Where to go for trade policy?


With the signing of an interim ‘free trade’ agreement with India and an agreement with the European Union nearing the final stage, Australia has moved closer to the previous government’s target of 90% trade covered by bilateral and plurilateral trade agreements. This does not mean that exports and imports depend on the concessions contained in the agreements, but rather that Australia has concluded agreements of one form or another with countries which account for 90% of its exports and imports.

It is difficult to determine how useful these trade agreements have been in promoting trade. Models that claim to estimate gains from lower tariffs or lower transaction costs rely on often heroic assumptions. Econometric analysis of trade flows before and after the agreement finds little evidence of impact.

Aside from some great achievements in market access, evidence beyond the anecdotal is hard to find and even business groups have questioned the value. Allocation to particular trade agreements is hampered by overlapping concessions in many agreements, the costs of complying with rules of origin and other requirements exceeding the value of many concessions, and the lack of usage data dispositions.

Countries can also continue to protect some of their domestic industries from imports or restrict their exports using policy measures that are exempt from the agreement. Even actions that can be challenged at the World Trade Organization (WTO), such as safeguards and anti-dumping provisions, also undermine the value of an agreement because they impose costs while disputes are resolved and undermine trust. of the market, as Australian wine exporters have experienced. compared to China.

Pokolbin, New South Wales, Australia (Brendon Thorne/Bloomberg via Getty Images)

“Free trade” in a free trade agreement is a misnomer, and it is generally debatable whether the trade-creating benefits of market access outweigh the trade-diversion costs in this more specifically called preferential trade agreements.

I have long suspected that the main value of these agreements lies in the cooperation they engender on the “little things” that typically fly under the radar of departmental announcements and media coverage. Trade facilitation measures, such as mutual recognition of certification processes, simplification of customs clearance processes and cooperation on standards, reduce the cost of trade and promote competition.

The value of a range of professional services of mutual recognition of qualifications in the recent Australia-India economic and trade cooperation agreement is a recognized example of this (and probably overstated as the wording sounds like ‘working towards “) in the media. . But deals can also use the little things to exclude other countries, reducing potential competition in a classic trade diversion approach. This can be done through agreements to share and protect intellectual property, processes that prevent companies from not being parties to the agreement, and provisions that lock in ways of doing business that restrict innovation. , such as data sharing protocols.

A good, and relatively safe, place to start is to cooperate on the little things – technology standards, data sharing protocols, certification recognition, and simplification of business processes.

As products and services increasingly include elements of digital technology, where data sharing is an essential element, commercial agreements that limit the sharing of technology and data only to the parties to the agreement will limit its value. This little trick is becoming more and more essential to generate the gains of the trade. It is also likely to be a major area of ​​contention between the United States and China.

Multilateral agreements in these areas are key to reducing the costs of trade in goods and services, stimulating competition and developing opportunities that boost productivity growth. As the program of bilateral and plurilateral trade agreements draws to a natural end for the Australian government, trade and financial flows are increasingly militarized, and the WTO remains hobbled by the failure of the United States to confirm appointments to the appellate body, Australia needs to rethink its trade policy.

A good, and relatively safe, place to start is to cooperate on the little things – technology standards, data sharing protocols, certification recognition, and simplification of business processes. APEC has working groups that can focus on many of these areas, but Australia has limited engagement in many of them. A more fundamental approach, building on Australia’s technical expertise in selected areas and helping developing countries develop their technical capacities, would lay the foundations for expanding trade through shared standards and certification. and understanding value creation.

It also lays the groundwork for middle powers to engage more cooperatively in areas that will become more divisive as superpowers seek to dominate the digital trade agenda. In addition to continuing to support WTO reform to foster a more collaborative approach to supporting global trade, the Australian government should enhance its participation in APEC under any new trade policy agenda.


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