Wednesday, November 16, 2011

Does Sophie know she is dumping on free trade?

When Jim asked me to have a drink with him I didn’t expect to be just sitting there watching him read ‘The Australian’ - and certainly not one that was a couple of days out of date. But when I looked more closely, he wasn’t actually reading. He was just scanning as though he was looking for something.

‘Ah, here it is’ he said at last. ‘What do you think of Sophie Mirabella?’

Sophie Mirabella is the federal opposition spokeswoman on innovation, industry and science. I told Jim that I thought Sophie was a clever lawyer. I said I would rather have her on my side of the argument than as an opponent.

‘What about the dumping issue?’ Jim asked.
I said that in my view she was out of order when she dumped on Julia Gillard a few months ago by comparing her to Muammar Gaddafi.

Jim replied: ‘Nah, I mean anti-dumping policy – preventing foreigners from selling goods here at prices lower than they charge in their home markets. Sophie writes here that dumping seeks to exploit Australia’s commitment to free trade and is a distortion of our domestic market’.

‘That’s crap!’ I said. ‘It is quite normal for firms to be able to sell goods in their home markets at prices that are higher than they can obtain in international markets. How could our domestic market be distorted by importing goods at the world price?’

Jim ignored my response and read on. After a minute, he said: ‘Sophie says that when Abbott comes to power she is going to provide for preliminary affirmative determinations (PADs) to “create a shift in the balance of anti-dumping investigations, requiring the foreign producer to prove its conduct hasn’t hurt the Australian industry”. What do you think of that?’

It was hard to know where to start. I could have said it seemed to me to be a peculiar legal principle to ask anyone to prove something that they are not capable of knowing. Instead, I reflected a little on the difficulty that lawyers often seem to have in coming to terms with economic issues. I said: ‘I think Sophie makes the same mistake that a lot of lawyers make when they get involved in economic issues. They see an economic practice that they can’t understand and assume that it must be unfair. In this instance, they see firms selling in export markets at a lower price than in their home markets and jump to the conclusion that they are engaged in some kind of unfair practice, such as predatory pricing. They don’t consider that the firms might be able to obtain higher prices on home market sales because of brand loyalty and other home market advantages. Her efforts to shift the balance in favour of domestic industry will just encourage the rent seekers.
Jim replied: ‘You don’t have a very high opinion of the ability of lawyers to understand economics, do you?’

When I protested to the effect that I think some lawyers have an excellent grasp of economics, he asked me to name one. The name that came to mind immediately was Richard Epstein. (Actually, that stretches the truth a little. I find that names rarely come to mind immediately. Richard Epstein’s name came to mind after just a moment’s reflection.)

Jim asked: ‘So, what does Richard Epstein say about anti-dumping policy?’ I mentioned that I had recently read a short article he wrote about the concept of fair trade that seemed relevant. I suggested that Epstein had made the point that it doesn’t make sense to view business practices in international trade as unfair that would be considered quite normal in inter-state trade within the United States. (When I just re-read Epstein’s article, ‘The “Fair” Trade Delusion’, however, I find that he didn’t quite use those words. And he seems to be implying that FTAs promote free trade – which is hard to sustain. But I am digressing - and at risk of spoiling my story!)

Jim’s line of questioning then took a surprising turn. He asked: ‘Do you think Craig Emerson would understand that the benefits of inter-state and international trade are basically the same?’

Craig Emerson, the current Minister for Trade, has a PhD in economics from a respectable university and knows quite a lot about international economics. I said I was sure that he would know that the benefits of trade between, say, Victoria and Western Australia would not be any less if Western Australia was in a different country.

Jim then said: ‘Then don’t you think you and your mates in Canberra should stop picking on Craig Emerson? How would you like to have Sophie Mirabella running trade policy? Or, perhaps even Doug Cameron, or Bob Katter?’

I responded that it must be time for me to buy Jim a drink.

On reflection, how can anyone respond to a suggestion that what seems to be a disappointment is actually a blessing compared with something worse that might happen? Even the GFC could look like a blessing compared to the aftermath of the European meltdown that the world might experience over the next few months if everything that could go wrong does go wrong. When I think about the approach that Sophie is proposing to take with anti-dumping policy, Craig does seem like a little blessing. My problem is that I thought having Craig in control of trade policy might be a huge blessing for the Australian economy, rather than just a little one.


Shona said...

Tell Jim to go to England and buy a bottle of Australian wine...

It seems that economics and policy is approached the same way people watch and comment on sport. They can only see the "harsh" judgements that affect their own team, not all those other things their team aren't penalised for and get away with.

Hope that makes sense. I guess fair play is something far too naive to strive for.

Next time you talk to Jim, can you ask him what he thinks about the Occupy Sydney movement? I'd love to hear.

Winton Bates said...

Shona, I think Jim might be in favour of occupying Wall St, but not Sydney!
I will ask him about it.

Nicola Moir said...

On the topic of free trade. A problem for Australian business has been that the currency has been so strong and we only get taxed on imports over $1000 while in the UK VAT is charged on any import above 15 pounds. I think that the Australia level of $1000 is too high. Is that part of anti-dumping legislation?

As for Occupy Sydney there are many reasons to Occupy. Things like the increasing wealth divide, support for the global movement, grassroot democracy, and the environmental challenges. These are just a few aspects. If you are interested you could head down to Martin Place and discuss ideas with people there. If you disagree with it go down and tell them and engage in a discussion. That is what it is all about... people talking about issues that effect society in a public space.

I would love to hear Jim's response too.

Nicola Moir said...

This is not related to your post but it is an article I thought you might enjoy:

Winton Bates said...

Nicky, the exemption for online purchases of less than $1000 is primarily about GST and customs duties. I get the impression from the Productivity Commission draft report on retail industry that removal of the exemption would raise collection costs more than would be collected in revenue and wouldn't do much to help local retailers in any case.

Jim wants to know whether the people occupying Sydney are the same rent-a-crowd mob who were involved in the anti-globalization protests a couple of years ago.

Nicola Moir said...
This comment has been removed by the author.
Nicola Moir said...

No the movement seems to have attracted a lot of new people who have never been involved in any protests before. There was an issue of the socialist parties trying to capture it but it is being resolved. In my opinion, it is definitely not a socialist, communist or even anti-capitalist movement according to many involved.

The website that attempts to be representative of the movement is: