26 November 2002
Why Cancún matters
Second International Conference on Globalisation, Leuven
In less than ten months — at their Ministerial Meeting in Cancún — WTO Members will be asked to give a major push to conclude the latest round of global trade negotiations by January 2005. Success is not guaranteed. Uncertainty in the world economy, combined with growing international tension, has overshadowed the new Round and weakened the cause of multilateral cooperation. Yet this is precisely why the WTO's success is so vital.
Signs of global economic weakness are not hard to find. America's recovery has slowed. Japan risks slipping back into recession. Europe is proving that it is not immune to a global downturn. Meanwhile a widening circle of emerging economies — Argentina, Brazil, Turkey — face the threat of financial instability. During the last major financial crisis — in 1997 and 1998 — the world trading system provided an essential bulwark against a broader global downturn. Failure to show progress in Cancún will be perceived as a set back for the Round — so soon after its launch last year — further shaking confidence in an already uncertain international economic system. Concerns would mount that the new global economy — untested in hard times — was more fragile than previously thought.
Failure in Cancún could send an equally damaging signal to the developing world. In recent years more and more developing countries have turned to open trade — and the WTO — as key to growth, development, and poverty eradication. They have been convinced of the need for stronger multilateral rules, not weaker ones. More trade liberalization, not less. An effective WTO, not an impotent one. Developing countries agreed to the launch of new negotiations last November on the promise that it would lead to opening markets, reducing subsidies, and liberalizing technology — all issues of major importance to the developing world. An absence of significant progress before Cancún risks turning the idea of a “Development Round” into a hollow slogan. It could reinforce perceptions, widespread in certain quarters, that the industrialized world has lost its stomach for free trade.
Lack of progress in Cancún also carries broader systemic risks. The WTO is in the spotlight as never before. Its expanded rules, broader membership, and binding dispute mechanism means that the WTO is seen as increasingly central to managing international economic relations. But this also means the costs of failure are higher — with ramifications that can be felt more widely. The inability to advance a new WTO agenda in Cancún could damage the credibility of the organization. Fresh doubts would be raised about the WTO's suitability as a forum for future negotiations. With the risk of continued deadlocked, and diminished prospect of advancement on the multilateral front, the pressure to turn to regional and bilateral deals could prove irresistible.
This is not a hypothetical danger. There are over 170 regional trading arrangements in existence today — 90 of them formed in the past six years — and a further 70 are under discussion. Virtually all the Americas, Europe and Africa are now involved in a regional grouping of one sort or another. China has just announced its plan to join ASEAN, and India has signalled that it may not be far behind. Each week seemingly brings word of a new or expanded arrangement.
Let me be clear. Regional trade agreements can be a good thing, as the European Union itself has spectacularly demonstrated over the past forty years. Creating a single regional market can increase economic efficiency. Regional trade agreements, in tandem with multilateral liberalization, can also help countries — particularly developing countries — build on their comparative advantages, sharpen the efficiency of their industries, and act as a springboard to integration into the world economy. They can also help focus and strengthen their political commitment to an open economy.
Regionalism can be a powerful compliment to the multilateral system, but it cannot be a substitute. The multilateral trading system was created after the Second World War precisely to prevent the dominance of rival trading blocks. The resurgence of regionalism today risks signalling a failure of global economic cooperation and a weakening of support for multilateralism. It threatens the primacy of the WTO, and foreshadows a world of greater fragmentation, conflict, and marginalization, particularly of the weakest and poorest countries.
Anyone who believes that a set back in Cancún would not carry significant costs for the multilateral system need only recall the fall-out from the collapse of talks in Seattle in 1999. Negotiating deadlock, deteriorating trade relations, mutual suspicion and recriminations — all contributed to a weakening of confidence in the WTO from which the system has still not fully recovered.
Ten months remain before the Cancún Ministerial, some two years before the Round is scheduled to conclude. The temptation for governments to try to put off difficult decisions or issues is an understandable one. It must be resisted. Decisions made in the coming months will provide an important indication of the prospects for meaningful progress in Cancún and will lay the necessary groundwork for concluding the Doha Round on time.
