Bruce Donald
Foreign Affairs, Defence and Trade Group
30 November 1999
Contents
Introduction
'Built-in Agenda'
Negotiating Proposals from WTO
Members
Other Important Issues
The Immediate Outlook
Endnotes
Glossary(1)
APEC
|
Asia-Pacific Economic Cooperation. Established
in November 1989 to promote multilateral economic cooperation on
issues of trade and investment. Current members are Australia,
Brunei, Canada, Chile, China (People's Republic), Hong Kong,
Indonesia, Japan, Korea (South), Malaysia, Mexico, New Zealand,
Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan,
Thailand, USA, and Vietnam
|
CAP
|
The European Union's Common Agricultural
Policy
|
DFAT
|
Department of Foreign Affairs and Trade
(Australia)
|
DSB
|
Dispute Settlement Body of the World Trade
Organization
|
EU
|
European Union
|
EVSL
|
Early Voluntary Sectoral Liberalisation - a
program under APEC where member economies try to find consensus on
industries where they can all eliminate tariff barriers before the
Bogor deadline
|
GATS
|
General Agreement on Trade in Services
|
GATT
|
The General Agreement on Tariffs and Trade. A
distinction can be made to the original (1947) and final GATT
(1994), but this is principally when one is examining legal issues
arising from the text
|
GC
|
General Council of the World Trade
Organization
|
Group of 77
|
The Group of 77 is a group of over 100
developing nations (initially 77) that seeks to find ways to
advance the economic interests of developing nations
|
ILO
|
International Labour Organization
|
ITO
|
International Trade Organization
|
MAI
|
Multilateral Agreement on Investment. A proposed
agreement on investment being negotiated under the auspices of the
OECD until October 1998, when it was essentially abandoned
|
MC
|
Ministerial Council of the World Trade
Organization
|
MFA
|
Arrangement regarding international trade in
textiles and clothing (Multifibre Arrangement), meant to be
extinguished as this sector is incorporated into the normal rules
of the WTO
|
MFN
|
Most-Favoured-Nation principle whereby any
advantage, favour, privilege or immunity granted by any Member to
any product originating in or destined for any other country shall
be accorded immediately and unconditionally to the like product
originating in or destined for the territories of all other
Members
|
MTNs/Rounds
|
Multilateral Trade Negotiations. Since 1947,
eight MTNs have been undertaken. They are Geneva (1947), Annecy
(1949), Torquay (1950-1), Geneva (1955-6), Dillion (1960-2),
Kennedy 1962-7), Tokyo 1973-9) and Uruguay (1986-94)
|
National Treatment
|
The GATT/WTO principle whereby the products of
the territory of any Member imported into the territory of any
other Member shall not be subject, directly or indirectly, to
internal taxes or other internal charges of any kind in excess of
those applied, directly or indirectly, to like domestic
products
|
OECD
|
Organization for Economic Cooperation and
Development
|
Phytosanitary
|
Issues pertaining to the health of plants. In
the WTO context sanitary and phytosanitary (SPS) measures are those
that protect human, animal, plant life and health
|
Plurilateral
|
Plurilateral Agreements under the WTO are those
which are only applicable to Members who choose to sign them
|
TCF
|
Textiles, Clothing and Footwear, a collection of
the most highly protected industries in developed nations
|
TRIMs
|
Trade-Related Investment Measures
|
TRIPs
|
Trade-Related Aspects of Intellectual Property
Rights
|
TPRB
|
Trade Policy Review Body of the World Trade
Organization
|
TPRM
|
Trade Policy Review Mechanism
|
UNEP
|
United Nations Environment Programme
|
Uruguay Round
|
The Round of Multilateral Trade Negotiations
that ran from September 1986 to April 1994. It started with a
Ministerial meeting in Punta del Este, Uruguay
|
US
|
United States of America
|
VERs
|
Voluntary Export Restraint agreements, where a
nation pressures another to agree to limit the amount of a good or
service exported, as an alternative to (possibly illegal) import
restrictions
|
WTO
|
World Trade Organization
|
Introduction
This paper provides a brief overview of the
World Trade Organization (WTO), the context of the meetings to be
held in Seattle from 30 November to 3 December, and the key issues
facing the WTO and its members.
What is the WTO?
The WTO came into existence on 1 January 1995,
when the trade agreements negotiated in the Uruguay Round(2)
formally came into operation. The small organisation (about 500
staff) administers the agreements between members, provides a forum
for trade negotiations and provides a mechanism for dispute
settlement.
In a sense the WTO is merely the continuation of
the old GATT (General Agreement on Tariffs and Trade) with a new
name, but in another sense the WTO is a distinct step forward from
the GATT. The GATT entered into force on 1 January 1948 and was
both a legal document governing trade and the international body
assisting in monitoring its implementation. Attempts to formally
create an (extremely wide-ranging) International Trade Organization
(ITO) to go with the other Bretton Woods agencies(3) such as the
IMF and World Bank foundered after long negotiations in the late
1940s (specifically following a rejection by the US Congress). A
specific section of the proposed ITO charter dealing mainly with
reducing and binding tariffs on goods and covering some of its
basic principles was signed by 23 original Contracting Parties
(nations) while negotiations continued on the proposed ITO.(4) When
the ITO faltered this (narrower) agreement became the basis for the
GATT and for rules-based international trade.(5)
The WTO overcomes many limitations of the GATT:
the agreement implementing the WTO has been ratified by all
members' parliaments; and the WTO is a formal/permanent
international organisation able to negotiate with other
international bodies and conduct business with NGOs. The WTO adds
coverage of trade in services, agriculture, textiles, clothing and
footwear (TCF), intellectual property and, to some extent,
investment rules, a vast expansion over the GATT agenda(6) which
principally covered manufactured goods (with specific
exclusions.(7))
The WTO (and before it the GATT) places (most)
international trade in the context of a number of rules that seek
to provide a transparent trading environment that facilitates
dispute resolution for trading partners. The principles of the WTO
are, in general, ones that can mean that agreements reached at the
WTO will make all participants better off.(8) Some of the most
important rules or principles on which WTO agreements are based
are:
-
- Most Favoured Nation Treatment (MFN)-once a WTO member
has agreed to extend a particular level of market access to a
trading partner (e.g. reducing tariffs to 15 per cent on a
particular good), all other members of the WTO are entitled to
treatment as favourable as that negotiated with the most favoured
nation.(9) This is made particularly transparent in the current
accession negotiations for China. Australia has already negotiated
the level of access that must be provided by China to gain entry to
the WTO. But Australia has nothing to lose from other WTO members
negotiating even better deals, because these must automatically be
extended to all WTO members, including Australia.
