How Australia’s Trade Policy Approach is Harming Australian Firms
The Trans Pacific Partnership (TPP) is just the latest in a string of preferential trade agreements (PTAs) concluded by the Australian government since the 2013 election, including the China, Korea and Japan deals.
Despite widespread claims of ‘windfall gains’, the anticipated benefits of these agreements have been independently modeled as modest indeed, in terms of both job creation and aggregate economic growth.
Moreover, these modest modeled benefits don’t factor in the likely costs associated with Australia’s recent PTAs.
For example, the TPP’s patent extensions for biologics will ensure that high-cost medicines remain on patent for longer, constraining competition from generics and imposing higher costs on the Australian government (through the PBS) and consumers.
The TPP’s Investor State Dispute Settlement (ISDS) clause leaves the Australian government open to legal action by foreign firms that wish to challenge future regulatory changes – even those aimed at protecting human health and the environment. The government denies this is the case, pointing to ‘safeguards’ in the TPP text. However, gaping loopholes in these safeguards have been identified by prominent legal experts, including one of the most respected American lawyers in this field, who brings to his analysis of the TPP text years of experience in defending some of the world’s largest ISDS cases.
These costs are serious indeed and have received substantial press coverage.
Receiving far less attention is the serious harm being done to Australian industry by the government’s worrisome approach to trade policy over the past two years, which has essentially involved substituting trade for industry policy.
Since 2013, the government has pumped vast resources into negotiating trade deals intended to increase foreign market access for Australian firms. Yet at the same time, it has been actively dismantling local industry development initiatives aimed at boosting the innovation and export capacity of Australian firms so that they might actually capitalize on market access wins abroad.
The public purchasing arena provides a clear example of this trend.
Many of Australia’s new PTAs include government procurement chapters intended to open foreign procurement markets to Australian firms. However, while negotiating these deals, the government has been dismantling Australia’s own strategic public purchasing programs designed to help local firms commercialize new technologies, build local market presence, and develop an export platform that might enable them to sell to foreign governments – or commercial markets for that matter.
A case in point, is that under the leadership of former Prime Minister Tony Abbott, the government abandoned the much anticipated and long-awaited ‘Enterprise Solutions Program’, modeled on America’s longstanding and internationally emulated Small Business Innovation Research (SBIR) program. In 2013 the Abbott government also abandoned the Australian Industry Participation Plan (AIPP) scheme, aimed at ensuring local firms are at least considered as suppliers when it comes to tendering for Australian government contracts.
Programs such as Enterprise Solutions and the AIPP scheme are perfectly compatible with Australia’s PTAs, and considered an indispensable part of the industry development program mix of foreign governments, not least the United States and South Korea.
Indeed, Australia’s “trade as industry policy” approach contrasts starkly with that of its trade partners, many of which pursue active trade and industry policy agendas. South Korea, for example,has been actively expanding its network of PTAs over the past decade, while simultaneously boosting its local industry development programs, especially those linked to strategic public purchasing.
If Australia wants to capitalise on the market access wins provided by its PTAs, the government must abandon its “trade as industry policy” approach and embrace a strategic approach to trade and industry policy.
Image credit: Sarah Starkweather/Flickr