CONTENTS / BLOG (14), Just World Campaign

   MELBOURNE: We can't negotiate a genuine free trade agreement even with the United States, a close ally that claims to share the free trade faith. So what hope is there of negotiating a decent deal simultaneously with 146 other countries: rich, middling and poor, and lacking our zeal for dismantling our own trade barriers?
   To judge the agreement the World Trade Organisation adopted at the weekend as a framework for the Doha round negotiations to open up world trade, we have to accept that this is the art of the possible.
   As a framework for trade liberalisation in agriculture, it is clearly flawed. The promise of "substantial improvements in market access  . . . through deeper reductions in higher tariffs" is immediately undercut by a contrasting pledge of "flexibilities for sensitive products".
   Rice in Japan, beef in Europe, sugar in the US: they all have very high tariffs precisely because they are politically "sensitive products". So where does that leave us?
   Similar qualifications reappear throughout the road map for agriculture negotiated by Trade Minister Mark Vaile and his counterparts from the US, the European Union, Japan and Brazil, and now accepted by the WTO membership.
   What "sensitive products" mean, and how they will be treated, is all left to be thrashed out in the second half of the Doha round, beginning next month and probably lasting for several more years.
   The National Farmers Federation said it was "extremely disappointed". Labor's Stephen Conroy called it "a defeat for the Cairns Group". I beg to differ. In a negotiation of 147 countries, this was a solid achievement.
   Any framework at this stage of the negotiations is bound to have big gaps, because there is not the political will to close them. All the earlier drafts were far worse than this one. In the final two weeks of negotiations, the Australian team and its allies managed to close off every escape route except one - because without an escape route, there would be no deal.
   Apart from New Zealand and Singapore, virtually no other countries share our faith. They are happy when others reduce trade barriers, but don't want their own farmers exposed to more competition.
   Part of this reflects the political clout of sectors that benefit from high protection. But part reflects real concern at the rapid loss of small farms in countries such as France, where for centuries most people have been small farmers.
   Part reflects fears in countries such as Indonesia and India that their dirt-poor farmers could not compete with the scale, technology and subsidies that give huge competitive advantage to farmers in the West.
   And other countries know that their imports must be paid for by exports. Only Australia thinks it good economic management to run up trade deficits in 21 years out of 24 and pay for them by borrowing.
   If it's that hard to get these countries to open their markets, why bother? Because in actual and potential exports, even the US market is dwarfed by the massive size and growth opportunities of the world economy.
   In 2003-04, Australia sold $9 billion of goods to the US, and at best, modelling suggests the US trade agreement could add $2 billion a year to that. But we sold $100 billion of goods to the rest of the world, and a good outcome in the Doha round could add many billions to that.
   The US economy, like ours, has been inflated by 20 years of taking on debt, and faces a long and painful deflation ahead. The developing world will be home to most of the world's growth this century. To increase our part of it, we need a global deal to reduce trade barriers.
   Europe and Japan, facing steeply declining populations, also want access to growth markets. And they know they cannot get it without reducing the vast sums Western taxpayers and consumers spend on their farm sectors. The OECD estimates that at $A500 billion last year, or in nominal terms, more than the entire output of sub-Saharan Africa.
   But reforms are cutting that cost. In Europe, by 2013 direct subsidies to farmers as a share of output will be just half their 1994 levels. And it was the EU's backdowns in pledging to axe subsidies and drop demands for global agreements on investment, competition policy and government purchasing that allowed agreement in Geneva.
   For Australia and the developing countries, the framework agreed in Geneva was far better than that offered last year in Cancun. It focuses the WTO on its core job of opening up trade. It makes agriculture the main priority and locks in agreements to abolish export subsidies, make an immediate cut of 20 per cent in trade-distorting subsidies, and limit the scope for subsidies to be repackaged rather than reduced.
   The big issue from here on will be market access. On "sensitive products" such as sugar, all three superpowers use quotas with such high tariffs that only massive tariff cuts could make imports competitive. And these are precisely the products for which the WTO has now promised "flexibility".
   It means the negotiating road ahead will be long and tough. We will be heading in the right direction, but with a brake on.
   I suspect we will end up with a much better deal than the US trade agreement Labor is about to endorse.
* Tim Colebatch is economics editor of The Age, tcolebatch@theage.com.au # [Emphasis added]