August 16th 2008

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Articles from this issue:

COVER STORY: Solzhenitsyn, towering 20th-century prophet

EDITORIAL: Australia's faltering economy: a way out

CANBERRA OBSERVED: Does Peter Costello have what it takes?

BANKING: Bendigo Bank praised by Reserve Bank governor

INTERNATIONAL TRADE: Why the Doha trade round collapsed

FOREIGN AFFAIRS: Plum postings for Australia's new aristocracy

RADICAL ENVIRONMENTALISM: Animal rights fanatics threatening our exports

INTERNET: ISP-level porn filtering moves a step closer

STRAWS IN THE WIND: Musical chairs

EDUCATION: An education system worth fighting for

WESTERN AUSTRALIA: Opportunities for minor parties in WA election

UNITED KINGDOM: London transport bomb plot trial collapses

SPECIAL FEATURE: 1968 Prague Spring remembered

CINEMA: The Dark Knight - Heath Ledger's 'creepy and mesmerising' finale


BOOKS: THE GREAT ARAB CONQUESTS: How the spread of Islam changed the world we live in, by Hugh Kennedy

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Why the Doha trade round collapsed

by Colin Teese

News Weekly, August 16, 2008
The World Trade Organization (WTO) may well be condemned to limp into the future with a role far less influential than was once enjoyed by GATT, writes former senior trade negotiator Colin Teese.

Negotiators at the World Trade Organization (WTO) have failed to reach agreement on a new trade liberalisation package. This outcome, however, should come as no surprise to News Weekly readers.

The negotiations, called the Doha Round (named after the capital of Qatar, a small Arab emirate in the Persian Gulf, where the talks began way back in November 2001), were doomed to failure from September of last year. That was the moment at which the negotiating authority of President George W. Bush expired.

Under the terms of the US constitution, the President has no authority of his own to negotiate with the rest of the world on trade liberalisation. Any tariffs and other trade barriers maintained by the US are legislated by Congress, and only Congress can undo them.

As has been the case with all other multilateral trade negotiations, the President must seek prior approval on what becomes the US negotiating package. Without that, what his team negotiates risks being rejected by Congress.


Quite obviously, no other party to such talks would negotiate with the US on the basis that what was agreed could be undone by the US Congress. So, you may ask, how come the US has been negotiating in the latest Doha Round that finally failed on July 30 and was reported in our newspapers a day later? A good question.

Outsiders not being privy to the talks can only make an educated guess on the basis of limited knowledge. We know, for example, that President Bush obtained his negotiating package from Congress before the Democrats secured control of Congress two years ago. And we know that, ever since, a Democrat-dominated Congress has complained about the adverse effect on the US of various trade deals concluded by the present Republican Administration.

Is it therefore likely that the present Congress would have signed off on negotiations based on a mandate President Bush obtained from the previously Republican-dominated Congress - given that the obligation to do so expired last September? And just how likely would this be in an election year? Is it conceivable that a Democrat-dominated Congress would give Republican presidential candidate Senator John McCain any such advantage over his Democratic rival in the race for the White House?

Nevertheless, President Bush's team has remained at the negotiating table up until July 30. How can this be explained? One possibility is that the President may have had on the table a US package which conceded even less in negotiations than was offered in the previous Congress-approved package. Maybe, even, his negotiators had some kind of undertaking from the Democrats that a less generous package would be passed by Congress.

More likely, he has negotiated on a package giving away less than the US was previously offering, and gambled on a hostile Congress passing it. Probably, only the Bush Administration and perhaps some of the US's closest negotiating partners really know the truth.

We can, however, gain further insights by looking at what the US side had on the table in the weeks until July 30, and, more importantly still, what has been a stumbling block with the Doha Round negotiations from the very beginning.

Most of the previous trade negotiations - whether under the old General Agreement on Tariffs and Trade (GATT), or under its successor, the WTO - were overwhelmingly concerned with trade liberalisation among the developed market economies. Third World countries were, at most, peripheral to negotiations: they were always more interested in what they might be given rather than negotiating an exchange of concessions.

However, since the late 1990s, developing countries have become more prosperous and therefore a more tempting target for developed country negotiators. This is all the more so since, after 50 years of negotiating with each other, developed country negotiators have almost exhausted the possibilities of future mutually beneficial arrangements between developed Western economies. What they now want is better and more secure access into markets of emerging developing country for Western manufactures, agriculture and services.

