australia's relations with gatt*

Australia’s Relations with GATT* R. H. SNAPE

Monash University, Clayton, Victoria 3168

Australia’s exports have not been well looked after under the GATT, and Australian governments have not been enthusiastic regarding some GATT activities and principles. Australia’s interests a p p r to lie strongly with a re-establishment of GA TT principles and an opening of the international trading system. In this it has a common interest with other primary product exporters and with many newly industrialized countries. A joint initiative could be helpful.

I Introduction Much criticism of GATT (the General Agree-

ment on Tariffs and Trade) has emanated from Australia over the past thirty-odd years, and at times Australian governments have contemplated withdrawal from it.’ The Australian government, a lone among t h e cont rac t ing par t ies , disassociated itself from the Ministerial Declara- tion at the completion of the November 1982 GATT Ministerial Meeting. This disassociation was related to the refusal of the trade ministers of major trading countries to commit themselves strongly to any specific policy of reversing, or even resisting, growing protection, despite their recognition of the dangers of this protection.

In past years Australian criticism has been directed at the inability of the rounds of trade

This paper is a revised and condensed version of the Giblin memorial lecture delivered at the Fifty-third ANZAAS Congress in Perth. For comments I am indebted to Gary Sampson, Sir John Crawford, Peter Lloyd, Andrew Farran. Anne Krueger, Isaiah Frank, Bob Gregory, Dietrich Fausten, John McDonnell, KO Doeleman and referees.

Where reference is made to the Agreement, rather than to the contracting parties to GATT or to the GATT Secretariat, the term ’the General Agreement’ is used in this paper.

negotiations conducted under the provisions of the General Agreement to ensure the retention or opening of access for Australian exporters to foreign markets and also, somewhat inconsistent- ly, at the constraints which being a contracting party to the General Agreement has appeared to plape on Australia’s own trading policies. There is no doubt that many of Australia’s export industries have not fared as well as they could reasonably have expected when Australia signed the Agreement in 1947, and the dispute-settlement procedure has, on some important occasions, been unsatisfactory in ways which have been to Australia’s disadvantage (Teese, 1982). But, equally, it can be argued that Australia has not joined to any significant extent in the tariff reductions negotiated by the contracting parties, and has not really subscribed to all the principles which underly the General Agreement.

The fact that Australia has a marked com- parative advantage in the production of several minerals and agricultural products could lead one to expect that a high proportion of its gross domestic product would be exported and a similarly high proportion of national income ex- pended on imports. But the statistical evidence does not support this view: by world standards, and for its size, Australia is far from being a large trading nation. For a number of developed countries Anderson and Garnaut (forthcoming,

1984 AUSTRALIAN AND GATT 17

Chapter 2) compare the proportion of exports plus imports of goods and non-factor services to gross domestic product with the level of gross domestic product. As one would expect, there is a considerable dispersion but also a negative cor- relation, the latter supporting the hypothesis that the larger the economy, the less important would international trade tend to be. Australia, with exports plus imports of around 30 per cent of GDP in the 197Os, has a significantly lower proportion than one would expect for a country of its economic size. Furthermore, while as a proportion of GDP, exports plus imports have been increasing for most other developed countries over the last thirty-odd years, for Australia the proportion has been falling. Of the 16 developed countries for which data are listed by Anderson and Garnaut. in the 1970s only Japan and the United States had lower ratios than Australia; in the 19SOs, France, West Germany and Italy were also below the Australian ratio.

The movement of the Australian ratio against the trend is no doubt attributable in part to the maintenance, and increase in, the barriers facing Australia’s agricultural exports; it is also attributable to the virtual refusal, apart from the lifting of import quotas in 1960 and the 25 per cent tariff cut in 1973, of Australia to join in the substantial reduction in the barriers to trade in most industrial products undertaken by other developed countries. Australia’s relatively high tariff barriers are supplemented in the most sen- sitive areas by non-tariff measures. Thus on both sides of Australia’s trade there are major impediments. impediments that are proving exceptionally difficult to move.

Australia’s interests appear to lie very much in the extension-or at least the preservation of what is left-of the open, multilateral trading system that underlies the General Agreement. Such a system protects the interests of small countries in particular, although all would lose from the decline in international trade that would ac- company any general extention of trading barriers and distortions. In the following sections, attention is given to Australia’s historical relationships with GATT, to the gains to be obtained from a set of international trading rules, and to some of the benefits which Australia may obtain by a greater commitment to the principles which form the foundation of the General Agreement.

II Principles and History .Although the General Agreement, like any

other international agreement, is the product of compromise, it is also the product of the inter-war experience of trade restriction, bilateralism and uncertainty. This experience, and the leadership of the United States State Department, lead it to being based on the principles of non- discrimination, stability, transparency and Liberality in trading relations. These principles gain expression in the unconditional most- favoured-nation (MFN) rule, the adoption of tariffs as, in general, the sole ‘authorized‘ form of frontier protection, and the binding of tariff rates.’ The principles and the General Agreement imply some surrender of national sovereignty in trade matters for the general good. The very essence of a useful international law is that it restrains national governments from acting in ways which may serve their own short-term purposes but which will be to the detriment of others, and also against their own longer term interests.

