COVER STORY: by Colin TeeseNews Weekly
Free Trade: what's in it for us?
, November 30, 2002
It's official! Or so our newspapers tell us. The US and Australia are to start talks on so-called "free trade". And the process is to be "fast tracked" - talks will begin within 90 days. When they will be concluded, and to what purpose, is another matter.
Some of the commentators - especially those with a vested interested in the process more than the outcome, and who happen to be advising the Department of Foreign Affairs - are already flooding the media with extravagant and ill-founded claims about possible benefits.
Figures as high as US$8 billion have been bandied about - though it is not clear whether these calculations are based upon any realistic assessment of the eventual outcome.Speculation
Of course the speculation really doesn't means much, except in a propaganda sense: the truth is nobody can say at this stage whether there will be any benefit to Australia, what might be its magnitude, or what we might have to pay. Nor should we discount the possibility that it proves impossible for an agreement to be concluded.
On this latter point a cautionary word should be added: experience tells us that when a new negotiation is launched with this amount of publicity, important reputations are tied up with its outcome. Even if the talks fail in substance, some kind of face-saving illusion of success may need to be manufactured.
As to the benefit likely to be gained, this much may be said with certainty: the optimism of the ballpark figures won't be realised. That's because the assumption underlying those estimates is based on full free trade between the two partners. And we know from the exclusions already announced that that won't be realised.
All this is by way of preamble, and also to warn farmers, in particular, not to build any hopes of successful outcomes for our farm exports around mere pronouncements by over-exuberant politicians and other special pleaders. They would be better advised to listen to the advice of Mr Hugh Corbett - a dedicated free trader known to this writer - and now heading a Washington think tank. He observed over the weekend that when a small nation negotiated with a very large one, it hardly ever came out in front.
With that as background we need to understand what we (and the US) are about in bringing on this negotiation at this time.
There has been the suggestion that it is an advantage conferred upon Australia for its support for the Bush Administration over Iraq. In this writer's opinion that possibility can be dismissed out of hand. There is no evidence that the US ever rewards political support with economic advantage. Actually, our political support for the US over Iraq could work against us. Suppose the talks break down hopelessly, and the Iraq situation has not gone well, the US political leadership needs a scapegoat. In that event, it is perfectly capable of casting Australia as an unfriendly negotiating partner.
At a more technical level, it is difficult to imagine how the proposed bilateral agreement negotiation can fit in with the plans of both ourselves and the US to participate meaningfully in the commencing round of multi-lateral negotiations within the WTO. These, it will be recalled, have been enthusiastically endorsed by Australia and only slightly less so by the United States.
The World Trade Organisation succeeded the General Agreement on Tariffs and Trade as the repository of the world's trading rules. Like GATT it is the agency under which multilateral negotiations aimed at world trade liberalisation are conducted. (In almost all important respects the rules of the WTO - with elaborations - have been taken from the GATT.)
Up to this point, so have the procedures for multilateral negotiations. It is unprecedented for bilateral negotiations for a so-called "free trade" agreements to be taking place alongside a multilateral negotiation, for the obvious reason that the one is in contradiction with the other.
In this context, it should be observed that the US and Australia are not the only nations working on free trade agreements: we know for certain various Asian grouping are also engaged in similar activities. It is almost as if they believe that the WTO Round of multilateral negotiations is doomed to failure.
From his brief public observations, the Director-General of the WTO seems himself puzzled. During his stay in Australia, he was asked to comment on this development. He observed that "as he had been advised", the free trade agreements under negotiation were consistent with the WTO rules. It is hard to see how he could possibly know this in advance of the final outcome of the negotiations.
Despite the optimism of its newly installed Director General, WTO officials must be concerned about this matter. And no wonder.
Like the GATT before it, WTO rules permit its members to come together in free trade agreements - subject to certain conditions. The two essential conditions were (i) that the agreement covered all the trade (including agriculture) between the members of the agreement, and (ii) that the new agreement's conditions must not leave any other GATT (WTO) members worse off than before.
The original EEC agreement, which established a customs union between the six founding member states of the present EU, negotiated back in the mid-fifties, appeared to meet both conditions. New barriers to trade were not constructed against GATT members outside the customs union and all of the trade was covered.
Under what is being proposed between the US and Australia we know - because the US has told us and we haven't disagreed - that large slabs of agriculture, perhaps all of it, will be excluded. So we can say that, technically at least, any agreement between Australia and the US cannot meet one of the fundamental WTO conditions. What will the WTO's reaction be?Tariff levels
Beyond that, as to the trade in goods side of the equation, we can assume that neither side will increase customs tariffs against the rest of the world. But neither will they go down. That's obvious, because customs tariffs are now so small in both our countries that there is nothing left to negotiate - except the few sensitive items which neither side intends putting on the negotiating table.
So assuming agriculture is out, and tariffs are not an issue, what's left to negotiate? The trade in services, we are being told. This is the newest and, potentially the most lucrative of all international trade sectors. Especially, this is so (though we aren't told) for the large economies if they can dominate the markets of smaller countries.
There has been little public debate about this trade, and the general public knows almost nothing about it. It is far too complicated an issue to discuss in detail here, though News Weekly
has already considered some of the issues.
All that can be said in this article is that much of the proposed liberation of the trade in services could intrude seriously upon Australian sovereignty, and that opening up these aspects of our markets indiscriminately could be enormously beneficial to the United States and of little benefit to us.
Moreover, some aspects of what the US wants in this area actually represent a restraint of trade and would harm Australian consumers. For example, the US wants restrictions imposed which would preclude Australia from importing cheap unbranded copies of labelled products.
The question also arises, if the trade in services is so important to the world, why are we negotiating them with just one trading partner? All the more so since a multilateral General Agreement on Trade in Services(GATS) is being negotiated in the WTO.
The answer lies in politics. The US is hoping, perhaps, to negotiate something on services bilaterally with Australia which could help it shape the kind of agreement on services it wants to achieve in the WTO.
And here in Australia, there is a possible political advantage in continuing to keep alive the hope that agriculture - or at least part of it, may be included in the negotiations with the US .
We have seen an example of this with sugar, which, as is well known, faces serious structural problems arising from a combination of subsidised competition on world markets, and of the impact of misguided domestic competition policy at home.
In the context of these problems, the Prime Minister expressed the confident belief that the pressures on the industry could be much relieved if, as a result of a free trade agreement with the US, that market were opened up to our sugar producers. It has now become clear this will not happen.
Given that fact, and the real possibility that the rest of agriculture will not be covered in any meaningful way in a free trade agreement with the United States, the political advantage the Government might have hoped for could be turn into a negative. New export opportunities for our agriculture in a market such as the US could have helped take the focus off the negatives farmers are now associating with the competition policies applying at home.
As farmers understand, once again, that access to world markets isn't the answer, they will begin demanding higher returns on the domestic market to allow them to keep farming.
Unfortunately, that realisation will throw the focus of their discontent back where it belongs - fairly and squarely on the Government's policies of deregulation of the farm sector.
That being so, it is difficult to see how the Government, from other areas of the negotiations, will be able to show benefit to Australia, especially if part of what we might be asked to concede - such as the abolition of the single selling desks for wheat and sugar - actually harm farmers.