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Free Trade: A sense of betrayal « Previous | |Next »
February 16, 2004

There is a little piece in the Australian Financial Review (subscription only, 16 02, 04, p. 63) by Oliver Yates on the Free Trade Agreement. This is not an example of Ken Parish's "carping and whinging of the lefties and the arts industry luvvies". Yates is a free trader who supports the integration of the US and Australian economies. Yet Yates feels a sense of betrayal at the deal that has been cut.

Why so?

The point Yates makes is that the agreement is not a comprehensive agreement with the US. Yet this is what was sold to the public by the Howard Government, despite all the signs indicating that a protectionist US had no intention of embracing full free trade. The Howard Government''s line was that a comprehensive agreement could be achieved because of Australia's "special" relationship with the US.

What resulted was not a comprehensive agreement, due to the limits placed on the agricultural package:--eg., the quotas on beef and dairy remain and there is no access for sugar. So much for the "special" relationship. Hence the sense of oversell. A $4 billion oversell by the boosters, as the Senate transcripts show.

Now, many would say 'take what we can get, ignore the overselling, take the reduced economic benefits and embrace economic integration.' But why this pathway, rather than saying 'we gave it our best shot, it's an election year in the US', and then walk away? Ken Parish response is to advance the trade isolation argument. He says:

".....there is an increasing likelihood that the developed world may split into a series of trade blocs from which Australia could easily find itself excluded: Australia isn't a natural partner in either the EU, NAFTA or ASEAN, and is unlikely to be admitted to any of them in the foreseeable future. In the absence of a successful push to re-start the DOHA Round, 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)."

The strength of this argument is its awareness of the geopolitics of trade.

What if China is developing a regional trade policy that includes Australia? Does not this negate the Ken's threat of trade isolation?

So what geopolitics of trade is opened by Australia being a part of China's regional trade policy?

Peter Gallagher argues that Australia can strike a high-quality bilateral deal with China and also work on multiplying the trade-creating benefits of our regional agreements while reducing the economic costs due to trade-diversion. China's bilateral agreement with Australia would as a first step in a broader strategy to open regional markets.

Peter says that this strategy is more or less a re-visiting the 1994 "APEC" agenda; only this time it is as part of a more pragmatic reciprocal, rather 'unilateral', program of trade liberalization.

| Posted by Gary Sauer-Thompson at 12:06 PM | | Comments (2)


But Peter Gallagher's preliminary assessment of the Aus/US FTA, like mine, is that on balance it is a positive for Australia, despite its manifest shortcomings. The prospect of a bilateral deal with China says nothing at all about whether the deal with the US is a good idea. A major immediate question (apart from any hidden surprises in the small print) is whether surrendering on sugar with the US will reduce our chances of (say) persuading the Japs to reduce protection on rice or the Europeans to do so on a wide variety of agricultural products. I simply don't know the answer to that question, nor does anyone else. But I suspect other countries' trade negotiators, whatever rhetorical points they may make about our surrender to the Yanks, don't really expect us to be trade virgins at all costs. Like any country, they aren't surprised when we make decisions based largely on calculations of national advantage. In fact it would be surprising if we did anything else.

two things.
First, I do think that we need an independent assessment of the benefits of the FTA given that the $4 billion boost is no longer appropriate.

Second, the geopolitics framework suggests that bilateral trade deal with the US also involves a turning away from the Asia-Pacific region. That is the significance of the integration with the US.

More is involved that economics here. Economics is just one strand of the integration with the US.

Defence is another stand of integration.We are joining a particular bloc within the region.