In considering Australia’s attitude to the principles underlying the General Agreement, attention is given to non-discrimination, tariffs and transparency, and trade negotiations and the binding of tariffs. Non-discrimination Non-discrimination. often described as the cor- nerstone of the General Agreement, is expressed in Article I in terms of unconditional MFN treatment for contracting parties. Its essence can be expressed as ‘do unto all as you do to your best friend’. The possible advantages of unconditional MFN may be summarized’:

Tariffs are ‘bound’ at rounds of negotiations conducted among the contracting parties to the General Agreement. ‘Binding’ is an undertaking not to increase tariffs above the ‘bound‘ levels.

Harry Johnson (1976, pp. 30-1) says of non- discrimination: ‘That principle has abolsutely nothing to recommend it on grounds of either economic theory or the realities of international commercial diplomacy’, but nevertheless he endorses it as the best principle available. A classic statement may be found in Jacob Viner, ‘The Most-Favored-Nation Clause’, reprinted as Chapter 5 in Viner (1951). The following quotation from this article sounds very contemporary:

But although the most-favored-nation principle still survives, it is no longer accepted as a matter of routine that the tariff relations between friendly countries should be governed by that principle, and departures from the principle are at the present moment more widespread and more important than at any time in the last century. It is quite apparent also that the idea of its general abandonment . . . is now receiving serious consideration in many

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(a) It allows the production of goods and services to occur where costs are lowest, with the exception of the production that occurs within the country imposing the barriers. The argument here is the same as in the customs union literature, with a distinction between trade creation, and trade diversion. Any one country, by forsaking discrimination, may raise or lower its economic welfare, depen- ding on the particular circumstances; the result for particular countries and for the trading world as a whole will depend in part on whether barriers tend to be generally lower or higher with MFN than with preferential arrangements. Perhaps the strongest argument for unconditional MFN is the bilaterialism and trade warfare that developed as it was abandoned in the 1930s.

(b) It allows for the entry of new exporters on equal terms with the old. This is really an aspect of the previous point, with a time dimension. But it requires emphasis, for fre- quently bilateral o r preferential arrangements make reasonable provision for existing exporters, but at the same time deter new participants.

(c) It helps to de-politicize trade. Examples abound of the interconnection of political favour and economic preferences, and the withdrawal of the latter with the waning of the former.

(d) It contributes to administrative efficiency, both in tariff negotiations and the ad- ministration of tariff schedules.

In the negotiations leading to the formation of GATT the United States, having been discriminated against through the Imperial Preferences introduced under the Ottawa Agree- ment, and conscious of the impact of other departures from MFN in the 193Os, including the discrimination by it and other countries against Japan, pressed hard for the elimination of preferences (Gardner, 1%9, Chaps 1 and 11; Pat-

quarters. (Cf. the “new reciprocity” in the U.S., the Multi-Fibre Arrangements and the European enthusiasm for a discriminatory safeguard provision in the General Agrerment.) The most-favored-nation principle now appears to be definitely on the defensive, and, while it has shown great survival power in the past, there is no ground for assurance that a concerted attack on it in which a number of countries participated simultaneously would not put an end to the dominance of the principle of equality of treatment in tariff matters [p. 961. See also Haberler [1936, Chapter XXI].

terson, 1966, Chap I). An exception was proposed for those preferential systems that completely abolished trade barriers among participants: that is, free trade areas and customs unions. Though there is no clear logical basis for allowing customs unions and free trade areas but not other preferential arrangements, it was thought at the time that the abolition of barriers among groups of countries was a marked step towards freer trade in general.‘ Britain opposed the abandonment of preferences (Gardner, 1969, Chap. VIII). Despite Article VII of the Mutual Aid Agreement of 1942, which was signed by the United States and Commonwealth governments and which provided for ‘the elimination of all forms of discriminatory treatment in international com- merce’ and ’the reduction of tariffs and other trade barriers’, Britain insisted on the preservation of Imperial Preference in the charter for the intended International Trade Organization and in the General Agreement (Dam, 1970, pp. 42-3). Australia endorsed Britain’s position and the Australian delegate at the drafting committee ‘could not agree that the inclusion of the most- favoured-nation provision . . . was necessary’ (cited by Curzon, 1965, p. 61). Ultimately it was agreed to bind margins of preferences at levels that existed at an agreed date-in most cases April 1M7. At one end of the spectrum was the American proposal for an elimination of preferences; at the other end was an Australian proposal that would have permitted increased preferential margins if they had been agreed in GATT tariff negotiations.’ In introducing the In-

‘ Isaiah Frank has suggested that the explanation for the distinction between customs unions and free trade a r e a s on the one hand and preferential arrangements on the other, was that the latter tend to be selective in a manner that diverts rather than creates trade, whereas the former do not have the same bias in favour of trade diversion. The history of discriminatory trade arrangements appears to support this view of their effects.

