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Wednesday, 4 August 2004
Page: 25579

Senator MURRAY (11:02 AM) —The US Free Trade Agreement Implementation Bill 2004 and the US Free Trade Agreement Implementation (Customs Tariff) Bill 2004 could have been given a number of titles. To paraphrase the Age'sTim Colebatch in his 20 July article, it could have been called the `free trade one-way, restricted trade the other way' bill, the `half free trade' bill, the `rushed agreement' bill or the `lopsided trade' bill.

I think, when we are assessing these bills, we must recognise a point constantly made in the debate—that is, we are a small nation of 20 million people up against a very large nation with a very large market. Of course that reflects itself in their ability to negotiate. Americans include people with amazing energy and ability. There are some really nice people as well as really capable people, and you cannot judge the country by the way their leaders behave. When I look at the exaggerated caricatures of themselves that otherwise perfectly intelligent and capable leaders exhibit, I am astonished—for example, the picture of President George Bush swaggering on that boat and proclaiming `mission accomplished'. I would never see an Australian leader behaving like that. There was John Kerry giving that extraordinary salute and saying he was reporting for duty. He just looked like a jerk. You cannot judge that kind of exaggerated caricature as being typical of the American people because, as I say, they have astonishing abilities and capabilities. That reflects itself in negotiations.

Americans at that level are very tough and skilled negotiators—and, if you are sitting opposite them as Australians, you had better count your fingers. We often hear Americans refer to God. They are very fond of referring to the Almighty at every occasion. But when you are dealing with their very top negotiators, you ought to remind yourself that the God they are referring to is the god of mammon and that they are in it for money. A trade deal is about money. When you are dealing in these matters, you have to be very sure that they have not got a better deal than you have or that you have one that you can live with. That is really the issue at stake here: there has to be something in a deal for both parties. There are good parts to this deal, there are bad parts to this deal and there are parts in between. You have to make a judgment as to whether, on balance, such a deal works out well.

As our trade portfolio holder, Senator Ridgeway, has indicated, the Democrats will not be supporting the legislation. Senator Ridgeway was charged with determining whether the benefits of this trade agreement were greater than the costs or vice versa. On carefully assessing the evidence through an intensive committee and consultation process, Senator Ridgeway came to the view that the costs were greater than the benefits—that Australia had been out-negotiated and that, on balance, the deal was not in the national interest. This does not reflect on our attitude to Americans, or anybody else's attitude to Americans; it reflects on an assessment as to whether the deal is more in their interests than in ours. Our conclusion is that it is.

We are a party with a strong record of supporting international treaties and agreements—among others those on the environment, labour, human rights and justice matters, accounting standards, finance rules and tax treaties. We prefer multilateral agreements with wide application but have not hesitated to support bilateral agreements in the national interest. Judgments require decisions. Sometimes, as with the recent United Kingdom tax treaty, we have sided with the government against Labor. On this bill, we are against both.

Senator Conroy is the trade spokesperson who has persuaded Labor to this revised position. I have suspected right from the start that Labor intended to support this United States trade deal on political grounds rather than on trade grounds. I do not know, therefore, that you can call Labor's position a backflip, a sell-out or a cave-in if that is what they always intended. What I do know is that Senator Conroy has been quick to use those words about other senators and parties in the past. I did a quick Hansard count on him condemning others 22 times for doing a `backflip', five times for a `sell-out' and 12 times for a `cave-in'. On this one he can tell me whether he has been consistent right throughout or whether we might make those assertions about him for a change.

We have significant concerns about the impact of the agreement on Australian culture, on the health system and on our national sovereignty. We are disappointed that Labor has not agreed with our view, although many obviously do, and we note how ably the Prime Minister has been using it to create trouble and division for the Labor Party.

