Threats to quit WTO 'somewhat empty': Ricupero's reflections on world trading environment.

Not too long ago, in September 2003, in the resort town of Cancun, Mexico, the world's trade ministers gathered to chart the future of international trade relations within the 148-member World Trade Organization (WTO). But the meeting fell through due to conflicting agendas. For the developing nations for whom agriculture and garment exports were the economic mainstay, the petition to the industrialized countries to reduce farm subsidy and tariff on imported garments went unheeded. Official subsidies to farms in industrialized countries cut production costs and make their produce more competitive in the world market; at the same time high tariff on imported garments from less industrialized countries cut into the export earnings of the latter. While this is so, at Cancun the industrialized countries wanted investment and capital issues to be on top of the trade agenda.

Rubens Ricupero, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), citing vital research, says that the so-called farm subsidies in developed countries went not to small farmers but to big corporations. He is concerned that there are still no new major initiatives to restart WTO negotiations after Cancun.

A Brazilian national, Mr. Ricupero is former Minister of the Environment and Amazonian Affairs and Minister of Finance. He was also a professor in international

relations at the University of Brasilia (1979 to 1995) and in history of Brazilian diplomatic relations at the Rio Branco Institute (1980 to 1995). Adopting a realist's tone, the scholar-diplomat says mercantilist impulses are the reality of world trade, and the threat therefore by the developed countries to quit WTO was somewhat "empty", and that the multilateral approach is "irreplaceable".

With a professorial choice of words, Mr. Ricupero says that UNCTAD can offer its "analytical and research expertise" and efforts toward "consensus-building", and that its very major effort is to knit pre dictability and stability into agreements. "You can't solve the problems if you don't allow countries the minimum time to develop capacities", he says. In his New York office on a damp and wind-chilled morning on 27 October, having just returned from an earlier press engagement, Mr. Ricupero sat down with Vikram Sura of the UN Chronicle.

Recently you spoke about the growing acceptance of mercantilist perspectives despite the apparent acceptance of liberal principles--so is it a problem of trust in the international trading environment?

Despite all the rhetoric about free trade, mercantilism has always been the reality in world trade. There is a clear indication that tariff negotiations have always been done on the basis of request and offers. They are always on a bilateral basis and very much in terms of the balance of offers. I would say that there has been an increase in mercantilist feeling.

It is regrettable that until recently the world trading system was a positive exception in the trend away from multilateralism. This system was still very much in tune with multilateral negotiations--a good proof of that was the launching of the Doha round. But lately, with the failure in Cancun, we have seen that this trend to move away from multilateralism has also reached the world trading stage. 1 am very concerned about the immediate future because there are no indications of any major initiative to resume the negotiations, Despite all the rhetoric regarding the importance that people attach to world trade, in reality, after Cancun we have been going through a very dry period in which no one is taking any initiative to resume negotiations. And this is reason to worry.

This trend might eventually challenge the realization of the Millennium Development Goals (MDGs). To meet them, a generous multilateral understanding of various trading positions, especially of weaker economies, is required. They need official development assistance, debt relief and finance for development. With growing preference for regional free-trade agreements, what steps could UNCTAD offer?

Indeed, I fully agree with your analysis, because you will remember that the first seven MDGs are about very specific targets in terms of halving poverty, reducing infant mortality, etc. But Goal number 8 is about the creation of a favourable global economic partnership, and here is where trade negotiations are necessary, There is no doubt whatsoever that the single major obstacle in terms of an external environment for reaching the MDGs are the obstacles poor nations, particularly the least developed countries (LDCs), face concerning their products.

It is enough to look at what is happening with the trade between major industrial countries and LDCs. There is a sort of perverse tendency to concentrate high tariffs and barriers exactly on the products exported and consumed by the poor. You know, there was an interesting paper made by the former aide to Charlene Barshevsky of the Office of the United States Trade Representative, where he has shown some very concrete data. For instance, in 2001 in trade with the United States, Bangladesh had

to face an average tariff between 12 and 13 per cent, whereas United States imports [rom France, which were generally luxury goods, had to face an average tariff of less than 1 per cent. What Bangladesh sends to the United States are garments--textiles which are generally consumed by the American poor--and, interestingly enough, those are the very items that are highly taxed, whereas some other countries are less affected by the tariff barriers.

