Why I no longer consider economic isolation a threat

Ken Parish “points”:http://troppoarmadillo.ubersportingpundit.com/archives/004767.html to the ‘economic isolation’ argument for FTA’s bq. Finally, neither [John Quiggan] nor Peter Gallagher mention the most fundamental driver of bilateral trade deals and the broader question of increased economic integration between the US and Australia. With the apparent breakdown in Cancun last year of the DOHA Round of negotiations … Australia’s best chance of avoiding increasing trade isolation lies in pursuing bilateral trade deals with the largest developed nations (i.e. the US and China). I’ve used this argument in the past, but I’ve changed my mind. In a 1997 pamphlet for the (now defunct) Center for American Studies at Sydney University, I argued that there were two reasons that should lead us to accept the risks of an FTA ith the USA—including the risks to the coherence of the multilateral trading system—and say ‘yes’ to the then tentative Clinton Administration overtures: # (more important) It would keep the bastards honest. There had been plenty of signs in 1997 that the government was under pressure from the usual rent-seekers to allow the micro-economic reform agenda in Australia to slide. And, indeed, they did so. One of the first acts of the Howard Government on assuming power had been to put up the Australian tariff by abolishing the system of ‘by-law’ duty reductions (if you don’t know what that was … arrgh, forget it). Later, Australia’s ‘survival’ of the Asian financial market crisis was used as a soothing assurance that we’d done just about everything right (already!) and there was precious little more that was needed. I figured that an FTA with the USA would stir this up a bit. And I still think it will in areas such as our overbearing quarantine protection[⇒ related story] and our obscure ‘investment review’ standards … although not as much as it might have.
# (less important) It would rescue us from our status as one of only two countries then in the OECD that did not enjoy preferential access to a ‘mega-market’ (100m consumers). At that time, NZ was the other country. Then Korea became a fully-fledged member of OECD and ruined a good story. I have to say that I’m no longer so concerned about this possibility. Probably the biggest reason for changing my mind was the tariff schedule adopted by China in its WTO accession. China really did ‘bind’ big tariff concessions—the result of tariff cuts it had started making earlier in the 1990s—to the point where its MFN (non-discriminatory) rates were no higher than, and in some cases much lower than, the ASEAN external tariff. This, it seemed to me, meant that unless and until China had surrounded itself with regional preferential arrangements we would not really be locked out of key growth markets. There have recently been some signs that China is creating a regional trade policy but it now includes Australia. My argument, in an op-ed piece in today’s Fin. Review (check back here tomorrow), is that we may soon have the first chance to negotiate a serious ‘FTA’ with China. As for my 1997 recommendations that Australia should pursue an FTA with the United States: they were favourably reviewed in a public seminar at the time by, among others, the current Australian Ambassador to the WTO. But the Canberra bureaucracy was less kind. In the words of one senior bureaucrat, they ‘pissed on it from a great height’.  Cabinet accepted their views. Why did they change their minds so comprehensively two years later? The US ‘Trade Promotion Authority’ legislation? Bush-Howard ‘chemistry’? A sense that the WTO was spinning its wheels (after the 1999 Seattle meeting)? We’ll know in 30 years.

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