Committee comment and recommendations
7.1
The Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) is an interim agreement that, by the Department of Foreign Affairs and Trade’s (DFAT’s) own assessment, was the agreement India could make at the time, following negotiations that began more than a decade ago. India made commitments it was comfortable making and carved out some of its more sensitive agricultural products.
7.2
As an interim agreement, the AI-ECTA is absent provisions dealing with a number of substantive trade policy areas, including intellectual property, digital trade, government procurement, competition policy, and small and medium-sized enterprises. Further, it does not deal with other significant barriers to trade such as the individual tax and regulatory regimes at the state and union territory level that DFAT acknowledged were unreported by India but added another level of complexity.
7.3
The outcomes for Australia on goods are mixed, and while there are beneficial outcomes for some key Australian exports such as coal and liquefied natural gas, the high tariffs on vegetables and wheat remain mostly unchanged. It was made clear to the Committee the Australian wine industry was disappointed in the tariff outcomes for their sector, and the Committee makes a recommendation in this regard.
7.4
Upon entry into force, the AI-ECTA would mean that approximately 90 per cent of Australia’s current exports to India would be either tariff free or subject to tariff rate quotas (TRQs), yet the actual significance or value of this outcome is difficult to determine and is discussed in the section below headed ‘independent modelling and assessment of outcomes’.
7.5
By comparison, from entry into force, Australia would provide duty free or TRQ access to 100 per cent of India’s current exports to Australia.
7.6
On services, DFAT told the Committee the commitments from each Party are equivalent to the best commitments offered to other free trade agreement (FTA) partners. Nevertheless, Australia’s commitments are more comprehensive and more substantial.
7.7
The India Economic Strategy, written in 2018 by former Secretary of DFAT, Peter Varghese, warned that notwithstanding the fact no single market had more growth opportunities for Australian businesses to 2035 than India, it was essential to take a long view: ‘India is a market which requires patience, perspective and preparation’.
7.8
It must be noted at this point that the value of a trade agreement is not to be found entirely in its economic outcomes; trade agreements are also means of engagement, cooperation, and rules- and norms-setting, which is to say they have a broader value as instruments of foreign policy.
7.9
The Committee agrees with sentiment in the National Interest Analysis (NIA) that:
Deepening economic links between like-minded partners to support open markets and a stable and prosperous Indo-Pacific is a central element of the Australian Government’s foreign policy. The ECTA [Economic Cooperation and Trade Agreement], followed by a full CECA [Comprehensive Economic Cooperation Agreement], would sit alongside our existing free trade agreements (FTAs) with other Indo-Pacific strategic partners, including Japan, Korea and Indonesia, further strengthening regional economic architecture.
7.10
The Committee is mindful of the fact that in the course of inquiring into any trade and investment agreement, it is important to consider the substance of the new agreement, its relation to the set of existing bilateral and plurilateral agreements, the means by which the Committee and, indeed, the broader community can assess the new agreement’s quality, and the process by which it has been made. It is in this context that some longstanding interests of the Committee are raised in the context of the AI-ECTA, namely:
independent modelling and assessment of outcomes
consultation and transparency
the impact of the proliferation of bilateral FTAs.
Indigenous trade
7.11
The AI-ECTA contains few provisions relating to Indigenous trade. DFAT commented that this will be examined in the CECA.
7.12
In comparison, the Free Trade Agreement between Australia and the United Kingdom of Great Britain and Northern Ireland (AUKFTA) contains multiple provisions and commitments from both parties that recognise: the importance of genetic resources, traditional knowledge, traditional cultural expression, and the protection of Indigenous traditional knowledge. The AUKFTA also contains a commitment to make all reasonable efforts to join the multilateral Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs, and to protect Australia’s right to implement policy measures which provide more favourable treatment to Indigenous Australians.
7.13
These protections mostly extend to art and other creative Indigenous ventures and do little for other Indigenous businesses. Such provisions for Indigenous businesses providing goods or services outside of art could be included in an Indigenous inclusion chapter which is notably absent from this the AI-ECTA.
Independent modelling and assessment of outcomes
Previous findings by the Committee
7.14
The question of modelling the potential economic and wider impact of trade agreements has been a perennial issue raised in the Committee’s trade agreement inquiries. Australian Government economic modelling of trade agreements was formerly a common feature of Committee inquiries. By the time the Committee began considering the Trans-Pacific Partnership Agreement (TPP) in 2016, however, the Australian Government had stopped economic modelling of trade agreements, arguing:
We would note that modelling is one tool among many when you are assessing a free trade agreement of this sort of character and dimensions ... We also note in these models that there are some methodological limitations. Models do not provide every fix in the world. This is broadly recognised by economists. When we are modelling a dynamic, 12 party deal, there are some real challenges. Modelling the impact of liberalising preferential supply chains is very, very difficult to do. Modelling the value that traders and investors place on certainty is very difficult to do.
