Australian Broadcasting Corporation

Bilateral deals don’t work: report

Michael Edwards reported this story on Tuesday, December 14, 2010

MARK COLVIN: "Oversold" and failing to deliver any real benefits to business. That’s the Productivity Commission’s damning conclusion about Australia’s six bilateral and regional trade agreements.

The report found that trade agreements could actually reduce trade, by bringing in complicated rules which make it difficult to sell to countries not in the agreements.

Australia’s main trade agreement is with the United States. When it was signed it was heralded as being worth billions of dollars to the Australian economy.

Michael Edwards has this report.

MICHAEL EDWARDS: Australia and the United States inked their free trade agreement at the height of the Howard government in May 2004. But the idea had been floating around for decades. It first came up in the Hawke/Keating era and it became a major political issue for John Howard in the lead-up to the 2004 election.

It was sold as being worth about $4 billion to Australia. But more than six years on a new report by the Productivity Commission has found there’s little economic benefit to bilateral and regional trade agreements.

Patricia Scott is the commissioner of the Productivity Commission.

PATRICIA SCOTT: Government commissioned this study and we looked at bilateral and regional trade agreements and at the conclusion of the study, which both included submissions from the public consultations and empirical and quantitative modelling, we came to the view that there’s little evidence from business to indicate that bilateral agreements to date have provided substantial commercial benefits and that there are larger gains to be achieved from unilateral reform.

MICHAEL EDWARDS: Along with the US, Australia also has bilateral deals with New Zealand, Singapore, Thailand, Chile and ASEAN. Negotiations for new agreements are underway with many other countries including Malaysia, China, Japan and Korea.

Patricia Scott says in many cases bilateral deals can actually reduce overall trade figures.

PATRICIA SCOTT: Even if benefits are fully utilised, you get both trade creation, more trade opportunities, but you also get trade diversion, so exports that used to go to one country, can now, because of the preferential arrangements, go to another country. So it’s not necessarily in all cases a net gain; there’s a plus and there’s a partial offset to that.

MICHAEL EDWARDS: The findings of the report come as no surprise to those sceptical of bilateral agreements.

Dr Patricia Ranald is the convener of the Australian Fair Trade and Investment Network. Dr Ranald says the report is especially accurate when it comes to the free trade agreement with the United States.

PATRICIA RANALD: This was issue of huge public debate and there was very strong public opposition to demands by the US drug companies for changes to the Pharmaceutical Benefits Scheme which would raise the cost of medicines for ordinary people in Australia.

Now, the Productivity Commission study has confirmed that those sorts of changes would be detrimental to people’s access to medicines and to consumers generally and should not be repeated in future trade agreements.

MICHAEL EDWARDS: And Dr Ranald says the Australian Government has to be aware of the interests of large US multinational companies in future negotiations, especially during negotiations for the Trans-Pacific Partnership Agreement.

PATRICIA RANALD: In the US/Australia Free Trade Agreement public campaigning kept out of that agreement a provision which would have given special rights to corporations to sue governments for damages if there was legislation which harmed their investments.

So we don’t have that provision currently in the US/Australia Free Trade Agreement because people campaigned against it. But there is again US corporations are pressing for such a provision to be included; these special rights for investors to be able to sue governments.

MICHAEL EDWARDS: An example of this, according to Dr Ranald, could come with cigarette companies.

PATRICIA RANALD: The Phillip Morris example is very interesting, because Phillip Morris is in the process of suing the government of Uruguay for its restrictions on tobacco advertising. The Australian Government wants to introduce plain packaging legislation in Australia; if it allowed an investor state dispute process in the Trans-Pacific Partnership Agreement, then Phillip Morris could sue it for damages if it introduced such legislation.

MICHAEL EDWARDS: Proponents of bilateral deals say it’s still too early to tell if they’re effective or not.

Kristen Bondietti is a free trade expert from the consulting firm ITS Global.

KRISTEN BONDIETTI: I think it’s a little too early to exactly measure how free trade agreements have worked and what benefits they’ve delivered. It’s important to remember that free trade agreements deliver benefits over time. A lot of the economic benefits that accrue are dynamic and they aren’t realised for several years.

MICHAEL EDWARDS: The Trade Minister Craig Emerson says he welcomes the report. Dr Emerson recently announced a review of Australia’s future trade policy framework. It’s due early next year.

MARK COLVIN: Michael Edwards.