Treaties Report: Peru-Australia Free Trade Agreement

Published on Wed 28 November 2018 12:23pm

Mr Wilson (12:23pm) — I’m very pleased to make some remarks on the report on the second inquiry of the Joint Standing Committee on Treaties into the Peru-Australia Free Trade Agreement, or PAFTA. I say at the outset that Australian Labor have long supported fair and free trade.

From the time of the Hawke-Keating government we’ve looked to participate openly in the global market on the basis that fair and free trade is in our national interest, economically, socially and geopolitically, and because it is supportive of developing nations in our region.

At the same time there are costs and impacts associated with trade agreements, and they can be analysed and negotiated with more or less rigour and quality. For that reason Labor has been clear in insisting upon the best process and the right substantial outcomes from the consideration and settlement of trade and investment agreements. It is important to note that PAFTA was negotiated on a track that ran in parallel to the process that considered the Trans-Pacific Partnership. When the government recognised the possibility that the TPP might fall over with the withdrawal of the US, and considering the fact that a key argument of the CPTPP was the consistency of arrangements delivered by plurilateral agreements within our region and the corresponding benefit of reducing the noodle bowl effect of multiple overlapping bilateral trade agreements, it is legitimate to ask why PAFTA continued to be negotiated once the CPTPP was back afoot. It’s not entirely clear that some of the tariff and market access benefits in PAFTA could not have been incorporated through mechanisms that exist in the CPTPP.

At the public hearing for the second inquiry into PAFTA the Australian Chamber of Commerce and Industry on that point expressed concern that the added complexity of having potentially three or four trade agreements between Australia and Peru could lead to perverse outcomes and that such arrangements should be rationalised and harmonised. That is a matter of common sense. The noodle bowl effect refers to the circumstances where you get a whole series of bilateral agreements between countries within a region or more broadly and it becomes very difficult to understand how all of these agreements work with one another. It certainly becomes difficult for companies that are seeking to export. That’s why there is a move towards or an argument for plurilateral agreements. That was something the government put forward as a driver for our participation in the CPTPP.

One of the reasons we had the second inquiry into PAFTA was to further interrogate that issue: how is it that, while going into the CPTPP, which includes Peru, we were at the same time negotiating PAFTA? As it stands, that means there will be four agreements: a bilateral investment treaty, a bilateral agreement here in PAFTA and two regional agreements, the CPTPP and, in prospect, the Pacific Alliance Free Trade Agreement. Labor committee members are disappointed that the government continues to negotiate trade agreements like PAFTA through a process that has some pretty obvious shortcomings—namely, the inadequacy of stakeholder engagement in the negotiation phase. The negotiations occur behind closed doors at the government-to-government level to the extent that affected stakeholders, whether they are exporting companies or sectors or civil society, are not brought in or given the opportunity to participate in that negotiation phase either at all or on a consistent and even basis, notwithstanding the fact that that occurs in other jurisdictions, including the United States. That’s one of the clear shortcomings in the current approach.

The second very significant shortcoming is the absence of independent economic analysis or modelling of trade agreements. We have seen in the past that, in the absence of that modelling, predictions are made about the benefits and impacts of trade agreements, and in many cases those benefits are not delivered or there are impacts or other secondary consequences that are not anticipated. I think the average person would expect that, if we’re going to enter into a trade agreement, someone outside of the negotiating party, someone outside the department of trade, would undertake some analysis that would give us a clear sense of what can be expected from a trade agreement and then, on that basis, the ability to track over time what in fact occurs so that we can refine our ability to predict the benefits and other consequences of trade agreements.

In the course of this, the 45th parliament, the Joint Standing Committee on Treaties, in recognition of the shortcoming when it comes to independent modelling, has recommended on several occasions that the Australian government introduce the practice of commissioning such analysis or modelling and providing it to JSCOT, if not making it available more widely. I have to say, with some disappointment, that, on this occasion in relation to PAFTA, the committee has departed from what has been its consistent approach in the course of the 45th Parliament and has chosen not to make that recommendation. I don’t really know why. It’s worth noting that Labor has committed to legislating a requirement for an independent national interest assessment to be conducted in future on every new trade agreement to examine the economic, strategic and social impacts before it is signed. That’s an improvement to our process that would occur if a future Labor government were elected.

We know that the CPTPP, the plurilateral agreement that covers our region and also covers Peru, will undermine Australia’s temporary foreign labour visa system as it currently stands, because we negotiated it on the basis that labour market testing would not apply for contractual service suppliers in relation to six of the signatory countries. One of those was Peru. Again, on that question of consistency and multiple overlapping arrangements, what is interesting is that, with PAFTA, the government has included the requirement that labour market testing occur in relation to contractual service providers, but—and this goes to the heart of that issue of inconsistency—evidence to the JSCOT inquiry on the PAFTA was that Peruvian contractual service providers would be able to choose the more permissive option that’s provided to Peruvian companies under the CPTPP.

So the Australian government and the Peruvian government have negotiated two trade agreements within roughly the same period. In one trade agreement, we have signed away what would ordinarily apply, which is labour market testing for temporary foreign labour—a perfectly sensible thing that allows us to have access to temporary foreign labour when it’s required but makes sure first that Australian workers are not available for those jobs. We’ve signed that away under the CPTPP. Yet, when we negotiate PAFTA with the same government, we again require that labour market testing occur. But, because you’ve got these two provisions and because of the way that international trade law works, Peruvian companies can essentially choose which one they like, and I think it would come as no surprise that they are more than likely going to choose the one that doesn’t require any labour market testing. It begs the question: why would the Australian government, in negotiating the CPTPP, make these lopsided labour market concessions? They’re not concessions that were uniform across signatories to the CPTPP. We made those concessions unilaterally to six signatory countries. Why would we think that that’s a good idea under the CPTPP but not under PAFTA? It’s hard to understand. On that basis, obviously the labour market testing in PAFTA is meaningless; it’s a hollow gesture. It really does beg the question as to what the government is thinking on that particular issue.

It is particularly concerning that the proposed PAFTA includes an investor-state dispute settlement mechanism—again, not least because it is different to the ISDS mechanism in the CPTPP. Yet again, we’re giving foreign companies the opportunity to sue the Australian government in relation to laws that we in this place choose to make, if they feel that they have been hard done by. When they might otherwise have access to our judicial system, we’re giving them the opportunity to go off to a questionable international tribunal and take the Australian government to court. Not only are we doing that, we’re giving them two different, inconsistent mechanisms through which they can take that action. We say that no good explanation has been given as to why two such mechanisms should co-exist. Indeed, we say there is no good reason why ISDS mechanisms should exist at all.

In conclusion, there are some beneficial tariff reductions and some market improvements in the PAFTA—a treaty with a country with which we don’t do very much trade—but it’s disappointing that the negotiation occurred through a suboptimal process and included harmful labour market testing and ISDS provisions.

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