Chapter 9 Government Trade Policy Statement
In April 2011, the Gillard Government released a comprehensive Trade
Policy Statement – Trading our way to more jobs and prosperity.
The Statement noted that the opening of the Australian economy since the
1980s had contributed greatly to the strong and sustained economic growth of
the past twenty years. It commented that international trade assisted the
government in achieving its aims of increasing national prosperity and the
creation of high-skill, high-wage jobs. Workers in export industries earn about
60 per cent more than other Australian workers.
In evidence given to the Sub-Committee, the Department of Foreign
Affairs and Trade set out the background to the preparation of the Statement:
The statement was prepared following consultations with a
range of stakeholders, including key industry groups, the union movement and
civil society. It also drew on the Productivity Commission's report on
bilateral and regional trade agreements. That process had more than 100 written
Overall the trade policy statement has been welcomed by key
industry bodies, including the Australian Chamber of Commerce and Industry, the
Australian Industry Group, the Business Council of Australia, the National
Farmers' Federation and the Australian Services Roundtable. Some other
stakeholders as well have raised issues dealt with in this statement when we
have been consulting with them.
The Statement estimates that the reductions in industry protection, and
the consequent opening of the Australian economy to more trade, have made the
average household about $3,900 better off. At the same time trade intensity
(exports plus imports as a share of total economic output) has increased from
28 per cent to 40 per cent.
The Government’s role is a vital one. Through charges and processes,
such as customs duties, quarantine restrictions, subsidies, taxes, and fees and
charges of various kinds, it can have a major influence on the cost and
availability of goods. The statement recognises that reduction in these
government-imposed restrictions benefits the economy by exposing businesses to
...compelling them to innovate, to be efficient and to
restrain the prices they charge local consumers. And reducing trade barriers at
home can enable consumers to buy imported items at lower prices than the cost
of producing them at home.
The statement offers examples that reflect this effect – the prices of
most items of clothing and footwear are considerably lower than they were 25
years ago. By contrast the prices of untraded goods – the examples used are
haircuts, rents and dental care – are noticeably higher.
This influence extends beyond the border. A sound and open trade policy
allows the factors of production – land, labour and capital – to move into the
nation’s more competitive industries. The essential factor here is that an open
economy is able to maximise its comparative advantage and to specialise where
that advantage is greatest.
The essential point is that these advantages do not depend on other
countries reducing their levels of protection. However, when other countries
are also reducing their barriers, it allows Australia to take advantage of
better market access for its exporters and increases the overall gains.
Another essential factor is the pressure that is built up in the rest of
the economy to also reform and become more efficient. Unless the reform process
is economy–wide, export industries may be held back by the cost of non-traded
inputs and by the costs imposed by excessive regulation:
Trade liberalisation therefore can drive wider economic
reform, lowering prices not only to export industries but to the nation’s
consumers as well.
The Statement recognises the changes that are occurring in the world
economy, particularly the growth of globalised manufacturing processes
supported by regional and global supply chains. It also notes the rise in the
importance of services, which now:
...account for 73 per cent of Australia’s economic activity,
85 per cent of employment and around 22 per cent of export revenue.
ITS Global estimated that the services included in Australia’s
merchandise exports amounted to $35 billion. This is in addition to $53 billion
of direct services exports. The Statement indicates that the Government intends
to implement a reform program to make Australia’s services sector one of the
most open in the world.
The Sub-Committee asked the Department of Foreign Affairs and Trade for
some details of the proposed reforms. The Department commented:
Government's overarching strategy for the service economy consists of:
n the creation of a
sound macroeconomic environment that supports sustainable growth;
n increasing the
productivity and competitiveness of the service economy by removing impediments
to growth, through microeconomic reform;
n enhancing the
capacity of service-based businesses, through investment in skills, innovation
and infrastructure; and
pursuing trade liberalisation.
The Department explained also that:
A major focus of the Government’s microeconomic reform agenda
is the work of the Council of Australian Governments (COAG) under its National
Partnership Agreement to Deliver a Seamless National Economy. In March 2008
COAG endorsed a far-reaching reform agenda, oversighted by the Business
Regulation and Competition Working Group (BRCWG), for reducing the costs of
regulation and enhancing productivity and workforce mobility in areas of shared
Commonwealth, State and Territory responsibility. The COAG reform agenda is
intended to deliver more consistent regulation across jurisdictions to address
unnecessary or poorly designed regulation, to reduce excessive compliance costs
on business, restrictions on competition and distortions in the allocation of
resources in the economy.
The Government also has a wide range of other reforms in
train that directly impact individual services sectors, including for example,
the major infrastructure upgrades and competition reforms to Australia’s
telecommunications sector introduced under the National Broadband Network
(NBN). The vastly improved broadband performance offered by the NBN will
support greater productivity and innovation, including in areas such as
Another example is the report by the Australian Financial
Centre Forum (AFCF) – Australia as a Financial Centre: Building on our
Strengths, released on 15 January 2010. The AFCF report provides
recommendations on domestic reforms and policies to improve the international
competitiveness of Australia’s financial services sector. The Government
provided in-principle or direct support for nearly all of the Forum's 19
The Government places support for the World Trade Organization among its
top priorities and it is actively seeking a successful conclusion to the Doha
Round. However, it recognises the difficulties faced by many developing
countries in trying to fully participate in the world trading system. The
ability to participate fully brings with it many benefits for such countries
and directly influences their economic growth and the rate of poverty reduction
they can achieve.
To assist developing countries to take advantage of the opportunities
that trade presents, Australia operates ‘aid for trade’ programs. The aim is to
“strengthen the capacity of developing countries to participate in
international trade” and, by doing so, “improve the health of the global
In response to a question about ‘aid for trade’ programs, the Department
of Foreign Affairs and Trade explained:
Aid for trade is about helping developing countries,
especially least developed countries, to integrate better in the global trading
system, to sell their goods and services more successfully in the international
marketplace, and to create an appropriate trade enabling environment
domestically. Success in these areas, in support of greater market access, can
make trade a potent fuel for achieving economic growth.
Greater economic integration and the opportunities flowing
from this can enhance economic activity, and help communities build new
livelihoods, expand existing businesses and find new jobs. The liberalisation
of sectors such as health services can facilitate access to better health care,
and thereby reduce child mortality and improve maternal health.
Economic growth and the resulting improvement in prosperity
can provide developing countries the resources and capabilities to reduce
poverty, and to deliver more and better education and health services.
The Department explained that the Government sees the role of ‘aid for
trade’ as an important way of assisting developing nations to take a full share
in the global trade system:
Aid for trade plays an important role in the trade policy
space, and is a key component of international trade advocacy efforts. It
supports Australia’s commitment to international cooperation and an open and
transparent global trading system as a foundation of future prosperity – and is
a critical avenue to poverty reduction and economic growth.
Trade is a key factor for economic growth. Developing country
participation in global trade liberalisation is one of the most effective ways
of delivering developing countries a better deal in world trade, encouraging
development and reducing poverty - no country has achieved strong and sustained
economic growth without it. But developing countries need assistance to
participate in the global trading system and capacity to translate the benefits
of trade into development outcomes and progress towards the Millennium
Development Goals. Aid for trade is being increasingly sought by developing
Aid for trade helps to facilitate international trade and
economic integration, utilising existing global institutions such as the WTO,
APEC, East Asia Summit, ASEAN and the Pacific Islands Forum. It helps
developing countries build and strengthen their economic and trade governance, undertake
trade liberalisation, comprehensively engage in international trade
negotiations and implement outcomes including to support economic reform and adopt
The Department went on to explain that although the term ‘aid for trade’
is relatively new, the process has, in fact, been an important part of
Australia’s aid program for a considerable time:
Aid for trade has always been an important component of
Australia’s development assistance program. Over recent years Australia’s aid
for trade activities have increased and strengthened, consistent with the
Government’s commitment to support trade liberalisation unequivocally, resist
protectionism and help developing countries gain access to international
AusAID currently estimates Australia’s total aid for trade
activities at around $600 million in 2009-10 (or around 15% of total ODA). This
figure was calculated based on activity/sectoral codes identified by the OECD
as aid for trade. Australia has no specific aid for trade program or facility. Activities
are funded across various programs or facilities.
Australian aid for trade provided through multilateral and
regional forums/organisations represents about 30% of overall aid for trade.
On a geographic basis, Australia’s aid for trade is primarily directed at East
Asia (35%) and the Pacific (23%). The largest bilateral country recipients are
Indonesia (15%) and Papua New Guinea (12%).
The key types of aid for trade activities are economic
infrastructure for transport (51%), and building productive capacity (46%)
mainly in the agriculture sector. These underpin regional integration and trade
Continuing efforts to strengthen aid for trade will focus on
better tailoring and targeting of activities to achieve optimal impact, and to
improve monitoring and evaluation mechanisms to take better account of trade
Strengthening our efforts on aid for trade will help deliver
more efficient and effective aid that underpins Australia’s broader foreign and
trade policy interests. It will help achieve economic growth and reduce
poverty, as well as see developing country partners achieve self-reliance.
Examples of these policies already in place are reflected in the
economic cooperation and capacity strengthening provisions in recent trade
agreements (such as AANZFTA) and in activities within many of the programs
being undertaken through APEC.
The OECD and WTO produced a report in 2009 assessing the effectiveness
and achievements of aid for trade initiatives. The report commented:
The Aid-for-Trade initiative has succeeded in raising
awareness about the support developing countries, and in particular the least
developed, need to overcome the barriers that constrain their ability to
benefit from trade expansion and reduce poverty. As a result partner countries
are raising the profile of trade in their development strategies and donors are
responding by providing increasing resources to build trade capacity – whether
in terms of policies, institutions or infrastructure.
...Now, more than ever, aid for trade is indispensible for
helping suppliers from low income countries build capacity to penetrate global
markets. Consequently, aid for trade must remain an essential component of
development assistance. The report concludes that maintaining momentum towards
the trade expansion and poverty reduction goals of the initiative requires
reinforcing local ownership and advancing the dialogue among stakeholders.
The Statement notes that the ultimate objective of trade policy “is to
increase the prosperity of a nation’s citizens”, although non-trade policies
are the most effective at redistributing income among the population. However,
those processes are much more effective in a strongly growing economy.
The process of trade liberalisation has transformed the Australian
economy from “a small domestic market protected by high tariff walls to an
open, competitive economy supplying global markets”.
The changes to the economy have gone far beyond the simple reduction of
tariff protection; they have, for example, encompassed changes to the exchange
rate, greater competition in financial markets, and an overhaul of government
business enterprises. The Government Statement commented that this combination
of trade policy and microeconomic reform is an integral part of the overall
economic reform program.
The trade liberalisation reforms have reduced average effective tariffs
on manufactures from 22 per cent to below 5 per cent. On motor vehicles the
maximum tariff rate fell from 100 per cent to five per cent; on clothing and
some textiles the rates fell from up to 180 per cent to 10 per cent and will
fall to five per cent in 2015. Tariffs on footwear and some other textiles are
already at five per cent.
The Patchwork Economy
The Government Statement explains the problems arising from the
extraordinary success of the mining sector. As the sector grows it is
attracting skilled workers and other resources from less successful sectors.
