Tag: TPP

Who Are The Winners Under The Revised Trans-Pacific Partnership Trade Deal?

From The Conversation.

The revived trade agreement, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), has finally made it across the line. It’s a considerable win for Australian farmers and service providers, in a trading area worth about A$90 billion.

The 11 remaining countries from the initial Trans-Pacific Partnership agreement finally agreed to go ahead with the deal without the US, at the annual meeting of the World Economic Forum in Davos, Switzerland.

The deal reduces the scope for controversial investor-state dispute settlements, where foreign investors can bypass national courts and sue governments for compensation for harming their investments. It introduces stronger safeguards to protect the governments’ right to regulate in the public interest and prevent unwarranted claims.

Despite earlier union fears of the impact for Australian workers, the CPTPP does not regulate the movement of workers. It only has minor changes to domestic labour rights and practices.

The new agreement is more of an umbrella framework for separate yet coordinated bilateral deals. In fact, Australia’s Trade Minister Steven Ciobo said:

The agreement will deliver 18 new free trade agreements between the CPTPP parties. For Australia that means new trade agreements with Canada and Mexico and greater market access to Japan, Chile, Singapore, Malaysia, Vietnam and Brunei.

It means a speedier process for reducing import barriers on key Australian products, such as beef, lamb, seafood, cheese, wine and cotton wool.

It also promises less competition for Australian services exports, encouraging other governments to look to use Australian services and reducing the regulations of state-owned enterprises.

Australia now also has new bilateral trade deals with Canada and Mexico as part and parcel of the new agreement. This could be worth a lot to the Australian economy if it were to fill commercial gaps created by potential trade battles within North America and between the US and China.

What’s in and out of the new agreement

The new CPTPP rose from the ashes of the old agreement because of the inclusion of a list of 20 suspended provisions on matters that were of interest for the US. These would be revived in the event of a US comeback.

These suspended provisions involved substantial changes in areas like investment, public procurement, intellectual property rights and transparency. With the freezing of further copyright restrictions and the provisions on investor-state dispute settlements, these suspensions appear to re-balance the agreement in favour of Australian governments and consumers.

In fact, the scope of investor-state dispute settlements are narrower in the CPTPP, because foreign private companies who enter into an investment contract with the Australian government will not be able to use it if there is a dispute about that contract. The broader safeguards in the agreement make sure that the Australian government cannot be sued for measures related to public education, health and other social services.

The one part of the agreement relating to the temporary entry for business people is rather limited in scope and does not have the potential to impact on low-skilled or struggling categories of Australian workers. In fact, it only commits Australia to providing temporary entry (from three months, up to two years) of only five generic categories of CPTPP workers. These include occupations like installers and servicers, intra-corporate transferees, independent executives, and contractual service suppliers.

The above categories squarely match the shortages in the Australian labour market, according to the Lists of Eligible Skilled Occupation of the Home Affairs Department.

Bits of the original agreement are still included in the CPTPP such as tariffs schedules that slash custom duties on 95% of trade in goods. But this was the easy part of the deal.

Before the deal is signed

The new agreement will be formally signed in Chile on March 8 2018, and will enter into force as soon as at least six members ratify it. This will probably happen later in the year or in early 2019.

The geopolitical symbolism of this timing is poignant. The CPTPP is coming out just as Donald Trump raises the temperature in the China trade battle by introducing new tariffs. It also runs alongside China’s attempts to finalise a much bigger regional trade agreement, the 16-nation Regional Comprehensive Economic Partnership.

Even though substantially the CPTPP is only a TPP-lite at best, it still puts considerable pressure on the US to come out of Trump’s protectionist corner.

It spells out the geopolitical consequences of the US trade policy switch, namely that the Asia Pacific countries are willing to either form a more independent bloc or align more closely with Chinese interests.

Will this be enough to convince the Trump administration to reverse its course on global trade? At present, this seems highly unlikely. To bet on the second marriage of the US with transpacific multilateral trade would be a triumph of hope over experience.

