A Trade Shipwreck in Cancun

With the WTO talks in Mexico ending early in acrimony and recriminations, a global agreement by January, 2005, looks doomed

The World Trade Organization's two-year attempt to create a new global trade pact collapsed on Sept. 14 in Cancun, Mexico, as talks involving 148 nations deadlocked. The negotiations stalled over contentious issues ranging from eliminating farm subsidies for rich nations to lowering trade barriers among poor nations to international rules protecting foreign investments.

As ministers prepared to head home, proponents of trade liberalization vowed to continue negotiations at the WTO headquarters in Geneva at a much lower level, but even they admitted it could be years before the effort is revived with the same intensity.

The breakup struck a serious blow to the Bush Administration's efforts at opening markets worldwide for U.S. exports and shrinking America's massive $500 billion trade deficit with the rest of the world. It will also complicate the parallel effort to fashion a hemispheric free trade area in the Americas.


  The WTO's critics, who had been demonstrating in the streets and the convention center against the trade talks, danced and shouted in glee as news of the deadlock spread. "We are elated that our voice has now been heard," says Philippine Trade Minister Manuel Roxas. The U.S. agenda ignored poor nations in favor of "the large corporations bankrolling President Bush's reelection effort," says Lori Wallach, director of the Washington (D.C.)-based Global Trade Watch.

African nations, led by Kenya, walked out of the talks on Sept. 14 in frustration at what they said was the lack of concessions from U.S. and Europe. "The differences were very wide, and it was impossible to close the gap," said George Odour Ong'wen, Kenya's representative.

A group of 23 developing nations led by Brazil had been pushing for a quick end to the subsidies given to farmers in the U.S., the EU, and Japan, which total about $300 billion a year, according to estimates from the Paris-based Organization for Economic Cooperation & Development. Developing nations said the rich-nation farm subsidies are impoverishing their farmers and damaging their economies. Yet, the effort ended unsuccessfully in Cancun.


  The sudden end of the conference took U.S. negotiators by surprise as they briefed reporters on the status of the talks, which had been expected to extend into Monday morning, Sept. 15. Instead, top WTO officials decided behind-the-scenes to call a halt to any further talks and quickly scheduled a closing ceremony to put the best face on the failed effort.

U.S. Trade Representative Robert B. Zoellick blamed "won't-do countries." Said Zoellick: "The larger lesson of Cancun is that useful compromise among 148 countries requires a serious willingness to focus on work, not rhetoric." Asked about the damage to the talks, Zoellick replied: "It's hard to imagine how we'll finish on time" by the WTO's self-imposed January, 2005 deadline.

The Cancun summit marks the second time in four years that a WTO ministerial collapsed in acrimony and disagreement. It tried to begin a new round of global talks in 1999 in Seattle but developing nations refused to go along with the agenda written by wealthier nations.


  Two years later, a subsequent meeting in Doha, Qatar, barely managed to initiate a new round of trade talks, called the "Doha Development Round," by promising that they would focus on issues of interest to poorer nations, which now dominate the membership of the WTO. The World Bank has estimated that a successful Doha Round would raise 144 million people out of poverty -- many of them in sub-Sahara Africa -- and increase the global economy by $520 billion yearly by 2015.

It now appears that expectations among the developing nations may have been raised too high. Too few of the developing nations at the Cancun trade talks were willing to offer anything in return for promised concessions from the rich nations, U.S. trade negotiators complained.

They blamed the collapse on the unwillingness of Europe and the developing nations to compromise on the inclusion of four issues in the talks, known as the "Singapore issues." They included rules on foreign investment, government procurement, antitrust issues, and customs procedures. Poorer nations steadfastly refused even to talk about adopting rules protecting investment from government overregulation and about antitrust issues. Europe insisted that it couldn't make concessions on agriculture without a deal on the four issues.


  The developing nations blamed the stalemate on rich nations ignoring their demands and on attempts to divide them. "We are a group of developing countries united under no political banner but by issues," says Brazil's Foreign Minister Celso Amorim. "This was not an ideological debate, but a concentration on issues of great interest to our countries and a large part of the developing world as well."

A split between the U.S. and Brazil may have additional consequences. The two nations are to chair the effort to achieve a hemispheric trade deal, called the Free Trade Area of the Americas, also by January, 2005. Acrimony in Cancun doesn't bode well for progress this year.

By Paul Magnusson in Cancun

Edited by Douglas Harbrecht

Before it's here, it's on the Bloomberg Terminal.