New world trade order

Issue

IT was the biggest news in world trade in years. Hours before the December 15, 1993 deadline, 116 countries finally reached agreement on the Uruguay round of GATT (the General Agreement on Tariff and Trade), which had com menced in the city of its name back in 1986. European Union trade com missioner Sir Leon Britain hailed the agreement as “a milestone in the history of world trade”. GATT director general Peter Sutherland seemed equally en thused, commenting that the deal was “a defining moment in modern economic and political history.”

Some people were less enthusiastic about the prospect of a new world order of trade. Prior to the conclusion of the round, French and Belgian farmers staged stormy protests against proposed changes to their subsided agriculture industries. Japanese rice growers also took to the streets to demonstrate against their government’s decision to open up the country’s rice market.

In the end the protesters only amounted to a vocal minority. The general consensus, expressed immedi ately after the talks ended and still current, is that the GATT agreement heralds a bright new age of world prosperity. The World Bank and the OECD back up this view, claiming that GATT will result in an extra US$2l3 billion of world trade every year. Not exactly peanuts in anyone’s language.

Fiji is the first Pacific island nation to become a member of GATT, having joined just last November. This does not mean it will be the only country in the region to feel the reverberations from the conclusion of the Uruguay round. All Pacific countries will be affected because they all trade in the world market place.

The question is whether they will be better or worse off under the new GATT

regime.

The power of GATT is undeniable.

Since its birth in Geneva in 1947 the volume of world trade has increased five fold and the size of the world economy has doubled. Embedded in the GATT philosphy is the concept of a “level playing field” in which countries trade on an equal basis. If one country wishes to extend special conditions of trade to another country, these conditions must be made available to other countries as well. Another central theme of GATT is the “freeing up” of trade and the consequent dismantling of trade barriers.

As a means of achieving this the previous seven rounds of talks have targeted tariff reduction. Average tariffs have fallen from 40 per cent in 1947 to 4.7 per cent today.

The latest version of GATT reveals developments in a number of important

areas. The agreement includes a new set of rules to govern markets in “services” in areas such as law, finance business and insurance. It creates new rules for intellectual property. It specifies a phasing-out of the multi-fibre arrange ment which previously set quotas on how much textiles and clothing countries could export. It outlines further cuts to tariffs of at least a third and singles out

tropical products for special reduction. It

calls for improvements in the way trade disputes are settled and for new measures to address the misuse of anti-dumping laws.

Just how these developments will affect Pacific islands is extremely hard to predict. There are signs that they may add up to good economic news. Further cuts in tariffs should make access to market easier, and the special attention to tariff reduction for tropical products may mean new opportunities. Some analysts also argue that developing countries will benefit from improved

All island countries will be affected because they all trade In the world market place. The. question is whether they will be better or worse off under the new GATT regime

mechanisms for dispute settlement and increased “transparency” of trade. There is also the argument that if Pacific island countries follow the lead of GATT countries and cut their own tariffs, they will be exposed to greater competition which will ultimately lead to greater productivity and efficiency.

Fiji’s recent membership of GATT is big news for the region and represents a bold move into the cut and thrust of world trade. The country’s Ministry of Commerce, Industry and Tourism says Fiji’s decision to join GATT “was made in the light of the anticipated long-term benefits to the Fiji economy from full GATT membership”. It believes the liberalisation of trade regimes of GATT member countries will create better market access for Fiji’s products in existing and potential export markets. It describes its membership of GATT as a “major step forward into the interna tional trading arena” and says the country will only achieve the levels of

growth required to bring full employ

ment and improved living standards

“through full and equal participation in

the global trade market.” Such partici pation includes a trade liberalisation process of its own which has involved a decrease in import licence controls and a reduction in tariffs from around 50% in 1989 to a current general maximum rate of 25 per cent.

While Fiji is confident that its entry into GATT will pay dividends, it also appears possible that GATT may harm Pacific countries. Matthew Powell, of the National Centre, for Development Studies at the Australian National Uni versity, believes there is general agree ment that the results of the Uruguay round will benefit the world as a whole and that this benefit will extend to developing countries as a whole.

He warns, however, that it may benefit some countries more than others and that some countries may end up worse off. He fears Pacific nations may fall into the latter category. “If any region in the world is going to be worse off as a result of GATT”, says Powell, “it is more likely to be the Pacific islands.”

Powell says the reason for this gloomy outlooks is the threat GATT poses to the trade agreements which govern much of the export trade of Pacific nations. These agreements give Pacific countries prefer ential access to overseas markets and are vital to export earnings. The “LOME” agreement, for instance, provides access to European Union markets. The best known example of its benefits is Fiji’s ability to sell its sugar to Europe at EU internal prices (normally more than double the world price). Another trade

agreement, SPARTECA, gives Pacific

countries duty free access to Australian and New Zealand markets.

While such agreements provide import ant benefits to Pacific Island countries they are clearly contrary to the “level playing field” philosophy of GATT under which no

country or region should enjoy privileges

ahead of another. Powell believes there is no immediate danger of Pacific island trade agreement being axed, but if GATT were to be strictly enforced, other countries with less preferential access to markets may question these agreements. He says the latest round of GATT means trade agree ments such as LOME annd SPARTECA will increasingly be placed under scrutiny and-it is under whether they will last into the next century.

Difference in opinion about how GATT may affect Pacific nations simply demon strates that there is no clear answer. What is clear, however, is the inevitable path of GATT towards trade on and ever more even playing field under increasingly uni form rules for all the players. □