Productivity Commission slams TPP trade deal

By Leith van Onselen

The Productivity Commission (PC) has released its Trade and Assistance Review, which is scathing of Australia’s recent bilateral and regional trade deals because of their deleterious impacts on efficiency:

Although the priority given to these and future bilateral agreements is often justified on the basis of the value of gross export flows from Australia (and the potential for expanded market opportunities) these gross measures of trade are misleading indicators of actual trade. They do not take account of the trade diverted from non-partners which may be lower-cost producers, the efficiency costs of preferential arrangements or the opportunity costs of preferential arrangements relative to unilateral or multilateral approaches…

Preferential trade agreements add to the complexity and cost of international trade through substantially different sets of rules of origin, varying coverage of services and potentially costly intellectual property protections and investor-state dispute settlement provisions.

The PC has also called on the texts of Australia’s trade deals to be publicly released for scrutiny before they are signed:

The emerging and growing potential for trade preferences to impose net costs on the community presents a compelling case for the final text of an agreement to be rigorously analysed before signing. Analysis undertaken for the Japan-Australia agreement reveals a wide and concerning gap compared to the Commission’s view of rigorous assessment.

With regards to the Trans-Pacific Partnership (TPP), which is in the final stages of negotiation, the PC is concerned that it will bolster intellectual property rights protections, thus leaving Australian consumers (and taxpayers) worse-off:

…based on US media access to the current draft text, it appears likely that the TPP will include obligations on pharmaceutical price determination arrangements in Australia and other TPP members, of an uncertain character and intent. The history of IP arrangements being addressed in preferential trade deals is not good. Indeed, to the extent that the return to IP holders awarded by more stringent IP laws outweighed the benefits to the broader economy, the provision would also impose a net cost on both partners, lowering trading and growth potential across the bloc.

The PC is also concerned the TPP will grant legal rights to foreign investors via Investor-State Dispute Settlement (ISDS) clauses, which could expose the government (and taxpayers) to potentially large law suits:

There is also a risk that specific provisions within these agreements including those relating to intellectual property, investor-state dispute settlement and product-specific rules of origin will impose net costs on trading partner economies.

… the absence of any rigorous and transparent assessment of the agreement before government commitment is a critical failure in transparency. Post-negotiation assessment cannot lead to amendments of the agreed text only in the Government deciding not to proceed with ratification (PC 2014g). And the Commission is unaware of any trade agreement that has been rejected in response to such post-negotiation assessment.

Finally, the PC notes that the ISDS law suite taken against Australia’s plain package cigarette laws by tobacco giant Philip Morris, under an obscure investment agreement with Hong Kong, has already cost Australian taxpayers plenty, and cautions against including ISDS in future agreements, such as the TPP:

[Philip Morris Asia] is asking an arbitration panel to suspend the law and award substantial compensation for the financial damage that plain packaging will cause by commoditizing the cigarette market in Australia. (PMI 2014)…

…the ongoing costs to Australian taxpayers of funding the preparation and defence of the tobacco plain packaging legislation are likely to be substantial. Since the dispute was lodged, there have been eleven procedural orders determined by the PCA requiring legal representation by both parties.

…[There is] a lack of transparency regarding the true cost of including ISDS provisions in Australia’s trade agreements and investment treaties. The open-ended nature of these costs needs to be taken into account in any discussion regarding the appropriateness of such provisions and consideration of the net benefits (costs) that they entail.

Overall, the PC has delivered a damning assessment of Australia’s recent trade deals, and the TPP in particular.

The Abbott Government should heed its warning, rather than selling Australians out to corporate interests.

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Unconventional Economist
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  1. It’s great seeing some highly placed public servants show some backbone in the face of political clowns who are determined to sellout our sovereignty.

    • Yeah it’s interesting the bureaucrats are becoming more vocal as the government flounders around playing politics. There is hope St Jaques!

  2. So how tough is it to get out of these trade deals, should a future review find that they are not delivering for us?

      • deanis123MEMBER

        “I believe primarily that a treaty must be ratified via passing legislation that gives it effect. It must be tabled in the Parliament after it is signed with a National Interest Analysis. As it effects business or restrict competition it will probably need a Regulation Impact Statement too.”

        As Jason said, the current parliment could block measures to give effect to the treatie, or opt to formaly withdrawl from the treatie.

    • Usually it is just an Act of Parliament that can get you out of it.

      However, your international reputation will be trashed so better not to get into them in the first place.

  3. The PC, media and everyone else is under the false impression that if they simply produce more logic and evidence that Abbot and LibLab in general will realise they were mistaken and change their stance. The truth is, the government on both sides is full of evil, bought and paid for tyrants who wants nothing more than maximal suffering for us at the expense of their wealthy friends.

