Developing countries are now a force to be reckoned with, but a solution on trade is elusive
Sunday December 14, 2003
South Korean farmers' leader Lee Kyung-hae killed himself last September by plunging a knife into his heart just yards from where politicians from 146 countries gathered for world trade talks in the Mexican beach resort of Cancun.
Kyung-hae became a vivid symbol of the powerlessness felt by farmers in developing countries whose crops are dramatically undercut by heavily subsidised goods from wealthier nations.
Poor countries seldom get the chance to flex their muscles. But this weekend they are doing just that.
Europe's Trade Commissioner, Pascal Lamy, flew on Friday to Brasilia, the capital of Brazil, in a last-ditch bid to save the world trade talks on whose fate rest the lives of hundreds of millions of people. Lamy's dash to see a group of developing countries shows just how significant the emergence of a new power bloc has become.
Known as the G20, this new band of countries, including Brazil, China, India and South Africa, represents more than 63 per cent of world farmers. It has shattered the power imbalance at what has been dubbed the rich man's club. When the group was formed three months ago many predicted it would quickly be killed by internal rows. The critics were wrong.
Attempts by America to bribe G20 members to leave have failed. Suddenly the World Trade Organisation - and in particular its dominant European-US - does not look quite so cosy.
'We are standing firm,' said a spokeswoman for the Indian government.
Talks aimed at reviving the Doha trade round begin tomorrow in Geneva. The World Bank has said a good agreement could add $520 billion (£325bn) to global incomes by 2015 and lift 144 million people out of poverty.
Yet this weekend that aim is slipping away because poor nations have so far refused to accept the double standards imposed by America and Europe. Their new militancy encouraged the acrimonious collapse of the last set-piece negotiations in Cancun.
What caused fury among poor nations was that the world's two wealthiest trading powers demanded new financial rules on trade and the reduction of industrial tariffs by poor nations in return for unspecified reform on agricultural access to rich markets.
The most potent example of global trade iniquity is that the US pays a $4bn subsidy to its cotton producers. This has caused a collapse in cotton prices and ruined West African growers, whose crop is produced far more efficiently.
In Cancun, hopes that this would be redressed were dashed, and there is little sign of any progress now.
Developing countries are furious that so-called Singapore issues - new proposals on investment, competition, trade facilities and procurement - have not been dropped. It was the Singapore issues that caused the most fury among poor nations in Cancun.
These proposals are most strongly supported by France. Some believe they are a diversionary tactic to take the heat off agriculture subsidy reform, an area where France has most to lose.
Publicly Britain is keen to see Singapore issues dropped if poor nations continue to object to them. If talks fail to re-energise the process this week all bets on a successfully completion of the Doha trade round by 1 January 2005 are off.
Self-interest in Europe and America will virtually guarantee failure. Most commentators expect the US to harden against concessions as the presidential election moves closer. Bush, they argue, is unlikely to stop subsidising farmers, who traditionally vote Republican.
Many fear Europe will swing towards protectionism when it nominates new commissioners next year. The present crop was chosen when social democratic governments dominated Europe. Now there are few of them.
Insiders say Lamy and Robert Zoellick, the US Trade Secretary, know their countries' farm handouts are excruciatingly embarrassing and that there is no economic rationale for them, but they have to represent their political masters.
Campaigners point to the reluctance even of Tony Blair to involve himself in moves to reduce the protectionism of developed countries. 'Blair won't expend political capital on this unless it's winnable,' said one senior campaigner.
'Number 10 is not engaged and it's about time it was,' said Michael Bailey, Oxfam's senior policy analyst.
There are chinks of light, however. Many observers believe German Chancellor Gerhard Schröder can be persuaded to argue for a fundamental reform of European agriculture.
While America will refuse to make pre-election concessions, some believe the escalating US budget deficit will mean deep spending cuts in 2005.
This may bring into focus the staggering increases in US farm subsidies approved by George Bush. They will increase by $180 billion over 10 years.
Today 40 per cent of farm income in Europe is paid directly from Brussels. Europe's Common Agriculture Policy was introduced in the Fifties to remove the threat that Europeans would starve. But while state handouts to other industries have largely been removed, the farmers have kept theirs.
The justification for retaining the CAP is that peasant farmers get most of the money. The reality, however, is that large agri-businesses pocket most of it. The largest 2 per cent of Europe's farms receive 24 per cent of all direct payments.
The Organisation for Economic Co-operation and Development (OECD) estimates that western farmers receive more than $300bn a year, six times the aid rich countries give to developing nations.
However, the emergence of the G20 could - in the end - transform the power structure of world trade.
Today there is deep unease about China. Its rapidly growing exports have provoked American sanctions and deep unease among developing countries, which are losing thousands of jobs to this nascent world power. But China's deepening alliance with Brazil and India may eventually force Europe and the US to offer major concessions.