-
- Consensus Decisions at the WTO are typically made by
consensus.(10) This means that for important negotiations, such as
Rounds, members agree that they are at least, on balance, no
worse-off as a result of an agreement. In fact the WTO is an
unusual institution in the sense that it is based on a one-member
one-vote principle compared to other economic institutions such as
the World Bank where voting is determined by financial
contribution. Both of these mean that the large trading groups
cannot totally ignore the interests of smaller nations, such as
Australia, especially if these nations can agree amongst
themselves.(11)
-
- Voluntary Liberalization All decisions by WTO members
to liberalise their trade regimes are made voluntarily (usually
because a member realises that moves toward freer trade are likely
to improve their own economy). The WTO does not require any
reduction in barriers except those that a nation has already
committed itself to(12) (e.g. binding its tariffs to a
certain maximum level), and prohibiting certain damaging policies
(export subsidies). At the major trade negotiations known as
'Rounds', members may be convinced to lower their barriers in
specific areas in order to gain corresponding reductions from trade
partners that they value even more highly.(13)
Why This Meeting?
Because the WTO is a member-driven
organisation-with decisions made by the members as opposed to the
secretariat-it is required by the WTO charter that the (trade)
ministers of member nations meet at least every two years to give
direction to the organisation, similar to a Cabinet meeting. Since
the creation of the WTO there have already been Ministerials in
Singapore in 1996 and in Geneva in 1998. But this Ministerial(14)
is clearly more substantial than the previous two. There are a
number of reasons for this:
-
- The primary reason is that the built-in agenda established
during the Uruguay Round (see pages 3-6) requires that further
negotiations be held on two important topics by the beginning of
2000, namely agriculture and services. The negotiations on these
topics were felt by many members to have been incomplete at the end
of the Uruguay Round.(15)
-
- Another reason is that the negotiation fatigue evident amongst
trade negotiators after the lengthy years of negotiations (from
September 1986 in Punta del Este, Uruguay to the final signing in
April 1994 in Marrakesh, Morocco) of the Uruguay Round, is
beginning to wear off. More importantly it is now becoming clearer
which are the aspects of the new WTO that have not worked as
expected.
-
- Some organisations and members have been calling for new issues
to be placed under the WTO remit, in large part because they view
the WTO, in contrast to most international bodies, to have been a
successful institution. Some seek the inclusion of new issues
because they would permit the imposition of trade sanctions against
members not meeting the new criteria they would add.
-
- In contrast to the third point, many observers feel that
developing nations, as a group, have gained less from the current
agreement than expected, and that special emphasis should be given
to the issue of why the existing agreements have not led
to benefits flowing to the poorer members.
'Built-in Agenda'
Agriculture
The Agreement on Agriculture was one of the most
crucial and hard-fought agreements to be reached during the Uruguay
Round of trade negotiations. But it is demonstrably incomplete:
trade in agricultural products is still not subject to the same
rules as trade in goods, with a variety of transitional and
compromise arrangements left in place. Many of the high-protection
countries have pursued a process of 'dirty-tariffication', which
results in higher levels of protection now than existed at the time
of the agreement.(16) However it was agreed during the Uruguay
Round to mandate later 'negotiations for continuing the process' of
substantial progressive reductions in support and protection
(Article 20 of the Agreement on Agriculture). This is to start by
the end of 1999 (one year before the end of the Uruguay Round
implementation period for agriculture). However the Ministerial
meeting must decide on the goals to be achieved by the
negotiations.
The goals are, of course, precisely what members
are unable to agree on. The European Union and Japan concentrate on
the words in the Agreement most supportive of their not needing to
alter any of their existing distortions: specifically that the
negotiations (Article 20(c)) will take into account non-trade
concerns. The Cairns Group,(17) of which Australia is a leading
member, and the United States, support efforts to move agriculture
fully to the normal WTO rules as soon as possible, with additional
substantial reductions in existing bound levels of tariff
protection.
Services
The General Agreement on Trade in Services
(GATS) was another crucial and difficult agreement signed at the
end of the Uruguay Round. As Deputy US Trade Representative (USTR)
Susan Esserman said recently:
[the] major accomplishment of the Uruguay Round
was the General Agreement on Trade in Services itself. In many
cases, however, actual sector-by-sector market-opening commitments
simply preserved the status quo (Statement circulated by the US
Delegation to WTO General Council Session, dated 29 July 1999).
Article XIX of GATS mandates 'successive rounds
of negotiations, beginning not later than five years from the date
of entry into force of the WTO Agreement [i.e. 1 January 1995], and
periodically thereafter, with a view to achieving a progressively
higher level of liberalization'. In addition the Annex (to GATS) on
Air Transport Services also mandates a review at least every five
years. The WTO's summary of the built-in agenda notes that
negotiations on maritime services market access were suspended in
mid-1996, to resume in 2000.(18) Finally Article II.2 permits
members to violate the MFN principle (i.e. not discriminating among
service suppliers from other countries), but the Annex on Article
II exemptions required that all such violations existing be
reviewed after 5 years.
The developed nations appear to be much more in
agreement now about the value of liberalising services trade than
they were in 1995.(19) While sticking points remain amongst
developed members, the main disagreement is likely to be between
developing and developed nations. Even here the interests are not
all one-sided, for example India's large film industry might have
much to gain from an agreement in that sector. Moreover the Group
of 77's message to the WTO Ministerial was surprisingly
positive:
Negotiations on trade in services should be
carried out within the existing architecture of GATS and aim at the
liberalization of sectors of special interest to developing
countries and the movement of natural persons, while taking account
of the impact of electronic commerce.(20)
Trade-Related Investment Measures
(TRIMs)
The Agreement on Trade-Related Investment
Measures (TRIMs) was also negotiated during the Uruguay Round, and
was once again the source of disagreement between developing and
developed nations. Article 9 provides for a review of the operation
of the Agreement by the Council for Trade in Goods, which may
recommend modifications to the Ministerial Conference no later than
five years after its entry into force. According to the WTO,
working parties were set up in 1997.
