ChAFTA: hoodwinking the people

Blue-sky boosters talk up trade agreements, but the reality is fewer jobs, less training and safety, plus loss of legal sovereignty as most battling Aussies miss out on benefits.

Proposed China-Australia Free Trade Agreement (ChAFTA)

Submission to the Senate Standing Committee on Foreign Affairs, Defence and Trade

 Minister Andrew Robb’s address to the National Press Club on Monday 11 August 2015 highlighted the reasons why the Australian public has so many misgivings about the pending China-Australia Free Trade Agreement.

One of the many claimed benefits of the agreement relates to micro-economic reform, ostensibly so difficult to implement through parliamentary processes.

However, many Australians would be uncomfortable with the prospect of changes to Australia’s domestic policies being brought in through the back-door, without a public mandate, via the terms of free trade agreements negotiated behind closed doors with officials of foreign governments.  It appears that some hard-won and internationally acclaimed Australian standards may have been offered up to suit the needs of foreign countries, and traded in return for measures which benefit narrow sectional domestic interests.

With regard to impacts on particular segments of the economy, it appears that “free” trade agreements have been used to pick winners, based on political ideology or for electoral advantage or patronage.  For example the current Coalition government has taken a hard line on manufacturing, signing up to agreements and their attendant MOUs which have heavily impacted on our car industry, ship building and other manufacturing industries.  Australians are told that support for these industries is protectionism, and as such must be abandoned.  Yet many of us look on in horror as wave after wave of workers are laid off, causing great pain and hardship to many communities.

On the other hand, many other countries and quite a few eminent economists in recent years have rediscovered the importance of maintaining a level of domestic manufacturing, which has positive spin-offs for so many areas of the economy and is a major requirement for developing much-vaunted technological innovation, not to mention fostering Australia’s independence in times of war.  There are so many reasons why we need to nurture our engineers, technocrats and tradesmen, that one is amazed that the case even needs to be put.  But we cannot do this without a viable manufacturing base.

Although it seems that protectionism is taboo when it comes to manufacturing, substantial subsidies continue to be available to fossil fuel industries, even though it is internationally understood that there is no future in these industries, and their high CO2 emission levels contribute substantially to global warming and the accompanying pollution of our country’s air, water and soil, to the serious detriment of surrounding communities.  At best, there is a double standard operating. At worst, some might call this reckless policy.

‘Casual, part-time and insecure’

There is a great deal of community concern about further Australian job losses, due to trade agreements at this time of growing unemployment, especially amongst factory workers and young people.  Many of the services jobs for the unskilled and semi-skilled, which will ostensibly replace manufacturing work, are casual, part-time and insecure.  Such work arrangements, while providing great flexibility to employers, make it very difficult for people to access a stable level of income sufficient to meet commitments such as rent and bills.

Unpredictable hours, poor working conditions and low pay put further training out of reach for many young people, and cut off the possibility of home ownership – traditionally a major source of financial stability for Australian families.  Except, of course, for the children of wealthy parents and those who have secured the scarce, highly paid positions.

The high cost and variable quality of vocational training is discouraging many young people from attempting courses.  Since increased privatisation of the sector, there are now dodgy colleges which don’t provide proper instruction, including some which are little more than rorts, signing people up to sub-standard courses to simply pocket money from governments.

It seems absurd to add to the already high numbers of temporary visas holders competing against Australian workers.  Despite continuous reassurances that labour market testing is being carried out, the system is not working positively to the benefit of the fabric of Australian society. Any structure that rends the social fabric tends to limit civil liberties, curtail freedoms and ultimately threaten human rights, either of Australian citizens or of those temporarily visaed to work in Australian under dubious contracts and even more doubtful conditions of employment.

Furthermore, at a time when we need to be encouraging skills acquisition to drive the so-called “new economy”, many young people are already missing out on work experience and being replaced by 457 visa holders.  Although claims are made about labour market testing prior to approving temporary visa holders, in practice such testing is often not done and locally qualified applicants are simply not given a chance.

For example, many nursing and aged care positions are being filled by temporary visa holders, even though there is a surplus of qualified Australian staff.  Temporary visa holders under the visa classes 457, 442 and 485 and working holiday visa holders make up a large part of the nursing workforce, despite the fact that large numbers of Australian nurses and aged care workers remain unemployed, adding to the cost of unemployment benefits paid with taxes taken from the hard-earned income of the Australian people.

Disincentive to training

Of course, such practices on the part of employers are a further disincentive to training.  Either the system has broken down, or it is deliberately framed to exclude local nurses and aged care workers from employment, to the benefit of overseas workers.  There are similar effects in other sectors.

