INTERNATIONAL TRADE: by Colin TeeseNews Weekly
Rudd Government to re-examine FTAs
, March 29, 2008
Australia for the past 25 years has single-mindedly pursued free trade policies, even to the extent of unilaterally cutting its tariffs and thereby undermining its bargaining power with its trading partners.
Former senior trade negotiator Colin Teese
says that the Rudd Labor Government's proposed re-evaluation of Australia's free trade agreements is long overdue.Trade seems to be back in the news. Kevin Rudd's Labor government has announced its intention to re-examine what are called - misleadingly - the free trade agreements (FTAs) so far concluded by Australia.
These agreements are not, strictly speaking, free trade agreements. They are bilateral agreements between Australia and various trading partners which cover some, but not all, of the trade between the parties. Because of their limited trade coverage, they don't qualify as legitimate free trade agreements under World Trade Organization (WTO) rules.
These agreements are carefully structured to be compatible with special economic and political interests of the parties. At least, that is true of our partners in the agreements.
Australia's position is a little less clear. Successive governments have been conditioned by advisers to regard themselves as squeaky-clean defenders of the idea and practice of free trade. Accordingly, they choose not to follow the line of our trading partners who put their own national interest first.
It is possible that our new government intends to do no more than understand what has been done by its predecessor. But why should the government bother to do this if it is as committed to both the principle and practice of free trade as was the Coalition? From the perspective of a free trade ideologue, the Howard Government did nothing wrong.
If the present existing FTAs are flawed, it is because of their starting point. An experienced trade negotiator, however, using different assumptions, could design agreements better suited to Australia's interests.
(The bilateral agreement with the US, it should be noted, was something of an exception. In that agreement, Mr Howard threw away the rulebook. For political ends he seemed willing to sign whatever was needed to secure an outcome. In one unguarded moment he actually said so. Thus, the signing of that agreement could not in any sense be said to have proceeded from a "negotiation" - at least not on the Australian side.)
In general, though, the previous government's purpose in negotiating bilateral trade agreements seemed to be driven by the notion of unbridled free trade and market deregulation.
We need to plough through the writings of those academic and journalistic economists arguing for free trade to understand free trade ideas. They insist that the entire world needs it, no less than individual economies. Indeed, free trade is the only true path to economic efficiency.
Moreover, free trade is better for Australia, they say, even if the rest of the world does not follow suit - and that is the policy we have embraced. In fact, the internal economic efficiencies that free trade can generate in our own economy are diminished, though not extinguished, if others don't join in.
These views have been driving Australia's trade policies for the last 25 years. Undoubtedly, they lie behind our attitudes toward the WTO and to our bilateral trade agreements.
New Zealand aside, we are the only nation in the developed world which wholeheartedly embraces the free trade mantra. As part of this, we have, by deliberate choice, undermined even our rights under the WTO agreement to keep out diseased plants and animals.
Our import barriers have been dismantled, and we alone among the developed economies have wilfully exposed our domestic industries to the full force of heavily subsidised import competition. Unbridled free trade is
our trade policy.
Our leaders appear to believe that a deregulated free market economic order, with free trade as its centrepiece, has delivered us the economic trifecta: low inflation, low consumer prices and more competitive industries.Unsustainable
The claim is largely unsustainable. China's cheap exports, combined with (until recently) cheap money and relatively cheap oil, have provided the downward pressure on price inflation in all developed countries for the best part of a generation. The benefits to Australia flowing from these circumstances have been no greater than those enjoyed by our trading partners, who do not share our devotion to unbridled free trade.
In the same way, our commitment to free trade has failed to insulate us from the consequences of recent developments - notably, emerging inflation in China, the end of cheap money and escalating oil prices. We are no better able to deal with these emerging problems than the rest of the world.
Meanwhile the unintended consequences of free trade policies continue to be swept aside. When we were dismantling industry protection, it was conceded that, yes, companies and jobs unable to survive against import competition, would disappear.
Against that, access to cheaper imports would advantage both consumers and business. Furthermore, we were assured, new efficient industries and employment opportunities would emerge in a newly competitive economy, to the benefit of all. None of these mythical new industries could be identified in advance, nor did they ever appear.