Author: Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University

US Protectionism Tops TPP Demise as Threat to APAC Growth

The rising possibility that the US will shift towards trade protectionism – beyond the likely collapse of the Trans-Pacific Partnership (TPP) – has become a credible downside risk to the economic outlook for the Asia-Pacific (APAC) region, says Fitch Ratings.

There is a growing risk that APAC economies will be negatively affected by a US shift toward trade protectionism. President Donald Trump has threatened to label China a currency manipulator and to place large tariffs on Chinese imports, and has criticised the US-Korea FTA. Some Republicans are also pushing for tax reforms that would impose a levy on US imports from all countries. Fitch would expect China to respond with counter-measures including, but not necessarily limited to, tariffs on US imports. A ‘trade war’ would have adverse spillovers for APAC economies, particularly those that are closely connected to regional supply chains and that are most dependent on exports.

We believe this could potentially be more relevant to the APAC economic outlook than US withdrawal from TPP. The TPP, had it been implemented, would have set important foundations for economic integration in APAC, and delivered a significant long-term boost to some economies. That said, US Congressional approval of the TPP was unlikely even before President Trump’s formal withdrawal this week; TPP was not directly factored into Fitch’s baseline growth forecasts or ratings. We also did not view the agreement as a potential game-changer for members’ short-term economic prospects.

The TPP would have lowered tariffs among its 12 member countries. It also aimed to address other wide-ranging barriers to trade by setting rules governing intellectual property rights, business competition policies – including those related to state-owned enterprises and public procurement policies – and labour standards. The TPP therefore had the potential to help drive structural reforms that could have raised productivity and lifted foreign investment in a number of economies, particularly those with weaker business environments.

Various studies suggested that Vietnam would have been among the biggest beneficiaries of TPP. One study by the US-based Peterson Institute estimates that it would have delivered an 8% boost to Vietnam’s GDP by 2030 – relative to the baseline. Malaysia and Singapore were also expected to be significant beneficiaries – because of their export exposure to TPP members – while Japan was expected to benefit from the agreement serving as a catalyst for domestic structural reform, particularly in the agricultural sector, under the third arrow of Abenomics.

Member countries will miss out on potential benefits, but non-participants will be spared the potentially damaging effects that could have ensued from trade and investment being diverted to TPP participants. China, Indonesia, the Philippines and Thailand were notable non-participants in APAC, although some may have come under pressure to join later on (Indonesia had recently signalled an eagerness to join at TPP’s outset).

China is pushing its own Regional Comprehensive Economic Partnership (RCEP) as an alternative to the TPP. However, of the other participants – ASEAN, Japan, India and Korea – ASEAN and Korea already have free trade agreements (FTA) with China. Moreover, with its narrow focus on tariffs, the RCEP is unlikely to be the catalyst for structural reform that TPP could have been. Furthermore, it is unclear to what extent RCEP, without the participation of the US and its strong import demand, can replicate the same boost to regional economic growth prospects that was expected under TPP.

Trump Revamps U.S. Trade Focus by Pulling Out of Pacific Deal

From Bloomberg.

With the stroke of a pen, President Donald Trump abruptly ended the decades-old U.S. tilt toward free trade by signing an executive order to withdraw from an Asia-Pacific accord that had been promoted by companies including Nike Inc. and Wal-Mart Stores Inc. as well as family farmers and ranchers.

“Great thing for the American worker, what we just did,” Trump said on Monday after signing an order withdrawing the U.S. from the Trans-Pacific Partnership accord with 11 other nations. He didn’t take any step to initiate a renegotiation of the Nafta deal with Mexico and Canada, but an aide, who spoke on condition of anonymity, said action on the accord is still in the works.

“We’ve been talking about this a long time,” Trump said.

While Trump’s order doesn’t come as a surprise — he campaigned against the TPP and other trade deals during his campaign for the White House — the action rattled some Republicans and company executives who’ve built their businesses around decades of U.S. policy geared toward more open trade. Its unclear whether Trump will replace TPP with other, narrower trade deals. There also is concern about what more protectionist policies will mean for the modern economy, where goods can travel across more than a dozen borders before making their way to the consumer.

