The Grand old Duke of York,/He had ten thousand men./ He marched them up to the top of the hill,/And he marched them down again.
The World Trade Organization (WTO), 10,000 strong, swept into the cavernous Hong Kong Conference Centre two weeks before Christmas to take the hard political decisions necessary to move the global trade negotia- tions forward to their decisive concluding phase in 2006. After five days of round-the-clock negotiations trying to address the absence of agreement on virtually every issue on the negotiat- ing table, the WTO throng left town with little more than an agreement to keep talking. As one journalist commented, par- aphrasing Churchill, ”œnever in the course of human history was so little accomplished by so many.”
”œIt was worth it,” WTO Director General Pascal Lamy insisted at a press conference late in the evening of the final day. ”œWe have managed to put the (Doha) Round back on track after a period of hibernation.” The US trade represen- tative, Rob Portman, was more muted in his enthusiasm, expressing relief that the process had at least not moved backwards. Peter Mandelson, the European Union trade commissioner, echoing these sentiments, concluded that the result ”œis not enough to make this meeting a true suc- cess, but it is enough to save it from failure.” Canada’s trade and agriculture ministers, Jim Peterson and Andy Mitchell, claimed that there was progress, ”œalthough much remains to be done.” Others were less sanguine: ”œmicro-steps,” sniffed Brazil’s foreign minister, Celso Amorim.
As the ministers of the 149 member countries and the 40 observer countries, including candidates for member- ship, and the representatives of 76 intergovernmental organizations, made their plenary speeches before dispers- ing into endless private meetings, 2,000 South Korean rice farmers brought their own message. ”œSmash the WTO! Down with globalization,” they cried as they fought a series of increasingly violent battles with the police. On December 16, they briefly broke through police lines and surged to the front entrance of the centre before they were beaten off. Over the week, some 900 were arrested. In the intervals between the clashes, they entertained the citizens of Hong Kong with colourful displays of dancing and traditional Korean music. On one day, a small group performed an ancient and arduous Buddhist ceremony, walking slowly for three steps, kneeling and touching their foreheads to the ground throughout the length of a main shopping street. Elsewhere, a small band of Catholic Korean farmers paraded with their anti-WTO and globalization banners. Their message was luminously archaic, ignoring the contribution made by global trade rules and globalization to vaulting South Korea from one of the world’s poorest countries to one of the most powerful economies in Asia in the space of two generations.
If the South Korean rice farmers were the most numerous and most vocal, there was the usual demimonde of nongovernmental organizations (NGOs) representing an incoherent agglomeration of conflicting demands. Over 1,100 organizations registered for the meeting, representing business and labour groups, farm organizations, human rights advocates, environmen- tal groups, anti-poverty and develop- ment advocates, and other global action groups of every possible persua- sion. ”œOpen markets,” cried some. ”œKeep markets closed,” shouted others. ”œSave the environment from world trade,” demanded still others. Adding to this tower of confusing babble, an earnest young man from the Socialist Party of Australia claimed that he did not equate Marxism of the Trotskyist variety with anti-globalization. ”œI’m not anti-globalization, I’m pro-interna- tionalization,” he said. ”œWhat I am against is capitalist globalization, the idea that things are based on profit and not on public good.” Kept safely away from the delegates, the NGOs held countless earnest seminars and issued peremptory demands for action. Their brief moment in the sun came on the first day, when a small group shouted ”œLiar!” at Lamy as he addressed the opening session. No one was listening.
The product of this sixth ministeri- al meeting was the Hong Kong Declaration. Despite its impressive length ”” 57 paragraphs, 6,100 words and 6 lengthy annexes ”” the declara- tion is meagre fare indeed, a triumph of process over substance. There are only two firm commitments: one to eliminate export subsidies on cotton by the end of 2006, and the other to eliminate all agriculture subsidies by 2013. If the declaration’s firm com- mitments were few, its process deci- sions were abundant. It calls for the establishment of modalities for reduc- ing agriculture subsidies and trade bar- riers and lowering tariffs on industrial products by April 2006 and the sub- mission of firm offers by July 2006. On trade in services, members are to submit revised offers for opening their markets by July and final draft sched- ules of commitments by October. Developed countries are to do their best to open markets for least devel- oped countries by 2008 for at least 97 percent of their imports from such countries. On a host of other subjects, the ministers resolved to continue negotiations but fixed no deadlines. If it is a stretch to ask ministers to find politically palatable answers to deeply sensitive negotiating issues over five days of intensive activity, then hoping that the gaps will be bridged over the next few months is to detach reality from probability.
