Presented by the Hon Timothy Fischer AC at International House on Thursday 25 August 2016
World Trade Disconnect: Rebranding and revamping before renewed protectionism destroys all.
Donald Trump spells disaster not only re world security as Kim Beazley has pointed out but also with world trade, in particular if the USA pulls out of the WTO as Trump has threatened. World trade disconnect will greatly increase if Trump is elected President of the USA in November. Listen to Tim Fischer on ABC RN's Big Ideas program.
Greetings and I salute the elders and I salute Vi Petersen and all of International House here alongside Melbourne University. May I also salute the work of Professor Emeritus Frank Larkins, former Chair of Council and a long-serving Council member, alumnus and supporter of this college.
World trade is vital to economic growth here and across the OECD economies and beyond.
Bilateral, Regional and Multi-lateral / WTO are all terms bandied around and all are at risk under a Trump administration.
It is time to rebrand the world trade equation if we are to win back the debate against those who contend all trade is a net negative and the root cause for all the economic ills in the world. Elements of major political parties in the USA and other countries are today solidly against trade and so called free trade.
As we do battle in the public square, let us delete the term ‘Free Trade’ and insert a more accurate term ‘Facilitated Trade’. The truth is in this troubled 21st century, the reality is if I could put it this way is: ‘Free trade it is not, Facilitated trade it should be’. In other words most if not all FTAs are designed for win win outcomes through joint trade facilitation.
Secondly, it is a fact that all USA rifles and bullets, indeed all legal weapons and ammunition made in the USA that are approved for export from the USA into Australia come with zero tariff on guns and zero tariff on ammunition - more on that later.
For decades since the World Trade Organisation was established in 1995 with HQ in Geneva, the ‘to go to’ term and sought after objective is a world dominated by so called ‘Free Trade’, delivering jobs, growth and prosperity.
The economic theory is that in a pure universal circumstance, objects x y z will be made and are best made in the economy most efficient in making objects x y z and then exported all over the world. Likewise food products, mineral, oil and gas will be produced at the locations where this is done with lowest costs and then exported all over the world.
In short, do more and export more of what we do well, likewise we will import that which we do not do well.
In turn this ensures profitable trade, efficient in supplies of everything, in fact transformative efficiency maximised and a bright future for all. If only this was the case because the notable objectives are always the subject of compromise and various barriers – there are some barriers falsely constructed around cute quarantine requirements and other “Non-tariff barriers”, in effect barriers that are really various forms of disguised protection.
So what to do, how to cut through against the shouting of Donald Trump types, the Bernie Sanders sway on the Democrats and Hillary Clinton, let alone deal with the extra protection that will be created by the post-Brexit saga and era.
Further, Australia is an export orientated economy whereby the standard of living of all Australians is boosted by our trading nation circumstance and yet this debate is not yet won, be it with Mr and Mrs Moonee Ponds or Mr and Mrs Broken Hill.
The time has come to redefine trade and rebrand trade in the 21st century, to cease using the at times inaccurate term 'Free Trade' and replace it with the term 'Facilitated Trade'. There are related moves to rebrand FTAs as Export Agreements.
In all of this it must be remembered that "Free Trade" or more accurately "Facilitated Trade" often confers diffuse advantage across millions but equally concentrated loss for particular locations leading to unbridled political assault on the issue of jobs.
Let us examine this at the bilateral, regional and multi-lateral levels.
Bilateral: The case for "facilitated Trade" is best argued by considering the reverse between say Australia and NZ under the very successful CER Agreements. Does anyone suggest that we should abolish CER and impose a new 100% tariff wall on all goods that travel across the Tasman in either direction? Of course not and the truth is that CER over decades has conferred a win win situation on both sides of the Tasman. It has grown the overall pie.
Now eight economists from ANU Adelaide Universities have weighed in sharply questioning bilateral benefits versus multi-lateral trade, a debate always to be had but if there is next to zero movement multi-laterally worldwide, then bilateral and regional must be pursued. The Doha Round is effectively dead.
Trade Minister Steve Ciobo is in NZ today I might add, actively pursuing all opportunities and in particular this key bilateral relationship between Australia and NZ.
