December 1st 2001

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Articles from this issue:

Cover Story: Afghanistan: After the fall of the Taliban - the tasks ahead

Editorial: Policies for John Howard’s agenda

Canberra Observed: Election outcome - reality and dreamland

Irian Jaya: Was Jakarta involved in West Papuan leader’s murder?

Queensland: Boswell beats Hanson, but what now?

Interview: Will Bailey answers development bank critics

LAW: International Criminal Court leads to legal uncertainty

Straws in the Wind

MEDIA: ABC electioneering

Letter: A bad mix

Letter: New patrol boats

Letter: Queue jumping

Interview with Bjorn Lomborg: Science versus name-calling

ECONOMY: The trade news from Doha

WA family debate hots up

DRUGS: Community drug prevention

Books: 'Meaninglessness: The Solutions of Nietzsche, Freud and Rorty', by Michael Casey

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The trade news from Doha

by Colin Teese

News Weekly, December 1, 2001

Colin Teese explains what the latest World Trade Organisation negotiations - held in Doha, capital of the Gulf State of Qatar - will mean for Australia.

The WTO has at last launched a new round of trade negotiations at Doha. The Ministerial Meeting to start the round had to be held in Qatar - it will be recalled - because that was one of only a few locations of WTO members which was safe from the disruptions of the S11, which had so successfully derailed the Seattle meeting.

If one takes notice of the Australian media, the launching of this Round (no doubt to be labelled the Doha Round), will deliver a promised land of agricultural trade liberalistion to Australian farmers.

According to Tim Colebatch in Melbourne’s Age, billions of dollars could fall into the hands of Australian farmers as a result of the elimination of export and production subsidies on agricultural products which we export.

And, would you believe, better prices as well! That’s the good news. The bad news is a prudent, though muted, qualification to all this optimism inserted into the final communiqué by Trade Ministers - almost as an afterthought. The negotiations may well drag on for five or so years; and beyond that it may be a further five before the glory years kick in for Australia’s agricultural exporters.

News Weekly readers with long memories will recall that the same extravagant promises were made in the wake of the Uruguay Round in 1992 - along with the same time horizons. In reality, the nine years since Uruguay have brought few of the promised benefits.

The US continues to subsidise, apparently with the sanction of the WTO and Australia. US subsidies are OK, it seems, so long as they do not distort world trade. (Is there any such thing as a non-trade-distorting subsidy?)

Obviously the US continues to believe so, since, at the same time as the Doha Round was launched, there is before Congress a Farm Bill which could increase US subsidies by more than 50 per cent. The US Deputy Trade Representative has assured the Doha meeting that its farm subsidies will be on the negotiating table.

Without questioning his bone fides, it should be pointed out such a promise is not within his gift to deliver. Only the Congress can make or break legislation, and, certainly, it has given no such undertaking with respect to US agricultural subsides.

As to the European Union, it should be recalled that the settlement of the Uruguay Round stipulated that the EU would begin work on winding down subsidies in a new Round providing it was agreed, therefore, that the existing subsidies would not be challenged until 2001.

We agreed, and what do we find? The EU has fought to the end the beginning of a new Round which would include negotiations on agriculture. Backed into a corner, it had added the qualifying words to the communiqué on agriculture, "without prejudging the outcome of the negotiations".

The President of the NFF insists that these words carry no weight. For Australia’s sake, let us hope he is right; though he might be asked the following: why was the addition of the phrase considered enough protection to persuade the EU to accept the communiqué?

At the very least, the EU’s qualification could mean that unless progress is made on US farm subsidies and other issues outside agriculture which the EU in pushing, then it is not committed to anything.

And, as has already pointed out, whatever US negotiators say, they are unable to commit the Congress to anything as ambitious as that.

Now the implications of this seem to have passed by the NFF and, for that matter, Australia’s negotiating team. Why, it could be asked, was the focus of our intention the EU’s subsidies, when those of the US and Japan are, if anything, worse? Especially is this so if one recognises that the EU will commit itself to nothing without the others being drawn in.

Furthermore, the possible benefit to Australia of better access to the markets of Japan, the US and the EU, is based on some heroic assumptions. It is being asserted that, among other things, liberalisation of agricultural trade would deliver increased world prices. Exactly how this might happen is not, however, explained.

Is not there the equally likely possibility that better access might result in lower prices? After all, higher prices in the EU are entirely the result of subsidy programs. It seems unlikely that EU consumers will allow the benefits of opening up the European market to international trade to pass into the hands of exporters. Indeed, is it not one of the justifications for freer trade that it will confer price benefits upon consumers?

