The Australian has just reported that the Abbott Government has just sealed an FTA with Korea, which is Australia’s third largest export market with a 7% share:
“Under this agreement, tariffs will be eliminated on Australia’s major exports to Korea and there will be significant new market openings in services and investment,” he said.
Tariffs will be phased out over the next 15 years on products such as beef, wheat, dairy, sugar, wine, seafood and fruits.
The deal will now go to cabinet and the joint standing committee on treaties.
“The conclusion of this free trade agreement will see the delivery of a key election commitment,” the prime minister said.
While the devil is in the detail, the inclusion of sensitive agricultural products is welcome, even if tariffs will be phased-out over a prolonged time period. According to DFAT, tariffs of up to 300% exist on some of these products, which poses a major barrier to Australian exporters.
That said, as explained in October, I am no fan of bilateral FTAs, which can actually reduce welfare via their “trade diversion” and the complex “rules of origin” attached to the agreements.
In my view, the Government’s view of trade barriers as being merely negotiating coins that can be traded-off in exchange for other nations dropping theirs is also misplaced. Trade barriers, like tariffs and quotas, impose real costs on the domestic economy, both to consumers in the form of higher prices and to productivity overall by reducing competitive pressures.
Reducing one’s own trade barriers not only improves outcomes for consumers via lower prices, but also increases competitive pressures on domestic industry, helping to spur greater innovation and productivity in order to survive.
The Government should, therefore, be viewing Australian trade policy and trade liberalisation more in this light – as a form of domestic competition policy, rather than something that can be traded away for a bunch of bilateral deals with (often) spurious efficiency impacts.
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