I’m on a tight deadline today and wasn’t going to write anything here, but a reader pointed me in the direction of the Australian Productivity Commission’s newly-published Trade and Assistance Review 2013-14, which devotes an entire chapter to “Issues and concerns with preferential trade agreements” (pages 61-86 here).

As the Sydney Morning Herald summarised it:

The Productivity Commission has launched a scathing attack on Australia’s latest series of free trade agreements, saying they grant legal rights to foreign investors not available to Australians, expose the government to potentially large unfunded liabilities and add extra costs on businesses attempting to comply with them.

Allowing for the relative restraint of bureaucratic language on the one hand, and newspaper style on the other, “scathing attack” doesn’t seem like an unfair description.  Perhaps as importantly, the report raises serious questions about TPP, (although the APC has not seen the documents being negotiated).

As regards rules of origin (whether for goods or services) the APC makes their points about cost and complexity by simply relentlessly listing the different rules of origin in the various Australian FTAs for the item “Bed linen, table linen, toilet linen and kitchen linen”.  They report estimates that “the cost associated with origin requirements could be as high as 25 per cent of the value of goods trade with ASEAN”.  By contrast, unilateral abolition of domestic tariffs, or comprehensive multilateral agreements avoids these costs.  The APC makes quite a lot of the point that time, and political capital, spent negotiating FTAs may be, in part, at the expense of unilateral liberalisation of international trade and domestic competition-enhancing reforms.

The APC report also devotes considerable space to investor-state dispute settlement (ISDS) provisions.  They seem very sceptical of the case for these provisions (and note that 40 per cent of those launched last year were taken against developed countries – presumably countries with robust domestic legal systems).  As they note, signing up to ISDS provisions involves new, unfunded, contingent liabilities for governments while, in their view, there is no sign that the ISDS provisions Australia has already signed have done anything to increase either inward or outward Australian foreign investment.  They also note that the Chief Justice of the High Court of Australia has publicly expressed concern about the risk that ISDS provisions could undermine the authority of domestic courts.

Finally, the APC notes the difficulty of assessing the potential impacts of trade agreements.  They argue that this makes a ‘compelling case for the negotiated text of an agreement to be comprehensively analysed before signing”.  At least in Australia, actual analysis and evaluation appears to have fallen far short of this standard.

Trade agreements aren’t going to be a much of a theme on this blog, but I found it interesting that as orthodox and pro-market body as the APC felt it appropriate to reiterate its scepticism on FTAs in this way.    Here are the key points from the APC document.

For New Zealand, there still seem to be some important questions to be answered around TPP, and before it reaches a point where a government majority simply votes a signed agreement through the House.   There is no sign yet of material dairy trade liberalisation, intellectual property protections are likely to make us worse off (and perhaps also the ordinary citizens of other countries, even those who host large intellectual property owners), while further ISDS provisions, for which there is no identified market failure, seem set to strengthen the hand of foreign investors relative to domestic ones, undermining the primacy of our own Parliament and courts, for no obvious gain.   I am also uneasy about the provisions that get inserted in these agreements to limit the ability of countries to respond to economic and financial crises.  I was involved in work on these while I was at the Reserve Bank, and again it is not obvious what the problems are with existing multilateral provisions (IMF and WTO).

I remain uneasy that New Zealand might end up signing an agreement primarily because of the momentum in the process, and the desire of our own elites not to self-exclude from “the club”, rather than because there are demonstrable gains to the national welfare of New Zealanders.  If so, it would be cause for concern.  I wonder what sort of robust economic evaluation is envisaged here before MPs are asked to vote on any agreement?