The recent experience of Australia’s lamb exporters to the US following the removal of the tariff quotas is relevant here.

Far from helping lamb exporters, removal of the 20 per cent extra duty led US importers to demand that they - rather than the exporters - collect the benefit of the tariff reduction. That being so, the removal of an entry restriction on lamb to the US market will probably provide no cost benefit to Australia’s exporters.

The factors already addressed above should temper our optimism about a better deal for agriculture from any new round of WTO-sponsored trade negotiations.

But there is a second, more telling question to be addressed. Is it really in our interest to be sponsoring a new round of agricultural trade liberating negotiations? Have we thought through where our national interest lies, both as to agriculture, and as to wider trade? Have we, indeed, measured the cost (in terms of broader economic and social issues) of publicly exposing how much store we place on negotiating agricultural trade liberalisation? Doesn’t that make us a soft touch for blackmail in the negotiating process?

Not so, say those who believe the prevailing orthodoxy that 75 per cent of all our agricultural production is exported. Trade liberalisation, they argue, is obviously to our benefit, even if it comes with a price tag in terms of opening our market to agricultural imports.

Queensland academic, Mark McGovern, exploded that myth of the 75 per cent some years ago in a controversial paper. He explained that drawing on the available domestic and internal statistical resources, measured at the farm gate; in fact, only 23 per cent of our farm output was exported.

McGovern’s view was hotly contested by the National Party, the NFF, and ABARE (The Australian Bureau of Agricultural and Resource Economics). All of these bodies dismissed McGovern’s claim by pointing out that he had overlooked exports of processed primary products.

In fact he had not, and it is obvious that if you claim we must open up our market for imports of agricultural produce (whether or not processed) in our effort to gain overseas market access, then we must deduct imports when we measure the overall value of any bargain to improve agricultural exports.

Since Australia’s processed food imports are in balance with our exports, then McGovern’s original assessment stands unchallengeable.

Our negotiators, and their backers, are united in the view that if we want lower levels of protection against our exports we are going to have to pay in some way for that benefit.

The question, which they don’t face, is that in light of the McGovern figures, how can they argue that Australia’s agricultural interests are served by surrendering part of our market (currently taking almost 80 per cent of farm output) in order to gain more of overseas markets (which takes just over 20 per cent of our farm output).

Surely, it is against our interests to put at risk a market accounting for more than three-quarters of domestic output, in pursuit of gains involving less than one-quarter of our output?

And the difficulties don’t end there. Because the coming negotiations will be dominated by power-plays - as are all negotiations - our negotiators could find themselves in the position of having to surrender important marketing strategies (such as single-desk selling) in order to achieve the decidedly questionable benefit of improved access to currently restricted export markets.

Worse still, but very likely, we could find ourselves surrendering really beneficial marketing advantages, in return for access gains which are never delivered. (Something similar to what actually happened in the Uruguay Round of trade negotiations.)

And all of that is premised on the idea that we can contain our negotiations in the Doha Round to agriculture. In reality, that is unlikely to be the case. Almost certainly, we will be asked to pay for any concessions we gain on agriculture (of whatever real value) with concessions by us in the form of opening up our market for Trade in Services.

We could, just as one example, be required to have our public hospitals and schools fully sustained by user contributions, or, if we do not, to offer any foreign-owned hospitals and schools setting up in Australia to the same advantages as we offer our own publicly operated institutions.

In addition there will be a negotiation on the so-called "Trips". A binding agreement will be sought to safeguard "intellectual property rights". Not, as might be expected, to protect copyright or patents - those matters are handled in other ways - but to protect commercial property beyond the reach of patents.

By way of example, users of a particular product, say a tractor, may be precluded from buying cheaper non-standard replacement parts.

The peculiar aspect of the "Trips" proposal is that it exactly the opposite of free trade, and one wonders why the free trade ideologues are not opposed to the idea. After all, its purpose is to restrict consumer choice. And it is surely no argument to maintain - as some do - that issues of safety are involved.

Perhaps they are, but isn’t that for consumers to decide? Whatever happened to "buyer beware"?

The question to be asked of the Government is whether its approach to the Doha Round of negotiations is to be sufficiently broad to require the perceived benefit in any one area, to be set against the possible disadvantages in some other area. On the basis of what we know of how the Government approached the Uruguay Round there is little room for optimism.

We can only hope that this time it will be different.

  • Colin Teese was Deputy Secretary of the Department of Trade

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