source : Cafod
The development agency of the Catholic Church in England and Wales

Roots of the Collapse

The Cancun ministerial collapsed through a combination of political deadlock and what Pascal Lamy has twice (in Seattle and Cancun) dubbed the ’medieval’ processes of the WTO.

Politically, the conference witnessed a clash of visions : while the developing countries advocated a new trading system based on fairness and development needs, and made huge steps forward in their unity and voice, the EU and US in practice abandoned any pretence that this was a ’development round’ fundamentally different from its predecessors. One indication of this lack of political will was the presence of only three development ministers at Cancun (those of Germany, the UK and Canada). Instead, developed country trade negotiators reverted to an eye for an eye ’business as usual’ approach, complaining bitterly when developing countries failed to play the game by making sufficient concessions in negotiations.

Two issues in particular alienated the developing countries and eventually wrecked the conference : the European Union’s insistence on adoption of the Singapore Issues in the face of overwhelming opposition by the developing countries, and the US’ refusal to solve the problem of its cotton subsidies, which became the development rallying call of the conference in the way TRIPS and health dominated the Doha ministerial. Some important progress was made on agriculture, for example in dealing with tariff escalation, capping Blue Box subsidies, and tightening the criteria for Green Box subsidies, but this was lost in the ensuing collapse of the conference.

This political clash was exacerbated by severe problems of process. Traditionally trade negotiations operate on the basis of brinkmanship. Players hold out until the final (usually small) hours and then rapidly make a series of concessions and strike a deal. Most of the conference time is largely wasted in repeating positions long since established in Geneva - which is perhaps why Patricia Hewitt chose to arrive only on 12th September, preferring first to visit Honduras with Christian Aid. The European Commission in particular revels in this 3 a.m. ambush approach. However, for this to work, the parties at the table must be clear what is being offered, accept the process, and be able to respond rapidly in going back to their constituencies and winning approval for any climbdowns.

In Cancun, this process failed spectacularly. Even hours after the collapse, many developing countries were still not clear whether the EU had offered to drop two or three Singapore Issues, while newly formed, large membership groups like the G90 (see below) found it impossible to negotiate on sudden shifts in this way and instead merely held out against all four Singapore Issues.

The opaque process for producing a new draft text also contributed to the breakdown. At each ministerial meeting the position of overall chair of the conference is taken by the senior minister of the host country. In Mexico this was Sr Luís Ernesto Derbez, the minister for foreign affairs. He in turn appointed six other trade ministers as ’facilitators’ of six working groups on the main issues at stake in the conference. The facilitators reported to Sr. Derbez on progress - or lack of progress - in their working groups and, on the basis of their reports, he produced the second draft ministerial statement, issued at 2.00 p.m. on Saturday 13th September. The role of the WTO’s Director-General and staff in this process was both significant and unclear.

The chair-driven process for arriving at new drafts meant that developing countries were largely negotiating with the chair and the facilitators of the different working groups, rather than with other members. This led to confusion over who had said what to the chair, and who was being taken seriously in the redrafting. The result was an erosion of transparency and trust, and delegates who had been assured that their views would be taken into account were outraged when they read the new draft, with its inclusion of negotiations on three of the four issues, and the extremely weak language on cotton, despite the feelgood rhetoric on the subject during the opening days of the conference. This provoked a mood of rebellion among many developing country delegations.

The confusion was compounded by the poor organisation of the conference itself. It is lamentable that the entire first day of a five-day conference was devoted to the nomination of facilitators for the working groups, and their elaboration of a modus operandi for discussions. This could have been done equally well in advance. Delegates had inadequate spaces to meet, exchange ideas and discuss possible compromises (the Indonesian delegation was forced to set up shop throughout the conference in the journalists café area on the ground floor for lack of space elsewhere).