The Democrats are not opposed to the trade agreement because it is with America. America is our ally and our friend, and the Democrats have a very long and strong attachment to America and its people. We oppose it because the evidence presented to the inquiry of the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America brought us to the view that it was not in Australia's best and national interests. We believe that it will impact on our health system. My colleague Senator Cherry will speak after me on how it will affect the agricultural issues, Senator Stott Despoja will speak on intellectual property issues and Senator Ridgeway will address Australian culture. There are non-trade issues as well as trade issues affected by this agreement.

Our concern is simply that we have been out-negotiated. This bill will pass—given what I have heard from both parties—and only time will tell whether our caution and concern are proven right or wrong. If we are proven right, it will be to Australia's regret. In a way, I hope we are proven wrong because I would hate to see an agreement entered into which has as many negatives as its critics have outlined.

One of the arguments used to support the free trade agreement is attached to the outcomes of economic modelling. Many people in this place and many commentators have an understanding of economics. Those who do have an understanding recognise that economics is an art and not a science and that modellers disagree with each other as often as do economists generally. So it is very difficult to take as gospel a judgment. When you are dealing with modelling, many of the outcomes rely on extraneous and intangible factors which you cannot always account for in your assumptions.

The Howard government have relied on the Centre for International Economics to provide them with the answers they require. I do not seek to impugn or malign their professionalism or abilities. What I do say is that they are subject to the same likelihood of error as any modeller is because of the assumptions that you put into your calculations. Back in the early stages of discussions on the free trade agreement in 2001, as part of the 50th anniversary for the ANZUS treaty, a study by the Centre for International Economics claimed that an FTA could increase Australia's real GDP by almost $2 billion by 2010. Two billion dollars is a lot of money, but in the scale of the Australian economy it is a relatively low figure. In fact the standard error applied just to our annual budget is far greater than $2 billion—never mind applied to any calculations about GDP.

That benefit was announced before the negotiations commenced. On 21 June 2001, Trade Minister Mark Vaile boasted—I think it could be classified as a boast—in a glowing press release:

The CIE analysis, commissioned by the Department of Foreign Affairs and Trade ... also found that an FTA would increase US real GDP by $US2.1 billion by 2006. The total stream of benefits over 20 years could be around $US10 billion for both Australia and the United States. Furthermore, an FTA would most likely create trade rather than divert trade.

The net present value of the free trade agreement was estimated to be a $16.9 billion gain for the United States and a $15.5 billion gain for Australia. There is a bit more for the United States than for Australia in that calculation, which is to be expected when you are up against their muscle and their ability. On page 5 of the 2001 report, it went on to say:

For the United States the main gain is in the manufacturing sector. Exports of motor vehicles and parts to Australia could rise by 46.6 per cent and exports of metal products could rise about 25.2 per cent.

When you have a look at those gains for foreign manufacturers, you will see that it is no wonder that Doug Cameron, who I think is a very principled and strongly opinionated union leader—I mean that in the best sense, not in the worst sense, because you certainly know where you stand with him—is concerned. The 2001 report went on to say:

For Australia the largest gains were in sugar and dairy. The price of sugar in Australia could rise by 13 per cent and the output of raw sugar could rise by 7.8 per cent. Exports of sugar to the United States could rise by 2 550 per cent, but that is off a very low base of just 85 000 tonnes. This represents an initial increase of US$442 million per annum. Even though Australian exports to the United States rise considerably, this still represents a small share of the United States market and has a small impact on US prices and output. Over time, the impact would be larger.

It sounds wonderful, except that sugar never made it into the final agreement. When the final agreement was announced earlier this year our trade spokesperson, Senator Ridgeway, criticised the appointment of the Centre for International Economics to analyse the economic benefits of the free trade agreement. He said:

The original work by the CIE has been slammed for using unrealistic assumptions and completely overstating the net gains to Australia arising out of the free trade agreement.

In question time Senator Hill had said that the process of appointing CIE was by a restricted tender. When a politician hears that, it always raises alarm bells in case it means that it has been steered towards someone who is favoured in a tender. Unfortunately, it does raise that sort of question for CIE. The government tried to assure the Senate that the process was above board, but when you are pushing somebody's results you have to be sure that that person and that operation are seen to be independent and completely objective in the presentation of their material.

