High Noon in Cancun

by Daniel on September 15, 2003

Apparently the Cancun ministerial conference of the World Trade Organisation has got to such an appalling standstill that they all decided to pack up and go home. And the interesting thing is that what killed it wasn’t EU intransigence on agricultural subsidies, but rather something called the “Singapore issues”; a set of proposals about foreign investment on which the developed world is more or less united. Which is really rather a scandal., but as I argue below, the good thing about the Cancun collapse is that it allows us to get the measure of the character of the WTO as an organisation.

The Cancun round was meant to be all about the rich countries giving something up for the benefit of the developing world. We were going to reduce farm subsidies and let the poorer nations compete in our markets on fairer terms. And as far as one can tell from the outside, real progress was being made on these issues before the round collapsed.

However, lower down the agenda (and off the media agenda entirely, perhaps because it didn’t offer all that many opportunities to bash the French) were a raft of issues grouped together under the name of Singapore because they were discussed there in 1996. There are four of them; “Investment”, “Competition”, “Transparency in Government Procurement” and “Trade Facilitiation”. Of these four issues, the last two are not particularly controversial; what tore the Cancun summit apart were the first two, which India in particular had been campaigining to keep off the agenda for a long time. Here’s a few questions and answers.

What are the investment and competition “issues”?

What are they is a fairly easy question to answer. They’re basically a set of proposals which would have the effect of making WTO rules apply to cross-border investment as well as to trade in goods and services.

What does that mean?

Effectively, that it would become illegal under the WTO not only to place tariffs on trade in goods and services, but also to place any restrictions on investment by overseas corporations, or to have any laws in place which had the effect of disadvantaging foreign companies compared to domestic ones.

Aren’t these natural things for the WTO to be discussing?

Absolutely not. The WTO is the World Trade Organisation, which was set up in order to facilitate trade in goods and services, something which more or less everyone agrees to be a general good. Free mobility of capital and investment is a much more controversial topic, mainly because the legal procedures needed to establish it would be much more invasive of national sovereignty, and because the benefits from liberalising capital flows are much less certain and significant than those from liberalising trade (for example, it’s not really consistent with the existence of nationalised industries, and it provides an easy channel for multinational companies to launch harrassing cases against any domestic legislation they don’t like; to take a hypothetical example, the local Coke bottling plant could launch an action against a free school milk program for unfairly prejudicing their investment1.). This used to be recognised before 1998, when there existed something called the Multilateral Agreement on Investment (MAI), a sort of sister to the WTO which was meant to negotiate, well, a multilateral agreement on investment. But the MAI folded in ‘98 due to lack of support. And a certain coterie of neoliberal types have been trying to bring it in through other means ever since

So anyway, the state of play was that India and Malaysia were dead set against the Singapore “Son of MAI” proposals, the EU, Switzerland and Japan were dead set on them and the USA was happy to let the whole thing fall apart because they were not exactly mustard-keen on getting rid of agricultural subsidies anyway. The Africans decided that they couldn’t wear the Singapore agenda either, and walked out So the entire Cancun talks fell apart.

I say that this provides a useful yardstick to measure the character of the WTO by because it brought face to face the two views of what the WTO is actually for. On the neoliberal side, we’ve heard for years that WTO is all about bringing the benefits of free trade and free markets to the poor of the world and allowing them to gain the benefits of “globalisation”. On the “anti” side, we’ve heard for years that the WTO is nothing more than a cynical exercise in attempting to subvert the democratic process of poor countries and forcing them to accept foreign ownership and control.

In other words, the neoliberals have said it was all about things like the agricultural subsidy proposals, while the antiglobos have said it was all about things like the Singapore issues. And when the two came head to head in Cancun, the Singapore agenda won. When push came to shove, the rich nations were not prepared to give an inch to the poor ones on agriculture unless they got their quid pro quo in the form of progress toward an agenda which has nothing to do with trade and everything to do with massively undermining the ability of democratically elected governments to set the terms on which the ownership of the means of production is decided.

On the basis that you can tell a lot about a person or an organisation from what it regards as negotiable and what it regards as a deal-breaker, it appears that those who suspected that the WTO was a ploy to force a political agenda down the throats of the third world would appear to have a point. It is going to take a heck of a lot for the WTO to win back the credibility it lost in Cancun.

(Finally, let it be noted that China, India and Malaysia, three of the four poster children for the “benefits of globalisation”, were in the group of countries dead set against the Singapore issuses).

