Australia’s trade

August 31, 2021

Abbott in Delhi: On an FTA ‘fast track’?

FTA announcements abound. Two weeks ago there was some buzz around an announcement that India would ‘fast track’ trade agreements with the UAE, UK, Australia, EU and Canada. The Secretary to India’s Minister of Trade stated that the UAE would likely be the first completed. Then a week later Indian Trade Minister Goyal stated that “Australia is first on the list, UK, then the UAE, and if the UAE happens, the pact with GCC [Gulf Cooperation Council] will also be expedited. We have already started the dialogue with the UAE and one more country from the Middle East.”

This statement was made following another announcement that a deal with the US – first floated several years ago – was off the table for now. 

Both of these announcements have come off the back of a visit to India by former Prime Minister Tony Abbott, and the declaration that an ‘early harvest’ agreement is being pursued.

Is Australia on the ‘fast track’ to an FTA with India? Less than two years ago India walked away from the RCEP negotiations at the last minute after eight years of negotiations. The review of the regional agreement between India and ASEAN has hit serious stumbling blocks. Even when agreements are in force, India’s customs authorities don’t always make it easy for exporters to utilise trade agreements.

A lot has changed in the last two years. Australia and India have cemented a Strategic Economic Partnership, and there appears be new impetus from India to reengage in the region. But an FTA is likely still some way off. India is yet to demonstrate it can commit to market opening beyond that set out in its current agreements- what was struck in RCEP before talks fell away would be a start.

Realistic expectations. In our view, setting expectations for Australian constituents and a dose of realism will be key to a path forward. For example, India is relatively open on log exports, but less so on sawn timber and other timber products. This is not because its log supply is poor, but because its timber processors and manufacturers seek protection.

There may be greater gains in pursuing technical market access and reducing non-tariff barriers than in seeking tariff reductions. Partial and targeted outcomes may be more prospective. As we’ve pointed out previously, tariff reductions always look great on paper, but whether they actually promote trade is another matter.

Will EU environmental measures boost trade?

Significant trade impacts. The European Commission has undertaken modelling on two of its proposed ‘Green Deal’ environmental regulations and their impact on trade, specifically the ‘Farm to Fork’ strategy and its biodiversity policies.

The modelling reveals that the trade impacts are reasonably significant. They note that the measures – through reducing domestic supply – will result in greater net imports of cereals, oilseeds, meat and poultry. The only positive trade change for the EU is an increase in net dairy products, primarily whey.

The report predicts that sheep meat quotas into Europe will largely become overfilled with exports from Australia, New Zealand and to a lesser extent Mercosur countries. There is a similar pattern predicted in beef trade. More broadly the report projects that EU producers’ competitiveness will be eroded further.

No going back? This is significant because the EU is highly unlikely to unwind any of these measures. They are generally politically popular. EU farm lobbies have already put forward arguments against introducing the measures. The response from Brussels is more likely to be either a different form of financial support, or an attempt to level the playing field by indirectly applying these regulations to imports in some way.

This is precisely what has taken place with the EU Emissions Trading System, which has reduced competitiveness for a number of European sectors, and the subsequent introduction of the Carbon Border Adjustment Mechanism to remedy this loss of competitiveness.

Australian and global exporters to the EU – particularly those involved in trade negotiations – should be well aware of these ongoing risks.

Mixed Signals: the US, Asia and APEC

Less trade, more geopolitics. US Vice President Kamala Harris’ Asia sojourn has been less than the triumphant visit that many had hoped for. The visit has taken place on the back of the final withdrawal of the US from Afghanistan, which has given many economies second thoughts on US commitment beyond its own borders.

Harris’ choice of destinations – Vietnam and Singapore – has also been viewed by some commentators as a clear snub to the region’s relative powerhouses, Indonesia and Thailand. Some have even gone so far as to argue that this may actually undermine ASEAN more broadly – resulting in an own goal for the US.

The choices by the administration are militarily strategic; they have much less to do with economics and trade. The administration has made clear that trade is not a high priority.