Japan seems keen to place investment issues on
the WTO agenda again, especially to prohibit export targets and
technology transfer requirements as preconditions for accepting
investment(21). But the ghost of the Multilateral Agreement on
Investment (MAI) hangs over any negotiations on investment.(22) The
United States has not identified TRIMs as a priority and has
explicitly said that the MAI is dead.(23) The European Commission's
paper on the new WTO Round is also explicit:
Work in the OECD on the MAI has now stopped, and
should not be pursued in that organisation, nor should any attempt
be made to transfer the MAI to the WTO.(24)
Furthermore academics associated with strong
advocacy for free trade, for example Professor Bhagwati of Columbia
University and the CATO Institute, do not support efforts to
include liberalisation of investment as part of the WTO's Seattle
agenda.(25)
Other Issues on the 'Built-in
Agenda'
Trade-Related Aspects of
Intellectual Property Rights (TRIPs)
The Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPs) was the fourth main new trade
area negotiated in the Uruguay Round. Article 71 of TRIPs mandates
two-yearly reviews of the implementation of the agreement, starting
from five years after the WTO came into effect. This is less
binding than the requirements for agriculture or GATS, because it
does not require a new round of negotiations. There is also a
requirement for examination of scope and methods for complaints
where the agreement has not been violated but a member feels its
rights could be impaired (non-violation).(26)
The US was the most vocal proponent of TRIPs,
and along with the EU, is the major beneficiary of it. The European
Community has identified issues that it would seek to modify in
TRIPs while recognising the probability of opposition from
developing countries. It is clear it would prefer to ignore
modifications if this requires a 'lowering of standards'.(27) The
US seems to accord this less priority now, with no mention of TRIPs
in US Trade Representative's (Ms Barshefsky) testimony to the US
Senate, and the suggestion in communication with the WTO council,
that the priority is merely 'the full implementation of [existing]
TRIPs obligations by developing country WTO members no later than 1
January 2000'.
Trade Policy Review
Body
One of the early agreements of the Uruguay Round
was that the WTO secretariat should conduct regular reviews of the
trade policies of members. This is seen as having been a success,
although it has to be noted that the frequency of reviews of the
Quad (four largest traders: US, EU, Japan and Canada) has had to be
scaled back recently. The operation of the review mechanism was to
be appraised by January 2000, but has already been
conducted.(28)
Government
Procurement
The Agreement on Government Procurement is one
of the few remaining plurilateral agreements in the WTO. This means
it is adhered to by many, but not all, members of the WTO (whereas
multilateral agreements are binding on all members). The
Agreement seeks to apply the same rules to government purchases of
goods and services as apply to the private sector, e. g.
non-discrimination, transparency etc. Australia does not subscribe
to the Agreement.(29) Negotiations are currently underway to
simplify and improve the Agreement for consideration at the Seattle
Ministerial.
Textiles and
Clothing
The Uruguay Round results will officially bring
the TCF industries within the normal rules-based system, albeit
with a long transition period still underway. This ended the
so-called Multifibre Arrangement (MFA). A review of the
implementation of the Agreement is mandated by 2001. Since it is
expected that negotiations on the other elements (agriculture and
services) will be taking place for at least three years, it would
be reasonable to expect that the results of the review of this
Agreement would be incorporated into the negotiations. Many
developing countries are insistent that this occurs.
Dispute
Settlement
A review of the operation of the Dispute
Settlement Understanding began in mid-1998. A number of
high-profile disputes have made the operation of the dispute
settlement process more important. Key topics in the review have
included the amicus curiae issue,(30) the inability of developing
countries to utilise the system, and the means of checking
compliance with earlier rulings. It had been expected that the
outcome of the review could be adopted at Seattle, but there may
not be sufficient consensus to achieve this.
Negotiating Proposals from WTO Members
Of course the WTO Ministerial can discuss issues
other than those on which they are strictly required to begin
negotiations at the Seattle Ministerial. Furthermore there are
disparities between different members as to how the negotiations
should go forward procedurally. While each member is likely to
pursue an individual approach (and of course there are divergences
within nations) it is possible to identify certain common elements
in the approaches they propose.
Australia and the Cairns Group
The most comprehensive document identifying
Australia's overall approach to the Seattle Ministerial is a speech
given by the Trade Minister Mr Vaile on 16 September to the APEC
Study Centre in Melbourne. In that speech he identified the
priorities for the meeting as services, agriculture and industrial
goods, in order that results can realistically be achieved in three
years. Difficult areas like agriculture should be part of the total
package and not left to the end. He also announced his view that
there are things that should be excluded from the current Round on
the basis that they are too difficult or divisive. These include
investment, labour standards and environmental standards.
In addition Australia has made a number of
submissions to the General Council of the WTO regarding the
preparations for the Ministerial.(31) A number of these have been
joint submissions with some or all of Australia's Cairns Group
partners. In general they advocate attempts to bring agriculture
rapidly into complete alignment with the normal trade rules, and to
taking steps to ensure that the benefits of trade liberalisation
flow to developing countries as well as developed.
The Cairns Group has prepared for the current
Round with some anticipation, given that it regarded the outcome of
the Uruguay Round as seriously incomplete (and even inadequate).
Because of the snail-paced reform in the agriculture sector the
Cairns Group was able to issue its 'Vision Statement' in 1998 with
no need for alteration now. The goals identified then were to
ensure that agricultural trade occurs on the same basis as trade in
other goods, with three specific targets: the elimination of export
subsidies; market access must be on the same basis as for other
goods (i.e. protection only via tariffs, the relaxation of tariff
quotas and the smoothing of tariff peaks); and major reductions in
trade-distorting domestic support.
The major question for all Cairns Group members
is how to respond to (the highly probable) attempt by others to
block progress towards agricultural liberalisation and
simultaneously introduce a whole swathe of agenda items inimical to
achieving a workable negotiating agenda. During the Uruguay Round
the Latin American members had to walk away from negotiations due
to the lack of progress on agriculture.(32) Based on the
negotiating positions of the major agricultural protecting nations,
and the oft-stated position of the EU that its Agenda 2000
agricultural reforms are non-negotiable, it appears that the
prospects for progress on agriculture this time look dim.(33) While
Australia typically proceeds with negotiations on other sectors in
the belief of their intrinsic merits, this may not be possible in
the Seattle Ministerial negotiations, if there is too much
back-sliding on agriculture, i.e. if there is no net-gain to
Australia.
