AFR: Bypass the Logjam on Trade Talks

Published in the Australian Financial Review on August 19, 2014

In the physical world, momentum can be hard to achieve but easy to maintain. So it is in the surreal world of international trade negotiations. Australia's hosting of the G20 meeting in November gives us the opportunity to sustain the momentum in world trade talks achieved at a meeting in Bali last December. If we miss that opportunity, momentum gained could be irretrievably lost - with the world trade negotiations facing oblivion.

 The breakthrough Bali agreement had followed Australia's new pathways approach adopted at the corresponding meeting of the World Trade Organization (WTO) two years earlier. Those charting the new pathways had recognised the impasse in the decade-long Doha round of global trade negotiations would not be broken by continuing to push against the logjam on the existing pathway. They sought other routes to the mountaintop by finding those paths that remained open: an agreement on trade facilitation and some modest agricultural reforms. Alone, the trade facilitation agreement - streamlining customs procedures in poorer countries to reduce costly delays at wharves and airports - is estimated to provide 44 per cent of the total benefits of the Doha round.

Australia, with the support of now Director-General of the WTO, Roberto Azevedo, identified trade facilitation as lying on a new pathway. Pressure brought to bear on Indian resistance by the US, together with the support of the Indonesian hosts and China, the EU, Brazil and vitally, developing African countries, resulted in the Bali breakthrough. 

Obviously the trade facilitation agreement needs to be ratified by member countries. Trade minister Andrew Robb is positioning Australia at the centre of this process, pledging funds to assist poor countries to modernise their customs procedures.

India has broken the agreement it made in Bali. Indian intransigence contributed to the breakdown of talks in 2008 when a Doha agreement seemed within reach. And for years India had been insisting on a single undertaking – that nothing was agreed until every item on the Doha agenda was agreed – ensuring nothing would be agreed. Now India has sought to veto the trade facilitation agreement.

In these circumstances, the WTO should pursue a plurilateral trade facilitation agreement involving as many countries as possible, along the lines of the existing government procurement agreement or the information technology agreement. Alternatively, the plurilateral agreement could utilise the architecture for an agreement on trade in services under negotiation.

Even then, a plurilateral trade facilitation agreement is not enough. Here is a map of new pathways the G20 could endorse. 

At the entrance of the pathway is an agreement to lower the tariff rates that countries can legally apply under world trade rules towards the rates they actually apply. Called squeezing the water out of tariffs, this pathway doesn't involve cutting actual tariff rates but it limits members' ability to increase them in the future.

The next step along the pathway is to cut tariffs on those goods with very high tariff rates. Cutting tariff peaks can be highly effective in reducing the distortions to free trade and can be easier politically than reducing already low tariffs.

Further tariff reductions could be achieved by extending the membership of the existing agreement to eliminate tariffs on information technology equipment from 73 countries to all members of the WTO.

As the world seeks to repair environmental damage, the next step is to broaden to all members of the WTO an agreement among APEC members that Australia brokered in Vladivostok in 2012. The APEC agreement limits tariffs on 54 products used to protect the environment to no more than 5 per cent. The list could then be expanded over time.

Demand from the burgeoning middle classes of emerging economies is ensuring food prices remain high. What better time to journey along the new pathway of putting a cap on agricultural production subsidies?

Travelling this new pathway to global trade liberalisation is economically valuable and politically feasible. Yet leaders of the G20 are distracted by and diverted into bilateral and regional negotiations. Overall, these agreements are politically more appealing but economically less effective in creating jobs and prosperity than global agreements.