US indifference? Does this mean there is US indifference to trade and investment in the region? Or is it a small stepping stone? The announcement by Harris that the US is offering to host APEC in 2023 is welcomed in this regard. While the US has no clear ambition to open trade negotiations with any Asian economies, or join the CPTPP any time soon, it is at least a step toward engagement.
But a US APEC year would be two years away. And as we have seen, a lot can happen in a short time. 

Australia’s bind on trade, diversification and travel

Going nowhere. Australia businesses are acutely aware of curbs on both departures from Australia as well as arrivals within the region. The tighter caps on arrivals that are in place for several more weeks were exacerbated by Singapore’s border closure, which meant that most routes into Southeast Asia were closed.

However, this has been followed by an announcement by Germany and Singapore that the two countries will host a vaccination corridor – well ahead of planned a travel bubble between Australia and Singapore.

Trade diversification needs mobility. The correlations between trade and travel – for both business and leisure – have been well studied.
Like every other part of the world, Australia’s arrivals and departures have been greatly impacted by pandemic-related travel restrictions.

In addition to attempting to re-start exports, Australia is under economic pressure to diversify its export markets. This is difficult under the best of circumstances, but even tougher under current conditions.

Although bulk commodities can generally be sold on price and a very limited set of variables, selling more elaborate services and goods gets tougher without meeting face to face, or maintaining relationships with suppliers and customers – and it’s currently impossible to have those meetings.

The corridor narrows for Australia. The opening up of international movement is generally taking place between the US, Mexico and other Central American countries, some of which are operating above 2019 capacity. Travel between the UAE and India, as well as Spain and other European economies has rebounded from recent falls. Although much of this is regional, travel between Australia and its biggest travel pairings – New Zealand and Southeast Asia – are still heavily impacted.

None of this bodes well for an export strategy, diversified or otherwise. It’s worth noting that despite some rosy headlines around Australian exports, many have fallen to multi-year lows. All eastern seaboard states have had falls in total exports. Western Australia’s exports – and Australia’s more broadly – are being propped up by resources.

All economies are acutely aware of this, and many are feeling the pressure to diversify away from China. The risk for Australia is that other businesses and economies will beat Australia to it.

July 23, 2021

Carbon border adjustments: Getting real

Two proposals, half the detail. Two major economies made announcements around carbon border tariffs over the past few weeks. The European Commission finalised its proposal for its Carbon Border Adjustment Mechanism which, at this stage, is slated to apply to steel, iron, fertiliser, cement and electricity. The US Democrats have outlined a budget proposal that will include a ‘polluter import fee’, with very few details. There are indications it will apply to fugitive methane emissions, signalling that it may be focused on energy.

What does this mean for Australian exporters? At this stage it’s not of major significance. Australia’s fertiliser exports tend to go to Asia; similarly iron and steel exports stay in the region or go to the US. The details will be significant to Australian companies going forward –  how the pricing works, and how any carbon price within the EU Emissions Trading System (ETS) can dovetail with systems elsewhere.

A leaky level playing field. There are, however, longer term risks. CBAM is designed to prevent ‘carbon leakage’ from the EU ETS, which EU stakeholders say is undermining European manufacturing and making it less competitive. CBAM is part of Brussels’ bigger play to ‘level the playing field’ on environmental regulation. The proposal still has some way to go through the European Parliament and Council of the EU.

Negotiations between the three arms of the EU could give rise to regulatory creep. For example, European farmers will likely pay higher prices for fertiliser. Will they therefore demand that agriculture is somehow incorporated into CBAM to level the playing field further? This could have an impact on Australian exports.

Supply chain reactions. On the other hand, Australia may find itself much closer to an Asia-oriented value chain. Global steel supply chains are already fragmented between geographical areas; carbon pricing – and a broader reluctance among Asian governments to support it – may fragment them further.

Companies may reorient their supply chains accordingly to supply markets with the lowest costs; many firms already excel in this form of regulatory arbitrage. A good example was how companies pivoted in the face of Trump’s China tariffs. Sure, carbon tariffs aren’t Trump tariffs, but they are still a cost to be borne by businesses.

Businesses simply need to factor this emerging policy area as part of a ‘new trade reality’ – along with greater scrutiny on labour and human rights in supply chains.

Or perhaps another way. How about liberalising trade rather than taxing it? An example is APEC’s approach to reducing barriers to environmental goods. This has recently been emphasised by Australian trade minister Dan Tehan. Is it more effective in terms of environmental outcomes? That’s hard to say, but it’s definitely more politically palatable for global trading partners.   

A US Indo-Pacific digital trade deal?

An Indo-Pacific starter. The Biden administration is reportedly considering plans for a digital trade deal with economies in the region. This follows comments by Kurt Campbell, US National Security Council coordinator for Indo-Pacific affairs, that the US is “quietly exploring” potential trade initiatives with Indo Pacific countries. The administration has made clear its priorities are focused on domestic recovery, vaccines and addressing China – analysts point out that smaller, sectoral trade deals are more prospective than engagement in multilateral or regional FTAs at this point.

Take your FTA pick. A digital trade deal could build on outcomes of the various digital agreements in the region. The USMCA and CPTPP agreements both cover digital trade. The more recent Digital Economy Partnership Agreement (DEPA) involving Singapore, Chile and New Zealand provides a broader framework, as does the Singapore-Australia Digital Economy Agreement (SADEA). APEC has a Cross Border Privacy Regime for data flows (CBPR). Australia’s FTA with the US – the 2005 AUSFTA – does not include provisions on digital trade, and is yet to be updated.

No TPA needed? Trade Promotion Authority (TPA), a necessary legislative precondition for a full FTA, expired in July (see below), making any US FTAs requiring more than executive authority almost impossible. Could a US digital trade deal be negotiated as a ‘trade executive agreement’ (agreements between executive branch agencies and other governments that have some relationship to trade but are not subject to congressional review like an international treaty)?

Recent research reveals the US has in place more than 1,200 ‘trade executive agreements’ with 130 countries that create binding commitments, build on or clarify FTAs and serve as the foundation for later binding arrangements. In recent years there have moves by the US towards more executive trade deals, including the US/China Phase One agreement, as well as arrangements with India and Brazil. The 2019 US Japan Digital Trade Agreement was passed as an executive agreement.

More Asia Pacific digital deals on the way. In June Vietnam and Singapore agreed to set up a joint technical working group on Digital Partnership, examining the potential for developing a bilateral agreement. Singapore is also negotiating digital agreements with Korea and the UK. Disciplines governing digital trade are also likely to be considered as part of ‘upgrades’ of older bilateral agreements with trading partners in the region – for example the review of the AANZFTA between Australia, New Zealand and ASEAN.

Good timing. Cross border data restrictions aren’t going away. The Information Technology and Innovation Foundation points that the number of countries restricting the flow of data across borders has nearly doubled over the past four years, rising from 67 barriers across 35 countries in 2017 to 144 restrictions in 67 countries. More measures are under consideration – a good time for digital economy agreements that support open rules for data flows, create mechanisms for cooperation and encourage regulatory interoperability.

In brief

FDI falls as screening policies, tax uncertainty rises. A new report of Global Trade Alert reveals that foreign direct investment screening mechanisms have proliferated in recent years, becoming less conducive to foreign direct investment. It ‘contends that if multinational enterprises are to play a greater role then policy needs to be reset to restore the commercial viability of FDI.’ The Tax Foundation notes uncertainty for global FDI remains high, with the ongoing international tax negotiations at the OECD being a contributing factor. The recently released annual UN World Investment Report shows that foreign direct investment (FDI) fell by a third in 2020 compared to 2019, well below the low point reached after the global financial crisis a decade ago.

TPA expires, will it return? Trade Promotion Authority (TPA), the legislation that enables the US to sign new trade agreements following a straight up-or-down vote from Congress, has expired. Politico points out that there is no sign that the Biden administration intends to ask Congress for a renewal anytime soon. USTR Tai views TPA as a longer-term objective – the focus is on setting a broad agenda and addressing issues with respect to China. The last time the legislation expired, in 2007, it was eight years before Congress renewed it.  TPA’s expiry is not good news for the UK’s ongoing negotiations with the US, now effectively on hold, nor any potential future US trade agreements outside of the executive branch.

China takes Australia to WTO. China has responded to Australia’s WTO complaint about Chinese anti-dumping tariffs on wine by bringing its own challenge to Australia’s anti-dumping duties on Chinese wind towers, railway wheels and steel sinks. The move comes as Wine Australia reports that China’s punitive duties have resulted in a 45% reduction in exports for the year to June 2021.

Thailand progresses ‘mini’ trade deals. Thailand signed an MoU in July for a ‘mini trade deal’ with Kofu City in central Japan. It is advancing similar deals to ‘form deeper trade partnerships’ with Hainan, China, Telangana, India and Gyeonggi province in Korea. Alongside this, Thailand is seeking to move ahead with broader bilateral FTA negotiations with the EU, as well as EFTA, the EAEU and the UK. It is still considering accession to the CPTPP, and exploring the potential for an agreement with Hong Kong.

US and Mexico resolve first USMCA labor complaint. The US and Mexico have reached a resolution in their first labor dispute under USMCA over alleged violations of auto worker protections in Mexico. A remediation plan was negotiated under the agreement’s ‘rapid-response mechanism.’ As noted by Politico, the plan is a first for USTR, and it allows the governments to avoid a labor dispute settlement panel that could have resulted in harsher penalties.

The UK and Australia have just concluded an ‘in principle’ agreement for a free trade agreement. Efforts by UK farmers lobbying the Johnson government not to give Australia greater market access for red meat seem to have been overcome.

June 18, 2021

UK-Australia FTA: first in the region, positive in principle

The UK and Australia have just concluded an ‘in principle’ agreement for a free trade agreement. Efforts by UK farmers lobbying the Johnson government not to give Australia greater market access for red meat seem to have been overcome.

Beef, wine and cars. The details of the agreement that have been released so far are largely positive for Australian export interests. Access for Australian agricultural exports is a particular bright spot.

According to a statement released by Trade Minister Dan Tehan, Australian beef will be granted a 35,000-tonne tariff-free quote from year one, increasing to 110,000 tonnes over ten years. After a five-year period in which the quota will be replaced by a rising safeguard threshold, Australian beef will have unlimited duty-free access to the UK. Sheepmeat, wine, sugar and dairy products will also benefit from significant duty-free access.

In return, UK FMCG (fast-moving consumer goods), alcohol and auto exporters appear set to improve their access to the Australian market.

Work and holidays. There is less detail about investment and services trade commitments, although Minister Tehan did refer to mutual recognition of qualifications. An increase from 30 to 35 in the maximum eligible age for working holiday-makers was also announced, as well as an extension of the maximum duration of that visa from two to three years. Additional working visas will also be made available for agricultural workers.

Cheers, Australia. Many analysts were surprised at the quantum of access that Australia has reportedly been granted under the agreement. These outcomes likely reflect the relatively strong position that Australian negotiators have had since the beginning of the negotiations. Politically and economically, the UK needs this agreement more than Australia does. Australia already has multiple agreements with China, Japan, South Korea, ASEAN members, as well as with the US. The UK has only ‘continuity’ agreements (that carry over the terms of the EU agreements it was part of) at this stage. Australia completing a low-ambition deal would have had a larger political cost – with the Australian farm sector – than no deal at all. However, no deal would have been a massive blow to UK trade minister Elizabeth Truss and the Johnson government’s trade credibility.

A step toward CPTPP. The UK has formally commenced the accession process for joining CPTPP, and that will be much more difficult than an agreement with Australia. Although continuity agreements exist with a number of CPTPP parties, the agreement with Australia will be a good template for the UK as it moves toward negotiations with a broader range of parties. That may be more of a challenge. The UK’s prospective FTA partners expect more than a political agreement; they want genuine liberalisation. Seasoned negotiators throughout Asia-Pacific will be just as willing as their Australian counterparts to dig in until they get real improvements – or walk away from the table.

Both the AU/UK agreement and CPTPP interest underline the UK’s politically driven approach to trade right now, promising a ‘global Britain’ to its voters.

