Partisan tensions over the desirability of preferential trade deals and the conflation of trade and foreign policy are by no means new to Australia, nor are tensions over the “trade as” vs “trade and industry policy” positions. However, as this extract from Navigating the New International Disorder makes clear, these tensions were amplified over the 2011–15 period thanks largely to key policy elites.

While intra-party conflict was the obvious feature of the 2011–2015 period, it was a growing partisan divide that characterised developments in the trade and industry policy spheres, with tensions centred on three key issues.

The first issue involved the necessity and desirability of preferential trade agreements (PTAs). Over the period in question, the Australian Labor Party’s (ALP) lukewarm attitude and go-slow approach to preferentialism contrasted strongly with the Liberal/National Party (LNP) Coalition’s enthusiastic embrace and aggressive pursuit of the same.

The second set of tensions centred on the practice of using trade policy to advance broader policy objectives, both foreign and domestic. Historically, the ALP has preferred to keep the trade and foreign policy spheres separate, while the Coalition has been more inclined to conflate the two, using trade policy to advance strategic goals. This trend was amplified over 2011–2015 period.

The third set of tensions reflected divergent views about the essential relationship between trade and industry policy, which I characterise as the ‘trade as industry policy’ vs ‘trade and industry policy’ positions.

Tension 1:  Preferentialism vs Multilateralism

Partisanship on trade policy has a long history in Australia; the ALP’s preference for multilateralism contrasting with the LNP’s proclivity for preferential deals with strategic allies.

Labor’s PTA go-slow  

The release of the Productivity Commission Report in 2010 provided the context for the PTA approach pursued by the ALP government over the 2011-13 period under review. The report recommended (amongst other things) that future PTA negotiations include a rigorous, transparent cost-benefit analysis of the final negotiated text, and that Australia “seek to avoid” in future deals economically and socially damaging regulatory provisions.

These included Investor State Dispute Settlement (ISDS) arrangements which allow foreign companies to sue governments for changes to regulations that might negatively impact their profits, and WTO-plus intellectual property (IP) provisions that extend monopoly rights for IP holders and impose additional costs on consumers for no sensible economic reason.

In a major speech to the Lowy Institute in 2010, Craig Emerson, ALP minister for trade from 2011-2013, outlined five principles that would inform trade policy under his tenure: unilateralism, transparency, non-discrimination, the centrality of trade policy to wider economic reform, and separation between trade and foreign policy. These principles aligned with the Productivity Commission’s recommendations and all had important implications for PTA policy under the ALP: the government would only sign PTAs that involved substantial liberalising concessions.

All the way with PTAs

The ALP’s go-slow on PTAs contrasted dramatically with the approach of the Abbott-led Coalition, which was elected in a landslide victory in September 2013. In his victory speech, Abbott signalled a shift on PTA policy under the LNP, declaring: “from today . . . Australia is under new management and . . . is once more open for business”. This welcome extended to the abandonment of the ALP’s principled objection to ISDS, with Minister for Trade and Investment Andrew Robb confirming that the government would henceforth consider ISDS on a case-by-case basis.

With its major obstacle now removed, the Korea-Australia PTA negotiations were swiftly concluded in December 2013 and the Korea-Australia Free Trade Agreement (KAFTA) was ratified soon after. Finally, negotiations with China were concluded for the China Australia Free Trade Agreement (ChAFTA) in June 2015.

Tension 2: Separation vs conflation

Over the 2011–13 period, the ALP government remained actively involved in the TPP negotiations. However, given its principled objection to ISDS and its insistence upon significant agricultural concessions from the US, progress was slow and conclusion unlikely.

The 2013 election of the Abbott government signalled a return to conflation, and the willingness to progress deals for non-economic reasons. A Japan-Australia PTA has always been primarily geo-strategically motivated. From the mid-2000s, the US exerted considerable pressure on Australia to deepen its bilateral ties with countries like Japan.

