The European Commission has recently circulated a think-piece on the failure of the Cancun Ministerial Conference of WTO. In this early reaction paper the Director General, European Commission, has described what went wrong in Cancun and put forward some ideas about the future course of action at the WTO (click here to view/download the report). This report is of the opinion that the failure of the Ministerial is an important setback for the Doha Development Agenda. According to this report, the failure at Cancun can be attributable to three sets of reasons. First, are the 'reasons of substance' which basically refers to the differences of opinion among the WTO members about various negotiating issues, second are the 'reasons of tactics', which refers to the problems that cropped up in Cancun because of the North-South divide among the WTO members and finally are the reasons of organizational mismanagement of the Cancun conference.

Reasons of Substance
Among the reasons of substance, the paper argues that the inability of the members to arrive at any agreement on the four important issues of cotton, agriculture, Singapore Issues and non-agricultural market access have played a major part at the Cancun fiasco.

Cotton: Regarding the failure to reach an agreement on cotton, it blames the United States for taking a position which was totally insensitive to the proposals made by the four West African states. It may be recalled that four West African countries, Benin, Burkina Faso, Chad and Mali pointed out that as a result of huge subsidies given to cotton in richer countries, cotton exports of these four West African countries have suffered. These countries argued that the subsidies given to the cotton farmers in developed countries should be drastically reduced and these four African countries should be compensated for their loss. This argument gained considerable support among WTO member countries during the ministerial. USA, however, underplayed the demand to reduce support to cotton farmers by saying that subsidies play only a very minor part in the problems of international cotton trade. On 14th September, one day before the end of the Cancun Ministerial, the WTO issued a draft ministerial declaration which, in its paragraph 27, included some proposals about the cotton initiative. The official draft virtually rejected the appeal of the African states and echoed the arguments of USA and suggested that distortions of cotton trade are unlikely to come down in near future and the West African countries should not remain too dependent on cotton and should try to diversify towards other crops. The EC report rightly points out that the "manner in which this rejection was conveyed through a Chairman's draft text reflecting a position virtually identical to that of the United States (and rejected earlier by the Africans) clearly contributed to the development of a charged emotional atmosphere during the last 24 hours of the Conference, and of a feeling amongst the Africans and the LDCs of being pushed around and manipulated".

Most developing countries took strong objection to the poor handling of the 'Cotton Initiative' by the WTO officials and it increased the mistrust about the multilateral trading system among these countries.

Agriculture: The EU think-piece is of the opinion that, a major breakthrough in agriculture was in the offing as EU and USA mended their differences and tabled a proposal which, this report considers, was a good 'starting point' for the Cancun negotiations. This report blames the group of twenty one developing countries (now referred to as 'G 21') for rejecting the EU-US joint text and thereby missing a "great opportunity to move forward" in agricultural negotiations.

However, it should be pointed out here that the joint EU-US draft on agriculture was not acceptable to most developing countries for some very valid reasons. Developing countries found it difficult to accept the content of this modalities framework because it did not address some of their major concerns. Key shortcomings of this proposal were:

• It was extremely lenient about the reduction of domestic and export subsidies in developed countries. The latitudes provided in the existing AoA allowed developed countries to highly subsidize their agricultural sector even after the implementation of AoA (see WTO Annual Report 2003). Unless more stringent disciplines are imposed on subsidization, developing countries are unlikely to benefit from further liberalization of agricultural trade. If the EU-US joint text was accepted as the terms of reference for the future course of negotiations on agriculture, it would have meant that the root causes behind the prevalent distortions in the current global agricultural trade would have remained untouched.

• It diluted the concept of 'Strategic Product'(SP) introduced in the Harbinson's text. According to the Harbinson text, developing countries were allowed to declare a certain number of agricultural products as SP. These products were to have lower tariff reduction commitments as well as Special Safeguards (SSG) provisions. The new proposal removes the SSG provisions for these products.

• The EU-US framework did not adequately deal with the concepts of the 'Food Security Box' or the 'Development Box' proposed by a group of developing countries. These concepts were floated to promote a more development friendly set of trade-rules.

During the Cancun Ministerial, a revised version of the Draft Ministerial Text was tabled by the Chair of the Cancun Conference, Mexican Foreign Minister Luis Ernesto Derbez. The Annex A of this declaration contained a new framework text on agriculture. Though this new text incorporated some of the suggestions made by developing countries, it was still largely drawn on the joint proposal submitted by the EU and the US. Developing countries were not in a position to accept this text because by doing so they would have, on one hand, legitimized continued use of high subsidies and on the other hand, had to open up their own markets significantly.

