Hon Michael Danby MP, Mr Ross Hart MP, Senator Hon Kristina Keneally, Senator Jenny McAllister, Ms Susan Templeman MP
As has been noted elsewhere in this report, the Joint Standing Committee on Treaties tabled its Report 165 into the Trans Pacific Partnership Agreement (TPP) in November 2016.
The Labor members of that committee made additional comments at that time, which are worth repeating, given the additional evidence received by the committee in the course of its hearings supports many of the observations made within the comments at that time.
Labor has a long history of support for free trade. The reforms of the Hawke and Keating Governments including the unilateral reduction of tariffs have helped deliver a record 26 years of continuous economic growth and increased the average Australian family’s real income by $8448.
When Labor was last in Government, we signed three trade agreements and commenced negotiations on seven others, including the former Trans-Pacific Partnership (TPP). Labor supports high quality free trade agreements because trade encourages greater economic activity and creates jobs. These jobs are often more stable and better paid. Trade and open markets have lifted millions out of poverty globally and provides consumers with cheaper products. International trade also lifts Australia’s rate of economic growth and productivity leading to greater economic opportunities. This provides consumers with cheaper products and offers Australian businesses the ability to invest and operate in overseas markets.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP 11) is a new, different agreement to the TPP signed in New Zealand in February, 2016. The original agreement included 40 per cent of the world’s GDP whereas the TPP 11 including only 13 per cent. The TPP 11 also suspends 22 provisions of the original TPP and features additional side letters, including ten new side letters between Australia and other signatories alone.
Independent economic modelling of the finalised TPP 11 has been conducted by Grant Thornton on behalf of the Victorian Government. This independent economic modelling indicates that the TPP 11 will deliver modest initial gains – predominantly for agricultural goods. In particular it provides new preferential access to Mexico and Canada. There is the potential for more significant gains in the longer term if more countries become part of the TPP 11. The analysis concludes that while the TPP 11 does not benefit all sectors equally, no sector or business should be worse off as a result.
The Hawke and Keating Labor Governments were the driving force behind the development of APEC. This has helped to cut tariffs in half across the Asia-Pacific. Simplifying trade rules and building stronger trade ties between all the countries of the Asia-Pacific increases security in our region and helps to bring the countries of our region closer together. Our long term ambition should be a free trade agreement that includes all countries of the Asia Pacific, including China and The United States. The TPP 11 may be the first step in achieving this.
This agreement includes both environmental and labour standards. This is welcome and will help to combat the destruction of the environment and exploitation of workers in countries with lesser domestic standards than that of the agreement. The Committee heard evidence that the enforceability of these provisions may be difficult or slow however this does not mean that their inclusion is insignificant.
There are still clear shortcomings in the process through which Australia’s participation in the TPP 11 has been negotiated and determined, in particular with respect to 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 which is explored elsewhere in this Report.
Labor members of the Committee support the inclusion in the Report of a recommendation that goes to the question of providing wider, earlier, and more substantial engagement with stakeholders from industry and civil society. We believe, however, that the Report should also include a recommendation with respect to the provision of independent economic analysis and modelling.
There are some provisions of the TPP 11 which Labor members of the Committee have some concerns. In particular Labor is concerned that the TPP 11 waives 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. This comes at a time when many in Australia are concerned about under employment and low wages. This concession by the Australian Government also breaks a promise made by the Prime Minister when announcing the new Temporary Skills Shortage visa scheme on 18 April 2017.
More than 450 professions could currently be covered by the term ‘contractual service supplier’ and 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 given by this government. While Labor acknowledges foreign workers play a role in the success of the Australian economy it is fundamental that Australians are offered employment first and that foreign workers are brought into the country only once there is a demonstrated need. The temporary migration system is supposed to supplement the skills of Australians, not replace the ability of Australians to get jobs.
A Shorten Labor Government will not waive labour market testing as part of any free trade agreement it signs and will seek to reinstate labour market testing in existing agreements as part of their scheduled reviews.
