THIS week we are being reassured that the federal government has our best interests firmly in mind as they negotiate an Australia-China free trade agreement (FTA).
Better still we are assured that our future can only be resolved by establishing more FTAs and faster.
The reality is that these bilateral or even multilateral trade agreements have little to do with “free” trade. I am a great supporter of establishing a level playing field in global trade so that we can all compete equally.
This is of course unachievable as we operate under regulated labour markets, endure high costs and receive virtually no support in direct subsidies or tariffs in contrast to so many of the farmers and manufacturers in which countries we seek to trade.
“Again, the result is hardly free trade”
While we wait with baited breath to hear the “good news” about a possible FTA with China, it might be useful to look back to the Japanese free trade agreement. The FTA with Japan (known as the Japan-Australia Economic Partnership Agreement or JAEPA) will see overall tariffs reduced in Japan to about 23.5 per cent by the 2030s. So the agreement sees significant reductions in Japan’s current tariffs that are a present barrier to market access.
Again, the result is hardly free trade.
On the surface this is a marked improvement in Australia’s ability to exploit the Japanese markets and sets up a preferential access arrangement that should benefit our agricultural sector. However, as with all FTAs some sector are traded off in bureaucratic negotiations so that some producers see little or no benefit so that others may see some.
This is not in itself a problem except that the bureaucrats who ultimately force these trade conditions onto us do not acknowledge the inequity or take any steps to address the inequity to bring satisfaction to those who are left out.
It is intriguing to me that by 2030, the global food reality will be significantly stressed with increased demand for food and increasing disruptions to production through climate change. Nations, like Japan, with high reliance on imported food for domestic food security will be increasingly exposed to any disruption in food supply.
The reality is that there will be a natural increase in access for foreign produce into Japanese markets as Japan is forced to compete to secure essential food supplies.
The graphic above is a simple pictorial that highlights the resources consumed by a range of countries relative to the resources those countries possess. The image highlights China’s resource consumption, but Japan is on the list requiring 7.1 times the resources it possesses to sustain itself.
“That, my friends, is socialism at its finest”
It would seem to me that the Japanese FTA is an indicator of changes in global perceptions of food security rather than a shift to less government intervention in agricultural markets. The alarming reality that is signalled in the JAEPA is an increasing disposition for governments to intervene in the global food trade. Japan is trying to pre-empt tightening global food supplies through overt changes in trade and market access policy through self-interest while Australia blunders along congratulating itself on the apparent “success” of 30-year-old - and seriously outdated - trade policy.
China is acutely aware of the problems that arise when you do not have the resources to maintain your population with the great famine that killed an estimated 40 million people in China between 1958 and 1961. Chinese commitment to secure its food supply is real and borne out of a living memory of what happens when you run out. The closed communist society after the Cultural Revolution meant that few in the West were aware of the extent of that disaster, but it happened.
Australia’s commitment to trade liberalisation came at a time when there appeared no likelihood of food shortages. Global agricultural protection policies, including in Australia, incentivised overproduction and resulted in severely distorted global agricultural markets. Distorted markets created market signals that reinforced the oversupply behaviours that were unsustainable.
Australia embarked upon a free market crusade based on an economic rationale that at the time appeared to make sense. However, if you consider the economic rationale displayed by our political leadership of today it was complete lunacy.
Australia pretty much went it alone to reform domestic agricultural policy to reduce agricultural support in the face of increasing global support and at the same time attempted to reform global trade policy to gain an imaginary political leverage reform of domestic agricultural policy for the most powerful trading blocks in the world. It was a fool’s errand and Australian farmers have borne the brunt of the economic pain of it.
Australian farmers have endured extraordinary hardship with declining support from government, but things are looking up for the next generation with global shortages increasingly likely. Coupled with this global realisation, Australian produce is highly regarded and there are great opportunities over the next two or three decades to extract a premium and it would seem the “wins” in the current FTAs are perhaps still very modest indeed.
Irrespective of the Perhaps one of the greatest ironies of FTAsis the way they are sold to the Australian community. "Free trade" is so close to religious dogma for many economic dries that it is almost funny that they justify the free trade agreements based on the collective good that they deliver to the community. FTAs are justified and sold on socialist logic.
The agreement with Japan was heavily and justifiably criticised by the dairy sector because it did not deliver significant benefit to dairy producers. The response from the Liberal Trade Minister - that the dairy sector needed to consider the greater good - suggested that their criticism was unjustified.
Let’s be clear: the dairy sector was traded off in the JAEPA negotiation to achieve a better outcome for some other sector of the economy.
By inference the dairy industry is now in effect being forced to subsidise the rest of the economy because a government negotiator decided that the needs of the dairy industry could be foregone for the greater good.
That, my friends, is socialism at its finest.
I believe in trade reform and achieving fairer trade conditions for Australian farmers and manufacturers. I simply don’t believe in misrepresenting what an FTA is. Furthermore, I don’t believe it is fair to simply cast aside the sectors that traded away in FTA negotiations after the event.
Politicians are always asking: why should taxpayers be expected to support agriculture or manufacturing in Australia? Why are these sectors any different to the corner store? There are a myriad of answers, but in relation to trade equity Australia has foregone the same protections that our trading partners have not simply to bring down costs for consumers.
This means we, the farmers, have been subsidising consumers generally as our terms of trade have run down and now our debt grows exponentially. FTAs alone will not solve the problems.