We Need a Freestanding Trade Department

Aug 4, 2020

Our difficult relationship with China in recent years highlights once again the need for a free-standing Department of Trade, led by a very senior Minister, to ensure our trade and commercial relationships with other countries are adequately represented in any Cabinet deliberations.

For 34 years I have had an unshakeable belief that the merger of the Department of Foreign Affairs with the Department of Trade was a mistake. This merger, announced on 14 July 1987 (14 July being a very fine date for revolutions!), was one of a number of mergers engineered by John Dawkins in his capacity as Minister Assisting the Prime Minister (Hawke) in Public Service Matters. The rationale for the mergers was that they would bring about greater efficiency, would enable more integrated policy approaches, and would reduce conflict in Cabinet. My objections are both “in principle” and practical.

To deal first with the matter of principle. Reducing conflict in Cabinet is a nonsense objective – one which goes to the heart of our Westminster system of government. Cabinet is the highest decision-making body in the land. It is an informal grouping of the most senior Minister, convened by the Prime Minister, to determine a common position on the most important matters of the day. It is that body which determines where the government of the day believes the national interest lies. The highest and best use of the limited time of these senior Ministers is when they turn their minds to matters on which different aspects of the national or public interest collide. When these colliding interests are merged in a single Department, we are leaving the resolution of these conflicts to unelected officials within that Department, rather than the most senior elected politicians deliberating as a group.

That is why it is wrong in principle to have, for example, a Department of Energy and the Environment. When, for example, there is a question of coal mining under a Sydney water catchment, or a proposed coal mine (Shenhua) threatens the water table on the Liverpool Plains, where do we want the decisions to be made – within the relevant Department, or over the Cabinet table?

As far as putting trade and foreign affairs under the one roof is concerned, I would note in passing that they are separate heads of power under the Commonwealth Constitution. Section 51 of the Constitution lists the legislative powers of the Federal Parliament. Top of the list? Section 51(i) – trade and commerce with other countries, and among the States. Way down the list, below quarantine (s.51(ix)), weights and measures (s.51(xv)), marriage (s.51(xxi)) and the influx of criminals (s.51(xxviii)) we have external affairs (s.51(xxix)).

To deal with the practical issues, the “efficiency” and “integrated approach” arguments are easily disposed of. Prior to the merger, in January 1986, John Dawkins had already spun the Trade Commissioner Service, a key and longstanding asset of the Department of Trade, off into the Australian Trade Commission (Austrade) – which was initially located in the Industry and Commerce portfolio under John Button. As a result, we lost the ability to have seamless alignment between trade policy (the negotiation of access arrangements) and our marketing priorities. So with the merger that brought about DFAT we still had two bodies responsible for aspects of our trade, and the heart and soul of our trade effort was split asunder. Trade Commissioners who staffed Trade’s overseas posts, and had been under the day to day direction of the Department Secretary and staff, were suddenly answerable to a statutory authority in another portfolio.

Equally important in its consequences, our economic relations with other countries became just a subset of foreign policy, which, given our ever-present anxieties about our security, was often subordinated to the security relationship with the United States. There continued to be a Minister for Trade, but that Minister was No. 2 in the portfolio, not the Portfolio Minister. In the status-conscious world of diplomacy this matters, and it began to matter at home as well. In the grand days of the Country Party the Minister for Trade and Industry (Jack McEwen) or Minister for Trade and Resources (Doug Anthony) was the Deputy Prime Minister and Leader of the junior party in the Coalition. The Minister for Trade was a senior National throughout the Howard years but by the time of the Abbott and Turnbull Ministries the Trade Minister was a Liberal (Andrew Robb) and well down the seniority list (19th of 22 in the Malcolm Turnbull’s second Cabinet).

Does any of this matter? Let us hear it from a very senior figure who thinks the merger was a great idea. At a function on 24 July 2017 to mark the 30th Anniversary of the creation of DFAT, Department Secretary Frances Adamson recounted some of the history of the Department of Trade. The salient part of her speech was:

The Department of Trade was born in 1956 as a result of the merging of the Department of Trade and Customs and the Department of Commerce and Agriculture, with the formidable Sir John McEwen as Minister and Sir John Crawford as Permanent Secretary.