The result is described in the Statement as a “patchwork economy”– sectors
operating at dramatically different speeds. The problem brings with it a high
exchange rate and that, in turn, poses difficulties for exporters and
However, the mining sector itself faces competition from its overseas
rivals, who are also benefitting from the commodity boom. The high exchange
rate has two offsetting effects. It disadvantages exporters and
import-competing industries, but pushes the prices of imported goods and
services downwards and assists consumers and other industry sectors. As a
result of these competing influences, the Government plans to concentrate on
re-starting productivity growth to restore balance to the economy and allow all
industry sectors to become more competitive.
Five Principles to Guide Trade Policy
The basic principle underlying the trade liberalisation program is that
it should not rely on what other people do. The reforms carried out to date
have been very beneficial to the competitiveness of the Australian economy.
Consequently, it makes no economic sense to refuse to push forward with
liberalisation because other countries refuse to offer concessions. The
Statement compares it to “an athlete refusing to get fit for an event unless
and until other competitors also agree to get fit”.
The rule proposed by the Government is that trade negotiations should be
judged solely on whether the results are in Australia’s interests, regardless
of what other countries propose to do.
The Australian Government’s policy is to negotiate trade agreements that
support the WTO’s basic rule of non-discrimination – reductions in protection
offered to one country are also available to other countries. This is to some
extent against the tide, because globally many of the agreements negotiated in
recent years offer preferential treatment to the signatories and not to other
The Government is seeking to minimise the trade-diverting effects of its
trade agreements. Preferential agreements can allow resources to be diverted
from their most efficient applications by favouring products from the parties
to such agreements. The Statement commented that:
Trade diversion amounts to a redistribution of jobs and
prosperity instead of the creation of more jobs and prosperity. Worse, trade
diversion is inherently job-destroying and income-destroying from a global
...the Gillard Government will not seek exclusive or
entrenched preferential access to other counties’ markets. Non-discriminatory
trade agreements offer better long-run returns for Australia. They are more
likely to result in trade creation instead of diverting trade from other
countries that, in the absence of tariffs, would be lower-cost producers.
...the Gillard Government will vigorously pursue better
access to other countries’ markets for our exporters of agricultural produce,
of manufactured goods and of services 
Past experience has shown that trade policy and foreign policy should
not be mixed – this means that trade deals should not be entered into for
Having decided to embark upon a trade agreement that gives
each other preferential treatment, thereby discriminating against others, each
country might soon find the other unwilling to give ground on issues that are
politically sensitive domestically. Negotiations can become stalled, with
interest groups in each country criticising the other’s government for
Australia will negotiate bilateral trade agreements with any country
that is genuinely interested in reducing its trade barriers:
n but will only sign
deals that pass the test of being in Australia’s national interest.
Where negotiations take place between two countries that genuinely wish
to liberalise, it promotes transparency in the negotiations. One of the
problems faced in current trade negotiations stems from the reliance placed on
the results of mathematical modelling of the likely outcome of the
The problem is that the modelling uses a hypothetical agreement, usually
assuming full, or almost full, liberalisation. The results therefore show very
impressive figures for the benefits likely to be gained through the agreement –
but the final agreement is usually quite different to the hypothetical
The Department of Foreign Affairs and Trade commented:
...modelling will depend very much on what the assumptions
are. There are different types [of] modelling that you can do and they can be
broader or bigger. So I think it is just saying there that modelling in and of
itself is not the only thing that people should ever rely on. There may be
circumstances where modelling is not the appropriate thing to do to make a
judgment about what the net benefit to Australia would be from a trading
agreement. It may be that there are limitations on where you should use
modelling there. So it is really a contrast, I think, between what the
government saw as some earlier practices and the way they want to move forward
in the future.
To achieve transparency, the Government Statement proposes:
n modelling should be
based on the final product of the negotiations, not on a hypothetical model;
n there should be
regular consultations with business groups, trade unions and community
organisations, with special emphasis on likely regional effects;
n as each stage of the
negotiations is completed, the information should be placed on government
n all agreements should
be scrutinised by the Joint Standing Committee on Treaties.
Indivisibility of Trade Policy and Economic Reform
During the major reforms of the last twenty years, Australia has not
waited on the actions of other countries. Reforms to make the economy more
competitive have been pursued regardless of what others have done. The
Government Statement makes it clear that this policy will continue:
Applying the indivisibility, Australia will not wait for
other governments to reform their economies before reforming ours. Australian
economic reform is good for jobs, goods for prosperity. As reformers, we have
never waited for the world and we need not wait for the world now.
Productivity growth has accounted for 80 per cent of the increase in
Australia’s national income over the last 40 years. However, that growth has slackened
in recent years. The Gillard Government has made the revival of productivity
growth, through a new program of economic reform, a priority in its program.
The Department of Foreign Affairs and Trade explained:
The Government has identified enhanced productivity growth as
the key to increasing Australia’s economic growth. The pursuit of productivity
enhancing and nation building reforms through prudent investment in social and
economic infrastructure, and policies to support skills and human capital development
is a fundamental economic policy goal. This is focused in the following areas:
n Education reforms,
including improved tertiary and vocational training as well as a greater
allocation of resources and effort to schools and the critical early learning
n Core reforms to
infrastructure, including in relation to transport, energy and water, the NBN
and a range of reforms under COAG’s Seamless National Economy National
n Promoting innovation,
including through spending on research excellence, critical research
infrastructure, business innovation and enabling technologies. This effort
interacts with many of the education reforms and the development of
infrastructure, especially the NBN.
The Department of Foreign Affairs and Trade in its evidence to the
Sub-Committee explained that economic reform must include trade facilitation
measures to reduce the regulatory burden on businesses involved in
Domestically and also internationally we did play quite a big
role in trying to use e-commerce to facilitate the movement of goods across
borders, so that is one element. But generally I think trade agreements in
particular are looking more at how we can address some of those regulatory or
In most agreements, in customs cooperation for example, there
is quite a big focus on trying to remove things that are not really necessary for
achieving policy objectives but really do provide additional costs on exporters
or importers, do not really add to the whole situation, or provide more
opportunities for people to slow down the movement of goods.