Turnabout

“Never has the president been the one to initiate protectionism or been so vocal about turning inward,” Dan Ikenson, the director of the Cato institute’s Herbert A. Stiefel Center for Trade Policy Studies. “U.S. Trade policy on a bipartisan basis since 1934 has been geared toward liberalization and accommodation and internationalism.”

An unlikely group of bedfellows supported and opposed the announcement. Among the supporters were labor groups, Democrats such as Ohio Senator Sherrod Brown and U.S. tobacco companies, which opposed the deal over a provision that would have prevented them from suing to challenge anti-smoking measures.

Expressing disappointment with the move were farm interests and some members of Trump’s own party, including Senator John McCain, who warned it would mean abandoning the U.S. strategic position in Asia, where China is ready to step into to any vacuum left by the American withdrawal.

“Abandoning TPP is the wrong decision,” said McCain, an Arizona Republican in a statement. “Moving forward, it is imperative that America advances a positive trade agenda in the Asia-Pacific that will keep American workers and companies competitive in one of the most economically vibrant and fastest-growing regions in the world.”

Beef Sales

The National Cattlemen’s Beef Association, a trade group representing 230,000 cattle ranchers and feeders, said not having a trade deal like TPP costs the industry $400,000 in sales a day and that Nafta has driven up U.S. beef exports to Mexico more than seven-fold. Without those deals in place, the price of U.S. beef would cost more oversees, putting them at a disadvantage.

“TPP and Nafta have long been convenient political punching bags, but the reality is that foreign trade has been one of the greatest success stories in the long history of the U.S. beef industry,” the group said in a statement.

U.S. agriculture exports have doubled since Nafta was signed by then-President Bill Clinton in 1993.

Trump’s decision to pull out of TPP eliminates potential savings on import tariffs for retailers like Foot Locker Inc. and Wal-Mart, and brands such as Nike, Adidas AG and Puma SE, according to data from Bloomberg Intelligence. The cut in import costs would have been $450 million a year, according to the Footwear Distributors and Retailers of America.

Company Support

The death of TPP is an especially bitter pill for Mark Parker, Nike’s chief executive officer. He has said TPP would help it add jobs in the U.S. because Nike would be able to use the savings from the deal to invest in the U.S. As the world’s largest sports brand, Nike sources about 40 percent of its shoes from Vietnam, a TPP member nation, and was very public supporter of the trade pact. Representatives from Nike didn’t respond to requests for comment.

Aldo Group, a Canadian footwear maker with a third of sales in the U.S., has been shifting production from China into Vietnam in anticipation of TPP being implemented in the hope of being able to take advantage of lower tariffs, said Bryan Eshelman, chief operating officer.

“TPP would have been fantastic’’ as the footwear industry pays on average as much as 18 percent of duty for imports to enter the U.S., Eshelman said in an interview before the executive order was signed. “In the short term, we are slightly disappointed that we can’t expect the duty relief that we were hoping for out of Vietnam.’’

Taxes, Regulation

But he said if the U.S. economy would grow faster because of some of Trump’s other policies such as regulation reduction and lower tax rates, that would be beneficial for the company.

“If that happens, forget tariffs reduction, our business will grow because the economy will grow and that would be a better outcome for us than lower duty imports into the U.S.,’’ Eshelman said.

The TPP, a 12-country deal that sought to liberalize trade between the U.S. and Pacific Rim nations including Japan, Mexico and Singapore, was a signature piece of former President Barack Obama’s attempt to pivot U.S. global strategy to focus on the fast-growing economies of Asia. The group that was part of the accord represents about 40 percent of the world economy. However, given rising opposition among Democrats and some Republican, it was never submitted for ratification.

The future of the TPP is now in flux. Japanese Prime Minister Shinzo Abe said in November that TPP without the U.S. would be “meaningless.” Still, multiple signatory countries including Vietnam and Australia have said they would stick to the deal even without the leading party of the agreement.

‘Good Result’

On Nafta, Trump said Sunday that he’ll meet with Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto to begin discussing the deal, which he has routinely blamed for the loss of U.S. jobs although there was little change to employment in the U.S. in several years after it went into effect. Trump signaled that he’s willing to work with the U.S.’s closest neighbors.

