Since the mid-1980s, Australian governments have undertaken the arduous process of transforming the Australian economy from inward-looking and protected by high tariffs and quotas to an open, competitive economy. In 2023, Australia’s highest tariff rate is just 5 per cent. There are no tariffs on most goods and on all imports from countries with which Australia has preferential trade agreements.
The lowering of trade barriers — complemented by a suite of other pro-competition reforms — led to record-breaking productivity growth and sharply rising living standards during the 1990s and early 2000s. But productivity growth has since faltered, with 2010–20 being the worst decade in 60 years.
What’s next for Australia as it seeks to lift productivity growth off the floor? Enter trade facilitation through the Simplified Trade System.
In the digital age and the impending age of artificial intelligence, Australia’s system of clearing imports and exports at seaports and airports more closely resembles the carbon copy age that predated personal computers.
A study by the Australian government’s Simplified Trade System Taskforce found that Australia has 145 trade-related government ICT systems, many of which rely on high levels of manual processing, are duplicative and fragmented and have limited interoperability and data sharing. Importers and exporters are typically obliged to provide the same data many times over to different agencies.
Developing a simplified trade system is the next big domestic opportunity for trade liberalisation following the era of tariff reductions. It offers valuable benefits, including reduced costs of trading with other countries and consequent gains as deadweight losses are minimised. The more competitive trading environment could also increase incentives for local firms to improve their productivity and reduce costs for exporters.
When members of the World Trade Organization (WTO) accepted the impracticality of negotiating the ambitious Doha Development Round — aimed at lowering trade barriers worldwide — as a single undertaking, they began showing interest in new pathways towards further liberalisation of trade and investment. An agreement, co-sponsored by Australia, was reached in 2014 and the Trade Facilitation Agreement came into force in 2017.
WTO economists attribute to the Trade Facilitation Agreement a 5 per cent increase in global agricultural trade and a 1.5 per cent increase in manufacturing exports from 2017–19. This equated to an estimated US$231 billion increase in global trade.
These gains were largely driven by trade growth arising from the Trade Facilitation Agreement in the least developed countries, where agricultural exports were estimated to have risen by 17 per cent and manufacturing exports by 3 per cent.
Further digitisation, data sharing and the deployment of emerging artificial intelligence will enhance the gains from trade facilitation.
As Australia moves towards a Simplified Trade System, it can draw on best practice in the Asia-Pacific Economic Cooperation (APEC) region from economies such as Singapore, Japan, South Korea, Hong Kong, China and the United States. If Australia develops best-practice technologies and processes through the implementation of the Simplified Trade System, it could do a service to developing APEC economies — and to itself — by sharing these advances throughout the APEC region and beyond.
The process of liberalising trade by reducing tariffs is more or less complete, leaving trade simplification as the next frontier. In pursuit of the Bogor Goals of free and open trade by 2020, APEC economies voluntarily reduced their tariffs to a point where the average tariff rate for most APEC economies is now below 5 per cent. Trade facilitation through the uptake of state-of-the-art processes and technologies is the next big opportunity for APEC economies to liberalise trade in goods.
As co-sponsor of the WTO’s Trade Facilitation Agreement and founder of APEC, Australia has an opportunity through an eventual Simplified Trade System to support further liberalisation of trade in the region and beyond.
With its annual merchandise trade exceeding AU$1 trillion, Australia stands to reap valuable gains from trade by pressing ahead and simplifying its systems for clearing imports and exports. By reducing the transaction costs and deadweight losses associated with unnecessarily complex regulations and providing incentives to improve the productivity of local firms, exported Australian goods will be more competitive and the delivered cost of imports will be lowered, generating clear national benefits.
Craig Emerson is former Australian minister for trade and competitiveness and CEO of Emerson Economics. He is Visiting Fellow at the Australian National University, Director of the Australian APEC Study Centre at RMIT University and Adjunct Professor at Victoria University.