Disciplines in Australia’s Trade Policy
Future trade negotiations will be conducted under a series of
disciplines derived from the five principles set out above:
agreements offer the largest benefits;
n Regional and
bilateral agreements must not weaken the multilateral system — they must be
genuinely liberalising, eliminating or substantially reducing barriers to
n Australia will not
seek to entrench preferential access to markets in trade negotiations, but
simply an opportunity to compete on terms as favourable as anyone else's;
n Australia will not
allow foreign policy to dictate parties to and the content of trade deals;
n The public will be
well informed about negotiations for, and the content of, proposed trade
agreements and have an opportunity for input; and
n Australia will press
ahead with domestic economic reform irrespective of whether other countries
agree to reform their economies.
The Government Trade Negotiation Agenda
The Government faces a difficult time, with the world’s economies
struggling to overcome the setback of the Global Financial Crisis. Although the
major economies resisted the temptation to re-establish protectionism, the
Crisis has weakened the resolve of many economies to continue to push for
Governments are fearful that further global trade
liberalisation would put further pressure on domestic industries still
struggling with the after-effects of the recession and shifting patterns of
This situation has increased the importance of a satisfactory outcome in
the Doha Round. If the Round can be completed successfully it will stimulate
the global economy and re-establish growth in job creation and prosperity. The
Statement notes, however, that “the major and emerging powers appear
indifferent to these opportunities”.
Taking these factors into account, the Government has established a
negotiating agenda that is consistent with the recommendations of the
Productivity Commission’s report on trade agreements last year:
...the Government's negotiating agenda will steer a middle
course of championing and protecting the multilateral system while seeking to
negotiate high-quality, truly liberalising sectoral, bilateral and regional
trade deals that do not detract from but support the multilateral system.
The Government also announced that later this year it will:
...assess each set of trade negotiations against the
principles and disciplines outlined in this Trade Strategy, in the light of
progress on the various negotiations.
The Doha Round
Strenuous efforts have been made to bring the Doha Round to a successful
conclusion but a recent announcement by the WTO indicates that is unlikely this
year. A News Item released on 31 May said that it is unlikely that agreement
will be reached on agriculture, non-agricultural market access, services, trade
remedies and intellectual property by the time of the Ministerial Conference in
December 2011. Delegates are hoping to achieve at least a package for the
least-developed countries as part of an “early harvest” in anticipation of a
full agreement – but so far there is no indication of when that final agreement
may be reached.
The Department of Foreign Affairs and Trade confirmed the likely delay
in its evidence to the Sub-Committee:
...we had a rush of enthusiasm and optimism coming from the
end of last year when at the G20 summit and also at the APEC leaders meeting,
leaders in their discussions—and they had some quite detailed discussions on
the prospects for the round—were able to say, 'We think there's a window of
opportunity to conclude the round this year.'
There was a lot of activity from December and it is still
going on, in fact. But it seemed about a month ago, after a range of bilateral
meetings in particular between the United States, Brazil, India and China, that
there are a number of issues, a number of gulfs, that those countries in
particular do not seem to be able to bridge, and that essentially means that we
are not going to be able to finish it this year.
...Nobody wants to drop the round completely. Everybody says
they are still very committed to trying to get a conclusion. But it is quite
clear that we are not going to get the whole conclusion this year. So the focus
is now turning to whether we can get, if you like, an early harvest of some
issues by the time of the December WTO ministerial meeting in Geneva—whether we
can get a harvest there, get some issues that we can get agreement on and a
process to try to bring the rest to a conclusion over the following period.
So the focus now is just on trying to translate that
political commitment into outcomes and then trying to work through in Geneva
exactly what issues we could possibly pull out and have as an early harvest,
and how to deal with the issues that are maybe harder and cannot be resolved
before the end of the year and how to move through those issues ... over the
next year or so.
...So we have a lot of work to do to maintain and continue
our involvement in the WTO system. That will go on, as well is our efforts to
try to find a way forward. I read the other day that someone described it as a
marathon rather than a sprint. I think that is true. We will just continue to
be one of the most vocally and policy optimistic and energetic members of the
WTO, because we believe it is such an important thing. All aspects are
important and we will continue to try to find a positive way forward on all
parts of the WTO’s agenda.
The Government places the WTO Round as its top priority:
A multilateral trade deal offers the greatest prospective
benefits. Successful completion of the Doha Round would create a new wave of
global trade liberalisation and strengthen the integrity of the global trading
rules to achieve greater gains from trade.
Global prosperity is maximised in a global market observing
global trading rules.
Recognising the value of reaching simultaneous agreement with 153
economies, the Government said it will “continue to press for an ambitious,
comprehensive outcome of the Doha Round that liberalises trade in agriculture,
manufacturing and services”.
In 1994 APEC adopted the “Bogor Goals” for free and open trade and
investment in the Asia-Pacific region – by 2010 for developed economies and
2020 for developing countries. By 2009 this program had produced a reduction in
average tariffs from 16 per cent in 1988 to 6 per cent.
The long-term aim is for the conclusion of a Free Trade Area of the Asia
Pacific (FTAAP) but the Statement notes that at present there is no clear path
to reach that goal. One possible route to achieving FTAAP is through the
current negotiations on the Trans-Pacific Partnership (TPP), an agreement that
will aim to expand its membership over time. Another possibility is through the
Comprehensive Economic Partnership for East Asia (CEPEA), which involves the
ten ASEAN members, China, India, Japan, New Zealand, the Republic of Korea and
When asked about the likely progress on this issue, the Department of
Foreign Affairs and Trade commented:
In its basic form APEC has a goal of a free trade area of the
Asia Pacific. That is a goal. The issue is how you get there. People are
thinking about different ways of getting there. There can be overlapping ways
of getting there. One way that some people have mentioned is the Trans-Pacific
Partnership Negotiations. These can expand over time. Another possible way
could be CEPEA.
