Most material here has already appeared on Crooked Timber.
This blog is the "Director's Cut".
Wednesday, September 24, 2003
High Noon in
Cancun
This is a test of the new "Director's Cut"
style; comments grudgingly acknowledged
Apparently the
Cancun ministerial conference of the World Trade Organisation has
got to such an appalling standstill that they all decided to pack
up and go home. And the interesting thing is that what killed it
wasn’t EU intransigence on agricultural subsidies, but rather
something called the “Singapore issues”; a set of proposals about
foreign investment on which the developed world is more or less
united. Which is really rather a scandal., but as I argue below,
the good thing about the Cancun collapse is that it allows us to
get the measure of the character of the WTO as an
organisation.
The Cancun round was meant to be all about
the rich countries giving something up for the benefit of the
developing world. We were going to reduce farm subsidies and let
the poorer nations compete in our markets on fairer terms. And as
far as one can tell from the outside, real progress was being made
on these issues before the round collapsed.
Comment: I'm surprised how well this bald
assertion held up; I expected that I'd have to back down
significantly from the assertion that the Singapore issues were
what sunk Cancun (although not from the general points made
below). The Economist spun the whole thing as being the Kenyans'
fault; basically, the Kenyans had been expecting a much better
deal on cotton subsidies than they were offered, and in "anger",
they joined the Indian anti-Singapore bloc. I put "anger" in
scare-quotes because I think it's one of Kieran's intransitive verbs:
I abandon an unworkable proposal in order to fundamentally
reassess the situation
You destroy the talks in the hope of a better deal
He flounces off in a fit of pique
The Economist
also tried to make the whole thing the fault of the NGOs for
giving the poor countries "unrealistic" hopes about what they
could get out the WTO, but somehow I don't think that one's
gonna fly. Personally, I blame the Economist for giving the EU
unrealistic ambitions about the acceptability of the Singapore
agenda.
However, lower down the agenda
(and off the media agenda entirely, perhaps because it didn’t
offer all that many opportunities to bash the French) were a raft
of issues grouped together under the name of Singapore because
they were discussed there in 1996. There are four of them;
“Investment”, “Competition”, “Transparency in Government
Procurement” and “Trade Facilitiation”. Of these four issues, the
last two are not particularly controversial; what tore the Cancun
summit apart were the first two, which India in particular had
been campaigining to keep off the agenda for a long time. Here’s a
few questions and answers.
What are the investment and
competition “issues”? What are they is a fairly easy question
to answer. They’re basically a set of proposals which would have
the effect of making WTO rules apply to cross-border investment as
well as to trade in goods and services.
What does that
mean? Effectively, that it would become illegal under the WTO
not only to place tariffs on trade in goods and services, but also
to place any restrictions on investment by overseas corporations,
or to have any laws in place which had the effect of
disadvantaging foreign companies compared to domestic
ones.
Aren’t these natural things for the WTO to be
discussing? Absolutely not. The WTO is the World Trade
Organisation, which was set up in order to facilitate trade in
goods and services, something which more or less everyone agrees
to be a general good. Free mobility of capital and investment is a
much more controversial topic, mainly because the legal procedures
needed to establish it would be much more invasive of national
sovereignty, and because the benefits from liberalising capital
flows are much less certain and significant than those from
liberalising trade (for example, it’s not really consistent with
the existence of nationalised industries, and it provides an easy
channel for multinational companies to launch harrassing cases
against any domestic legislation they don’t like; to take a
hypothetical example, the local Coke bottling plant could launch
an action against a free school milk program for unfairly
prejudicing their investment1.).
Comment: I don't think that I pushed this
hard enough. It's also important to note that trade in ownership
is much more of a zero-sum game than trade in goods; it's hard
to see any sort of "comparative advantage" in capital allocation
unless you're going to make some very, implausibly unrealistic
marginalist assumptions about the rate of return on capital in
the developed and developing world. "Recycling" arguments of
this kind (that free movement of capital would naturally lead to
rich countries becoming net lenders to poor ones) were popular
in the 1970s and 1980s, but they simply don't fit the observable
facts.
Brad DeLong picked up on this one in a comment which (shorn of particular references to
India which I don't necessarily agree with) represents the
neoliberals' best argument for something like the Singapore
agenda; that the freedom to nationalise industries and hand out
investment permits is a freedom not worth having for developing
countries because it leads to corruption and political
favouritism. I think I would make two responses to this:
Most importantly, I just disagree with the neoliberals on
the amount of freedom polities should have. Even if it is
usually economically destructive, I think it's an unacceptable
restriction on a political system to insist that certain kinds
of economic behaviour have to be put above the law of the land
and into a separate realm governed by treaties. To put it
perhaps more provocatively, I think it was a good day for the
world when the British government got out of the business of
sending gunboats to defend commercial interests. Maybe it's
bad from a development point of view to have capital controls,
maybe it isn't. Either way, I think that even if it is bad, it
ought to be up to the voters of a polity to decide whether the
cost in terms of development is one they're prepared to pay.
