John Menadue. Preferential trade deals – gigantic foundation stones or pebbles?

Jan 13, 2016

Malcolm Turnbull has described the TPP as a ‘gigantic foundation stone’ that will deliver ‘more jobs, absolutely’.

The World Bank now tells us that the TPP will be more like a pebble than a foundation stone.  See following article by Peter Martin in SMH on January 12, 2016.

The following is a repost on the same subject, originally posted on 13/10/2015.

John Menadue

Repost from 13/10/2015. 

After two wasted years in government, it is perhaps not surprising that Malcolm Turnbull would try and gild the lily by telling us that the Trans-Pacific Partnership (TPP) ‘was of enormous benefit to us. It is a gigantic foundation stone for our future prosperity.’ What in the world has he been digesting to talk like this? Perhaps he is really extending an olive branch to the Abbott supporters he has vanquished by crediting the Abbott Government with the TPP!

I have posted many blogs on the exaggerated claims for preferential trade deals pointing out those corporate benefits have invariably been put ahead of the public interest. Informed commentators are also almost unanimous that the TPP, like earlier FTAs with Japan, Korea and China, have been over-hyped.

Alan Mitchell, the Australian Financial Review Economics Editor describes the TPP as ‘more of a pebble than a gigantic foundation stone’.

Ross Gittins the Economics Editor of the Sydney Morning Herald, says that the TPP ‘is no big deal’.

Leon Berkelmans, the Director of the Lowy Institute, says of the TPP ‘don’t believe the hype; TPP is stifling rather than sustaining … Don’t get sucked into the lofty rhetoric, it’s wrong’.

Ian Verrender the ABC Business Editor said that the ‘TPP isn’t about trade and certainly not about free trade. It is about entrenching the interests of major corporations at the expense of ordinary citizens’.

Joanna Howe, Senior Lecturer in Law at the University of Adelaide warned that the TPP and the China FTA could prejudice our ‘valuable labour standards’.

Michael West in the SMH warns that the TPP is a ‘leg-up for vested interests’. Tongue-in-cheek he concludes ‘signing up to the TPP is a bit like buying a used car over the phone with no details as to the state of the vehicle or the clicks on the odometer, but with glowing assurances from the dealer that “she’s a beauty mate, really”.’

Joseph Stiglitz, Nobel Laureate in Economics and Professor at Colombia University tells us with Adam Hersh, that the TPF ‘is an agreement to manage its member’s trade and investment and to do so on behalf of each country’s most powerful business lobbies. Make no mistake. It is not about … free-trade.’

The Pew East-West Centre estimates that Australia will increase its GDP by 0.5% by 2025 as a result of the TPP. Yes, 0.5% by 2025!

Our Productivity Commission is skeptical about the Investor State Dispute Settlement (ISDS) outcomes. It says in its 2015 report ‘That it is not clear ISDS provisions respond to a demonstrable market failure or has been associated with the fostering of foreign investment flows.’ These ISDS provisions in my view are a direct attack on national sovereignty in favor of multinational companies represented by organizations such as Big Pharma and Big Tobacco. Many of these multinational companies thumb their noses at democratically governments by finding legal devices to avoid paying tax.

In this blog on 10 September this year, I reported that Professors Peter Dixon and Maureen Rimmer at Victoria University found that the Centre for International Economics estimated that the gain in economic welfare from the three FTAs with Japan, China and Korea, will be only 0.4% of GDP. The CIE study also found that as a result of the three FTAs, Australian jobs would increase by 5,434 by 2035. Yet Minister Robb said that they would increase by 178,000!

In its 2010 report, the Productivity Commission said ‘The increase in national income from preferential agreements is likely to be modest.’

We know for instance that the FTA signed with the US ten years ago actually resulted in a reduction of our total trade with the rest of the world by $US53 b. because of trade diversion with the US. It was because of such outcomes that the Productivity Commission has warned us many times that the benefits of FTAs are often exaggerated and the downsides are minimized. It commented ‘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.’

The Department of Foreign Affairs and Trade is like a babe in the woods in this area and focuses on relatively minor benefits for our farmers and ignores the wider and serious problems of preferential trade agreements. What sovereign rights has DFAT negotiated away under the veil of secrecy? Yet behind this veil of secrecy a host of US vested interests were consulted extensively. The Obama administration was keen to give them a leg up.

The government has little to show after two years of confusion and lost opportunities.

  • The budget deficit and net government debt are in worse shape than when the Abbott Government took office.
  • Despite the rhetoric, the government did not stop the boats. Boat arrivals fell dramatically from July to Dec 2013, before the turn backs commenced.
  • Company tax was not reduced because our large companies in the Business Council of Australia threw their lot in with the multinational companies to torpedo a sensible resources rent tax package which included company tax reduction.
  • Taxes on middle income earners are increasing through ‘bracket creep’
  • The Abbott government abolished the carbon tax, but we know that a carbon tax or an emissions trading scheme will have to be introduced in some form to address carbon pollution.
  • Domestic terrorism has increased, spurred in part by our foolish military incursions into Iraq, Afghanistan and now, Syria. The last Essential Report found that 45 percent of Australians felt less safe as a result of our joining the military campaign against ISIS in Syria. Only 13 percent felt safer.

With the cupboard bare after two years, the government hypes up the success of trade deals. They attack their opponents as xenophobic and anti-Chinese.

The government has got itself into a corner with these deals. It should concede its mistakes and negotiate sensible compromises in the national interest. I wonder if Andrew Robb really appreciates the predicament that he has got himself and Australia into.

The position of the US on preferential trade deals, as on so many other issues, is problematic. The US effectively sabotaged the World Trade Organization’s attempt at Cancun in 2003 to promote multi-lateral free trade. The WTO process was sabotaged by wealthy countries such as the US which refused to reduce agricultural protection. US farmers won the day. So in response to agricultural protection and the power of US business lobbies, President Obama launched the TPP to protect and advance those US interests and in the process isolate China.

As in so many other fields we are paying a very heavy price for our unthinking support for the US.

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