LET’S CALL THEM PREFERENTIAL TRADE DEALS - NOT FREE TRADE DEALS

All multilateral trade rounds managed under the umbrella of the GATT, the General Agreement on Trade and Tariffs, now the World Trade Organisation, are in crisis until a deal is done. The headlines are familiar and predictable, no trade round has ever failed or failed to disappoint. Conferences of Trade Ministers often fail over the years from Montreal to Brussels, most famously in Seattle. They fail because Trade Ministers agreements are real, legal and supervised by a binding disputes mechanism where disagreements about the meaning and implementation of complex details are disputed. Ministers of Transport, housing, environment, foreign affairs meet and reach meaningless agreements wherever one’s position is covered, and fine-sounding “communiqués” often provide comfort and cover in their ambiguity. Few commentators, and many Ministers, did not think we were going to launch the new round in Doha. Some Ministers wanted to postpone the meeting, such was the fear of what another failure after Seattle would do to the trading system. Is it possible, given how everyone can win under the Doha Development agenda, that the deal could perish because of the lack of political willpower and courage and leadership? What’s new now that makes things more difficult and different?

Perhaps major players, including China and India, feel things are good as they are now. After all, we are enjoying the greatest global expansion in history, beating off the 1950’s and 1960’s. There are alternatives to a multilateral solution, inferior, potentially dangerous, and multiplying in direct relationship to the lack of progress in the Doha negotiations. Twenty years ago there were few regional and bilateral trade deals, now there are many hundred. They create trade distortion, trade diversion, some even restrict trade, none have a binding disputes mechanism, most have dozens of exemptions, and few do much in agriculture. The latest South Korea-U.S. deal excludes rice and, like all such deals, products new privileges and preferences. American beef will be in a privileged position to Australian or Argentine beef. This deal has already stimulated Japan and the EU to take more seriously its options with South Korea. This lightweight deal on agriculture provides yet another opportunity for the Europeans to strengthen their defensive position on agriculture at the World Trade Organisation negotiations. The Americans now seem to seek preferential deals, one by one, which are easier to sell domestically, but it’s basically mercantilism which avoids the hard decisions at home for immediate gain but long-term costs will be painful. These deals provide levers for politicians which they always find hard to resist. Australia and New Zealand have always found common ground in trade matters, now the Australians are far ahead of New Zealand in reaching bilateral deals. Australia has done a deal with the U.S., New Zealand cannot, Australia is in serious negotiations with Japan, New Zealand has not even begun.

New Zealand and Australia going different ways on trade is a dangerous and historic divergence. This is being replicated elsewhere such as South America, where some countries are doing deals at the cost of greater regional integration. Ministers love to sign things, this frenetic activity is a poor substitute for direction and multilateralism. It diverts political attention and precious Ministerial time. The costs to the greater global trading system are now beginning to be felt. The answer is, of course, getting the Doha Round finalised. Regional deals and bilateral preference deals are not that hard if you exclude sensitive issues. Another danger is the increasing number of disputes between nations that the WTO must manage. These are causing pressure to build up. Sooner or later some countries are going to challenge the WTO findings, and then what ?

A world economy without a global trading system that can manage, in clear, predictable, binding way, these disputes would quickly become dark and dangerous.

Despite all I’ve written about the perils of unilateralism and bilateralism, I’d be doing it if I were in Government. There’s a terrible cost to being left out. The global economy is facing a ‘lose, lose’ situation. However, we should re-name the present spate of trade deals “Preferential Trade Deals” because they insult the concept of free trade.