Another FTA rant

The media pundit analyses of the Aus/US FTA are coming thick and fast now, and the picture is becoming a little clearer, although it won’t be crystal clear until the text of the Agreement itself is available. Presumably the pundits, like bloggers, are relying on the material released from Australian government sources (primarily the DFAT fact sheets), and comparing it with statements being released by the US government for domestic consumption there.

The most useful stuff I’ve found to provide some sort of guide to the benefits (if any) to be expected from a trade deal with the US is in an interview on this morning’s ABC Radio AM programme with Dr Andrew Stoeckel, Executive Director of the Centre for International Economics (via Gummo Trotsky). Stoeckel is the bloke who conducted research for the Federal Government on the economic benefits of a trade agreement, which came up with the much-touted figure of $4 billion (Australian) as the net annual benefit of such a deal to the Australian economy. That figure, however, was based on the exchange rate that then applied. Doing the same calculation on current exhange rates yields a net annual benefit to Australia of $(Aus)2.56 billion. However, as Stoeckel points out, that’s not the end of the story. The CIE analysis assumed that open access to the US sugar market would be achieved, but conversely didn’t factor in a number of gains that were in fact achieved by Australian negotiators, most importantly access to US government procurement programs. As Stoeckel observed: “There’ll be a new estimate. There’ll be some pluses to the estimate from what we estimated and there would be some negatives.

Sugar access formed a significant part of the CIE analysis, so you might expect to see a significant drop in the net benefit figure, although on the other hand US government procurement is worth mega-billions annually and even modest Australian success in winning US government contracts would be worth big bucks. I suspect that any net benefit estimate at this stage is likely to contain major elements of educated guesswork, but it doesn’t seem unreasonable to suggest on what we currently know that the annual benefit of the FTA to Australia is likely to fall somewhere between $(Aus)1 and 2 billion. That’s well and truly worth having but, to put it in context, its no larger than the natural gas deal struck between Australia and China back in August 2002. Anyone wanting to get a realistic appreciation of the value of the FTA for Australia shouldn’t get carried away with the hyperbole of Howard government Ministers, any more than they should take the carping and whinging of the lefties and the arts industry luvvies at face value.

Ross Gittins makes the valid point in today’s SMH that bilateral trade agreements (like the Aus/US FTA) are anathema to true free traders, because in some senses they merely entrench protection and to an extent only achieve displacement/diversion of trade, increasing the volume of trade between the bilateral partners at the expense of pre-existing trade with other nations. However, I assume that Stoeckel would have taken this trade displacement/diversion into account in reaching his estimate.

Finally, John Quiggin also makes an important point, namely that the most significant long-term effect of the FTA may be not so much any immediate enhancement of Australia’s national income, but the increasing integration of Australia’s economy and regulatory structure with that of the United States. Peter Gallagher makes the same point:

It has always been likely that the biggest benefits from this agreement for Australia would be found not in the direct trade impact (because bilateral trade barriers were already low) but in the less tangible impacts of closer economic integration with the world’s most productive economy, one of our largest trading partners and our biggest source of (and destination for) investment flows. That benefit remains — only slightly tarnished by continued US agricultural protection.

JQ, however, clearly views the prospect of greater economic integration with the Yanks in much more negative terms (hardly surprising from his left-leaning perspective):

The real issue, is that of economic integration with the US. As the example of the European Union, cited by FTA supporters like Alan Oxley, shows, economic integration means common economic institutions. In the present case, it’s obvious that this means Australia adopting the institutions of the United States, and not vice versa. Examples that have come to light so far include the extension of copyright from 50 to 70 years and a range of other measures that enhance the capacity of US owners of intellectual property to act as discriminating monopolists. I expect that, when the details are rolled out, we’ll see things like restrictions on parallel imports.

I don’t find anything to disagree with there as such. I agree that copyright term extension is a bad thing although, as I argued yesterday, it’s not the end of the world. On the other hand, harmonisation of Australian laws with US competition law (especially its anti-monopoly provisions) would be a positive thing for Australia. In net terms I expect that harmonisation of Australian business laws with the world’s largest and most productive economy would realise net positive economic outcomes for Australia in the long term, although quite possibly at the expense of sacrificing a degree of practical Australian sovereignty in those areas of law-making.