“We’re going to start renegotiating on Nafta, on immigration, and on security at the border,” Trump said at the start of a swearing-in ceremony for top White House staff. “I think we’re going to have a very good result for Mexico, for the United States, for everybody involved. It’s really very important.”

Officials in Canada, which is the biggest buyer of U.S. exports, have indicated they want to avoid getting entangled with the Trump administration’s targeting of imports from Mexico and China. The three countries are the biggest trading partners of the U.S.

David MacNaughton, Canada’s ambassador to the U.S., told reporters his focus is on avoiding Canada being “collateral damage” in trade talks.

Brexit, Trump and the TPP mean Australia should pursue more bilateral trade agreements

From The Conversation.

Brexit, Trump’s protectionist agenda and the debacle of getting everyone to ratify the unpopular Trans-Pacific Partnership (TPP) are all a global trend towards bilateral trade agreements.

This is good news for Australia. With its manifold set of strong free trade agreements, Australia is geared up to reap the early gains of this new trend.

The domestic squabble between Prime Minister Malcolm Turnbull and Opposition Leader Bill Shorten on whether the “the TPP is dead in the water” meant that Turnbull’s ongoing support for the Regional Comprehensive Economic Partnership (RCEP) went unnoticed. This signals that, unlike the TPP, the Chinese-led trade deal RCEP is alive and well, and that both sides of Australian politics support it.

Considering the existing spaghetti bowl of international economic partnerships, Australia is already in the fast lane of bilateral trade agreements with the US and China. In fact, Australia is the second largest economy and trading partner of the only six countries that have in place free trade agreements with both the US and China. The group includes South Korea, Singapore, Chile, Peru’ and Costa Rica.

If Australia quickly wraps free trade agreements with Canada, the European Union and the United Kingdom, Australia will be the only major trading link among these countries, with evident growth opportunities on favourable terms.

When it comes to trade deals already in force, Australia’s trade portfolio includes many bilateral agreements, but only one regional trade agreement (with the Association of Southeast Asian Nations).

Department of Foreign Affairs and Trade/The Conversation, CC BY-ND

Trade deals with multiple countries are dead

Promoting international trade has always been important to Australia’s economy, to encourage growth, attract investment and support business. For the past two decades Australia has been expanding its trade policy agenda with multilateral, regional and bilateral trade agreements.

There are only two multilateral trade agreements under negotiation which involve Australia. One is under the World Trade Organisation (WTO) umbrella (the Environmental Goods Negotiations) and the other is in competition with the WTO system (the Trade in Services Agreement – TiSA).

The tumultuous political events of 2016 in the US and Europe confirm Kevin Rudd’s remark that “the West has turned inward”, while the Asia Pacific region is emerging as the torchbearer for free trade and economic integration.

For the past few years there’s been disagreement on which type of agreement is best for Australia’s trade policy: multilateral, regional or bilateral.

The failure of the WTO’s Doha round of trade negotiations has undermined the credibility of the multilateral trading system. With the US and Japan denying China the market economy status sanctioned by its WTO accession, multilateralism is further out of question.

When a country grants China market economy status, it can no longer impose punitive anti-dumping tariffs on Chinese-made goods. More than ten years ago, Australia was fast to recognise China’s full market economy status as a precondition of the China-Australia Free Trade Agreement (ChAFTA), which entered into force on 20 December 2015.

If multilateralism is dead, regional trade agreements are also not looking so good outside of Asia. With the rise of Trump and anti-EU sentiment, the Transatlantic Trade and Investment Partnership (TTIP) is lost at sea, and so is the EU-Canada Comprehensive Economic and Trade Agreement (CETA).

The benefits of bilateralism

Australia has a once-in-a-generation economic opportunity to exploit the cracks opened in the international trading system by the stark return to bilateral agreements. Australia is already poised to negotiate two such agreements with Canada and the EU.

