Free trade agreements not the great deal we’ve been sold

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Sidney Morning Herald | 22 June 2016

Free trade agreements not the great deal we’ve been sold

by Greg Wood

Andrew Robb’s response to concerns that Australia’s recent spate of free trade agreements were being negotiated in secret was to claim that trade negotiations have always been conducted that way. That comment contains a splinter of truth but a plank of misinformation.

Once, not lately, trade ministers routinely informed Parliament on Australia’s aims, progress, and problems in important trade negotiations.

More importantly, trade negotiations were much narrower in scope, solely concerned with the tariffs and quotas affecting trade in physical goods. The international trade agenda expanded in the WTO Uruguay Round. The ambit of Australia’s FTAs is wider still and commonly includes commitments on our foreign investment policy, investor state dispute resolution, labour mobility and intellectual property law. Their broad scope now goes to the heart of national policy, law, governance and culture, and carries far-reaching legal and societal implications.

FTAs also carry major foreign relations implications ; the close economic intermeshing is only sustainable when the other party has a similar economic, foreign, and strategic policy mindset. In contrast the WTO is based (was based ?) around the most favoured nation concept, which goes a fair way to neutralising bilateral relations as a determinant of trade flows because business can readily shift between competitive national sources of supply.

Contradicting Robb’s view on secrecy being normal, DFAT lists 710 "stakeholders" consulted while negotiating the China FTA. They include the Deer Industry Association and the Nursing and Midwifery Board of the Northern Territory. The Australian Parliament isn’t among them, hence nor is the Australian public more generally.

That’s unacceptable : the ambit of these agreements is such that we are all stakeholders. Before any negotiations commence Parliament should be informed and debate Australia’s agreement objectives and the likely requests that will be made us by the other country.

The opportunity to be more open with the Australian public is still there in the current negotiations with India and Europe and the imminent revisiting of the agreement with China. The FTA with China is a rubbery document, lacking true reciprocity. The meagre provisions on services trade are set for review in the next two years. Also scheduled for consideration is an "investment specific State to State dispute settlement" mechanism.

What does that mean and when would it come into play ? It would seem to give the Chinese government further additional leverage in any commercial disputes with Australia, something it has in spades by proxy, as most Chinese enterprises remain state-owned or state-controlled.

Because FTAs are legally complex they are good at hiding their secrets. The ISDS provisions are inherently vexatious, those in the TPP getting most attention. Blandishments aside, ISDS will constrain parliament’s public policy latitude by imposing a potential compensation cost. Mr Robb argues that the FTA agreements include carve outs for health and environment and thereby protect Australia. Do they ? TPP wording refers to "legitimate" public policy, opening a field day for lawyers.

Australian governments of late seem only to listen to the din of money as though that equates with national interest. Allowing a firm closely connected to the Chinese military to run Darwin, our northernmost port, beggars belief. On another tack, Japan, Korea and China have all attached great importance to self-sufficiency in food production. For China, overseas land investment is currently seen as a means to achieving it.

The AFR recently noted that Chinese who buy land in Australia are feted for "a pioneering effort from national heroes" and gain "face" : the individual is delivering a national benefit. From our perspective it’s essential that Chinese rural investment be integrated with Australia’s rural industry and local community, not separate, apart, commercially excised. This implies the importance both of investment scrutiny and joint ventures.

Australia’s past experience with Japan is cited as reason to be relaxed about current Chinese investment. Lost in history is that over decades successive Australian governments adopted policies to guide Japanese investment to suit Australia’s agenda : initially limiting Japan to minority holdings in iron ore and other mineral resources ; later advocating joint ventures in thermal coal ; actively encouraging investment in the automotive sector ; and stipulating that only Australian residents could buy urban housing.

Foreign relations with China will become ever more complex. A recent paid China Daily insert in the AFR included an article by one Guo Yanjun. This described President Xi Jinping as "opening a new era for China’s ’great power diplomacy’ and his diplomatic concepts, which are fundamentally beyond the constraints of the Western international relations theory, are based on China’s cultural tradition of pursuing peace and co-operation with neighbouring countries. To put these concepts into practice, Xi has proposed a kind, sincere, reciprocal and tolerant foreign policy towards neighbouring countries…"

Effectively that’s an assertion of Chinese unilateralism, hence for us menace rather than reassurance. Where does China’s approach to the South China Sea fit with that ?

Contrary to Australians’ market-oriented, Productivity Commission, economic rationalist presumptions, the rest of the world doesn’t view trade and investment solely through this prism.

Other countries weigh national interest broadly, judgments on foreign relations and security meshing with trade policy and economic development strategies. The Darwin decision shows we don’t. The inclusion of David Irvine on FIRB is a sensible step, but the process of meshing trade, foreign and security policy needs to be thorough.

The incoming Australian government must improve the co-ordination of trade, foreign and security policies and ensure all perspectives are clearly articulated to cabinet and its advisory committees for consideration, not decided internally within one agency. That now mandates the separation of the trade and foreign affairs functions, currently within DFAT, back into separate portfolios. Trade should be represented on the Security Committee of Cabinet.

Greg Wood was formerly deputy secretary in the Department of Prime Minister and Cabinet, and High Commissioner in Canada. He also headed the Americas and Europe Division in the Department of Foreign Affairs and Trade. He has had a long involvement in international trade policy and trade negotiations.