LexisNexis(TM) Academic - DocumentCopyright 2005 The Financial Times Limited
Financial Times (London, England)

April 5, 2005 Tuesday
London Edition 1

SECTION: COMMENT & ANALYSIS; Pg. 17

LENGTH: 2760 words

HEADLINE: The organisation's next chief needs to reconcile members' conflicting interests that arise from special treatment offered by the rich blocs, Alan Beattie andFrances Williams write How fraught it can be to favour the poor

BYLINE: By ALAN BEATTIE and FRANCES WILLIAMS

BODY:


When the full array of ministers from World Trade Organisation member countries last gathered, at the Mexican resort of Cancun in 2003, the meeting ended in acrimony. The collapse of their talks showed that developing countries were prepared to see multilateral trade liberalisation grind to a halt rather than capitulate to a deal with which they were unhappy. Now, as developing nations - three-quarters of the WTO's membership - begin to eye the next full WTO ministerial after Cancun, planned for Hong Kong in December, their clout is also evident in a more immediate task.

The delicate process of selecting a new director-general for the WTO began in earnest this week. Each of the four candidates is eager to portray himself as the champion of the developing world. But emerging from the WTO negotiations, and threatening to spill over into the director-general selection process, are divisions between developing countries that can be as important as those between rich and poor.

The successor to Thailand's Supachai Panitchpakdi is due to be chosen by consensus among the 148 member countries by the end of May. The new director-general will face the immediate task of trying to put some flesh on the bare bones of a framework liberalisation deal agreed last year, part of the round of talks begun in the Qatari capital in 2001 and labelled the "Doha Development Agenda". Three of the four candidates are from developing countries: Carlos Perez del Castillo, Uruguay's former WTO ambassador and the bookmakers' early favourite; Luiz Felipe de Seixas Correa, Brazil's current WTO envoy; and Jaya Krishna Cuttaree, Mauritius's foreign minister. The fourth is Pascal Lamy, the former European Union trade commissioner and current second favourite.

Mr Cuttaree and Mr Seixas Correa have each made an explicit pitch that the head of the WTO ought to come from a developing country - in the same way that the managing director of the International Monetary Fund is traditionally a European and the president of the World Bank an American. "This has nothing to do with a north-south confrontation - it is simply a question of balance," says Mr Seixas Correa. Though whoever becomes WTO director-general must serve the interests of all its members, someone from a developing country (Mr Supachai was the first) is likely to be more sensitive to poor nations' concerns, he says.

That leaves Mr Lamy to overcome perceptions that he represents the interests of rich northern countries. "There has to be more for developing countries in the round, but that does not mean you need a developing country passport to be director-general of the WTO," he says. "In my previous positions I have pushed things in the direction of developing countries such as Everything But Arms (the EU's special access programme for the poorest states (see right)), eliminating farm export subsidies and access to generic medicines, even at the price of annoying part of my own constituency."

The days when four rich economies - the EU, the US, Japan and Canada - could stitch up a global trade agreement among themselves are long gone. In any case, tariffs between the large rich trading blocs are generally so low that the big gains in liberalisation lie in trade with and within the developing world. The Cancun talks collapsed largely because developing countries were conscious of their growing power and unhappy with the deal on offer. The conference cemented the leading role of the Group of 20 - a self-selecting band of developing nations, including Brazil, China, India and South Africa, which came together to call for a reduction in agricultural support and protection by the rich countries.

Since then, the rich trading blocs have responded to some of these concerns. The EU has promised an end to all subsidies on its agricultural exports, though it has yet to set a date. When he was still trade commissioner, Mr Lamy also raised eyebrows by promising the poorest countries a "round for free", suggesting they would have to undertake little or no liberalisation in return for cuts in tariffs elsewhere.

But even so-called "special and differential treatment" may not be enough to placate poor nations. In particular, those developing countries that benefit from special preferences allowing them easier access to rich markets are concerned that a general liberalisation deal - even one in which they were asked to cut their tariffs by less than rich countries - would see the value of those preferences fall. This would hand export gains to other countries, particularly G20 developing nations such as Brazil, South Africa and Argentina that have relatively efficient and competitive agricultural exporters.

Such "preference erosion", which sets developing countries against each other, has become a large issue in the Doha round. Some aspects of the issue have been around for years - the most obvious one being the Caribbean banana-producing nations that have privileged access to the EU market at the expense of mainland Latin American growers and are seeing the value of those preferences reduced by a reform programme. But a swath of poor nations, in other groupings such as the G33, which brings together countries wanting to protect particular agricultural products, or the G90, which includes the world's poorest countries, share similar concerns about protecting their farmers from the onslaught of low-cost competition.

