Sydney Morning Herald | By John Garnaut | April 24, 2004
Bob Zoellick, US President George Bush's front man for trade, talks a lot about "competitive liberalisation".
Australian Trade Minister Mark Vaile, who talks a lot about what Zoellick talks about, has adopted the principle as his own.
The idea is that the World Trade Organisation talks that stalled in the later years of the Clinton Administration and imploded in Seattle in 1999, will be spurred back into life if countries first cut quality trade deals between themselves.
The free trade deals could be so good, so open, and so obviously beneficial that no country could afford to be left out.
The North American free trade zone would extend down through the Americas. China and Japan, and the rest of East Asia would be mad not to clamber on board.
APEC would become a platform for building a genuine Asia Pacific free trade system accounting for most of the world's production.
Ultimately, if it had the stomach to ditch its Common Agricultural Policy, Europe could choose to jump on board or wither in its own isolationist backwater.
The bilateral and multilateral talks would occur at the same time, moving towards the same multilateral objective. "We can walk and chew gum at the same time," says Vaile, borrowing another Zoellick phrase.
On one level, the competitive liberalisation program has already worked better than anyone expected. One hundred and fifty-four countries have now told the WTO they are negotiating bilateral or regional deals.
But most of the competitors seem to be racing for the bottom.
Rather than being the hub for sparkling deals with China, Japan and possibly Europe, Washington has become the centre for a cobweb of substandard deals that has frightened the economic powers back into their regional shells.
Fred Bergsten, who invented competitive liberalisation and outlined the blueprint seven years ago in Foreign Affairs, has returned to the journal to survey the damage.
"The Bush Administration . . . has pursued a coherent strategy of competitive liberalisation in which multilateral, regional, and bilateral agreements reinforce and catalyse on another," Bergsten wrote. "These efforts, however, have recently run aground, and potential conflicts with Europe and China darken the picture even more.
"[International] developments have put US trade policy, and hence the global trading system, in deep jeopardy and could start to reverse the profound benefits of globalisation."
In print, Bergsten graciously acknowledges the global troubles Washington has had to navigate. On the phone, however, his critique is aimed squarely at the Bush Administration and Bob Zoellick.
"My problem with Zoellick is that in applying the theory, he has devoted way too much time to countries so small that they don't really have any competitive liberalising pressure at all," he says.
"It's basically reward for good behaviour and co-operation. It goes back to Clinton but it's very clear under Bush.
"[The US trade deal with] Morocco was for Middle East political reasons. Central America was about pressure on Brazil. Obviously Australia, and now Bahrain. The statistical correlation is robust."
Like Clinton, Bush is also guilty of failing to stare down vested interests and has focused on minimising Congressional opposition rather than maximising support.
The result is that even minor bilateral trade deals that carve out difficult areas are struggling to get through Congress.
And those that do get through are hardly inspiring others to follow.
"There's been a lot of criticism here from free traders that the US has always said that its free trade agreement is the gold standard," Bergsten says. "We say the gold standard has become fairly tainted."
The recent deal with Australia the largest economy the US has negotiated with so far is the obvious example. It failed to deliver any meaningful liberalisation of agriculture, where trade barriers are highest and our own comparative advantages are strongest.
The US can take credit for building the world trading system after World War II and creating the conditions for half a century of unprecedented prosperity.
But experts like Bergsten fear Washington has turned its back with the job half done.
American farm protectionism has recently worsened and the US was unable, or unwilling, to keep the EU and developing world in the same tent for long enough in Cancun last year to keep the Doha round of WTO talks afloat.
Bergsten, who heads Washington's Institute for International Economics, says the US has to urgently change its course because "a unified Europe, a rising China and a new Asian bloc are shattering the final vestiges of US economic hegemony".
Committed multilateralists, who opposed preferential trade deals because of fears they would lead to where they have, share Bergsten's sense of urgency.
Ann Capling, director of Melbourne University's public policy and management program, says the trading system is riven almost as badly as it was in the 1930s when the UK carved out its own preferential empire, excluding Japan. It took a pair of atomic bombs to start putting the world back together again.
Capling says preferential agreements have left the multilateral WTO system so badly broken that everyone needs to start again.
She says the project for this century is to design a trading system from scratch and accommodate a post-Cold War world. But it is far from clear what the new architecture would look like.
Bergsten still hopes that inspired US leadership can meld the network of bilateral deals into an Asia-Pacific free trade zone.
That's what Vaile is praying for, too.
He sees that Beijing and South-East Asia have suddenly become the new centres of global trade discussions, with links extending now to India, Korea and Japan.
He is heartened by Beijing's enthusiastic response to the idea of an Australia-China bilateral deal, and excited about being invited to observe inside the ASEAN tent after waiting in the cold for so long.
But playing out the game theory, an Asia-Pacific trade bloc would require Washington to stand by patiently as Beijing cut deals with Australia and Japan which discriminated against American soybeans and semiconductors.
More difficult, it would ultimately require the US to override all sentiments of "strategic competition" and offer China an even-handed deal.
This may need to happen even at the same time that fundamentalist terrorism recedes and the US is looking for a new bogeyman.
It is beyond the hopes of many analysts.
The trajectory of China's trade growth, its relatively open economy and the recent memory of its officials masterfully inserting their way into the WTO despite American opposition, have convinced many Australian trade officials that the best hope is to stick with China.
They hope it has another 15-year game plan up its sleeve while competitive liberalisation spins out of control.Sydney Morning Herald:
