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Suddenly, Brazil and Friends at the WTO Are Geared to Save the World

Brazilian minister Celso Amorim Just when the WTO's Doha Round had faded into the back pages of specialized trade publications, the G-20 has given it the kiss of life, heralding it as the way out of the current global economic crisis. Talks that had been given the last rites in July are today alive and rosy-cheeked and, if some of the rumors from Geneva are to be believed, close to completion.

It sounds improbable that July's diplomatic failure, reported as an unmitigated disaster, should so quickly have been mitigated. Yet it appears to be true.

To get beneath appearances, it's worth having a look at a chronicle of a previous WTO round collapse. Stuart Townsend's recently released film, Battle in Seattle, tells the tale of the glorious week at the end of November 1999 when the World Trade Organization held its ministerial summit in the United States, and offers some helpful, if unintended, lessons.

Townsend's is a film that has its heart in the right place. It follows, with a great deal of sympathy, five days of fireworks in the streets of Seattle. The film didn't do too shabby a job at capturing a couple of key moments. I was part of the Zimbabwean NGO delegation inside the meetings, and got to see the protests from both sides of the barricades.

One of the Ministerial's many diplomatic low points happened when the African delegation was turfed out of a meeting room, because the U.S. conference organizers decided they needed the room for something else. That's how it went down, and the film got it dead right. The movie's coverage from outside the Ministerial was convincing too. The re-enactment shots of the protests and the clouds of teargas and smoke billowing through the streets were eerily accurate.

But ultimately the film was disappointing, and the reason it fails is the reason we shouldn't be surprised at the resurrection of the Doha talks. Townsend had to make some tough choices to make the story fit the constraints of Hollywood and celluloid. With a red carpet full of celebrities, his tale needed to be driven by good or bad characters, each going through their own narrative arc over the five days.

Real life doesn't work like that, and trade agreements certainly don't. The narratives that best explain what happens in politics aren't usually the ones that fit 90 minutes and a PG-13 rating.

Crisscrossing Storylines

Part of the problem, in other words, lies in the stories that get told about the WTO. Attractive though they are, the narratives of epic struggle and eventual defeat don't really help describe the reality of how trade diplomacy works. Trade diplomacy is more about shifting interests, mendacity, and perpetually uncertain outcomes.

With this in mind, it's useful to revisit why the Doha round collapsed most recently. You can go easy on yourself if you can't quite recall. Even the Financial Times now reports on the collapse of the Doha round as a summer fixture as routine as "beach holidays, barbecues, and Wimbledon fortnight."

There was, among progressive economists, a fair degree of consensus in the talks' post mortem that the failure of July's negotiations was due in part to the U.S. government's inability to wield the hegemonic power that it took for granted when it set up the WTO in the first place. The United States sought to impose conditions on developing countries that it was unable, through either coercion or consent, to get away with.

The most unpalatable of these conditions for developing countries were the provisions around "Special Safeguard Mechanisms" (SSMs). These clauses in trade negotiations allow countries to raise tariffs, suspending WTO standards, but only in emergencies. The point of SSMs is to allow countries to provide some modicum of shelter to their economies when the winds of free trade blow through.

Such protections are necessary to counter "import surges," which happen when a domestic industry is overwhelmed by cheaper imports. Depending on how you measure them, according to the FAO, there were between 7,132 and 12,167 such surges from 1980 to 2003.

They're not rare occurrences, which is why it's prudent for developing countries to negotiate a way to counter their worst effects. Special safeguard mechanisms are the rip-cord that national governments can pull in order to prevent an import surge from destroying domestic industries beyond all hope of recovery.

During the Doha negotiations, the dispute around SSMs seemed to be merely over the threshold at which SSMs would kick in. But a debate about thresholds is also, inevitably, one about policy. To declare that a domestic industry is being overwhelmed by imports is a political, not an economic, judgment call. One person's "industry in death throes" is another's "industry adjusting to the realities of the global market."

The debate about SSMs was, then, about the extent to which governments should be allowed to prioritize domestic concerns over promises they made under WTO policy. Should SSMs be allowed at levels at which they could reasonably be expected to be used as a standard tool of development policy?

Or should the threshold be so high that their inclusion in the negotiations is, at best, cosmetic – an insurance policy that would require catastrophe in order to start paying out? The United States demanded a 150% trigger before SSMs could kick in, that is, a 50% import surge before developing countries could start imposing tariff hikes.

