March 10th 2018

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Articles from this issue:

COVER STORY Family home in cities soaring further out of reach

EDITORIAL Australia: sleepwalking towards the precipice

CANBERRA OBSERVED Population debate needs development debate

NATIONAL AFFAIRS We need a development bank and a higher population

FOREIGN AFFAIRS Russians were spoilers: U.S. election rap sheet

NATIONAL AFFAIRS Bob Santamaria and free trade agreements

LAW AND FREEDOM Exemptions are far cry from protection of religious freedom

INTERNATIONAL AFFAIRS China v Professor Brady: intimidation or coincidence?

POLITICS AND SOCIETY Defending biological man and woman from transgenderism

SOUTH AUSTRALIA Swing to minor parties expected in SA poll

ASIA Burma: ignored and misunderstood

HISTORY The improbability of progress

MUSIC Playing the pitch: being in tune is a sometime thing

CINEMA Wonder: Our deeds are our monuments

BOOK REVIEW Exploring our own recent archives

BOOK REVIEW Rising in a society fractured at heart

BOOK REVIEW A dubious thesis but deserves a read

NEWS Pat Byrne elected new NCC president

NATIONAL AFFAIRS Liberals return for second term in Hobart

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Bob Santamaria and free trade agreements

by Colin Teese

News Weekly, March 10, 2018

Over the first weekend of February, the National Civic Council held its annual get-together. An important part of the proceedings was a tribute to the contribution B.A. “Bob” Santamaria had made to public life in Australia. Twenty years have now passed since his death.

Are free trade agreements meant to be binding
or are they meant to be free?

NCC National President Peter Westmore, in what might be regarded as a keynote address, spoke movingly about his association with Bob over more than 20 years. He noted, in particular, that far from being an ideologue, Bob was a man driven by principle.

It was a vitally important point to make about a man who left no doubt about his positions on the issues he regarded as important.

Twenty years earlier, in the issue of News Weekly that followed Santamaria’s death, distinguished Australian journalist and historian Les Carlyon underlined the same point in different language. Bob, he said, was “right” when he might have been “left” and “left” when he might have been “right”. Bob settled his position on issues with no regard for which way the political tide might have been flowing.

Those present at the National Conference will know that I took part in a “roundtable” at which I was asked to make a few comments about free trade. I was pleased to take the opportunity – all the more so as the conference was devoted to the memory of Bob Santamaria.

As it happens free trade was the issue that first brought me into contact with Bob. He had read an article in the journal Quadrant in which I had set my understanding of how John McEwen, Australia’s Deputy Prime Minister, leader of the Country Party and Minister for Trade and Industry, had been convinced of the need for tariff protection for Australian manufacturing industry.

Bob invited me to write something for News Weekly and I have been doing so ever since.

I had wondered whether my association would continue after Bob died, but News Weekly’s then editor, Brendan Rodway, rang me soon after to let me know that the future would be business as usual under Peter Westmore’s leadership.

All this being so, I thought now might be the appropriate time for me to write something again about free trade, and how industry protection came to have such a bad name.

Put simply, critics said tariffs meant we all paid too much for what we imported. We would all be richer without them. That at least was the theory, the practice has demonstrated otherwise.

Some say that it all started with the Hawke/Keating governments, but actually it was Gough Whitlam’s prime-ministership that set the ball rolling. It might still be said that public opinion has not yet lost total faith in free trade, but it is certainly wavering.

Think back to the time of the Howard government. Back then a so-called free trade agreement was concluded with the United States that, on even the most superficial reading, was disadvantageous to Australia. Yet Kim Beasley’s Labor backed it to the hilt.

At the behest of the National Civic Council, I went to speak at a conference in country New South Wales at which one of the principal negotiators of the agreement spoke in glowing terms about the new agreement with the U.S. Even the farmers present preferred to accept his version of the outcome rather than mine.

We’ve come a long way since then. The Parliamentary Library has researched not only the U.S. agreement but all of our free trade agreements, and has found that none actually has benefitted Australia.

More recently, the Productivity Commission, under new leadership, has come to the same conclusion. Previously it had been a lukewarm supporter of them.

It will be recalled that Australia was one of a number of countries that signed up for a multilateral free trade agreement initiated by past U.S. President Barack Obama, entitled the Trans-Pacific Partnership (TPP). Our present Prime Minister, Malcolm Turnbull, was an enthusiastic supporter. This document was supposed to bring Pacific countries together in a mutually beneficial trade agreement. Yet, its participants did not include the second biggest trading nation in the Pacific, China.