So it's very clear that international trade is the major stumbling block for the development of a country like Bangladesh, Cambodia and Lesotho, which are all trying to find a way out of poverty through export of garments. It is the barrier they face in markets like the United States and the European Union. For that matter, the solution that UNCTAD offers is to urge countries to deliver what they professed in Cancun. It was the industrialized countries themselves that called the Doha round the development round, because they said that they would finally address the question of barriers that prevents exports by the LDCs. So what we can do is first, through our analytical and research capacity and then through our consensus-building efforts, try to move this agenda on garments, on agriculture, which are the areas where international trade has remained very much a remnant of protectionism.

The Group of 21 emerged at Cancun because of the different agendas of both developing and developed countries. The latter wanted to discuss "new issues" of investment, transparency in government procurement, competition policies and trade facilitation, but not agriculture. How would you characterize the just concluded ministerial round?

Well, it was a big disappointment. What had transpired in Cancun was that there was some movement in agriculture at the end. Apparently, the second document circulated by the Conference Chairman was something defined in the WTO jargon as doable. Unfortunately, the discussion did not reach that point--it broke down before on the "Singapore issues", and now there is an enormous urgency in resuming the talks. In the case of agriculture, I think there are two clear priorities: one is to adopt a definitive calendar for the substantial reduction of subsidies, particularly those that have a disastrous effect on poor countries--a good example is the case of cotton in West African countries. The second priority is to open up markets of the northern countries, which remain highly protected by tariffs. The highest tariffs in the industrial countries are invariably those on agricultural products. They also have tariff quotas that are very stringent. Some countries like Japan and even the United States have tariff quotas that are more than 300 per cent In the case of Japan, it is 500 per cent. It sounds incredible that in 2003 you could have tariffs of this magnitude.

Are there domestic compulsions in countries that are imposing such tariffs, and how could a multilateral approach help?

There is no doubt the reason is that there are organized protectionist sectors which have influence in the United States Congress. In some cases, there are also social problems. There are farmers in rich countries who are doing badly and I tried to show this in my opening statement at the UN Economic and Social Council session this year in Geneva. Despite the argument that subsidies exist to benefit the poor farmers, the data from the Organization for Economic Cooperation and Development indicate that 80 per cent of the subsidies go to the large agricultural companies, not to the poor farmers. This is why in the United States and France these farmers are in a species threatened by extinction; they are fast disappearing. I'll give you an example: in France, over the last twelve years a third of small farmers have disappeared; they had to quit the business because they could not compete. So if the argument is that they need the subsidies to support the poor farmers, then it's not working!

They should take a second look at the subsidies to see why most of the money goes to the big companies, the rice companies, the so-called cotton barons, and not to the small farmers. They should of course assist the small farmers, but with social security nets, the same they advise developing countries to adopt.

Post-Cancun, there is a strong indication that the big economies may ignore multilateral forums like WTO and instead focus on bilateral free-trade agreements with key trading partners, lf so, where would this leave smaller developing countries that would lose most from these agreements? And how would UNCTAD negotiate as their champion without seeming to take a position?

You know how they use this threat of abandoning WTO. I personally believe that it is to some extent an empty threat, and I will explain why In reality, the rich industrialized countries need WTO as they had needed the General Agreement on Trade and Tariffs. And basically for two reasons which they don't like to underscore when they make those threats One is they need it for dispute settlement mechanism. WTO is the only organization that has a strong dispute settlement mechanism, almost a quasi-judiciary system. None of the regional bilateral treaties has anything comparable, and this mechanism is very often used among industrialized countries. So even if the developing countries did not exist, how do you think the United States and Europe could solve their bilateral trade problems except through the WTO dispute settlement mechanism. The second reason why they badly need WTO is because for many of the goals that they have in liberalization, the multilateral approach is irreplaceable.

