TWN Info Service on WTO and Trade Issues (Feb09/02)
04 February 2009
Third World Network

Trade: Round no one wanted, now proving difficult to end
Published in SUNS #6622 dated 21 January 2009

Geneva, 20 Jan (Chakravarthi Raghavan*) -- Early in 2004, at a meeting at Chatham House, the then UNCTAD Secretary-General, Mr. Rubens Ricupero, compared the WTO's Doha Round of Negotiations to the fate of the first Austrian Republic founded after the first world war, and said the Doha Round should be called "The Round that no one wanted."

Five years down the line, with the Doha negotiations at an impasse, a financial and economic crisis sweeping across the world and needing Keynesian solutions of an active government role and intervention (all contrary to the WTO philosophy and agreements that discipline governments), and trade issues having a very low priority for the Obama administration, the Round has become one that no one knows how to end.

Explaining his remarks of February 2004, in a recent communication to this writer, Mr. Ricupero recalled that after the first world war, all the non-German speaking parts of the Austrian Empire had been assigned to the new ethnic countries being created at the time. The German-speaking part of that Empire had been told that they could not join Germany, and reluctantly became an independent country and a republic (that ended in March 1938 with Hitler's Anschluss).

The Austrian historians have called that first republic, "the country that no one wanted."

When the Marrakesh treaty was signed in 1994, creating the World Trade Organisation and providing for a Ministerial Conference once in two years as the supreme governing body, the treaty made the WTO the forum for its members in their multilateral trade relations in matters dealt with in the annexes to the treaty.

At Marrakesh, there was a general consensus that with the WTO as an international organization and a permanent forum for negotiations, there was no more need for special ministerial conferences to launch new rounds of negotiations. So much so, at the 1996 Singapore Ministerial Conference, the US Trade Representative (USTR), Mrs. Charlene Barshevsky, had said there was no need for a trade round, since WTO provides members with a permanent forum for negotiations on a daily basis. What is needed, she said, was to fully implement the Uruguay Round agreements, conclude the Information Technology Agreement
(which they did in Singapore) and to go back to Geneva to conclude the Basic Telecommunications Services Agreement and the Agreement on Financial Services (both part of the Uruguay Round, and decided at Marrakesh to be unfinished business and for negotiations to continue).

The Agreements under the Marrakesh treaty provided for gradual implementation of some of the reforms, and this included principally, at the end of the initial six-year implementation period of the Agreement on Agriculture (AoA), that there should be further negotiations to carry forward the Agriculture reform process by the developed countries (for eliminating domestic subsidies, reduction of the border protection measures, and phasing out of export subsidies).

Even at Singapore, Argentina served notice on the mandate for further agriculture negotiations at the end of the implementation period (that is beginning 2001), and wanted the launch of a work programme towards that end including gathering the necessary data on the initial implementation and its effects. However, the EU and its trade commissioner, Sir Leon Brittan, knowing that the EU would be isolated and would face considerable pressures to drastically reform its Common Agriculture Policy (CAP) and reduce its protections, put on the agenda of the WTO four items (that later came to be known as the Singapore issues) on a study programme.

And at the next 1998 Geneva Ministerial Conference (to commemorate 50 years of the GATT trading system), the EU called for a "Millennium Round", and set in motion at the WTO a preparatory process that would lead to decisions in 1999 for negotiations for "sufficiently broad-based" trade liberalisation to "respond to the range of interests and concerns" of all Members, within the WTO framework.

The EU (along with Japan and other agriculture protectionists) privately told some of the agriculture exporters, in particular the Latin American countries (that had already liberalised their financial and other sectors under the Washington Consensus, and had opened up their capital accounts) that the EU needed to get investment etc on the agenda to be able to get domestic support for undertaking further agriculture reforms. And the EU commission told the EU industry and business that they needed a round with these new issues in order to get for EU investors a level playing field with the Americans who could bilaterally negotiate and get investment treaties.

And in the preparatory process, the EU encouraged all members to put anything they wanted on the agenda - so that they could disarm opposition to the EU's own items. And the EU also persuaded the Cairns group exporters from Latin America that in return for concessions on investments and industrial goods by the Asian countries, the EU would be able to undertake further reforms of its CAP (and thus open up its markets to the Latin American agricultural exports).

Through such Machiavellian manouverings and playing one group of countries against another, the EU sought to put on the agenda for the Seattle Ministerial meeting in 1999 (by then Mr. Pascal Lamy had become the EC trade commissioner, replacing Brittan), all the mandated and built-in areas of negotiations (agriculture, services and implementation issues raised by developing countries) but also the four Singapore items. The EC's idea was to get a new round with so many complicated new issues as a single undertaking - and thus put off for as long as possible further agriculture reforms.

