It’s more than a free trade agreement. But what exactly have Australia and Indonesia signed?



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Simon Birmingham and Enggartiasto Lukita have signed an agreement that might never be ratified in that form.
DFAT

Pat Ranald, University of Sydney

Australia’s trade minister Simon Birmingham and his Indonesian counterpart Enggartiasto Lukita signed the Indonesia-Australia Comprehensive Economic Partnership Agreement on Monday. Only afterwards (as is often the case) did we get to see what was in it.

We might never see an independent assessment of its costs and benefits.

Beforehand the Department of Foreign Affairs and Trade released a summary of the good news about increased Australian agricultural and education exports, together with statements of support from export industry representatives.

It said more than 99% of Australian goods exports by value would enter Indonesia duty free or under significantly improved preferential arrangements by 2020. Indonesia will guarantee automatic issue of import permits for key products including live cattle, frozen beef, sheep meat, feed grains, rolled steel coil, citrus products, carrots and potatoes. Australia will immediately eliminate remaining tariffs on Indonesian imports into Australia.

But most deals have winners and losers. The devil is in the detailed text, released only after the ceremony.

Employment rights? The environment?

First, what’s missing. There are no chapters committing both governments to implement basic labour rights and environmental standards as defined in the United Nations agreements, and to prevent them from seeking trade advantages by reducing these rights and standards.

Such chapters are increasingly included in trade deals like the Comprehensive Progressive Trans-Pacific Partnership (TPP-11) encompassing nations including Brunei, Malaysia, Mexico, Peru and Vietnam, and the Australia-EU Free Trade Agreement at present under negotiation.

They acknowledge that trade agreements increase competitive pressures, and are intended to prevent a race to the bottom on labour rights and environmental standards.

The fact they are missing from the Indonesia-Australia agreement shows neither government sees them as a priority.

Extra-national tribunals

The deal does include something else contentious that was included in the Trans-Trans-Pacific Partnership; so-called investor-state dispute settlement clauses, in Chapter 14, Section B.

They give special rights to foreign corporations to bypass local courts and sue governments for millions of dollars in extra-national tribunals if they believe a change in law or policy will harm their investment.

The tobacco giant Philip Morris tried it in 2011 using investor-state dispute settlement provisions in an obscure Australia Hong Kong agreement after it lost a fight against Australia’s plain packaging laws in the High Court. It eventually lost in the international tribunal, although after four years and at the cost to Australia of nearly 40 million dollars.

Temporary migrant workers

Article 12.9 of the Indonesia-Australia agreement will give Indonesia an additional 4,000 temporary working holiday visas, and a commitment over the next three years to negotiate arrangements for more “contractual service providers”.

Unlike permanent migrants, who have the same rights as other workers, temporary workers and contractual service providers are tied to one employer and can be deported if they lose their jobs, and so are vulnerable to exploitation, as shown by recent research.

After signing, the implementing legislation has to be passed by both the Australian and Indonesian parliaments before it can come into force.

And not for some time

In Australia, the next steps are for the treaty to be reviewed by the Joint Standing Committee on Treaties. But the likely calling of the federal election in April will dissolve this committee. The committee will be reconstituted after the election with the winning party having a majority.

Last year Labor faced a strong backlash from its membership and unions when it supported the implementing legislation for the TPP-11 despite the fact that it was contrary to the then Labor policy.

This led to the adoption of an even stronger policy at its national conference and a draft bill that would apply to both future and existing trade agreements.

It requires independent assessments of the economic, social and environmental impacts of future trade agreements before they are ratified, outlaws investor-state dispute settlement clauses and the removal of labour market testing for temporary workers, mandates labour rights and environmental clauses and requires the renegotiation of non-compliant agreements should Labor win office.




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If the Coalition wins office but not a Senate majority, and Labor implements its policy, a Coalition government could face opposition to ratification of the Indonesia-Australia agreement in the Senate.

If Labor wins government, it will face pressure from its base to implement its policy to conduct an independent assessment and renegotiate the provisions before ratification.

