Secretary's Speech: Multilateral Trade Negotiations - The Challenges and Potential Rewards
Speech to the Fourth Annual Trade Lecture to the Melbourne Business School
I am delighted to have this opportunity to deliver the 1999 Trade Lecture
at the Melbourne Business School.
Firstly, I'd like to endorse the comments made by those who have preceded
me on this rostrum regarding the value of the Business School as a centre
for education and training of future business leaders, and as a key focus
for trade policy analysis in Australia. I congratulate the Director, Professor
John Rose, Professor David Robertson, Director of the Centre of the Practice
of International Trade, and the staff of the Melbourne Business School for
their excellent work.
The topic for this year's lecture, "Multilateral trade negotiations - the
Challenges and Potential Rewards" is, I think, appropriate and highly topical
as we currently stand on the brink of a new round of global trade negotiations.
The launch of a new round is not yet guaranteed, but there are growing indications
that the Seattle Ministerial Conference, to be held from 30 November to 3
December this year, will achieve this - not least because the United States,
which has provided the main momentum for previous trade rounds, is now publicly
behind the push.
Australia's trade policy rests on three legs - bilateral, regional and multilateral
- all of which support and reinforce each other, and all of which need to
be employed as circumstances dictate. All three paths have their strengths
and limitations. All three require patience, attention to detail, and resolve.
My focus tonight is on multilateral trade negotiations. The Minister for Trade,
Mr Fischer, has made very clear the Government's continued strong commitment
to the multilateral path. Some of you will know that he was one of the first
to support calls for a new trade round.
The Rationale for a Multilateral Approach
The multilateral path is a complex and lengthy process. The Kennedy Round
took five years, the Tokyo Round went for seven and the Uruguay Round ran
for almost eight - double the original target. Negotiations of this duration
are a heavy commitment, but testify to the fact that the parties see the rewards
as justifying the effort. This is not surprising when one looks at the history.
The eight multilateral trade negotiating rounds over the past fifty years
have transformed a protectionist post-war environment to a much freer trading
world, with tariffs on manufactures alone cut by an average of 90 per cent.
Through the development of contractual rules, the trading system is much less
vulnerable to economic shocks. Global trade has expanded dramatically, increasing
fifteen-fold since 1960. This helped quadruple world economic production and
more than double world per capita income over that period. The GATT, now WTO,
system has been a fundamental underpinning of post-war economic growth.
Uruguay Round: Results for Australia
The Uruguay Round, which ran from 1986 to 1994, was the largest and most
complex to date, with market-opening outcomes estimated to contribute hundreds
of billions of dollars to the world economy. It was a very difficult negotiation
which had to be rescued from the brink of failure on more than one occasion.
There were five key outcomes. Significantly, agricultural trade was brought
under multilateral disciplines for the first time and the Cairns Group, led
by Australia, played a key role in achieving that. It achieved a fundamental
change of direction for agriculture - the converting of impenetrable non-tariff
barriers, like quantitative restrictions and variable levies, into tariffs
capable of negotiation; and the capping of previously uncontrolled export
subsidies and production-linked domestic subsidies. It did not achieve the
extent of actual protection cuts we sought - but the first steps were taken
and a workable negotiating framework is now in place. Secondly, the Uruguay
Round expanded GATT into services and intellectual property, which are both
important and growing areas of international trade. Thirdly, it brought developing
countries much more fully into the trading system. Fourthly, it expanded tariff
bindings and developed rules which greatly strengthened the predictability
of the system, including a greatly enhanced dispute-settlement process. Finally,
it led to the establishment of a broader and stronger institution, the WTO,
to succeed the GATT.
By any yardstick, very impressive results were achieved. Industrialised countries
reduced bound tariffs for manufactures by almost 40 per cent; and developing
country tariffs declined by 30 per cent on average. Importantly, the percentage
of developing country tariff lines bound against increase trebled - from less
than 25 per cent to 72 per cent. Australia was also able to use fully the
credit gained from unilateral tariff reforms, and in return gain substantial
tariff cuts and other benefits. For example, 43 per cent of our industrials
exports now face zero tariffs. For Australia, the outcome for industrial and
agricultural products is estimated by the Productivity Commission to have
added about $4.4 billion a year to real GDP. Putting services under WTO rules
and onto the negotiating agenda was also important for Australia. At the beginning
of the Uruguay Round, in 1986-87, our services trade amounted to $18.4 billion.