Brexit is creating further ripples in the economic diplomacy waters. For example, in Canberra there are loud voices calling for “absolutely free” trade between Australia and the UK. According to some, a full-blown China-US trade war fought on currency manipulation is the single biggest economic threat to Australia. A falling Chinese currency in combination with US protectionist measures would dampen the Chinese economy by way of reduced volumes of exports and higher interest rates spreading across the Asia Pacific and pushing down the price of commodities.

However, it’s highly unlikely that monetary dynamics alone will damage Australia’s “rocks and crops” economy. The growing productivity of the agricultural and mining sectors is strong enough to rise above global tensions and falling commodity prices. Australia’s export volumes in key markets are poised to further rise in a situation where trading partners will already be warring for the best market and investment opportunities.

A protectionist western economy across the Atlantic will further swing the global pendulum of economic growth to Asia. It will also amplify the positive effects of further economic integration in that region for Australia.

When the RCEP comes into force, Australia will have privileged access to China’s One Belt One Road (OBOR) initiative, the so called new Silk Road. This development will lead to massive infrastructure investment and trade opportunities for Australia, even more so as it has the comparative advantage of being a highly developed economy with privileged access to Western know-how.

As cynical as it may sound, at present Australia’s economic fortunes depend on juggling free trade with both a commanding Asian region and a disunited west. Essentially, if Australia manages to keep a trade policy that is geopolitically neutral, its economy will thrive on unsavoury developments.

Some of these include the success of Trump’s protectionist agenda, which may deteriorate the US relations with NATO and the EU, to the point of fuelling European nationalism and disintegration.

Another questionable development, yet positive for Australia, is Japan’s re-militarisation to contain China’s rise. The preservation of the postwar institutional framework that guarantees economic openness and the prospect of economic and political security in the the Asia Pacific region may soon require tough choices for Australia and Japan.

With Japan standing in for the US security role in East Asia, Australia would take a sweet deal to become the neutral and peace-monger Switzerland of Asia.

Author: Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University

Why Trump is right, and wrong, about killing off the TPP

From The Conversation.

President-elect Donald Trump is right: The Trans-Pacific Partnership (TPP) is a damaging deal and deserves to be killed off.

But he tells a half truth about why the trade accord among a dozen Pacific Rim nations is a bad deal. In Trump’s view, trade agreements like NAFTA have allowed developing countries to “steal” American manufacturing jobs and decimate the well-waged middle class. This is why he says that America should reject the TPP.

But shifting the blame for American joblessness and stagnant incomes obscures the more complex, largely home-grown pressures that led U.S. companies to offshore manufacturing production to low-wage jurisdictions. Promising to tear up certain trade deals and impose tariffs on imports (chiefly from China and Mexico) will do very little if anything to reverse the problem.

The real problem is that these agreements don’t actually do enough to support freer trade. We’ve been studying trade agreements and the political foundations of industrial competitiveness in the United States, East Asia and beyond – for decades. We have witnessed how so-called “free trade deals” have become less and less about opening markets and more about entrenching monopolies. Australia, where we’re based, is also a member of the proposed TPP and, like America, stands to benefit from the deal’s abandonment.

Who’s really to blame for America’s manufacturing decline?

When Trump blames globalization for having “wiped out our middle class,” he misses the point that the main actors behind successive waves of globalization since the 1990s have been U.S. corporations themselves. And when Trump blames China (or Mexico) for stealing American jobs, he misses the point that it is U.S. companies that have been most aggressively downsizing their labour force and distributing production abroad.

Blame shifting also misses the point. It’s American corporations themselves, the key drivers of globalization (which have been the chief beneficiaries of this “downsize and distribute” approach) racking up “super profits” from what is effectively rent-seeking. They do this by exploiting – and aggressively seeking to extend – generous monopoly rights granted to them through intellectual property laws.

While Trump rails against America’s growing trade deficit with China, the reality is that the largest category of imports from that country (about 28%) is electrical equipment (for example information technology (IT) products) very often generated (designed, outsourced or contracted) by U.S. companies. These companies, like Apple, hold the patents, copyright and trademarks.

This has paved the way for some serious distortions in accounting. For example, recent research has shown that the full value of the sale of iPhones in the United States (which are assembled in China) are counted against China’s trade deficit with America.

