WTO: by Colin TeeseNews Weekly
International trade policy: where to next?
, December 13, 2003
The architects of the World Trade Organisation seem to have painted themselves and the organisation into a corner.
They have attempted to construct a rules framework which is both too restrictive and smothered in excessive legality. So much so that the question may seriously be asked whether the organisation can survive - at least in its present form?
The threats to the WTO come from both within and outside, but they are generated by contradictions inherent within the organisation itself.
Consider the WTO in comparison with its predecessor, the General Agreement on Tariffs and Trade (GATT), which survived for almost fifty years making it the oldest international treaty in history, except for the United Nations itself, to which the GATT was loosely attached.
The GATT succeeded as an instrument regulating the way the West's trading nations related to each other, above all, because the GATT rules reflected, realistically, what could and could not be done.
Further, as far as nations were concerned, it did not cast its membership net too widely. It was open only to market economies.
The preamble to the GATT had its participants (called Contracting Parties) "entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce."
The same words are enshrined in the WTO. Indeed the WTO agreements, in so far as the world trade in goods is concerned, are the same as the GATT, subject to certain of the GATT commitments being elaborated.
As far as these elaborations are concerned, many - for example, those relating to quarantine - are actually unhelpful. They have generated, unnecessarily, disharmonious and excessively legalistic attitudes between those parties to the WTO agreements.
The organisation has suffered accordingly.
Essentially, the GATT, and the WTO after it, were concerned to do three things:First,
to establish rules which would govern international trade relations between the parties:Second,
to provide, suitable arrangements for considering disputes which might arise between parties over rules; andThird,
to provide, from time to time formal frameworks within which multilaterally agreed outcomes aimed at reducing barriers to trade might be negotiated.
Whereas the GATT succeeded notably in all these areas as its record shows, the WTO has been nowhere near so successful. There are good reasons for the disparity.
In the practice of its operation, GATT Contracting Parties were encouraged to regard the rules as more descriptive than prescriptive.
Realistically, the parties recognised that independent nations, particularly large ones, could not be expected to be bound to act in ways which could be seen as compromising sovereignty - especially when any fully prescriptive rules being the subject of dispute would necessarily be subject to legalistic interpretations.
How could sovereign states be expected to be bound by legalistic interpretations of rules, when such interpretations ultimately came down to matters of individual judgment as to what the rules really meant?
In fact, when the original GATT was being drafted, this very question of binding decisions on the matter of disputes between the parties over rules was a sticking point for United States participation.
Ironically, when the WTO rules were being formulated, the US was one of those arguing for binding decisions. At the time it was claimed, including by the US, that binding decisions would be one of the great advantages the WTO would have over the GATT.
It hasn't worked out that way. The three or four big players are not any more bound by the new rules than they were by the old. All that has changed is that excessive legalism has made the dispute settlement process more time-consuming and costly.
Legality has been taken to the point where lawyers are engaged by the parties to argue between themselves as to what the parties are actually committed to in strict legal terms.
This new dimension of legality and adversarialism has introduced an element into WTO proceedings which promotes hostility and resentment among the parties rather than harmony.
And it has done nothing to make the dispute settlement process more equitable.
If the big players want to put up barriers to trade they just do it and tough out the so-called binding outcomes of WTO dispute settlement procedures. As to small players, they are actually harmed by the new rules; they can't afford to tough out threats by their larger trading partners.
They are bound. Australia's experiences, just to take the example of our dispute with the US over lamb exports, well proves the point.
In reality, the WTO has created new trading rules which are less fair than those in the old GATT.
Neither has the WTO been any more successful in negotiating away barriers to trade in difficult areas like agriculture.
What it has done is engender unrealistic hopes in the minds of farmers in the agricultural exporting countries, including Australia.
The GATT always recognised the difficulties of liberalising trade in agriculture, while ever the big players - the US, the EU and Japan - insisted on maintaining large subsidies in their farm sectors.
What GATT concentrated on - and Australia was part of the process - was chipping away at the edges, winning a little here and a little there, but never threatening the principles underlying agricultural protection by the big players.
By confronting these issues, the WTO negotiations seem to have made matters worse, to the point where it appears difficult to attract parties to the negotiating table.
As if all of these difficulties were not enough, the WTO is also faced with the challenge of the burgeoning proliferation of bilateral so-called Free Trade Agreements.
How these can be consistent with a commitment to negotiate multilateralism within the WTO is not explained.
In fact, because almost all of them are limited in the goods they actually make 'free' between the participating parties, they are inconsistent with WTO rules.
Free trade agreements, to meet WTO rules, must cover all of the trade between parties. Certainly any free trade agreement between the US and Australia, which did not cover the trade in agriculture would contravene WTO rules.
All of the discussion so far is concerned with the WTO problems concerning the trade in goods.
What has always been the true focus of the WTO has been to expand the notion of free trade beyond goods to the services sector.
A draft agreement concerning this has been prepared in the WTO, and it is generally acceptable to the big players.
But each others' markets are not the targets of the big players; those are already as open to each other as they are prepared to accept.
What they want is access to a whole range of smaller but potentially lucrative markets in countries like Australia and in the developing world.
The position of the developing countries is clear. On the basis of the bargain being offered they will not participate in a services agreement. And they are currently holding up progress on a new WTO negotiating round on exactly that point.
The position of Australia is less clear. Any full-blooded commitment to the kind of services agreement presently on the table poses tremendous risks for us, particularly in the areas of health and education.
We could, for example, be required to relinquish our prescription medical concessions (and they are also threatened under a free trade agreement with the US).
And, to the extent we subsidise hospitals we would have to stop those subsidies or give them to foreign hospitals setting up in Australia.
No less important is education. The draft services agreement requires parties to agreement to give up subsidies to education institutions (schools and universities) or to provide them equally to incoming foreign-owned institutions.
The Australian Government has not yet (so it says) decided its final position on the proposed agreement on services, but it certainly has not dismissed the possibility of Australia participating in it.
And if we do participate, it is unclear whether we will be able to opt out of the areas sensitive to us.
All of this is relevant to the present plight of the WTO. Much of the future for the trade in goods seems to be slipping away from it and into the hands of free trade agreements negotiated independently of the WTO.
If, as seems likely, the world divides into trading blocs, we can expect to see this trend intensify.
The saving grace for the WTO, if there is to be one, is therefore likely to lie with the securing of a widely accepted international agreement on services.
That being so, the big players in the WTO, and particularly the US, are likely to put pressure on us to take part.
The question is, will our Government have the will to protect our essential interests in the face of these pressures?