Speech at the Crawford School of Economics and Government, ANU

Australia’s Role in Addressing the Future of the Multilateral Trading System

Canberra, 8 April 2008

Introduction

Thank you, Andrew MacIntyre.

And thank you to the University of Melbourne’s Centre for Public Policy and the Crawford School of Economics and Government at ANU for convening this symposium.

I am delighted to accept the invitation to open this forum and to speak on this critical issue. 

I share your commitment to an effective multilateral trading system.  As you know an important part of the Rudd Government’s approach to trade policy is to recalibrate the focus of trade policy towards multilateralism.

The Warwick Commission report is timely and I applaud the Commission’s contribution to the debate.

Today I want speak about the importance of the WTO and the conclusion of the Doha Round. 

I also want to respond to some of the challenges presented in the Warwick Commission Report, including multilateralising FTAs, as well as improving decision making and the dispute settlement system.

Lastly, I want to look briefly at trade and the environment as an emerging challenge for the WTO.

Importance of Multilateral Trading System

I appreciate the work the Warwick Commission has undertaken in seeking to strengthen the multilateral trading system.

I believe a rules-based trading system is one of our most valuable global institutions. 

Trade Liberalisation Matters

Through the development of the GATT and WTO systems, multilateral trade liberalisation has delivered dramatic benefits to the global economy.

World trade has grown 27-fold in volume terms since 1950, three times faster than world output growth. 

Every negotiating Round has provided a fillip to world trade.

Importantly in recent decades, this has been a significant contributor to growth in our own region, the Asia-Pacific.

It’s no coincidence that at the same time rising living standards have lifted millions out of poverty. 

The World Bank estimates that by freeing merchandise trade of tariffs and eliminating subsidies we could boost global income levels by up to $US 287 billion by 2015.  The Bank estimates that almost 45 per cent of these gains would flow to developing countries.  The gains are magnified if services trade reform is taken into account.

The message is clear – the path to sustained economic growth, for developed and developing countries, lies in expanding trade opportunities further.

Access to clean food and water, better education and health facilities, proper housing and infrastructure, and massive increases in employment levels can all be attributed, in part, to the improved economic conditions that result from freer trade.

The WTO is a club nations want to join. 

The WTO’s expanded Membership – now at 151 Members – provides the opportunity for the full diversity of views to be represented and heard, including through the formation of coalitions. 

For example, the Cairns Group, which Australia chairs, has helped break down barriers to agricultural trade in a way that could never have been achieved by WTO Members acting on their own.

The existence of these coalitions helps make the WTO more inclusive, because we each need to meet the challenge of building bridges with others’ positions, in order to reach agreement of the full Membership.

The WTO can assist countries – as it has China and Vietnam - integrate with the global economy.

The WTO has changed the world in the past decade by welcoming China, opening up an array of new market access opportunities by reducing trade barriers for Australia and the world. 

Vietnam’s accession to the WTO in 2007 has had tangible benefits for Australia, including enhanced access for a range of goods and services.

The WTO disputes settlement system is one of the key achievements of the multilateral trading system, and one of the real successes of the Uruguay Round.   Having an agreed, binding process to enforce obligations through a neutral umpire is critical to the success of the multilateral trading system.

There have been more than 100 dispute rulings since the dispute settlement system’s inception in 1995, with as many disputes settled “out of court”.  Some of the rulings have had wide, liberalising implications. 

Australia has used the system to pursue the interests of our exporters, most recently to challenge the European Communities’ export subsidies for sugar.  Inevitably, some of Australia’s practices have also been subject to scrutiny and we are committed to playing by the rules.

That’s one of the reasons that the Government has been careful to ensure our trade obligations are taken into account in recently-announced reviews – including those into quarantine and into assistance arrangements for the auto and textiles industries.

Of course the dispute settlement mechanism – and indeed the WTO – is not perfect. 

That’s why the report of the Warwick Commission and similar reports are so useful in stimulating the debate about how we can further improve the multilateral trading system.

The established rules-based multilateral trading system offers certainty, predictability and stability. 

It’s easy to forget how important these principles are. 

The WTO – and particularly its negotiating machinery – has been criticised as cumbersome, and frustratingly slow to produce outcomes. 

But we must remember that it has provided huge benefits. 

