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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