March 11th 2000


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Articles from this issue:

EDITORIAL - What’s wrong with Australia’s defence?

Has Beazley got the "ticker" for a tough line on GST?

AS THE WORLD TURNS - Virtue: private and public

COVER STORY - People on the move: vexed question for government, nation

BOOKS: The Corrosion of Character: The Personal Consequences of Work in the New Capitalism, by Richard Sennett

NATIONAL AFFAIRS - Democrat’s "genocide" bill could put almost everyone in prison

NATIONAL AFFAIRS - Borrowed money, borrowed time

ECONOMICS - WTO stumbles as Third World rebels

COMMENT - Should homosexual couples have access to IVF services?

VICTORIA - Return of the Rust Bucket state?

IRIAN JAYA - Can Indonesia head off push for Papuan independence?

MEDICINE - Medical Journal has no space for criticism of Hepatitis C report

HISTORY: When, where and why 85 million people died

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ECONOMICS - WTO
stumbles as Third World rebels


by Colin Teese

News Weekly, March 11, 2000
The GATT was one of the most successful international treaties ever. It survived almost 50 years. The WTO, its successor, may not achieve such longevity. Colin Teese,former Deputy Secretary of the Department of Trade, explains why.

The World Trade Organisation - created at the Uruguay Round of international trade negotiations at the end of 1993 - seems, after only six years, to be in a seriously troubled state.

By contrast, its predecessor, the General Agreement on Tariffs and Trade (GATT) - upon which the WTO was to be so much of an improvement - was successful from the very beginning, and survived almost 50 years, to become perhaps the most durable international treaty in history.

To understand why the difference, it may be necessary to examine briefly the history surrounding each of the organisations.

When Communism was at the height of its power and influence around the middle of the 20th century, its most doctrinaire proponents were fond of proclaiming that the contradictions of capitalism carried with them the seeds of its own destruction.

Now the wheel has turned. It is one of the crowning ironies of the last year of the 20th century, that whereas the GATT helped saved capitalism, the WTO - its contemporary flag carrier - confronts menacing internal contradictions.

The Communists were probably right about capitalism all those years ago. What they couldn't anticipate - and that proved to be a fatal mistake - was capitalism's capacity to manage change, and to bounce back.

Even then, capitalism did not so much save itself as to permit John Maynard Keynes to rescue it. Keynes demonstrated how capitalism could suppress its contradictions.

The pure market economy, he insisted, far from promoting equilibrium, was fundamentally unstable; and, without government intervention to manage supply and demand, could never sustain reliable growth and full employment.

Of course, these were controversial views, then and now. Nor were they ever truly accepted by doctrinaire capitalists. They did, however, compel orthodox capitalism to confront the realities of the 1930s Depression which hit all of the capitalist economies, and the collapse of international economic co-operation, which came in its wake.

So successful was the transformation of Western capitalism that the command economies were quickly put on the defensive. By the Sixties, they had lost the race for rising living standards and greater individual liberty. Two decades later, the Soviet Empire imploded.

The Keynesian prescription for what could be termed interventionist capitalism, also infected the three institutions set up after the war to manage international economic relations.

One of these, the GATT - which administered a set of loosely binding rules governing international trade - was established not, as its preamble makes clear, for the purpose of pursuing free, or even freer, trade, but to serve the wider community interests of economic development and full employment.

While GATT rules loosely bound its members (initially the major capitalist economies) to use tariffs as the main protective instrument, other measures were permitted in specified circumstances to safeguard the national interest, particularly employment.

As a measure of last resort, disputes about breaches of rules could be considered by GATT. Findings were not, however, binding on the parties, consistent with the need to protect national sovereignty.

All of this worked well until the collapse of the Soviet Empire, and the disappearance of the communist threat. Though, in the previous decade and a half, as the success of interventionist capitalism over communism became ever more obvious, so the voices of doctrinaire capitalism re-emerged. Especially in the English-speaking capitalist economies led by the United States and Britain. Ideology once again began to exert sway over common sense.

