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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