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Wealth of Nations 
Cancun's Failure Will Have Lasting Implications
It is clear who loses most: developing countries, whose trade ministers went home celebrating by Clive Crook .... Last week's collapse of the global trade talks in Cancun, Mexico, hardly came as a great surprise. The outcome had been widely predicted, partly because nothing ever seems to go smoothly these days for the World Trade Organization. Weary observers will tell you that quarrels and breakdowns over trade policy are merely business as usual. Yet it would be a mistake to write off this particular outcome as another routine bust-up. What happened in Cancun was no ordinary failure of political leadership. It will have great and lasting implications for the world economy. What was saddest and, looking to the future, most dispiriting about the collapse was that so many developing-country negotiators walked away punching the air in triumph. "We are leaving stronger than when we arrived," said Brazil's foreign minister. Really? Even commentators who expected the meeting to fail must find this jubilation strange. The governments concerned should ask themselves what kind of a victory it was. No cuts in rich-country export subsidies. No improvement in access to rich-country markets. No rich-country trade reform of any kind. Worse, if you count the economic losses for the world's poor, the breakdown will make trade reform politically harder for developing-world governments (some of which see the case for such reform) to pursue at home. If all of this was not bad enough, the WTO—the only multinational forum to give small or poor countries a veto over its decisions—stands paralyzed and, as time may show, defunct. It is a grievous setback. It will leave the developing countries poorer and with far less say in their own future. Yet many of the developing world's governments are celebrating. How is this seeming madness possible? It is not madness, in fact, so much as an extraordinary tribute to economic illiteracy and political vanity—qualities by no means confined to leaders of developing countries. The economic ignorance lies in forgetting that the benefits of liberal trade go first and foremost to the countries that do the liberalizing. When a country lowers an import tariff, this is called a "concession" in WTO-speak. But it is only a concession if you are thinking like a politician; economic principles tell you that lowering a tariff raises your income, usually by more than it raises the incomes of your trading partners. Political vanity, on the other hand, is what leads governments to derive more satisfaction from standing tall in negotiations than from helping raise their people out of poverty. Combine these two, and it seems that any economic policy, no matter how stupid, can be contemplated. The Cancun meeting offered a fabulous opportunity for mutual gain. For no good reason, that opportunity has been squandered. The basic shape of a deal that would have benefited all sides was plain. The United States and Europe mainly needed to make "concessions" on farming, as they had repeatedly said they would. The developing countries wanted this because rich-country agricultural protection (high tariffs and subsidies for production and export) makes it difficult for their farmers to compete. In return, the rich nations sought "concessions" in areas where government policy puts their exporters at a disadvantage. Four such areas, the so-called "Singapore issues" (named after an earlier meeting at which the subjects were raised), had already been highlighted: competition policy, and rules on foreign investment, government procurement, and customs procedures. It bears emphasizing that none of these "concessions," on either side, actually would have cost anything. Quite the opposite. Europe and the United States would both gain if they curbed, or preferably abolished, their farm protection. The cost of those policies falls mainly on them. It is shouldered by rich-country consumers, who pay much more for their food than they otherwise would, and by rich-country taxpayers, who have to cover the subsidies. These losses easily outweigh the benefits that farm support gives to farmers. In absolute terms—though not in their human impact—they also outweigh the harm inflicted on farmers in the developing countries. The point is, if Europe and the United States had changed their policies as they had earlier indicated, and the developing countries had then done nothing in return, Europe and the United States would still have come out ahead. In exactly the same way, the main "concessions" required of the developing countries in this round of talks were really no such thing. You could not say this of every trade-policy demand pressed by rich countries on the poor. The insistence in previous talks on stronger protection for intellectual-property rights, for instance, is something that poor countries can accede to only at some cost to themselves. (Since the poor countries own so little intellectual property, this policy entails a transfer of income from poor countries to rich.) Not everything on the trade-reform agenda is a positive-sum game. But most things are. And no such reservation applies to the Singapore issues. Liberal global rules on competition policy, cross-border investment, government procurement, and customs procedures would benefit poor countries at least as much as, and usually more than, they would help rich ones. Slow, complex, and corruption-prone rules for clearing imports, for instance, are far more of a problem in poor countries than in Europe or America. These practices act like an additional tariff, except that they fail to raise revenue for the government. They therefore make even less economic sense. In Africa, it is reckoned that the trade-repelling effect can be many times stronger than that of the tariffs typically in place, high as these may be. Streamlining such procedures, just like cutting a tariff, benefits the importing country as well as (and typically more than) the exporting country. It is something the importing country should be keen to do in any case. In what sense, then, is reforming such income-destroying customs procedures a "concession"? The whole idea behind the multilateral, WTO-based approach to trade reform is that the objection to lower tariffs—or greater freedom for inward investment, or smoother customs procedures, or whatever it may be— is not economic but political. It's assumed that governments understand that trade reform would make the liberalizing countries richer. But it's also assumed that such reforms will encounter opposition from special interests. Curbing farm support, for example, would make America and Europe richer on the whole, but it would leave their farmers worse off. The farmers therefore dig in to oppose the change. The WTO, when it works, allows governments to overcome narrow opposition to liberal trade by balancing the political power of different special interests. The resistance of rich-country farmers to agricultural reform can be set against the desire of European and American exporters to increase their sales in developing countries. The exchange of "concessions" is intended to mobilize political support for changes that would make economic sense even if they were undertaken unilaterally. This exchange is the essential underlying logic of the WTO. Governments in rich and poor countries alike no longer appear to understand it. America and Europe do not want to liberalize their farm-trade policies, even though that would make their citizens better off. They are interested only in securing developing-country "concessions"—not as a way to overcome domestic opposition to broadly beneficial reform, but as a goal in its own right. And the same now goes for governments of many developing countries. Concessions extracted from the rich countries have become the sole test of national advantage. At Cancun, many poor-country negotiators, cheered on by rich-country NGOs pursuing their own anti-trade agenda, were apparently delighted to defend policies patently harmful to their people, the better to spite the rich countries. "Europe and America have broken their word on farming," they say, "so we will cut off our feet." That way, you understand, Brazil and its allies emerged stronger than when they arrived. Who is most to blame for what happened at Cancun? If Europe and the United States had shown more willingness to budge on farm issues, the collapse could have been avoided; or if Europe had not (until the last moment) insisted on progress on all four of the Singapore issues; or if Brazil and its allies had not refused to budge on any of those issues (much as it is in their own interests to do so). It hardly matters who is most to blame. It was an epic of failed leadership on all sides. Sadly, though, it is clear who loses most: the developing countries, whose trade ministers went home celebrating. Europe and America are rich. They can bear their burden of incompetent miscalculating politicians. Brazil and its poorer brethren in the developing world are not so lucky. For them, the shameful failure in Cancun will hurt.
What do you think? Discuss this article in the Politics & Society conference of Post & Riposte. More from National Journal. More on politics and society in Atlantic Unbound and The Atlantic Monthly. Clive Crook is a columnist for National Journal and the deputy editor of The Economist. This column appears every week in National Journal, a weekly magazine covering politics and government published in Washington, D.C. For information on National Journal Group publications, see NationalJournal.com. Copyright © 2003 by The Atlantic Monthly Group. All rights reserved. | [an error occurred while processing this directive] | ||
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