But the Seattle meeting collapsed, not because of the civil society protests outside, but because a large number of WTO countries rebelled against a manipulative process of decision-making among a small group of countries (characteristic of the WTO even now) and called a halt to the meeting.

The shell-shocked WTO leadership came back to Geneva, where the General Council agreed on confidence-building measures and focus on the built-in agenda. But this did not suit the EC or Lamy, who within a few days of the 11 September terrorist attacks on New York, issued a call for a new WTO meeting to launch a new round as an answer to the terrorists, and got USTR Robert Zoellick to join this. Zoellick, who had been trying to get trade negotiating authority from the US Congress but had been rebuffed by the (Republican-controlled) Congress, joined Lamy for a call for a new round (he wanted a "market access round"), even though the US was concerned over a possible backlash at Doha that may force a rollback of the US gains in the WTO trading system (such as over TRIPS).

There were also other cheerleaders - the WTO head Mike Moore, former WTO head Peter Sutherland and free trade theologians - who tried to sell the round as a solution to a possible global recession at that time in the wake of the bursting of the dotcom bubble.

Through a coercive "green room" process at Doha (helped from behind the scenes by some facilitators, including Brazil's Celso Lafer, foreign minister under President Cardoso, and South Africa's Alec Irwin), the Doha negotiations on agriculture, non-agricultural market access, services, and the four Singapore issues, among others, was launched as a Single Undertaking. At Doha, the EU attempted to have it officially labelled a Development Round but failed; developing countries refused to buy it.

And as Mr. Ricupero, speaking for UN Secretary-General Kofi Annan, said at Doha, one would have to wait for the conclusion of the Round and assessing its benefits to developing countries (and not go by good intentions or promises at Doha). Even Mr. Ricupero's caveats were on the basis that market access for developing countries, and making the trading system less imbalanced and weighted against the developing world would help development of developing countries.

After the collapse of the Cancun Ministerial Conference of 2003, where the EU was forced to abandon its Singapore issues, in particular investment and competition policy, the EU official trade negotiators at an informal meeting in Ouchy (near Geneva) said that the EU was not a demandeur in the Doha Round!

This, Ricupero said in his communication to this writer, had prompted him to declare at the Chatham House meeting that Doha had become the Round that no one wanted as there were no demandeurs. (It was only later, that Mr. Celso Amorim and the agriculture exporters became the demandeurs).

"And what we are witnessing today at the WTO," Ricupero added, is that "an artificial round, for which there had been no real and genuine need, is difficult to conduct and even more difficult to kill."

Soon after the launch of the Doha Round, Lamy as EC Commissioner had gone to India, and in a meeting with civil society as well as others, made clear that the EC could not eliminate agriculture subsidies and support to its farmers, since it had to find a way to keep farmers on the farms.

After he became the WTO Director-General, and after the Hong Kong Ministerial in 2005, Lamy has gradually tried to change the focus of the Doha negotiations into one for market access and presenting market access as "development". He thus more or less side-tracked the issue of further agriculture reforms and an end to the domestic subsidies, focussing on market access in major developing countries - for agricultural processed products, non-agricultural market access (or industrial goods) and for further liberalisation of services, including financial services. But for all his wily calculations, and manipulative actions in small meetings, he has failed to produce results - and three successive mini-ministerials he convened ended in spectacular failures.

Peter Mandelson, Lamy's successor at the EU Commission and now UK Business Secretary, has also been pushing in the same direction.

And if ever there was a point when the negotiations were lost to Lamy, it was at the meeting convened of a few key countries, following the St. Petersburg G-8 summit. When it became clear to him at that June 2006 meeting that USTR Susan Schwab could not make any concessions on US domestic agricultural subsidies or things like cotton, he abruptly adjourned the meeting, announced it to the media, then came to Geneva, convened an informal Trade Negotiations Committee meeting at level of Heads of Delegation and recommended suspension of the talks and got it endorsed. He had planned to resume the talks after the mid-term Congressional elections, but when the Republicans lost those elections, with the Democrats emerging as the majority in the House, and the Congressional "fast track authority" expired on 30 June 2007, the administration of George W Bush (the most unpopular President in recent US history) lost the ability to conclude any agreement and carry it through Congress.

