Choosing Openness

Choosing Openness

HOUSE OF REPRESENTATIVES

CANBERRA

TUESDAY, 19 OCTOBER 2021

Debates over trade have a long history in this place. At the time of federation, New South Wales Premier George Reid, who ran the one free-trading state, said that, for his state, going into a federation with the question of tariffs to be decided later was like a reformed alcoholic setting up house with five drunkards and leaving the question of beverages to be decided by majority vote. In the early years of the federation, my side of parliament allowed members a free vote on questions of tariffs, but, by 1905, we had decided to join with Alfred Deakin's Protectionists, and Labor supported tariffs—as, indeed, did the conservatives.  

Tariffs nearly doubled during the 1920s, the era of Smoot-Hawley, and by the late 1960s the Australian economy was, according to one analysis, 'the most protected economy in the advanced world'—what Black Jack McEwen called 'protection all-round'. Meaning that, if you wanted to sell a product in Australia, you either had to get an import licence or pay a tariff, which could often double the price of the product.

Then along came Gough Whitlam. In 1973, Whitlam cut tariffs across the board by 25 per cent. He did so for a number of reasons. He thought that high tariffs had left Australian companies uncompetitive and unable to compete with the world; he thought that tariffs hurt consumers; and he thought that they hurt workers in developing nations who found it hard to sell their products to Australia. Crucially, Bob Hawke, as President of the Australian Council of Trade Unions, put out a statement, cautiously welcoming the tariff cut and saying that protectionism had 'dulled the entrepreneurial spirit' of Australian manufacturers and that we could never pursue enmeshment with Asia behind high tariff walls.

It was the Hawke government and then the Keating government that continued to reduce Australian tariff barriers, largely not because we were doing so as part of a bilateral deal with another country but by recognising the wisdom of the great Cambridge economist Joan Robinson that it's worth taking the rocks out of your own harbours, even if other countries aren't taking the rocks out of their harbours. By the early 1990s we'd reduced Australian tariffs by two-thirds from where they were in the 1960s. That benefited all Australians; it put thousands of dollars in the pockets of the typical Australian household. But the people who benefited the most were low-income Australians. We on this side of the House have long had the greatest scepticism about consumption taxes. We were very sceptical about the introduction of the GST and the effect it might have on inequality. It was Labor that pushed for carve-outs from the GST, and it's for the very same reason that Labor supported tariff cuts through the 1980s and 1990s—because tariffs are consumption taxes on imports, and they're regressive in the same way that the GST is regressive. As we've steadily brought down tariffs on clothes and cars, all Australian consumers have benefited. But as a share of income, the benefit has been greatest for low-income consumers.

For economists, trade is just another example of how comparative advantage works. Most of us don't fix our own cars, cut our own hair—well, unless we're in lockdown!—or make our own clothes. So, too, Australia—as a nation that has just 0.3 per cent of the world's population—benefits from focusing on what we do best and importing other goods that we need. Trade has made us more prosperous than we would otherwise be. It's also opened up huge consumption possibilities. One study of trade liberalisation in the United States found that the number of product varieties tripled from the 1970s to the 2000s. If you look through a large supermarket you might feel as though you're hit by the paradox of choice. But if you're a collector, if you love unusual cars or if you're a hobbyist, you've benefited from the reduction in trade barriers. It's not just about bringing down the average tariff—which we've done—but the way in which a lower average tariff brings more products into the market.

When we think about employment effects, we have to remember that for many workers their jobs are significantly enhanced by the use of equipment that has been imported. If you're a farmer, you benefit from imported fertiliser. If you're an office worker, you benefit from imported computers. If you're a factory worker, you benefit from imported factory machinery. If you're a truckie, you're certainly driving an imported truck, and that's making you much more productive. Indeed, many of our export-oriented firms rely on imported capital equipment.

Naturally, many have been concerned about the impact of trade on employment. But it is important to remember what's going on globally in manufacturing. Global employment in manufacturing has peaked as a share of the workforce. Indeed, as a share of the workforce, manufacturing peaked in the Philippines in 1992, in China in 1995, in Mexico in 2000, in Indonesia in 2001 and in India in 2012. So, even in the countries where manufacturing dominates the workforce, it is falling as a share of employment. The main reason for that can't be trade. If global manufacturing employment has peaked, it must be the case that this is a technology effect. That is why most of the studies that look at trade and technology say that about four-fifths of the job loss in manufacturing is delivered by trade. You only have to look at the factories of the future to see that many of them are far more capital intensive than factories of the past. There are many good jobs in manufacturing, and there are many great employment opportunities in manufacturing for Australia. But it is vital that when we look at what's happened in manufacturing employment we recognise that the chief impact on employment is coming through technology rather than trade.

