Divide and triumph, in Geneva

The G-20, in particular Brazil and India, has been accommodated into the ranks of the key global trading powers, but it is increasingly becoming clear that the price for this has been their diluting the strength of the negotiating position of the South.

THE July Framework Document is a major triumph for the big trade superpowers, particularly the United States. As for the developing world, the situation is more complex, with most countries losing but some claiming that they have made gains. Among the few claiming to be in the "win" column are Brazil and India, which are acknowledged as the leaders of the G-20 and two of the Five Interested Parties (FIPs) that played the leading role in drafting the agriculture text.

Attention needs to be paid to the dynamics of the July framework negotiations since they were a departure from traditional North-South negotiations in trade and may set patterns for things to come.

Institutionally, among the innovations is that the General Council (G.C.) has now become de facto the supreme institution for decision-making in the World Trade Organisation. What the July meeting came up with was effectively a Ministerial declaration without a Ministerial Meeting. The collapses of the two Ministerial Meetings - Seattle and Cancun - underlined to the WTO Secretariat and the trade superpowers the unwieldiness of the Ministerial as an arena for decision-making. It attracted protests from non-governmental organisations and the people. It drew Ministers, many of whom were not professional negotiators but political people determined to stand up for their country's interests. It brought the press in large numbers, thus making decision-making more transparent despite the wishes of negotiators accustomed to exclusive "Green Rooms".

Only some 40 trade Ministers were present in Geneva for the July G.C. meeting, with many representatives of countries that played a key role at the Cancun Ministerial, like Kenya and Nigeria, absent. Obviously, with some 100 Ministers of WTO member- countries absent, a great many governments failed to grasp fully the significance of the meeting.

As for global civil society, which had played such a critical role in the outcome in Cancun, it was, for the most part, complacent, failing to appreciate how quickly the trading powers could rebound from their state of disarray. Very few NGOs had people in Geneva during the critical days in July.

YET, this was not simply the old-style manipulative behaviour of the trade superpowers and the WTO Secretariat of the pre-Cancun period. The post-Cancun situation made this impossible. Cancun marked the emergence of the G-20 as a key player in trade negotiations. As Ambassador Clodualdo Huguenuy of Brazil put it during the debate at the World Social Forum in Mumbai in January: "The G-20 broke the monopoly over trade negotiations by the E.U. [European Union] and the U.S."

The U.S., however, failed to appreciate the changed situation immediately. Coming out of the Cancun summit, U.S. Trade Representative Robert Zoellick signalled a more aggressive, more unilateralist approach in trade negotiations when he said that the U.S. would thereafter put its emphasis on concluding bilateral agreements with "can do" countries, implying that it would expend less effort in negotiations within the WTO. Washington also launched a frontal assault on the G-20, successfully detaching El Salvador, Colombia, Peru, Costa Rica and Guatemala from the body in a few weeks' time.

As for other developing countries, the G-20 was a phenomenon that was received positively. Yet, there were apprehensions among them that the most influential members of the G-20 were agro-exporters like Brazil and that the main focus of the group was ending the E.U.'s and the U.S.' massive subsidy systems and bringing down tariff barriers to market access in these prosperous markets. Many countries, including Indonesia, were worried that the G-20 governments were much less concerned with protecting developing country markets and smallholder agriculture from low-priced imports. Hence, the G-33 continued to put forward proposals for protected "special products" and "special safeguard mechanisms."

Other countries felt that the G-20 focus on agriculture was inadequate as a strategy for defending developing country interests. This led to the formation of the G-90 (composed of the Africa Group, African Caribbean and Pacific, or ACP, countries and the least developed countries), which united around the effort to block the "New Issues" of investment, government procurement, investment, and trade facilitation from coming under the jurisdiction of the WTO.

Nevertheless, the G-20's formation did electrify the ranks of developing countries, and many governments were inspired by Brazilian Foreign Minister Celso Amorim's promise in his Cancun speech that the aim of the G-20 was to "bring it [the world trading system] closer to the needs and aspirations of those who have been at its margins - indeed the vast majority - those who have not had the chance to reap the fruit of their toils. It is high time to change this reality.''

By the spring of 2004, however, Washington's dual strategy - pursuing bilateral agreements and destroying the G-20 - was running into trouble. The Free Trade Area of the Americas (FTAA) that the U.S. wanted failed to materialise in the Ministerial summit in Miami in November 2003, and it also began to realise that bilateral agreements could complement but never substitute for a comprehensive, multilateral free trade framework to promote corporate trade interests. At the same time, the G-20, despite the initial defections, held firm.