1Which is not to say that they’d win such an action, or that the specific Coca Cola company would ever want to do so; Coke actually has a pretty good track record as a corporate citizen in the third world. But the legal framework would be there which would allow such an action to be taken, and lots of companies would be happy to use it unscrupulously.

{ 32 comments }

1

Jacob 09.15.03 at 4:01 pm

I know this is a minor point to take issue with, but I think that it’s only fair that if you’re going to say, “Coke actually has a pretty good track record as a corporate citizen in the third world,” it’s only fair to mention the horrible track record it has in Colombia. See CokeWatch.

2

dsquared 09.15.03 at 4:07 pm

I was completely unaware of that, and based my comments on sketchy knowledge of how the Hellenic Beverage Company had been in Central and Eastern Europe. Thinking about it, they haven’t exactly covered themselves with glory in the whole Indian pesticide residue scandal either. Consider that comment redacted pending clarification.

3

john b 09.15.03 at 5:21 pm

India doesn’t belong in the “globalisation poster child group”, except as a “what not to do” lesson. It’s done extremely well in the last 10 years compared to the previous 40 after abandoning deranged attempts at autarky, but it’s still full of corrupt politicians, businessmen who bribe them to extort government contracts, concessions on import regulations, concessions on foreign investment regulations, and concessions on competition law. Ditto China, for all its occasional “we are cleaning up, really” executions of random bribers and bribees.

I’m genuinely unsure about how to resolve the interplay of WTO rules and international sovereignty. But it would be a serious mistake to believe the rejection of Singapore serves the Indian and Chinese people’s best interests, rather than the interests of the bent politicians who represent them (in the loosest possible sense of the word).

4

dsquared 09.15.03 at 5:52 pm

But it would be a serious mistake to believe the rejection of Singapore serves the Indian and Chinese people’s best interests, rather than the interests of the bent politicians who represent them

Why? India and China have done well out of non-Singapore development, as did Korea and Malaysia. Are there any examples at all of any country bigger than a freeport or tax haven doing well out of a Singapore-style approachto development? Botswana might possibly squeak through, although I don’t think that “discover diamonds” is necessarily replicable elsewhere.

I also seriously doubt, looking at various Latin American IMF client states, that there is any correlation between “corrupt politicians, bribes etc” and receptiveness to externally imposed restrictions on capital controls.

5

Walt Pohl 09.15.03 at 6:36 pm

Dsquared: Who do you think owns companies in India and China? The poor?

6

Doug 09.15.03 at 6:37 pm

Duly noted that everyone and his brother is trying to sneak another agenda onto the WTO agenda: investors, labor, environmental groups, general goo-goo types, nationalists, etc etc etc amen.

Three thoughts: First, as the power of the US Congress to regulate interstate commerce has been used to assert federal interest in all manner of things that would probably astonish the founders, the boundaries of regulating global trade are now being tested to find out how elsatic they are in practice. Don’t look for this process to be pretty or edifying, but it will be one of the most dynamic and contested bits of global governance over the next few years.

Second, Cancun should be the final nail in the coffin of the idea that any multilateral trade deal the EU and the US agree to will be what the WTO system adopts. These two are still the big kahunas of global trade negotiations, but they are now merely necessary rather than sufficient.

(This, incidentally, is one of the big blind spots of the European debate on ‘transatlanticism.’ I’ve encountered very few folks in the German policy community/commentariat who can wrap their heads around the idea that the key players in global trade talks are probably India, China and Brazil. While oceans of ink are spilling over how many ministers can dance on a clause in Article Four, the world is changing ceaselessly.)

Third, the vocal element of the free trade lobby – who I think are right about a great many things – have been telling us all for many, many years that free trade will change everything. Over the last five years this has been taken much more seriously outside the trade policy community. The mandarins aren’t so keen now, but the genie is not going back into the bottle. Either trade is specialized and technical and best left to experts but ultimately marginal, or trade has immense implications and will be subject to lots more democratic scrutiny and politicking. But the idea that something immensely important is too technical for public involvement was on its way out before Seattle; it should be in the proverbial dustbin by now. If the benefits are as substantial as claimed, the case is going to have to be made out in public.

(By the by, I also think that the case can be made in America; can it win public support in Europe?)

7

Edward Hugh 09.15.03 at 7:09 pm

Interesting post, but be careful Daniel. If the EU, US and Japan wanted an agreement, then why did they push the Singapore issues so hard?

