Judas’ Kiss: Brazil’s Deception and the WTO’s Geneva Framework

December 2, 2005 COHA

How will Brazil conduct itself at December’s WTO Hong Kong Ministerial?
Brazil subtly underplays its leadership role as a global trade negotiator.
The approaching Hong Kong meeting will severely test Brazil’s status as G-20 spokesman.
Brazil has in the past sacrificed its developing world allies to uphold its own narrow interests.
Brazilian trade diplomacy perhaps wins more approbation than it deserves.

The latest round of WTO negotiations has been nothing if not dramatic, and in this pageant Brazil has played a leading role. Representatives from the Latin American giant have adopted the mantle of a crusader for developing world interests, wanting to appear to be a strong ally for less powerful poor countries. Yet Brazil has not always proved itself a faithful advocate: some of its positions are self-serving stances that are only poorly disguised as meaningful defenses of authentic third world positions.

The first attempt to initiate a new round of global trade talks at the Seattle Ministerial Conference in 1999 ended in failure, as an unbridgeable gap emerged between industrialized and developing countries. The launch of the Doha Work Program in 2001 seemed to temporarily assuage the differences, yet they abruptly resurfaced during the ministerial meeting held in Cancún during 2003. After the breakdown there, the WTO appeared to be on a path towards irrelevancy until a July 2004 General Council Meeting in Geneva culminated in a ‘framework’ agreement, restarting the current (Doha) round of negotiations. This agreement (often referred to as the Geneva or July Decision) binds member countries to a set of general provisions which are mostly concerned with the opening of developing markets and the reduction of subsidies. The finer details of the Geneva decision are slated to be finalized at the upcoming December 13 to 18 Hong Kong Ministerial Meeting, though increasingly there is talk of downgrading expectations surrounding the outcome of the fast approaching gathering.

Many see this downward recalibration as unfortunate, arguing that the July Decision, once implemented, could benefit many WTO members. For example, then hard-line U.S. Trade Representative Robert Zoellick crowed that Geneva was a “historic” document with the power to “make life better for millions of our citizens, in developed and developing countries alike” and Brazil had received much of the credit for this apparently globally favorable outcome.

As co-founder and leader of the G-20 – a coalition of the 20 best off developing countries – Brazil and that body played a key role in breaking “the monopoly over trade negotiations (held) by the EU and the U.S.” at Cancún, which eventually led to the collapse of those negotiations. As such, Brazil has helped ensure that developing countries wouldn’t be forced into signing an unfair trade agreement in negotiations. Indeed, largely as a result of their prominent roles in the G-20, Brazil and India were chosen to represent the interests of the third world, together with the U.S., E.U and Australia, which together are the participants in ongoing trade talks. This group, known as the “Five Interested Parties,” was given sole responsibility for negotiating a resolution to the make-or-break agricultural subsidy question.

Brazil’s False Altruism
Everything appeared to be moving in a favorable direction: developing countries had succeeded in scuttling an unfair agreement and their voice was now being heard at the highest level of trade negotiations. Moreover, their interests were supposedly safeguarded by Lula’s administration which, in it’s own words, is dedicated to bringing the “multilateral trading system…closer to those whose needs and aspirations have been at it’s margins…(to) the vast majority who have not had the chance to reap the fruit of their toils.”

Yet this apparently roseate glow belied a much more drab reality. Unfortunately, there is a dramatic contrast between the grand statements that Lula makes as a “champion” of the developing world and the policies pursued by his foreign ministry, which seems to be seeking a Brasil grande on the cheap. In supporting the Geneva Decision, Brazil did not back the perceived monumental achievement for which it was unwisely heralded, but rather an accord that proved to be extremely detrimental to the developing world. Furthermore, the country has been complicit in other shams, and Brazilian negotiators have used their significant leverage not to boost the interests of the third world as a whole, but rather to advance their own country’s narrowly defined national interest. Such limited motives are evidenced by Brazil’s behavior in several fields, ranging from Brasilia’s position on agricultural subsidy issues to its offhand acceptance of what could be argued are prejudicial industrial agreements.

Choosing Its Battles
Achieving a level playing field on the issue of agricultural trade is a crucial topic for developing nations, yet on this count, Brazil has stymied the hopes of the developing world in its support of Geneva. The agricultural question is divided into three components: export competition, such as export subsidies and other forms of export promotion; domestic support, namely subsidies; and market access, specifically, tariffs. Brazil has behaved as an inconsistent ally, backing Geneva’s export subsidy cuts, while ignoring domestic subsidy issues.

The flashy numbers appearing in Geneva’s agricultural provisions would seem to greatly benefit the developing world: the agreement mandates the elimination of all export subsidies, enforces an unprecedented 20% decrease in the overall level of agricultural subsidies, and institutes a ‘tiered approach’ to agricultural tariffs which reduced the highest tariffs by the largest amount. Yet the picture is much more complicated than it may at first seem.

