A CHAFTA election? (updated)

Malcolm Turnbull’s coup against Abbott has been the subject of much commentary, and I didn’t have anything to add. But now it’s time to look beyond the juggling of Cabinet positions and to consider some of the long term implications. Turnbull’s rise takes off the table, or radically changes the politics of, a number of issues that would have been central to an Abbott election campaign. Most obviously, there are the issues (climate change, equal marriage, republicanism) where Turnbull is known to agree with Labor but has said he will stick with Abbott’s policies. Obviously, Turnbull can’t run hard on these. It remains to be seen whether Labor can make political mileage out of the contradictions involved.

The ground Turnbull wants to fight on is that of economic liberalism, primarily as represented by the so-called Free Trade Agreements with Korea, Japan and, most importantly, China.

Turnbull has the near-unanimous support of the elites on these deals, even though it’s hard to find even a single economist who would support them with any enthusiasm. Anyone who has looked seriously at the issue understands that the trade aspect of these agreements is trivial. What matters are the side clauses on issues like Investor-State Dispute Settlement procedures, intellectual property, environmental protection and so forth. Unfortunately, political journalists, as a class, don’t do much thinking.

Here, for example, is Laurie Oakes, asserting that

>Labor needs to end up supporting this trade deal. That is the bottom line

but not providing a single argument in favour. In typical “Insider” style, Oakes says

The government charge that Labor is sabotaging jobs would not be a difficult one to sustain.

without worrying about whether this charge is actually true (it isn’t).

In the case of CHAFTA (the unlovely acronym for the China deal), the big problem is not in the agreement itself, but in a “Memorandum of Understanding”, which provides for circumstances under which a Chinese company can import its own workforce, without labour market testing (that is, even if there are Australians willing and able to fill the jobs) and without matching existing conditions.

According to Peter Martin, this was given to the Chinese side as a consolation prize because the government was unwilling to lift restrictions on property purchases, and has in fact tightened them. Indeed, while the government was demonising any concerns about this deal as “racist” and “xenophobic”, Joe Hockey routinely crowed about forcing foreigners (invariably stereotyped as Chinese) to sell properties they had illegally acquired in the North Shore.

No one in the government or among its supporters is willing to defend this aspect of the deal. Rather, what we get is waffle[1] like the following from NSW Labor Right figure Chris Minns

There has been much talk about the terms of Chinese investment in Australia, which is appropriate and fair. Close scrutiny and questioning of the Investment Facilitation Arrangements contained in the memorandum of understanding between Australia and China is not inappropriate – however concerns about this aspect of the agreement are not reason enough to sink the entire deal.

What can Minns mean by this? What is the point of “close scrutiny and questioning” if you are committed to accept the deal regardless.

UpdateThere’s also a DFAT “fact sheet” which tries to spin the issue in a thoroughly dishonest way. Here’s the ABC fact check and here’s Robb’s non-denial denial.

However much lipstick Turnbull tries to put on this MOU, it’s still a pig, and the Australian public recognises the fact. If Labor stands firm, and Turnbull fights the election on this ground, he will lose.

fn1. In a sense halfway between Australian and US usages of this term: Uttering meaningless words with the intention of dodging the issue.

47 thoughts on “A CHAFTA election? (updated)

  1. The MOU sounds very dodgy, but am unclear as to why the additions to labour supply would be more “election losing” than those additions provided by permanent immigration, 457 visas and education visas. I don’t trust the efficacy of labour market testing and condition matching provisions in practice so the MOU provision for their absence, though deplorable, does not to me seem of itself to be as damaging as the enormous past and ongoing additions to labour supply under current programs.

  2. I fear that unless the libs destroy themselves ,and as long as world events dont intervene, we may be in for Turnbull for a long time .Being socially progressive he could scoop up enough labor votes to win elections and continue to inch Aust along the neo-lib path of economic reform . More boring politics of prosperity ,free trade deals and happy elites .The 2 big parties scraping around to exaggerate tiny differences between them. Shorten Labor and Turnbulls Liberals are not substantially different .The Australian public will mindlessly buy it as long as the veneer of general prosperity can be maintained. Shorten is stumped , Abbott was a gift to him. Could be a good time to tune out for 5 or 10 years. Its entertaining to see the shock jocks finally smacked down tho.

