Australia-China Chamber of Commerce and Industry of New South Wales
Comment on WTO Related Issues

1. Introductory Comments

The Australia-China Chamber of Commerce and Industry of New South Wales (ACCCI) is responding to the request issued on 3 April 2001 by the Minister for Trade, the Hon Mark Vaile MP, for public comment on WTO related issues.  The Chamber’s response is the result of the Chamber’s increasing concern over the following events and circumstances:

v      the delay over the accession of China to the World Trade Organisation (WTO);

v      the failure in December 1999 to initiate a new round of multilateral trade negotiations;

v      the apparent inability since December 1999 to resolve the differences between the industrial countries that were pressing for a broadly based agenda for negotiations to be concluded within three years and several developing countries that sought to concentrate on problems arising from agreements reached in the last phase of the Uruguay Round of negotiations; and

v      the increased opposition in Australia and elsewhere to further WTO initiatives and to the globalisation process generally.

This commentary was drafted by the Executive Committee of the Chamber and circulated to Chamber members and to friendly organisations that expressed an interest in the recommendations contained herein.

The sections of this submission are as follows:

Executive Summary: brief statements of the principal recommendations about the WTO agenda for further work and of additional recommendations about the Australian WTO Advisory Panel.

Globalisation Challenges: a statement of ACCCI views regarding the major difficulties in achieving continuing benefits from a global trading system.

Current Support for Institutional Development: comments on the lack of progress in evolving a satisfactory process for developing institutions that influence and contribute to a more complete integration into the global trading system.

Common Need for Institutional Development: states the view that institutional development is as important for industrial countries as it is for developing countries.

Australia’s Contribution: gives an overall statement of the contribution Australia should make in strengthening trade-related institutions.

Importance of China: highlights two areas in which China occupies a special position in the globalisation process.

Further Comment on the Australian WTO Advisory Panel

Annex A: Objectives of the Australia-China Chamber of Commerce and Industry of New South Wales

Annex B: WTO Documentation on the Advisory Centre on WTO Law

2. Executive Summary

Principal Recommendations

It is urgently recommended that the WTO substantially increases its commitment, contained in the Ministerial Declaration that was adopted at the Marrakesh Ministerial Meeting in April 1994 and subsequently reiterated in various documents, to achieve greater coherence in global economic policy making and to assist developing countries to create the capacity to build the necessary institutions to operate successfully in the multilateral trading system.

In March 1999, the then chairman of the WTO’s General Council, Ambassador Ali Mchumo, identified the following as important objectives (from Opening Statements, “Report on the WTO’s High Level Symposium on Trade and Development”, 17-18 March 1999, International Institute for Sustainable Development, available at: http://www.wto.org/wto/english/tratop_e/devel_e/summhl_e.htm):

v      facilitating the integration of developing countries in the multilateral trading system;

v      building coherence among trade, finance and development policies and institutions;

v      improving the participation and reducing the vulnerability of LDCs [less developed countries] in the trading system; and

v      developing the role of the WTO in supporting the developmental objectives identified in the Marrakesh Agreement.

The summary of the discussion at the High Level Symposium indicates that there is no shortage of opinion as to what is needed in relation to trade and development.  We suspect the diversity of opinion is a major reason for the lack of observable progress.  A set of priorities with a clear objective is missing.

Accordingly, we recommend the following:

v      The establishment of an Advisory Centre on Adjustment to the Global Trading System as an independent governmental organisation that is similar in structure to the Advisory Centre on WTO Law (refer to Annex B for WTO statements about the latter).

v      The Advisory Centre should be available to all WTO members who seek assistance in developing the institutions that are necessary to operate successfully in the global trading system.

v      The Advisory Centre should monitor, evaluate and report in publicly available documents all trade-related, institutional-strengthening projects that are funded and administered by multilateral agencies or through official development assistance.  The objective of the monitoring, evaluating and reporting should be to achieve greater consistency in the process of improving the ability of member countries to adapt to the global trading system.

v      The Advisory Centre should offer financial grants to supplement donor contributions for bilateral exchanges of personnel for which the specific purpose is to strengthen the recipient country’s institutions for trade-related matters.  The grants should require full reporting and disclosure of these exchanges, including the benefits derived and process of achieving the benefits.

v      The Management Board should reflect diversity in its membership and should be formally linked to an external advisory board that consists of persons nominated by the Signatories to the Centre. 

Additional Recommendations

The Chamber supports the establishment of a new consultative body to the Australian Government on multilateral trade policy, which is to be called the WTO Advisory Panel, and we strongly support the intention of broad representation on the panel.

In view of the principal recommendation for a WTO Advisory Centre for Adjustment to the Global Trading System, we suggest that a national advisory panel should reflect similar objectives and should be organised and structured in an exemplary manner.

We recognise that the main purpose of advisory panels is to supply information and opinions to the relevant ministers.  We nevertheless suggest that fostering two-way flows of information and opinions between the public sector and the private sector, as well as monitoring, evaluating and reporting in publicly available documents, would substantially increase the value of such panels.

