With the Trans Pacific Partnership dead — quite possibly the only good thing that will come of Donald Trump’s election — thoughts are now turning to other possible trade agreements for Australia. That means more acronyms, like RCEP (Regional Comprehensive Economic Partnership), FTAAP (Free Trade Area of the Asia Pacific), which is now being spruiked by Trade Minister Steve Ciobo — who has discovered his international passport to trade negotiations is now the political equivalent of a toilet brush. Labor’s Jason Clare today talked of APEC — which back in the Keating-Clinton years was a beacon of hope for free trade, as those with long enough memories will recall — bringing China and the US together. Dream on, Jase.
Before we rush on to the next acronym, it might serve to work out exactly what the TPP failed: because US voters saw no benefits in it, only the threat of more lost jobs. And the so-called “elites” hated it too, because it was conducted by trade negotiators in league with large corporations behind closed doors, with no transparency or accountability. The only drafts of the TPP we ever saw came via WikiLeaks. Our own government steadfastly refused to allow any independent assessment of the TPP, terrified it would reveal the truth — that it had negligible benefits for Australia and opened us up to constant litigation by multinational companies.
Any new agreement would be negotiated by the same trade bureaucrats who negotiated the TPP, with the same secrecy and the same refusal to allow independent analysis. But apparently a change of acronym would do the trick.
While it might be appealing to the overpaid economic illiterates of DFAT’s Office of Trade Negotiations to fly around the world business class engaged in years of negotiations, it might be worth stepping back and wondering why we bother with bilateral and small-scale multilateral trade agreements. Both sides pay homage to them; Labor prefers multilateral agreements, the Coalition bilateral agreements, preferably ones they can use against Labor as a wedge tactic, but both agree that they’re A Good Thing in principle.
The Productivity Commission disagrees. In its important 2010 study of Bilateral and Regional Trade Agreements, it dismissed any benefits as small. Among its findings about BRTAs:
“Businesses have provided little evidence that Australia’s BRTAs have generated significant commercial benefits.”
“… are likely to increase trade flows between partner countries, but at some expense to trade with other trading partners. The analysis also indicates that this would be particularly so when remaining tariffs are high. Despite the potential for increased bilateral trade flows, once account is taken of the offsetting effects of trade creation and trade diversion and the resource allocation effects associated with changes in trade, the resulting changes in economic activity and income are likely to be small.”
“… the direct economic impacts from services and investment provisions in Australia’s BRTAs to date have been modest.”
And because DFAT — which was furious that the commission was daring to assess its handiwork — refused to give the PC details of the huge costs involved in negotiating such deals, we don’t know what the direct cost is even for the government alone. But what if there were a way to secure the benefits, even if limited, of trade agreements without the expense of negotiating them, or having to wait years for the deals to be completed? Amazingly, there is.
The bulk of the economic benefits from trade agreements don’t come from increased exports. For the most part, that just pushes exports around from country to country — provided, of course, our trading partner’s trade agreement with another country doesn’t undercut any gains we got in our deal with them. Obviously that doesn’t gel with what we’ve been hearing from the government for the last three years about the extraordinary and massive benefits from increased access for our exporters to China, South Korea and Japan. But removing domestic barriers to imports of goods and services delivers more benefits via greater competition, redirection of resources to more efficient sectors and lower costs than increased exports to individual markets; as the PC put it, “domestic liberalisation also secures the majority of benefits available from trade liberalisation, regardless of existing trade and investment barriers abroad”.
The PC’s modelling back in 2010 showed that the benefits of unilateral liberalisation were 10 times greater than a free trade agreement with a small country, four times larger than a deal with a large economy and about two-thirds of the benefits that would accrue from a comprehensive trade deal involving a vast region like APEC.
There are two small, easy examples of this: removing the punitive tariff on secondhand car imports (which the government, in spite of its war on the automotive industry, has kept) would be a huge windfall for consumers, allowing them to import quality secondhand cars at much cheaper prices. And abandoning our current fixation with blocking the importation of cheap steel would be a big win for our construction sector. And in both cases, appropriate safety regulation can address any concerns about the quality of cheaper, imported products.
This is the traditional Aussie way — we undertook most of the dismantling of our trade barriers in the 1970s, 1980s and 1990s unilaterally, not as part of some deal or bilateral deal, and have been reaping the benefits ever since — something we now seem to have forgotten in the focus on trade agreements and a constant search for new acronyms.