TRADE: by Colin TeeseNews Weekly
Where do we go next with Japan?
, April 23, 2005
The Japanese appear to have rejected the idea of negotiating a trade agreement with us for what are most interesting and, in some respects, worrying reasons, writes Colin Teese.As far as Australia is concerned, the phenomenon of bilateral trade agreements seems, if anything, to be gathering strength.
We already have a number of such agreements. An agreement with Malaysia seems to be a possibility - at least as far as we are concerned. And we hold out strong hopes for something with China.
More recently, feelers have been put out in the direction of Japan. These do not appear to have been at all well received. The particular circumstances of our Japanese rebuff will be discussed at some length later in this article.
Meanwhile, it is necessary first to consider how the world has approached the issue of preferential trade agreements with particular countries, and how we in Australia have approached the same question.
Australia has proceeded apace with concluding new bilateral agreements. Yet, at the same time, it has maintained its absolute commitment to the multilateral system which the World Trade Organization stands behind.
Australia is, of course, not the only WTO member country which is in the business of concluding limited-application trade agreements. One way and another, most of the trading world is at it.
The big difference in attitude has been Australia's. Once we were among those who were unswerving supporters of the multilateral system, and who specifically rejected the idea of bilateralism - and its soul-mate, preferential agreements with particular countries.
Our Prime Minister has justified the change in attitude as having been forced upon us by circumstances. We could not, he maintained, be left out if all others are heading in that direction.
On the face of it, Mr Howard's position is perfectly defensible. Indeed, the Government could be considered irresponsible if it stood idly by and watched the rest of the world tie up their trade relations independently of the WTO.
But we seem to have gone about the process in a peculiar way.
Perhaps we should be reminded that most of the world's trade agreements concluded outside the WTO have been strictly regional. Moreover, they have usually involved more than one other country. The European Union, the North American Free Trade Agreement, the Latin American Agreement and Mercosur are examples.Cultural identity
All of these agreements bring together, if not immediate neighbours actually sharing common borders, then, at the very least, countries in close proximity with each other and enjoying some sense of cultural identity.
There are, of course, good reasons why preferential trade agreements outside the World Trade Organization have focused on regional integration. In general, neighbouring economies find it easier to align their trading activities. Often they will have more in common commercially, and, in such circumstances agreements need do little more than formalise relationships which have been in place informally for long periods.
This is not to say that, even within regions, any trade-integrating arrangement is easy. The EU was the first example of a group of countries deciding to integrate their trading relations. There were, of course, over-riding political reasons for them to pursue the course of integration, and, additionally, the founding members could certainly identify some sense of cultural affinity.
Nevertheless, it is worth recalling that, while they agreed upon common trade policies to apply from the outset, the integration process took many years to bed down.
It is also a fact that the European Union has association arrangements with a number of developing countries outside its region: but these countries are not in any sense member states of the Union itself. They are, in fact, developing countries, producers of tropical agricultural products, who are afforded favourable access arrangements for their agricultural exports to EU countries. Those agreements are best seen as part of the EU's aid program.
It has become recent practice for these arrangements to be characterised as "free trade agreements" - probably because it is unfashionable these days not
to be in favour of free trade. Yet by no means all of them are - at least according to WTO rules.
Of all the agreements, perhaps the EU is most closely aligned with those rules. Most of the others are of doubtful legality.
Australia's agreements are no exception. We cling determinedly to the free trade terminology, yet we seem to be following a different path from the agreements already mentioned. All of Australia's agreements so far concluded - or, for that matter, being contemplated - have been bilateral.
One, with New Zealand - which, in fact, goes beyond trade - is certainly regional and is in conformity with WTO rules. Another, with the United States is neither regional nor consistent with what the WTO requires. In fact, the US free-trade agreement seems to be an attempt to integrate Australia, economically and culturally, into the US - and, if polling means anything, with little enthusiasm from the Australian people.
As to the others already concluded bilaterally with some of our Southeast Asian trading partners, they may be considered regional on a fairly loose definition of that term. But we don't enjoy common borders with them, nor are we close to them culturally. Indeed, as is widely recognised, one of the reasons we find our overall relations with Asian countries difficult, is because of the cultural differences.
Perhaps also, cultural differences are what makes our trade policy so difficult to construct, and the more so as trade with Asia becomes more important to us.
These considerations, taken together, might also help explain why our Government was so keen to conclude a trade agreement with a country outside our region - the United States - but with whom we can identify certain cultural similarities.
But none of this helps explain why we were persuaded to accept an agreement with the US under which the imbalance runs so strongly against us. Nor does it help explain why none of the preferential agreements we have so far concluded (except that with New Zealand) meets the WTO requirements to qualify as free trade agreements.
Given this fact, it is our good fortune that, until now, none of our WTO fellow members has chosen to challenge the validity of our existing agreements. Were they to do so, and if a WTO ruling went against us, we would be required to give to all WTO members the same concessions we have given to all our partners in any of our preferential agreements judged to be inconsistent with WTO rules.
As it turns out, that particular issue leads us neatly into the matter of a possible preferential trade agreement with Japan.
The Japanese appear to have rejected the idea of negotiating a trade agreement with us for what are most interesting and, in some respects, worrying reasons.
(They could, presumably, have said we already have an agreement signed in 1956, though it may now be of doubtful relevance. And while it was never preferential, yet it helped us enormously - by fostering goodwill - in our efforts to establish markets for beef and other agricultural products in Japan.)
But Japan never said any of that. It had its own reasons. Japan said it could not conclude a "free trade agreement" with Australia without risking the possibility of offending the United States. Why should this be so, we might have asked?
Japan has no bilateral agreement with the US on preferential access for US products. But it has made access undertakings on rice and beef in the WTO. While these are supposed to be available to all WTO members, it is well known that they were - quite intentionally - tailored to US demands.
Japan, correctly, believes that any preferential agreement with Australia would disturb the deal they have with the US. Now previously, both the US and Japan have always denied that the deal they have was specifically tailored to apply only to the US. Now we are having that fact confirmed from at least one of the horses' mouths.
The second point that the Japanese made is probably the more worrying.
They observed that any agreement with Australia - which could only apply in a limited way to agriculture - would not be covering all trade and therefore would not be in conformity with WTO rules.
We outside observers cannot know whether the Japanese were referring only to an agreement they might conclude with Australia, or whether they had been looking critically at the various preferential agreements bobbing up around the world - including ours.
Perhaps, even, the Japanese might have been telling us in their own way that our agreements might be the subject of challenge in the WTO.
For the Government's sake, let us hope it is otherwise!
- Colin Teese was deputy secretary of the Department of Trade