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"Modest goals in Cancun"
By Guy de Jonquières site; Sep 03, 2003

Next week's World Trade Organisation meeting, a well guarded causeway will separate ministers and diplomats from hordes of protesters who are also expected to descend on the Mexican resort. But the biggest barrier between them will be one of perceptions.

On one side of it, true believers hold up the WTO as an emerging global government with an aggressive agenda to remake the world order and a writ that transcends sovereign nations. On the other, sceptics view the organisation as an increasingly creaky talking shop, whose members could take weeks to agree just to change a light bulb.

The twist is that most believers in the WTO's omnipotence are not trade negotiators; they are protesters, who blame its rules for problems including disease, famine, poverty and environmental damage. The sceptics, in contrast, will be in the conference chamber, wondering whether the five-day talks were really worth the journey.

Many set out with low expectations of the meeting, which starts on Wednesday. Since governments launched a new trade round in Doha, Qatar, in late 2001, they have failed to bridge deep disagreements about how far - or even whether - to press ahead with opening world markets.

Some negotiators are seething with frustration. "Trying to deliver new liberalisation and disciplines in a group of 146 countries is becoming well-nigh impossible," says David Spencer, WTO ambassador of Australia, leader of the Cairns Group of agricultural exporting countries.

Nonetheless, Pascal Lamy, the European Union's trade commissioner, sees some positive signs. They include a long-delayed deal last weekend to ease supplies of essential medicines to poor countries and last month's US-EU proposals, intended to unblock negotiations on agriculture.

Mr Lamy, however, remains unsure whether the ministers will achieve enough to be able to reaffirm plans to complete the round by the end of next year. "If we say we will keep this deadline and we meet it, it is very good news for the world economy. But if we say we will keep the deadline and miss it, it is very bad news," he says.

The goals for Cancún are modest: far from breaking new ground, the ministers will be struggling to make up for repeated slippages. Sergio Marchi, Canada's WTO ambassador, calls the agenda "a second-best effort".

Supachai Panitchpakdi, the WTO director-general, wants the meeting to agree a framework for negotiations and identify priorities more clearly. He wants to set new deadlines for vital decisions, although negotiators have missed all those set so far. Even Mr Supachai does not expect the ministers to agree on all the specific figures for planned cuts in subsidies and trade barriers - as they had aimed to do for agriculture by last March. Without those numbers, the extent of trade liberalisation will remain undecided.

Still, even a small success in Cancún could breathe life into the Doha talks - for a while, at least. "Agreement on a negotiating framework would be a big step forward, though it would still leave huge arguments unresolved," says a senior trade official.

The make-or-break issue will be agriculture. The last bastion of traditional trade protection, it was barely dented by the Uruguay round, which ended in 1993. Wealthy nations, led by the US and the EU, still spend more than $300bn a year on farm subsidies, severely distorting global markets. Many countries shelter their farmers with high tariffs.

Developing countries, four-fifths of the WTO's membership, view farm trade as the test of rich countries' promises to make Doha a "development" round. Many say that without progress, they will not bargain seriously on other issues, from industrial tariffs to services and investment rules.

Their threat carries real - and growing - weight in an organisation that decides everything by consensus. Although developing countries took a back seat in previous rounds, they have become increasingly determined to have their say.

Some, such as Brazil, Chile, China, India, Malaysia, Mexico and South Africa, are political heavyweights in the WTO, widely respected for their negotiating skills. Even poor African states have grown more assertive; their leadership helped force the essential medicines issue on to the Doha agenda.

Many had hoped the logjam in agriculture would be loosened by the EU's reform of its farm subsidy regime in June and by its joint proposals with the US. But although those developments have stirred debate, they have yet to produce breakthroughs. The EU has refused to translate its reforms into a formal negotiating offer, or to improve on its cautious proposals for lowering its farm trade barriers.

Other countries say they will not offer negotiating concessions in exchange for reforms the EU is making anyway. Meanwhile, some negotiators think the US-EU farm initiative may polarise - rather than unblock - positions. Large food exporters and many developing countries call the sketchy proposals inadequate; diehard agricultural protectionists, such as Japan, say they go too far.

Brazil, China, India and South Africa have rallied other developing countries behind a hardline counter-proposal. They say the US and the EU must do more to liberalise, while ruling out big cuts in their own barriers.

Another potential battle looms over demands by the EU, Japan and Switzerland for WTO investment rules. Developing countries say such rules would burden them with heavy obligations without necessarily stimulating bigger capital inflows. They have long complained that they cannot keep commitments made in the Uruguay round and have tabled a lengthy and contentious list of demands to redress the balance. They are also resisting pressure from rich countries to lower their own trade barriers.

Not all the WTO's divisions run north-south. The Cairns Group, for instance, unites Australia, Canada and New Zealand - all wealthy countries - and 15 poorer ones. Japan is siding with poor countries to demand stricter disciplines on US anti-dumping policy.

In addition, developing nations' own priorities diverge and conflict - a consequence of their widely varying levels of economic development. A self-selecting group in the WTO, they range from Singapore, an industrialised economy with annual income per head of about $23,000 (£14,000), to African states where families struggle to survive on a few dollars a day.

