INTERNATIONAL TRADE: by Colin TeeseNews Weekly
WTO negotiations falter on trade liberalisation
, November 5, 2005
It has so far proved impossible to obtain any benefits for Australian agricultural exports under our recently negotiated bilateral trade agreements. Trade Minister Mark Vaile is unjustified in raising Australian farmers' hopes that a new multilateral trade agreement will be any more beneficial, argues Colin Teese, a former deputy secretary of the Department of Trade.The World Trade Organization has been trying to launch a new round of trade negotiations since 2001. Progress towards negotiation in what is called the Doha Round (named after Doha, Qatar, where the round was launched), has again stalled.
The round has already missed a number of starting deadlines. What is now being said is that, unless a basis for starting the talks can be found by the end of the year, then the Doha Round will collapse.
However, despite all the negative signs, that remains about the least likely outcome.
Similar dire predictions have been made about previous trade negotiating rounds, including the Uruguay Round which established the World Trade Organization in 1994.
That round got going only after a number of false starts. And, once launched, it stumbled many times along the way, and remained in danger of collapse until the final day; yet, after 10 years of negotiation, an outcome was achieved.
It was no rousing success, but the Uruguay Round did deliver an outcome. Too many heads of too many powerful governments had too much credibility at stake for negotiations to be an obvious failure.Similar path
The Doha Round will most likely follow roughly the same path. And, as in Uruguay, the odds are against any genuine advances in trade liberalisation.
Agricultural trade liberalisation is said to be the big sticking-point, for which the European Union in particular, and to a lesser extent the United States, are being blamed.
While all of this is regarded as important for Australia and other agricultural exporters, there are other reasons why starting the Doha Round is proving so difficult.
The World Trade Organization is itself a problem - in particular, its apparent inability to resist pressures from the United States and the European Union when it comes to deciding work priorities. After only a decade of effective life, the WTO is already looking like a tired organisation, with a past rather than a future.
Those considerations, especially, are undermining the confidence of the wider membership in the WTO - particularly among developing countries.
The WTO replaced the General Agreement on Tariffs and Trade (GATT) which had administrated a set of effective rules governing international trade since 1947.
The original GATT rules were carried forward into the WTO - with elaborations and additions.
These elaborations and additions were justified on the basis of producing a better agreement. But, as so often happens when a good operating arrangement is tampered with in an attempt to bring it into closer contact with perfection, the result is not always improvement.
The GATT was established to create a rules-based trading system to which trading nations could subscribe, and which would allow the trading world to avoid the beggar-thy-neighbour policies which had led to so much trouble in the period between the two world wars.
Its objectives were modest enough - essentially to develop a basis for cooperation and mutual benefit within a new set of trading rules that could help cement into place full employment and growth in real incomes and demand in the post-war period.Settling disputes
In addition, it provided a forum in which, over the years, multilateral trade liberalisation deals were negotiated among contracting parties to GATT. As a result, levels of industrial tariffs in the member countries would be steadily reduced on a mutually beneficial basis. As well, the GATT provided rules for settling disputes without resort to excessive legalities.
GATT rules governing member-countries' behaviour were deliberately established as guidelines for co-operation rather than as binding obligations - indeed, they could never have been otherwise. The United States, for one, could not have accepted binding obligations.
In terms of trade liberalisation the GATT was extremely successful, except in respect of agriculture.
Progress on agriculture was made impossible - largely because of the political sensitivity of farming in both the United States and Europe.
From the 1960s on, agricultural protection became the major unresolved issue in international trade - much to the discontent of agricultural exporting countries such as Australia.
With the benefit of hindsight, it is now possible to recognise that the GATT's biggest mistake was to encourage the belief that, over time, major progress on agricultural trade liberalisation was possible.
It should have been obvious that the US - and, later the EU and Japan - were in no position to support efforts to liberalise trade in temperate agricultural products, given the prevailing domestic political or other policy pressures.