Full Steam Ahead with the TPP

The Abbott government’s abandonment of the ALP’s principled objection to ISDS also paved the way for progressing the TPP negotiations. From the government’s perspective, the deal was a major win, delivering unprecedented market access in some partner countries while avoiding some of the potential pitfalls associated with the agreement’s most controversial aspects: ISDS provisions and patent term extensions for biologic drugs (some of the newest and most expensive kinds of pharmaceuticals).

Should the TPP ever come into effect, the main benefits for Australia would flow from better market access for some of its exports than previously enjoyed. Whether Australia is able to capitalise on that access will of course depend on the future competitiveness of its local industries. This brings us to the third and final partisan tension of the period under review: how best to secure Australian industrial competitiveness.

Tension 3: ‘Trade as Industry Policy’ vs ‘Trade and Industry Policy’

The 2007 election of the Rudd government marked a significant break with what had effectively become a bipartisan ‘trade as industry policy’ consensus. In his first speech as PM, Rudd declared himself a believer in the importance of a thriving manufacturing sector, stating “I don’t want to be prime minister of a country that doesn’t make things anymore”.

A new development bank for Australia

A ministerial change of guard opened 2012, with with Kim Carr, a Rudd ally, replaced by former union leader Greg Combet, also a firm believer in strategic industry policy. The government soon demonstrated its willingness to experiment with bold (by Australian standards) strategic industry policy initiatives aimed at creating a local green energy industry.

In 2012 it established Australia’s first industry-specific development bank, the Clean Energy Finance Corporation (CEFC). The aim was to create a self-sustaining investment bank focused exclusively on developing Australia’s clean energy industry.

The return to ‘trade as industry policy’

The Abbott government’s core election promise was to fix the (perceived) deficit crisis by hook or by crook. This paved the way for massive cuts to industry policy programs in the first budget of Treasurer Joe Hockey. However, these cuts were as much ideologically as financially motivated, and signalled a return to the ‘trade as industry policy’ idea of the Hawke, Keating and Howard governments.

Thus the Enterprise Connect and mandatory Australian Industry Participation Plan (AIPP) schemes proposed by the Gillard government were axed before they were implemented, the government citing budgetary constraints and the need to cut red tape as the rationale.

In a similarly controversial move, the government announced the scaling back of the Automotive Transformation Scheme (ATS), introducing the 2014 ATS Amendment Bill to cut $500 million in funding from the scheme and terminate it completely in 2017, three years ahead of schedule.

The government also announced further plans to source up to 12 future submarines off-the-shelf from a Japanese company rather than building them at home. These moves were met with strong opposition from even within Coalition ranks, especially those MPs from the shipbuilding state of South Australia.

The controversial decisions taken on the ATS and submarines fuelled already existing leadership troubles for Abbott, who throughout his prime ministership had demonstrated a tendency to make policy on the run without Cabinet or wider consultation.

After surviving a leadership spill in February 2015, and in a return to the politically motivated, ad hoc policymaking of old, Abbott reversed the ATS and submarine decisions, again without consulting the party. Soon after, in September 2015, Minister for Communications Malcolm Turnbull challenged for the leadership and was installed as Prime Minister the following day.

Conclusion

Prime Minister Turnbull promised to end Abbott’s non-consultative approach to policymaking, and in his first month as prime minister called to Canberra a collection of leading business, union and social services representatives in an attempt to regroup and re-enliven serious policy debate.

What industry policy will look like under Turnbull remains unclear. The release of the Turnbull Government’s Innovation Statement in early December 2015 reversed many of the Abbott Government’s cuts to funding for science, research and commercialisation programs, and the government went to great lengths to emphasise that this was just the beginning of a renewed commitment in this area. However, given ongoing divisions within the LNP over climate change and renewable energy specifically, and an activist ‘trade and industry policy’ agenda more generally, it is impossible to predict the future direction of trade and industry policy during Turnbull’s tenure.

Dr Elizabeth Thurbon is associate professor in international relations and convenor of the Governance and Global Change cluster in the School of Social Sciences, UNSW Australia.

This article is an extract from Elizabeth Thurbon’s chapter ‘The Growing Partisan Divide in Trade and Industry Policy’ in Navigating the New International Disorder: Australia in World Affairs 2011-2015. It is republished with permission.