As chair of the conference, Sr Derbez has also come in for criticism for ending the conference when most members felt further progress could still be made. It is particularly hard to understand the interplay between the two key subjects - agriculture and Singapore Issues. The first three days of the conference were devoted almost entirely to agriculture, where some progress was made and many countries felt a deal was in sight. Meanwhile the discussion on Singapore Issues received much less airtime and largely consisted of the repetition of fixed positions. Then in the final Green Room, starting on Saturday night, Minister Derbez decided to start with Singapore Issues, a decision which baffled many delegates. If agriculture had been resolved first, then countries would have found it easier to decide how far they were prepared to go in bridging the heavily polarized positions on the Singapore Issues.

One positive improvement in process terms was the heightened involvement of parliamentarians compared to previous ministerials. While improving ministers’ lines of accountability to their electorates, the increased level of political scrutiny may, however, have contributed to greater inflexibility in negotiating positions.

The WTO system is clearly not functioning. Negotiations are in a state of paralysis in Geneva, and two of the last three ministerials have collapsed. Even Doha was arguably only saved by the quick thinking of the chair in clarifying his understanding of the text on new issues (and quick thinking was in short supply in the handling of events in Cancun). It is time to take stock of the institution, rather than blunder on with the Doha round in a manner that risks permanently undermining the multilateral trading system.

The Rise of the South

The ministerial witnessed the coming of age of the developing world in the WTO. The formation of the G22 (initially the G20) of developing countries, led by Brazil, was far more significant than the EU or US had realized when the group submitted jointly a paper on agriculture in Geneva weeks prior to the ministerial. The coming together of developing countries such as Brazil, China and India, and a wide range of smaller players, around the key issue of agriculture represented a tectonic geopolitical shift whose significance will only become clear in the coming months. Celso Amorim, the Brazilian Trade Minister, was for many the star of the conference. Showing a markedly more statesmanlike reaction to the collapse of the conference than either Pascal Lamy or Robert Zoellick, he concluded.

’We were able to show that a group of developing countries united were able to present a platform of agricultural reform, the most important unfinished (perhaps unbegun) business in the WTO, taking into account the needs of developing countries.

What was immediately apparent however, was that the EU and US failed to rise to or even understand the moment. Stuck in a ministerial negotiating mindset, and rather than welcoming this new development, the powerful players dwelt on the divisions between the trading interests of G22 members and predicted its imminent collapse. The US in particular was enraged at Brazil’s insubordination, reportedly briefing US business delegates that Brazil had ’done a deal with the devil’ (presumably India) and that ’this round is about development, not charity’.

The formation of the G22 was not the only step forward for developing countries : the LDCs, ACP and African Union members came together to form the G90, which identified resisting the introduction of Singapore Issues as one of its key concerns. A group of 32 countries, led by Indonesia and the Philippines, formed the Alliance for Strategic Products and a Special Safeguard Mechanism, in what became dubbed the G32, demanding that special measures to protect vulnerable farmers should be strengthened in the draft text and subsequent negotiations. These groups overlapped, and worked together, showing unprecedented strength and unity in their readiness to withstand the usual divide and rule pressures from the powerful countries.

The Draft Ministerial Text

The new draft issued on 13 September contained some advances, and some notable rebuffs for developing countries : CAFOD identified one step forward and four steps back in the text, focussing on the key issues of agriculture, NAMA (industrial tariffs) and Singapore Issues :

Step Forward. Tariff Escalation : In agriculture developed countries were obliged to deal with tariff escalation - the widespread practice of the EU, US and other rich nations of charging higher tariffs on processed products than on raw materials, which prevents poor countries from processing their raw materials at home, thereby gaining more of the final value added. (annex A, para 2.3).

Step Back. Dumping without No ceiling was placed on rich country agricultural subsidies, currently around $100bn a year. Dumping of artificially cheap produce on world markets would continue. (annex A, para 1.5)

Step Back. Market Access for Developing Countries : In both agriculture and industrial trade, the text urging developed countries to provide market access to developing countries remained purely ’best endeavours’ (i.e. non-binding). (annex A, para 2.10 and annex B para 9). Experience has shown such exhortations to be largely worthless. A decision was required on whether to make market access for agricultural goods from LDCs (the poorest countries) binding or best endeavours (annex A, para 4)

Step Back : Ignoring developing countries on Singapore Issues : Despite the clear and loudly expressed opposition of the majority of developing countries to commencing negotiations on the Singapore Issues, the text set out a timetable for negotiations on investment (para 14), and launched immediate negotiations on transparency in government procurement (para 16) and trade facilitation (para 17).