Regional: Again the best descriptor might relate to the triangulation of trade under regional deals, eg NAFTA et al and maybe the Trans Pacific Partnership or TPP to come. However this depends on the outcome immediately after the US presidential and Congressional elections due 8 November 2016.
When I was Trade Minister semi-processed wool went to Mexico from Dubbo on next to zero tariff and then was used to make coats and suits for the big USA market. In turn this Aussie wool went as coats and suits from the mills around Mexico City to the USA with zero tariff under NAFTA arrangements. Given the USA simply does not produce large numbers of sheep or wool, again a win win situation is created.
Multi-lateral: This hinges more on the WTO level of negotiations and has worked well with the IT area of trade but the Doha round following the Uruguay round has resulted in drift and drift. WTO with HQ in Geneva and now 21 years old is doing its best but is tied to a consensual approach, nothing happens unless not one of its member nations does not object - in other words everything must be unanimous.
The BRICs have not been all that helpful at times in building consensus at the WTO level. Again what would help is if there was greater realisation of the huge advantages since 1945 in the world trade dynamic, in trade driven economic growth, helping all OECD countries and most but not all other countries.
Why do nations embark on the three pathways outlined, because it is in their net overall interests? For it read ‘Facilitated Trade’ and to cut to a colourful chase, may I quote P J O'Rourke from the USA speaking on the margins of the Byron Writer's Festival 2016? P J said that his daughters’ wardrobes are stuffed full with various clothes and shoes and assortments because brisk world trade has halved the costs of this stuff vis-à-vis the time when their mother was growing up or earlier.
My submission here tonight is that there is a need to better articulate the cause of trade generally, in this regard we should replace the term ‘Free Trade’ with ‘Facilitated Trade’ as a better descriptor, and at the end of the day, trade does deliver for OECD countries and most other countries in so many ways. Trade also indirectly helps security.
Sadly time does not permit a full elaboration as I now want to turn to the US elections.
USA / GUNS / WTO
For years now there has been a zero tariff applying to the import of US guns and ammunition into Australia where they are in the permitted and legal size and type range. So the lethal poison flowing from the dysfunctional gun policies of the USA is facilitated over US borders to this part of the world.
Closer to the USA, it is estimated about two thirds of crimes carried out in Mexico are using illegally imported guns from across the border, from the USA.
The US Senate, just after the Orlando massacre where 49 were killed by guns in one night, repeatedly voted down approving background checks for those on the "No Fly" list. It has to be observed something is very rotten in ‘The State of Denmark’ as in within the US beltway of sheer power and corruption of public policy settings.
Now last year - 2015 - there were 372 “Gun Massacres” in the USA. This year Donald Trump has threatened to take the USA out of the WTO. Let me leave you with the thought that if he does, all OECD countries should immediately impose a Tariff or ‘Levy assisting Gun safety’ or LAGS, equal to the number of Gun Massacres in the USA for the previous year, so impose a tariff at 372%.
Trump said a few days ago in Michigan, and I quote, “We will walk”. To explain he said we will walk out of NAFTA / WTO et al, unless everyone dances to the demands of one Donald Trump. If the USA walks and welches on long-standing trade agreements, agreements facilitating trade for mutual benefit then we should introduce “LAGS” and other T and NTBs.
Yes it is an unusual proposal that will infuriate the NRA and the USA but at present you are fifteen times more likely to be shot dead in the USA than Australia per capita, the gun poison and policy dysfunctionality of the USA is now so bad, our human rights miles from the USA are impacted.
Hence my unusual approach as a sharp riposte to the USA as to what awaits if they rip up ‘Trade Agreements’ and leave the WTO. Also through using the term ‘Facilitated Trade’ we have a much better explanation of what trade constitutes and the benefits it brings.
SA Pasta today flows from Australia to Tuscany, Australian sand is exported to Dubai and Coffee Kularome is exported from Cowra to China and many parts of Asia. In return Fiats flow from Italy to Australia, railway carriages are to flow from South Korea to NSW. The world needs to trade and needs more and more ‘Facilitated Trade’!