FREE TRADE AGREEMENTS – WHY?

29 Jun

http://www.abc.net.au/news/2015-06-29/verrender-dont-expect-ftas-to-live-up-to-their-name/6579408

 

TPP debacle: don’t expect this free trade agreement to live up to its name

OPINION

Updated about an hour ago

Who would fall for a brazen scheme that strengthens protection under the guise of free trade? Maybe it’s worth looking at the supposed free trade deal we signed with America a decade ago, writes Ian Verrender.

You’ve probably heard the old saying that the definition of insanity is doing the same thing over and over again but expecting a different result.

No-one has ever really nailed down the author. Some reckon it was Albert Einstein. Others say it was Benjamin Franklin.

Regardless of who exactly owns the copyright to that little pearl of wisdom, it’s a sentiment with a particular resonance as Australia once again lines up to sign yet another free trade agreement with America: this time the wistfully named Trans Pacific Partnership.

As any first year student of economics can attest, there is absolutely nothing wrong with free trade. In fact, it is the holy grail, the fundamental principle that underpins much of modern economic thinking.

The problem is free trade agreements. In most cases, they have very little to do with trade at all, and in almost all cases, nothing at all to do with free trade.

For the most part, they are political documents. They offer politicians a stage, a platform upon which to demonstrate that they are “getting on with the job”; they keep bureaucrats busy; and they offer everyone involved the opportunity to speak in acronyms.

When it comes to economic benefits, however, they can be downright harmful.

And just like the Australia US Free Trade Agreement (AUSFTA to the cognoscenti) signed a little over a decade ago, the Trans Pacific Partnership has the potential to seriously compromise Australian sovereignty while delivering almost nothing in economic terms.

Trade Minister Andrew Robb recoils at the suggestion. A few months back, when fears over the TPP and the incredible secrecy behind it all began to grow louder, he thundered that it was all a “scare campaign” and promised that he would not sign anything that damaged Australia’s health system.

“Why would I? Why would I go and tear up the system?” he asked. Why indeed?

Back in 2004, then health minister Tony Abbott made a similar promise as Australian trade negotiators were on the cusp of signing that historic free trade deal with America.

It was a trade deal that fundamentally altered Australia’s Pharmaceutical Benefits Scheme, limited the Commonwealth’s power to price medicines cheaply, and contributed to the soaring costs of our health system. More on that later.

Those whipping up the “scare campaign” against the TPP were delivered a beautifully timed snippet of academic firepower last week in the form of an annual trade and assistance review from the Productivity Commission.

Bureaucrats don’t usually take to criticising government achievements, but commission chairman Peter Harris wasn’t mincing words as he took a microscope to the furious round of recent signings.

Preferential trade deals, according to the report, add to the cost and complexity of international trade.

This wasn’t a new message. In 2010, the Commission penned a wide-ranging report into our bilateral and regional trade deals that should have been compulsory reading for our politicians. Sadly, it seems, they took no notice.

The best way a nation can benefit from free trade is to dismantle its own trade barriers, the report concluded. Australia has already done just that.

Just to rub a little salt into the wounds, the report noted that “it appears that businesses generally have made limited use of the opportunities available from Australia’s existing BRTAs”.

The reason is that they are complex legal documents. A trade deal with one country bears no resemblance to one negotiated with another country. They become an exercise in dreaded “red tape” that tend to limit rather than foster trade.

It’s not just academics and bureaucrats pooh-poohing the grand achievements of our pollies.

A survey conducted by the Australian Chamber of Commerce and Industry, while supporting trade agreements, found that accessing the benefits was a “hit and miss” exercise.

In another damning report last year, the business lobby group said most agreements were so poorly drafted and so complex that they were next to useless in a commercial sense.

Just to add to the mind-boggling complexity, ask yourself this: If you own a business and want to trade with Japan, should you access the recently inked Australia Japan deal? Or should you go with the TPP?

The TPP is being driven by America. Like most of these deals, it is politically driven. Fearful of China’s rise, America wants to corral its allies under a trade umbrella. In the process, it also wants to further the interests of American corporations and American workers.

Specifically, it wants copyright laws and patents tightened and extended. These are agreements that offer protection to corporations and investors, usually justified on the grounds that innovation requires a reward.

The problem is, protection is the antithesis of free trade. Only a slippery politician could come with a strategy of strengthening protection under the auspices of a free trade deal.

Who would fall for a brazen scheme like that? Er, maybe it’s worth a look at the supposed free trade deal we signed with America a decade ago.

For a good explanation of the debacle visited upon Australia by our ineptitude during those negotiations,it is worth reading Australian National University’s Thomas Faunce’s excellent piece in The Conversation.

Since 1940, when the Pharmaceutical Benefits Scheme was formed by a referendum, the Federal Government had used a method known as “reference pricing” to screw down the cost of medicines, to the benefit of ordinary Australians.

But the trade deal of a decade ago outlawed that practice. Either we didn’t see it, or didn’t understand it. It seems our politicians and negotiators appeared only to discover the full effect of what they signed after the document had been ratified.

From 2007 on, the PBS was divided into two separate formularies, which significantly raised the cost of medicines in Australia.

In his first budget last May, the Treasurer Joe Hockey honed in on the soaring cost of medicines noting: “Over the past decade, the Pharmaceutical Benefits System has increased by 80 per cent.”

It was a clarion call for a round of future austerity.

There was no mention of the AUSFTA debacle, a pact that cemented the power of big pharmaceutical companies and dealt a fatal blow to the hopes of some American politicians who wanted to emulate Australia’s Pharmaceutical Benefits System.

Having won in Australia, America then used the same tactic in its negotiations with South Korea.

In the past week, President Barack Obama has managed to rescue what just weeks ago appeared to be a doomed trade proposal.

He’s been given fast track approval to proceed with the deal. Given our acquiescence on all things American and the propensity of our politicians to grandstand at any opportunity, expect this one to go through pronto.

Hopefully, it doesn’t give Einstein’s estate – or Franklin’s, for that matter – ammunition to sue me for copyright breaches. That’d be insane.

Ian Verrender is the ABC’s business editor.

 

 

 

One Response to “FREE TRADE AGREEMENTS – WHY?”

  1. stuartbramhall June 30, 2015 at 2:35 pm #

    Here in New Zealand, we’re working to get local councils to pass anti-TPPA resolutions. Currently 11 councils have passed them, amounting to 60% of New Zealand. We’re presently working to get New Plymouth to pass an anti-TPPA resolution.

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