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Global, not Asian, focus is the key to growth

29 November 2012

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About the researcher:

Greg Lopez is a PhD scholar at The Crawford School of Public Policy. His PhD topic is 'Does Better Governance Foster Efficiency: The Malaysian Case.'

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Australia's success in the Asian Century should come from unilateral domestic reforms of trade policy, not preferential deals, write GREG LOPEZ and MALCOLM BOSWORTH.

Asians love fireworks. So it was hoped the government’s Asian White Paper (WP) would be a cracker. Instead we got a fizzer, long on vague aspirations but short on good ideas.

Australia’s growing trade links with Asia are good. But so are our links with non-Asia. We should not be focusing policy attention in any particular direction, especially as the basis of reform. Our interests are to continue as a global player. Regional economic integration should be based on commercialism, and not be at the expense of global integration nor of policies that “place regional economic integration at the centre of decision-making processes”.

Remember the Asian financial crisis in the late 1990s. Our openness to the whole world enabled us to weather that storm as Australian exporters faced with declining regional competitiveness as the dollar appreciated against Asian currencies thankfully turned to non-Asian markets e.g. North America.

This global openness also undoubtedly contributed to Australia’s resilience to the GFC. When the next regional or global crisis occurs, or relative competitive positions change, Australian traders will hopefully again be able to respond accordingly. It is imperative that our businesses can quickly change markets globally as economic conditions change.

The WP’s national objective that “Australia’s trade links with Asia will be at least one-third of GDP by 2025” lacks sense.

Good trade policy is the opposite of that espoused in the WP, namely opening our market on a non-discriminatory (MFN) basis. That approach underpinned the Hawke-Keating unilateral trade-related economic reforms in the 1980s and 1990s which turned around our economic performance. MFN liberalisation is also the core of the WTO, which has stagnated as members, including Australia, rapidly embrace preferentialism.

Alarmingly, the WP drives yet another nail into the Hawke/Keating approach by endorsing discriminatory reform via preferential trade agreements (PTAs). The WP refers to the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) as a “high-quality, truly liberalising agreement”. Where is the evidence for this?

It also endorses the ultimate goal of regional integration to be an APEC free-trade area, which the Trans-Pacific Partnership (TPP) and the Regional Economic Cooperation Agreement (RECA) could become. This would depart from the non-discriminatory foundation on which Australia formed APEC. Worse still, the TPP is being negotiated under US influence in a way to ensure China will not join.

The WP’s prescription for Australia to become “more open and integrated with Asia through comprehensive regional agreements” shifts the responsibility for decision making away from our domestic institutions towards a non-transparent bargaining process with other countries which the record shows will not deliver genuine liberalisation.

Instead, it will slow our domestic reform by generating new excuses to do nothing e.g. to retain tariffs as “bargaining coin” in PTAs. The government’s willingness to surrender our domestic policy to foreigners is evident in the WP stating that tariffs will only be reduced on a non-MFN basis as part of negotiating future PTAs.

This ignores the Productivity Commission’s (PC) policy advice in 2010 that PTAs do not work as advertised and are oversold. It urged Australia to revive unilateral (MFN) reforms since these provide larger, more certain gains.

Instead, the WP has endorsed the “competitive liberalisation” model of the US, using PTAs as the basis of reform without any credible policy evaluation. It also calls for more PTAs, including possibly joining the Pacific Alliance. The inefficiencies of creating such a “noodle bowl” of overlapping PTAs with multiple memberships are obvious.

Sadly, the WP seems unaware that PTAs undermine the WTO’s effectiveness. With the WP further supporting PTAs, it is not credible for the WP to claim as it does that the “WTO is the government’s preferred vehicle for pursuing trade liberalisation”.

The mockery of WTO principles is extended by the WP’s enthusiasm for Australia and the US co-chairing efforts to form an International Services Agreement. As the US will insist this be non-MFN, Australia should “walk away” from the whole idea.

Australia will handle the 21st Century (in Asia and elsewhere) if it focuses its trade policy on unilateral domestic reforms. Unfortunately, the WP advocates a trade policy that takes us as far away from that strategy as is imaginable.

Malcolm Bosworth is a Canberra-based economist and Greg Lopez is a PhD scholar at the Crawford School of Public Policy.

This piece was published in the Australian Financial Review:

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