October 20, 2014
By Pat Ranald, Research Associate at University of Sydney
Ten years on from the Australia-US Free Trade Agreement, Australia is entering another round of negotiations towards the new and controversial Trans-Pacific Partnership. In this Free Trade Scorecard series, we review Australian trade policy over the years and where we stand today on the brink of a number of significant new trade deals.
As we approach the 10th anniversary of the Australia-US Free Trade Agreement (AUSFTA), its offspring, the Trans-Pacific Partnership (TPP), has entered its fifth year of negotiations. The TPP is a much bigger deal. It is being negotiated between 12 Pacific Rim Countries: the US, Australia, New Zealand, Canada, Mexico, Chile, Peru, Japan, Singapore, Malaysia, Brunei and Vietnam.
Talks to try to reach the broad outlines of a TPP deal will be held in Canberra on October 19-24. Trade ministers then meet in Sydney on October 25-27.
The AUSFTA prompted huge controversy because the US demanded – on behalf of its major export industries – changes to Australian domestic laws on medicines, copyright and local media content. The US also wanted rights for US investors to sue governments for damages if a change in law or policy could be claimed to harm their investment. This is known as Investor-State Dispute Settlement or ISDS.
These proposals were seen as a challenge to democratic parliamentary process and were fiercely contested. The US did not achieve all of the changes it wanted – notably ISDS. The AUSFTA also did not deliver the predicted economic benefits. Access gained to US agricultural and other markets was very limited.
Driven by the US
The US is again driving the TPP agenda on behalf of its major export industries, including pharmaceuticals, IT and media, building on its bilateral agreements with Australia and five other TPP countries. Although the TPP text remains secret, leaked documents and industry submissions have revealed key elements.
The TPP proposals are more extreme than AUSFTA. US proposals for medicine patents widen their scope and provide for patent periods of more than 20 years, delaying availability of cheaper generic medicines. Other US proposals for changes to the Pharmaceutical Benefits Scheme would raise the wholesale prices of medicines. This would cost the government more, creating pressure to raise the subsidised retail medicine prices Australians pay at the chemist.
Copyright law is supposed to balance the rights of creators and the rights of consumers to information. The US proposals would increase the rights of copyright holders at the expense of consumers. Internet service providers would be forced to report breaches of copyright by their customers.
Challenges for domestic policy and transparency
The TPP has a series of new chapters which reach even further into domestic law and policy.
The Regulatory Coherence chapter attempts to set regional limits on food and alcohol labelling. These could prevent governments from introducing new forms of regulation, such as alcohol health warnings for pregnant women or better nutritional labelling of food.
Some TPP governments want to introduce more regulation of tobacco products following World Health Organisation recommendations. Tobacco companies such as Philip Morris have used ISDS to sue governments for damages, notably over Australia’s plain packaging legislation.
Public health advocates lobbied for a TPP exemption for tobacco products to enable more regulation, which the tobacco industry fiercely opposes. The Malaysian government has tabled an exemption proposal but the issue remains contested.
A chapter on Regulatory Transparency seeks a regional standard for consultation by governments with foreign investors about new legislation. This chapter interacts with ISDS because foreign investors could sue on the grounds that the government had not met the obligations for extensive consultation.
US proposals for ISDS add another layer of potential restraint on public policy. Recent EU and other government reviews and even a paper by Australian High Court Chief Justice Robert French have shown that ISDS lacks the basic protections of democratic legal systems. There is no independent judiciary, since arbitrators can also be advocates. There is no system of precedents or appeals, so decisions can be inconsistent.
Claims against public health and environmental laws are mounting. Damages won against governments range up to US$1.8 billion.
The threat of ISDS can have a “freezing” effect on governments, preventing them from introducing regulation. The NZ and UK governments have delayed the introduction of plain packaging legislation pending the outcome of the Phillip Morris case against the Australian government.
Public opposition to the TPP and ISDS is growing in many TPP countries, and even in the US Congress. This has contributed to delays in negotiations as governments have resisted US proposals. The secrecy of the text and lack of public and parliamentary scrutiny until after the TPP is signed adds to the case that the TPP is negotiating changes to domestic law which should be publicly debated through the parliamentary process.
The Australian government has signalled it is ready to agree to ISDS and other US proposals in return for more access to US sugar and other agricultural markets. But Australians must question whether medicine prices, public health, consumer rights and environmental regulation should be traded away behind closed doors for dubious claimed economic benefits.
This article draws on research prepared for the 2014 Workshop “Ten Years since the Australia-US Free Trade Agreement: Where to for Australia’s Trade Policy?”, sponsored by the Academy of the Social Sciences in Australia and Faculty of Arts and Social Sciences, UNSW Australia.