A similar move was made by Australia in the GATT Review of 1954-55 and it was again rejected; on this occasion Australia’s initiative was not even supported by other major members of the Commonwealth (GATT, 1955, p. 207; Crawford, 1968, p. 130; J . McEwen, Partiamentory Debates, House of Representatives, 2 June 1955, pp. 1410-1 I). Crawford later claimed that ‘All major developments in Australian post-war trade policy, at least up to the late 1950’s, can be traced back to the commitment to Article VII.’ though in a footnote he allows that the high Australian tariffs were not consistent with the spirit of the Article (Crawford, 1%8, p. 8).

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ternational Trade Organization Bill to the parliament in 1948, the responsible minister (J.J. Ded- man) emphasized that (infer a h ) the Australian delegation sought to establish that Com- monwealth Preferences should be ‘a recognized exception to the general most-favoured-nation principle’. The then Leader of the Opposition (R. G. Menzies) had some time earlier persuasively argued against the most-favoured-nation principle. and in favour of the retention of Com- monwealth Preferences (Crawford, 1968, pp. 60-3, and p. 77).

Since the original contracting parties signed the General Agreement, the three major new departures from the unconditional MFN principle (apart from those allowed within the existing rules, such as the European Fret Trade Area and the European Common Market) have been the introduction of special and differential treatment for developing countries, the successive arrangements for clothing and textiles, and the ‘conditional’ attitude of several countries towards the Codes negotiated as part of the Tokyo round of trade negotiations. Developing countries have received differential treatment in the General Agreement from the outset‘ and Part IV of the Agreement, introduced in 1%5, makes additional special provision for them. But these Articles have been more of symbolic than substantive value (Dam, 1970, pp. 236-42). Of more impor- tance in practice is that in successive GATT rounds of tariff bindings and reductions, developing countries have been discriminated against in terms of product selection. Agricultural products-many of them being of vital interest to developing countries as well as to Australia- have been excluded; manufactured products of interest to developing countries have had less than average tariff reductions by developed countries, and bilateral export restraint arrangements- many of them legitimized first by the Short-Term and then the Long-Term Cotton Textile Ar- rangements and latterly under the Multi-Fibre Ar- rangements (these being derogations of the General Agreements, - have in any case for many countries rendered these tariffs redundant. Tariff escalation,

‘ Article XVIII takes a relatively permissive approach to the imposition of tariffs by developing countries for purposes of encouraging import-substitution, and to import quotas imposed in attempts to remedy balance of payments problems. But in practice this Article has been used rarely (Dam, 1970, pp. 227-8).

so that processing is discriminated against in primary exporting countries, has persisted.

Having been excluded from much of the product coverage of the negotiated tariff reductions conducted by the contracting parties, developing countries have sought and obtained further favourable special and differential treatment. The most important examples of this, apart from the arrangements between the EEC and the ex- colonies of its members, are the arrangements concluded under the Generalized System of Preferences (GSP). These schemes were introduced following the second UNCTAD Conference in 1%8, under a waiver of the MFN clause. The benefits to developing countries of this preferential treatment are generally judged to be rather limited.’

Australia supported the differential treatment of developing countries when the General Agree- ment and the charter for the International Trade Organization were being negotiated.’ Australia also played a leading role in initiating the preferential arrangements: though not a party to the GSP, it introduced its own preferential arrangements under a waiver from the relevant Ar- ticles of the General Agreement in 1965. Significantly, Australia adopted the preferential arrangement at the same time as it refused to ac- cept fully the new Article XXXVII. The problem section of the Article was that which requires agreement to refrain ’to the fullest extent possible’ from increasing barriers to products of export in-

’ See Baldwin and Murray (1977) and Birnberg (1979). For an alternative view see Helleiner (1981, pp. 84-90). In the ‘Codes’ and ‘Framework Agreement’ concluded in 1979, discriminatory provisions are made for developing countries in relation to subsidies and countervailing duties, government procurement, technical barriers to trade, customs valuation, and safe- guarding the balance of payments, provisions that would enable these countries to adopt practices debarred for developed countries. Dcvclopcd countries are encouraged not to seek ‘concessions’ from developing countries ‘inconsistent with their needs’, and to give favourable treatment to developing countries in the allocation of import licences. See Frank (1981, Chap. 2).

The Australian government was particularly concerned with the maintenance of full employment, and thus with the demand for imports, in its major markets. Its concern for developing countries was at least partly based on self-interest: ‘by raising living standards in these territories to increase the demand for imported goods’ (Dedman in Crawford, 1968, p. 78).

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terest to developing countries. The phrase ’to the fullest extent possible’ is a sufficient escape to make the Article of little consequence, but Australia took a more open path of disassociation.