This was unacceptable to many countries. India, in particular, took a belligerent stand around agriculture. The Indian Minister of Commerce and Industry Kamal Nath chided the United States for its approach to agricultural trade liberalization.

In the wake of the failure, he's reported as saying, "Unfortunately one member is unable to make any effective reduction in trade distorting subsidies, but at the same time is insisting that developing countries open up their markets to provide access to their subsidized products. We cannot accept opening of our markets for subsidized agriculture products."

The story, then, wasn't just about failing U.S. hegemony – it was also one in which India headed a crew of developing countries unwilling to open their agriculture sectors to the subsidized predations of U.S. agribusiness. This, at least, is the story.

There's certainly a grain of truth here. India is heading into an election year, and engaging in the kinds of stunts that are part of election season in the world's largest democracy. These include the Doha position and a debt-relief program for farmers that, while promising an end to the catastrophe of farmer suicides, ultimately does little to prevent them because it excludes informal sector loans and farmers who do not own their own land (invariably women).

Both are part of the many ways in which Indian politicians signal their temporary interest in their poorest rural citizens. Their interest is soon displaced after the votes are counted, but in the months before ballots are cast, it means that Indian politicians tend to take more pro-poor postures.

Indian agricultural policy analyst and journalist Devinder Sharma adds a wrinkle to this story. He argues that everyone was ready to sign on the dotted line, including India, and that Nath's fulminations on the rights of Indian farmers shouldn't be taken at face value.

Sharma suggests that in the hours before the talks collapsed, it looked as if the parties around the table were nearing an agreement, if only the U.S. negotiators would agree to tamp down agricultural subsidies in cotton. The United States refused, and the talks collapsed.

I don't doubt this would have been a sticking point, though I think it's hasty to discount the importance of election cycles on the negotiating process and to lay the entire blame for the talk's collapse on a single issue.

But Sharma is right to poke a hole in the idea that Nath represented a knight in shining armor for the benighted people of the world. Nath, like his peers around the negotiating table, is not an agriculturalist. His allegiances lie with the elites of his country and, after the election is over in India, his rhetoric will return to match his actions in discriminating against the small farmers.

While the world was gripped by the U.S. election fever, Nath was in meetings with Celso Amorim, Brazil's minister of external relations, and they seemed, according to some reports, to have found common ground. This makes it a little less surprising that the Doha talks are rolling again.

They've also been encouraged through the G-20 summit, dubbed the Bretton Woods II conference, which happened in November 2008 in Washington, DC. Here's what the statement from the G-20 Summit says in the section entitled "Commitment to an Open Economy":

    "… we shall strive to reach agreement this year on modalities that lead to a successful conclusion to the WTO's Doha Development Agenda with an ambitious and balanced outcome. We instruct our trade ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome."

With the economic situation deteriorating, finance ministers and heads of state from the world's largest economies are keen to prevent a crisis with its origins in the United States from spreading, and eager to avoid policies that hamper the economic freedom of the corporations that they represent. The G-20 declaration is part of a strategy to shore up the freedom of capital in these, the largest capitalist countries.

Remember that this is a statement drafted by finance ministers, whose portfolio is precisely the expansion of trade and finance. They can see that a lame-duck Bush administration is much more likely to be supportive of their agenda than an Obama one. Throughout his campaign Obama surrounded himself with trade hawks, and one ought not to expect too drastic a change in U.S. trade policy direction during his presidency. But it's hard to imagine that his administration would be quite as gung-ho as that of his predecessor.

The G-20 declaration is a way for a bloc of leaders to secure diplomatic space and to push for an agreement before Jan. 19, 2009, when Bush leaves office. In this way, they seek to gain ground in the long war against all other kinds of international economic arrangements. The neoliberal refrain of "there is no alternative" reverberates throughout the G20 text.

Development for Whom?

Of course, Doha is far from a path to salvation for the world economic system. The rules of the trade game are skewed in favor of large corporations, across a range of developing and developed countries.

As heterodox economists Ha Joon Chang and Walden Bello have noted, the practice of "free trade" has been one in which the most powerful states have achieved dominance not by trade liberalization, but by prolonged investment in their biggest industries.

