BY SEAN HEALY
Canberra's plans to secure greater Asian markets for the big Australian corporations took a beating in Chiangmai, Thailand, on October 8 when a meeting of economic ministers of the Association for South-East Asian Nations rejected Australian and New Zealand overtures to enter ASEAN's "free trade" agreement, AFTA.
A convergence of AFTA and the longstanding Closer Economic Relations (CER) agreement between Australia and New Zealand would create a single market of 530 million people, with an annual gross domestic product of $990 billion. Its formation was heavily backed by Australian and New Zealand business.
Instead, all ASEAN would agree to was a proposal by Malaysian trade minister Rafidah Aziz for further dialogue and a revisiting of the plan at next year's ASEAN summit.
If ASEAN members implement existing commitments under AFTA, Malaysia, Singapore, Thailand, Indonesia, the Philippines and Brunei will have lowered tariffs on 97% of the product lines traded between AFTA countries to between 0-5% by 2002, and will have abolished them by 2005. Restrictions on access to each other's service sectors will also be considerably eased.
The other four members of ASEAN — Burma, Cambodia, Laos and Vietnam — have longer time frames within which to comply, but are expected to have 0-5% tariff rates on most goods traded within the bloc by 2005.
These tariff rates under AFTA would be substantially lower than tariffs on goods from countries outside the region. For example, in 2002, tariffs on agricultural goods from other AFTA countries would be 12-50% of what they would be on such goods from non-AFTA countries, while tariffs on durable manufactures would be 5-33% of those levied on non-AFTA countries.
Imperialist advantage
The AFTA-CER merger would give Australian and New Zealand firms a considerable competitive advantage. Their goods would be cheaper and easier to sell in ASEAN markets than those from outside AFTA, while their greater levels of productivity would give them an advantage over their less productive ASEAN competitors.
The AFTA-CER deal would also extend ASEAN's liberalisation of the services sector to Australia and New Zealand, making it far easier for the big Australian and New Zealand banks, insurance agencies and telecommunications companies to set up and sell services within ASEAN.
Australia's trade minister, Mark Vaile, and trade bureaucrats have spent the past six months talking up the AFTA-CER merger in the region. A June Department of Foreign Affairs and Trade report, written by the Centre for International Economics, made the rosy estimate that gains from the agreement would add up to US$48.1 billion by 2020.
But nearly half of this figure, US$22.5 billion, would accrue to the two CER economies, Australia and New Zealand, which account for 45% of the region's gross domestic product and only 4% of the region's population. By the report's own admission, the four poorest ASEAN countries would benefit little from the AFTA-CER merger.
Canberra has been at pains to insist that the merged AFTA-CER agreement would not include any issues other than those already agreed by ASEAN, and that it would not be seeking an acceleration of existing trade liberalisation plans.
However, stipulations in a free trade agreement between New Zealand and Singapore, initialled by officials in August and currently before New Zealand's parliament, indicate that Canberra and Wellington's plans for AFTA-CER stretch far beyond what has already been agreed by ASEAN.
Trade liberalisation
The Singapore-NZ agreement includes not only stipulations on lowering tariffs, including in sensitive sectors such as textiles, clothing and footwear, but also extensive liberalisation of the service sector and investment. For example, the agreement would render illegal any attempt by either government to base its procurement policy on anything other than competitive standards or to specify that any good or service must have more than 50% local content.
The agreement also includes many measures on investment that are reminiscent of the failed Multilateral Agreement on Investment, which foundered after international protests in 1998. It would prevent the introduction of controls on short-term capital movements, for example.
Its anti-expropriation measures could prevent governments from passing regulations which significantly reduce the value of an investment. Similar anti-expropriation stipulations in the North American Free Trade Agreement have led to damages being awarded against governments for closing down environmentally damaging enterprises.
The agreement also stipulates tough enforcement measures, under which secret panels of trade lawyers would rule on the legality or otherwise of government laws and on the level of punitive sanctions. Similar panels in the World Trade Organisation (WTO) have handed down rulings which have almost always favoured the multinational corporations' "right" to trade and invest above all else.
If the Singapore-NZ agreement was extended to other AFTA members, it would significantly strengthen the region's multinational companies, most of which are Australian and New Zealand owned, and weaken the position of the poorest countries.
More than a few companies are lobbying for exactly such an outcome. "Stated bluntly, the Singapore/NZ FTA is a Trojan horse for the real negotiating endgame: a possible new trade bloc encompassing all of South East Asia and Australia and New Zealand", said Tim Groser, the executive director of the NZ business lobby group, the Asia 2000 Foundation.
Australian and New Zealand hopes for starting this "negotiating endgame" at Chiangmai foundered due to the opposition of Malaysia, backed by Indonesia and the Philippines.
Policy limbo
Relations between the Malaysian and Australian governments have been hostile for more than a decade, and those between Indonesia and Australia have soured since the violence in East Timor. But the three countries' opposition to AFTA-CER also stemmed from fears of predatory behaviour by Australia if it were allowed into a free-trade zone.
The Malaysian government is justifiably concerned that its national car, the Proton, would be ruined by competition with Australia's big, and more productive, car manufacturers.
The Philippines, meanwhile, is embroiled in a long-running trade dispute with Australia, claiming that Canberra's quarantine laws are being used as a form of protectionism against Filipino pineapples and bananas.
Canberra's decision to follow the United States and Europe in opposing a 1998 proposal to establish an Asian Monetary Fund, and to instead back greater International Monetary Fund intervention in the region, has also added to ASEAN governments' hostility.
The only governments which backed the AFTA-CER proposal at Chiangmai were Singapore, which has very few existing tariffs on imports, and Thailand, which also hopes to gain access to Malaysia's protected domestic car market.
These frictions over AFTA-CER will likely increase before the next ASEAN summit and may yet cause the break-up of AFTA, and even ASEAN itself, as each country embarks on a quite different economic strategy.
The failure of the plan leaves Australian trade policy in limbo.
The collapse of attempts to launch a new round of talks in the WTO, following massive demonstrations and a revolt by the representatives of poor countries in Seattle last November, frustrated Australian business's hopes of securing greater markets through broad-based multilateral negotiations.
While negotiations on further liberalisation of agriculture and services are ongoing at WTO headquarters, Canberra lacks the clout to force its agenda there. At the October 12-13 summit of the Cairns Group of agricultural exporters in Banff, Canada, Vaile all but admitted that the group's attempt to get the US, Europe and Japan to lower their high protection barriers to agricultural imports had failed.
Now the other trade policy option, bilateral negotiations, also seems unlikely to produce anything. It's back to the drawing board for Vaile and his business cronies.