these households contain a relatively high proportion of nontraded goods whose prices would not rise by as much as those of imports and importcompeting goods. Households reliant on benefits indexed to the consumer price index, rather than wages, would likely be better off because wages would fall in general, whereas the consumer price index would be little changed. That said, workers in lesstraded service sectors, such as education and health, would likely benefit from higher wages as demand for their services increased. Figure 4.6 Global tariff increases would see Australian average living standards fall in all deciles Percentage changes in purchasing power Data source: Commission estimates generated using the PC Global and PC National models. The average falls mask considerable variation in outcomes within deciles (figure 4.7). Nearly 80 per cent of households would face lower living standards, notwithstanding the assumption that the social support system remains intact. For some of these households the fall would be relatively small but, for nearly 30 per cent, the purchasing power of their income would be at least 4 per cent lower. To put this into context, a household that spends $2500 a fortnight on goods and services would be worse off by $100 a fortnight. The magnitude of the fall would depend on how a household’s wages, returns on savings and investments and the prices for the things they consume changed. Households that were larger consumers of imports and importcompeting goods and those with a greater reliance on income from capital would be more severely affected. For a minority of households (just over 20 per cent) the effect on living standards be positive. Households at the lower end of the income distribution would be more likely to be in this group, for the reasons outlined above in explaining why the average fall in living standards is smaller for lower income deciles. In higher deciles, the main driver for
6.4 A plurilateral approach to negotiation can bring many of the benefits of multilateral negotiation and may be a stepping stone to multilateral liberalisation. Australia should continue to invest effort in the development of plurilateral or sectorspecific agreements, especially those that allow most favoured nation treatment and that can be incorporated into the World Trade Organization. Only preferential agreements with net benefits should proceed Despite the issues raised by PTAs, they are an option for reducing barriers to trade and investment in partner countries in situations where broader agreements are unlikely to be reached. The benefits will vary with the characteristics of the agreement and of the trading partners. They are likely to be higher from nonpreferential agreements that adopt the MFN principle. Where there are a large number of parties to an agreement, cumulation (treatment of inputs from any partner country as local content in calculating the rules of origin) can come close to MFN treatment, as it expands the share of exports that are eligible for the preference (usually through lower tariffs). the complexity and diversity of agreements, the Commission and others have previously argued the case for adopting a more evidencebased approach to developing trade agreements (JSCTIG 2015; PC 2010, 2015b). It is important that the benefits and costs of a proposed agreement are assessed upfront, and compared with the net benefits of other options for achieving similar reductions in trade and investment barriers. Australia’s approach to the assessment of PTAs be much improved. Current processes fail to assess the impacts of prospective agreements adequately and they do not systematically quantify the costs and benefits of agreement provisions and alternative arrangements, such as unilateral reform (PC 2010). 6.5 Preferential trade agreements are an option for reducing barriers to trade and investment in partner countries. They should only be pursued if a strong case can be made that there is a net benefit and in situations where broader agreements are unlikely to be reached. Agreements that adopt the principle of most favoured nation or cumulation (treatment of inputs from any partner country as local content) have been shown to generate higher benefits. Consultation processes could be improved The increasing depth and breadth of issues covered by trade agreements has amplified the importance of good consultation processes in their negotiation. Australians would benefit from processes that enabled greater consultation and transparency in the development of
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