My feeling is we need to look to services and what’s happening in India (and increasingly elsewhere). There may be a sense in which advancing the GATS agreement could be something really interesting for the third world. And what’s the best way to kibosh something you don’t like, why raise something else that you know will get up everybody’s nose.

8

zizka 09.15.03 at 7:20 pm

What is the list of countries that have successfully developed over the last 150 years or so? Japan, S. Korea, Taiwan…. those are the poster children. (I’ve heard it suggested that Sweden and Finland should be on the list). How did they do it?

9

Seth Edenbaum 09.15.03 at 7:27 pm

“India doesn’t belong in the “globalization poster child group”, except as a “what not to do” lesson. It’s done extremely well in the last 10 years compared to the previous 40…”

What’s the difference between bargaining with a man with one broken arm and a stick, and bargaining with a man who’s unconscious?
The difference in India and China was time.

The premise of trade is controlled greed; and greed though it is both inevitable and useful is also a sin.
Before you tell me that the notion of sin is outdated, write me a paper on the history of the idea of sin and on its role in social organization throughout history.

10

James Nightshade 09.15.03 at 7:29 pm

Aren’t these natural things for the WTO to be discussing?

Absolutely not. The WTO is the World Trade Organisation, which was set up in order to facilitate trade in goods and services, something which more or less everyone agrees to be a general good. Free mobility of capital and investment is a much more controversial topic, mainly because the legal procedures needed to establish it would be much more invasive of national sovereignty, and because the benefits from liberalising capital flows are much less certain and significant than those from liberalising trade (for example, it’s not really consistent with the existence of nationalised industries, […]”

The representatives of Europe, the US, and Japan would probably reply:

You could say equally well that, for that matter, subsidies are not within the natural scope of the WTO, that they could be considered matters internal to each country, and that (economically speaking) they are not very different from having a nationalized industry.

11

clew 09.15.03 at 7:51 pm

zizka – also Iceland, Costa Rica? the latter for political rather than industrial development.

12

jw mason 09.15.03 at 7:59 pm

John B.:

Actually India has experienced relatively rapid growth since the early 1980s, i.e., at least ten years before any significant reductions in trade barriers (which are still high).

As for Indian politicians, I don’t thinnk it is unreasonable, or particularly strong praise, to say that they are probably more responsive to the interests of the Indian people than US or European politicians are.

13

Matt Weiner 09.15.03 at 8:11 pm

James N–
Seems fair. I think the response might be that poor countries need the help of capital limits, and rich countries don’t need the help of ag subsidies. Informed comment welcome.

Slightly longer version–it turns out that subsidies are subverting the benefits of trade. D^2’s claim is that it isn’t clear that restricted capital flow is subverting the benefits of trade. So the WTO has reason to worry about one but not the other.

14

anne 09.15.03 at 9:08 pm

There may have been an important gain towards freer trade. China, India, Brazil, Thailand, and South Africa have become increasingly tough in bargaining with the most developed states. Such toughness by Brazil opened the way to significant liberalization of trade rules for low cost life protecting drugs. The importance of such drugs in a time of AIDS can not be over estimated. I am sad the talks ended in failure, but delighted the poorer states are bargaining as never before. Time for Kenya to stand up to Europe on flowers, Vietnam to America on catfish.

15

Jason McCullough 09.15.03 at 10:01 pm

BTW, technically, shouldn’t the third world be able to take advantage of US & Europe food subsidies by buying cut-rate food from us and producing other things instead? I’m sure I’m missing something, but that’s what a naive examination implies.

16

Sam Jackson 09.15.03 at 10:40 pm

Walt Pohl asked: Who do you think owns companies in India and China? The poor?
As a matter of fact, India still has a very large number of public sector companies (what state run companies are called in india). The nation’s largest banks and the railways (probably the biggest employer in the country) for instance are owned and run by the government. Almost all domestic defense production is by state run companies. A number of heavy engineering companies are also state run. All mining, mineral exploitation is state run. The leading petroleum/petrochemical companies are state run. Does that answer your question? or need I continue?

17

Walt Pohl 09.16.03 at 12:00 am

Sam: Yes, it does answer my question. The answer is “no”.

18

Jeremy Osner 09.16.03 at 2:28 am

Jason — the barrier to entry is much lower for agriculture than for most industries. For the citizens of 3rd World Nation X to “buy cut-rate food from us and produce other things” they need start-up capital which is not in abundance outside industrialized nations.