In Geneva the negotiating groups, councils and committees are up and running. The point has been reached where we need to move from discussion of procedure to discussion on substance. Three issues — on public health, special treatment for developing countries, and the implementation of existing WTO rules — require decisions within a month. Other deadlines for substantive work on agriculture, services, market access, and the dispute settlement system are approaching this spring. In Cancún itself, important decisions will need to be taken on the launch of negotiations in investment, competition policy, trade facilitation, and transparency in government procurement.
Above all we need to make steady progress across all areas of the negotiating agenda if the Doha Round is to move forward in a balanced way. The logic of a broad and balanced agenda — a new round in fact — is that it creates the necessary trade-offs and compromises so that all countries have a shared interest in advancing negotiations. There is no other way to bring all 144 governments that make up the WTO on board. No better way to prevent the further marginalization of many developing countries through the weakening of the multilateral system. No other way to ensure that WTO rules keep pace with the technological and economic changes that are driving globalization.
No one expects this to be easy. This Round is not only the most ambitious multilateral trade negotiation ever undertaken but also the most wide-ranging. It spans issues as diverse as investment, agriculture, heath and the environment. It encompasses over 140 economies, including new powerhouses like China. The WTO's ambition in the Round is in fact an accurate reflection of the diversity of its membership, the breadth of their interests, and the complexity of globalization itself.
This complexity presents governments — and the WTO itself — with the tremendous challenge of weaving all of these disparate threads together into a shared undertaking under a unified system of rules.
But it is a challenge that cannot — or should not — be avoided. A successful liberalization round could contribute as much as $2.8 billion to global growth. And the gains would be proportionately higher for developing countries – by one estimate 1.5 billion, easily dwarfing what developing countries receive in overseas aid, and many times what poor countries have so far been granted in debt relief. Trade is not the only thing that developing countries need if they are to grow faster, but without trade their prospects are certainly much worse.
The fact remains that the multilateral trading system — for all its imperfections — is indispensable to managing the global economy we have created. It gives even the smallest and poorest countries greater leverage and security than they would ever have outside the system. It is a system which replaces the role of ‘power’ in international trade relations with the rule of ‘law’. Together with an expanding web of other global institutions and agreements, the WTO reflects the emergence of a new, but still fragile, international order. From trade to the environment, human rights to war crimes, the world is moving towards rules, not power, persuasion, not coercion — a world of mutual respect, rights, and freedoms.
The question before governments in Cancún is not whether progress is desirable, but whether they can find the collective will to make it happen. The WTO is only as strong or as weak as its Members want it to be. It works when governments find common cause. When they resist closer cooperation, it falls into disrepair.
The key to the WTO is a willingness on the part of governments to find common cause through a international rules and shared interests. It is a system whose core purpose — from its inception in the aftermath of at the end of the Second World War — was the avoidance of global conflict and the promotion of peace. Peace through rules, peace through international cooperation, and peace though widening circles of prosperity.
What is at stake in Cancún? It goes beyond trade. It is about working to build a stronger global economy, reducing instability and uncertainty. It is about linking societies, as well as economies, closer together, and integrating billions in the developing world into the global economy. Perhaps above all it is about advancing a new approach to international relations based on rules, not power — rules to help manage the powerful forces of globalization for everyone's benefit, the weak as well as the strong.
We have a choice: We can stay the course, take meaningful steps towards concluding a successful Round, and lead by example. Or we can allow the trading system to drift. We can abdicate shared leadership, and in doing so try to cope with globalization separately and on our own — through unilateral actions or regional options. Approaches which will make finding common answers to global problems all the harder.
John Maynard Keynes once observed that it is easy enough to identify a crisis when it is upon us. The difficult thing was to put in place policies that can head off a crisis before it happens and when conditions appeared calm. Are we entering the calm before the storm? No one can know. What is certain is that the failure to make progress in the WTO in the coming months will leave the world a more insecure and uncertain place.