Free trade? sounds fair

The only issue that ought to be on the mind of our negotiators is access to export markets.

WHAT would you think if Victoria prohibited the importing of Queensland bananas because Queenslanders refused to buy Victorian milk, preferring to prop up their own dairy farmers?

What if the Victorians only allowed sugar from NSW because farm workers were paid on comparable terms to Victorian farm workers, whereas in Queensland they were not?

All of these scenarios are impossible because the constitution says free trade between the states shall be “absolutely free”, with the states prohibited from imposing levies and customs duties. While governments may regulate trade within a state, interstate trade within Australia remains free.

When the constitution was being written, there was no guarantee the free traders would prevail over the protectionists. While NSW was firmly committed to free trade, Victoria had established a high level of protection for its industries and South Australia and Tasmania were not far behind, leading to considerable friction between the colonies. Trade was a key issue in federation negotiations.

Many of the arguments used in those late nineteenth century debates are heard today in the context of international trade. It is not a level playing field. People will lose their jobs, farms, livelihoods. Free trade must be mutual. We cannot have free trade when costs (labour, taxes and rules) are not the same. It is all very unfair.

Indeed, the question of fairness has been seized upon by those who oppose free trade to promote the concept of “fair trade”. An entire industry has grown up around it, managed by well-funded lobby groups, dealing in so-called fair trade products.

The French economist and writer Frederic Bastiat famously said, "When goods don't cross borders, armies will". In 1901, at the time of federation, several states had customs posts on border crossings to control the interstate movement of goods and to extract duties and excises. The potential for conflict (as well as smuggling) was real.

The transformation of China from a closed economy, suspicious of the outside world, to a semi-market economy keen to engage with the world has sharply reduced the risk of conflict. Whereas an attack on Taiwan was once thought inevitable, for example, both sides now have far too much trade at stake.

The new Abbott government’s determination to pursue bilateral free trade agreements with our Asian neighbours, particularly China, has seen the same old protectionist arguments emerge. It is not a level playing field. Jobs will be put at risk. We should insist they adopt our labour standards (presumably including the latest CFMEU or AWU agreement). We should demand equivalent concessions.

The thing is, the only issue that ought to be on the mind of our negotiators is access to export markets.

In terms of Australian interests, the best thing would be to remove all barriers to foreign imports apart from health and safety. The only reason to pretend we might restrict them is to convince other countries to drop their restrictions.

Evidence for this is right under our noses. The Victorian dairy industry is far more efficient than the industry in the other states, with the cost of freight the only reason it does not already supply most of the country’s milk. On the other hand, Queensland is far better at producing pineapples and bananas. While they can be grown in the southern states, the cost of production is higher.

If the states imposed trade barriers to protect local production, consumers would pay higher prices and have less to spend on other goods and services. This would reduce growth, prosperity and employment.

The same applies to international trade. If we can import goods from China or Indonesia cheaper than they can be sold by local producers, we should do it. It leads to growth, prosperity and jobs. The local producers need to either lift their game or find another one. Keeping them in business by keeping out competitor imports is equivalent to welfare, for which we all pay.

As for only allowing fair trade, that’s no different from calls to only allow foreign investment that is in the “national interest”. The questions that nobody wants to answer are: fair to whom? And who decides?

I’m all in favour of fair trade provided I’m the person deciding what’s fair. I’m also in favour of having a national interest test on foreign investment provided I’m the one deciding what’s in the national interest. I would not need long.

But I couldn’t trust anyone else to decide. They might impose their own version of fair, forcing me or those I care about to pay higher prices. And to me, that’s not fair.

  • David Leyonhjelm has been an agribusiness consultant for 25 years and was recently elected to the Senate. He may be contacted at reclaimfreedom@gmail.com

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    READER COMMENTS

    John Newton
    14/10/2013 5:46:39 AM

    So we reduce our pay to Chinese levels? And get rid of our environmental safeguards? That's not fair trade. No problem with free trade amongst states - we all get the same wage deal. If you want to see the deleterious results of 'free trade' between unequal nations check out what happened to Mexico when NAFTA came in. Needs a lot more thought
    Peter
    14/10/2013 5:51:26 AM

    Lets do the same with politicians and economists etc. Lets see who produces the cheapest and most productive politicians, economists etc and employ them . Now that dose sound fair.
    cmt
    14/10/2013 7:25:07 AM

    It is interesting to see how people approach "free trade". Here we have a man, about to benefit from a non free trade part of our society, (i.e. parliament), trying to belittle any criticism of his view of free trade. It is OK for David to enforce his free trade views on society from the protected salary and perks position of Senator, but when we in business having to pay that protected cost, have a struggle, it is us who should get out and do something else! Well when you put your new job up on the open market David we might listen to you, but not until then you hypocrite.
    Tim
    14/10/2013 8:28:23 AM

    @John Newton: There is a heap of difference between the states. Taxes and living costs are different for sure. Some have much more fertile land so farmers in other states are at a disadvantage. Can states then put in state tariffs because of these disadvantages? Nothing will ever be 100% equal and artificial protection never works out well for farmers or customers long term. Anyone remember the wool floor price and how it destroyed so many families in the end?
    Enough
    14/10/2013 8:33:30 AM

    The issue of free trade between the colonies occured on the one continent, between democratically elected governments who were operating under virtually identical systems of law, whose people largely shared the same roots,language,beliefs,values and aspirations united under the British Empire, with exports to England and the lingering effects of the gold rush boosting the economy. The value of trade between the states was not equivalent to the value of exports, and to quote this as an example for a Chinese FTA is drawing a very long and disingenous bow indeed!
    Recalcitrant
    14/10/2013 9:43:49 AM

    Economics by a veterinarian. All nice in theory David, in theory...
    chelseaf
    14/10/2013 12:22:21 PM

    @Tim is the only sane person on this forum. What is it about protectionism that brings out the racist zealot in every man and his dog? Farmers should stick to farming because they know nothing of politics and economics.
    Ian Meyer
    14/10/2013 12:53:13 PM

    Really Peter, cmt and Recaclitrant, Is that all you've got? Stop playing the man and start playing the ball! To the best of my knowledge David has not practised as a vet for decades. Given that he is a successful business person, nor is he likely to have entered the political arena for the money. I don't agree with a lot of what he writes either, but surely it's not necessary to make personal attacks from the anonymity of your nom de plumes, implying that is all that is required to refute his argument.
    really concerned
    14/10/2013 5:14:08 PM

    Why don't we go through all the reasons why Aussie farmers aren't able to compete with imports instead of just accusing us of not being good enough at it, I thought we are described as being some of the most efficient farmers in the world. They want to free the borders so to speak well if that's to be done to make it FAIR it's got to be made easier for us to compete. Every single input into our businesses have considerable amounts of taxes dues or levies imposed upon them by the very people that are just going to make it harder for us. And for the record why not support locally produced product.
    Brindi
    14/10/2013 6:44:29 PM

    Hmm. An interesting article. How many farms does the author own? That have to compete against the subsidies of some of our trading partners, and the cheap labour of the others? He's an expert businessman, and I'm a real good Prime Minister. Guess life has been a disappointment to us both!
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    Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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