In the previous Chapter, the Committee discussed the extent of public concern about free trade agreements, as expressed through the large number of emails from members of the public opposed to Australia ratifying the Trans-Pacific Partnership Agreement (TPP).
This Chapter will explore two areas where, in the Committee’s view, the Government can improve public engagement to make the process of negotiating for, and outcomes from, free trade agreements more transparent.
The two areas considered here are: the transparency of the negotiation process; and the modelling and measurement of the outcomes of free trade agreements.
Greater transparency and better measurement should allow a more informed public discussion.
Transparency during negotiations
The power to make treaties in Australia is vested in the Executive under section 61 of the Constitution. Decisions about whether to enter negotiations for a treaty, Australia’s negotiating position, and the final decision on whether to sign a treaty are taken by either a Minister or the Cabinet.
As part of this process, the Australian Government usually undertakes a public consultation process. In relation to the TPP, the Australian Government consulted 485 people and organisations.
The Australian Government stated:
Throughout the negotiations, we have consulted extensively...We have engaged the business community, the farming sector, academics, the unions, civil society groups.
The extent of consultation on free trade agreements by the Australian Government during the negotiation process has been a matter of contention for many years, and was again raised by many participants to the TPP inquiry.
Dr Hazel Moir, for example, stated:
In Australia executive government develops bilateral and regional trade policy goals in secret, negotiates the content in secret and only then provides the text to parliament and citizens.
The Australian Council of Trade Unions (ACTU) put it this way:
As appears to be the way with all trade agreements Australia is involved in, the TPP has been negotiated and finalised largely in secret and signed with very little, if any, public and parliamentary scrutiny up to this point.
Dr Moir also notes that the Australian Government’s approach to consultation during the negotiation process is at odds with the approach adopted by the WTO in multilateral trade negotiations.
The Australian Chamber of Commerce and Industry (ACCI) was another organisation that believes that the consultation process needs improving:
We think a better could job could be done and we would like [to] see that system improved. There are models being employed in the world, most notably in the United States, where we think that could be improved further.
In response to this discussion, the Australian Government specifically described its consultation process during TPP negotiations:
…the negotiators in the 12 parties were subject to a confidentiality undertaking between the parties, which meant that we could not reveal the text of the negotiations outside the government. This is standard treaty negotiation procedure.
When it comes to, then, having consultations—and we had very many and very significant consultations over a number of years—we need to focus more on having conversations about policy rather than the text. But we did have conversations about policy and we also had some very specific discussions about what we had done previously, in treaties, as a way to get to the nub of some of the issues that we needed to talk about.
The Committee notes that other jurisdictions have alternative approaches to consultation during the negotiation process for free trade agreements.
The first, and most widely discussed, is the approach adopted by the United States. The Australian Government described the approach adopted by the United States in the following terms:
In the United States, they have an arrangement where they have cleared advisers … These are people who are given security clearances by the United States government and they are allowed to see United States proposals that are going to be put forward. So they do not see the text; they see proposals that the United States is going to put forward in the negotiation.
As indicated above, the ACCI considered that such an approach might improve the consultation process.
The second approach cited during the inquiry is the approach being adopted by the European Union (EU) during negotiations with the United States for a Trans-Atlantic Trade and Investment Partnership Agreement (TTIP).
At the start of negotiations for the TTIP, the EU made a decision to make the negotiation process as public as possible. The EU publishes:
its initial position papers setting out negotiating positions; and
meeting reports on each negotiation.
The EU has stated it will publish the final agreement before signature.The only documents the EU is not publishing are the EU’s offers to the United States on tariff reductions and the opening of the EU market in services.
Specifically, the EU has made the following commitment:
We know we'll only get the best deal—one that benefits as many Europeans as possible—if we involve everyone with a stake in the outcome, at every stage ... [and] We're also sharing all the documents we can.
The third approach canvassed during the inquiry is the approach being adopted by Canada on the ratification of the TPP.
While Canada has signed the TPP, the Canadian Government has committed to a very extensive period of public consultation followed by a parliamentary debate before making a ratification decision.
The Canadian Government has established a specific TPP consultation web portal and has held over 80 public consultation meetings to date.
The Committee believes that a more inclusive approach to consultation during the negotiation process for free trade agreements will give the community a greater degree of reassurance that free trade agreements are in Australia’s interests.
The Australian Government also recognises that a more inclusive approach is needed. At the final hearing of the inquiry, the TPP Chief Negotiator for the Australian Government noted:
There is always room to improve and we are looking to the community to provide us with some constructive ideas about how we step this process out and the way forward.
The Committee believes that the United States approach, involving cleared advisors representing business and civil society, might be the best approach for Australia to adopt.
On that basis, the Committee recommends that the Australian Government consider changing its approach to free trade agreement negotiations to permit security cleared representatives from business and civil society to see the Australian Government positions being put as part of those negotiations.
