Australians are good trade negotiators, Andrew Robb one of our best. He and his team at the Department of Foreign Affairs and Trade have secured important increases in agricultural exports in the now-completed Trans Pacific Partnership Agreement. On top of the additional access gained in the recent bilateral Free Trade Agreements with Korea, Japan and China, the Robb period as Trade Minister has delivered the most significant increases in access for agricultural exports in Australia’s post-war trade negotiations.
The TPP agreement heralds another even more important milestone. It creates an open market among 12 Asian Pacific economies which already accounts for one third of Australia’s exports and generates 40 per cent of the world’s economic output. In the last decade both Labor and the Coalition have advocated expansion of Australian trade and investment into Asia’s rapidly-growing markets. The TPP, negotiation of which was announced by Julia Gillard with President Obama four years ago, is a major step in that direction.
There is even more to come. The TPP is a stepping stone to an even bigger Asian Pacific trade agreement among all 21 members of APEC, and in particular China. It is now under active consideration in APEC. As the world’s second biggest trader, China is set to expand foreign investment and open services markets. Such an FTA would extend over 60 per cent of global growth.
Australia’s TPP negotiators secured increases in exports of beef, lamb and seafood over those recently negotiated in the FTA with Japan and cracked the toughest nut of all – increased sugar access to the US market. The challenge now for Australian agriculture will be to supply the rapidly-expanding markets in Asia. Not only is North Eastern Australia drought-stuck, some farm industries will not be up to the challenge unless they welcome foreign investment and join foreign supply chains.
In the longer run, greater economic gains can be secured by Australian businesses which invest in TPP economies and exploit the opportunities as Asian Pacific economies progressively open their services sectors.
We are in a new era of international commerce. International economists now point out that trends in international trade in goods is no longer a leading indicator of global growth. While perhaps a consequence of the global financial crisis, increasingly it is seen as a change in global business patterns.
Increasing foreign investment and access to services markets, key features of the TPP Agreement, are the new drivers of global growth. Restrictions on both are high in the Asian Pacific economies. This is why Korea, Japan and China have started to open these markets in bilateral FTAs, most latterly with Australia.
Services are increasingly a major contributor to competitiveness. Recent research by Asialink, for example, shows competitively-priced services contribute 30 per cent of the value of Australia’s mineral exports. The OECD has started to recognise that traditional trade statistics do not tell the full story. China recognises this. While exports of goods are slipping, officials recently gleefully reported that the rate of increase in services exports exceeded rates of growth in exports of goods.
Large Australian companies are now also major investors in foreign markets. Forty per cent of the ASX top 100 companies own major off shore businesses. Yet this is below the rate in most other industrialised economies. As ANZ CEO Mike Smith recently pointed out, Australia’s dividend imputation rules discourage Australians from investing in companies (including Australian owned) operating in foreign markets.
The business gains from services under the TPP will take time to materialise. But they will be very significant as these markets open up in the fastest growing economic region in the world where their contribution to national GDP (40 to 60 per cent among developing economies) is still well below the 80 per cent norm in industrialised economies.
The TPP is also innovative. It includes provisions which promote electronic commerce and restricts imposition of regulatory impediments. Under the agreement parties also undertake to adopt or maintain competition policy and establish bodies to police compliance. There are also commitments to ensure state owned enterprises adopt and follow commercial principles.
Barack Obama has offended some important industries in agreeing this text. Passage through Congress will be tricky. On the Australian side, the standard critics of free trade will be noisy. However if the public reaction to the criticism of the China FTA is any guide, the public at large will regard the TPP positively