Clouds gather before Cancun starts

Accusations are flying even before talks begin, writes Denis Staunton, European Correspondent.

Next week's ministerial conference of the World Trade Organisation (WTO) marks the half- way stage in a round of negotiations designed to strengthen the international trading system and offer a better deal to poorer countries. But before the first representatives from the 146 WTO countries have arrived in the Mexican resort of Cancun, the air is already thick with recriminations.

Developing countries accuse the rich world, led by the EU, the US and Japan, of betraying their promise to make this round of negotiations a "development round" that would be led by the interests of the world's poor.

Rich countries complain that the developing countries are making unrealistic demands that could wreck any chance of finding common ground at Cancun.

India's prime minister, Mr Atal Vajpayee, yesterday called on poor countries to unite at Cancun to ensure that their concerns receive a better hearing. "We have to insist that the multilateral trading regime takes into account the genuine concerns of the not-so-rich countries for the welfare and livelihood of billions of their citizens," he said.

In Brussels yesterday, however, the EU Agriculture Commissioner, Dr Franz Fischler, poured scorn on a recent initiative by India, China, Brazil and others, which called for tougher rules to be applied to rich countries than to poorer ones.

"I cannot help the impression that they are circling in a different orbit. If they want to do business, they should come back to mother earth. If they choose to continue their space odyssey, they will not get the stars, they will not get the moon, they will simply end up with empty hands," he said.

Next week's talks will focus on 20 issues, including industrial tariffs, access to medicines for poor countries and rules governing foreign investment. The most important and intractable issue is agriculture, but nothing can be agreed in any sector without an overall agreement on an entire package.

Mr Richard Newfarmer, an economic adviser at the World Bank, estimates that progress on tariff reduction at Cancun could lift 144 million people out of poverty.

"Clearly the rich countries have to take the lead in this process. The single most difficult issue at Cancun is agriculture. This is one issue where the onus is on the rich countries," he said.

The European Commission negotiates on behalf of all EU states at the WTO, under a strictly defined mandate from national ministers. As negotiations progress, the Commission needs approval from the national ministers for any change in EU policy.

Leading the EU team is the Trade Commissioner, Mr Pascal Lamy, a French socialist intellectual whose passion for running marathons has given him a whippet-like frame. The elegant Mr Lamy forms an odd couple with Dr Fischler, a burly, bearded, Austrian farmer with a taste for plain speaking and hard bargaining.

Mr Lamy said yesterday that a successful conclusion of the current round of trade negotiations by the end of next year would boost the world economy and he insisted that the EU was going to Cancun with an open mind.

"The Cancun ministerial meeting must move the negotiating process into a decisive phase, if we are to meet the end- 2004 deadline. The timely conclusion of the round will bring good news to a world economy in need of stimulus," he said. "Europe is willing to take its responsibilities but we cannot do it alone. If we want this round to be successful, we will all have to shoulder the burden, and to show a willingness to compromise, a determination to succeed," he said.

The EU argues that it has already taken important steps towards abolishing trade-distorting subsidies by agreeing to reform the Common Agricultural Policy (CAP). The reform, agreed by ministers in June, leaves subsidies to farmers close to their present level but no longer links subsidies to production.

Dr Fischler claimed yesterday that the EU has already done more to reduce subsidies than anyone predicted.

"The EU will go further and has offered to eliminate export subsidies on certain products of interest to developing countries and substantially reduce the rest. The only condition is that export credits, abuse of food aid or State Trading Enterprises used by our partners are equally disciplined."

Europe has already come a long way in the past 10 years. The proportion of the CAP budget spent on refunds is down from 30 per cent of the EU farm budget in 1993 to less than 9 per cent in 2002. With the June 2003 reform package and the upcoming reforms of the sugar sector, the EU will be able to do even more," he said.

Last month, the EU and the US agreed a framework for the reduction of subsidies and the lowering of tariff barriers that prevent access to domestic markets. Developing countries are unhappy with the deal but EU sources close to the negotiations believe that the framework provides a basis for agreement at Cancun.

There was a further piece of good news last month when the US lifted its objection to an agreement that will allow poor countries to produce generic versions of expensive, patented drugs to fight such life-threatening conditions as HIV/AIDS. The agreement will allow poor countries unable to produce the drugs themselves to import cheap versions from other developing countries.

Developing countries are unhappy about a number of EU proposals, however, notably an attempt to establish enforceable rules to protect foreign investment. Poor countries fear that the rules will make it easier for foreign companies to repatriate profits and prevent governments in developing countries from favouring local firms.

Although all participants claim that they want next week's meeting to be a success, there is much scope for the negotiations to unravel. Even if Cancun succeeds in keeping the trade round on the rails, the prospect of an election in the US and a change of Commission in Europe next year means that completing the round by the end of 2004 will remain a formidable challenge.