Friday, June 26, 2015

He has sweet-talked the Chinese and now Australia’s Andrew Robb is taking on India to seal the next bilateral deal

The moment of greatest pomp and ceremony is always the best one for hecklers.  And so the notorious troublemaker Liberal senator Bill Heffernan  took the shot at the culminating moment of what his own leader, Tony Abbott, described as an "absolutely momentous, historic day".

Just as the ministers from China and Australia were setting their pens to sign a free trade agreement in Parliament House last week, Heffernan called out:  "When are you going to put your currency on the market?

It'll be up to Robb to persuade the Parliament that the deal is practical and fair. And it'll be up to Labor to resist fearmongering from the union movement. 

China's commerce minister, Gao Hucheng, showed no sign of having heard the jibe, a sly accusation that China cheats by regulating its exchange rate to give its exports a price advantage.

Australia's trade minister, Andrew Robb, was suffering from a case of shingles, a very painful rash. He'd conquered depression in earlier years, as he described in his 2011 book, Black Dog Daze. But while his mind is fine, it was now his body he had to struggle against.

Robb didn't need any of Heffernan's brand of help: "He's one of life's characters," says Robb, "and you do need characters in life – but not too many".

The Trade Minister wasn't going to miss the signing. The deal was a decade in the making under four prime ministers. Robb had worked hard, nine trips to China in a year, to meet the deadline set by the two countries' leaders – Abbott and Xi Jinping agreed on a 12-month schedule to close the deal by October last year.

Robb recalls getting anxious about the chances for a deal with Australia's biggest trading partner: "It was nearly September and we were really starting to run out of time." 

He'd come to the view that the big opportunities for Australia's future lay in selling services to the world. Three quarters of Australia's economic output is services, not goods. 

China's market is tightly shut against foreign services and Robb wanted to open it "but it was very unsatisfactory; there were no offerings on services". 

The Chinese refrain: If we allow access to Australian services, then eventually we have to give the US and Europeans the same, and they are so big they will swap us.

Then Robb had a bit of a brainwave. "I saw Gao over a meal in September, and I said to him, 'I've been impressed with China's Special Economic Zones'," areas of the country where the usual regulations are suspended to allow greater freedom to foreign trade.

The zones had been helpful in conditioning the community to a deregulated economy, Robb said, in China's early phase of moving from socialism to a market economy.

The zones had helped the Chinese to experiment with various policy measures as pilot programs.

"I said to him, 'You ought to think of Australia as a special economic zone for services. We've got a population of 23 million – that's smaller than some of China's special economic zones. Then, if the Americans or the Europeans want to claim the deal with Australia is a precedent that they should be allowed to follow, you just say we treated the Australians as a special economic zone.'"

Gao said nothing in reply, says Robb. "But over the next three weeks over two dinners I found myself sitting next to two members of the politburo," the topmost level of the Chinese government.

"I put the idea to both of them. Then I sat down with Gao to negotiate 10 days later and the doors just opened on services." Beijing offered unlimited access for Australia to build private hospitals, aged care homes, hotels and restaurants, with 100 per cent Australian ownership.

Plus it offered concessions on entry for Australian legal services, financial services, education, telecommunications, tourism and travel, construction and engineering, manufacturing services, architecture and urban planning, and transport.

"We got enormous opportunities that aren't there for others," says Robb.

The Chinese also made major offers to open their markets in goods – Australian beef, dairy and wine are seen as big winners. Overall, 85 per cent of Australian exports are to enter China free of tariffs initially, a proportion rising to 95 per cent when the deal is in full force.

When Fairfax's former Beijing correspondent John Garnaut reported the reaction to the deal, he began with this overview: "International trade experts and diplomats have been astonished at one-sided gains made by Australia in this week's free trade deal with China." The witch at the christening, Bill Heffernan, did have a point. "If you want a trade deal, it should be on the same playing field," he says. Australia's exchange rate is set by the market; China's is set by the government. 

But if you only did trade deals on perfectly equal terms with perfectly equivalent nations, there would be no trade deals. The modern history of world trade is getting the achievable today rather than freezing progress in search of the unattainable.

