Trade, according to economists, is not a zero-sum game because all parties are better off. This is true in essence, although in a changing world the application of static theory is far from straightforward.

Thus, poor countries need to protect their policy space until they are ready to compete, as was done by the currently developed countries. That is one reason why trade negotiations can be a zero-sum game.

As the dust is settling, it is becoming possible to interpret the decision-making process in Hong Kong during the WTO Ministerial. It is a miracle that any decision is made during WTO ministerials (because trade ministers attend) that happen every two years given the requirement of decisions by consensus.

These ministerials endorse agreements based on the intense bargaining, negotiations and ploys, that go on in Geneva and the major capitals of the world in the two-year run up to the ministerials and this process reaches a crescendo at the ministerial.

The ministerials themselves are framed within “rounds” and the current is the Doha development round initiated in 2001 and it was slated for completion by 2005. This was an ambitious target, but the next ministerial may deliver an agreement.

The decision-making by consensus potentially empowers low-income countries that woke up after they had signed away too much during the last Uruguay Round. Thus the trade-related intellectual property (TRIPS) and the trade-related investment measures (TRIMs) were unwittingly agreed to.

Too late they realized the closing of policy space these measures represented and that also that virtually everything is trade related. The same mistakes were to be avoided in future and hence the trenchant postures adopted by low-income countries during the Doha Round during which the first two ministerials at Seattle (2001) and Cancun (2003) failed.

But the main players were and are the high-income countries, particularly the USA and the EU. They have the means and ability to get others into line provided they themselves agree. Their lack of agreement mainly on farm subsidies is what caused the ministerials at Seattle and Cancun to fail and nearly caused a failure in Hong Kong. This fissure also gave low-income countries an opportunity to seize the initiative.

At Hong-Kong, Brazil and India assumed the leadership of the G-20 (negotiating group of like minded Group of 20 within the WTO) and more broadly the low-income countries. They refused to make further concessions demanded by high-income countries on tariff reductions on industrial goods and services.

Unlike at Cancun, China was a spectator rather than a leader of the G-20 at Hong Kong, because as a major industrial power house it interests on industrial tariffs have shifted.

The G-20 rightly realized that further concessions by low-income countries could be blocked until EU and the USA stopped subsiding agriculture. They rightly understood the political resistance to subsidy cuts in high-income countries, including in Japan and Korea and this strategic move could have bought breathing room for low-income countries. Brazil actually has much to gain from such liberalization, but other low-income countries may not.

The subsidies keep world prices of food low for most low-income country consumers and subsidy driven US surpluses provide valuable emergency food aid (that the EU opposes). Large corporate agriculture in some other medium and low-income countries may also benefit, but there will be many more losers, than gainers.

The impasse on agricultural subsidies resulted in an impasse at Hong-Kong until the last evening. The USA and EU had already made their offers, the former more generous than the latter due to France’s intransigence.

Eventually, the break through came via Brussels when the EU agreed, for budgetary reasons, to phase out the Common Agricultural Policy (CAP) subsidies by 2008.

At the WTO, the phasing out is slated for 2013, but this resulted in an agreement. The bluff was called and skilfully so. To Brazil and India’s credit, the poorest countries also got duty and quota-free access to high-income country markets for most commodities.

Brazil will gain from the agricultural liberalization and India will gain from the liberalization of IT services as the negotiations proceed and agreement is reached and the Doha Round concluded.

The low-income countries with lower unit costs will gain but others will find their policy space closed further as further trade liberalization in non-agricultural goods and services proceeds, with the IMF continuing to act as an aggressive implementing agency.

As long as nation states and exclusion exists, it is the responsibility of poor countries to protect their policy space as best they can for the poorest within their borders. Doing this will become ever more difficult as the negotiating terrain becomes ever more treacherous due to changing interests and shifting alliances. Observing the change in China’s stance from one ministerial to the next should be sobering for low-income country trade representatives.

The other lesson from Hong Kong for low-income countries is that the age of crony capitalism is over. Even as they protect their policy space as skillfully as they can, they must engender internal competition polices for having to compete internationally.