August 19th 2006


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Articles from this issue:

CANBERRA OBSERVED: Inflation: next test for the Howard Government

EDITORIAL: Israel sucked into war in Lebanon

HUMAN RIGHTS: Sensational evidence of Chinese body-harvesting

ENERGY: Nuclear power stations our safest option - Dr Dennis Jensen

ETHANOL: Federals still to come to their senses on bio-fuels

INTERNATIONAL TRADE: Doha trade negotiations collapse irretrievably

SCHOOLS: Some religions are more equal than others

STRAWS IN THE WIND: Here come the anti-Semites / Robert Manne / The poverty of nations / Speculations

SPECIAL FEATURE: How Christians overcame the culture of death

ISRAEL: The endless mutations of anti-Semitism

EASTERN ASIA: Australia and Taiwan's special relationship

OPINION: Robert Manne - the case against

Swan song of failed educationalists? (letter)

Whitlam's attempts to diminish states (letter)

China atrocities exposed (letter)

BOOKS: HOME-ALONE AMERICA: The Hidden Toll of Day Care, by Mary Eberstadt

BOOK REVIEW Intellectual forerunner of the Movement

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INTERNATIONAL TRADE:
Doha trade negotiations collapse irretrievably


by Colin Teese

News Weekly, August 19, 2006
Supporters of the globalist free-trade agenda have reacted with near-panic to the collapse of the World Trade Organization's latest round of trade talks, writes Colin Teese, a former deputy secretary of the Commonwealth Department of Trade.

The World Trade Organization's latest round of trade negotiations is currently suspended. If they don't get started again, and the Doha Round collapses, would it really matter? Apart from the fact that this writer would have been proved wrong - probably not.

Expert opinion, however, thinks otherwise. Panic-stricken, the London journal The Economist seemed to regard the collapse of the Doha Round of trade negotiations as something akin to the end of civilisation as we know it. Heaven forbid, the journal hinted, it could presage the destruction of the whole idea of globalisation!

Back home, here in Australia, the response was slightly more relaxed. One well-known local commentator went into defence mode on behalf of the WTO. In contradiction of what had not been said, one commentator insisted that the failure to agree on a basis for further trade liberalisation negotiation did not mean the end of the organisation. He then went on to catalogue a series of activities with which the WTO could occupy itself, all of them trivial and of no interest to any serious observer of international trade policy.

Courage

Nevertheless, he might be commended for his courage. At least he was prepared to face the fact that a collapse of the negotiations could cast some kind of shadow over the World Trade Organization.

The strangest of all comments came from our Trade Minister Mark Vaile. His immediate response was to assert, plaintively, that we should now try to keep those things which had already been agreed along the way.

No doubt Mr Vaile had in mind an offer on the table by the European Union to dismantle its direct export-subsidy program. Something of the same seemed also to be in prospect from the U.S.

Standing alone, these represented concessions of significant value, which, with the breakdown of negotiations, our minister could see floating off with the rest of the debris. But how could he ever have imagined any other possibility? Trade negotiations always proceed on the basis that nothing is agreed, finally, until everything is agreed!

The EU and the U.S. concessions were not in the nature of unilateral gifts. They, too, had their wish lists.

The reasons why the negotiations failed - and why, even at this late stage, if they happen to be restarted, they are unlikely to deliver any real benefits - require detailed and careful analysis of the compatibility of the various wish-lists.

These always have, and always will, provide the basis for any trade negotiations based upon the idea of reciprocity and mutual benefit. And whatever free-trade ideologues might wish to the contrary, those principles remain at the heart of any successful trade negotiations - inside or outside the WTO.

Thus agriculture is not, as many want to insist, the major stumbling-block to progress in the Doha talks. Rhetoric aside, as far as the principal negotiating parties are concerned, agricultural trade liberalisation is quite unimportant. If that were otherwise, the major parties would long ago have found a way around their disagreements.

So we are left with the wish lists - which, as things stand, cannot be brought into balance. In fact, all of the major participants have much more important objectives, most notably in the areas of trade in services and finance. They want these areas opened up in developing countries. For the moment, in the context of the WTO, they cannot see a way to advance these interests.

That's the real problem: the WTO is not working. The rigidities which were built into the organisation, back when it was created to supersede the old General Agreement on Tariffs and Trade (GATT), now seem to be paralysing the WTO. To understand why, we need to take a snapshot of history.

In the period immediately following World War II, the Western countries agreed on a number of measures to manage world economic relations. Included among them were rules relating to the way countries would conduct their trading relationships. These were enshrined in the General Agreement on Tariffs and Trade (GATT), which was the predecessor of the World Trade Organisation.