Specific recommendations for the WTO Advisory Panel are contained in section 8 of this submission.

3. GLOBALISATION CHALLENGES

Convincing evidence is available to indicate that economic growth rates are higher for nations that are in the process of becoming more fully integrated into the global trading system.  This arises principally from the following contributions of an open trading regime:

v      It allows a nation’s resources to be used more effectively through greater specialisation in the production of goods and services.

v      It facilitates the flow of financial capital and intermediate products that contribute to long-run growth through continuous improvements in productivity.

v      It encourages competition between domestic and foreign enterprises and thereby raises the level of efficiency of domestic enterprises.

Evidence is also available to indicate that greater integration into the global trading system contributes to a reduction in poverty by increasing the demand for relatively abundant factors of production, a portion of which may be unemployed (or underemployed) in a closed trading regime.  Additionally, evidence suggests that nations with higher rates of economic growth are relatively more successful in reducing the level of poverty.

However, the process of achieving these benefits is associated with difficulties that include the following:

v      The transfer of resources away from activities that decline as a result of greater integration into the global trading system, and toward activities that follow specialisation and trade, carries a cost that is unequally borne within the integrating nation and may differ from one integrating nation to another.

v      Policies and institutions that were developed prior to greater integration may have become “locked in”, and therefore tend to create obstacles to an effective transition into the global trading system.

v      The skills and experience acquired by a portion of the work force in an integrating nation may be unsuitable for productive use in a more fully integrated environment, and such a portion of the work force may be unable to alter, on its own, the lack of suitability.

It is suggested that these challenges become more formidable as globalisation accelerates.  This arises from an increasingly shorter adjustment period and from greater unevenness in the adjustment process.

It is therefore suggested that a procedure to alleviate these difficulties is urgently needed.

4. current support for institutional development

We believe that widespread participation in the development of institutions that influence and contribute to a more complete integration into the global trading system is a necessary condition for the alleviation of the difficulties mentioned in the preceding section.

We note that programs for institutional strengthening have been initiated by various multilateral and bilateral agencies but we have seen no evidence that participation is widening significantly or that the programs are either consistent or coordinated.

We believe that the basic building blocks for greater integration occur at the district or precinct level in urban areas and at the village level in rural areas.  We have seen no evidence that multilateral or bilateral support for institutional development has reached that level.

We also believe that bilateral relationships are of fundamental importance to institutional development among trading nations.  A comprehensive program for the exchange of personnel is essential for the purpose of (a) understanding the institutions that currently exist in other nations, within their respective cultural settings, and (b) assisting in improving those institutions for mutual benefit through increased trade.

Bilateral exchange programs should also include trade-related communications between non-government organisations, especially with developing nations whose political institutions have not yet achieved complete acceptance either internally or externally. 

However, if such a program were undertaken by each pair of trading nations on an independent basis, with little or no coordination, then the potential benefits are likely to be significantly diminished through duplicated efforts, inconsistency and probable confusion.

We believe that efforts to avoid the duplicated effort, inconsistency and probable confusion should appropriately be assigned to an agency that is in some way attached to the WTO.

5. cOMMON NEED for institutional development

We believe that the need for institutional development is common to both industrial and developing members of the WTO.  Although industrial countries were the principal architects of the present multilateral trading regime, they should not become complacent in believing, either individually or jointly, that their trade-related institutions are beyond reproach, or that these institutions can meet the continuing challenges of globalisation without further adjustment.

A major objective of multilateral trade organisations such as the WTO is to encourage a convergence of trading policies and standards in order to reduce the tensions that might otherwise arise from different policies and standards.  Convergence implies a mutual adjustment, not conformity to pre-determined policies and standards.

It is generally recognised that the inherent conflict between buyers and sellers is reconciled in a market system if all participants have an adequate set of choices and if the system is characterised by “fair play”.  Neither of these can be assured by proclamation.  They must be assessed by the market participants on the basis of observation and experience.

Since the end of the Second World War, market participation has become increasingly centralised.  This occurred first with greater concentration at the state or provincial level, then at the national level and more recently at the international level.  The correlation between globalisation and increased centralisation in market participation is not coincidental.  It is a necessary consequence of economic integration.

The effect of this centralisation is to alter substantially the capacity of market participants to observe and to acquire experience.  Social and political institutions were created to facilitate this assessment, but they have generally evolved into legal or quasi-legal entities to resolve disputes and to adjudicate “fair play”.

It would be impractical to reverse the integration of markets in order to allow local area “observation and experience”.  It is nevertheless possible to expand the capacity of both buyers and sellers to participate in the institutional arrangements that have become substitutes for “observation and experience”.

There is an apparently natural tendency for the relevant social and political institutions to acquire exclusivity.  “Information loops” fail to expand, not necessarily by design, but through expediency and the desire for organisational stability.  This growing exclusivity not only limits the perceived value of the institutions, it also acts as a disincentive for the excluded groups to seek influence through constructive means.