If the ministers left hungry for more, no one should have been sur- prised. Shortly after he assumed direc- tion of the WTO in September, Lamy called for a ”œrecalibration” of expecta- tions for the meeting. It was by then clear that the essential component of a deal at Hong Kong, a comprehensive agreement on agriculture, was beyond reach. Without agriculture, there would be no agreement on industrial products, trade in services, or indeed every other item on the agenda. As the weeks passed between September and the Hong Kong meeting, Mandelson and other European ministers com- plained bitterly that agriculture was hijacking the negotiating agenda to the exclusion of everything else. The complaints fell on deaf ears. For almost half a century, the EU has protect- ed its farmers both by keep- ing out competing imports and by massively subsidiz- ing the export of surplus production that its system generates. If the Europeans hoped that they would once again shuffle agriculture off the stage of a major trade negotiation, they were to be sorely disappointed.
The previous round of multilateral negotiations, the Uruguay Round (1986-94), had made a modest begin- ning in crafting rules to limit domestic and export subsidies and to open agri- cultural markets. Ten years later, a con- sensus emerged that agreement could be reached on significant reductions in trade-distorting domestic subsidies, and on the elimination of export sub- sidies. The stumbling block was access to markets. The EU made an offer that looked good on paper: an average reduction of 39 percent in EU import barriers. However, highly sensitive imports would be excluded. Careful examination of the fine print showed that even with such cuts, the European market would remain effectively closed to competing imports. The EU was not alone. Others were equally obdurate. Japan and Korea among Asian countries placed protection of their rice markets at the top of their negotiating priorities. Canada was equally determined to protect its dairy and poultry sectors and the monopoly of the Canadian Wheat Board. The United States, which offered major reductions, nevertheless made it clear that liberalization could go only so far. The developing countries, although they presented a united front, were sorely conflicted. Brazil and Argentina, competitive agriculture producers, wanted a big deal. Many others have weak agriculture sectors and depend on imports of heavily subsidized agri- food products from rich countries. They would dance with Brazil and Argentina only so long as the terms of any agriculture deal effectively exclud- ed them from its rules.
The two commitments made are virtually meaningless: the elimina- tion of export subsidies on cotton in 2006 and the elimination of all agricul- ture export subsidies by 2013. In the case of cotton, it is domestic subsidies, particularly US subsidies, that create the major distortions. In the absence of a comprehensive agriculture agree- ment, major reductions in US cotton support programs were not to be expected. As for export subsidies gener- ally, without an agreement to reduce domestic subsidies, the temptation to reallocate export subsidies to domestic programs will prove irresistible.
The looming expiry of negotiating authority granted to the US administra- tion by Congress hangs over the resumption of negotiations. Colloquially known as ”œfast track,” it provides for Congress to approve or dis- approve any trade agreement negotiat- ed without amendment and within a defined time frame. There are two rea- sons for the important role that this US domestic arrangement plays in trade negotiations. Without such authority, there is no guarantee that any agree- ment negotiated by the US administra- tion would enter into effect. The second is that given the importance of the United States in global trade, the basis for a multilateral agreement is fatally undermined without US participation. The current grant of negotiating authority expires on July 1, 2007. If the negotiations do not finish successfully by the end of 2006, time will have effec- tively run out. The prospect that the Bush administration in its last two years would seek, and that Congress would accept, an extension of the authority must be considered remote.
