John Menadue. The nonsense about Free Trade Agreements

Feb 11, 2015

In his tormented defence of his government’s performance, Tony Abbott highlighted some of his so-called achievements.  They included the Free Trade Agreements (FTAs) with Japan, ROK and China.

Most of the work in preparation for these agreements had been done by the Rudd and Gillard Governments, but the Abbott Government was so  politically driven to get some achievements on the board that it eagerly signed up to these three agreements.

Andrew Robb, the Minister for Trade, described these three agreements as ‘The biggest transformational initiatives in public policy since the floating of the Australian dollar thirty years ago.’  It is hard to beat that for sheer hyperbole. I hope he doesn’t believe it!

In several blogs over the last year, I have expressed my doubts about these types of trade agreements.

The 2010 Report of the Productivity Commission said that it had received ‘little evidence from business to indicate that bilateral agreements to date have provided substantial commercial benefits’.  It said that while bilateral trade agreements could ‘reduce trade barriers and help meet other objectives, their potential impact is limited and other options often may be more cost-effective’. It continued that FTAs ‘lack transparency and tend to oversell the likely benefits and that pre-negotiation modelling should include realistic scenarios and be overseen by an independent body’.

A Senate Report from the Joint Standing Committee on the FTA with Korea, chaired by a Liberal/National Party member in September last year said ‘The World Trade Organisation cautions that, although such agreements can complement the multilateral trading scheme there are a number of concerns.’ The report then elaborated on its serious concerns about trade diversion and confusing country-of-origin rules.

The most explicit example of a failed FTA is the Australia-US Free Trade Agreement that was negotiated in great haste by the Howard Government to ingratiate itself with the Bush Administration. Shiro Armstrong, the Co-Director of the Australia/Japan Research Centre at the Crawford School of Public Policy at the ANU has pointed to the extremely disappointing results from this agreement with the US.  In the AFR on 9 February this year he said

‘The critics were right. Ten years after the Australia-United States Free Trade Agreement came into force, new analysis of the data shows that the agreement diverted trade away from the lowest cost sources. Australia and the United States have reduced their trade by $A68 billion with the rest of the world and are worse off than they would have been without the agreement. When the Howard Government was putting the agreement in place, there were serious concerns about whether it would distort trade and impose costs on the Australian community rather than expand and lower the cost of trade. … Enough time has now passed and there has been enough data … to update the Productivity Commission’s model estimate on the effect of the Australia-US Free Trade Agreement on trade. The agreement was responsible for reducing or diverting $US53.1 billion of trade with the rest of the world by 2012. … Trade agreements that introduce distortions and discriminatory treatment mean that winners and losers are largely determined by preferences and privileges assigned by negotiated treaties. The US agreement carries important lessons for Australia in its future trade and foreign policy strategy. Deals that are struck in haste for primarily political reasons carry risk of substantial economic damage.’

Despite the rhetoric of the Howard Government, the FTA with the US turned out to be a real dud.  The FTA’s with Japan ROK and China will be better than the dud deal with the US but we should be very careful about the wild claims made today about new FTA’s.


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