Patricia Scott Commissioner

1. Bilateral and Regional Trade Agreements Final Report Patricia Scott Commissioner ABARE Outlook Conference, National Convention Centre, 2 March 2011

2. What was the Commission asked to do? • Study the impact of bilateral and regional trade agreements (BRTAs) on: • Trade and investment barriers • Australia’s economic performance • Extent to which BRTAs have ‘safeguarded’ against new barriers • Potential for BRTAs to promote regional integration • Role of BRTAs in supporting WTO and multilateral system • Scope for BRTAs to reduce barriers in trading partners, and promote growth and productivity;consider alternatives for doing so

3. Australia’s approach to agreements • Comprehensive agreements that seek to reduce trade barriers. • 6 agreements: NZ, Singapore, Thailand, USA, Chile and ASEAN/NZ • Talks in train for 9 more: China, Malaysia, Japan, Korea, GCC, PACER Plus, TPP, Indonesia, India however… • The Commission received little evidence from businesses and industry groups of significant commercial benefits • This may be because the main factors that influence decisions to do business abroad lie outside the scope of BRTAs

4. What did business groups say? Some groups supported continued use of BRTAs: • National Farmers’ Federation: • … the Australian Government should continue to pursue bilateral and regional trade agreements under strict principles … This comes not only from a desire to open up new markets and improve economic welfare but also derives from defensive reasons. • Business Council of Australia: • The negotiation of FTAs has been an important means of reducing barriers to trade and investment, resulting in tangible benefits for both Australia and other nations …

5. … while others were more sceptical … based on information from members • Australian Chamber of Commerce and Industry: • As it currently stands the BRTA process is not delivering practical benefits as well as it could. ... a strategic, consultative and outcomes-based approach wider than just BRTAs is necessary. • Australian Industry Group: • … FTAs are somewhat limited in their ability to actually deliver … FTAs have not been highly effective in practice in reducing barriers between Australia and its partner countries.

6. Modelling the impact of BRTAs • Commission undertook two modelling exercises • ‘Ex ante’ CGE modelling of hypothetical BRTAs (with a small country and a large country), including of the effects of Australia not entering BRTAs with countries when rivals did • ‘Ex post’ econometric study of effect of BRTAs on observed trade flows • Analyses suggest: • Tariff concessions increase trade between partners • Some of this offset by trade diversion • Results sensitive to take-up of preferences, RoO • Overall, increases in national income from preferential agreements likely to be modest • Greater gains on offer from unilateral reductions

7. Unilateral and multilateral are best a Simulations are representations of the effects of the removal of barriers to trade. T1 Represents zero tariffs on all trade between Australia and a small country, T2 on trade between Australia and a large country. T3 simulates unilateral liberalisation as the removal of tariffs on all imports into Australia. T4 simulates zero tariffs on imports into all APEC countries and T5 simulates zero tariffs worldwide. Source: Simulation results.

8. Scope for improvement • Unilateral reform in Australia offers relatively large economic benefits • Avoid delaying reform to retain ‘bargaining coin’ • Internationally, • Australia should continue to pursue Doha • Building the case for reform requires improvements in domestic transparency/policy analysis within each country • Other opportunities for trade facilitation • Consider more cost-effective approaches

9. Possible more cost-effective approaches • Consider the objective in question and the appropriate instrument(s) – • Strategic/security (defence) agreements/ MoU for strategic objectives • Other forms of economic cooperation/mutual recognition • Where possible, favour agreements based on non-discriminatory provisions (e.g. APEC). Some areas in particular lend to non-discriminatory reform: • Services reform, competition policy, government procurement, technical barriers to trade, capacity building and trade facilitation

10. ‘Broader’ agreements are not always better • Some BRTA provisions risk increasing costs for business, government and consumers • Australia should adopt a cautious approach to core labour standards and exclusions for trade in cultural goods/services • Avoid the inclusion of: • Intellectual Property provisions, which have concentrated benefits and economy-wide costs; • Investor-state dispute settlement clauses, which have little evidence of benefits but carry significant financial and policy risks

11. Recommendations Recommendation 1 The Australian Government should only pursue bilateral and regional trade agreements where they are likely to: • afford significant net economic benefits; and • be more cost-effective than other options for reducing trade and investment barriers, including alternative forms of bilateral and regional action.

12. Recommendations (cont) Recommendation 2 The Australian Government should ensure that any bilateral and regional trade agreement it negotiates: • as far as practicable, avoids discriminatory terms and conditions in favour of arrangements based on non-discriminatory (most-favoured-nation) provisions; • does not preclude or prejudice similar arrangements with other trading partners; and • does not establish treaty obligations that could inhibit or delay unilateral, plurilateral or multilateral reform.

13. Recommendations (cont’d) Recommendation 4 The Australian Government should not include matters in bilateral and regional trade agreements that would serve to increase barriers to trade, raise costs or affect established social policies without a comprehensive review of the implications and available options for change.

14. Recommendations (cont’d) Recommendation 5 The Australian Government should improve the scrutiny of the potential impacts of prospective trade agreements, and opportunities to reduce barriers to trade and investment more generally.

15. Recommendation 5 (cont’d) • It should prepare a trade policy strategy which identifies impediments to trade and investment and available opportunities for liberalisation, and includes a priority list of trading partners. This trade policy strategy should be reviewed by Cabinet on an annual basis, and be prepared before the pursuit of any further BRTAs. A public version of the Cabinet determined strategy should be released.

16. Recommendation 5 (cont’d) b) Before entering negotiations with any particular prospective partner, it should undertake a transparent analysis of the potential impacts of the options for advancing trade policy objectives with the partner. All quantitative analysis and modelling should be overseen by an independent body. It should commission and publish an independent and transparent assessment of the final text of the agreement, at the conclusion of negotiations, but before an agreement is signed. c)

17. Recommendations (cont’d) Recommendation 8 The Australian Government should examine the potential to further reduce existing Australian barriers to trade and investment through unilateral action as a priority over pursuing liberalisation in the context of bilateral and regional trade agreements. The Government should not delay beneficial domestic trade liberalisation and reform in order to retain ‘negotiating coin’.

18. Key messages • Unilateral and non-discriminatory reforms are likely to offer the greatest benefits to Australia • The likely economic benefits of preferential agreements are ‘oversold’ and expectations are too high • Improvements are needed to the independence, transparency and timing of BRTA assessments • Particular need for comprehensive review when including issues that are established social policies, increase barriers, or raise costs

19. Impact? • Government yet to formally respond • However, Craig Emerson, Trade Minister, 10 December 2010 As Trade Minister, I am interested in results for our country and the global trading system, not in appearances of looking busy, mired in interminable processes that simply enable us to say that negotiations are proceeding. Nor am I interested in collecting trophies for the national mantelpiece, empty vessels engraved with the words free trade agreement if they are nothing of the sort and of token value to our country. http://www.trademinister.gov.au/speeches/2010/ce_sp_101210.html

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