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Monday, 9 August 2004
Page: 25861

Senator HOGG (1:06 PM) —I rise to address an issue that has not been focused on terribly greatly so far in the debate on the US Free Trade Agreement Implementation Bill 2004 and the US Free Trade Agreement Implementation (Customs Tariff) Bill 2004 but that is nonetheless very important—that is, the issue of multilateralism versus bilateralism in the making of agreements. The reason I do so will become obvious in a few moments, but at the outset I want to acknowledge those people who have taken the time to endlessly bombard me with emails to try to sway me in my views on this issue—and many people around here have felt that pressure. Having said that, there is a plus in this whole process. It needs to be realised that the Senate committee process once again has stood the test of time. The value of the process is that it gives the public an opportunity to make representations to the Senate committee, to express their views and their doubts on the issue at hand, to have their views weighed up by the members of the committee and in this case to have the evidence and the agreement itself closely scrutinised by the Senate.

That is a fundamentally important issue because without that scrutiny people could not have felt secure in what the government were telling us. The government were telling us: `We have an FTA with the United States. You should feel warm and fuzzy about that. Trust us.' Unfortunately, one is not in the position in this parliament, particularly on this side, to trust the government and what they might say on issues as important to Australians as a free trade agreement with the United States. So the public scrutiny process was terribly important indeed. The Labor senators—and I congratulate them for their diligence in the scrutiny of the free trade agreement—brought down some 43 recommendations, which are appended to the report. That shows that it has been the subject of scrutiny and, as we all know of course, if agreement can be reached on the issue of the PBS it is likely that the legislation on this US free trade agreement will pass through this chamber by the end of this week. That will be a major milestone in our relationship with the United States in respect of trade.

I particularly want to look at the issue of bilateralism in free trade agreements as opposed to multilateralism. I had the pleasure back in 1997 of being the chair of the Senate Foreign Affairs, Defence and Trade References Committee, a position which I have left behind me for some time now, though I am still a member of the committee. That committee was handed a reference on Australia and APEC, a review of the APEC processes, APEC itself and multilateralism, and it gave the opportunity for bilateralism to be discussed and debated as well. I think it is worth while noting in this debate, whilst the focus has been almost solely on bilateralism—and rightly so, because it is a bilateral agreement—that multilateralism has been pushed, in my view, to the back. That is most unfortunate, because I think that most of the major gains that we will make as a trading nation will be made in the multilateral arena rather than in the bilateral arena as such. I think it is worth revisiting that.

It is worth while looking, firstly, at the final report of the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America which was tabled in August 2004. One can see that there is not a great deal there that is focused on multilateralism versus bilateralism, but I will go to this report and also to the earlier interim report, and then to the Senate committee report on APEC back in July 2000. In that final report, of 2004, paragraph 1.18 of the majority report of senators concluded:

A prominent advocate of liberalised global trade, in its multilateral rather than bilateral manifestations, is Professor Ross Garnaut.

I must say that when I get to the report on APEC it is not unexpected that Ross Garnaut was very much a player then, and earlier in this area of trade, championing the cause of multilateral trade. The report goes on:

He has expressed concerns on several occasions about the risks arising from preferential bilateral agreements, and has identified five key risks that are at play in the AUSFTA—

The AUSFTA is the Australia-US free trade agreement. It is worth while just going over these risks for a moment. They are concerns that are valid but do not get much airplay when the focus is purely and simply on the implementation of the agreement. But they should weigh on the minds of Australians thinking about where our role in trade negotiations should go in future. The first point Ross Garnaut raises, and it is quoted in the report of the committee, is:

... the negotiation of a bilateral FTA would accelerate the weakening of the multilateral system.

Professor Garnaut has been consistent in that view, which he expressed when he appeared before the inquiry into APEC. And there was a subsequent inquiry into our relationship with Japan, which arose out of the APEC inquiry, when similar views—if my recollection serves me correctly—were mentioned. So there is a concern expressed by him, and I share that concern, that shifting to a bilateral system of negotiation of trade agreements will weaken the multilateral system. We have seen a propensity on the part of this government to go down the bilateral path—we have seen the Singapore free trade agreement and others—and it seems also that at the same time the government has lost any zest and life for APEC itself. That is a tragedy indeed.

The second point arising from Professor Garnaut's comments to the committee that is quoted in the report is:

... there will be resulting trade diversion from Australia's most important export region, East Asia ...

If one goes back to the original formation of APEC, one will find that the focus was not only on our relationship in trade with the United States but also with our Asian neighbours, and on their importance to us as their economies grow and they become a greater part of our marketplace. To me that is a very valid and important point indeed. The report then outlines his next point:

... the rules of origin associated with a US FTA would raise transaction costs in international trade and lower productivity in the process ...

His next point is as follows:

... the exclusion of US agricultural subsidies from the FTA would corrode the position of free trade agricultural exporters in the international system and could negate any benefits from increased market access to the US...

The last point, as outlined by the Labor senators, is this:

... the processes of policy making in developing this agreement, relying on commissioning consulting reports with limited terms of reference, have been very damaging to trade policy processes.