However, that has also been true of Australia’s Closer Economic Relations treaty with New Zealand, as the arts industry luvvies discovered in the Project Blue Sky case (which torpedoed Australian content rules for film and TV as they related to the Kiwis). Strangely, we didn’t hear howls of outrage from the left when the High Court decided Project Blue Sky back in 1998: only when an Australian government jumps into bed with the evil American hegemon are the left’s outrage instincts aroused.

However, John Quiggin’s kneejerk opposition to increased economic integration with the US goes much further than specific concerns about adopting particular regulatory regimes (in intellectual property or whatever area), as his next paragraph makes clear:

There are two issues in deciding whether economic integration with the US is a good idea. The first is whether, in general terms, the economic and social institutions of the US are better than those of Australia. If you read the writings of FTA supporters, it’s pretty clear that they think this is the case, that we would be better off with less government intervention of all kinds, weaker unions, greater income inequality and so on.

Read it again and you’ll see the enormous logical leap JQ makes. By some arcane process he doesn’t explain, it seems that John believes a carefully negotiated treaty commitment to harmonisation of business laws will somehow lead to Australia adopting US extreme neoliberal policies and institutions across the board, leading to “less government intervention of all kinds, weaker unions, greater income inequality and so on“. It may well be that many in the Howard government subscribe to some such ideas, but the only way they’re going to be able to implement them is by persuading the Australian people of their benefits and getting relevant legislation passed by Parliament. The FTA is simply irrelevant, and John does his argument no favours by resorting to such desperate non sequiturs. The CER treaty with NZ didn’t result in Australians losing the ability to pronounce vowels or (in most cases) developing unnatural carnal desires for sheep. We might conceivably one day witness more extensive proposals for integration of some social and governmental institutions, just as the “Common Market” gradually evolved into the much more broadly integrated European Union. However, Australians will have the opportunity to evaluate and approve or reject any proposals of that sort if they ever happen. The FTA should be assessed on is own terms, not by reference to baseless “slippery slope” fear tactics.

Finally, neither JQ nor Peter Gallagher mention the most fundamental driver of bilateral trade deals and the broader question of increased economic integration between the US and Australia. With the apparent breakdown in Cancun last year of the DOHA Round of negotiations aimed at bringing agriculture into the WTO multilateral free trade regime, there is an increasing likelihood that the developed world may split into a series of trade blocs from which Australia could easily find itself excluded: Australia isn’t a natural partner in either the EU, NAFTA or ASEAN, and is unlikely to be admitted to any of them in the foreseeable future. In the absence of a successful push to re-start the DOHA Round, Australia’s best chance of avoiding increasing trade isolation lies in pursuing bilateral trade deals with the largest developed nations (i.e. the US and China).

That isn’t to say that a multilateral solution wouldn’t be vastly preferable for all sorts of reasons. But pursuing key bilateral deals doesn’t prevent us from also promoting the benefits of multilateralism for all we’re worth, whether via the Cairns Group or otherwise. We’d be unwise to put all our eggs in the multilateral basket given the high risk that DOHA won’t succeed. Being the only free trade virgin in a world of harlots isn’t an appetising prospect.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Jason Soon
2022 years ago

Does John realise that in some respects US competition law can be said to be more, not less pro-competitive than Australian? How does that fit in with his ‘US= neoliberal’ thesis?

Dave Ricardo
Dave Ricardo
2022 years ago

Yes, it will be quite funny to see the Business Council’s reaction when the ACCC gets the US-style power to force monpolies to divest their assets.

Ken, I’m glad to see you are no longer in your solipsistic phase.

$1billion to $2billion works out at $50 to $100 per person. That seems like small bikkies to me. Especially since we now have no chance of getting the Japanese to stop protecting their rice farmers in any future multilateral negitations. Here’s how they will go.

Australia: “we want you to stop protecting your inefficient rice farmers”

Japan: “But you agleed that Amelicans could plotect sugar farmers”

Australia: “That was only because President Bush was facing an election”

Japan: “But we also have erections”

Australia: “All right, we agree”.

Japan: “We grad you aglee”

Scott Wickstein
2022 years ago

We never did have any chance of getting Japan to stop pampering their farm lobbies, comedy notwithstanding.

