Special Report on Cancun OCTOBER, 2003 BY JAMES MORRISON, PH.D., PRESIDENT, SMALL BUSINESS EXPORTERS ASSOCIATION, AND MEMBER, PRESIDENTIAL ADVISORY COMMITTEE ON TRADE POLICY AND NEGOTIATION SBEA attended the recent World Trade Organization meeting in Cancún, Mexico. We are officially accredited to the WTO as a representative of small and mid-size U.S. exporters, so we were permitted to send several participants to the meeting. Two members of our team also hold appointments as official trade advisors to the US government, so we were able observe quite a bit from the inside. Our delegation consisted of SBEA President Jim Morrison, SBEA member José Niňo, and SBEA Board members Stephanie Summers-O’Neal and Don Williams. Here are some reflections on that meeting, from Jim Morrison.

SBEA’s delegation at Cancún. From left: José Niňo, President of El Niňo Group (and former President of the US Hispanic Chamber of Commerce), Stephanie Summers-O’Neal, President and CEO of Diversified Trade Company, and SBEA President James Morrison. Not pictured is Don Williams, President and CEO of Princeton Healthcare Company.

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Background Global trade agreements have a wonderful history of increasing trade flows and enhancing living standards all over the world. But they are hard to negotiate. A new round of negotiations, the “Doha Round”, is now underway. And a lot of issues that could help smaller companies are on the table. The recent WTO Ministerial Meeting in Cancún, Mexico, was the first milestone of the Doha Round, and it did not go well. Most of us came away from the Cancún meeting disappointed, and maybe a bit exasperated. But still hopeful. There is an air of unreality to these meetings. It comes from the way the WTO is set up and from the kind of people who now focus on trade negotiations. What’s in a Name? Behind its lofty-sounding name, the WTO is basically a group of trade officials from the organization’s member countries, supported by a small, hard-working staff of technicians who analyze tariffs and trade barriers. In the 1950’s and 60’s, there were about 50-60 countries actively taking part in global trade negotiations. Today there are almost 150. And they all have to agree – every single one of them – to move forward. Back then, trade negotiations were obscure tasks handled by specialists, out of the public view. Today, when the WTO puts on a major “Ministerial Meeting”, it is a highly publicized event involving heads of state, long lists of government officials, hordes of media, and a traveling circus of protestors. Apparently it’s the name -- World Trade Organization -- that conjures up images of global power. Image has far outstripped reality, however. The WTO is more accurately described by its former name, the General Agreement on Tariffs and Trade. Most of its work consists of ministers flying in for meetings, where staff studies of tariffs on fishing hooks and paper pulp are debated, down to six digits of the Harmonized System code. The WTO’s most significant power is its authority to settle trade disputes, which is not the focus of its big meetings and which is only occasionally noted by its critics. True, it can make trade liberalization demands of prospective WTO members. But with 148 countries already in the club, there are not many left to make demands on. Russia is probably the only significant outsider, and that may end soon. The WTO also can push countries to live up the trade liberalization promises they have made, but, again, it’s the countries that make the promises, not the WTO. Nevertheless, in the interests of having some good political theater, everyone who comes to a meeting like the Cancún Ministerial agrees to pretend that the WTO is enormously powerful. This insures grandstanding.

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Despite the WTO’s real limitations, its meetings are in fact important -- not least for small businesses engaged in international trade. In its plodding “nuts and bolts” way, the WTO could help solve a number of problems that smaller companies encounter in international trade. Problems like government red tape, requirements to open up offices in foreign countries to be able to trade there, excessive licensing fees, bans on professional service providers like consultants and accountants, and restrictions on e-commerce. All in all, there are probably a dozen ways that the WTO could help small businesses in international trade – if everything went perfectly well.