The United States
While there have been high-profile agricultural
trade disputes between Australia and the US in the recent past
(e.g. over the import restrictions on lamb by the US, and the
reduction in the US sugar quota), it remains the case, as during
the Uruguay Round, that the negotiating positions of the two
nations on agriculture are not incompatible.(34) The same cannot be
said for all elements of the US objectives.
On 13 October President Clinton outlined US
objectives for the Seattle Ministerial.(35)
-
- The first issue raised is of agricultural trade liberalisation.
Highlights of the US position include: elimination of export
subsidies; reducing agricultural tariffs; ensuring market access
for biotechnology; and reducing trade-distorting domestic
support.
-
- The second area addressed is that of goods and services:
reducing tariffs; seeking commitments for more openness in key
service sectors and preventing discrimination against modes of
delivering services such as e-commerce; immediate tariff cuts in
the eight key areas that APEC identified for Early Voluntary
Sectoral Liberalisation (EVSL); and improving transparency in
government procurement.
-
- The third topic is ensuring continued freedom of the internet
and e-commerce; and seeking a second Information Technology
Agreement.
-
- The fourth topic is where US proposals become controversial:
'putting a human face on the global economy'.(36) This part of the
agenda appears to be full of soundbites seemingly aimed at helping
a Gore presidential bid.(37) But the substance to the proposals is:
a working group in the WTO on Trade and Labour to monitor the
observance of internationally recognised core labour standards and
making the International Labour Organization (ILO) an observer to
the WTO (it also proposes strengthening the ILO, which is not an
institution directly linked with the WTO). The agenda for the
environment is less controversial and more readily defensible: a US
review of the environmental consequences of the Round (presuming
that it comes to fruition); a similar review by the WTO Trade and
Environment Committee; pursuit of win-win opportunities that give
both trade liberalisation and environmental gains (e.g. eliminating
fisheries subsidies); and strengthening links with the UN
Environmental Program. It also proposes making the WTO more open,
encouraging consultations with NGOs and allowing NGOs to file
amicus curiae briefs in cases involving the environment.(38)
-
- It proposes technical assistance for developing countries in
the WTO and some other measures for such countries.
The European Union
It is important to note that in the WTO the 15
European Union members negotiate as a single entity. It should also
be noted that the candidate countries for EU membership are
unlikely to step out of line with the EU position at the WTO, and
that Switzerland and Norway, which have avoided joining the EU in
large part to maintain their even stronger agricultural protection
policies, generally support EU arguments.
The enormous proportion of the EU budget devoted
to the Common Agricultural Policy (CAP) gives the European
Commission (as a bureaucratic institution) a vested interest in
protecting that part of its budget. Of course the CAP also reflects
a political and institutional agreement between member states that
is difficult to alter. In some ways it is seen in emotional terms
as the foundation of European cooperation and therefore
immutable.
The former EU Trade Commissioner Sir Leon
Brittan was at the forefront of efforts to launch a Millennium
Round of trade talks at the Seattle Ministerial, and his successor
Pascal Lamy has continued this advocacy. The specific
justifications for a comprehensive Round(39) are to convince
European citizens 'that the European Union is liberalising its
market while keeping in mind their basic concerns,'(40) to reduce
the risk of slipping backward, to achieve EU efforts to incorporate
sustainability(41) into all EU policy areas, and to ensure balance
with the built-in agenda for agriculture and services. The EU
'objectives' are extremely broad-ranging,(42) but are incorporated
into a fourfold agenda:
-
- meaningful and balanced liberalisation with special treatment
for developing countries
-
- to strengthen the WTO system to become a universal instrument
for managing trade
-
- to increase the developmental role and capacity of the WTO
-
- to ensure that the WTO addresses issues such as health,
environment, and social concerns.
Given that the EU objects to a narrow sectoral
approach (i.e. focusing on agriculture and services) its objectives
are difficult to summarise. In agriculture it seeks to defend
existing practice including the reforms announced in its Agenda
2000, and the 'blue box', while seeking better access to others'
markets, and an agreement to end the use of export credits. The EU
also wants recognition of the multifunctional role of agriculture.
It seeks an expansion of GATS, while accounting for the
sensitivities of certain sectors. Apart from these built-in issues
it also seeks discussion on an enormous number of issues on which
consensus is almost impossible. These include: comprehensive and
wide-ranging disciplines on investment protection; a framework on
competition policy and trade; an expansion of the work of the
Committee on Trade and the Environment; furthering tightening of
the TRIPs agreement; further efforts to incorporate a linkage
between trade and labour standards. On the other hand the EU
suggests a number of initiatives that are more likely to have some
chance of success in the fields of duty free access for the least
developed countries, reviewing technical barriers to trade, and the
use of instruments such as anti-dumping.
Japan (and the Republic of
Korea)
Japan seeks discussion of a wide group of topics
at the Seattle Ministerial, and has sought to form an alliance with
the Republic of Korea on the agenda issue.(43) The most direct
clash with Australia will be over Japan's opposition to
agricultural trade liberalisation-which is highly tenacious, but
seemingly based on imperfections in the Japanese political system
rather than an analysis of self-interest. Japan, as with the EU,
seeks recognition of the multifunctionality of agriculture,
although it is less interested in being allowed to use export
subsidies than in achieving 'food security'.
Both Japan and Korea seek significant cuts to
industrial protection in addition to the services/agriculture
built-in agenda.(44) Non tariff barriers, in particular the
operation of the anti-dumping system, are seen as important by both
nations.(45) Japan also seeks a major enhancement of the
multilateral rules on investment as its top priority. Linkages
between competition policy and trade have been identified as a gap
in the current WTO system by both Japan and Korea. Japan seeks an
enhancement of WTO disciplines on government procurement, an
enhancement of the TRIPs agreement and an agreement on
e-commerce.