The purpose behind the elaboration of the GATT rules and its conversion into the World Trade Organization was to extend the reach of the old GATT rules beyond mere trade in goods to what were called trade-related subjects.
Examples of these were the trade in services and in patents (intellectual property). At the time, the expectation was that the future growth in international trade would be less in the trade in goods, and more in areas such as services (financial transactions, tourism, entertainment and technology).
What was not said was that this new direction especially served the self-interest of the US, the EU and Japan, who became the driving forces for the changes.Carrot held out
The carrot held out to tempt others, especially Australia and other nations of like interest, was progress on agricultural trade liberalisation. For developing countries, a new textiles agreement was to provide better access to US and EU markets for textiles.
The major economies' conviction that prospects for future trade expansion in manufactured goods was limited turned out to be wrong. But, right or wrong, they certainly knew that there was much to be gained if they could be permitted to exploit the growing demand for services in markets outside their own.
At the beginning of the 1990s, access to these markets was notably restricted, especially in developing countries.
New trade rules and mechanisms, hopefully, would open up these valuable new markets to the service industries of the developed world. With the creation of the WTO, a supplementary agreement was concluded called TRIPS (trade-related intellectual property rights). This agreement was to become the means by which the duration of patent protection to new products could be extended.
TRIPS is particularly irritating to newly emerging manufacturing countries, who, when they copy patented goods and distribute them more cheaply, are accused of piracy.
Interestingly, the US - the country most strongly behind the TRIPS agreement - was, in its developing stage, routinely pirating the intellectual property of others.
Now it has been determined to deny that same opportunity to others. In a WTO which makes much of its commitment to free trade, TRIPS is especially galling, since its purpose is so obviously concerned with extending protection to the richest and most powerful economies.
Another cause of tension in the WTO has been the pressure brought to bear on developing countries - especially by the European Union - to sign an agreement on services.
Developing countries, however, have shown no inclination to give up the right to develop and own their own service industries without a clear understanding of what corresponding benefit would flow to them in return. This issue has already caused one breakdown in the progress towards a start in Doha negotiations.
Assuming the new negotiations get going, it seems unlikely that any of these pre-existing tensions will be resolved in advance.
Thus far, all the major players are not serving up much to tempt developing countries, except the idea of agricultural trade liberalisation.
In the unlikely event that such liberalisation should occur, the beneficiaries would more likely be Australia and other agricultural exporters.
For developing countries, a Doha Round seems to offer very little - all the more so now that it appears the textiles agreement negotiated in the Uruguay Round is coming apart. Europe and the United States, facing a flood of cheap imports from China, are beginning to close their markets.
For the benefit of public opinion, the big players at least - the US, the EU and Japan - are continuing to give support for the Doha Round in the WTO. But that hasn't stopped them fixing up trade deals outside the WTO.
The US has been the most active in this regard, putting together both bilateral trade agreements with many of its trading partners and, at the same time, promoting regional trade pacts with certain of its close neighbours.
Perhaps the point has been reached in the minds of the major participants that, what additionally may be possible in the WTO, will come at too great a cost.Undermining progress
What our Government thinks of all these developments is not clear. Our trade negotiators have been busy concluding bilateral agreements with many of our trading partners which will, of course, play their part in undermining prospects for multilateral progress within the WTO.
Our Trade Minister Mark Vaile has tried valiantly, but it is hard to declare support for the multilateral trade body while going around the world negotiating bilateral agreements.
Nevertheless, that has not stopped Mr Vaile and others in the Government from raising hopes among Australia's farmers of a beneficial outcome from a successful Doha Round.
Our farmers should not be fooled. Instead, they might ask the minister: If it has so far proved impossible to obtain benefits on agriculture in the various bilateral agreements recently negotiated, what makes him confident we can do better multilaterally?
After all, it will be necessary for many more countries to agree before anything worthwhile can be obtained in multilateral negotiations.
- Colin Teese is a former deputy secretary of the Department of Trade.