This year, the first general discussion by WTO members about agricultural preferences took place since the framework agreement reached last August. According to officials present at the meeting in Geneva, it rapidly boiled over into disagreement between developing nations that enjoy special preferences, such as Jamaica (speaking on behalf of Caribbean countries), and those that felt excluded by them, mainly Latin American agricultural exporters such as Costa Rica and Peru.

The row was eventually calmed when the G20 issued a conciliatory statement that argued for countries with special preferences to be given more time and help to adjust. But trade experts say that the underlying tensions remain. Ricardo Melendez, executive director of the International Centre for Trade and Sustainable Development, an independent think-tank, asks: "Have the G20 (countries) responded adequately to concerns from the G33 and others? I don't think they have." He adds that the rich nations could help by promising more aid for the poorest nations to ease the adjustment and to build up their industries to compete. But such coherence between trade and aid is evident more in rhetoric than reality.

There is a sense among some other nations that countries such as Brazil and India that dominate the G20, although they are frequently regarded as bellwethers for the developing world, also have their own sectional interests. Together with Australia, the EU and the US, Brazil and India made up an ad-hoc grouping of "five interested parties" that was instrumental in pushing through the agricultural part of last August's framework agreement. But Mr Melendez says other nations, particularly those that are net importers of food, were resentful at the lack of communication and consultation from that small group. ugar is a good example of an issue that pits one set of developing countries against another. The EU has pledged to reform its sugar regime, which subsidises its own farmers by fixing prices at three times world levels. Reform will please low-cost, high-productivity sugar producing developing countries such as Brazil and Thailand, who jointly won a case against the EU's sugar regime at the WTO on the grounds that it hurt their farmers by dumping sugar on the world market and depressing the price.

But countries that benefit from being able to sell into the EU at the artificially high price - such as Mauritius, which has about a third of the EU's sugar quotas - have a different perspective. There is a clear tension between those nations, many of which are poorer than Brazil and Thailand, and their hyper-competitive developing country cousins. Anna Locke, an adviser to the Mozambique government's national sugar institute, says: "One Brazilian sugar baron told me that every time the world price goes up a couple of cents, he could buy himself a new private jet."

But Luiz Fernando Furlan, Brazil's trade minister, says he does not believe that helping the preference-holding countries excuses continued distortions in the world's sugar market. "You cannot justify sustaining an unfair system by saying that the phasing out of the system will not spread benefits evenly," he says.

Also at issue are garments and textiles, the production of which has traditionally been one of the first rungs on the ladder of industrialisation. The end of the global system of quotas on January 1 has struck the fear of Chinese competition into the hearts of countries such as Bangladesh and Sri Lanka that developed textile industries under quota protection.

These tensions spill over into the race for the director-general position. Any candidate wishing to be seen as the champion of the developing world has to make clear that he can bridge the divisions. Mr Cuttaree, whose country is one of the most prominent beneficiaries of preferences and whose core support comes from mostly very poor African, Caribbean and Pacific (ACP) nations, has argued for preference-dependent countries to be given more time to adjust. He complains that this has led to him being caricatured as a defender of special treatment.

"Coming from Mauritius, the great disadvantage I have is that, if I'm fighting for preferences or for measures to overcome supply-side constraints, I'm painted as against free trade," Mr Cuttaree says. "Yet if Peter Mandelson (Mr Lamy's successor as EU trade commissioner) says the same thing, no one questions his free-trade credentials." He sees no contradiction between his position and support for more open global trade, saying his commitment to the Doha round was amply demonstrated by his role in bringing the G90 developing countries back to the negotiations after the collapse in Cancun.

From the other side of the divide, Mr Seixas Correa denies developing countries are split into irrevocably warring camps. Brazil and other competitive exporters recognise the concerns of preference-receiving countries, he says. "We have stated clearly that this is a problem that has to be resolved."

Mr Perez del Castillo's home country, Uruguay, is in a similar position to Brazil, having recently joined the G20 and also belonging to the "Cairns Group" of farm exporters, which favours agricultural liberalisation. Several such nations, including Australia and New Zealand, have declared their support for his candidacy. But Mr Perez del Castillo stresses the breadth of his support from developing countries in order to insist that he will not be beholden to any single group. "I also have Indonesia on board, which is a net food importing country, and Singapore, which doesn't have any agriculture," he says.

