February 12th 2005

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Articles from this issue:

COVER STORY: Kim Beazley - Labor's only hope?

EDITORIAL: Barking up the wrong tree ...

NATIONAL AFFAIRS: Top free-market think-tank warns of 'banana republic'

SPECIAL FEATURE: Who speaks and acts for the communist dead?

BUSHFIRES: COAG inquiry skirts the real issues

VICTORIA: Judge links pornography and sexual assault

STRAWS IN THE WIND: Iraq election and the problem of Iran / Bushrangers hanging around the hospitals / Climbing the ladder to nowhere

INTERNATIONAL TRADE: US trade deals marginalise WTO

EAST ASIA: US's new strategy in the Far East

CHINA-TAIWAN RELATIONS: First direct flights from Taiwan to mainland

OPINION: Good riddance to compulsory student unionism

The slaughtered generation (letter)

The Governor-General and the Constitution (letter)

CINEMA: Quality French film wins following - Les Choristes


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US trade deals marginalise WTO

by Colin Teese

News Weekly, February 12, 2005
Australian Minister for Trade Mark Vaile has, along with Prime Minister John Howard, chosen to address the World Economic Forum. Presumably, among other things, Mr Vaile volunteered the view that the Doha Round of trade negotiations, which is being hosted by the World Trade Organization (WTO) and running well behind schedule, was likely to take another two years to complete.

Mr Vaile's observation would have come as no surprise to the gathered dignitaries, though most may have regarded his optimism about a completion date with some scepticism. The Round, it will be recalled, was supposed to have been concluded in 2004, and Mr Vaile chose not to elaborate on his assertion that negotiations will have been successfully completed within the next two years.

Publicly, the Minister cannot afford to be other than optimistic, whatever may be his private feelings; but more objective observers will continue to have doubts, not merely about a successful completion of Doha, but of the very future of the WTO.

Reputations at stake

This is not to say that the organisation will disappear; this just does not happen with international organisations. The reputations of too many powerful governments are at stake for the WTO to collapse. But the real possibility is that the organisation will sink into irrelevance. If that were to happen, the WTO will have enjoyed a relatively short and unhappy life - compared to its predecessor, the General Agreement on Tariffs and Trade (GATT). The GATT lasted as a fully functional agency from 1947 to 1994. The WTO has exercised influence on the world trading-system for barely 10 years.

So what went wrong? How come the GATT rules guided the world trading system for almost 50 years, and the WTO seems hardly to have managed a decade?

There is no simple answer. The reasons are many and varied. Some were unexpected, while others could and should have been anticipated. If we are to understand how the WTO came to its present sorry pass, we need to examine at least some of the issues - and the circumstances behind them - in greater detail.

The GATT, as is well known, was created as part of the Bretton Woods agreement concluded at the end of World War II for the purpose of managing the international economic system in a post-war capitalist world. The GATT established rules for the conduct of international trade and became, for the parties contracted to the GATT, the avenue through which those parties settled disputes between themselves, and conducted their trade liberalisation negotiations.

At least in so far as liberalising trade in manufactures was concerned, the GATT was a resounding success. Nevertheless, by the 1980s, the United States was looking to change its basic direction.

Although expressed in different terms, the underlying US purpose lay in extending the reach of its economic influence, in line with its newly emerging economic interests. The problem was, how to spark the interest of others in the promotion of issues which seemed of most interest to the US and the other big players in the GATT?

Of particular importance were the disaffected smaller agricultural exporters, including Australia. And here the US - with the support of the European Union - held out a particularly tempting carrot. In return for supporting its newly formulated plans for changing the GATT, it promised meaningful negotiations on agriculture. It will be recalled that agricultural trade liberalisation had been off-the-agenda of the GATT from its inception - largely due to the intransigence of the US and the European Union.

Last throw of the dice

The promised negotiations did in fact take place, but the outcome - in terms of agricultural trade liberalisation - was no more rewarding to the small exporting nations than any of the previous negotiations.

The GATT's last throw of the dice on this critical issue was no more successful than any of its previous attempts, although some participants - particularly Australian negotiators - attempted to claim otherwise.

Meanwhile, the US had mustered the necessary support to enable it to chart a new course for the GATT, and to extend the range of its influence beyond the mere trade in goods. As a result of these efforts, a new organisation to replace the GATT was formed in 1994, at the conclusion of the Uruguay Round. It was called the World Trade Organization.