Who Attends, and Who Doesn’t It is little remarked upon by the media, but the most striking absence at major WTO meetings is the private sector. Big multinational companies do send their experts, and occasionally their CEO’s. Trade specialists from business associations attend. But what you don’t see at WTO meetings are the actual hands-on “doers” of international trade – the international sales directors of larger companies, the heads of smaller companies, the traders, the port directors, the freight forwarders, the trade finance brokers. Not to mention the consumers worldwide who benefit from the lower prices that freer trade brings. In five days of trade talks at Cancún, I did not encounter a single small business exporter, apart from the ones in our own SBEA delegation. On the other hand, academics, think tanks, anti-trade and anti-capitalist advocacy groups, and assorted special interest pleaders are so visible that they obscure much of the work of the meeting. There were hundreds, perhaps thousands, of such people in Cancún. Not the demonstrators one sees on TV (who were usually miles away from the meeting), but groups that are inside the meeting site and all around it -handing out position papers, holding meetings and seminars, and buttonholing the government officials who are there to negotiate. A number of these groups had perfectly legitimate concerns. Unfortunately, it was frequently quite a stretch to relate these concerns to international trade. And even when some link could be found, the WTO often lacked the authority to address the issue. So the atmosphere of the meeting became increasingly detached from reality. I dropped in on a few gatherings put on by these folks. At one, an earnest young woman explained that her group opposed trade agreements because they always led to cruelty to animals. (Perhaps your reaction is, why trade agreements? What does that have to do with it? Or you may think, poorer countries that don’t trade must injure their animals at least as much as trading countries. You may think that, but she didn’t.) I will not try to re-create her reasoning on this, but, trust me, it would leave you dizzy. At another meeting, the very well-spoken and apparently intelligent leader of a British organization asserted to an audience of 200 or so that foreign investment is always and everywhere bad for developing countries. No and’s, if’s, or but’s. The statement was amazing less for its sweeping and uncompromising nature (unburdened by evidence) than for the setting where it was spoken: an upscale meeting room in a luxury high-rise hotel on Mexico’s Cancún coast – one of about 50 such hotels, a veritable ten-mile-long monument to foreign investment. The hotels

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obviously employed thousands of Mexicans, and surely provided them with better working conditions and wages than they could hope to find even 50 miles away. But no one in the audience murmured a hint of dissent at this “iron law of foreign investment”. I kept thinking of Groucho Marx’s famous quip: “Who are you going to believe -- me, or your eyes?” Among the many handouts that I accumulated was one entitled “Proclamation of the Native Peoples of the World”. I am not quite sure how “native peoples” is defined, but I assume that it covers several hundred million people. From what I could see and read, the group doing the proclaiming consisted of about twenty individuals.

Mix All This Together and You Get…

If you take away most of the people who have a personal economic stake in trade growth, and if you instead immerse the trade negotiators in a fog of marginal, ideological anti-trade views, you get: bizarre outcomes. Such as global trade negotiation gridlock over -- cotton exports from four African countries. Which is what took up almost half of the meeting time. Now agriculture is obviously an important factor in world trade, particularly for developing countries. And these countries have a right to be angry about US and EU agricultural subsidies and tariffs, which make many developing country ag exports noncompetitive. But however important agriculture trade is, it is still just one part of the global trade picture. Within agriculture, cotton is important, but again, a small slice of the overall pie. And within the cotton trade, the exports of these four countries are somewhat important, but at most 10% of the world’s cotton trade. Seen from the point of view of the four countries, however, cotton is obviously vital. They are quite poor. Cotton is one of their principal crops and foreign exchange earners. So making demands seems imperative. But a number of other countries out of the 148 in the WTO are poor, too. Their needs and concerns were blocked, along with everyone else’s, as the four-nation cotton debate rumbled on. Given the need for unanimous decisions in the WTO, if a very few countries want to burn up half or even all of a global trade meeting – over anything – they can. And so, for over two out of its five days, Cancún became the North African cotton talks. A major part of what the four countries wanted, incidentally, was for the WTO to send them subsidy payments. The problem is that the WTO has no money to send anybody. As noted, it’s just an organization of trade negotiators who slice and dice tariffs and other trade barriers. So the four countries were making demands that the organization had no conceivable way of fulfilling. Chalk that one up to the Myth of the All-Powerful WTO. Political theater does have its consequences. By abruptly putting unscheduled items on the agenda, and by making demands that stalled the trade talks, the four countries contributed to its demise. Instead of bringing home concessions that would have helped their people, they – along with everyone else – left empty-handed.

