The road to Cancun

Lebanon seems committed to becoming a member of WTO as it heads to Mexico for the organization

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Lebanon will be present in Cancun, Mexico for the World Trade Organization (WTO) meetings in early September as an observer, putting aside the empty chair position adopted in Doha in 2001 and reflecting the country’s commitment to accede to the WTO. Following two negotiation rounds – the first was in October 2002 and the second is slated for fall 2003 – Lebanon hopes to achieve member status by 2005.

Without debating globalization, the WTO is an evolving mechanism that regulates international trade. With over 145 member countries, a small economy that relies heavily on trade – as is the case of Lebanon – cannot develop and move forward if it opts to stay out of the global economy. Lebanon was a member of the GATT (founding institution of the WTO) and would have been automatically a member of the WTO had it not withdrawn due to the participation of Israel. New WTO members are facing tough scrutiny, whereas early members easily joined, and some, including many Arab countries, are having hard time digesting their WTO obligations.

The WTO has succeeded to a large extent in liberalizing trade and setting rules for a number of sectors but it has not yet addressed sectors that have a larger impact on developing nations – notably, agriculture and services. Awaiting further developments on that front, the WTO is entertaining a multilateral agreement on investment (MAI) five years after the OECD failed to do so, a major endeavor that, again, serves the purposes of developed countries, the main players in the market of international investment.

The EU and the United States in August 2003, agreed on a joint proposal with regards to agriculture. Farm subsidies amount to $300 billion a year and 96% of farmers living in developing countries are worse off because of subsidies, let alone consumers who are paying higher prices. The proposal that caps some trade payments (as a percentage of agricultural production) at 5% is seen by countries, including Brazil and India, as a shy move on the road to liberalizing the sector. After the failure of the Seattle trade talks in 1999, jeopardizing the Doha Development Agenda (a round of negotiations that addresses development issues) would put free trade at risk. And, without an agreement on agriculture, developing countries will feel that new rounds will offer them nothing.

In Cancun, countries will be asked whether they want to launch negotiations on international investment at the multilateral level and what would be the scope of that agreement. As of yet, countries regulate investment, be it portfolio or foreign direct investment (FDI), through bilateral agreements. But in the absence of a bilateral treaty, cross border investment remains unprotected and access to markets difficult. A MAI could address pre-establishment (access of investment to a market) and post-establishment issues (protection of existing investment). FTML, the parent company of Cellis, may not have invested in Lebanon if there was no bilateral agreement between Lebanon and France to protect investment. Investors need to be assured that in the case of foul play, their rights will be protected.

In addition, the ministerial meeting will assess the recent developments in the negotiations on the liberalization of services that began in 2000 and will review the work of the working group on competition policy – both of which are of key importance and relevance to Lebanon and the region.
In light of these major issues set to determine the future of international trade and investment, the obvious question that arises is whether Arab countries have a position or a proposal to put on the table in Cancun. It may be difficult to ask for a common Arab agenda given existing differences, even though Arab ministers frequently hold meetings, the last of which took place July 24 in Beirut. But it may be time for the region to become pro-active. The WTO mechanism may not benefit the interest of a country if that country fails to have its voice heard. Developing countries are becoming increasingly active under the WTO umbrella, with more and more proposals submitted to the WTO secretariat, a strategy that eventually led to incorporating many development issues into the Doha Development Agenda.

As of today, 10 Arab countries are full members of the WTO. Among them, are the poorest, such as Djibouti and Mauritania, and five with observer status, including Lebanon. However, the Arab region remains outside the circle of developing countries that are now taking the initiative of turning the WTO into an institution that serves their objectives. In the process of becoming pro-active, governments of emerging economies are investing in building local capacity and expertise in order to make informed decisions that will bind their trade and investment policies under the WTO framework. Once the policies are locked in, excluding exceptional circumstances, countries will be bound to the rules they agreed to follow. This basic principle has come to haunt countries, which opted for the fast-track accession to the WTO and are now facing difficulty in delivering on their commitments.

The backseat approach adopted so far by Arab countries in the WTO is mirrored by their low intra-regional trade (around 8% to 9%), their high dependence on oil and lack of economic diversification, and their protectionist trade regimes reflected by high tariff and non-tariff barriers. A large number of bilateral trade treaties have been signed amongst Arab countries, however, most are general and few aim to fully liberalize trade. Negative lists, exceptions and exemptions overshadow the Greater Arab Free Trade Area (GAFTA), scheduled for 2005, which does not cover services like the movement of labor and other building blocks of a real economic bloc.

The silent voice of most Arab countries will not serve the purpose of deeper Arab integration into the global economy. The major challenge for the region is to get more engaged in the process by developing positions on the various issues raised in the Doha Development Agenda and not permitting developed and developing nations to hijack the process. If Macau and Malta can submit proposals and actively participate in the formulation of new WTO rules and agreements, maybe it is our turn to do the same.