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“ENHANCING TRANSPARENCY IN THE MULTILATERAL TRADING SYSTEM”
SYDNEY 4 JULY
ADDRESS BY TIM GROSER, NZ NATIONAL PARTY TRADE SPOKESPERSON
Minister Truss, ladies and gentlemen
Doha: On Life Support, but Not Dead
It is still premature to declare the Doha Round dead. The Director-General of the WTO, Pascal Lamy, a person of great creativity, experience and determination, has always had a joker in his hand which he could play, but once only.That joker is a Chairman’s Grand Compromise.
The attempts to broker the key elements of a deal in the so-called power-grouping of the G4 – the grouping involving the United States, Europe, Brazil and India – have collapsed amidst considerable bitterness but importantly, after some very clear signals prior to the last disastrous meeting in Potsdam that the deal might be in reach – I had the US account of that last week in Washington when I was there with my Leader, John Key. The possibility that certain miscalculations were committed cannot be entirely dismissed.
I do not know how the Director General will move ahead and I do not know when. Presumably it will be after the two key Chairs of the Agriculture and NAMA or Non-Agriculture Negotiating Group – have tabled their own papers pointing to a compromise. But play the wild card he will.
No conference amongst Australians and New Zealanders would be complete without a sheep joke. There is an old saying ‘better to be hung for a sheep than a lamb’. I do not know how well this translates into French, but I have no doubt that in some way Monsieur Lamy will be following this logic.
I remember that the Uruguay Round, the last GATT negotiation, was declared to be dead many times. It was universally and cynically called the ‘General Agreement to Talk and Talk’ and only, it was said, a few naïve officials believed it would ever reach a successful conclusion. Well, that proved to be wrong. In this Round, and following the shock of the Cancun Ministerial failure, I recall that when I was the Chairman of the Agriculture Negotiations an informal poll of 23 of the leading negotiators showed that 20 out of 23 thought there was no prospect of any agreement. A few weeks later the July Framework on Agriculture was agreed. So much for conventional wisdom.
However, I do not wish to give the impression of Panglossian optimism here. I can see what you can see - the patient is bleeding badly on the operating table as it has been wheeled into the Geneva office of the Chief Surgeon, Pascal Lamy. You can feel that the momentum leaching away from thenegotiation.
But my point is a simple one: no responsible person should advocate taking the patient off life-support until the Director General has had his one chance to save the patient and pull off a compromise. He may just succeed and I am sure we all wish him well.
Whether he succeeds or not, there are manifest weaknesses in the WTO system and you have asked me to address one in particular – how we might better structure domestic debates in WTO member economies so that the real economy-wide costs and benefits of subsidies and protective devices are better understood.
This will be one element in a future programme of WTO institutional reform. Even if there is a success at the eleventh hour in the Doha Round, these weaknesses will remain. In this speech, I will therefore necessarily take my lead from the great jurist Lord Denning. As some of you may know, Lord Denning, the Master of the Rolls (effectively the Head of the Court of Appeal for England and Wales) had a particularly low regard for the Judgments of the House of Lords. When told one day that the House of Lords had just upheld one of his Judgments, Lord Denning said ‘Well, in spite of their finding, I still think I was right’.
So even if Round were to succeed at the last moment, I will take the viewthat it succeeded in spite of those weaknesses and they still need to be addressed.
Some Possible Consequences of Failure
We should perhaps try to put some boundaries around the issue of a possible failure. The WTO is a foundation stone of the global economy. A failure will not unleash any immediate crisis in the international trading system. The world finds it very difficult to advance reform in any sphere but in most cases political leadership is very good at crisis management – think of the Asian economic crisis in late 1997 when the whiff of economic cordite was last in the air. Certainly wars and depressions exist as reminders that crisis management sometimes fails, but I am not expecting this. The problems are more systemic.
There would, in the event of failure, be a brief and spectacular outburst of the blame game – along the lines of last week but more creative yet. In any event, it will not last long and the media spotlight would soon pass back to Paris Hilton, as it should.
What would then confront us is a rather bleak situation. For a start, a failure of the Doha Round would not be an overtand declared failure. An elegant diplomatic formula would, in that event, be developed to put the negotiated results in the political freezer to be dethawed at some indeterminate point. By most reckoning that would be unlikely to be much before 2010.
When multilateralism fails – whether it is with respect to the great issues of nuclear disarmament in the 1970s, a failure to find a durable path to peace in the Middle East, or a politically saleable Framework for climate change negotiations to which all the major emitting countries, developed and developing,can ascribe – the problems still remain but the search for solutions goes elsewhere.
