THE Prime Minister has set a working target of 12 months to sign free trade agreements (FTAs) with Australia's three biggest export markets, China, Japan and Korea.
His reasoning is, “if you can't get a multilateral agreement, better to get a plurilateral agreement, and if you can't get a plurilateral agreement, better to have a series of bilateral agreements”.
Several of Australia’s competitors already have FTAs with these countries, including New Zealand. Various agriculture sectors, especially dairy, claim this is costing us dearly. Everyone, even protectionists, is happy to see increased exports.
The Opposition argues no deal will be struck unless the Coalition dumps its plan to tighten regulation on foreign investment, including lowering the threshold for Foreign Investment Review Board (FIRB) review. That is probably true, at least for China. And if the Archer Daniels Midland (ADM) takeover of GrainCorp is blocked or unreasonable approval conditions are imposed, the Chinese will draw the obvious conclusion – Australia is not open for business at all.
That would leave the protectionist faction in the Liberals, led by Bill Heffernan, along with most of the Nationals, including Barnaby Joyce, in a bit of a quandary. Do they care more about keeping GrainCorp in Australian hands, or about better access to export markets?
Much has been said about foreign investment in Australian agriculture, and I have also discussed it, but there is not much said about the reason Australians are reluctant to invest in it themselves.
Suppose you bought shares in GrainCorp in 2011, perhaps when the producer group GrainGrowers sold its stake. Until three months ago when the share price rose sharply as a result of the takeover offer by ADM, you would have been better off investing in an index-tracking managed fund. While the value of your investment rose, the overall market did better.
The offer changed that. You could now sell the shares at a useful profit and beat the market. But if you choose not to sell and the government blocks the ADM offer, the share price will probably fall by at least half. Very likely it wouldn’t rise again for a long time and you would receive little if any dividends either. GrainCorp's assets have been deteriorating for years and it needs capital. Unprofitable spur lines and small silos need to close.
For fairly obvious reasons, I wouldn’t want any of my superannuation invested in it. And I am not alone in that view. Australian agriculture generally has a poor record as a source of investment returns. Add the risk that government policy will cut returns because of protectionism and it looks decidedly unattractive.
The problem for the protectionists is they have no plan B. Blocking the acquisition of GrainCorp might make them feel warm, but it will do nobody any practical good.
But there is a way in which they could help the economy while keeping GrainCorp in local hands. That is, by supporting unilateral free trade.
The popular notion that free trade requires reciprocal agreements is nonsense, and Tony Abbott’s claim that the best option is multilateral agreements is not correct. The best option for Australia’s economy would be to unilaterally remove all tariffs, import levies, duties and other import costs without waiting for corresponding action by our trading partners.
It does not matter that other countries subsidise their industries to make goods cheaper than ours. Indeed, we should welcome imports that are subsidised by the taxpayers of another country. It’s the equivalent of foreign aid.
Unilateral free trade has a proven record of promoting prosperity. Hong Kong and Singapore, both island nations with no mining or agriculture industries, have benefited immensely from freely buying and selling with the world.
Trade leads to prosperity, and free trade leads to more of it. Trade negotiations are effectively arguing that if you don't stop making your citizens poorer, then we'll just make ours poorer to spite you!
Unilateral free trade would also give us leverage with other countries to do the same. It would be much harder for China, or any other country for that matter, to deny us market access if we have already opened up our markets to them.
There is no shortage of entrepreneurs willing to invest their own money in new ventures that would compensate for any loss of jobs, helped by the fact that imported inputs would be cheaper.
And if GrainCorp was kept in Australian hands, grain storage and handling is an area in which they would invest. There would be numerous opportunities for new ventures as GrainCorp's capabilities decline.
So how about it Bill, Barnaby and the rest of the protectionist lobby? If they keep GrainCorp in local hands, why not support unilateral free trade? The market will do the rest.
David Leyonhjelm has been an agribusiness consultant for 25 years and was recently elected to the Senate for the Liberal Democrats. He may be contacted at email@example.com