WTO news: what’s been happening in the WTO

Canberra, 5 February 2001

The WTO: Challenges ahead

National Press Club

Ladies and Gentlemen,

Most of us here can remember when your country, like mine, preferred to shut itself off from the rest of the world. Isolated by geography, we chose to reinforce our isolation economically. It was understandable. Insulating yourself from a rapidly changing world economy provides a comforting, albeit false, sense of security. Doing nothing but 'tinker' was always the safest policy, the easiest road.

But we finally realized that protectionism was a dead-end. It leads to stagnation and decline. So we chose reform. National champions were discarded in favour of international competition. Industries were privatized and markets deregulated. Capital controls were abolished. Foreign investment was welcomed with open arms.

It was by no means easy. As we emerged blinking from the shadows into the bright lights of the world stage, we tottered and stumbled. Turning back was tempting. Thankfully, we persevered, a rough multiparty consensus emerged, with key differences of how we did it, who paid, not why we did it.

Australia is now entering its tenth year of solid economic growth. Even the Asian crisis barely dented the economy's performance. For the past three years, the growth rate has topped 4%. Inflation is low. Unemployment is falling. No wonder Paul Krugman, the famous American economist, has called Australia a “miracle economy”. It is an enormous tribute to successive governments.

There are many reasons why Australia is so successful. But surely one of the main ones is its greater openness to trade. In 1990, Australia's exports came to 39 billion US dollars. Last year, they were an estimated $69 billion. Ten years ago, imports came to 39 billion US dollars. Now they are put at $77 billion. Total trade, exports plus imports, now accounts for over two fifths of the economy. A decade ago, it accounted for only a third or so.

What do all these numbers mean? They mean that Australia is much more open than it was. And because it is more open, it has become richer and a better place to live. Trade works its wonders in many ways. Higher exports help pay for goods and services that are more cheaply produced abroad. The need to compete in world markets forces companies to become more efficient. And exporting firms provide good, high-paying jobs. A study by Tim Harcourt of the Australian Trade Commission (download in pdf format, 23 pages, 164 KB, consult the guide for downloading files) finds that exporting firms pay 60% more than non-exporting ones. Exporting firms also provide more employee consultation, more job security and more training. In short, they are better employers. The best security workers have is a healthy balance sheet.

Imports too bring many benefits. Cheaper food and clothing for working families. Cheaper and better cars and electronic goods. Cheaper inputs that make businesses more competitive. And last but not least, new technologies and greater competition, both of which boost economic growth.

The benefits of greater openness are not just economic. I love my country, and I'm sure you love yours too. But it's great that we can read the New York Times online, travel to Europe, and sing karaoke. Openness is not just about getting richer. It's about enriching people's lives by embracing, rather than shunning, what the rest of the world has to offer. Opening up, which is basically what that ugly world “globalization” means, is in keeping with the internationalism that progressive people have always championed. The Asian crisis could have turned truly lethal had leaders not stayed the course and had markets closed. It happened before, during the great depression, which gave birth to hostile trading blocks and to our organization, which was created to prevent this. The system worked.

Our challenge now is to continue to open up. Some people think that globalization, on which every perceived ill is blamed, has gone too far. They want to turn the clock back to a golden age that never was. I'm old enough to remember those times: the stagnation of the 70s when we lived in glorious isolation. Then, only the rich who could travel overseas had consumer choice. Trying to go back to those old ways is not an option.

Just ask the Chinese. Their decision to join the WTO is momentous. They have opted for reform rather than reaction. They have chosen openness instead of isolation. 1.3 billion people will soon be joining the WTO. This brings us ever closer to being a truly World Trade Organization. China's long march towards WTO membership is not over yet. There is still work to do in Geneva to reach agreement on its accession protocol, which sets out the rights and obligations of WTO membership. But we are nearly there. It is as Lee Kuan Yew has said, the single biggest economic and political decision China has made since 1949.

Many more countries should also soon be joining. Chinese Taipei, Armenia, Moldova and Vanuatu for instance. Russia and Ukraine are also in the queue.