This is as true of the U.S. car industry as it is of the Brazilian soy industry. In both cases, states have invested heavily to promote local industries behind tariff walls, pulling down those walls only when the industries were ready to do battle in the rest of the world.

This helps explain the G-20's position. Having graduated into the big league, the large developing countries want to save their own economies by expanding export markets for their own favored industries, and this means pulling the ladder up on the rest of the Global South.

They're plumping for a model of development that, inevitably, aligns them more profoundly with the Global North, than with the rest of the Global South or with the poor in their own countries. The lack of a path to development that involves government investment hurts society's weakest the most: those with the least education, training, and resources, invariably people in rural areas and women.

The full title of the WTO talks is "The Doha Development Round" but it is not the poorest who will be developed by the negotiations. The G-20 declaration signals that the world's richest governments are keener to support their big industries as we head into a global recession, than to think terribly hard about their poorest citizens.

The Doha round of talks isn't quite healthy and robust. But it never died either. The language of life and death obscures what the negotiations represent. The talks themselves are a battle-line in the long diplomatic trench warfare of economic powerplay between newer and older capitalist nations, where different blocs win and lose ground, but the poor are consistently marginalized, consistently the victims.

While the battle-lines may shift a little, and occasional lulls may occur in the fighting, the talks can never die as long as the WTO exists. So next time you read a report that the WTO trade talks are dead, just remember: there's always a sequel.

For More Information

Raj Patel's most recent book is Stuffed and Starved. He blogs at http://stuffedandstarved.org/drupal/blog/1 and is an analyst for the Americas Policy Program (www.americaspolicy.org).

For more on the WTO talks in Seattle, visit TheRealBattleInSeattle.org and, for more about the Townsend film, read David Solnit's essay in Yes! Magazine, http://www.yesmagazine.org/article.asp?ID=2850.

Taking Away the Ladder: China and the Competitiveness of Mexican Exports
http://americas.irc-online.org/am/5506

When More Is Less: The Limited Impact of Foreign Investment in the Americas
http://americas.irc-online.org/am/5290

Raj Patel's most recent book is Stuffed and Starved. He blogs at http://stuffedandstarved.org/drupal/blog/1 and is an analyst for the Americas Policy Program (www.americaspolicy.org).

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  • Show Comments (7)

  • ch.c.

    Furthermore forJoao
    Dont pay too much attention to what large banks are saying, bullish or bearish. They rarely agree anyway and they are rarely correct either !
    Today, UBS said nearly the opposite of what Morgan Stanley wrote !

    Who are you going to trust and follow…NOW !!!! Morgan Stanley..or UBS ? Or the brokeraage firm Raymond James who also is Brazil positive ?????
    It reminds me Credit Suisse who 2-3 weeks ago downgraded Petrobras from OVERWEIGHT TO MARKET NEUTRAL !
    Great recommendation from the top at US$ 72.- and around US$ 20.- when downgraded ! Was it not ? Hmmmmm…simple proof that no one has a crystal ball !
    Reading their recommendations is fine, and I read them. At times there is something to learn, but only at times, only a few times.

    Therefore dont be necessarily as bearish as Merrill Lynch is for oil at US$ 25.- but just be more patient and prudent until more signs will come out !!!!!

    As an investor but also as a trader, I dont care WHAT THESE IDIOTS SAY ! Regardless if they have the same opinopn as mine or not !
    At the end I am the one responsible for what I DO…not them !
    Therefore contrary to Lula or other junkies opinions, I dont criticize anyone if I lose…except myself !

    We are all in the same dark forest during bull AND bear markets ! That is why prices fluctuate…constantly !
    Some very smart Hedge Funds managers have lost their shirt this year, despite having had a great overall 10 years track records.
    Next time it could…ME ! Who really knows ? Not me…for sure !
    My advantage over them ?
    My age (58) with smile
    I have seen live the bear markets of 1974 – 1978 – 1982 – 1987 – 1990 -1994 – 1998 – 2002 – 2008 and many bull/bear markets in commodities, currencies, and interests rates !
    That just makes me more open minded than younger newbies !!!!

    Life is life !
    As someone said : the only certainty is that at the end we are all dead !

    😀 😉 😀 😉 😀 😉

  • ch.c.

