How the poor countries of the world 'reached for the moon' and got nothing

The WTO talks in Cancun were dead before they even began. Can anything revive them?

It all went wrong at 3pm on Sunday, Mexican time. Josette Shiner, the deputy US trade representative, was wrapping up her press briefing when a journalist breathlessly burst into the auditorium to announce that Kenya had walked out of the talks. Two later hours later the fifth ministerial meeting of the World Trade Organisation was officially declared dead.

Now the post-mortem must start. Who killed it? What happened? Who are the winners and losers? Where do go from here? None of them have easy answers and in fact every player in last week's five-day drama will have their own answer.

The simple answer to what happened is that groups representing 90 mainly African developing countries walked out of the talks after the European Union and Japan refused to back down on one of their key demands.

They wanted talks to open on new rules governing investment, competition, trade facilitation and government procurement. The EU offered to drop two as a concession but it appeared to be too little too late.

The groups went back to their members who insisted they wanted all four dropped. South Korea and Japan said they could not support it unless all four were retained, at which point the chairman, Luis Derbez, Mexico's Foreign Affairs Secretary, said the talks had ended.

In retrospect the negotiations were dead before everyone turned up at the Mexican beach resort of Cancun. In the 22 months since the latest round of talks were launched in Doha, Qatar, there had been virtually no progress on the key issues - cutting aid for Western farmers, cutting tariffs on manufactured goods, sorting out special treatment for certain countries and deciding whether to graft on the extra negotiations beloved by business groups.

In order to break the deadlock on farm subsidies, the US and the EU accepted an invitation to draw up a joint paper to make a starting point. This was bitterly condemned.

Phil Bloomer, head of advocacy at Oxfam, said: "A lot of anger was generated by the text and by the intemperate remarks of people like Franz Fischler [the EU Agriculture Commissioner]." Mr Fischler warned developing countries not to "reach for the moon" or they risked getting nothing. But he added that the whole system of the WTO, which works through "facilitators" producing draft agreements that no one in fact agrees with, was unable to produce a result.

"When the second draft of the text came out many developing countries felt it was a slap in the face that reinforced the sense of frustration," he said.

There were other factors. Four African countries wanted the US to slash its $4bn (£2.5bn) annual subsidy package for its cotton farmers, which they said made it impossible for them to market their goods in the face of subsidised competition.

Jayan Krishna Cutteree, spokesman for the African, Caribbean and Pacific group of countries, said: "Everyone cries but when it comes down to looking at the problem they can't."

The rich countries' preferred target for blame is the newly-formed G20-plus group of countries that were pushing for agricultural reform. Although it was only formed a fortnight before Cancun, it swiftly became a equal player alongside the EU and the US.

Celso Amorim, the Foreign Minister for the left-wing government of Brazil's President Lula da Silva, was one of the few people with a smile on his face yesterday after the talks collapsed - although he was swift to say that the result was not a good thing.

But he said it marked a sea-change in terms of developing countries' ability to negotiate at talks traditionally dominated by the two economic superpowers. "This is the first time that this has happened," he said. "At last the big trade players are recognising that we are a player and that our proposal was a business-like proposal - that's a positive signal."

Pressure groups said the emergence of powerful groups of developing countries - which also include China, India, South Africa and Argentina - was one of the success stories of Cancun.

Aftad Alam Khan, of ActionAid Pakistan, said: "If one thing of value has come out of this meeting, it has been the challenge to the supremacy of the superpowers within the WTO. Now we have to translate this new power into genuine change in the trading system."

Mr Amorim told The Independent earlier in the week that the G20-plus had "reshuffled the cards" of world trade. This could have long implications as multinationals might find an empowered developing world less of a pushover when it comes to setting up overseas operations.

This fear will be compounded by the failure to launch negotiations on the new issues, which would made life easier and more predictable for companies making overseas investments, running operations abroad and dealing with foreign governments in procurement bids.

Digby Jones, the director general of the Confederation of British Industry, told The Independent before the talks collapsed that he would not be a "happy bunny" if the UK did not win at least something on investment and the less controversial issues of trade facilitation and transparency in state procurement

"If we come away with nothing we would not consider that was good enough for UK business," he said, inadvertently predicting the eventual outcome.

The other major macroeconomic consequence is likely to be growing a sudden rush, particularly by the US, to open bilateral trade talks with individual countries, something that's allowed under the WTO.

Chuck Grassley, chairman of the US Senate committee on finance, warned: "The US evaluates potential partners for free trade agreements on an ongoing basis. I'll take note of those nations that played a constructive role in Cancun and those that didn't. We stand ready to pursue increased economic growth and development with all who are prepared to join us."

Given that the G20-plus and the African alliance account for 110-odd of the 148-strong members and the 15-member EU will soon account for 10 more, and the US already has free trade agreements or negotiations with a further 20, that will leave just 13 countries likely to benefit from the US's close attentions.

But Phil Bloomer warned this might be a false blessing for the recipients. "In bilaterals the US has so much more power, economically and politically."

Oxfam highlights the host country, Mexico, which it says has seen its maize farming sector collapse since the government agreed a decade ago to open its markets up under the North American Free Trade Agreement (Nafta), which saw the price plummet as subsidised US corn poured in.

The other negative consequence will be for the global economy. The World Bank said a good agreement could have add $520bn (£325bn) to global incomes by 2015 and lift 144 million people out of poverty.

The US has warned before the collapse that such an outcome would jeopardise the fragile state of the world economy and particularly harm economies, such as developing countries, that are most at risk from a downturn - a forlorn message that will be taken to this week's annual meetings of the International Monetary Fund and World Bank.

Senator Grassley said: "This is a sad day for the global economy, for developed and developing countries alike. This intransigence has squandered an opportunity to raise millions of people out of poverty and improve the lot of farmers, ranchers, consumers and workers around the world."