Tuesday, September 16, 2003

WTO Talks Collapse

The Economist has an insightful take on the story behind the collapse of the negotiations at Cancun. Though I usually find myself in agreement with Brad DeLong on matters of international trade, this time I find his take on the causes of failure rather politically jaundiced.

In 1996, ministers met in Singapore and talked about incorporating rules on foreign investment, competition policy, government purchases and "trade facilitation" (things like customs clearance) into the WTO. It was time, said some, to write the rules for globalisation. Poor countries, and some rich ones, demurred. While some of the proposed rules make sense on their own terms (who could be against swift customs clearance or transparency in government procurement?) it was not clear why the WTO, or any global organisation, should write and police those rules.

Poor countries in particular did not want to take on a whole new set of international obligations, which would be as costly to implement and monitor as the intellectual property rules they signed up to in the Uruguay round. Some poor countries, after all, do not even have a competition commission. Moreover, if they signed up to new obligations, then failed to fulfil them, they could be hit with trade sanctions.

Rules on foreign investment proved especially controversial in Cancún. Proponents of globalisation have long argued that inward investment not only brings new money into a poor country, it also brings new expertise and technology, which "spills over" to local firms and workers. Poor-country governments have devised many a strategy to encourage these spill-overs, by requiring foreign companies to undertake joint ventures with local firms, for example. They fear that rich countries want to take these rules on investment out of their hands. On Thursday, no fewer than 70 poor countries, led by Malaysia and India, declared that they would not countenance inclusion of the Singapore issues at Cancún. On Sunday afternoon, the European Union suggested that talks on trade facilitation and government procurement be launched now, and that discussions of investment and competition policy be held at future summits. But South Korea (backed by Japan) insisted they talk about all four Singapore issues; the African Union, meanwhile, refused to discuss any. At that point, Mr Derbez threw in the towel.

It is clear why poor countries do not want to hear about the Singapore issues. But why are some richer countries so keen to talk about them? The United States, which invests a great deal abroad, has some interest in protecting those investments with WTO rules. But the Americans are quite diffident about the rest of the Singapore agenda. They would not take kindly, for example, to having the antitrust decisions of their judges trumped by a world competition policy set at the WTO's headquarters in Geneva. The main proponents of the Singapore issues are the EU, already accustomed to supranational rules on competition and government procurement, and Japan. But even among the EU's members, opinion is divided, and few companies are throwing their weight behind the Singapore issues.

Some cynics suggest that the Singapore issues are just chaff thrown up by the EU and Japan to disguise their own intransigence over agriculture. Ever since the current round of trade talks was launched in 2001, Japan and the EU have been on the defensive. The Doha round's focus on agricultural liberalisation has forced them to defend some of the most illiberal but well-entrenched systems of agricultural protection in the world. Japan's import tariffs on rice go up to 1,000%. The EU spends more on annual subsidies for each of its cows than most sub-Saharan Africans earn in a year. Both insist on progress on the Singapore issues as a quid pro quo for long-overdue agricultural reforms that still seem politically beyond them. If poor countries refuse to yield ground, the EU and Japan can blame them for their inflexibility over the Singapore issues, rather than taking the blame for their own inflexibility over agriculture.

The Economist article should make clear enough that, contrary to DeLong's supposition, the collapse of the Cancun talks cannot be blamed on "the cretinous, malevolent, and incompetent servants (the Bob Zoellicks, the Karl Roves) of an unrepresentative minority government." As bad as Bush's record on trade has been, with the steel quota, the farm bill, and squabbles over Canadian lumber and Vietnamese catfish, the United States still comes out of this mess looking like an angel by comparison with the breathtaking cynicism evinced by the Europeans and the Japanese.