For example, during the Uruguay Round and its immediate aftermath, there were four United States goals. One was the Trade Related Intellectual Property Rights Agreement (TRIPS), which could only be reached through WTO. There is no way you could reach anything by bilateral or regional treaties for a major reason. Before TRIPS, the organization that had the entire jurisdiction in this field was the World Intellectual Property Organization (WIPO), which administers the Paris Convention on Industrial Property, So the only way to place WIPO aside was through another multilateral treaty. You could do it by regional treaty and that was a major goal for the United States, much more important than any negotiations on industrial tariffs. The other three major goals are: the Information Technology Agreement (ITA) to be reached in Singapore in the first ministerial meeting of WTO; the agreement on basic telecommunications services; and the agreement on financial and banking service Once again, those agreements could only be reached in the multilateral sphere. The fact that the United States reached all these major objectives explains to some extent why they don't have the same appetite now as before, not because WTO is no longer important, but because they have fulfilled to a large extent their agenda through WTO.

The flip side of the coin is that ii is possible the United States, say if it wants agreements in the financial, banking, Insurance and telecommunication services, can go to the emerging markets, your country Brazil, China and South Africa.

Yes, to some extent this is true But they need the general rules that were applied to all, because those cannot be solved exclusively on a bilateral, regional basis. You need a sort of code that will be international in scope, and this can only be reached through multilateral means. This is why I think that to some extent you can have the proliferation of regional and bilateral agreements, These may weaken the multilateral approach, but not to the extent that they will abandon WTO. I think the danger is recognized but not in the extreme way it is sometimes presented.

Finally, with the recent tensions in Cancun and in light of your statement that the "multilateral approach is irreplaceable", how can UNCTAD help design international trade preferences, which strike a balance, for instance, to include transparency in government procurement and agriculture, maximize poverty reduction and also protect the environment?

Well, we are working very hard on this and we think that there are a few practical ideas that would help the system to solve this problem. One is to try to give a measure of predictability and stability to both preferential arrangements.

As of now, many like the United States' African Growth Opportunity Act have very short deadlines, and every couple of years or so they have to be renewed by Congress. We think that in order to make the financial arrangements work, particularly for the LDCs, to help them develop the supply capability, you need to give them some predictability, for instance, an average duration of 12 years or so. And you have to do it in such a way that it is not only the advantage of preferential access but also to provide those countries with access to financing or foreign direct investment. Otherwise, they would not be able to create the manufacturing capability they need. So we are working on several practical ideas, establishing linkages between preferential arrangements and the supply-side constraints, particularly the development of export capabilities. However, the key to this problem is to give a minimum of stability and predictability to preferential arrangements. You can't solve the problems if you don't give countries minimum time to develop capacities, and right now most of those arrangements are very precarious in nature.

There are other ideas: for instance, we consider that the very stringent rules of origin should be flexible, because in many cases such countries will only be able to export if they can use imports that they are unable to manufacture themselves. And sometimes the rules of origin will exclude exactly those goods--so there must be a way, at least for a limited time, to give those countries more flexible rules of origin. We are working on several ideas with not only our staff but also academics to provide poor countries with these ideas and to see whether countries like the United States, Canada, Japan and the European Union, which have preferential arrangements, could accept giving the poorer countries the predictability they need, and one way would be to bind them to WTO. The industrialized countries always say, with good reason, that trade concessions are only meaningful when they are bound, and if they are not, there is no predictability and so they can be changed at any time. But they don't apply that to unilateral preference, because they want to keep their freedom. And we think a measure of stability could require those seemingly to be bound to WTO, at least under some conditions. Otherwise, it's difficult for countries to attract investment; if the investor does not know what will happen in two or three years, why do you think he would want to make the investment. Those are the ideas that we are working with.

This Is an oblique question: did the enormous dissent in civil society over the adventure in Iraq help in some way to shed light on the imbalances in international trade, and in certain ways also put domestic pressure on the Governments of these powerful economies?

Im not sure if public reaction to the invasion of Iraq had a clear impact on the ongoing debate on trade, I do believe that there has been an enormous increase in the attention and interest of non-governmental organizations and the civil society to trade imbalances. But I don't think these are linked very much to the Iraq problem. For instance, the work done by Oxfam or Christian Aid or the Quakers--I don't see a clear link between that and Iraq. Perhaps in a very generic way, it could influence. But my impression is that in the 1990s, when globalization was developing with great momentum, some civil society organizations became aware of the downside of globalization. And this explains why civil society is concentrating more and more on topics like the foreign debt of poor countries, structural adjustment to which those countries have been submitted, or problems of the world trading system. But I think these are more related to the ongoing debate on globalization than on Iraq--I think those are two distinct issues.