December was supposed to be the crowning moment for the United Kingdom’s twin presidencies of the G8 and the European Union. In Hong Kong, there would be a communiqué bursting with goodies for poor countries, so that trade could join debt relief and aid as the third leg of the UK’s anti-poverty agenda.
In Europe, there would be acceptance that modernisation, reform, flexibility — the entire New Labour canon — was the only way to meet the challenge of globalisation. In the event, both presidencies are mired in controversy and appear to be heading inexorably towards crisis.
Tony Blair, British Chancellor of the Exchequer Gordon Brown and Foreign Secretary Jack Straw have dug their heels in over Britain’s budget rebate from the European Commission, negotiated by Prime Minister Margaret Thatcher more than two decades ago. London’s line is that the UK taxpayer will not pay a penny more to Brussels until the common agricultural policy (CAP) is subject to more radical reform.
A more serious concern is the linkage between the budget and the trade talks in Hong Kong. The government has a lot riding on the success of the World Trade Organisation meeting, and Blair is desperate that a year of global leadership should not end in failure. But the talks are deadlocked and look certain to remain so unless France can be persuaded to move further on the CAP.
But there seems no likelihood of President Jacques Chirac agreeing to that, unless he was offered a deal by Blair: we will put the budget rebate on the table if you give Peter Mandelson, Europe’s trade commissioner, more wriggle room in the trade talks. Will such a compromise emerge to snatch victory from the jaws of defeat? It looks unlikely.
Blair and Brown say they have moved on the budget and are offering a straightforward deal: stop spending 40% of the money on agriculture which accounts for just 2% of the European economy and we will increase our contribution.
To ram home the message, Brown took a swipe at the French, who have been arguing that removing help for Western farmers would not assist in the fight to make poor countries richer. ”Agricultural protectionism means $300-billion a year in subsidies to shelter the richest parts of the world. That dwarfs the $50-billion spent on aid for the poorest. And it is simply wrong to say that tariffs are essential to advanced industrial societies and wrong to say that big cuts in farming tariffs would not be a solution to poverty.”
Brown believes Europe’s problems stem from monetary and fiscal frameworks that are inferior to Britain’s and from an unwillingness to embrace reforms of labour, goods and capital markets.
Between early 2001 and mid-2003 Britain cut interest rates nine times, the United States 13 times — seven times more than the eurozone. More recently, while monetary policy has also been forward-looking in the UK and the US, euro interest rates have been on hold for two and a half years. If things are so marvellous in the UK, the commission asks, why is the budget deficit so high? Next year, Brussels will publish recommendations for how the UK should gets its public finances back in order. Brown’s response can be imagined. Blair, it seems, has come round to Brown’s way of thinking over Europe.
France and Germany can barely wait for the British presidency to end, believing it to have been divisive and rancorous. The UK has put itself in a position where compromise looks like weakness. The European Union summit in Brussels will be nasty; the Hong Kong meeting will go nowhere.
As it happens, that might be the outcome that is necessary on both fronts. A full-scale crisis over the budget might prove to be a cathartic event that will force real change next year rather than the usual fudge. The same applies to the WTO, but more so. The deal on the table is a poor one, particularly for developing countries. The rich countries are trying to play their traditional mercantilist games; dressing up minimal concessions as radical initiatives while seeking to force weaker and poorer countries to remove their protective barriers.
Much of the criticism has been attached to the EU, but the US is just as bad. Cotton producers in West Africa, for example, are being impoverished by the US’s system of increasing direct payments to its cotton farmers when the world price goes down. As a consequence, the farmers produce more in order to drive down prices and thus pick up a bigger cheque from Washington.
What can one say about arrangements that involve subsidies that are greater than the gross domestic product of a West African country malignly affected by the counter-cyclical payments? That they are the economics of the madhouse? Yes. That they are bad for development? Yes, again. The good news, though, is that developing countries have woken up to the fact that the West speaks with a forked tongue and have decided they won’t be fooled again. — Â