In Indonesia, which has elections in April, the deal could also face a rocky road.

Criticisms of the process led civil society groups to lodge a case which resulted in a ruling by the Indonesian Constitutional Court in November that the Indonesian President cannot approve trade agreements without parliamentary approval.

The opposition parties have been sceptical about the deal. Azam Azman Natawijana, deputy chairman of the parliamentary committee overseeing trade, was quoted in The Australian saying he expected the ratification process to be protracted.




Read more:
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The Conversation


Pat Ranald, Research fellow, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Australia may be engaging in ‘free trade’ but it’s becoming more protectionist too


Giovanni Di Lieto, Monash University

The federal government may be aggressively negotiating free trade agreements, but in other ways it is restricting trade. The government has been giving itself extensive new anti-dumping powers, targeting steel and aluminium markets in particular.

There was a nearly two-fold increase in anti-dumping investigations in Australia in 2017. According to the Productivity Commission, these protectionist measures “raise costs to consumers and reduce competitive pressures, leading to less efficient resource use in the country levying the protection”.

Higher tariffs lift the costs of imports and disrupt global supply chains. This harms consumers, producers and workers.

The Productivity Commission estimates that for every A$1 increase in tariff revenue, economic activity in Australia falls by A$0.64. The commission also says that for “every year that higher tariffs prevailed, GDP would be lower by over one per cent”. Thus, “a household that spends A$2,500 a fortnight on goods and services would be worse off by A$100 a fortnight”.




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The Australian Department of Industry explains that:

dumping occurs when goods exported to Australia are priced lower than their “normal value”, which is usually the comparable price in the ordinary course of trade in the exporter’s domestic market.

A recent example of this in action was when the Anti-Dumping Commission found that major exporters of tinned Italian tomatoes were dumping their product in Australia. The government swiftly imposed dumping duties of up to 8.4%.

In principle, this is perfectly legitimate. World Trade Organisation agreements allow these duties to be imposed when dumping or subsidisation threaten to cause material injury to a domestic industry.

More power for the government

But recent changes to Australia’s anti-dumping laws, while purportedly aimed at “levelling the field”, place a greater legal burden on overseas businesses with more stringent submission requirements.

Moreover, legislative proposals tabled in the federal parliament in late 2017 could vastly expand the discretionary power the government has to set benchmark prices for imported products in the Australian market. These can even be set at higher levels than the prices in the home market from which they were exported.

Indeed, according to international trade law practitioners, “dumping duties at high rates will give the Minister an unprecedented price-fixing power over imported products, to the extent that foreign exporters and their Australian importers may be unable to compete in Australian markets”.

In other words, this proposal could exacerbate the trend of covert trade protectionism in Australia.

According to a 2017 WTO report on trade measures in the G20 countries, new anti-dumping actions have outpaced terminations by three to one. This is the largest gap since 2012. Australia also had a fourfold increase in new countervailing duty measures (trade retaliations, in other words) from 2015 to 2016, second only to the USA. In 2016 Australia started nearly one-third of all G20 trade retaliations.

Initiations of anti-dumping investigations in G20 countries (2016-17)
World Trade Organization
Initiations of countervailing duty investigations in G20 countries (2015-16)
World Trade Organization

The subjects of anti-dumping actions are usually technical barriers to trade that measurably affect certain industries. In the G20 countries most of these relate to agricultural policies.

Australia has in recent times raised specific trade concerns about the European Union’s agriculture policies, India’s minimum prices for wheat and sugar, Canadian subsidies for milk and wine, and the United States’ purchase of cheese stock, export credit guarantees and international food aid.




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The anti-dumping data and legislative trends clearly show that Australia is at the forefront of the trend towards greater (covert) trade protectionism among developed countries.

