No. 98

STONE the crows! There are only a couple of Aussie neddies in the Melbourne Cup![i]

It’s not that the Crows are bigots. But, well, those foreign horses – they whinny funny and they live on less oats and, well, why do we want to gallop to the bottom?

Yes, protectionists are on the prowl. While the G20 members are not interfering with the free movement of funds, it’s not the case for goods and services.[ii] According to the EU, the G20 plus ten other major trading economies imposed an additional 130 import barriers in the year to the start of September, making a total of 420 since the GFC. As the EU asserts:

New industrial policies of several G20 members raise concerns about open trade and investment, as they are often based on import substitution, local content requirements and restrictions in public procurement. In emerging countries, a lot of trade restrictive measures have been locked in as part of national industrialisation plans. [iii]

Given the EU’s appetite for agricultural subsidies this is more than a bit rich, but it makes Trade Minister Craig Emerson’s point that the Doha round of free trade talks is done like a dinner.[iv] And it makes his case for a new approach – although Dr Emerson’s optimism ensures that when it comes to policy he will always make the most of not much.

Emerson certainly is right to demand action on trade reform. If anybody has a right to the high moral ground on trade it’s us. According to the EU, Australia has introduced four protection measures since the end of 2008. In comparison the US has introduced nine, the Chinese 24, and the Russians 70.

The prize for economic irrationality goes to a settler society similar to Australia, except in the way they really stuffed everything up – Argentina, which has burdened its consumers with a staggering 104 measures to block imports and subsidise exports since the GFC.[v]

To an extent this does not matter. Open economies benefit from the efficiencies free trade provides, whatever others do. For 30 years the Productivity Commission has made the case for “policies that aim to reduce barriers to the free flow of goods and services, both domestically and internationally.

Such policies are likely to benefit the economy as a whole by encouraging Australia’s resources to flow to their most highly-valued uses, consistent with the relative economic efficiency and competitiveness of different activities, sectors, industries and businesses within Australia”.[vi]

However, nobody wins a trade war. The best way to reduce the size of the global economy is for the ghost of Smoot and the horror of Hawley to prevail. The 1930 tariff increases imposed by Senator Smoot and Congressman Hawley did not cause the Great Depression, but they did make it harder for the US, its suppliers and customers to trade their out of strife.[vii] .

But protectionism always appeals to people who assume that everybody else is doing better than they and the bum notes of its siren song excite even Australians, at least rent seekers and the perpetually aggrieved.

Like union leader Paul Howes, who wants protection for his members:

One of the reasons why we’ve lost so many of our export markets is the increasingly protectionist stances taken by foreign governments. … Now, in a perfect world, a free trade environment with none of these procurement policies would be great, but the reality is with the rest of the world taking increasingly protectionist stances, we too should make sure that we are mandating procurement policies that if Australian taxpayers’ dollars are used on these big infrastructure projects, Australian taxpayers should come first [viii]

Like everybody who argued the US Free Trade deal was going to enslave us to the American, a bunch of academics wrote a book warning against it called, How to kill a country [ix]!

And like Guy Rundle, who claims:

For many, “protection” sounds like a pretty good idea. It always has. Though members of the narrow ‘power elite’ write books reassuring each other that the country has happily moved on from the “Australian settlement” – of protection, nationalism and state control of working conditions – most Australians refuse to agree. Every poll shows that they support industry protection, ‘buy Australian’ campaigns and a level of public ownership far beyond what exists. [x]

It’s worth noting that only 0.5 per cent of the people polled by the ANU rate “loss of jobs overseas” as the nation’s most important problem.[xi] But, even so, the Prime Minister was speaking to Australians as well as her international audience last Tuesday at CHOGM when she stood firm beneath the free trade flag and said:

Australia recognised the value of free trade long ago … our experience here in Australia has taught us a pragmatic conviction in a simple equation: Trade equals growth which equals jobs. [xii]

Other nations piking on free trade make it easy to argue they are playing Australians for mugs.

