Trade Minister Steve Ciobo has redoubled the Coalition’s pledge to “free” trade and investment, vowing to push ahead with more “free trade agreements” (FTAs) in this term of government. From The AFR:
Mr Ciobo said it was “crucial” that the government continues to be strong advocates of free trade. “We need to redouble efforts [in convincing Australians of] the benefits for Australia from free and liberalised trade. We also need to highlight the history which also explains in a way better than most can about how free and liberalised trade has helped to grow national prosperity,” he said…
“I think it’s crucial that governments outline why opening up export opportunities for Australian businesses is not only good for Australia because it provides extra economic growth and improved job prospects but also highlight the many many examples we’re richer as a direct consequences of trade deals,” he told The Financial Review.
Ciobo has said previously that the Government is seeking FTAs with Indonesia, India, and potentially the European Union in this term of government.
Unfortunately, Ciobo’s spin around the benefits of FTAs does not mesh with reality.
Peter Martin noted last week 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”. Hardly a ringing endorsement, is it?
In a similar vein, the Crawford School of Public Policy at the ANU conducted a study of the Australia-US FTA, and found that a decade after signing, the agreement had diverted more trade than it has created.
Research by HSBC and the Australian Chamber of Commerce and Industry also found that Australia’s FTAs have been drafted so 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.
The Australia-US FTA and the Trans-Pacific Partnership also highlights other potential hazards 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 relaxed foreign ownership provisions.
Ciobo also seems confused over the issue of foreign “investment”, which he claims is inherently beneficial. This is only the case when genuine investment takes place that boosts the productive capacity of the economy, generating economic activity and jobs (e.g. building a factory or creating a new industry).
Unfortunately, most of the foreign “investment” taking place in Australia is actually just the transfer of “ownership”, whereby no real investment (capital deepening) takes place. Examples include the widespread sale of Australian homes, farms and land.
Foreign ownership is akin to “selling the family jewels” and should be discouraged, whereas genuine foreign investment adds to the nation’s productive capacity, and should be encouraged. Yet Ciobo sees no difference between the two and does not understand why Bob Katter, Nick Xenophon, and others have reservations.
In May, Ciobo even tried to claim that overseas buyers were “absolutely not” contributing to house prices – a laughable suggestion if ever there was one.
My overall view is that FTA’s have the potential to offer modest trade benefits if executed well. However, this requires the Government to implement a proper process around negotiations, including engaging the Productivity Commission (PC) to analyse trade deals for their equity and efficiency impacts both before and after negotiations are completed.
To date, the Coalition has shunned the PC altogether and instead forged ahead with FTAs in an ad hoc, evidence free, manner for political rather than economic reasons, and without due regard for longer-term consequences. Accordingly, they have so far resulted in poor outcomes for the Australian people.
Rather than trying to sell us on the virtuous benefits of “free trade”, Ciobo should instead focus on putting rigorous processes in place to ensure future FTAs actually deliver as promised for the Australian people.
