Saturday, July 17, 2010

Benefits from free-trade pacts are merely 'modest'

THE Productivity Commission has damned the government's focus on regional and bilateral free-trade agreements (FTAs) with the faintest of praise. It finds the gains from past FTAs were exaggerated in rhetoric but modest in reality.

In a draft report, the commission proposes big changes to Australia's and the world's approach to free trade negotiations. It urges a shift away from the Doha Round and bilateral FTAs to more flexible, industry-specific deals.

Between 2003 and 2007, the Howard government negotiated FTAs with the United States, Thailand and Singapore. The Rudd government negotiated FTAs with the 10-member ASEAN group and Chile. And the Gillard government is now negotiating FTAs with China, Japan, Korea, Malaysia, regional FTAs with about 20 other countries, and is considering FTAs with India and Indonesia.

But the commission's draft report suggests the negotiating effort going into all this could be better spent elsewhere. It urges the government to consider "alternative measures that could deliver similar or greater benefits at less cost".

The report, co-written by former World Trade Organisation deputy director-general Andrew Stoler, now at the University of Adelaide, found some evidence of benefits for Australian exporters from past FTAs, but only modest ones.

"The commission has found that expectations of the benefits have been optimistic," said commissioner Patricia Scott.

As always, the commission advocated unilateral tariff cuts and trade liberalisation as the best policy. But the report also proposed a new set of approaches to trade reform:

Without abandoning the Doha Round, consider joint moves with "like-minded countries" to reduce trade barriers in specific sectors once a "critical mass" of countries has signed on as when barriers were removed on IT products in the 1990s.

Negotiate simpler mutual-recognition agreements with other countries to liberalise access to services, bilateral investment treaties, and even a services-only FTA with the European Union.

Simplify future FTAs by scrapping side issues such as government procurement, intellectual property where the US FTA took us backwards by extending copyright to 70 years labour standards and competition policy.