December 2nd 2017


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Articles from this issue:

EDITORIAL Turnbull redefines terms of marriage vote

CANBERRA OBSERVED Turnbull is running on empty as margin shrinks

GENDER POLITICS Northern Territory proposes recognising fluid genders

ENVIRONMENT Sea levels are not on the rise: research

NATIONAL AFFAIRS Our clinging to the fringe is stultifying development

FREEDOM Where to now after the marriage redefinition vote?

EDUCATION Unions and the ALP have gutted the curriculum

ECONOMICS The West faces tests of its own resilience

CULTURE The mysterious birth of technology

DRUGS AND SOCIETY Addiction and the cultural repression of spiritual values

OPINION Don't stand by as the fight for freedom begins

LITERATURE Britain's Kazuo Ishiguro a worthy Nobel laureate

HUMOUR Whispers from court side

MUSIC Funny tones: Playing it for a laugh

CINEMA Murder on the Orient Express: First-class mayhem

BOOK REVIEW Disentangling the free-market fraud

BOOK REVIEW Not inscrutible, just ambitious

LETTERS

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ECONOMICS
The West faces tests of its own resilience


by Colin Teese

News Weekly, December 2, 2017

Having dallied in the last couple of issues of News Weekly (November 4 and 18, 2017) with a few observations about what is happening in China and how it impacts on the West, it’s time to come back to what’s happening at home.

The International Conga Life of Appreciation
for the World Trade Organisation.

Peter Westmore’s recent comment in News Weekly (November 4, 2017) on the fallout from the New Zealand election and its connections with the dubious future of the ideology of globalism, is a starting point. Peter, correctly, is telling readers that all the evidence suggests that the castle walls of the globalisation fantasy have been breached. What’s happening in New Zealand, and throughout the Western world, suggests that the underpinnings of globalisation are under threat. It’s an important message – the more so because it is not much discussed by mainstream media outlets.

Regular readers will know that Patrick J. Byrne and myself, along with other News Weekly writers, have been pointing to the shortcomings of globalisation for more years than we care to recall. Peter Westmore’s comments suggest that we are no longer lonely voices.

In this context what’s happening at the Productivity Commission is interesting. Once Australia’s first line of defence for neo-liberalism, the commission, under its present leadership, is subtly shifting position – at least, as far as the benefits of free trade agreements are concerned.

It is not rejecting outright the virtues of free trade itself but rather, it is testing the extent to which the so-called bilateral free trade agreements Australian governments have concluded over the past 25 years have benefitted Australia. Thus far, it seems the commission is far from satisfied with what it finds.

The Productivity Commission is not alone in coming to this view. The Parliamentary Library, in the service of some Members of Parliament, has reached the same conclusion about many, if not most, of the agreements, whether with large or small trading partners.

By far the largest agreement, concluded by the Howard government with the United States, has been singled out as an example of great imbalance against Australia. It should, however, not be concluded from this that only Liberal governments have concluded bad agreements. The Labor Party in government has done no better. What is more, Labor, in Opposition, warmly supported the Howard government’s efforts on the U.S. agreement.

More recently, however, under Bill Shorten’s leadership, Labor has been having a rethink, along the lines apparently being followed by the Productivity Commission. According to its current leader, a Labor government will re-examine the bilateral agreements. Quite what it will do if they are judged to be unfavourable to Australia is unclear. U.S. President Donald Trump has plans to renegotiate NAFTA. Will Australian Labor try to follow a similar path?

NAFTA (North America Free Trade Agreement) was among the earliest of these bilateral or multilateral so-called free trade agreements. It involves the U.S., Canada and Mexico.

The European Union lost no time in following the American example in concluding bilateral trade agreements. In due course Australia joined in and was busily engaged in signing agreements with some of its smaller Asian partners.

Now the curious thing about this development by trading nations large and small, is that the agreements concluded were limited in scope to those parties specifically named in the agreements. More important still was that all of the participants were party to almost a decade of multinational negotiations which resulted in the creation of the World Trade Organisation (WTO). As a result of these negotiations, almost the entire trading world agreed on revised trading rules having universal application and creating more onerous and binding obligations on most of the trading world.

(It will be recalled that the WTO replaced the General Agreement on Tariffs and Trade [GATT], which had provided the rules under which world trade had been managed since the end of World War II.)

