The WTO Cancun Ministerial
Released: 2003-11-06T00:00:00

RS21664 -- The WTO Cancún Ministerial

November 6, 2003

Background

The new round of trade negotiations, the Doha Development Agenda (DDA), was launched at the 4th WTO Ministerial at Doha, Qatar in November 2001. It isknown as the Doha Development Agenda because of its emphasis on integrating developing countries into theworld trading system. Many developingcountries believed they have received little or no benefit from those trade negotiations over the years. The workprogram for DDA folded in continuing talks(the built-in agenda) on agriculture and services. Other negotiations were launched on the reduction or eliminationof non-agricultural (industrial) tariffs,clarification and improvement of disciplines for existing WTO agreements on antidumping and subsidies, and topicsrelating to special and differential (S&D)treatment for developing countries and assistance to developing countries with the implementation of existing WTOcommitments. Trade ministers at Dohaagreed to continue discussions on whether to launch negotiations "by explicit consensus" on the "Singapore issues"at the 5th Ministerial at Cancún. The DohaMinisterial declaration also directed negotiators to resolve a dispute related to the ability of least developed countriesto access generic medicines for HIV/AIDSand other epidemics. Trade ministers at Doha directed that the negotiations conclude not later than January 1, 2005with a mid-term review at the 5thMinisterial.

Negotiations proceeded at a slow pace. Several deadlines for agreement on negotiating modalities (i.e., methodologies by which negotiations are conducted)were missed in the agriculture and industrial market access talks. Without agreement, negotiators looked towardthe Cancún Ministerial to resolve themodalities. In the weeks before Cancún, negotiating documents to achieve this resolution were criticizedby all sides, and expectations of the Ministerial werereduced to achieving an agreement on the framework for the modalities to be used in future negotiations.

Access to Medicines. Negotiators did resolve the access to medicines dispute just prior to the beginning ofthe Ministerial. On August 30, 2003, the Trade Related Aspects of Intellectual Property Rights (TRIPS) Councilagreed on a mechanism to allow poordeveloping countries to issue a compulsory license to a third-country producer to manufacture generic drugs tocombat HIV/AIDS, malaria, tuberculosis, andother epidemics. While the agreement contained several restrictions to protect the patent rights of pharmaceuticalmanufacturers, the agreement was designedin part to reaffirm the importance of developing country issues to the WTO in time for Cancún. (1)

At the Cancún Ministerial, negotiators became embroiled in disputes over agriculture and the Singapore issues. The negotiations were characterized by theemergence of the G-20+, an informal group of developing countries (2) which demanded substantial concessions from developed countries in the agriculturenegotiations. Some developing countries also refused to countenance the beginning of negotiations over theSingapore issues, which had been championed bythe European Union (EU). In the end, the Singapore issues broke up the talks before agriculture issues were evenformally discussed.

Reaction. Subsequent to the collapse of the talks, U.S. and EU negotiators criticized both the substance andtactics of the G-20+ group. A U.S. negotiator claimed that developing country rhetoric was more suited to the UnitedNations, while others claimed that theG-20+ lacked a negotiating strategy other than making demands on developed countries. However, one G-20+ trademinister has suggested that the position ofthe G-20+ merely represented the paramount interest of its members in breaking down the agricultural barriers andsubsidies in the United States and the EU.

U.S. reaction to the collapse of the talks has been to give increased emphasis to the negotiation of bilateral and regional free trade agreements (FTA). U.S. TradeRepresentative Robert Zoellick said that the United States would negotiate with what he called "can-do" countriesrather than "won't-do" countries. (3) Therewere also calls by some Members of Congress to oppose bilateral or regional negotiations with countries of theG-20+, leading some G-20+ participantsnegotiating FTAs with the United States, including Guatemala, Costa Rica, Peru, Colombia, and Thailand, todissociate themselves from their G-20+activities. (4)

The European Union has undertaken a review of its policy towards the WTO and multilateral trade negotiations. One issue that may be discussed in this reviewis the future emphasis that the EU places on the Singapore issues. While EU negotiators agreed to drop demandsthat negotiations proceed on all but the tradefacilitation issue at Cancún, the lack of agreement on that agenda may result in renewed EU insistence onthe full Singapore agenda. The EU may also decide toplay the regional card by placing renewed emphasis on ongoing negotiations with Mercosur or with former coloniesin the African, Caribbean and PacificGroup. EU officials have also made public statements on the need to reform various aspects of the WTO'sdecision-making process. (5)

Some participants from G-20+ countries returned from Cancún claiming the outcome was a victory for developing countries. To them, the lack of agreementwas evidence that they had successfully defended their national interests in demanding changes in the agriculturalpolicies of developed countries. However,many of these countries have subsequently expressed an interest in returning to WTO negotiations. Some G-20+members, possibly under pressure from theUnited States, have announced that they will no longer attend G-20+ meetings. These defections have called intoquestion the future of this group as anegotiating entity, as well as underlying differences between the trade policies of some of its members, most notablyBrazil and India.