Japan explicitly rejects the introduction of a
link between trade and labour standards, as a disguised attempt to
introduce protection against developing countries, and as an issue
that is best addressed in the ILO. It also continues to express
concerns that preferential trade agreements, such as the EU, can
constitute a form of discrimination against outsiders. Japan has
expressed little interest in the trade and environment issue,
except for the issue of genetically modified organisms, where it
has asked the Seattle Ministerial to consider how these may be
regulated.
Korea seeks to make the special and differential
treatment of developing countries more effective, and to enhance
the technical assistance program possibly in alliance with the
OECD. It also wants members in the process of accession, such as
China, Taiwan, Russia and Vietnam to be able to participate in the
Seattle Ministerial.
Developing Countries
In general developing countries oppose the broad
agendas of the developed countries, particularly the inclusion of a
multitude of 'new issues'. Instead they want existing agreements
and commitments to be implemented. The Message of the Ministers of
the Group of 77 to the Third WTO Ministerial Conference, September
1999, argued:
The non-realization of benefits by many
developing countries in areas of interest to them has resulted from
the failure of major trading partners to fully and faithfully meet
their obligations in these areas, particularly textiles and
clothing. [The] special and differential provisions in the WTO
multilateral trade agreements (MTAs), many of a 'best endeavour'
nature, .. have largely remained unimplemented.
G77 countries call for agriculture to be
incorporated into the normal WTO rules, with attention to small or
net-food importing developing economies. Services negotiations
should occur in the existing GATS architecture and aim to
liberalise those sectors of most interest to developing countries.
Future negotiations should:
Address the elimination of tariff peaks and
tariff escalation and should introduce further disciplines to
prevent the abuse of measures such as antidumping, countervailing
duties and safeguard actions, sanitary and phytosanitary
regulations and technical barriers to trade, as well as to prevent
the apparent revival of the use of voluntary export restraints.
G77 countries oppose the introduction of
linkages to labour or environmental standards to the WTO system,
identifying the extant international bodies for these issues, such
as the ILO, as appropriate. They also oppose the use of coercive
economic measures such as sanctions, extraterritorial applications
of domestic laws and tying preferential trade access to non-trade
conditions.
The two trade sectors, in which developing
countries have most interest, agriculture and TCF, remain outside
normal trade rules. TCF industries are supposed to be integrated
into normal WTO protocols over a ten-year period ending in 2005.
But the EU and US have done the strict minimum necessary at this
stage to meet the requirements of removing quotas, and typically
this has been in sectors of little interest to developing
countries.(46) The terms agreed between the US and China regarding
China's entry to the WTO will continue to impose TCF quotas beyond
the 2005 phase-out date.
Other Important Issues
Implications for Asia-Pacific
Economic Cooperation (APEC)
The outcome of the Seattle WTO Ministerial has
important implications for the continued functioning of APEC.(47)
APEC was used as an important bargaining tool by the US during the
Uruguay Round, to convince the EU to compromise on agricultural
protection. There was a lot of effort put into making APEC a
dynamic and innovative grouping at that stage. Since the onset of
the Asian financial crisis(48) it is less obvious that APEC has
been functioning successfully. At the meeting in Auckland this year
tariff liberalisation in eight sectors under EVSL could not be
agreed and was instead referred to the WTO in the hope that
consensus could be reached there. This looks extremely unlikely,
especially given Japanese opposition. Second it is clear from Japan
and Korea's negotiating position on agricultural trade at the WTO
that they have no intention of moving to free trade in that sector.
That brings into serious question their commitment to the Bogor
declaration (free trade by 2010 for developed economies, and 2020
for developing economies), the foundation stone of APEC.
Organisation of the WTO
The Uruguay Round added a number of major new
dimensions to the existing GATT, while at the same time a large
number of developing countries joined. The membership now stands at
135, with 31 having applied to join and a further five observer
nations. All of the applicants are either developing or economies
in transition. Even as things stand the majority of members are
developing countries. It is also clear that the Uruguay Round
issues have added enormously to the complexity of the WTO system.
The agreements making up the WTO run for over 550 pages, and there
are 26 000 pages of members' tariff concessions and schedules of
services commitments. A staff of 500 and a budget of A$ 125 million
administer the WTO. In contrast the ILO has around 2300 staff and a
budget of around A$ 450 million, the UN Environment Programme has
750 staff and a budget of A$ 160 million, while the World Bank has
6800 staff and a budget of A$ 2.2 billion.(49)
All of this means that the WTO is an
organisation which, while currently quite successful in a number of
ways, is at the edge of its operating capacity. The grandiose
proposals of the 'new issues' pushed by the US and the EU will add
enormously to the complexity of the task faced by the WTO. This is
because they would require a lot more effort by the WTO to monitor
members' behaviour, and will clearly lead to an increase in use of
the Dispute Settlement Body. It is clear that the US, in
particular, will be unable and unwilling to cover the financial
implications of the necessary expansion. It is also clear that the
WTO process is getting beyond the capacity of developing and
smaller members. For example the dispute settlement process since
1995 has been dominated by the rich and legalistic economies of the
US, the EU and Canada.(50) Many of the developing countries that
had been members of the GATT were unable to complete the process of
becoming members of the WTO in time to become founder members.
As discussed above there are pressures on the
WTO to develop rules regarding various social issues like labour or
environmental standards, or competition policy. Independent of the
merits of linking trade agreements with various social agenda
issues,(51) it is clear that doing so will make the WTO less
functional. One of the first economists to study information and
organisations, Professor Kenneth Arrow, argues that, in general, it
is more successful to create a new organisation with new ways of
thinking to deal with substantially new issues than to tinker with
an old one.(52) In this case this may mean a complete shake-up of
the ILO and UNEP rather than adding more to the WTO if developed
countries are serious about their proposed reforms and not about
introducing new forms of protection. Attempts to make the WTO more
open have merit but will also require more funding.
The Immediate Outlook
When the Uruguay Round started in September 1986
it was expected to last four years, but took twice that long;
negotiations broke down a number of times, and it seemed that a
'trade war' was imminent on a number of occasions. The prospects
seem minimal for the Seattle Ministerial to launch a Round that can
successfully negotiate the issues proposed, within the generally
suggested timeframe of three years. The General Council of the WTO,
meeting in Geneva, and operating on the WTO principle of consensus
has been unable to agree on a draft declaration that Ministers
could affirm in Seattle.(53) This indicates an absence of any
substantial common ground between the various parties. Furthermore
efforts by President Clinton to boost the prospects of a political
breakthrough by inviting heads of government to the US (in addition
to the Trade Ministers) fell through.(54)
Moreover, the US is moving into its presidential
election cycle, and it is clear that the Clinton administration
will be constrained by the ambitions and stated policies of
Vice-President Gore in its negotiations(55). In addition, the long
stagnation of the Japanese economy and the savage recession that
hit Korea last year mean that both are less likely to be willing to
take any moves which would harm their agricultural sectors.