Singapore Issues: The Singapore Issues, which officially got the blame for the Cancun failure, was sited as the third reason for the failure by this EC report. In the Cancun Ministerial meet, the four Singapore Issues (Competition Policy, Transparency in Government Procurement, Multilateral Agreement on Investment and Trade Facilitation) received maximum opposition from the member countries. In the conference, approximately 70 countries led by India and Malaysia were explicitly against inclusion of the Singapore issues in the WTO's agenda.

The EC report has blamed almost everybody for the deadlock over the Singapore issues. It blames the African and least developed countries for stubbornly opposing these issues. The report point out that these countries have objected to the Singapore Issues because, in their opinion, they lack technical capacity to participate in these negotiations. The report goes on to suggest that the logic given by the African countries and LDCs are flawed because none of the four Singapore Issues is any more complicated or technical than the existing WTO agreements. The report also criticizes India and other developing countries for opposing these issues over the reasons of national sovereignty. It also condemns the USA for showing "little enthusiasm" over the Singapore issues. Korea got the flak for not being flexible when EU decided to drop MAI and competition policy from the negotiating agenda (incidentally, Japan also said that they would not accept the exclusion of any of the four issues).

However, according to most economists, the position of EU on the Singapore Issues is not justified. According to them, the real reason behind the failure of Singapore Issues is that there was never a compelling case for including these issues in the WTO. It was evident from the Cancun conference that a large number of WTO member countries were not convinced that the 'Singapore Issues' are trade-related issues and should be dealt under the WTO auspices. As a result, for most representatives from the developing countries, Singapore issues were not a priority. They were more keen on resolving the outstanding issues in the already agreed agenda of agriculture and textiles. According to Hoekman (2003), the discontent over the 'Singapore Issues' stems from the fact that these issues were never seen to be relevant or potentially beneficial to all WTO members. Some members see them as a negotiating ploy; others are of the opinion that they are not of significant economic value to them.

As Jomo (2003)^[1] points out, the difference of opinion between the EU and the developing country members on the 'Singapore Issues' is largely due to their different perceptions about the extent of trade liberalization that was carried out in the Uruguay Round. The EU is of the opinion that trade liberalization had been largely completed with the conclusion of the Uruguay Round. Therefore, to carry forward the reform process and to achieve deeper economic integration, EU wants to involve the so-called 'non-trade issues' of investment, environment, labour and intellectual property rights in the new WTO agenda. On the other hand, most developing countries feel that many outstanding trade liberalization problems are still unresolved. They feel that the Uruguay Round has not achieved meaningful trade liberalization in some important areas including agriculture, textiles, garments and services. The dejection of developing countries about the Uruguay Round is summarized in the latest Trade Policy Review of Pakistan. It says:

"… Uruguay Round had not brought fundamental changes, and the disadvantages faced by developing countries had been further exacerbated; these countries had not gained any meaningful increase in market access in the key areas where they have a clear comparative advantage (textiles and agriculture). Services had been liberalized in sectors of primary interest to developed countries (e.g. telecoms, financial services). The costs to developing countries of the WTO Agreement on Intellectual Property (TRIPS) Agreement were becoming evident, and the Agreement on Trade-Related Investment Measures (TRIMs) was having an equally harmful effect on the endeavours of developing countries to build their industrial base. The asymmetries in the multilateral trading system had contributed to the growing inequalities and asymmetric benefits between countries; "unfair" implementation of multilateral trade rules had to be rectified before addressing new areas of liberalization." WTO Document number WT/TPR/S/95, pp. 16.

Given these outstanding problems with trade liberalization and WTO, it was unfair to expect in Cancun that developing countries would be willing to bring in the Singapore Issues in the WTO agenda before the outstanding S&D and Implementation issues are resolved. Instead of pushing new issues in WTO, EU should have focussed their attention on addressing these issues.

