How FTAs have made (and will continue to make) Australia stronger

" Our FTAs have been an important tool in delivering a competitive edge for our exporters and investors."
Justin Brown, acting deputy secretary, Department of Foreign Affairs and Trade

The economy is now emerging from a long mining boom, coming off a period of record terms of trade fuelled by high resources prices. The country is now faced with the task of transitioning to a broader-based growth model, one more diversified and jobs-intensive.

Trade policy has a crucial role to play in contributing to future growth, specifically in ensuring our businesses have a level playing field and the ability to compete internationally on the most favourable conditions possible.

For the past 30 years or so trade policy has been one of Australia's most successful bipartisan projects. Trade has played a major role in our ability to sustain our remarkable growth record. In the last three years, net exports have accounted for over half of Australia's GDP growth.

There is occasionally a temptation by some to make trade policy a proxy for concerns about globalisation, attributing job losses and changes in industry structure to trade agreements. Such reasoning is mistaken. If we had pursued a less activist trade policy approach in recent years, we would be a demonstrably poorer nation as a result.

IMPORTANT TOOL

Our FTAs have been an important tool in delivering a competitive edge for our exporters and investors. The recently-concluded FTAs with three of our four biggest trading partners – Korea, Japan and China – have been particularly notable. Together, these countries represent about 40 per cent of Australia's overall trade, worth more than $A250 billion.

Let's look at some of the results over the first year or so. With Korea (KAFTA), we have clawed back some of the very real competitive disadvantages Australian exporters in key products such as beef and wine.

Tariff cuts made since December 2014 have seen surges in Australian exports of horticultural products. Exports of cherries, for example, have increased from $A354,000 to $A4.3 million when the tariff dropped from 24 per cent to zero.

Our FTA with Japan – JAEPA – is by far the most ambitious bilateral trade deal Japan has ever concluded. The deal saw Australia get the jump on most of the rest of the world and in particular, on our major agricultural export competitors in the US, EU and New Zealand.

Major front-loaded tariff cuts on beef have seen impressive increases in exports (up by 24 per cent) as well as niche areas like rolled oats (up 53 per cent). Australian businesses not only understand the benefits of the agreement but are also increasingly taking advantage of the commercial opportunities.

Turning to China, under ChAFTA, 92 per cent of our mineral, energy and manufacturing exports now enter China duty free, rising to 99.9 per cent by 2029.

In investment, and services, where we have jointly committed to liberal treatment in both directions, we will see Australia and China integrating for mutual benefit. This will not just happen in areas where such activity is currently successful and prominent, such as education or banking.

ChAFTA also guarantees access and opens new opportunities for Australian law firms, private higher education providers, aged care and health providers, insurers and beyond. Overall, ChAFTA entrenches our competitive advantage where we've traditionally been strong, and opens new doors for diversified trade and investment with China.

THE TPP

The TPP has been the other major FTA involving Australia. With its 12 members representing almost 40 per cent of global GDP, it has been the biggest global trade deal in more than 20 years.

Participating nations concluded negotiations late last year. Earlier this year the agreement was tabled in the Parliament and is now the subject of consideration by the Joint Standing Committee on Treaties (JSCOT).

For Australia, the TPP brings many potential benefits. It will eliminate 98 per cent of tariffs, including most agricultural and other export barriers and many non-tariff barriers. It will also create a more seamless trading environment in Asia, putting in place trade architecture and rules which should benefit the region for decades to come.

As a regional agreement, the TPP will support the ability of our exporters and suppliers to tap into global value chains. The agreement's rules of origin provisions will make it easier for firms to source inputs from efficient producers in the region on a tariff-free basis, value add in Australia and export under preferential arrangements to TPP parties.

The TPP addresses contemporary trade issues, such as e-commerce, and has specific provision on SMEs. It also includes common rules for labour, the environment, and new rules to combat bribery and corruption and on state-owned enterprises.

FUTURE AGENDA

The contribution this suite of FTAs promises to make to Australia's economic goals is significant, but there is still much more work to be done. The global playing field remains uneven. Australian exporters face average tariffs of up to three times as high as our own. In the highly-protected global agriculture sector tariffs are often much higher.