The first avenue for alternative solutionsin the field of Trade is known in advance by everyone. The headlong rush towards FTAs by whatever name will accelerate; for political reasons in our country we have alighted on the euphemism of ‘closer economic partnerships’, a minor enrichment of the term ‘closer economic relations’, chosen by a NZ official in 1979 to make the prospect of free trade with Australia a little less alarming to the then deeply protectionist sentiment running in NZ.
There will then be further futile attempts to discipline this headlong rush into FTAs, since so many of these FTAs are of questionable quality. These initiatives will, in this climate, have even less likely chance of success than previous failed efforts to do just that. For a start, there will no longer be even a negotiating possibility of amending the largely non-operational provisions of GATT Article XIV and GATS Article V that together determine the matter of WTO compatibility.
FTAs will be everyone’s Plan B and if my Party becomes the Government next year, let me be clear: we will be no exception. We will take our chances in the political market place and vigorously pursue FTAs, with a focus on Japan, India, the EU, the United States and China – although I expect the FTA with China will be successfully completed by then and NZ will be the first developed country to have an FTA with China.
There is also the matter of the CER/ASEAN dialogue. Since the Indonesian Trade Minister, whom I knew well as one of Indonesia’s most prominent international economists when I was NZ Ambassador in Jakarta is with us, may I also take the opportunity to say to her that a National-led NZ Government would also hope to push along the slow moving CER/ASEAN FTA.
This was always the thinking behind the NZ/Singapore FTA. There was never any significant commercial rationale behind that FTA since both Singapore and NZ were completely open to each other in terms of their export profiles. The rationale was always strategic. Broadly, the hope was that it would encourage our respective larger neighbours – Australia for NZ, ASEAN and Indonesia in particular for Singapore – to look again at the CER/ASEAN concept with a view to eventually merging the two geographically contiguous sub-APEC FTAs, albeit over a long and extended time-phase.
I say this as much for foreign policy as for commercial reasons. Paul Keating, when he was Prime Minister, once said that in the long-run it was difficult to believe that any country would be more important to Australia than Indonesia. Paul Keating’s proposition is debatable at the margin as we think about the role of China in Australia’s future, but not at its essence. Indonesia is of great importance to Australia already and that will increase.
As anyone even lightly familiar with the huge literature on regional economic integration knows, there is an unmistakeable political return from drawing regional countries together in a web of shared economic interests. Indeed in Europe it is the very starting point for their economic integration efforts. I think there would be very significant long-term foreign policy and strategic benefits if the key Governments concerned were able to grasp the existing CER/ASEAN FTA negotiation and turbo-charge it politically. Unless the Indonesian President is behind such an initiative, it simply will not happen.Terserah, Ibu Menteri Pengestu.
Other countries in other regions will hasten their own efforts along similar lines – I am describing everyone’s ‘plan B’ to a failed Doha Round. An APEC-wide FTA may itself get legs, probably with undue optimism. The greatest danger when any negotiation is in deep difficulty is to imagine that changing the negotiating forum will solve the underlying problem. I wonder, for example, why Korea, which managed to have rice excluded completely from the recently concluded US/Korea FTA, would find the shift in negotiating forum alone changes the underlying politics of liberalising rice?
But in due course, we will all discover – I would prefer to say ‘rediscover’ - that these alternatives are not really Plan Bs at all and that many of these FTAs are of modest economic return.
I have never been a purist on multilateralism. I knew what the ‘first best’ theorists such as Bhagwhati and earlier thinkers have said on the matter. However the writings of Professor Peter Lloyd – a shared intellectual asset between Australia and NZ - got to me at an early stage of my academic training. So I have always espoused a three-track (bilateral, multilateral and unilateral) approach for our country to meet NZ’s trade policy needs. The unilateral track is now academic to NZ's future so only the bilateral and multilateral remain.
Having said that, I never had any doubt that the contribution of bilateral FTAs was distinctly secondary to multilateralism. Further, without multilateralism continuing to push down MFN rates, the old dangers of discrimination, both political and economic, are magnified. Bilateralism with a multilateral system always moving forward is one thing; bilateralism with a multilateral system stranded like a whale on a beach is another matter.
Multilateral management of trade policy is indispensable. It is indispensable to maintaining the past achievements of the GATT Rounds and enforcing the WTO’s juridical findings through the mandatory dispute settlement provisions. The WTO is, I suspect, the most advanced form of international law that exists.
Multilateralism is indispensable to carrying forward further reform in certain key areas. This is particularly the case with respect to agriculture – still the sector where the backlog of reform is the most obvious. No FTA will ever deal with production-linked subsidies – this can only be negotiated multilaterally.
