Friday, July 27, 2012

The WTO - Cancun Round

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The “unsuccessful” conclusion of the World Trade Organization ministerial forum in Cancun during mid-September of 00 has been a topic of much debate, with opinions on the collapse of the talks as varied as those who write about it. Magazines such as The Economist, with it’s firm pro-free trade stance, considered the outcome of the Cancun meeting as a debacle, whereas more left-leaning organizations such as Oxfam (as part of their “Make Trade Fair” campaign) have hailed the outcome as the first rising of poor nations (referred to as the “G-1”, as opposed to the G-8) against their wealthier counterparts in the field of international trade policy. As such, it is difficult for one to ascertain the effects that the Cancun round will have on future discussions without introducing bias of one sort or another. It is the intent of this paper to make an effort at providing a perspective on these talks from both sides, and the effect on those who will feel the results of the decisions made, both immediate and in the future.

The WTO was created in 14 as a result of major changes to the GATT (General Agreement on Tariffs and Trade) previously established shortly after the second World War. The intent of these organizations was to provide a forum where all nations who ratified the basic tenets of the GATT/WTO could discuss, multi-laterally, the “liberalisation” of global trade policies. Many nations (notably the original 50 participant members) maintained high tariffs and subsidies, which protected, both generally and in specific industries, their national economies from outside economic influences . The implementation of the GATT was successful in many ways in helping nations work together to reduce these barriers, and the scope was greatly increased as many more nations became full members of the provisional GATT body. However, the growth of the organization soon became unwieldly, such that by the 180’s it was apparent that a new body would need to be established, with a new set of rules and guidelines. Thus, the WTO was created, who’s provisions (developed in the so-called “Uraguay Rounds” ) were finalized by 15.

Of significant note in these provisions was the inclusion of an “Agreement on Agriculture”, which was not a part of the preceding GATT provisions. The purpose was to provide greater transparency into member nation’s tariffs on such goods as grain, eggs, poultry, dairy, and other agricultural goods . Once these became more transparent, it was believed that the tariffs would be much easier to reform. This was especially important for many developing nations, who were unable to compete in the markets of wealthier nations as a result of the high subsidies and tariffs maintained in those countries. The Doha Round of talks, from which the Cancun meeting was a continuation, was one of the first to take the issue of Agricultural subsidies to the forefront of the newly formed WTO.

Well before the Cancun meeting, the amount of subsidization that developed countries provided had been widely reported and examined. The subsidies and tariffs used to protect the agricultural sectors of the wealthier nations cost an estimated 00 billion US a year, creating massive trade distortions in the global economy. The average price for agricultural goods that farmers receive in developed countries is 1% higher than the global price. Specifically, subsidies for sugar and rice have reached over 100% and 60% respectively . This subsidization has in effect remained unchanged for over 15 years as well, and represents a vast drain on tax dollars in these nations, most notably Canada, the EU, and the United States . It would also seem that the intended purpose of the Agricultural tariffs in these nations, to protect individual farmers that would otherwise go bankrupt if forced to compete on the global market, is not occurring. An analysis by the OECD (the Organization for Economic Cooperation and Development) determined that only 5 cents out of every dollar spent on price support by developed-world governments ends up in the hands of the farmers themselves. The remaining 75 cents ends up in other parts of the economy, distorting such markets as land prices .

However, the distribution of the subsidies is also questioned. A World Bank report indicated that in the European Union and the United States, the biggest 7% of farms receive over 50% of the farm subsidies . That is, the small farm holders are not receiving the aid that the subsidies are purported to deliver, rather the subsidies are ending in the coffers of the large (and politically powerful) “Agri-Corporations”.

The effects of this subsidization to the third world nations is measurable and direct. By providing greater incentive through subsidization to produce these specific agricultural goods, the global supply is increased, thereby depressing the global price. The end result is to place many farmers in third world nations into poverty when producing agricultural products that would, at “fair” global prices, provide a living wage. Notable occurrences of this phenomenon can be found in Africa vs. the EU in wheat and dairy exports, the EU vs. South-East Asia (notably Thailand) in sugar, and the United States vs. West Africa in cotton exports .

