East is East and West is Best

A triumph of prejudice over policy
Craig Emerson

Australia's 11th successive trade deficit, the worst in two years, ought to be sounding alarm bells in the Prime Minister's office. That it is not, smacks of the smugness and complacency of the Howard government. Several decades of carefully constructed - and essentially bipartisan - trade policy are being destroyed by the Prime Minister's obsession with striking a trade deal with the United States that, inevitably, will discriminate against our major East Asian trading partners. The Prime Minister's pursuit of discriminatory bilateral deals is a tangible expression of his derision of all things multilateral, of his poll-driven hostility towards international organisations such as the UN and the ILO. Labor has consistently been multilateral on trade policy. We maintain that consistency by repeating: put Doha first. Labor sees trade liberalisation, based on fair rules, as not only good for Australia but as a powerful force in lifting the poor of the Third World out of poverty.

We welcome the contribution to the debate of organisations such as Oxfam which, in its recent report, Rigged Rules and Double Standards: Trade, Globalisation and the Fight Against Poverty, points out that global interaction, not isolation, has been the basis of economic progress in the world, that world trade has the potential to act as a powerful motor for the reduction of poverty, but that this potential is being lost through a rigging of the WTO rules in favour of the rich. Oxfam estimates that when developing countries export to rich-country markets, they face tariff barriers four times higher than those encountered by rich countries, costing developing countries $100 billion a year - twice as much as they receive in aid.

Oxfam points out that trade barriers in rich countries are especially damaging to the poor, because they are targeted at the goods the poor (mostly poor women) produce - labour - intensive agricultural and manufactured goods. And in being tougher on intellectual property rights than on agriculture and low-cost manufactured goods, the WTO's rules are even further rigged in favour of the rich. The WTO rules support vital products such as pharmaceuticals being sold in developing countries at high prices while locking developing country producers out of rich-country markets. If developing countries were not so effectively blocked from rich-country markets by rigged WTO rules and were able to increase their share of world exports by just five per cent, this would generate $350 billion - seven times as much as they receive in aid. But then, in the immortal words of economist Peter Bauer: "government-to-government transfers ... are an excellent method for transferring money from poor people in rich countries to rich people in poor countries'. Such aid transfers help maintain the world order: keeping the rich rich and the poor poor.

Labor recognises that Australians, like the citizens of poor countries, would gain from greater access to overseas markets. We recognise that the big potential gains are not from negotiating discriminatory bilateral deals but from re-setting the WTO trading rules so that they are not heavily rigged against the interests of Australia and the developing world. Australia has the lowest trade barriers of any OECD country. The answer for Australia and the developing world is not reversing the trade liberalisation that has occurred under the WTO, but genuinely to extend multilateral trade liberalisation to the rich-country markets of the United States, Europe and Japan. Where Labor has negotiated bilateral agreements they have been on a non-discriminatory basis, extending automatically to other nations - the only exception being the Closer Economic Relations Agreement with New Zealand, initiated by the Fraser government and concluded by Labor.

For more than six years, in lieu of a trade policy, the government has relied on good seasonal conditions on the land, buoyant primary commodity prices and a low Aussie dollar. If this seems an unduly harsh allegation, just look at Australia's exports of sophisticated manufactured goods under this government and its 'super-competitive exchange rate', to use the Treasurer's description. Growth in exports of elaborately transformed manufactures has slowed to half the rate under the Howard government as in the same period of the previous Labor government. For those with long memories there is a sense of daja  vu in all this. Australia's over-reliance on primary commodity exports was exposed spectacularly in the mid-1980s as a balance of payments crisis, Treasurer Keating telling the world from a wall phone in a restaurant that Australia was headed for Banana Republic status.

But the Hawke government had already begun to reshape the economy to insulate it against future shocks in primary commodity seasons and prices. Labor introduced industry policies to encourage manufacturing and service exports and introduced strong incentives, like the 150 per cent R&D tax concession, to encourage innovation. Upon coming to office the Howard government cut the R&D tax concession and has recently frozen the R&D Start program. Its innovation statement is better described as Backending Australia's Ability, for just one-fifth of the allocated funds are scheduled to have been spent three years after its announcement.

Yet Science Minister Peter McGauran recently claimed the innovation statement had achieved a lift in Australia's private R&D effort in 2000-01, despite not being announced until end-January 2001. Obviously the business community spent up in breathless anticipation! Putting aside government propaganda in favour of facts, Australian business spending on R&D grew consistently under the previous Labor government, reaching 0.87 per cent of GDP, but under the Howard government it has fallen to 0.72 per cent of GDP. This is less than half the average of the OECD, a terrible portent for the future of high-value manufactured exports from Australia.