They disagree even on how far wealthy countries should be required to open their markets. Those with preferential access to the EU are unenthusiastic, fearing liberalisation would erode their privileged positions and lead to tougher competition.

Some developing countries insist the US and the EU must honour pledges to scrap their quotas on textiles and clothing imports by the end of next year. But others, such as Bangladesh, would like the quotas to continue because they guarantee their exporters profitable shares of rich markets.

Leading developing countries are also divided over whether they want the round to succeed at all. Brazil is among the most positive, believing it offers the best hope of liberalising agriculture and of countering the threat of US economic and diplomatic domination of Latin America.

But India is widely accused of a negative and obstructive stance. Meanwhile, China, which joined the WTO in late 2001 and is the world's fourth largest exporter, is sitting on the fence: while generally siding with other developing countries, it has tabled few initiatives.

Levels of commitment also vary widely in wealthy parts of the world. Japan, once a force in global trade talks, has retreated to the sidelines in the Doha round, where its main aim appears to be to defend its agricultural trade barriers.

That leaves much of the responsibility for leadership with the US and the EU, which together account for about 40 per cent of world trade. Mr Lamy and Robert Zoellick, US trade representative, were the driving force behind the launch of the Doha round. Both would like to conclude it before their terms expire at the end of next year.

They face big challenges. US-EU co-operation creates deep ambivalence in the WTO. Although other members realise no progress can be made if Washington and Brussels are at loggerheads, they fear their own interests will be sacrificed if the two trade superpowers make common cause.

It is unclear, however, how closely the US and the EU will be able to work together. Despite their joint agriculture proposals, their agendas differ on many important points. Furthermore, Mr Zoellick and Mr Lamy must negotiate complex political pressures and cross-currents at home.

Mr Zoellick has called for radical liberalisation of agriculture and industrial goods. But his ability to achieve this hinges on getting other countries to cut their trade barriers and subsidies deeply enough to persuade US farmers to accept reductions in government support, which was increased sharply by last year's farm bill.

Some observers say the US farm lobby is increasingly reluctant to give up subsidies - a trend that could prompt an abrupt shift in US negotiating strategy. "Zoellick could do a U-turn at any time," says one trade negotiator.

Mr Lamy, meanwhile, may have to fight hard to persuade recalcitrant EU member states, led by France, to budge further on agriculture. He also faces a struggle in Cancún - against strong Indian-led opposition - to win agreement for talks on investment rules.

Some believe Mr Lamy is fighting an unwinnable battle that could deepen divisions in the WTO. "The EU won't get investment rules; its proposal will fall. The question is whether it brings everything else down with it," says one trade official. dh,4,8.89m,GSG1452,M ut even if Cancún passes off successfully, the going looks likely to get tougher next year. In the US, the prospect of November's elections will make President George W. Bush and members of Congress reluctant to do anything that might upset voters. That could restrict US freedom to make difficult concessions required to clinch WTO deals.

The EU, meanwhile, will be wrestling after May next year with the task of integrating 10 new members. As well as further complicating its internal decision-making, enlargement of the Union will swell the numbers of farmers, potentially strengthening resistance to trade liberalisation.

India, meanwhile, faces elections next year that could fan public opposition to liberalisation in a country long suspicious of open markets.

In previous rounds, negotiators have counted heavily on lobbying by companies eager to open export markets. But although many business leaders say they want the round to succeed, few appear to be fighting hard for it. Fewer business organisations will be represented in Cancún than in Doha.

"There is no business push comparable to the driving force provided by the US services industry in the Uruguay round," says a veteran trade negotiator. "The most active lobbyists are industries opposed to liberalisation."

Apathy from business may partly reflect the WTO talks' failure so far to offer any tempting prizes. It may also be because multinational companies do most of their business in the US and the EU, where trade barriers are relatively low, and doubt whether further liberalisation is worth the effort needed to achieve it.

In developing countries, growing competition from China is adding to caution about pushing ahead with liberalisation. Many fear the main beneficiaries would be Chinese exporters, not their own industries.

Some trade negotiators predict that the round will find it hard to make headway after Cancún and may face a period of stagnation. Says one: "There will be no crisis. Nobody will walk away. The talks will just drift."

Past rounds have gone into hibernation for as long as a year, before reviving. But this time the risks may be greater. One particular concern is that countries could turn with renewed vigour to bilateral and regional trade arrangements, which are already proliferating worldwide.

The US, which has recently launched a volley of bilateral trade initiatives, has said it will focus more attention on them if the WTO talks get bogged down. That could divert political attention in Washington away from the trade round.

Prolonged stagnation could erode governments' self-restraint, prompting them to flood the WTO with trade disputes cases that they have failed to settle through negotiation. It could also weaken their resolve to resist protectionist pressures at home. Both developments would imperil the WTO, widely hailed as the most effective multilateral institution of the past half century, and its system of enforceable rules that underpins global trade.

Some trade experts believe that prospect would jolt governments and business into making renewed efforts to move the round forward. Others, such as Australia's Mr Spencer, are less certain. "If the WTO closed down tomorrow, I am not sure whether world economic confidence would be shattered or not," he says.

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