John Menadue. The dubious trade deal with Korea

Sep 29, 2014

In earlier blogs – See July 6, 2014 ‘Turbocharging our trade or mainly hype’ – I drew attention to the exaggerated benefits of bilateral free trade agreements. We now have 7 of them with more under negotiation, including with China and two signed but not yet in force.

These FTAs are third-rate in promoting trade compared with multi-lateral agreements.

The recent September Report of the Joint Standing Committee on Treaties on the FTA with Korea confirms my doubts about the net benefits of these arrangements.

Peter Martin in the SMH of the 5th September 2014 said ‘A government dominated investigation of the proposed Australia-Korea Free Trade Agreement damned it with faint praise saying its benefits are “minimal” and that the intellectual property provisions lack “recognition of the broader public interest”.’

Peter Martin added further ‘The unusually luke warm endorsement of the committee headed by Liberal National MP Wyatt Roy reflects concern about the incorporation of so-called investor-state dispute settlement (ISDS) mechanisms.’

The two ALP members of the committee and the Green member said that they could not support the agreement at all.

Doubts about FTAs feature in the Report which said ‘The World Trade Organisation cautions that, although such agreements can complement the multi-lateral trading scheme there are a number of concerns.’ The Report then elaborates on these serious concerns like trade diversion and confusing country of origin rules.

The Report noted that ‘The Productivity Commission found that commercial benefits for Australian businesses from bilateral Free Trade Agreements were limited as the agreements did not address the non-tariff barriers that prevented market access.’

The Report queried the economic modelling of the likely benefits to the Australian economy of the agreement with Korea. The Report noted ‘that the Committee’s attention had been drawn to the Productivity Commission’s findings that the general equilibrium model used to establish the figures is generally over-optimistic – overstating the gains and underestimating the losses.’

On investor-state dispute settlement arrangements the conclusion of the Committee was equivocal. It said ‘The evidence suggests that the escalated use of ISDS mechanisms has produced unintended consequences for governments globally …’ The Report noted that the Department of Foreign Affairs and Trade had advised that Korea would not have signed the agreement without the ISDS mechanism.

There will undoubtedly be some important benefits for particular Australian export sectors but on balance the report is suggesting that considering the downsides and the over-optimistic estimates, the benefits will be marginal.

This agreement with Korea like the agreement with Japan received acclamation from Tony Abbott and Andrew Robb as a great break through. This all party committee of the parliament has given it a very cool reception

In his chairing of the G20 meeting in Brisbane in November the Prime Minister would best serve our trade interests if he can persuade other countries to put life back into the Doha Round of multilateral trade negotiations that have lost their way. Our interests are best served in multilateral trade negotiations, as difficult as they may be, rather than spending so much time obtaining marginal benefits from bilateral free trade arrangements which are really preferential rather than free trade deals.

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