Bilateral and regional trade agreements

While Bilateral and regional trade agreements can reduce trade barriers and help meet other objectives, their potential impact is limited and other options often may be more cost-effective. Key points • In line with global trends, Australia has recently entered a number of new bilateral and regional trade agreements (BRTAs) and is negotiating several more.• The Australian Government’s approach has been to negotiate comprehensive agreements that seek substantial reductions in trade barriers.– For merchandise trade, recent BRTAs have resulted in some significant bilateral tariff reductions both in Australia and in partner countries.– For services and investment trade, BRTAs typically limit discrimination between suppliers.– Australia’s agreements have often also included provisions on matters such as intellectual property, competition policy and trade facilitation. • Theoretical and quantitative analysis suggests that tariff preferences in BRTAs, if fully utilised, can significantly increase trade flows between partner countries, although some of this increase is typically offset by trade diversion from other countries .– The increase in national income from preferential agreements is likely to be modest. • The Commission has received little evidence from business to indicate that bilateral agreements to date have provided substantial commercial benefits.– This may be because the main factors that influence decisions to do business in other countries lie outside the scope of BRTAs. • Domestic economic reform offers relatively large economic benefits and should not be delayed to retain ‘bargaining coin’. • In the international arena, the Australian Government should continue to pursue progress in the Doha Round. Building the case for substantive reductions in trade barriers internationally requires improvements in domestic transparency and policy analysis within each country.• While BRTAs can reduce trade barriers and help meet other objectives, their potential impact is limited and other options often may be more cost-effective. • Current processes for assessing and prioritising BRTAs lack transparency and tend to oversell the likely benefits. • To help ensure that any further BRTAs entered into are in Australia’s interests: – Pre-negotiation modelling should include realistic scenarios and be overseen by an independent body. Alternative liberalisation options should also be considered.– A full and public assessment of a proposed agreement should be made after negotiations have concluded — covering all of the actual negotiated provisions. • The Government should also develop and publish an overarching trade policy strategy, to better coordinate and track the progress of trade policy initiatives, and to ensure that efforts are devoted to areas of greatest likely return