By Ian Verrender Posted Mon 14 Apr 2014
Photo: The trade deal struck between Tony Abbott and Japan's prime minister, Shinzo Abe, has been criticised by some unlikely sources. (AFP: Romeo Gacad)
It was cheers all around last week, but perhaps it's time to acknowledge that one-on-one trade agreements such as we've just signed are largely ineffectual, writes Ian Verrender.
Perhaps it's time to put that cork back in the champagne bottle.
Amid the backslapping and bonhomie following our recent coups on the free trade front last week, a touch of sanity was injected into proceedings from some rather unexpected quarters.
First up, the normally conservative Australian Chamber of Commerce and Industry denounced the South Korea pact as unworkable the day before it was inked.
And as the details of the Japan agreement were broadcast, even the peak farming lobby, the National Farmers' Federation, was less than enthusiastic about the results.
Such doubts, however, are likely to pale into insignificance if Australia ever signs up to the much bigger and broader ranging Trans-Pacific Partnership; a trading bloc being pushed by America with Australia and 10 other Pacific nations including Canada, Mexico, Japan, Singapore and possibly even China.
Negotiators have been punching away on the TPP for years, mostly in secret, and unsurprisingly appear to have hit a snag.
Why are free trade agreements such a big deal? That's the problem. They're not, especially for a country like Australia that, ever since the Whitlam government took the sickle to tariffs, has systematically dismantled its trade barriers.
What the triumphant pollies forgot to mention last week was that the biggest long-term gains from such agreements go to the country that faces the greatest short-term pain. As a nation, we've already endured the worst of the pain.
Take the Japan deal. For a start, it's anything but a free trade agreement. Japan's monumental trade wall merely has had a couple of layers of bamboo lopped off the top with a few more to come down the track.
Japan will be the biggest beneficiary as its consumers will enjoy slightly lower food prices. That should force Japanese rural producers to become more competitive in what Shinzo Abe hopes will be a crucial step to reinvigorate, modernise and open up his country's ailing economy.
Most economists argue that one-on-one trade agreements such as we've just signed largely are ineffectual.
In the imaginary world of economics, the benefits of trade are indisputable. Just as individuals specialise in a profession or trade and sell their services for a premium so they can buy the things that others are best at producing, so too it goes with nations.
But the concept really only works when everyone plays by the same rules. While trade barriers across the developed world have been sharply reduced since the 1960s, repeated attempts to strike a uniform global deal and dismantle what remains have foundered.
When it gets down to the hard negotiations, politicians mindful of the drubbing they may face in upcoming elections back home, remove or indefinitely delay talks on entire sensitive slabs - such as agriculture - from proceedings.
As a default, many nations opt for painfully complex bilateral or regional agreements such the ones we struck last week. The problem with individual agreements is that they lack uniformity.
The deal with Japan, for instance, retains heavy tariffs and quotas. The deal with South Korea - along with our Hong Kong agreement - includes a clause that will allow South Korean companies to take legal action against the Australian Government, a potential threat to our sovereignty.
Then there is the bureaucratic nightmare for companies trying to navigate the maze of individual FTAs with often complicated approval processes.
Piracy is a serious and legitimate legal issue. But you could argue that American firms have turned the tables, using the issue to push for greater protection, all under the guise of a free trade agreement.
So arduous is the process, according to the Australian Chamber of Commerce and Industry, many companies don't even bother.
Politicians love to trumpet these deals as a foreign policy coup. In some cases they are. They help cement diplomatic relationships and forge defence alliances.
But in their eagerness to gain kudos at home, politicians run the risk of bartering away rights that have the potential to cause serious harm.
For the past few years, America has been pushing its Trans-Pacific Partnership Agreement - a trade pact with Australia, Canada, Japan and eight other countries in the region.
On paper, it sounds like a great idea. But the negotiations have been conducted in secret. And detractors claim, from what little has been leaked, that this is a deal designed primarily to entrench the power of large American corporations.
A major plank in the proposal is aimed at protecting intellectual property rights, the great future export industry for America. That statement alone should have the alarm bells ringing. For it contains the word "protection", the very anathema of free trade.
With the arrival of the digital age, recorded music, movies and software have been subject to rampant piracy that has hit the earnings of major corporations that have been pushing long and hard for greater protection.
Piracy is a serious and legitimate legal issue. But you could argue that American firms have turned the tables, using the issue to push for greater protection, all under the guise of a free trade agreement.
Likewise, US pharmaceutical companies are pushing for extended patent rules as part of the negotiations that would prohibit generic manufacturers from entering the market. In effect, they are arguing for a legally enforced extended monopoly to help shore up their earnings, which has even created resistance in the US.
Patents are a reward for original research. They are designed to encourage scientific innovation.
Extending patents, however, can have the opposite effect, stifling the flow of investment funds to smaller biotechs and discouraging big firms from innovation as they maximise profits from existing medicines. Then there is the heavy cost to society of denying patients access to affordable drugs through generic brands.
If we were serious about free trade, we wouldn't bother with any of this. The preferable approach would be to push for a global pact. But don't hold your breath.
Ian Verrender is the ABC's business editor. View his full profile here.
We signed some trade agreements? Big deal - The Drum (Australian Broadcasting Corporation)
