Current Issues Brief 12 1999-2000

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:

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:

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:

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:

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:

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

2. This glossary largely draws on that in Pru Gordon, 'The World Trade Organization', Research Paper, no. 10, Parliamentary Library, Canberra, 1995.

3. 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.

4. 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.

5. 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,

6. 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.

7. 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.

8. 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

9. 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.

10. 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

11. 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.

12. 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.

13. While reducing tariff barriers is voluntary, re-increasing tariffs is made difficult.

14. 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.

15. The WTO has an extensive website devoted to providing information about the Seattle ministerial at http://svca.wto-ministerial.org/

16. 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.

17. See Kym Anderson, 'Agriculture and the WTO into the 21^st 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.

18. 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.
19. A summary of the WTO's built-in agenda is available at http://www.wto.org/about/beyond2.htm

20. 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.

21. 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/

22. See 'Liberalization of Investment', Journal of Japanese Trade and Industry, May/June 1999, pp. 12-14.
23. 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.

24. 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).

25. Informal Discussion Paper of the European Commission, The New WTO Round, May 1999.

26. 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)

27. See 'Already committed: the 'built-in agenda'', at http://www.wto.org/about/beyond2.htm

28. 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

29. See http://www.wto.org/wto/minist/04agen_e.htm

30. 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.

31. 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.
32. These submissions are available at the WTO website, and at DFAT's page http://www.dfat.gov.au/trade/negotiations/ministerial/proposals.html

33. See Snape et al., p. 373.

34. 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.

35. 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.

36. US Department of State Fact Sheet, 'White House Agenda on WTO Ministerial', dated 13 October 1999.

37. 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

38. 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.

39. The US is not suggesting allowing these briefs in other cases where US protection might be at stake.

40. 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

41. 'The EU Approach to the Millennium Round', Communication from the Commission to the Council and to the European Parliament, p. 4.

42. 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.

43. 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.

44. Oxford Analytica Daily Brief, 26 October 1999.

45. '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.

46. 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).

47. Oxford Analytica Daily Brief, 22 October 1999.

48. 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.

49. 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.

50. See Richard Blackhurst, 'The Capacity of the WTO to Fulfill Its Mandate', chapter 1 in A. Krueger, ed., op. cit., 1998.
51. See Seattle Press pack, p. 52, available at http://svca.wto-ministerial.org/english/about_e/01intr_e.htm

52. 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.

53. See Kenneth Arrow, The limits of organization, Norton, New York, 1974.,

54. '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.

55. '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.

56. 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.

57. 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).

58. 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.

59. See Kym Anderson, 'Agriculture and the WTO into the 21^st 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.

60. 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).

61. 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.

62. 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.

 

---