What’s motivating the free trade frenzy?

The rapid pace of bi-lat­er­al and pluri­lat­er­al nego­ti­a­tion by Aus­tralia of ‘free trade’ agree­ments prompts ques­tions about pol­i­cy coher­ence. How close­ly has the gov­ern­ment analysed the under­ly­ing rea­sons for this out­burst of ‘free trade’ pro­pos­als? What is the gov­ern­ment doing to lever­age those motives for the great­est ben­e­fit? The free-trade agree­ments adopt­ed, pro­posed or being nego­ti­at­ed by Aus­tralia (NZ, Sin­ga­pore, Thai­land, USA, Chi­na, ASEAN) have not much in com­mon, apart from their chap­ter head­ings. They have sim­i­lar prod­uct cov­er­age but dis­sim­i­lar lib­er­al­iza­tion pro­vi­sions, dif­fer­ent rules of ori­gin, dif­fer­ent dis­putes mech­a­nisms, dif­fer­ent gov­er­nance pro­vi­sions etc etc. The new pat­tern of ‘free trade’ agree­ments doesn’t remove the fences and bar­ri­ers that lit­tered the land­scape of region­al trade. It only rearranges them into new pat­terns with expand­ed out­lines. The pro­posed bridg­ing agree­ment between the ASEAN Free Trade Agree­ment and the Aus­tralia-New Zealand ‘Clos­er Eco­nom­ic Rela­tions’ agree­ment is the lat­est addi­tion to this con­fus­ing busi­ness: bq. Offi­cials from ASEAN, Aus­tralia and New Zealand are already work­ing close­ly togeth­er, explor­ing ways to car­ry the FTA pro­pos­al for­ward. Aus­tralia will host the next round of offi­cials’ talks in Syd­ney on 16–17 July before trade min­is­ters meet in Jakar­ta on 4 Sep­tem­ber.  “Media Release”:http://www.trademinister.gov.au/releases/2004/mvt052_04.html) Tak­ing these pro­pos­als as they come along is oppor­tunism; not a pol­i­cy. Although a pat­tern has emerged of eval­u­a­tion of indi­vid­ual agree­ments as they are pro­posed, more care­ful eval­u­a­tion is need­ed of the costs and ben­e­fits of our gen­er­al approach. Greater atten­tion is need­ed, right now, to the shape of the over­all for­rest, not just to the size of each tree. One rea­son an overview is need­ed is that it’s very like­ly the dif­fer­ences between the agree­ments will intro­duce trans­ac­tion costs for traders. The cur­rent activ­i­ty will leave Aus­tralian importers and exporters with a much larg­er ‘book’ of trade regimes, rules and bar­ri­ers to work with. It’s an open ques­tion whether the costs of man­ag­ing these dif­fer­ences will be com­pen­sat­ed by low­er pro­tec­tion and new oppor­tu­ni­ties. The dif­fer­ences are also the source of trade diver­sion costs that under­mine the gains from dis­crim­i­na­to­ry trade agree­ments. But the big­ger cost of this casu­al ‘free trade’ pol­i­cy is that it miss­es out on the poten­tial for a much broad­er, much more coher­ent and valu­able region­al agree­ment. The rapid spread of free-trade pro­pos­als in our trade agen­da and in the agen­das of all of our neig­bours means some­thing. * It prob­a­bly fol­lows, in part, from
** the dra­mat­ic reduc­tions that were made in most devel­op­ing coun­try tar­iffs on man­u­fac­tures through the 1990s.
** the near com­ple­tion of the goods trade lib­er­al­iza­tion pro­gram among the orig­i­nal ASEAN six.
** the open­ing of China’s bor­ders through the 1990s, cul­mi­nat­ing in broad lib­er­al­iza­tion it agreed in its 2001 Pro­to­col of Acces­sion to WTO.
* It prob­a­bly reflects region­al gov­ern­ments’ frus­tra­tion with the slow and dif­fi­cult pace of the WTO mul­ti­lat­er­al nego­ti­a­tions.
* It prob­a­bly means that region­al busi­ness has con­vinced gov­ern­ments that glob­al­ized pro­duc­tion chains need bar­ri­er-free logis­tics.
* It prob­a­bly sig­nals that region­al gov­ern­ments have under­stood that China’s lib­er­al­iza­tion and growth means that for­eign invest­ment flows will by-pass them unless their indus­tries inte­grate more close­ly with those glob­al val­ue chains. If this is a rep­re­sen­ta­tion of the pres­sures that are oper­at­ing on many region­al gov­ern­ments, then a web of bilat­er­al agree­ments is the least effi­cient way of cap­tur­ing their poten­tial. It would be much more effi­cient, as I have “argued before”:http://www.inquit.com/article/60/australias-future-trade-policies (includ­ing in my “submission”:http://www.inquit.com/article/244/submission-to-senate-on-us-australia-fta to the Sen­ate Com­mit­tee enquir­ing into the FTA with the Unit­ed States) to revive the region-wide pro­pos­als of the orig­i­nal APEC idea; but on a more cred­i­ble rec­i­p­ro­cal basis. A more coher­ent pol­i­cy of region­al trade lib­er­al­iza­tion would see Austrlia’s part­ners include not only ASEAN and north Asia (Korea, and Japan?) but also Mex­i­co and Cana­da; two much larg­er economies with whom we have poten­tial­ly much greater oppor­tun­ties for trade gain.

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