BUSINESS

A RAW DEAL

WTO talks for a new global trade pact are on the brink of collapse, and Canada shares the blame

ANDREA MANDEL-CAMPBELL December 19 2005
BUSINESS

A RAW DEAL

WTO talks for a new global trade pact are on the brink of collapse, and Canada shares the blame

ANDREA MANDEL-CAMPBELL December 19 2005

A RAW DEAL

BUSINESS

WTO talks for a new global trade pact are on the brink of collapse, and Canada shares the blame

ANDREA MANDEL-CAMPBELL

As the

148 member countries of the World Trade Organization converge on Hong Kong this week, hopes for a new deal on international trade are slipping away. Should the talks fail, the gap between rich and poor will continue to widen, say free trade supporters, fuelling geopolitical tensions, and possibly even wars. And Canada will bear a big chunk of the blame, they say, for failing to help ensure the benefits of globalization reach those most in need..

Launched in the Qatari capital of Doha in 2001, this round of talks marks the first time that multilateral negotiations, traditionally

dominated by the industrialized world, attempt to address the concerns of the poorest countries. The current impasse centres on agriculture, which represents less than 10 per cent of world trade but accounts for the system’s most egregious distortions. Industrialized countries are spending almost US$1 billion a day in agricultural support. African countries, unable to compete with the West’s financial might, have watched their share of world trade plummet by almost half over the past 30 years. To reverse this trend, the weakest nations desperately need access to Western markets, but the prospects for change

aren’t good. And if the talks collapse, as feared, it could raise deep questions about the future of globalized trade and the WTO itself.

With the Doha round already two years behind schedule, the meeting of first ministers in Hong Kong represents the “last and best chance,” according to WTO director-general Pascal Lamy, to clinch a deal before the U.S. government loses its authority to fasttrack trade deals through Congress in July 2007. “Something tangible needs to come out of these talks. It can’t be a papering-over-thecracks exercise,” says Razeen Sally, a leading trade economist at the London School of Economics. “It really is make or break time.”

And where is Canada, at this critical moment? Conspicuously absent, critics say. As the world’s fourth largest agricultural exporter, and the most trade dependent country among the G8 industrialized nations, Canada should have a major role in the talks. Yet it is not among the inner circle of high-powered negotiators in Geneva, deliberately frozen out, say observers, by what some see as a cynical bid to preserve its highly protected dairy, egg and poultry industries while pushing for freer trade in other areas.

In an interview with Maclean’s, International Trade Minister Jim Peterson said the Doha round was “critical” to “reining in the obscene level of agriculture subsidies in the U.S., EU and Japan. We need a level playing field for our producers,” he says. “They can compete against the best in the world, but they can’t compete against foreign treasuries.” And yet Canada has no intention of lowering tariffs of up to 300 per cent on imported butter and cheese that ensure a monopoly for domestic producers. “We believe very strongly

‘Something tangible needs to come out of these talks. It really is make or break time/

that our farmers should be able to determine how they market their products,” Peterson says. This seemingly contradictory position, isn’t going over well with the rest of the WTO. “I’ve heard it said one of the reasons Canada isn’t sitting at the inner table is because, when the going got tough, we decided to defend the status quo rather than push for change,” says John Weekes, Canada’s former ambassador to the WTO and a senior policy adviser at the law firm of Sidley Austin Brown & Wood in Geneva. “The feeling among delegates is, ‘You may get away with this in Canada, but you won’t sit at the table.’ ”

Canada’s seat has instead been filled by the Australians, who dismantled their supplymanaged dairy industry and have led the global charge to liberalize agricultural trade. They, along with the U.S., EU, Brazil and India, constitute the core group of leading negotiators considered to have key stakes in the Doha talks. It’s a slap in the face for Canada, which less than a decade ago was considered a member of the WTO’s de facto leadership. “The Aussies are there and we are not. That sums it all up—where Canada fits in the overall scheme of things,” says James Mcllroy, an international trade lawyer based in Toronto. “Our lack of credibility is very, very clear right now. We’re talking out of both sides of our mouth and the rest of the world is not interested in hearing it anymore.”

Trade watchers blame the schizophrenic position on weak political leadership and an aimless trade policy constantly sacrificed on the altar of domestic politics. While the government may win political points for pandering to small but vocal interests in the dairy and poultry industries, say observers, the cost to Canada is enormous—not only in terms of its international reputation and ability to influence global trade liberalization, but in its ability to compete internationally.

The majority of Canadian farmers—some 90 per cent—rely on global markets to sell their oilseed, wheat, beef and pork, and are desperate to improve access to highly protected markets in Europe and Japan. Buffeted by a glut of oversupply and generous subsidies that depress world prices, they are forced to compete against lower-cost producers in the limited number of countries with open markets. Grain and oilseed farmers, unable to even meet their costs, lose an estimated $1.3 billion a year, while wheat acreages have declined by 28 per cent in the past decade. “We should be right out there, going for the biggest access we can get,” says Patty Townsend, executive director of the Canadian AgriFood Trade Alliance. “Instead, we have one foot on the gas and one foot on the brake.” Supporters of supply management argue that it’s precisely because of the pain inflicted on so many Canadian farmers that Canada should protect what it has. The country never

benefited from concessions it made during the last Uruguay Round of trade talks, they say, and its “Boy Scout” approach to the distorted global trading environment has cost the country billions of dollars and thousands of jobs, as evidenced by the ongoing softwood lumber dispute. “The U.S. speaks out ofboth sides of its mouth. They say they want open markets—and see what they do on wood, wheat and hogs,” says Laurent Pellerin, president of Quebec’s powerful Union des producteurs agricole. “Canada wants fair trade. Free trade means nothing. We have free trade with the U.S. and it’s never been fair.”

