European Affairs

Winter 2004

 

The World Trade System after Cancun
The EU Is Committed to Making the Doha Round a Success
By Pascal Lamy

 

Since the failure of the World Trade Organization (WTO) Ministerial meeting in Cancun in September 2003, the European Union has reflected urgently about what to do next, and we have emerged with a clear position. In parallel, Transatlantic trade relations have also come under the spotlight, leading some to conclude that world trade more generally has been afflicted with a crippling malaise. Nevertheless, although there remains much work to be done, the potential for progress has not completely faded. It often takes a crisis to focus the mind, and we are now striving to mobilize our collective will once again.

Although the meeting of the WTO General Council on 15 December 2003 set a new direction after the period of post–mortem analysis that followed Cancun, a brief examination of what happened there remains the starting point for identifying the way ahead. It will be impossible to pursue the new approach that the European Union has adopted without an understanding of why Cancun floundered.

One explanation of the failure in Cancun is that it was just an accident. The meeting was supposedly advancing in the conventional way toward a deal, and we were just a hard day's night away from success when the proceedings were abruptly terminated.

This view has some merit. Delegations in Geneva had put every effort into preparing the meeting, although we all apparently missed the important issue of cotton, a big subject of contention in Cancun; and the European Union and the United States had constructed a framework deal on agriculture, as requested. But suddenly, like a party that ends too early, the meeting just fell apart.

Others play down the idea that the failure was an accident, except in the sense of an “accident waiting to happen.” They say that everything was always far from well in Cancun, pointing out that negotiations barely got under way, and that, after a few days of inconclusive consultations, the meeting was broken off shortly after getting down to real business. According to this explanation, serious underlying problems blocked the negotiations in Cancun, which must be resolved before we can move on.

There is also some truth to this explanation. It is certainly correct that we must deal with several systemic issues before progress can be made. These include the emergence of new developing-country groupings, such as the G20 and the G90, as a result of both agricultural and geopolitical concerns inside the WTO – an emergence that we have to respect, even welcome. Developing countries cannot be encouraged by the developed world to become involved, and then be rebuked for setting the agenda or for seeking to act as a counterweight to the Group of Eight leading industrial nations.

In addition, a number of member countries were reluctant to extend the WTO rule book or to engage in further trade opening because of concerns, particularly among G90 countries, about the consequent erosion of their existing trade preferences. These differences in substance were too wide to be bridged in the short time available at Cancun.

Then there are the widespread fears of the growing importance of China and its huge exporting potential, as well as systemic problems in the operation of the WTO itself, which is not the perfect model of global governance that we would all like to see. None of these serious problems can be ignored or brushed aside.

Many commentators claim Cancun was really about an entrenched North–South confrontation. But, simple North–South explanations overlook a number of important realities. The European Union, for example, backed China and India on the Convention on Biodiversity. Even on agriculture, the European Union has moved step by step toward developing countries following the reform of the Common Agricultural Policy decided in June 2003. The European Union has also, for the first time, accepted the elimination of export subsidies on products of interest to developing countries.

It was against this background that the European Union insisted on a moment of reflection, particularly given the extent to which it has already tailored its agenda and its approach to development objectives. The European Commission gave careful consideration to the causes of the failure of Cancun. It held consultations with the European Parliament, the EU member states, our social partners and civil society. It listened to the views of our trading partners, including the United States, the G20, the G90, Japan and others, and it presented the results of its stock-taking in a communication on reviving the Doha Development Agenda in mid-November. The communication was formally endorsed by the EU Council of Ministers on 9 December 2003.

As a result, the European Union now has a very clear position in the negotiations. In line with our stance in other areas of foreign policy, we remain firmly attached to multilateralism in trade matters. Multilateral negotiations fit well with the European Union’s own decision–making system. They are by definition non–discriminatory, and thus do not distort trade or sideline the weak; they are efficient and also fair. At the same time, Europe pursues bilateral agreements in so far as they are consistent with the priority it accords to multilateral progress in the WTO.

In this context, the European Union has made clear its readiness to negotiate and show flexibility, provided others do the same. We are ready, for example, to modify our approach on the so-called Singapore issues (investment, competition, trade facilitation and transparency in government procurement) by offering much greater flexibility for WTO members, including our readiness to remove all four of these issues from the single undertaking (which binds all the participants), and leave other WTO members free to decide whether they negotiate and sign such agreements. The Commission's November communication also set out a more flexible approach on geographical indications (defining the rights of products to the sole use of the name of their place of origin), and on the environment, in order to facilitate continued negotiations on these issues.

On agriculture, we have confirmed our readiness to negotiate seriously, including on a list of products of interest to the developing countries, on which we would be willing to end export subsidies, and on an ambitious approach on cotton. We are also ready to achieve far–reaching results in the field of industrial products.

We also want to improve the working of the WTO in both the short and the long term. But the need to use the negative momentum of Cancun to start a long overdue process of institutional improvement for the WTO must not come at the expense of progress on matters of substance. The European Union᾿s clear stance enabled it to make a constructive contribution to preparations for the WTO General Council’s meeting in December, at which all members expressed their clear and firm political will and support for the continuation of the negotiating process. This has put us in far better shape than we were at the end of the Cancun meeting.

Nevertheless, although WTO members have gone a long way toward getting the talks back on track, we are not yet at the stage of a formal resumption of negotiations. Moreover, the European Union is almost alone in showing signs of flexibility on matters of substance. Unless all WTO members display true flexibility, there can be no real negotiations. It is simply not enough for one or a few members to be flexible.