In reality, China contributes only around 3.6% of the value of iPhone sales in parts and labor, itself importing the remainder of the more (and less) technologically advanced parts (from Japan, Germany and South Korea and beyond). U.S. companies contribute only 6% to the total parts and labor of an iPhone, but Apple takes the lion’s share of the final sale price thanks to its patent and trademark ownership.


Apple still takes a big share of the profit even though the parts and labor for an iphone mostly don’t come from the U.S. Sergei Karpukhin/Reuters

So when an iPhone sells in the United States for about $500, only $159 of this reflects content imported from China. The rest goes to American firms. And while that $159 is counted against China’s deficit with the United States, China itself only accounts for $6.50 of that value.

Seen in this light, we should not be surprised that 55% of the price U.S. consumers pay for goods imported from China actually goes to U.S. companies. Following from this, were Trump to make good on his promise to slap tariffs on imports from China, this would effectively penalize many U.S. companies.

The related problem is that decades of downsizing the manufacturing workforce and moving production overseas have gradually denuded America’s industrial ecosystem whereby the networks of equipment makers, suppliers and manufacturers needed to turn innovative ideas into products are disappearing. As one of us has shown in research, extreme offshoring is not only undermining skilled employment in the U.S. but also putting at risk the innovation that has underpinned American technological dynamism since the end of World War II.

Consequently, it’s increasingly difficult to find workers with the skills necessary to make the technologically sophisticated goods associated with the better-paid jobs of yesteryear. For example Silicon Valley, the home of most U.S. technology companies, is now a misnomer since very few semiconductors, which are primarily made of silicon, are produced there. Indeed, a more appropriate name today would be “App Valley” – and apps are not exactly the basis for a vibrant economy.

So why abandon the TPP?

Here’s where free trade deals do come into it.

Successive American administrations have further reinforced this extreme downsizing process by pushing trade agreements like the TPP that pay lip service to market access (free trade). In reality, these agreements entrench monopolies and tie the hands of governments that would otherwise take a more proactive approach to building new advanced industries and upgrading existing ones with new technology.

The creation of the World Trade Organization in 1995 marked the first major shift in international trade deals away from those that prioritize freer market access and towards those that entrench monopolies through the award of generous intellectual property provisions – even at the expense of economic and social goals like encouraging innovation and protecting human health.

Subsequent reforms to the WTO’s intellectual property agreement (for example the trade-related aspects of intellectual property rights) gave governments at least some scope to redress the organisation’s most economically and socially distorting impacts. And the WTO’s Doha round of trade negotiations sought (albeit unsuccessfully) to focus attention on the primary issue of trade liberalization rather than further extending monopoly rights.

But the improvements being made at the WTO level are sorely missing from most bilateral and regional trade deals, especially those being driven by the U.S. Many of these – from the Australia-U.S. Free Trade Agreement to the now defunct TPP – have sought to further extend the monopoly rights of IP-protected firms. These are the very corporate actors that most aggressively pursue the “downsize and distribute” approach.

From Apple and Dell in the IT space to Pfizer and Merck in pharmaceuticals and Nike and Gap in clothing, America’s patent, copyright and trademark-rich businesses reap major rewards for their shareholders by aggressively reducing labor costs through outsourcing. They also do it through extracting monopoly rents from their patented and trademarked technologies and designs. As recent research revealed, this also has major, negative implications for corporate investment and wage levels in the United States.

A better approach to trade

Obviously, the promotion of rent-seeking by entrenching monopoly rights has nothing to do with free trade. But the reality is that, for the United States at least, this has become a primary goal of its “free trade” agreements.

This is why the United States should abandon the TPP – and why Australia should support its abandonment. Abandoning the TPP, and requiring our governments to focus their efforts on trade deals that take a prudent approach to market access and a tough line on rent-seeking – would be beneficial for both our countries.

Author: Elizabeth Thurbon, Senior Lecturer in International Relations / International Political Economy, UNSW Australia;
Linda Weiss, Professor of Political Science, University of Sydney

Getting free trade right can be good for workers and exporters

From The Conversation.