    Well what do you think about my analysis? Mostly disagree – sorry !
    1) Most bloggers here, including you Joao, and other veterans, were BULLISH BULLISH BULLISH on all commodities with the China-India growth demand scenario……which of course was a bubble trap !

    2) About Petrobras Nationalization idea provided by the Great Elite Trader…..RIGHT AT THE TOP…OF COURSE !
    In my view it would be the worst idea of all ! The why is very simple : who is going then to finance the US$ 200-600 billion necessary for development of these reserves ? Hmmmmm !
    The smart Tricky guy would at least wait the development – production costs would be spent…FIRST…then nationalize !
    I thought you would be smarter ! smiles

    3) As to the Brl…you forgot that I told you here nearly live when We went out of the Government Long Term Bonds we had om a 3 to 1 leverage, around 2 weeks after the first SELIC rate increase, then placed our Brl short term….and sold ALL our Brl at 1,5780.
    And that the reason of our Brl sale was simply because due to some earlier readings from smart sources, EARLY in 2007….(yess 2007 not 2008) the sources provided LONG TERM BRL OBJECTIVES ! THE MOST “bearish” bull was at 1,64 and the most “bullish” bull was at 1,54 !
    And since then if you recall correctly, I always said the US$ turned not only against the Brl but against ALL CURRENCIES !
    I even stated many times that the USA became the World Best EMERGING Market…with my usual cynism !!!!!
    Believe it or not, I still think so. Many times recently I have said I am bullish on all the World Equities overall (I admit a little bit too early) but that the US$ has still a long way to go on the UPSIDE for the next 2-4 years….time will tell !!!!

    4) On Brazilian Real Estate
    No – it is not those who rented who are at risk ! It is the owner living in their own house/condo who are going to be hit the most.
    As to Farm and Commercial Real Estate in Brazil…..YOU HAVE SEEN NOTHING YET…ON THE DOWNSIDE !
    A tragedy is right around the corner with mortgages rates at 13-15 % with an inflation environment of 4-6 % !!!!!!
    This is a guaranteed model…for failures ! dont ask me when because I have Nooooo idea, but of how things are worldwide it could be very very shortly !!!!!
    The only way to eventually avoid the problem, IN MY HUMBLE VIEW, is that your inflation….EXPLODE ON THE UPSIDE !!!!
    If you have inflation at 13-15-20 %, then an exisiting 13-15 % mortgage rate is acceptable…but only until the renewal at maturity…of course !!!!

    Just think about it !

    😮 😮 😮 😀 😉

  • João da Silva

    Jon
    I read the following alarming news with great concern:

    [url]http://www.msnbc.msn.com/id/28053048/[/url]

    If you need political asylum, I would be happy to arrange one for you. 😀

  • João da Silva

    Ch.C
    [quote]Joao….and what about if Merrill Lynch report, dated today would come true…on OIL ???
    written by ch.c., December 04, 2008
    [/quote]

    Although I had made a joke on Robert Mugabe, I did take this article and the one about “Oil Curse” as well as your comments made in therin very seriously. Just brief reply, as I am a bit busy with some interesting events.

    1) Re the Bloomburg article on oil prices coming down to $25, I will not be surprised. If you are following the national press about Petrobras borowing about R$ 3 Biliions from CEF & BB, you start wondering about how solid the company is. I always thought that the talk oil prices remaining at $140 or going up to 200 was pure bullshit. Right now, they are talking about “oil curse” and not linking the economic growth with oil. I think you might remember about my making fun of the Argentine economy as 100 years of “Beef Economy”. Apart from you, many veteran bloggers and myself were very skeptical about the oil skyrocketing to $200 and also questioning about one oil reserve found per week! So all of us were not too far off the reality.

    2) One thing I am not very clear about ( I think that I am slightly tired mentally): With the share of Petrobras coming down, would it be possible or worth renationalize as suggested by Ricardo Amaral months ago. Of course, with the pricescoming down, there is no way we can use our “Oil Wealth” to finance social programs like PAC ,PAS,PAP, etc; All will remainin papers.

