May 18th 2002

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Articles from this issue:

COVER STORY: U.S. Farm Bill ends free trade illusion

EDITORIAL: Paid maternity leave: who benefits?

Languishing Labor fills its quota

East Timor becomes independent on May 20

Straws in the Wind: Le System / Apocrypha: Dave's lost column / Ides of March / Sin

LAW: US repudiates International Criminal Court

MEDIA: Jonestown

Refugee response (letter)

Middle East (letter)

Swift solution (letter)

Neighbourly aid (letter)

Quarantine: NZ suspends California grape imports

HEALTH: The politics of AIDS in South Africa

OPINION: Media diversity: should the market decide?

TRADE: Oxfam report shows rigged rules of world trade

ASIA: Taiwan comes in from the cold

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Oxfam report shows rigged rules of world trade

by Colin Teese

News Weekly, May 18, 2002
Oxfam has recently published a report on international trade - or, more accurately, a report which links the notions of trade and globalisation with the fight against poverty.

It is a cry from the heart to 'make trade fair' for developing countries. In fact it might be speaking for all countries but the very rich. For the rest of us, including Australia, the World Trade Organisation has indeed become a haven of rigged rules and double standards. The effect is to transfer wealth from the less well off to the better off.

Essentially this is Oxfam's beef.

Oxfam's assertion that the rules and procedures of the WTO are rigged to favour the most powerful of its membership has been said before - including by this writer in the pages of News Weekly. Still it is worth saying again, especially when it is backed up with a wealth of evidence, not merely with examples of how the rules are manipulated, but with demonstration of how the general assertions about the benefits of unrestricted free trade won't stand critical examination.

It is certainly the case that WTO rules have been shaped by the most powerful to serve their interests, but it is further true that, in recent times, the rules have been made more constraining than ever. And, paradoxically, the more constraining are the rules, the more the powerful benefit. For this reason. Those with power override the rules, while, at the same time, enforcing them rigorously against the weaker.

Oxfam makes the point only indirectly, but it remains true that the fundamental difference between the rules of the General Agreement on Tariffs and Trade, and the World Trade Organisation which superseded it, was an important change in emphasis.

The old GATT rules were taken to represent guidelines which member countries would follow in pursuit of international cooperation. They were never intended to be binding or to extinguish national interest. Powerful members of GATT always made this perfectly clear. For example, the European Union, as it now is, always defended its transgression of GATT rules by insisting that they did not override national sovereignty. In other words, they were saying that the commitment to GATT rules was qualified to the extent that they conflicted with perceived national interest. Other members were allowed the same latitude.

Apart from absorbing the old GATT rules covering the trade in goods, the WTO has added new commitments covering trade in services and intellectual property rights.

These latter subjects most certainly contain new and more demanding formal commitments. And while the old rules on trade in goods still apply, the present WTO membership is expected to consider itself more rule-bound than was the case with GATT.

All of this was presented as a benefit to the smaller countries' members of the WTO. More onerous degrees of commitment would serve to protect the smaller economies against the larger. Only the most naïve of governments - including Australia's - who seem have no understanding of the nature of power - were convinced.

Oxfam does us the favour of underlining how seriously wrong we were, by pointing out that in relations between powerful and less powerful countries double standards will always apply. The rules will be written by the powerful to serve their rather than others' interests; and the more binding they are, the more will the weaker parties' interests be compromised.

The powerful are always in a position to apply sanctions against the less powerful in order to ensure compliance. The reverse never applies. That is a basic rule of power.

Australia's experience with the settlement of trade disputes involving the United States makes this abundantly clear to all except, apparently, our Minister for Trade. Where Australia has been found in breach of WTO obligations, the US has been able to enforce strict conformity with the rules, and in some cases, beyond the rules.

Where the dispute involved US transgressions, it has been able to have the rules less strictly applied. The US achieved this aim because it was in a position to threaten real harm to our trade if we chose not to follow the path of its choosing.

Now it is interesting that a criticism of the Oxfam Report in an editorial in the Financial Review asserted that the Report applied what was characterised as "a trade negotiators philosophy to the matter of trade liberalisation". By this, presumably, is meant that Oxfam wanted the freeing up of trade in the WTO context subject to a bargaining process which would confer special benefits on developing countries.