Step Back : Deindustrialising the South : Annex B on non-agricultural products was largely unchanged from the first draft and retained a number of measures that could lead to premature trade liberalisation in developing countries, undermining local industries and long-term industrialisation prospects. These included applying a non-linear formula likely to oblige developing countries to liberalize faster than others (para 3), elimination of tariffs in some sectors (annex B, para 6), minimal flexibilities to exempt sectors from binding and cutting tariffs (annex B, para 7) and including only best endeavours language on dealing with the erosion of preference schemes for the poorest nations (para 15).

In addition, the draft text was seen as a slap in the face for West African cotton producers, who had been led to believe that their concerns over the impact of subsidies to cotton producers in the US and elsewhere would be addressed as a priority in Cancun. Closely following the US position on the issue, paragraph 27 muddied the waters by mixing up the cotton issue with the industrial tariffs in textiles and clothing, did not support compensation or other new aid flows, and suggested the answer for West Africa was diversification out of cotton production, rather than curbing US dumping.

Special Products and Special Safeguards in Agriculture

Through its previous work in advocating the introduction of a ’development box’ in the Agreement on Agriculture, CAFOD has taken a particular interest in the need to enable developing countries to protect vulnerable producers by granting them additional tariff flexibility on a range of ’special products’ (SPs) of particular importance to food security and rural development, and to be provided with a special safeguard mechanism (SSM) to deal with import surges across all products. As part of the CIDSE coalition, CAFOD commissioned a paper on this issue on the eve of the ministerial.

The first draft text was weak on these issues, merely saying that SPs would be introduced ’under conditions to be determined’ and that tariffs on SPs would still have to be reduced, albeit by a lower amount. It also established an SSM ’subject to conditions and for products to be determined’. It did not address developing country concerns that SPs should be designated by the countries themselves, and that SSMs should apply to all products. The G20 proposal was also vague on SSMs/SPs, a casualty of the need to find a compromise between India (an SP supporter) and Brazil (an agroexporter opposed to tariff protection on agricultural products).

In response to these concerns a group of countries, led by Indonesia and the Philippines, coalesced in the months prior to Cancun, rapidly expanding at the ministerial to include 32 members in the so-called Alliance for SPs/SSMs. This group, inevitably dubbed the G32, had three core demands :

  Developing countries should have the flexibility to self-designate a certain percentage of their tariff lines as SPs, which should not be subject to tariff reductions or other means of increased market access for imports
  SSM for all products
  SPs should also have access to the SSM

Although the 13 September draft declaration retained the identical text on SPs/SSMs to the earlier draft, the formation of the alliance prevented further erosion of the concept and is likely to lead to increased pressure for a more comprehensive approach back in Geneva.

Back to Geneva

Amid chaotic scenes as the conference collapsed, the Secretariat and Chair of the conference cobbled together a hurried six paragraphs sending the negotiations back to Geneva and ’taking fully into account all the views expressed in Cancun’. A General Council meeting at senior officials level (one step down from a ministerial) will take place before 15 December 2003 to decide on the next steps.

What happens next depends to a large extent on political will. Developing countries need and will remain committed to reforming the WTO in order to ensure that it helps them get a fair deal out of the multilateral trading system. There is a clear danger, however, that the US and to a lesser extent the EU will give up on the WTO and divert time and energy into bilateral and regional negotiations where their greater relative weight enables them to ensure outcomes biased in their favour. This would clearly be a setback for development and raise serious doubts over the EU’s commitment to a development round. In their closing press conferences, both Pascal Lamy and Robert Zoellick sounded negative about their future commitment to the WTO, with the US reportedly particularly blaming the Brazilians for their strong stand on agriculture.