Reasons of Organization and Tactics
Along with these 'issues of substance', the EU think-paper also blames some organizational and tactical aspects of the Cancun ministerial. Among the organizational factors, the report points out that the agenda for the Cancun Ministerial was too ambitious. The initial Cancun draft had a large number of extremely contentious issues to resolve in five days. The sheer volume and complexity of the issues made the organization of the ministerial a difficult matter. Secondly, as the report points out, there were no meaningful discussions on the first three-four days of the conference. More importantly, discussions on the extremely contentious Singapore issues did not start till the very last day of the conference. The report also criticizes the Chairman of the Cancun ministerial for unexpectedly abandoning the ministerial after the African group refused to accept negotiations on trade facilitation.

However, the most critical remarks of the EU think-piece were reserved for the group of developing countries (known as the G21 countries), which refused to endorse the ministerial draft in Cancun. The report alleges that the developing countries converted the trade talks to a UN-style North-South confrontation in WTO. It blames the G21 countries for taking a hypocritical stand where the whole burden of adjustment was put exclusively on developed countries. According to this report, the G-21 countries took an offensive-defensive alliance, which was achieved "by accumulating in one single position all of the main offensive demands of the Cairns Group but with disciplines only for developed countries, and incorporated the very defensive Indian positions on market access and China's request that newly acceded countries be made subject to no new liberalisation commitments".

This EU think-piece holds the G21 group of countries responsible for the Cancun failure. It criticizes Brazil and India, the leaders of the G21 group of developing countries who, according to this report, have stalled the negotiations for their own narrow national interest. The report says:

"It is, however, clearly arguable that the main leaders of the G-21 have much less of an economic interest in making these negotiations move forward, India because of its largely defensive objectives, Brazil because of its strong competitive position which puts it in a much more comfortable position than any of the other significant net food exporters."

It goes on to conclude that most WTO members stand to lose from the stalemate at Cancun. However, the major losers will be the developing countries, which let go the "concessions" offered to them by developed countries in the form of cuts in agricultural subsidies, lowering of protection in the textile industry, and relaxation of the TRIPS agreement in relation to vital drugs.

This is an extremely narrow and arrogant view of the proceedings at Cancun. The failure at Cancun happened because of two interrelated factors. First, the Doha Ministerial Declaration set target deadlines in three areas which are of particular interest for developing countries. Deadlines were set for addressing the issues of agriculture negotiations, special and differential treatment, implementation issues and the ambiguity regarding compulsory licensing and TRIPS. The WTO negotiations failed to meet the deadlines in almost all these areas. This happened because the major developed countries did not show any willingness to meet these deadlines. This made the developing countries weary about the motives of the major developed countries.

Secondly, the draft ministerial text in Cancun was fully loaded in favour of developed countries and was unresponsive to the specific demands of developing countries. It provided too much leeway to US-EU to retain their subsidies in agriculture, but on the other hand, asked the developing countries to significantly cut their tariffs in agricultural products and virtually eliminate tariffs on industrial products. It also asked the developing countries to relinquish their power to regulate foreign investment. Most developing countries found these too high a price to pay for the minor concessions they were getting from the developed countries.

As a result, in Cancun, the developing countries were determined to resist the pressure exerted by developed countries and were more prepared to face the negotiations as a group. As Das (2003) points out, over the years, the major developed countries have managed to extract significant concessions from the developing countries. But with better understanding of the dynamics of WTO, developing countries have started to resist this pressure. Awareness about WTO at the domestic and political level has provided them an added leverage. The resistance in Cancun was more determined than the Doha ministerial because, a large number of the developing countries were not prepared in Doha to handle the pressure tactics of the US-EU, whereas, after having learnt their lesson in Doha and later, the developing countries managed to stick together and stay on their determined track in Cancun. As a recently published report in 'The Guardian'^[2] points out, a confidential post-mortem examination prepared by the Department of Trade and Industry concludes:

"At the heart of the collapse was a clash between the approach of the EU and US and others, expecting a traditional brinkmanship style negotiation and the approach of many developing countries who were not willing to play this game, and were prepared to hold out if they weren't satisfied".

The think-piece by EC could not judge the significance of this new development properly. As with other issues, it only gives a one-sided view of the picture. This is a weakness of this piece and as a result, it fails a give an unbiased view about the true reasons behind the failure of the Cancun Ministerial.

October 31, 2003.

[1] Cancun 1981-2003’ by K. S. Jomo, mimeo.
[2] 'DTI leak blames Lamy for Cancun failure: Report says tactical error left WTO talks without a deal' by Larry Elliott, economics editor, Wednesday October 22, 2003, The Guardian.