But there are other proposals for regional free trade
agreements. I think they have talked about that in ones that do not include us.
There is one for ASEAN +3 that is also under discussion in that same forum. All
of these have members that are also in APEC. Really I think it is about people
trying to find their way through to what is the best and most productive way to
produce freer trade over time.
...Our view is that we try to be involved in as many [of
these mechanisms] as possible. Some of them are at different stages of
development and some are much more at a formative stage. Some regional FTAs are
in a negotiating phase. I think all we do is try to focus on all of those
things that we are involved with and try to get as much progress and value out
of them as we can.
The Sub-Committee asked whether it is likely that India will become a
member of APEC in the near future and the Department of Foreign Affairs and
Our policy is that we are supportive of India becoming a
member of APEC, but the moratorium on membership has only just finished. There
was a moratorium for a number of years and I think it was only last year that
the moratorium came to an end. It is not clear exactly how membership issues
are going to be taken forward.
The bottom line is still that it requires a consensus. There
is bound to be a balancing of people supporting some members and other people
say saying, ‘Yes, but we would like to have some other people join as well’. So
how all of that comes out is still not clear yet...
This is the top regional priority for the Government’s program. The aim
is an agreement that “eliminates or substantially reduces barriers to trade and
investment”. An especially valuable aspect of the proposed agreement is that it
will also deal with “behind-the-border” issues. The other major advantage is
that it is intended to be dynamic – to stay relevant in the face of emerging
issues and to allow for membership expansion.
The Department of Foreign Affairs and Trade was asked about these
aspects of the TPP negotiations and responded:
‘Living agreement’ refers to two issues. The first is that we
want an agreement that genuinely expands membership over time. There have not
been many examples of free trade agreements that, practically, have gone from,
say, one or two people and expanded to a larger number. Often there are
provisions in them that allow for new members to come in, but there are not
many where that is actually happened. That is what we are thinking of.
We do not have answers on all of these because we are still
involved in the negotiations. But it is about how we can make an agreement that
can genuinely expand over time and also one that can be adjusted as new issues
come onto the horizon, and how you manage to have that reflected in agreements
so they do not get out of date. These are some of the issues that we are
grappling with. We do not have the answers as yet, but they are things we think
are important as goals. We are trying to work through them as we go.
On the trade facilitation front, again, we have two approaches
in the TPP. One is, if you like, what we call a bottom-up approach. At the
moment there are more than 24 negotiating groups that deal with different
aspects of the negotiations. It is very complicated, as it is in all FTAs. All
of those groups deal with either liberalisation or facilitation type issues,
but there are some in particular, like customs corporation and trade
facilitation issues, where they go through exactly what the behind-the-border
issues are. There is another element to the TPP that is relatively new. It is
one of what we call the horizontal issues. We have a number of cross-cutting
issues in the TPP.
...We have identified thematic concerns that people have,
such as how can we do the TPP in a way that really assists small and medium
sized enterprises, how we can contribute to development and how we can
contribute to improved regulatory coherence. The regulatory coherence is what I
am coming to, and there are a couple of other ones as well.
Regulatory coherence is this issue that says that really what
people need to do is not necessarily to have the same regulatory systems,
because people are not necessarily going to do that; what they need to do is
have some coherence and opportunities for people to contribute to preparation
and implementation of regulations.
So we are looking at ways in which we can get regulators
together from different countries and have processes and commitments in place
so that, if you are going to put in place a regulation, you give people an
opportunity to understand it and comment on it.
The requirement for those seeking to join TPP is that they “need to
demonstrate commitment to early and comprehensive liberalisation so as to
maintain the momentum that has been generated by existing TPP parties”.
Australia-Korea Free Trade Agreement
The Government is seeking to complete these negotiations in 2011. The
proposed agreement is an important one because Korea is our fourth largest
trading partner and the aim is to put Australia on an equal footing with the US
and EU in the Korean market.
The agreement will include strong commitments by Korea on the liberalisation
of services trade; while Australia will eliminate tariffs on Korean motor
vehicles and liberalise the foreign investment requirements.
When asked about the current progress of negotiations, the Department of
Foreign Affairs and Trade commented:
We launched that negotiation relatively recently, in March
2009. We have made very fast progress on both agreeing the treaty text and
working through all of the market access—the tariff concessions and the
services commitments. We are really in the final phases of that negotiation.
The Prime Minister in her trip to Republic of Korea ...
agreed with President Lee that we would have the goal of concluding the
negotiations this year. So that is the track that we are all on. We are hoping
that we will be able to conclude that agreement very soon, certainly within the
time frame agreed by the leaders. That is a very important agreement, needless
to say, and you will be hearing more about it in the next inquiry...
DFAT in evidence to the Sub-Committee said that the negotiations are in
their final stages. The completion of
negotiations has now assumed some urgency, as the US and Korea have completed
negotiations on their FTA and it is only awaiting Congressional approval. If
that agreement comes into operation before the Australia/Korea agreement is
ready for operation, there could be difficulties for Australian exporters –
especially beef exporters.
Japan-Australia Free Trade Agreement
The negotiations with Japan have been running since 2007. However, late
last year, the Japanese Government released a Basic Policy on Comprehensive
Economic Partnerships. That policy suggests “a major commitment to fundamental
reform of Japan’s agricultural sector”.