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(The same can be said of the group of countries organized by Brazil and India, called the “G-21”. They came to Cancún with some genuine concerns about agriculture, but evidently without a lot of preparation. By simply making demands while refusing all offers to negotiate, they contributed to the atmosphere of stalemate.) To put it mildly, the cotton issue should have been worked out in advance of the Cancún meeting. More broadly, the WTO needs some way of handing off issues to committees or subcommittees. The organization as a whole should focus on the output of those committees and subcommittees and on truly global issues. Issues that have not been vetted through committees, or agreed to by strong majorities at the meetings, should be ruled out of order. On the last day of the meeting, a government trade minister from a country that is seeking a free trade deal with the United States read a statement. It harshly attacked a proposal for customs simplification that was backed by the US and the European Union. Customs simplification, mind you! What could be more of a win win? Cheaper goods for everybody, delivered faster. Easier trade for small exporters and importers. The Cancún discussion had shifted to customs simplification partly because it was considered noncontroversial -- an opportunity for a “breather” from all the big arguments. After the minister finished his harangue, he signaled to the US delegation that he really didn’t mean it. He indicated that, as the head of a multicountry bloc, he sort of “had to read it”. This is obviously hypocritical, but not quite as hypocritical as it sounds. The “bloc” position was based on an earlier negotiating demand by the EU. That had changed only hours before. Late-breaking changes like this spelled trouble in a meeting that was wrapped around a Saturday and a Sunday. Many delegates couldn’t communicate the shifts in the negotiations back to their home countries and get OK’s to change their own positions. Shortly after this, the whole ministerial meeting was terminated. Cancún became the “perfect storm” of bureaucrats, grandstanders, loopy interest groups, bad timing, negotiating mistakes, and people – inside and outside the meeting – with little real grasp of trade issues, trade negotiations or the WTO itself.

A Way Forward

Maybe you can see where I’m going with all of this. I am convinced that the WTO’s difficulties will significantly improve if the organization systematically considers the views of those who depend on trade expansion for their livelihoods, and those whose standards of living are likely to improve because of it.

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That includes all the international sales directors, freight forwarders, port directors and brokers that I mentioned at the beginning of this article. And, forgive me for sounding parochial here, but it especially includes small and medium-sized companies engaged in international trade. Not just because we “SME’s” make up 97% of US exporters and probably about that in most other countries, though that is obviously a good reason to draw on us. Most importantly, we should be consulted because we represent “Main Street” in this country and the equivalent elsewhere. Our involvement in the shaping of trade issues can bring with it the kind of numbers and passion on the pro-trade side of the debate that the anti-trade groups have long used to advance their agendas. We have an instinctive feel for what’s acceptable in our communities. We can illustrate the benefits of more trade with specifics, and we make good spokespeople for the issues we support. In short, we can play a vital role in strengthening the consensus for trade liberalization. And not just in the United States. SME’s typically create two-thirds to three-fourths of all new jobs in every economy. That has made SME growth a priority with most developing country governments and with many foreign aid donors. But these countries often have small, impoverished domestic markets. So there has been an increasing focus on helping developing country SME’s trade internationally. What an opportunity this presents! It’s an area where the interests of the advanced industrial nations and those of the developing countries converge, an area that the vast majority of WTO members agree on. Exactly what’s needed after Cancún. There is already some common ground here, in a series of initiatives that trade negotiators call “capacity building”. With input from all sides and a bit of imagination, a lot more could be done with this. In my work for SBEA, I frequently meet officials who handle trade and economic issues for developing countries. Mentioning SME’s in international trade to them invariably sparks animated conversations. Moreover, SBEA members often tell me that they prefer trading with smaller companies overseas. And why not? SME’s around the world share many characteristics -- an entrepreneurial spirit, a closeness to the customer, an agility in addressing shifts in the marketplace, and a willingness to handle smaller orders than major multinational businesses can or will. Whether the WTO begins using SME’s as a new channel for international cooperation, or simply consults them more regularly, they and similar groups with a real stake in trade expansion should be represented, involved, and respected.

