Is Rudd the real deal on free trade?

Kevin Rudd reined in his early optimism for a successful conclusion of the Doha Round of WTO negotiations after visiting the Progressive Governance Summit in London earlier this month. While Rudd insisted the “glacial” negotiations have accelerated and are now “moving rapidly down the glacier”, he left himself an easy exit by adding that “except, unlike moving glaciers, we [only] have five weeks to arrive at the end point”.

The five-week deadline Rudd was referring to is the next WTO meeting after which it is feared the US presidential elections may delay any further negotiations. The Doha round of negotiations started in 2001 and its official 2005 deadline, as well as the next non official 2006 deadline, have both been missed. If, as Rudd will have us believe, the political will is there, deadlines should not present a major hurdle based on their previously flexible nature.

The problem for Rudd is not the timing of the Round, but that global political will for multilateral free trade deals has always been lukewarm. That’s why the Uruguay Round of negotiations lasted eight years, the Tokyo Round six years and the Doha Round has been underway for more than six years. The main reason for these delays is that during these negotiations governments tend to pander to narrow domestic political interests that don’t favour lower trade barriers.

For example, large farming subsidies in the US and the EU are one of several Doha sticking points. Conventional trade theory, the basis for the WTO negotiations, says that eliminating barriers would leave these nations’ populations better off thanks to cheaper food via imports and competition. Their agricultural industries would however need to become more efficient or change focus altogether. Therein lies the rub.

Farming lobby groups are highly vocal and exert significant political influence, while the rest of the population that would benefit from lower trade barriers is neither organised, nor vocal. So even though a nation as a whole is generally better off in the long run with lower trade barriers, governments are not known for their attention to the long term. Election cycles and vocal lobby groups usually matter more.

Australia has a lot more to gain from Doha than many other nations because it has already lowered many of its trade barriers since the 1980s and lacks the concessionary clout to get good deals in the bilateral arena. Rudd believes his “jaw boning” in London “helped nudge the [Doha] process along”. However if the earlier Liberal government couldn’t convince its best buddy, the USA, to include sugar in its Free Trade Agreement (FTA), Rudd’s influence over 151 WTO members is surely weak at best?

If Doha stalls again, Rudd has three choices:

1. he can lower trade barriers unilaterally, an economically sound option in the long term, but Australia’s trade deficit would continue to widen and Rudd would face significant domestic opposition;
2. he can wait until Doha is back on track but this means potentially losing export markets as Australia’s main trading partners do deals among themselves and freeze Australia out; or
3. he can continue with the former government’s FTA strategy.

Prior to the last federal election then Shadow Trade Minister Simon Crean insisted that if a Labor Government had to pursue FTAs it would always include all sectors in the deal (referring to the former Coalition’s botched FTA with the US). To date Rudd has been focused on keeping his party’s election promises. He is certain, though, to encounter opposition to trade liberalisation from domestic lobby groups like the Australian Manufacturing Workers Union, and face pressure from FTA negotiation partners like China and Japan to exclude sensitive sectors.

Will Rudd hold firm and refuse to conclude an FTA with Japan that excludes Australia’s key agricultural sectors? Or will he follow New Zealand’s lead in its newly signed FTA with China and conclude FTAs where market access to sensitive sectors is phased in over more than ten years as a concession? Or worse still, a real dirty deal where sensitive sectors are completely excluded like in the US-Australia FTA?

If the Doha round stalls again we will see if Rudd’s free trade ideals are just rhetoric or reality. If Rudd’s future FTAs are all encompassing despite the inevitable political fallout, we know he is the real deal when it comes to free trade.

If, on the other hand, carve outs and phase-ins become the norm, we know his cheer-leading for Doha was just a convenient ruse to build up his free trade credentials, when he knew he would end up doing dirty deals all along.

Time will tell soon enough.