It is possible that the very comprehensiveness
of issues facing Trade Ministers in Seattle will encourage them to
launch a Round; i.e. authorise further negotiations over future
years rather than making substantive decisions then and there. This
could be because all parties will feel some item of particular
interest to them is on the agenda, and therefore there is some
point in proceeding with negotiations. It could also be because it
will be obviously impossible to sort through those items in the
four days of the Ministerial. But the negotiating atmosphere will
clearly be made more tense by the expected presence of thousands of
demonstrators(56) expected to converge on Seattle.(57)
Australia's negotiating interests in this
Ministerial will be clearly focussed on agriculture. This is
because the Uruguay Round left to this year the process of making
real inroads into agricultural trade restrictions. Australia
clearly has a comparative advantage in a large number of
agricultural exports, and a move to free trade in the sector would
likely see a relative improvement in the prices received for those
exports (and thus our terms of trade), and an increase in their
volume(58). But it is important to recall that agriculture makes up
only a portion of Australia's exports. Almost one quarter of
Australia's exports are now services(59), and we have a clear
interest in pursuing progress in this part of the built-in agenda
as well. Further, as argued by Professor Kym Anderson, we have a
strong interest in seeing progress in the other highly restricted
sector: TCF. This is because those developing nations especially
likely to import our agricultural products, will be much more
likely to do so if they can export their TCF products. This would
allow workers currently underemployed in agriculture in those
nations to move into the better paying light manufacturing sector.
But this requires serious progress in removing barriers to TCF
imports in developed countries, including Australia.
To focus only on the export side is to risk
making the mercantilist error: 'exports are good, imports are bad'.
Australian consumers also gain from having access to goods and
services produced more cheaply elsewhere. There are significant
gains that the Australian community can make by reducing protection
in a few key areas.(60) These include passenger motor vehicles,
TCF, the dairy industry and maritime services. To maximise the
gains to Australia our negotiators should be willing to consider
liberalising these sectors. However this will be less painful if
our exporters can see clear progress at the same time.
While it is possible that Australia can make
significant gains by achieving and trading concessions in these
areas, there exist possible outcomes from a Round that would leave
us worse-off. For example if the US and EU use 'labour standards'
as an excuse to halt trade liberalisation in TCF, and stop
developing countries from making economic progress, and Japan and
the EU use multifunctionality and 'environmental standards'(61) to
wind back any liberalisation in agriculture, Australia's trade
prospects would probably worsen considerably. In that scenario
abandoning a Round might make more sense than jeopardising existing
commitments and principles present in the current WTO
Agreements.
Endnotes
-
- This glossary largely draws on that in Pru Gordon, 'The World
Trade Organization', Research Paper, no. 10, Parliamentary
Library, Canberra, 1995.
- For details of the Uruguay Round negotiations see Michael
Warby, 'When the talking had to stop: The end of the Uruguay
Round', Current Issues Brief, no. 4,
Parliamentary Library, Canberra, 1993, and Richard Snape, Lisa
Gropp and Tas Luttrell, Australian Trade Policy:
1965-1997, Allen and Unwin, St Leonards, 1998, especially pp.
370-377.
- The United Nations Monetary and Financial Conference held at
Bretton Woods, New Hampshire in 1944 produced charters for the
World Bank (formally the International Bank for Reconstruction and
Development), the IMF and proposed the establishment of the ITO,
which collectively are known as Bretton Woods institutions. See
Walter Goode, Dictionary of Trade Policy Terms, University
of Adelaide, Centre for International Economic Studies, Australia,
1997.
- For an analysis of the strategy involved in the negotiation of
the ITO, and a comparison with the WTO see John Odell and Barry
Eichengreen, 'The United States, the ITO, and the WTO: Exit
Options, Agent Slack, and Presidential Leadership', chapter 6 in A.
Krueger, ed., The WTO as an International Organization,
University of Chicago Press, Chicago, 1998,
- For more details on the history of GATT see the WTO website,
especially http://www.wto.org/wto/about/facts4.htm
and Pru Gordon, op. cit.
- It is clear that the United States, at least, initially
envisaged such coverage for the ITO, but was defeated by the
overwhelming tide of government intervention in Europe and the
Commonwealth. See John Odell and Barry Eichengreen, 'The United
States, the ITO, and the WTO: Exit Options, Agent Slack, and
Presidential Leadership', chapter 6 in A. Krueger, ed., op. cit.,
1998.
- The initial GATT negotiations covered one-fifth of world trade,
WTO 'Roots: from Havana to Marrakesh', webpage at http://wto.org/wtp/about/facts4.htm
- There is a new and burgeoning economics literature studying the
WTO process itself, and its implications for international trade.
See for example Giovanni Maggi, 'The Role of Multilateral
Institutions in International Trade Cooperation', American
Economic Review, vol. 89, no. 1, March 1999, pp. 190-214,
Kyle Bagwell and Robert Staiger, 'An Economic Theory of GATT',
American Economic Review, vol. 89, no. 1, March 1999, pp.
215-248, Kyle Bagwell and Robert Staiger, 'Domestic Policies,
National Sovereignty and International Economic Institutions',
mimeo, July 1999, and Phillip McCalman, 'Multi-lateral Trade
Negotiations and the Most Favored Nation Clause', mimeo, July 1998.
The main WTO rule that is difficult to justify is that permitting
an exception to the MFN rule for Preferential Trade Arrangements
(PTAs), such as the European Union.
- There is a specific exemption to this principle under Article
XXIV of the GATT for concessions granted to partners in
preferential trade agreements such as the EU, or Closer Economic
Relations between Australia and New Zealand
- There has been some move away from this recently, for example
during the recent search for a new Director-General of the WTO,
some members proposed that the deadlock on the choice between Mike
Moore and be resolved by a vote. Article IX:1 specifically provides
for voting, if a decision cannot be made by consensus.
