a rare simultaneous slump

["Ian Murray" <seamus2001@xxxxxxxx>]

Serious Conflicts Threaten Trade Talks
Battle of Rich, Poor Nations Could Kill Planning for New WTO
Discussions

By William Drozdiak and Paul Blustein
Washington Post Staff Writers
Tuesday, November 6, 2001; Page A01


GENEVA -- The threat of terrorism will be hanging in the air when
ministers from the World Trade Organization's 142 member countries
gather later this week in the Persian Gulf sheikdom of Qatar. So will
the threat of another failure.

The last time the WTO met, two years ago in Seattle, the gathering
broke up amid acrimony and anti-globalization demonstrations. This
week the ministers will try again to agree on an agenda for world
trade talks that could prove crucial in preserving the global trading
system and in demonstrating international cooperation at a time when
it is being sorely tested.

With the five-day meeting scheduled to begin Thursday, several serious
disputes remain, in particular between rich and poor nations.
Representatives of the poor nations fume that the United States, the
European Union and other wealthy powers fail to practice the
free-trade dogma that they preach because they limit their imports
from developing countries, such as clothing and agricultural products.

Another failure to agree on how to further liberalize trade, experts
widely agree, would be a serious blow to the WTO's credibility as the
guarantor of the modern trading order, which most mainstream
economists credit with having contributed enormously to the prosperity
of the past half-decade. The system is designed to keep nations from
indiscriminately raising barriers to one another's goods as they did
during the economic chaos of the period between the two world wars. If
the ministers cannot agree to continue negotiating on the barriers
that remain, many analysts fear protectionist forces will gain
momentum and undermine the ability of the WTO to mediate disputes
among nations.

"If we have a failure this time, it could be 'two strikes and you're
out,' " said John Jackson, a trade expert at Georgetown University.

This week's conclave in Qatar's capital, Doha, poses an important test
of American leadership of a diverse international coalition since the
Sept. 11 attacks. Concern that the meeting might be the target of
terrorists has prompted a number of officials and business
representatives, especially from the United States, to stay home.

Robert B. Zoellick, the U.S. trade representative, has framed his
leadership of the U.S. delegation to ensure that the world stands
united behind a vision of openness and integration opposed to the
vision favored by the terrorists.

"Just as our Cold War strategy recognized the interconnection of
security and economics, so must America's strategy against terrorism,"
Zoellick said. "By promoting the WTO's agenda, especially a new
negotiation to liberalize global trade, these 142 nations can counter
the revulsive destructionism of terrorism. America's ability to
sustain coalitions against terrorism will depend in part on our
attention to the problems faced by our partners."

While most countries recognize the value of preserving an open trading
system, a populist backlash against globalization and a rare
simultaneous slump among the world's leading economic powers -- the
United States, Europe and Japan -- have complicated the search for
compromise.

A World Bank report released last week showed that global trade flows
were shrinking for the first time in two decades, with the pace of
trade growth plummeting to 1 percent this year from 13 percent in
2000. The study faulted wealthy countries for refusing to drop
barriers to trade in the products most exported by developing
countries, such as food, clothes and textiles. That reluctance has
contributed to a growing disparity in living standards -- 2 billion
people live on $2 or less a day, and affluent nations enjoy incomes 30
times as large as poor countries'.

Nicholas Stern, the World Bank's chief economist, noted that rich
nations spend a total of up to $1 billion a day on agricultural
subsidies, which is more than six times the amount they provide in
development assistance.

"The combination of those subsidies and high tariffs in rich countries
for agricultural products is in my view something which is untenable,"
Stern said. "It's a rip-off for consumers and the taxpayers of rich
countries, and it's seriously damaging to the prospects of poor
countries."

Political pressure from domestic lobbies has often made a mockery of
rhetoric in favor of free trade. American consumers, for example, pay
nearly three times the world price for sugar to protect domestic
producers, while the U.S. government imposes stiff tariffs to keep
cheaper imports from poor Caribbean countries from entering the
country.

Even when high-quality, cheap lemons are available from a hard-pressed
trading partner such as Argentina, which is struggling to restructure
its debt to avoid default, U.S. trade laws exclude them to protect
California and Florida farmers. In the European Union, inexpensive
tomatoes and citrus products from North Africa also have a hard time
penetrating the continental market, despite promises that rich nations
would open their doors to help poor neighbors benefit from the global
trading system.

"There is a bit of Western hypocrisy in all the rhetoric about free
trade, for we are not really opening our borders to trade from the
poor countries," said Belgian Prime Minister Guy Verhofstadt, whose
country currently holds the EU's rotating presidency. "And when you
look at how the attacks on the United States received some support
among developing countries, you have to realize that we are paying the
price of poverty."

Having grown skeptical about Western intentions, many developing
countries now question the worth of pursuing a new round of trade
talks. "Globalization has not brought benefits to all," said Sha
Zukang, the Chinese ambassador who successfully negotiated his
country's forthcoming entry into the WTO, which is based in Geneva.
"Some get more, some get less, and some are losing out entirely.
Developing nations, which make up about two-thirds of WTO members, do
not want to be poor for all time. What we want is for everyone to be
winners."