Labor's trade and foreign policies were given a sharp regional focus through engagement and 'enmeshment' with Asia, a massive effort being devoted to China, all on a non-discriminatory basis. Under Labor, Australia showed true leadership and determination in the Uruguay round of multilateral trade negotiations, forming the Cairns Group of Fair Trading Nations as a powerful third force at the negotiating table. Domestic policies of floating the dollar, financial market liberalisation and industry plans were all carefully calibrated, as part of a coherent strategy, to re-orient the Australian economy to the export market.

Now, consistent with the Prime Minister's long-held beliefs, the government is turning its back on Asia, gazing wistfully towards the United States. Scarce political capital is being used up in convincing the Americans to promote Australia up the list of negotiations for a free trade agreement that would discriminate against Asia. In response to Labor's criticisms of this strategy the government has asserted that the countries of East Asia won't mind being discriminated against. In scurrying off to the United States for a trade deal that discriminates against Asia, the Howard government can now point to its agreement with Singapore as testimony to its Asia credentials - not much comfort for China, Taiwan, Japan, Korea or the other ASEAN countries. China's economy is already half the size of the United States and is likely to be about the same size in a couple of decades. It is not as if China is a stagnant market for Australia. Australia's merchandise exports to China and Taiwan are larger than those to the United States. And through the 1990s, Australia's merchandise exports to Taiwan grew at twice the rate of our exports to the US and our exports to China grew at more than five times the rate. China has announced it will negotiate a free trade agreement with the ASEAN countries and proposes to do the same with Japan and Korea. Australia's response? Cut a deal with the United States.

With the mid-term US Congressional elections now over, there is every likelihood of the US Administration agreeing to seek Congressional approval for a start to negotiations on a US-Australia free trade agreement. Trade Minister Mark Vaile should explain to the meeting of Trade Ministers here in Australia on 14-15 November - ostensibly convened to give impetus to the Doha round of multilateral trade negotiations - why the Australian government wishes to pursue at the same time a discriminatory bilateral deal with the United States. It is as if the Howard government expects the Doha round to fail and is taking out insurance through the pursuit of discriminatory bilateral deals. But insurance cover requires the payment of a premium and in this case the premium is Australia's trading relationship with Asia. Like other insurance premiums of late this is a very high price to pay.

Any government could expect anti-globalisation protesters to be out in force at the 14-15 November meeting of Trade Ministers. But the Howard government's arrogance in its handling of negotiations under the General Agreement on Trade in Services (GATS) is confirming the worst fears of the reasonable while playing into the hands of the unreasonable. Requests have been made of the Howard government by other countries to open up our services markets to foreign suppliers. The government will make offers to open our markets in return. But these requests and offers are secret. Departmental officials have confirmed to us that there are no plans to make them public before the current round of negotiations is completed.

As Labor's Shadow Trade Minister I despair at the damage the government is doing to the cause of trade liberalisation through its handling of the GATS and its pursuit of discriminatory bilateral trade deals. Properly handled, opening up markets to international trade boosts living standards at home and abroad. But Labor recognises that, while the community at large gains from trade, some of its citizens and their families lose. Labor's industry plans have included compensation provisions for those who have borne the brunt of trade-liberalising policies. Quite possibly, Labor has not gotten all its trade-liberalising plans right in terms of properly compensating the vulnerable and giving them the skills for a new working life. But we have tried.

Labor cut the cost of clothing and shoes for the poor in our community. We cut the cost of new and second-hand cars. We cut the cost of fridges, plastic utensils, tupperware, paper, greeting cards and kids' toys - all important to the poor. For this we have been branded - by strong opponents of the GST - as 'economic rationalists', traitors to the working class. At least I have been consistent: I don't like any regressive taxes, including a 10 per cent GST. I least like tariffs that in the early 1980s were adding up to 200 per cent to the cost of kids' singlets, pyjamas and school shoes. But then, as Senator Reg Withers once said, 'consistency is the sign of a small mind'.

Labor made huge gains for Australian farmers and workers by prising open beef and wool markets in Japan, China and Korea on a non-discriminatory basis. Importantly, Labor sought to bring the wider community with us in opening up the Australian economy. We went to five elections with trade-liberalising policies and we won them all - because we took the people into our confidence and were prepared to argue for the gains from trading to everyday Australian families.

Labor sees new opportunities for creating high-quality Australian jobs through the opening up of overseas markets for Australian service providers under the GATS. At the same time, Labor is committed to ensuring that Australia does not relinquish control of the nation's public institutions, such as our health and education services, in GATS negotiations. We will monitor developments in the GATS negotiations to ensure that the safeguards and assurances given by the WTO are honoured and are effective in maintaining Australia's national interest.

