Fairfax’s Peter Martin has revealed today that Australia’s Department of Foreign Affairs and Trade (DFAT) is effectively flying blind on trade agreements, failing to undertake independent analysis to work out whether past agreements have delivered positive outcomes:
Giving evidence to a parliamentary inquiry on Tuesday, the department’s first assistant secretary for trade agreements, Frances Lisson, said economic assessments were sometimes conducted before agreements were signed.
Asked whether any of that modelling had been subsequently checked against the actual outcomes, she replied: “Not that I am aware of.”
“I am not aware of any economic modelling that’s been, I guess, remodelled,” she said. “But certainly the objectives and that are outlined in the feasibility study are very much part of the negotiated outcomes, so the free trade agreements are only entered into when they achieve the objectives that have been set out to begin with.”
Labor MP Jim Chalmers expressed incredulity saying that the department was asking Australia to believe claims about future agreements with India and the Pacific bloc when it hadn’t checked the claims it had made in the past.
I am not surprised by this.
While working as the Australian Treasury’s trade analyst in 2003-04, I witnessed the Howard Government commission the Centre for International Economics (CIE) to undertake the modelling on the Australia-US Free Trade Agreement (AUSFTA), even though the Productivity Commission (PC) was available (and wanted) the job.
It was the belief of many at the time that the CIE was chosen over the PC because it would provide more favourable modelling results, making it easier for the Government to sell the deal to the public. By contrast, the PC was inherently skeptical of preferential trade agreements (for good reason), and it was feared that it would provide a poor assessment of the AUSFTA if commissioned to undertake the work.
Alas, the CIE delivered a glowing report on the AUSFTA, claiming that it would boost Australia’s GDP by nearly $6 billion. A large proportion of these gains came from a fanciful decrease in Australia’s “equity risk premia” – a result described by Professor Ross Garnaut at the time as “not passing the laugh test”.
A decade on, The Crawford School at the ANU delivered its assessment of the AUSFTA, which showed the agreement diverted Australia’s trade away from the lowest-cost sources. Australia and the United States reduced their trade with rest of the world by US$53 billion and are worse off than they would have been without the agreement.
The AUSFTA also included extensions to both patent and copyright terms, which has raised the cost of pharmaceuticals and copyrighted materials in Australia.
The PC’s Peter Harris also appeared at the parliamentary inquiry on Tuesday, and called for genuine independent analysis both before trade negotiations begin and after the deals are signed but prior to them being ratified. Back to Peter Martin:
“We should do better on transparency or we risk losing the consensus that has lasted for decades,” Mr Harris said…
The recently-signed Korea Australia agreement included 5200 separate so-called rules of origin delineating which inputs included in an export in order to give it preferential treatment. An earlier agreement with Singapore had one.
“It’s red tape, growing at a very healthy rate,” he said.
“It adding to the compliance costs of businesses as well as the costs to governments.”
So-called investor-state dispute settlement clauses included in the China and Korea agreements and planned for the Trans Pacific Partnership agreement would allow foreign but not domestic business to sue Australian governments in international tribunals.
“We would like to see analysis conducted that demonstrates the benefit,” Mr Harris said. “We are not alone on this. Senior representatives of Australia’s legal system have questioned why rights should be made available to foreign parties that are not available to domestic parties.”
Of course, the last thing governments want is transparency and accountability, which is why they prefer to use paid consultants to do the analysis of trade deals, or refuse to undertake any analysis at all.
Little surprise then that Australia’s trade agreements generally deliver poor outcomes.