Labor is also concerned about the erosion of skills testing in the TPP 11. Australia has the best-trained tradespeople in the world and this standard must be protected. Labor acknowledges some submissions raised concerns of less qualified and inexperienced tradespeople working in Australia because they may not be subject to the current rigorous testing. The Committee heard evidence of the potential consequences to workers and consumers if Australia’s current regime was not fully enforced. A future Shorten Labor Government will retain the right to enforce skills testing in trade agreements.
Labor is also concerned that the ISDS provisions within the TPP 11 leaves Australia vulnerable to lengthy legal disputes with foreign-owned corporations. It was for this reason that ISDS provisions were excluded by the former Labor Government in early negotiations of the TPP. The former Howard Government shared Labor’s concerns and did not include ISDS in Australia’s Free Trade Agreement with the United States.
Labor members of the Committee were deeply critical of the portion of the report addressing ISDS in Report 165.
This report provides more balance, but still it is the view of Labor members of the committee that the potential for concern remains, particularly with respect to the potential for a successful ISDS claim to expose a future government to a substantial claim for compensation, notwithstanding that a government legislates in the public interest.
As was stated previously, if Philip Morris had won their case, Australia would have been faced with abandoning the ‘plain packaging’ public health initiative or paying compensation to Phillip Morris.
The latter outcome would be untenable, and does not fit with any reasonable interpretation of being able to regulate in the public interest.
It is not sufficient to simply note, as has been noted at 4.30 that (if) a government may wish to “pursue regulation it believes is in the national interest, it can do so regardless of the outcome of any related ISDS cases, noting that there may be costs incurred”.
It is important to remember that the TPP introduces an ISDS mechanism between Australia and three other countries for the first time, namely: Japan, Canada, and Peru. Under the TPP an ISDS arrangement will be excluded between Australia and New Zealand by a side letter to the agreement.
It is of concern, also, that committee received evidence as to the possibility of a claim by virtue of most-favoured-nation provisions, notwithstanding that there is no ISDS provision within a relevant treaty, as is noted in Paragraphs 4.101-4.103 of this Report.
As was noted in Report 165 by the Labor Members:
In 2010, the Productivity Commission’s Bilateral and Regional Trade Agreements report 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. [p. xxxiv]
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. [pp 276-277]
In the context of a more recent review of trade agreements, Paul Lindwall of the Productivity Commission said, on 25 July 2016, in relation to ISDS provisions and the Phillip Morris case: “As it was resolved on a technicality, and costs are apparently yet to be recovered, this success should not be taken as an indication that ISDS is essentially harmless.”
The relevant evidence before the Committee can therefore be considered in two streams, each of which argues against the unnecessary and risky introduction of ISDS provisions, especially between Australia and other ‘low-risk’ but frequently litigious nations like the United States. Those streams of evidence are:
The fact that there is no demonstrated or reasonably anticipated benefit in terms of investment flow from ISDS between Australia and countries like the US, Japan, and Canada.
The fact that there are well-established risks of ISDS imposing costs on Australian taxpayers (whether for compensation or legal costs or both), and the potential for ISDS to prevent Australian governments from regulating in the public interest.
What’s more, the Productivity Commission’s Trade & Assistance Review 2013-14 included the following observations and recommendations:
[...] it is not clear ISDS provisions respond to a demonstrable market failure or have been associated with the fostering of foreign investment flows, particularly between advanced economies with transparent and well-functioning legal systems. [page 61]
The inclusion of investor-state dispute settlement (ISDS) provisions in Australia’s preferential trade agreements and bilateral investment treaties has become contentious.
The provisions depart from national treatment principles by affording substantive appeal rights to foreigners not available to domestic firms, risk impeding domestic regulatory reform (regulatory chill), include safeguards and carve-outs of uncertain effect, lack transparency and have inadequate parliamentary scrutiny.
ISDS provisions also expose the Australian Government to potentially large unfunded contingent liabilities dependent on decisions by international arbitration tribunals.
