Last year, John A. Allison, CEO of the Cato Institute in Washington, released a book which cogently explained why the impact of the global financial crisis was prolonged: governments propped up businesses the markets had marked down as failures. Preparations for the G20 Summit in Brisbane suggest governments have still not worked this out and continue the search for complicated strategies to boost growth. Officials seem even to be resorting to numerology and Lego economics.
For example, Joe Hockey recently announced G20 officials were just 10 per cent away from agreement on 700 measures to boost annual global growth by 2 per cent. He was not kidding.
And that agreement was also to start a new global organisation to fund infrastructure and create the building blocks for future prosperity. A new fund will not produce new infrastructure. Risk is the problem. There is plenty of money around, but until governments privatise and deregulate, investors won’t move.
Regretfully, this is about the best the G2O can come up with. So its default strategy is more meetings of – business (B20), labour (L20), civil society (C20), a G20 think-tank and even a Girl 20 meeting. This second-order hoopla contrasts sharply with the intense negotiations among hundreds of officials over the last two years to construct the Trans-Pacific Partnership Agreement. It can lay fresh foundations to boost growth among 12 nations that produce 40 per cent of global GDP. This surely should be where Australia should focus its resources. We can have little impact on China’s growing financial problems, the EU’s financial and monetary muddle, or management in Washington of the US money supply, all of which will shape the short to medium term global economic landscape.
TPP aims to do more than just reduce conventional trade barriers. They are already low worldwide. Future growth depends on opening up services and removing barriers to investment, both heavily regulated across Asia. This should have be the business of the WTO. But a large number of economies outside the Asia-Pacific region don’t want the WTO doing this. So the US, Japan and another ten economies, including Australia, are applying the basic rules of the WTO with the prospect of building the biggest free-trade agreement in the world and underpinning economic expansion in the Asia-Pacific region.
Unions, environmental, public health and anti-intellectual property activists and protectionist industries have denounced the TPP. Their common complaint is the negotiations are secret. That is puerile.
No talks, among people business or governments, can succeed if conducted in public. Their real interest is to reserve the right to use heavy-handed regulation to advance their own narrow interests. For example they stridently oppose inclusion in the TPP of a right for investors to trigger legal challenges in international fora if the foreign state fails to meet commitments to reduce restrictions on foreign investment. It is known as ‘Investor State Dispute Settlement’ (ISDS). “Why give foreigners a right to challenge the Australian government when domestic businesses don’t have that right?”, they ask; because Australian businesses will win the same right to see commitments to liberalise honoured in the markets of the other 13 TPP partners.
Australia agreed to such provisions in the FTA recently completed with South Korea. Australian business groups and international trade lawyers support it.
The sentiment is resurgent protectionism. With high tariffs gone, unions now want restrictions on foreign investment. They don’t want foreign investors in union strongholds, such as health and education, who will be less intimidated than Australian management. They also are disinterested in opportunities for our services businesses to expand in foreign markets.
Our Asian and Pacific neighbours understand better that removal of restrictions on investment and services in their economies will boost growth.
With negotiations to open markets in the WTO stalled, momentum to create broad ranging free-trade agreements to boost growth in east Asia and the Pacific is growing. Trade officials throughout the region now anticipate the TPP over time will morph into a region wider agreement embracing including Korea, China, Taiwan and all major Asian Pacific economies. With its focus on liberalising services and investment, a platform for a new wave of prosperity will be laid.
This is where Australia’s international economic interests should focus.
The G2O should be regarded as the Rudd irrelevance it always was.
Alan Oxley is principal of ITS Global. This op-ed first appeared in the Australian Financial Review.