Whether there is any progress in addressing the shortcomings and distortions in the system depends largely on the U.S. and European Union, whose rich farm support schemes account for half of all agricultural subsidies. In October, the U.S. surprised the

world by offering to dramatically reduce subsidies and tariffs, exposing deep divisions within the 25-country EU. The famously protectionist French called it a “fools bargain.” President Jacques Chirac threatened to veto any deal that infringed on the EU’s Common Agricultural Policy—a package of high tariffs and government payouts three times more generous than those in the U.S.

The EU responded by offering to cut tariffs by almost half, which most still consider inadequate. It also wants to exempt some 160 “sensitive” products, including beef, dairy and sugar, representing eight per cent of what are called “tariff lines.” The Americans propose a one per cent exemption. Canadian trade officials wouldn’t specify their position, but the UPA’s Pellerin says Canada must protect a whopping 14 per cent from tariff cuts. Canada is looking for exemptions, minister Peterson acknowledged, and is willing to “allow that to happen in other countries as well.”

It’s a position, say trade watchers, that undermines the whole point of the Doha Development Round. According to the World Bank, 92 per cent of the benefit derived from freer agricultural trade will come from cutting tariffs, and only if those cuts reduce the highest tariffs by at least 75 per cent. If just two per cent of tariff lines in developed

countries are classified as “sensitive,” three-quarters of global gains in welfare—estimated at up to US$300 million over the next decade—would be lost. “The purpose of the round is to open agricultural markets for poor, developing countries whose economies rely on agriculture,” says Mcllroy. “If Canada is saying, ‘You leave us alone and we’ll leave you alone’ why are we going into the negotiations? It’s so contrary to the entire thrust of Doha.”

Unless there is substantial market access, developing countries have already shown they

are willing to let talks collapse, like they did at the last ministerial meeting in Cancún in 2003. And even if the French (and the Canadians) can be persuaded to give some ground on agriculture in return for access to Brazil’s highly protected industrial goods and services sector, there’s no guarantee the least developed countries will sign off on the deal. Poor countries remain fearful of losing the access they already have to rich markets while being unable to take advantage ofliberalized trade. In many cases, their greatest barriers to trade are internal, the result of lack of infrastructure, unwieldy bureaucracies and corruption. With so many competing interests, and almost as many countries in the WTO now as in the United Nations, it is nearly impossible to reach agreement on even minor issues, says Sally. “I’m inclined to be pessimistic,” he said. “It’s very difficult to see something coming out of the round in the long term and perhaps never.” Without a deal, many warn the world trading system will dissolve into a morass of bilateral trade agreements that often hamstring global supply chains and, more importantly, favour the more powerful countries.

China is looking at a three-way tie-up with Japan and South Korea. The latter is aiming to cinch 15 deals by 2007 The Australians have recently signed deals with the U.S., Singapore and Thailand, and are now negotiating with the Chinese. The Americans have been particularly aggressive, with nine deals completed since 1994 and another half-dozen in the works. According to the WTO, there

are some 250 deals worldwide with another 60 currendy being negotiated. Canada, once again, is missing in action, with just three small deals in the past 11 years. In fact, Maclean’s has learned that Paul Martin’s Liberal government recendy rebuffed an offer from Brazil that would have given Canada access to Mercosur, the customs union representing Brazil, Argentina, Uruguay and Paraguay.

According to Peterson, Canada is waiting to see what happens with the WTO and the Free Trade Area of the Americas, even though the FTAA was recently pronounced “dead” by Venezuelan President Hugo Chávez. “I question what’s going on in Ottawa today if we have rejected an offer from Brazil,” says Chuck Gastle, a Toronto-based trade lawyer. “Here we are trying to re-establish our position in the world—and we pass on an opportunity to build a strong link with Brazil?”

With one-third of world trade now conducted within preferential agreements, Canada’s lack of engagement leaves it without an insurance policy should Doha run aground. At the same time, the round’s failure could seriously compromise the WTO’s dispute settlement process, leaving Canada little recourse when faced with disputes like softwood lumber that can’t be resolved within the confines of NAFTA. The WTO, its credibility undermined, would find it increasingly difficult to get governments to abide by its rulings.

Doha’s failure would only confirm the developing world’s already deep distrust of rich countries’ commitment to levelling the global playing field. It would also be a victory for growing protectionist sentiment, as evidenced by the collapse of the FTAA in Mar del Plata, Argentina, last month. The summit was hijacked by the most unlikely of anti-free trade champions—Diego Maradona, the disgraced Argentine soccer star turned cocaine addict who was convicted of shooting several journalists

‘We’re talking out of both sides of our mouth, and the world isn’t interested in hearing it’

in 1994 with an air rifle. “The world really does need progress at the WTO,” says Thomas d’Aquino, president of the Canadian Council of Chief Executives. “We can’t have globalization blasting into markets by sheer force and then say we’re incapable of harnessing this enormous galloping horse because we can’t get our act together. It needs a corral to run in. Otherwise, the potential for abuse will feed into feelings of disenff anchiserrtent and the anti-globalization crowd will be able to come back and say, T told you so.’ ” M