Several government policies, including the abolition of the temporary work 457 visas, the Australian Securities and Investments Commission’s exemption of certain foreign financial suppliers from particular regulatory requirements, and the Mobile Black Spot Program (to improve mobile coverage in regional and remote Australia) have also come under scrutiny by the World Trade Organisation

The ConversationThis does not completely undermine Australia’s leadership in new free trade agreements in the Asia Pacific region and beyond. But it does show that Australian trade diplomacy is taking place within the creation of a less-than-liberal order of global economy.

Giovanni Di Lieto, Lecturer of international trade law, Monash Business School, Monash University

This article was originally published on The Conversation. Read the original article.

Farmers and services industry the winners under the revised Trans-Pacific Partnership trade deal


Giovanni Di Lieto, Monash University

The revived trade agreement, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), has finally made it across the line. It’s a considerable win for Australian farmers and service providers, in a trading area worth about A$90 billion.

The 11 remaining countries from the initial Trans-Pacific Partnership agreement finally agreed to go ahead with the deal without the US, at the annual meeting of the World Economic Forum in Davos, Switzerland.

The deal reduces the scope for controversial investor-state dispute settlements, where foreign investors can bypass national courts and sue governments for compensation for harming their investments. It introduces stronger safeguards to protect the governments’ right to regulate in the public interest and prevent unwarranted claims.




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Despite earlier union fears of the impact for Australian workers, the CPTPP does not regulate the movement of workers. It only has minor changes to domestic labour rights and practices.

The new agreement is more of an umbrella framework for separate yet coordinated bilateral deals. In fact, Australia’s Trade Minister Steven Ciobo said:

The agreement will deliver 18 new free trade agreements between the CPTPP parties. For Australia that means new trade agreements with Canada and Mexico and greater market access to Japan, Chile, Singapore, Malaysia, Vietnam and Brunei.

It means a speedier process for reducing import barriers on key Australian products, such as beef, lamb, seafood, cheese, wine and cotton wool.

It also promises less competition for Australian services exports, encouraging other governments to look to use Australian services and reducing the regulations of state-owned enterprises.




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Australia now also has new bilateral trade deals with Canada and Mexico as part and parcel of the new agreement. This could be worth a lot to the Australian economy if it were to fill commercial gaps created by potential trade battles within North America and between the US and China.

What’s in and out of the new agreement

The new CPTPP rose from the ashes of the old agreement because of the inclusion of a list of 20 suspended provisions on matters that were of interest for the US. These would be revived in the event of a US comeback.

These suspended provisions involved substantial changes in areas like investment, public procurement, intellectual property rights and transparency. With the freezing of further copyright restrictions and the provisions on investor-state dispute settlements, these suspensions appear to re-balance the agreement in favour of Australian governments and consumers.

In fact, the scope of investor-state dispute settlements are narrower in the CPTPP, because foreign private companies who enter into an investment contract with the Australian government will not be able to use it if there is a dispute about that contract. The broader safeguards in the agreement make sure that the Australian government cannot be sued for measures related to public education, health and other social services.




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The one part of the agreement relating to the temporary entry for business people is rather limited in scope and does not have the potential to impact on low-skilled or struggling categories of Australian workers. In fact, it only commits Australia to providing temporary entry (from three months, up to two years) of only five generic categories of CPTPP workers. These include occupations like installers and servicers, intra-corporate transferees, independent executives, and contractual service suppliers.

The above categories squarely match the shortages in the Australian labour market, according to the Lists of Eligible Skilled Occupation of the Home Affairs Department.

Bits of the original agreement are still included in the CPTPP such as tariffs schedules that slash custom duties on 95% of trade in goods. But this was the easy part of the deal.

Before the deal is signed

The new agreement will be formally signed in Chile on March 8 2018, and will enter into force as soon as at least six members ratify it. This will probably happen later in the year or in early 2019.

The geopolitical symbolism of this timing is poignant. The CPTPP is coming out just as Donald Trump raises the temperature in the China trade battle by introducing new tariffs. It also runs alongside China’s attempts to finalise a much bigger regional trade agreement, the 16-nation Regional Comprehensive Economic Partnership.