Labor reaffirms its in-principle support for the liberalisation of trade in services. But we will not support governmental services - services provided by governments on a non-competitive and non-commercial basis - being included within the GATS. Labor will not support any changes that undermine affordable access of Australians to essential public services or any restriction on a country's right to operate whatever universal service obligation they deem necessary on social, regional and other policy grounds. We will not support any proposals that undermine the public provision of health and education services and we will not support any Australian government offers under the GATS that would require the privatisation of public assets. Labor would oppose any future proposal that a WTO Member country be compelled to make any changes to its services regime that it is not prepared to concede voluntarily. And we would oppose any restriction on the right of governments to regulate and to introduce new regulations, on the supply of services. Labor supports open community involvement in Australia's position on the GATS negotiations and insists that the Australian government's requests and offers in the present GATS negotiations be made public, allowing ample time for public consultation and debate.

The Howard government has ignored the lessons of Seattle. Instead of advocating the benefits of properly managed trade liberalisation, it is thumbing its nose at the anti-globalisation movement and at all Australians concerned with the impact of trade liberalisation on their livelihoods. In view of the government's unwillingness to take the community into its confidence in its GATS negotiations I announce today that Labor will be pushing for a Senate inquiry into the GATS. In doing so, the anti-globalisation movement in Australia should not take heart. I am not in the cart for closing down trade and condemning the poor of the world to ongoing poverty. But I do believe the Australian people have a right to be informed about the GATS negotiations and to have a say in the outcomes.

More than a year ago the Joint Standing Committee on Treaties tabled a report, Who's Afraid of the WTO? Among its many useful recommendations, the committee urged the government to establish an office of trade advocate. Senator Joseph Ludwig, whose idea this was, tells me he based it on the ambassador for the environment established by the previous Labor government. But unlike the ambassador for the environment, who was given an international commission, the trade advocate would operate here in Australia, educating the community about trade liberalisation and the WTO. This good idea was ignored in the government's response tabled almost a year later. If the government were serious about bringing the community with it on trade liberalisation it would reconsider and appoint a trade advocate. But the government is not interested in bringing the Australian people with it in its half-hearted pursuit of trade liberalisation. By turning its face to the United States and its back to Asia, the government seeks to secure the support of the Australian people at the next election in a world wracked with fear.

Or maybe the Prime Minister hasn't changed his spots: he just doesn't like Asians. This is the man who in 1988 condemned the rate of Asian immigration, ending bipartisan support for a non-discriminatory immigration policy. This is a man who persuaded most of his party to vote against a parliamentary resolution that acknowledged the historic action of the Holt government in initiating the dismantling of the White Australia Policy, recognised that since the early 1970s both parties in government had pursued a racially non-discriminatory immigration policy and supported the principle that, whatever criteria are applied by Australian governments in exercising their sovereign right to determine the composition of the immigration intake, race or ethnic origin shall never be among them.

This is a man who condemned multiculturalism as a "... declaration by Australia to the rest of the world that we are so unsure of our identity and what it means to be Australian that we want to pretend that we are a culture and an identity that is made up of bits from all around the world instead of saying that there is something distinctive and special about being an Australian". Never mind that he now has a Minister for Multicultural Affairs. He doesn't believe in multiculturalism, but with so many ethnic Chinese now living in his electorate of Bennelong he needs to keep his spots carefully hidden. This is a man who refused to intervene in the Queensland Liberal Party's 1998 decision to direct preferences to One Nation ahead of Labor, claiming that Kim Beazley was just as bigoted as Pauline Hanson because he supported compulsory unionism on the Australian waterfront. Such is the Prime Minister's understanding of the word bigot. This is a man who justified his support for One Nation on the basis that "... elections are contests between the Labor Party and the Liberal Party and it's a question of which of those two choices are made". If you find it hard to believe that an Australian Prime Minister said all these things, transcripts are available in my office on request.

As the trade deficit widens and the folly of the government's reliance on a low dollar and good rural seasons is on full display, the Prime Minister might lament the halving of growth in exports of sophisticated manufactured goods under his stewardship. He might lament his failure to support innovation as a new source of growth in non-primary exports. Having taken credit for trade surpluses over the last few years during good rural conditions, he might take responsibility for the succession of trade deficits now occurring as a legacy of the weakness of his trade policy. Instead he will blame the drought.

It's time the Prime Minister re-engaged with Asia at all levels instead of squandering Australia's hard-won credibility by playing deputy sheriff in the region. It's time the Prime Minister got fair dinkum about the Doha round of multilateral trade negotiations by abandoning his obsession with a trade deal with the United States that discriminates against our major Asian trading partners. And it's time the Prime Minister put Australia's national interest on trade policy ahead of his personal prejudices. But don't hold your breath - the leopard never changes his spots.


Craig Emerson is the Shadow Minister for Innovation, Industry and Trade, and this is an address presented to the Centre of Policy Studies, Monash University, Melbourne, on 6 November 2002.


See also:

Suggested citation
Emerson, Craig, 'East is East and West is Best', Evatt Journal, Vol. 2, No. 7, November 2002.<http://evatt.org.au/papers/east-east-and-west-best.html>