The problem is that when it comes to bargaining trade concessions - which is what GATT and WTO negotiations have been all about - the developed economies don't have much to bargain with. Negotiating as between themselves they have bargained away most, if not all, the worthwhile access arrangements to their own markets. What barriers remain developed countries have no intention of giving up, and Third World countries know as much.

This then was the background to the start of the 2001 Doha Round at the beginning of President Bush's first term.

There has been much in the media about what was supposedly "almost agreed". But this is mostly the opinion of the uninformed. "Cuts in tariffs by 20 per cent" was one such item. It is unlikely to have come even close to that.

Tariffs in the developed world - apart from those the developed economies have no intention of cutting - are almost zero. Cutting them by 20 per cent is no concession at all.

Developing countries' tariffs, on the other hand, are quite high - in many cases, 20 to 50 per cent. Cutting these by 20 per cent is a real concession. With this imbalance between the negotiating parties, an agreement on tariff-cutting was never really on.

Neither was the question of agriculture close to settlement. Much was made of a tentative decision to abolish export subsidies on agricultural products. But the more important problem is farmer subsidies. True ceilings were proposed for these, but at levels well above where the huge subsidies are now. In other words, present subsidy levels would remain far into the future. As with all trade bargains, the only concessions worth having are those having immediate impact.

As for export subsidies on farm products, so long as farm production is subsidised, and farmers are allowed to export surplus production, exports are effectively subsidised, even without specific export subsidy programs.

Moreover, the US insisted that the agriculture package allowed their subsidised farmers access to developing country markets for farm products. Subsidised farm products from the US in developing country markets would, however, destroy small farmers. Understandably, developing countries could not be persuaded otherwise. Thus, there was little hope that the agriculture package would fly.

And finally was the matter of trade in services - that is to say, banking, insurance and the whole ranges of supporting activities for productive parts of the economy. Here, the developed world was able to offer developing countries significant access to their markets in return for the same access to corresponding markets in developing countries.

The problem always has been, and still is, that there are significant opportunities for developed countries in developing country markets, but the same is not so for developing countries. The latter are in no position to supply trade in services to developed countries. So a deal on services was always going to be difficult.

All things being considered, it is hardly surprising that Doha failed. Looked at objectively, the basis for a mutually beneficial exchange was simply not there.

So what is next? There is talk about a resumption of the Doha Round in 2010 - after the new US administration gets itself settled in and gets a new mandate from Congress. Who can say whether or not anything like that will be possible?

The WTO evolved out of the GATT in the late 1990s when the developed world was starry-eyed about the future of free trade and established a set of tighter rules in the WTO.

Certainly, Australia felt like that. When it comes to free trade and deregulation, our ideologically committed economic elite has always led the pack.

Many of our trading partners, however, have tended to support such ideals in word rather than deed. The US, the European Union and Japan, just to take a few prominent examples, have always professed commitment to such ideals. But, in practice, they have supported them - and indeed, the WTO itself - only to the extent that their own interests are being served.

The worry for these particular parties was that, almost before the ink on the WTO agreement was dry, it became obvious that they could no longer control how it operated. The old GATT, with its 68 members - almost all of them developed Western economies - was one thing. However, the WTO, with its 150 members - including increasingly important developing countries - was another.

No longer able to control the WTO, the major economies found a way around the problem. The US and the EU began negotiating bilateral agreements with various trading partners. These usually provided for selective trade coverage, and the benefits of such exchanges were exclusive to the immediate parties. But, on both these counts, the bilateral agreements were inconsistent with WTO rules.

There can be no doubt that this proliferation of bilateral agreements - which Australia also has taken up - has undermined the power and influence of the WTO. And, though it can't be proved, the proliferation of bilateral agreements has likely made the fixing of a deal on Doha more difficult.


There are also other considerations. Outside Australia there is no longer quite the same commitment to the virtues of free trade or deregulation. This is especially true in the developing world.

That being so, it will be difficult for the WTO secretariat to compile any future negotiating agenda. And, certainly, it will no longer be possible, as has been the case in the past, for the shape of any agenda to be dominated by the major Western developed economies.

In a radically changing world, all this spells tough times ahead for the WTO. It may well be condemned to limp on into the future with a role far less influential than was once enjoyed by the GATT - or even enjoyed by the GATT's successor, the WTO, in the dying years of the 20th century.

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

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