Australias Trade Policy Dilemmas

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Australias Trade Policy Dilemmas

• Ann Capling
• University of Melbourne

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Australia is a global trader with diverse export
markets

• Japan (17 )
• EU (14 )
• ASEAN (12 )
• China (11 )

• US (8 )
• Sth Korea (7 )
• NZ (6 )
• India (5 )
• (DFAT 2006)

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Australia has a diverse range of exports

• Resources 39 per cent
• Services 21 per cent
• Manufactures 20 per cent
• Rural products 13 per cent
• Other 7 per cent (incl sugar, wine and
  confidential items)
• (DFAT, exports by value, 2006)

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Top 12 exports by value 2006

• Coal
• Iron ore
• Tourism
• Education
• Gold
• Crude petroleum
• Aluminium ores

• Aluminium
• Natural gas
• Beef
• Professional business services
• Copper ores

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But Australia continues to face a number of
significant problems

• Australian agriculture is heavily export-oriented
  (two-thirds is exported)
• Australias share of key markets is not growing
  as fast as its competitors
• Australia lacks the clout to prise open markets
  by itself it depends on MTNs

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Services an important part of our export mix but

• Australias services exports have not kept pace
  with global growth in services exports
• Our share has fallen from 1.45 in 1996 to 1.15
  in 2005 (BCA 2007)
• Our lack of diversification leaves us vulnerable
  to external shocks, e.g. S11

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Sharp decline in Australias export performance
since 2001

• Compared to the last 20 years, the growth rate of
  export volumes has plummeted
• 1995-2000 export volumes grew by 56
• 2001-2006 export volumes grew by 9
• Less than Treasury forecasts and less than global
  export growth
• (CEDA 2007)

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The growth in value of Australian exports has
also slowed

• 1995-2000 export values grew by 10.2
• 2001-2006 export values grew by 5.6
• Most of the slowdown is in exports of rural
  products, services, ETMs (esp PMVs) and oil
• This deteriorating performance has been masked by
  strong increases in export value of metal ores
  and coal

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Some of these problems cant be addressed by
trade policy

• Rising AUD has dampened demand for some
  manufactured exports
• In agriculture and resource commodities, supply
  constraints have restricted export growth
• But trade policy remains crucial for the pursuit
  of our export interests rules, market-opening
  and market-preservation

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The Howard government trade agenda

• Multilateral negotiations through the WTO
• The strengthening of regional trade links through
  APEC and other regional fora
• The negotiation of PTAs to deliver substantial
  gains to Australia (DFAT 2007)
• But every part of this agenda has met with
  serious problems

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The Doha Round is in its death throes

• Problems in the Doha Round are commonly
  attributed to
• the size and diversity of the WTO membership
• the impasse between US/EU and the G20 on
  agriculture and NAMA issues
• Rising protectionism in OECD countries

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Arguably, there are other underlying causes for
DDR failure

• Lack of business drivers for this round (cf role
  of services and IP industries in Uruguay Round)
• Many countries have liberalised unilaterally --
  thus undermining support for reciprocal trade
  negotiations
• China and India economic growth rates are far
  greater than projected Doha outcomes
• (Evenett 07)

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Failure of Doha round is especially problematic
for Australia

• Australia has depended on MTNs for establishing
  rules and opening markets in key sectors
• Distortions in agriculture can only be addressed
  multilaterally
• Services liberalisation, which depends on
  domestic regulatory change, is best achieved
  multilaterally

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Where to for the WTO?

• declining support for liberalisation through MTNs
  poses significant challenge for trade negotiators
• Is variable geometry part of the solution?
• Australia needs to fully participate in
  discussions about reform of WTO processes

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Australias Criteria for PTAs

• deliver substantial economic benefits
• deliver benefits more quickly than would be
  possible through multilateral efforts
• be comprehensive in scope
• be consistent with Australias WTO commitments
  and objectives
• significantly enhance broader economic, foreign
  policy and strategic interests

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Australian PTA activity since 2001

• PTAs concluded with Singapore 2003, Thailand
  2005, and the US 2005
• PTAs under negotiation with NZ/ASEAN, Malaysia,
  China, Gulf Cooperation Council, Japan, and Chile
• Feasibility studies on PTAs with India, Korea and
  Indonesia

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Early assessments of the economic benefits of
Australias PTAs

• House of Reps joint standing committee on FADT,
  Nov 2005 too soon to tell and future
  agreements should be improvements on current
  FTAs
• Treasury Budget papers 2006-07 on PTAs in the
  region, their net economic benefits remain
  unclear

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Whats really going on with Australias PTAs?

