In Cancún, a blow to world trade

Some cheered in the hallways. Others pointed fingers. But when word came down that a World Trade Organization conference had collapsed Sunday, attendees and observers agreed on one thing: The push for international freetrade had been dealt a significant blow.

Formed in 1995 as a organization to negotiate and adjudicate trade agreements, the WTO's relevance has been challenged by the inability of rich and poor nations to compromise and find consensus on issues ranging from farm subsidies to foreign investment.

The Cancún debacle may spur nations initially to shun the WTO's 146- nation forum and pour greater efforts into developing bilateral or regional trade agreements. Longer term, analysts say, that shift may undermine the WTO, or may hold the key to streamlining future global trade talks.

"Failure at Cancún could do to the WTO what the Iraq war did to the UN: Undermine its influence and marginalize it," says Justin Forsyth, Oxfam's director of policy. A new hardball tenor at the talks, accentuated by the emergence of a 21-member bloc of developing nations determining to fight farm subsidies, echoed the tough talk over Iraq that has hobbled the United Nations Security Council.

And just as the US ultimately abandoned the UN over Iraq to form a "coalition of the willing," individual nations may simply strike up new trade deals bilaterally and regionally, bypassing the contentious global talks.

"I predict more bilateral trade deals, more NAFTAs," says Daniel J. Ikenson, a trade-policy analyst at the Washington-based Cato Institute, referring to the North American Free Trade Agreement. "They are easier to negotiate since there are [fewer] arms to twist."

However, the WTO's director general, Supachai Panitchpakdi, denies that such a shift would spell disaster for his organization.

"I could understand that other countries will want to get on with things and use bilateral agreements. Overall, I don't think this will undercut the relevance of the WTO," he says.

In the long term, he argues, a reemphasis on regional trade blocs like South America's MERCUSOR and Southeast Asia's ASEAN is a "normal and healthy thing" that could reduce the current unwieldiness of global trade negotiations. This development was already on display at Cancun, with the formation of the G-21 and the representation of Europeans nations by EU trade commissioner Pascal Lamy.

The Cancún talks were considered the make-or-break moment for trade negotiations launched two years ago in Doha, Qatar. There, WTO delegates launched the Doha Round, agreeing to phase out most agricultural export subsidies, and eliminate most tariffs, but failed to set a deadline, or specify which goods would be affected.

Japan, for example, levies 600 percent tariffs on rice imports, effectively barring other countries from entering their market. The US, meanwhile, spent $3.9 billion in 2001 and 2002 to subsidize its cotton farmers, according to the international humanitarian organization, Oxfam. That figure is higher than the entire US foreign aid package to West Africa, where the cotton industry has been decimated by cheaper American imports.

And European nations protect their farmers perhaps more than anywhere else, with many countries arguing that domestic food production is a national security issue, in case a massive war blocks food imports.

The industrialized world pays out $1 billion a day in subsidies to farmers who represent less than 1 percent of its population. The G-21, meanwhile, includes 63 percent of the world's farmers.

Japan and the European Union put discussion of farm subsidies on hold, however, pushing instead four topics referred to as the "Singapore issues." The goal was to give more market access to multinational companies, regulate competition, improve transparency in government contracts, and simplify procedures for cross-border transportation.

The Group of 21 (G-21), including economic powerhouses like Brazil, China, and India, balked at the sidelining of the farm-subsidy issue, and flexed its newfound muscle to end the talks.

As the talks broke down, both sides of the rich-poor divide were blaming each other for not compromising.

"The rhetoric of the 'won't do' overwhelmed the concerted efforts of the 'can do,'" said US Trade Representative Robert Zoellick. "'Won't do' led to impasse."

Kenyan delegate Jasper Antipa disagreed. "We were bending like reeds in the breeze. Industrialized nations would not budge."

Ironically, it may be developing nations - those who took a stand against rich ones for the first time in Cancún - who will suffer the most under a weakened WTO.

Poor nations will still want to trade with the world's richest markets, the US, Europe, and Japan, and so they'll need to strike bilateral deals. Big economies with more to bring to the table will always win out in those deals, experts say.

But others note that the stand by G-21 nations at Cancún will only strengthen those nations' bargaining position.

"World trade negotiations will never be the same again," says Phil Bloomer of the British nongovernmental organization Oxfam, which was supportive of the Group of 21 position. "On paper this meeting has failed, but the new power of developing countries backed by campaigners around the world has made Cancún a turning point."

WTO officials are heading back to Geneva to attempt to hammer out a compromise, outside the spotlight of an international conference. Such a plan, if formulated, would be discussed at a meeting of the WTO General Council set for no later than mid-December.

- David S. Hauck

The industrialized world has long had a love affair with farm subsidies. Following World War I, the US and Europe developed price-support policies to reduce the volatility of agricultural prices and keep their farmers in business during lean years.

This was done in one of two ways: by artificially raising the price of agricultural goods above market levels - through price fixing and tariffs; or, by giving subsidies - direct payments - to farmers.

Because many farmers in the US and Europe are paid regardless of what they produce, they can sell their goods for less than it costs to produce them. Critics contend that these subsidies hurt farmers in poorer countries.

"Every promise [regarding subsidies] made to the developing countries - countries that form 80 percent of the WTO membership - has been broken to suit the interests of the richest 20 percent," said Anuradha Mittal, co- director of Food First, an NGO based in Oakland, Calif.

But European and American farmers hold that it is more costly to till the soil in the industrialized world, with its expensive land, labor, and capital. And WTO negotiators for developed countries say that while they are being asked to reduce subsidies and lower tariffs, larger developing countries like Brazil, India, and China must make concessions, too, such as reducing high import tariffs.

• The industrialized world spends $1 billion a day on agricultural subsidies, calculates Toronto's National Post.

• In 2002, US farm support was 17.6 percent of the total value of agricultural production, compared with 36.5 percent in the European Union, and 59 percent in Japan, according to the Organization for Economic Cooperation and Development.

• While the 1996 US Freedom to Farm bill was designed to reduce payments to American farmers, between 1996 and 2002 payments grew 300 percent, to $22 billion, according to the Columbia Encyclopedia. Under the 2002 US Farm bill, Washington has ponied up $190 billion more - over the next 10 years - for America's farmers.

• US cotton farmers received subsidies amounting $3.9 billion in 2001 and 2002 according to Oxfam, which cost African countries an estimated $300 million.