It was the discussion of Cotton exports that kicked off the Cancun round of negotiations on September 10th, 00. It has been estimated by the World Bank that without price support, fewer than 10% of America’s cotton producers would be competitive in the world market . In West Africa, over 10 million people rely on cotton exports for a living, many of whom living just at or below the poverty line. The West African nations demanded an end to the subsidization of cotton production in the United States, which The Economist indicated as “reasonable and justified” . However, the agreement that was reached during the first half of the Cancun meetings was considered a disappointment. Other than a promise to review the situation in the future, nothing was committed to, especially with respect to the removal or reduction of US subsidies. In fact, it was suggested that, despite the economies of scale and the relative cheapness that cotton could be produced in West Africa, that these countries diversify out of the cotton industry altogether . Indeed, the unwillingness of the United States to budge on cotton subsidies set the tone for the remainder of the Cancun meeting.

The discussion from this point onwards became dominated by the newly-formed G-1 , lead by Brazil, China, and India. Organized, committed, and representing over two-thirds of the world’s farmers, the G-1 represented the first concerted effort of developing nations attempting to steer WTO talks in their direction . The Cancun discussions were not specifically meant to address the issue of Agriculture subsidization, but rather multi-lateral liberalization of trade policies as outlined in the “Singapore Issues”, which specified four key areas of discussion, such as trade facilitation and transparency in government procurement, but not agriculture itself. The G-1 refused to negotiate on these issues until Agricultural subsidies were addressed. The end result was the cancellation of the Cancun round a day early, as a result of “Intransigence and Brinkmanship” by both the rich and poor nations.

It is at this point that much debate has ensued. Were the demands of the G-1 too much at once? Did the talks end because of the refusal of rich nations to address the issues that were most pressing to other countries, rather than the Singapore issues which were tabled originally? The resultant end of the talks is seen as both a “dismal failure” and a “resounding success”, depending on the source.

It is frequently noted that the G-1 was simply asking too much. The demand to eliminate tariffs entirely would require extensive negotiation by rich countries with their own citizens. President Bush had just recently signed the Farm Act in 00 which indicated that small farms would continue to be protected by the American federal government. France itself had just declared that it planned on ensuring that French farmers were an integral part of the Common Agricultural Policy , a European initiative that already had vocal opponents in such nations as Poland and other former Soviet bloc nations. In essence, to remove these barriers would be tantamount to political suicide for the reigning political parties. It is not surprising that these countries would reject attempts to reform their subsidized agricultural industries.

Also, it is important to note that the G-1 is composed of countries with widely varying existing trade policies. Nations such as India maintain tariff structures that are as restrictive as those of the wealthier nations, and their requests were seen by the wealthier nations as hypocritical.

Nevertheless, the failure of the talks to reach any common ground remains costly. The World Bank estimated that a successful completion of the Doha round of talks (of which Cancun was one meeting) would result in an increase of over 500 billion US a year in global income by 015. More importantly, over 60% of the increased income would go to poor countries, which would “pull” an estimated 144 million people up from the poverty line . The inability of both sides to come to a compromise can be justifiably seen as a missed opportunity.

Alternatively, the failure of the talks themselves cannot simply be considered as an abject failure, which it is often referred to as by politicians and pro-globalization pundits. Indeed, The Economist referred to the interference of NGO’s on behalf of the poor nations as “muddle-headed” and were as a group responsible for “raising (poor nation’s) expectations too high” . This may simply be an attempt to find a scapegoat for the results of Cancun, where the blame should likely fall on the shoulders of all participants involved.

Though the World Bank report indicated global increases in income for both poor and rich nations, the actual results may not have borne that estimation out. Not included were the costs associated with the market liberalization reforms that the poorer nations would be required to introduce locally. Many of these (and part of the “Singapore issues”) allowed for greater access to local markets by foreign “rich-world” corporations, whose impacts were not assessed as part of the report. Indeed, the Cancun round of negotiations were to be focused on these liberalization talks, and the requisite association with lower tariffs in Agriculture by wealthy nations was dropped entirely. That is, the Cancun meeting simply became a forum to discuss trade liberalization, which largely if not completely benefited first world nations, without any concessions in tariff or subsidy reduction. In this case, it is not surprising that the talks failed as they did.

