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RIRDC report: new approach suggested on trade policy 28 Oct 2014

A new report from RIRDC has mapped out a new approach to Australia’s trade policy, underpinned by four key courses of action.

The report, titled ‘Trade Policy Today: A New Approach for a Changed World’ was launched by Ewen Jones MP, Chairman of the Coalition Backbench Committee on Trade and Investment in Canberra on Monday.

The report suggests that the principle that has historically driven many in the trade negotiation process, which is that ‘exports are good and imports are bad’, needs to be re-thought.

The authors of the report, Andy Stoeckel and Hayden Fisher from the Centre for International Economics, state that many of the fundamental drivers of global trade and investment flows are outside Australia’s control, and instead policy makers should focus on the policies and rules affecting trade at home – and to some extent abroad – where outcomes can be influenced.

The report notes that traditional forms of protection - such as tariffs and agricultural subsidies - have tended to decline. However, new forms of protection and new arguments for protection have emerged (or re-emerged), particularly ‘behind the border’.

According to the report, the forms of protection and arguments for protection that have been on the increase over recent years include currency protectionism, the emergence of non-tariff barriers to trade, food security, and barriers to foreign direct investment.

Mr Jones said the comprehensive report could be a useful reference point to help set Australia’s trade policy direction in the future.

“As with all things trade, it is the ‘where to from here’ which must drive us. This report does not simply tell us where the problems lie, this report assists in charting a way forward,” Mr Jones said.

The report sets out four courses of action that Australia could pursue in relation to trade policy:

1. Ensure our own policies at home promote the best use of our resources for most benefit, irrespective of what others do — many studies have shown that most of the gains from trade come from one’s own actions. That is, Australia achieves most of the gains from multilateral trade liberalisation by unilaterally reducing our own barriers to trade.

2. Respond strategically to events we cannot influence — Australia has no direct influence over many of the forces driving global trade and investment patterns. Australia can respond to new developments through appraising and assessing risks and through influencing, where possible, the institutional arrangements through bilateral and multilateral fora.

3. Multi-lateralise free trade agreements (FTAs) — as Australia has no choice but to participate in the global FTA system that has emerged, the challenge is to make our FTAs better. Offering all countries import access on the best terms negotiated under an FTA — effectively multi-lateralising the FTA — would eliminate the risk of detrimental trade diversion and do away with costly rules of origin. This would maximise the gains from trade and be fully consistent with the most favoured nation principle underpinning multilateral liberalisation.

4. Promote best practice domestic scrutiny of policies that distort trade and worsen growth — Australia should encourage other countries to use proper domestic transparent processes of scrutiny of all policies, both microeconomic and macroeconomic (including the exchange rate), that might distort trade.

The full report can be downloaded for free from the RIRDC website: https://rirdc.infoservices.com.au/items/14-059