Foreign policy white paper 2017: geoeconomics

In geoeconomics and trade as much as in the security realm, Australia fears the international rules of the game are being battered and eroded.

In musing on the future of the Indo-Pacific, Australia’s new foreign policy white paper worries that connecting this vast region can feed tensions and geoeconomic rivalry:

Even as growth binds the economies of the Indo-Pacific, trade and investment and infrastructure development are being used as instruments to build strategic influence, as well as to bring commercial advantage. In the past, the pursuit of closer economic relations between countries often diluted strategic rivalries. This geo-economic competition could instead accentuate tension.

One of the ironies of Australia’s fretting about ailing multilateralism is that, for a couple of decades, Oz trade policy has been built on bilateralism and individual deals. In the geoeconomic stakes, we’ve done our bit to hack away at multilateral values.

Once, Australia was among the loudest and proudest promoters of the GATT/WTO ideal of a non-discriminatory international system where every trading partner gets equal treatment. Ditto our championing of APEC’s ideal of open regionalism. We still love the principles, we just don’t live ’em. Oh, Hermes, God of Trade, let us be non-discriminatory—but not yet.

Arguing that the old GATT/WTO way wasn’t delivering, Australia has spent two decades proclaiming its pragmatism in constructing a network of free-trade agreements (FTAs). The FTA nomenclature is a nice name for an agreement to discriminate against others, and it’s frighteningly fashionable.

The world had about 50 FTAs in 1990. Today it has about 280. No surprise that a sense of geoeconomic competition is abroad. The hoped-for liberalising dynamic of FTAs may be trumped by issues of power and the struggle for advantage.

The white paper gives the traditional Canberra explanation for FTA fever:

The Government’s trade agenda is pragmatic given the obstacles to progress at the multilateral level. The best current prospects to protect and improve Australia’s competitive position, open new commercial opportunities and help grow our economy through trade, lie in bilateral and regional FTAs. This will remain the case for the foreseeable future. We cannot afford to stand still while our trading partners are cutting their own bilateral and regional deals.

The 2017 white paper nods to the problems created by the noodle bowl of FTAs. The solution offered is to work towards the WTO gold standard by creating ‘a region-wide trade and investment arrangement’. This is a long-term aim because the document judges it’ll be ‘a generational endeavour’. The principles Australia wants to use in this generational effort are straight out of the gold-standard handbook: the arrangements need to be ‘based on strong, transparent rules’, ‘promote fair and open competition’ and be ’transparent and non-discriminatory with predictable regulatory systems’.

The idea is to build towards a non-discriminatory future based on a lot of discriminatory deals. It mightn’t be logical but it’s sure pragmatic.

As the handmaiden of globalisation, trade has become controversial. Arguments about equality and protectionism drive politics. In a world where neo-liberalism often rates as swearing, suddenly the trade side of policy has to argue about its merits more than just the dollars and cents.

Keeping trade free and markets open becomes a key national objective, as the white paper observes:

The continuing openness of the world economy will be vital to our interests. Any serious turn towards protectionism would weaken rules that enable stable and predictable international trade, which in turn supports economic growth, job creation and improvements in living standards. Even narrow protectionist measures could limit or disadvantage our exports and harm Australia’s economy.

Malcolm Turnbull is sharpening his attack lines: ‘Believe me; protectionism is not a ladder to get out of the low-growth trap. It is a big shovel to dig it deeper.’

Australia will argue for openness while seeking whatever preferential deals it can get, as the white paper explains:

Australia has FTAs with ASEAN and nine individual countries (Chile, China, Japan, Republic of Korea, Malaysia, New Zealand, Singapore, Thailand and the United States), which together account for 64% of our total trade. To open new opportunities for Australia, the government will expand our network of agreements to ensure that by 2020 we have FTAs with countries that account for over 80% of our trade.

To get from 64% to 80% will require FTAs with the EU, Hong Kong, India, Indonesia and the United Kingdom.

FTA fever is coming under political scrutiny. The Labor Party says all future FTAs should be vetted by the Productivity Commission. That’s a threat with heft because the Productivity Commission hates FTAs as discriminatory, distorting and trade-diverting.

Geoeconomic competition in the Indo-Pacific should generate some proper push and shove in Oz about the best way to serve free trade.