McEwen and Crawford embarked on a policy course of action that would see Australia retreat from the Imperial tariff preference system and begin to develop new markets.

At that time, the real problem for Australia was that its fundamental interest in fair agricultural trade globally was not supported by the major industrialised countries. This was a core factor behind the decision to maintain high levels of protection for the manufacturing sector.

But no discussion of the Department of Trade’s achievements from that era can be complete without reference to the landmark Australia-Japan Agreement on Commerce, signed by McEwen sixty years ago this month – a far-sighted agreement that is still shaping our national economy sixty years later.

At signature, 39 per cent of our bilateral trade was with Britain – compared with just over 4 per cent today.

Seven per cent of our bilateral trade was with Asia, compared with 55 per cent today.

Importantly, this agreement also gave Australian households access to affordable Japanese high-technology imports.

Crawford, perhaps more than any other official of that time, was responsible for winning the argument on the merits of an agreement with Japan (emphasis mine), something he recognised as key to Australia moving to embrace East Asia as its trade and economic future. In fact it was Crawford who coined the term ‘Near North’ to replace ‘Far East’ to encapsulate his view that Australia could no longer afford to take its bearings from a UK perspective.

The agreement with Japan was the first step towards the exponential growth of our resources industry – with Japanese long-term purchases of raw materials putting towns like Port Hedland on the map.

Consider the circumstances of 1957, the year in which the Australia-Japan Agreement on Commerce came into being. The US Occupation of Japan had ended only five years previously. In Australia memories of the Pacific War and of the treatment of Australian prisoners of the Japanese were raw and fresh. With Japan in mind ever-anxious Australia had managed to persuade an unenthusiastic United States to conclude the ANZUS Treaty just one week before the signature of the Peace Treaty with Japan in 1951. Does anyone think a lesser combination than Crawford’s intellect backed by McEwen’s political clout could have overcome prevailing attitudes to bring about that historic agreement, when Japan represented just a few percent of our trade? Some trade specialist working within a unified department, responsible to the Minister and Secretary whose main concern was inevitably our relationship with Britain and the United States?

On a less important scale I witnessed at first hand several occasions when the Trade and/or other economic Ministers prevailed in Cabinet over strongly held views advanced by the Foreign Minister that we should fall into line with “our major allies and trading partners”, on matters to do with the Law of the Sea, our response to the Middle East oil shocks of the mid-1970s, and relations with Iran.

Today the Minister for Trade, Tourism and Investment (Senator Simon Birmingham) is more senior than in the Abbott or Turnbull Ministries, but in the management of our trade with China he has been almost invisible, and our relationship with China has been allowed to deteriorate to the point where he cannot pick up the phone and speak to his Chinese counterpart. This is an extraordinary situation. China is by far our largest trading partner; in 2018-19 China took 36.1% of our worldwide merchandise exports, and was the source of 24.5% of our imports. China represented 30.7% of our two-way merchandise trade; the second and third on the list are Japan (11.7%) and the United States (7.0%).

Merchandise exports were worth $134.7 billion in 2018-19. Iron ore exports, valued at $63.1 billion, represented almost half of that total; so important are our iron ore exports to China that the volume and price of iron ore has, via tax revenues, a significant bearing on the government’s budget outcomes.

So when all of the public statements about China are made either by the Prime Minster – for example in his call for an inquiry into China’s (and WHO’s) handling of the outbreak of COVID-19 – or the Foreign and Defence Ministers sharing a platform with US Defense Secretary Mark Esper and Secretary of State Mike Pompeo, we are bound to ask, where are our commercial interests in all of this? What airing do they get when Cabinet is discussing the strategic and defence aspects of our relations with China? It is not at all reassuring to consider that by law, the Secretary of the Department of Foreign Affairs is the principal policy adviser to both Ministers. When our foreign and trade policies collide, one could hardly expect Secretary, DFAT to provide the junior Minister with advice that would enable that Minister to overturn the Portfolio Minister in Cabinet.

As a former Defence Secretary I would be one of the last people to say that our defence or foreign policy should automatically be set aside in favour of commercial considerations, but I am firmly of the view that our trade and commerce with other countries should be represented in Cabinet by a senior figure who is advised by an independent department.

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