ECONOMICS: by Colin TeeseNews Weekly
Trade blocs - where will Australia fit?
, March 10, 2001
Colin Teese wonders where Australia will fit in a trading world divided into three blocs.
In the previous issue of News Weekly, the shortcomings of both Labor and the Coalition concerning the realities of trade policy were unveiled.
Both the major parties have, for the last two decades, been following the same misguided policy. Two prongs. First, a commitment to permanently exposing the Australian market to the full face of nakedly opportunistic international trade and investment flows. And second, a faith in international co-operation as the sole means of defending our trade interests.
Part of this faith includes the relaxation of measures previously maintained to safeguard human, animal and plant life from imported diseases.
This approach was, and still is, rooted in the virtues of a deregulated economy. Free trade is at its core. At the trade policy level, this commitment to free trade and its wider consequences has acted as a constraining influence on those charged with the making of international economic policy. This unwelcome development has harmed the national interest, not merely at the trade level, but in so far as broader foreign affairs issues are concerned.
The actions of Labor, under both Hawke and Keating, most obviously illustrate this. From its beginnings, the Labor Government professed a concern to get closer to Asia. Unfortunately, that concern and the actions that followed it in the name of closer economic co-operation within the framework of a so-called free trade agreement, has come at a heavy price for Australia.
APEC (Asia Pacific Economic Cooperation) was the chosen instrument. Fair enough. But APEC began its life with an insurmountable handicap. Instead of focusing the APEC framework on the objectives, the Hawke/Keating Government's economic advisers guided the Government into an ideological minefield.
Orthodox free trade agreements entail the idea of exclusivity. That is the access arrangements defined by the agreement apply only to members: outsiders are subject to different and less favourable terms of access. This has had to be so: why join an agreement if outsiders are entitled to the same conditions of access as members?
The European Union, for example, is an orthodox free trade agreement - a margin of preference at border entry applies in favour of member countries. Non-members are subject to a margin of preference at border entry in favour of member countries. Non-members are subject to a higher rate of duty.
Labor's APEC was nothing of the kind. Its members would agree to scale their tariffs down to zero and to offer unrestricted access to the world - at no cost. "Open regionalism" was the name Labor's academic advisers gave to this wonderful invention.
No wonder the Asians were suspicious of the idea - and us. The slanging match that erupted between Paul Keating and the Malaysian Prime Minister Mahathir seriously damaged our standing in Asia, and from which we are yet to recover.Asian century?
As to why Labor took this initiative, it is only possible to speculate. But it should be remembered it was at the height of the Asian boom. The 21st Century would belong to Asia - or so we were told. It is possible that the then Australian government was persuaded to become a stalking horse for the northern hemisphere powers in an attempt to bring down Asian trade barriers and to bring Asia into the World Trade Organisation on terms that suited North America and the European Union.
It - and we - failed dismally. And in the midst of this failure the Asian economic bubble burst. The collapse of the Asian economic boom, and its aftermath, probably buried a fatally flawed APEC forever.
Nobody need shed a tear over that, and the world has moved on - but not necessarily in ways which advantage Australia.
Consider the immediate future. Possibly there will be a new round of negotiations within the WTO. Such negotiations will not, however, result in the protected markets of Europe, North America and Asia, opening up to Australia's agriculture. And, even if they did, it is doubtful if our agriculture, by then ravaged by National Competition Policy and further deregulation, will be a position to benefit.
It is also possible that if, following the next round of negotiations over the WTO, the US and Europe do not get what they want from the rest of the world in terms of deregulation of the trade in services, their inclination will be to turn away from the WTO. The alternative will be a world divided into trading blocs of roughly equal size and strength between which mutually advantageous bargains will be struck.
There is already a block covering Europe, and another covering North America. Conceivably, the latter block could be expanded to cover the rest of the Americas and we know that the European block has in mind further acquisitions.
The next logical regional grouping, indeed the only remaining uncommitted region on the planet other than Africa, is Asia. Bringing Asia together won't be easy, but outside circumstances might force co-operation upon it.Trade blocs
Assume, for the moment that such a new block emerges - what are the implications for Australia?
There will be those who imagine our future in the region will be tied up with how we manage issues like Asian immigration and the boat people. I believe otherwise.
Two issues are important. First, the small Asian countries, the ASEAN countries, will wonder whether we can comfortably fit in, rather than continue to act as a comparatively significant economic power, orientated in everything but geography to Europe and North America.
They will recall that most of our exports are taken by Asia, and most of our imports come from Europe and North America. And also important to note, for the record, we have given away most of our tariffs. We come to any negotiating table empty-handed.
Nor will Asians forget that when a proposal came from Japan suggesting the creation of an Asian Monetary Fund to deal with financial problems in the region, Australia opposed it, presumably, on Treasury advice, and in harmony with the views of the Northern Hemisphere powers. Hardly a good recommendation for one asking for acceptance into an Asian trading bloc!
That is one consideration. The other is, in one sense alarming for Australia and in another sense, perhaps it is comforting. Any Asian regional grouping will presumably be dominated be Japan, China and India, in that order. The essential shape of the bloc will therefore be decided by that grouping.
We can expect to have little, if any, influence over such discussions, especially if we have surrendered most of our tariff advantages to European and North American interests.
The most we can hope for is that Japan, on the basis of a close past relationship, will speak for some of our interests. On the other hand, it is not a role that Japan handles well.
The timing of all this is wrong for us. Two decades ago, we could have been one of the shaping powers. We still had chips to bring to the bargaining table and our comparative economic strength was greater. But when the time was right the Hawke-Keating Government preferred to blow Australia's credibility in the pursuit of the ideological rainbow of "open regionalism."
I would not like to be one of Australia's negotiators trying to cut us loose from the Northern Hemisphere and negotiate our way into a regional group dominated by Japan, China and India. Pity also the Australian Government trying to justify the outcomes to the Australian people.
Perhaps Mr Howard would be better addressing these problems, rather than announcing his government's intention to negotiate a so-called free trade agreement with Singapore, in circumstances where one already exists, de facto.