In his bid to become prime minister, Malcolm Turnbull promised the government he led would provide strong economic leadership, explain complex policy issues in a way that respected our intelligence, and was prepared to challenge established policy orthodoxy. His new Trade Minister, Steve Ciobo, has an opportunity to help him realise that vision.
The challenge for Ciobo is to do what his predecessor, Andrew Robb, failed to do: to inform himself, then explain to the rest of us, where the gains from trade liberalisation really come from. At issue is a stronger, more competitive economy. Prime Minister Turnbull does not have so many opportunities to enhance productivity that he can ignore the challenge facing Ciobo.
The present conduct of trade policy is based on a myth, perpetuated by the Department of Foreign Affairs and Trade, that all the gains come from winning access to external markets. The governance model that should guide our new trade minister is based on Australia's conduct in the Uruguay Round of trade negotiations.
Those negotiations took place at a time when Hawke and Keating were liberalising our own barriers unilaterally, to secure the efficiency gains involved. Their productivity enhancing reductions were subsequently offered, and accepted, in Uruguay negotiations as our market opening contribution to global trade reform. As a consequence, we secured both gains available from liberalising during trade negotiations – the major gains (in productivity) from reducing our own barriers, as well as those available from access to external markets.
That produced the win-win outcome we should be seeking from all trade agreements. It made a substantial contribution to the prosperity we have since enjoyed.
The opportunity to improve the performance of the economy in this way was missed in all three FTAs concluded last year. In those negotiations our agenda was simply a market-access wish list; negotiations were conducted in secret; the outcome for domestic efficiency was the accidental outcome of the market-access arrangements negotiators were able to agree about, rather than a central objective in deciding which domestic barriers to reduce; and success was measured by whether the outcomes improved access to external markets.
It is true that we have gained worthwhile export opportunities from those agreements, but we could have achieved a great deal more if we had recognised that the obligation to reduce our own barriers creates an opportunity to improve productivity. When we fail to structure our market opening offers to improve allocative efficiency, by reducing the barriers protecting our less competitive industries, we forgo the major productivity gains from negotiations.
There are three clear messages to policymakers from this experience: first, the major part of our gains from trade agreements depends on what we take to the negotiating table, not what we hope to take away from it; second, liberalising through trade negotiations cannot be pursued simply as an extension of foreign policy; and third, as the Harper report on competition policy has recommended, future bilateral agreements should be subject to cost-benefit analysis before ratification.
There is no conflict between the need for secrecy during negotiations and a process that provides transparency and introduces a public input to our negotiating agenda.
Both requirements can be met by following the model established in the Uruguay Round. That would involve the Productivity Commission conducting a public inquiry and report before future negotiations get under way to provide a basis for Australia's market opening offers. Its report would be released only when negotiations are complete.
This would preserve secrecy during negotiations while providing a public input to Australia's market opening offers and a basis for parliamentary and public scrutiny of the outcome before ratification.
The limitations of the present approach cannot be waved aside as of little consequence. Each new negotiation provides an opportunity for economy-wide gains that enhance productivity and national welfare. Why wouldn't a government promising strong economic leadership, and committed to abandon moribund policy orthodoxy, seek to ensure we benefit from those opportunities?
All that is needed to introduce the change is for the government to ask the Productivity Commission, before future trade negotiations get under way, to report on how Australia's market opening offers should be structured to secure the productivity gains available – regardless of how other countries approach negotiations.
During public hearings this week by the Joint Standing Committee on Treaties, DFAT confirmed its long-standing antipathy to any governance arrangements for trade negotiations that involved the Productivity Commission .
Over to you, Trade Minister Ciobo.
Bill Carmichael was chairman of the Industries Assistance Commission.