The Japanese Government proposed that, if possible, these negotiations
should be completed this year. Whether that is still possible after Japan’s
recent natural disaster remains to be seen. However, the Australian Government
has agreed to accelerated negotiations that, it says, “...would offer benefits
across goods, services and investment”.
When asked about the current state of negotiations, the Department of
Foreign Affairs and Trade acknowledged the difficulties arising from the
impacts of the earthquake and tsunami and that Australia had recognised there
would be delays:
We started the free-trade agreement negotiations with Japan
in 2007 and have been negotiating steadily since that time. Quite some progress
has been made in constructing the treaty that would be the free-trade
agreement, and we have had a lot of negotiations on the market access side. As
negotiators you tend to think of it in terms of the written treaty text—you
have to get a treaty text agreed and you have also got to get the market access
concessions agreed, which are in the schedules and part of the treaty as well,
There has been a tremendous lot of work done across the whole
breadth—as you say, you end up with a minimum of 20, more like 25, separate
areas of a big trade negotiation. A lot of progress has been made and we were
very encouraged by the Japanese government's announcement late last year of its
basic policy on agriculture reform and trade reforms associated also with the
So there was quite some momentum gathering in the bilateral
negotiation. But unfortunately the 11 March triple disaster of the earthquake
and the tsunami and then the radiation issues from Fukushima have really,
understandably, taken up the attention of the Japanese government and, there is
no doubt about it, have led to a slowdown in our negotiating schedule since
...It is a very clear case of needing to deal with the
reconstruction issues. And of course agriculture, which is a big part of any
trade negotiation from Australia's point of view—the agriculture officials as
well as the actual sector have been really very directly involved in the disasters
and the consequent reconstruction work because of the agricultural areas that
The Prime Minister visited Japan, as you know, just recently,
and the public statements that were made at the time were very clear in saying
that we understand that there are unavoidable delays in our negotiating process
while Japan attends to the reconstruction work. But the leaders both committed
to resuming the negotiations as soon as possible.
So what we are doing is trying to keep working through email
and teleconferences on the things that we can. In fact we are expecting a small
delegation from Japan in a few weeks to do with the services part of the
negotiation. We keep working as much as we can in the overall constraints on
the Japan negotiation. It is extremely important, clearly, to both Japan and
Australia. There is a very clear political commitment to continuing that and to
concluding that. But there is no doubt that the disasters have been a setback
in our momentum this year.
...It is such a phenomenally big and important trading
partner with potentially large gains to be had if the trade barriers can be
reduced across the board but it is a very big agricultural market. So we will
just keep going.
China-Australia Free Trade Agreement
China is Australia’s largest trading partner and negotiations for an
agreement began in 2005. The issues involved are complex and some are quite
sensitive. The main issues under discussion include: agricultural tariffs and
quotas in China, manufactures, services, temporary entry of people and
In October 2010, the two Trade ministers agreed to make fresh efforts to
overcome the present lack of progress. When asked about the
outcome of these discussions, the Department of Foreign Affairs and Trade
commented on the Chinese leadership’s continuing commitment to the negotiations,
There is clear recognition from both of the governments that
it is an important undertaking. It was started in 2005. It is a big, difficult,
complex negotiation. We know it is important and we will continue to pursue
those negotiations. We expect to meet the Chinese for a full round of
negotiations probably in July.
Malaysia-Australia Free Trade Agreement
Malaysia is Australia’s 13th largest trading partner.
Although both are signatories of the AANZFTA these negotiations seek to go
further than that agreement. The aim is to complete negotiations by March 2012.
Indonesia-Australia Comprehensive Economic Partnership Agreement
Indonesia is our 11th biggest trading partner and its economy
is growing rapidly. The Indonesian Government is aiming to be in the top ten
world economies, measured by GDP, by 2025. This agreement will also seek to
build upon the AANZFTA.
Gulf Cooperation Council Free Trade Agreement
These negotiations are stalled at present awaiting a GCC review of its
trade agreement policy. Two-way trade with the Council members is quite
substantial at $9 billion in 2010. Important products for Australia are motor
vehicles, agricultural products, minerals and services (especially education,
engineering and construction).
Applying Non-Discrimination Principles
The Government will not seek preferential treatment over other economies
in its trade negotiations – it will seek only parity with others selling to
those markets. It will offer our trading partners high-quality agreements that
genuinely seek to liberalise trade. Decisions on signing or rejecting agreements
will be based on whether they measure up to these principles:
The Government is willing to conclude a trade agreement with
any country willing to sign up to a high-quality and comprehensive bilateral or
regional trade deal that is consistent with the global trading rules.
If Australia currently receives more favourable treatment than some
other competitors in a particular economy, the government would have no
objection to that treatment being extended to all other economies.
Domestic Reform not Dependent on Others
The Government Statement clearly recognises that economic reform is in
Australia’s national interest, whether or not its trading partners reform their
own economies. In boosting the productivity of exporters, the reforms will
provide an additional advantage over exporters from countries that do not
reform their economies.
This process is aided by the openness of Australia’s economy, which
forces businesses to be as efficient and productive as possible if they wish to
remain competitive in the global market.
An important part of Australia’s reform process is to remove the
impediments that for many years made Australia a series of small, fragmented
state and territory markets. Consequently, the Government is working towards
the completion of a “seamless economy” – a single national market.
Priority areas in the program are: a national school curriculum; a
national industrial relations system; national road transport regulations; and
a national ports strategy.
The essence of this section of the Statement is that while trade policy can
legitimately be applied to assist with “labour, environmental, health and
community safety objectives”. However, it should not be used as a “back-door”
method of protectionism in these areas.
An obvious example for Australia is the law on quarantine:
The Gillard Government's decision to accept a World Trade
Organization ruling on the importation of apples from New Zealand is testimony
to its commitment not to use quarantine as an artificial trade barrier.
