Australia has just signed the Trans-Pacific Partnership — a huge trade agreement with the United States, Vietnam, Japan and eight other countries.
With the secret deal signed but not yet revealed, opposition to the TPP is probably at its peak. The worst bogeymen — like higher drug prices — conjured by anti-trade advocates will probably not become a reality. Indeed Prime Minister Malcolm Turnbull is promising the TPP will not increase the price of medicines in Australia.
But a likely softening of attitudes doesn’t mean the deal will be a good one.
It’s worth asking why we seem to get so many “free-trade agreements” and why they seem so popular in Australia.
Australia has a history of trade liberalisation. We have few protected sectors remaining, so tariff cuts bring mainly upsides. In coming weeks we will be fed stories about how our favourite sectors — like sugar farmers — will make big dough exporting more to the US and Japan. And we will be tempted personally by hip-pocket yarns about how it will help us — for example, cheaper global roaming when we make calls overseas. But there is more to this trade deal than those items.
You could say free trade is a beast of burden that has carried us — despite some wobbles — to greater prosperity. We have tended it and fed it. Now an eager salesman is trying to sell us a bag of feed to strengthen our beast. Indeed it seems like a fat bag of grain and, our beast looks hungry. But when we look closer, the feed is infested with a parasite.
“That parasite excites its nervous system and will make the beast travel faster,” the salesman assures us. But he doesn’t provide any assurance that it won’t also infect us and make us unwell.
In this analogy, the parasite is played by those parts of the TPP that don’t relate to tariffs. This trade deal doesn’t just propose changing tariffs; it proposes changing business rules in order to promote trade.
These new rules will constrain the freedom of the Australian government — and, by extension, the Australian people — to make laws relating to business. One such new rule is establishing investor-state dispute settlement (ISDS) mechanisms — courts in which foreign companies could sue us if we change laws to the detriment of certain businesses. For example, introducing plain packaging for tobacco.
Trade Minister Andrew Robb responded to concerns about these, on ABC radio this year: “We have got ISDS agreements with 28 countries that have extended back over 30 years … the sun, I notice, still comes up every morning.”
Robb omits to mention that some mornings that sun shines on barristers paid by Phillip Morris as they march into a tribunal in Singapore seeking massive compensation from Australian taxpayers for plain-packaging laws. Defending that case is expected to cost $50 million, according to reports. Losing would cost far more.
While the Phillip Morris case is the first time Australia has been sued under these investor-state arrangements, legal action can accelerate as precedents are set.
The government assures us special rules will exempt policy changes in the sphere of environment and public health from actions under ISDS. But what law is bereft of grey areas a motivated lawyer might exploit?
Even the Productivity Commission is sceptical of the merits of these provisions. “It is not clear ISDS provisions respond to a demonstrable market failure or have been associated with the fostering of foreign investment flows, particularly between advanced economies with transparent and well-functioning legal systems,” it said in a 2015 report.
The many rule changes in this supposed free-trade deal are the big risk.
In coming days, TPP advocates will say this is our one chance to grasp the upsides and we should accept any downsides because they are fair trade-offs. But this deal is not our last or only hope to make a trade deal. In fact, serious trade economists don’t even like this kind of deal, between a few countries.
They reckon that if you sign a whole lot of trade deals between just a few countries you muck up everything. The Productivity Commission again:
“Diverse preferential trading arrangements add to the complexity of international trade and investment, are costly and time consuming to negotiate and add to the compliance costs of firms and administrative costs of governments.”
Evidence suggests our FTA with America diverted trade from other lower-cost countries. It reduced our trade with the rest of the world by an estimated $53 billion.
When the TPP arrives in the Senate it will face an all-or-nothing decision. No amendments can be made because the deal is signed. Our fractious crossbenchers are likely to say no — much hinges on what Labor chooses.
Leader of the Opposition in the Senate Penny Wong and her colleagues should take confidence that blocking the TPP is not necessarily a bad idea. Doing so might even send a message that trade deals should be thrashed out in public in future.