The WTO -- created six years ago out of the General Agreement on
Tariffs and Trade, which was formed after World War II -- has been
invested with much greater authority than its predecessor to resolve
trade disputes. But it still must operate on consensus, which means
that any member can block agreement on setting an agenda for a new
round of global trade negotiations.

Unlike in Seattle, the preparations for the Qatar conference have
proceeded more smoothly by isolating key problem areas that must be
resolved during five days of haggling among the ministers. Stuart
Harbinson, the Hong Kong ambassador who heads the WTO governing
council, has consulted with many delegations and drawn up a nine-page
draft declaration that will serve as the basis for bargaining over the
final agenda.

Many developing countries are still irate over what they perceive as a
slanted list of issues that denigrates their interests and keeps world
trade priorities focused on the needs of wealthy countries.

"The industrial countries made many promises but failed to fulfill
their obligations under the Uruguay Round," said Murasoli Maran,
India's trade minister, referring to the last global trade agreement.
"How can they expect us to go ahead when they refuse to address our
concerns? Economically, politically and socially, it may not be
feasible for India to go to a new trade round."

Nonetheless, the United States and the European Union insist that
failure in Qatar is too devastating to contemplate as an option. "We
have to decide whether to keep advancing the international trading
system or to let it slip backward," Zoellick said. "The bicycle theory
of trade is again in force: If the trade-liberalization process does
not move forward, it will, like a bicycle, be pulled down by the
political gravity of special interests."

Jeffrey Schott, an economist at the Institute for International
Economics, argues that poor countries can benefit greatly from the WTO
system even though they may feel disadvantaged.

"As the weak partners, they benefit the most when the big guys live by
a common set of rules and don't just use their market power to coerce
changes, like we used to do when we could unilaterally retaliate
against countries for not following the policies we liked," Schott
said. "So one of the key benefits for developing countries is having a
strong multilateral rules-based system, which ensures that they will
be treated equitably by the major trading partners."

Despite those claims, many developing countries believe they are
getting a raw deal. Their arguments in favor of open access to drug
patents have gained force with the recent anthrax cases in the United
States, when the Bush administration forced the pharmaceutical firm
Bayer AG to sharply reduce the price of Cipro, an antibiotic used to
fight the disease.

Many poor countries, led by India and Brazil, insist that they are
staking a moral and rightful claim to a broad "public health"
exception to international patent rules. They say the United States,
which is backed by Switzerland, Canada and other drug-producing
countries, cannot deny their right to make knock-off versions of drugs
to fight AIDS or malaria when their countries cannot afford them to
fight a major public health menace.

"This has all the makings of a dealbreaker," said a senior U.S.
official, who requested anonymity. "This subject involves a lot of
political emotion as well as commercial and legal content. But how can
we give patent rights on anything they say deals with public health?
Shall we give away royalties and say forget about copyrights on
medical textbooks?"

The battle over drug patents is not the only dispute that could
scuttle efforts to arrange a new trade round. Zoellick criticized
Japan last week for failing to make any commitments that would open up
its agriculture markets. Because small farmers in Japan wield unusual
political power, Prime Minister Junichiro Koizumi has acceded to their
wishes despite his promises of radical reforms.

"I've been frankly extremely disappointed by the lack of Japanese -- I
would not expect leadership -- but even respectable followership,"
Zoellick said. "There's a paralysis in Japan. It's a serious problem.
. . . Agriculture is going to be a key to this going forward, and so
far the Japanese have just said no to everything in the process, and
that just won't work."

In turn, Japanese negotiators have pointed the finger of blame at the
American custom of responding to domestic lobbies by slapping stiff
anti-dumping duties on foreign exporters trying to sell low-priced
goods, such as steel, in the United States. The Bush administration is
resisting the draft declaration that calls for measures to "clarify"
and "improve" the anti-dumping rules, largely because key senators,
such as Senate Finance Committee Chairman Max Baucus (D-Mont.), said
U.S. negotiators must not allow those laws to be weakened.

"The U.S. has not moved an inch" on the anti-dumping issue, a Japanese
trade official said. If Washington maintains its negative stance, he
said it "might become one cause for derailment" of a new trade round.
Japan is backed by South Korea and other Asian countries, whose
exports have been affected by U.S. anti-dumping duties, and they hope
to convince other countries that only by tightening the rules under
which the United States imposes those duties can they sell the cause
of a new trade round to their voters.

Another tough issue to resolve will be agricultural export subsidies,
which the European Union has used for years to sell unwanted products
at steep discounts in foreign markets. But EU officials said that any
attempt to put the elimination of its subsidies on the agenda would be
intolerable, a position that the United States has accepted.

"There's a new dynamic to get a deal, and that means keeping
impossible issues off the agenda and trying to achieve what is
realistic," said Peter Carl, a top EU trade negotiator. "The train is
leaving the platform. Most of the passengers are on board. It's up to
those who are hesitating to decide quickly if they want to get a
window seat or if they want to pull the emergency brake."

Blustein reported from Washington.