The politics of Australia’s postwar trade

Evan Jones, The University of Sydney

Ann Capling Australia and the Global Trade System: From Havana to Seattle, Cambridge University Press, Oakleigh, Victoria, 2001 (260 pp). ISBN 0-521-78525-1.

Trade policy is complex in scope and technicality, and in minutiae of detail; it is also labyrinthine in its politics. One has to be brave or foolhardy to tackle the subject. Ann Capling, a Canadian-born political scientist, has jumped in at the deep end, leaving many long-standing Australian inquirers still paddling in the shallows.

A measure of Capling’s courage is that she eschews kowtowing to conventional academic practices in political science, in which history is a mere plaything for tedious dogfights over the relative merits of various paradigms (hegemonic stability theory, liberal institutional-rationalism, etc.); or in economics in which trade policy merely evokes the cosmic battle between free trade enlightenment and protectionist ignorance and evil. With knowledge of much secondary literature, she centres her analysis on the examination of official documents and the interviewing of key personnel, an approach compatible with this reviewer’s prejudices.

The result is an admirable sweep through the dramatically shifting terrain in Australia since 1945. With only 214 pages of text, omissions or simplicity of treatment of some issues is inevitable, but the 34 pages of notes expose the density of investigation behind the text. A summary of Capling’s account follows, with commentary afterwards.

After World War II, the Chifley Government faced the dilemma of having to re-establish international linkages in trade and investment but in a world in which the British Empire was in decline and the Americans were seeking to establish an international regime on their own terms. The Government chose to participate in international discussions, starting in October 1946, in the hope of influencing the character of any ensuing organisation. Australia had the advantage of possessing knowledgeable and hardheaded advisers, and the leverage of being a key member of an Imperial Preference structure (which the US wanted destroyed) and not in debt to the US.

With discussions over a draft charter at a UN conference in Havana in late 1947 and early 1948, Australian negotiators managed to complement the pressure for trade liberalisation with codes embodying an international imperative for economic growth, the rights of developing countries to industrial development, and national interest opting out provisions.

In the meantime, meetings were established in which horse-trading for trade concessions was carried out between the initial member countries, starting at Geneva in 1947, and continuing in France in 1949 and in England in 1950-51. These meetings introduced the ‘most favoured nation’ principle, by which bilateral concessions established by two negotiating countries would be extended to all member countries.

Not much was given away by Australia on these occasions. Access of Australian wool into the protected US market was of crucial importance, but American recalcitrance, and later unwillingness of Australia to cater to the American-preferred trade-off (access to the Australian market of American tobacco) meant that the conflict over wool would carry on into future decades.

The Chifley Government had the advantage of knowledgeable and hardheaded trade advisers.

Domestically, Australian policy-makers had to work out how to deal with an institutional structure centred on British trading links (in turn centred on deep cultural ties), and an industrial development mechanism linked to protective tariffs administered by a formally independent Tariff Board.

The Australian Parliament passed the Havana Charter in December 1948, but the US Congress dithered and it lapsed there in December 1950. What remained were the tentative rules underlying the negotiating sessions (the General Agreement on Tariffs and Trade); these became, by default, the principles underpinnings post-war trade negotiations.

The in-coming Menzies Government was ambivalent about continued involvement with the GATT, trying to balance pro- and anti- forces within Australia, indeed within the Cabinet and bureaucracy. The ‘pro’ forces, centred on the Secretary and Minister of the Department of Commerce and Agriculture, John Crawford and John McEwen, gained the ascendancy. This ascendancy was reflected in the creation of a super Department of Trade in 1956. From this new structure Crawford and McEwen engineered two radical steps in the late 1950s—the downgrading of the British preference structure (the ‘Ottawa’ agreement) and a trade treaty with Japan, previously subject to significant trade discrimination.

These developments were compatible with greater integration into the norms of GATT. But in the meantime, practices under the GATT umbrella had become more hostile to Australia’s trading structure, with agricultural commodities transparently off the agenda for trade liberalisation.

Capling has a vignette from a Trade bureaucrat that is telling of the evolving character of GATT culture. At the GATT Ministerial Review meetings in 1956, Australia (Menzies) was pushing for flexibility on the unbinding of tariffs, commensurate with its ‘Midway’ status in the global economy. Eventually, Australia achieved concessions in the face of strong resistance, but only by the acceptance of a US pressure for waiver on its agricultural domestic support programs (p.51). From a free trade perspective, integrity was the loser. But, in effect, backtracking on basic principles was a key vehicle for the survival of the GATT negotiating structures.

Domestically, according to Capling, McEwen became more protectionist, seeking the manufacturing sector’s political support, supported by his Department Head after 1960, Alan Westerman. ‘[T]rade and export policy were sacrificed on the altar of protectionism’ (p.73), leading to a ‘diplomatic paralysis’ (p.77). A break occurred with the election of the Whitlam Government, which cut all tariffs by 25% in 1973 and created the Industries Assistance Commission, a vehicle ultimately for long-term generalised tariff reduction. An impasse set in again during the years of Coalition Government under Malcolm Fraser.

