- Determining the national interest and assessing impacts
Overview
3.1During the inquiry, submitters and witnesses provided evidence emphasising the importance of Australia’s trade and investment agreements being in the national interest. Whether an agreement is in the national interest is determined through the development of the negotiating mandate (including stakeholder consultation), the formal National Interest Analysis (NIA), economic modelling to consider economic impacts, and both qualitative and quantitative consideration of economic, social, and environmental impacts.
3.2Several concerns were raised with the current approach to assessing whether proposed trade and investment agreements are in the national interest. These included how impacts on wider elements of the economy and society are accounted for, insufficient identification of costs and those that may be disadvantaged, and the Department of Foreign Affairs and Trade (DFAT) being responsible for both negotiating and assessing agreements.
3.3Subsequently, submitters put forward the need for broader and independent economic, social, and environmental impact assessments of trade agreements prior to, during and after negotiations. It was suggested that such assessments would more accurately identify the overall costs and benefits of agreements and contribute to more effectively determining whether trade agreements provide a net benefit and are in the national interest.
Determining the national interest
3.4The benefits of trade and investment for Australia, including the importance of trade to the success of many of Australia’s industries, are outlined in Chapter 2. While the potential benefits of trade were widely acknowledged, many submitters emphasised that Australia’s trade and investment agreements must produce an overall net benefit for Australia. For example, the Productivity Commission explained that:
It is important that the anticipated benefits from any proposed agreement outweigh the anticipated costs. That is, it is important that each agreement will result in an expected net benefit to Australia and for Australians. Producing an expected net benefit is a prerequisite for being in the national interest.
3.5Dr Hazel Moir submitted that: ‘There must be one over-riding objective for trade treaties – the benefits to Australia as a whole must outweigh the costs.’ Similarly, CropLife Australia observed that: ‘Australia’s entry into a comprehensive FTA [free trade agreement] with any nation or region must be contingent upon it being in our national interest.’
3.6Others reflected that trade and investment agreements are not goals in themselves and should not only be entered into where there is a clear benefit. For example, Grains Australia explained that in their view: ‘Government should not make trade agreements at any cost. Any negotiations should be in Australia’s national interest, and in the interest of Australia[’s] agriculture sector. Securing best possible terms for the Australian grain industry will always outweigh the commitment to closing negotiations and settling on agreements lacking benefit.’
3.7Some submitters underscored that while trade contributes to economic growth and improved living standards, there are both winners and losers from trade agreements.
3.8The Productivity Commission highlighted the need for broad consideration of the national interest, with benefits shared across the economy and society: ‘The decision to enter into a broad cooperation or a trade agreement should reflect an expected net overall benefit to the entire Australian community rather than one that reflects narrow commercial interests.’
3.9The Electrical Trades Union (ETU) acknowledged the potential benefits of trade while citing the need for broad consideration of the national interest and to actively pursue more widely shared benefits of trade:
Well calibrated trade policy has the potential to drive job creation, improved living standards, economic growth, and lower inequality. Sharing the benefits of trade across the Australian economy, uplifting workers and communities at home and abroad, is not something that simply happens naturally as a result of removing barriers to international trade. Fair trade must be actively pursued as a distinct policy objective, distinct from our current approach of prioritising the needs of investors and private businesses above broader national interest considerations.
3.10The Productivity Commission noted that given the majority of Australia’s trade is now covered by trade agreements, there should be careful consideration as to whether there are net benefits from negotiating new agreements.
3.11The Department of Foreign Affairs and Trade (DFAT) explained that there are a range of mechanisms throughout the negotiation process that assist to determine whether a trade agreement is in the national interest:
An initial consideration of the national interest informs the political decision to start formal consideration of commencing a negotiation. Consideration of the national interest also underpins government decisions on the negotiating mandate. In making these assessments, the Government is informed by the extensive consultations and stakeholder engagement processes…, which allow for a wide range of views to inform Australia’s approach before and during negotiations.
An assessment of whether a trade-related agreement is in the national interest is supported by various other mechanisms including Parliamentary review, stakeholder engagement and independent analysis.
National Interest Analysis and economic impact assessment
3.12DFAT advised that the formal vehicle for examining whether new trade and investment agreements are in the national interest is the National Interest Analysis (NIA). All major proposed treaty actions to be tabled in the Parliament are accompanied by NIAs, including all free trade agreements (known as category 1) and bilateral investment treaties (BITs; known as category 2). NIAs are tabled in the Parliament alongside the treaty itself. NIAs for all previous trade agreements are publicly available.
3.13NIAs for trade and investment agreements are prepared by DFAT on a whole-of-government basis in consultation with other key government agencies. DFAT outlined some of the key factors examined in the NIA to determine whether entering into a proposed treaty action is in Australia’s national interest:
NIAs include a discussion of the foreseeable economic, environmental, social and cultural effects of the treaty action; the obligations imposed by the treaty; its direct financial costs to Australia; how the treaty would be implemented domestically; what consultation has occurred in relation to the treaty action; and whether or not the treaty provides for withdrawal or denunciation.
3.14DFAT advised that it undertakes various forms of quantitative and qualitative analysis on the prospect of commencing trade agreement negotiations, including independent analysis in the form of feasibility studies which may contain independent economic modelling. It further explained that:
Some FTA feasibility studies are primarily based on detailed economic analysis and modelling, while others are focused on political economy matters. Typically, feasibility studies look at current trade barriers, the potential for market growth in areas of interest to the parties and, to varying levels of detail, a cost-benefit analysis of entering into FTA negotiations.
3.15DFAT elaborated on economic modelling and other analysis undertaken to inform trade negotiations and to review agreements once in force:
DFAT also considers independent analysis and modelling to assess the impact an agreement might have on the overall economy and Australian society. Modelling frameworks such as Computable General Equilibrium (CGE) modelling can be useful in understanding the economy-wide impacts of changes to trade policy.
This approach is also regularly undertaken within impact assessments and post-implementation reviews of FTAs. At the conclusion of negotiations, DFAT conducts qualitative and quantitative analyses using relevant trade data, industry reporting and industry consultation to assess the potential impacts of the negotiated outcome of trade and investment agreements. This process can be repeated to assess the real-life impacts of an agreement once it has entered into force.
3.16DFAT stated that it approaches economic modelling to inform the feasibility and impact of trade agreements on a case-by-case basis, in part due to the limitations of modelling in assessing the impact of trade agreements. These limitations include the availability and reliability of data; the challenge of modelling an agreement under negotiation; the difficulty in estimating and validating parameters corresponding to the real-world effects of non-tariff barriers, trade facilitation, rules of origin and increased regulatory certainty; challenges in qualifying political, social, and environmental impacts; and sensitivity of outcomes to methodology, model closures and assumptions.
Concerns with National Interest Analysis and economic impact assessment
3.17Several submitters were of the view that the current NIA process does not provide an adequate assessment of the costs and benefits of a proposed agreement. For example, the Australian Council of Trade Unions (ACTU) argued that both the NIA and Regulatory Impact Statement (RIS) are insufficient for determining the impact of a trade agreement because there is no assessment of the labour, social, health, environmental impacts, or the impact on jobs, regions, women, and Indigenous communities.
3.18Similarly, ActionAid Australia suggested that the NIA: ‘… almost always reflects favourably on agreements without providing a genuine analysis of their potential costs and benefits.’ AFTINET, the ETU, and the ACTU also observed that NIAs almost always provide a favourable assessment and recommend that proposed treaty action be taken.
3.19Dr Moir contended that current approaches to assessing impacts and determining the national interest do not sufficiently account for the costs or identify those that may be disadvantaged by trade agreements. Dr Moir told the Committee that: ‘There's a real unwillingness to do a simple evaluation of who the winners and losers are. There are always losers in trade treaties. There's not a proper assessment, in my view, of those losses and how those losses might be recompensed in some way if a government is intent on favouring other parts of society.’
