Inside the WTO's Collapsed Deal

On July 21, the World Trade Organization held yet another meeting billed as a "do or die" effort to pull off a new global trade deal. Since the Doha round of talks were launched in Qatar seven years ago, trade ministers have met five times to work on an agreement. The ministerial meeting held last summer was charged with a sense of urgency, with warnings that this might be the last chance to hammer out a deal. So the hype about how this summer's meeting represented a "moment of truth" for the negotiations seemed like an overused ploy to get negotiators to resolve their differences.

This time, though, negotiators' inability to reach a deal seems more serious, with key figures appearing genuinely deflated at the outcome. WTO Director General Pascal Lamy said that "there is no escaping the fact that this meeting has failed," and that the multilateral trading system came out of it "dented."

Negotiators behaving badly

The recriminations over who was to blame for the failure were so venomous that they may poison the atmosphere for a resumption of multilateral talks for some time to come. The American negotiator claimed negotiators had actually reached an agreement but that two of the seven members of the core negotiating group -- a clear reference to India and China -- had scuttled it by rejecting a compromise reached on a key provision.

The provision in question dealt with how to protect farmers from a surge in agricultural imports. The Indian negotiator retorted that a strong safeguard against such surges was essential to the livelihoods of the world's poorest farmers and "could not be traded off against the commercial interests of the developed countries."

The E.U.'s trade chief, Peter Mandelson, slammed the conduct of the U.S. negotiators and hinted that rather than working for success, the U.S. was actually preparing for the failure of the talks.

The U.S. delegation shot back that "the E.U.'s anger is misdirected, misguided and being misused," accusing Mandelson of trying to divert attention from the fact that the European position on agriculture was under attack by some of its own member states.

Farmers in the balance

What are the consequences of this year's ministerial collapse? If the only news you got about the latest WTO failure came from the business press, you would think that it was a major blow to the poor. An editorial in the Wall Street Journal entitled "The End of Free Trade?" said the meeting had historic significance because "for the first time since the multilateral trading rounds began after World War II, a trade expansion effort has ended in failure." The Journal said the Indian trade minister was the "main villain" and he bore responsibility for blocking progress for impoverished people in his country.

But generally organizations around the world that work on behalf of the disadvantaged have been celebrating the collapse of the so-called Doha Development Round. In exchange for largely illusory cuts to developed country farm-subsidies, developing countries were being asked to open their markets even further to the manufactured goods and services of developed countries. Basically, they were expected to permanently block their own path to development by eliminating the capacity to protect infant industries with tariffs, the path that the U.S. and Europe had followed to industrialize their own economies.

The U.S. was claiming it was willing to make big reductions to its agricultural subsidies, but the recent passage of a $300 billion farm bill by the U.S. Congress make it unlikely that the U.S. is serious about real reductions. Such farm subsidies put developing-country farmers at a huge competitive disadvantage. In addition, a number of studies have showed that even if developed countries did actually cut their agricultural subsidies, it would make little difference to world poverty. A report from the United Nations Conference on Trade and Development concluded that a Doha agreement could cost developing countries huge losses in tariff revenue, four times as much as any benefits they might gain.

Ramping up a global banking disaster?

Not even registering on the radar of the mainstream media were the consequences of a WTO package deal that would have included liberalization of services. It is remarkable that in the midst of a major financial crisis, with shockwaves continuing to be felt from the U.S. subprime mortgage disaster, journalists did not cover the financial services aspects of the WTO negotiations.

In what Director General Pascal Lamy reported as a bright spot in the talks, countries met on July 26 to signal the major concessions they were prepared to make on services. Apparently oblivious to the shaky state of international banks, some countries proposed that they would eliminate deposit requirements for foreign bank branches. They said they would open up to increased trade in financial derivatives, even though these products are a prime source of financial instability. The trade ministers' cheery attitude towards further financial liberalization begs the question of how bad the financial crisis would have to get before they thought twice about permanently deregulating the sector through trade commitments.

Under the WTO services agreement, if countries commit to the complete opening of a sector, they have to allow unlimited foreign ownership in that sector. Some of the trade ministers at the services meeting announced their countries were willing to allow total foreign control of key areas like banking, telecommunications, health and postal services. While Lamy's report of the services meeting names Canada as one of the 27 countries represented, he does not identify who made which offer to liberalize. So Lamy's report does not tell us what new offers Canada may have made.

David Robinson, in his capacity as trade and education consultant for Education International, a global union federation claiming to represent 30 million teachers and other education workers, met with WTO negotiators during the ministerial to discuss potential impacts on public education. Robinson told The Tyee his organization's principle concern is that "commitments taken could lead to locking in the forces of privatization." Commitments to allow the establishment of foreign for-profit institutions, for example, could undermine domestic efforts to build a strong public education system.

Education International also objects to the development of new WTO "disciplines" restricting how services are regulated, particularly in relation to requirements for education qualifications. Robinson said if governments tried to strengthen education qualifications for teachers, the proposed WTO restrictions on regulation could mean these governments would be challenged for creating a restriction on trade in education services. These WTO restrictions on the right to regulate still may be imposed, despite the collapse of the Doha round.

Cherry-picking the results

Although the ministerial meeting just ended in failure last week, it is already clear how different delegations are manoeuvring for advantage in the post-Doha era. Brazil, which jumped ship in Geneva on the developing-country coalition opposing deep cuts to industrial tariffs, has contacted President Bush directly to signal Brazil is still willing to negotiate.

The U.S. is questioning the fundamental premise of a comprehensive trade package, one that covers agriculture, market access for industrial goods, and services. The U.S. trade negotiator said at her last news conference: "Why should it have to come together at exactly the same time? We need to reflect on how we move forward, but there are ways of moving forward certainly with pieces of this, both near term and longer term." The U.S. would probably like to harvest the services and industrial commitments that were made without having to give anything in the area of agriculture.

But the Indian trade minister has already rejected this option, saying that the WTO is not a buffet where countries can just take what they want without making concessions. And while Pascal Lamy is claiming the WTO could proceed in all the areas where there was agreement, this view is categorically rejected by countries like Argentina that were excluded from the inner circle of seven countries that did most of the negotiating.

The Bolivian way

In their debriefing on a services meeting held as part of the ministerial, WTO staff described it as "dreadful." At this meeting, Bolivia, Venezuela, Cuba and Nicaragua blasted the chair of the services negotiations for the text of a report he had drafted on how the negotiations would proceed.

Among other things, this report would have had governments commit to locking in existing liberalization so that they would not be able to undo privatization and deregulation without risking a WTO challenge. Surprisingly, the group of countries that had previously given their okay to this language -- a group that included Canada, the U.S. and the E.U. -- mostly sat on their hands at the meeting and did not come to the chair's defence.

While Bolivia is marginalized by the powers that be at the WTO, its views probably are more mainstream than those of most trade negotiators. It is Bolivia's position that services like health, education and water should be excluded from commercial trade negotiations because they are basic human rights. Local food production should be given priority over imports because the environmental costs of transporting foreign food have to be taken into account. The patenting of all life forms should be prohibited.

These positions were sent in a letter from Bolivian president Evo Morales to Pascal Lamy. They provide a glimpse of what a real "development" round of negotiations might look like.

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