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Without Ag Liberalization, Poor Countries Will Lose Faith in Free Trade; With Free Trade Must Come Free Movement of Labor

Ernesto Zedillo, the former president of Mexico, heads the Yale Center for the Study of Globalization. The World Trade Organization summit begins on Sept. 10 in Cancun, Mexico.

By Ernesto Zedillo

MEXICO CITY -- The World Trade Organization (WTO) is at a crossroads. If the WTO is to remain relevant for the developing countries that placed their faith on the development agenda of the Doha Round, it has to return to its core mission -- the pursuit of global free trade. Economic growth developing countries hope to achieve will not be possible without a much more open international trading system than the one available today.

The Doha Round, launched in November of 2001, was announced as an answer to the trade and development issues of developing countries. But the round's negotiations have for the most part been a story of missing deadlines and mounting frustration. In the last days of talks before Cancun there has been a rush on the part of the United States and European Union (EU) to dissipate this sense of frustration and keep the round moving. There has been, for example, a last-minute compromise by the United States on intellectual property rights to help make essential drugs available at low cost to poor countries. Yet this step, as important as it is, must not be portrayed as a deal maker for the entire Doha Round. There are too many issues awaiting a satisfactory solution.

It is, however, the failure to achieve an agreement on agricultural liberalization that remains the main stumbling block in the Doha Round. Most developing countries accepted reluctantly to move into a new round because they were told that it was the only way to address the many long-standing issues of their interest, especially the massive agricultural protectionism of the rich nations. Unfortunately, real negotiations never took place. Countries or groups of countries put forward their proposals but seldom, if ever, showed any intention to compromise. In fact, it was not until June that the EU announced reform measures for its Common Agricultural Policy. Last Aug. 13, the EU and the United States presented a joint agricultural proposal. It is not yet possible to make a final assessment about it, given that some crucial numbers were left blank. Depending on those numbers, the proposal will be characterized either as a modest step in the right direction, at best, or, at worst, as the launching of a new U.S.-EU "coalition of the willing for agricultural protectionism." If the latter is the case, one would wish that there were other ways of mending the transatlantic rift over Iraq.

The U.S.-EU joint proposal offers only to reduce, not to eliminate, export subsidies (which for all practical purposes amounts to outright dumping) and has no clear commitment to reduce over time other kinds of domestic subsidies to farmers. On import tariffs and quotas, it seems that the United States has now endorsed the EU's extremely gradual approach, certainly bad news for agricultural exporters. As a whole, it looks like a proposal for marginal change in order to avoid real changes.

Progress in WTO talks on liberalization of trade in services has also been nil. This is regrettable as the potential gains are large and may greatly exceed those that can be realized through further trade liberalization in goods. Without impairing countries' freedom to address market failures through appropriate regulation as well as to pursue legitimate non-economic objectives such as public-sector participation in the provision of socially sensitive services, the WTO should eventually deliver an across-the-board liberalization of trade in services. Realistically, this will not happen as a result of the Doha Round, but a sounder basis can and should be built within it to accomplish full liberalization in different phases for developed and developing countries.

But effective opening to services will hardly occur in developing countries if rich countries do not signal a serious will to proceed toward liberalization of the temporary movement of workers for the purpose of providing services. This evolution would be in the developed countries' own interest, given the economic and demographic maturity they are quickly approaching. Without an orderly influx of new workers, their economies would tend to be stagnant and their social security systems to collapse.

Admittedly, neither have developing countries been serious trade reformers during the Doha Round talks. For the most part, they have taken the position that their national interest is better served if they get as many concessions as possible without furthering their own opening to international trade. On balance, developing countries have been more inclined to fight for being exempted from WTO obligations than for getting freer access to all international markets.

It is clear that the WTO Cancun ministerial meeting will not open under the best auspices. Only last-minute diplomatic efforts and serious political will could deliver a good outcome. This would crystallize only if the United States and EU would improve substantially their agricultural proposal by capping at much lower levels the total amount of their farm subsidies, including their radical decoupling from output and other true liberalizing measures. In exchange, developing countries should adopt one of the ambitious proposals for industrial products that have been put forward by some WTO members. They should also be more coherent in their demands for special and differential treatment. A good outcome would also contain a decision to purge the Doha agenda of negotiations on multilateral agreements on investment and competition or, at least, make adherence to them strictly voluntary. Also, the dispute-settlement system should not apply to those agreements if they ever came to life.

Asking for a WTO focused on its trade mission is not to neglect the other problems with which the institution has been asked to deal. Our point is that the balance that many countries expect to see in the economic global governance agenda should not be pursued solely at the WTO. The international community should create effective ad-hoc instruments to confront the other challenges instead of relying on the WTO alone to do so.

In another scenario, trade ministers would decide to muddle through the Cancun meeting by means of some marginal agreements on a few points of the existing agenda and reiterate the intent to finish negotiations by the end of next year. Most probably, this would postpone the crisis for a later, not very distant, date.

Or the round's crisis could unravel at Cancun if strong disagreements persisted right to the end of the meeting as happened infamously in Seattle. This would be a most unfortunate event, with negative economic and geopolitical consequences in the short-term. Were this to occur, it will be imperative for leaders to return to the drawing board as soon as possible with a grand pro-growth and development vision for the multilateral trading system. Needless to say, that grand vision has so far been absent from the Doha Round negotiations.

(c) 2003, Global Viewpoint. Distributed by Tribune Media Services International.
For immediate release (Distributed 9/8/03)