As Dr Emerson explains his opponents’ argument;

Why play by the rules of the game when others don’t? Why lose jobs and whole industries when others bend the rules on subsidies and access to their own markets for their own political advantage? Even those countries that strictly adhere to the letter of the rules can legally hike tariffs and farm subsidies to the levels at which they agreed to bind them in previous rounds. And they can impose export controls on food and other strategically important products, while placing heavy restrictions on trade in services.[xiii]

So what does he want done? For a start, the big economies could set out what they will do to help the smallest at a December meeting in Geneva. And they should agree on WTO consistent conditions for bilateral and regional deals that will occur while a global settlement will not: “A new approach involving an initial down-payment, further instalments and the parallel negotiation of selected agreements is a realistic way of achieving further liberalisation.” [xiv]

Up to a point, Minister. Craig Emerson is always an optimist. As small business minister, Craig Emerson worked very hard on a range of reforms reducing state red tape and almost as hard on explaining why these relatively minor changes were the era’s equivalent of National Competition Policy. [xv]

And what he wants now will keep free trade negotiations breathing, but just.

But good on him for having a go. If the world does retreat into protectionism, Australia will become what protectionists fear even more than a globally competitive economy – a mine for China.

And Beijing does not play by the free trade rules.

ENDNOTES


[i] Richard Smith, “Melbourne Cup might only see to Australian bred runners in the field,” Sports Betting, October 27 @ www.aussportsbetting.com/2011/10/27/melbourne-cup-might-only-see-two-australian-bred-runners-in-the-field/ recovered on October 29

[ii] OECD and UNCTAD, Sixth report on G20 investment measures,” October 25 @ http://www.unctad.org/en/docs/unctad_oecd2011d6_en.pdf recovered on October 29

[iii] European Commission, “EU report highlights concerns over rise in protectionism across G20,” October 19 @ http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/1208&format=HTML&aged=0&language=EN&guiLanguage=en recovered on October 29

[iv] Matthew Franklin and David Uren, “Craig Emerson pushes breakaway plan to sideline protectionist nations,” The Australian, October 17

[v] European Commission, “Eighth report on potentially restrictive trade measures, October 2010 – September 2011,” 10 @ http://trade.ec.europa.eu/doclib/docs/2011/october/tradoc_148288.pdf recovered on October 29

[vi] Productivity Commission, Bilateral and regional trade agreements (November 2010) 230 @ http://www.pc.gov.au/__data/assets/pdf_file/0010/104203/trade-agreements-report.pdf recovered on October 29

[vii] Donald J Boudreaux, “Peddling protectionism: Smoot-Hawley and the Great Depression, Independent Review, 16, 2 (Fall, 2011), 293-296

[viii] ABC TV, Lateline, August 24 @ http://www.abc.net.au/lateline/content/2011/s3301512.htm recovered on October 29

[ix] Linda Weiss et al, How to kill a country: Australia’s devastating trade deal with the United States, (Crows Nest, 2004)

[x] Guy Rundle, “Why the people seek protection in protectionism,” National Times, September 4 @ www.nationaltimes.com.au/opinion/politics/why-the-people-seek-protection-in-protectionism-20110903-1jrm2.html recovered on October 29

[xi] Australian National Institute for Public Policy, “Attitudes to government and government services, October 2011,” 23 @ http://publicpolicy.anu.edu.au/anupoll/documents/2011-10-25_ANUpoll_government_services.pdf recovered on October 29

[xii] Julia Gillard, “Speech to the Commonwealth Business Forum Dinner, Perth,” October 25 @ http://www.pm.gov.au/press-office/speech-commonwealth-business-forum-dinner-perth recovered on October 29

[xiii] Craig Emerson, “A new pathway to global trade reform,” October 17 @ www.trademinister.gov.au/releases/2011/ce_mr_111017.html recovered on October 29

[xiv] Craig Emerson, ibid

[xv] Matthew Franklin, “Small business minister talks up Gillard reforms,” The Australian, July 6 2010

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