ChAFTA will exacerbate this situation by allowing unprecedented access to Chinese workers, which will not be reciprocated.  Chinese companies investing more than $AU150 million will be able to import temporary workers without labour market testing.  And apparently this applies to companies which, although not Chinese-owned, may simply have a substantial level of Chinese investment.  Although these Chinese workers will apparently be paid the statutory rate, past experience with temporary visa categories does not inspire confidence.

The possibility is open for local firms to acquire a Chinese investor simply to cut out local workers, especially perhaps those who are unionised and able to bargain for decent above-award wages and conditions.  It is not clear from the MOU that any labour market testing is required.  This could constitute a betrayal of Australian workers, some of whom have fought for this country, all of whom have paid taxes and pay the salaries and allowances of our politicians.  These are the very people whose interests the Australian government is elected to represent.

The likely lower rate paid to Chinese workers who have not had the chance to negotiate their terms and conditions will give Chinese firms or firms with Chinese investors an unfair advantage over local Australian firms.  As the numbers of such special condition firms expands, their freedom from paying the going rate and lesser requirements for occupational health and safety provisos could be used to drive down Australian wages and conditions more generally in the relevant industries.  If this consequence has been foreseen, but has been accepted with alacrity by the government, it amounts to a deliberate selling-out of Australian workers.

It is worth noting that low wages and a fast-growing growing income divide, such as is developing in Australia, is a situation that most economists now realize is an impediment to economic growth.  Ironically, one of the main protections against this tendency is the maintenance of an effective union movement.

It is disappointing that any hint of critiquing ChAFTA and other recent agreements is summarily dismissed by the government and blamed on “the anti-trade unions” or “the greenies.”

In fact there are many individuals and organisations expressing real concerns about aspects of ChAFTA and other similar agreements.  These include economists, the Productivity Commission, journalists, academics, prominent lawyers such as the Chief Justice of the High Court of Australia, Mr Justice French, doctors, nurses, public health groups, consumer groups such as CHOICE, civil liberties groups, welfare groups, environmentalists, fair trade groups, conservationists, scientists, farmers, charities, churches (including the Vatican), welfare groups, businessmen, arts groups and, of course, many trade unions.  There is a plethora of reports cited and quoted again and again in previous reports and submissions to this government on the proven ineffectiveness – and predicted danger – of recent trade agreements, and on the lack of proper pre- and post-implementation assessment by the Executive and Ministers.

Hoodwinked by previous trade agreements

We as citizens require the government to take into account negative critiques also, instead of merely adopting blue-sky predictions, from departments and agencies with no real-life experience behind them, without a skerrick of substance to back up their over-blown claims.

Suffice to say that the Australian public has felt hoodwinked by the actual outcomes of previous trade agreements and their failure to live up to government promises.  For example, we were promised great things from the Australia-United States Free Trade Agreement, but the economic impact after 10 years appears to have been negative.  Now, once again, we are being asked to accept yet another bilateral agreement on trust, in the absence of any reliable modelling to support a case for going ahead.  In fact, the assessment done by the Centre for International Economics (CIE), using fairly optimistic assumptions, predicts negligible benefits after 20 years from the combined effects of ChAFTA and the free trade agreements with Korea and Japan – in the order of 0.11% after 20 years of operation.  Economists agree that the National Interest Analysis is inadequate, and many commentators have called for independent and comprehensive assessments of FTAs.  It is worth re-highlighting that these concerns are not restricted to the “left” of politics.

In Minister Robb’s recent address to the National Press Club, he spoke a lot about the consultations with businesses, and said that the other end of town would not be forgotten – by which he apparently meant small business.  He stated that information sessions with small businesses would be held around Australia to explain how they can best capitalise on the agreement.  At no time did he mention anything equivalent being organised for trade unions and civil society organisations.

It appears that the government has focussed entirely on groups it sees as its own constituency, leaving the rest of the country in the dark, with nothing but assurances that the government would not do anything that is not good for Australia.  Well, we have heard those words before!  And they have proved the harbingers of false prophets.

Instead of branding the unions as anti-trade and accusing them of getting the facts wrong and running a scare campaign, surely it would have been better to keep the unions in the loop.  If the implications for ordinary working people are not as bad as some unions believe, why not address the actual issues they raise and deal with them in detail, instead of just accusing unions of spreading inaccurate information?

