In an extraordinary rebuke of the government, the Productivity Commission has re-entered the debate over the Trans-Pacific Partnership to savage its intellectual property and investor dispute resolution proposals, attack the secrecy with which so-called “free trade agreements” are negotiated and assessed and question Trade Minister Andrew Robb’s claims about their benefits.
The highly respected economic body today released its annual Trade Assistance Review for 2013-14, which among other things examines the level of industry assistance (and finds it has grown, not reduced, despite the end of the age of entitlement). But the PC looks to have gone out of its way to range into 2015 in order to have its say about the TPP before the government signs up to it. The result is a blunt challenge to the government over its claims about “free trade agreements” (the PC calls them preferential trade agreements, since they’re not actually about free trade at all) and its failure to undertake any worthwhile assessment of them. It is an astonishing report for a government body, particularly in its singling out of a government minister.
While the PC is well known for its hostility to bilateral PTAs, having previously demonstrated how there is little evidence of the benefits for them compared to unilateral deregulation, the review teases these points out at length and focuses in particular on the government’s PTA with Japan and the TPP, for which Barack Obama has just received “fast-track” authority to expedite in the United States. Chapter 4 of the review, “Issues and concerns with preferential trade agreements”, is in effect a 20-page demolition of PTAs. Among other problems, the PC notes:
PTAs actually add to the red tape burden and compliance costs on Australian and foreign businesses because of the Byzantine country-of-origin rules applying to products that can benefit from the agreements (there’s a comically absurd list of “Rules of origin for Bed linen, table linen, toilet linen and kitchen linen” in Australia’s PTAs);
Similarly, there are complex and wildly varying rules for determining whether a company is sufficiently a company of one of the signatory countries to take advantage when it comes to services;
The benefits to Australian companies often don’t materialise because non-border or other economic barriers remain in place, especially in services;
The secrecy around the negotiation and assessment of PTAs is damaging, and “transparency is paramount”; and
The report specifically challenges Andrew Robb’s spruiking of the benefits of the PTA with China, officially signed (again) last week, though there is much negotiating still to be done. “The Commission is unable to form a view as to whether the aspirational goals are commensurate with potential real-world impacts,” it says about Robb’s hyping of the benefits, outlining a succession of issues that the government hasn’t addressed about the agreement.
That’s merely a warm-up, however, for a serious attack on the TPP. The PC has previously explained how the intellectual property sections of the AUSFTA were economically damaging to Australia. “The relevance of trade related IP issues for Australia has gained even greater prominence because of the potential reach of the proposed TPP in this area. Potentially, the IP chapter in the TPP could be extensive and go beyond the provisions contained in the TRIPS Agreement and AUSFTA,” the commission says. “It appears likely that the TPP will include obligations on pharmaceutical price determination arrangements in Australia and other TPP members, of an uncertain character and intent. The history of IP arrangements being addressed in preferential trade deals is not good.”
Then the controversial investor-state dispute settlement provisions. The PC has also addressed these before, but it does so again at length, outlining international and legal concerns about such provisions, which allow companies to sue governments for any change in public policy that harms them. It notes that the costs and risks of Australia’s current ISDS case, brought by Philip Morris on the plain-packaging laws, have “not been quantified nor provisioned in any substantive way”. It illustrates how the use of ISDS against governments has surged.
But the PC goes further and actually looks at trade and investment data on how important ISDS is for trade — are they even necessary? “An examination of foreign investment trends with Australia’s main foreign investment partners suggests that ISDS provisions are unlikely to have been relevant considerations in the investment decisions of Australian firms investing abroad or foreign firms investing in Australia.”
And while the PC has been a notable critic of the failure of governments to submit PTAs to rigorous scrutiny, the review subjects the Abbott government’s assessment process for its PTA with Japan to a close analysis. It reveals that, remarkably, DFAT failed to adhere to the government’s own regulation impact statement requirements for the agreement. And, “the National Interest Analysis, also prepared by DFAT, simply listed a set of claims regarding the benefits of market access and other commitments in the agreement which were supported by little in the way of quantitative or qualitative evidence”. “Gaps abound” in the government’s assessment of the net benefits of the Japan Australia Economic Partnership Agreement, the PC shows in an infographic.
The commission offers a long list of what should be in a comprehensive assessment of PTAs, done before signing — and the evaluation that should be done afterward (no governments have done that, either). In such a comprehensive assessment:
“… the prospect of inducing regulatory chill through new treaty obligations would also feature prominently as would the contingent liabilities created by the agreement. A key example of the latter is the operation of an investor-state dispute mechanism. Finally, the opportunity costs of the agreement in terms of delaying detailed unilateral liberalisation for the sake of maintaining negotiating coin would need to be evaluated.”
Andrew Robb and the government have attacked criticism of the TPP as scaremongering and the work of people opposed to free trade. Indeed, the PTAs form the centrepiece of the government’s entire economic strategy, and are constantly lauded by the government and its media mouthpieces for their massive benefits. The PC, in the polite way of economists, has taken a baseball bat to the government’s claims. As the PC forensically demonstrates, the benefits of PTAs are being overstated. Moreover, in the PC’s view, widespread concerns about the TPP are valid. Will Robb now attack the nation’s premier economic advisory body for scaremongering?