Concerns are heightened by increases in the number of ISDS cases internationally. [page 61]
In its report on Bilateral and Regional Trade Agreements (PC 2010a, p. 271), the Commission concluded there was an absence of an identifiable underlying economic problem on market failure grounds that necessitates the inclusion of ISDS provisions. The apparent lack of evidence regarding the effects of such provisions on Australian foreign investment leads the Commission to emphasise its previous recommendation that:
The Australian Government should not include matters in bilateral and regional trade agreements that would serve to increase barriers to trade, raise costs or alter established social policies without a comprehensive review of the implications and available options for change.
On specific matters, the Australian Government should:
seek to avoid the inclusion of investor-state dispute settlement provisions in BRTAs that grant foreign investors in Australia substantive or procedural rights greater than those enjoyed by Australian investors. (PC 2010a, p. xxxviii) [page 80]
The weight of evidence and expert opinion is clear on two fronts with respect to the introduction of ISDS provisions between countries that are considered low-risk because they have robust governance and judicial systems: (1) the benefits of ISDS are uncertain and minimal with respect to both the flow of investment into Australia, and the protection of Australian investment abroad; and (2) the risks of ISDS in terms of legal costs, compensation, interference with the ability of governments at all levels (local, state, and federal) to regulate in the public interest, and the influence of ‘regulatory chill’.
Even in the case of so-called ‘high-risk’ investment jurisdictions there is a strong argument to be made that the risk of direct or unfairly indirect expropriation can be dealt with by means other than ISDS which are equally effective, but which avoid the capricious nature of the ISDS process/institutions and provide an incentive for developing nations to evolve a mature regulatory and judicial system.
The view remains, indeed that view is reinforced by evidence received by this committee at its hearings. The fact that the committee view concedes that significant costs might arise by virtue of a claim should be of concern not just to a government seeking to regulate in the best interests of the public, the general public would be concerned to know that costs, legal costs and Tribunal costs would be incurred by virtue of a claim being pursued by an overseas corporation.
The areas in which such claims might be articulated also might be of significant concern for the general public, given interest in public health, environmental issues, Occupational Health & Safety and the like.
The fact that a claim might not be successfully made is irrelevant, the cost will be borne notwithstanding that a claim might be unmeritorious.
The European Court of Justice determined in 2017 that ISDS provisions violated national sovereignty and that EU member states had to vote separately on ISDS provisions in trade agreements. In March 2018 the European Court of Justice also found that damages awarded to a Dutch private health insurance company against Slovakia by an ISDS Tribunal also breached EU law.
It is possible that public opinion, in Europe, in the US and elsewhere against I SDS is well-informed.
The United States has put forward a proposal to withdraw from the I SDS provisions in NAFTA because of the risk and costs of US governments being sued by foreign corporations.
Between the signature of the TPP and the TPP 11 there was a change of government in New Zealand. The current New Zealand Labor government does not support the inclusion of ISDS provisions and was able to remove ISDS provisions through four additional side letters with Brunei, Malaysia, Peru and Vietnam. This indicates it is possible to remove ISDS provisions of the TPP 11 which apply to Australia and other signatories through the use of side letters with signatory countries.
A future Labor Government will not agree to Investor-State Dispute Settlement (ISDS) provisions in new trade agreements and will seek to remove these provisions from existing trade agreements as part of their scheduled reviews.
Labor members of the Committee are also disappointed that this agreement was not subject to independent economic modelling commissioned by the Federal Government. This has been recommended by this and other Parliamentary committees as well as the Productivity Commission, the Harper Review, the Australian Chamber of Commerce and Industry, the Minerals Council of Australia and the Australian Council of Trade Unions.
The absence of independent economic analysis of the benefits and concessions contained within the TPP and also the TPP 11 was noted in numerous submissions, and was identified as a serious shortcoming repeatedly in evidence given at public hearings during this Inquiry.
The Productivity Commission was commonly cited as an appropriate organisation to undertake this independent analysis.
On that basis, Labor members of the Committee sought to have the following recommendation included in Report 165, and were grateful this was supported by the Committee as a whole.
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.
