This paper examines the costs and benefits of Australia's membership in the GATT/WTO multilateral trading system. It argues that trade liberalization has driven employment growth and raised living standards for Australian families, while Australia's participation has given it diplomatic influence in resolving trade disputes through WTO mechanisms. However, the paper also identifies significant costs: political opposition from domestic interest groups, compliance burdens on businesses navigating rules of origin, and Australia's limited negotiating leverage due to its small share of global trade. The analysis suggests that while the benefits of liberalization are substantial, Australia must weigh these against protectionist pressures and its relatively weak bargaining position in international trade negotiations.
The multilateral liberalization of trade in goods and services and worldwide capital flows has been the major engine of economic growth in rich and poor countries alike. After being abandoned as a free trade partner by ASEAN, the Australian government is now contemplating whether to approach the United States or China for a free trade accord, as both governments have previously extended such invitations. This paper examines the benefits and costs of joining GATT/WTO specifically for Australia, weighing the economic advantages against practical and political obstacles.
The important message, confirmed by experience, is that trade and investment liberalization adds to faster and more firmly based economic development, employment formation, and higher living standards for nations ready to open their economies. New capital mobility has promoted domestic economic, civic, and political liberties; in many new industrial countries, economic opening has coincided with the emergence of new democracies. All this indicates the desirability of comprehensive opening up of trade and capital flows.
Research undertaken for the Australian Government has established that in Australia, one in five jobs relies on exporting. More than 400,000 new jobs were formed in the country in the decade to 1993/94 because of Australia's trade engagement with the world. Manufacturing exporters offer higher wages and engage in more research, development, and training than non-exporting firms. Additionally, decreases in tariffs over the past decade have provided gains of around A$1,000 annually to the average Australian family.
By engaging with WTO rules and the broad scope of its coverage, Australia has been able to make its presence felt in international trade forums. This can be attributed in part to its "honest broker" position on many concerns, enhanced by its own liberalization record, but also to the quality of Australian representation in Geneva. The upgraded dispute resolution provisions within the WTO, while introducing more formal legal procedures into an institution traditionally founded on diplomatic understanding, have helped keep significant markets open. The reversal by the United States on lamb imports is a prominent example. Similarly, attempts by South Korea to keep Australian beef out of their market, by the European Union to use health standards to discriminate against Australian grains, and by the United States to keep Australian shrimp off their shelves have all been unsuccessful following WTO rulings.
A major advantage of the WTO is the most-favored-nation rule, under which a country that grants a concession to one country must extend the same concession to all WTO members. While large countries may dominate the deal-making process, the resulting benefits must eventually be shared with all WTO members, giving smaller trading nations like Australia access to concessions negotiated by larger powers.
Despite the obvious national benefits, political lobbyists strongly oppose the additional opening of national borders to trade and investment. National governments and the interest groups that seek to influence them lose much of their economic control in an open economy. This recognition has contributed significantly to the recent retreat into populist protectionism by Australia's major political parties.
Free trade agreements impose high compliance costs on traders who must establish the origin of a product and its components to gain tariff concessions, thus imposing extensive paperwork on businesses. Much could be gained from adopting instead a customs union with a common external tariff, which would reduce these administrative burdens.
It is generally argued that Australia should maintain trade barriers for tactical reasons—to use them as leverage in trade negotiations. The value of negotiating currency rests on the perceived value of market access. However, Australia's one percent share of world trade limits its bargaining power. While its prospective market share may be significant for some countries in specific sectors, these are usually not major markets of international interest. Australia's inability to "buy" foreign access, particularly in agriculture, has compelled it to carefully evaluate the domestic costs and benefits of its own liberalization given the protectionist positions of other countries.
This paper has examined both the substantial benefits and notable costs of Australia's participation in the GATT/WTO system. The evidence suggests that trade liberalization has delivered measurable economic gains through employment growth, wage premiums for exporters, and family income increases, while WTO membership has provided Australia with institutional mechanisms to resolve trade disputes and access concessions negotiated by larger powers.
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