    Only when we accept this, can we actually start to consider appropriate responses. A mass protest would be a good start but that ain’t going to happen anywhere. Perhaps a media campaign on TV would work as our grey army get scared of rising medication and entertainment prices?

    Both government would genuinely need to fear losing the next election by a landslide to value us over their elite friends. It wasn’t long ago that a study was done showing that public opinion has no effect on policy decisions. We need to push harder, MUCH harder.

    • I don’t usually pay for stuff, but if someone organised a TV campaign, I’d chip in for it. Maybe kickstarter? Something like the miners pulled with the mining tax would work wonders. Maybe Clive can kick it off.

    • rob barrattMEMBER

      Won’t happen Phroneo
      I went to join the Brisbane protest against that [email protected]#*wit Conroy’s attempt to censor the internet (now being imitated by the Great Gaffer). Only a handful of people turned up. A guess the weekend visit to Coles is more important to the great Australian public.

  4. Can I ask a really silly question?

    Can’t we like, you know, just not turn up to court?

    Call it an ambit claim, then just not turn up.

    • It’s not a stupid question.
      As there is no overarching international authority, and each nation remains sovereign, Australia could simply say that it does not wish to participate or recognise the validity of the ISDS. No one is going to invade us, and there is no international court that can enforce its decisions without the agreement of the sovereign. However this probably would be tantamount to simply leaving the FTA in question, as other states (particularly the US) would apply strong political pressure or seek to take retaliatory trade measures. If you pulled something like this in the WTO it would be a different story.

      It is a bit of a vexed and interesting question – but a moot point really. Neither of the Libs or Lab would repudiate or withdraw from something like this. It is simply not conceivable.

      One of the paradoxes of any international law regime – it really works best when it is unquestionably in the interests of all parties to have a rules based system (e.g. shipping and maritime law, aviation et al)

  5. More here…interesting bit on ISDSes.

    Investor State Dispute Settlement (ISDS)

    In brief, an Investor State Dispute Settlement (ISDS) provision is a ‘procedural mechanism’ that has the primary aim of protecting a foreign investor against a decision by a host government to expropriate its investments, including IP rights and assets, without fair compensation.

    Advocates of ISDS such as the United States Council for International Business argue that ISDS provisions can increase investment in the host country and potentially encourage the creation of a stable foreign investment regime. The inclusion of ISDS is particularly important, advocates argue, when dealing with developing countries with less robust legal and institutional frameworks.

    The Productivity Commission however, found that available evidence does not point to the existence in Australia of a market failure warranting the use of ISDS. There is evidence that while the inclusion of national treatment provisions (treating domestic and foreign companies equally) within trade and investment agreements has a positive impact on the flow of investment to the host country, the inclusion of ISDS does not. Further, ISDS provisions can give foreign investors privileges that are not available to domestic firms.

    In Australia, the Senate Standing Committee on Foreign Affairs, Defence and Trade considered a 2014 Bill that aimed to prevent the Australian Government from entering into trade and investment treaties that include ISDS provisions. While the Committee recommended that the Bill not be passed, the issue of ISDS attracted a significant degree of attention—the committee received over 11,000 emails from individuals opposing ISDS.

    In Australia, these concerns were echoed in the Productivity Commission’s 2010 report on Australia’s trade agreements. In that report, the Commission noted that ISDS provisions in essence shift political risks ordinarily associated with foreign direct investment from international businesses to elected governments. The report recommended that the Australian Government should ‘seek to avoid accepting provisions in trade agreements that confer additional substantive or procedural rights on foreign investors over and above those already provided by the Australian legal system’ (p. xxxii).

    The issue of whether countries such as Australia, with its well-functioning, respected and independent legal system, should be offering international businesses the opportunity to challenge the decisions of national courts, was also raised by the Chief Justice of the High Court in a 2014 conference paper.

  6. Crocodile Chuck

    So when is Andrew Robb going to be arraigned for treachery?

    Will he be stripped of his AUS citizenship and deported?

  7. The tobacco case is already prepared through the existing law suit. Additional Companies can work off the back of that. The most ironic is the case for wind generator manufacturers; they have clear evidence the government is restricting their trade in the form of abbott statements, and another minister saying they would be three times the size to meet our carbon target by 2020 if they weren’t restricted. Noone has warned the farmers or winegrowers how much their costs will go up for inputs … and on and on. It’s interesting how immune to reason ideologues can be.

  8. I’ve heard and read plenty of negatives surrounding the TPP…..but what would Andrew Robb say are the positives….????