• 1. Need to preserve existing market access
  as a result of other PTAs
• standing still is going backwards
• often with a strong industry sector dimension
  e.g. preservation of Australias PMV export
  markets is key impetus for agreements with
  Thailand and GCC

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2. The need to be seen to be active

• JAPAN late comer, jostling with China
• Concluded PTAs with Singapore, Mexico, Malaysia,
  Philippines, Chile, Thailand, Brunei
• Negotiating PTAs with Korea, Indonesia, ASEAN,
  GCC, Vietnam, India, Switzerland, Australia
• Proposed PTAs with PRC/Korea, Canada

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Keeping up with the neighbours?

• China PTAs to assert regional lship
• Concluded PTAs with Thailand, HK, Macau, ASEAN,
  Chile, Pakistan
• Negotiating PTAs with NZ, GCC, Singapore, Iceland
  and Australia
• Proposed PTAs with India, South African Customs
  Union and Peru

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Keeping up with the neighbours?

• ASEAN
• Completed PTAs with Korea, PRC
• Negotiating PTAs with Japan, India, Australia/NZ
• Proposed PTAs ASEAN 3 and ASEAN 6

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Keeping up with the neighbours?

• New Zealand PTAs as an insurance policy
• Completed PTAs with Singapore, Thailand, and
  Trans-Pacific partnership (Brunei, Chile,
  Singapore, NZ)
• Negotiating PTAs with ASEAN Australia, China,
  Hong Kong, Malaysia and GCC

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Keeping up with the neighbours?

• United States PTAs for politico-strategic
  purposes
• Completed PTAs with Australia, Chile, Singapore,
  Korea
• Negotiating PTAs with Malaysia, Thailand
• And has many other PTAs outside of the
  Asia-Pacific region

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3. PTAs to enhance foreign policy and strategic
objectives

• examples of AUSFTA, and the subsequent
  negotiations with China and Japan
• perhaps a longer term consequence of the DFAT
  amalgamation?
• or just a consequence of heavy emphasis on
  bilateralism in post-1999 period?

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Problems and dilemmas for Australias trade
policy-makers

• Lack of negotiating coin due to unilateral
  liberalisation
• Need to hold back negotiating coin for tactical
  reasons, e.g. from ASEAN negotiations for
  purposes of PTAs with individual ASEAN members

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Dilemmas, continued

• Evidence that politicians, desperate for deals,
  have made concessions too easily
• e.g. AUSFTA end game, conceding market economy
  status of China at beginning of negotiation,
  agreeing to positive list on services in GCC
  negotiation

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Six Scenarios for the future and implications
for policy makers
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Scenario 1

• Ongoing proliferation of PTAs that are trivial in
  economic impact
• Improved market access for some sectors but this
  may be negated by PTAs for competitors or costs
  of administering ROOs
• Complaints within APEC from business about
  regulatory costs of PTAs

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Scenario 1, contd

• Heavy demand on public resources, including cost
  of side-payments
• A lot of action, few meaningful results
• MTNs could be the major casualty as PTAs offer
  negotiated protectionism

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Scenario 2

• Ongoing proliferation of PTAs with political and
  strategic dimensions
• This could undermine momentum for economic reform
  and lead to poor deals
• Can cause adverse reactions and be potentially
  destabilising to regional relations

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Scenario 3

• Efforts to multilateralise PTAs in the Asia
  Pacific region
• A potentially useful role for APEC?
• Transparency role texts of PTAs of members on
  APEC website
• Identification of model measures for PTAs
  (though few have complied)

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Scenario 3, contd

• APEC best practice for PTAs to ensure that
  non-participants are not disadvantaged
• Embryonic discussions about docking existing
  bilaterals (Singapores)
• FTAAP idea? Not likely.

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Scenario 4

• Another go at WTO negotiations?
• Very unlikely that there will be another Uruguay
  Round-style negotiation and single undertaking
  that applies to all
• It may take a global crisis to rekindle interest
  in MTNs
• Useful work for the WTO to do in other areas,
  including on PTAs

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Scenario 4, contd

• Continuation of 2006 initiative that gives WTO DG
  authority to present factual materials on PTAs
• Requirement of timely notification of PTAs
• Consideration to making PTAs subject to TPRM

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Scenario 5

• A Labor government?
• New admin arrangements to integrate innovation,
  industry and trade policies
• Prioritisation of MTNs over PTAs easier said
  than done
• the pursuit of PTAs for economic not geopolitical
  reasons -- problem of leverage (ALP
  National Platform 2007, Crean Speech October
  2007)

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Scenario 6

• The death of trade policy as we have known it?
• Trade policy traditionally to mitigate
  Australias position in the world much of this
  superceded by unilateral liberalisation of trade
  and investment
• Sensitive sectors still protected and we cant
  shift that ourselves

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Scenario 6, contd

• Trade policy for commercial purposes may be
  replaced for trade policy for political/foreign
  policy purposes
• The focus of trade policy will shift to
  micro-management innovation policy, investment
  liberalisation, greater participation in global
  supply chains