Backtracking on basic principles was a key vehicle for the survival of the GATT negotiating structures.

After some years in office, the Hawke Labor Government made a number of key changes that brought Australia into active participation in the multilateral structures of the GATT. John Dawkins was made Trade Minister in 1985, influenced by an ascendant free-trade oriented ‘epistemic community’ committed to ‘international trade reform’. The Cairns Group of ‘non-subsidising’ agricultural exporters was formed in 1986 under Australian leadership. A mega-Department of Foreign Affairs and Trade (DFAT) was formed in 1987 that was better resourced for trade policy-making.

Finally, Australia’s trade diplomacy became centred on a rising group of negotiators, led by Peter Field—‘intelligent, exuberant, hard-working and tough negotiator’ (p.105). The Cairns Group and Field’s team is credited with getting and keeping agriculture squarely on the negotiating agenda in the Uruguay Round of GATT which began in 1986, and establishing a framework by which agricultural protection and subsidisation could be wound down gradually. Other Australian negotiators contributed to establishing a new regime for liberalisation of trade in services. Moreover, the Australian negotiators were welcomed into the inner sanctum of negotiations, mediating between the big players—the United States and the European Community.

Capling claims that two periods of Australian participation in the GATT—the initial establishment period and the Uruguay Round period—highlighted that Australia could have an influence far beyond its objective status in international trade. With the right kind of intelligence and strategic vision, embodied in suitable personnel, Australia could ‘punch above its weight’.

The election of the Howard Coalition Government witnessed a sharp reversal from the activities during the Uruguay Round. On its creation in 1995, the World Trade Organisation replaced the GATT. Capling claims that the Coalition has not worked at reproducing the bureaucratic intelligence for future WTO Round participation. Moreover, the Coalition has engaged in fruitless slanging matches with the US and Japan over product-specific fights (which Capling inaccurately associates with the essence of bilateralism), and is toying with free trade agreements with a number of countries.

Capling ends on a pessimistic note, claiming a loss of legitimacy of the WTO in spite of the seeming success of multilateralism in the Uruguay Round. The Americans have stepped back from taking the lead in trade liberalisation; the developing countries are unhappy because of continued marginalisation; and there has been a challenge from ‘civil society’ to the WTO as a symbol of globalisation.

Capling concludes that the domestic environment could be improved if the Australian public were better educated on the history and merits of the multilateralist system, and that the previous emphasis on the agricultural sector and its exports needs to be downgraded as a basis for moving Australian trade priorities and diplomacy into a new era.

With the right intelligence and strategic vision, Australia could ‘punch above its weight’.

Capling’s book loses focus at the end, perhaps from the author’s exhaustion with the topic. There seems to have been a loss of inside intelligence on the post-Uruguay Round period after 1993.

Part of the reason for the loss of focus may be the incoherence of Capling’s evaluation. The thrust of the argument is the ultimate superiority of the multilateral system for all countries’ national interests in trade. In Chapters 4 to 6 on the Uruguay Round, an optimistic scenario is outlined of potential universal benefits, for the first time in the GATT. Yet in Chapter 8, we read of ‘developing country dissatisfaction’. ‘But while the Uruguay Round process helped to build developing country confidence in multilateral round negotiations, the actual implementation of the Uruguay Round agreements has caused a great deal of anxiety and difficulty for many developing countries … Part of the problem was the failure of Uruguay Round agreements to deliver significant market openings to developing countries.’ (p.197) Exactly. And ‘confidence’ is too strong a word.

Capling refers summarily to the Blair House agreements of November 1992 and December 1993, by which resolutions of sorts were mooted then concluded on agriculture (and the Round brought to a belated conclusion three years late). These agreements were struck bilaterally by the US and EU, significantly watering down the earlier drafts. The book moves between a triumphalism regarding Uruguay Round negotiations to a pessimistic account of current realities without an adequate treatment of what went between—the ultimate outcome of the Round. This is a hard ask, given the detail, the amount of misleading propaganda, and the fact that some of the ‘gains’ were in the form of promises of future reductions in subsidies. But the outcome of the Round is vital to the author’s case, and the skirting around of this issue is curious.

More specifically, what of the outcome of the Round for Australian sectoral interests? No treatment at all. It is as if the great successes of Australian personnel in reaching the inner sanctum of negotiations substitute for tangible results. Undoubtedly, the Australians helped to create the framework in which negotiations on agriculture are now formally structured, but will the major bovver-boys (the US, EU) play by the rules for a change? The evidence to date is not compelling. Intellectual attachment to multilateralism is no doubt rooted in a judicious evaluation of the weakness of alternatives, but it still remains dependent on optimism not firmly rooted in multilateralism’s own perennial history as a vehicle for the interests of the strong.

