Home > Economic policy, Economics - General > When did “Free Trade Agreements” become “reform” ?

When did “Free Trade Agreements” become “reform” ?

September 8th, 2015

The Oz is pushing hard for the China-Australia Free Trade Agreement. Support for the deal was (AFAICT) the only significant output from the “National Reform Summit” held by the Oz and AFR a week or so ago. This raises a few points of interest.

* Until very recently, bilateral trade deals of any kind were seen as the antithesis of free-market reform. Reformers favored either unilateral removal of trade barriers or global deals through the World Trade Organization. Admittedly, the latter is clearly a forlorn hope, but what happened to unilateral free trade

* Second, it ought to be clear by now that “reform” means “whatever the Oz and IPA wants”. For example, tax reform doesn’t mean taxing mineral rents or carbon externalities or tax-dodging trusts and shell companies. In essence, it means taxing food and giving the proceeds to the rich. Anyone concerned with good policy should stop using this word in a positive sense

* Most importantly, “Free Trade Agreements” are nothing of the kind. The key to the China deal is the expansion of the 457 system to allow for 100 per cent overseas workforces. Even if you think that’s a good idea, it should be addressed in the context of immigration policy. There’s a startling contradiction between this stuff and Joe Hockey’s high profile persecution of Chinese buyers who are allegedly pushing up the price of Sydney houses.

* The same is true of the other FTA’s this government has signed, and even more so of the proposed TPP. At most, the trade component of these deals consists of Australia selling its domestic policy sovereignty to foreign governments in return for the removal of their trade barriers.

  1. Pete Moran
    September 8th, 2015 at 10:23 | #1

    Craig Emerson had an interesting tweet a few days ago;

    [email protected] I completed Korean trade deal other than agreeing to ISDS. Andrew Robb agreed to ISDS & Abbott claimed the deal as his own.”


    So he did not agree to ISDS, but Abbott put it back with the agreement of Labor?

  2. Uncle Milton
    September 8th, 2015 at 10:37 | #2

    what happened to unilateral free trade?

    There’s actually very little left to do to liberalise imports, unless you think that reducing tariffs from 5% to a smaller number will make any difference.

    That leaves the non-trade part of FTAs, like foreign investment rules and IP rights. I’m not sure that even in theory it’s necessarily welfare-enhancing to unilaterally liberalise these.

  3. Ikonoclast
    September 8th, 2015 at 10:40 | #3

    I think all the things listed in J.Q.’s star-points are consistent with a general theory of late-stage global capitalism. To comment on the star-points;

    1. Bilateral deals of this kind are crony deals. The elite of the client state in particular sell out the mass of their own people and the national interest for elite gains. The oligarchs of different nations have more in common with each other than they have in common with their own people.

    2. The tax system is re-jigged to allow oligarchic and corporate capital earnings to escape taxation.

    3. See point 1 above.

    4. Economic and political power are moved from governments to corporations and oligarchs.

    The whole labour arbitrage thing still has a long way to run. By some estimates there is a global reserve army of about 2 billion peasants yet to be brought into the capitalist wage system. There’s a lot of unemployment and wage deflation still to come in the OECD going by those numbers.

  4. Peter Chapman
    September 8th, 2015 at 14:24 | #4

    When did “free trade” ever turn out to be “free”? The question as always is: “Who benefits from this crime?” And the converse: “Who will pay?” Our politicians, no surprise, do not even know how to ask these most basic of questions. The Milby case, unfolding as I write, is further evidence that social and economic impacts of policies are poorly considered, if at all, by our current regime. The zombie idea that we need these FTAs is matched by the brain-dead, unfeeling approach to impact analysis.
    On another point about “reform”: Regulatory proposals to the Queensland Cabinet (and similarly, I believe, in other jurisdictions) at one time had to be accompanied by a “Regulatory Impact Statement” or RIS, for which detailed guidelines were provided (and mainly using a cost-benefit analysis methodology). During a former life working in a government policy area, I saw several of these written by consultants who by-and-large went along with the prevailing view that regulation had to be limited, and costs to the private sector had to be constrained, regardless of the damage done by any failure to regulate (and ensure compliance). Every government now seems to pledge itself to “red tape reduction”, regardless of any assessment of the positive benefits of regulation and enforcement.

  5. Jim
    September 8th, 2015 at 14:51 | #5


    You are absolutely right about the RIS process. Fortunately the red tape reduction process appears to be a bit of a sham. The Queensland Government seems to be sucked into a view that regulatory counting methodologies (counting words that impose a requirement on businesses) are in fact an accurate way to measure regulatory burden (more words = more regulatory burden). It us pretty easy for the public servants that can actually think and want to protect consumers, or the environment etc to remove the regulatory words that don’t really matter to much.

