Column in The Australian - Coalition Antagonises China and We Foot the Bill

Published in The Weekend Australian on 15.02.14

With the announced closure of the automobile assembly industry and the inevitable flow-on effects to suppliers it’s clear that Australian manufacturing is rapidly shedding jobs. Add this week’s closure of a major mining supply company with the loss of 1100 jobs and the extreme pressure on the aluminium industry as electricity subsidies are being removed by power suppliers and it’s no surprise that the unemployment rate now exceeds levels reached during the global recession of 2008-10.

Clearly the Labor government’s much criticised stimulus package saved jobs as intended. But jobs are now being lost and the Abbott government’s pledge to create one million new jobs over five years is already looking shaky.

In searching for ways to facilitate job creation the government appears to have fixed on the idea of substituting hidden forms of protection for overt subsidies, with revelations in The Australian this week that the Industry Minister is working on anti-dumping policies that violate Australia’s commitments under the world trading rules.

Ahead of the last election the Coalition announced a policy of reversing the onus of proof when a foreign business was accused of selling products in Australia below the cost of producing them. In such anti-dumping cases, the foreign business would be obliged to prove it wasn’t dumping.

This proposal isn’t new. It was put forcefully and repeatedly by industry to the previous Labor government. And, sponsored by senator Nick Xenophon, it gained the support of non-Labor members of a Senate inquiry. That was despite unequivocal advice from the Department of Foreign Affairs and Trade that any reversal of the onus of proof in any circumstance would breach Australia’s obligations as set out in World Trade Organisation agreements it had signed. This official advice wasn’t secret; it was contained in a departmental submission to the Senate inquiry.

Although the Labor government publicly repeated the warning that reversing the onus of proof was illegal, the Coalition campaigned on it in factories across Australia. It was a very popular policy with factory workers fearful of their jobs, giving the Coalition an advantage in the battle with Labor for the votes of blue-collar workers and their families.

Many would ask why Australia should comply with World Trade Organisation rules when other countries don’t. In truth, countries mostly comply, but those that don’t can be brought before a panel and, if found in breach, retaliatory measures can be taken against them.

If Australia implemented this reversal of the onus of proof and used it against Chinese imports, China would be entitled legally to increase tariffs on imports of Australian goods, costing Australian jobs. When the previous Labor government made a series of legal amendments to the dumping rules, China expressed its unhappiness. If the Coalition government proceeds with these illegal amendments, China will be furious.

Though it’s bad policy, it’s clever politics: the Coalition government has declared an end to the Age of Entitlement, refusing to send cheques to businesses (unless they produce chocolate or seafood in Tasmania). By implementing an illegal anti-dumping policy the government would be providing a similar entitlement on the quiet. It seems we are witnessing the end of the Age of Visible Entitlement and the dawning of the Age of Hidden Entitlement.

The Australian people pay for these hidden business entitlements just as surely as they would if a cheque were written out and handed to the protected company. Anti-dumping duties are a tariff. They raise the price of the affected imported goods, increasing the cost of living and, if applied to imported goods used as inputs by Australian businesses, they increase costs, making them less competitive.

If forced to choose the least worst form of protection, economists prefer overt cash subsidies to tariffs. The public gets to see the cost of overt subsidies and, unlike tariffs, subsidies do not increase costs for consumers and other industries using the subsidised product. But clever politicians like to hide the cost of the protection by using hidden tariffs dressed up as anti-dumping duties.

China is already upset about the Coalition government’s foreign policy pronouncement that Japan is Australia’s ally and best friend in Asia. Australia’s very public statements against China on disputed islands in the South China Sea, going much further than our regional neighbours, haven’t been endearing. Then the government pronounced that these diplomatic tensions won’t affect Australia’s exports, since China has little choice but to buy Australian products, a statement that was both wrong and deeply annoying to the Chinese.

Implementing an anti-dumping policy that China will consider is targeted at it would hardly be conducive to the successful conclusion of a free trade agreement within a year, as sought by the Prime Minister.

China has lots of alternative sources of the products and services it imports. It can relax the restrictions on imports of US beef that it imposed following an outbreak of mad cow disease in the US many years ago.

Its visa policies can encourage Chinese students to study in the US and Europe and Chinese tourists to take their holidays in destinations other than Australia.

None of these and other retaliatory measures need be announced and probably wouldn’t be.

But if the Australian government insists on antagonising China, it would have nobody to blame but itself for further job losses and its promise of one million new jobs being spectacularly and tragically broken.