  3. So John, even if (and it’s not at all clear) Chinese investors were able to employ some Chinese workers on a few projects within Australia in preference to appropriately suited Australian worker on those projects, how does that number of jobs compare to the jobs that would be created by other provisions in the agreement? If the latter is larger than the former, than surely the agreement is ‘good for Aussie jobs’.
    You, and the unions, don’t address this, yet proponents of the deal suggest that the later would indeed swamp the former.

  4. freddo,

    “@ZM
    Turnbull can advocate all he likes in Cabinet, but if he can’t take Cabinet with him (and the wider party) he looks totally impotent.”

    That’s true, but hopefully he will come up with some positive policy ideas that Cabinet might take on board. I say hopefully, because I actually have very little idea of what sort of government Malcolm Turnbull will lead, even though he’s been in politics so long.

    On the bright side for me, Turnbull has announced a new Cabinet Ministry of Cities and the Built Environment. This is very positive both for urban planning generally, but also because in the USA-China climate agreement Cities were one of the areas they were going to collaborate on, so it is a good way for the government to reach out to other countries and also another portfolio that should address environmental issues — because of the interaction of the built environment with the natural environment, which remains Greg Hunt’s ministry.

  5. TN

    The jobs allegedly to be created are fictions. Even without drawing upon experience of previous trade agreements, it stands to reason that, when coupled with more or less free foreign investment and free trade in services, Australia can’t benefit. Take an agricultural commodity such as dairy. Australian dairy farmers think that they will be winning a prize. But if the products are produced on Chinese-owned farms, processed by a Chinese-owned company with staff on 457 visas, repatriating its profits and transfer-pricing to avoid taxation, how can Australia possibly benefit? Especially if governments are pressured to build infrastructure such as irrigation systems or roads to support the new venture. And every dispute, whether it is failure of the municipality to build a local access road or an attempt by the EPA to enforce environmental regulation, will become a matter of international diplomacy at the national level.

    I haven’t been tracking recent experience, but I mention a report by the Commonwealth Parliamentary Library on 2 December 2008 noting that Australia’s balance of trade had worsened with every country subject to a free trade agreement to that date.

  6. So far, there has been only an oblique reference to the charge peddled by Andrew Robb amongst others, that the attempt by Labor to protect local workers against the egregious attempt to import outside workers is somehow “racist”, which is a despicable misrepresentation of the reality of the new Labour market wedge designed to further lower standards of living for working people in this country.

    What makes this particularly despicable is, that at the same time, local UN skilled workers are locked out via 457 visa abuse already, yet simultaneously subject to an increasingly harsh social security regime, as the government again attempts to force an increased waiting period for local unemployed for benefits, for example.

    I truly ponder what sawdust must exists between the ears of some knuckleheads… do you want to end up on a couple of dollars a day, as proposed by Gina Rinehart?

    Haven’t some of you watched the decline in income and working conditions over the last twenty years as the nation is deunionised and deindustrialised??

  7. Geoff Edwards :
    The jobs allegedly to be created are fictions. Even without drawing upon experience of previous trade agreements, it stands to reason that, when coupled with more or less free foreign investment and free trade in services, Australia can’t benefit. Take an agricultural commodity such as dairy. Australian dairy farmers think that they will be winning a prize. But if the products are produced on Chinese-owned farms, processed by a Chinese-owned company with staff on 457 visas, repatriating its profits and transfer-pricing to avoid taxation, how can Australia possibly benefit?

    I agree with a lot of your argument, but I think it’s important to appreciate a few points in this particular case: (1) Farms are generally being sold to Chinese only because the traditional farmers (not so much dairy) are on their knees are are effectively offered a financial lifeline to get out with something. (2) NZ did very well from the Chinese dairy boom which coincided with the mining boom – a boom most of our farmers effectively missed out on as there was no deal in place. (3) Chinese don’t trust Chinese processed foods – especially baby formula or food formulated for infant consumption which provides countries like Australia a competitive advantage but history has shown we missed the boat in taking full advantage of this.
    Milk as a pure commodity (like many agricultural commodities) is a hard market to make anything from, but processors like Murray Goulburn have shown there’s plenty of margin in quality branding on the Chinese retail shelves. It’s interesting to see even consumer goods retailers like Harvey Norman are now beginning to invest in dairy.