This round of trade negotiations is now effectively 10 years old. In the heady days following the conclusion of the Uruguay Round and the inaugura- tion of the WTO, replacing the old General Agreement on Tariffs and Trade (GATT), ministers launched the process for a new round of multilateral trade negotiations at the first WTO Ministerial in Singapore. This new round would not only build upon the results of the Uruguay Round but would also tackle new issues, including invest- ment and competition policy, critical to the rapidly emerging global economy. The second ministerial, held in Geneva in 1998, was remarkable for little except the first appearance of demonstrators who, dramatically if ineffectually, chained themselves to the front gate of the WTO building. If the first two meet- ings could be counted as solid, if unspectacular, successes, the third min- isterial, held in Seattle in December 1999, broke up in disarray in clouds of tear gas and multitudes of protestors.
In November 2001, the fourth WTO Ministerial convened in Doha, Qatar, and agreed to launch the Doha Development Round, to be concluded by the end of 2005. If any believed that the Doha meeting heralded a bright, confident morning, the fifth ministerial at Cancun, Mexico, in September 2003 was a cold shower. After four days of acrimonious discussion punctu- ated by grandstanding rhetoric, the meeting collapsed. Out of this wreckage, patient efforts finally produced a framework agreement in August 2004 that purported to set the stage for ministers at the Hong Kong meeting to define the negotiating modalities for the detailed bargaining that would lead to a definitive conclusion by the end of 2006. If the number of meetings, the commitment of ministers to the process if not the substance of negotia- tions, and the volume of proposals counted as progress, the Doha Round would be well on its way to success. However, the problems are deeper and go to the heart of the object and pur- pose of the multilateral trade system.
The principal reason for the lack of progress lies in a fundamental impasse on the object and purpose of multilat- eral trade negotiations. It divides ”œsatis- fied powers,” essentially the developed countries, from ”œdissatisfied powers,” largely the developing countries. The satisfied powers are interested in pre- serving the vitality of the WTO as a set of rules and procedures but not in major new trade liberalization if it comes at a high domestic political cost. The opposition to trade liberalization in developed countries is now confined to isolated sectors, such as textiles and clothing and agriculture, but it is not counterbalanced by strong domestic support for liberalization. Such support has evaporated, in large measure due to the success of previous negotiations and the consequent absence of an attractive negotiating agenda.
The dissatisfied powers generally believe, not without reason, that previ- ous rounds of trade negotiations have ignored their interests while imposing significant new obligations upon them, for example, intellectual property pro- tection. Their objective in the Doha Round is to obtain significant reductions of developed countries’ trade barriers on agriculture and low-cost manufactured goods, such as clothing. They are also seeking to effectively renegotiate some aspects of current WTO rules and refuse to take on the two issues, investment and competition policy, that might have generated some support in developed countries. Until the impasse between countries that have low ambitions for the evolution of WTO rules and those that seek a radical refocusing of its rules is resolved, progress will be difficult.
Agriculture is a case in point. The most serious obstacle to progress on agriculture resides in a paradox: as the economic importance of agricul- ture declines, its political weight increases. In the OECD countries as a whole, agriculture now accounts for less than 5 percent of GDP and even less of employment. Agriculture sup- port programs may seem ruinously expensive, but the amounts involved are still modest in terms of overall budgets; the costs to consumers through higher prices are sufficiently well camouflaged to muffle any poten- tial consumer backlash. For example, the massive subsidies enjoyed by EU farmers account for 40 percent of the EU’s budget but still amount to less than 2 percent of total govern- ment expenditure in the EU countries. For all its diminish- ing economic weight, the farm sector enjoys powerful emo- tional support among elec- torates. If subsidies were reduced and domestic markets opened to international trade, a major downsizing of agricul- ture would occur in most of the EU, some Asian countries, as well as in certain sectors in Canada and the United States. While a compelling economic case can be made that the EU should get out of growing sugar beets, the United States out of cotton, rice and cane sugar, Korea and Japan out of rice, and Canada out of more than local production of dairy and poultry products, no politician hope- ful of re-election would support such a step. The political costs are too high and the economic benefits too low.
