Labor talks sense on free trade agreements

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By Leith van Onselen

For years, MB has criticised Australia’s free trade agreement (FTA) processes and outcomes, and campaigned for the Productivity Commission (PC) to rigorously assess any new deals before they are ratified by the government.

While our pleas have fallen on deaf ears within the Coalition Government, it seems Labor is listening. From The AFR:

All new free trade agreements will have to be independently analysed to highlight both economic benefits and downsides before they are signed, federal Labor will pledge today…

Delivering the third instalment of Labor’s FutureAsia policy, shadow trade minister Jason Clare will promise to have the Productivity Commission conduct an economic analysis of every FTA before it is signed…

“The two major political parties both support free trade. With good reason, we rise and fall on what we sell to the rest of the world.

“But … if we want to avoid the sort of anti-trade and anti-globalisation backlash that we have seen in the US and elsewhere we have got to do something about the growing gap between wealthier and poorer Australians”…

Mr Clare will say while equality needs to be addressed at a domestic policy level, having the Productivity Commission analyse future FTAs will be “a practical, commonsense way to address some of the scepticism that often surrounds these agreements”.

“It will be an honest assessment of the deal, done at arm’s length from government. It will identify the benefits and the costs. What it means for jobs, household income and different sectors of the economy as well as the strategic and other non-economic benefits.”

He will say the problem with the current set-up is that an FTA is signed and then a report prepared by the Department of Foreign Affairs and Trade “outlining why the agreement is in Australia’s national interest”.

“Given all the scepticism that exists I don’t think it’s good enough to rely on a report from the same people who negotiated the deal that says it’s a good deal. It should be independently assessed,” he will say.

The PC has long been skeptical of Australia’s FTAs. For example, last July it noted the following about recently concluded deals:

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The benefits of increased merchandise trade emanating from bilateral trade agreements have been exaggerated.

Different and complex rules of origin in Australia’s preferential trade agreements are likely to impede competition and add to the costs of firms engaging in trade.

The nature and scope of negotiating remits should be assessed from a national structural reform perspective before entry into negotiations, rather than primarily for export opportunities. The text of proposed trade agreements should be made public and a rigorous analysis independent of the negotiating agency published with the final text.

The Australian Government should seek to avoid the inclusion of Investors-State Dispute Settlement (ISDS) provisions in bilateral and regional trade agreements that grant foreign investors in Australia substantive or procedural rights greater than those enjoyed by Australian investors.

The history of Intellectual Property (IP) being addressed in preferential trade deals has resulted in more stringent arrangements than contained in the multilateral agreed Trade-Related Aspects of Intellectual Property (TRIPS). Australia’s participation in international negotiations in relation to IP laws should focus on plurilateral or multilateral settings. Support for any measures to alter the extent and enforcement of IP rights should be informed by a robust economic analysis of the resultant benefits and costs.

Hence, Labor’s pledge to make the PC the gatekeeper is sound and should help to improve FTA outcomes going forward.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.