In another departure from the MFN principle of the General Agreements in 1%5 Australia signed with New Zealand the New Zealand-Australia Free Trade Area Agreement.’ In more recent times Australia and New Zealand have signed the Closer Economic Relations (CER) Agreement which is much closer than the earlier agreement to fulfilling the specifications of the General Agree- ment for a free trade area (Thomas, 1983; In- dustries Assistance Commission, 1982, Appendix 3.1). In addition, Australia and New Zealand have joined other countries in the South Pacific Regional Trade and Economic Co-operation Agreement (SPARTECA). Preferential arrangements also continue with Papua New Guinea, Malaysia and a number of other countries.

Thus it would appear that Australia has not been particularly enthusiastic regarding non- discrimination, either in its own behaviour or in its attitude to the General Agreement. Recently, however, there have been a number of signs of support for the principle. One is in Australia’s withdrawal from the Multi-Fibre Arrangement which provides for bilateral restraint arrangements that by their very nature are discriminatory between countries. In contrast, Australia now uses global quotas for restraints of clothing, textile and footwear imports. On the one hand these can be less favourable to exporters in that they tend to ensure that the economic rent from trade restriction is retained in Australia; on the other they allow for the entry of new exporters as they become more competitive with old. Another recent endorsement of the MF” principle is in Australia’s support for developing countries in the Tokyo round of trade negotiations, in rejecting a European initiative that the main ‘safeguard’ provision of the General Agreement (Article XIX) should be amended or applied in a manner that would selectively discriminate against imports according to source. A third example relates to the Codes negotiated during the

’ I t can be argued that this Agreement was contrary to the Articles of the General Agreement as well to the non-discrimination spirit (See D. J. Thomas, 1976; Dam, 1970, p. 283).

Tokyo round. Generally the American position has been that the Codes should be applied, by signatories, only to other signatories to the relevant Code. This represents a movement towards conditional, rather than unconditional, MFN treatment (Hufbauer, Erb and Starr, 1980, especially pp. 59-70). Both during the negotiations of the Codes and subsequently Australia has resisted this position, and has been advancing the primacy of the principle of nondiscrimination, as specified in Article I of the General Agreement.

Tariffs and Transparency While there are exceptions written into the Ar-

ticles, particularly with respect to developing countries and in the presence of balance of payments difficulties, the General Agreement ex- presses a clear preference for tariffs as the sole form of border protection, and antipathy towards quantitative restrictions: Article XI is entitled ‘Genera l El imina t ion of Quan t i t a t ive Restrictions’.

The reason for the preference for tariffs is obvious: transparency is one of the underlying principles of the General Agreement and tariffs are a relatively transparent form of protection. With tariffs the size of the barrier to be surmounted is clear to exporters in other countries, unlike many non-tariff barriers. The extent of protection is obvious to domestic residents also, unlike import quotas and other administrative barriers which can often give exceptionally high but camouflag- ed levels of protection. Tariffs are rather less sub- ject to administrative interpretation than some other forms of protection and clear exposure of transgressions, as occurs with visible barriers, tends to increase the pressure to conform to the rules. There is also the advantage, from the point of view of contracting parties to GATT, that it is relatively easy to negotiate in terms of tariffs, as compared with other trade barriers, and to ‘bind’ the results of these negotiations. A further advantage of tariffs, again in terms of the liberality principles of the General Agreement, is that tariffs do not tend to insulate the protected industry to the same extent as. say, variable import levies or import quotas, against changes in com- parative advantage or disturbances related to seasonal or cyclical conditions in the rest of the world.

Until the 1970s procedures enshrined in the General Agreement were in general successful (as


was the Organization for European Economic Cooperation in the 1950s) in bringing developed- country contracting parties to move away from non-tariff barriers and towards tariffs. With the easing of currency and balance of payments problems through the 195Os, the use of the quantitative restrictions on imports, which are allowed by the General Agreement in these circumstances, tended to disappear. (Australia was most keen in the 1954-55 GATT Review that the provisions for the use of such restrictions be retained [Crawford. 1%. p. 161; White Paper o,n GATT Review, 1955, para. 71.) The two big exceptions to the reduction of non-tariff barriers until the last decade were in agriculture and cotton textiles and clothing. In more recent times non-tariff barriers have been proliferating: the type of arrangement introduced for cotton textiles and clothing has spread to other fibres, and the management of trade is spreading to other commodities, particularly those which are the product of capital in- tensive but geriatric industries in developed countries.

With regard to agriculture, the General Agree- ment itself distinguishes little between trade in agricultural and industrial products. It is ironic that the Review session of GATT in 1954-55, which was initiated largely to obtain more satisfactory treatment of agriculture, ended with its virtual withdrawal from coverage by the General Agreement. Australia took a keen interest in Article XVI (which concerns subsidies on exports) in the GATT Review and obtained the explicit inclusion of primary products and provisions regarding surplus disposal (Crawford. 1%8, pp. 141, 152-4 and 160-1; White Paper on GATT Review, 1955; GATT, 1955, pp. 229-30). However the introduction of a note to Article XVI, which permits the type of agricultural price stabilization scheme operated by Australia for many commodities, so long as export prices can on occasion rise above domestic prices, would appear to weaken very significantly the stand against export subsidies for agriculture."