It’s produced a global system of rules and disciplines. 

It has massively reduced the distortions in international trade and produced certainty and stability in international economic relations. 

By contrast - we should imagine our world without the non-discrimination principle as the foundation of international trade relations. 

It would be a world built around preferential trade blocks, further favouring large powerful nations at the expense of smaller ones. 

Small countries would be locked out of deals with major trading partners and left to languish outside the mainstream bilateral trade deals.

It would be a world where the benefits of trade are not shared widely; where trade is heavily distorted; and where the economic performance even of major trading nations is constrained by reduced opportunities to exchange goods and services.

The Importance of a Conclusion to Doha

We do need to look – as Warwick has done – at the post-Doha reforms needed to strengthen the global trading system, and continue trade reform.

But the single most important step we need to take now to strengthen the global trading system is to successfully conclude the Doha Round.

A successful conclusion to Doha is the Government’s most important trade negotiations priority and it will strengthen the multilateral trading system.

The meeting of trade Ministers in Davos in January provided a new momentum and political will to efforts to conclude the Doha talks.

Our current economic climate presents us with opportunities to maximise reform: due to the combined impact of instability on financial markets coupled with high world food prices.

Trade reform tends to advance in uncertain economic times – perhaps the imperative for reform is more obvious at those times.

A conclusion to Doha will give a much needed confidence boost to the global economy – at a time of some uncertainty on global financial markets.

We also need to take advantage of the effects of high world food prices – and lock in subsidy reform in agriculture at a time when producer incomes are high.

Over the past six weeks there has been some encouraging progress in the negotiations, in the core areas of agriculture, industrial products and services. 

There is growing support for a “signalling conference” on services in the near future, at which we hope key WTO members will signal their commitment to make significant improvements in their services offers. 

Progress is being made in Geneva with the critical “gateway” issues of Sensitive Products – as well as with other “flexibilities” in market access for agriculture and industrial products.  Making progress on these issues will allow us address the level of ambition we expect from reforms in these areas, as well as in services.

There’s been a great deal of intensive work in Geneva in the past couple of weeks in particular on these “gateway” issues.

As you know, it is a tough negotiation. 

None of us should be surprised by this – we are, after all, dealing with a larger and more complex agenda than any previous Round. 

The key is to maintain this momentum in coming weeks so that we achieve the breakthroughs necessary to conclude the Round.

Progress in the negotiations should provide the basis for Ministerial engagement soon.

The Round is as close as it has ever been to finalisation.

Prime Minister Rudd has been supporting these efforts during his discussions with world leaders in recent days – including US President Bush and European Commission President Barroso.

His visit has been very timely in reinforcing the need to build on the growing political will to conclude the Round this year.

The encouraging comments of President Bush and others add to cause for optimism that a successful conclusion may be within our reach.

Challenges Presented by the Warwick Commission Report

While successfully concluding the Doha Round is our Government’s immediate negotiations priority, the multilateral trading system is more than just Doha. 

The Warwick Commission report makes many thought-provoking recommendations. 

Today, I want to focus on three areas:

• multilateralising FTAs – something that I have been speaking about for some time
• improving decision making, and
• improving dispute settlement

Multilateralising FTAs

The Warwick Commission has tackled the critical issue of how we ensure that regional and bilateral trade agreements are supportive of the multilateral system.

I welcome this focus.  It is something I have pressed both in Opposition and in Government.  I have also asked the Mortimer Review on Export Policies and Programs to consider it. 

I believe the Commission’s recommendations on developing a mechanism for surveillance of FTAs and establishing a code of best practice are particularly useful suggestions.

It is crucial to get away from the false dichotomy between the multilateral trading system, on one hand, and bilateral free trade agreements and regional free trade agreements on the other.

FTAs are a fact of life – not only for our global trading partners but for Australia.

Our Government is not against FTAs or RTAs.

On the contrary.

We are negotiating bilateral free trade agreements with Japan, China, Chile, Malaysia, the Gulf Cooperation Council and – jointly with New Zealand - ASEAN.

Negotiations on the Pacific Area Closer Economic Relations Plus (PACER Plus) are also pending.

The Rudd Government’s approach is to recalibrate the focus of our trade negotiations by putting multilateralism back at the centre

-         setting the framework to develop the regional architecture and the FTAs in a way that is enhancing of multilateralism, not detracting from it.

