You might remember the fuss in the leadup to the 2004 election about the Australia-USA “Free Trade Agreement”. Among the objectionable bits, the FTA locked Australia in to an intellectual property regime that combines the worst features of the Australian and American systems. Furthermore, there was much concern at the time that the terms relating to the Pharmaceutical Benefits Scheme took the terms of that scheme out of the control of the Australian government. The Howard government sold the FTA as a huge economic winner for Australia – this interview transcript contains the following excerpt (discussing the lack of a deal on America’s highly subsidized and protected sugar industry) which gives the general flavour:
No I understand that, but what I faced over the weekend was a decision as to whether we were going to scupper a deal that gave enormous benefits to the rest of the economy because we couldn’t get additional access for the Australian sugar industry, we’re not talking here about having given anything up for the Australian industry, but I faced that decision and I talked to a lot of people, including my own colleagues and I came to the conclusion that it would have been against the national interest to give up a deal that is going to be of enormous benefit for the rest of the economy because we couldn’t get something on sugar.
Peter Martin notes a Productivity Commission report in which Australia’s bilateral free trade agreements, including the AUS-US FTA, are assessed.
The Productivity Commission’s adherence to neoliberal economic orthodoxy is well known, so you’d expect them to be fans of Free Trade agreements. You’d be wrong.
The Commission’s report suggests that, to date, free trade agreements have resulted in SFA net gain – while we might have slightly greater trade with the countries we have signed FTAs with, much of that international trade would have occurred anyway, just with different countries. Furthermore, the costs of complying with “rules of origin” laws chew up even more of the potential gain. The changes in IP laws mandated in the US FTA are a straight out cost to Australia.
The commission also notes that, while the terms relating to the PBS have ultimately not had the deleterious effects feared, the very inclusion of programs like it in FTA negotiations represents a future risk to an extremely effective policy.
Furthermore, it notes that the modeling for the six FTAs the government has signed in the past has invariably wildly overstated the economic benefits.
Finally, the commission states that if the government wants to obtain gains from trade liberalization, by far the quickest, most straightforward, and most economically beneficical way to do so is simply to remove remaining Australian trade barriers. This is standard neoliberal economic orthodoxy, but, then, governments have relied on neoliberal economic arguments to justify the last three decades of trade policy, including the FTAs. So if the government really believes in the wonders of increasing free trade, it knows what to do – and it ain’t pursuing more bilateral FTAs.
It appears that Craig Emerson is looking at the possibility of curtailing or even entirely ditching negotiations for future bilateral FTAs. If so, good riddance.
I never thought the FTAs were really about trade: more international relations and power politics, international and domestic. Remember Howard had Latham in his sights for being anti-American? It was always about US business access to Australian markets, and capital flows, and the politics of the relationship. Similarly, FTAs are treated as prizes of recognition to be given to selected countries, which is quite bizarre when you consider the sort of economic calculus described above.
Indeed, Kim. But they’re sold on the basis that they’ll make us all richer. It’s worth pointing out that even the pillars of economic orthodoxy at the Productivity Commission – about as far as you can get from left-wing rabble rousers – have called it for the bullcrap it is.
Does that report assess the benefits to the US from our FTA? Maybe wikileaks will give us an insight into those negotiations…
So basically, the neither the large benefits or the negative impacts of the US-Australia FTA have come to pass (yet)?
I may be wrong here, but I seem to remember that the USFTA required the support of the ALP, who did endorse the USFTA on the same grounds as the Libs.
I can’t say I’ve read the whole reports but I understood that the Productivity Commission didn’t say “that, to date, free trade agreements have resulted in SFA net gain “.
What it said was Bi-Lateral FTA aren’t good. Multi Lateral ones were ok and that uni-lateral free trade reforms at home were a better game than than bi-lateral agreements.
Of course, the idea that companies ought to have a legal cause of action under the terms of a bilateral agreement against jurisdictions that legislate in ways that affect them adversely is simply bizarre.
An economist friend asked me at the time the US FTA was being considered “What do you think of a free trade agreement with the Yanks?”. I gave Gandhi’s answer when simlarly asked what he thought of Western civilisation – “I think it would be a good idea”. It’s not a Free Trade but a Managed Trade agreement.
The US FTA imposed heavy costs on Australia; the anti-entrepreneurial effects of the IP clauses in particular cost us far, far more than the direct $88m a year in extra fees paid to the Yanks. Rumour around Canberra at the time was that the Australian negotiating team actually walked away from the table over this issue, but were sent back & ordered to capitulate by Howard himself for the sake of the beef farmers.
And the corrosive political economy effects of bilateral FTAs in making multilateral FTAs much harder to achieve are well known. Thank goodness we don’t have bilateral carbon agreements.
Late Night Live, for the second part it’s worth listening to Ann Caplin.
Proposed Trans-Pacific Free Trade Agreement
Trans-Pacific Partnership Agreement – Part 2
Does anyone remember that Howard gave Newcastle NSW a small Free Trade Zone as part of the post-steelmaking response? No, I don’t know what happened either.
Yep. The AUSFTA is a cancerous blight on innovation in this country. And again, if it needs a treaty, it probably isn’t ‘free trade’ as we neoliberal types would describe it. Indeed the very concept that such an agreement is required reveals a profoundly mercantilist paradigm.
Robert, no you would not expect the PC to be a fan of FTAs. They have said as much in the past.
They released some internal research on FTAs around the time of the US FTA showing that their effects were not evident.
Neoliberal economists don’t like them because of trade diversion.
The Australian dollar has ranged between about $0.50 to $1.00 over the last few years. Which means that many Australian industries competing with the US could range from very competitive to very uncompetitive as a result of these currency changes. If these Aus industries are much larger than the US equivalents they will have a competitive advantage in that the Aus industries lack the capacity to put these large industries out of action when the currency value favors the Australians.
However, when the currency value favors the US these US companies have the capacity to swamp the Australian market and put the Australian industries out of action – often permanently. To put it another way the larger industry will survive as long as it is competitive for part of the currency cycle while the smaller industry has to be competitive over the whole currency cycle to survive.
Going into an FTA with a much larger country seems a rather foolish thing to do.
Perhaps it is time to have a look at whether Australia has really been better off with globalized free markets?
Correct me if I’m wrong (I probably am), but wasn’t the AUSFTA the inspiration for that immortal phrase “a conga line of suckholes”?
Opposition to free trade agreements has been exhibit A for right-wing commentators claiming that the Greens, and the left in general, are economic illiterates. At least on blogs, but I suspect in the Murdoch press as well.
While I wouldn’t deny that the Greens could do with a bit more economic rigour, what this proves is that even on what is supposedly their strong suit, the right-wing blowhards know less than the people they are criticizing.
Sorry StephenL, but I think you’ll find that its opposition to ‘free trade’ – not FTAs – that have been used to attack The Greens. A key point in the PC report is that FTAs are not about free trade; they are about preferential or disriminatory trade.