The Australian Financial Review was following orthodox, but flawed wisdom: the movement to free trade, that wisdom insisted, should not involve bargaining of concessions. Free trade benefited a country applying it regardless of what others did. Australia is perhaps the only WTO member to have gone along with that.

The proposition is flawed in a number of different ways. Free Trade is not beneficial, at all, to a country unless two basic conditions are present. First is the state of perfect competition; and second, full employment. And, as we all know, those two conditions are hardly ever present. Certainly they aren't present in Australia.

So much for the theory. At a practical level it is also a fact that trade liberalisation, much less free trade, can never take place other than in the context of a negotiation.

One powerful economy will never surrender access to its market to another of similar strength, for fear of surrendering an advantage which will diminish its power, and also because it must take account of domestic political considerations.

For these reasons, trade liberalisation has never been possible, except on the basis of negotiation. Yet the Financial Review seems unable to understand that the WTO, which it so strongly supports, owes its very existence to the exchange of negotiated concessions on access to markets.

It is this circumstance, and its impact on developing countries, to which Oxfam takes exception. Because, as always, the bargains struck favour the stronger.

Central concern

When it comes to specifics, a main concern of Oxfam is the Multi-Fibres Agreement (MFA), and the way it limits the amount of textiles developing countries can export. With good reason. The first MFA was negotiated in GATT in the 1970s - with modifications it has been carried into the WTO. At the time of its first negotiation, this writer was negotiating on behalf of Australia.

Two points about can be made about the first agreement: its terms breeched the GATT rules (and its continuation still does), and, second, it was imposed upon developing countries.

The United States and the then European Economic Community (EEC), each had levels of tariff commitments which had to be broken to impose the quotas they actually applied against developing country imports.

These were broken and when developing countries protested and threatened retaliation in GATT they were told by the US and the EEC that if they did so even stricter quotas would be applied. So the MFA quotas were implemented and developing countries' rights under GATT were ignored. And so they still are in the WTO.

After the new MFA had established its quotas on developing country textile imports, one GATT wit observed that the US quotas applied to textiles the US did not produce; the EEC quotas applied to goods developing countries did not produce! There was some truth in the remark.

As Oxfam has observed, the new arrangements emerging in the WTO on trade outside the traded goods sector are similarly flawed. They covers two significant areas; international trade in services and in what is termed "intellectual property".

It is inappropriate here to cover in detail how these arrangements work to the benefit of the powerful economies, but a word should be said about so-called intellectual property rights.

Intellectual property relates to copies of goods made or invented in another country, for example, factory supplied replacement parts for motor vehicles or other such goods which are copied and supplied as substitutes at much lower prices.

Clearly restrictions on such goods serves no free trade or consumer interest, since they usually cost more. Yet the WTO is the forum in which restrictive rules on this trade are being negotiated.


WTO signatories have already agreed not to permit the entry and use of substitutes despite its trade restrictive effect. The agreement has been justified by the powerful economies on the basis of safety - substitute parts for cars and aeroplanes, for example, may be unsafe. Perhaps so, but what about the principle of "buyer beware"?

Besides, the restriction also applies to such items as designer labels, music and film, where no safety considerations apply.

Australia, pursuant to its WTO obligations, is imposing restrictions against such imports to the disadvantage of it consumers.

Not everything in the Oxfam Report deserves commendation. For example, to this writer's view, it gives far to much weight to the benefits trade can confer on a developing economy.

In fact it's hard to find any examples of economies growing to strength on the back of trade.

Quite the contrary, all of the present powerful economies have grown from behind formidable protective barriers. It is only after such development has taken place that powerful economies become interested in free trade as a means of establishing new markets.

Perhaps even more important, the Report fails to acknowledge that the disadvantages of rigged rules and double standards also affect the smaller of the developed economies, especially those, like Australia, who rely heavily on exports of commodities.

Nevertheless, the Oxfam Report is important, and while it may be trawling over already fished waters, it adds weight to what others having been saying in perhaps slightly different ways. By taking a slightly wider view, its impact could have been weightier still.

  • Colin Teese was Deputy Secretary of the Department of Trade

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