Australia’s future trade policies

This is the text of a piece I con­tributed to the Aus­tralian Finan­cial Review ear­li­er this week. bq. There are obvi­ous com­mer­cial advan­tages for Aus­tralia in being only the sec­ond devel­oped coun­try to reach a free-trade agree­ment with the USA. We may also be the first to reach a free-trade agree­men­twith Chi­na if cur­rent talks between Can­ber­ra and Bei­jing suc­ceed. bq. But does this bilat­er­al trade strat­e­gy con­tribute to the decline of the WTOZs glob­al trad­ing sys­tem? Or is it pos­si­ble to use our unique links with both the USA and Chi­na to help pre­serve the non-dis­crim­i­na­to­ry mul­ti­lat­er­al sys­tem from dam­age and, pos­si­bly, to improve the returns we will get from bilat­er­al agree­ments? The pro­posed US-Aus­tralia free trade agree­ment appears most­ly to meet the high stan­dard that the two sides sought despite the omis­sion of sug­ar, long imple­men­ta­tion peri­ods and remain­ing ques­tions about the detail. It even­tu­al­ly elim­i­nates most bar­ri­ers to bilat­er­al exchange, more close­ly inte­grat­ing the two economies, with­out harm to our mul­ti­lat­er­al WTO oblig­a­tions. A healthy WTO is essen­tial for an econ­o­my such as ours, which has only a 1 per­cent share of world trade and depends on com­modi­ties for 40% of exports. The most basic rea­son is that prices for com­modi­ties, and there­fore our terms of trade, are formed by access to demand in glob­al mar­kets, not bilat­er­al or even region­al trade. The WTO is, how­ev­er, only limp­ing along. The col­lapse of the Can­cun Min­is­te­r­i­al meet­ing last Sep­tem­ber con­firmed that the old for­mu­las for man­ag­ing the glob­al sys­tem no longer work. The USA and Europe fum­bled their attempts to lead gov­ern­ments to a con­sen­sus on seri­ous trade conflicts—some of their own mak­ing ” and new direc­tions. The gov­ern­ments of the giant devel­op­ing economies of Chi­na, Brazil and India, how­ev­er, turned out to have been poor under­stud­ies for the lead­er­ship roles. The atten­tion of these gov­ern­ments ” who must even­tu­al­ly assume more respon­si­bil­i­ty for the mul­ti­lat­er­al sys­tem ” has turned to bilat­er­al nego­ti­a­tions. Chi­na is nego­ti­at­ing region­al agree­ments with the ten mem­bers of ASEAN and with Korea; India has begun to nego­ti­ate a trade pact that is planned to encom­pass all of South Asia; Brazil has retained its dom­i­nance of Latin Amer­i­ca despite US attempts to redraw the region­al trade map.

Aus­tralia, unique­ly among Zwest­ernZ economies, has an oppor­tu­ni­ty to estab­lish bilat­er­al agree­ments with both the indus­tri­al and the devel­op­ing coun­try lead­ers.  In addi­tion to this week­sZ agree­ment that joins us, for­mal­ly, to the US region work has start­ed on a frame­work for a future free-trade nego­ti­a­tion between Aus­tralia and China—possibly the first that Chi­na will under­take with any devel­oped econ­o­my. This sug­gests two ways to rec­on­cile our bilat­er­al and mul­ti­lat­er­al objec­tives, enhanc­ing the ben­e­fits from both. First, we can strike a high-qual­i­ty bilat­er­al deal with Chi­na. Chi­na is pur­su­ing a region­al trade strat­e­gy but has no expe­ri­ence in the design of a WTO-com­pli­ant eco­nom­ic inte­gra­tion deal of the kind that we have com­plet­ed with the USA. ItZs pos­si­ble that Chi­na wants to nego­ti­ate with Aus­tralia to acquire the tech­nol­o­gy for future bilat­er­al nego­ti­a­tions. If so, we can build a rela­tion­ship to our own bilat­er­al advan­tage as a Zfirst moverZ with Chi­na, while set­ting a high stan­dard for Chi­naZs future region­al agree­ments.

Sec­ond, we can work on mul­ti­ply­ing the trade-cre­at­ing ben­e­fits of our region­al agree­ments while reduc­ing the eco­nom­ic costs due to trade-diver­sion. ItZs prob­a­ble that nei­ther the USA nor Chi­na con­sid­ers a high-qual­i­ty bilat­er­al agree­ment with Aus­tralia to be an end in itself. Both might see agree­ments with Aus­tralia as a first step in a broad­er strat­e­gy to open region­al mar­kets more deeply than under cur­rent WTO rules. The ben­e­fit for Aus­tralia of encour­ag­ing such broad­en­ing is that the more diverse this region and the big­ger its mem­ber­ship, the greater our own trade ben­e­fits and the small­er the hid­den costs of trade-diver­sion. We should be active­ly plan­ning to extend to our oth­er trad­ing part­ners ” e.g the oth­er mem­bers of ASEAN, Korea and, even­tu­al­ly, Japan ”the same arrange­ments that we have agreed with New Zealand, Sin­ga­pore, Thai­land and the USA and that we hope to put in place with Chi­na. That ambi­tious agen­da might sound famil­iar. It’s real­ly no more than re-vis­it­ing the 1994 “APEC” agen­da but this time as part of a more prag­mat­ic rec­i­p­ro­cal, rather ‘uni­lat­er­al’, pro­gram of trade lib­er­al­iza­tion. Our abil­i­ty to work with both the indus­tri­al­ized and devel­op­ing economies has led to cre­ative solu­tions in the past—such as the Cairns Group. Now, with inter­ests that bridge the mul­ti­lat­er­al and the region­al sys­tems we can take steps to help the WTO recov­er its bal­ance. by ensur­ing that its basic guar­an­tees sur­vive these changes in the loca­tion of eco­nom­ic pow­er and the direc­tion of world trade.

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