ABC Rural | Apr 17, 2013
Free trade agreements no farm saviour, analysts warn
By Caitlyn Gribbin and Flint Duxfield
Ask any of Australia’s farming groups about the importance of free trade agreements and you’re likely to receive a similar response.
"Just get them out there and get them signed and hopefully that will help the farm gate price," says Jock Laurie, who was until recently the president of the National Farmers Federation.
The dairy industry has a similar perspective on the FTAs Australia is currently negotiating with China, Japan and Korea.
"In terms of the gains for the Australian economy, we see it as all upsides," says Dairy Australia’s Charlie McElhone.
"The dairy industry is paying about $250 million a year in tariff revenue alone to external governments that gets in the way of our trading relationships to those markets."
But as the Chinese FTA negotiations enter their ninth year questions are being asked as to what benefits are actually likely to come to Australia’s rural sector through these FTAs.
"Studies have found that these free trade agreements are fairly ineffectual," says Dr Jeff Wilson from the Asia Research Centre at Monash University.
"The track record of signing FTAs with other countries in the past has been to except agriculture either entirely or at least some of the particularly sensitive sectors."
Japan recently announced that this is the approach it intends to take in negotiating its agreement with Australia. According to Dr Wilson this makes it all the more likely that the FTAs will result in political agreements which won’t bring substantial tariff reductions on agricultural goods.
"While these countries are saying they’re unwilling to liberalise agriculture in a meaningful way the benefits for the Australian government are significantly lower," he said.
Associate Professor John Lee points to major obstacles on the road to these free trade agreements, particularly when it comes to investment.
"The Chinese potentially want there to be provisions that will bypass the foreign investment review board procedures and the national interest test that could block foreign investment," he said.
"What the Chinese really want is a situation where if there are changes made to investment rules, then there will be consultation with the Chinese ministries before those changes take place."
"I don’t think that’s acceptable to either side of politics in Australia, so that’s why I think that’s one major obstacle to an FTA."
Both the Government and the Opposition have said they won’t be giving ground on this investment provision. The Coalition’s policy is to increase scrutiny of foreign investment by reducing the trigger for the review of foreign purchases from $244 million to $15 million.
The Trade Minister Craig Emerson admits that the Chinese agreement is still a long way off. On the Korean and Japanese agreements though, he’s more optimistic.
"There’s only a couple of issues remaining, it’s not as if there are forty issues," he said.
But one of those sticking points, at least in the case of Korea, is the highly sensitive area of investor-state dispute settlement (ISDS) mechanisms. These are provisions which would allow a foreign company to take the Australian government to court if policies are introduced which threaten their profitability in Australia. It’s under this mechanism that tobacco giant, Phillip Morris, is challenging the government’s plain packaging rules on cigarettes.
The Coalition’s trade spokesperson, Julie Bishop, has indicated that she would consider including ISDSs in free trade agreements, but the Government is staunchly opposed to the idea.
"It would give up a good deal of Australia’s national sovereignty," says Mr Emerson.
"It allows foreign companies to prevent the Australian government from regulating coal seam gas exploration and development and other development proposals in the national interest."
Dr Lee believes Australia is right to be cautious in signing FTAs.
"Sometimes free trade agreements can be dangerous," he said.
"Free trade agreements sound like a huge win-win relationships, but they’re not really like that.
Because a central objective for the three Asian countries is to secure cheaper access to Australian resources, Dr Lee says there shouldn’t be a great rush to sign these agreements now.
"In once sense the longer we wait the more our products will be in demand and the greater our leverage will be."
Beef trade with Korea at risk
Beef industry leaders say Australia’s $770 million annual trade with Korea is at serious risk if a FTA isn’t reached.
Korea is Australia’s third-largest beef export market in terms of volume.
The industry says the United States is at an advantage over Australia because it’s already signed a FTA, meaning the 40 per cent tariff on imports will reduce to zero over 15 years.
Meat and Livestock Australia’s regional manager in Korea, Michael Finucan, says there are huge economic risks in not securing a FTA.
"Not getting the FTA would see a loss of $1.4 billion over the period of the US roll out, so it’s critical," he said.
"We currently have 50 per cent of the imported market in Korea and we want to maintain that position.
"We’ve got to have that equal playing field to keep that 50 per cent share."
Livestock analyst Simon Quilty says there may be ways around the ISDS issue that’s holding up some FTAs.
"The only way I can see that we can achieve that is, dare I say, inviting South Korea to be part of the Trans-Pacific Partnership.
The TPP is a multilateral agreement including Australia, the United States, Canada and Malaysia that aims to lower trade barriers across the pacific.
Mr Quilty says if South Korea joined the TPP, Australia would see trade benefits.
"So therefore, the tariffs disappear and, under the rules of engagement in the TPP, all members are tariff-free within that organisation."