PRODUCTIVITY COMMISSION by Peter WestmoreNews Weekly
Free trade agreements of doubtful use: review
, July 18, 2015
In its recently published Trade and Assistance Review 2013-14, the Productivity Commission has questioned the benefit to Australia of the much-touted free trade agreements, pointing out that they have never been subject to proper cost-benefit analyses.
The Productivity Commission is a significant influence on government policy, and has traditionally been one of the main drivers of free trade policy within the federal bureaucracy.
It has frequently criticised government support for Australian industry, and its latest review continues that position.
Its position on these issues is weakened by the fact that it does not take account of the social and indirect economic benefits of policies to support Australian industry, nor the fact that Australian primary and secondary industries are often faced with heavily subsidised imports from overseas competitors. However, its critique on the value of free trade agreements for Australia looks purely at the impact of free trade agreements on the Australian economy and people.
Bilateral trade agreements are a relatively recent innovation. Australia’s first bilateral agreement, with New Zealand, was signed in 1983. This was followed by agreements with Singapore (2003), Thailand and the U.S. (2005), Chile (2009) ASEAN (2010), Malaysia (2013), Korea (2014) and Japan (2015).
An agreement with China has been reached (after 10 years of negotiation), but its full terms have not been published, nor tabled in Federal Parliament.
The commission said: “The proliferation of preferential trade agreements at the bilateral and regional level (referred to commonly as ‘free trade agreements’) is adding to the complexity and business transaction costs of the international trading system.
“However, the practical impacts of agreements being entered into by Australia remain unclear and highlight the need for thorough evaluation of the negotiated agreement text prior to their signing.
“In substance, the devil resides in the detail of these agreements and full and transparent analysis is not afforded to the final texts for many of them.”
The commission criticised the distortions introduced by agreements that imposed different product-specific rules of origin for merchandise trade and ownership-based origin rules for services and investment.
It also said that some agreements granted rights of legal recourse for commercial loss to foreign investors not available to national investors, and linked to this, imposed more stringent intellectual property rights protection on Australians than existed previously.
Free trade pharmeceuticals
This has been of particular concern in the pharmaceutical industry, where free trade agreements have empowered drug companies to extend patent protections and impose higher costs on imported pharmaceuticals.
The commission also expressed concern at the gap between the hype and the reality of free trade agreements. It said that “current assessment processes in Australia fall well short of what is needed to adequately assess the impacts of prospective agreements”.
“This is reflected in the wide and concerning gap identified in comparing the assessment analysis undertaken for the Japan-Australia economic partnership agreement (EPA) with the commission’s previously published benchmarks of what constitutes a comprehensive pre-execution assessment.
“Current assessment processes do not systematically quantify the likely costs and benefits of negotiated texts to an agreement, fail to consider the opportunity costs of pursuing preferential arrangements compared to unilateral reform and ignore the extent to which agreements actually liberalise existing markets.”
The commission was also sceptical of the extent of additional liberalisation achieved through these agreements.
It said that “an index-based analysis by the WTO indicates that services provisions negotiated under the ASEAN-Australia-New Zealand agreement added little if anything to those already afforded by services commitments under the General Agreement on Trade in Services (GATS)”.
“On the other hand, application of the same methodology to the analysis of bilateral concessions under the Australia-U.S. agreement indicated a substantially higher level of bilateral concessions by Australia than afforded under GATS commitments.”
The commission raised similar concerns over the Trans-Pacific Partnership, which Australia and 11 other nations have been secretly negotiating.
While applauding the stated objectives of the TPP, the commission said: the confidential nature of the TPP negotiating text “makes an objective assessment of these aspirations problematic”. It added that the absence of any rigorous and transparent assessment of the agreement before government commitment was “a critical failure” in transparency.
“Post-negotiation assessment cannot lead to amendments of the agreed text, only to the Government deciding not to proceed with ratification. And the commission is unaware of any trade agreement that has been rejected in response to such post-negotiation assessment.”
Peter Westmore is national president of the National Civic Council.