Why Apec needs to focus on big prize

By Brian Fallow

Apec leaders need to do two things to get the World Trade Organisation's coming Seattle round off to a flying start.

One is to agree that the scope of the talks be broad but manageable. The other is to maximise the round's chances of succeeding by backing the idea that it should have one, comprehensive outcome in the jargon, a single undertaking.

The Apec trade ministers agreed in June that industrial tariffs should be added to the agenda, alongside agriculture and services which are already there as a legacy of the Uruguay Round. Their leaders are likely to endorse that. But that is plenty to be going on with.

Apec should set its collective face against any move the Europeans might want to make to add the environment to the agenda. That would only undermine support for the round, already less than ardent, among developing countries who see environmental and labour issues as back-door protectionism.

Much more problematic in terms of achieving an Apec consensus is the issue of a single undertaking versus an "early harvest" of sectoral agreements. The latter prospect is alluring, especially if the early harvest included forestry and fishing where New Zealand exporters have much to complain of.

But we need to keep our eye on the big prize, agriculture.

At present world agricultural trade resembles a landscape of medieval walled cities. We point to the more than $300 billion it costs OECD countries to protect their farmers and assume such measures will eventually crumple under the weight of all that waste and inefficiency. But the same number quantifies the vested interest in agricultural protectionism.

Given how difficult it will be to make real inroads into that, preserving the maximum scope for trade-offs in the Seattle round is vital, which means a single undertaking.

The United States' preference for the early harvest approach may reflect a recognition that the American climate for trade liberalisation has worsened. The comparative openness of the US economy (lamb tariffs notwithstanding) has served the world economy well over the past two years. But the resulting yawning trade deficit inevitably inflames latent protectionism within the US.

In such an environment sectoral agreements may look more achievable than a comprehensive one. Half a loaf is better than none.

But that is no spirit in which to embark on a world trade round.

Lockwood Smith has been trying to bridge the gap between the early harvest and single undertaking camps with the concept of early but provisional agreements.

Apec's senior officials did not buy it. He may have better luck at today's trade ministers' lunch, where officials are banned.

In the end the gap may be unbridgeable. The issue may prove to be, as Don McKinnon described East Timor yesterday, too big for Apec.

That would be a shame.