Thursday, April 19, 2007

Who's Feeling the Heat in Cancun?

All countries great and small, from developing nations being asked to drop tariffs on manufactured goods to First World farm subsidies
The 146-member nations of the World Trade Organization are meeting Sept. 10-14 in Cancun, Mexico, where BusinessWeek Washington Correspondent Paul Magnusson is covering the meeting. Here, in question-and-answer form, he explains the importance of the summit to world trade, and why it matters to consumers, industry, farmers, and investors.
Q: What's the purpose of the meeting?
It comes at the halfway point in what was supposed to be a four-year effort to fashion a massive new global-trade agreement. But the attempt is in trouble. All the deadlines for making progress have been missed, so the goal in Cancun is to put the free-trade train back on the tracks.

Q: What's at stake?
A lot. Global-trade negotiations create winners and losers throughout the world's economy. These negotiations could have a big impact on the poorer nations generally, and on certain sectors in the rich nations, such as agriculture, manufacturing, and services -- from architects, engineers, and lawyers to banks and insurance. The World Bank estimates that a successful round of talks could increase global income by as much as $520 billion a year, which would lift 144 million people out of poverty by 2015.

Q: How is this any different from the last eight rounds of global trade talks that have slowly reduced tariffs and boosted trade?
This is the first one in 56 years that is focusing specifically on helping the developing world. The rich nations -- the U.S., Japan, and much of Europe -- are supposed to be opening their markets to imports from the poor ones. Rich-nation tariffs on goods from Bangladesh are four times higher than those from France, for example.

Q: Helping out the poorer countries shouldn't be so hard, right?
Actually, it is. The main exports from poor nations -- food and clothing -- face high tariffs of 200% and more, as well as quotas from wealthier nations. Farmers in Europe, the U.S., and Japan also receive $300 billion yearly in crop subsidies, which encourage overproduction and low domestic prices, making it hard for farmers in developing countries to compete.

For example, heavily subsidized corn from the U.S. has put a third of Mexican corn farmers out of business, according to several estimates. Because Mexico and other developing nations can't afford such subsidies, their farmers can't compete on a level playing field. To put this in context, the subsidies that wealthy nations give to their own farmers are six times the amount of foreign aid that wealthy countries give to poorer ones.

A group of 20 developing nations, led by Brazil and India, want to eliminate all farm subsidies. But rich-nation farmers aren't willing to give up their huge subsidies without a fight. "Hardworking producers in the U.S. must not be made to bear the brunt of any U.S. concessions," says Jackie Loewer, a Crowley (La.) rice grower and a vice-chairman of the USA Rice Federation.

Q: What do rich nations want in return for giving up subsidies?
A lot. The U.S. wants to reduce worldwide tariffs on its manufactured goods to zero by 2015. U.S. and European-based multinationals want to restrict the ability of other nations to regulate their business investments overseas. The U.S. wants stricter enforcement of antipiracy laws. The wealthier countries want the poorer nations to lower their overall tariffs, which can be several times higher than those levied by developed nations.

Developing nations are resisting making such concessions, arguing that without continued protection in the form of high tariffs and other trade barriers, their economies will be overwhelmed by exports from the industrialized world. Besides, they point out, the economies of Europe and the U.S. developed slowly over time, despite even greater barriers to imports. Before the advent of income taxes, the U.S. government's chief source of revenue was tariffs on imports.

Q: Where do the globalization critics stand?
Generally, they side with the developing nations, although their policy prescriptions differ. After all, there are 980 "nongovernmental organizations" (NGOs) officially registered at the WTO conference in Cancun. Many of them oppose the talks outright, insisting that they are rigged in favor of the wealthier nations. Others, such as U.K.-based Oxfam, want developed nations to lower their farm subsidies and trade barriers so that the poorer nations can earn more through exports. Many NGOs prefer that the agricultural sectors of developing nations, which account for about 60% of their employment, become more self-reliant and diversified before they throw open their own markets to foreign competition.

Q: This sounds like an impossible task. Is it?
Difficult, certainly. It's even harder when you consider that each nation is agreeing to change many of its domestic laws, and politically powerful groups may fight such moves internally. But all governments want something from the talks, so there is likely to be at least some progress.

The exception, of course, was during the 1999 meeting in Seattle, which was supposed to kick off a new round of trade talks. But that attempt collapsed when poorer nations refused to go along, and it wasn't until November, 2001, in Doha, Qatar that the new round was launched. Pessimists say the Doha Round would never have been initiated if not for the terrorist attacks of 2001, which helped persuade many countries that the world needed a confidence booster. The fear of failure may just be enough to keep the effort alive in Cancun.

Edited by Beth Belton