Thursday, October 10, 2013

It's not just about trade deals but also reforms at home

Tony Abbott is broadly on the right trade track, but may find more success in unilateral liberalisation than waiting for other countries to step up to the plate.

Abbott has already achieved a trade policy win by appointing highly competent Liberal MP Andrew Robb into the trade and investment portfolio.

Robb's record as a dogged free trade advocate during his 1980s' leadership role of the National Farmers' Federation puts him in good stead to manage domestic interests in sensitive sectors.

Robb's challenge is to drive Australia's free trade agenda, even while the same roadblocks that stopped the former minister, Craig Emerson, from achieving much, remain.

In addition to locking down trade deals, there are still reforms to be taken at home.


On a practical level, the government could increase foreign investment threshold levels that prompt Foreign Investment Review Board reviews.

Because of bilateral deals, New Zealand and American investors enjoy threshold levels up to five times higher than other investors.  The standard could easily be extended universally.

Robb should also scrap parallel import restrictions on books that protect the interests of multinational publishers, can increase prices by up to a third, and do nothing for our local writers.  Proposals to broaden and strengthen Australia's anti-dumping regime should also be scrapped.

There are also under-utilised provisions by professional bodies in existing FTAs to promote qualification recognition that could increase services trade.

Robb also needs to rebuild Australia's free trade consensus.  We no longer have a free trade consensus;  we have a no-tariff consensus.

Since 2007 all sides of politics have toyed with non-tariff barriers that would restrict trade under the disguise of environmental concerns.  Equally, all sides appear committed to extending the ongoing, outrageous taxpayer-funded subsidies to the car industry.


Robb should focus his energy on ensuring the schedule for cutting remaining tariff rates is met without the reciprocal increase of subsidies, as the car industry has enjoyed.

Internationally the challenges are starker.  Negotiations for an FTA with China have dragged on since 2005 because of disappointing offers for market access for Australian agriculture exports.  Investment regulations are also hampering negotiations.  Unless the Chinese government puts better offers on the table it will be difficult for Australia to secure a comprehensive deal worth signing.

The temptation for the government will be to conclude negotiations even if it means securing a weaker deal.  But we shouldn't trade our national interest for a headline.

Similarly, we should not be starry-eyed about the progress of broader agreements, such as the Trans-Pacific Partnership.

The TPP started with Brunei, Chile, New Zealand and Singapore, but negotiations have expanded since 2010 to include eight other countries in the Pacific Rim, including Australia and the US.

A comprehensive deal was more likely to be struck amongst a smaller number of countries with few politically and economically sensitive industries.

Countries should then have been welcomed to join a comprehensive deal with phase-in timelines to allow domestic industry to structurally adjust.


Instead many countries joined negotiations early as the TPP appeared to be providing the framework for an Asia Pacific-wide regional FTA.  But with every additional country the negotiating window for a comprehensive deal becomes smaller.

With a Democratic President in the White House, the injection of environment and labour standards could sink any deal with poorer developing countries.

It will be difficult for the TPP to be concluded by the optimistic deadline of the end of this year.

Similar problems are dogging global trade talks due to ongoing disputes about developed-country agriculture subsidies and developing-country tariff protection of industrial products.

After so many years of failure, it is doubtful a global deal can be done.  The round started on the wrong foot by prioritising development as a central pillar of any deal, not just free trade.

Development follows from free trade through Adam Smith's invisible hand of greater efficiency, trade and growth in the global marketplace.

Promoting development as a priority assumes that the visible hands of governments actually know what trade and investment flows will lead to growth.

Injecting "development" compromises the unifying principle that trade deals should remove barriers.

The gap of expectations is a systemic problem in international forums.  Throughout the 20th century the rich world got to write the rules, on the proviso that there were expectations on developing countries.

Today, developing countries are asserting their negotiating muscle, but there's less unanimity about what the rules should say.

The WTO is not alone.  The UN's health, intellectual property and climate change bodies are all struggling to secure treaties, most notably failing to secure a post-Kyoto Protocol.

These challenges should not dissuade Abbott and Robb from being ambitious on trade, but equally they should not ignore securing vital, achievable liberalisation gains at home.

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