TO get the WTO restarted, Washington, working closely with Brussels, shifted gears. Instead of trying to destroy or undermine the G-20, they moved to make its leaders, Brazil and India, a central part of the negotiations in agriculture, which was the key obstacle to any further moves at liberalisation. Thus was formed in early April FIPs, an informal grouping, composed of the U.S., the E.U., Australia, Brazil and India. It was in close consultation with this grouping that WTO Agriculture Committee Chairman Tim Groser produced the proposed agriculture text of the July Framework.

A shift in strategy was also evident towards other countries and formations. In the spring, Robert Zoellick began visiting a number of strategic developing countries. Instead of spurning invitations to the G-90 meeting in Mauritius in mid-July, the E.U. and the U.S. sent high-level delegates, including Zoellick. There, confrontational language gave way to rhetorical efforts to get developing countries not only to come to a compromise on agriculture but also to get talks moving on bringing down non-agricultural tariffs, starting talks on trade facilitation, and getting the negotiations on services under way. But perhaps the strongest message that developing countries heard from the trade superpowers was that this was the last chance to get the multilateral system moving - the implication being that they would be held responsible if the late July G.C. talks did not get off the ground.

The U.S.-E.U. drive to restart the WTO succeeded brilliantly. The U.S. and the E.U. were the main beneficiaries of the agreement to cut non-agricultural tariffs, with the highest tariff rates being subjected to the deepest cuts; indeed, Robert Zoellick went back to the U.S. trumpeting the claim that the accord on NAMA (non-agricultural market access) was a massive victory for U.S. corporations since it was but the beginning of a process that would reduce industrial and manufacturing tariffs to zero. Both the E.U. and the U.S. scored a victory by getting developing countries to agree to begin talks on trade facilitation, one of the "new issues" that developing countries rejected in Cancun. But it was the U.S. that scored the biggest gain, getting as it did, in addition to the foregoing, an expanded "Blue Box" in which to house a considerable portion of the subsidies to its farmers legislated under the U.S. Farm Bill of 2002.

Part of Washington's success stemmed from a wily negotiating strategy. For instance, to get its new expanded Blue Box, Washington distracted developing countries' attention by putting forward its demand that they reduce their de minimis domestic supports, that is, the allowable rate of subsidisation of their production. Thrown on the defensive, these countries spent much energy justifying their subsidies, so that they were only too relieved when the U.S. stepped back to compromise on the issue in return for their agreeing to the expansion of the Blue Box. Similarly, just before the G.C. meeting, the E.U. suddenly brought in the category of "Sensitive Products" to protect some 20-40 per cent of its products from significant tariff cuts. Worried that the E.U. might put blocks to their demand for protected Special Products essential to their food security, the developing country negotiators acquiesced.

BUT the key to the victorious U.S. strategy was bringing in Brazil and India to be part of the core group of the negotiations, then acceding to these countries' core demands in order to detach them from the rest of developing countries. India's key concern was to avoid the so-called "Swiss formula" for cutting tariffs that would require it to bring down its agricultural tariffs substantially, something on which it saw eye to eye with the E.U. According to one developing country negotiator protecting its tariffs was India's main focus at the G.C., and it was not going to push hard on the issue of eliminating agricultural subsidies so as not to endanger the E.U.'s support for its position on tariffs. (The Indian government's position on subsidies had been watered down by its informal alliance with the E.U. on the tariff issue after the Doha Ministerial before the E.U. abandoned the Indians to align themselves to a common position with the U.S. in the period leading up to Cancun. Both the E.U. and India were comfortable with a "Uruguay Round" approach to tariff cuts as they regarded their average tariff level as high enough for them to stomach another round of this type of cuts. There were developing countries, however, with much lower tariff averages, for which even a Uruguay Round approach would be too drastic, for instance, Honduras, Sri Lanka, Indonesia.)