Agriculture is not the only ideolog- ical divide. The quixotic attachment of developing countries to special and dif- ferential (S&D) treatment ”” essentially exceptions from the trade rules and preferential access to rich-country mar- kets while keeping their own markets closed to international trade ”” is a seri- ous systemic barrier to progress. Nevertheless, the Hong Kong Declaration ritualistically reaffirms ”œthat provisions for special and differ- ential treatment are an integral part of the WTO agreements and that all S&D treatment provisions will be reviewed with a view to strengthening them and making them more precise, effec- tive and operational.” The justifica- tion for S&D treatment lies in the perception that only developed coun- tries can fully benefit from interna- tional trade and developing countries cannot take full advantage of the opportunities created by liberalization and should thus be allowed to shelter their economies from the full applica- tion of the trade rules.
US analyst Gary Hufbauer sums up the real reason with characteristic direct- ness: ”œeveryone ”˜knows’ that trade min- isters representing poor countries can’t be asked to dismantle their barriers because…well, because they like to use muddled infant industry arguments to confer favours on well-connected con- stituents.” At Hong Kong, the arguments became even more tortured. The laud- able elimination of export subsidies, ministers declared, should not result in higher costs for food-importing develop- ing countries. The reduction of trade bar- riers should properly
reflect the need to compensate developing countries for the erosion of trade preferences. The least developed countries should benefit from tariff-free and quota-free market access, but only to rich-country markets and to those developing-country markets that can ”œafford” to give such access, notwithstanding World Bank studies demonstrating that the potential benefits of remain- ing trade liberalization are greatest in trade between developing countries. Prior to his selection as WTO director general, Pascal Lamy called for a ”œfree round” for developing countries ”” that is, they should not be expected to lower their trade barriers and reduce their sub- sidies. At Hong Kong, it became brutally clear that a free round for developing countries was not on the table. At least on that point, the ministers got it right.
What does all this mean for Canada? In his plenary speech, Trade Minister Jim Peterson captured the conundrum facing Canada’s multi- lateral trade policy on the central issue of the Hong Kong meeting: ”œIn agricul- ture, Canada seeks to rein in subsidies and to achieve major improvements in market access…Canada strongly sup- ports both our supply-managed sectors and…the Canadian Wheat Board.” Canada, in other words, would lend its weight to bringing down trade barriers and subsidies on Canada’s exports while fighting to the end to preserve supply management and the monop- oly marketing of wheat and barley. What’s mine is mine and what’s yours is negotiable.
The inevitable result is that Canada sat largely on the sidelines, unable to contribute constructively. In the not-too-distant past, Canada was a major player and, together with the United States, EU and Japan, essential- ly determined the agenda and out- come of multilateral trade negotiations. Today, India, Brazil and Australia have displaced Canada at the centre of negotiations. Even if Canada adopted a negotiating position consis- tent with its interests as a major net agriculture exporter and left the dwin- dling herd of dairy and chicken farm- ers to face reality, it would be a minor player because it has little to con- tribute, or gain, from multilateral trade negotiations. Individual Canadian ministers and officials may still play a useful role on the margins of meetings, but Canada is not engaged in the negotiations because it has no serious stake in their outcome. The clearest evidence comes from the business community and the media: both exhibited massive indifference to the Hong Kong meeting. They understand that we have reached the point of diminishing returns in trying to dot the last i and cross the final t in the trade agreements of the past. The sim- ple fact is that Canada’s most basic economic interests are now inextrica- bly bound up with those of the United States and can no longer be addressed multilaterally in the WTO.
At Hong Kong, Peterson faced the same dilemma that has confronted every Canadian trade minister over the last 15 years: how to exercise influence in a multilateral negotiation. The trade figures tell it all: 85 percent of Canadian exports are transacted with US customers and, apart from trade in a few agricultural products (for exam- ple, sugar-containing goods, dairy and poultry), Canada-US trade is free of conventional trade barriers and occurs under the rules of the NAFTA. Ten per- cent of Canada’s remaining exports are sold in the markets of the EU and Japan. In the former, a successful Doha Round could mean additional export opportunities for grains, meat and oilseeds, but only marginal gains in industrial products, since average EU tariffs are in the 3 to 4 percent range and a major reduction would still amount to considerably less than annual exchange rate fluctuations. As for Japan, Canadian business has learned that Japanese trade barriers have virtually nothing to do with export opportunities; other factors immune to trade negotiations are the key determinants.