We believe that the way the relevant institutions need to be adjusted and strengthened will differ substantially among individual WTO members, so that no formula or model will be appropriate for all integrating nations.  This arises from different experiences and from the associated differences in the evolution of existing institutions.

We nevertheless believe that there is likely to be common features in the process of redeveloping the existing institutions and in creating new institutions.  We believe that this process should be the principal focus of an advisory centre that is in some way attached to the WTO.

6. australia’s contribution

We note from the table below, showing exports, imports and total trade by value in 1999, that Australia was the 13th largest trading nation in 1999 (treating the European Union as a single entity and including only extra-EU trade).  

We recognise that Australia, through AusAID and through participation in APEC, has already contributed to the strengthening of institutions in the Asian region following the East Asian crisis that occurred from July 1997 to (approximately) December 1998.

We believe this experience should be useful in recommending a greater amount of attention to these matters within the WTO.

Table 1: Exports, Imports and Total Trade by Value (in US$ billions) and Share – 1999

 

Country

Exports

Imports

Total

 

 

Value

Share

Value

Share

Value

Share

1

 United States

695.2

16.39%

1059.1

23.58%

1754.3

20.09%

2

 Extra-EU trade

795.6

18.76%

843.4

18.78%

1639.0

18.77%

3

 Japan

419.4

9.89%

311.3

6.93%

730.6

8.37%

4

 Canada

238.4

5.62%

220.2

4.90%

458.6

5.25%

5

  China

195.2

4.60%

165.8

3.69%

360.9

4.13%

6

 Hong Kong

174.4

4.11%

180.7

4.02%

355.1

4.07%

7

 Korea

144.7

3.41%

119.8

2.67%

264.5

3.03%

8

 Mexico

136.7

3.22%

148.7

3.31%

285.4

3.27%

9

 Taiwan

121.6

2.87%

110.7

2.46%

232.3

2.66%

10

 Singapore

114.7

2.70%

111.1

2.47%

225.7

2.59%

11

 Switzerland

80.4

1.89%

79.9

1.78%

160.3

1.84%

12

 Malaysia

84.5

1.99%

65.0

1.45%

149.4

1.71%

13

 Australia

56.1

1.32%

69.1

1.54%

125.2

1.43%

14

 Russian Fed.

74.3

1.75%

41.1

0.91%

115.4

1.32%

15

 Thailand

58.4

1.38%

50.3

1.12%

108.7

1.24%

 
Source: World Trade Organisation

It should also be noted that although Australia ranks 13th in terms of the total volume of trade, the portion of total trade that we account for is less than 1.5 per cent.  Our bilateral influence on matters relating to trade is therefore relatively small. 

This underscores the importance to Australia of maintaining the integrity of multilateral trade organisations such as the WTO.

7. Importance of China

The table above indicates that China ranked 5th in the world in terms of total trade in 1999.  That ranking is likely to increase in the near future since China also has one of the world’s fastest growing trading sectors. 

It is therefore essential to the multilateral trading system that China be incorporated in it with a minimum of tension and conflict.  The accession process has already tested the capacity of the WTO to achieve a convergence of trading policies and standards, but even more strain will be placed on it during China’s phasing-in period.

Although China has made considerable progress in adjusting to the multilateral trading system, continuing pressure will be placed on its institutional development, especially in view of the relatively recent opening of its trading sector.  As noted above, convergence will require mutual adjustment, and the future credibility of the WTO will depend to a considerable extent on its capacity to administer that adjustment.

We note that informal guidelines for China’s implementation period have been circulated, but they originated from a chamber of commerce, not from the WTO.  Specifically, the American Chamber of Commerce in China’s 2001 White Paper (http://www.amcham-china.org.cn) stated the following:

As China's WTO performance is judged over the coming months and years, care should be taken to distinguish between: (1) legitimate (though unwelcome) exploitations of loopholes; (2) aggressive interpretations of ambiguous language; (3) imperfections and delays resulting from practical difficulties despite good-faith efforts; (4) imperfections and delays resulting from inadequate resources devoted to the problem by the Chinese government; and (5) problems resulting from a blatant disregard for clear-cut obligations.

In addition, we should remember that disputes are a normal and inevitable by-product of trade relations between nations, and the WTO is not necessarily the right forum for addressing every problem.  We recognise that our companies must still exercise due diligence when contemplating specific transactions, and that they should generally rely upon the courts to resolve contractual disputes.

China is also important to capacity building in the multilateral trading system since social cohesion has been an important objective in China for the past 3,000 years (selecting the Zhou Dynasty, from 1027 to 221 BC, as the one that initiated the principle that social order is effectively maintained more from familial ties than from feudal bonds). 

China is likely to experience difficulties with a globalisation process that highlights and exacerbates tensions among those who are integrated into the system and those who are unable to benefit from it.  If these difficulties cannot be obviated for China, they are likely to persist for the global trading system generally.