The apparent tightening of conditions relating to export subsidies on agriculture was more thoroughly undermined, however, by another action. The crucial decision taken by the contracting

I * Ad Article XVI, Section B, Paragraph 3(2). A comment by J . McEwen. Parliamentary Debates, House of Representatives, 2 June 1955, p. 1410, is relevant.

parties with respect to agriculture was the waiver from its obligations under the General Agreement granted to the United States in 1955 (Dam, 1970, pp. 260-1). Australia apparently agreed to this waiver as it appeared a necessary condition to re- tain the United States as a contracting party (Crawford, 1%8, p. 404; J. McEwen, Parliamen- tary Debates. House of Representatives, 2 June 1955, p. 1412). Some other countries also obtained waivers to maintain non-tariff barriers to agricultural products; others just maintained the barriers in apparent violation of the General Agreement.

Although Australia has been a leading advocate for bringing agriculture within the disciplines of the General Agreement - the latest episode being the sugar dispute with the EEC (Teese, 1982)- Australia itself continues to maintain non-tariff barriers to agricultural imports which in many cases must be of doubtful legitimacy." As examples: there is a variable import levy on orange juice; sugar imports are prohibited; home- price schemes continue to subsidize exports of many products; and many suspect that some quarantine regulations are designed to protect more than the flora and fauna of the land. In addition, several major agricultural products have been excluded by Australia from the free trade provisions of the Closer Economic Relations Agreement with New Zealand (Thomas, 1983, pp. 62ff).

As noted above, the other major area that has been extracted from the coverage of the General Agreement and which has major implications for the non-discrimination principle of the General Agreement as well as for non-tariff barriers. is clothing and textiles. Here, as with agriculture, the United States led the formal extraction from coverage by the General Agreement both with regard to the f i s t Cotton Textile Arrangements of 1961 and 1962, and the first Multi-Fibre Arrange- ment of 1973. The conclusion of these arrangements (i.e. the exemption of these products from negotiated tariff reductions) provided the political means by which the United States could obtain legislative backing for the Kennedy and Tokyo rounds of trade negotiations, respectively.

Rather than being a party to the MFA, Australia

I ' Industries Assistance Commission (1983). This matter was raised by the EEC in the context of Australia's complaint against the sugar policies of the Community (GATT, 1980, pp. 299-300).

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now imposes quantitative restrictions on textiles and clothing under the relevant safeguard provision of the General Agreement (Article XIX). As mentioned above, and unlike the MFA. such action is now operating within the non- discrimination principle of the General Agree- ment. On the other hand, the safeguard provisions, which refer to ‘emergency action’, were not designed for the longer term protective purposes being hung on them by Australia for textiles, clothing, footwear and motor vehicles (Lloyd, 1976, pp. 264-5).

For industrial products Australia was relatively clean with regard to the use of non-tariff barriers between 1960, when import quotas were removed, and 197475 when import licensing or tariff quotas were introduced for clothing, textiles, footwear, motor vehicles and some other products. ‘Relatively clean’ does not mean lily-white, however. Some temporary barriers had been imposed following recommendations of the relevant authority (then termed the Special Advisory Authority), and there were many other excep tions, as Lloyd (1973) has catalogued and analyz- ed. The Industries Assistance Commission has recently reminded us that not all changes in the level of protection pass through it for advice. and that many of the administrative procedures in ex- istence can act as non-tariff barriers (Industries Assistance Commission, 1982, Chap. 3).

Perhaps the area in which Australia’s adherence to the spirit underlying the General Agreement is most marked-probably more so than any other country -is in the transparency of its protection. The Act, procedures and personnel of the In- dustries Assistance Commission are all responsible: the principle of public scrutiny has had no greater supporter in Australia.‘l

Tariff Negotiations and Binding The General Agreement provides for the ar-

rangement of trade negotiations with a view to securing reductions of tariffs and the binding of tariffs at agreed levels. There have been seven rounds of such negotiations. Until the Kennedy Round (1964-67). tariff bindings and ‘conces- sional’ reciprocal reductions of barriers were bargained in a bilateral manner on particular pro-

‘ I The principle was elaborated in an earlier Giblin memorial address by the Chairman of the Tariff Board, Mr G. A. Rattigan (1971).

ducts and then generalized on an MFN basis. The selection of products for negotiation and the negotiating procedures have been such as to con- tain the ‘gifts’ to free-riders, though as MFN reductions are of value to future as well as to existing exporters of the relevant products, free- riding cannot be wholly excluded. The Kennedy and Tokyo (1973-79) rounds of negotiations achieved wider coverage than the earlier rounds by securing agreement on formula-based general reductions in tariffs (though with negotiated exceptions), again with MFN extension to those contracting parties members not fully par- ticipating in the negotiations and reductions.

