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Trans Pacific Partnership: the secrecy continues

By Jonathan J. Ariel - posted Friday, 14 August 2015


The more is said, the less is known.

That seems to be the take-away from Wednesday's National Press Club address by the Minister for Trade, Andrew Robb.

The Minister spoke at length about trade agreements, but was short with details about the biggest trade agreement you've never heard of: the uber secretive Trans Pacific Partnership (TPP).

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Debate in the community isalready hot about free trade agreements, in particular theChina-Australia FTA and the TPP. Much of it ill informed, but some of it quite pertinent.

And like most major policies, the public (read "voters") can only be swept along with those proposed trade agreements when transparency is front and centre. But transparency was not on the menu at the Mr. Robb's address.

The TPP raises many questions, including the implications for Australia with respect to:

  • Tax policy: will the TPP raise significant tax revenues for the government or will "tax jurisdiction shopping" be the name of the game for companies feasting on newly secured lower trade barriers?
  • Regulatory policy – will the government's hands be tied if they wish to introduce or modify any regulation e.g. health, welfare, education, energy security etc if such a regulatory change potentially impacts on the profitability of foreign investors in Australia?
  • Labour policy: will the TPP raise wages for many Australiansor just raise profits, with the offshoring of much labour being "collateral damage of the FTA"? And
  • "Economic growth": other than a meaningless percentage figure, what does this mean in terms of job creation and the living standards for many Australians?

Following the Minister's address, Fairfax Media's Peter Martin asked the key question of the day: why has there been no cost benefit analysis of the forthcoming TPP, and with regards to the 10 year old US-Australia FTA, why have the assumptions and hopes upon which that agreement was based, not been examined, 10 years on to verify their accuracy?

No reply was forthcoming that could dislodge the mistrust that many (and not only on the Left) have for secretive deals.

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The Minister did however get across to his audience that "free trade" will allow more Australian firms to operate abroad. He cited the many Australian architects working in the PRC and added that "free trade" will also allow for massive foreign investment in Australia.

Two valid points, as far as they go.

But in regards to theTPP:

  1. Will invigorated local companies and foreign investors help increase Australia's aggregate demand through the spending of households, governments, and businesses?
  2. Will the TPP boost or diminish Australia's low paid workers' power to bargain for higher wages?
  3. Given that a government's expansionary fiscal policy is one road to higher employment (and to ramping up local demand), are there any provisions in the agreement that could restrict such activities by allowing our trading partners to interpret our fiscal expansive behaviour as "currency manipulation"?
  4. Some countries (both members and non-members of the TPP) may choose to buy say $A denominated assets (and buy big) to raise the value of the Aussie vis-à-vis their own currency. They may also decide to devalue their currency to make their exports even more competitive to Australian consumers. This will hamper any attempt by the Australian government to ramp up domestic employment given the domestic economy will now churn out higher priced goods and services (when denominated in our trading partners' currencies). What does the TPP say about that?
  5. Assuming for a moment that the sub text of the Minister's comments is spot on, that is, that on a country to county level an expansion of trade will benefit Australia and her trading partners (perhaps greatly). What then are the income redistributive effects within Australia? Numerically speaking, will more Australians be worse off than are made better off with the TPP? And if so, by how much?
  6. Lower trade barriers on say Australian beef and sugar by our TPP partners means more Australian beef and sugar will be sold in those markets. And those markets can also bid up the price of the foodstuffs now that they have lower duties to pay on them. Will this cause the domestic Australian prices of such foodstuffs to rise and rise, making them less affordable to many working Australians? At what point do domestic price rises on basic foods (and for that matter, Australian gas) warrant Australian government intervention?
  7. There will likely be a redistribution of jobs between trading partners. A relatively high wage economy like Australia will see more high paying high skilled jobs on offer and less low paying low skilled jobs. The relatively low-end jobs will in theory migrate to where labour costs are lower. But more high paid jobs on offer are not synonymous with more Australians being paid more by securing those high paying jobs. It is possible we don't have the right people with the right skills in the right place, so we may well have to import them.

Who knows? The TPP may well be positive for Australian workers in general and not just for "Australia" in aggregate. We have no idea. But given the few facts on offer and the less than fulsome response by the Minister to Fairfax Media, many, including conservative voters, remain skeptical.

A Productivity Commission study of the costs and benefits of the TPP to Australia and Australians would relieve much community suspicion.

Either that, or the Abbott government will be trying to stop independents relieving some Liberal politicians of their seats at the next election.

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at jonathan@chinamail.com.

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