On the other hand, removing agricultural subsidies was Brazil's concern, and here it got its way. The final text affirmed the phase-out of export subsidies as well as certain categories of export credits. The big gainer with the phase-out of subsidies is said to be Brazil, with some estimates placing its gains at some $10 billion. According to Celso Amorim, the July decision marked the "beginning of the end" of export subsidies. Yet the Brazilian "gains" are not secure unless locked in by the modalities of the negotiations. A specific end-date for the elimination of export subsidies will only be clinched in the next phase of discussions. Moreover, even when elimination has supposedly taken place, the E.U. has after all been known to replace export subsidies with indirect export subsidies by way of direct payments to farmers under the Green Box. This is also the intention of the current Common Agricultural Policy (CAP) reform. Furthermore, the framework leaves untouched the Green Box, which houses up to 70 per cent of U.S.' total subsidies. Even the most optimistic analysts cannot say for certain that overall levels of support from the two agricultural giants will be brought down. In fact, it is predicted that subsidy levels will be maintained if not increased.

Nevertheless, for now, Brazilian agribusiness is very happy. Indeed, it was the pressure of Brazilian agribusiness that allegedly forced Celso Amorim to clutch hard on the subsidy issue at the expense of a strong defence of developing country interests in other areas. Having gained nothing from failed negotiations on the FTAA and on E.U.-Mercosur trade pact, Brazilian agro-exporters were hungry for a successful WTO agreement that would enable them to hike their exports to the E.U. and the U.S.

Among those that were left disadvantaged from India and Brazil placing their specific interests in command were:

* the majority of developing countries which will find that their markets will continue to be flooded by dumped products from the U.S. and the E.U. For the South as a whole, the opportunity to correct the distortions in agriculture trade legitimised in the Uruguay Round has been lost;

* the African cotton-producing countries which failed to get negotiations on U.S. cotton subsidies to be put on a fast-track independent of the agriculture negotiations, or even a commitment that all cotton subsidies will be eliminated;

* the Group of 33, which was left with nothing more than a vague commitment that its demand for "Special Products" and the "Special Safeguard Mechanism" and in particular, the coverage of products under such a mechanism, would be a subject of negotiations;

* most developing countries, which had rightfully opposed the text on market access of non-agricultural products as a prescription for their deindustrialisation. Indeed, the U.S. scored a big win on NAMA for the text is a detailed agenda for the radical liberalisation that transnational corporations have long wanted. As the U.S. National Association of Manufacturers saw it, "This is a huge accomplishment, and a big win for the WTO, the United States, and the world economy. The really big accomplishment for industrial negotiations is that all countries have accepted the principle of big tariff cuts and sectoral tariff elimination"; and

* most developing countries, which have now agreed to speed up their offers of services for liberalisation.

IT was not that lndia and Brazil were not sensitive to the demands of other developing countries. In fact, they were given high marks for consulting the different developing country groupings. It was simply that by becoming central actors in the elaboration of the proposed framework, they had painted themselves into an impossible situation. And the more meeting their interests began to diverge from a strategy of promoting the interests of the bulk of the developing countries, the more they trumpeted the claim that the July Framework Document was a victory for the South. It is testimony to the prestige of India and Brazil among other countries in the South that until today, many developing countries do not realise how badly they lost in Geneva.

The trade superpowers learned from the debacle in Cancun. The shift from a confrontational strategy to one of cooptation and subtle divide-and-rule was able to rip apart the superficial "Third World unity" that came out of Cancun. The centrepiece of the strategy was to bring in the leaders of the G-20, India and Brazil, into the centre of the negotiations and play to their specific interests. They fell for the trap. Moreover, having become central players as members of the exclusive FIPs, their ability to repudiate large parts of a text that they had been consulted on prior to its release to the G.C. was limited. That would have invited the onus of being responsible for the "collapse" of the Doha Round and the multilateral trading system.

During and after Cancun, the G-20 was seen in some circles as representing a major power shift in the global trading order. Some even saw the G-20 as the dynamo for a reinvigorated "New International Economic Order". The reality is that the G-20, and in particular Brazil and India, have been accommodated into the ranks of the key global trading powers, but it is increasingly becoming clear that the price for this has been their diluting the strength of the negotiating position of the South.

More than ever, the South needs leadership, one that is willing to take risks for the whole and rejects the temptation to settle for small and maybe illusory gains for one's country. Many had expected the leaders of the G-20 to fill this role. In the first decisive post-Cancun encounter, the latter have not lived up to expectations.

Walden Bello is Executive Director of the Bangkok-based Focus on the Global South and Professor of Sociology and Public Administration at the University of the Philippines.

Aileen Kwa is Executive Director and Research Associate of Focus on the Global South.