This is not new. Cars and electronics, for example, are produced with complex international production arrangements that depend on open trade and investment. We talk about ‘finer divisions’ of their supply chains and the consequences for trade and investment. There is a host of papers now on trade fragmentation which is so important to global trade and efficiency.

The same thing applies in services, or it could apply were it not for the restrictions that apply, particularly on foreign investment and the location of operations.

Qantas and other airlines (unlike manufacturing businesses) have been slow to adapt in this way because of the terms of the bilateral air services agreements that govern market access in air transport services.

Ownership and control and the location of business activity are criteria for access to the benefits of those agreements.

Yet the ability to invest offshore and run operations from offshore is critical to adjustment and competitiveness. The rules applying to aviation continue to hold this back.

A start in assessing the impact of alternative policy regimes is research on outsourcing in services in a wider range of businesses other than data processing or call centre. This won’t be easy, given the difficulties of separating out services transactions in the Balance of Payments data, so case studies might be one way to go.

Qantas could have been a good case to begin with, if only they had the opportunities to out-source a bit more!

* From p. 94 of The Flying Kangaroo – An Endangered Species?: an Economic Perspective of Australian International Civil Aviation Policy, by Christopher Findlay, published by Allen and Unwin, North Sydney, 1985.