About this inquiry

This inquiry will examine aspects of the Free Trade Agreement between Australia and the Republic of Peru (Peru FTA) (Canberra, 12 February 2018). Noting its August 2018 report, the Committee will again consider:

• ongoing concerns over the increasing complexity created by the number of trade agreements, particularly multiple agreements with the same partner; and

• the specific inclusion and operation of the ISDS provisions in recently concluded trade agreements.






Past Public Hearings

08 Nov 2018: MELBOURNE, VIC

Additional Comments

Hon Michael Danby MP, Mr Josh Wilson MP, Senator Jenny McAllister, Ms Susan Templeman MP, Senator Kimberley Kitching, Senator the Hon Kristina Keneally
As a matter of first principles, Labor Committee members point to the fact that Australian Labor has long supported fair and free trade.
As we expressed clearly in additional comments to Report 165 on the Trans-Pacific Partnership:
From the time of the Hawke-Keating government, Australia has 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. Labor has pursued tariff reduction and the winding-back of non-tariff barriers, and we recognise that multilateral agreements are preferable to a ‘noodle bowl’ of bilateral arrangements.
According to a 2017 Report by The Centre for International Economics the careful and balanced liberalising trade reforms of the Hawke-Keating government have increased the average Australian household’s real income by $8448 per year.
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. On that basis, Labor Committee Members have a number of serious concerns with the Peru-Australia Free Trade Agreement (PAFTA).

The ‘noodle bowl’ problem

It’s important at the outset to note the PAFTA was negotiated on a track that ran in parallel to the process that saw, first, the consideration of the Trans-Pacific Partnership (TPP); second, the apparent dissolution of the TPP following the election of President Donald Trump and the withdrawal from that agreement of the United States of America; and, finally, the subsequent revival of the TPP, absent the US, in the form of the Comprehensive Progressive Trans-Pacific Partnership (CPTPP).
Considering the fact that a key argument for the TPP/CPTPP was the consistency of arrangements delivered by a plurilateral agreement within our region, and the corresponding benefit of reducing the ‘noodle bowl’ effect of multiple and overlapping bilateral trade agreements, it is legitimate to ask why PAFTA continued to be negotiated once the CPTPP was back afoot. It is 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.
We note that with the Pacific Alliance Free Trade Agreement (Pacific Alliance FTA) currently under negotiation, there could soon be three recently settled trade and investment agreements between Australia and Peru that among them contain overlapping inconsistencies.
At the public hearing for this second Inquiry into PAFTA, the Australian Chamber of Commerce and Industry (ACCI) expressed concern that the added complexity of having, potentially, four trade agreements between Australia and Peru could lead to perverse outcomes, and that such arrangements should be rationalised and harmonised.
Four market entry arrangements for the same market seem excessive and lead us to consider how we would rationalise and harmonise these agreements.1
In its submission to this Inquiry, the ACCI has argued that instead of proceeding with this agreement, the tariff and market access benefits should be incorporated in the CPTPP or perhaps in the forthcoming Pacific Alliance FTA framework.
While there are beneficial terms contained within PAFTA relative to CPTPP, particularly for the agricultural sector (notwithstanding the small volume of trade), we believe the Government should have worked to incorporate these benefits into the CPTPP.
History has shown this risk is high and so we would also encourage the terms of the existing PAFTA be taken forward and included in a prospective Pacific Alliance agreement. In the event that Columbia and Chile do not accept these terms and the conditions of the CPTPP (which Peru and Mexico have already done), then again we would think that a bilateral side letter between Peru and Australia could be used to capture the additional benefits offered by PAFTA. This will result in PAFTA being redundant.2