Even though substantially the CPTPP is only a TPP-lite at best, it still puts considerable pressure on the US to come out of Trump’s protectionist corner.

It spells out the geopolitical consequences of the US trade policy switch, namely that the Asia Pacific countries are willing to either form a more independent bloc or align more closely with Chinese interests.

The ConversationWill this be enough to convince the Trump administration to reverse its course on global trade? At present, this seems highly unlikely. To bet on the second marriage of the US with transpacific multilateral trade would be a triumph of hope over experience.

Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University

This article was originally published on The Conversation. Read the original article.

Three charts on: G20 countries’ stealth trade protectionism


Giovanni Di Lieto, Monash University and David Treisman, Monash University

It is clear that trade protectionism is alive and well in the G20, whose countries account for 78% of global trade. But this protectionism isn’t in the form of tariffs, which are duties placed on imports, making imported goods and services more expensive than they would be otherwise. Instead, trade protectionism is being pursued through “non-tariff barriers” such as import quotas, restrictive product standards, and subsidies for domestic goods and services.

This shows that while countries are reducing the obvious barriers to trade, like tariffs, they are still pursuing stealth forms of trade protectionism through non-tariff barriers.

Our research on trade protectionism in the services sector shows that the lower the barriers to trade, the greater company profits. Lower trade barriers create a larger market for Australian goods and services.

We also found that increased domestic regulation leads to higher profits as standards improve across the sector. For Australia this is very significant because the services sector employs four out of five Australians and accounts for 20% of Australia’s total exports.

Eliminating trade protectionism is also good for consumers, as it means a larger market for goods and services. This leads to lower prices and more choice of goods and services.

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The World Trade Organisation uses the term “trade restrictive activity” for measures like the imposition of a tariff. “Trade facilitation” refers to the simplification of export and import processes, making it easier to trade across countries. “Trade remedies” refers to actions taken by states against certain imports that are hurting domestic industries.

For example, in 2016 the Australian Anti-Dumping Commission slapped duties on Italian tomatoes that were being sold in Australia for less than they sold in Italy.

The data show that tariffs have been declining in the G20 over the past few years, while countries have been easing the processes of exporting and importing. However there have been a lot of trade remedies, as countries try to protect their domestic industries.

But looking at data on non-tariff barriers to trade tells a very different story.

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Until 2015 there was a huge increase in non-tariff measures, which then sharply declined. Since then not many measures have been removed. This shows that non-tariff barriers are currently the major mechanism for trade restrictions in the most developed economies.

As in the case of technical standards and regulations, non-tariff barriers can be used as a form of covert trade protectionism.

Technical standards and regulations can be quite legitimate and necessary for a range of reasons. They could take the form of a limit on what gases cars are allowed to emit, earthquake standards in regions prone to seismic activity, and even nutritional information on food and drinks.

But having too many different standards makes life difficult for companies that wish to access a market, as one product or service will need to comply with different standards in many countries.

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What has occurred in Australia echoes what has happened throughout the G20. There has been little activity recently in tariffs, but a significant use of non-tariff and technical barriers to trade.

This is a huge shift in Australia’s economic policy, which had until recently emphasised trade liberalisation as a recipe for growth.

According to the Australian Productivity Commission, trade restrictions directly raise the cost of both foreign and domestic goods and services, negatively impacting both Australian consumers and businesses.

Where to from here?

President Donald Trump’s trade agenda aims to distance the United States from the World Trade Organisation, which was setup to remove barriers to international trade.

In response, companies in the United States are now filing a huge number of anti-dumping cases against foreign goods and services.

At first glance, Australia appears to be off the hook when it comes to Trump’s hardline approach. We already have a bilateral trade agreement with the United States, not to mention a US$28 billion trade deficit with the US.

The ConversationBut the dangers of Trump’s trade doctrine could affect other countries and this disruption to global supply chains and financial security would eventually flow on to Australia.

Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University and David Treisman, Lecturer in Economics, Bachelor of International Business, Monash Business School, Monash University

This article was originally published on The Conversation. Read the original article.