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16 September, 2003
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Tequila sunset in Cancún
Sept. 17th 2003
From The Economist Global Agenda

The world trade summit in Cancún, Mexico, has collapsed without agreement. Its fate may have been sealed seven years ago in Singapore

IN THE end, there were no bleary-eyed negotiators emerging in the early hours of the morning with a last-minute deal, no forced smiles putting a brave face on a forced compromise. By mid-afternoon on Sunday September 14th, Luis Ernesto Derbez, chairman of the world-trade talks in Cancún and foreign minister of Mexico, made up his mind that the talks were heading nowhere. In the early evening, he brought the World Trade Organisation's five-day summit to a formal close, with just six paragraphs of official pronouncements, and plenty of unofficial rumours and recriminations.

Failure at Cancún was not a complete surprise; WTO members have, after all, failed to meet any of the deadlines set at the launch of this trade round in Doha, Qatar. But the manner of the failure left some bemused. The talks did not, as many had predicted, collapse over agricultural subsidies. A long Saturday night of negotiations had apparently found some scope for agreement between the rich world, which spends about $300 billion each year subsidising its farmers, and the G22, a newly formed block of
developing nations. Instead, the proximate cause of death for the talks was the so-called Singapore issues.

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. If you want to put your money in a foreign country, get your goods cleared by a foreign customs official, or sell to a foreign government, you should have international rules to play by. Likewise, if you wanted to collude with a foreign competitor, you
should have international as well as national laws to dodge.

Some of the proposed rules made sense on their own terms. Customs procedures in much of the developing world, for example, are trade-debilitating, not trade-facilitating. It takes almost 11 days on average to get goods that have been sent by sea cleared by Indian customs, for instance. Only the customs officials themselves benefit from such tardiness. But if the rules were worth having, why not let countries adopt them of their own accord? Why should a global organisation police them? Poor countries in particular did not want to take on a new set of international obligations, some of which might prove costly to implement and monitor. Worse, 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 at 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. Some of these fears are probably premature. Investment negotiations, if started at all, would have started small, with relatively innocuous calls for more transparency. The WTO
would not write countries' investment rules for them; it would simply require them to be upfront about what those rules were.

But if poor countries do not want to hear about the Singapore issues, 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. It recently concluded trade pacts with Chile and Singapore, for example, that restricted their use of capital controls. But the Americans view the rest of the Singapore agenda with some diffidence. 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 EU's stance.

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%, for instance. 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 b

Nonetheless, the EU did give ground at Cancún, albeit belatedly. On Sunday afternoon, it suggested dropping all but one or two of the Singapore issues from this trade round, leaving only trade facilitation and, possibly, government procurement in the negotiations. The offer, if it was ever truly on the table, was a good one. But by this late stage, the EU's interlocutors were about ready to kick the table over. The African Union refused the Europeans' offer, partly because its own pleas for an end to cotton subsidies
had been stonewalled earlier in the week by the Americans. Then South Korea (backed by Japan) insisted on all four Singapore issues being negotiated together. At that point, Mr Derbez threw in the towel.

At the end of the talks, Celso Amorim, Brazil's foreign minister, put a positive spin on the collapse. Though Cancún had not produced an agreement, he said, it had forged a new coalition of developing countries, which had refused to fall apart or roll over. Certainly, the developing world conceded nothing at the summit. But the G22 should aim to be more than just another mercantilist negotiating block, demanding that other countries lower their barriers while resisting calls to lower its own. Poor countries have as much, if not more, to gain from lowering their own barriers with each other as they do from overcoming rich-country obstinacy.

Besides, that obstinacy needs to be properly tested. The American delegation, for one, came to this summit talking a good game. They proposed to eliminate tariffs on all manufactured and consumer goods by 2015, and to cut agricultural tariffs by 76% over five years. They were prepared to be bold, they said, if other countries were bold too. Of course, this might have been empty posturing. If so, Cancún was a missed opportunity to call their bluff.


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