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Stumbling Toward Disaster: The Trade Charade

Kevin Watkins

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When a man knows he is to be hung,” Samuel Johnson famously observed, “it concentrates his mind wonderfully.” With just over two weeks to go before the next phase of global trade talks, the prospect of the world’s trading system collapsing might have been expected to concentrate the minds of negotiators from the rich countries. Judging by a pact announced on Wednesday, however, American and European political leaders relish nothing more than the prospect of a good hanging.

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Pascal Lamy, the EU trade commissioner, and Robert Zoellick, the U.S. trade representative, announced that they had reached a bilateral agreement on agriculture to take to the World Trade Organization talks in Canc?n, Mexico. But the accord backtracks on the promise that industrial countries made in Doha, Qatar, in 2001, when they signed up for the current round of trade talks, to change policies that hurt poor countries.

The U.S.-European pact fails to eliminate export subsidies, waters down commitments to improve market access and would leave intact billions of dollars in direct payments to farmers. This is an attempt to tailor WTO rules to EU and U.S. policy, not a serious proposal of reform. A more effective strategy for poisoning the negotiations at Canc?n is difficult to imagine.

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Failure at Canc?n would be a disaster on two counts. First, the current WTO talks, dubbed the “development round,” provide an opportunity to reform the unfair trade rules that disadvantage poor countries and perpetuate the obscene inequalities at the heart of globalization. This is a chance for the rich world to show that it is capable of backing promises to tackle world poverty with practical action.

Second, a successful “development round” could reverse the dangerous trend toward regionalism, bilateralism and unrestrained power politics in world trade, creating the foundations for a renewal of international cooperation. Conversely, failure would signal the end of multilateralism in world trade, stripping the WTO of its already threadbare credibility.

Responsibility for the fate of the Canc?n talks resides overwhelmingly in the national capitals of the rich world.

Take the case of agriculture. Each year, rich countries spend in excess of $1 billion a day on subsidies that generate vast surpluses, which are then dumped overseas. The support lavished on America’s cotton farmers and Europe’s sugar barons is pushing small farmers in Africa and elsewhere out of markets, driving down prices and fueling poverty.

At Doha, the European Union and the United States pledged to make deep cuts in production subsidies and to eliminate export subsidies. Since then, the Bush administration has signed a farm bill that massively increases agricultural subsidies. Not to be outdone, Europe has embraced a so-called reform of its lamentable common agricultural policy that raises spending and leaves its vast export subsidies intact.

To avoid a total collapse of the world’s trading system, rich countries need to show that they are serious about acting on commitments to eliminate tariff systems that discriminate against imports from developing countries. When India exports manufactured goods to industrial countries, for example, it faces tariffs some five times higher than those applied to goods traded between rich countries. According to the International Monetary Fund, eliminating trade restrictions on textiles and garments alone would generate an additional 27 million jobs in poor countries.

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The flagrant hypocrisy of rich countries that preach free-market values while practicing subsidized agricultural dumping and protectionism reflects the entrenched power of vested interests. President George W. Bush may talk the talk on free trade. But faced with a choice between lavishing subsidies on Texan cotton barons on the one side, and helping cotton farmers in Burkina Faso on the other, there is only one outcome. In Europe, President Jacques Chirac’s commitment to reducing poverty overseas appears to come a distant second to his commitment to maintaining the common agricultural policy.

The refusal of rich countries to listen to developing countries is deeply damaging to the credibility and legitimacy of the WTO. This is supposed to be a consensus-based, one member-one vote institution, not a rich men’s club in which the powerful cut secret deals and get their way through brute force.

A breakdown of the global rules-based trading system is not inevitable. The EU and the United States could commit themselves in advance to a prohibition on agricultural export dumping, a tariff bonfire, and the early despatch of demands for investment liberalization to the dustbin. They have a choice. We will all pay a high price if they make the wrong one.


Published Saturday, August 16th, 2003 - 01:32pm GMT

Kevin Watkins is head of research at Oxfam International.

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