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.