What went wrong at Cancun? The core problem is that industrial pressure groups have gained too much influence on economic policy.
Twenty years ago, few people could have told you that the initials GATT stood for the General Agreement on Tariffs and Trade. Today its successor, the World Trade Organisation, is front-page news.
Lobby groups have seized control of trade negotiations from the dull, dedicated officials of yesterday. These administrators are still around; their language is peppered with acronyms such as MFA and MAI and references to rounds and agendas. The demonstrators outside shout cruder slogans: “WTO kills.”
But there is another side to the story: the rise in the standing of producer interest groups, more discreet but more effective. This power has given anti-capitalist lobbies an appearance of legitimacy as the only counterweight to business demands.
The primacy of producer interests is inherent in trade negotiations. Protection and trade restrictions benefit domestic business at the expense of domestic customers. Often the losses to consumers exceed the gains to producers. But since governments act for producers, reducing domestic tariffs means giving something up. The countervailing benefit is better access for domestic producers to foreign markets.
For a time, all this worked to everyone’s benefit. Measures adopted through Gatt established virtually free trade in manufactured goods between developed countries. In these negotiations, efficient producers were set against inefficient producers, and every country had both. The efficient producers won – and so did consumers.
But business has become more effective in dealing with government. The spiralling costs of US political campaigns tied politicians ever more closely to industrial interests. The European Union, with weak democratic institutions, is based in a city with some of the world’s most agreeable lunch tables. Brussels became a magnet for corporate lobbyists. If the new world trade agenda was to involve developing countries, corporate affairs people would write its content on restaurant napkins.
The nature of trade negotiations began to change when rules on trade- related intellectual property rights (Trips) were attached to them. Trips were not genuinely multilateral. US political power was used to benefit US companies. Europe tabled its “Singapore issues” not because of concerns about competition policy but to secure the things business said it wanted from poor countries. Because trade in the developing world is a small part of corporate activity for most companies, business did not, however, want them enough to match the intense concerns of subsidy-hungry US cotton producers or European farmers.
The charge that western governments in trade negotiations represent the interests of inefficient but rich producers in rich countries is hard to refute, because it is essentially true. But the representatives of developing countries do not occupy the higher moral ground. These states would mostly benefit from competition policy and a stable, transparent regime for inward investment; their domestic producers, however, would not.
The interests that governments are protecting are not the true interests of their populations, and that creates a role for non-governmental organisations. But most contribute little but rhetoric to the debate.
So nothing is what it seems. Governments are advocating causes they do not really espouse. Anti-capitalist groups are damaging the constituents they claim to represent. Business has dictated an agenda to which it feels no strong commitment. The only victors are high-cost producers.
Governments should represent their public rather than their industries. Europe should reform its common agricultural policy, not to win concessions for European business but because the CAP badly needs reform. Poor countries should introduce a stable and transparent regime for inward investment, not as a bargaining counter for better access for their exports but because it will assist their own development.
Governments have looked to trade negotiations to resolve domestic problems that they are unwilling to tackle. At Cancún, they failed.
