We signed some trade agreements? Big deal
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It was cheers all around last week, but
perhaps it's time to acknowledge that one-on-one trade agreements such
as we've just signed are largely ineffectual, writes Ian Verrender.
Perhaps it's time to put that cork back in the champagne bottle.perhaps it's time to acknowledge that one-on-one trade agreements such
as we've just signed are largely ineffectual, writes Ian Verrender.
Amid
the backslapping and bonhomie following our recent coups on the free
trade front last week, a touch of sanity was injected into proceedings
from some rather unexpected quarters.
First up, the normally conservative Australian Chamber of Commerce and Industry denounced the South Korea pact as unworkable the day before it was inked.
And as the details of the Japan agreement were broadcast, even the peak farming lobby, the National Farmers' Federation, was less than enthusiastic about the results.
Such
doubts, however, are likely to pale into insignificance if Australia
ever signs up to the much bigger and broader ranging Trans-Pacific
Partnership; a trading bloc being pushed by America with Australia and
10 other Pacific nations including Canada, Mexico, Japan, Singapore and
possibly even China.
Negotiators have been punching away on the TPP for years, mostly in secret, and unsurprisingly appear to have hit a snag.
Why
are free trade agreements such a big deal? That's the problem. They're
not, especially for a country like Australia that, ever since the
Whitlam government took the sickle to tariffs, has systematically
dismantled its trade barriers.
What the triumphant pollies forgot
to mention last week was that the biggest long-term gains from such
agreements go to the country that faces the greatest short-term pain. As
a nation, we've already endured the worst of the pain.
Take the
Japan deal. For a start, it's anything but a free trade agreement.
Japan's monumental trade wall merely has had a couple of layers of
bamboo lopped off the top with a few more to come down the track.
Japan
will be the biggest beneficiary as its consumers will enjoy slightly
lower food prices. That should force Japanese rural producers to become
more competitive in what Shinzo Abe hopes will be a crucial step to
reinvigorate, modernise and open up his country's ailing economy.
Most economists argue that one-on-one trade agreements such as we've just signed largely are ineffectual.
In
the imaginary world of economics, the benefits of trade are
indisputable. Just as individuals specialise in a profession or trade
and sell their services for a premium so they can buy the things that
others are best at producing, so too it goes with nations.
But the
concept really only works when everyone plays by the same rules. While
trade barriers across the developed world have been sharply reduced
since the 1960s, repeated attempts to strike a uniform global deal and
dismantle what remains have foundered.
When it gets down to the
hard negotiations, politicians mindful of the drubbing they may face in
upcoming elections back home, remove or indefinitely delay talks on
entire sensitive slabs - such as agriculture - from proceedings.
As
a default, many nations opt for painfully complex bilateral or regional
agreements such the ones we struck last week. The problem with
individual agreements is that they lack uniformity.
The deal with
Japan, for instance, retains heavy tariffs and quotas. The deal with
South Korea - along with our Hong Kong agreement - includes a clause
that will allow South Korean companies to take legal action against the
Australian Government, a potential threat to our sovereignty.
Then
there is the bureaucratic nightmare for companies trying to navigate
the maze of individual FTAs with often complicated approval processes.
Piracy is a serious and legitimate legal issue. But you could
argue that American firms have turned the tables, using the issue to
push for greater protection, all under the guise of a free trade
agreement.
So arduous is the process, according to the Australian Chamber of Commerce and Industry, many companies don't even bother.
Politicians
love to trumpet these deals as a foreign policy coup. In some cases
they are. They help cement diplomatic relationships and forge defence
alliances.
But in their eagerness to gain kudos at home,
politicians run the risk of bartering away rights that have the
potential to cause serious harm.
For the past few years, America
has been pushing its Trans-Pacific Partnership Agreement - a trade pact
with Australia, Canada, Japan and eight other countries in the region.
On
paper, it sounds like a great idea. But the negotiations have been
conducted in secret. And detractors claim, from what little has been
leaked, that this is a deal designed primarily to entrench the power of
large American corporations.
A major plank in the proposal is
aimed at protecting intellectual property rights, the great future
export industry for America. That statement alone should have the alarm
bells ringing. For it contains the word "protection", the very anathema of free trade.
With
the arrival of the digital age, recorded music, movies and software
have been subject to rampant piracy that has hit the earnings of major
corporations that have been pushing long and hard for greater
protection.
Piracy is a serious and legitimate legal issue. But
you could argue that American firms have turned the tables, using the
issue to push for greater protection, all under the guise of a free
trade agreement.
Likewise, US pharmaceutical companies are pushing
for extended patent rules as part of the negotiations that would
prohibit generic manufacturers from entering the market. In effect, they
are arguing for a legally enforced extended monopoly to help shore up
their earnings, which has even created resistance in the US.
Patents are a reward for original research. They are designed to encourage scientific innovation.
Extending
patents, however, can have the opposite effect, stifling the flow of
investment funds to smaller biotechs and discouraging big firms from
innovation as they maximise profits from existing medicines. Then there
is the heavy cost to society of denying patients access to affordable
drugs through generic brands.
If we were serious about free trade,
we wouldn't bother with any of this. The preferable approach would be
to push for a global pact. But don't hold your breath.
Ian Verrender is the ABC's business editor. View his full profile here.
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