  8. Unfortunately, political journalists, as a class, don’t do much thinking./blockquote>

    How does democratic society work? Ordinary people get together to organise, who afterwards elect a person from their own ranks to implement their policies.

    What is the purpose of media in this democratic society? To provide the range of facts, information and opinion which would allow ordinary people to exert meaningful control over this political process.

    So how does the system of power, in which we have awoken and which is labelled ‘democracy’, really work? It works in precisely the reverse direction. The ‘best and brightest’ elect themselves to go to parliament. They have their own policies. They cannot be questioned. They are self-elected like this, as they already represent what is best and brightest about the people, and this is all the representation required. Those are some of their policies.

    So what is the function of media in this really existing democracy? Well, how else to provide a reversal of this political process? The media allow these few persons to make up their own policies and then impose them, to exert meaningful control over the many, the rest of the population.

    The media’s thinking on this subject is therefore quite fine enough, thank you very much.

  9. Geoff, unlike Troy, I don’t buy any of your argument. You assume that virtually all the increase in exports to China will come via Chinese owned and staffed businesses, yet we already export billions into China, very little of which is of the form you suggest will be the norm. I can see no reason for your assumption, and you certainly haven’t given one.
    PS: bilateral trade surpluses our deficits are not an indication of the merits our demerits of an FT. To suggest they are is to betray a mercantilist mindset.

  10. “If Labor stands firm, and Turnbull fights the election on this ground, he will lose.” – J.Q.

    That’s a big “IF”. I haven’t seen Labor stand firm on anything for a long time… oh except for supporting all the neocon policies of the LNP.

    Turnbull has some dead cat bounce for now. Shorten is a dead cat. So it is Bouncing Dead Cat versus Dead Cat. The system spoils us for choice! I guess it’s better than Pressed Rat and Warthog… or is it? That old Cream song could be a kind of allegory for Aussie neolib austerity: businesses closing down, absurd products nobody wants (whitewashed coal anyone?) and a mad captain with a nautical gait. I mean has anyone else noticed Abbott’s odd, rolling gait? Is it a sign of brain damage?

    “Pressed Rat and Warthog have closed down their shop.
    They didn’t want to, ’twas all they had got.
    Selling atonal apples, amplified heat,
    And Pressed Rat’s collection of dog legs and feet.

    Sadly they left, telling no one goodbye.
    Pressed Rat wore red jodhpurs, Warthog a striped tie.
    Between them they carried a three-legged sack,
    Went straight round the corner and never came back.

    The bad captain madman had ordered their fate.
    He laughed and stomped off with a nautical gait.
    The gait turned into a deroga tree,
    And his peg-leg got woodworm and broke into three.

    Pressed Rat and Warthog have closed down their shop.
    They didn’t want to, ’twas all they had got.
    Selling atonal apples, amplified heat,
    And Pressed Rats collection of dog legs and feet.”

    Songwriters: BAKER, PETER EDWARD

    I can’t take bourgeois politics seriously. Absurdism and autonomism are the only rational responses.

  11. Here is the rotten ideological heart of CHAFTA;
    Paragraph 3 of Article 10.4: Grant of Temporary Entry.
    ‘Australia shall not;
    a) Impose or maintain any limitation on the total number of visas to be granted to natural persons of the other party; or,
    b)Require labour market testing, economic needs testing or other procedures of similar effect as a condition for temporary entry’.
    WorkChoices Mk 2, with this obvious difference; whereas WC sought to disempower and exploit the Australian workforce, CHAFTA does not even acknowledge its existence. So the fine and noble work of John Howard, so churlishly rejected by the hoi polloi, now comes to glorious fruition in CHAFTA. How does that old Chinese saw run? ‘May you live in exciting times’

  12. “The supreme art of war is to subdue the enemy without fighting.” – Sun Tzu

    “Be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. Thereby you can be the director of the opponent’s fate.” – Sun Tzu

  13. @TN You’re on, T end.

