Free Trade Agreements and the National Interest

[extracted from Pulp & Paper Edge, the monthly trade and market data and intelligence publication published by IndustryEdge]

IndustryEdge Opinion

News that China may have downgraded efforts to complete a Free Trade Agreement with Australia by the end of 2014 have been met with very different responses in the Australian industry.

Some participants that IndustryEdge have spoken to are pleased because they view FTAs as a largely one-way street for domestic manufacturers whose borders are opened up without them having a realistic opportunity to compete in the other country. That would certainly be the case with a China FTA.

Others have expressed concern that what they consider to be artificial barriers to international trade are not being removed quickly enough.

For our part, IndustryEdge takes the view that Australia’s commercial borders are among the most open in the world already.

Whether it’s the domestic approach to tariffs, the increased liberalization of capital markets or the absence of barriers to international trade, Australia is at the forefront of measures to globalize trade.

At the same time, domestic manufacturing is a vital element of our national economy. In that context, FTAs must pursue the maintenance of the national interest, not undermine it.

It is therefore beholden on the Australian Government, on all of our behalf, to ensure that any FTA is negotiated on a genuinely free basis. Free in an economic sense does not mean ‘free to do what you want’. It means free, as between equals. To be equal, all conditions that impact upon the trade must be broadly equal between the two countries, or must be complimentary of one another.

In that regard, the recently completed Korea Australia Free Trade Agreement (KAFTA) has some clear merits. The two economies are largely, though not universally, complimentary in trade. Standards that go to the question of trade competitiveness between the two countries are reasonably similar, though not the same.

When it comes to trade and trade deals such as FTAs, especially in respect of developing countries like China, concern is regularly focused on the different human rights, labour rights and social standards that exist between Australia and China. That is right and correct at a fundamental humanitarian level, not just because those important social criterion impact upon trade.

Just as insidious and less remarked upon are the instances of rampant state support for specific businesses, in some cases specifically designed to allow a business to behave in a predatory manner against Australian manufacturers. To be clear, this is by no means the exclusive domain of any one country or just a matter of concern about the behavior of developing countries.

Actions that can include hidden loans, subsidized inputs, private infrastructure funded by governments at levels that are material to the cost of production and price of goods are regularly included in ‘anti-dumping and countervailing measures’ investigations and cases. They make a difference to whether trade is genuinely free and between equals, but are complex to measure and assess.

For its part, the Australian Government engages in a wide range of supportive activities. For instance, it supports innovation and collaboration activities and creates the circumstances that deliver economic integration that only manufacturing can deliver. Australia’s expenditure in this area is less than many other advanced economies.

Even so, the domestic emphasis is clearly shifting away from that approach, just as it appears to be increasing in some other countries.

Concluding an FTA with any country should not be considered a greenlight for predatory international trade practices, or used as an excuse for winding back legitimate industry wide developments.

If an FTA is to be concluded with any country, it must be to support the genuine national interest, not an ideological predisposition.

For samples of the monthly Pulp & Paper Edge, contact info@industryedge.com.au

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