A decade later, it had more than doubled to $47.1 billion, at a yearly growth
rate of nine per cent. More than 8 out of every 10 jobs in Australia are now
in the services sector. And the services sector accounts for more than two
thirds of our GDP and almost a quarter of Australia's total exports. But although
the benefits were of great value, we - like other countries - did not secure
all our objectives. For Australia, the biggest disappointment is the extent
of unfairness and distortion that still plagues agricultural markets. Another
disappointment was the outcome on industrial tariffs which allowed our trading
partners in South-East Asia to continue with high levels of tariff protection.
These are major reasons we are so committed to further multilateral negotiations.
Importantly, the Uruguay Round negotiators recognised that more liberalisation
was needed in some sectors - and had the foresight to recognise that the multilateral
trading system needs to keep moving with the times. A number of further negotiations
and reviews of the Uruguay Round Agreements were mandated - the so-called
"Built-in Agenda". The mandated negotiations cover agriculture, services and
intellectual property and are scheduled to begin at the end of this year.
For agriculture, our objectives are as outlined by Ministers of the fifteen-strong
Cairns Group who met under Mr Fischer's chairmanship last year in Sydney.
In short, we seek to have agriculture treated on the same basis as trade in
manufactures. This means deep cuts to all tariffs, including peaks like Japan's
rice tariff; substantial cuts to production-distorting domestic subsidies;
and the elimination of export subsidies that disrupt trading patterns at huge
cost to efficient producers. Our overriding priority for services is greater
market access. We are consulting widely with Australian companies about the
barriers they face. Mr Fischer has already convened two successful workshops
with business in Melbourne and Sydney.
The re-badged Australian Services Network is a crucial ally in this work.
We plan to negotiate on every services sector, and to work away at all the
problems our companies face - problems like discriminatory licensing arrangements,
punitive joint venture deals, unfair taxation rules, and constraints on accreditation
of professions. In addition, we need to craft WTO rules for new areas of direct
relevance to doing business where no rules now exist - such as the establishment
of necessity tests for regulations, possible application of emergency safeguards
to services, and actions in restraint of trade. On intellectual property,
we need first of all to ensure that developing countries come into compliance
with their obligations under the TRIPS Agreement (Trade-Related Aspects of
Intellectual Property Rights) by the due date (January 2000). That step alone
will substantially assist us in maintaining the competitive edge of Australian
exports as diverse as wine, machine tools and electronic-funds-transfer equipment
- in short, in all those areas where we add value to our exports. While the
Built-In Agenda provides a framework for a resumption of negotiations in these
three sectors, it is narrow in scope and lacks deadlines.
We and other supporters of a new Round - including the EU and Japan - consider
that it needs to be supplemented by some other areas and to be time limited.
A more comprehensive approach provides greater scope for assembling liberalisation
packages which are attractive to most participants, thus improving the chances
for, and size of, the outcome. Australia is seeking the inclusion of industrial
products in the agenda for a new round. Manufactured goods have been the fastest
growing area of Australia's merchandise exports this decade (increasing by
an average 10 per cent per annum compared with 7.5 per cent for total goods
exports) but face some high tariffs. We are hoping that APEC negotiations
in eight sectors - the so-called Accelerated Tariff Liberalisation program
- will be a helpful springboard to a full industrials agenda in the WTO. The
WTO system needs to remain contemporary - there is a real challenge to keep
pace with technology, with new issues and with public expectations. A new
round gives us that opportunity.
In 1997, the WTO made good progress with a tariff-cutting agreement for the
information technology (IT) sector which is assuming a central facilitating
role in the globalisation of the world economy. Industry expects this to double
IT services exports over three years and increase telecommunications exports
by $400 million per year. Already Australian IT exports are worth more than
$3 billion per annum, but more needs to be done in the IT sector, particularly
on non-tariff measures. In the burgeoning area of electronic commerce, the
WTO is facing up to new challenges. It now has a work program, but it has
yet to decide on the basic approach it should take to the issue. Estimates
of the size of global e-commerce trade vary. But its value by 2001 is expected
to be between 1.3 and 3.3 per cent of global GDP - equivalent at a minimum
to the size of Australia's national economy. Biotechnology also confronts
the trading system with difficult new issues such as the treatment of genetically
modified organisms. The importance for Australia of the agriculture and processed
food sectors, where internationally the "genetic engineering revolution" is
making fast headway, means that this will be a central economic and trade
issue for us. We are open to negotiations in other areas - with the proviso
that the new round not become so large and complex as to rule out a timely
outcome. We, like others, are seeking no more than a 3-4 year timeframe.
