The Magazine

The Real Cancun

What went wrong at the trade talks.

Oct 6, 2003, Vol. 9, No. 04 • By CLAUDE BARFIELD and JAMES K. GLASSMAN
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TRADE TALKS in the Mexican beach resort of Cancun collapsed two weeks ago, after the United States and Europe failed to reach an agreement with a group of 22 developing countries that insisted on aggressive cuts in farm subsidies but refused to take small steps to liberalize trade in their own countries.

Who was at fault for the breakdown at the ministerial conference of the World Trade Organization? Ideological nongovernmental organizations (NGOs) blamed the developed world. "In the past, rich countries made deals behind closed doors without listening to the rest of the world," said Phil Bloomer of the British organization Oxfam. "They tried it again in Cancun, but developing countries refused to sign a deal that would fail the world's poor people."

This is disingenuous. Oxfam opposes free trade, and, like other NGOs, it could only have been cheered by the collapse of the talks. The truth is that the immediate cause of the breakdown was the refusal of the least-developed African countries to budge on a couple of minor issues--compounded by the hasty action of the inexperienced Mexican host, foreign minister Luis Ernesto Derbez, in abruptly adjourning the talks without consulting other major trading nations. But there were deeper causes for the failure as well: European obduracy and paralysis, inept U.S. leadership, and the hopeless consensus rules for WTO negotiations.

As a result, the Doha Round, begun in 2001 with promises to help developing countries in large part by cutting agricultural barriers in rich countries, will not finish on time by the end of 2004--and indeed may be extended for some years after that. Nonetheless, some leaders in developing nations applaud the result because it symbolizes the changed power dynamics within the WTO. Thus, Brazilian foreign minister Celso Amorim exulted: "We were able to show what a group of developing countries can do when they are united."

A more sober judgment, however, is that this victory will come at a considerable price, since a successful conclusion of the WTO Doha trade round is the only hope for reducing the crippling effects of the $300 billion in agricultural subsidies lavished upon developed-country farmers. As Alan Oxley, a veteran Australian trade negotiator, put it on TechCentralStation.com, "Developing countries have taken the most stupid international trade action since the U.S. imposed the Smoot-Hawley tariffs in 1929."

But while the strategy of developing countries was in many ways self-defeating, the United States played its hand poorly. The central focus of the Cancun talks was agriculture, and the United States favors--and had formally proposed--much deeper cuts in export subsidies, agricultural tariffs, and domestic supports than the Europeans, who have to contend with protectionist, and often violent, farmers in France and elsewhere. In addition, the Europeans, in order to deflect attention from agriculture, were demanding broad new rules for foreign direct investment and the creation of an international antitrust regime--areas they knew were anathema to developing countries, which had neither the resources nor the expertise to manage them.

The smart move for the top U.S. negotiator, Robert Zoellick, was to make common cause with the poorer countries--as the United States did so effectively during the U.N. environmental summit in Johannesburg last year. Instead, Zoellick remained loyal to a fault to his European ally, Pascal Lamy, the European Union trade commissioner.

In fact, the Europeans are the villains of the trade story, blocking serious reductions in trade barriers and helping to impoverish Africans and Asians. Europe, for example, maintains an absurd ban on imports of genetically modified foods. The reason isn't a threat to health--there isn't one, as even E.U. studies have shown. Instead, European coalition governments are trying to appeal to their Green partners and trying, as well, to bar imports from poor countries, which can put biotech agriculture to profitable use.

The proper strategy in Cancun for the United States was to isolate Europe, to negotiate separately with the 22 developing countries on both agriculture and the so-called Singapore Rules for investment and antitrust policy. Of course, those poorer nations--especially their leaders, Brazil, China, and India--lack clean hands. They are cynical protectionists in a number of areas. But the United States could almost certainly have made a deal with them and portrayed the Europeans as the odd men out.