The Derbez Draft. During the course of the Cancún Ministerial, a draft declaration (6) was written by theMinisterial Chairman, Luis Ernesto Derbez, the Mexican Foreign Minister. Crafted as a framework for futurenegotiations to which all parties could agree, itwas criticized by most parties and was not adopted at the Ministerial. The Derbez text principally modified theagricultural language of a draft negotiating textcirculated, and widely criticized, prior to the negotiations. It did call for the start of negotiations on two of theSingapore issues, trade facilitation andgovernment procurement, while relegating the issues of investment and competition policy to further "clarification." In the aftermath of the Conference,however, the Derbez text has reemerged as a possible negotiation vehicle to restart the negotiations. It has beenendorsed by leaders of the Asia-PacificEconomic Cooperation (APEC) nations, including the United States, Canada and Japan. Brazil has also indicatedthat it could work from the text, although itdisagrees with certain language in the draft. The European Union has not taken a formal position on the Derbezdraft, although EU Trade Representative PascalLamy wondered in a recent speech in London, "what magic dust has been shaken over a text so roundly rejected inSeptember, to find it so roundly endorsed inNovember." (7) Only India has rejected the textoutright as a basis for negotiation. (8)

While the Derbez draft provides the advantage of a ready-made template to restart the negotiations, this approach also has potential shortcomings. As acompromise text that essentially revised a previous compromise text, the language is highly general, and in manyrespects represents a lowest commondenominator of agreement. Many of the previous disagreements could reemerge if negotiations commence basedon this text. The Derbez text also reflects thejoint negotiating positions worked out between the United States and the EU in agriculture and industrial marketaccess. Post-Cancún, some U.S. commentatorshave suggested that these positions do not serve U.S. interests, and that the United States would be better servedby reverting to its previous, more ambitious,negotiating proposals.

Sectoral Perspectives

Agriculture. (9) Agriculture negotiations are part of the ongoing negotiations, a built-in agenda of talks thatwere incorporated into the launch of the Doha round. The negotiations involve the "three pillars" of agriculturesupport: market access (tariffs), exportsubsidies, and production subsidies. The emphasis of the U.S. negotiating position has been market access. Theinitial U.S. agriculture proposal includedsignificant tariff reduction based on a non-linear formula that would cap individual tariff lines at 25%. The proposalalso called for a complete elimination ofexport subsidies and a harmonization of trade-distorting domestic support to 5% of a country's total agriculturalproduct.

The initial European Union proposal adopted a linear formula approach to tariff reductions and subsidies used in the Uruguay Round. The linear approachwould reduce tariffs and subsidies by a fixed percentage cut, thus leaving the relative subsidy and tariff ratesunchanged between trading partners. The EU alsosought to trade concessions on export subsidies, which it heavily utilizes, for concessions on export credit and foodaid programs, which are utilized by theUnited States. In June 2003, the EU announced a series of reforms to its Common Agricultural Policy (CAP)including the partial decoupling of mostproduction from subsidies by 2007. However, the EU did not revise its agriculture offer based on these reforms.

In August 2003, the United States and the EU adopted a joint negotiating framework to spur negotiations in the lead-up to the Cancún Ministerial. Thecompromise text blended various aspects of the U.S. and EU proposals. It provides for a combination of harmonizedand linear tariff reduction formulas. Trade-distorting domestic support would be reduced by a percentage formula, and production-limited support wouldbe allowed up to 5% of the value of the country's total agricultural production. Export subsidies would be phased out for products of interest to developingcountries, and WTO disciplines would bedeveloped for state trading enterprises, export credits, and food aid programs. special and differential treatment(S&D) was recognized for developingcountries, but not necessarily for developing countries that are net food exporters. Some observers have criticizedthe United States for moving away from itsinitial trade liberalizing stance to compromise with the EU, claiming that the initial U.S. position had been morecompatible with certain developing countryproposals. (10) However, others contend that acoherent U.S.-EU position would help facilitate negotiations.

