ARPA: Trade and the national interest

For a government to claim that it is pursuing ‘the national interest’ might seem unremarkable. To write a policy document outlining how such a thing might be achieved is more unusual. To produce two documents dedicated to the same goal with nearly identical titles begins to look like a collective failure of the imagination at best, or monomania at worst, and tells us as much about their authors as it does about their preferred policy prescriptions.

The government in question is, of course, Australia’s, and the documents are In the National Interest (1997) and the more recent Advancing the National Interest (2003). Both papers reveal much about the Howard government, its understanding of contemporary economic and geopolitical realities, and its view of Australia’s place in an increasingly interconnected international political economy. They also mark a significant and potentially misguided change of direction from the path pursued by the Howard government’s Labor predecessors.

In the 1980s and early ’90s, the Labor governments of Bob Hawke and Paul Keating initiated a major overhaul of the Australian economy and the policy settings that shaped it. Part of this overhaul involved a reorientation of economic activity in Australia, away from Europe and toward Asia. The growing importance of industrialising Asia to Australia’s north meant that from the 1960s onwards, when Japan replaced Britain as Australia’s largest export market, Australian policymakers had little choice other than to come to terms with this inescapable economic reality. ‘Asian engagement’ became the mantra of the era, and generated a series of wider strategic, cultural, and political realignments as a consequence. Whatever one thinks about the merits of the panoply of interconnected neoliberal reforms the Hawke-Keating governments unleashed, the recognition that the international economic system was changing in profoundly important ways and that—for Australia, at least—‘Asia’ was an emblematic and integral part of the new order was surely timely and appropriate.

One of Labor’s most important and multi-faceted initiatives was to try to improve economic performance in Australia by encouraging trade liberalisation. Intuitively this made a good deal of sense: if Australia’s frequently protectionist-minded neighbours could be persuaded to open up their domestic markets, Australian-based exporters stood to be major beneficiaries. Multilateralism generally and the Asia Pacific Economic Cooperation (APEC) forum in particular were the preferred mechanisms to achieve this goal. For all its lofty ambitions and good intentions, APEC has been something of a disappointment to even its most ardent supporters, of whom there were many in Australia. APEC’s preoccupation with trade liberalisation at a time when there are more pressing global and regional problems, and when a more effective global mechanism—the World Trade Organization—exists for achieving exactly the same goal, has left APEC looking somewhat irrelevant and redundant. This reality is explicitly acknowledged in the report, which says that ‘negotiations in the WTO remain Australia’s best hope for better access for Australian goods and services to global markets’ (Department of Foreign Affairs and Trade 2003, p. xiii). Nevertheless, the Howard government suggests that APEC remains ‘the pre-eminent forum to foster the development of open and transparent markets in the region’ (Department of Foreign Affairs and Trade 2003, p. 84).

Despite this rhetorical affirmation of APEC’s multilateral principles, however, one of the most striking innovations of the Howard government and one of the most important deviations from the original Hawke–Keating ‘engagement’ blueprint, has been the advocacy of bilateral, rather than multilateral trade liberalisation. At one level Advancing the National Interest’s attention to the specificity of individual bilateral relationships—which was also prominent in the earlier document—is welcome. For too long, the policies of successive Australian governments were one-size-fits-all, with little recognition of the specific factors that made some markets, companies, and countries very different, and little attempt to gear policy to addressing individual national circumstances as a consequence.

Having said that, there are significant constraints on bilateralism as an approach to Australian trade policy. Not only are there too few trade specialists and analysts to build up detailed pictures of Australia’s numerous trade partners, but also there are more fundamental limits to what Australian negotiators can achieve in bilateral negotiations. Australian policymakers simply don’t have the requisite leverage to achieve their preferred policy outcomes bilaterally, especially when dealing with much more powerful trading partners.