The TPP was really less to do with trade than it was an attempt to endorse Obama’s policy of containing China. In other words, its intent was geo-political, rather than economic.

It was a remarkable exercise in many ways. It was negotiated in secret. As for Australia, the Opposition was not allowed to see the document until it was introduced into the Parliament. Somehow it passed into law in Australia, but not in the U.S., where a Republican-dominated Congress was prepared to frustrate a Democratic President’s wishes.

Then came the U.S. election and new President Donald Trump made it clear he would not accept the TPP. Indeed, his position has been in favour of dismantling trade agreements, not of endorsing them. His intention is to renegotiate them.

Initially Trump’s Democrat opponent, Hillary Clinton, had, as Secretary of State under Obama, favoured the TPP. However, in her campaign against Trump, and in the face of a change in U.S. public position, she declared her opposition to the TPP. Given her capacity for changing positions, we will never know precisely what she might have done as president.

Interestingly, since the election, Bernie Sanders, a left Democrat who ran Clinton close for the Democrat nomination for the US presidency, has taken a position identical to Trump’s on trade agreements – notably, that they have harmed the U.S. economy and cost U.S. workers jobs.

Unlike Mrs Clinton, our Prime Minister never lost his enthusiasm for the TPP. Indeed, in his first conversations with an incoming President Trump, he attempted to have the President change his position on the TPP. Mr Turnbull was given short shrift.

Undaunted, our Prime Minister pressed on, and with the enthusiastic support of his Japanese counterpart, has managed to have a revised TPP negotiated. Notably, the new Trans-Pacific Partnership agreement has been finalised and does not include the two largest Pacific powers: the United States and China.

The new TPP is yet to be introduced into the Parliament and, unlike its predecessor, it is as yet unclear as to whether Labor will support it.

What also can be observed is that, while much was originally claimed for it in terms of benefit for Australia, in the face of convincing contradictions – including from the Productivity Commission – the value of benefits from the new agreement have been heavily qualified, even by the most enthusiastic of the new TPP’s supporters.

Curiously, over the last 30 years, the idea of so-called free trade agreements has been closely coupled with the idea of free trade, for reasons not easily explained.

Pure free trade is derived from a 19th-century economic theory of comparative advantage: the idea that each country should concentrate on what it can do best and import what others do best.

Britain and Portugal are given as examples. Britain had a comparative advantage in textiles, Portugal in wine. Britain should import wine and Portugal should import textiles. In this way, both would benefit.

Of course that was around 200 years ago. Economics has progressed. Comparative advantage has been replaced by “competitive advantage”, which is created. Germany and Japan began with no comparative advantage in making cars; they created one.

It is said of Australia that we should stick to our comparative advantages – agriculture and digging up minerals. It is bad advice that we should have ignored. The reasons why are complicated but have to do with the fact that we allowed our manufacturing growth to be dominated by foreign investment.

It should be remembered that Britain gave the same advice to the United States towards the end of the 19th century. The U.S. ignored it, fortunately, and look what happened.

Australia is now in an unfortunate position. In the era of floating exchange rates, we have no tariffs and a currency that is permanently overvalued compared with those of our trading partners. Accordingly, our exports are too expensive and imports are too cheap. We cannot afford to pay for the imports we must have because we are not making enough here. It is unsustainable.

The so-called free trade agreements – bilateral and multilateral – add another dimension to our problems.

The World Trade Organisation (WTO) oversees the international treaty to which all trading nations have signed up to and have agreed to be bound by its rules. Through its agency we have all committed multilaterally to reducing tariffs to bring about free trade. Bilateral deals are not part of this arrangement because they discriminate; this is not allowed under WTO rules.

Yet for some reason the WTO has stood by without objecting to the many bilateral free trade deals that discriminate against those WTO members not part of the deals. The TPP, for example, discriminates against all WTO members not included in it.

Against this background it is hardly any wonder that the authority of the WTO as a custodian and defender of a rules-based trading system is in tatters. The credibility of the idea of free trade, already under threat as a plausible theory in the 21st century, is further undermined by the fact that the WTO itself has allowed bilateral trade agreements to flourish in breach of its own rules.

A consequence of all this is that trade rules that at the creation of the WTO in 1998 were supposed to be strengthened over what had existed before, are weaker than they have been at any time since the end of World War II.

We are seeing the outcome of this in the fact of permanent instability in the world trading and payments system.

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