A step away from US/UK FTA. On the other side of the globe, the UK and US are holding off on further negotiations on their trade deal until after the US mid-terms next year. This may work for both sides. If the UK politics of a deal with Australia are difficult, they would be almost unmanageable with the US, land of “chlorinated chicken”.

It is expected that the details of the Australia/UK agreement released so far – and therefore approved for circulation by both sides – will survive the final stages of negotiations. It is hoped the agreement can be finalised and signed soon.

APEC’s 2021 rebalancing act

APEC’s hopes for a less challenging year (after Chile’s cancellation of Leaders’ Week in 2019, and the pandemic hitting in 2020), are looking up with New Zealand as host in 2021.

Welcome statement. The statement from the APEC Trade Ministers’ meeting last week is exactly the kind of sentiment that many trade policy observers have been looking for since the pandemic hit. It plumped for using open trade as means of fighting the pandemic, reinforcing the importance of the rules-based trading system with a particular emphasis on the WTO’s 12th Ministerial Conference later this year, as well as implementation of the WTO trade facilitation agreement and advances in digital trade.

FTAAP is back? But the statement also included something many had forgotten: FTAAP (the Free Trade Area of the Asia Pacific). First conceived in the heady and idealistic trade-liberalising era of the Bush administration in 2006, FTAAP was eventually endorsed by APEC leaders in 2016. Its ambition is high: a free trade area comprising all APEC economies (yes, that includes both China and the US), with greater liberalisation than the WTO Doha round.

The statement notes the call from the APEC Business Advisory Council (ABAC) to “ensure FTAAP remains the organising principle for regional economic integration”; this isn’t a commitment towards anything new, but at least there is some idealism left in a world of trade policy that is increasingly dominated by geopolitics. And it’s still a good idea.

US supply chains and regional trade

The Biden administration has released its ‘100-day Review’ into ‘Building Resilient Supply Chains’. The report was commissioned earlier this year with a focus on four key product groups: semiconductors, large-capacity batteries, critical minerals and pharmaceuticals.

Domestic threats, international opportunities. The report identifies potential threats to supply chains: insufficient domestic capacity, ‘misaligned’ incentives in the private sector, industrial policies among competitors, concentration in some supply chains, and lack of international coordination. It contains two recommendations clearly relevant to international trade policy.

The first is “Strengthen international trade rules, including trade enforcement mechanisms.” The key mechanism is the establishment of a ‘trade strike force’ under USTR. However, it’s not entirely clear what the trade strike force is or what powers it will be given.

The second is to “Work with allies and partners to decrease vulnerabilities in the global supply chains.” The report recommends a new ‘Presidential Forum’ to cover supply chain issues as well as working through the Quad and G7. It also recommends using the US Development Finance Corporation (its development lending institution) to support supply chain resilience.

Implications for Australia. One of the recommendations also states that the ‘strike force’ will examine how existing US trade agreements as well as future trade agreements and measures can help strengthen the United States and collective supply chain resilience. Precisely what this might look like isn’t clear.

However, the overall message is one of having the US’ strategic trading partners move closer into its orbit. This, as Australia and many other countries in the region have shown, is easier said than done. The US had a significant policy opportunity to encourage greater cooperation in its supply chains with strategic partners during the Obama administration; back then it was called the Trans Pacific Partnership, now the CPTPP.

Article Three in the media

Jon Berry spoke with ABC News on the UK-Australia FTA, in particular Australian beef exports to the UK going forward;

Kristen Bondietti was a panel member for Global Victoria’s virtual trade mission on Vietnam;

Khalil Manaf Hegarty presented at a webinar with Indonesian think-tank INDEF on agricultural commodity certification in Indonesia and ASEAN.

May 30, 2021

UK-Australia FTA scare campaign hits fever pitch

No gold rush. There is high expectation that the conclusion of UK-Australia trade negotiations will be announced at the G7 meeting in mid-June. The Johnson Government will hail this as the ‘first of many’ trade deals struck by the UK following Brexit.

Coverage of the agreement in Australia has been relatively muted. Although the UK appears to be a large trading partner, around 80 per cent of Australia’s exports to the UK are in the form of gold and precious metals. The value of exports of other goods (around USD2 billion annually) puts the UK on par with Thailand and the Philippines. The services trade – around US16 billion annually in both directions – is significantly larger. Investment more so – the UK is Australia’s second largest investment partner after the US.

