Today's date:
Winter 2005

The New Global Economic Balance of Power

Celso Amorim, Brazil's minister of external relations (the foreign minister), also heads the g-20 negotiating bloc within the World Trade Organization. The bloc includes such major developing countries as Brazil, India, China and South Africa.

Brasilia—In the early hours of Aug. 1, 2004, the WTO general council in Geneva adopted a framework agreement that will guide agricultural negotiations at the Doha Round. Although hard bargaining will still be required, the agreement represents a major step in opening the global marketplace for developing nations.

Of course, the importance of the agreement lies in its substance: in particular, the commitments to eliminate agricultural export subsidies and to substantially reduce internal supports to farmers. But the breakthrough in Geneva would not have been possible without the emergence of a new dynamic in the negotiation process. For the first time in GATT/WTO history, the views and interests of developing countries were considered on a par with other interests.

Historical perspective might prove useful in assessing the significance of that achievement. The January 2002 Uruguay Round, the last comprehensive talks on trade liberalization, neglected agriculture altogether. Export subsidies, eliminated for all other goods more than 40 years ago, remained in place for agricultural products.

The notorious 1992 Blair House agreement and its "Peace Clause," which prohibited challenges to the use of domestic subsidies and support programs, in effect insulated subsidies from actions under the WTO's newly created dispute settlement procedures. Billions of dollars in subsidies continued to distort agricultural trade.

Seven years lapsed until the launching of a new round, at Doha, Qatar. During those years, according to the IMF, agricultural subsidies in industrial countries represented the equivalent of two-thirds of Africa's total GDP. Against the background of distorted competition, the depression in prices for agricultural goods affected the livelihoods—at times the very survival—of small farmers and impaired the ability of developing countries to adequately carry out their much needed social and development policies.

Doha raised expectations among developing countries that, during the 1990s, had become dynamic agricultural exporters in such products as sugar, soybeans, beef and poultry. The resulting economic growth rescued huge segments of rural workers from poverty in China, India, Indonesia and elsewhere.

But in the lead-up to the Cancun Ministerial Conference in September 2003, the United States and the EU once again insisted on defending only their self-interests. The proposal they presented amounted to a consolidation of their existing policies—with very modest gains and even some steps backward. This practice of precooked deals between major trading partners was commonplace in the old days of the GATT.

And in Cancun, developing countries were expected to accept the deal with only minor, cosmetic adjustments.

In hindsight, the success of Geneva was made possible by the experience of Cancun. The g-20, which represents 22 percent of world agricultural production and 70 percent of rural workers, was unfairly depicted as a "spoiler" in the immediate aftermath of Cancun. However, the bloc gradually established itself as an indispensable participant in the creation of a balanced solution to the issue of fair agricultural trade. It was able to express the concerns and aspirations of a representative spectrum of developing countries, thus helping to introduce the balance and credibility that had been lacking in the consensus-building process.

It is possible to say that Geneva will be the beginning of the end of agricultural subsidies. The framework provides a blueprint and paves the way for a fuller integration of developing countries into the international marketplace. Estimates of global gains vary from $250 billion to almost $700 billion per year. An estimated 500 million people are expected to rise out of poverty worldwide.

Figures and target dates are still to be discussed. However, the direction is clear: Export subsidies will be eliminated; trade-distorting domestic support will be substantially reduced from a well-defined ceiling, and with disciplines that severely limit the possibilities of circumvention; market-access negotiations based on a format that ensures tariff reductions will open significant opportunities for trade while acknowledging the special requirements of rural populations in poor nations. That is infinitely more than what could have been achieved in Cancun and surpasses even the original proposal presented at the time by the g-20.

This new dynamic rekindles the belief that trade—not aid—should be the main engine for international development and social justice. Such a propitious result in Geneva bears witness to the possibilities of multilateralism in tackling shared problems.