It's just not PC to question trade deals

In recent public discourse about trade agreements the initials PC have taken on dual meanings – political correctness and the Productivity Commission. It is simply not politically correct these days to criticise any aspect of a trade agreement. Anyone with the temerity to question a clause in an agreement is branded anti-trade or worse, a racist peddling xenophobia. Hence the need for the Productivity Commission to cut through the politics and conduct dispassionate analyses of trade deals at arm's length from government.

Some critics from the left might be sceptical about the proposed use of the Productivity Commission, but it has been willing to go where governments have refused to tread, questioning the national worth of bilateral trade agreements and recommending against investor-state dispute settlement provisions that confer greater legal rights on foreign corporations than are available to domestic firms.

In fact, the previous Labor government accepted all but one of the recommendations of a 2010 Productivity Commission report on bilateral and regional trade agreements. Yet, in what might seem a perverse decision, the Labor government rejected a recommendation that a cost-benefit analysis be done on all trade deals before they were locked into place. The reason was not based on opposition to transparency. It was a repudiation of the farcical approach that had been adopted by previous governments of hiring a favoured private consulting firm to produce pre-determined results in support of negotiated agreements.

Regardless of how sophisticated economic models are, the results they produce are entirely dependent on the assumptions that go into them. Those assumptions can be readily manipulated to produce the desired results. In settling these assumptions, past governments have favoured the technical rule known as GIGO – garbage in, garbage out.

Absurdity reached dizzying heights when a quantitative analysis of the trade-liberalising effects of the US-Australia free trade agreement was unable to produce any tangible positive results. With little else to show its client, the consultant threw in a massive positive effect on the Australian economy of a decision by the Howard government to increase the amount of American investment that would be free of screening by the Foreign investment Review Board from about  $240 million to $1 billion. Professor Ross Garnaut described this analysis as failing to pass the laugh test. Imagine our boundless wealth if the Howard government had instead lifted the screening threshold to $2 billion or abolished it altogether.


Ironically, Howard agreed to raise the screening threshold to $1 billion in lieu of agreeing to US demands to include investor state dispute settlement provisions in the US-Australia agreement. Now the US has achieved that same long-held goal in the Trans-Pacific Partnership. No doubt the computable general equilibrium model of a favoured private consulting firm is whirring into action to prove the worth to the Australian economy of the unimaginably large new inflows of American investment from allowing its corporations to sue Australian governments. Yet they would be at odds with the quantitative findings of the Australian National University's Dr Shiro Armstrong that the US-Australia free trade agreement has actually made both countries worse off by diverting imports from lower-cost suppliers.

The previous Labor government indicated to the US administration it would not agree to the inclusion of investor state dispute settlement provisions in the TPP. While the American side was unhappy with the Gillard government's decision, it did not nominate it as a show-stopper and negotiations on all other matters continued unhindered.

Trade Minister Andrew Robb has worked hard and effectively in bringing four trade deals to conclusion. On the face of it, all four agreements – with Korea, Japan, China and the Trans-Pacific partners – offer substantial economic benefits to Australia. But they also entail costs that are scarcely mentioned.

It is not anti-American to want to see the details of the TPP or anti-Chinese to query the easing of labour market testing in the China agreement. Nor is it xenophobic to be alarmed about the loss of national sovereignty from allowing foreign corporations to sue Australian governments in ways that are not available to domestic businesses.

The TPP requires no Australian enabling legislation and therefore, no vote by the Australian Parliament. But why not inform the Australian public about the economic impacts of the four agreements by asking the Productivity Commission to assess them in a single, independent report? The answer, it seems, is that it would not be PC to do so.

Craig Emerson, managing director of Craig Emerson Economics, was trade minister from 2010 to 2013. He is an adjunct professor at Victoria University's College of Business