Free trade agreements favour imports
Just how beneficial are Australia's free trade agreements? Fairfax's Peter Martin explains.
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Here's another lie. Our trade agreements boost exports. Malcolm Turnbull and Scott Morrison said so repeatedly during the campaign on the basis of next to no evidence, rebadging their agreements with Japan, Korea and China "export agreements".
In every case for which we have clear evidence, our trade agreements seem to have boosted imports more than exports.
Even on election night the Foreign Minister Julie Bishop used the line, castigating its biggest election winner, South Australia's Nick Xenophon, for expressing scepticism.
Illustration: Dionne Gain
"He is against free trade agreements," she told the ABC. "South Australia is the state that will benefit enormously from the free trade agreements the Coalition have signed."
Xenophon isn't against trade agreements. He wants the Productivity Commission to run benefit-cost studies on what they actually achieve, something the Coalition has resisted at every turn.
There's no evidence that South Australia or any other state will "benefit enormously from the free trade agreements the Coalition has signed", in large part because the Coalition has ensured there isn't.
Malcolm Turnbull and Scott Morrison rebadging their agreements with Japan, Korea and China as "export agreements". Photo: Andrew Meares
It refused outright to commission a cost-benefit analysis on the giant Trans-Pacific Partnership deal it signed in February which is yet to be ratified. More than a decade after it negotiated the US-Australia Free Trade Agreement it hasn't looked back to find out what happened. A prospective study it did commission on the new Japan, Korea and China agreements found that taken together they will boost our exports 0.5 to 1.5 per cent, while boosting our imports 2.5 per cent, which means they will send our trade balance backwards.
Rather than being "export agreements", the deals for which we have data are better described as import agreements. In every case for which we have clear evidence, our trade agreements seem to have boosted imports more than exports.
Until 2003 we only had one, with New Zealand. We preferred to cut tariffs unilaterally and argue for global free trade rather than play favourites. In the 13 years since then we've added, or are adding, 13.
Senator Nick Xenophon.
After the first new-style agreement with Singapore in 2003 our exports climbed much as before while imports (goods and services) surged. After the 2005 free trade agreement with the United States, both imports and exports continued on the trend lines set previously with imports climbing faster than exports, as they did for Chile and Malaysia and as they will for China, Japan and Korea.
Which isn't to say imports aren't welcome. Increased imports lift our standard of living. And while they can lead to the closure of old Australian industries, such as the car industry, they can boost new ones by ensuring the supply of cheap inputs.
But that isn't an argument for our never-ending pipeline of trade deals. We could get the same cheap imports more quickly by cutting all of our tariffs to zero. Seriously. We could do away with much of our mammoth self-perpetuating trade negotiating bureaucracy and trade more simply.
The Treasurer himself provided an unintentional window into how complex these trade agreements have become when during the campaign he lauded "export trade deals that generate some 19,000 new export opportunities".
What were these 19,000 new export opportunities, I asked one of his staff. The number refers to the count of specific line items in the China, Korea and Japan free trade agreements. That's how complicated they've made trade.
A huge chunk of the traders surveyed by the Australian Chamber of Commerce and Industry don't use them.
"In my experience, they have been a waste of time, particularly Thailand. The paperwork to qualify was so onerous it wasn't worth the effort," says one member.
"I know we have one with the US and I know there is one now with Japan and Korea. Is that correct?" says another.
Using the agreements costs more than time. In order to get low-tariff entry into a market such as the United States, an Australian company has to comply with "rules of origin", which means it needs to ensure that no more than a certain percentage of its inputs is sourced from countries outside of Australia and the United States, sending up costs. In 2010 the Productivity Commission found these extra costs amounted to as much as 8 per cent per shipment.
Where exporters attempt to apply with the rules, they shrink trade. One of the few studies of the impact of the US-Australia Free Trade Agreement found it shrank both nations trade with the rest of the world.
That agreement had 980 rules of origin. One of our latest, with Korea, has 5205. The Trans-Pacific Partnership has even more. And because the agreements are not always consistent with each other, the "noodle bowl" of overlapping requirements makes attempting to trade using the new agreements harder still.
Which would be bad enough, were Australia not negotiating more. In the early stages of negotiation are agreements with India, Indonesia, the European Union and a Regional Comprehensive Economic Partnership linking us separately to China, Japan, Korea, Singapore, New Zealand, Thailand, Malaysia, India and Indonesia.
The Productivity Commission wants to take stock, and from here on have it or the Treasury examine whether the deals are actually worth doing. A government genuinely concerned about making things easy for business would have agreed long ago. Xenophon, the Greens and Labor are about to make it see sense.
Peter Martin is economics editor of The Age.
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