October 14th 2006

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Articles from this issue:

COVER STORY: COMMONWEALTH-STATE RELATIONS: Will Howard override WA on natural gas?

EDITORIAL: Bushfires: an ounce of prevention

CANBERRA OBSERVED: Behind the move to lift cloning ban

INTERNATIONAL TRADE: Farmers protests over free trade in Cairns

TRADE POLICY: Why WTO trade talks failed

STRAWS IN THE WIND: The decline of Labor, the fate of Smith Street, Blair's departure and the Regensburg Address

NATIONAL AFFAIRS: T3 sell-off will not end Telstra's woes

HOUSING: Urban planning is destroying the great Australian dream

FOREIGN AFFAIRS: North Korea's nuclear ambitions: is China really powerless?

ANTI-LIFE CAMPAIGN: The selective indignation of Senator Stott Despoja

OPINION: The case for optional preferential voting

BIOTECHNOLOGY: The ascent of Mount Improbable

The debt trap (letter)

The Pope and Islam (letter)

The Ice epidemic (letter)

BOOKS: LONDONISTAN: How Britain is Creating a Terror State Within, by Melanie Phillips

BOOKS: SCOURGE AND FIRE: Savonarola and Renaissance Italy, by Lauro Martines

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Why WTO trade talks failed

by Colin Teese

News Weekly, October 14, 2006
Colin Teese, former Assistant Secretary in the Department of Trade, looks at the recent meeting of the world's major agricultural exporting nations in Cairns, following the failure of the recent Doha Trade Round to open up world markets.

Despite all efforts to talk it up, the recent meeting of the Cairns Group in North Queensland produced no apparently useful outcome. Certainly it did nothing to re-energise the Doha Round of trade negotiations to the advantage of exporters of temperate agricultural products.

No doubt frustrated with the negative signals coming out of the North Queensland meeting, Tim Colebatch of the Melbourne Age revealed himself to be deeply dissatisfied with the way Australia is managing its international trade relations.

In particular, he focused on the shortcomings of the operation of the Department of Foreign Affairs and Trade.

Colebatch identified, correctly, how unsatisfactory has been the experiment - begun by Labor and maintained by the Coalition - of merging the Department of Foreign Affairs with the Department of Trade. His solution would be to merge Trade responsibilities with an Industry Department.

Unfortunately, in the present context of current economic orthodoxy, neither that nor any other rearrangement is likely to fix the problem. Neither is it enough for some - including Colebatch - to fall back on the idea that the current Minister with responsibility for running trade policy finds it too much to lead the National Party and manage the Trade portfolio at the same time.

Don't forget that earlier National Party leaders John McEwen and Doug Anthony were both able to serve long and well in both jobs. If Mr Vaile finds it difficult to emulate the efforts of his distinguished predecessors then he should look for answers in the manner he has allowed his department to be organised.

For Mr Vaile the solution to his problems seems obvious: spend more time in Australia and push a much larger part of the overseas travel part of his job onto departmental officials.

It's the way his distinguished predecessors handled the job. Mr Vaile should follow their lead.

Undoubtedly, part of the present problem is - as Colebatch has recognised - that trade policy responsibility has been woven into the Foreign Affairs portfolio.

And nobody has yet been prepared to acknowledge the fundamental difficulty Mr Vaile faces in doing his job in these circumstances.

No Trade Minister has been able to function effectively without his own department. Within the Department of Foreign Affairs and Trade (DFAT), Mr Vaile operates as a Minister subordinate to Foreign Minister, Mr Downer. Yet in the ministerial pecking order, as Deputy Prime Minister, Mr Vaile outranks the Foreign Minister.

Such an arrangement should be intolerable: it is as much a denigration of Mr Vaile's position as Deputy Prime Minister as it is of his National Party's standing in the Coalition. No wonder that the National Party is so singularly unsuccessful, these days, in representing, let alone advancing, the interests of farmers.

Readers with long memories will recall that the merging of the Trade Department with Foreign Affairs, was the brain child of Labor. It worked quite well for Hawke and Keating, neither of whom wanted a strong trade ministry or Minister. Quite the reverse.

Thus Labor's purpose was not born out of a drive for better administration - its idea was to disempower the Department of Trade.

As far back as Gough Whitlam, the Labor Party had mistrusted both the Department and its officers who it believed - falsely - were joined at the hip, initially with the Country Party, and later with its successor, the National Party.

That the Coalition, when Mr Howard came to office, continued with this ill-judged arrangement was a basic mistake.