It is only the remaining 5 percent of Canadian exports, sold largely to developing-country customers, that would stand to benefit from successful multilateral negotiations. Doubtless some Canadian companies would benefit, assuming that developing countries were prepared to open their markets, but the days are long past when the results of multilateral nego- tiations had a significant impact on the Canadian economy. In such cir- cumstances, the elevation by Jim Peterson and his predecessors of agri- cultural protectionism for dairy, poul- try and wheat over other objectives in the Doha Round makes eminent polit- ical sense. The House of Commons certainly agrees. In the dying moments of the last Parliament, it unanimously adopted a resolution urging the government not to yield an inch on supply management.
Much as WTO Director General Pascal Lamy sought to recali- brate expectations for Hong Kong, the new Canadian government needs to recalibrate the focus of its multilateral trade policy by separating the fate of negotiations from the fate of the WTO. Historically, the multilateral trade system has had two major roles: to provide a rules-based framework for the conduct of international trade, and to sponsor multilateral trade negotiations. After eight rounds of successful negotiations resulting in sustained reductions in trade barriers to the markets of the major trading countries, the system now involves a complex, multifaceted set of rules dis- ciplining government regulation of the full range of international trade transactions. The 80 governments that launched the Uruguay Round in 1986 became the 142 that agreed to the Doha Declaration in 2001 and the 149 that gathered in Hong Kong. Throughout this successful half-centu- ry, the twin roles of maintaining a rules-based system and sponsoring negotiations have been carefully bal- anced. Since the founding of the WTO in 1995, the balance between rules maintenance and negotiations has shifted decisively to the former. The prestige and relevance of the WTO as the arbiter of international trade rules has grown, while its negotiating role has been assumed by flourishing regional and bilateral initiatives now pursued by virtually every WTO mem- ber. The result is that while the multi- lateral trade system is riding a wave of success, as attested to by its growing prestige and membership, its members are looking elsewhere to pursue their negotiating interests.
Old ideas die hard deaths. The old idea is the ”œbicycle theory” of trade negotiations. It holds that the bicycle of negotiations has to move forward if the multilateral system is not to fall over. The bicycle should be thrown into the dustbin of history. It is not regional and bilateral trade agreements that weaken the multilat- eral system, it is the insistence that successful multilateral negotiations and the vitality of the multilateral system as a whole are joined at the hip. As WTO members turn their attention to picking up the pieces of Hong Kong, they should recall that the multilateral trade system is not a goal but rather a means to an end. The goals of the system are clearly set out in the WTO preamble: rising liv- ing standards, full employment and steadily growing incomes. Such goals have also been, and will continue to be, achieved through bilateral and preferential agreements, reducing the primary function of the multilateral trade system to guarding and adjudi- cating application of the multilateral rules. This function will remain important only so long as the mem- bers have faith and confidence in the ability of the system to deliver. At some point, later rather than sooner, the Doha Round will conclude. However that conclusion measures up against the lofty ambitions set for the round, it is critical that the mul- tilateral trade system remain unim- paired as an enforceable set of rules and procedures.
If there is a silver lining to the dis- appointment that was the Hong Kong Ministerial it is that it put paid to the notion that Canada has a special role to play in multilateral negotiations. It is true that in the founding and the evolution of the multilateral trade regime Canada played both a creative and a sustaining role. It did so because such a role responded clearly to Cana- dian interests, including addressing cross-border trade problems and opportunities. Canadian trade and economic interests were well served by Canada’s activist multilateral trade- craft. Today, however, further multilat- eral negotiations can make at best a marginal contribution to the most pressing Canadian trade and economic interests. Instead, the opportunities lie in elaborating the bilateral Canada-US agenda and crafting an accommoda- tion with the United States that is commensurate with the reality of deep and irreversible cross-border integra- tion. That agenda involves creating a less intrusive border, pursuing a more deliberative strategy of regulatory con- vergence, and establishing institution- al capacity to manage deepening and accelerating integration. None of these issues can be addressed multilaterally, but they will be at the heart of Cana- dian tradecraft for the next generation.