The WTO Round in Cancun

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 5 ^th 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, g eopolitical 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 antidumping 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: m arket access for agricultural and nonagricultural 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.

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Table of Contents

  Executive Summary  ii

Table of  Contents  iii

1  The WTO Minister Conference at Cancun  1

1.1  What happened?  1

1.2  The Way forward  1

1.3  Preliminary Remarks  2

1.4  Theory of Trade  2

1.4.1  Economics  2

1.4.2  Comparative Advantage  3

2  The underlying Issues - before Cancun  4

2.1  Political Economic Challenges  4

2.2  The Benefits of Market Liberalization  6

2.3  Key Issues before Cancun  7

2.3.1  Agriculture  7

2.3.2  Services (General Agreement on Trade in Services - GATS)  9

2.3.3  Developing Country Issues  11

2.3.3.1  Market Access  11

2.3.3.2  TRIPS  11

2.3.3.3  New Rules  12

2.3.3.4  Special Differential Treatment  13

3  What now - A streamlined Agenda?  13

4  References  16

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 nego tiate 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 predetermined 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 socalled "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.