For friends of Lee Kyung-hae, however, this will all come much too late. Progress on reform is painfully slow.
The villain of Cancun
No one is in any doubt how clever Pascal Lamy, the EU trade commissioner, is - least of all Lamy himself. Suave and fit, Lamy's remarks are punctuated with witticisms and images drawn from classical literature.
But many blame the 56-year-old long-time French socialist for causing the collapse of talks three months ago in Cancun by dogmatically insisting on including new rules on finance and competition, despite the development agenda.
Lamy has sparked further frustration in recent months for failing to put forward workable compromises to get the multilateral negotiations back on track. Dave Timms, of the World Development Movement, said the tactics guaranteed failure: 'Lamy has not budged since Cancun and has offered no concessions.'
Lamy, a graduate of leading business school the Ecole des Hautes Etudes Commerciales, retires as the Trade Commissioner in a few months. His legacy is mixed. He was Commissioner during the failed Seattle trade talks in 2000 but actively lobbied the US to back new intellectual property laws that allowed poor countries to access expensive life saving medicines.
A renegade voice in the EU
For someone described as unimaginative and dry as dust, UK Trade Minister Patricia Hewitt is taking an increasingly vociferous stance against the European Commission's trade negotiations.
A Europhile, Hewitt has in recent months launched attacks against the $30 billion subsidies to European farmers which so distort global food markets.
She was clearly moved when she visited rice farmers in Honduras whose lives were ruined after cheap rice was dumped in the country. And she was shocked when the Cancun talks broke down.
Hewitt now says that con troversial Singapore issues should be dropped from the trade talks agenda if they are an impediment to progress. This stance seemingly puts her at odds with the European Commission, which is negotiating on behalf of Britain. She is pushing for another European Union 'trade ministerial' next year to keep the Doha round on track.
But there are many who say that either Hewitt's voice is being ignored among the power brokers, of Europe or that although she says she wants to offer poor nations trade concession in public she says something quite different in private.
The man who took on Washington
A man who lost a finger in an industrial accident and who, on his fourth attempt, was elected president of Brazil 14 months ago is the strategist behind a major new geo-political force.
Luis Inacio 'Lula' da Silva has moulded the G20 alliance into a cohesive force representing more than half the world's population, striking fear into Washington and Europe. By this weekend, countries that the US had persuaded to leave the G20 had returned.
Last Friday, Lula reaffirmed commitment to food security for poor countries and challenged developed countries to facilitate this by rejecting earlier frameworks for trade negotiations.
Lula has confounded economic doom-mongers by keeping the Brazilian economy on an even keel. Some $6bn migrated out of Brazil when he was elected. The gap between rich and poor is one of the widest in the world, according to UN figures. Since his election, he has won praise from the International Monetary Fund by sticking with earlier economic reform.
Although unemployment, as high as 20 per cent, has not fallen significantly, Lula is still riding high in the polls and is set to win a second election in three years.
Zen and the art of negotiation
It's a good job that the director general of the World Trade Organisation is a former Buddhist monk. It takes Zen-like patience to deal with the warring factions characterising the body that sets global trade rules.
Supachai Panitchpakdi's appointment was hugely symbolic as a nod to developing countries within an institution which has been accused of representing solely the interests of Europe and America.
The former Thai Deputy Prime Minister, 57, replaced ex-New Zealand Prime Minister Mike Moore 18 months ago. The contrast could not be greater.
Moore had an abrasive presence that contributed to the Seattle world trade talks' collapse.
Supachai's intellectual approach has won friends but some say that instead what is required is an iron strength to resist vested interests. He has repeatedly voiced his frustration at high first-world tariffs and subsidies and welcomed the emergence of the G20 as a counter-balance.
However, as the trade talks flounder so does faith in the trading system.
Whether Supachai has the strength to knock heads together will be tested in the next year.
Rich versus poor
· If Africa, East Asia, South Asia, and Latin America were each to increase their share of world exports by 1 per cent, the resulting gains in income could lift 128 million people out of poverty. In Africa alone, this would generate $70 billion - about five times the sum the continent receives in aid.
· Rich countries spend $1bn in total every day on agricultural subsidies.
· Least-developed countries account for more than 40 per cent of world population, but less than 3 per cent of world trade.
· Rich countries export goods and services worth approximately $6,000 per capita, the equivalent figure for developing countries is $330, and less than $100 for low-income countries.
· 1.1bn people live on less than $1 a day - the same number as in the mid-1980s.
· The World Bank says the average Japanese cow gets $7 (£4.50) a day from consumers and taxpayers. In Europe the support is $2.20 a day for every cow. Almost half the world's population lives on less than $2 a day.
· Trade talks in Geneva tomorrow will try to establish a schedule to begin meaningful negotiations on agriculture subsidy and tariff reform.
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