Bilateral and Regional Trade Agreements

The benefits of Australia's bilateral and regional trade agreements have been oversold and the processes for developing them should be improved, a Productivity Commission study released today concluded. The Commission found that while there is the potential for some gains from preferential agreements, unilateral reform and non-discriminatory trade liberalisation offer larger benefits.

The Commission was asked to examine the effects of bilateral and regional trade agreements, including on trade and investment barriers, regional integration and Australia's economy generally.

While tariff preferences in trade agreements can benefit some industries, the Commission found little evidence that Australia's recent bilateral agreements had provided substantial commercial benefits. The main factors that influence decisions to do business in other countries are likely to lie outside the scope of such agreements. The study concluded that while preferential trade agreements could increase national income, the net effect is likely to be modest.

The study also found that some provisions included in Australia's recent preferential trade agreements — including investor-state dispute settlement mechanisms, government procurement requirements, intellectual property protections and provisions affecting areas traditionally the province of domestic policy, such as culture — potentially entail significant costs or risks.

To ensure that options other than trade agreements are properly considered, and that any further agreements entered into are warranted, the study recommended that the Government make changes to its trade policy development processes. Under the Commission's proposals, the Government would undertake an annual Trade Policy Review to better identify priorities, enhance the value of consultation and consider trade policy in a broader context. And where there is an interest in pursuing a trade agreement with particular countries, economic assessments should be based on realistic scenarios with any modelling overseen by an independent body. Final assessments to government should be based on the negotiated text of the agreement.

The Commission also reaffirmed that domestic economic reform offers relatively large economic benefits, and should not be delayed to retain 'bargaining coin' for use in negotiating trade agreements.