TCS Daily

'What WTO?'

By Alan Oxley - September 16, 2003 12:00 AM

Before Cancun, APEC Ministers avowed in Thailand in May that a successful result from Cancun was essential. At Cancun they stood by as about 100 countries whose share of world trade might reach five percent on a sunny day in the world economy trashed the WTO. (For the details of what happened go here). Some APEC members even abetted this. It is time Asia acted in its own interests to defend the WTO.


The WTO matters in Asia. Its prosperity is based on trade. The WTO provides a fundamental guarantee of freedom to trade. It is not a complete guarantee. But imagine trading with the EU and the US if WTO rules did not constrain them from playing politics with trade.


China's leadership has bet the bank on the WTO to underpin its transition to a market economy. Only the WTO can unlock the world's protected food markets to exporters in the APEC region. A failure in the WTO is therefore a high stakes issue for East Asia. The failure at Cancun means more than that the Doha Round cannot finish on time. That wasn't likely anyway. What is more important is the damage done to the credibility of the WTO. Consider the following.


Can China now invoke the WTO as a reason for change when plainly its own members can't make it work? How much attention is Japan's agriculture ministry now going to give to suggestions from METI or the Gaimusho that Japan has to reduce its extremely expensive protection of rice farmers because Japan will be under pressure from the WTO to do so. "What WTO?", the Agriculture Ministry will snort.


There is an even bigger point. The shenanigans at Cancun, set against the background of the failure at Seattle four years ago, start to raise doubts in the EU and the US. Should they bother to try to deal with the WTO at all? Pascal Lamy described the WTO processes as medieval. The head of the influential US National Association of Manufacturers said the US should not bother with the WTO anymore and liberalize bilaterally.


This is a real option. It would work for the EU and the US to use the WTO simply as a dispute settlement and monitoring body. The markets of most industrialized economies are already open and bound by WTO rules. It is the developing countries that have not bound rights of access at low tariffs into the WTO. They are the ones with the most to lose if there is no further liberalization in the WTO. Then trade deals with the EU and the US would be done bilaterally and on the terms they set, not according to the rules of the WTO.


Those who lined up with Brazil at Cancun to insist that developing countries should not cut agricultural trade barriers in the agricultural negotiations should be wondering now if they did the right thing. The baby got thrown out with the bathwater. It serves them right. They forgot what the WTO is about. The idea that someone should not have to negotiate misses the point. Even key East Asian economies got swept up in that moment.


India, China, Thailand and the Philippines lined up with Brazil. India still seems half hearted about economic reform. And an election is imminent. So it probably wouldn't mind if the WTO was put under water. But surely China would mind. A WTO which is patently not working does not suit them. They certainly had a right to complain that they had negotiated enough during accession and shouldn't be expected to do much more. But they are big enough to look after themselves.


By hooking into the Brazilian ploy, they became party to a strategy which unleashed serious consequences. These were wrought by the African and Caribbean nations -- numerous in the WTO but inconsequential in trade. Their numbers have swelled in the WTO in the last 10 years. They didn't care if the WTO foundered because they had nothing to gain or lose. Africa has the worst growth record of any continent.


At Cancun most of the Africans were not even interested in trade. Their focus was on improving the supply of drugs. Despite all the hype, the use and supply of drugs in Africa is miniscule. Africa's problem is poor health services. They were just playing the political card they play in the UN.


Hence their refusal to agree the Doha Round should negotiate on two bland and minor issues: trade facilitation (how to make trade flow more smoothly) and greater transparency in Government procurement. It was astonishing. Pascal Lamy had offered to take investment and competition policy, two much more serious issues, off the table, but only on condition these other two issues remained on the table. This offer was a bargain and should have been snapped up. They rejected it. This is what killed Cancun. The Mexican chair decided that if such simple a matter was not negotiable, there was no point doing anything else.


The Africans were not alone. Rafidah Aziz, the Malaysian Trade Minister, also lead a group of developing countries to reject it as well. The Africans may not have had serious trade interests at stake, but Malaysia did. It would not join the Brazilian group because it wanted access to India's market and India was in the group. Well, it won't be pursuing that interest until there is a negotiation and that won't be for some time now.


We are at a critical point. If the APEC economies think it is alright to let things drift in the WTO, then they are no longer interested in growth. But no one says that. The WTO needs to get back on track. Some countries may have miscued on their strategies. That can be corrected. But we cannot assume the Africans will behave any differently next time. With growth stagnating and little commitment to real reform or effective government among too many of their political leaders, they are likely to continue to play political games.


Leadership is needed. APEC is an ideal group. With the US, Japan, China, Canada, Korea, Taiwan, the ASEAN, Mexico, Australia and New Zealand and Chile and Peru in the Group, they account for about 70 percent of world trade. It is in a powerful position to work to ensure the WTO remains effective for negotiations. It needs to collaborate with those countries who want negotiations and who want the WTO to succeed. Members of APEC need to assert their interests against those for whom the WTO is just a plaything. If they do not, they will lose the institution.


Alan Oxley is Chairman of the Australian APEC Study Centre and a former Ambassador of Australia to the GATT.


TCS Daily Archives