Independent economic analysis and modelling

As was the case with the TPP and CPTPP, Labor Committee members are disappointed the government continues to negotiate trade agreements that contain provisions whose operation is outside the core purpose of achieving fair and free trade, especially when some of these provisions are not only extraneous, but risky or harmful to Australia’s interests.
Further, we reiterate the shortcomings previously identified in the process through which trade agreements are negotiated and determined, namely:
The inadequacy of stakeholder engagement in the negotiation phase, and
the absence of independent economic analysis or modelling, including analysis for specific consideration by this Committee.
Labor members of the Committee note that in the course of the 45th Parliament, the Joint Standing Committee on Treaties has recommended on several occasions that the Australian government introduce the practice of commissioning appropriate independent economic modelling as part of the process by which trade and investment agreements are considered (for example see Report 165: TPP, Report 172: Singapore FTA, and Report 179: PACER).
For example, in Report 165: Trans-Pacific Partnership, the following recommendation was made:
The Committee recommends that the Australian government consider implementing a process through which independent modelling and analysis of a proposed trade agreement is undertaken by the Productivity Commission, or equivalent organisation, and provided to the Committee alongside the National Interest Assessment (NIA) to improve assessment of the agreement.
As the need for this reform has been the consistent view of this Committee, Labor members again moved the inclusion of this recommendation, in the following terms:
Recommendation 1
The Committee recommends that the Australian government consider implementing a process through which independent modelling and analysis of a proposed trade agreement is undertaken by the Productivity Commission, or equivalent organisation, and provided to the Committee alongside the National Interest Assessment (NIA) to improve assessment of the agreement, and, further, that the projected benefits be subsequently assessed and reported on at appropriate intervals.
It is disappointing the Committee decided to depart from its consistent approach on this question by not supporting this recommendation.
On this issue, as we have previously pointed out, and in reinforcement of the merit of the recommendation, it is important to note that in Blind Agreement: reforming Australia’s treaty-making process, the June 2015 Report of the Foreign Affairs, Defence and Trade References Committee, stated:
The Opposition favours incremental change building on the package of sensible reforms introduced by government in 1996. This is why the report makes practical recommendations aimed at improving the level of transparency in negotiating treaties and the quality of consultations between DFAT and stakeholders, and making parliament a real player in treaty-making.
Specifically, the report's key recommendations are that JSCOT engage more in the oversight of trade agreements under negotiation and not wait until the end of the process; that parliamentarians and stakeholders be given access to treaty text on a confidential basis during negotiations and not a token look at the end as with the TPP; that trade agreements be subject to an independent cost-benefit analysis prepared up front at the commencement of negotiations.
It is salient to note that Labor has since committed to the following approach if elected to government:
strengthening the role of the Parliament by briefing the Joint Standing Committee on Treaties at the end of each round of negotiations and providing it with the Government’s Statement of Objectives for Negotiation for consideration and feedback;
legislating to establish a system of ‘Accredited Trade Advisors’ from industry, unions and civil society groups who would provide real time feedback on draft trade agreement text during negotiations;
providing public updates on each round of negotiations and releasing draft texts during negotiations where this is feasible; and
legislating to require an Independent National Interest Assessment to be conducted on every new trade agreement before it is signed to examine the economic, strategic, and social impact of any new trade agreement.

Labour market concessions and labour deregulation through trade

We know the CPTPP will undermine Australia’s temporary foreign labour visa system by failing to apply labour-market testing for ‘contractual service suppliers’ for six signatory countries. This will mean jobs in Australia will be able to be filled by workers from Canada, Peru, Brunei, Mexico, Malaysia and Vietnam without being offered to Australians first.
While PAFTA requires labour-market testing, evidence to the Inquiry was that Peruvian contractual service providers would be able to choose the more permissive option provided to Peruvian companies under the CPTPP.
That suggests the inclusion of a labour-market testing requirement in PAFTA is a hollow gesture, and begs the question of why the government would allow the removal of labour-market testing in the CPTPP in the first place.
It is worth highlighting that more than 650 professions are currently covered by the term ‘contractual service supplier’ and this includes electricians, plumbers, carpenters and nurses. No other country has provided Australia with such generous reciprocal visa rights and it is unclear why such concessions were offered up by this government, unless it is a lateral means of undermining existing pay and conditions.
While Labor members of the Committee acknowledge that foreign workers have an important role within the Australian economy, it is important that Australians are given the chance to work and that temporary foreign workers are brought into the country only once there is a demonstrated need. Our temporary foreign labour visa system is supposed to supplement the skills of the Australian workforce and bridge labour gaps on a temporary basis; it was never intended to obstruct Australians in search of work, nor to undermine safety and other workplace conditions.

