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Transparency: An Australian trade agenda for G20

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COMMENTS

2 March 2009 13:39

Bill Carmichael is a former Chairman of Australia's Industries Assistance Commission and is a member of the Tasman Transparency Group.

After a long pause since he received the Mortimer Review on trade policy, Simon Crean has  announced the government’s position on trade. It regards protectionism, here and globally, as a major threat to our future prosperity. On the one hand it warns that protectionist actions by other countries, like the proposal to introduce a ‘buy American’ clause into Obama’s stimulus package, 'would hurt Australian companies and destroy local jobs'. On the other hand, it warns that demands by Australian industries for protection also pose a threat to Australian jobs and future prosperity:

...there is a tendency to point the finger of blame elsewhere and not to look in one’s own backyard....One common reaction is to blame imported products and services for destroying local jobs...I know pulling down trade barriers is the best hope for Australian jobs into the future… 

 This policy position has major implications for Australia’s response to protectionism at the G20 London Summit next month.

While G20 leaders agreed last November to resist protectionism, some have since introduced new and substantial protectionist measures. They have simply viewed the undertaking on protection as a commitment to resist other countries’ protectionism.

For instance, the US has blamed the EU for its reluctance to reduce tariffs on farm products. The EU blames the US for its reluctance to cut farm subsidies. The US and Europe both blame developing countries for not being prepared to lower their barriers to manufactures and services. Developing countries are reluctant to do that unless Europe and the US concede more on farm trade. And so on.

Australia’s trade policy, as explained by Crean, recognizes the difference between the world in which our trade negotiators have to operate and the real world — a difference confirmed by experience in the Doha Round. The former assumes that protectionism can be kept at bay by international processes alone (negotiations, rules and agreements). In that world, international governance is the answer.

In the real world, however, the influences responsible for protectionism operate in the domestic policy arena of individual countries — and need to be tackled there. In this response to protectionism, improved governance in domestic policy decision-making is a crucial part of the answer. 

As Crean has recognised, the major gains for the US would have come from cutting its own farm subsidies because it is Americans, not foreigners, who pay for them. Those who pay for European farm policies are Europeans. Developing countries bear the costs of their tariffs on manufactured imports. Australian taxpayers and consumers pay for protection to our car and textile industries. And so on.

The G20 response to protectionism should address the domestic influences causing protectionism, by providing the information domestic communities need to enable national economic welfare to replace domestic political pressures as the driver of government decisions on protection. This response has been field-tested in Australia, and underpinned the unilateral reduction of our own trade barriers in the 80s and 90s.

Australia's experience confirms that the antidote to protectionism is a domestic community well informed about the economy-wide consequences. The policy choice for governments is between meeting the demands of special interest groups for protection or bringing into sharper public view the consequences (for their domestic economy and community) of doing so.

Crean’s rejection of demands for protection by Australian steel suppliers is to be commended. But not all trade ministers or governments (in Australia or elsewhere) share his personal commitment to resist such demands. His resolve, however strong, does not translate into an enduring basis for successive governments to resist pressure for protection. That is why an Australian Labor Government, over three decades ago, put in place a domestic transparency process to provide a public discipline on decision-making about protection.

That process — of decision-making after open inquiry and public advice — has preserved the authority of successive governments over policy, while providing transparency and an economy-wide perspective in the advice going to them on protection. It has provided the basis for bipartisan support for protection reform in Australia.

Why is it important for Australia to promote this response when G20 leaders meet next month? The major thrust of Crean’s trade policy statement is on safeguarding jobs and investment in those Australian industries that can contribute to our future prosperity — that is, industries that will be competitive in world markets if or when they gain access to them.

Our service industries, which account for more than three-quarters of national output and four out of every five Australian jobs, contribute only 25 per cent of total exports. That is because access to world markets for these industries has been severely limited by non-transparent 'behind-the-border' barriers. These are widely seen as part of domestic policy — beyond the reach of international surveillance, rules and agreements. A domestic transparency process, owned and operated by individual countries, is the only means of bringing these opaque barriers into the open, while leaving individual governments in full command of domestic policy.

This provides a very powerful reason for Australia to promote the domestic transparency response to protectionism at the London summit next month.

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