    [quote]Welllll…outside of oil prices predictions, my own nose is still telling me……SELL…SELL…SELL.SELL ALL THE REAL ESTATE MARKETS THAT DID NOT CAME DOWN SO FAR ! I am thinking mostly of some emerging markets, including Brazil, Russia.
    [/quote]

    My nose tells me to SELL the real estate properties that are rented on long term lease (or recently constructed) right now. That too depends upon the location of the properties. If you have productive properties (farm lands, Hotels located on nice beach fronts- the first being your case and the second is that of DnB) It is interesting to remind you that our other fellow blogger Bo & his partners had sold all their properties in SE when the $ was at 1.60 or so Real, they would have made a killing. Probably they could have bought some properties in U.S, where the prices went down!

    Well what do you think about my analysis?

  • ch.c.

    Joao….and what about if Merrill Lynch report, dated today would come true…on OIL ???
    http://www.bloomberg.com/apps/news?pid=20601087&sid=acgAzpwrcUfQ&refer=worldwide

    No one predicted oil at US$ 150.- TWO YEARS AGO !
    No one predicted LEHMAN bankruptcy ONE YEAR AGO !
    No one predicted oil at US$ 45.- FIVE MONTHS AGO !
    No one predicted Aracruz, Votorantim, Sadia that they were Casino gamblers…..4 months ago !

    But…but…but….dont be as bearish ! Right ? smile !

    Welllll…outside of oil prices predictions, my own nose is still telling me……SELL…SELL…SELL.SELL ALL THE REAL ESTATE MARKETS THAT DID NOT CAME DOWN SO FAR ! I am thinking mostly of some emerging markets, including Brazil, Russia.
    If you remember some months ago I said : “in the not to distant future 2-3 years out, the mega infrastructure in the hotels in the OPEC nations will be much cheaper. 5 stars hotels rooms for the price of 2 stars and 7 stars hotels rooms for the price of 3-4 stars.
    Correct or not ?
    Welll it may be earlier than that, such as in 1-2 years or so !

    Just have a taste of it :
    – Moscow real estate market went up by a factor of 6 in US$ term between 2003 – 2008. Real Estate prices even went up in July.
    By ego and pride, they started building the European highest tower. Construction stopped 2-3 weeks ago. Many others half built buildings stopped.
    – In the Djellabah countries, here is just the start of what is going to be much much much more widespread :
    http://www.bloomberg.com/apps/news?pid=20601109&sid=a2jrSPqYhVzY&refer=exclusive

    And if one idiot Brazilian believe that Brazilian real estate is going to be immune while paying mortgages rates at 13-15 %, wellll….let me laugh !

    And let me underline that even 2-3 % cuts in Brazilic SELIC rates over the next XX months is not going to change…ANYTHING !!!!

    It is going to be a HARD LANDING !!!!! Similar to what we know now in commodities or stocks markets, not necessarily in percentage but in….DEGREE OF PAINS…for real estate owners !

    😀 😉 😀 😉 😀 😉 😀 😉 😀 😉 😀 😉

  • João da Silva

    [quote]Raj Patel is a junkie, paid by some obscure CaÀƒ¯xa 2, 3 or 4 from the PT party or DIRECTLY OT NOT From the Planalto Palacio in Brasilia ![/quote]

    Cant be. I think he works for Bob Mugabe. 😀

  • ch.c.

    Suddenly, Brazil and Friends at the WTO Are Geared to Save the World ! How funny that is !!!!!
    then why Brazil and Argentina are going to INCREASE their import tax rates…very shortly….on many imported goods….including Chinese textiles….TO PROTECT MORE THEIR OWN INDUSTRIES ??????

    Come one, come on ! the article is full of lies….coming typically from the Disinformation & Propaganda Dept at the Planalto Palacio, next to Lula office !!!!
    Should then Europe and the USA do the same against emerging nations goods, if that is such a good idea !
    Welllll….at least they should. They would get my applauses !!!!! Reciprocity is the nature of two ways trade.
    Non reciprocity is the nature of ONE WAY TRADE ! The type of trade that Brazil is fighting for !

    And how are Brazil going to finance their trades ? Are they not complaining they dont get enouhg foreign financings ?
    Do Europans and Americans corporations borrow in Brazilian Currency ? They are not dumbass….yet ! smiles

    Raj Patel is a junkie, paid by some obscure CaÀƒ¯xa 2, 3 or 4 from the PT party or DIRECTLY OT NOT From the Planalto Palacio in Brasilia !

    😀 😉 😀 😉 😀 😉 😀 😉 😀 😉

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