John Humphreys
2022 years ago

lol! :)

whether FTAs are a building block or stumbling block to multilateral trading is still an open question in my books.

funnily enough – by take on the issue is quite similar to my boss (Andy Stoeckel) except that I will add what I know he also thinks… the main benefit from an FTA with the US is that we will have cheaper imports for the consumers, and the extra competition will increase domestic productivity and shifting resources into more productive areas. That is, the real benefit is the very thing that most people think is the cost – more imports.

John
John
2022 years ago

“It may well be that many in the Howard government subscribe to some such ideas, but the only way they’re going to be able to implement them is by persuading the Australian people of their benefits and getting relevant legislation passed by Parliament. The FTA is simply irrelevant”

On the contrary, as your previous post on this topic pointed out, a great deal can be done using the treaty power without the need for specific legislation. The history of National Competition Policy in Australia is an example where a huge range of policy changes were pushed through on the basis of an intergovernmental agreement and some very general enabling legislation.

More generally, a central point in the policy debate of the 1980s was that the floating of the dollar rendered a whole set of policy interventions unsustainable – hence the need for radical microeconomic reform on free-market lines.

Ken Parish
Ken Parish
2022 years ago

John,

It’s certainly true that federal governments can achieve a great deal without needing to pass legislation as such. They can implement quite wide-ranging policy shifts using intergovernmental agreements (as you point out) and revenue grants to the States under Constitution section 96. However, they don’t need a treaty to do those things: they could have done them in any event, so the treaty is simply irrelevant. The only relevant value of a treaty (in terms of enhancing Commonwealth power to do things it wouldn’t otherwise have been able to achieve) is that the existence of a treaty empowers the Commonwealth to enact laws (including regulations) that would otherwise have been beyond power (matters of State power). Legislation has to be enacted by Parliament; even regulations are subject to Senate disallowance. Thus the FTA doesn’t empower the Howard government to give effect to a radical neoliberal agenda to any greater extent than has been the case until now, except to the extent that it is able to prevail in the Senate. Thus I repeat, the FTA is essentially irrelevant to fears about creeping onset of neoliberal agendas etc: in fact it’s a classic red herring.

aidan
aidan
2022 years ago

Ken wrote:

In net terms I expect that harmonisation of Australian business laws with the world’s largest and most productive economy would realise net positive economic outcomes for Australia in the long term, although quite possibly at the expense of sacrificing a degree of practical Australian sovereignty in those areas of law-making.

I think judging this beast in terms of “net benefit” is misleading. There might be substantial benefits to some sectors that are allowed access to areas of the American economy that were previously denied to them — procurement contracts are an oft cited example. But where are the costs borne? Fiddling about with the PBS has the potential to become even more of a uncapped liability to government coffers than it already is, a la the health insurance rebate.

Can the taxation system capture enough extra revenue from the putative gains to the “economy” as a whole? Or will the PBS collapse under the strain? At least some American pensioners live close enough to another country that they can take bus trips to buy their pharamceuticals .. where will Australians crumblies go? New Zealand?

The CER treaty with NZ didn’t result in Australians losing the ability to pronounce vowels or (in most cases) developing unnatural carnal desires for sheep. We might conceivably one day witness more extensive proposals for integration of some social and governmental institutions, just as the “Common Market” gradually evolved into the much more broadly integrated European Union.

A selling point from proponents of this slightly disappointing FTA has been that down the track there will be scope for more integration, and possibly more benefit for Australia. No argument there. You don’t need to go as far as the EU to find example of this; the CER agreeement has evolved over time to include a combined food regulatory body (ANZFA) and significant harmonisation of many aspects of the two economies. I think this has been of enomours benefit to both countries, but NZ and Aus had alot in common already.

However, Australians will have the opportunity to evaluate and approve or reject any proposals of that sort if they ever happen.

But will they really? By “Australians” I guess you mean our elected representatives? This rather presupposes that this is a big enough issue, when the time comes, to see a party defeated electorally on the basis of just one aspect of policy. Even if we allow for the fact that this would be an electon winning/losing position, the initial legislation, and the policy from which it would follow, would emphasise “harmonisation”, “integration”, “efficiency” and would likely include no nasty stings in the tail. Once you have established regulatory harmony then the case-by-case judgements of what we want and what we don’t are in the most part done behind close doors. It becomes a process of making concessions and striking deals.

The FTA should be assessed on is own terms, not by reference to baseless “slippery slope” fear tactics.

I think it does become a slippery slope of some description, not that this should of necessity connote bad outcomes, just ones that are mostly out of joe public’s ability to influence.