In response to the U.S. - EU proposal, the G-20+ group advocated a proposal to cut U.S. and EU domestic subsidies more drastically than the U.S.-EU proposal,to eliminate export subsidies, and to provide S&D treatment for all developing countries in terms of tariffreduction and other market access. In addition, agroup of four African nations, Benin, Burkina Faso, Chad, and Mali proposed the elimination of trade-distortingdomestic support and export subsidies forcotton coupled with a transitional compensation mechanism for cotton exporters affected by the subsidies. Inresponse, the United States proposed a WTOsectoral initiative to examine trade distortions for cotton, man-made fibers, and textile and apparel with multilateralassistance to help these countries diversifytheir economies away from cotton. African countries refused to negotiate on this basis.

The Derbez draft tried to reconcile these different positions by advocating deeper cuts in trade-distorting domestic subsidies, bringing under reviewnon-trade-distorting subsidies, and by negotiating a date for the elimination of export subsidies, positions that reflectprevious developing country negotiatingpositions. It followed the U.S.-EU tariff formula, which blended harmonized and linear tariffs, but alloweddeveloping countries to identify items for minimaltariff cuts. It also largely adopted the U.S. position paper on the cotton issue.

Singapore Issues. The Singapore issues refer to four issues (investment, competition policy, tradefacilitation, and government procurement) that were offered for the negotiating agenda of the WTO by theEuropean Union at the 1st Ministerial, held inSingapore in 1996. The 2001 Doha Ministerial declaration called for a decision on negotiating the issues "by explicitconsensus" at the 5th Ministerial. The 5thMinisterial at Cancún did not provide explicit consensus to negotiate these items. According to reports, itwas an impasse over these issues that finally causedthe talks to collapse.

The European Union, along with Japan, South Korea, and Taiwan, have been the principal proponents of the Singapore issues. Tactically, it is generallyaccepted that for them, negotiation of the Singapore issues would be a quid pro quo for substantive negotiation ontheir agriculture policies. The United Stateshas been ambivalent about the Singapore issues, recently supporting the inclusion of government procurement andtrade facilitation primarily to move thenegotiations along. Generally, the developing countries have been opposed to the negotiation of the Singapore issuesfor two reasons. First, they foresee theimplementation of multilateral rules on these issues as an infringement of their sovereignty. Second, manydeveloping countries claim not to have theinstitutional capacity or resources to undertake the negotiation of additional issues, whatever the merits. TheDerbez text proposed the inclusion of tradefacilitation and government procurement. In the final outcome, the EU was willing to drop all the issues save tradefacilitation, the consideration of which wasthen vetoed by Botswana backed by several other African states. Before the talks broke, however, South Koreaindicated that it would accept nothing less thannegotiations on all four issues.

Industrial Market Access. The United States has favored an aggressive tariff-cutting negotiating strategy inthe industrial market access talks. In December 2002, the United States proposed the complete elimination of tariffsby 2015. This proposal would haveeliminated "nuisance" tariffs (tariffs below 5%) and certain industrial sector tariffs by 2010, and would haveremoved remaining tariffs in 5 equal increments by2015. The initial EU tariff reduction proposal relied on a "compression formula," one in which all tariffs arecompressed in four bands with the highest bandbeing 15%. Like the U.S. position, this proposal applied to all countries and did not contain S&D language. The United States generally has been opposed toweakening the concept of tariff reciprocity, maintaining that it is in the developing countries' own interest to lowertariffs, not least to promote trade betweendeveloping countries. A paper jointly proposed by the United States, Canada, and the European Union proposeda harmonization (i.e. non-linear) formula fortariff reduction. This joint paper did contain S&D language for developing countries in the form of creditsawarded for further liberalization activity. (11)

Industrial market access did not receive the attention paid to agriculture or Singapore issues. Because there was no agreement on modalities prior to theMinisterial, the Derbez text only reaffirmed the use of an unspecified non-linear formula applied line-by-line thatprovides flexibilities for developingcountries. The text also supported the concept of sectoral tariff elimination as a complementary modality for tariffreduction on goods of particular exportinterest to developing countries, but it advanced no concrete proposal.

Next Steps. Following the collapse of the Cancún talks, all negotiating group meetings were cancelled. TheWTO General Council chairman Perez del Castillo has entered into discussion with national trade ministers andtheir Geneva representatives to try to establisha consensus on the way forward in the negotiations. To date, the United States and the EU have declined to takea leadership role in these discussions. TheGeneral Council, the WTO's highest decision-making body, is scheduled to meet on December 15, 2003, to assessany progress resulting from these discussionand recommend further steps.