Brazil had been one of the loudest voices calling for the elimination of export subsidies and has, moreover, prioritized this over the other components of the agricultural issue, both inside and outside of the G-20. While such a tactic has the appearance of benefiting the developing world, the truth is that for the majority of developing nations the issue of export subsidies may be of minimal importance. The G-90 – a coalition of the 90 poorest countries within the WTO – are much more concerned with protecting and defending their internal markets from developed nations’ massive domestic subsidies than they are about export promotion. While export subsidies do contribute somewhat to agricultural dumping, it is a drop in the ocean compared to the damage caused by domestic subsidies, making Brazil’s focus on export subsidies curious at best for a self-proclaimed advocate for the developing world.

Further adding to the aura of falsity surrounding Brazil’s altruism is the fact that certain developing countries (including most of sub-Saharan Africa) which are net food importers, may, in fact, be hurt by rising global commodity prices stemming from cuts in export subsidies. Brazil, on the other hand, as a country trying to advance and promote its own exports rather than protect its domestic market, has been strongly advocating the elimination of export subsidies. As one of the richest developing countries, with an export-orientated sector increasingly dominated by agri-business, Brazil stands to gain $10 billion from the elimination of export subsidies.

Brazilian negotiators have therefore betrayed their developing world allies for what is, at best, a vague and virtually meaningless provision, since there are few guarantees that export subsidies will actually ever be removed. No date has been set for their elimination – although 2016 has been advocated as a possibility – and a ‘parallel elimination’ clause means that the U.S. and EU are not required to remove export subsidy programs until the other does so, which will surely lead to built in procrastination.

A Minor Oversight?
One battle that Brazil chose not to fight at Geneva was an all out struggle over domestic subsidies. The profound negative impact of a developed nation’s domestic agricultural subsidies on their underdeveloped counterparts is well-known and documented. Even Brazilian ministers are not unaware of this massive problem. Brazilian Foreign Minister Celso Amorim has noted that “subsidies in developed countries depress prices and incomes throughout the world, cut into the export earnings of competitive exporters and increase food insecurity in developing countries. Their addictive power does not contribute to productivity or creation of wealth. They only generate dependency on one side and deprivation on the other.” Amorim has pledged to developing countries that “any credible framework…[will ensure that] negotiations in agriculture will indeed result in substantial reductions in trade distorting domestic support.”

Rhetoric Over Reality
Fine words indeed, but unfortunately not necessarily sincere ones. When push came to shove in the agricultural negotiations, the ‘concessions’ given by the developed world in the export competition arena meant that, in return, the Brazilian negotiators have acquiesced to the creation of a totally one-sided, extremely unfair and highly damaging domestic support agreement. Despite headlines referring to a putative 20% cut in overall levels of domestic subsidies, developed countries actually have secured a “blank check” to increase them. Since the much lauded 20% cut refers only to the theoretical ceiling placed upon domestic support, it may have no impact upon actual levels of domestic support. And even if this did mandate a decrease in subsidies, developed countries would be able to strategically choose which subsidies to reduce.

Moreover, the vast majority of agricultural subsidies utilized in the developed world, and especially in the EU and the U.S., are “product specific” – meaning they target one good at a time. While the latest agreement caps product specific subsidies at their “respective average levels” by allowing these average levels to be calculated based on the years when subsidy levels were high, it offers scant help to developing nations and permits developed countries to continue their subsidies largely unchecked. If the current trajectory is continued, the EU would obtain the leeway to actually increase its domestic support by 29.2 billion euros, and, astonishingly enough, the U.S. would have WTO approval to increase its domestic support from $16.3 billion to $36 billion.

Closed Doors
The section on agricultural market access included in the draft text which Brazil is promoting is also worrisome. Core and peripheral countries will be subjected to the same ‘tiered formula’ whereby higher tariffs are subjected to deeper cuts. This theoretically decreases the ability of core countries to dodge tariff reductions in key areas, but simultaneously will have the deleterious effect of constraining peripheral countries’ flexibility over which tariffs are cut and by how much. As many developing countries are highly dependent on one or two tariffs on mono-cultural extractives or crops, this loss of policy autonomy could have far-reaching ramifications.

Thus on all three counts, the agricultural agreement Brazil negotiated and endorsed demonstrably ill-serves developing nations. But Brazil compounded the sin by playing an active role in convincing developing nations to accept the agreements. Zoellick rhapsodized how, when the developing world expressed dissatisfaction with the agreement, “Brazil stepped forward…in agreement [and] that made it a little harder for others not to come along.” Indeed, the accusation has been leveled that the more Brazil and India’s “…own interests began to diverge from a strategy of promoting the interests of the bulk of the developing countries, the more they trumpeted the claim that the July Framework Document was a victory for the South.”

