Opinion & Commentary
Even if it's not free, US trade deal will have some benefits
Should Australia sign a free-trade agreement with the United States? No, says John Quiggin, ARC professorial fellow at the University of Queensland and the Australian National University, because it will mean accepting US terms on sensitive matters such as copyright and pharmaceuticals. (His response can be found on www.afr.com) But that misses the point, says Wolfgang Kasper, senior fellow at Sydney's Centre for Independent Studies Australia has a historic opportunity to integrate its economy with the US.
Wolfgang Kasper:
The horse-trading over a free-trade agreement with America is in full swing. Numerous details still need to be resolved, however, the point has been passed for debating whether or not to pursue a preferential, bilateral deal. Nor is it time yet to get excited about petty details, such as a pharmaceutical subsidy here or farm-lobby obduracy there.
Instead, we should focus on the wider context.
The negotiations are about comprehensive economic relations, not simply about trade and tariffs. Nonetheless, Australian exporters will in future not have to fear sudden US quotas. And farmers will not be handicapped vis-a-vis their Latin American competitors, whom the US has already offered preferences. More importantly, the fast-growing national markets for services will be integrated.
For investors, the prospective deal will partially remedy the defeat of the multilateral agreement on investment, which was sunk five years ago by narrow-minded nationalistic manoeuvring and noisy opposition from anti-globalisers. Mutual economic relations with the US will now be given a trust-inspiring, formal basis. This will enhance the mobility of capital, knowledge and enterprises.
The technical and organisational standards of leading US producers will be brought to Australia, and competitive domestic producers will be able to engage with confidence in the US. Australian savers and super funds will be better able to pursue opportunities in the US, and US investors will be in a better position to exploit opportunities on this side of the Pacific. Many will build a local base for business in the West Pacific time zones, adding to Australia's weight and prowess in Asia.
Many now anxiously discuss what benefits might be reaped from the US deal. Experience with economic integration elsewhere shows that smaller partners have relatively more to gain, but this depends primarily on their political and business responses to the integration challenge. Fortunately, both Australia and America enjoy high levels of economic freedom and share many cultural and legal institutions. This will make integration relatively easy, also for smaller businesses. Nonetheless, the 'homebase Australia' inflicts two distinct handicaps: a relatively heavy burden of government, and the remnants of the restrictive industrial relations system. These handicaps will come under renewed reform pressure.
No econometric model can capture the dynamic of how liberalisation triggers institutional reform. Abstract models, produced to influence a confused Australian public, only obfuscate the issue. Another source of confusion is the debate to which Productivity Commission modellers recently contributed about whether multilateral liberalisation is preferable. Indisputably, multilateralism made postwar trade liberalisation the motor of economic growth, mainly because more openness triggered economic reforms.
Alas, multilateralism is a spent force for now. Many Uruguay Round promises remain unfulfilled. All agreed deadlines in the current Doha Round have been missed. The European Union has made it clear there will be no farm-trade concessions. It would therefore be foolhardy for Australia simply to await further multilateral liberalisation. The World Trade Organisation's trade focus also detracts political attention from what now matters most: openness to capital, knowledge and enterprises.
The Australia-US deal will expose the anti-competitive holdouts from Australia's bygone economic order and make a reactionary stance more costly. This is why those who oppose economic reform, also oppose a preferential deal with the US. Only by more Australians claiming greater economic freedom for themselves will we reap the full material gains from the agreement.
Therein lies its historic promise.
Wolfgang Kasper is a Senior Fellow at Sydney's Centre for Independent Studies.