...Australia is committed to a science-based quarantine
regime that does not create artificial barriers to trade.
The Minister for Trade and the Minister for Agriculture, Fisheries and
Forestry jointly commented on 30 November 2010:
The Government ... will now proceed with a science-based
review of the import risk analysis for New Zealand apples. The review will be
conducted by Biosecurity Australia.
Minister for Agriculture, Fisheries and Forestry, Senator Joe
Ludwig, and Minister for Trade, Craig Emerson, said Australia had strongly
defended the integrity of the nation's quarantine regime throughout the dispute
and the current review will ensure Australia remains appropriately protected
from pests and diseases.
Minister Ludwig said industry and other stakeholders would be
properly consulted through the review process, which would be based on the best
The Government, however, will preserve the right of Australian
governments to make laws in important public policy areas, such as social and
Environmental issues are becoming steadily more important in trade
discussions but it is important that they should not become an excuse to
reintroduce protectionism. The Department of Foreign Affairs and Trade addressed
this issue in its evidence to the Sub-Committee:
...I think that is why there is that principle or that
position set out in the agreement that environmental issues are important and
all governments want to pursue them; the issue from a trade perspective is how
to pursue them effectively and efficiently and in a way that is consistent with
international trade rules.
Certainly we do not see a contradiction between multilateral
environment agreements and multilateral trade rules. There are ways to address
all of these issues that are consistent with those rules. We keep a very close
eye on the development of policies, as we always have, to see how they can fit
into the international trade rules system. I think that is why we say in here
that environmentalism is important but should not be used for protectionist
...There has been an attempt to encourage people to move away
from trade-distorting forms of assistance to less trade-distorting forms of
assistance. Again, that is how we have been trying to address some of those
issues as well. It is about how you address these issues, not about whether you
do or whether you should.
I guess it is trying to find your way through about allowing
people to address some of these issues but not in a way that is damaging from a
trade perspective. There certainly is the capacity to do that. What we have to
do a lot of the time is simply to monitor to make sure that people are actually
following the rules and are trying to address policies in ways that are consistent
with these broad ideas.
Of course you want to address the environment and of course
you want people to have better standards of living; the issue is not about
whether you want to do those things and whether you should have policies but
what the best policies to do that are and how you can do it in a way that does
not have unnecessary consequences for other people as well.
Labour policies are a common cause of disagreement in trade
negotiations. The Statement notes that they are intended to “encourage improved
working conditions, human capital development, higher labour productivity and
sustained economic growth”. Conversely, the Statement added:
They are not intended to be punitive
in nature or to come at the cost of competitiveness, enterprise growth or trade
Supporters of protectionism often claim that low wage rates in an
exporting country give their products an “unfair” advantage. They seem to
overlook the advantages given to local products by cheaper capital against some
imports and cheaper land against others.
In its evidence to the Sub-Committee, the Department of Foreign Affairs
and Trade commented:
I think some of the pressures that you are talking about come
from more developed economies and wealthier economies. I think poorer economies
tend to focus on trying to make sure that people have reasonable living
standards. Part of that obviously is getting jobs and having jobs that have
good returns for workers, and all of those sorts of issues. So I think there
are different ways people address them.
We do not tend to find those issues as much of a problem in
developing countries. But we certainly focus, through the WTO—and there has
been some WTO work done on some of these issues as well—on the positive
contribution that trade can make to lifting living standards and creating
better paid jobs and what have you.
So there is quite a deal of work there. Again, some of these
issues are about the detail but in principle it is quite clear that trade
liberalisation links in to creating better standards of living, creating better
jobs and what have you over the longer term. So it works through all of those
sorts of issues, and that is what we try to focus on.
Australia has signed two trade agreements that include labour provisions
– with the US and with Chile. These provisions are also being considered in the
negotiations with Korea, Malaysia and in the TPP negotiations. The government
asserts that, if included, these provisions will not be used as disguised
Investor-State Dispute Resolution
Some countries request investor-state dispute resolution clauses in
trade agreements to allow their businesses to take international legal action
for alleged breaches of the agreement. The Australian Government supports the
principle that foreign and domestic businesses should be treated equally under
Consequently, the Government will not support the inclusion of
provisions that give foreign businesses greater legal rights than domestic
businesses. Nor will it allow provisions that constrain Australian governments
from enacting laws on social, environmental and economic matters that do not
discriminate between foreign and local businesses.
When asked how such provisions have been dealt with in the past, the
Department of Foreign Affairs and Trade said:
We have not dealt with it because it has never happened to
us before. The issue really is that it has come up and there have been some
stakeholders in particular who have raised concerns about the possibility that
that could have an impact on some domestic policy formulation. What the
government says in the trade statement is that the ISDS really gives foreign
companies an additional process, if you like, to take up complaints, that is
not available to domestic businesses. We do not see a rationalisation for that.
It really depends on which side you are looking at it from.
In the past, people have been quite interested in having
those provisions in countries where legal systems perhaps are less well
developed and they do not have confidence in the legal system there. But we
have never actually used any of those provisions where we have ISDS provisions
Domestically, there is the other focus, which is what about
if somebody wants to use those provisions here in Australia. I think the
government has decided that in the future we are not going to be pursuing ISDS
where we have sometimes in the past, mainly with countries where we thought it
would add to the level of protection primarily for Australian investors
overseas. But no-one has ever used them against us in the past and we have not
used them overseas.
This is an issue that was looked at by the Productivity
Commission. They found no evidence to suggest that it provides any real benefit
in terms of investment. So, again, the government has just made this change in
statement. At the same time, I would say that we have not done ISDS in all
agreements, anyway, in the past.
