Mind the gap: benefits from free trade haven’t quite gone the distance

Sydney Morning Herald | March 3, 2010

Mind the gap: benefits from free trade haven’t quite gone the distance

RODNEY TIFFEN

Five years on, it is clear the free trade agreement between Australia and the United States was a dud. Despite the fanfare with which the Howard government introduced it, no tangible benefits have resulted for Australia.

Australia’s exports to the US in the five years to last year grew by only 2.5 per cent, compared with double-digit growth for exports to all the major Asian trading partners. Since the signing, America has slipped from third to fifth among Australian export destinations, overtaken by Korea and most recently India.

The value of Australian exports to the US is now only about a quarter of those to the two leading customers, China and Japan. The four Asian countries together take more than 10 times the value of exports to the US.

Moreover, between 2004 and 2009, the bilateral trade gap in America’s favour grew even larger. Australia’s imports from America have grown much more quickly than its exports to America. According to US data, the gap in America’s favour grew from $US6.4 billion ($A7.1 billion) to $US11.6 billion.

In 2004 Australian exports to America were worth about 54 per cent of the value of imports from that country. By last year the figure was down to 41 per cent.

So the agreement joins a long and sad list of El Dorados, loudly promised by governments, that failed to materialise.

As with some other central episodes of the Howard government - such as children overboard and Iraqi weapons of mass destruction - it raises the question of where self-deception stopped and a deliberate public con job began.

Did John Howard and his cabinet really believe the free trade agreement would help Australia? Even in the narrowly mercantilist frame in which he cast it, he won no benefits for Australia. Nothing, for instance, immediate for Australian agriculture. But perhaps his motive was electoral rather than economic - to highlight the American alliance and hope that if Labor opposed it it could be cast as anti-American, and hence a security risk.

The ardent pursuit of such an agreement with the US suggested the Howard government did not have a clear perception of Australia’s national interest. Australia’s opportunities for future trading growth were much more likely to be in Asia.

But it also represents a deeper misperception. Australia is a middle-level power whose prosperity is enhanced in a world where trade is free and governed by universal rules, rules that facilitate a level playing field and make trade between all nations easier.

A world in which bilateral trading agreements play a more central role favours the biggest countries, such as the US and China. Their power affords them superior bargaining leverage to win concessions favouring their domestic constituencies. Australia and most other countries have an interest in more global agreements.

But short-term political benefits flow in the other direction. A bilateral meeting with a friendly leader presents many domestic political advantages. It gives the appearance of advancing the national interests and attracts intense and usually uncritical media coverage.

After bilateral meetings, leaders can sing each other’s praises and hail the breakthrough their mutual brilliance has achieved. In practice, the promised benefits often fade just a little more slowly than the TV lights.

Contrast this with the inevitable messiness of global gatherings. Overwhelmingly at the end of global gatherings the news focus is on failure. With a large range of competing interests and viewpoints, there will always be unresolved issues and messy loose ends. As the media gravitate towards conflict and failure, these, rather than any consensual progress, become the staple of news reports. The domestic political interest of national leaders is more often served by distancing themselves from proceedings rather than hailing their success.

There can be no more dramatic example than the Copenhagen summit on climate change. Almost everyone has a political interest in criticising it. Opposing groups with conflicting motives and aims unite in denouncing its lack of achievement.

The negative coverage is well-merited. The summit fell radically short of the hopes many had invested in it, and at times its proceedings descended into farce. But the central measure by which it is judged - an unprecedented globally binding agreement to undertake substantial action to address global warming - was always politically improbable.

Pundits often hail the importance of perceptions in politics but it is always a challenge to disentangle appearance and reality, to make explicit the criteria by which summary judgments are being made and to trace through the publicity interests of the major participants.

A rule of thumb in the politics of visibility is that bilateral gatherings generate better publicity than they deserve, while global gatherings generate worse publicity than they deserve. The significance of bilateral meetings is often exaggerated and their benefits are more apparent than real (witness the Australian-US Free Trade Agreement). In contrast, the negative publicity about global meetings and the chorus of criticisms surrounding them often mask the (always limited and sometimes disappointingly small) progress they achieve.

Rodney Tiffen is professor of government and international relations at the University of Sydney.

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source: SMH