FTAs and the little country that could.

The term Free Trade Agreement (FTA) conjures great expectations and like the Charles Dickens classic of the same name, it is a coming-of-age story for Australia in the Asian Century.

FTAs are economic policies based on the popular rationale that international markets should be free to trade across international borders without the interference of Government.

Most trade negotiations occur through the World Trade Organisation (WTO).  These agreements then cascade down to more localised initiatives such as the North American Free Trade Agreement, an ‘open market’ policy between Canada, United States and Mexico.

FTAs are complex and strategic.  Prime Minister Tony Abbot recently stated Australia’s ‘open market’ aspirations in the region by declaring we are “open for business”.

At a time when some of our industries are desperate for trade reform, the term free trade agreement is misleading because more-often-than-not, what has been finalised is something much different.

Consequently, we continually hear that the economic gains for Australia are minimal and lagging.

It is balance-of-power that determines the outcome of international trade negotiations.

Australia is a remote out-post of the world economy.  By global standards we have a very short trading history, the majority of which simply went back to the Motherland.  We do not understand what it’s like to be surrounded by multiple borders, meaning you learn to trade or learn to fight.

We have a small, fragmented population and economy.  We are not known for value-adding and our industries are increasingly uncompetitive which has been eroding any price advantage for even basic commodities.

The countries in our region we seek a close trading relationship with have been trading AND fighting across borders for thousands of years.  They have huge economies made up of very lean and competitive industries.

Constantly living under the economic or physical threat of multiple borders means these countries have a culture of deep-rooted domestic protection and austerity.  Hence we see the heavy-use of sanctions.  That is, the ability for a foreign industry to sue the Australian Government under a trade agreement.

An important feature of any negotiation is to know your anchor.  What is Australia’s anchor when it negotiates a free trade agreement?  In my opinion, Australia is viewed as a weak seller.

A philosophical view of free trade agreements is they are a diplomatic intent by Australia to keep the communication lines open when it comes to trade and investment, in an effort to ensure we can be part of the action and not get shut-out completely.

Australia recently signed the Korea Australia Free Trade Agreement (KAFTA) and the Economic Partnership Agreement (EPA) with Japan.  As always the devil is in the detail; much of which is conspicuous by its absence on these occasions.  For agribusiness and food, it will be 20 years or so before we feel the economic impact in some instances.

Like the little engine that could, international trade negotiations will continue to give Australia long-term optimism and hope.

In the meantime, of greater urgency for local exporters is that the Australian Government increases its focus on our own domestic situation and starts pulling the right economic levers to help us become internationally competitive, free trade agreements or otherwise.

What levers should the Government be pulling to make Australia's agribusiness and food system globally competitive and profitable?