In April 2004, a revised DFAT-Centre for International Economics study was released. The 2004 report estimated that using a discounted present value approach, which means you take out the effects of inflation over time, Australia would receive a net benefit of $52.5 billion in gross national product or $57.5 billion if gross domestic product is used. The 2001 report found an Australian GDP gain worth $15.5 billion, and it stated that, for Australia, the largest gains were in sugar and dairy. So it is amazing that economists have come up with numbers as varied as these. That does not reflect that the economists are dumb but that the assumptions and the methodology they are using can result in widely and wildly varying outcomes, and you have to be very careful about trusting them. In 2001 the Centre for International Economics said that the US FTA, including sugar, would benefit Australia by $15.5 billion, and in 2004 it says that, without sugar, it will benefit Australia by $57.5 billion. That is just unbelievable. You cannot believe it.

According to the CIE, the largest contribution to economic growth and welfare is expected to come from investment liberalisation. Reduction of barriers to investment is expected to reduce equity risk premiums and to lower the cost of capital, leading to a rise in investment. So the majority of the gains will come from United States companies investing in Australia. It will take 10 years for trade liberalisation to provide benefits of $1 billion a year, which is not much. Because of the disagreements over methodology, the CIE did a sensitivity analysis and found there was a 95 per cent chance that, by 2024, the benefit for Australia would be between an amazing range of $1.1 billion and $7.4 billion a year. Of course, a sceptic or a critic could say that the benefit to Australia might even be negative if the benefits are all to the United States.

The Senate select committee thought that a second opinion would be useful, and they were very wise to do so. They commissioned the highly experienced economist and modeller Dr Philippa Dee to evaluate the FTA and the modelling conducted by the CIE. She questioned, quite rightly, the assumption that Australian businesses would be able to take significant advantage of the opportunities for United States government procurement. The CIE estimated that Australia could achieve 30 per cent of the penetration that Canadian businesses achieved. Dr Dee's estimate of four per cent was much more modest and was possibly a lot more realistic. What it does do, however you argue about those figures, is indicate that different people of capable, professional character have come up with wildly differing views of the benefits. So, when you look at this, do you take a cautious approach, or do you take an incautious approach? My instinct, if you are talking about the national interest and a fear that the United States will get the better outcome by far, is that you take a cautious approach.

After reassessing the results of the CIE study and making a number of adjustments to the assumptions on which the calculations were based, Dr Dee estimated that the likely overall gain to Australia from the FTA would be relatively small, at around $53 million annually. That is a tiny harvest for a major political and bureaucratic trade endeavour and negotiation, and it lends credence to the belief by many that the negotiations were truncated too early, that there was much more to be done and that our negotiators needed to stay at the table. The reason they withdrew and came back so early was the electoral cycle—the idea that, in political terms, this had to be a done deal well before George W. Bush went for re-election in November this year and well before our government itself went to an election. So my view is that, for political reasons, the negotiations were truncated and brought to an end and we have got a far smaller benefit than we otherwise might have achieved.

In the Senate select committee's conclusion on the subject of economic modelling, it is noted that some results indicated substantial gains for Australia. Others found the gains to be minimal. One study concluded that the agreement would disadvantage Australia by weakening its sovereignty. The select committee concluded:

Due to the wide variation in the outcomes of these exercises, the results were too inconclusive to be used as a basis for solid conclusions.

I remind the chamber that those conclusions are the conclusions of the Labor and Liberal parties as well as the other parties, such as ours, represented on that committee. On the Department of Foreign Affairs and Trade's web site, under frequently asked questions, this question is asked:

Has the government commissioned independent economic modelling of the benefits of the AUSFTA?

The response is, `Yes,' and they go through that. But they do ignore the other studies and the modelling of Dr Dee. So the government, on its own web site, has failed to illustrate the varying modelling available on this issue. (Time expired)