Throwing a Wrench in the Development Gears
As developing nations were persuaded to believe that they had received generous, almost “historic,” concessions on agricultural issues, they were asked, in turn, to reciprocate by liberalizing their industrial and service sectors, and Brazilian negotiators were willing to forfeit their right to shape other sections of the agreement. From a weakened bargaining position, they could do little else but accept the developed world’s demands on Non-Agricultural Market Access (NAMA) and the General Agreement on Trade in Services (GATS), no matter how disadvantageous and tendentious these agreements were.

For example, the NAMA text which developing countries eventually signed in Geneva was in effect identical to the one which had been rejected in Cancún. Now, as then, the agreement presents several problems, mainly that the “non-linear formula” method only unequally reduces tariffs. As higher industrial tariffs are subject to higher cuts, underdeveloped industrializing nations are hardest impacted, with the agreement scheduled to hit nearly all (95%) of their tariffs, giving them little flexibility to manage their unique situations. These countries generally feature higher tariffs – an average of 13%, compared to 3% in the developing world – tariffs which are badly needed to protect emerging industries.

The Geneva agreement also intensified the pace of the GATS negotiations. Unlike agricultural and market access issues, GATS originally began as a voluntary process, an optional method for countries to submit liberalization offers. However, the recent agreement transformed GATS into a mandatory negotiating process, obliging all members to submit revised offers by May 2005. Not only was this deadline rather challenging, it was very one-sided. No research has as of yet been completed on the potential impacts of service sector liberalization, nor have any steps been taken towards the creation of an “emergency safeguard mechanism” to help protect developing countries from dumping.

Brazil: Moving in the Right Direction?
The charge is being made here that Brazil’s behavior in the latest round of negotiations has been reprehensible, as it willfully misrepresented those whose interests it was charged with safeguarding, and shamelessly acquiesced to pressure coming from the developed world. However, the agreement is far from finalized and December’s Hong Kong Ministerial will have some room for further negotiation, amendment and alteration. Towards this end, Brazil may have another opportunity to purge the deceit factor from its portfolio and return to the role of protecting the developing world. October’s mini-ministerial meeting, which was intended to achieve convergence on a wide range of issues and to facilitate acceptance of draft texts, instead ended with wearying talk of downgrading or ‘recalibrating’ expectations for Hong Kong. This outcome, which sharply contrasted with that of the Geneva Decision, at least illustrated that third world countries are not content to settle for a substandard, unbalanced agreement for agreement’s sake, and in this opposition, Brazil once again assumed a prominent role.

Brazil has criticized the developed world’s attempts to rapidly and inflexibly move towards service liberalization, and Amorim did forcefully speak out about the unfair deals the first world countries are offering in to the industrial sector of poor nations. Amorim has argued that the third world should not negotiate or offer concessions in other areas until agriculture has been satisfactorily concluded. He has stated that “It would not be possible to move in these other areas even to test flexibility…if we don’t have clear signals in agriculture,” and has gone even further in accusing the EU of “setting the bar very high” in those other fields of industrial market access and service liberalization, and noted that this has made “progress difficult on [the issue of] agriculture.” Finally, Brazil – together with 11 other developing countries – has argued that “the recent proposals of some major developed countries have attempted to sow division among developing countries, re-interpret the framework and trajectory of the negotiations and, in a self-serving manner, narrow, limit and – ultimately – undermine the developmental objectives of the Doha Development Agenda.”

There is therefore still everything to play for, and the game is far from over. It is not too late for Brazil to return to the more collective, unified style that helped to protect the developing world at Cancún, and Latin America’s giant may still be able to use its emerging power and influence to effect a positive change in the outcome of negotiations that will be taking place at Hong Kong. However, we still should be cautious before proclaiming Brazil the champion of developing countries’ interests, for its record, at the very best, is mixed.

Most of the controversy involving Brazil has been over market access and the highly unsatisfactory offers made by the EU – a key area of concern for Brazil and its powerful agricultural lobby. This helps explain why Brazil has displayed such indignation over this issue, while devoting much less time and effort to the theme of domestic support. As a result, it has tarnished its claim that it acts out of authentic altruistic concern for the rest of the third world.

Thus much now depends on the outcome of the Hong Kong Ministerial. But, to finish on a word of caution, even if the outcome there is deeply unsatisfactory – and Brazil’s role in it highly controversial – we should be careful not to make the Brazilian government a scapegoat for the entire failings of the WTO, nor to make the WTO a scapegoat for the failings of the wider international economic system. Decision-making within the WTO cannot help but reproduce the power relations external to it and, the role of Brazil notwithstanding, the former will never be equitable until the latter is.