The Productivity Commission has again used its annual Trade and Assistance Review to challenge key aspects of the government’s economic management, slamming a number of decisions for undermining free trade and investment.

Last year, the PC used the report to attack the government’s preferential trade agreement agenda, the secrecy with which the Trans Pacific Partnership had been negotiated and then-trade minister Andrew Robb’s wild hyping of the benefits of preferential trade agreements (dubbed “free trade agreements” by the government).

[New TPP leak reveals how we’re trading our sovereignty for cheap tariffs]

This year, the commission has taken aim at a number of decision central to the government’s increasingly protectionist economic agenda:

  • It renews its criticisms from earlier this year of the increasing use of Australia’s anti-dumping regime to keep out imported steel;
  • It continues its criticism of preferential trade deals, warning that Investor-State Dispute Settlement measures (which are at the heart of the TPP) and intellectual property restrictions should be avoided;
  • It repeats its concerns expressed in last week’s draft agriculture regulation report about anti-investment regulations targeting foreign investment;
  • It attacks regional investment grants programs as having “little systematic monitoring and public reporting of the actual outcomes. The limited evaluations that have been conducted suggest the funds were not as effective as intended” and they “are likely to be a costly and ineffective approach”; and
  • It criticises Barnaby Joyce’s agricultural competitiveness white paper for proposing measures of dubious and warns that “some measures may hamper much needed adjustment in certain agricultural industries”.

The PC specifically attacks the shibboleth of protectionists, “food security”, in a passage citing a report from the Rural Industries Research and Development Corporation that is worth quoting in full:

“Where an Australian agricultural asset being sold is already devoted to export production, this concern about food security is counter-intuitive. And it overlooks Australia’s position as a food exporter that ‘is highly self-sufficient as well as food secure, producing more than twice it consumes’. Moreover, the sentiment would seem to be deeply at odds with the otherwise persistent description across all levels of agriculture’s leaders that Australia offers a solution to the growing demand of Asia’s burgeoning middle class for higher quality food. Food security seems to be a misrepresentation of the issues.”

But it is the government’s neoprotectionist decision to locally source coming generations of naval vessels, in particular the next generation of Royal Australian Navy submarines, that the PC devotes considerable effort to dissecting. The PC has devoted previous trade and assistance reviews to the damage caused by favouring local defence procurement, but the government’s submarines decision has caused it considerable angst.

The report points out how the government’s decision to locally source steel for the submarines will add to the already exorbitant cost of local construction — in itself expected to add 30% to the tens of billions the project will cost taxpayers — and also criticises the lack of transparency and inability to accurately assess the trade-offs related to local versus open procurement. “There does not appear to be a public evaluation of whether, in the past, the ‘insurance policy’ of local manufacture was either necessary or useful in maintaining ADF operational capability,” the report points out. “There are notable examples, such as Australia’s over-the-horizon radar technology, which is likely to be superior to other available systems. However, it is equally likely that some capabilities do not pass the test.”

[Government gets it part-right on submarines]

The commission dismisses the “valley of death” concept on which the government has relied in recent decisions (and to attack Labor), saying it is “a permanent expectation of more such high-cost work” and notes that the submarine decision means an effective rate of assistance higher than even the highest levels of protectionism afforded manufacturing in the bad old days before reform.

“The recent decision to build the new submarines locally at a reported 30 per cent cost premium, and a preference for using local steel, provides an illustrative example of how a local cost premium can deliver a very high rate of effective assistance for the defence contractor and the firms providing the major steel inputs… the effective rate of assistance provided by purchasing preferences can be higher than the peak historical levels recorded for the automotive and textiles, clothing and footwear industries prior to the significant economic reforms of protection.”

In many of the concerns raised by the commission, however, there is no political opposition to the government: Labor supports anti-dumping and the submarine local build and has proposed even more generous assistance to dying industries like steel-making, although it has been critical of foreign investment restrictions driven by the xenophobic Nationals. There is, perversely, a consensus between Labor, Nick Xenophon and the Commission about ISDS provisions, but on the broader drift to protectionism across economic policy in Australia, the commission is now the main opposition to a government looking more and more like an outfit from the pre-Hawke era.

Peter Fray

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