3.20Dr Moir also commented on the inherent challenges in undertaking economic modelling of trade agreements and the differing views amongst economists about the most appropriate models. Furthermore:
Despite reservations about the value of some types of general equilibrium models in analysing the impact of trade treaties, more realistic models are available. And there are a range of data which can throw light on the magnitudes of gains and losses, and the principal groups affected. Current treaty assessments do not seem to make use of this wide range of available information and analysis. In particular, they seem to assiduously avoid identifying losers.
3.21Public Services International (PSI) specifically cautioned against the use of CGE modelling, stating that:
… the Australian government should not consider or rely on computable general equilibrium (CGE) modelling when assessing the impact of these agreements, given the widely criticised assumptions inherent in CGE modelling which are not able to reflect the actual text of the trade/investment agreements being analysed or the real world.
3.22Some submitters raised concerns with DFAT being responsible for both negotiating trade agreements and determining whether they are in the national interest. For example, the ETU commented that: ‘The fact that the same Government department responsible for negotiating trade agreements, DFAT, is tasked with presenting a balanced assessment of whether those agreements will deliver positive outcomes is a conflict of interest that must be addressed.’
3.23Some submitters focussed on the timing of analyses, noting that NIAs are not available to the public or the Parliament prior to being tabled in the Parliament, after the agreement is already signed.
3.24The Department of Home Affairs nominated that the NIA process could be improved by reviewing whether trade agreement provisions are binding or non-binding and on which agreement partners, as well as whether they constrain an existing practice or create new obligations that may restrict future policy.
3.25The ACTU underscored the need for more comprehensive analysis to be undertaken by illustrating that the impact assessment undertaken by the European Union (EU) for the proposed Australia-European Union FTA (A-EUFTA) identified potential job losses in the Australia labour market as consequence of the agreement, particularly in the automotive and machinery sectors.
3.26The Maritime Union of Australia (MUA) suggested that in the negotiation of the Australia-United Kingdom Free Trade Agreement (A-UKFTA) inadequate analysis of economic, social, and environmental impacts: ‘… led to acceptance of an International Maritime Services Annex which is contrary to Australia’s national interest.’
Economic, social and environmental impact assessment
Content of impact assessments
3.27Many submitters proposed the need for broader impact assessments to determine whether trade and investment agreements are in the national interest. ActionAid Australia explained that such impact assessments would allow unintended impacts to be identified and mitigated, or if necessary, for relevant provisions to be removed from trade agreements.
3.28A range of areas to be considered by broader impacts assessments were put forward in evidence. For example, AFTINET called for: ‘… assessments of how the agreement relates to other whole-of-government priorities and the projected costs and benefits of the agreement. Such assessments should consider the economic, regional, health, gender and environmental impacts, and impacts on First Nations Peoples.’
3.29Similarly, the ETU stated that a new process should be established to undertake assessments: ‘… that more comprehensively assess a broad range of potential impacts and implications from trade agreements. This robust analysis should include consideration of the economic, social, environmental, labour, regional, regulatory, and First Nations impacts of agreements across every sector, region, and strata of Australian society.’
3.30The Australian Manufacturing Workers’ Union (AMWU) also declared that: ‘All agreements should undergo an independent economic assessment and national interest test to determine whether Australian workers and industries, and the community as a whole, truly benefit from the agreement that has been negotiated.’
3.31The Public Health Association of Australia (PHAA) proposed the routine use of independent health, environmental and human rights impact assessments. It added that given the potential impact of trade agreements on many aspects of health, health impact assessments should be undertaken to consider the potential effects and make recommendations to mitigate health harms and improve benefits.
3.32ActionAid Australia called for all trade agreements to undergo mandated independent gender, human rights, and environmental impact assessments to identify and mitigate any negative impacts. ActionAid Australia further elaborated that:
Gender and human rights Impact assessments are critical in determining the gendered impacts of trade rules, ensuring these rules align with Australia’s domestic and international gender equality strategies, and identifying how these rules may impact on Australia’s international women’s rights and sustainable development obligations. Human rights impact assessments should assess the impact of trade agreements on First Nations peoples, and Australia’s obligations under the United Nations Declaration on the Rights of Indigenous Peoples.