The Rudd Government will complement trade liberalisation gains derived from the multilateral process at the regional level through APEC and the ASEAN plus 6  - that is ‘WTO plus’.

At the bilateral level comprehensive FTAs can further advance and deepen liberalisation measures – that is ‘WTO plus plus’. 

We need to ensure that our FTA focus isn’t just about strengthening bilateral economic relationships – as important as they are – but is also about supporting the multilateral process.

Good agreements can support the multilateral system in several ways.

They set liberalising benchmarks that serve as models for other countries. 

For example, the introduction of services and intellectual property into the multilateral trading system owes a great deal to the work done first in the Canada-US FTA and subsequently in NAFTA. 

The Australia-New Zealand Closer Economic Relations Trade Agreement is another positive example.   This year we’re celebrating the 25^th anniversary of the trans-Tasman CER - and it is, without doubt, an anniversary worth celebrating. 

CER is a model of comprehensiveness.

It was one of the first free significant bilateral free trade agreements and is among the best in the world. 

Under the agreement, two-way, trans-Tasman merchandise trade has increased eight-fold.  Growth in trade has averaged 9 per cent, per annum. 

In 1988 services were brought into CER and negotiations are now underway to add an Investment Protocol to strengthen investment flows.

Importantly, while CER is a preferential agreement, both our countries have reduced our MFN trade restrictions in tandem with our preferential trade liberalisation, thus reducing trade diversionary effects and allowing other countries to reap benefits from this liberalisation.

CER shows what can be done when two countries are prepared to commit fully to achieving comprehensive, ‘WTO plus’ outcomes.

While our key goal is to ensure that FTAs reach fundamental benchmarks of comprehensiveness and liberalisation, we also need to adopt a long-term time horizon.  In most cases, FTAs will be living treaties that change and evolve to reflect the political interests and priorities of the partners.   

The Warwick Commission has given us some very valuable ideas on this issue, and I anticipate they will be taken into consideration by the Mortimer Review.

Australia has been the leading advocate of stronger rules on regional trade agreements at the WTO. 

We have led the effort to give some meaning to the phrase “substantially all trade” at the WTO. 

We have proposed high benchmarks for FTAs – both quantitative and qualitative.

In Australia’s view the WTO has a major role to play in setting the benchmark on comprehensiveness of FTAs, and giving practical effect to Article XXIV of the GATT.

We are determined to keep these issues on the agenda in Geneva.

We are heartened by the recent establishment of the Transparency Mechanism – something Australia was also instrumental in developing

Exposing FTAs to the light shed by the Transparency Mechanism will help keep standards high in future FTA commitments and implementation. 

And we are also working actively on another of Warwick’s recommendations – to develop a best practice model for FTAs. 

Australia has led extensive work in APEC on model FTAs, through:

• establishing APEC criteria to facilitate high quality FTAs, and
• developing “model” FTA chapters to encourage a consistent regional approach to the design and content of FTAs.

We are also playing a central role in APEC on broader efforts to strengthen regional economic integration through FTAs.

At its most ambitious, this includes work in APEC to explore the possibility of a Free Trade Area of the Asia-Pacific

-         in this area, Australia is pioneering work on the feasibility of rationalising the current “spaghetti bowl” of regional trade agreements through enlarging them; a concept the experts more exotically describe as “docking and merging”.

This is not easy work – and it is early days. But success would go a long way to genuine regional economic integration.

And we are working closely with this year’s host Peru – and also with Singapore, Japan and the US, APEC’s next three hosts – to secure a more strategic approach to meeting this objective.

I look forward to further discussions on the Warwick Commission’s recommendations on reconciling FTAs with the multilateral system.

Improving Decision-Making

Perhaps the most publicised ofthe Warwick Commission Report recommendations suggests that we rely more heavily on ‘critical-mass’ decision-making. 

The Warwick Commission Report has pointed to examples where this has worked.  This was the case after the Uruguay Round with the Information Technology Agreement, with the agreement entering into force when countries representing 90 per cent of world trade signed on.

The single undertaking approach – relying on consensus – has been criticised by some as a weakness in the WTO’s decision making processes.  My argument is that, in the hard reality of negotiations, it can be a significant strength. 