19

john c. halasz 09.16.03 at 3:06 am

jason:
jeremy osner has it right. it might be further added that agricultural subsidies trade-wise are the same as industrial dumping, i.e. exporting products below the cost of production. such practices perpetuate a deficient allocation of resources in the exporting country, while damaging the productive capacities of the importing country. a further point is that poor countries are still largely rural and displaced farmers have no recourse but to migrate to shanty towns in already hugely overpopulated cities, thus further swelling the supply of underutilised low wage labor and further depressing wage rates. any viable strategy of economic development for such poor countries has to include a significant program for rural development both for economic reasons of developing an internal market and for reasons of political development. land reform/redistribution is often a crying need but it can not even be begun if there is dumping of cheap food.

20

Jason McCullough 09.16.03 at 3:22 am

Ok, that makes sense. Though I don’t how it analogizes to industrial dumping; what, the US can’t afford to switch out of manufacturing?

21

back40 09.16.03 at 3:45 am

“…the barrier to entry is much lower for agriculture than for most industries.”

This is a common misconception based on a simplistic image of agriculture. Producing, packing, and transporting export grade agricultural products from inland small farms to ports requires extensive and expensive infrastructure development. That’s why it is often done by multinational agribusiness partnerships.

“..agricultural subsidies trade-wise are the same as industrial dumping, i.e. exporting products below the cost of production.”

This is another common misconception that assumes that the costs of production can be measured and are measured and allocated. In developed countries the depletion of the land and water tables are externalities not captured as costs of production. They can be understood as a type of strip mining of the land or a failure to depreciate equipment but we currently have no methods to measure and value these costs. In developing countries the costs are more apparent since they not only include land and water depletion but destruction of forests and grasslands as land is brought into production. In Brazil for example, a leader of the G33, rainforest acreage the size of Belgium was cleared last year to grow soybeans for export to the EU.

22

EK 09.16.03 at 4:38 am

I understand the argument that subsidized agricultural exports to the third world cause severe problems–they destroy local agricultural economies and drive farmers off the land.

I don’t agree that the US should import almost all of its food. This might be more economically efficient in a simple abstract analysis, but I fear that it omits several important externalities: (1) Large-scale dependence on foreign food compromises national security. (2) Driving the remaining US farmers off their land is a harsh price to pay–and probably political suicide. (3) Food-safety regulation becomes harder if most food is imported. (4) Third-world food export economies tend to be rather exploitive and environmentally destructive compared to local farming.

On the whole, I tend to favor self-sufficiency in food production.

23

JoJo 09.16.03 at 5:50 am

My impression is that the “Singapore issues” didn’t arise until the failure of the MAI. As such, it seems that their crucial nature reflects more on the power of their exponents than on the (latest) venue in which they were advanced.

24

john c. halasz 09.16.03 at 6:38 am

jason:
dumping is something that most often the u.s.a. accuses other countries of doing to it. but in the form of agricultural subsidies it also is doing to others, (though the eu is stillworse on this account). switching out of manufacturing into agriculture is not an option for the u.s.a. since the reverse happened massively a long time ago. since manufacturing productivity tends to rise through the increasing use of technology, capital intensity, the manufactoring sector tends to shrink with time- it was 30% of gdp in 1960 whereas it is less than 15% now. employment and investment activity shift then to the “service” sector, which is a large problem now, since productivity seems to b rising sharply and employment is decreasing in the u.s.a.
back40:
i have no idea what agricultural productivity is in any given case, though it is almost excessively high in the mechanized first world, and was not proposing any measure. it is what comes out in the harvest. deforestation is, in part a product of population growth
combined with large masses of landless peasants using traditional slash-and-burn methods.
i said that redistributive land reform was what was needed. in parts of africa, population growth has lead to desertification. much help is needed here, programmatically and technically. but obviously wto negociations, given its prevailing ideology and power base, are of no avail here.
what happened today is that basically the wto got talked back to, however contingently, and the first world powers said, ” its my bat and my ball and i’m going home”. we can only wait and see how this shakes out but i would no get anyone’s hopes up.
ek:
there are three extremely fertile agricultural areas in the world: the argentine pampas, the ukraine, and the mississippi valley, u.s.a.
thereis absolutely no chance that the u.s.a. would become dependent on imported food and thus have its national food security compromised. rather this is a real economic concern for other countries, e.g. mexico, swamped with subsidized u.s. corn. as for u.s.a farmer’s being driven off the land, this has already largely happened and much agriculural production is in the hands of corporate agribusiness. yes, it is political suicide to challenge such corporate interests: why do you think bush and the republican congress just extended and increased a program of large agricultural subsidies? rural idiocy=corporate greed is hardly a progressive political program. and yes imported food does pose problems for food safety regulation, but so does unregulated corporate agriculture that thrives on political pay-offs.
finally, feudal/colonial land tenure policies converted into international agribusiness do need to be reformed and overcome in the “developing” world, as i’ve already stated. agricultural production should be geared toward domestic consumption and employment first of all. only then should export earnings be pursued.
but self-sufficiency, autarchy, is an unreflected idea. trade, exchange, brings about contact with others and thus dependency on them. but autarchy, the official ideology of e.g. north korea, brings no promise of progressive advance; it is at the limit a paranoid idea.