3.33Focussing on the maritime and shipping industry, the MUA proposed that an ‘economic and social cost-benefit analysis’ should be undertaken of key agreement provisions that examines the impact on Australian businesses including service providers and supply chain businesses, rather than just the producers of goods that benefit from a trade agreement. It also noted the need to consider the impact on investment in affected segments of the supply chains, the impact on domestic employment, and ensuring consistency with human rights and labour standards.
3.34The Productivity Commission highlighted the need for broader considerations of the costs to business, government, and consumers in determining the national interest:
While trade and investment form an important part of what is in Australia’s national interest and for improving the wellbeing of Australians, other considerations such as the cost to business of complying with the proposed arrangements and the cost to government of administering these arrangements should also be taken into consideration. Any wider costs should also be factored in (such as impacts on other producers and consumers).
3.35Melbourne Climate Futures (MCF) suggested the need for ‘sustainability impact assessments’ to be undertaken to contribute to the negotiation and implementation of trade agreements that work to incentivise climate-friendly goods and services, and trade that reduces the economy’s reliance on emissions-intensive goods and services.
3.36In proposing broader impact assessments, submitters generally noted that such assessments should be independent but did not provide further detail.
Timing of impact assessments
3.37Some submitters also commented on the timing of proposed broader impact assessments in the development of trade and investment agreements. For example, ActionAid Australia suggested that impact assessments should be conducted prior to the commencement of trade negotiations to inform their scope, before the agreement is signed and after the agreement has been implemented.
3.38The ETU recommended that the government should undertake a preliminary ‘national interest assessment’ prior to the commencement of negotiations to inform government and Parliamentary decision-making:
… beyond simply being released as a post-hoc justification for agreements that are already signed, there should be a requirement to conduct these independent National Interest Assessments prior to the commencement of any negotiations on anticipated or likely potential outcomes.
This initial pre-emptive NIA should be required to be made public and tabled in the Parliament for JSCOT [Joint Standing Committee on Treaties] review and Parliamentary debate to inform a more open and transparent decision around whether to pursue an agreement, and which priorities and objectives should be incorporated into a negotiating mandate for DFAT.
3.39Several other submitters also linked broader independent impact assessments to providing greater public transparency and informing the Parliament in its role in oversight and scrutiny of trade and investment agreements, including as part of an increased role for the Parliament. For example, the AMWU suggested that robust, independent assessments of whether agreements are in the national interest must be undertaken prior to signing. It added that: ‘This must include assessments of the likely economic, social, environmental and health impacts of any agreement, and must be made public for debate, consultation, and review by relevant parliamentary committees.’ The role of the Parliament in the development of trade and investment agreements is discussed in Chapter 4 of the Interim Report.
3.40Several submitters suggested that broader independent impact assessments should also be undertaken once a trade agreement is in force as part of a periodic review process. For example, the ACTU proposed that: ‘Independent evaluations of the agreement should be held five years after the agreement comes into force, and at five yearly intervals thereafter. These evaluations should examine the economic, employment, environmental, social, health and gender impacts of the agreement, and be made publicly available.’
3.41ActionAid Australia outlined that ex post impact assessments would enable the assessment of the actual impacts of an agreement once it has been implemented and, if necessary, allow them to be rectified. The post-implementation review of trade agreements is considered in Chapter 5 of the Interim Report.
3.42AFTINET, the ETU, the AMWU, ActionAid Australia and the ACTU all specified that proposed independent impact assessments should be made publicly available, prior to trade agreements being finalised.
3.43The Productivity Commission reflected on the importance of broad and in-depth public and stakeholder consultation to determining the national interest. However, Dr Moir noted that interested parties or stakeholders are mostly providing input based on sectional interests and will use consultation to the shape policy in their interest rather than in the national interest. The contribution of enhanced stakeholder consultation and engagement processes to improving outcomes in the negotiation of trade and investment agreements is discussed in Chapter 2 of the Interim Report.
Impact assessment in the European Union
3.44Several submitters noted that the EU undertakes analysis of the economic, social, and environmental impacts of trade agreements, including an initial Impact Assessment prior to the commencement of negotiations and a Sustainability Impact Assessment (SIA) during negotiations.