There are fears in the community that less checking of imported Chinese materials would lead to health and safety problems.  Building cladding from China, used on several sites, has proved to be highly flammable and there are complaints that whole walls have burst into flame and released toxic fumes into the surrounding streets.  There are also problems with electrical cabling which can cause electric shocks and burst into flames, putting lives at risk.  One union claims that asbestos is being imported in various products from China, including particle boards, brake linings and crayons.  Such cases, whether verified or not, are of great concern to Australians.  It is not as if China has an exemplary record for safety: the recent Tianjin explosion is a highly relevant example of the cavalier nature of Chinese attention to rules and regulations.

It seems ridiculous that after more than a century spent in rigorous testing and developing health and safety standards which are the envy of the world, Australians are in danger of opening the floodgates to shoddy and dangerous imports.  Some red tape is a necessary price for safe and healthy homes and workplaces: Australians operate to the basic expectation that our workers can go home to their families at the end of each working day.

A serious problem with this agreement is the presence of an Investor State Dispute Settlement (ISDS) clause, which will allow Chinese companies to sue Australian governments under certain conditions.  There are major problems with ISDS:

• The existing version of this clause is not the final one, and apparently the government plans to ask for ChAFTA to be ratified and put into operation without the crucial final format of the ISDS clause being known. This is tantamount to buying the proverbial “pig in a poke.”  It is a basic business practice not to sign off on something you haven’t seen! Signing such an agreement is classic proof of the naivety of Australian government negotiators at all levels.
• The ISDS clause will allow Chinese corporations, under certain circumstances, possibly for loss or potential loss of profits, to sue Australian governments in overseas “tribunals” (not made up of judges) which are not bound by legal precedent and do not allow appeals.
• ISDS penalties can be astronomical, and even if the country wins the case, the cost of mounting a defence has been estimated at tens of millions of dollars.
• Although Australian companies will theoretically have the same rights to sue the Chinese government, in practice there are few if any Australian companies with sufficient financial weight to sue any government, let alone the government of a rich and powerful state such as China.  This aspect of the agreement although theoretically fair, would in practice operate unequally in China’s favour.
• Even though state and local governments will not have a right to vote on this treaty, they will also be liable to be sued by Chinese conglomerates under ISDS: the costs of litigation, let alone a penalty awarded against them, could destroy the economy of a state government, let alone a local council for, say, trying to protect the environment and the local people from leaks of deadly chemicals leaching from a mining operation.
• There are documented instances where governments have been warned by companies not to pass certain legislation under threat of an ISDS case. Even without an express warning, governments can be deterred from passing socially beneficial legislation – the so-called “regulatory chill” factor.
• ISDS clauses inherently rob state actors of their sovereignty: by preventing government from carrying out its legislative mandate, The clauses are anti-democratic, which strikes at the liberties, freedoms and rights of Australians.
• Because local firms lack the same right (as Chinese entities) to sue governments for decisions they regard as adverse to their interests, there is a major incentive for Australian companies to move offshore to gain this “advantage.” This will cause further bleeding of Australian jobs, with consequent loss of taxation revenue and increased spending on unemployment benefits.  This is what many US firms did in the wake of the North American FTA, NAFTA.

As many economists have noted in the past, bilateral agreements such as this one, between nations where there is such an asymmetry in wealth and power, always favour the richer partner at the expense of the weaker one.  That’s us, the (very much) weaker power.

There would also be an imbalance in the size and strength of individual companies.  One can imagine the results of competition between a small to medium sized Australian firm and a powerful Chinese corporation.

Cashed-up Chinese companies will have much deeper pockets and be able to lobby more effectively than local firms.  Secondly, large companies can always outbid smaller ones, because they are able to sustain initial losses in the short term, possibly putting local firms out of business.  Thirdly, foreign companies will have the implied threat of suing governments on some pretext or other if they don’t get their own way.

In the past, Australia has resisted ISDS clauses in agreements with nations where the rule of law and reliable court systems operate.  This was a bipartisan position when Prime Minister John Howard finalised the Australia-US Trade Agreement with the USA 10 years ago.  Now however, it appears we are going to include ISDS not only in ChAFTA, with China, but also possibly in the Trans Pacific Partnership, which of course includes the United States.

It is fair comment that these countries are rivals, not only economically, but strategically.  Both countries have sought influence over Australian government policy in various areas.  One would hope that this would never happen but, nevertheless, by signing up to ISDS clauses with both these nations, Australia could find itself in the line of fire, locked in a desperate attempt to satisfy the conflicting demands of two ambitious superpowers and their avaricious corporations.

ENDS

Lead author: Pauline Westwood; co-author: Bill Rowlings