Michael Costello: Free trade and cosy deals

17 October 2003, The Australian, By Michael Costello

In the past few days John Howard has been proclaiming a "golden double": inflation below 3 per cent and unemployment below 6 per cent, a combination not seen since 1968.

It appears that large numbers of Australians share his exuberance. Consumer sentiment surged in October to its highest level since July
1994.

Howard acknowledges that considerable credit for these economic times goes back to the extraordinary reforms of the years of Hawke-Keating Labor, especially the opening up of the Australian economy to the world through the floating of the dollar and large-scale and largely unilateral reductions in tariffs, quotas and other protective barriers. Indeed, he claims shared credit for those reforms in that the Liberal and National parties supported them.

Those reforms, particularly the free trade reforms, drew their strength from the national dialogue on economics led by Labor. Reforms that hurt some groups in the short term were accepted because they were seen, on the basis of clear-eyed analysis, to be in the long-term national interest.

So it was that in the 1980s and '90s we unilaterally reduced protection. We had a major influence in refocusing US attention away from preferential trade deals and on the multilateral Uruguay Round.

When it came to regional arrangements, such as APEC, we insisted that these also had to be non-preferential. By doing so we succeeded in providing the intellectual and political framework in which Indonesia,China and the Philippines, together with Thailand, undertook major unilateral trade liberalisations.

So what on earth are we doing supporting the so-called free trade agreement with the US? Even its name is a furphy. It is not a free trade agreement. It is a preferential agreement that discriminates against the rest of the world in favour of the two parties.

Economics 101 tells us that such agreements are bad for trade and for economic growth. But whatever economics might say, many people's instinct is that it is obviously better to protect our industry and our farms.

It is a bit like what happened to Copernicus and Galileo when they first proposed that the earth was not the centre of the universe but revolved daily on its axis and circled annually around the sun. Copernicus's and Galileo's work was banned by the church, and Galileo was condemned by the Inquisition to house arrest for life for heresy. Surely the evidence of one's eyes showed that the sun revolved around the earth!

We are committing a historic error in abandoning our former stance in favour of non-preferential trade arrangements. What is so ludicrous about our position is that few countries in the world are worse placed than Australia to play the preferential game.

We should be deeply concerned about the agreements of the past few weeks among ASEAN countries, and between ASEAN and China, India and others, to negotiate a free trade area or other preferential arrangements, from which we will be largely excluded, no matter how hard we try to join.

Our Singapore and potential Thai deals are, with all due respect, a sideshow.

We desperately need to persuade our regional friends to step back from this course in favour of multilateral arrangements, but we are in no position to do so if we put such store in seeking our own preferential deal with America.

A bilateral agreement with the US would deliver us practically nothing. The Government's studies show that the bulk of the benefits would come from Australia unilaterally reducing protection anyway. Virtually all of the other benefits are supposed to come through achieving greater access for agriculture, but even that would be a fake victory.

Let us say Australia got access for an extra 100,000 tonnes of sugar. Because US subsidies to agriculture are not on the negotiating table,it would continue to produce as much sugar as it does now.

One of two things would then happen. The US would export an equivalent amount to our markets in other countries, thus driving down the price we could achieve in those markets.

Or it could import less from third countries such as Brazil in favour of us, but those third countries would then dump their products on third-country markets where we wanted to sell the rest of our sugar. So most benefits from increased agricultural market access will be illusory.

Howard should return to the economic good sense that led him and his party to support Bob Hawke and Paul Keating in their non-discriminatory, non-preferential opening of Australia to the world during the '80s and '90s.

It is almost certain we are not going to get a decent agreement with the Americans that will survive the US Congress anyway. So let's cut our losses.

When George W. Bush comes here let's say to him that the only real game is the multilateral negotiations in the Doha Round. Let's do again what we did so well before.

Let's work together to open up global markets, not close them down by breaking the world up into a series of contending bilateral and regional trading blocs. That way lies poverty.

That way could lie conflict. It has before and it could again.

Incidentally, it was 1979 before the church annulled Galileo's 1633 conviction for heresy, and 1992 before it lifted the ban it imposed in 1616 on Copernicus's great work De Revolutionibus.

Let's hope the Prime Minister sees the light a bit more quickly.

Michael Costello was chief-of-staff to former Opposition leader Kim Beazley.