Throughout the whole period of negotiations Australia has been a most reluctant participant, both with respect to reducing tariffs and binding either existing or reduced tariffs. Australia did not participate in the application of the formula, across the board, reductions in either the Kennedy or Tokyo rounds. It appears that Australia, even after the Tokyo round, has bound only about a fifth of its tariffs-a very much smaller proportion than most other developed countries. Moreover, the tariff reductions offered by Australia have been minimal and appear mainly to have been the gradual erosion of preferential rates on British goods.” For the Kennedy round it has been estimated that the tariff concessions made by Australia related to only about 4 per cent of imports, while other countries’ concessions related to 14 per cent of Australia’s exports (Lloyd, 1975, p. 156; Crawford. 1%8, p. 615). With respect to the Tokyo round Australia claimed credit for its unilateral tariff reduction made prior to the commencement of the negotiations and instead of applying the agreed formula- reduction of tariffs, concluded bilateral ‘set- tlements’ with the EEC, Japan and the United States. Its attitude was well illustrated by Mr An- thony’s Ministerial Statement:

Australia . . . agreed in the bilateral negotiations to bind against increasing the tariff rates on about 120 tariff headings or parts of tariff headings covering agricultural and industrial products. With the exception of three

’’ It is not clear (even to the Industries Assistance Commission) whether the small adjustments in tariffs following the devaluation of the Australian dollar in 1976 were to be bound under the Multilateral Trade Negotiations (Industries Assistance Commission, 1982, p. 36, n. 12).


items - namely tobacco, certain fancy cheese and an item relating to frozen poultry-the tariff rates are at or above current applied rates. This means that Australia has achieved a meaningful and advantageous settlement with the United States, EEC and Japan without reducing the current level of tariff protection on a single tariff item applicable to any manufacturing industry. In practical terms this means that the Government has been able to secure its major industrial tariff objective for the Multilateral Trade Negotiations of gaining full and off-setting benefits for the 25 per cent tariff cut implemented in 1973. This was, I believe-I am sure industry agrees with me-a commendable result . . . Australia also agreed in the context of negotiations with developing countries to bind some 40 tariff items (Parliamentary Debates, House of Represen- tatives, 21 November 1979, pp. 3280-1). As well as providing for tariff negotiations and

binding, the General Agreement also provides for the ‘unbinding’ of concessions previously made. At the Review of GATT in 1954-55, a major objective of Australia was to secure ‘greater flexibili- ty to adjust “bound” tariff rates for developmen- tal needs’ (White Paper on GATT Review, 1955, para, 6). It succeeded in obtaining changes to the ’unbinding’ provision (Article XXVIII) which are regarded as favouring countries such as Australia (Crawford, 1968. pp. 130, n. 8, 132, and 159-60). Indeed, the responsible Minister (J. McEwen) suggested that the wording of the provision had ‘an almost exclusive application to Australia’ (Parliamentary Debates, House of Represent- tatives, 2 June 1955, p. 1411). Despite the relatively low proportion of Australian tariffs which are bound, Australia has used the unbinding provisions from time to time (Vernon et al., 1965, Vol. 1, para. 12.55 and footnote). Both in this, and in use of the Safeguard Article XIX (which is another way of essentially unbinding), Australia has been a major user of the General Agreement (Jackson, 1%9. p. 566).

In summary, it would not seem unfair to judge Australia as having exhibited a very moderate commitment to basic principles underlying the General Agreement - with the exception of transparency- but rather more commitment to the legality. But it can be argued that the General Agreement is only of value if the basic principles are preserved. It would seem that Australia has contributed significantly to a weakening of some

of these principles - particularly through its attitude to non-discrimination, negotiated tariff reductions, and tariff binding-and to that extent shares some of the blame for the state in which the international trading system now finds itself. If Australia over past decades had been more enthusiastic regarding the principles underlying the General Agreement and had built a better reputa- tion in this regard, it is possible that the important protection ‘standstill and windback’ initiatives of Australia in 1982 may have received a better reception. On the other hand, there is no denying that Australia has been very poorly treated by some other contracting parties in relation to agricultural products, though even in agriculture Australia’s own hands are not spotless.

III Australia’s Protection Policies The declared reasons for Australia’s concern

with the tariff reduction, binding and unbinding procedures of the General Agreement lie in a desire to preserve national autonomy in relation to protection decisions, and particularly in the light of the procedures which Australia has for determining what are regarded as ‘appropriate’ levels of protection for its industries. Until the mid-I970s, much was also made by the government of the midway concept (Arndt, 1965). which was that although Australia was not a poor country, many of Australia’s secondary industries were in their infancy, or as yet unborn. In Mr McEwen’s words,

My Government would want to be satisfied that, when necessary, action could be taken to protect Australian domestic industries, particularly those in early stages of development. Study of Australia’s tariff making policy will show that the procedure of periodic renegotia- tion of concessions followed by firm binding of the concessions for fixed periods is wholly un- suited to Australia’s requirements.“

Independence, the supposed benefits of protec- ting infant industries, and perhaps a degree of mercantilism- not to mention domestic politics-all pointed in the same direction. This was reinforced by the negotiation perspective- a

“ J . McEwen speaking at the Plenary Session of GATT in November 1954. cited in Crawford (1968, p. 152; also Arndt. 1965).