Instead of realising this, through the better part of 2007, and all of 2008, the Doha Round and its conclusions were presented as a solution for everything:

* In March 2008 at the Fund-Bank meeting, Lamy presented the Doha talks as a solution to the emerging financial crisis, with the WTO secretariat arguing that liberalisation of financial services will facilitate investment in developing countries.

As a matter of fact, if the demands on developing countries by the US and EC etc - for liberalising financial services according to the 1998 Financial Services Understanding (which was only "a modality"), including the provision to enable foreign banks (branches or subsidiaries) to introduce any kind of derivatives, and to restrict the scope for "prudential regulations" - had been agreed to, the major developing countries which escaped the financial meltdown in the US and EU would have been hit - and the global financial crisis would be worse.

* At the FAO Summit in Rome, the WTO and the successful conclusion of its agriculture talks (involving among others, the developing countries opening up their markets to agriculture products enjoying large domestic subsidies) was pointed to as a solution to the food crisis.

The UN Assistant Secretary-General at DESA, Mr. Jomo Kwame Sundaram, challenged this at a presentation at Vancouver in June 2008 (SUNS #6510 of 4 July 2008).

* At the Doha Financing for Development (FfD) meeting last December, Lamy tried selling the Round as the best way to avoid a global recession as it became apparent that the financial crisis was beginning to impact on the real economy.

The entire exercise of Lamy and other trade officials, as well as some of the trade ministers, in trying to "sell" the Doha Round as a solution to several of the ongoing or unfolding crises, sounds more like Mark Twain's story of the "snake-oil salesman".

Snake oil, called sheyou in traditional Chinese medicine, is prepared out of the fat of the poisonous water snake, and used as a remedy for inflammation and pain in rheumatoid arthritis, bursitis, and other similar conditions. Fats and oils from the poisonous water-snakes have a higher content of eicosapentaenoic acid (EPA) than from other sources, so snake oil was actually a plausible remedy for joint pain as these are thought to have inflammation-reducing properties. Chinese labourers on railroad gangs - involved in building the Transcontinental Railroad to link North America coast to coast - gave snake oil to Europeans with joint pain. But in an effort to produce snake-oil in America, the fat from the poisonous rattle-snakes were used, but this had very low EPA and thus not effective. Other fats and oils were produced, and in the wild-west were sold as a remedy for anything. This gave rise to Mark Twain's descriptions of the snake-oil salesman and his shills.

In a similar way, Free Trade theories and theologies, and their promise of win-win benefits from rapid liberalisation have been invoked to sell the Doha agenda, but they have failed to carry any conviction. Even a passing familiarity with the writings of the classical trade theorists, from Smith to Marshall, would have provided pause for thought about the links between trade liberalization and development (see M. Panic, 1988, "National Management of the International Economy"; also Richard Kozul-Wright and Paul Rayment, 2007, "The Resistible Rise of Market Fundamentalism"), and a more careful reading of the recent contributions of Krugman, Stiglitz, Baumol and Samuelson (to name only more mainstream economists) would have helped fashion a more sensible discussion of trade and development more generally.

Failure to do this has meant that some of the most malignant features of the international trading system in recent years have gone undiscussed. In particular, as promoted at the WTO, under the banner of "free trade", the neo-mercantilist interests of the US and EU have been sought to be advanced, and has repeatedly met with rebuffs from the majority of the membership.

With the US and the EU unwilling to reduce their heavy subsidies to the agriculture sector, but wanting market opening in developing countries for their agriculture products and exports, as well as drastic tariff cuts in industrial tariffs in the major developing countries, and on top of it for "zero tariffs" in sectors where the US has the dominant advantage, the Doha negotiations have reached an impasse.

Meanwhile, with the financial crisis and meltdown, governments in the United States and Britain have taken ownership in several banks and financial institutions. In the US, the Federal government has taken 80% ownership of AIG insurance, virtually nationalised the two giant mortgage-financing companies (Fannie Mae and Freddie Mac), and injected aid to the three US auto-companies (General Motors, Chrysler and Ford).

Arguably, some of these and other measures could be claimed to be prudential measures, but on some others (like the 80% ownership of AIG), the US action may be contrary to its commitments at the WTO, or as in the case of aid to the auto-industry, may fall foul of the WTO SCM agreement.

And many of the "reforms" in the financial sector that have been recommended by a task force of the Group of 30, led by Mr. Paul Volcker (see SUNS #6621of 20 January 2009) would certainly require a revisiting of the Marrakesh agreements, including those in the area of trade in goods and under GATS.

(* Chakravarthi Raghavan is the Editor Emeritus of the SUNS. He contributed this commentary.) +