Before any immediate attempt to carry on with the Doha Round, however, the WTO needs to be overhauled, an issue which then UK trade minister Stephen Byers promised to address after the Seattle collapse, but which has been largely ignored in the intervening years. After two failures in three ministerials, and with the Doha Round slipping ever-further behind schedule, there are clearly deep systemic problems. In CAFOD’s view, the member states should declare a time out on negotiations, while they agree proposals for reforming the way the WTO works, and the manner in which trade negotiations are handled.

The Role of the UK

Prior to Cancun, CAFOD, along with many other NGOs, engaged in extensive lobbying and discussions with the UK government. This resulted in two minor, but positive developments : the British government came to support, albeit in a watered down form, the concept of special products, and successfully shifted the EC to a pro-SPs position endorsed in Doha by both Pascal Lamy and Franz Fischler. M. Lamy also claimed, if incorrectly, that the EC was one of the first supporters of the ’development box’, which gave rise to the SPs concept.

On new issues, a broad-based campaign by the Trade Justice Movement, of which CAFOD is an active member, also appeared to change government thinking, at least on investment. Following the mass lobby of MPs in June 2003, backed up by a debate at policy level, CAFOD was told at both official and ministerial level that the UK would inform the Commission that it no longer saw the Singapore Issues as a priority. However, this would be in the form of a quiet word in Pascal Lamy’s ear, possibly backed up by more vigorous action in Cancun. In Cancun, it became clear that the UK government’s reluctance to expend political capital on the issue sprang from its desire to give overwhelming priority to using that capital to ’push the envelope’ on CAP reform. The argument went that while the mid-term review had established firm limits on domestic support, the WTO debate on market access and export competition could be used to push CAP reform further, and put pressure on upcoming reforms of the sugar regime, among others.

In hindsight, this was a serious misjudgement - in failing to push more firmly for the EC to back away from the Singapore Issues, or to build support among other member states, the UK government allowed Pascal Lamy to continue to insist on a demand which ultimately wrecked the conference, in the process removing the potential pressure for further CAP reform. CAFOD notes and welcomes the UK Secretary of State for Trade’s statement made to the House of Commons on Wednesday 17 September that "we should accept that ... WTO agreements on investment and competition are off the EU’s agenda." The UK government should now go public in its opposition to investment and competition negotiations in the WTO, and ensure that the EC does not further sour the atmosphere by attempting to reintroduce them back in Geneva.

In CAFOD’s opinion, however, the UK government should press vigorously for the EC to go further by unconditionally removing all of the new issues from the negotiations. This, together with a commitment to take seriously the concerns of developing countries on agriculture, might be sufficient to rebuild confidence and restart serious negotiations.

In CAFOD’s view, there is also a clear case for a detailed review, perhaps in the form of an inquiry at European Parliament and/or Parliamentary Select Committee level, of the relationships between member states and the EC trade commissioner. It was clear throughout the ministerial that the British government frequently had only the haziest grasp of what the Commission was up to. Lines of accountability were weak to non-existent. Although this was justified in terms of giving the Commission sufficient flexibility to negotiate, the results suggest otherwise. For a supposedly brilliant trade negotiator, Pascal Lamy has presided over, and on this occasion been largely responsible for, one failure too many.

Such an inquiry should also explore the failure of intelligence which allowed senior UK trade officials to tell NGOs, just days before Cancun, that developing country opposition to the Singapore Issues was ’largely tactical’.

Were the NGOs Responsible ?

It may seem implausible, but in the hours after the collapse, both WTO and British government officials and ministers claimed that NGOs had to some extent hoodwinked the developing countries into opposing the Singapore Issues. This is a disturbing allegation in several respects. Firstly, it shows a patronising attitude towards developing country governments by implying that NGOs were able to persuade them to act against their better interest. Secondly it demonstrates a remarkable lack of appreciation of the balance of power in the international debate on these issues - the WTO, EU, etc massively outgun NGOs in terms of influence and resources. Thirdly, it ignores the lack of support for Singapore Issues outside the bubble of the European Commission - there has been little pressure from business, and the World Bank has made it clear that investment negotiations are not a development priority.