The new WTO rules, which encompassed the old GATT rules for the trade in goods, were added to with the intention of covering the trade in services and, additionally, to provide protection, hitherto unavailable, for intellectual property, especially that of corporations, exactly as the US wanted.

But the US wanted more. It also believed that the GATT rules, as they covered trade in goods, were not prescriptive enough and should be strengthened. It also had new ideas about the rules covering the settlement of disputes, and these too became part of the new WTO. Among other things, the new rules covering dispute-settlement procedures were to become legally binding on the parties.

This latter approach to rules was a radical departure from the GATT philosophy, which was that the parties should proceed on the basis of consensus. Moreover, this new approach carried with it a certain irony. Back in 1947, it had been the US which had insisted that there should be no binding rules in the GATT.


The new approach to dispute-settlement introduced a new and unwelcome legalism into international trading rules. This legalism hugely complicated dispute-settlement processes, and, although the new arrangements were supposed to be binding on the parties, that turned out not to be the case.

In fact, the new arrangements actually proved to be less beneficial to less powerful members of the WTO. The powerful simply refused to be legally bound when it did not suit them, and the others could do nothing about it. At the same time, the strong, using their economic strength, were able to impose solutions on the less powerful. Australia was one of those nations which suffered from this newly unbalanced set of rights and obligations.

But the question of disputes was, in fact, a secondary issue for the US. What it really wanted to secure were new rules on the trade in services and on intellectual property. And here they were not entirely successful.

Codicils were in fact produced on these subjects, but they were not totally agreed upon, but rather left open for signature. In general, the response was not overly enthusiastic.

In particular, the US and the EU had wanted developing countries to sign up to these protocols, because that is where they believed their future growth markets existed. But developing countries, for their part, wanted to bargain for advantage in areas of interest to them, but which were discomforting, especially to the EU. It was this impasse which stalled the Doha Round and which has prevented it restarting.

Meanwhile - and even before this setback - the US appeared to be losing interest in the multilateral process. So far as trade liberalisation was concerned, it seemed more interested in the idea of regionally-based bilateral agreements. Thus were born the so-called free-trade agreements (FTAs), the most recent example of which was concluded with Australia.

Despite what is claimed for them, they are not free-trade agreements. Strictly speaking, they are inconsistent with WTO rules and presumably will remain so, as long as no WTO member chooses to challenge them. But that is another story.

Of course, nobody, least of all the US, is admitting that the WTO is a dead duck. But if trade is now increasingly the subject of bilateral agreements, what other conclusion is to be drawn?

Interestingly, as everyone knows, the US-Australia bilateral free-trade agreement has provided very little by way of agricultural trade liberalisation, which is why it has been so roundly criticised in many areas.

The US has said to Australia that the unresolved issues of agricultural trade liberalisation between the two countries should be taken up in the WTO. But the unanswered question remains: if the US and Australia cannot resolve these issues in a bilateral context, who really believes it will be easier when 140 nations are at the negotiating table?

If we are to try to understand what lies behind the US change of attitude towards multilateralism, we must speculate. There is, as we have observed from its attitude towards international co-operation in other areas, a certain disenchantment with the idea of reaching outcomes by the laborious process of reaching international consensus. And there is an intolerance in dealing with the developing world which was not present before. All of that, no doubt, goes some of the way towards explaining the change in US attitude.

But there is more. There seems to be a new and mounting concern as the US seeks to consolidate and extend its regional economic influence as a counter to the threat of growing influences outside its sphere of influence in Asia and Europe - hence the bilateral trade agreements with Canada and a number of the US's Latin American neighbours. And, in a curious way, the agreement with Australia does not contradict that ambition.

Although it is never mentioned, the US is no doubt concerned with the growth in the economic power and influence of the ever-expanding European Union - especially since the launching of the Euro and the fact that the European currency appears likely to become an important currency in world trade.

And finally, there are the emerging Asian economies, most notably China and India. Put bluntly, the US may deem it necessary to protect itself against these emerging threats to its economic influence. In such a climate, it may be in no mood to promote international economic cooperation, especially, if the past is any guide, gains for others have usually come at the expense of US direct economic interests.

Perhaps it believes it can no longer afford that luxury. If so, multilateralism is in for a tough time.

  • Colin Teese was deputy secretary of the Department of Trade

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