We don't even talk about them any more. Workers displaced from manufacturing industries by import competition have mostly never found permanent work. In one way or another, to a greater or lesser extent, they have been a charge on welfare ever since.
Meanwhile, manufacturing industry overall is fast contracting - from 20 per cent of our economy 30 years ago to 11 per cent and still falling. Agriculture, which we all know was internationally competitive, has suffered the same fate. Its international competitiveness was sustained by having assured access to a lucrative domestic market.Struggle to survive
A commitment to free market economics, however, has pulled that rug from under our farmers who are now struggling to survive and are ever diminishing in numbers. Meanwhile, higher levels of food imports have not yielded the promised cost advantages to consumers.
We are now more than ever dependent on imports to provide what we once made or grew for ourselves. We are now consuming more imports than our exports can pay for. We make up the difference either by selling Australian assets or by borrowing money offshore. We are currently doing both.
Out of all this a couple of facts are clear. Committing ourselves totally to free trade, when others don't, means that there is nothing we can make or grow here which can't be obtained cheaper from overseas. And we can only pay our soaring import bills by borrowing offshore.
A saner policy approach would accept this reality and abandon free trade extremism. Instead, we should develop trade and industry policies which allow us to maintain domestic manufacturing and agricultural production at sensible levels, and to fashion appropriate trade policies accordingly. Such an approach is sometimes messy and difficult to administer, but it is an approach which our trading partners continue successfully to do. It is possible to maintain a proper industrial and agricultural base, while participating in international trade.
If the Rudd Labor Government is heading in this direction, then its re-evaluation of bilateral trade agreements is a great starting point. Certainly, bilateral agreements are now, more than ever before, an important element in the international trade strategy of most developed economies.
The major trading nations now seem less committed than they once were to the idea of multilateral solutions to trade relationships within the WTO. They may insist otherwise, but this is purely for public consumption. For how else can the proliferation of bilateral rather than multilateral agreements be explained?
It is common knowledge that the Doha round of trade liberalisation negotiations has been stalled for some time. Most recently, our new Trade Minister, Simon Crean, has been persuaded (presumably by his Department of Foreign Affairs and Trade) to associate himself with attempts to revive it.
Whatever the department's motives, its policy doesn't seem to make much sense. The principal player in any multilateral negotiation in the WTO is always the United States, being the world's biggest economy. For the US to participate in any negotiation its President is required to seek a mandate from the US Congress. This strictly defines the negotiating parameters for US negotiators. In return, it guarantees that what is negotiated will be passed by Congress.
Big players at the bargaining table in the WTO have always said they won't negotiate with the US except on the basis of a mandate. Quite obviously, without a mandate, US negotiators can't commit their government, so what's the point of negotiating with them? The mandate obtained by President Bush for the Doha Round expired in September 2007.
Even if other parties were prepared to negotiate with the US team, is it conceivable, in an election year, that any deals done in the name of President Bush would be passed by a US Congress now controlled by Democrats?
We should therefore conclude that Doha cannot be advanced before the US election - and the Rudd Labor Government should surely know this.
Still, the future of our trade policy is important - both bilateral and multilateral. We should be gathering information on what can be negotiated, now or in the immediate future, within the multilateral forum of the WTO. And we certainly should not overlook bilateral agreements.Waste of time
If the government is really concerned about what should be the future direction of our trade policy, then it should be looking carefully at both multilateral and bilateral agreements. But if its review is no more than a managerial measurement exercise beginning from the same starting point as the previous government's absolute commitment to free trade, then any examinations will be a waste of time and effort.
The rights and wrongs of what we have now flow directly from our policy relating to free trade. Any shortcomings necessarily attach to that. If we don't like the outcomes, we need to re-examine the policy behind them.
The trouble is, even if the Rudd Government were serious about a trade policy review (which is no certainty), its difficulty would be to find a pool of advisers who might be capable of finding a better set of policies outside current trade policy orthodoxy.- Colin Teese is a former deputy secretary of the Department of Trade.