The Bush Administration has produced a circuit-breaker for world trade reform at a critical time for global markets. Securing congressional approval for negotiating trade agreements, together with the US offer of massive cuts in farm subsidies, has stopped the rot that appeared to be hurtling the US into a new protectionist era. President Bush's authority to negotiate trade agreements covers both bilateral negotiations like those with Australia and the WTO multilateral Doha Round. The Administration has shifted the focus back onto agricultural protectionism and away from measures like "fair trade" and environmental add-ons that would constrain trade. More importantly, it has propelled the debate towards finding means of overcoming rather than excusing the wealth-sapping policy of farm subsidies.
The years since World War II have seen a remarkable freeing up of trade among nations. Trade restraint measures accumulated in almost every country over the century to 1945, have been dismantled over the past fifty years. With the important stand-out of agriculture, all but a handful of countries have reduced their trade barriers on goods to the equivalent of just a few percentage points.
The outcome has been massive benefits to consumers and widening growth opportunities to the Third World.
On top of the obvious advantages of cheaper goods displacing higher cost suppliers, lower trade barriers have brought on-going gains. Global competition and specialisation has brought to the world the economic stimulus of rival suppliers, each being forced on a global basis continuously to examine costs and hone their offerings to shifting customer needs.
With manufactures increasingly free of trade barriers, ensuring open markets for services has been a major agenda in more recent trade negotiations. And the signs are that services will also enjoy a relative lack of trade barriers.
Agriculture has been the main deviation from the trade liberalisation trend.
The European Union's Common Agricultural Policy is almost the EU's defining feature, and is certainly its most important cost. Indeed, the Europeans are making a virtue out of their agricultural morbidity: they are rejecting new technology like GM crops, and are toying with the idea of farmer subsidies to convert agricultural lands into environmental museums.
Japan has even greater problems with agricultural efficiency and also faces policy paralysis that prevents agricultural trade liberalisation.
These bulwarks to progress have long threatened to derail the trade liberalisation process. But it was US backsliding that was most menacing to progress, largely because the US has been philosophically, and not just pragmatically, a vocal supporter of free trade.
Because of this, the introduction of protectionist measures by the US over recent years has threatened to take us forward into the pre-1945 past. US measures have included a steady increase in anti-dumping actions, invariably a thinly veiled means of taxing low cost imports. US anti-dumping actions have risen from 40 per year during the 1980s to 300 per year.
Fuel to this apparent trend had been added by the Clinton-Gore flirtation with the anti-globalisation movement.
America's recent temporary protection measures on steel provided another indicator of the nation's backsliding. But it was the 67 per cent increase in most US crop subsidies built into the recent $200 billion farm bill that did most to knock the US off its high moral ground pedestal.
The offer to dismantle half of the subsidies is a major initiative through which Bush can yet prove his free trade credentials. Like Reagan before him, Bush campaigned as a free trader but introduced trade restraints early in his period of office (in Reagan's case the restraints were on Japanese cars). Like that of Reagan before him, Bush's inauspicious start can be reversed.
For Australia the stakes are high. ABARE estimates that halving world agricultural protection levels would bring a net $360 million a year bonus to our GDP.
Alongside our like-minded allies in the Cairns Group, Australia's challenge is to maintain agricultural reform high on the agenda and not let the Europeans (or the Americans for that matter) return the genie to the bottle. Dismantling our own crude protectionist measures that use quarantine as the excuse to keep out bananas, salmon and pork is one essential step necessary if we are to achieve the ethical consistency to fight our corner.
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