MARCH 24 THE ECONOMIC RECORD

reluctance to give up barriers to imports while there is a possibility of using them as bargaining counters in negotiations over barriers to agricultural exports.

In recent years there appears to have been much greater Australian public and political acceptance of the economic case for more liberal trading policies than 20 or 30 years ago. Public and political attention has turned rather more to the political problems of securing reductions in protection levels and to facilitating the movement of factors of production out of highly protected industries. This has been an important (though not consistent) theme in the major reports during the 1970s on industry assistance: the Green Paper on Manufacturing Industry (1975). the White Paper on Manufacturing Industry (1977). and the Report of the Study Group on Structural Adjust- ment (1979).

In a development of his work on collective choice, Mancur Olson (1982) has argued that the formation of distributive coalitions, and their success in resisting change, is an important con- tributing element to the ‘decline of nations’. He sees Australia, being a stable society inheriting many British traditions, as one of the countries particularly suited to the growth of these coalitions. Seeking the granting or continuation of industry assistance is, of course, ideal territory for such coalitions to form. In general the conditions are much less suited for the formation of coalitions of those opposing the assistance, the reason being the familiar one of concentrated gains from the assistance with diffused costs. This suggests that - except perhaps at times of high unemploy- ment - reductions of protection are more likely to occur when the protective structure as a whole is being considered rather than the protection of an individual industry. The two significant reductions in protection in Australia during the 1970s-the 25 per cent tariff cut in 1973 and the much smaller adjustments after the 1976 devaluation-both occurred in such circumstances. It would appear that Australia has not yet really utilized the external constraints that are available from a commitment to the principles of the General Agreement and to its rounds of trade negotiations as a means to enable politicians to resist, in the general interest, the pressure of coalitions seeking the preservation or extension of protection for particular industries.

The suggestion that the Australian government should seek to constrain its day-to-day autonomy in industry assistance matters so as to bolster its

defence of the general interest may seem to under- mine the Industry Assistance Commission’s authority. Certainly the commission is concerned, rightly, with its position in a system in which recommendations are coming from several quarters (Industries Assistance Commission, 1982, Ch. 3). However, there should not be any great problem for the IAC from greater commitment by Australia to the principles of the General Agreement, particularly as these principles appear to be quite consistent with the general stance of the IAC. The IAC could well be involved more in the preparations for trade negotiations and could be required to take into account whether tariffs are bound when it is undertaking an inquiry into the protection of particular industries.

IV Should GATT be Preserved? One could take a view that the type of open

trading system envisaged by the architects of the General Agreement is a thing of the past: (i) the industrial countries are now showing that they will adhere to an open system only to the extent that their own exporting industries receive benefit and even then they subsidize exports of ailing industries; (ii) the centrally planned countries have some interest in the General Agreement to the extent that it constrains the behaviour of other countries towards them, but are constrained very little by it themselves; (iii) the developing countries. having been discriminated against, have sought and obtained favourable special and differential treatment; and (iv) the General Agree- ment is being rendered obsolete by product- specific arrangements. Some go so far as to argue that ‘general trade policy-that is, policy as it was traditionally conducted, by relatively simple measures of general application - has virtually ceased to exist’ (Tumlir, 1982, p. 32).

Why should there be a set of international trading rules? After all, world trade appeared to get on rather well without such rules until the 1930s. Compared with earlier days, however, the nature of international trade does appear to have changed somewhat, with greater emphasis on the two-way exchange of manufactured products. The expansion of manufacturing, and now services, into international markets in this century is akin to the expansion into national markets in the industrial countries in the 19th century. It is in comparing international trade with domestic trade that reasons for a set of rules can be found.


Of course, there are differences between the man- ners in which international rules and national rules are agreed upon by those who are to be bound by them and, particularly, in the ability of those who do not approve of the agreed set of rules to contract out. The latter point has particular relevance to enforcement.

Thus, reasons why a set of international rules may be desirable centre on the protection of the weak, the reduction of disputes and the resolution of disputes, when they occur, at low cost." Rules reduce uncertainty and constrain the pursuit of individual advantage where it would conflict with the general welfare. Thus, adherence to international trading rules can provide a means by which trading disputes can be avoided or settled without resort to mutually harmful trade warfare; they can provide a framework in which economically or pditically weak countries share more than otherwise in the benefits of trading when they engage in transactions with the strong and power- ful; and they can reduce uncertainty in international trade and thus provide more confidence for planning international transactions. International rules can constrain individual action for the general good at the domestic as well as the international level and this, in practice, is perhaps one of the most important advantages for large countries. As noted above, however, it could also be important for smaller countries such as Australia.

For these reasons, then, there appears to be a good case for international rules, even though the capability of enforcement is less than that for national laws. The rules can be general or specific. The General Agreement is an attempt to make general rules based on multilateral, liberal trading arrangements, with defined exceptions."

One could take an approach that international

I' Some attention to this question is given in John H. Jackson (1980, particularly pp. 25-8).