Australians hold warm views about trade. We're much more positive about trade than people in most other advanced countries. Fifty-nine per cent of Americans say trade is bad when it comes to creating jobs in their economy; only 35 per cent of Australians think trade is bad for jobs. Sixty-seven per cent of Australians agree that international trade is good for their own standard of living and for the Australian economy; 61 per cent say it's good for Australian companies; and 62 per cent agree that Australia's trading future lies with Asia.

But it is increasingly true that trade negotiations are taking place on a plurilateral rather than a multilateral basis. If you look at the postwar achievements of the GATT and then its successor the WTO, they struck eight global trading deals, in 1947, 1949, 1951, 1959, 1962, 1967, 1979 and 1994. And then it stopped. That was partly because global trade deals had brought down tariffs from 22 per cent to five per cent and partly because developing countries were better represented. So an all-in trade agreement became harder to achieve. Now we are in the world of plurilateral or bilateral deals. Australia has bilateral deals with all of the countries that are members of RCEP.

Those bilateral deals can be helpful, but it is important to remember that the more countries that are in a trade agreement the less likely it is to be trade diverting, the less likely it is to suffer from what Jagdish Bhagwati called 'the spaghetti bowl effect', and the more likely it is with a large trade agreement that you're able to get broad-based trade liberalisation rather than trade diversion. Trade diversion can be particularly harmful because many products now aren't made in one country; they are ‘made in the world’, and multinational supply chains tend to span borders. So these broad deals ensure that Australia can be part of those multilateral supply deals.

We need to make sure that we have better scrutiny of trade deals. There's nothing globophobic about opposing trade deals whose costs outweigh the benefits, whether that's costs in intellectual property -- lengthening patent and copyright terms in a way that doesn't boost innovation; whether that's costs through investor-state dispute clauses that enable companies to sue governments -- and which are not part of RCEP; or whether that's costs in terms of migration agreements which don't serve the interests of Australian workers. Allowing the Productivity Commission to scrutinise trade deals would give Australians greater confidence that these deals were being struck in the interests of all Australians and greater confidence that they hadn't been captured by insiders.

I commend the work of my colleague the member for Brand and shadow minister for trade in working constructively with the labour movement and with the government to secure a number of key agreements. We have received assurances that RCEP and the enabling legislation won't remove Australia's capacity to protect local jobs through the regulation of temporary work; that they won't inhibit the government's ability to implement in full the recommendations of the royal commission into aged-care services; that they won't force the privatisation of public services; and that they won't undermine Medicare or the Pharmaceutical Benefits Scheme. And, as I mentioned, RCEP doesn't include investor-state dispute settlement provisions.

It is clearly in Australia's interest to support what will be the world's largest trading bloc. This RCEP agreement covers nearly a third of the world's population, nearly a third of global GDP. It will be bigger than the European Union and bigger than USMCA. It covers 58 per cent of Australia's total two-way trade. It is an agreement with Australia's key trading partners. The members of RCEP are not overall democracies. In this sense, this is a different trade deal than we would be striking in our negotiations with the European Union, the United States and the United Kingdom. But it is worth ensuring that we liberalise trade at the same time.

This is a foundation agreement, one which has the potential to act as a platform for reducing trade barriers, but it will rely on the hard work of the Australian government. We saw the promises of APEC in the 1990s to secure zero tariffs from developed countries by 2000 and from developing countries by 2020. Well, that promise didn't eventuate, so it's important that we have follow-through from the government on this trade agreement. Australia needs to ensure that we continue reducing those tariff barriers because so many Australian jobs are tied up with exporting industries—exporters that employ more Australians, that do more research and development, and that pay higher wages. It is in the interests of Australian workers and Australian consumers for us to continue down the path of trade liberalisation.

I finish with the words of the late Senator Peter Cook, for whom I had the privilege to work in the late 1990s. He said:

… I am a strong supporter of free trade. Not "fair trade". Free trade. Naturally, free trade in itself will not solve the world's problems. Governments can and must play a strong role in ensuring that opportunities are fairly distributed to everyone. This is why I will always be a social democrat.

Like the late Senator Cook, I will always be a social democrat. That is why I believe in trade liberalisation and why I strongly support trade agreements like RCEP. But because I am a free trader I also believe in a strong social safety net, and only Labor can ensure the benefits of trade are fairly distributed and that no-one is left behind as we enjoy the gains in prosperity that can come from broad-based trade liberalisation and trading with the Asian region.

 

ENDS

 

Authorised by Paul Erickson, ALP, Canberra


Showing 2 reactions

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  • Nathalie Shepherd
    commented 2021-11-03 16:35:29 +1100
    Very well explained! Thank you Andrew!!
    Cheers
    Nathalie Shepherd (in Adelaide)
  • Andrew Leigh
    published this page in What's New 2021-10-20 15:54:22 +1100

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.