One only has to look at those Central American republics which
are effectively owned by the fruit canning industry to see
that there is a real choice here.
I also maintain my view expressed in "The Trouble With
Oligarchs" on this weblog last year, that privatised
corruption under a liberalised regime is potentially much more
dangerous than government corruption under a non-liberalised
capital account. The point being that one has to take into
account not just the microeconomic costs of corruption, but
also the macroeconomic effects of capital flight. Corrupt
officials can usually only divert resources for their own
consumption, but capitalist oligarchs are also concerned with
accumulation, and that the actions they take to protect their
accumulated gains can lead to the perverse capital flows which
caused all the trouble in
Russia.
This used to be
recognised before 1998, when there existed something called the
Multilateral Agreement on Investment (MAI), a sort of sister to
the WTO which was meant to negotiate, well, a multilateral
agreement on investment. But the MAI folded in ‘98 due to lack of
support. And a certain coterie of neoliberal types have been
trying to bring it in through other means ever since
Comment: The chronology is a little bit
skewed here as the original Singapore talks took place in 1996.
But I stand by the broad sweep; nobody was really pushing this
agenda in the WTO until the MAI avenue
closed.
So anyway, the state of play was
that India and Malaysia were dead set against the Singapore “Son
of MAI” proposals, the EU, Switzerland and Japan were dead set on
them and the USA was happy to let the whole thing fall apart
because they were not exactly mustard-keen on getting rid of
agricultural subsidies anyway. The Africans decided that they
couldn’t wear the Singapore agenda either, and walked out So the
entire Cancun talks fell apart.
I say that this provides a
useful yardstick to measure the character of the WTO by because it
brought face to face the two views of what the WTO is actually
for. On the neoliberal side, we’ve heard for years that WTO is all
about bringing the benefits of free trade and free markets to the
poor of the world and allowing them to gain the benefits of
“globalisation”. On the “anti” side, we’ve heard for years that
the WTO is nothing more than a cynical exercise in attempting to
subvert the democratic process of poor countries and forcing them
to accept foreign ownership and control. In other words, the
neoliberals have said it was all about things like the
agricultural subsidy proposals, while the antiglobos have said it
was all about things like the Singapore issues. And when the two
came head to head in Cancun, the Singapore agenda won. When push
came to shove, the rich nations were not prepared to give an inch
to the poor ones on agriculture unless they got their quid pro quo
in the form of progress toward an agenda which has nothing to do
with trade and everything to do with massively undermining the
ability of democratically elected governments to set the terms on
which the ownership of the means of production is decided. On
the basis that you can tell a lot about a person or an
organisation from what it regards as negotiable and what it
regards as a deal-breaker, it appears that those who suspected
that the WTO was a ploy to force a political agenda down the
throats of the third world would appear to have a point. It is
going to take a heck of a lot for the WTO to win back the
credibility it lost in Cancun.
Comment: Note that delay is not at all
necessarily a bad thing; the collapse of the Seattle talks meant
that Brazil and South Africa ended up with a much better deal on
intellectual property rights than the one that was on the table
at that time. I still maintain that a lot of poor AIDS victims
owe a substantial debt to anyone who broke a window that
day.
(Finally, let it be noted that China,
India and Malaysia, three of the four poster children for the
“benefits of globalisation”, were in the group of countries dead
set against the Singapore issuses).
Comment: redacted a footnote related to
Coca-Cola's behaviour as a corporate citizen; I now take an
agnostic view on this subject
Closing
comments: Most of the objections to this thesis revolved around
assertions that developing world governments are corrupt. I'm sure
that some of them are. But is it really the job of the WTO to do
anything about it? The WTO is there to deliver tariff reductions.
If it doesn't do that, what's the point of it?
A number of
people also pointed out that it's quite likely that the EU decided
to push the Singapore agenda precisely in order to scupper a set
of trade talks that were going somewhere they didn't like. That's
certainly a credible theory, although I haven't seen any real
evidence. I want to now digress on the subject of why almost all
criticisms of the role of the French in EU trade policy are based
on bad faith, but that's really a separate subject and deserves a
separate CT post.
Finally, a question for discussion. Jason
McCullough raised it in comments, and I can't come up with a
succinct or convincing answer. The question is simple; How on
Earth can cheap food be bad for the Third World? EU and US
subsidies to agricultural production are usually talked of as if
they were satanic devices of oppression. But in the standard
Ricardian model, a subsidy to exports usually benefits the other
trading partner unless you make quite extraordinary assumptions.
Why is it so bad in this case? (I'm interested particularly in the
question of food subsidies; one can tell all sorts of industrial
economics stories about cotton and other raw-materials
goods).