As frustrating as the pace may have been with the single undertaking approach we’ve been able to use it to push ambition – and get key players to take risks

-         and this is because of the security negotiators have in the context of the single undertaking: that is, nothing is agreed until everything is agreed.

As a negotiating tool, it provides negotiators with the confidence and security that in putting something on the negotiating table they will not need to sign the deal unless they have their interests addressed in return.

There is another advantage - it binds all players to the outcomes, spreading the value of the achievements it secures.

It’s therefore important not to lose sight of the value of the single undertaking – and the strengths that it brings, both in helping broker multilateral deals and helping universalise their coverage.

The debate about the efficiency of decision making in multilateral trade negotiations is an important one.  I urge that you keep in mind these practical benefits that the single undertaking brings as you continue your deliberations in this area.

Dispute Settlement

I share the Commission’s positive assessment of the WTO’s dispute settlement system.

The Warwick Commission report recommends a number of potential improvements to the dispute settlement system, including enabling better access for small and vulnerable countries. 

There are a number of proposals on the table in this area – including Australia’s own proposals to reduce the time taken for WTO dispute procedures – and we are actively engaged in this debate.

The Warwick Commission has also made suggestions for improving transparency and introducing means other than trade sanctions to allow more effective enforcement of rulings.

We agree with this push for transparency and have been active in promoting transparency for WTO dispute processes in Geneva.

We recently demonstrated our commitment to transparency by proposing last month that the panel considering New Zealand’s challenge on apples hold public hearings. 

The panel has now agreed – so any country, organisation or individual with an interest can view these proceedings.  

I hope this move helps reinforce a growing trend – it is only in the longer-term good of the WTO as an institution that international trade law is developed - through the dispute system - in an open and transparent way.

Emerging Challenges – Trade and the Environment

The issue of trade and environment was dealt with briefly in the Warwick Commission Report.

Although the linkages between trade and the environment are not new, the policy issues are becoming broader and more complex. 

Three of the resulting policy questions confronting us are: (1) will domestic environmental policies be used to restrict trade?; (2) will nations be able to maintain domestic environmental standards?; and (3) how we can ensure that climate change is not just a challenge, but also an opportunity?

First, we need to encourage open trade policy responses:  we do not want environmental protection used as an excuse to impose new trade restrictions.  Such action would be contrary to the spirit and letter of the WTO. 

It would run counter to the goal of building a consensus for a post-2012 global climate change regime that is fair, equitable and economically and environmentally sustainable.

In the same way, we don’t want to see spurious concepts such as ‘food miles’ - which seeks to differentiate between products based on greenhouse gas emissions generated from transportation - used as de facto forms of protection. 

Second, we must ensure domestic trade and environment settings are WTO consistent.   This is an important commitment arising out of the Meeting of Trade Ministers in Bali in December.

For Australia and other countries this will be particularly important as we move to implement emissions trading systems, and examine how these systems might link internationally.

Internationally, the process will involve the economic ministers as well as the environment ministers.

Third, we need to promote the ability of countries to take advantage of the opportunities presented by climate change.

It’s not just the environmental imperative of addressing the climate change challenge that should drive us. 

Let’s also look at the opportunities.  The solutions should also be driving us -  the economic and trade opportunities, and the green jobs in goods and services.

Consequently we support the idea of liberalising trade in “environmentally friendly” goods and services.

Australia is working actively with other WTO countries in identifying a list of products which should be liberalised faster than other goods and services – to boost trade in this vital area.

There are no easy answers but I think it’s clear that trade and environment will be an increasingly important component of the public image of the WTO, and it will certainly influence public perceptions of the impact and value of trade liberalisation. 

Conclusion

The multilateral trading system has been, and will continue to be, vital to Australia’s future trade interests.

That is true at the WTO – and it is also true in Australia’s bilateral and regional trade negotiating efforts. 

Multilateralism must return to the centre of Australian trade policy.

I applaud the work of the Warwick Commission and its contribution to the debate about the kind of multilateral trading system we need for the 21^st century. 

I share your commitment to the multilateral trading system.

And I look forward to participating actively in the important discussion you have begun.

Thank you.

Media contact: Mr Crean's Office (02) 6277 7420 - Departmental (02) 6261 1555