special & differential treatment, capacity building, implementation by developed countries of previous commitments, and provision in the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) providing developing countries with access to drugs to treat epidemics.

2.1 Political & Economic Challenges

While the aims of the Doha negotiating round had not changed, the political and economic conditions in which the ne gotiations are taking place have changed enormously over the past eighteen months, sometimes in support of and sometimes working against a successful conclusion to the round. Some of the key changes include (Hoekmann, 2003):

- The slowdown in the world economy : Trade volumes declined by 1% in 2001 and grew by only 2.5% in 2002, a significant deceleration from the average 6.7% growth rate that world trade has posted over the past 30 years. A successful round is seen as key to reviving the world economy, but at the same time economic weakness means that agreement is likely to be more difficult to achieve.
- Currency instability, which has helped to relieve some of the competitive pressures on U.S.industry, but which has eroded the competitiveness of exporters in other developedeconomies.
- Geopolitical differences: The Doha ministerial meeting that launched the current round of multilateral trade negotiations benefited from a general feeling of solidarity in reaction to the terrorist attacks in the U.S. on September 11th, 2001. Political differences have widened as a result of the war in Iraq, especially between key European nations like France and Germany and the United States. That may make multilateral negotiations more divisive on political as well as economic grounds, and a new WTO agreement more difficult to achieve.
- Outstanding trade disputes: There are also serious issues dividing the European Union and the United States - the two parties to the WTO that will have to take the lead in defining a compromise agreement if further progress is to be made in this round of multilateral negotiations. They include the E.U.’s ban on genetically modified organisms, steel subsidies and the imposition of anti-dumping duties by the United States, the status of U.S. Foreign Sales Corporations, as well as the issues of patenting of life forms and biodiversity.
- The proliferation of bilateral and regional trade agreements : Over 250 have been negotiated since Seattle in 1999. They have value to the extent that they result in greater liberalization and strengthen the objectives of the WTO. To some extent, the U.S. is playing catch-up in negotiating bilateral trade agreements. They are also seen as insurance against failure or limitations of a broad WTO agreement. But there are concerns - political energies, negotiating expertise is being invested in these agreements at the expense of multilateral negotiations under the WTO; there have been delays in WTO negotiations because of involvement in bilateral or regional talks. Bilateral negotiations have tended to polarize trade relations between the U.S. and the E.U. For business, a proliferation of international rules governing trade and investment increases transactions costs and is itself a barrier to trade. A great deal of attention was focused on the development of trade agreements outside themultilateral framework of the WTO. The trend was seen as a threat as well as an opportunity. Many regional agreements deal with issues unlikely to be resolved within the WTO. They are exclusive to the countries involved, fixing asymmetries within the global trading system. At the same time, they incorporate rules that complicate trade and increase transactions costs. They also frequently include rules related to environmental, labour, or other social issues that can serve as barriers to trade. The debate is whether the proliferation of regional agreements creates indirect impediments to trade and erode the ability of a multilateral agreement and negotiators within the WTO to improve market liberalization, or whether fears about such imbalances are overblown. Many (like NAFTA) are seen as leading edge agreements that are compatib le with WTO principles and set the stage for multilateral negotiations in the future.

2.2 The Benefits of Market Liberalization

Economic studies conducted by the IMF, World Bank, and WTO estimate that a new round of market liberalization affecting key sectors like agriculture, services, and expanding market access for non-agricultural goods would lead to an increase in global income ranging from US$220 to US$620 billion, half of which would accrue o developing countries (This far exceeds the annual US$50 billion in aid committed to achieving millennium development goals) (Myers, 2003).

A successful conclusion of a new round of multilateral negotiations was also seen as necessary in order to:

- Boost a faltering world economy.
- Increase North-South trade and investment flows, as well as those among developing countries.
- Allow countries to keep pace with rapidly developing global trends in technology and business operations.
- Ensure consistency across an increasing number of bilateral and regional trade agreements.

Another way of looking at potential benefits is to assess the costs of failure. There was widespread concern that if the Cancun round would not be successful that more countries will move more toward bilateral and regional trading agreements as a fall-back position, complicating the trading system with a plethora of rules, aggravating asymmetries among trading areas and between developed and developing countries, and further polarizing major trading blocs in Europe, Asia, and North America.

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