As global tariffs have declined, non-tariff and so called behind-the-border barriers have assumed greater prominence and will take on a high priority in future negotiations.

It is imperative Australia keep up the pace on economic integration and increasing trade and investment liberalisation in the region.

It's important to note all of Australia's FTAs are living agreements – we keep up an ongoing negotiating agenda aimed at keeping them up to date so they continue to deliver further benefits for Australian business.

Our FTA with Singapore is being reviewed as an initiative under the Australia-Singapore Comprehensive Strategic Partnership which was announced last year. As part of the Partnership, Australia and Singapore have committed to work towards establishing an arrangement similar in scale and scope to our closer economic relationship with New Zealand.

We also conduct with our FTA partners regular reviews with the intention of building upon earlier commitments.

In November, with the ink of the text of the agreement barely dry, I led Australia's delegation for discussion on implementation and enhancement of KAFTA.

Secondly, we are working hard to add to expand on our tally of existing FTAs in the years ahead, focussing on our most important bilateral and plurilateral partners.

We are working to conclude an arrangement to give Australian business an edge in India – the world's fastest growing major economy. And Australia and Indonesia have re-engaged on our bilateral FTA negotiations.

We already have an FTA in place with Indonesia – the ASEAN – Australia-New Zealand FTA (AANZFTA) – but are focussed on doing all we can to boost our economic partnership.

At the same time, Australia and New Zealand are negotiating with Indonesia, the rest of ASEAN and the heavyweights of our region – India, China, Japan and Korea – in the Regional Comprehensive Economic Partnership (RCEP).

When concluded, this would be a regional FTA covering about half the world's population and 60 per cent of Australia's two-way trade. Together, RCEP and the TPP present possible pathways to the realisation of a free trade area of the Asia-Pacific – an APEC goal that would create the world's largest free trade zone.

There is one more major FTA on the horizon. In November Prime Minister announced the start of the process towards a comprehensive and high-quality FTA negotiation with the European Union. As a bloc, the EU represents Australia's 13 per cent of Australia's total goods and services trade – more than Japan – and is a major source of investment.

Not everyone is convinced of the benefits of FTAs, but ultimately, the question we need to answer is not whether they are perfect, but whether they substantially advance our interests and whether we are better off with them or under the alternative scenario.

At the present time, there is simply no viable prospect of a big multilateral deal. Bilateral and regional FTAs have become the global trade policy instrument of choice.

But I hasten to add that does not mean we have given up on the 'first best' option of multilateral trade liberalisation and reform.

TRANSPARENCY

Finally, I'd like to address claims Australia's trade negotiations are done in secret and lack genuine accountability. The argument is occasionally heard that the fine print on these deals is kept hidden from the public.

The truth is the Government works closely with business and other stakeholders to work out what kinds of reforms of pursue in trade agreements. Those consultations form part of a rigorous pre-negotiation analysis assessing the net national benefit taking account of our broad economic and other objectives.

All relevant departments and agencies work together under DFAT's leadership to formulate the negotiating mandate which is agreed by the government, as well as subsequent modifications to that mandate. The collective impact of these processes is to provide a full assessment of the potential benefits of the final outcome at the outset of negotiations.

Of course when the deals are concluded, they are subject to the scrutiny of the Parliament through the JSCOT process which gives stakeholders and the public an opportunity to contribute to an assessment of the deal.

GLOBAL LEADERS

In today's fast changing world, it is wrong to expect the trade and investment status quo will hold. To stand still would run the risk of leaving us with the prospect of the fast growing markets of our region being cut off from Australian exporters and investors.

For that reason, we need to continue to be global leaders on trade, in striving for outcomes that will maximise our commercial interests, and taking those results forward to inform efforts to rejuvenate the global trade negotiations architecture.

While much has been achieved, the challenge remains to keep our competitive edge using all of our trade policy assets.

Justin Brown is acting deputy secretary, Department of Foreign Affairs and Trade. This story is an edited version of a presentation delivered at an Asialink business briefing in March.