The most extreme example of an excessive and unnecessary subsidy is the US subsidy of its 25,000 cotton farmers. According to the laws of comparative advantage the US should be a massive importer of cotton due to its relatively high costs of production due to expensive labour and disadvantageous weather conditions compared to many equatorial regions. However, it is actually the biggest net exporter of cotton in the world with net exports worth $3bn, in an industry that is subject to $4bn of subsidies every year. This puts 11 million around the world who rely on cotton farming at a disadvantage. The subsidies have reduced world prices by a quarter, costing other exporters $200m in lost foreign exchange. The Maize industry has also been subsidised in the US by $9bn. Tariffs are also being used against developing countries by developed countries, as shown below in fig 1.2. This is shows the market of a developed country, for example the rice market in Japan, where to avoid threat of developing countries, there are enormous tariffs of 1,000%.
In terms of agricultural goods, the developing countries have also accused the US and the EU of ‘dumping’, where they sell goods to these countries at a cost below the cost of production. This can often be found under the guise of foreign aid, but has the affect of, whether intentionally or not, putting domestic producers out of business. In the long run, it can create a greater market capitalisation to later exports to that country as domestic producers no longer exist. The US and the EU have shown little willingness to improve the situation, and have been accused of using ‘worthless rhetoric’, behind which there is no action. The US increased subsidies to its cotton farmers last year and the EU continues to fail to reform the Common Agricultural Policy, which stayed at the same level in real terms over the last year and is now $48 billion, much to the resentment of a group of countries that have formed an alliance since the beginning of the Doha round, the G21. This is a group of developing countries led by Brazil, China and India.
Another issue that developing countries have found to be very detrimental is quotas that used to be in place on imports into the EU and the US. In the last round industrial countries promised to phase out by 2005 the MFA (Multifibre Arrangement), a system that set a quota on imports. The method by which this works is shown below in fig 1.3.
However, the under the plan laid out, by now 75% of all the quotas should have gone, but 80% still remain in the US and 70% still remain in the EU. The only quotas that have been liberalised are quotas that never really had an effect as those goods were not really imported in large amounts anyway. Even with the tariffs gone, quotas will still exceed 15%. The West is costing these countries more through reducing their ability to trade than it is giving through foreign aid. One of the reasons that this continues is because of the influence that farmers have in lobbying powers and the National Cotton Council was very influential in helping the current Bush administration into power.
The issues that are under discussion under Cancun are certainly not just as a result as protectionism from developed countries. Of the World Bank estimated $520 billion increase in the international economy should there be complete trade liberalisation; almost half of this is down to developing countries reducing tariffs as well. The quota restrictions that India and Bangladesh have put on textiles, if removed, could create 27 million jobs in developing countries. For the past decade, trade growth between developing countries has grown at twice the rate of overall global trade and Brazil and India have average tariff levels of 30% and 40% respectively.
There is also the issue of intellectual property rights, which are another method that developing countries believe the US is using to exploit the developing world. It was corporate power that passed the property rights bill in the Uruguay round, and it was initially opposed by every developing county. It forces developing countries to adopt rich country standards in trade, or face sanctions. This, in many cases, is very hard for developing countries to do, and it means the countries have to pay the West for the right to use certain technology, as well as stifling any innovation they might have. The biggest problem was patents on medicine, which has since partially been resolved by trade being allowed in crucial medicines in times of emergency.
Finally, there are the four ‘Singapore Issues’, which have resulted in a great deal of contention. These are supplementary issues to protectionism, and the embitterment they caused was really the final straw, and the biggest single factor, and saw the end of the talks at Cancun. The issues were investment, competition policy, transparency in Government procurement, and trade facilitation. A group of four West African countries got together and refused to negotiate on any of the four issues, while South Korea said it could only accept negotiations on all four. It was after the arguments about the Singapore Issues, that the Foreign Minister of Mexico called an end to this round of the Doha talks.
