The Australian, Canberra

Rudd may be pinning his hopes on trade policy that is past its use-by date

By Jennifer Hewett

5 March 2008

Kevin Rudd and his Trade Minister, Simon Crean, are very clear on the direction for trade liberalisation under a Labor Government.

In a speech to the Lowy Institute, Crean says he wants the "central focus" to bemultilateral, via the World Trade Organisation.

It’s partly a continuation of ALP criticism against the Howard government’s focus on bilateral free-trade agreements given the years of frustration at the WTO’s lack of action.

It’s partly a view that the WTO’s long-running Doha round of trade negotiations still offers what the Prime Minister described yesterday as "the prospect of the largest gains".

It’s also understandable, given the relative success of a previous Labor government in pushing agricultural trade liberalisation through the Cairns group.

But what if this view of the future is wrong? What if the WTO is long past its time in terms of any meaningful liberalisation of trade?

Certainly that’s the view of Razeen Sally, a well-respected trade economist who is director of the European Centre of International Political Economy, based in Brussels.

His new book on 21st century trade policy will be out later this year.

After a brief stint at the Australian National University recently, Sally suggests Australia’s Trade Minister is in danger of wasting precious time and effort running around "in ever decreasing circles" trying to revitalise the Doha round. "The WTO looks increasingly like the United Nations," he says.

"Given the big increase in membership, the differences involved and the fact it has become more politicised, it is far easier for the WTO to degenerate into a talking shop, a largely adversarial one, without actually doing serious business.

"It has got to the stage where it is now almost impossible even to make relatively simple decisions in the WTO."

And that is particularly important, according to Sally, given that the issues are now more about the even more politically sensitive issues of domestic deregulation.

Those issues, he says, are much less amenable to the bargaining model used by the WTO and its predecessor, the GATT.

"Bargaining over a tariff concession is one thing, but exchanging an improvement in a measure of food safety standards for opening someone else’s markets in telecommunications is a completely different matter," he says. "So beyond the theatre of ministerial summits and spats around this or that, there are structural forces that make it difficult in terms of opening extra markets in the WTO."

Not that Sally has much faith in free-trade agreements either, suggesting they are more about gimmicky politics and calling them the "deformed offspring" of unrelated foreign-policy agendas.

"The hard preferential trade agreements that make a commercial difference can be counted on the fingers of one hand," he says. "The one between Australia and New Zealand, although that makes more of a difference to New Zealand than Australia; the North American Free Trade Agreement, which makes more of a difference to Mexico and Canada than to the US; and the European Union itself.

"Once you get beyond those, nearly all other FTAs or customs unions are very trade-lite."

That indictment includes, in his assessment, the Australia-US free trade agreement negotiated with so much fanfare by the Howard government and Bush administration.

And even if FTAs do open up some areas of trade between individual countries or regions, Sally says the cumulative effect is to carve up the global trading system into a discriminatory mess.

He calls it throwing "more sand in the wheels" of global trade, adding red tape, costs and complexity.

"This doesn’t make any sense, least of all for businesses that are operating in an increasingly complicated world trying to develop global supply chains," he says.

So just what should a country such as Australia be doing, given its vital economic interest in trade liberalisation?

Sally’s view is that the greatest hope for international advance still lies in unilateral actions from countries in Asia.

In particular, he is placing his hopes on the steady movement of China as the world’s new "engine of free trade".

This may seem rather optimistic, given the many barriers that still operate in China and the thicket of regulations that so thwarts foreign investors and companies trying to do business there.

But Sally maintains that China’s example of liberalisation has already had a powerful spill-over effect elsewhere in east and south Asia, including India.

"If we are going to see more markets opened up, I don’t think it is going to come through the WTO, I don’t think it going to come through FTAs," he says.

"It will happen in this sort of piecemeal fashion and China will have to set the pace, as it has the past, and others will follow, more or less.

"It is not a neat solution. It does leave all sorts of gaps, but that is where Simon Crean and senior officials and business people should be focusing attention.

"They should be trying to encourage and stimulate this train of action."

Unfortunately, that does not mean Australia should hope for big concessions from China on the key area of agriculture.

"The Chinese don’t want to give too much extra on agriculture," Sally says.

"Their WTO commitments on agriculture, following on the back of what they were already doing unilaterally, are very substantial."

Even so, he believes China’s willingness to simplify its domestic regulations will become more limited the more protectionist flak China gets from abroad.

In that context, he sees Australia’s most important contribution as putting pressure on the US and Europe to restrain the increasing protectionist sentiments against China.

"This would be more useful than the theatre of trade negotiations," he says.

This won’t be simple.

A new mood is already evident in the US, for example, where Democrat candidates Hillary Clinton and Barack Obama have been trying to outdo one another on the need to protect American jobs.

A US recession ahead of an election will only accelerate that sentiment.

Australia also has to negotiate its own sensitivities about Chinese investment in the resources sector.

It means the hot spots for trade are likely to be outside, rather than inside, the WTO.