Tim Groser MP National Party Trade Spokesman

4 July 2007 0930 Embargo

The WTO: Prospects for Reform Speech to Tasman Transparency Group, Sydney

Australian Minister Warren Truss, Indonesian Trade Minister Mari Pengestu, ladies and gentlemen.

Doha: On Life Support, but Not Dead. It is still premature to declare the Doha Round dead. This matters a great deal to Australia and New Zealand. The Director-General of the World Trade Organisation, Pascal Lamy, a person of great creativity, has always had a joker in his hand which he could play - but once only. That joker is a Chairman’s ‘grand compromise’.

The attempts to broker the key elements of a deal in the so-called power-grouping of the G4 – the grouping involving the United States, Europe, Brazil and India – have collapsed amidst considerable bitterness, but importantly, after some very clear signals prior to the last disastrous meeting in Potsdam that the deal might be in reach. I had the US account of that last week in Washington when I was there with National Party Leader John Key and Murray McCully, our Foreign Affairs spokesman. The possibility that certain miscalculations were committed cannot be entirely dismissed.

I do not know how the Director-General will move ahead and I do not know when. Presumably it will be after the two key chairs of the Agriculture and NAMA or Non-Agriculture Negotiating Group – have tabled their own papers pointing to a compromise. But play the wild card he will.

However, I do not wish to give the impression of misplaced optimism here. I can see what you can see - the patient is bleeding badly on the operating table as it has been wheeled into the Geneva office of the Chief Surgeon, Pascal Lamy. You can feel that the momentum leaching away from the negotiation.
But my point is a simple one: no responsible person should advocate taking the patient off life-support until the Director-General has had his one chance to save the patient and pull off a compromise. He may just succeed and I am sure we all wish him well.

Possible consequences of failure

We should perhaps try to put some boundaries around the issue of a possible failure.

The WTO is a foundation stone of the global economy.

But a failure will not unleash any immediate crisis in the international trading system. The world finds it very difficult to advance reform in any sphere but in most cases political leadership is very good at crisis management – think of the Asian economic crisis in late 1997 when the whiff of economic cordite was last in the air.

There would, in the event of failure, be a brief and spectacular outburst of the ‘blame game’ – along the lines of last week but more creative yet as major participants seek to blame anyone other than themselves for the failure. In any event, it will not last long and the media spotlight would soon pass back to Paris Hilton, as it should.

What would then confront us is a rather bleak situation. For a start, a failure of the Doha Round would not be an overt and declared failure. An elegant diplomatic formula would, in that event, be developed to put the negotiated results in the political freezer to be dethawed at some indeterminate point. By most reckoning that would be unlikely to be much before 2010. The first avenue for alternative solutions in the field of trade is known in advance by everyone.

The headlong rush towards free trade agreements (FTAs) by whatever name will accelerate. If the National Party becomes the Government next year, we will be no exception. Indeed we will pursue this with vigour and determination. Our top priorities will be Japan, India, the EU, the United States and China, if that deal is not yet complete.

There is also the matter of the CER/ASEAN dialogue. Since the Indonesian Trade Minister, whom I knew well as one of Indonesia’s most prominent international economists when I was New Zealand Ambassador in Jakarta, is with us in Sydney. May I also take the opportunity to say to her that a National-led Government would also hope to push along the slow-moving CER/ASEAN free trade agreement.

This was always the thinking behind the New Zealand/Singapore FTA. I say this as much for foreign policy as for commercial reasons. I think there would be very significant long-term foreign policy and strategic reasons if the key governments concerned were able to grasp the existing CER/ASEAN FTA negotiation and turbo-charge it politically.

Other countries in other regions will hasten their own efforts along similar lines – I am describing everyone’s ‘plan B’ to a failed Doha Round. An APEC-wide FTA may itself get legs, probably with undue optimism. The greatest danger when any negotiation is in deep difficulty is to imagine that changing the negotiating forum will solve the underlying problem.

I wonder, for example, why Korea, which managed to have rice excluded completely from the recently concluded US/Korea FTA, would find the shift in negotiating forum alone changes the underlying politics of liberalising rice? But in due course, we will all discover that multilateral management of trade policy is indispensable.

It is indispensable to maintaining the past achievements of the GATT rounds and enforcing the WTO’s juridical findings through the mandatory dispute settlement provisions. The WTO is, I suspect, the most advanced form of international law that exists.

Multilateralism is indispensable to carrying forward further reform in certain key areas. This is particularly the case with respect to agriculture – still the sector where the backlog of reform is the most obvious. No FTA will ever deal with production-linked subsidies – this can only be negotiated multilaterally.

Outside agriculture, reform of anti-dumping, CVD and other instruments of contingency protection can only be done multilaterally – in FTAs the changes that are occasionally agreed are not of great moment.

And so, ladies and gentlemen, there is no escaping the fact that sooner or later people will come to their senses and realise that there is no alternative to multilateralism. But to return to the table, in the event of a failure of Doha, means a variety of serious shortcomings will need to be addressed.

I consider it completely unrealistic to think you could simply pull the old deal rejected in 2007 out of the freezer in, say, 2010 and say “Hey guys, what about doing this?” There will be indispensable elements that will need to be retained such as the elimination of export subsidies – that much is obvious. But a new political platform for moving forward would need to be created.

Systemic WTO issues that need addressing

You have asked me to speak on domestic transparency – a very complicated way of describing the need to encourage countries other than Australia and New Zealand to look at their own subsidies and protective devices in terms of the impact they have on their own economies. Until people realise that it is their own economy that ultimately pays the price of these often ridiculous policy interventions, it is very difficult to advance international reform.

