ASIA: by Jeffry Babb News Weekly
Free trade agreements - what's in it for us?
, July 13, 2002
With the international trading system in the mire, it's worth looking at the international trade flavour of the month, free trade agreements (FTAs). Australia is far from being the only global economy where FTAs are seen as an economic cure-all.
Singapore has been very active and is seeking more agreements in Europe to back up its recently signed FTA with Japan. One wouldn't think that an economic colossus like Japan would be threatened by anything Singapore has to offer, especially in agriculture. Singapore is, after all, a city state with no agricultural base. But it has. Singapore's sole primary export of any significance is goldfish. And guess what is excluded from the Japan-Singapore FTA? Goldfish.Protectionist
The United States is protectionist. Prices are going up, because of tariffs on steel. Housing is more expensive, because timber from Canada has a tariff. The US$100 billion plus farm bill is already affecting Australia's markets.
Taiwan is also considering an FTA with the United States. Taiwan is in an interesting position. Taiwan has an estimated US$100 billion invested in mainland China. Total trade between mainland China and Taiwan in 2001 was US$32 billion, with 85 percent of that being exports from Taiwan.
In 2001, Taiwan's exports to mainland China for the first time exceeded those to the US. Although America still sells more to Taiwan than mainland China or Hong Kong, the eyes of every China trader light up when speaking of the massive market potential.
Conservative groups in the U.S. have been backing the US-Taiwan FTA for political reasons - it will make Taiwan less dependent on its giant neighbour China, which has not yet renounced the option of using force if Taiwan does not return to the Motherland's fold voluntarily.
"Taiwan has the potential to become the 51st market state in the US with a bilateral FTA," Ed Feulner, president of the Washington-based Heritage Foundation told the Asian Wall Street Journal
Says Antonio Chiang, a member of Taiwan's national security council and noted mover and shaker in Taiwan's Presidential office, "Enactment of a US-Taiwan FTA is the most important move American can take to guarantee Taiwan's national security. While weapons sales are obviously important, the need for enhanced economic security become more urgent by the day."
Under an FTA, Australia would be in much the same position - dependent on the US. Of course, our farmers wouldn't get any more of a fair go than they do at the moment, and under the North American Free Trade Agreement (NAFTA) doing a deal between Melbourne and Montreal - or Mexico City - would be the same as doing one with Sydney.
In the broader Asian context, Japan and China are promoting rival trade pacts that include South East Asia - and perhaps Australia. At the moment, neither of the competing versions is likely to get off the ground and Australia's role would be the same for China as it has for Japan - a convenient, cheap and politically stable source of raw materials.
But while Australia has a complimentary economy with the Asian powers, it's not the case with the US. Australia's highly efficient raw materials and agricultural producers will be competing directly with politically powerful and well organised US producers. We will never count for a single vote where it matters - in the United States House of Representatives and the Senate. Let's not forget, Canada has NAFTA and the Americans have slapped punitive tariffs on Canada's main export to the US - softwood timber.
From Taiwan's position, it already has something of an FTA with mainland China. Under the World Trade Organisation (WTO), Taiwan has had to drop barriers to over 2,000 items. Some of the things that are happening now occasionally makes you think you're not seeing right - Beijing's flagship beer, Tsingdao, is now being advertised in Taipei - and people are drinking it.
In examining the utility of an FTA, one must look at the fine print - in other words, what's in it for us? At the moment when it comes to an FTA for Australia with the US, one would have to say "not a great deal" - Australia's most competitive exports could be shut out by any President chasing votes in the farms states - or the industrial Mid West - or anywhere else, for that matter.
Another economic factor is at work. The US$ is decreasing rapidly in value against other currencies. This will make imports more expensive and exports cheaper - a boon to US import-competing manufacturers and U.S. exporters. The Australia dollar has increased in value some 15 percent against the U.S. dollar over the last few months.
What can we do about it? Almost nothing - international currency movements are beyond the control of even the Japanese Government, which is desperately trying to hold the yen steady against the US$. Japan is being warned it can't export its way out of its persistent recession by artificially holding down its currency. If these two giants come to blows, the grass will get trampled.