A Challenging Context
On the verge of a new round, the global trading system faces a changing environment,
one which in many respects is an uncomfortable and challenging one. Last year,
the world economy grew by about 2.3 per cent and this year, it is forecast
to grow at much the same rate (2.4 per cent) - barely half the historical
growth pattern of the past few years. Internationally, political will for
liberalisation, particularly in the area which is still most distorted - agriculture
- is limited. Agricultural subsidies by OECD countries still total some US$280
billion annually. EU ambitions for agriculture reform are minimalist: witness,
for example, the disappointing outcome of the recent "Agenda 2000" package
which had been intended to reform the EU's Common Agriculture Policy or CAP.
No-one can seriously depict it as the Community's contribution to renewed
agriculture negotiations. Mr Fischer and his fellow Cairns Group ministers
made clear in a joint message last week that further substantial reform of
the CAP will be necessary. In a Japan grappling with financial and structural
weaknesses, negative growth and entrenched domestic lobbies, the appetite
for further trade liberalisation seems limited indeed - as we have seen both
in APEC last year and in our recent discussions with them on their 390 per
cent tariff for rice. Even closer to home, the financial crisis will have
sapped some of the political will for further reform - even if, paradoxically,
it has pointed as clearly as ever to the need for it. We can expect continuing
resistance in South-East Asia to reductions of key industrial tariffs, such
as for motor vehicles and components, which remain unjustifiably high - up
to 200 per cent in some ASEAN countries. In many developed countries, including
Australia, some degree of liberalisation fatigue and globalisation anxiety
has taken hold. A related challenge is how to handle a raft of issues, grouped
under the rubric of "the civil society". These include trade and environment,
trade and labour standards, access by the public to the WTO system, and the
wider issue of national sovereignty.
The premature death of the Multilateral Agreement on Investment, or MAI,
in the face of a public campaign that was at times excited and ill-informed
has sharpened the discussion of these issues. The WTO will find it difficult
to stay on the front foot. But we must help keep it there in our own national
interest. Another complex area is that of regional trading arrangements, or
RTAs. Some 40 percent of international trade is now being conducted under
preferential arrangements - by far the bulk of this taking place within the
EU and NAFTA. More than 100 RTA's have been notified to the GATT and the WTO
- and more are on the way. The greater the proliferation of such arrangements,
the greater the risk of their undercutting the most-favoured-nation principle
and global comparative advantage, detracting from predictability and making
the system opaque and unwieldy. Conversely, to the extent that RTA's can push
out liberalisation and domestic reform envelopes and their benefits can then
be multilateralised, they can be beneficial to the wider system. Tightening
the rules and multilateralising preferential arrangements are key challenges
for a new round. There is also a major leadership challenge. The success so
far of the global trading system owes much to the drive and example of the
United States over the last fifty years. As the world's largest economy, it
has a disproportionate influence on the WTO.
While the Clinton Administration now formally supports a round, US intellectual
and political leadership is somewhat untested. There is no current Congressional
"fast track" negotiating authority, and it is not clear whether one will be
sought this year. American worries about a growing trade deficit and sectoral
pressures are mounting. There is a lack of clarity over US views about the
scope of a new round. There are protectionist pressures at large - in the
Congress, in industry and within NGOs - on steel and lamb imports, for example.
But, there are also signs that efficient US business and agriculture are getting
their act together. We remain hopeful that as the Seattle Ministerial Conference
looms closer, the Congressional climate and the Administration's engagement
will be increasingly positive.
Influencing Opinion - At Home and Abroad
The Government is working hard, in the WTO, in the Cairns Group and bilaterally,
to convince those countries who remain undecided about the merits of a round.
The Minister for Trade, Mr Fischer will launch in May a major new study on
the prospective economic benefits of a new round which is designed not only
for these countries, but also for the domestic audience here in Australia.