But this would be only one of many changes required.

First, we need improved political comprehension of what the multilateral system, no matter how it is configured, can do and what it cannot do.

I cannot see any future negotiation ever succeeding at the multilateral level that does not start from the premise that the WTO, like the GATT before it, can only ever be an agent of evolution, not revolution. To say that the WTO comes up short – and it does in several important areas, services being a crucial one – is simply to assert there is more to be done.

The WTO, like the GATT, operates like a giant ratchet. You advance here, you advance there, and then you lock it in place with the mechanism of international law. The interplay between two forces – the process of domestic reform and the process of international reform – is quite subtle. Sometimes, as in the case of EU agriculture reform and this round, it is almost impossible to pick them apart.

Second, of the many institutional weaknesses, the most pressing institutional problem, at least in my experience, is the almost complete passing of power and responsibility away from officials to Ministers. Negotiating problems better sorted out by first secretaries are now being dumped on Ministers’ desks to resolve.

Ultimately, it is the Ministers who are the victims of this. It is they who have to deal with this mass of issues of unimaginable complexity arriving on their desks for a decision. But equally, the solution ultimately lies in Ministers’ hands if they wish to avoid being placed in such an invidious position.

Third, the system is trying to cope with a seismic shift in the political tectonic plates that is transferring relative power to the developing countries. There is a set of massive challenges that this raises – all subsumed within the Geneva-speak of ‘imbalances’. This is the consequence of the success of globalisation, not its failure. But the institution, and the thinking underlying it, needs to adapt.

How improved transparency might assist

Even though I am obviously a fan of improved transparency, we will need to harness it to reciprocity for some time to come. “Beware”, they say, “of trying to do too much good”.
The world is not ready, and I am not sure it ever will be, to put the pure logic of economic rationalism into effect. I see greater understanding of the real economic consequences of subsidy and trade restrictions as facilitating, not replacing, reciprocity as a negotiating tool.

As some of you know, I was the New Zealand negotiator who tried to introduce exactly this proposal in the last round of negotiations. It did not get sufficient traction. Let’s just say I must have been ahead of my time.

First, let me very briefly describe the proposal. As far as I am concerned, it is identical to what the Trans-Tasman group is proposing.

The New Zealand proposal started by quoting the Leutwiler report: “In each country, the making of trade policy should be brought into the open. The costs and benefits of trade policy actions, existing and prospective, should be analysed”.
The New Zealand proposal then tried to draw a sharp distinction between this proposal to improve domestic transparency and other proposals being introduced into the Uruguay Round to improve multilateral surveillance. It then proposed developing a set of agreed economy-wide measures internationally; it advocated setting up a domestic transparency institution in member countries to use these economy-wide measures as part of the decision-making process on protection and subsidy issues.

This should indicate to you the obvious: I was deeply influenced here by Australian thinking and practice. While in Australia in the late 1970s I became deeply interested in the institution then called the IAC, which has today morphed into the Productivity Commission.

So it was understandable that when it came a decade later to put a multilateral version of domestic reform on the table internationally, I used the Australian model. The proposal simply did not get enough traction.

Most important, I did not generate anything more than polite interest from the two vital partners to any successful negotiation - the US and the EU. Even today, it is a little difficult to get to the bottom of this reluctance.

The EU’s reluctance was perhaps understandable: it saw the proposal, given its trans-Tasman roots, as a stalking horse for attacking agriculture liberalisation. In truth, it was a stalking horse, but one aimed at all protectionism, not just the agricultural variant.

But the EU at that point in their history was in a bunker mentality – a completely different space, in my considered view, to where the EU is today on agriculture reform.

The US, while less defensive at the time than the EU, preferred to stick with its ‘tough negotiator’ approach as the only way through to reform. In truth, there was no choice to be made. An improved understanding of what is at issue has to help getting agreement.

A further complicating factor was confusion between the arguments for improved domestic and improved multilateral surveillance of trade policy. Finally, more negotiators were interested in having yet another forum to attack each other than examine the opportunity for getting their own house into order.

What are the lessons here? There are probably several.

First, do not wait for a future round to start building support. This is obviously a conclusion that you have already reached. You will no doubt need to use a variety of different forums and opportunities in APEC, OECD, but a core activity is to identify a small list of indispensable allies.

That list starts with the United States, and Europe. My mind would then immediately go to Japan, India, China, Korea and Brazil. You will need, most obviously, domestic champions in each. Arriving in, say, Tokyo and saying “I’m an Australian economist and I’m here to help you” may not be the most efficacious approach. Many things are lost in translation.

Second, I do not see any alternative but to stick with the voluntary approach. My thinking is still that we would be seeking to develop institutional and methodological guidelines, based on practical experience in measuring the real costs of protectionism and encouraging people to consider these seriously.

There may be some mild positive incentives you can build into such a proposal, such as information exchanges, secondments between such institutions, sharing of research etc. You wish to seed the idea that this is something sophisticated countries do. You want to create a trend.

Third, I would argue more generally, pursue the idea but not with too much zeal. This is not a silver bullet and a soft-sell approach instinctively attracts me.

Finally, and I am addressing solely the New Zealanders in the audience, it would help this proposal enormously if National became government next year. That is the only condition in which I might become the Trade Minister, and you would have at least another strong supporter.

Thank you.

ENDS

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