The most important consideration was that the GATT - unlike the WTO - was not set up to be some kind of international trade policeman. The GATT was set up on the basis of rules which were not ever claimed to be binding but rather to be persuasive. Countries committed themselves to the idea of mutually-beneficial behaviour according to certain rules.

In the beginning, attempts were made to establish a binding agreement, but this idea was rejected - most notably by the United States. It was made clear that such an idea would never be accepted by the U.S. Congress.

As a result, the rules were accepted as a basis for regulating international trade which member countries would follow to the best of their ability. Importantly, the GATT was not ideologically driven. The idea of "free trade" is not mentioned. The document's preamble talks about "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".

Specifically, the GATT rules provided that tariffs, rather than subsidies, were to be the preferred method of import regulation; and, in successive multilateral trade liberalisation negotiations, these would be brought down on the basis of mutually-beneficial bargaining. This the GATT did quite successfully until the Uruguay Round of negotiations which attempted to enlarge the scope of the GATT rules and, on the basis of ideological commitment, make them binding.

It should be noted that the prescription against subsidies in the GATT rules did not apply to agriculture - which was, from the start, judged to be in a different category from industrial goods.

To the foundation members of GATT, these arrangements were deemed satisfactory. Between the U.S. and Europe there was unstated agreement that they had no intention of pursuing trade liberalisation policies in agriculture. In this, the U.S. was motivated by domestic policy reasons; and Europe, because it was determined to pursue policies of self-sufficiency in farm production - which was understandable, given that it had been blockaded in two world wars.

Australia, New Zealand and Canada - all founding members of GATT - were unconcerned with any of this: inside the British Empire and Commonwealth, they were part of a highly beneficial imperial preference scheme for both industrial tariffs and agricultural access to their main export market, which was Britain and the rest of the Commonwealth. Meanwhile, as part of the post-war world, commodity agreements relating to the export of agricultural products were beginning to emerge in which Australia, among others, was an important participant.

All of this rolled along more or less smoothly for the first decade after the war. Industrial tariffs were being negotiated down at a steady pace, which satisfied the U.S., Britain and the reconstructing Europe.

What came first to disturb the peace was the creation of the European Economic Community in 1956. Britain's attempt to join that group was rebuffed when it insisted that it should be permitted to retain its imperial preference arrangements. As the EEC began immediately to grow in power and prosperity as an economic unit, domestic pressures mounted in Britain to join the group.

Understandably, those Commonwealth members with agricultural trade preferences in Britain, notably Australia and New Zealand, were alarmed at these developments, since it was by then quite obvious that, if Britain were to gain entry to the EEC, it would have to sacrifice the agricultural trade interests of its Commonwealth trading partners.

This is precisely what happened in 1972 when Britain joined the EEC. Overnight, Australia lost its preferred access to the British market.

That, of itself, was enough of a problem; but it was made worse by the fact that overproduction in Europe was generating surpluses of agricultural products which, with subsidies, began competing with Australia for external markets. It has been a problem ever since, not only with Europe, but also with the U.S. - except that we in Australia have concentrated more of our hostility towards Europe, mostly because it was Britain joining Europe which did us the more obvious harm.

Even greater harm was done to our farmers by our own policy actions when we committed ourselves, in the early 1980s, to the practice of free trade - including for agriculture. Previously, our governments' policies had been to ensure that the domestic market for farm products was safe from subsidised import competition. We no longer do that, and our farmers are instead being asked to compete, without help, against subsidised competition both at home and in export markets.

The free-trade approach, at least in principle, became enshrined in the negotiations which led to the transformation of the GATT into the WTO. This was an important new development, as was the accompanying idea that the rules - not essentially different from those of the GATT – would now be considered binding.

What nobody seemed to understand, then or since, is that a system of binding rules changes the agreement fundamentally. Certainly, it makes any new commitments on sensitive issues such as agriculture much more difficult. This is all the more so when the big players - the U.S. and the EU - are being asked to make the big concessions and yet can see little prospect of any progress on the issues that interest them.

Is it any wonder that the negotiations at the multilateral level in the WTO are stalled? Most of the parties are preferring to pursue their interests in the easier context of bilateral trade agreements.

Australia, too, is following that path; but, by doing so, it diminishes the hope of wider progress on the more general subject of multilateral agreements covering agricultural trade subsidies.

The dilemma for Australia is that the way international trade policy is now unfolding, our ideological commitment to free-trade absolutes makes it impossible for us properly to protect the interests of our farm sector.

- Colin Teese was a former deputy secretary of the Commonwealth Department of Trade.




























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