“Local Jobs First” is the name of the NSW Government’s foray into blatant protectionism in yesterday’s budget, and makes the union-dominated NSW Government our most backward-looking — and potentially highly damaging to Australia’s long-term economic interests.
Last November the Victorian Government produced a protectionist “industry policy” that imposed local-content rules on high-value “strategic projects” and gave local bidders a 10% price cushion. The NSW effort makes the Victorians look like eager free traders.
All NSW Government procurement — nearly $4b a year — will now give a 20% price buffer to local tenderers over overseas bidders. Tenderers from country NSW will get an extra 5% buffer. The buffers will apply to firms of up to 500 employees (up from 200 employees), which covers the vast majority of firms. Where there is no free trade agreement in place, it applies to all firms.
The US will be particularly concerned because the policy seems to be a clear breach of the Free Trade Agreement between ourselves and the Americans. The AUSFTA provides non-discriminatory access to the non-defence US Government procurement market — worth $400b a year — for Australian firms, meaning they can’t be excluded as part of American “buy local” campaigns for Federal Government procurement or procurement by the 31 US states (including big states such as California, New York and Texas) that have agreed to participate in the agreement.
In exchange, Australian States and Territories as well as the Federal Government agreed to give similar non-discriminatory access to US tenderers for services above a minimum threshold — well below $1m, although small and medium businesses are exempt. But “Local Jobs First” extends the requirement well beyond medium-sized businesses, and the additional 5% for country businesses appears to fall under no exemption of any kind in the deal.
Crikey asked the Department of Foreign Affairs and Trade for a comment on the NSW proposal but they had not responded by deadline. DFAT declined to respond to several Crikey requests for advice on whether the Victorian policy breached the AUSFTA as well. A formal complaint will have to be initiated by the Americans if any action is to be taken.
While the US is only one market, it clearly demonstrates just how asinine the NSW Government’s decision is, placing at risk the access of NSW firms to a procurement market 100 times larger than that available in NSW. It also damages Australia’s free trade credentials at a time when protectionism is on the rise globally and posing a real risk to global trade and, therefore recovery.
This sort of thing clearly does not fly under the radar in other countries, and strengthens the hands of protectionists who would be only too happy to lock Australian exporters and companies out of foreign markets with their own “local jobs first” campaigns.
The guilty party here is the Labor Left and the union movement, whose witless adherence to a discredited, insular ideology shows Labor at its worst. The union movement, led by Paul “I’m the next Bill Shorten” Howes, has been pushing hard for local preference requirements while inexplicably denying that this amounts to protectionism. It is not merely – and blatantly — protectionism but the worst form, since it doesn’t even have the negligible benefit of producing revenue for governments, as tariffs do. In fact, it costs taxpayers potentially up to 25% more for goods and services than would otherwise be the case if the most cost-effective bid was selected, as well as depriving innovative and efficient firms of investment and, ultimately, access to foreign markets.
It is a form of slow economic self-immolation and the historical record from the 1930s demonstrates just how profoundly damaging it can be, especially to open, export-oriented economies like ours.
The Rudd Government has a decidedly mixed record on free trade, talking the talk but committing billions to propping up the grotesquely inefficient automotive industry even while demanding that the rest of the world not revert to protectionism. The Coalition has been content to keep a low profile on trade issues, conscious of the obvious tensions between the Labor Left and free traders in the party.
Trade Minister Simon Crean, whose performance has impressed right across the political spectrum, has belied his background as ACTU head to be a dogged advocate of free trade and wrote to Acting NSW Premier Nathan Rees about it on Monday, expressing “strong concern” and pointing out it was “completely contrary to Australia’s commitment to fight global protectionism”.
Crean, at least, fully understands just how damaging this sort of nonsense can be.