- Of course in specific cases a large trading power will ignore
the interests of a small member. But they cannot do so in violation
of the rules that were agreed by all members, or they risk being
taken to the Dispute Settlement Body. The problem with this is that
many small members do not have permanent delegations in Geneva, and
demonstrably do not have the financial resources to mount the
necessary legal case. It might be argued that the interests of the
developing countries were ignored by not incorporating TCF into the
standard WTO rules immediately in 1995 when the WTO formed, but of
course the current arrangements represent an improvement (in
principle) over the previous MFA. The same can be said for the
Agreement on Agriculture.
- While reducing tariff barriers is voluntary, re-increasing
tariffs is made difficult.
- One problem with the WTO is that the format of the negotiations
often leads the public to believe that tariff-reductions are
concessions to other nations, when in fact they are likely to
benefit, on average, the nation making the reduction.
- The WTO has an extensive website devoted to providing
information about the Seattle ministerial at http://svca.wto-ministerial.org/
- The Uruguay Round was a set of multilateral trade negotiations
held from September 1986 to April 1994, that substantially added to
the General Agreement on Tariffs and Trade by adding, inter alia,
agriculture, services, textiles clothing and footwear, and
intellectual property. It also enabled the creation of a permanent
institution, the World Trade Organization, to replace the
'provisional' GATT secretariat (1948-1994). See also Michael Warby,
op. cit., 1993, and Pru Gordon, op. cit., 1995.
- See Kym Anderson, 'Agriculture and the WTO into the
21st Century', Policy Discussion Paper No. 98/03, Centre
for International Economic Studies, October 1998 and Kym Anderson,
'The WTO Agenda for the New Millennium', Economic Record,
vol. 75, no. 228, March 1999, pp. 77-88. Part of the reason that
agricultural exporters agreed to this process, even knowing that
this would occur, was because of the agreement to have further
negotiations on agriculture again starting at this Ministerial.
- The Cairns Group is an organisation of 15 agricultural
exporting nations. It was formed in 1986 to help promote the
interests of these nations in multilateral trade negotiations, and
it was largely due to this group that agriculture was finally
subject to trade liberalising rules. The current members are
Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji,
Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South
Africa, Thailand and Uruguay.
- A summary of the WTO's built-in agenda is available at http://www.wto.org/about/beyond2.htm
- This conclusion is based on a comparison of the obvious
difficulties in the GATS negotiations during the Uruguay Round (see
Richard Snape, 'Reaching Effective Agreements Covering Services',
chapter 10 in A. Krueger, ed., op. cit., 1998, with the stated
services negotiating positions of the major developed economies.
Therefore the apparent convergence could be revealed ex post to be
illusory.
- The Group of 77 is a group of over 100 developing nations
(initially 77) that seeks to find ways to advance the economic
interests of developing nations. More information on its agenda is
available at http://www.g77.org/
- See 'Liberalization of Investment', Journal of Japanese
Trade and Industry, May/June 1999, pp. 12-14.
- Information on the proposals made in the OECD are available in
Tas Luttrell, 'Multilateral Agreement on Investment', Research
Note, no. 11, Parliamentary Library, Canberra, 1997.
- The USTR, Charlene Barshefsky, was reported on the US position
thus: The OECD meeting essentially 'declared dead' its attempt to
negotiate a Multilateral Agreement on Investment (MAI), which she
said failed for many reasons. Barshefsky said she expected no
negotiation in the WTO of any agreement resembling the MAI. The US
remained open to the possibility of negotiating some more modest
WTO agreement on liberalizing investment, she said (US Information
Service, 1 June 1999).
- Informal Discussion Paper of the European Commission, The
New WTO Round, May 1999.
- See for example, Jagdish Bhagwati, 'Introduction', in J.
Bhagwati, ed., The Next Trade Negotiating Round: Examining the
Agenda for Seattle, September 1999, pp. 3-10, and Brink
Lindsey, Daniel Griswold, Mark Groombridge and Aaron Lukas,
'Seattle and Beyond: A WTO Agenda for the New Millennium', mimeo,
November 1999 (available at http://www.cato.org)
- See 'Already committed: the 'built-in agenda'', at http://www.wto.org/about/beyond2.htm
- See 'The EU Approach to the Millennium Round', communication
from the Commission to the Council and to the European Parliament,
November 1999, available at http://europa.eu.int/comm/trade/pdf/0807nr.pdf
- See http://www.wto.org/wto/minist/04agen_e.htm
- The Productivity Commission investigated the issue of
Australian accession to the Agreement, and essentially concluded
that if the Agreement were improved in a number of ways Australia
should accede. See Productivity Commission, WTO Agreement on
Government Procurement: Potential implications for Australia of
accession, Report 96/18, AGPS, Canberra, December 1996.
- Amicus curiae literally means 'friend of the court', and refers
to the issue of allowing non-disputants, such as NGOs, submit
briefs to the dispute settlement body.
- These submissions are available at the WTO website, and at
DFAT's page
http://www.dfat.gov.au/trade/negotiations/ministerial/proposals.html
- See Snape et al., p. 373.
- See 'Seattle Talks: EU's tactics anger US and Cairns Group',
Financial Times, 12 November 1999 (from ft.com) and Tom
Allard, 'Sacred cows'. Sydney Morning Herald, 27 November
1999, p. 45.
- There are specific differences: for example during the Uruguay
Round the US insisted on maintaining its Export Enhancement Program
and even now insists that its export credits for agriculture not be
considered as export subsidies on which discussions should be held
for reduction, see 'The EU Approach to the Millennium Round',
Communication from the Commission to the Council and to the
European Parliament.
- US Department of State Fact Sheet, 'White House Agenda on WTO
Ministerial', dated 13 October 1999.
- For a discussion of these issues see J. Bhagwati,
'Globalization Already Has a Human Face', American Enterprise
Institute for Public Policy Research, September 1999 available at
http://www.aei.org/oti/oti10889.htm
- The priorities in Clinton's speech are echoed in others by the
USTR, the Deputy USTR Susan Esserman, and the Council of Economic
Advisers. However a speech by Alan Larson, Acting Under Secretary
for Economic, Business and Agricultural Affairs at the US State
Department is more revealing. It emphasises the political context
for the push to include labour standards, and also the fact that
Congressional budget restrictions on UN agencies and the State
Department may be behind the push to shift new items onto the WTO's
agenda.
