AbstractAustralia has a long‐standing dependence on foreign investment to make up the difference between domestic saving and investment opportunities. There is, nevertheless, an ongoing debate about the merits or otherwise of inward foreign investment. There has also been a recent tightening of criteria governing foreign investment. The OECD assesses Australia's foreign direct investment regime to be one of the most restrictive in the OECD area, while broader discussions have considered the potential for a decline in Australia's credit rating. This paper uses a dynamic global general equilibrium model—GDyn‐FS—to report on the national and sectoral effects of a decline in the desirability of investing in Australia, relative to other countries.
At a time when the prospects for finalising the Doha Round of trade negotiations is bleak, it is timely to consider what kind of trade policy agenda governments should be pursuing. One possible approach is the continuation of strategies based on the negotiation of preferences through bilateral and regional deals. Another approach would be to refocus attention on trade liberalisation based on the most favoured nation (MFN) and national treatment principles of the international trading system, supported by domestic reform. Such an approach would be directed at enabling economies to adapt to the increasingly integrated global trading environment and to reach their productive potential. Bringing the like-minded trade-oriented economies of the European Union (EU) and Australia together provides the opportunity to eliminate remaining impediments to trade and investment between the regions according to MFN/national treatment principles. It also affords an opportunity to consider mutually beneficial behind-the-border reforms.
Executive SummaryThe UK faces no easy options in determining how to develop its approach to international trade post-Brexit. If it finally decides to leave the European Customs Union and Single Market, it faces the possibility either of simply crashing out of the EU without a deal; trying to form market-access agreements and Free Trade Areas (FTAs) with the EU and other countries; or unilaterally reducing tariffs and liberalising trade with all countries. Each course raises significant practical difficulties, and entails major disadvantages compared with staying in the Customs Union and Single Market.The economic costs of a 'no-deal' approach stand to be very large, including inevitable tariffs, obstruction of UK access to EU markets, physical disruption at borders, a damping of investment and the much-discussed problem of the Irish border. Assuming 'no-deal' does not happen, negotiating FTAs with other countries would be possible only after a lengthy transition period, as in the Withdrawal Agreement voted down in Parliament, and would depend on the shape of the ultimate post-Brexit trading relationship between the EU and the UK. The process would be difficult, costly, and protracted; would likely be concluded on disadvantageous terms; would be even harder to apply to trade in services; and would yield extremely small gains given the volume of UK non-EU trade that is already covered by FTAs. Finally, unilateral liberalisation, while ameliorating some of the drawbacks of the first two options, faces the same problems of loss of access to European markets and disruption to trade; and would entail severe economic pain with only very gradual gains.The UK needs to conduct a much more profound and considered debate on these issues before deciding to set aside the large benefits of membership of the Customs Union and Single Market for the significant difficulties and tenuous gains offered by the alternatives. Public debate on the economic effects of trade policy has so far lacked the detailed but necessary analysis of these questions. It seems essential to establish a national policy review institution, modelled on the Australian Productivity Commission, in order to stimulate such a debate.
AbstractOver 200 bilateral and regional trade agreements are currently in force, yet their impact remains a topic of debate. We analyse effects of 27 agreements that are of particular importance for Australia on the value of merchandise trade flows using data from 1970 up to the global financial crisis in 2008. We show that preferential trade agreements generally increase trade between members but that there are often offsetting negative effects on trade with non‐signatories. In contrast to regional trading blocs and bilateral accords, agreements more oriented towards open trade principles have a positive impact on all trade flows of member nations.