Significantly, in a substantial reorientation of Australian foreign policy, the Howard government has further constrained Australia’s policy options by explicitly linking trade policy to wider strategic considerations. To some extent this is unsurprising: even before Howard became Prime Minister, he had indicated his desire to ‘reinvigorate’ the relationship with the United States, which he considered to have been neglected and undervalued by his more Asia-oriented predecessors. In Advancing the National Interest this goal is given renewed emphasis, and a separate chapter is devoted to this key bilateral relationship. In the aftermath of September 11, the Bali bombings and a general preoccupation with the ‘war on terror’ it was inevitable that strategic concerns would dominate the redefined conception of how ‘the national interest’ might be pursued. What is more unexpected, perhaps, is that the government sees ‘a free trade agreement with the United States [as] a powerful opportunity to put our economic relationship on a parallel footing to our political relationship, which is manifest in the ANZUS alliance’ (Department of Foreign Affairs and Trade 2003, p. xvi).

There are good reasons to be concerned about both the thinking that underpins this reorientation of policy and about the supposed benefits that might flow from it. First, even if such an agreement were possible—and given the formidable political presence of the American farm lobby, for example, this looks highly unlikely—the direct economic benefits of such an agreement appear to have been seriously overstated (Lewis 2003). Australia is one of a handful of countries that actually runs a trade deficit with the United States; given Australia’s export profile, this looks unlikely to change in the foreseeable future. In any case, the United States is likely to use its greater leverage to enforce intellectual property rights as part of any bilateral agreement in ways that could radically impact on a range of domestic social and environmental policies in Australia.

Second, the Howard government appears to overestimate seriously both its long-term importance to the United States and its capacity to influence American policy. The government’s generally unqualified and enthusiastic support of a range of United States policies also risks further encouraging the latter’s increasing rejection of the sorts of multilateral processes that are ultimately in the interests of small players like Australia. A third and more fundamental concern is that the high profile pursuit of a bilateral agreement with the United States is likely to have a negative impact on Australia’s relations with its Asian neighbours (Garnaut 2002). The Howard government’s privileging of the bilateral relationship with the United States has reinforced the suspicions of those who doubted its enthusiasm for the whole idea of ‘Asian engagement’ in the first place and has made participation in emergent regional groupings more difficult as a consequence.

The White Paper briefly acknowledges the development of what could, if successfully realised, prove to be the most important regional political and economic grouping yet seen in East Asia. ‘ASEAN+3’—which in addition to the original Southeast Asian members of ASEAN, contains Australia’s most important regional markets, China, Japan, and South Korea—is a grouping that Australia has not been invited to join, but which the White Paper rather lamely suggests it ‘would be pleased to be involved in’ (Department of Foreign Affairs and Trade 2003, p. 85). The Howard government’s downgrading of regional relations in favour of closer ties with the United States makes such a prospect unlikely, and in the event of ASEAN+3 developing into a European Union-style, discriminatory trade bloc, then we might expect Australia to be disadvantaged.

The reality is likely to be more complex, however. Not only are there intra-regional competitive pressures and tensions that will make such an East Asian bloc difficult to realise, but a more nuanced reading of Australia’s economic interaction with the world would suggest that there is both less and more to be worried about in the recent drift from Asia and reinvigoration of ties with the United States. The complex nature of corporate production and investment strategies that increasingly transcend national borders mean that much trade now occurs within companies rather than between countries, and that ‘exports’ are frequently produced offshore. Likewise, the diverse ownership and control strategies of multinational corporations themselves make the question of national ownership and identification less clear than it once was.

Such underlying structural realities, when combined with the inherent sectoral differentiation of an ‘Australian economy’ that is integrated into domestic and international production networks in complex and dissimilar ways, makes the very idea of a discrete national economy somewhat anachronistic. ‘The national interest’ and appropriate policy settings in such circumstances will look very different depending on the way a particular industry is oriented to domestic or international markets, and the way it is effected by wider external influences. In other words, we can expect ‘globalisation’, engagement with Asia, and even a bilateral agreement with the United States to have differential impacts on economic activity in Australia and generate demands for different policies as a consequence.

