Tuesday, September 26, 2006

MARK Vaile's departure from the trade portfolio after seven years presents
an opportunity to rethink what Australia wants to achieve in trade, what we
need to do to get it, and what changes that will require. Any honest
assessment has to conclude that Australia's trade is in terrible shape.
Until 1980, our trade was more or less in balance, and on goods, in surplus.
Since then, we have run trade deficits in 22 of the past 26 years, and in
the past four years they have averaged more than $20 billion a year. Our
share of global exports of goods has shrunk from 1.12 per cent in 1996 to
0.94 per cent in 2004. Of the 30 OECD members, only three have had worse
export growth in that time. Surely it's time for honest debate about what
has gone wrong, what could go right, and what has to change to get us there.
But that requires an environment in which governments feel able to admit
that something has gone wrong, and to change their policies and structures
to put it right. We don't do things that way here. Suppose we did. Let's
start by asking what we are trying to achieve in trade, and why it is not
delivering the goods.

It is futile to blame Vaile for the deficits, although Labor's Kevin Rudd
incessantly does so. The problem is that Vaile was really not Trade
Minister, but Minister for Trade Negotiations. He is a good bloke, a hard
worker and a straight talker, who threw himself into the job with gusto, and
won global respect from his peers.

The problem was not the minister, but the job. Trade is now a branch of the
Department of Foreign Affairs and Trade. It is now seen more as a vehicle
for improving Australia's diplomatic relationships than its economic
prosperity. Under Labor and Nationals, it

has focused on trade negotiations, not trade outcomes. Even if it wanted to
get Australia's trade back in the black, it has few levers to achieve it.

Of all the trade negotiations we have engaged in, only the Doha round offers
any relief for our chronic trade deficit. Even good free trade agreements,
such as ours with New Zealand and with Thailand, work because they offer
evenly balanced benefits to both sides. If you pursue trade deals with far
bigger economies such as the US and China, you end up signing on their
terms - as John Howard did in signing a deal that removed all our trade
barriers to US exports while it retained dozens of barriers to ours.

The modelling on both sides agreed that it would worsen the Australia-US
trade imbalance. And so it has.

What about Labor? Far from planning to liberate trade from its role as a
branch of diplomacy, it has downgraded it even

more by making it a part-time add-on for shadow foreign minister Kevin Rudd.

Both sides need to recast trade where it should be: as an economic
portfolio, linked to the bureaucracy responsible for other economic areas -
and with a clear, stated goal of getting Australia's trade balance back in
the black.

Step one is to move trade into a department where it fits: what is now the
Department of Industry, Tourism and Resources. Manufacturing, commerce,
mining, energy, tourism and services: they're all here, and they make up 80
per cent of our exports and almost 100 per cent of our imports.

(That leaves out agriculture. No problem: upgrade the Department of
Agriculture's role and resources on trade to give it the clout of its
foreign counterparts.)

Merely reshuffling the bureaucracy, however, would be useless without a
change in policies and priorities. The Industry Department is seen these
days as having little clout, little money and being frightened to put a foot
out of line. Its minister, Ian Macfarlane, doesn't frighten easily, but his
approach to industry is to go out and tell it what it's doing wrong, and
don't come to government for help. Nice line, minister - if it works.

The figures suggest it hasn't. Output of goods other than buildings fell
almost 4 per cent in the year to June. Macfarlane has now set up a taskforce
to re-examine Australia's industry policy settings, focusing on "global
integration". Read the background paper, and you realise why trade belongs
in his department. The future for exposed sectors of manufacturing clearly
lies in their integration with global markets.

We've been here before. The last industry policy review, under John Moore,
set up a good policy structure, with "action agendas" supposed to identify
and tackle the problems facing specific industry sectors. But then Moore
moved on, and the action agendas became words with little action. There was
no money to finance reform, and no commitment to make them work.

Now Macfarlane has a chance to make them, or some new model, work where
policy since 1997 has plainly failed. The manufacturing malaise has to be
tackled because most of the world's trade - most of Australia's merchandise
trade - is in manufactures. Last year we ran a staggering $92 billion
deficit in manufacturing trade alone. We need reforms to stop that getting
worse. And unless we want to trust in praying that global prices for our
minerals stay high and volumes grow, we must identify ways to significantly
cut that deficit, and get back in the black.

Another 25 years of global warming might not create a disaster, but why take
the risk? Another 25 years of big trade deficits might not create a disaster
either - but why take the risk?

Tim Colebatch is economics editor.