Trade: Emerson on right track

Trade: Emerson on right track

India, South Africa and Brazil have reportedly objected to a process initiated by Trade Minister Craig Emerson on the sidelines of the Davos international business conclave to liberalise services in the World Trade Organisation. When those countries oppose a trade liberalising initiative, it is a sign you are on the right track.

The tactical key to success in multilateral trade negotiations is to work with those who want a result and deny those who do not a chance to block the process. The reason the Doha Round has failed is precisely because those who did not want a result were at the conference table.

And while it has been a political game to blame the European Union and the US for stalling on agriculture, Brazil, India and South Africa – not to mention China – have played as significant a role in bogging down the process.

Emerson was smart to invite to his discussions the 16 members of the WTO that he thought did want a result. Start with a group of like-minded countries, develop a robust concept and important core commitments, then steadily extend the circle and build consensus.

His strategy will be to shape an agreement to reduce barriers among enough countries to achieve a tangible opening of global services markets. In trade jargon, that is a “plurilateral” agreement – many, but not all, WTO members sign up. To be effective, a decent number of WTO members need to sign up.

India, Brazil and South Africa may not. And it may have only 40 parties. That may seem unimpressive given the WTO has 157 members, but in world trade, size does matter. Thirty countries account for 82 per cent of world trade. Plurilateral agreements have been frowned upon in the past.

The optimum economic benefit from trade liberalisation is classically achieved when all members of the WTO benefit when any member reduces a tariff. The economics does not necessarily apply when barriers to services are reduced. The primary purpose of trade liberalisation is not to secure access to other markets, although that is a benefit, but to reduce barriers in the domestic market.

So if Australia opens its telecommunications market, it needs to ensure enough globally competitive companies can enter the market to ensure world’s best competitiveness standards are introduced. This does not require the market to be open to all comers, although as a generality that is preferable. Unfortunately that is not on offer today in the WTO. Services is probably the most important sector that Emerson could have picked. Asia-Pacific economies will not continue to grow as fast as they should unless their services industries become more competitive.

They contribute just 30 to 40 per cent of Indonesia’s gross domestic product, compared with 80 per cent in Australia. Indonesia won’t continue to achieve its recent strong growth unless the services sector contributes more. A lot is at stake. Forty million Indonesians still live below the poverty line.

Most economies in the Asia-Pacific Economic Co-operation forum are at least formally open to liberalising services. In contrast, there has been no progress on services in the WTO for 17 years.

The lockstep negotiating principle in the Doha Round (no liberalisation in any area unless there is liberalisation in all) put paid to that.

Emerson should also be able to leverage off the commitment by the 11 members of APEC to negotiate a Trans-Pacific Partnership Agreement. Most of those countries actively support open services markets. Given the rising domestic costs in Australia because of the high dollar, one would hope Emerson has plans to use WTO liberalisation to reduce barriers in Australia to foreign service companies. This would increase competitiveness.

Education is our biggest services export, but foreign universities cannot easily establish here. The national broadband network renationalises the backbone of telecommunications. Foreign telecommunication companies will lobby for access to that market.

Access to coastal shipping by cheaper foreign vessels has been restricted. That will increase shipping costs. The national flag carrier policy for international air services also increases costs. Unfortunately, those two areas are outside the scope of the WTO.

Trade liberalisation is a two-way street. The bigger challenge Emerson may face might be in Canberra, not Geneva. That may not be a bad thing. If he succeeds in injecting momentum into negotiations to liberalise services in the WTO, and demonstrates the case for greater competitiveness in Australia’s services industries, everyone will benefit.

Alan Oxley is chairman of the APEC Study Centre at RMIT University and a former Australian ambassador to the GATT, the predecessor of the WTO.

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