Posted on 6-1-2004
Infected
by the bilateral bug
On the long trek to a fairer world for New Zealand exporters,
2003 was a year of one step forward, two steps back.
The step forward was the reform, albeit limited, of the European
Union's common agriculture policy (Cap). That gave it some room
to manoeuvre in what remains the best hope on the trade liberalisation
front, the World Trade Organisation's Doha Round.
But the subsequent abject failure of the talks in Cancun, Mexico,
to advance the round at all was a long step backwards.
The other retrograde step has been the proliferation of moves
to do bilateral trade deals, especially in Asia.
This noodle bowl of preferential deals could erode the will
to pursue multilateral liberalisation, always the best chance
of progress on agricultural trade.
WTO economists estimate that world trade expanded little more
than 3 per cent last year, less than half the annual growth
rates clocked up in the 1990s.
The EU reform package, though festooned with fish-hooks and
encrusted with qualifications, carve-outs and delays, largely
preserved the central thrust of the reforms sought by the European
Commission: decoupling domestic subsidies from production.
The aim is to switch off production that occurs only to garner
a subsidy.
In theory that should reduce the amount of produce coming off
European farms that either has to be protected from cheaper
imports or which is liable to be dumped on world markets, with
a further subsidy.
For a while it had looked as though opponents of reform, led
by the Cap's largest net beneficiary, France, would prevail,
leaving the EU with no negotiating coin to bargain with in the
Doha talks in Cancun in September.
Those talks marked the emergence of a new force, the G20, a
grouping of developing countries including such heavyweights
as China, India and Brazil, to challenge the agricultural protectionism
of Europe, Japan and the United States.
The Europeans for their part sought concessions from developing
countries on the "Singapore issues" of competition
policy, the environment, government procurement and trade facilitation
(customs procedures and the like).
Even after the Europeans pulled the first two from the table,
the talks broke down in acrimonious failure.
By the end of the year there was little perceptible progress
towards restarting the round.
Trade Liberalisation Network executive director Suse Reynolds
thinks the Doha Round will just "simmer" through this
year because of looming elections in the US and India and a
change of European commissioners, including Trade Commissioner
Pascal Lamy and Agriculture Commissioner Franz Fischler.
Reflecting on the failure at Cancun, WTO Director-General Supachai
Panitchpakdi said it had served as a wake-up call.
"While some non-governmental organisations - and even
some delegations - briefly celebrated the collapse in Cancun,
I can assure you no one is celebrating now. There is a sharp
realisation that the US$1 billion a day spent on farm subsidies
in OECD countries will continue unabated," he said.
"The inequities in the trading system that have become
apparent will not be addressed."
Bilateral and regional deals were no substitute for global
trade liberalisation, Supachai said.
"They are by their very nature discriminatory. None has
really succeeded in opening markets in sensitive areas like
agriculture.
"They add to the complexities of doing business by creating
a multiplicity of rules," he said.
"And the poorest countries tend to get left out in the
cold."
But they are proliferating. A count by the OECD's trade directorate
identified 142 such agreements, a third of them concluded in
the past three years, plus another seven awaiting ratification.
The OECD said another 50 were planned, of which more than 30
involve countries in Asia, including Japan, China, India and
Korea, all countries which had previously eschewed regionalism.
By next year, more than half of world trade will be covered
by bilateral or regional agreements, the OECD estimates.
As well as closer economic relations with Australia, New Zealand
has a bilateral trade agreement with Singapore and is in talks
to extend that to a three-way deal with Chile.
Preliminary work on a bilateral agreement with Thailand is
under way. China and New Zealand have agreed to exploratory
talks.
But Washington has made it clear a bilateral free trade agreement
with New Zealand is not on its crowded agenda.
Professor Robert Scollay, a trade policy expert at Auckland
University, warns of the emergence of a hub-and-spoke pattern
where a lot of small countries seek bilateral agreements with
a large one.
"The US is clearly pursuing that kind of agenda,"
he said.
The bilateral approach presents two problems. One is trade
diversion - preferential access to, say, the US or Japanese
market for one country disadvantages its competitors (who may
be more efficient) while creating a disincentive for the preferred
country to develop other markets that might in the long run
be more lucrative.
The other problem is that all the bargaining power lies with
the hub.
The third-party bilateral negotiations of greatest interest
to New Zealand, those between Australia and the US, failed to
meet their end-of-year deadline for conclusion.
"What I hear is that the US proposal to Australia does
not extend to eventual free trade in agriculture but involves
a gradual expansion in quotas," said Scollay.
"'The question for us is, what happens to other quotas?
Do they try to compensate for expanding Australian access to
their markets by cutting back on other countries' quotas?"
Japan, another hub, refuses to include agriculture in any bilateral
trade deals. Its talks with Mexico have broken down on this
point.
"If Japan finds it can make progress on bilaterals on
a fairly wide front without including agriculture, it is a huge
disincentive for them to go anywhere near the WTO," Scollay
said.
"On the other hand, if agriculture becomes the sticking
point in these negotiations - including the Free Trade Area
of the Americas - then the pressure will go back on for something
to happen in the WTO."
Bilateral deals could at best provide limited progress on agricultural
trade distortions.
"You can resolve market access but if you do that without
dealing with domestic support and export subsidies, it can be
a very risky arrangement. Mexico is finding that out.
"Under Nafta [the North American Free Trade Agreement]
it has opened its market to US agricultural exports but these
exports, and the farmers who produce them, are heavily subsidised.
So the Mexicans are fighting a very unfair battle."
The "jobless" nature of the US economic recovery
and its trade and balance-of-payments deficits have heightened
concerns about job losses in manufacturing and increasingly
in service industries to low-wage countries.
Scollay said there had been a complete breakdown of consensus
in Congress for any kind of trade liberalisation.
"It's going to be very difficult for the US to make any
kind of credible offers."
US trade analysts were saying the ball was now in other countries'
courts - to make it offers it could not refuse.
"But the mood of developing countries is clearly that
they have had enough of one-sided deals and they want the US
and EU to be more forthcoming.
"As long as that standoff continues it is hard to see
any progress."
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