The Committee recommends that the Australian Government consider changing its approach to free trade agreement negotiations to permit security cleared representatives from business and civil society to see the Australian Government positions being put as part of those negotiations.
Modelling and measuring
A number of economic models of the outcomes of the TPP were cited during the inquiry. The National Interest Analysis mentions three:
the World Bank’s ‘Potential Macroeconomic Implications of the Trans-Pacific Partnership,’ which calculated that Australia could anticipate a 0.7 per cent increase in Gross Domestic Product (GDP) by 2030 as a result of the TPP;
the Petersen Institute for International Economics’ ‘the Economic Effect of the Trans-Pacific Partnership: New Estimates,’ which found that Australia could anticipate the TPP would result in a 0.6 per cent increase in GDP by 2030; and
the Research Institute of Economy, Trade and Industry, which anticipated an increase of 1.9 per cent in Australia’s GDP from the TPP over a similar time period.
As the inquiry progressed, further modelling was released by the Global Development and Environment Institute at Tufts University, which argued that the TPP would result in the loss of 39,000 jobs in Australia by 2025, partially as a result of increased productivity in the economy.
Debate about whether these modelled outcomes were good or bad progressed during the inquiry. During the first hearing, the TPP Chief Negotiator for Australia argued that:
We have heard some commentators say that the overall value of the TPP to Australia is small in terms of GDP growth and, therefore, not commercially meaningful. They cite the World Bank, for example, that concluded through its modelling that Australia will benefit by GDP growth of around 0.7 per cent by 2030. Setting aside the question of what such models can and cannot do, a 0.7 per cent increase to Australia's GDP as a result of the TPP is not insignificant. This represents a US$15 billion permanent increase to Australia's economy.
The Australian Government itself did not conduct any modelling of TPP outcomes, although the Productivity Commission offered to do so. The basis for this decision was:
We have looked in some detail at these models, including the basis on which they have done the models, and our conclusion is that both the Peterson Institute and the World Bank have undertaken a model that we know is very similar to the Productivity Commission's model. We could spend a lot of time and effort and resources in modelling something that the Peterson Institute and the World Bank have already done to deliver a similar sort of outcome.
While modelling can be a useful guide, it is important to note the limitations of modelling as an economic tool. The outcomes from economic modelling are not facts; they are an extrapolation of observed current conditions into the future.
If economic modelling is used to argue for the benefits or lack thereof of a free trade agreement, there is a serious risk that expectations will not be met. If expectations are not met, then public confidence in free trade agreements may be damaged.
There are a number of examples where the modelling of free trade agreement outcomes has created false expectations in Australia.
When the Australia–United States Free Trade Agreement (AUSFTA) was negotiated in 2004, the DFAT engaged the Centre for International Economics to model the impact of the agreement. The modelling suggested the agreement would result in an increase in GDP of 0.4 per cent after 10 years. Subsequent analysis of the actual benefits of AUSFTA after 10 years showed that no net increase in trade had occurred as a result of the agreement.
More recently, in August 2015, witnesses for Dairy Australia claimed that modelling of the China–Australia Free Trade Agreement (ChAFTA) showed that the dairy industry would grow at 1.5 per cent a year, resulting in an increase of 600 on farm jobs a year, as a result of the agreement. This has not turned out to be the case.
In relation to the TPP, the Australian Government recognised the weakness of economic modelling as a tool for debating the benefits of the agreement:
We would note that modelling is one tool among many when you are assessing a free trade agreement of this sort of character and dimensions ... We also note in these models that there are some methodological limitations. Models do not provide every fix in the world. This is broadly recognised by economists. When we are modelling a dynamic, 12 party deal, there are some real challenges. Modelling the impact of liberalising preferential supply chains is very, very difficult to do. Modelling the value that traders and investors place on certainty is very difficult to do.
An alternative to modelling the outcome of an agreement is to measure actual outcomes, or, in relation to the TPP, to commit to do so. As indicated above, an economic assessment of the AUSFTA has been undertaken in an academic context, indicating that such assessments can be made.
The Committee recognises that, given its multilateral basis, assessing the economic impact of the TPP will be a complex task.
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.
Nevertheless, there are aspects of the TPP that may assist in assessing the agreement’s economic impact. In particular, the TPP will create a single set of documentary procedures for products traded under the agreement. In addition, TPP commitments to using paperless trading between parties should allow the relevant data to be captured and measured.
The advantage of measuring actual outcomes for free trade agreements is that it does not create false expectations on the part of the public.
Measuring, rather than modelling, the outcomes of trade agreements will result in a more informed public discussion about the advantages of free trade agreements.
The Committee recommends that the Australian Government consider using the single set of documentary procedures and the paperless trading provisions of the TPP to measure the agreement’s benefits. This information can be used to inform future debate about the TPP and other free trade agreements.
The Committee recommends that the Australian Government consider using the single set of documentary procedures and the paperless trading provisions of the TPP to measure the agreement’s benefits.