Andrew Leigh

HOUSE OF REPRESENTATIVES, 24 OCTOBER 2019

I second the amendment. I spoke in the debate earlier this week about the specifics of the Indonesia free trade agreement, the largest of the three free trade agreements that we're discussing in this subsequent bill, the Customs Amendment (Product Specific Rule Modernisation) Bill 2019. Labor supported those free trade agreements, as we have supported trade liberalisation in Australia for nearly 50 years. This goes back to Gough Whitlam's decision in 1973 to cut tariffs by 25 per cent and to the decisions of the Hawke government to cut tariffs in 1988 and 1991. They did so not out of any ideological belief in free trade but because of a practical recognition that tariffs are a regressive tax and that the burden of tariffs falls more heavily on low-income Australians than on high-income Australians as a share of their income.

Just as it has been the Labor side of politics that has been sceptical about the benefits of consumption taxes, so too has it been the Labor side of the House that has been most sceptical about the benefits of tariffs, which are a consumption tax on overseas imports. We have recognised, too, that open markets benefit workers by creating more jobs. Exporting firms tend to pay higher wages and do more research and development. Multinational firms are more likely to pay higher wages. We recognise that openness is not an unmitigated good but, managed well, it can be one of the drivers of prosperity for Australia. Labor has always recognised that a strong social safety net must go hand in hand with trade liberalisation. Just as the Hawke government in the 1980s, through people such as John Button, worked with industries to engage in suitable restructuring packages, so too Labor today believes it is vital to have strong social supports and a cooperative relationship with industries to manage the impacts of trade.

While trade boosts aggregate incomes, it doesn't follow automatically that every worker and every industry is made better off by trade, so we need to ensure that social supports are in place as we work to gain the benefits of trade. Labor's commitment is shown through our Australia in the Asian century white paper, delivered by the Gillard government, and the Future Asia suite of policies which Labor took to the last election.

As the shadow trade minister has pointed out, multilateral agreements are the best way of achieving trade liberalisation. The Productivity Commission notes that bilateral and regional agreements may have limitations. In this case, Labor saw these three bilateral agreements as being good, on balance. As the shadow trade minister has eloquently pointed out, they weren't negotiated precisely as Labor would have done, but on balance we saw the need to support them. As the trade shadow minister noted in The West Australian today, Indonesia, as a result of this agreement, will provide duty free or preferential access for 99.9 per cent of Australia's goods exports and there will be new services opportunities for Australian exporting firms. In return, Australia will scrap remaining tariffs on Indonesian imports.

I acknowledge Michiko Mokodompit, who's been working in my office this week. She is a young Indonesian woman who assisted me in preparing my remarks earlier this week. My own background with Indonesia is as somebody who lived in Indonesia for three years and has a great deal of warmth and personal affinity for Indonesians. I see this agreement as encouraging those strong ties.

The Productivity Commission, in its trade policy review that was brought down this year, noted that Australia has signed 15 bilateral and regional preference agreements. It's useful to go through what those 15 agreements are: New Zealand in 1983, Singapore in 2003, Thailand and the United States in 2005, Chile in 2009, ASEAN and New Zealand in 2010, Malaysia in 2013, Korea in 2014, China and Japan in 2015, PACER Plus in 2017, CPTPP and Peru in 2018, and Hong Kong and Indonesia in 2019. Those agreements will potentially be built on by the negotiations which are underway on prospective bilateral agreements with the European Union and India and the negotiations which are ongoing over the Regional Comprehensive Economic Partnership—an ASEAN-centred proposal for a regional free trade area which would include 10 ASEAN member states and the countries that have existing free trade agreements with ASEAN: Australia, China, India, Japan, Korea and New Zealand. The RCEP participating countries account for almost half the world's population, 30 per cent of global GDP and a quarter of world exports.

It's important that we go into free trade agreements or preferential trade agreements with clear eyes. Preferential trade agreements necessarily cover a smaller volume of trade than a multilateral trade agreement would encompass. A study by the Productivity Commission in 2003 found that two-thirds of the free trade agreements they surveyed diverted more trade from non-members than they created among members. So not every FTA is a good FTA. There's potential, as the Productivity Commission pointed out, for internal discrimination and for powerful vested interests to have more sway over what's included within a preferential trade agreement than might be the case through multilateral negotiations.

There's also the complexity. The shadow trade minister referred to Jagdish Bhagwati's metaphor of a spaghetti bowl, which we in the Asian region tend to refer to as the 'noodle bowl effect'—the risk that preferential trade agreements can end up diverting more trade than they create. But we also need to be pragmatic.

We need to recognise what the World Trade Organization negotiations have become. The Doha Round has potentially become 'dead as a Doha'. We may not see another multilateral trade deal in our lifetimes of the scale that we saw in the Uruguay trade agreement negotiated by Labor.

In that context, we may be operating in the world of the second-best regional agreements and third-best bilateral trade agreements. But if we are in that world, we need to have appropriate modelling. Labor has called for modelling not just by the department that is a responsible for negotiating the agreement, the Department of Foreign Affairs and Trade, but also by the Productivity Commission, which is well set up to carry out the sort of independent modelling that is necessary to have a clear-eyed assessment of the cost and benefits of these agreements.

We have also called in the past for a review by the Productivity Commission of the benefits of preferential trade agreements a decade on, to find out after the dust has settled how they have panned out and whether the promises that were made in the signing ceremonies, which are always bold, have been delivered in reality. We continue to take the view that expert independent modelling would be desirable not only from an economic standpoint but from a political one too.

As the shadow trade minister has noted, the global view of trade is hardening in some countries. While in Australia we still see strong popular support for free trade and a recognition by many that trade benefits their household, in the United States the backlash against trade has been strong. The hardship that has been experienced, particularly in parts of the rust belt Midwest through rapid job loss, has been blamed too heavily on trade, even though technology is doing far more job destruction than trade. Trade is an easy scapegoat for right-wing populists, and it is a danger that we must face down here. It is important that, in Australia, we do not descend into populism. The cost of a trade war would be massive.

As the Productivity Commission noted in 2017, a major trade war could see Australia slip into recession, losing hundreds of thousands of jobs. The impact of a global Smoot-Hawley style rise in protectionism would be dramatic and negative for Australia. A relatively undiversified country like ours would suffer far more than large economies which can turn inwards to their own domestic market were a trade war to start. Maintaining popular support for openness is vital, and that is why we on the Labor side of the House believe that more needs to be done to ensure that there is independent assessment of the benefits of preferential trade agreements.

ENDS

Authorised by  Paul Erickson, ALP, Canberra.