The Gillard Government’s recent rhetoric on free trade deserves praise. Now they have to deliver.
At a CHOGM business forum last week the Prime Minister vowed to scrap all remaining tariffs for developing country imports into Australia.
Gillard reportedly said ‘Australia will continue the strongest possible commitment to market access for the world’s poorest countries, irrespective of the settlement of other issues in the Doha Round’.
Her comments come off the back of Trade Minister Craig Emerson’s recognition last week that the World Trade Organisation’s Doha round of negotiations is going nowhere.
Emerson’s right. What’s surprising is that it has taken him this long to figure out, or at least say what everyone else in trade policy has known for years. He’s now trying to lobby WTO members to start negotiating bite-size liberalisation pieces where agreement will be easier to secure.
That won’t be an easy task considering the perfect tango that needs to be achieved to get rich countries to cut their agriculture subsidies and developing countries to slash tariffs on industrial goods. And that’s before there’s any focus on an extensive number of substantive, but peripheral issues.
Emerson is more likely to achieve his free trade agenda at home. In a speech to the Lowy Institute last December he correctly outlined that ‘domestic economic reform is essential to lifting productivity growth and through it the international competitiveness of Australian businesses … [and that the Gillard Government] will continue to devote enormous energy to opening up other countries’ markets, gaining market access for our exporters’.
He continued arguing that the spirit of the Hawke, Keating and Howard government’s efforts in cutting trade barriers should be reinvented during the Gillard Government.
Gillard’s CHOGM statements would appear to be an adoption of Emerson’s ideal.
But there are two problems for the Prime Minister in achieving her objectives. First, there are virtually no tariffs left to scrap. And second, Australia’s fragile free trade consensus has crumbled.
Despite the rest of the world not following, Australia (with New Zealand) led the rest of the world in the 1980s and 90s in liberalising tariff barriers. Some remain but are trivial; though they should be scrapped.
For many developing countries promoting growth through trade requires them to cut their self-imposed barriers against each other.
To truly live up to the Hawke/Keating/Howard legacy the real task for the Prime Minister is to actually re-form Australia’s fragile free trade consensus.
The liberalisation of that time period existed because both the government and opposition supported trade reform.
All that remains of that consensus is a no-tariff policy. But free trade covers more than tariffs.
On liberalisation grounds the “benefit” of tariffs is that they are transparent and easy to phase out because their economic profile is straightforward.
But while both sides of the political aisle have been cutting tariffs, protectionist non-tariff trade barriers have been increasing over time. Non-tariff barriers are far more insidious because they’re successfully paraded as ‘justified’ based on alternate policy grounds and include subsidies, local content requirements, certification of origin requirements and quarantine, to name a few.
What’s ignored is that non-tariff barriers have a damaging economic profile just like tariffs. They are just more opaque.
When Australian Workers Union head, Paul Howes, argues for ‘local content requirements’ to help Australian producers it means local businesses are saddled with extra costs that make them less competitive in the international marketplace.
And this is a growing bipartisan trend supporting the introduction of non-tariff barriers on perceived “environmental” grounds.
Recently a greens group-backed bill designed to foster consumer boycotts against Australian food and cosmetic manufacturers who use palm oil as an ingredient nearly came into law.
The bill was introduced by independent Senator Nick Xenophon, but puzzlingly was supported by Opposition in the Senate. Puzzling because free trade isn’t a fad for liberals; it is a load-bearing philosophical pillar.
Ultimately the bill failed in the House of Representatives after the Opposition finally realised it was not compliant with international trade rules.
The whole process is now being repeated as a greens-backed bill to add costs to wood imports is likely to pass the Parliament in an effort to tackle “illegal” logging.
The bill has the backing of the Government despite its own-commissioned advisers completing an analysis showing Australia’s imports of the offending material was non-existent and that the bill’s requirements would have virtually no effect.
Other policy concerns are also trumping trade liberalisation. Not scrapping non-tariff import restrictions on copyrighted books on the misleading grounds that they protect local culture was another free trade failure.
Non-tariff barriers like these are precisely the policies Gillard and Emerson need to stare down if they want to unilaterally liberalise and maintain global leadership on trade.
Both add costs and restrict market access to Australia for developing country primary industry imports. More concerning is that they target industries based in rural industries that already lack the greatest opportunity to harness the economic opportunities of globalisation.
In Emerson’s speech to the Lowy Institute last year he correctly highlighted that ‘unilateralism in tariff reductions incidentally gave Australia credibility in international trade negotiations way beyond the relative size of our economy’.
If Emerson and Gillard want to be successful in tackling the challenges of global trade liberalisation that same credibility will be needed again. But it requires staring down protectionist sentiment across the political divide at home.