US-Korea agreement shows Australia is losing out in bilateral deals
The Australian, Canberra
US-Korea agreement shows Australia is losing out in bilateral deals
By Rowan Callick, China correspondent
9 April 2007
The international trade tide is turning in a dangerous direction for Australia.
The new deal carved out by the US and South Korea last week, just minutes before President George Bush’s trade negotiating powers expired, is a massive one.
Forecasts show two-way trade could surge from $US75 billion last year to $US100 billion ($122 billion) in a few years.
The Wall Street Journal said: "For Mr Bush, the deal shows that the US can forge a major trade pact with another industrial power, not just the smaller economies it has so far reached deals with, such as Chile, Jordan and Australia."
Being patronised is not the worst part. It’s that the agreement leaves out rice, so Koreans will thus continue to eat, as a staple, rice that costs four times the international market price.
The lesson will not be lost on South Korea’s neighbours: yes, we can choose what precious sectors we protect and still make trade progress as the World Trade Organisation’s Doha round continues to flounder.
The worst scenario result of such a process could be impasse on the multilateral front and progress on the regional or bilateral fronts limited to areas that can be levered open by political muscle.
The big winners of the US-Korea deal are American farmers and Korean manufacturers, especially car makers - with a long list of exemptions and caveats which has yet to be published in detail. This matters intensely to Australia for two reasons.
First, because South Korea is our third largest export market. It’s big, and could be bigger, with an economy that is advanced but still growing at 5 per cent a year. Last financial year we sold $11.7 billion in goods there and bought in return $6.5 billion.
Commodities, led by coal, oil, iron ore, liquefied natural gas, sugar and wheat dominate Australia’s merchandise sales. Services exports comprise another $1.5 billion - an obvious area for potential growth.
Beef is another promising sector. But now our biggest rival, the US, has got in first, winning an end to a boycott and a steady lowering of a 40 per cent tariff. And the relationship with Korea has never warmed, remaining very remote.
This, as we have feared ever since a crushing combination of European, American and developing world intransigence halted the multilateral opening of markets, means that it will become ever harder for Australia to broaden its export base.
The big-ticket items in which Australia is among the world leaders and for which demand continues to rise - like the resources we ship to China, for example - will be unaffected. But for the rest the going is starting to get tougher.
The continued firm prospects for minerals effectively takes some of Australia’s biggest companies out of the picture when it comes to lobbying for better trade deals.
What are the chances now of the farming, manufacturing and services sectors managing to gain better access than their rivals in other countries to our most promising markets?
The Howard Government has done its best to put them in the frame. Japan is Australia’s top export destination, with $31 billion of goods in the last financial year, and China is second, buying $18 billion.
Free trade agreement negotiations have been under way for a couple of years with China and have just started with Japan. And the feasibility of FTA talks with South Korea is now being examined by both sides.
In all, north Asia - including Hong Kong and Taiwan - buys half Australia’s exports. The stakes couldn’t be higher for an open, trade-driven nation like ours.
The free trade purists like Professor Ross Garnaut rightly point to the major benefits coming from opening your own economy, even more than from gaining special access elsewhere.
This lesson has been taken on board over the years since Garnaut played a key role in advising the Hawke government to open the windows back in 1983 - to the extent that, in the FTA game of tit-for-tat bargaining, we don’t have so much to give away.
But our north Asian negotiating partners are likely to become less susceptible to listening to the case for openness, each time a "dirty" deal is cut, like the new one that enables Seoul to lock out efficient American rice growers.
Despite the impressive efforts put in by the Australian negotiating team with China, led by Ric Wells, and the disciplined "Australia Inc" support from most of the business world, progress has been almost imperceptible.
Chinese leaders keep stressing the "complementarity" of our economies - code for keep shipping us your commodities; what we really want is guaranteed access and below-market prices.
China has signed a succession of dirty FTAs with eager partners that cut out whole sectors. Services and investment are usually missing entirely. And agriculture is also usually only very partially opened, despite the Government’s contradictory commitment to modernising the sector, where most Chinese are occupied.
Recently, Australian Oxfam applauded this protection of Chinese farmers, opposing Australian access to Chinese agricultural markets. There are indeed reasons to empathise with these often dirt-poor 800 million people, though whether maintaining the great wall around China’s rural sector is in their long-term interests is another matter.
New Zealand will conclude its own "dirty" FTA with China before Australia. But it lacks the range of interests that Australia needs to consider and will be delighted just to get its dominant dairy industry better placed. This would of course cause our own dairy farmers grief, but that’s the nature of the FTA game.
Foreign Minister Alexander Downer said in Beijing at the end of last week that in official talks the Chinese said that they, like the Australians, viewed the visit of President Hu Jintao in September - to attend the Asia Pacific Economic Co-operation summit, followed by a state visit - "as an opportunity to take some significant steps forward".
This would be very welcome. But it is now impossible for a deal that is truly comprehensive to be concluded by then. Downer rightly added that he had never said it would be easy. It is actually becoming harder, as trade and foreign investment slide down the list of priorities in China, whose leadership is now more focused on the domestic economy.
Downer pointed out that obtaining better access to services - 70 per cent of the Australian economy but only 14 per cent of our total exports to China, with two-thirds coming from students - would comprise the biggest single gain, with agriculture also especially important.
He said of the new Korea-US FTA: "We want these agreements to be comprehensive and if certain agricultural commodities are left off, that can be used by others as a precedent and doesn’t make it any easier for us."
Progress with Japan could even steadily overtake that with China. But few Australian businesses are even aware we’re talking to Japan - which, bizarrely, has been all but written off by most non-resources sectors even as it approaches something of a boom.
A recent DHL survey showed that just 13 per cent of businesses knew of the Japan FTA talks, compared with 44 per cent who knew of the China negotiations. Austrade chief economist Tim Harcourt says Japan’s demographics are working in Australia’s favour, with the feminising of the population. "If you think Bill Clinton’s ’soccer moms’ were important in 1996, just wait until you see the economic and political influence of Japanese women in future years." The whole lifestyle sector, formerly closed, is being opened up to foreign trade and investment.
But the US-Korea deal is now stimulating Japan to look to talks with the US, linking the world’s top two economies. Trade Minister Akira Amari compared it with the arrival of the US fleet that triggered the opening of feudal Japan in the 1850s. "It is like a ’black-ship’ effect. I think it will be a stimulus to gather everyone’s wisdom so that we will not be left behind as other countries pursue more and more free trade pacts."
The talks with Australia are thus increasingly being viewed in Tokyo as a valuable audition for potential negotiations with the US. Prime Minister Shinzo Abe talked of "using wisdom to be gained from a breakthrough in negotiations with Australia". But our rice growers will be lucky to get a look in.
Morgan Stanley chief economist Stephen Roach warned last week that "the US Congress now appears to be on a firm course to enact anti-China protectionist legislation. Increased trade frictions can take the world down a very slippery slope. Rising protectionist risks could well be the biggest macro event in many a year. Yet the overwhelming majority of investors remain steeped in denial."
Leading Hong Kong-based business commentator Philip Bowring said the "defensive" US-Korea deal "makes the global reform of farm trade less likely than ever".
And it has to be said: Australia’s sugar-free agreement with the US hardly helped this woeful prospect.