Investor-state dispute settlement (ISDS)

It is particularly concerning that the proposed PAFTA includes an Investor-State Dispute Settlement (ISDS) mechanism, not least because it is different from the ISDS clause in the CPTPP, and in evidence provided by the Department of Foreign Affairs and Trade to the Committee it is clear that aggrieved corporations can choose from either version in seeking to bring an action against the Australian government. No good explanation has been given as to why there should be two such mechanisms, nor as to why they should coexist in different forms. Indeed, we say there is no good reason for ISDS mechanisms at all.
On that basis, Labor members of the Committee sought to have the following recommendation included in this Report, but were unsuccessful.
Recommendation 2
The Committee recommends the Australian government negotiate with the Peruvian Government to withdraw the proposed ISDS arrangements in the PAFTA as there is no clear benefit to such mechanisms, they bring well-established and serious risks, and in any case there is no justification for having a second and different ISDS mechanism between Australia and Peru.
On this issue Labor Committee members again draw attention to the Productivity Commission’s Bilateral and Regional Trade Agreements report (2010) which said the Australian government should “seek to avoid accepting provisions in trade agreements that confer additional substantive or procedural rights on foreign investors over and above those already provided by the Australian legal system”.
It also stated:
There does not appear to be an underlying economic problem that necessitates the inclusion of ISDS provisions within agreements. Available evidence does not suggest that ISDS provisions have a significant impact on investment flows.
Experience in other countries demonstrates that there are considerable policy and financial risks arising from ISDS provisions.3
Against this background, the Commission considers that Australia should seek to avoid accepting ISDS provisions in trade agreements that confer additional substantive or procedural rights on foreign investors over and above those already provided by the Australian legal system. Nor, in the Commission’s assessment, is it advisable in trade negotiations for Australia to expend bargaining coin to seek such rights over foreign governments, as a means of managing investment risks inherent in investing in foreign countries. Other options are available to investors.4
We further point to recent developments in relation to trade arrangements involving the European Union and, indeed, the Unites States, Mexico, and Canada, both of which look to remove ISDS mechanisms.
We note that in October, the Shadow Trade Minister introduced a Bill into the House of Representatives that will stop a future Australian government including an ISDS clause in any new trade and investment agreements. An identical bill was introduced by Senator Carr in the Senate and passed the Second Reading last week.
In his Second Reading Speech the Shadow Trade Minister said:
If the current government were to sign a trade agreement between now and the next election that includes clauses that are prohibited in this legislation we wouldn’t support it in the Parliament before the election and if we win the next election we will go back and renegotiate that agreement to take out those clauses before bringing any enabling legislation before the Parliament.5
We also note that Labor has asked the Government to approach the Peruvian Government in order to seek the removal of the ISDS clause from PAFTA. The New Zealand Labour Government was successful in the same course of action through the CPTPP negotiations, using an agreement by way of a side letter with the Peruvian Government that the ISDS clauses in the CPTPP would not apply with respect to their two countries.
Labor is pleased the Government is willing to work with the Peruvian Government to remove this clause, and this is an example of the positive outcomes that can be achieved through bipartisanship.
Needless to say, consideration of the implementing legislation should be postponed until these negotiations are completed and the relevant clause is removed.
Hon Michael Danby MP
Mr Josh Wilson MP
Senator Jenny McAllister
Ms Susan Templeman MP
Senator Kitching
Senator the Hon Kristina Keneally

  • 1
    Mr Bryan Clark, Director, International Trade and Affairs, Australian Chamber of Commerce and Industry (ACCI), Committee Hansard, Melbourne, 8 November 2018, p. 1.
  • 2
    ACCI, Submission 16, p. 3.
  • 3
    Productivity Commission, 2010, Bilateral and Regional Trade Agreements, p. xxxiv.
  • 4
    Productivity Commission, 2010, Bilateral and Regional Trade Agreements, p. 276-277.
  • 5
    Jason Clare MP, House of Representatives, 15 October 2018.

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