- The US is not suggesting allowing these briefs in other cases
where US protection might be at stake.
- This section is largely based on the paper 'The EU Approach to
the Millennium Round', Communication from the Commission to the
Council and to the European Parliament, available at http://europa.eu.int/comm/trade/pdf/0807nr.pdf
- 'The EU Approach to the Millennium Round', Communication from
the Commission to the Council and to the European Parliament, p. 4.
- Sustainability is a term used throughout the Commission
document. It refers to sustainable development: this is not
identical to environmental sustainability. Indeed the Commission
distinguishes between environmental and sustainability implications
on p. 5.
- This reflects the consistent inability of the EU to recognise
that it is not possible to have an extremely large portfolio of
(often mutually inconsistent) objectives and still call each a
'priority'. For example the creation of a strong euro, achievement
of social justice goals and reducing unemployment are all EU
'priorities' but are mutually inconsistent.
- Oxford Analytica Daily Brief, 26 October 1999.
- 'Toward New WTO Round Negotiations-Japan's Position',
Journal of Japanese Trade and Industry, May/June 1999, pp.
8-11, and 'The Modalities of a New WTO Round, Including Developing
Country Perspective', speech by Dr Han Duck-Soo, Korean Minister of
State for Trade, 27 May 1999.
- The recent anti-dumping investigations in the US against
various steel producers led some nations to 'voluntarily' agree to
restrict exports to the US. Voluntary export restraints (VERs) were
supposed to have been outlawed by the WTO since the Uruguay Round.
The US seems to use its anti-dumping authority, the US
International Trade Commission, to achieve results
indistinguishable from VERs. Japan lodged a complaint with the WTO
in October about the US use of anti-dumping, saying that more than
80 per cent of Japanese steel exports to the US have been, or are,
subject to anti-dumping investigations, or have had anti-dumping
duties imposed ('Japan, US relations caught in steel trap',
Australian Financial Review, 23 October 1999, p. 8).
- Oxford Analytica Daily Brief, 22 October 1999.
- This is despite the fact that a number of important economies
in APEC are not yet members of the WTO, including China, Taiwan,
Russia and Vietnam.
- The Asian financial crisis was a set of inter-related currency
and banking crises that hit various Asian economies, particularly
Indonesia, Malaysia, the Philippines, Thailand and the Republic of
Korea, starting in June 1997.
- See Richard Blackhurst, 'The Capacity of the WTO to Fulfill Its
Mandate', chapter 1 in A. Krueger, ed., op. cit., 1998.
- See Seattle Press pack, p. 52, available at http://svca.wto-ministerial.org/english/about_e/01intr_e.htm
- Two very careful evaluations of the labour standards issue are
OECD, Trade, Employment and Labour Standards: A Study of Core
Workers' Rights and International Trade, 1996, Paris, OECD and
Kaushik Basu, 'Child Labor: Cause, Consequence, and Cure, with
Remarks on International Labor Standards', Journal of Economic
Literature, vol. XXXVII, no. 3, September 1999, pp. 1083-1119.
For discussion of the environment-trade linkage see Alan Oxley,
'Poor Environmental Policy: the Fundamental Problem in the 'Trade
and Environment' Debate', in J. Bhagwati, ed., 1999 op. cit., and
Kym Anderson, 'Environmental and Labor Standards: What Role for the
WTO?', chapter 8 in A. Krueger, ed., op. cit. A general review of
NGOs and the WTO is Charlotte Denny, 'Supercilious in Seattle',
The Age, 24 November 1999, p. A21.
- See Kenneth Arrow, The limits of organization, Norton,
New York, 1974.,
- 'WTO Envoys Pass Trade Buck to Ministers', 23 November 1999,
New York Times, and 'WTO Dispute Stymies Agenda for
Talks', 24 November 1999, International Herald Tribune.
- 'World leaders side-step call to join WTO talks', 24 November
1999, Financial Times, and 'Clinton Fails to Get World
Leaders to Attend Seattle Trade Talks', 24 November 1999, New
York Times.
- Apparently an early deal between the US and China on China's
WTO application, which was published on the USTR website, was
scuppered at the last minute by Vice-President Gore's opposition.
- The issues that the demonstrators will be protesting are very
broad: they include globalisation (which is not identical to free
trade or the WTO), the environment (especially seeking national
sovereignty to impose trade restrictions for environmental reasons,
especially following some decisions of the Dispute Settlement
Body), and labour and human rights issues (especially seeking to
enable the international community to restrict national sovereignty
on these issues, and impose trade restrictions against violations).
- See Charlotte Denny, 'Supercilious in Seattle', The
Age, 24 November 1999, p. A21, Tom Allard, 'Sacred cows',
Sydney Morning Herald, 27 November 1999, p. 45, Brendan
Pearson, 'WTO: enemy number one', Australian Financial
Review, 25 November 1999, p. 13, and 'Seattle under siege',
The Bulletin, 23 November 1999, pp. 36-37.
- See Kym Anderson, 'Agriculture and the WTO into the
21st Century', Policy Discussion Paper No. 98/03, Centre
for International Economic Studies, October 1998, Kym Anderson,
'The WTO Agenda for the New Millennium', Economic Record,
vol. 75, no. 228, March 1999, pp. 77-88 and Tom Allard,
'Sacred cows', Sydney Morning Herald, 27 November 1999, p.
45.
- For 1998-99 services exports were A$ 26159 million of a total
A$ 111 891 million, or 23.4% (ABS, 5368.0, International Trade
in Goods and Services, October 1999).
- The Productivity Commission, Trade and Assistance Review,
1998-99, identifies a few highly protected industries in
Australia and abroad, where progress at the WTO would bring large
dividends to Australia. Most of the same industries are identified
in Kym Anderson, 'The WTO Agenda for the New Millennium',
Economic Record, vol. 75, no. 228, March 1999,
pp. 77-88.
- This is definitely not to say that consideration of the
interaction between trade and the environment has no role at the
WTO, rather that caution needs to be applied to ensure it is not
used as an excuse for protectionist lobbies, especially in
agriculture.