The WTO was born out of this about-face and emerged as a replacement for the GATT in the Uruguay Round of trade negotiations.

Masking a truer purpose, the rationale was said to be the need to put teeth into an ailing instrument, and to extend the range of trade rules to cover more goods. Though it was not at all clear that the GATT precluded the making of rules to apply to trade in, say, services, including financial services, and to governments' international purchasing.

The real purpose was to ensure that the agency could be reshaped to better serve US and European economic interests.

As it stood, GATT members had the option of accepting or rejecting the widened net of GATT obligations, while leaving undisturbed the existing rule and obligation framework. On the trade in services, the major economies wanted (and still want) not so much access to each other's markets, but to those of developing and emerging economies.

Negotiating the subject separately, they could never hope to pay in concessions the full value of what they were asking for. A new, all-encompassing trade instrument - the WTO - would serve that interest better.

To develop the illusion of benefit to those who would elsewhere be expected to concede much , some window dressing was added on the goods side. Developing countries were offered better access to the big textile markets of Europe, the USA and Japan - or at least the appearance of it. They were not impressed.

Agriculture

Uruguay was also to be the occasion of a breakthrough in farm products. But, as always, the end purpose of the big players was their own farmers' interests. Again the illusion of benefit was presented as real, and some countries, like Australia - who had invested so much political capital in the outcome - found themselves obliged to oversell what were decidedly modest gains.

On the procedural side new dispute settlement procedures were unveiled. WTO outcomes would be binding on all parties - large and small. This was presented as gain to smaller members. In practice, the opposite has been true.

The larger economies can, as before, ignore findings and absorb the consequences of smaller nations applying compensatory retaliatory action against them. The smaller economies - as Australia is finding out- are denied that option; retaliation really hurts them.

Coming into Seattle these were the festering issues arising out of Uruguay. And after Seattle, it is now clear that a new negotiating round can only succeed if the big players are prepared to negotiate seriously with developing countries in the area of non-goods trade.

Of course, doctrinaire capitalism preaches that opening up one's market is a self-serving virtue, but around the negotiating table that is, rightly, dismissed as rhetoric.

The question is, do the big players have enough real bargaining coin to satisfy developing countries, and if so what might it be?

The second question, no less intractable, centres round the disposition of power. Developing countries, it seems, will not support a new Negotiating Round for which the agenda and, indeed, the outcomes, are shaped by the US and the EU.

There is a third unrelated issue. The WTO has managed to generate unpopularity for itself with certain interest groups not directly concerned with trade. For whatever reason, the agency is now seen to be endorsing ideas of the pure marketeers in favour of low and declining labour standards and insensitivity to environmental protection, health and personal safety issues.

Pity the poor WTO as it struggles to launch a make-or-break round of negotiations in the face of these problems.

Added to this is another dimension of the power issue, which contemporary circumstance imposes upon the big players. The US controlled the agenda of the GATT. That was possible while the organisation was essentially a "white man's club" and Western economies were united in pursuit of Cold War objectives and the fight against Communism.Especially so, as the US effectively bought its right to control the GATT by opening its own market (or, at least, much of it) to GATT members.

None of that any longer applies. What the US now wants is to run the organisation and to shape its future to US economic purposes, while pursuing concessions it cannot pay for, from those it seeks to disempower. An impossible aim.

Customarily, where the US could not control an international organisation, it has turned its back on it. The UN going back to Cold War days, is a case in point. It cannot do that with the WTO. Vital economic interests are at stake.

So, is the WTO in imminent danger of collapse? Almost certainly not. To paraphrase what somebody else said in a different context: nobody ever went broke betting on the survival of an existing government agency.

What can be said is that the shape of future negotiations must remain uncertain until the struggle for power between, on the one hand, the USA and Europe and, on the other, the developing nations, is worked through.




























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