In the months and the year ahead, the main challenge remains re–launching discussions on matters of substance. The December WTO General Council established a framework for this by deciding that the negotiating groups, which had been dormant since Cancun, should resume their activities. It is now up to the members to flesh out this structure with content – on agriculture, industrial products and services.

The European Union will continue to work hard with the United States as the other “elephant” of world trade. In this context, I strongly welcome the recent letter from Robert Zoellick, the U.S. Trade Representative, to the Ministers of all WTO members, clearly expressing the U.S. commitment to resume the negotiating process in 2004.

Implementing the development aspect of the Doha Round remains a significant challenge for us all. We shall continue our dialogue with the developing countries, especially with such groups as the G20 and G90, building on the direct contacts that we have already initiated with them. The role of the G20 developing countries will be particularly important in these negotiations if the least developed countries are to gain real access to new markets, given that they already have effectively free access to the markets of the European Union and other developed countries. The G20 must contribute constructively to the negotiations on the full range of issues, take initiatives and not remain a purely defensive alliance on agricultural issues.

As for the Singapore issues, the arguments for multilateral rules remain as valid as ever. With the other WTO members, we shall be seeking more flexible formulas in order to keep our ambitions in this area within the multilateral framework. The negotiations will, therefore, initially be confined to trade facilitation and transparent public procurement, and it is possible that not all WTO members will sign agreements on all issues.

Contrary to the common misconception that 2004 will be a wasted year owing to the elections in the United States and India, real progress remains a strong possibility, provided WTO members want it. The first major milestone will be to reach, by March or April, the place where we should have been by the end of the Cancun meeting, including, for example, agreements on the modalities for the negotiations on agriculture, industrial products and the Singapore issues. That is the objective set by the Chair of the General Council and backed by all WTO members in December. On the basis of the European Union's clear and flexible position, the European Commission will do its utmost to that end.

Some commentators maintain that there can be no progress on the multilateral trade agenda so long as U.S.–EU relations remained marred by long–standing and often tense bilateral trade disputes. But our bilateral disputes are not nearly as complicated as the contentious multilateral issues that require further work by all WTO members. Both the European Union and the United States know what has to be done, and at different times we have both said it to each other: WTO rules need to be respected.

It has been a primary goal since 1999, for example, for the European Union to bring itself back into compliance on bananas and hormone–fed beef. Solutions have now been achieved for both these products, in the case of hormones as a result of our revised ban based on state–of–the–art scientific evidence. The United States must now in turn lift the retaliatory measures that have been in place for more than four years.

As in other recent cases, such as steel and the Foreign Sales Corporations (FSC) tax system for U.S. exporters, the questions to be asked are not whether the European Union is going to retaliate, which areas our retaliation will hit, when we are going to do it and so on. The question, as the United States put it in the hormone and bananas cases back in 1999, or on Genetically–Modified Organisms (GMOs), on which the United States launched a case last autumn, is when the other side is going to bring itself into conformity with the rules.

On steel, the United States finally decided, in December 2003, to abide by its international obligations and lift its illegal safeguards. That followed nearly two years of litigation, and the adoption by the EU Council of Ministers in June 2002 of a regulation providing for the application of additional duties on U.S. exports to the European Union.

In the FSC dispute, the United States has yet to comply with WTO rules. The European Union has been waiting since November 2000, when the WTO Appellate Body found against the FSC. We have now made it clear that retaliation will begin on 1 March 2004, unless the United States moves before that date to comply.

Lest all this sounds as if Europe somehow relishes the prospect of retaliation, let me state that nothing could be further from the truth. Retaliation is the last resort the system provides, the final tool that can be used to induce compliance. Retaliation clearly hurts. But anyone remotely connected with the FSC case, for example, will know that the European Union has behaved with both patience and transparency. It has made no rash or sudden moves. While, therefore, the FSC and steel issues are clearly politically sensitive in the United States, the actual substance of the disputes is rather straightforward.

It is neither accurate nor appropriate to conclude that Cancun failed because the United States has taken the European Union to the WTO on GMOs, and because retaliation measures loom on FSC, as a result of which there is some overall sickness in the world trade system.

While perhaps there are certain stakeholders who remain to be convinced that the trade system works in their interests, our response should not be to back off from the Doha Round because it is too difficult. Nor should the European Union avoid retaliation against the United States because it is obviously hard to assemble a majority for WTO compliance in the U.S. Congress. Such an approach would send the message that the law of the jungle has overpowered world trade; that might is right, that the destructive days of beggar-thy-neighbor policies have returned and that the basic rules of the road have been forgotten.

On the contrary, the only correct conclusions are, rather unglamorously, to persevere with the multilateral round and comply with the agreed rules. This is why the stakes, as they were before and immediately after Cancun, remain so high.

Pascal Lamy is EU Commissioner for Trade. From 1984 to 1994, he worked in Brussels as chief of staff (chef de cabinet) to Commission President Jacques Delors, representing him at the G7. In November 1994 he joined the Crédit Lyonnais, where under Jean Peyrelevade he helped restructure the bank, becoming its number two. After the privatization of Crédit Lyonnais, Mr. Lamy was appointed in July 1999 by Romano Prodi and the French government to the European Commission. In September 1999 the European Parliament confirmed him as Trade Commissioner