Andrew Robb is one of the quiet achievers of the Abbott government. The ministers who get most attention are bombastic and self-important. Robb, softly spoken and with a mild, bumbling manner, is one of its unsung heroes. In a year and a half, he concluded free trade agreements with all three of Australia's biggest markets – China, Japan and South Korea. 

This week, still suffering from shingles, Robb headed to India to work on the next big bilateral deal. Dosed up on morphine, he had a session with  the Prime Minister, Narendra Modi, his fourth in the course of the negotiations which the two governments hope to finish by Christmas.

"The neurosurgeon said I've got the pain covered and I can function, but the only cure is to rest," says Robb. "I've got too much to do. Fortunately I sleep really well on planes."

Many in Australia are deeply suspicious of market opening, and for good reason. It's a disruptive process. Yet Australia is one of the great case studies in how market opening can raise a country's overall prosperity.

Australia tore down its towering tariff walls, and discovered that it could prosper much better without them.

"Postwar Australia and NZ were standouts as the most protected economies in the world," says Ken Henry, the former Treasury secretary. Now they are among the most open.

As Andrew Robb says, "after these three deals, Australia's average tariff will go from 2.7 per cent" – already negligible – "down to close to 1 per cent, because most of our tariffs will slide to zero".

Apart from "hub" countries that are city entrepots, like Singapore, rather than full countries, "it's hard to think of anywhere other than NZ that will have freer trade", says Robb.

And, says Ken Henry, that's a very good thing: "The experience of liberalisation has been unambiguously positive in economic terms," he says. 

And today, when there is a growing despair at the Abbott government's refusal to countenance broad economic reform, the burden of economic renovation is falling on trade, the one moving part.

The Abbott government experienced some uncomfortable truth-telling this week from the International Monetary Fund. 

The government is forecasting that economic growth will accelerate to 3.5 per cent, back to its long-run trend. The IMF disagreed. It's stuck around the current level of 2.5 per cent, says the fund, without some serious reforms.

Abbott prefers to hyperventilate about marginal matters, like the Q&A sideshow, than confront the demands of tax reform, for instance.

But he does advocate trade reform and Ken Henry makes the point that even with a general reform stasis, trade can set in train the forces for wider economic rejuvenation: 

"The liberalisation of protection for goods and services was an important driver of broader economic reform, including ultimately labour market reform, in both Australia and New Zealand" in the 1980s and 1990s. All elements of business have to become more efficient, and that includes labour."

And here is a test for the Labor Party. It was Labor under Hawke and Keating who began the great opening of the Australian economy. Labor today continues to support trade liberalisation. It supported the Japan deal and the South Korean deal. As trade spokeswoman Penny Wong sums up: "Looking at the past 20-odd years of economic growth in Australia, you would have to say trade liberalisation has been one of the important drivers of more jobs, better wages and more choices for Australian consumers."

Labor's ability to defend this policy will be tested. First is the China deal, which is not yet done. It will go before two parliamentary committees and then sit in the house for 15 days. At this point, probably in November, Labor will have the power of life or death over the deal. The Greens are opposed, so the deal will die in the Senate without Labor's support. 

Labor has serious questions, legitimate ones, about the ability of Chinese workers to enter Australia under the deal, and the investor state dispute settlement clauses. 

It'll be up to Robb to persuade the Parliament that the deal is practical and fair. And it'll be up to Labor to resist fearmongering from the union movement.

Next will be the 12-nation US-led deal, the Trans Pacific Partnership or TPP. Obama this week won the key authority from the US Congress that he needs to conclude negotiations. 

But the deal is big, complex and secret. Says the Liberals' Bill Heffernan: "If an MP wants to know what's in it, you have to go down to the Department of Foreign Affairs and Trade and sign a four-year confidentiality agreement just to see what the deal was – you still can't see what it is" in its latest iteration.

The secrecy is a serious problem for most of the countries involved. Yet even with all the problems and fears, Australia has been a great historic winner in opening itself to compete with the world.  

 Peter Hartcher is the political editor Sydney Morning Herlad

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