I' It is possible to conceive of a generuf set of rules that is at the opposite pole from those of the General Agreement. They would be based on the prohibition of trade, with specified exceptions where trade can occur. This appears to be the approach for trade within the CMEA trading bloc. While an individual country may take this as its approach to international trade (and it is implied by many countries' foreign exchange regulations), and groups of centrally planned countria may agree upon it in order to coordinate their plans, it does not appear to be a fruitful line for countries that adopt more decentralized planning approaches to their national economies.

rules should be particular rather than general. Trade could be organized or managed on a product by product basis, with products not covered by these arrangments being free of any rules. This 'trade management' is in fact the way in which much of the world trade has moved in recent years with commodity agreements, the Multi- Fibre Arrangements and other so-called voluntary export restraints, and the iron and steel arrangements negotiated in 1982 between the United States and the EEC. It is the form of trading 'rule' that is being adopted progressively, with each adoption whittling away the application and relevance of the General Agreement. Each extraction from application of the General Agree- ment weakens the force of the Articles even on those commodities that are not extracted.

Experience with agricultural commodity agreements is such that it would appear preferable to move agriculture towards the General Agree- ment rather than to move other products towards such product-specific atrangements. Plurilateral agreements between exporters and importers tend to be unstable, particularly when they attempt to support prices rather than just to stabilize them. Apart from possible benefits of short- or medium-term price stability- which in any case could be obtained by bilateral contracts within a GATT type system-there does not appear to be an incentive for importers to participate for long in such commodity-specific agreements. The history of commodity agreements is a history of crises.

With respect to the Multi-Fibre Arrangements and other similar attempts to manage trade in manufactures, it is clear that concentration on individual sectors in this way leads to protection, cartelization, and inhibition of growth. The restraints imposed under the schemes inevitably extend to new commodities which previously lay beyond the restricted categories and which were placing competitive pressure on the included industries. And extension tends also to occur for finer and finer specification of product categories. This extension and proliferation has occurred in the Multi-Fibre Arrangements: initial- ly applying to cotton textiles, the trade management now extends to a wide range of fibres. Such trade 'management' does not make adequate provision for new entrants as Sri Lanka. for example, has found in the MFA. As Tumlir argues:

As long as the sectoral view dominates the policy of the major trading countries. only a

THE ECONOMIC RECORD MAKCH 26

progressive tightening of the existing systems of industrial protection can be expected, a development that can only multiply economic difficulties for the countries concerned and the opportunities for conflict among them.” The further development of product-by-

product international management of trade is almost certain to work against the interests of Australia and other relatively small countries that are not members of major trading blocs. Australia’s interests lie very strongly in the opening of trade, not in the further closing of it by ’management’. Thus Australia has a crucial interest in the recommitment by the contracting parties to the principles underlying the General Agreement, but Australia can hardly work for this unless it is prepared to commit itself to the principles. As always, law is for the protection of the weak rather than the strong, and the weak can hardly obtain the law’s protection if they do not agree to be bound by the law themselves (Jackson, 1980, pp. 27-8).

The above suggests that Australia, despite the bitter disappointment at the outcome of the November 1982 Ministerial Meeting, would be wise to continue to devote considerable energy to the committees etc. that have been established by that meeting. To bring agriculture even a little bit closer to coverage by the General Agreement may help to head off some of the bilateralism that appears to be developing: in response to American pressure for a reduction of bilateral imbalances, Japan appears to be switching its agricultural pur- chases away from Australia and towards the United States (George, 1983), and South Korea may follow. Outside agriculture, Australia has already benefited from MFN reductions to barriers against its exports. But this access could close if multilateralism is further eroded.

There would seem to be a substantial com- monality of interest of Australia, other primary product exporters and the newly industrialized countries (NICs) in these matters. The major exports of Australia and the NICs to Europe, the United States and Japan have been restricted by means outside the General Agreement. Australia and many of the NICs have high barriers to imports and have not entered into significant com- mitments to reduce or bind import barriers within

I ’ Tumlir (1982, p. 33). The argument is pursued elsewhere in this paper by Tumlir and also in his stimulating contributions (1977) and (1979).

GATT negotiations. These countries, as contracting parties to the General Agreement, could enter into a round of trade negotiations with the barrier reductions so negotiated generalized on a MFN basis. With the NICs and the developed primary product exporters together negotiating multilateral trade liberalization, and with the possibility of services trade being included, it is unlikely that the Europeans, Americans and Japanese would not wish to be involved. Of course a marked upturn in the world economy would help the process considerably.

Tumlir asks, ‘How can the rules be affirmed again after a prolonged period of neglect?’ (1977, p. 19). A joint initiative by Australia with the NICs and other primary producers could provide a force towards what Tumlir describes as, historically, one of the rarest feats: ‘arresting a politicoeconomic crisis before it has run its full course’ (Zbid.). But it would require Australia and some of the other countries to change very substantially some of their past attitudes to the principles underlying the General Agreement.

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