But there is considerable merit in proceeding further, and in this regard the Labor committee members emphasise the additional comments within Report 165:
“On this issue, and reinforcing 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.
Indeed, Recommendation 8 of the Blind Agreement report was as follows: Recommendation 8
5.31 The committee recommends that a cost-benefit analysis of trade agreements be undertaken by an independent body, such as the Productivity Commission, and tabled in parliament prior to the commencement of negotiations or as soon as is practicable afterwards. The cost-benefit analysis should inform the government’s approach to negotiations.
5.32 The committee further recommends that:
treaties negotiated over many years be the subject of a supplementary cost-benefit analysis towards the end of negotiations; and
statements of priorities and objectives, and cost-benefit analyses stand automatically referred to Joint Standing Committee on Treaties for inquiry and report upon their presentation to parliament.
This recommendation was repeated in broad terms by a number of people who appeared before the Committee in the course of the TPP inquiry.
For example, Pat Ranald of AFTINET gave evidence in Sydney on 26 September:
Briefly on the process: trade agreements are conducted behind closed doors and the text is not made available until after it has been agreed. The decision to authorise the signing of a trade agreement is made by cabinet, and it is only after that when the agreement is tabled in parliament and examined by this committee. As you know, parliament votes only on the implementing legislation, not the whole agreement. This process was examined by a Senate committee last year, and they produced a report which was quite critical of the process, aptly called Blind agreement. We have made detailed recommendations for changes to this process. We believe that draft text should be released and, in particular, the final text of trade agreements should be released for public and parliamentary scrutiny before it is actually signed by government. There should also be independent studies done and made available to parliament before signing—and certainly before the implementing legislation is endorsed.
We note that in the case of the TPP the call for independent assessments of the economic, health, human rights and environmental impacts of the TPP has come not only from a broad range of community organisations like our network but also from the Productivity Commission, the Australian Competition and Consumer Commission and public health experts. So there is quite a strong, wide range of opinion about the need for such studies to be done.
Alan Kirkland, CEO, Choice, gave the following evidence (Sydney, 26.09.16):
Due to these concerns, we would encourage the committee to recommend that implementing legislation for the TPP not be introduced or passed until there is an independent cost-benefit analysis conducted by a body such as the Productivity Commission [...]
We are not here to represent the interests of producers, but I would say that what we think should happen is proper analysis that weighs up the costs and benefits to the Australian community that is done in a way that allows people participating in the debate to see that independent analysis and reach their own view, and we do not have that sort of information available at the moment.
Dr Elizabeth Thurbon, appearing in her personal capacity, gave the following evidence (Sydney, 26.09.16):
I would suggest that under the previous Labor government we came a long way towards having a set of clearly articulated principles to guide our trade policy that reflected Australia's long-term national economic interests. Those principles outlined in the Gillard government's trade policy statement included no ISDS, the rejection of TRIPS-Plus IP provisions, ensuring that the Productivity Commission reviews all trade agreements in order to assess their economic value and not signing trade deals that do not have demonstrable independently-modelled economic benefits for our nation.
[...] Wherever possible, it is the responsibility of the government to make decisions based on evidence. I think the best evidence to draw on would be independent modelling by the Productivity Commission.”
The evidence taken by this committee remains consistent with those further comments.
As has been noted in the committee view at paragraph 7.69, there are significant benefits, especially in the public perception of the benefits of trade agreements, to be had from the Australian government commissioning modelling to be included in the NIA for trade agreements.
Informed decision-making, not just for members of Parliament, but also for the wider community requires openness and transparency with respect to the negotiation of trade agreements.
Thankfully the Victorian Government has commissioned independent economic analysis by Grant Thornton. If we want more people to support open markets, government has to be more open. The independent economic analysis on behalf of the Victorian Government is very important in this respect. It provides important information as to the potential benefits of a new free trade agreement.
A future Shorten Labor Government will commission independent economic modelling before signature of all new free trade agreements.
Hon Michael Danby MP
Mr Ross Hart MP
Senator Hon Kristina Keneally
Senator Jenny McAllister
Ms Susan Templeman MP