It’s just not (trade) cricket. Despite this, a scare campaign against the agreement is well underway in the United Kingdom. The big concern among the UK agricultural sector is that Australia will gain tariff- and quota-free access in the agreement, likely after a 15-year phase in period.

Some news reports have cited an Australian beef exporter claiming exports to the UK might increase tenfold. Whether this is the case or not, the UK already imports significant quantities of beef, chiefly from Ireland. Better access for Australia would likely result in Australian exporters taking market share for premium cuts from their Irish counterparts rather than squeezing UK domestic producers out of the bulk market.

The scare campaign appears to be about something bigger. The UK opposition’s much larger concern is that the UK will offer similar market access as it goes forward with other deals. Liberalisation in an FTA? Shock no!

It’s not just tariffs either. In our view, the UK’s anti-trade cohort has some homework to do. Tariffs are a blunt instrument for protecting markets, as the last four years of ‘trade wars’ have shown us. Non-tariff measures are now the most effective way for impeding trade – not news to Australian beef (and timber and seafood) exporters. Until Brexit, the UK had ceded much of its ‘red tape’ authority to Brussels, who mastered the art. But, in a new age of social and environmental trade restrictions (see below), anything is possible.

US China trade tensions are not easing

Washington’s new consensus. There was some expectation that a Biden administration might ease trans-Pacific trade tensions. However, trade wonks are well aware that this is simply not the case. Talks between China’s Ministry of Commerce Vice-Premier Liu He and US Trade Representative (USTR) Katherine Tai seemed to yield precisely nothing. Sure, the table-thumping attitude of the Trump area is gone, but in its place is a new set of measures aimed at China.

One key difference is that the White House now has significant congressional support. Senate Finance Committee Chair Ron Wyden and Senate Majority Leader Chuck Schumer have introduced the “Combating Oppressive and Manipulative Policies that Endanger Trade and Economic Security (COMPETES) Act.” According to the two very powerful Democratic senators, the bill “will level the playing field for American workers, farmers, fishers and families by taking aim at China’s worst practices. The proposal is intended to be part of a Senate-wide effort to assure that the United States is positioned to out-compete China in the economy of the future.”

Labour pains for China. What the proposed legislation aims for is fourfold. It puts forced labour accusations around China front and centre, with new Customs and Border Protection (CBP) enforcement and a special emphasis on the fishing sector; it seeks to broaden USTR’s mandate on digital trade; it increases inspections on counterfeit goods; and it also requires USTR to undertake additional reporting on China.

This is broadly in line with overall US policy direction under Trump, but with the added weight of Congress. The move on seafood imports is relatively new; although some lawmakers have been pursuing illegal, unreported and unregulated (IUU) seafood imports since the Obama era, the US ITC moved in February this year to pursue new policies. It looks like China will be in CBP’s sights, as well as Vietnam, India and to a lesser extent Indonesia.

This approach is already yielding action; late last week CBP issued a new withhold release order – effectively a seizing of goods – against Dalian Ocean Fishing, a Chinese fishing company.

No longer just tariffs. The key difference emerging between the Trump and Biden eras is that the former relied primarily on tariffs under a banner of economic nationalism to curb imports, the latter is likely to be dominated by targeted and specific regulation under environmental, human rights or labour banners. Australia take note.

De-risking and on-shoring: Can Australia capitalise?

The supply chain keeps crunching. Supply chain disruptions continue throughout the region in the wake of COVID. A number of companies that pursued a diversification strategy in 2020 have not escaped unharmed; disruptions have continued to emerge in markets outside of China, notably Vietnam and India.

A recent survey by Baker McKenzie points out that diversification will continue; 46 per cent of respondents are onshoring operations, 78 per cent are near-shoring; 67 per cent are insourcing, and 42 per cent are pursuing a ‘Mainland China + 1’ strategy.

However, the survey is notable for its emphasis on Australia. Seventy-six per cent of respondents are looking to Australia as an alternative source of supply, above other sources including the UK (66 per cent), Europe (62 per cent) and North America (62 per cent).