A key message which we and others are trying to get across is the contribution
that a robust and expanding trading system can make to sustainable economic
growth. In these difficult times, we are driving home that trade is part of
the solution, rather than a cause, of current problems. The launch of a new
round will do much to keep markets open, hold protectionist forces at bay,
and give those affected the opportunity to trade their way out of their difficulties
in a measured way. International negotiations are ultimately defined by the
quality of political commitment and support they receive. Building and maintaining
solid support for a national negotiating position - while accepting that the
consequences of a fair-trading system may not be 100 per cent to our liking
- is a task ahead of us here in Australia too. We need to generate and sustain
enthusiasm for liberalisation, and bring home the disadvantages of continued
distortion and protection. And for credibility and maximum impact, the Government
needs to bring with it as much active and visible industry and public support
as it can muster. This is a particular area where the work of the Melbourne
Business School is valuable - in contributing to informed public debate on
trade policy and educating future decision-makers for both the private and
public sector. For the first time ever, the Government is seeking public submissions
to help refine our negotiating agenda. The Government has encouraged all interested
parties to put their views forward.
An Expanding WTO
Let me add that the Government's multilateral trade objectives and our work
in the Department of Foreign Affairs and Trade, are not confined to global
trade rounds. We are negotiating for market access worth a potential $9 billion
a year from countries currently seeking membership of the WTO. There are currently
31 aspirants - including China, Taiwan, Vietnam, Russia, Saudi Arabia and
Jordan. Many are traditionally state-dominated economies which will require
a great deal of adaptation before they can meet WTO disciplines. But I believe
this challenge can be overcome - and in any case the alternative to it would
be grim. Consider, for a moment, an international trading environment in the
twenty-first century which has not harnessed such a potentially enormous and
dynamic economy as China's - leaving it outside WTO rules and disciplines.
Happily, the emerging outcomes from negotiations on China's accession are
very positive for Australia. To take just some examples, China's latest offers
for access of wheat, rice and cotton far exceed its current import levels.
China has also offered to reduce tariffs dramatically on other key commodities
and across industrial products. It would greatly open its market to services
on terms which amount to significant deregulation of both the conditions of
entry and the scope of operation for foreign businesses. We are hopeful that
negotiations between China and WTO members will be completed in time for it
to join this year. I shall be accompanying Mr Fischer on his visit to China
next month and we hope to conclude our bilateral negotiation with the Chinese
Government at that time.
Another area of particular focus for us is the WTO dispute-settlement system.
Established in 1995, it is significantly superior to its GATT predecessor
because its procedures cannot be blocked and implementation is binding on
a losing respondent. Australia has been involved in 17 disputes to date: 3
as a complainant, 4 as a respondent (1 withdrawn) and in a further 10 disputes
as a third party because our access or policy interests were at stake. In
less than five years of operation, the WTO dispute-settlement system has demonstrated
powerful leverage in bilateral resolution of trade problems. We have had some
successes - for example, against India's quantitative restrictions, worth
about $30 million to us, and in reducing Hungary's capacity to use agricultural
export subsidies. And we have recently begun proceedings against certain impediments
in Korea to the sale of imported beef. We have also been on the receiving
end as far as our quarantine measures on salmon are concerned.
The essential point here is that our domestic policy settings are more than
ever under scrutiny and possible challenge. But at the same time we have a
heightened capacity to pursue and resolve the legitimate complaints of Australian
industry and exporters. Overall, the system provides advantage and protection
to smaller trading countries like Australia - so long as we can cooperate
with business in utilising it.
In conclusion, let me acknowledge that the international trading environment
is very tough, with real risks of increased protectionism. Australian exporters
will continue to face considerable challenges in 1999 with an uncertain global
economic and trading outlook. But Australia's sound economic fundamentals
will continue to stand exporters in good stead. The OECD, among other commentators,
has rated Australia's economic performance as one of the best of the industrialised
countries. Our national interest is best served by making every effort to
nurture and harness the multilateral trading system - and by working hard
to secure a new round of multilateral trade negotiations at Seattle later
this year. At stake are potential market-access rewards for us, and the broader
contribution a new round can make toward a return to positive and stable world
economic growth. I wish the Melbourne Business School every success in the
future and would welcome any questions or comments you might have tonight.