Regardless, the end result of the Cancun talks is frequently hailed as a landmark occasion. The rising of the G-1 (since expanded to the G-) marked an historic change in multi-lateral negotiation at the global level. There is no doubt that not reaching a compromise on many issues at Cancun inevitably hurt the G-1 member nations in the short-run, but the long run effects have yet to be determined. The impetus created at the Cancun ministerial has led to more third-world nations being interested in joining the current G- as well, as the next round of negotiations loom.

However, some have indicated that the demise of the Cancun meeting (and the almost inevitable demise of the Doha Round of negotiations) may herald the death of the WTO itself, who European Commission President Romano Prodi referred to as a “medieval” institution in light of the Cancun meeting . The resulting effects could end up being more damaging for the world economy as whole. The United States in particular has bluntly indicated its willingness to “go it alone”, and will continue to pursue bi-lateral and regional agreements with other nations as opposed to global arrangements. Invariably, this will be of much less benefit than a multi-lateral agreement for members of the G- and the developing world as a whole. Indeed, the results of the Cancun talks may even result in punitive trade measures by the United States. One American Senator, Charles Grassy, stated

“I will use my position as chairman of the Senate Finance Committee, which has jurisdiction over international trade policy in the US Senate, to carefully scrutinise the positions taken by WTO members during this ministerial. The United States evaluates potential partners for free trade agreements on an ongoing basis.I will take note of those nations that played a constructive role in Cancun, and those nations that did not. ”

Whether this comes to something more than saber-rattling is unsure at this point, but it clearly indicates American political dissatisfaction with the results of Cancun. The long-term results may result in regional trading blocs, which could leave many third world countries (notably those in Africa) out in the cold.

Any result along these lines could prove Prodi correct. The downfall of the WTO and its subsequent replacement by regional agreements, which is already gaining favour in many rich nations, is measurably inferior to standard global trading rules.

It can easily be seen that the impact resulting from the early termination of the Cancun ministerial has far reaching and potentially damaging effects. The G-1’s impressive coordination during the talks ensured that it would not be held hostage by the decisions made by the first world. That wealthy nations in many cases simply refuse to compromise on issues of agriculture, so critically important to poorer nations, is certainly a major obstacle to future negotiations as well. That some sort of balance has to be developed is clear. If wealthy nations continue to pursue such trade restrictive practices that tariffs and subsidies promote, the slide in international trade will continue unabated. That agreements could be made on a regional level is of little solace; some of the major problems currently facing the world have been attributed to poverty. As Singapore’s Trade Minister George Yo has pointed out, the continuation of poverty in third world nations is seen by the citizens of these nations a result of first world policies . This resentment, along with poverty, is often linked to issues that affect every nation. Terrorism, disease, and migration have potentially disastrous effects to rich nations.

Freer trade undoubtedly has benefits to all nations. The next round of discussions, which is expected to occur some time over the next year in Hong Kong (and thus before the expiration of the “Doha round” of negotiations) could potentially bring the discussions back on track. However, the pessimism that prevails in many first world nations as a result of the Cancun talks may inhibit any sincere attempt at reformation. The strength of public opinion that the G- can rely upon in their own countries as they defy rich countries will only reinforce their resolve to come to an agreement that they can realistically view as advantageous for themselves. Whether an agreement can be reached during the Doha round remains unclear. However, it is plain to all that failure to come to some form of understanding is far more damaging to citizens of the third world than those of the first. Hopefully, the opposing positions are not too firmly entrenched that consensus is impossible before the next round of talks even begin.

WTO website, http//


Mary Jo Nicholson, Legal Aspects of International Business, pg. 7. Prentice Hall, 17.

Times Magazine (UK), http//,,60-817,00.html

The Economist, Sept. 0th, 00, p. 6.

Times Magazine (UK), http//,,60-817,00.html

World Bank website, http//



The Economist, Sept. 0th, 00, p. 7.


The G1 is composed of the following countries Argentina, Bolivia, Brazil, Chile, China, Columbia, Costa Rica, Cuba, Ecuador, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Peru, Philippines, South Africa, Thailand, and Venezuela.

Patricia Hewitt, “Learning the Lessons of Cancun”, Guardian Unlimited (online ed.) http//,76,1048078,00.html

The Economist, Sept. 0th, 00, p. 8.

World Bank website, http//

The Economist, Sept. 0th, 00, p. 6.

Ibid., 8.

James Arnold, “Mixed Feelings Over Cancun Collapse”, http//

ICFI website, http//


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