Investment policy settings matter. Australia’s membership of the CPTPP and RCEP, as well as having an FTA with the United States, puts it in a reasonably unique position. The big question is whether Australia’s investment policy settings will be attracive to foreign investors as the global race for capital heats up.

CBAM? No thank you, ma’am?

Does carbon pressure result in diamonds? The EU’s proposal on the carbon border adjustment mechanism (CBAM) is gaining pace in Brussels as well as Washington. The most recent calls for a rapid introduction of a new tax have come from European manufacturers, who are struggling with EUR50/tonne carbon prices. This has prompted some companies – e.g. Tata Steel – to add carbon surcharges to products and argue for a ‘level playing field’. This isn’t quite the spirit of the original carbon price, which was designed to prompt investment in low-carbon energy sources.

The EU’s problem now is that it will face growing international opposition to the CBAM. Japan, among others, has voiced its concern at the WTO. It has stated that “discussions on carbon border adjustment measures need to be stimulated at the WTO to avoid future trade conflicts … carbon border adjustment measures should be formulated based on the GATT principles.” China and Russia also both raised concerns at the Council for Trade in Goods. Similarly, the WTO’s Deputy DG Alan Wolff has stated “Carbon border adjustment measures will likely result in conflicts unless Members engage in joint efforts to find mutually beneficial solutions.”

Club rules. There’s a rising awareness of the possible pitfalls of the CBAM approach. As a response, Germany is pushing Brussels to consider a ‘carbon club’, which would include Japan, China and the US, in order to avoid trade-environment skirmishes. The EU has said countries can bypass the CBAM if their climate ambition “matches” that of the EU. But is this achievable? Does it require new agreements? Will it be based on ambition, or actual reductions? Instead of carbon reductions, the world could end up with a new protectionist cartel and higher-priced goods.

China keeps Australia at arm’s length

Australia-China relationship status remains as “it’s complicated”. China continues to express displeasure at a series of Australian policies. Official and unofficial trade measures affecting billions of dollars’ worth of Australian exports persist. The latest symbolic move from Beijing has been the official suspension of the China Australia Strategic Economic Dialogue – a supposedly annual meeting that has not taken place since 2017.

Beijing: do not walk further on the “wrong path”. There were scant hopes for the Strategic Economic Dialogue even before its official suspension and this move will further complicate efforts for mid-level officials to cooperate. Although Australia’s ministers have been left in the cold for some time now, lower-level embassy staff have been able to keep their working relationships. These relationships may now be increasingly difficult to maintain. Although China is yet to really land a punch with the measures it has taken against Australia’s exports, Beijing has shown that it is willing to incur economic damage – for example paying over the odds for inferior coal – in order to make a political point. This fact will be causing sleepless nights among all major Australian exporters, and among the political leaders who represent their constituencies.

Picture credit Andrew Parsons / 10 Downing Street

May 20, 2021

Argentina has announced a snap 30-day ban on beef exports aimed at lowering domestic meat prices — as part of a broader response to the country’s runaway inflation problem. This will have an impact on the global meat trade — Argentina has almost 8 per cent of the global beef trade. But is this an opportunity for Australia? Not quite, as Jon Berry explains on ABC TV.

April 24, 2021

The Joint Standing Committee on Treaties (JSCOT) has published Article Three’s submission on the Regional Comprehensive Economic Partnership agreement (RCEP), which is currently being considered by the Committee.

Our key take on the agreement is as follows:

RCEP will benefit Australia by helping to strengthen regional value chains, encourage trade diversification, build stronger relationships with trading partners and provide a baseline to improve trading conditions across the region.

Australia already has FTAs with all RCEP members that have reduced many tariff barriers on goods. However, there is still more to be done to reduce non-tariff measures and barriers to services and investment.

RCEP commits Australia’s trading partners in ASEAN and North Asia to improvements in these areas and promises to play a broader role in supporting growth through trade. This is particularly important in the current trade environment.

Australia should proceed to ratify the agreement and encourage other members to do so such that it can enter into force in 2022.

Read the full submission here.

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