Capling’s treatment of the US is symptomatic of a deeper problem of interpretation. She claims a ‘decline in American leadership’, with Washington ‘downplay[ing] multilateralism in favour of a trade policy that was increasingly strategic and bilateral in its intent’ (p.192). Yet Washington has always been strategic; its representatives have always simultaneously pursued American national interests through all channels, whether multilateral, bilateral or unilateral. During the most tortuous period of Uruguay Round negotiations in the early 1990s, US authorities were blithely working on the establishment of the North American Free Trade Agreement. Kennedy’s Trade Expansion Act of 1962 (which led to the Kennedy Round of GATT) heralded a new commitment to use the GATT strategically to recover the American initiative in global industrial dominance. Capling regularly cites instances of American hypocrisy but does not integrate these instances into a larger picture of American participation in the GATT.

Capling’s book loses focus at the end, perhaps from the author’s exhaustion with the topic.

The Americans do not believe in ‘free trade’ as an abstract ideal. Nor do the representatives of any other country, save those of Australia. There are bureaucrats in the multilateral infrastructure who possess such a belief and a calling, and who may be exerting greater influence through the WTO inquiry process, but they were ornaments in the history of the GATT. GATT has evolved according to the principles that freer trade has been pursued when it is in a sectoral interest and avoided when it is not. The Canadians, painted as blackguards because of their disruptive role in the Cairns Group, understand this intuitively and act accordingly.

Domestically, Capling reproduces the local conventional wisdom that unilateral trade liberalisation and participation in the multilateral process are two sides of the same coin. There is no clear evidence that unilateral trade liberalisation enhanced Australia’s ‘negotiating coin’ in GATT proceedings. Capling also claims that unilateral trade liberalisation has delivered benefits to exports, a link supposedly neglected by the Howard Government (p.172) and now seemingly also by Labor (p.181). However, the presumed link remains speculative and there is no conceptual reason to grant it plausibility. By contrast, there is a transparent link between enhanced exports of manufactures and government support programs (acknowledged by Capling, p.183); the dominant sources of export revenue growth in services (tourism, education) derived from factors unrelated to any processes of trade liberalisation.

Capling has enacted a massive scholarly project in tackling a subject both complex and controversial. Her disclosure of the ‘cut and thrust’ of some of the negotiating periods is masterly. Her prose is fluid, atypical for academics, and some of the sections read like a thriller as befits the material.

However, some periods are not dealt with adequately. Unevenness of treatment is inevitable, but there is a hint that the unevenness is partly a product of Capling’s vision—the periods or personnel that detract from that vision don’t get their ‘just desserts’.

She is too harsh on the McEwen-Westerman era—not surprising, given the imbalanced judgment in the literature; defenders of the era have gone to ground in the face of endless vilification. The Kennedy Round had little to offer Australia. Westerman did the ‘hard yards’ on the Japan Agreement and its revisions. Bilateral deals with several countries were established (in particular, the Closer Economic Relations agreement with New Zealand). The Trade Department pushed manufactured exports (contrary to Capling’s claim, p.58); between 1959-60 and 1971-72, manufactured exports increased from 13% to 25% of total merchandise exports. Westerman sold wheat to China, in spite of it not being on the diplomatic map, and the Americans were furious. Westerman’s staff engineered a dramatic victory over the cartelised Shipping Conference, reducing shipping costs, and facilitating the expansion of containerisation in Australia. In the face of developing country complaints at GATT, Australia initiated preferential access to the Australian market (albeit excluding textiles); a process generalised by GATT in 1971.

Capling is also neglectful of the capacity in the Trade/Trade and Resources Department in the late 1970s and early 1980s. A major research initiative was facilitated in the new Economic and Policy Division in 1979, and supported by the incoming Labor Government under Minister Lionel Bowen and Secretary John Menadue. A jaundiced perspective on multilateralism was reinforced by the failure of agricultural protectionism to be addressed at the 1982 GATT Ministerial meeting. This thrust led to some productive bilateral initiatives in Asia before the multilateralist negotiators plied their trade at Uruguay. The 1980s were thus a period of intense debate within trade policy circles over appropriate directions.

A little too much of the conventional wisdom of economists has crept into Capling’s interpretation. It is axiomatic that trade politics is vicious. Multilateral structures will deliver some redistribution of benefits, but the notion of universal and continuing benefits is a myth whose evisceration is long overdue. A monolithic rules-based system will never capture the bulk of international trade, not least because there will never be universal agreement on the rules.

In the last decade, the EU has moved to make many regional and bilateral deals, establishing a ‘hub and spoke’ structure essentially asymmetric in power relations. China has just mooted a trade agreement with the ASEAN countries. Ironically, Capling’s book, devoted to a positive assessment of multilateralism and the ability of small countries to influence the rules, ends with a negative assessment for the immediate future.

Evan Jones is Associate Professor in Political Economy at The University of Sydney.

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