Treasury dismisses bilateral free trade deals in Asia
Australian Broadcasting Corporation - Correspondents Report - Sunday, 14 May 2006
Treasury dismisses bilateral free trade deals in Asia
Reporter: Graeme Dobell
HAMISH ROBERTSON: Australia’s Treasury has dismissed the Australian Government’s quest for bilateral free trade deals in Asia, saying that there are no clear benefits.
And the Treasury’s annual series of statements - delivered with Tuesday’s budget - also puts China above Japan in the world league table.
From Canberra, Graeme Dobell reports.
GRAEME DOBELL: One of the rare joys of wading through the annual budget papers is to track the Treasury’s truth-telling moments, pricking political balloons and blowing the odd analytical raspberry. The annual Treasury statements haven’t suffered the political correctness that taints so much of the today’s output from the Australian public service.
Over the past few years, Treasury has charted the rise and rise of China and heaped scorn on the United States claims that its trade deficit - now topping $800-billion - is all caused by China manipulating the value of its own currency.
Treasury has quietly sided with China in the biggest economic argument between Beijing and Washington. The US harangues China, saying China’s artificially low currency is causing America’s massive trade deficit. In the budget papers, last year, Australia was gently deriding the US position. Treasury offered a series of reasons for the huge imbalance: lack of savings in America, poor growth in Japan and Europe, and under-investment in some East Asian countries.
Just in case that repudiation of America’s China-bashing was too subtle, Treasury then gave explicit backing to Beijing, quote: "A more flexible Chinese exchange rate is likely to have only a limited impact on global imbalances. Broader liberalisation of the capital account should be approached cautiously and coincide with a further strengthening of the Chinese financial system."
Beijing’s position exactly. No wonder the sharper-eyed policy wonks in Washington worry that Australia is straying into the Chinese sphere in areas apart from the alliance.
This year Treasury wasn’t being rude about the US - it was quietly attacking the Australian Government’s own push for bilateral free trade deals, FTA’s. The budget papers say that net economic benefits of FTA’s remain unclear.
No clear benefit - this is Canberra heresy. Australia has busily negotiated bilateral FTA’s with the United States, Thailand, and Singapore; and is currently negotiating one with China and also an Australia-New Zealand FTA with the 10 ASEAN countries.
But the Treasury view is that the proliferation of discriminatory deals in the Asia Pacific - the noodle bowl of dozens of FTA’s - will be complicated and costly. Overlapping rules of origin could stifle region-wide production, and slow the integration of China with East Asia. And Treasury uses its annual moment of truth telling to argue that FTA’s divert attention and political effort from the rules-based multilateral system. Australia’s trade interest in the Asia Pacific, it says, is in getting transparency, simplicity and consistency.
And defensive FTA’s are, by definition, restrictive, because they exclude other players.
One other element in the budget papers is a re-ordering of the biggest league table of all - the economic order, where size is all that matters. And in this hierarchy, Japan has just been demoted. The Treasury uses purchasing power parity - not the old exchange rate measure - to create new world rankings, in which China’s economy has surpassed Japan. On that parity model, the US is still the largest economy, but China steps up to number two, and India becomes the fourth largest economy.
The analysis argues that the growth of China and India will have the most far-reaching consequences for the global economy, and that move to China and India means a shift away from Europe and Japan. It’s plausible, according to Treasury, that China will go past the United States within 15 years to have the world’s largest economy.
HAMISH ROBERTSON: Graeme Dobell reporting.
