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Understanding Fair and Free Trade

By any account, the Australian Government’s trade agenda (both bi-lateral and through the TPP process) has been aggressive and fast moving.

The challenges for both government agencies (principally the Department of Foreign Affairs and Trade - DFAT) and industry and commerce (represented by a whole raft of industry groups) in servicing this agenda are considerable.

In essence, as a low tariff economy, the negotiations and consultations with most industry sectors have not been concentrating on the quantum of foregone tariffs, but rather on negotiating the best deal that can be achieved in addressing non-tariff barriers.

The scope of non-tariff barriers are extensive and in some cases the issues are complex.

These barriers include the following

  • Technical standards
  • Certification procedures
  • Technical regulations
  • Customs rules, including rules of origin and product classifications
  • Environmental regulations
  • Lack of regulatory due process
  • Industry subsidies

Moreover, negotiations relating to intellectual property protection and counterfeiting remain an important part of finalising particularly any multi-lateral agreements.

Over the past 15 years, Australian manufacturers have been prepared to see the reduction of tariffs in bilateral arrangements on the basis that market access is achieved on both sides – i.e. a mutually acceptable free and fair arrangement. Defining the boundaries of what is fair and commercially beneficial forms the basis of the negotiation process between the two sides. The Australian negotiators do need to be able to point to specific and verifiable instances of non-tariff barriers in the commercial areas of other countries and then be able to press for changes within a framework that is guided by the commercial needs of Australian industry.

A free trade agreement invariably results in a range of outcomes for both winners and losers. In Australia, evidence does suggest that the winners include primary industry (i.e. agriculture and mining) which gain access to new markets mainly through the reduction of tariffs and the services sector which benefit primarily from the easing of non-tariff barriers to trade. Without any shadow of doubt, the losers have been the manufacturing industry particularly the TCF, automotive, steel, electrical and electronics, furniture and hardware manufacturing sectors. As a result the contribution of the manufacturing to national GDP is likely to fall below 5% over the next 12 months as the three major auto OEMs and many of the tiered supplier companies close down. Consequentially the Australian manufacturing industry has never believed that the Government's FTA program has been fair.

Meanwhile in the USA, President Trump in his new 'America First' trade development policy is signalling full support for 'free and fair' bi-lateral agreements. In Trump's world, successful outcomes are predicated on the 'winner (read the USA) takes all' philosophy. No room for losers in the USA! No doubt from Trump's perspective, if companies want to do business in the USA, they will need to comply with US rules. In this context, it can be reasonably expected that the current industry protection legislation, the Buy American Act, will be strengthened to include industry sectors beyond just the transportation (highways and bridges) areas of industry. Other industry protection inspired measures will no doubt emerge if Trump can over-ride likely objections from the GOP.

We can only wait and see if the rest of the world is prepared to accept Trump's interpretation of what 'free and fair' trade really means. The challenge for the Australian Government is whether or not it is prepared to withstand increasing calls from the Opposition and cross bench parties echoing the Trump mantra, even though Australians may have a different idea of what 'free and fair' trade actually means. Notwithstanding the politics of all of this, the Australian Government (and industry) needs to devote far more resources to addressing the challenges of non-tariff barriers to trade, irrespective of whether TPP gets up or not!

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