    To prove your case, it will be necessary to do more than simply show that Australia can sell commodities to China. We already do that with coal, iron ore et cetera. It’s called absolute advantage. I don’t see how this trade will be substantially increased simply by virtue of a free trade agreement, unless Australia throws favours or incentives into the mix.

    To prove your case, it will also be necessary to do more than outbid New Zealand. That’s called trade diversion, or beggaring our neighbour and doesn’t prove any argument about free trade. In any case, the advantage will last only so long as New Zealand doesn’t retaliate. That is called race to the bottom.

    To prove your case, it will also be necessary to do more than comb through the agreement and side letters clause by clause, commodity by commodity, service by service to tabulate jobs potentially created. I don’t confess to have done that and in any case would equate it to counting the number of angels dancing on the head of a pin.

    What is necessary is a theory of trade that will explain how as a matter of general principle, Australia can benefit against a trade-savvy partner given its granting of free trade in goods, services, financial flows and foreign investment.

    I’m not sure that I’m being mercantilist but if I am, I’m not sure that I would be ashamed of the label. Mercantilism would seem to be a more realistic conceptual framework than orthodox GE trade modelling which plucks ethereal vacuous concepts like dynamic benefits out of the air and tries to turn them into cornucopian predictions of benefits that experience shows never materialise.

  14. @Troy Prideaux

    Thanks, Troy.

    Your post supports my point. If farmers can’t make a reasonable profit and return on capital, something is going wrong with the perfect markets of orthodox economics. Perhaps there is an oligopoly or cartel amongst buyers. Whatever the reason, there has to be a reason why the Chinese can seem like saviours. If it is just a matter of their liking our produce, then that can happen now without a free trade agreement – a form of absolute advantage or competitive advantage. I don’t deny that we can profitably sell some products to China, despite the differences in the value of currency, labour costs et cetera.

    What I’m arguing is that the case advanced by advocates for free trade agreements is hollow. It lacks a theoretical justification, lacks a logical pathway to explain how we can benefit , and relies upon modelling to make claims about all the benefits the country will make without counting the outflows in the opposite direction.

  15. Firstly Geoff, I am not the one who asserted that the CHAfta would be bad for Aussie jobs: that was your team and it is it’s case to prove.
    I
    To help you, here are a few corrections.
    1) It’s called comparative advantage, not absolute advantage.
    2) CHAfta includes various reductions in trade barriers, so current exports in those areas are likely to increase – including (in fact, mainly) from existing suppliers who are not Chinese owned and staffed.
    3) NZ already has an FTA with China, so rather than causing inefficient trade diversion, CHAfta will in fact be levelling the playing field.
    4) CGE modelling and dynamic benefits are open to use or abuse, like most modelling, but observing that does not putter see help prove your case. Your team made a claim about Aussie jobs that focused on a very small aspect of the agreement, ignoring the much broader sources of impact on employment. By you’re own admission, you haven’t fine through the agreement to consider these. I thus suggest you pure out

  16. … By your own admission, you haven’t gone through the agreement to tally up these areas, or given us any reason to justify your implicit assumption that the jobs created would be less than those lost to Chinese owned and staffed projects. I thus suggest you retract, our at least recognise the lack of evidentiary or logical justification for your claims.

  17. @TN Thanks for taking the trouble to respond TN.

    However, I won’t retract. Perhaps I haven’t explained myself well. My argument is based upon the absence of a theory of free trade to underpin the claims of the boosters. (Comparative advantage does not apply because one of its basic assumptions, that capital does not flow across the border, cannot be satisfied so the rest of the theory is invalid.)

    My argument does not depend upon favourable balances in individual industries. Suppose at the commencement that every affected industry sector has a net positive flow of jobs in Australia’s favour. Given free trade in investment and services, what is to stop Chinese corporations (or the Chinese government) from purchasing those firms; taking advantage of Australian infrastructure, natural resources and prudential regulation; transfer pricing any goods within itself, importing its own skilled labour and paying taxes in China? What industry sector will be immune from this process?