Nevertheless, enduring geopolitical realities are likely to transcend the short-term pressures of domestic politicking. The fundamental strategic importance of Australian resources to industrialised Asia, especially Japan and latterly China, mean it is difficult to conceive of a situation where Australian producers will be systematically excluded from regional markets—however initiatives like ASEAN+3 evolve. Yet if government policy is also going to facilitate or encourage Australian-based manufactured exports, for example, which are potentially important job-creating, wealth-generating elements of a modern economy, then government policy both domestically and internationally remains critical. If Australian-based industries are to capitalise on the undoubted improvements in productivity and competitiveness that have occurred over the last few decades, then market access will remain a crucial determinant of their long-term prospects. A small player like Australia, which is essentially a rule-taker rather than rule-maker in international commerce, cannot hope to wield a decisive influence at either the bilateral or the multilateral level.

What Australian policymakers can do, however, is to direct their efforts to creating transnational regulatory structures that will allow competitive industries to succeed, whoever owns them and whichever sectors of the economy they are in. Australia’s leadership in the Cairns Group of agricultural exporting countries, and the—albeit modest—capacity Australian diplomats have demonstrated in shaping the World Trade Organization’s agenda, suggest that there are still important mechanisms available to Australian policymakers (see Beeson & Capling 2002).

The best mechanisms for achieving a favourable regulatory environment for Australia are always going to be multilateral. Establishing rules of the game that discourage more powerful actors from using their strength to coerce bilateral deals that suit either their short-term economic interests or their long-term strategic goals is vital for smaller players like Australia.

It is also important to recognise that ‘globalisation’ has an important regional bias. Australia’s inescapable geographical position and the continuing importance of Asian trade relations mean that Australian policymakers should not risk compromising Australia’s long-term economic prospects to secure dubious strategic pay-offs from an ally that displays an increased willingness to use its power unilaterally in pursuit of its national interests.

Trade policy is usually considered the eye-glazing preserve of bean counters and technocrats, but there’s much at stake, and not just in terms of a narrowly conceived and possibly out-dated calculus of national welfare. One of the least acknowledged but long recognised benefits of trade is that it makes countries more interdependent and thus less likely to go to war with each other. If the Howard government is serious about pursuing a national interest it equates with ‘the security and prosperity of Australia and Australians’ (Department of Foreign Affairs and Trade 2003, p. vii), then it would do well to remember that a more economically integrated, mutually beneficial international trade regime is only possible on a multilateral basis that constrains the behaviour of all states. For a policy document that makes much of the multifaceted nature of the threats that apparently confront Australia, it might be wise to factor such longer-term considerations into future policy.

REFERENCES

Beeson, M. & Capling, A. 2002, ‘Australia in the world economy: Globalisation, international institutions, and economic governance’, in Bell, S. (ed.), The Institutional Dynamics of Australian Economic Governance, Oxford University Press, Melbourne, pp. 285–303.

Department of Foreign Affairs and Trade 2003, Advancing the National Interest Commonwealth of Australia, Canberra. [Online], Available: http://www.dfat.gov.au/ani.

Garnaut, R. 2002, ‘An Australia-United States free trade agreement’, Australian Journal of International Affairs, vol. 56, no. 1, pp. 123–141.

Lewis, S. 2003, ‘Farmers will lose out under US free trade agreement’, The Weekend Australian, 1–2 March, p 2.

Mark Beeson is Senior Lecturer in the School of Political Science and International Studies at The University of Queensland. His research interests centre on the political economy of the Asia-Pacific region, broadly defined. His latest book is an edited collection, Reconfiguring East Asia: Regional Institutions and Organisations After the Crisis, (RoutledgeCurzon Press, 2002).

View other articles in this symposium:

Looking for Theory in Australian Foreign Policy Rawdon Dalrymple
The Howard Government and the United Nations Samuel Makinda
The 2003 Defence Statement: The Failure to Marry Politics and Policy Derek Woolner

View other articles by Mark Beeson:

States, Markets, and Power (Digest, 1 Dec 2003)