3.45The Delegation of the European Union to Australia (Delegation of the EU) stated that impact assessments: ‘… describe the likely economic, environmental, social and whenever relevant, human rights impacts… the impact assessment must verify problems, identify underlying causes, assess whether EU action is needed and analyse the advantages and disadvantages of available solutions and their impacts.’
3.46The Delegation of the EU also detailed its SIAs, which it noted feature wide-ranging consultation with stakeholders and are made publicly available alongside a response to the analysis from the European Commission:
Building on the Impact Assessment, the SIA examines specific subjects in greater depth than the first assessment. The SIA cover topics where the agreement is most likely to have an impact on sustainability issues, or where the agreement opens opportunities for achieving non-trade policy objectives and give actionable negotiation recommendations. SIAs are conducted by independent external consultants in parallel with the negotiations and help identify possible trade-offs, to ensure that the related policy choices are optimised.
3.47The ACTU reflected on the EU’s SIA process noting that it is conducted in parallel to trade negotiations by independent external consultants to provide a robust analysis of the potential economic, social, human rights, and environmental impacts that the agreement could have.
3.48The Delegation of the EU further explained that once negotiations are finalised, the European Commission conducts an Economic Analysis of the Negotiated Outcome (EANO) to inform the European Council, the European Parliament, and member states in their approval processes. The EANO is made publicly available.
Committee comment
3.49The Committee strongly agrees that Australia’s trade and investment agreements must be in the national interest, providing a net benefit for Australia. Further, it recognises that more widely shared benefits and a broad consideration of the impacts on the economy and society are essential to ensuring that trade agreements are genuinely in the national interest.
3.50The Committee also notes that trade agreements are a means to an end rather than an end in themselves. The recent approach to the A-EUFTA negotiations demonstrates that Australia is not prepared to enter into an agreement that does not bring significant benefits and that may be detrimental to the national interest.
3.51The Committee acknowledges that there are many complexities and challenges inherent in analysing the impacts of trade agreements and determining the national interest.
3.52The Committee is of the view that the NIA and economic modelling undertaken by DFAT are important and valuable tools in determining whether trade agreements are in the national interest and generate real economic benefits. However, it is also of the view that there would be considerable benefit in analysis of agreements being undertaken by an independent body, to remove the perception of any conflict and to ensure public confidence in the assessment of the national interest.
3.53The Committee recognises that while trade can bring substantial benefits to many, there will likely always be costs and some that are disadvantaged. These must be effectively identified and accounted for, both to factor into determining national interest, and to ensure those disadvantaged are provided assistance where required.
3.54The Committee acknowledges that trade agreements have the potential to impact many areas of the economy, society, and the environment. As such, the Australian Government must have a comprehensive understanding of the economic, social, and environmental impacts of an agreement informed by evidence-based assessments if it is to be certain that an agreement is providing an overall net benefit, beyond narrow economic and commercial considerations. Such assessments should consider, but not be limited to, impacts such as economic, social, environmental, health, gender, labour, human rights, regional communities, and First Nations people.
3.55The Committee agrees that formal consideration of the national interest, including broad impact assessment, should be undertaken prior to, during and after the negotiation of trade and investments agreements. Assessment of the national interest is informative for stakeholders, the public and the Parliament in their role in the development of trade and investment agreements.
Recommendations
3.56The Committee recommends that the Australian Government require an independent review, including modelling and analysis, to be undertaken on each proposed or under review trade and investment agreement.
3.57The Committee recommends that the Australian Government establish a consistent approach to assessing and reviewing trade and investment agreements. This should include impact analyses of the economic, social, and environmental implications of agreements to assist the Government to make decisions in the national interest.
3.58The Committee recommends that the trade advisory committee and cleared advisors (Interim Report recommendation 1) be provided with the outcomes of the independent modelling and analysis (recommendation 1) as well as the impact assessment (recommendation 2) to improve transparency and the depth of stakeholder consultation in the negotiation of trade and investment agreements.