    The bottom line is that the estimate of reductions in regulatory burden are largely illusory. But then again, most of the regulatory burden was a beat up by the development sector anyway.@Peter Chapman

  6. Troy Prideaux
    September 8th, 2015 at 16:19 | #6

    I’m not a fan of free trade deals especially after the AUSFTA – we open our markets for their imports in return for allowing them to “invest” in all our natural assets eg offshore gas fields etc. (ie a one way street IMHO). The TPP looks just as bad for us, however the China deal actually looks like it offers some genuine benefits for our agricultural and dairy industries. I hope it goes through.

  7. Nicholas
    September 8th, 2015 at 21:15 | #7

    Tax revenues don’t go to the rich. They don’t go to anyone. They reduce the purchasing power of the domestic private sector. That’s it.

  8. Megan
    September 8th, 2015 at 21:33 | #8


    Can you explain that a bit more?

    Tax doesn’t go anywhere? I don’t get that. I thought it went to government spending (e.g. schools, hospitals, public transport, government wages, stupidly wasteful weapons etc…).

  9. Julie Thomas
    September 9th, 2015 at 07:57 | #9

    “Can you explain that a bit more?”

    I’d be guessing but I doubt that Nicholas can explain exactly how tax only reduces the purchasing power of the domestic private sector.

    I think this statement expresses the supreme faith the kool-aid drinkers have in the power of taxation – which is a construction by the evil leftists – to destroy the lives of magnificent individuals and civilization, even. And of course Nicholas will have many stories about how tax has destroyed so many potential leaders and ruined the lives of the potentially rich and famous, including his good self.

    The tax lament is a siren song that lures those magnificent individualist neo-liberals who seem to crave admiration – and apparently they want this from those they detest as lesser beings – for their ability to steal from the poor, onto the shores of certainty and simplicity where Ayn Rand lurks with all her so naked and disordered thoughts, where they feel safe and secure in the constant reiteration of their catechism that goes look at me, look at me and see how clever I am; I am so much better than you, if only you lefties would see that I really do deserve all that I steal from those who make bad choices.

  10. Ikonoclast
    September 9th, 2015 at 09:23 | #10

    Nicholas’s statement is so brief and lacking in context it is not possible to judge what he means. It might be a right libertarian statement against taxation and government activity. It might be an MMT statement. It could be construed as either.

  11. Dave Lisle
    September 9th, 2015 at 10:11 | #11

    @ Uncle Milton

    If one subscribes to the ‘bicycle theory’ of free trade (associated with Fred Bergsten), which suggests that if you stop liberalizing you lose momentum and slide back into full blown protectionism (and then suddenly you’re in the 1930s and then you’re at war) then everything that might conceivably be considered liberalizing (by anyone) is, by definition, welfare enhancing because it prevents things like WWII.

    Under this theory, the idea of ‘competitive liberalization’ means that all liberalization, whether unilateral, regional, mega-regional or global, is mutually reinforcing and prevents ‘backsliding’ (and war of course).

    It is a theory deeply imbued with faith.

    Regarding IP and investment – for free trade enthusiast David Baldwin the global trading system is being used to make things not just sell things. The dominance of global value chains supports this idea. The new deal is therefore ‘foreign factories for domestic reforms’ because ‘role of trade is secondary in this trade-services-investment-IP nexus; the dominant feature is the combination of one nation’s know-how with another nation’s labor’. Investment rules and IP are all about giving ‘much deeper assurances’ – countries begging corporations to throw them a few crumbs.

  12. rog
    September 9th, 2015 at 10:19 | #12

    The benefits to agricultural export industries is not 100% with many big ticket items such as wool, wheat and cotton excluded. A better deal can be made by forex as China is pegged to the $US.

    Loss of sovereignty is shared as both sides can sue the others govts. But who would want to sue the PRC?

  13. Nicholas
    September 9th, 2015 at 16:19 | #13

    Can you explain that a bit more?

    Certainly. The federal government has a monopoly on the issuance of the Australian dollar. Our currency is not convertible at a fixed rate to another currency, to gold, to silver, or to any other commodity. Consequently the federal government cannot go insolvent in its own currency unless it voluntarily accepts unnecessary rules that make this a possibility. The constraint on the federal government’s spending is the amount of real goods and services available for sale in the Australian dollar at current prices. In other words, there is a real economic constraint on government spending, but not a financial constraint. The federal government spends by crediting the bank accounts of the households and firms it wants to pay. It is not limited to the dollars that it collects as tax revenues. It does not need to raise taxes in order to increase spending. It does not need to issue debt in order to deficit spend. In all cases it simply credits the recipients’ bank accounts with the amounts it wants to pay.

    It is nonsensical to claim that taxpayers fund the federal government. At the state and local levels this is true. The state and local governments are revenue-constrained. There is a hugely important difference between the financial capacity of a currency issuer and the financial capacity of a currency user.

  14. John Quiggin
    September 9th, 2015 at 16:55 | #14


    I’m treating this as an MMT comment. As such, it should be taken to one of the sandpits/

  15. rog
    September 12th, 2015 at 07:57 | #15
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