We did not do ISDS in the past with the United States when
the free trade agreement was done. We have not done it with New Zealand either,
my colleague is reminding me. We always forget New Zealand, because it was done
so long ago. We do not have an ISDS with New Zealand and we do not have an ISDS
with the United States. In the past, we have not really negotiated ISDS with
any OECD country.
...in fact, the US is the biggest demander for investor state
dispute settlement. They want it because they see themselves as the foreign
investor in most of the circumstances. They did very strongly push for it to be
included in the US Australia free trade agreement, but the government of the
day resisted that. It said that it did not think it was necessary in that the
two countries have established legal systems and commercial issues can be
pursued commercially. You do not need to use this avenue of enforcing the free
trade agreement commitments via arbitration in a commercial context.
Australia has itself requested the inclusion of investor-state dispute
resolution provisions in agreements with developing countries. This practice
will now be discontinued – the assessment of the risks involved in investing in
a particular country will now be solely an issue for the company to determine.
Trade and Investment Promotion
The Statement comments that in recent years the demands placed on
Austrade have resulted in its resources being spread too thinly. The government
has decided that it will in future apply those resources in a manner based on
sound economic and commercial principles.
In response to a question from the Sub-Committee on the substance of the
proposed changes, the Department of Foreign Affairs and Trade responded:
On 17 May Dr Emerson announced a comprehensive reform of
Austrade, aimed at better meeting the needs of Australian businesses. Austrade
will reshape its strategy, operating model and structure.
Austrade will reorient its overseas operations, with an
increased focus on frontier and emerging markets, where Australian businesses
can benefit most from government support.
Austrade's resources in North American and European markets
will, in future, be heavily focused on attracting foreign direct investment,
and Austrade will continue its important role in promoting Australia's
education and training capabilities in all major markets.
Existing programs such as the Export Market Development
Grants (EMDG) and Tradestart will also continue to support Australian
On the question of staffing resources for Austrade, the response added:
Austrade will rationalise staffing, and close some small
offices in Europe and North America, while establishing offices in Mongolia and
Central Asia and strengthening its presence in Latin America, China and
Australian business will benefit as Austrade's resources are
better targeted around sound economic and commercial principles, and deployed
where Austrade adds the greatest value. Services to Australian business will
be concentrated on those firms which are ready to tackle the challenges of the
A paper released at the time of the Minister’s announcement of the
review, summarised the New Operating Model that Austrade will follow:
The conclusions of the Review will fundamentally reshape
Austrade’s strategy, operating model and structure. The core elements of the
new operating model are:
n A clearer rationale
and purpose - predicated on addressing market failure and focussing resources
where Austrade as a government agency can add the greatest value
n A realigned
international network – with a different focus in different markets reflecting
the commercial potential as well as the nature and scale of impediments to
business in those markets and the optimal role for Government
n A service delivery
model targeted to internationally ready firms, supported by simpler packaging
and pricing of services
n A focus on
identifying and bringing tangible foreign business opportunities to Australian
n Sharper investment
promotion, attraction, and facilitation priorities
n A more open and
contemporary approach to sharing Austrade information and insight, with new
investment in online service delivery and information dissemination and
strengthened collaboration with government and commercial service providers
n A commitment to
strengthening organisational capability through simplifying the organisational
structure, new initiatives to build workforce capacity and streamlining of
The Statement stressed the importance of market information and its role
in identifying foreign commercial opportunities and entering new markets. It
noted that market information is a public good and its use by one firm does not
reduce the information available to other firms:
Left to private markets, the search costs that would need to
be borne by a single firm, particularly in an emerging or frontier market, can
be prohibitively high.
Just as a government can correct for market failure in
mineral exploration by conducting early geological survey work and
disseminating the information obtained to all private exploration firms, there
is a legitimate role for government in generating information in emerging or
frontier markets and disseminating this freely to interested firms.
The strongest rationale for government support for trade and
outward investment promotion therefore is one of addressing market failure.
There is a far less compelling case for government to promote and assist
exporters generally in the absence of market failure.
The reasons behind the new arrangements were explained as follows:
The most obvious information deficiencies are in emerging,
frontier and transitional economies; where governments play a significant role
in the economy; where language and business culture can provide a barrier;
where there may be less openness of regulatory frameworks and transparency of
business processes; where there are greater difficulties accessing distribution
channels and commercial connections; and where the value of the 'badge of
government' is highest. Austrade's trade promotion activities will be
reoriented towards these markets.
For investment attraction, the general market failure
argument for government involvement is not as specifically related to the
nature of the market per se. It makes sense for Austrade to concentrate its
investment promotion activities on countries with a surplus of investible
funds, rather than on frontier markets.
The Policy Statement concluded by summarising the Gillard Government’s
trade policy program. It re-emphasised the primacy of the multilateral trade
negotiations and the Government’s resolve to strengthen the global trading
system wherever possible.
The Statement explained that while the Government would continue to seek
reductions in foreign tariff barriers and quantitative restrictions, it would
also be working on the reduction of non-tariff barriers and behind-the-border
issues on both goods and services. This may involve negotiations with domestic
regulators on such things as: licences, permits, complex domestic regulations
and burdensome and time-consuming processing of applications. 
Trade policy will avoid the use of measures such as quarantine
restrictions, labour provisions and environmental standards as “back door”
protectionism. Foreign investors in Australia will have the same legal
protection as domestic businesses.
As explained above, Austrade’s trade facilitation activities will be
refocused to give greater emphasis on emerging and frontier markets. Its
investment promotion activities will be concentrated on North America, Asia and
Finally, the Statement announced that trade policy priorities will be
reviewed annually against the principles and disciplines set out above. The
review will take account of progress made and of emerging opportunities for
further liberalisation. The positions set out in the Statement are consistent
with the recommendations in the Productivity Commission’s recent report on
bilateral and regional trade agreements.
Mr Michael Danby