FREE TRADE AGREEMENTS: Are They Worth It?
The Australian government has negotiated a number of free trade agreements (FTAs) with other countries and at the time of writing had put a free trade agreement with China before parliament for ratification. Negotiations are already well advanced on the Trans-Pacific Partnership which involves trade and investment agreements with a total of twelve governments of nations around the Pacific.[i]
Australia already has free trade agreements with a number of governments including New Zealand, South Korea, Thailand, Japan and the United States. Have we seen an improvement in our living standards with these agreements?
The Australian economy grew only a pathetic 0.2% in the June quarter 2015, not much more than half the rate our population grew. This was accompanied by a 3.4% fall in Australia’s terms of trade (i.e. the price we get for our exports relative to the price we pay for imports). This was a blow to our national income.[ii]
Our standard of living, as measured by per capita gross domestic product (GDP) was once the highest in the world but despite the all the above trade agreements we are rated as 24th highest by the CIAWorldFactbook website. In other words we are relatively worse off. [iii]
In fact if you take into account the fact that Australia has a massive foreign debt and so much of our industry is foreign owned (with most of the profits going overseas) the situation is actually much worse than it appears.
While our farmers and food producers expect to do well out of the free trade agreements there is reason to doubt this will pan out as hoped. In September 2015 it was reported that since the FTAs with New Zealand, the United States and Thailand came into place our balance of trade in agricultural and food with these countries has deteriorated. Since the year 2000 imports of processed food from New Zealand have grown, while since 2011 our exports of food to New Zealand have levelled off. The balance of combined food and agricultural trade with New Zealand has been declining since 2009. Similarly we have been importing more food and agricultural goods from Thailand than we exported to them for most years from the early 1990s and the situation has actually been getting worse recently. Luckily for most of the same period our combined food and agricultural exports to the rest of the world has been higher than total imports but even this growth declined in 2014. Nevertheless we have been doing better trading food and agricultural goods with those countries with which we do not have free trade agreements.[iv]
Then there is the problem that many goods are not covered by the trade deal with China. The agreement allows for freer entry of meat products and wine for instance but does not cover grain products like sugar, wheat, barley and rice. Some grains are already exported to China due to a World Trade Organisation (WTO) ruling but the volume will not increase under the FTA.[v]
Then there is the matter of Chinese workers being allowed into Australia. Under the FTA entry is guaranteed for a small number of workers, including Chinese cooks. [vi]As for the more numerous entry of other skilled workers and tradesmen the agreement is supposed to have some protection for local workers, although the initial proposal attempted to abolish mandatory skills assessments for certain trades and may have allowed employers to hire 457 temporary visa workers without having to advertise jobs locally.
In fact Dr Joanna Howe of Adelaide University claimed that under the agreement the government “will effectively surrender autonomy over its migration laws”. The pathways for Chinese workers to enter the Australian labour market could greatly increase.[vii]
The Labor Party has made some effort to safeguard local job opportunities and maintain skill and safety standards.[viii]
How this will work out remains to be seen. As revealed in a number of the ABC’s Four Corners television programs earlier in 2015 there have been many cases of foreign workers, including those on student visas, being illegally exploited and underpaid.
Then there is the Trans-Pacific Partnership (TPP) which covers Australia and 11 other countries, namely Canada, the United States, Mexico, Peru, Chile, New Zealand, Singapore, Malaysia, Brunei, Vietnam, and Japan. This covers 40 per cent of the world’s economy. Although many details of the agreement were kept secret it is expected that thousands of trade tariffs in the region will be removed and common labour, environmental and legal standards set. Australia already exports to all these countries, in fact in 2014, 33 per cent of our exports, or $108.7 billion worth of goods and services went to them. Whereas in Australia about 80 per cent of our economy is in the services sector, many of our trading partners are not so well advanced so it is expected (or hoped) that exports of services from Australia will greatly expand. [ix]
It’s expected that Australia’s sugar exports to the United States will double, beef exports to Japan will be liberalised, and tariffs on our beef exports will be dropped by Mexico, Canada and Peru.[x]
A serious concern is the matter of what is known as investor state dispute settlement (ISDS) which is to be a provision of both the agreement with China and the TPP. Back in 2011 the Productivity Commission warned against including such a provision in these types of agreements. Basically ISDS allows foreign investors to sue governments for decisions that harm their profits. In Canada for instance a provincial government is being sued under ISDS after it put a moratorium on fracking and revoked the exploration licence of an American corporation. In 2011 the German government had to settle a case with a Swedish energy company after imposing strict restrictions on a coal-fired power plant. The Germans were put in the position of having to withdraw the restrictions or face a 1.4 billion euro claim.[xi]
In New South Wales the Liberal government under Barry O’Farrell cancelled the exploration licence of NuCoal Resources in January 2014 following a recommendation from ICAC. Americans who had a major interest in the company claim they lost $120 million but as there were no ISDS provisions in the US-Australia Free Trade Agreement the Americans had little they could do about it. In fact the NSW government passed a law to give them statutory immunity from being sued. The Americans are expected to have their government approach our federal government about this case. Cases like this are a reason that the ISDS provisions are being included in all the new trade agreements – at least according to columnist Chris Merritt in The Australian.[xii]
It should be remembered that if a company successfully sues a government it is actually the taxpayer who has to pay any compensation awarded to that company. The inclusion of ISDS provisions could cost the people of this country quite a lot. Alternatively the government could always look out for the interests of foreign investors and basically ensure all actions, policies and laws give priority to these interests. This would put the interests of the people of this country, their safety and the environment at a lower priority: Basically a type of social apartheid. The ISDS provisions are discriminatory, undemocratic and an assault on the sovereignty of Australia. And there is no guarantee that our economy will perform better, that the unemployment rates will drop, or that our stagnating living standards will not get worse.
Rather than enter into new free trade agreements we should be looking at those we have already entered into or even pull out of such agreements altogether.
[i] Mark Kenny & Julia Medew, “Massive Trade Deal is ‘nearly resolved’’ Sydney Morning Herald, 6 October 2015
[iv] Mark McGovern, “Free Trade Agreements Fail to Boost Australian Agriculture and Food Manufacturing” Epoch Weekly, 24-30 September 2015
[v] Gareth Hutchens, “10 Questions about the China-Australia Free Trade Agreement” Sydney Morning Herald, 18 November 2014
[vi] Australian Government: Department of Foreign Affairs and Trade, “Fact Sheet: Movement of Natural Persons” Downloaded from Internet 2015
[vii] Heath Ashton, “FTA Enables Migrant Wave from China, Report Says” Sydney Morning Herald 6 October 2015
[x] Nick O’Malley, “The Trans-Pacific Partnership: Pacific Countries Agree to Historic Trade Pact” Sydney Morning Herald, 6 October 2015
[xii] Chris Merritt, “Dispute Settlement Needed as State Tramples over Foreign Property Rights” The Australian 9 October 2015
Produced 16 October 2015