World trade after Cancun

The failure of the Cancun summit has been thoroughly analysed by many parties. Inevitably this analysis results in finger pointing at the various countries that are presumed guilty for the failure. Although every player has a different culprit to aim at (« the other guys »), all analyses seem to share two apparently contradicting elements. First, everybody seemed surprised that the meeting ended so abruptly, since good progress was being made on agriculture and many other issues. However, secondly, all parties seem to agree that the current negotiating rules for multilateral trade agreements are just not working. This being the case, the question should now turn to how to proceed. Continue along the existing path with greater flexibility from everybody to reach compromise ? Stop the current Doha round and rewrite the rules ? Forget about the multilateral system and conclude bilateral agreements only ?

Despite the overall success of the European Union in reaching a common policy on trade issues, Europe has not yet provided a clear answer to the questions raised by the failure of Cancun. America’s response was already prepared before the summit ; if the meeting fails then the USA will conclude a series of bilateral deals (a trade equivalent to the military doctrine of forming ‘a coalition of the willing’). This will create a kind of competition between countries in the field of bilateral trade deals with the USA. Basically, if you don’t agree to America’s terms, there will be other countries that will.

Europe’s instincts are more multilateralist. Pascal Lamy rightly points to the very small number of bilateral agreements that even the USA have concluded. These arrangements take time to negotiate and distract from progress with other countries. Also, negotiating outside the WTO could jeopardise the whole rules based approach of dealing with trade disputes that is currently tested by the ruling on steel tariffs and other WTO rulings. If bilateral agreements become the game in town, then the existing WTO rules may well become ineffective.

For Europe, this means that there is no alternative to continuing with the multilateral approach. The question then becomes whether to rewrite all the rules or plough on with the current negotiations. It seems clear that these two activities can not be done in a serious way at the same time. It is impossible to agree on the rules of the game during half time. We are also approaching an election year in the USA, during which the President will be unwilling to make decisions that are painful to individual constituencies. With the European Commission changing next year also, it becomes questionable if anything significant can be agreed during the next year at all.

This may then just be the right opportunity to focus on rewriting the rules or at least those rules that stop the negotiating system from coming up with results. It is in this field that the construction of the European Union provides a model. This model is far from perfect, but there is no better model around in which a group of sovereign countries negotiate on important matters and agree to overall decisions that may harm some individuals (who can often be compensated by other means) while advancing the well being of a whole community. Given the EU’s experience and the unilateralist tendencies of the USA, Europe has the opportunity and the obligation to come with concrete proposals for improving the system. Hopefully some of the EU’s dis-functional elements can even be avoided when redesigning WTO negotiating rules.

At the same time, there should not be a complete stop the Doha Round of negotiations. In stead they should focus on what business people call ‘quick hits’, meaning those areas of trade policy where progress can be made quickly with relatively little effort. There are some areas of trade policy that can be decided during the next 18 months without risking a presidential veto or roadblocks in the streets of Brussels. One problem of the negotiations to date is that everything is unnecessarily being linked together. As we have seen with the agreement to offer poor countries cheap prescription drugs, it is possible to make progress on specific topics. However, it requires a focussed approach. Participants should avoid trying to link unrelated topics to those areas where either everybody can benefit or the developing world can greatly benefit at little cost to the EU and US. Let us agree on a small number of areas where we can make multilateral trade agreements soon, in stead of negotiating a small number of all encompassing bilateral deals with just a few individual countries. European cotton is just one example where developing countries could benefit greatly and Europe could give up its protection relatively easily. There is no need to link this opening to the acceptance by developing countries of so-called concessions elsewhere.

Once this proves successful, we may even have created the design of the new negotiating rules. Rather than trying to agree on many topics over a 10 period, let’s agree on just a few topics relatively soon. And then let’s do this again. This could give the confidence in other countries as negotiating partners that is required to succeed in the long term. It can also show again to all participants that in trade negotiations it is in fact the country that ‘gives market access away’ who benefits most.