However, if NGOs (both northern and southern) have had an influence, and CAFOD thinks they have, officials and politicians would do well to reflect why, despite their limited political clout and research budgets, NGO arguments have resonated so strongly with developing countries’ own experience.

Was Cancun a Disaster ?

CAFOD’s brief position paper going into the ministerial stated, ’If the trading system is to work for the poor, WTO members must seize the moment in Cancun to :

  promote fairer trade rules in agriculture ;
  prevent the already overloaded WTO agenda from being further expanded with four new policy areas, the so-called ’Singapore Issues’, in particular the negotiation of a WTO investment agreement ;
  promote a more equal and transparent system of decision-making in the WTO, ensuring the full participation of all stakeholders, in particular the poorer and weaker ones.’

In the end, the failure to address the third bullet undermined limited, but significant progress on the other two. The case for institutional reform is now overwhelming.

The collapse of the ministerial was clearly a set back for the progress of negotiations, an embarrassment for Pascal Lamy, and a political watershed for the role of developing countries in the multilateral trading system, but was it a disaster for development and the achievement of the millennium development goals ?

The answer largely depends on what happens next. In CAFOD’s view, the draft ministerial text of 13 September represented a net loss for developing countries. For only minor gains in terms of disciplining northern subsidies and improving market access for their agricultural goods, and progress on tariff escalation, they were being asked to accept a developmentally suspect investment agreement, potential deindustrialisation, and to open up their markets to dumped northern crops with only vague promises of future talks on measures to defend the livelihoods of the rural poor. In that sense, the collapse can be seen as a positive outcome - no deal was better than a bad deal.

But what happens next is crucial. If the EU and US can show the necessary leadership in reforming the institution and reenergizing the negotiations around genuine development goals, dropping their pressure to force new issues onto the agenda and concentrating on curbing northern protectionism, then Cancun could in retrospect come to be seen as a breakthrough. A middle way would see them agreeing to make the current set of Uruguay Round agreements work better, including addressing the developing countries’ implementation concerns, before seeking to move onto further talks. If however, they walk away from the multilateral trading system in favour of the David and Goliath world of bilateral trade negotiations, Cancun will come to be seen as the death knell of the development round and a grim day for the world’s poor.

Duncan Green,
CAFOD,
19.9.03

Notes :

1. CAFOD is the official aid agency of the Catholic Church in England and Wales. This briefing is written by Duncan Green, CAFOD’s trade policy analyst. All comments should be sent to . For CAFOD’s other work on WTO issues, see www.cafod.org.uk/policy

2. Investment, Competition Policy, Transparency in Government Procurement and Trade Facilitation : The Doha Ministerial Declaration and Chair’s clarification established that a decision would be taken at Cancun by explicit consensus on the modalities for negotiations on these issues, including the right not to proceed with negotiations.

3. The Green Box and Blue Box are categories of agricultural subsidies permitted under WTO rules to be ’non- or minimally trade distorting’. Many trade economists dispute this description.

4. Green Room is the name given to special negotiating sessions with a small number of ministers from different countries, hand-picked by the chair because they are thought to be representative of the issues at stake. Green Rooms are often resented by those countries not chosen to participate. At Cancun, the final Green Room ran in parallel with consultation groups including all those countries that had a representative in the Green Room. The origin of the Green Room is said to be a meeting room at the WTO headquarters in Geneva where the Director General met ambassadors to thrash out particular problems. The table in the room was covered with a green baize cloth.

4. Ideas on institutional reform are discussed in Global Trade at the Service of Human Development, the CAFOD position paper prior to the ministerial, available on http://www.cafod.org.uk/policy/CIDS...

5. For submissions by the G20, see http://www.ictsd.com/ministerial/ca... and http://www.ictsd.com/issarea/ag/res...

6. for the 12 September G90 submission on agriculture, see http://www.ictsd.com/ministerial/ca...

7. http://www.ictsd.com/ministerial/ca...

8. See http://www.cafod.org.uk/policy/devb...l for a brief introduction

9. See http://www.cafod.org.uk/policy/CIDS...

10. http://www.ictsd.com/ministerial/ca...