Promoting free and fair trade

For decades, the global economy has been underpinned by a multilateral, rules-based trading order. The WTO has played an especially critical role, underwriting the system of free and open exchange that has powered growth the world over.

Increasingly, however, that system is coming under assault. After decades of integration, interdependence has become weaponised. Trade is once again a terrain of strategic contest, with sanctions, tariffs, and coercion all on the rise. All the while, as rules are flouted and crises bite, protectionism is making a comeback too.

The assault on free trade is a threat to Australia's interests. We are, after all, a trading nation; exchange is our lifeblood. Our prosperity derives from selling what we make, and our welfare depends on buying what we need. If we cannot secure these flows in an open, rules-based system, our whole economic model collapses.

Just as importantly, though, the assault on free trade is a threat to inclusive global development. As the world raises drawbridges, it risks closing the door on the export-led growth strategies that have lifted hundreds of millions of people out of poverty in the last thirty years.

For both reasons, then, we must work to uphold the rules-based order that underpins free and open exchange. It not only secures our own trading interests, but also our stake in a stable and prosperous world buoyed by inclusive growth.

That said, it would undermine our own interest in inclusive development if we became a flag bearer of free-trade fundamentalism. Openness can provide great benefits to economies that have emerged enough to be competitive in global markets. But for low-income countries, the winds of global competition are more likely to ravage their sapling industries. Without the opportunity to build up new advantages, premature opening-up can thus force some states to specialise in being poor; it traps them in low value-add production that only finds international buyers so long as it is low-cost and low-wage. That is a disservice to their developmental interests.

It follows that open, rules-based exchange cannot be a one-size-fits-all approach. We must strike a balance between fighting coercion and abuses of protectionism on the one hand; and accommodating the developmental needs of low-income countries on the other.

To work towards that balance, Australia will seek to:

Ensure the WTO has a fit-for-purpose arbitration mechanism. As we know from history, trade cannot work if countries are allowed to build walls. And it breaks down when states lack certainty, and exchange becomes arbitrary, unfair, or punitive. As these practices become more common, it is all the more critical that the WTO plays an effective role in enforcing the rules, not just setting them. Australia will therefore work with partners to ensure that the WTO's Appellate Body is appropriately resourced and that it continues to carry normative force.

Develop effective anti-coercion mechanisms with international partners. As much as we should make every effort to make the arbitration system work, we must be pragmatic in realising that it is an insufficient guarantee. In that vein, we will work with international partners—particularly the EU, US, Japan, and South Korea—to develop solidarity-based responses that deter attempts at economic coercion.

Extend the web of our bilateral and regional trade agreements. Ultimately, our vision for open, rules-based exchange can be advanced by the network of Free Trade Agreements we maintain at the bilateral or regional level, such as RCEP and the CPTPP. Australia will therefore continue to promote such mechanisms as a complementary layer of the rules-based trading order, parallel to the WTO architecture.

Advocate special and differential treatment for low-income countries in WTO rules. To stand up for a trading system that is both free and fair, Australia must work to ensure that the rules accommodate the development pathway of low-income countries. In practice, this will require a greater allowance of subsidies, tariffs, and other forms of strategic protectionism for under-developed countries seeking to cultivate nascent export industries.

Loosening trade liberalisation conditions in IMF and World Bank support. For similar reasons as above, it is crucial that the terms of IMF or World Bank loans do not prematurely force low-income countries to open up to free trade. This approach—so-called structural adjustment—has economically scarred much of the developing world. Australia will therefore work with international development partners to champion an easing of these lending terms.

Accommodating food sovereignty strategies in multilateral trading rules. The current free trade system has pulled down the barriers protecting many developing countries' agricultural systems. As a result, local farming has been eviscerated by global competition, with two perverse consequences. First, it has destroyed agricultural livelihoods in many countries, exacerbating extreme poverty in rural communities. More broadly, though, it has taken a toll on countries' general food security. The shift to relying on imports has made people extremely vulnerable to fluctuations in exchange rates or global prices. That, in turn, has increased the prevalence of 'entitlement failures', in which people starve not for lack of supply, but out of an inability to afford food as priced. In the interests of inclusive food and human security, then, Australia will champion reforms to the WTO rules that allow vulnerable countries to harness agricultural trade protections in support of food sovereignty.