If you accept the reasoning above, then it is only rational to want to think ahead about the possible consequences of the FTA and beyond, as this may be the only opportunity we have to say “Hmm .. maybe I don’t want that”.

Just a couple of other related observations (make your own value judgements as to their relevance):

Australia runs a healthy trade surplus with NZ, the junior partner in the CER agreement. This has been of the order of NZ$1bn over the last three years (I don’t have any data older than this I am afraid).

Prime TV in NZ (run by Prime Television Ltd. in Australia, with Channel Nine programming) has been broadcasting since August 1998 and will only feature a NZ made news bulletin from this Sunday onwards. Casual perusal of Prime’s broadcast schedule indicates this will be the only locally produced content — in the last six years they have produced no television content that was eligible for “NZ on Air” funding. They do a live broadcast of the Channel 9 “National Nine Morning News” (at 1pm in NZ) with NO EDITING. Yep .. Aus news, Aus weather .. NZ, sweet F(T)A. Easy to laugh at those stupid Kiwis .. but just imagine the same thing repeated here with an American broadcast. Impossible? Who knows?

P.S. How they became “the world’s largest and most productive economy” with their antiquated banking and telephone system I have no idea. Phone cards? Bloody useless 100miles down the road from where they were purchased as it is now a different phone company!

Antony
Antony
2022 years ago

Ken,

Some quick comments on your post, most of which I agree with by the way.

First of all, I’m no great fan of economic modelling. It can be useful for short term forecasting but it’s too dependent on the condition ‘other things being equal’ to have any use in forecasting beyond a few years. As this FTA agreement is for the long term, economic modelling is of little if any use in proving its wisdom.

You noted the prospect of Australian participation in US government procurement programs. What’s that likely to be worth? No one can possibly know.

Perhaps there is an Australian not yet born who will by 2075 have developed a great enterprise in some field beyond our present imagination whose success and even existence depends upon the access to the US market negotiated in this trade agreement.

Adam Smith didn’t tell James Watt to go and develop a steam engine for commercial operation on a railway. That was neither his role nor something within his knowledge or expertise. Smith limited himself to describing an environment in which James Watt could achieve these things. You can move various fiscal and monetary levers that can facilitate or retard economic development but these levers don’t cause it. An economy is developed by individuals creating and selling things, both tangible and intangible.

We should agree on basic economic principles and advocate policies that accord with those principles.

Once one accepts the argument that free trade adds to prosperity and its absence reduces prosperity, the debate can move to a consideration of the best ways to achieve free trade.

Unfortunately, the Greens, Democrats and One Nation together with some elements within the major parties have yet to accept the LOGIC of free trade. That’s really the main problem.

I support the US-Australia agreement not because I’m overjoyed with everything in it or reject the multilateral WTO route, but because I believe current political pressures restrict prospects for advance in any other way. In my opinion, a key lesson from Cancun is that prospects for progress down the WTO route have been significantly compromised not only by the machinations of the EU and other advanced nations but by African LDCs in particular, which have brought to that forum many of the vices of the UN General Assembly. Their knowledge and preparation is often poor and they tend to subordinate a rational assessment of national interest to emotional and racist blame shifting. Serious players can only observe that nations that demonstrate an inability to identify choices and make sound decisions in their domestic affairs tend to infect international forums with the same deficiency.

Finally, I think the protest about a loss of sovereignty with respect to intellectual property rights is really a bit of a beat up. You are probably aware that Australian reporting entities must adopt International Accounting Standards from 2005. Compliance will be mandatory under the Corporations Act. The International Accounting Standards Board operates from London and has but one Australian member. Australia has voluntarily abandoned further development of its own unique accounting standards. However, I’ve not heard any objections to this abandonment of sovereignty from either side of politics.

Antony
Antony
2022 years ago

Whoops! The old brain is slipping! In my example, I was actually referring to George Stephenson, not James Watt.

Homer Paxton
Homer Paxton
2022 years ago

Antony you ran out of steam.

Dave that was a brillian expose’ of what the implications are

John
John
2022 years ago

This report that the FTA includes a separate letter of understanding relating to the sale of Telstra is relevant to the debate, and, I think, supports the general claims I made that greater economic integration with the US will mean less government intervention, more privatisation and so on.

I should note, though, that in this case Ken is correct to observe that separate legislation will be required to implement this aspect of the deal.

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