Report On Australian FTAs Under Attack

by Mary Swire, Tax-News.com, Hong Kong

19 July 2010

A draft research report by the Productivity Commission, that casts doubt on the commercial benefits arising from Australia’s completed bilateral and regional free trade agreements (FTAs), has come under immediate attack by the farming industry.

In November last year, the Australian government asked the Commission to undertake a study into the impact of bilateral and regional FTAs on trade and investment barriers, and on Australia's trade and economic performance, including their contribution to efforts to boost Australia's engagement in the evolving regional economic architecture.

In undertaking the study, the Commission is considering a broad range of issues, including the impact of FTAs on Australia's trade and economic performance, in particular any impact on trade flows, behind-the-border barriers, investment returns and productivity growth.

Its draft report notes that the government's approach has been to negotiate comprehensive agreements that, for merchandise trade, have resulted in some significant bilateral tariff reductions. Theoretical and quantitative analysis suggests that tariff concessions in FTAs, if fully utilized, can significantly increase trade flows between partner countries, although some of this increase is typically offset by trade diversion from other countries.

However, to date, the Commission has received little evidence from business to indicate that preferential FTAs have provided those substantial commercial benefits. It says that that may be because the main factors that influence decisions to do business abroad lie outside the scope of such agreements.

It considers that, while FTAs can reduce trade barriers and help meet other objectives, their potential impact is limited and other options often may be more cost-effective. Current processes for assessing and prioritizing FTAs, it suggests, lack transparency and tend to oversell the likely benefits.

Commissioner Patricia Scott commented that: “Great emphasis has been placed on the potential benefits of preferential agreements in advance of negotiating them. The Commission has found that expectations of the benefits have been optimistic.”

Its preliminary conclusion is that a full and public assessment of a proposed agreement should be made after negotiations have concluded - covering all of the actual negotiated provisions.

In addition, as FTAs typically reduce discrimination between suppliers of services and investments, the Commission recommends that Australia should adopt a more flexible approach to the comprehensiveness of agreements, including considering services sector-only agreements.

Scott said: “Australia should, as far as practicable, avoid discriminatory provisions in agreements or the inclusion of measures that could actually increase barriers to trade, raise costs or affect established social policies. The negotiation process itself could be improved by undertaking an independent and transparent analysis of the community-wide impacts of provisions reached, not just an optimistic initial scenario.”

It is hoped that the draft report will encourage public discussion, and inform the Commission's final report. Further submissions are due by September 10.

Its publication did, in fact, provoke an immediate response from the National Farmers’ Federation (NFF), which warned that the Commission’s review would “lower the threshold for Australian trade negotiations and carve out our precious farm exports”.

“Cracking new world markets for our farm exports, which already earn the country AUD32bn (USD28bn) billion-a-year, is essential,” NFF President, David Crombie, said. “All-inclusive trade agreements, whether they are bilateral or multilateral, must be Australia’s bottom line.”

“Agriculture remains the most distorted area of international trade with average tariffs more than three times higher than non-agricultural goods, with some commodities facing anti-competitive tariff barriers of 800%,” he continued.

The NFF feels that, if Australian agriculture, and the 1.6m jobs it supports, is to expand and prosper, it will need to export more, and that there are large gains for Australia’s economic position in pressurizing for the inclusion of agricultural products in FTAs.

“In our 2010 Federal Election Policy Platform released this week,” Crombie added, “we called on all political parties to commit to comprehensive bilateral and regional trade agreements that deliver commercially meaningful outcomes for Australian farmers.”

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