Countering the factors dividing the developing world, there are some that bring them together. Developing countries generally maintain a public stance of solidarity against rich countries in the WTO, for example. The EU in particular has often argued that developing countries should be categorised differently according to their levels of development and the ability of their companies to compete in global markets. Carlo Trojan, the EU's chief WTO negotiator, said in a recent speech: "There has to be - in fact, if not in name - differentiation to reflect the fact that some countries are better placed to thrive in the global trading system than others."

But developing countries have rejected attempts to separate categories for different treatment, such as small islands, landlocked countries or small and vulnerable nations, regarding it as a divide-and-rule tactic that will weaken their collective bargaining power. "I do not think we should be introducing into the WTO any more categories of countries," Mr Perez del Castillo says.

Optimists argue that differences of interest within the WTO can be overcome. Rachid Mohammed Rachid, the trade minister of Egypt, which is a member of the G20, says that alliances can shift without rupturing the talks. "People come together in groups for some things and two hours later they are standing in a different position against each other," he says. "They are getting well trained to do this."

But those unifying forces will have to survive both what promises to be a closely fought race to become WTO director-general and the complex and highly charged Doha negotiations that will occupy the rest of the year and beyond.

Rich trading blocs' concern for developing countries frequently takes the form of giving them special access to western markets over and above normal World Trade Organisation agreements. The European Union's Everything But Arms programme will provide complete duty-free access to EU markets for the very poorest countries from 2009, while the US's African Growth and Opportunity Act has led to a sharp rise in exports to the US from sub-Saharan Africa.

But the programmes bring their own problems. First, there are complaints from countries that are excluded or made to jump through hoops to qualify. Second, there is criticism that such preference schemes undermine the principle of equal treatment for all that underlies the WTO.

Membership of such programmes is sometimes determined more by historical accident, such as the EU's post-colonial favouring of the African, Caribbean and Pacific (ACP) countries, than poverty or economic weakness. Political expediency can also play a role: Pakistan, which supported the invasion of Afghanistan after the September 11 2001 attacks on the US, was rapidly admitted to an EU preference scheme designed for Latin American countries grappling with the illegal drugs trade. This decision was successfully challenged by India for breaking WTO rules.

Preference programmes are also sometimes criticised for imposing more stringent rules on beneficiaries than exist in multilateral agreements under the WTO. The EU's proposed new "economic partnership agreements" (EPAs) with the ACP countries, for example, have been attacked by non-governmental organisations for pushing partner countries to institute rules on protecting foreign investment, promoting domestic competition and increasing transparency in government procurement. These so-called "Singapore issues", named after the ministerial meeting where they were proposed, were removed from the Doha talks in 2003 after demands from developing countries.

Peter Mandelson, the EU trade commissioner, says the ACP nations themselves want the new rules in trade deals and that development campaigners are misrepresenting the countries' positions. The best evidence that these rules would be helpful, he recently told a British parliamentary committee, "is the observation made to me by relevant ministers in the developing countries concerned".

Some ACP trade ministers, however, dispute this contention. "We are worried over this backdoor approach," says Dipak Patel, the Zambian trade minister. "Where is the convergence between the WTO . . . andthe EU approach in the EPAs?" Mukhisa Kituyi, the Kenyan trade minister, says: "I will be opposed to any progress being made if we get less than we got in the WTO negotiations."

Moreover, some trade experts complain that the proliferation of special schemes is cutting across the WTO. A recent report by a committee led by Sir Peter Sutherland, the former WTO director-general, noted that the EU has only nine partners with which it trades on the increasingly misnamed "most favoured nation" status supposed to be enjoyed equally by all WTO members.

Some of the rich nations complain that they are damned either way - castigated for meanness if they do not extend preference programmes to poor countries and blamed for undermining multilateralism if they do. "When it comes to preference programmes, we are criticised no matter what we do," says Richard Mills, spokesman for the US trade representative. But he argues that the US programmes "neither undercut the WTO nor impede multilateral trade liberalisation".

The solution, according to the Sutherland report, is to pursue rapid multilateral liberalisation to whittle away the value of special programmes. But the presence of those programmes creates constituencies of countries that are more reluctant to agree across-the-board liberalisation that erodes the value of their preferences.

LOAD-DATE: April 4, 2005