25

back40 09.16.03 at 7:23 am

“deforestation is, in part a product of population growth
combined with large masses of landless peasants using traditional slash-and-burn methods.”

Much deforestation and grassland conversion isn’t done by peasants, it is done by large producers to increase acreage for export production.

“population growth has lead to desertification. much help is needed here”

Quite an understatement. All of the population growth in the next decades will occur in developing countries. There are already nearly a billion food insecure people in those places and food production will have to double to avoid falling further behind. Over half of the developing countries are net food importers now and this will get worse.

It will be all the world can do to develop the agriculture sectors of the developing world to feed themselves and still need maximum production from the developed world to make up short falls.

The world market for food is in the poorest and hungriest of places, not the developed world where populations are stable or falling.

26

Ritu 09.16.03 at 1:24 pm

Walt Pohl: “Who do you think owns companies in India and China? The poor?”

Um, do the poor own companies anywhere in the world? :)
But the agriculture realted demands presented at Cancun *are* in the interests of the farmers, most of whom *are* poor.

27

Erik 09.16.03 at 2:49 pm

“the interesting thing is that what killed it wasn’t EU intransigence on agricultural subsidies” This is not clear at all. From what I have heard from insiders, the competition issues may well have been introduced as a type of “killer amendment:” add something you know the developing countries will object to to a proposal that you don’t want to see passed.

28

dsquared 09.16.03 at 3:13 pm

In fairness, there’s a lot of spin and blame-shoving going on and it’s not at all clear whose fault it really was. If it turns out that this post materially misrepresents how things turned out, I’ll post a retraction.

But I don’t think this particular theory will fly. The Singapore conditions weren’t suddenly thrown into the mix; India had been screaming bloody murder about them for months. The surprising thing is that Kenya, one of the countries you would have expecting had the most to gain from an early settlement, seems to have been the one that precipitated things.

NB, by the way, that this is one SNAFU that can’t be blamed on the Yanks; the more stuff that comes out, the less to blame they appear to be.

29

Erik 09.16.03 at 4:57 pm

I am not so sure either as I am not enough of an insider to tell (I was just relaying arguments passed on to me by others). What seems striking though is that the TRIPS experience has really helped developing countries coordinate their negotiating stances. What remains to be seen is whether this will lead to an impasse that benefits none or to at least some concessions by the EU, Japan (in particular) but also the US (especially on textiles). Given domestic circumstances in these countries, I think the first is more likely.

30

bentSinister 09.16.03 at 7:33 pm

Since when has “redacted” become a synonym for “censored” or “excised”? When the DoD or CIA use it as a euphemism for blaning out the embarrassing bits, we can wrap ourselves in our superior understanding of the language and marvel at the egregious way “they” engage in Newspeak. We really shouldn’t let this creep into our own vocabulary, however, let alone into everyday use. Call a deletion a deletion, please!

31

Jeremy Osner 09.16.03 at 10:06 pm

bentsinister — but Daniel didn’t delete, censor or excise the comment in question.

32

dsquared 09.17.03 at 7:17 am

“Redacted” actually means “adapted for publication”. It doesn’t mean the same as “deleted” because if you’ve deleted some information it’s gone, but if you’ve redacted a passage of a document, you’re saying that you’ve got more information than you’re publishing.

Obviously, my use of “redacted” above is a solecism; the CIA can publish redacted documents and put labels saying “redacted” over the bits they’ve redacted, but I can hardly ex post facto redact a comment already published.

Since the word looks so much like a posh synonym for “retracted”, expect berks and careless writers to continue using it as one without bothering to look up what it means. That’s certainly what I did, although I will attempt to sin no more.

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