One could gain quite clearly from that the fact that Professor Garnaut's view of bilateralism versus multilateralism is clearly and heavily weighted in favour of the multilateral stage. Whilst the committee did not refer at length to it there, they did make some comment on it in the earlier interim report, which they tabled in June 2004, under the heading `Multilateral v bilateral trade agreements'. I will just look at a few considerations that were again reported by the majority of senators—being Labor senators—in that report. At paragraph 1.23, the report notes:

A prominent concern among critics of free trade deals is that Australia's negotiation of a free trade agreement with the United States of America would be detrimental to current multilateral trade and service negotiations by undermining the principles of the multilateral trading system through the WTO.

The report goes on to give an example of that. The interim report did note that DFAT had, not unexpectedly, a different view. So that some balance can at least be said to be seen in what I am saying here today, I will quote what the report cites as the DFAT view. At paragraph 1.27 the report says:

DFAT considers free trade agreements that are comprehensive in scope and coverage can complement and provide momentum to Australia's wider multilateral trade objectives. DFAT stated that one of the best ways of ensuring this occurs is for agreements to meet the criteria in the WTO agreements.

In the very next paragraph, the report goes on, not unexpectedly, to contradict that. It says:

However, free trade agreements are contrary to the fundamental `most favoured nation' principle that underpins the WTO.

At paragraph 1.29, the report goes on:

The Committee also notes arguments that suggest that, with the more recent focus on regional and bilateral trade agreements, there is a risk that Australia and the world may see the emergence of the same global tensions that applied prior to the Bretton Woods Agreement.

I am also aware that that very paragraph appeared in an earlier report of the committee as well. The report continues:

Such a situation may see deepening political divisions and Australia being excluded from certain trade blocs with enormous economic consequences.

I will later move to what Professor Garnaut put before the committee, but that conclusion really raises the fundamental concern I have—that is, how we are viewed in the Asian region. We are undoubtedly part of Asia. We need to trade with the Asia-Pacific region. It was nearly two years ago, Mr Acting Deputy President Marshall, when you and I were part of a group that toured throughout the region for the Senate foreign affairs committee. We noted the importance of growing trade for many of the microeconomies in those areas. Of course, it will not be through bilateralism that those economies are saved; it is only through multilateralism that we can hope to promote good economic growth so that they can be free from all the negatives that happen when there is a lack of economic growth in those countries. I think Professor Garnaut's comments as quoted in the report sum up that concern. On page 6 he is quoted as saying:

In our region there is a danger that we will end up over time—not tomorrow but over time—with a division down the Pacific, with us being part of a block with the United States and most of East Asia having discriminatory arrangements amongst themselves that leave us out. That would obviously have horrific economic consequences for us. The economic consequences would be much smaller for the United States and Europe, but they would be huge for us, because they are our main export markets. In addition, there is a danger that that would make cooperation more difficult on the many things that we have to cooperate on at this difficult time in the world.

That is a real concern. There are growing markets, particularly in China where there are burgeoning markets. I know we are going into a bilateral there. But why the need for bilaterals? Why the need to go down that path exclusively, as seems to be happening? On reflection, from what I read in the report about Australia and APEC, it seems to me that APEC, in effect, has been abandoned. I know that that is not entirely the case. I know that there are liberalisation and facilitation discussions still taking place at the level that APEC is operating at. But it is not operating to the extent and degree that it needs to to provide a more broad based marketplace for trade within the Asia-Pacific region.

Last but not least, I want to look at the concern that is noted at paragraph 1.30 on page 6 of the interim report:

The Committee acknowledges that it is inherent in bilateral and regional free trade agreements that the MFN principle is not followed. However, the Committee notes that APEC, a regional economic forum that Australia helped establish, is based on the principle of `open regionalism'. In other words, what progress APEC makes in opening up markets in member economies is then automatically shared with the world on an MFN basis. This approach strengthens the multilateral system and prevents the Asia Pacific region from becoming an exclusive economic club.

I think that that sums it up; that says it all.

In the brief time that is left to me it is worth while looking at what APEC is about. APEC was set up, admittedly under a Labor government, and it brought about some major economic benefits for Australia which we are sharing and relishing even today. APEC was born back in 1989 in Canberra. If one reads the report of the Senate Foreign Affairs, Defence and Trade References Committee of July 2000, one will see a very good chronology, at least up until 1999—headings such as `1990—Reaffirmation of APEC's general principles and objectives', `1991—APEC: “an international personality''' and `1992—In search of a vision'. According to the report, the ministers at the APEC conference agreed that a small eminent persons group should be established to articulate a vision for trade in the Asia-Pacific region to the year 2000. This group would also identify constraints and issues that APEC should consider and would report initially to the next ministerial level meeting in 1993. That was a major step forward—looking for a vision.

I do not know if it can be said of the US free trade agreement that it is necessarily in itself a vision. It is a very narrow view of the world. It does not take in the broader area. But it is interesting to look at the 1993 leaders summit and the `political horsepower', as the heading describes it in the report. It refers to what the eminent persons group had found and recommended to the APEC ministers. On page 14, the report says that the EPG identified three main dangers to the region's economic growth. The first danger identified was the erosion of the multilateral global trading system. The second danger was the trend toward inward-looking regionalism, and of course that has no place and plays no role for Australia. We need to have a broader and much more inclusive outlook. The third issue raised by the eminent persons group was the risk of fragmentation in the region. The Australia-US free trade agreement does not do anything, in my view, to fit in with any of those principles. It keeps us in a very narrow, very slender, very slim part of the world.