There were however many contributing factors to the end of the talks. Firstly, there were many countries who went into the talks with a very negative attitude, and who had already dismissed certain parts of the Doha agenda. For example the European Union denied that it had ever agreed to remove export subsidies, and the G21 denied that it had ever agreed to new WTO rules. All previous self-imposed deadlines, from a whole variety of countries, were missed, and tough political decisions had been put off. This meant that Cancun was a pivotal moment in world trade, which was a huge, and retrospectively too great, a burden to carry. Many countries also just watched at the talks, as opposed to agreeing restrictions and policies themselves. There was also the problem that many of the G21 who still concerned over grievances they had from previous rounds of talks, namely Uruguay and Seattle, and therefore negotiations seemed unlikely at this one.
Another key problem that presented itself at Cancun was the continuation of the problems of agriculture. This had been a problem that was crucial before, during and now after the talks. America and the US had drawn up some policies to free up trade, but it was much less than what many had wanted at the first meeting of the Doha. Export subsidy issues were most important in this area. Japan also refused to reduce its 1,000% rice tariffs, and there appeared to be no likelihood of this changing in the future. G21 were particularly bitter about the lack of development in this area as collectively it represents half the world’s population and two-thirds of its farmers, it acted as a powerful force, organised and professional. Although within itself it has very different views, it stood together on particular points, namely tariffs in rich countries, and subsidies which have added together to $300bn in the last 15 years.
The G21 was not however the only alliance to form. There was another alliance of poor countries, mainly from Africa, who were also worried about agriculture, but for different reasons. They were more resistant to freeing farm trade as it would loose them their ‘special preferences’. For example former colonies of members of the EU get special preference over bananas, the most popular food item in the UK. They were also worried about cutting tariffs on imports from relatively more developed countries such as India who would otherwise undercut their industries, mainly through economies of scale, and greater productivity, by which they have reduced their unit cost of production. A small group of West African countries are particularly worried about cotton. These four managed to get cotton explicitly mentioned at Cancun. The battle that these countries tried to have with the US, was inevitably going to be an uphill struggle, something which caused resentment throughout the rest of the talks. They wanted lowered subsidies and compensation. They claimed that the issue of cotton was a test to see the extent of which the Doha round was indeed a round to help the poor. When the issued of cotton were not resolved, some say the round was doomed from that point on, as what little faith was left, was lost. As a result many of the poor countries refused to compromise any further and led into the failure of the Singapore Issues.
Some European delegates blame the Mexican Foreign Minister for cutting off the talks too early, and some even blamed it on a conspiracy where the US made the Mexicans stop the talks as they had wanted them to fail all along. What is much more likely is the detrimental affects of rich countries pushing poor countries too far on Singapore Issues and not enough on agriculture. The rich were too timid and they badly managed the expectations of the poor by promising a lot and giving little. The G21 actively negotiated many points, but many African countries refused to compromise at all.
Some of the non-governmental organisations (NGOs) such as Oxfam that pushed can be held responsible for the view of the developing countries that they did not have to give way. They also raised the hopes of the poor countries to a level that they were highly unlikely to attain. Finally, the WTO itself should hold a considerable amount of blame for the failure of talks that it put together. It was unable to make decisions efficiently, and was poorly organised with rules that did not suit the enormity of the tasks at hand. Although a democratic ‘one country – one vote’ system where everyone ahs a veto, there were no formal procedures to achieve a consensus. The biggest problem is that the existence of vetoes means that changes are nigh on impossible, and many have hailed the end of the organisation.
In conclusion, the issues under discussion at Cancun, were very difficult to address, but not impossible. These issues were varied and complex, with a huge number of standpoints around the world. The reasons that this part of the Doha round failed is not in any way based entirely on the issues under discussion. Beaurocracy, bullying, empty promises, and uncompromising countries are all to blame. The chance of this round of talks finishing on time is now very remote.