The Cancun Trade Negotiations and the Global Economic Struggle

TradeAlert.org ^ | Friday, September 26, 2003 | William R. Hawkins

[Willie Green]

For education and discussion only. Not for commercial use.

In 1999, President Bill Clinton, whose credentials as a "free trader" were unquestioned, walked out of the World Trade Organization meeting in Seattle when faced with demands even he could not stomach. The planned launch of a new round of trade talks collapsed when a coalition of major states, led by the European Union, Japan, China and India, blocked any liberalization of world agriculture — the top U.S. agenda item, while demanding that Washington abandon its laws against unfair trade practices.

In 2001, U.S. Trade Representative Robert Zoellick agreed to put U.S. trade laws up for WTO discussion in order to get a new trade rounded started in Doha, Qatar. Zoellick got little in return for his unprecedented concession. The farm issue was still left with a bias towards protectionism, as the Doha declaration accepted "food security and rural development" and other "non-trade concerns" as legitimate reasons for keeping agricultural markets closed.

Last weekend in Cancun, Mexico, WTO talks collapsed again with the United States once more facing an intransigent coalition presenting unacceptable demands. Liberal media outlets like the Washington Post have tried to portray the breakdown as a clash between "rich" and "poor" nations, with the implication that the "rich" United States should have made more concessions to help the "poor" Third World. Yet the smaller "poor" countries would have had little leverage without major states like China, Brazil and India leading them. These rising continental powers are in the same position as the United States a century and a half ago. They want to control their own destinies, which means concentrating on their respective national development and deepening of their own economic base. To these up-and-coming powers, trade is useful only to the extent it shifts the balance of power in their direction.

Agriculture was again a major point of contention. Most countries subsidize their farm industries. The United States and European Union spend heavily in this regard, which makes it difficult for developing nations to compete in the global market. The underlying problem is that farm productivity is so high in the United States that the domestic market is saturated. Attempts to cut farm supports like the 1996 Freedom to Farm Act failed because surplus American production could not find overseas outlets. India and China have large rural populations and cannot allow American farmers to push millions of their people off the land and into overcrowded cities. Instead, they want American and European markets to open to farm imports while keeping their own markets closed. Brazil is most anxious to flood America with agricultural goods.

Japan, clearly not a "poor" country, also opposed opening its domestic market. "There are divisions even among developed nations," Prime Minister Junichiro Koizumi told reporters. "We continue to seek an agreement without compromising Japan's position." A critical part of Japan's position is a 490 percent tariff on rice imports.

The U.S. and EU were prepared to give up some subsidies (though the EU was very cagey about this, clearly expecting others to block any agreement), but in return wanted a new set of trade rules dubbed the "Singapore" agenda. These issues mainly concern giving foreign investors (primarily European, American, and Japanese) more access and protection in overseas markets, and requiring greater "transparency" in government procurement. This agenda seemed to many to be like the "unequal treaties" of 19th century imperialism, where foreign investors and merchants were to be given a privileged legal status. However, the right of governments to use public funds to support local industry and national development is a core element of sovereignty. The Singapore agenda was thus a non-starter with most of the developing countries.

What is lacking among liberal trade theorists is the realization that commerce runs on the basis of competition, not harmony. The great error that has dogged liberalism is the belief that peaceful trade can replace international strife. Instead, trade has always been a major component of strife. Statesmen know that where factories, research labs, jobs, capital, and other resources are located is where wealth and power will also develop. And as a society becomes stronger, it can better shape events so as to bring more security and prosperity to its people. It is a game for the highest stakes, and one any person with a modicum of common sense should easily recognize from history.

The WTO is just another arena in the struggle for advantage, a struggle that has become more bitter as the world economy has slowed down. It must be understood that the Doha Round is explicitly dedicated to a global redistribution of wealth. According to its Ministerial Declaration, negotiations are to focus "on products of export interest to developing countries....The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in [tariff] reduction commitments" The system is supposed to encourage "developing" countries to protect their home markets while boosting exports. The position of most countries, including China, was that they would take no new steps to open their markets. The purpose of Cancun was purely a one-way trade route to support industrial expansion in the Third World at the expense of the old "rich" industrialized countries who have been on top for too long.

The pattern of the late 19th century may be repeating itself. There had been a period of relative "free trade" in the mid-1800s as the Industrial Revolution spread across Europe. Frustrated by slow growth and envious of England's lead, rival nations started to shift back to protectionism in the 1870s to support internal economic development. Economic growth speeded up on the European continent, and reached its highest rate under the mature protectionist regimes in place by the turn of the century. Only England, which clung to its "free trade" policy, continued to lag, falling behind Germany by 1900 with major geopolitical consequences.

The fierce competition growing from the spread of modern industry around the world is unleashing this same dynamic today. In the face of new economic challenges, America must look for ways to bolster its own strength if it is to maintain its dominant position -- economic, political, and military -- in the world system.

William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.

[Willie Green]

ping

[Beck_isright]

"The position of most countries, including China, was that they would take no new steps to open their markets."

I find the rantings and ravings about China refusing to open up their markets hollow at best. China did open up their markets; their labor markets. In doing so, we relocated a lot of our manufacturing capacity over there so we could sell to the Chinese people directly. In return they were given a market to export to also and make huge profits. The only losers in this alleged round of free trade was the American worker and small entrepreneur.