It may also prove, perversely, more difficult to advance certain FTA options in the event of a Doha Round failure. For example, I suspect that in the Americas, when and if yet another attempt to re-launch the FTAA – the Free Trade Agreement for the Americas involving the NAFTA led by the United States and Mercosur led by Brazil – that these negotiations will face huge political difficulties. Will Brazil finally be prepared to enter into an FTA with the United States without any reform of US agriculture subsidies?
If Dohawere to succeed at the last minute, then reform of US subsidies will, by definition, be part of any successful multilateral agreement and thus might pave the way for a successful FTAA. But if Doha does not succeed, then there is no obvious avenue for addressing USagriculture subsidisation – unless the next Farm Bill now being negotiated in Washingtonpleasantly surprises us all. This may complicate any FTAA negotiation in exactly the same way it has complicated past FTAA negotiations.
Outside agriculture, reform of anti-dumping, CVD and other instruments of contingency protection can only be done multilaterally – in FTAs the changes that are occasionally agreed are not of great moment.
And so, ladies and gentlemen, there is no escaping the fact that sooner or later people will come to their senses and realise that there is no alternative to multilateralism. But to return to the table, in the event of a failure of Doha, means a variety of serious shortcomings will need to be addressed. I consider it completely unrealistic to think you could simply pull the old deal rejected in 2007 out of the freezer in 2010 and say “Hey guys, what about doing this?”. There will be indispensable elements that will need to be retained – that is obvious. But a new political platform for moving forward would need to be created.
Some Systemic WTO Issues Needing to be Addressed
Let me say this in broad terms about improved procedures for domestic transparency: I think there is a strong case for this proposal, but it can only ever be part of a set of changes to make the WTO system less cumbersome.
There are other, arguably equally or more important, changes that are required. Given the limitations of space, I simply list them here with little attempt to provide analysis or justification.
First, we need improved political comprehension of what the multilateral system, no matter how it is configured, can do and what it cannot do. I cannot see any future negotiation ever succeeding at the multilateral level that does not start from the premise that the WTO, like the GATT before it, can only ever be an agent of evolution, not revolution. To say that the WTO comes up short – and it does in several important areas, services being a crucial one – is simply to assert there is more to be done. Even if we could get countries thinking far more rationally about the economy wide effects of their trade policies, this would remain the case.
The WTO, like the GATT, operates like a giant ratchet. You advance here, you advance there and then you lock it in place with the mechanism of international law. The interplay between two forces – the process of domestic reform and the process of international reform – is quite subtle. Sometimes, as in the case of EU agriculture reform and this Round, it is almost impossible to pick them apart.
Is this gradualist approach to reform, my preferred option? Absolutely not. Given the choice, I would like a revolution in agriculture policies around the world. But there are many things in life that you or I might like but which only a determined fool living in a Walter Mitty world would think are sensible to advocate.
If you, coming from a larger country than mine, need a revolution to steer any agreement multilaterally through your political system, then that is your decision and I have no choice but to accept it. But you have to recognise what is really being said here: someone who is saying “we cannot accept evolutionary change” is in fact saying that they would rather have nothing, since nothing is what you will always get.
Great conceptual breakthroughs can be negotiated. Several of them were negotiated in the Uruguay Round, such as the inclusion of agriculture, the creation of the GATs, and an entirely new deal on Trade in Intellectual Property. But the implementation of these great conceptual breakthroughs is another matter altogether and even these conceptual successes inevitably contained many mistakes that need correcting. This can only be done over time and may require more than one negotiation.
The only revolutionary changes that can be engineered internationally require military defeat – recall Clauzewitz’s familiar observation about “war being diplomacy carried out by other means”. After that, of course, building sustainable alternatives out of the ashes of a military defeat tends to take many, many years, even with the generous support of the victors.
The WTO is hardly likely to acquire a standing army and will thus be stuck with reaching agreements through some type of consensus approach, even if that were to be changed in quite radical ways such as greater recourse to voting, perhaps weighted voting – although I suspect the United States will always veto this. The last time we put this to the test was over the selection process for the Director General and even that was a bridge too far for the US for reasons I suspect were very well based in terms of US domestic realities.
Consensus requires acceptance of an evolutionary approach. Had the major industrialised countries tried to agree on massive cuts in industrial tariffs in the Torquay Round when industrial tariffs averaged around 50%, they would never have started the enterprise of moving towards a more liberal trading economy. Wisely they chose more moderate and achievable goals. If this surprises you, coming as it does from a country with most to gain from revolutionary liberalisation, it is just because some of us understand that in multilateralism ‘the excellent is always the enemy of the good’.