Nationals' influence

It is true that a good many Liberals in the parliamentary party disliked the Trade Department almost as much as Labor, because it generated power and influence for the junior Coalition partner which they were happy to see reined in.

What can't be explained is why the National Party was prepared to see perpetuated an arrangement whose main purpose was to subordinate the department over which its leader presided, and from which he drew strength, absorbed into a department run by a junior ministerial colleague- namely, the Foreign Minister.

Looking back, it now seems obvious that the former Deputy Prime Minister and leader of the National Party, Mr Fischer, was unaware of the difficulty he had created for himself and his party. And that difficulty has been passed on to each of his successors.

Right through its glory days the Country/National Party has always functioned effectively when its leader was backed up by a powerful department. In the first post-World War II Menzies Ministry, the Country Party leader, as Deputy Prime Minister, controlled a major policy portfolio, in his own right.

Mr - and later Sir Arthur - Fadden, held the Treasury portfolio while he was Party leader. His Deputy, John McEwen, held the Trade Ministry and, when Mr McEwen succeeded Sir Arthur Fadden as leader, he held onto the Trade portfolio.

There is, as Mr Colebatch has pointed out, plenty wrong with the way we are managing our trade policy. Colebatch's measure of success, not unreasonably, is our trade performance.

Put bluntly, it had been, and continues to be appalling. We are running more or less permanent deficits on the trading account. The performance of our manufacturing sector, both at home and in export, is at the bottom of the scale of developed countries - and continues to decline.

And our agriculture is asked to battle unassisted against subsidised competition - both in export markets and at home. The only bright spot, in recent times has been the minerals sector.

And that has been due entirely to the minerals boom. And, incidentally, it should be recognised, that even in these favourable circumstances, we are not exporting greater quantities of minerals, but merely getting better prices for what we sell.

Our trade performance is bad and in any reasonably critical environment the government, the minister and the department would be called to account.

In some economic circles all of the above is counted as an advantage for our economy, which no doubt explains why the government has not been called to account.

Accepting all of this however, is it enough to suggest that the problem could be fixed by reinstating the old arrangement of a separate Department under the Deputy Prime Minister? Unfortunately not.

At the time the Labor Party destroyed the old Trade Department, a new economic orthodoxy had taken hold of policy making.

In the process a novel approach to trade policy - unique to Australia - was born. It rested on the idea of unqualified free trade.

Policy makers were urged, and took up the idea that Australia should dismantle its trade barriers unilaterally. They were persuaded that this would be to Australia's benefit even if other countries failed to copy our example, though the underlying opinion was that other countries would follow us and undertake unilateral removal of their trade restrictions.

Ever since Labor took office in 1983 and disempowered the Department of Trade, orthodox economic opinion has been able to persuade governments and Ministers to take this approach into international trade negotiating rounds in both the General Agreement of Tariffs and Trade (GATT) and subsequently in the World Trade Organisation (WTO).

The fact that the preamble of the GATT/WTO makes no mention of free trade and commits the membership to the idea of trade negotiations based on the idea of reciprocal mutually beneficial exchanges has been, and remains, an uncomfortable fact which current economic ideology prefers to ignore.

Australian exporters have paid a price for their government's commitment to this ideology: we have unilaterally reduced our trade barriers - often immediately in advance of major negotiations - and thus brought to the multilateral trade negotiating table no usable bargaining chips. No wonder we haven't made much headway.

Going back to the Whitlam days, the Department of Trade's warning about this folly went unheeded. Finally Labor, under Bob Hawke, was able to rid itself of this kind of uncomfortable advice.

Apart from trade policy, an independent Trade Department made a major contribution to the selling of Australia's exports through its trade promotion arm, which included the Trade Commissioner Service.

The benefits of this service were undermined by Labor when it abolished the trade promotion service and obliged exporters to bear the full cost of promoting exports. And it is possible to question the value of the self-funding approach to trade promotion by reference to a single example which was reported at the end of the Cole enquiry into AWB wheat sales to Iraq.

According to recent press reports, it has emerged that the Australian Wheat Board - on whose advice it is not clear - conveyed to the government that becoming part of the 'Coalition of the Willing' would help our wheat exports.

The idea was that if we did so, the Bush Administration would require US wheat exporters not to take away our share of the Iraqi market.

Whoever told the AWB this could not have known what they were talking out. The US has never handled trade policy in that way.

It has a separate Trade Department which forms its trade policy independently of the State Department and entirely on the basis of advancing the interest of US industries both at home and abroad. The pity is we are not doing the same.

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