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A Functioning WTO

This will not solve all of the WTO’s problems, of course. The European Union’s Trade Commissioner, Pascal Lamy, has described the WTO’s decision-making process as “medieval” and this is not much of an exaggeration. The organization’s tradition of unanimous decisions is simply not sustainable in a group of 148. There needs to be some method of “supermajority” or “weighted” voting that is sensitive to the concerns of individual countries, but maintains the overall forward momentum of negotiations. Plus a committee system and rules of parliamentary procedure to prevent deliberate obstructionism. Cancún was long on people who evidently needed to “be” delegates, and short on people who wanted to “do” negotiating. The WTO will never get much work done when its meetings are overrun by armies of the “be” types. When countries like Andorra, Djibouti, Liechtenstein, and St. Kitts and Nevis send multi-member delegations of government officials to a negotiating meeting, and when the United States fields a force of more than 200 officials, and Japan more than 225, it’s a pretty good bet that the decision cycles will be slower than a five-day calendar can accommodate. Somehow, the WTO has to cap this “delegate inflation”. Let countries send all the government officials they want -- as advisors and consultants. Give them impressive titles, if needed. But make it clear that officials accredited as “delegates” should be decision-makers, and therefore far fewer in number. The delegates who do come should be prepared to negotiate. Each country should accept the responsibility to assess what is it prepared to offer and relent on, as well as what it will refuse. If that also means keeping the lamps burning all night in foreign ministries around the world during these meetings, then so be it. Still, there is reason for hope after Cancún. Trade negotiations take place in “Rounds”. The hard part is getting the “Round” started. That’s why the fiasco in Seattle, which delayed the start of a new Round by over two years, was a true disaster. But this Round, which began in Doha, Qatar in 2001, is now well underway. Cancún was to have been a milestone in the Doha Round, but only that. The meeting there was a setback, but not a disaster like Seattle. The previous “Uruguay Round” took about seven years to complete, and that is roughly average. The “Doha Round” needs a few more years before a real judgment can be made about it. There is also a kind of precedent, from an earlier round, for dealing with stalemates like the current one. In the “Tokyo Round”, when a relatively small number of countries held up overall progress, agreements were reached between groups of countries that wanted to move forward. These so-called “plurilateral agreements” may now be in the WTO’s future. This method would mesh well with the US approach that is already being pursued by the Office of the US Trade Representative, under Ambassador Bob Zoellick. USTR calls it “competitive liberalization”. This basically means finding the countries that want to liberalize their trade with the US, and working on agreements with them to do so. The idea is to set examples and challenge others to follow. The US has just completed trade agreements with Chile and Singapore that were developed in this way. Agreements with a number of other countries, including regional agreements with Latin America and Southern Africa, are currently being negotiated.

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In principle, “competitive liberalization” could be done inside the WTO, although it also can be done separately if the WTO is unwilling or the process bogs down. The advantage, either way, is that the forward movement on trade is maintained. For their part, much of the rest of the world seems inclined to do likewise. The EU has set up recent “bilateral” (individual country) trade agreements with 30 nations. Japan is seeking bilateral trade agreements, too. The Asian nations in the ASEAN group are drawing closer to a trade deal. So the work goes on.

Challenges Ahead

One downside to the collapse of the talks at Cancún is that a great opportunity for the US and the EU to work together has been missed. Concessions that were possible for both sides as part of a global deal, such as in agriculture, will be harder to forge outside the WTO umbrella. Upcoming changes in the EU leadership add more uncertainty to the mix. Probably the biggest losers coming out of Cancún are the world’s poorest countries, who urgently need the economic development that trade brings. These countries have few suitors for bilateral trade deals; they need global agreements. For me, the saddest image from Cancún was a photo of the affluent middle-aged staffers of an anti-trade group celebrating the collapse of the talks. Freer trade lifted more than 100 million people out of poverty in the 1990’s, according to World Bank studies, with the fastest gains coming in the countries that traded the most actively. Now these staffers, who no doubt consider themselves to be defenders of the poor, have helped delay a rise in living standards for millions more of those poor. Intoxicated with illusions about the WTO, the staffers cheered as the negotiations ground to a halt. And then headed back to their comfortable homes. One hopes that government officials, reflecting on what happened at Cancún, will begin tuning out all the prescriptions for self-destruction, however soaring the accompanying rhetoric. Or that their populations will force them to. Led, of course, by their SME’s.

© 2003, Small Business Exporters Association. All rights reserved. The views expressed here are solely those of the author and not necessarily those of the Small Business Exporters Association, the National Small Business Association, the Presidential Advisory Committee on Trade Policy and Negotiation (ACTPN), their Boards of Directors or their members. The affiliations shown are for identification purposes only. For further information, contact: Small Business Exporters Association, 1156 15th St. NW, Suite 1100, Washington, DC 20005, (202) 659-9320, Fax: (202) 872-8543, [email protected], www.sbea.org.

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