Trade Agreements: Anything but free

Three decades ago, when Canberra was first contemplating the American offer of a bilateral trade agreement, the distinguished trade economist, Richard Snape, warned that acting by itself, Australia would have little leverage in international negotiations. Far better to negotiate in partnership with like-minded countries, a strategy that Australia pursued with some success during the Uruguay Round of global trade negotiations when it was a prime sponsor of the Cairns Group of fair agricultural traders.

In the last decade Australia has jumped on board the bandwagon of preferential trade agreements with seemingly an ever-growing enthusiasm. Not surprisingly, given the country’s limited coin in international trade negotiations, the benefits of these agreements have been modest at best. Even when negotiating with smaller economies such as Thailand and Malaysia, Australia has made few market access gains relative to those achieved by its partners.

The Productivity Commission warned that:

“At least in some quarters, there tends to be a mindset of ‘agreements for agreement’s sake’, premised partly on the view that Australia must follow a trend in other countries”.

This has been particularly true of the Abbott government, which in its rush to complete bilateral trade agreements seems to have forgotten elementary principles of negotiation.

In a rush to sign

When it came into office, the Abbott government signalled its frustration with the stalled trade negotiations with China, Japan and Korea and asserted that “this government is determined to bring them to a swift and satisfactory conclusion”. Quality, however, was sacrificed for speed in reaching an agreement.

The essential trade-off in the recent negotiations with Japan was supposed to be duty-free access to the Australian market for Japanese cars in return for substantially improved access for Australian agricultural exports, especially beef, to the heavily protected Japanese market.

The outcome was cuts that would leave tariffs on beef in the 19.5 to 23.5% range, and take from 15 to 18 years for full implementation. Japanese concessions in the agricultural sphere were largely on products that are relatively unimportant Australian exports. The Australian Dairy Industry Council noted that it was “extremely disappointed” with a deal that left the tariff on fresh cheese, the most important dairy item in the negotiations, unchanged, while making a few symbolic concessions on products that together constitute only 10% of the total value of Australia’s dairy exports. The story in sugar was similar with the tariff unchanged on the main category of Australian exports.