Agreement on the controversial Trans-Pacific Partnership could come as early as this week, with negotiations now focused on “the last few issues,” according to Trade Minister Andrew Robb.

Movement towards finalising the TPP comes as unions step up a campaign supported by Opposition Leader Bill Shorten against what is seen as anti-labour provisions in the China-Australia Free Trade Agreement, taking political debate over free trade to a new level.

“Dry” economists on the right don’t like “trade distorting” bilateral agreements (they don’t even like calling them “free trade” agreements), while many on the left are concerned about trade agreements going too far, beyond reducing tariffs and quotas, and getting involved in social policy, labour standards and the provision of public goods.

But even beyond the political debate, there is the question of what Australian businesses want from public policy as they engage themselves in global markets.

The DHL Export Barometer gives us a pretty good handle on what exporters think. It surveys 600 Australian exporters annually, and has done since 2003.

For the most part, trade agreements have traditionally played a small part in impediments to exporting. Most businesses worry about the exchange rate – when it is too high their goods and services become expensive, when it’s too low their input costs soar (as 80% of exporters also import). They also worry about border regulations and business culture differences. For the most part they didn’t think about FTAs and certainly not the GATT or the WTO.

But in the DHL Export Barometer for 2015, there’s good news about free trade agreements, which will be music to the ears of Andrew Robb.

In surveying existing and new agreements there is evidence that exporters like Australia’s FTAs and that they actually work in a practical business sense despite the recent controversy.

According to the DHL Export Barometer, the USA FTA (AUSFTA) is at last helpful after a decade of implementation. Other agreements deemed helpful include those with New Zealand, Singapore and ASEAN. The survey finds AUSFTA is benefiting exporters, with increased sales and a larger proportion of exporters claiming the agreement has had a positive impact on their business (55%).

This occurred despite the USA hitting the sub-prime crisis just three years after the deal was forged in 2005. The US unemployment rate has now returned to pre-GFC levels, notwithstanding the commentators who predicted that the AUSFTA would “kill a country” (I assume they meant Australia).

The support for AUSFTA was followed by that for New Zealand (47%), AANZFTA – the agreement between Australia, New Zealand and ASEAN on 41% and Singapore on 38%.

The new “trifecta” of FTAs – Japan, South Korea and China – has got the endorsement of the Australian exporter community. In fact, Japan is more beneficial than expected and all FTAs to North East Asia are enticing new exporters. Some 61% of exporters think the China FTA will have a positive effect, 36% think South Korea will and 35% think Japan will deliver.

In terms of the Japan FTA, 59% thought the trade pact would increase exports to that destination, and 38% thought they would start exporting to Japan as a result of the FTA. Many also thought the FTA would help enhance an online presence and help develop new products and services for that destination.

In terms of future FTA destinations, exporters think that India, Indonesia, the Gulf Co-operation Council and Latin America should now be on Andrew Robb’s dance card. But of all the future pacts, India drew the most negative ratings, consistent with the view about increased competition from India.

Perceptions matter

But what about the controversial TPP? It received a positive response among exporters, with 69% saying they’d increase exports to TPP countries and 25% saying they’d start exporting to TPP countries as a result of the TPP.

But the TPP has some complications not always apparent in up and down trade deals, including the investor provisions that have been controversial in other jurisdictions. As Princeton economist Dani Rodrik pointed out in his book “Has Globalisation Gone too Far?”, when trade agreements stray onto the turf of the provision of public goods, or legislation like plain packaging for tobacco, they are likely to lose public support.

Even in the China FTA the labour market provisions have overshadowed the benefits the overall agreement would bring. And it is important to remember Rodrik’s finding that economies that are open to trade have well developed labour market institutions and social insurance.

This is reflected in my own research that showed that exporters, on average, paid 60% higher wages than non-exporters, provided better levels of occupational health and safety, more education and training, equal opportunity provisions and were more likely to be unionised.

The research has shown free trade can grow side by side with union support. An open economy is bolstered by improvements in productivity, efficiency and fairness in the labour market. These are important lessons to heed as we strive to benefit from the next round of FTAs.

Author: Tim Harcourt, J.W. Nevile Fellow in Economics at UNSW Australia