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When free trade isn't free trade: Gary Cronin on the FTA

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When free trade isn't free trade: Gary Cronin on the FTA article image

The Productivity Commission released its Research Report into Australia’s Bilateral and Regional Trade Agreements in November last year.  As usual for the Productivity Commission, the report is not easy reading being very dry and analytical, but it examines an area where all Australian Governments have placed substantial emphasis and should be read by all stakeholders involved in international trade. I will start with the major findings and work my way back into why Australia has placed so much of its international trade and diplomacy efforts into bilateral and regional trade agreements. Firstly it is necessary to clarify what is mean by "Bilateral and Regional Trade Agreements" (BRTA’s). The Productivity Commission interpreted the term "Bilateral and Regional Trade Agreement" as trade agreements between 2 parties or multiple parties where trade between the parties are encouraged by providing concessional tariffs or reductions in trade barriers to the other parties to the agreement. In Australia most of these agreements are known as Free Trade Agreements. These agreements are substantially different to multilateral trade agreements where all nations agree to liberalise trade barriers for the benefit of all countries. The findings of the Productivity Commission included: While BRTAs can reduce trade barriers and help meet other objectives, their potential impact is limited and other options often may be more cost-effective. Current processes for assessing and prioritising BRTAs lack transparency and tend to oversell the likely benefits. The Commission has received little evidence from business to indicate that bilateral agreements to date have provided substantial commercial benefits. This was certainly not a ringing endorsement for BRTAs, and in fact seriously questions the motives for governments of both sides of politics of pursuing BRTAs as there appear to be little or no benefits to Australia from the BRTAs currently in place. The question is why would successive Australian governments pursue BRTAs? The cost of negotiating each BRTA is considerable and in some instances the cost of the promotion of the BRTA after is probably even greater. A case in point is the BRTA negotiated with USA that came into force on 1 January 2005 where the Australian Government allocated high level resources, from the Prime Minister down, to negotiate the agreement and then provided Austrade the funds to actively promote the benefits of the agreement including engagement of 30 new export trade facilitators based throughout the USA. The only reason for pursing BRTAs appears to be political. The Government of the day can appear to be doing something for trade (particularly when most multinational trade reform has stalled) and make pronouncements about the great potential for trade that will delivered to Australia. I (following the Productivity Commission) have referred to the various agreements as Bilateral and Regional Trade Agreements whereas the Government continually refers to them as Free Trade Agreements. The use of the term Free Trade Agreement is very generous as they rarely allow for free trade but instead preferential trade. There are always exclusions, limitations and matters held back for future negotiation. Each party to the various agreements appears to put their main effort into protecting their own special interest groups rather than winning major concessions for their own industry. The problem with BRTAs is that they are relatively easy to negotiate and something appears to have been achieved. Unfortunately very little tangible trade benefit is achieved and significant resources are spent on a political exercise. While multinational trade agreements have proven to be very hard to reach agreement, eg Doha, they are the most efficient and beneficial trade reform. Governments must put their resources into achieving real international trade reform by pursuing multinational trade agreement despite the difficulties involved.

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