Wednesday, June 24, 2015

Free trade agreements 'preferential' and dangerous, says Productivity Commission

The Productivity Commission has launched a scathing attack on Australia's latest series of free trade agreements, saying they grant legal rights to foreign investors not available to Australians, expose the government to potentially large unfunded liabilities and add extra costs on businesses attempting to comply with them.

The assessment comes after trade minister Andrew Robb successfully concluded agreements with Japan, Korea and China, and on the cusp of final negotiations to seal a so-called Trans Pacific Partnership with eleven Pacific-facing nations including the United States, Japan, New Zealand and Singapore.  

On Wednesday, the US Senate voted to give President Barack Obama special negotiating powers that will remove one of the last impediments to the partnership.

The Productivity Commission has devoted a special chapter of its Trade and Assistance Review released on Wednesday to the agreements, which it described as "preferential" rather than "free" trade agreements.

It claims that by favouring some countries over others and excluding firms sourcing substantial inputs from other countries from special treatment, they "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."

According to the Commission, the Japan and Korean agreements were concluded without a rigorous and independent assessment of whether costs would exceed benefits.  There was also no mechanism in place to monitor the outcomes of the agreements after they come into force, it said.

"Without such a detailed assessment it is not possible to form a view as to whether the aspirational goals typically ascribed to the formation of preferential agreements are commensurate with real-world impacts," the Productivity Commission said in its trade review. 

Leaks about the text of the Trans Pacific Partnership suggested it will "include obligations on pharmaceutical price determination arrangements in Australia and other TPP members of an uncertain character and intent".

"The history of intellectual property arrangements being addressed in preferential trade deals is not good." 

Also, investor-state dispute settlement clauses included in the Korean and Chinese agreements and planned for the Trans Pacific Partnership "depart from national treatment principles by affording substantive appeal rights to foreigners not available to domestic firms," the Commission warned, saying this could create the risk of "regulatory chill" where Australian governments will be cautious about enacting new laws for fear they are challenged in foreign tribunals.

The safeguards and carve-outs for environmental and health legislation included were of "uncertain effect, lack transparency and have inadequate parliamentary scrutiny", exposing the government to "potentially large unfunded contingent liabilities dependent on decisions by international arbitration tribunals", the Commission found. 

The cost to Australia of defending an action brought against it by Philip Morris Asia under an investor-state dispute settlement clause over its plain tobacco packaging legislation were "unknown, unfunded and likely to be substantial."  
In The Age and Sydney Morning Herald