WTO = Wasted Trade Opportunity?

One of the biggest (but least surprising) news stories of this week in international business was the collapse of the latest round of World Trade Organisation (WTO) negotiations. The WTO is the multilateral organisation that aims to reduce barriers to trade, and also act as the ‘policeman’ on trade disputes.

Symbolic of the complex alliances and interest groups present in the geopolitical arena, the US, India, Japan, South Korea and the EU all seem to have aligned in defiance of the numerous countries seeked reform of agricultural trade barriers. In many ways this is one of the last bastions of free trade.

Tariffs (i.e. taxes pushing up the prices of imported goods) have plummeted across the globe for most goods in the past few decades. Much of this has been driven by the outcomes of WTO negotiations (and its predecessor, the General Agreement on Trades and Tariffs (GATT)). Manufactured products and many natural resources now flow fairly unemcumbered around the globe. Agriculture has been less liberalised however.

The Cairns Group is an unusual coalition of countries (including Australia) whose farmers would benefit from freer trade in agriculture. This lobby group has argued (unsuccessfully) for two decades that there would be significant benefits to world consumers in reducing the protection and subsidies offered to First World farmers. They also argue (as do many prominent anti-poverty activists) that such reductions would have a large, positive impact on the plight of African economies (and many other less developed nations). It appears the strong political influence of agricultural interests in the US etc have won out again.

One of the significant results of the failure to achieve across-the-board trade reforms and liberalisation through the WTO is that countries are increasingly turning to bilateral free trade agreements (FTAs) – i.e. negotiated reductions between two countries, and sometimes regional agreements. This week Australia announced a new FTA with Chile, and talks continue about an agreement with China. No doubt there will be more to come.

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