Thursday, April 19, 2007

The new politics of trade

By Steve Schifferes
BBC News Online economics reporter

For better of worse, the collapse of the world trade talks in Cancun may prove an historic turning point in the history of free trade.

For nearly 50 years, the world's trading system moved towards greater trade liberalisation, largely out of the spotlight of the media.

Now things are very different - with trade talks deeply enmeshed in domestic political battles.

In Seattle in 1999, the first attempt to launch a new round of global trade talks broke down amid mass demonstrations and fundamental disagreements between rich and poor.

There are only losers
Pascal Lamy
EU trade commissioner

Among those differences were the resistance of developing countries to including extra issues relating to the environment, labour standards, and investment in the trade talks.

When trade talks were restarted two years later - two months after the terrorist attacks of 11 September - Western countries were keen to make concessions to show they wanted to tackle global poverty.

So labour and the environment were largely excluded from the talks, and a decision on investment issues was postponed.

Now it is clear that even this was too ambitious - and perhaps the idea that some of the most contentious and politically charged issues can be tackled in the context of trade talks may have to be re-examined.

Rich nations' club?

The World Trade Organisation (WTO) has been accused by campaigners of being run by the rich nations despite the fact that each of its 148 members has an equal vote. In the past, the wealthy nations have generally been able to cajole the poor ones - by offers of trade, aid or political support - into going along with their agenda.

But at Cancun things were very different.

Despite an agreement between the EU and US on a common approach to agriculture, they were unable to impose their will on a new united front of developing countries.

The larger developing countries - including China, Brazil and India - were not so easily bought off, and it was their unity that brought the conference to a halt.

Fair trade, equal treatment to all nations has to be the base of globalization
Samuel Davila, Mexico

However, that unity could be difficult to maintain in the coming months and years.

Brazil, one of the world's largest agricultural exporters, needs a trade deal much more than India, which has a relatively small export sector.

And China, despite its solidarity with other developing countries on blocking agreement on foreign investment issues, is the world's largest recipient of such investment, and could even benefit from new rules.

In the hard bargaining ahead, even the largest developing countries have less clout than the EU and the US, whose markets they still depend on.

And the poorest countries, like the cotton producing states of Mali and Benin in Africa, potentially have the most to gain from a comprehensive trade deal.

Bilateral deals

One of the curious aspects of the Cancun summit was the relatively low-key role played by the US - which in the past has been a driving force for world trade liberalisation.

The US trade representative, Robert Zoellick, and the US administration, have repeatedly proclaimed their faith in free trade.

But it is becoming clear that they are pursuing a dual-track approach, with individual free trade deals on a one-to-one basis replacing a full commitment to universal trade liberalisation.

The US has already signed its own free trade agreements with Singapore and Chile, and is negotiating with five Central American nations.

However, the growth of bilateral trade pacts has many disadvantages for poor countries.

They do not gain equal access to all markets, and may find that the differing trade rules across different trade pacts will limit their real benefits.

In addition, bilateral deals are often agreed as rewards for political support - so they are not extended to countries who disagree with the US.

It is not just the US that is playing this game.

The EU does too - and some of the bigger developing countries, like China, who are also contemplating free trade deals with their neighbours.

But with no obvious way to break the deadlock in the world trade talks, such deals - and regional groupings like the Free Trade Area of the Americas - may become a bigger part of the trade landscape in the years to come.