    Even government business enterprises can fall victim to the process – witness the outsourcing of hospital services in Perth. Even locally anchored businesses like plumbers and lawn mowing contractors can be franchised – witness McDonald’s.

    The principles apply to any FTA, not just with China. Take the US. The trade boosters claimed $2 billion dollars per year net benefits to Australia from AUSFTA, whereas the trade balance actually went backwards from day one.

    A level playing field is not achieved by reducing tariffs with a country that has a currency valued less than Australia’s and in particular with a country that manages its own currency to suit its national interest. Tariffs are the instrument that traditionally have been used to level the playing field and to allow a country like Australia with high wages, high civic amenities and high living standards to compete equitably with a country which lacks them.

    The logical justification for my claim is the absence of a coherent theory of free trade; and the evidentiary justification is the failure of all or most previous free trade agreements to live up to the promises.

  18. Thanks Geoff, as I mentioned, I was pulling John (initially) and subsequently you up on what I saw as a very partial argument about CHAfta being bad for Aussie jobs, and I think it is for your team to justify it’s assertions, taking into account the much broader elements of the agreement. I do not necessarily support CHAfta, but an concerned about partial arguments against it. Your claim that there is no coherent theory on support of free trade does not, it seems to me, justify the jobs argument put forward.

    On some specifics, you ask what is to stop Chinese forms from buying up local projects and then benefiting from publicly provided services. The answer is not much, but presumably the value of any publicly provided services would be capitalised into the value of the projects, and so the Chinese would pay an element for this.

    Regarding my level playing field comment, that was in relation to NZ – not China – in response to your claim that the FTA would be trade diverting.

  19. @TN

    As I said in the OP “No one in the government or among its supporters is willing to defend this aspect of the deal” Your comment is a prime example. You don’t say it won’t cost jobs, but you don’t concede that it will

    If you want to argue that this provision is beneficial to Australia, say so.

    If not, make an explicit case that the harm done by the MOU will be offset by other benefits. I’ll be happy to refute this.

  20. @TN
    Thanks again TN.

    I am sure that you have better things to do with your time than try to convince me of the merits of prima facie free trade, which would be a lost cause, so I don’t know whether you want to prolong the debate. However, you have thrown out a few challenges so I feel it would be courteous to reply.

    First, the onus on for justification should be on those who wish to change the status quo, that is, the “reformers” who want to sign this new agreement giving China unprecedented and largely unrestricted access to Australia’s markets in goods, services and assets. Second, I set out the case against unilateral free trade in a 12-page article in Public Administration Today, Oct-Dec 2008. The article is copyright but I can post a PDF if there is any general interest.

    The absence of a coherent modern theory to underpin free trade is fatal to the supporters’ arguments. If there is no robust general explanatory principle, then advantage will be circumstantial and can hardly be confidently predicted. Confident prediction is a hallmark of the free-trade boosters: that free trade is by definition, always, beneficial to participating countries. My response is, if it is generally beneficial, there must be a theoretical justification for that faith. I have yet to see a valid one.

  21. John and Geoff, I am neither a blind advocate nor blind critic of FTAs: I think their merits can only be determined case-by-case and depend on the details and the circumstances. As such, I feel no particular need to promote, advocate, defend or back up the CHAfta, and I am critical of the ‘overselling’ of FTAs, as I agree has often happened.

    That all said, my point was that it is also wrong to select one relatively minor clause and sought to make the general claim that the agreement is bad for Aussie jobs based on it.
    John’s challenge that if I think the clause in question is good I should say so again misses the point, I submit. Even if the clause by itself (and considered on it’s own) were ‘bad’, it is part of a package deal and my challenge from the start has been for you to consider the whole package, not just one small part.

  22. PS: I’ve just re-read John’s post and realised that I’ve mischaracterised his (full) challenge to me – sorry. (The point about a critique of a minor clause not justifying a conclusion about the overall effects of the CHAfta on jobs still stands).

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