With the ink not yet dry on the WTO’s new binding agreement on trade rules having universal application, no satisfactory reason has been given in justification of the fact that the major signatory nations to the WTO immediately began the practice of concluding bilateral free trade agreements with specific partners.

Even more curious is the fact that the administration of the WTO gave its nod of approval to this development. The fact that these agreements were concluded, effectively with WTO endorsement, has, over time, seriously undermined the credibility and power of the WTO to influence international trade policy.

It is therefore unsurprising that President Trump, a strong critic of the bilateral agreements concluded in the name of previous U.S. administrations, does not turn to the WTO for comfort. Mr Trump prefers to reach solutions through direct negotiation with other countries.

It is not to be imagined that the Productivity Commission would support Mr Trump’s position. Presumably, it remains a supporter of the WTO. Its concern is for the bilateral agreements Australia has negotiated, as it were, outside the WTO rules. It is to be commended for these efforts, though the question could be asked, “Why did the commission, a devoted supporter of the WTO, ignore the bilateral agreements for so long, especially since they were clearly in breach of WTO rules?”

New commission leadership might help explain the change in attitude, especially at a time when the entire question of trading rules has been brought into sharper focus by the attitudes of President Trump. But it would be helpful to developing opinion in Australia if the Productivity Commission were to make clear its position on the consistency of bilateral agreements with WTO rules.

For example, all of the bilateral agreements are in breach of the “Most Favoured Nation” (MFN) obligation incumbent on all WTO members. Under this fundamental rule, concessions given to one party must automatically flow on to all other parties to the WTO. By definition, bilateral agreements breach that rule.

With these facts in mind it should come as no surprise that the question of a rules-based system covering international trade is taken less seriously under WTO rules than was the case under its predecessor, GATT. Whether President Trump has identified any of these factors is unclear; more likely his instincts and observations have led him to conclusions about the conduct of international trade that, while unpopular in orthodox circles, strikes a sympathetic chord with ordinary people.

In this context President Trump’s attitude towards the Trans-Pacific Partnership (TPP) is totally consistent with his views on trade agreements. The TPP was promoted by its architect, President Barack Obama, as primarily a trade agreement aimed at drawing countries on the Pacific Rim into closer trade and economic ties under US leadership.

Mr Trump rejected it for a number of reasons. It was negotiated by his predecessor, and it committed parties to the agreement, including the U.S., to testing obligations (notably, that companies could seek compensation from governments if government actions impacted on their profit capacities). Mr Trump objected to such a commitment.

There is, and has been, strong support for the TPP in Japan and in Australia (on both sides of politics), though the agreement may well not find favour with the current Labor leader.

What has never been made clear about the TPP, but which may have shaped Mr Trump’s attitude, is that the “partnership” was only incidentally concerned with trade. Its prime purpose, at least as far as Obama was concerned, was to be part of a strategy to contain China by limiting its trade and economic growth, especially in the Asia-Pacific region.

The argument was that the only way to contain China’s rise to power was to curtail its economic growth. The idea found sympathy in Japan, which has had strained relations with China since its brutal invasion of Manchuria in the 1930s. Australia, too has been ambivalent about China’s increasing power projection, even though it is now our largest trading partner.

The Obama plan, whatever its purpose, has failed. Faced with the prospect of a hostile TPP on its doorstep, China deftly stepped around it with its so-called Belt and Road Initiative: a project to extend a system of road, rail and air links through Central Asia to Europe to which it has recruited some 26 countries. If anything, the TPP initiative has achieved the opposite of its purpose. Its threat has stimulated China to become even stronger and more powerful.

The fact that Mr Trump slammed the door on the idea has been troubling for Japan and Australia. Prime Minister Malcolm Turnbull even went to the point of drawing a hostile reaction from newly elected President Trump by asking him to reconsider his opposition to the TPP.

Mr Turnbull’s rebuff did not deter him. Despite all his other woes, he seems determined to resurrect the TPP – even going so far as to drum up support in South America. He and his Trade Minister talk about the trade gains from a resurrected TPP, despite the existence of the WTO, and in defiance of the fact that the revised TPP will not include the two largest trading nations in the world: China and the U.S.

Despite all of this, Mr Turnbull and his ministers insist it will create both jobs and growth for Australia. Presumably they mean over and above what we already have.

Since the assertion is theirs, it is up to them to tell the rest of us precisely how this will happen.




























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