A group of eight Australian academics have penned a piece in The Australian questioning the efficacy of Australia’s recent free trade agreements (FTA) and their purported benefits:
Australian National University economist Shiro Armstrong has… used the analytical framework developed by the Productivity Commission, and the decade of performance data since AUSFTA came into force, to conclude that “the data shows that … Australia and the United States … are worse off than they would have been without the agreement”.
He says: “The agreement was responsible for reducing — or diverting — $53.1 billion of trade with the rest of the world.”
Armstrong’s ANU colleague Peter Drysdale has measured that cost in terms we can all understand: “Australia alone has suffered trade losses the annual equivalent of the current price of around 18 Japanese, German, Swedish or French submarines through this deal”…
While we cannot now change how we negotiated the agreements with the US, Japan, South Korea and China, we can ensure that it does not reflect how we approach future negotiations…
There is no conflict between the need for secrecy during negotiations and a process that provides transparency and a negotiating agenda that secures the efficiency gains available…
That would involve the Productivity Commission providing a basis for Australia’s market-opening offers by conducting a public inquiry and reporting to government before future negotiations get under way. Its report would be released only when negotiations are complete. This would preserve secrecy during negotiations while providing for parliamentary and public scrutiny of the outcome before ratification. It would reflect the transparency arrangements that prepared the way for the reforms of the 1980s and 90s…
There seems to be a growing acceptance that the FTAs negotiated by successive Coalition governments have been over-hyped but under-delivered.
In addition to the concerns above regarding the Australia-US FTA (ASUFTA), Peter Martin noted in July that a study commissioned by the Government “on the new Japan, Korea and China agreements found that taken together they will boost our exports 0.5 to 1.5 per cent, while boosting our imports 2.5 per cent, which means they will send our trade balance backwards”.
The key problems with Australia’s FTAs are multi-faceted.
First, FTAs generally result in “trade diversion” – effectively a situation whereby the importing country shifts its buying from a more efficient, lower cost country whose goods are subject to a tariff towards the less efficient and higher cost FTA partner whose goods are not subject to a tariff – a situation that can be welfare destroying. They also contain complex rules of origin (ROO), which can raise administrative costs for businesses (including complying with paperwork requirements) and custom services in administering and auditing the ROO, thereby undermining the benefits from the FTA. Both these pitfalls are explained in more detail here.
Second, research by HSBC and the Australian Chamber of Commerce and Industry found that Australia’s FTAs have been drafted poorly and are so complex that they are next to useless in a commercial sense. As such, there has been a poor take-up rate by Australian businesses exporting to partner countries.
Third, AUSFTA and the Trans-Pacific Partnership highlight another other potential hazard creeping into modern FTAs: the inclusion of non-trade provisions, such the extension of patent and copyright terms, which will increase costs for Australian consumers over the longer-term, as well as relaxing foreign ownership restrictions.
Finally, as noted in the article above, there is currently no rigorous process in place to ensure that Australia’s maximises the benefits from FTAs and minimises their costs. At a minimum, the Productivity Commission should be engaged to analyse trade deals for their equity and efficiency impacts both before and after negotiations are completed.
Unfortunately, there is no acknowledgment by the Turnbull Government of these issues, and certainly no indication that it will implement better processes towards negotiations. Instead, it has signalled that the Government will continue its ad hoc, evidence free, approach and attempt to conclude more agreements this electoral term, presumably for political rather than economic reasons, and without due regard for longer-term consequences.
Such is the sorry state of policy making in this country.
