The Commission comments
The negotiation and commitment processes for these agreements have raised concerns about a lack of both transparency of the provisions being negotiated and rigorous assessment before the Australian government commits to signing. Post-negotiation assessments can only result in the Government deciding not to proceed with ratification.
Investor State Dispute Settlement activity
The Australian Government continued defence of its tobacco plain packaging laws in a case brought by Philip Morris Asia in the Permanent Court of Arbitration and a number of countries in the WTO dispute settlement body. This case highlights the potential (and un-provisioned) contingent liability of Investor State Dispute Settlement (ISDS) provisions in trade and investment agreements that confer procedural rights to foreign investors not available to domestic residents.
The final outcome of the case is not expected to be known for some time. The ongoing costs to Australian taxpayers of funding the preparation and defence of the tobacco plain packaging legislation, and the ultimate ruling, are unknown, unfunded and likely to be substantial.
During 2013-14, there were 19 new anti-dumping investigations initiated — compared to 13 in 2012-13. Overall, at the end of June 2014, there were 48 dumping measures in force, up from 40 the year before. Given the significant recent changes in the anti-dumping regime and the potential for an increase in the number and size of anti-dumping actions,there is a need for close monitoring of outcomes. It would be timely for a formal and independent review of the anti-dumping arrangements and outcomes to be undertaken. This is important to ensure that the arrangements do not persist beyond the identified period or scope of the complaint; minimise costs on the product users, and consider whether there is evidence of any emerging abuse of the system. Such a review should consider the need for a national interest test as recommended by the 2009 Productivity Commission review.
Concerns remain about preferential trade agreements
The proliferation of preferential trade agreements at the bilateral and regional level (referred to commonly as ‘free trade agreements’) is adding to the complexity and business transaction costs of the international trading system. However, the practical impacts of agreements being entered into by Australia remain unclear and highlight the need for thorough evaluation of the negotiated agreement text prior to their signing. In substance, the devil resides in the detail of these agreements and full and transparent analysis is not afforded to the final texts for many of them.
Amongst other things, preferential agreements are resulting in:
- different product - specific rules of origin for merchandise trade and ownership - based origin rules for services and investment across agreements
- variable coverage of services sector liberalisation across agreements
- more stringent intellectual property rights protection
- the adoption of investor state dispute settlement procedures that depart from the national treatment principle, to grant rights of legal recourse for commercial loss to foreign investors not available to national investors.
There is a growing and compelling case for the negotiated text of an agreement to be comprehensively analysed before signing, including:
- the complexity of bilateral and regional trade agreements
- the potential for trade preferences to impose net costs on the community
- the availability of alternative reform strategies
- the risk that domestic reform may be delayed to retain negotiating coin.
However, current assessment processes in Australia fall well short of what is needed to adequately assess the impacts of prospective agreements. This is reflected in the wide and concerning gap identified in comparing the assessment analysis undertaken for the Japan Australia EPA with the Commission’s previously-published benchmarks of what constitutes a comprehensive pre-execution assessment. Current assessment processes do not systematically quantify the likely costs and benefits of negotiated texts to an agreement, fail to consider the opportunity costs of pursuing preferential arrangements compared to unilateral reform and ignore the extent to which agreements actually liberalise existing markets (figure 8). For example, the JAEPA and other bilateral agreements can deny foreign-owned or controlledservices businesses in Australia access to the liberalising provisions of the agreement via the partner economy. The substantial level of foreign direct investment in services (amounting to nearly $265 billion by value or 40 percent of total foreign direct investment in Australia) raises the possibility that such ‘denial of benefit’ provisions could divert services trade and investment flows, diminishing the potential liberalising benefits of an agreement.
Another issue is the extent of additional liberalisation achieved through an agreement and the degree of disparity across respective agreements. For example, an index-based analysisby the WTO indicates that services provisions negotiated under the ASEAN-Australia-New Zealand agreement added little if anything, to those already afforded by services commitments under the General Agreement on Trade in Services (GATS). On the other hand, application of the same methodology to the analysis of bilateral concessions under the Australia-United States agreement indicated a substantially higher level of bilateral concessions by Australia than afforded under GATS commitments. This is consistent with an observation by the WTO that larger trading powers tend to receive more concessions in preferential trading agreements than other trading partners. An issue where such differences arise is the extent that the varying concessions lead to costly services trade diversion