These accessions are one of our priorities for 2001. The other is to launch a new round of multilateral trade negotiations. I am glad to say that Australia has been in the forefront of efforts to launch a new round. Your minister, Mark Vaile, loudly beats the drum for freer trade. He is right to do so. Halving trade barriers around the world would add over 380 billion US dollars a year to the world economy, according to a study by the Tinbergen Institute.

Australia has many interests in a new trade round. Lower industrial tariffs would boost manufacturing exports. Services liberalization would help new-economy companies blossom. But perhaps the biggest gains could come in agriculture. Farming is one of Australia's greatest strengths.

A new round would help. Negotiations on agriculture and services are already underway at the WTO's headquarters in Geneva. These two sectors account for two thirds of the world economy. The aim of the agriculture talks is to reduce protection and discriminatory support in farming. The aim of the services talks, which cover everything from telecoms to tourism and finance to freight transport, is to expand the services agreement's country and sector coverage and to remove restrictions on market access and national treatment.

Both sets of talks are going well. But they pause for stocktaking next month. This pause could easily become a deadlock. Several countries have stated that they will not negotiate meaningfully on liberalizing agriculture unless they can open new markets for their exporters in other sectors at the same time. We need trade-offs that only a wider negotiating agenda can provide. Capitals and leaders must engage; show the flexibility that is necessary.

A deadlock would deal a big blow to chances of launching a new round soon. Positions would harden. Tempers might flare. The progress made in the past year at improving relations between the WTO's 140 members would be jeopardized.

That is a perilous prospect, especially now. The business cycle is not dead. America's long boom appears to be drawing to a close, with potentially worrying consequences for the world economy.

We must not forget that if the big guys are not doing well, neither will the small guys. We need the US, Japan and Europe growing strongly and keeping their markets open. Just think how much worse the Asian crisis could have been had the big guys closed the markets. It is a tribute to the WTO and even more so to political leadership in the North that their markets stayed open.

But although it's not politically correct to say so, the big guys also need new markets to ward off protectionist pressures at home. The use of anti-dumping and countervailing duties is soaring, threatening the gains from past liberalization. Producer support estimates for agriculture are rising again, according to the OECD. The siren voices of protectionism beckon.

Another big danger is that regionalism could come to be seen as a substitute for multilateral liberalisation rather than a complement to it. I understand why politicians and officials do this. Ambitious people want results. Ministers like something to sign. Some may think its politically easier, but it's not. New Zealand's tiny deal with Singapore has caused greater political problems than the Uruguay Round. I understand this impulse; as New Zealand's Minister, I tried both.

The recent explosion in bilateral and plurilateral trade deals is worrying. By definition, such deals discriminate against other countries. The longer we delay before launching a new round, the more the big players will be tempted to act unilaterally and seek improved market access through preferential trade agreements. The rule of law could gradually give way to the law of the jungle or a jumble of rules.

We urgently need a new round of trade negotiations. Without the trade-offs that only a broader negotiating agenda can provide, the potential gains to Australia and the world from freer trade in agriculture and services will be lost. That means fewer exports, slower economic growth, and less money to spend on health, education and welfare.

Without a new round, most of developing countries' many demands for a rebalancing of past WTO agreements will go unmet. We can squabble endlessly in Geneva about the perceived injustices and imbalances of previous trade agreements. But while we do so, we are doing nothing to prevent even greater injustices in future. Poor countries, who can least afford to miss out on the opportunities of the global economy, would lose out on the 155 billion US dollars a year that the Tinbergen Institute estimates further trade liberalisation could bring to developing countries. That is over three times the $43 billion they get each year in overseas aid.

Australia is playing a pivotal role in pushing for a new round. You have the moral authority from your past reforms. You have influence in the Cairns Group, in APEC, and in the Commonwealth. And you have the potential to lead by example, by showing the political courage to question narrow interests in pursuit of the greater good and by combining flexibility on the means of achieving freer trade with a steely resolve about your ultimate ends.

A new round will not happen by default. Nor will it happen unless the big guys want it. But the smaller players have a big stake in egging them on. You are well aware of the benefits of a rules-based system. You know that your future depends on access to foreign markets. Now is the time to come out fighting for a new round and more justice, growth, jobs, stability and security that this will produce.

Thank you.