7.15
By 2016, it was clear that early attempts at modelling the economic impact of trade agreements had been overly optimistic. Modelling of the Australia–United States Free Trade Agreement in 2004 suggested the agreement would result in an increase in gross domestic product of 0.4 per cent after 10 years. Subsequent analysis of the actual benefits of the agreement showed that no net increase in trade had occurred. More recent modelling of the Australia–China Free Trade Agreement showed that the agreement would grow the Australian dairy industry at 1.5 per cent a year, resulting in an increase of 600 on farm jobs a year. This has not turned out to be the case.
7.16
In the time since the Committee’s inquiry into the TPP, two proposals for modelling have been discussed:
a structured approach to reviewing trade treaties after implementation to ensure that the agreements are delivering what was intended
independent economic analysis by, for example, the Productivity Commission, to be presented with the NIA after the signing of an agreement.
Independent modelling of the AI-ECTA
7.17
Trade agreements considered by the Committee are typically accompanied by an NIA, which sets out the Australian Government’s explanation as to how a treaty is in the national interest. The focus of the NIA is not to provide a thorough analysis of the benefits of the agreement, nor to identify the trade-offs that were made in its negotiation. It is a document the Australian Government prepares to support and explain the agreement, prepared by DFAT that has been responsible for its negotiation.
7.18
In both the NIA and evidence presented to the Committee by DFAT officials, a number of benefits of the AI-ECTA were identified, such as outcomes in sheep meat, Atlantic salmon, apricots, strawberries, lentils, oranges, mandarins, coal, metallic ores, and rare earth oxides.
7.19
Absent broader context such as whether these reductions relate to significant exports, whether TRQs are commercial quantities, whether Australian exporters are in a position to take advantage of certain tariffs, and whether other non-tariff barriers and taxes in India would negate the value of the tariff reductions, it is difficult to have a rounded view of the value or significance of these outcomes.
7.20
A similar issue exists with statements on the liberalisation of services. For instance, the significance of India agreeing to bind 85 subsectors for Australia in the AI-ECTA, a 43 per cent improvement on the current bound market access that Australia receives through the World Trade Organization (WTO), cannot be determined without a thorough analysis of the sectors where bound market access has been offered, the continuing limitations on services access more broadly, and whether Australian services exporters are in the position ever to take advantage of such opportunities.
7.21
It is notable that while there were side letters to the AUKFTA in relation to the exchange of trade data, there are no such letters to the AI-ECTA. During the inquiry DFAT agreed it is important to understand whether and how FTAs are used, and what benefits they have.
7.22
It is the view of the Committee that the anticipated Australia-India Comprehensive Economic Cooperation Agreement should include a similar arrangement that provides for the exchange of trade data, and that in any case an arrangement of equivalent effect should be pursued in relation to the AI-ECTA at the earliest opportunity.
7.23
The absence of an independent impact assessment was raised by the Australian Council of Trade Unions (ACTU), which stated:
We know that trade liberalisation can have profound economic impacts. In particular, there are workers and communities that could be left on the scrap heap unless the potential risks are taken into account. A proper impact assessment can really help you understand the risks when you go into negotiations. It can help you eliminate them, mitigate them or deal with them afterwards.
7.24
When asked about the Regulation Impact Statement prepared by DFAT, the ACTU pointed to its lack of independence and stated:
… a lot of the things that DFAT have done in-house are really about some fairly top-level number crunching around benefits, benefits, benefits, without a more-nuanced understanding of the impact of trade.
… the academic literature is almost at a consensus that in most cases trade liberalisation can result in overall economic gains for a country but can also result in very specific pain for particular workers or communities if those impacts are not mitigated, eliminated or properly dealt with through transition support and planning.
7.26
It is accurate to say, as the NIA did, that:
Australia’s prosperity has been, and will continue to be, underpinned by trade and foreign investment. As an open trading nation, Australia’s continued prosperity depends on our economy staying internationally competitive and on Australian businesses continuing to succeed in new markets.
7.27
However, in the absence of an independent and thorough impact assessment, that identifies the expected benefits, the direct and indirect impacts, and the trade-offs inherent in any trade agreement, one is left to merely accept the proposition that liberalised trade is beneficial without being able to properly examine the detail of what are complex and carefully designed agreements that make numerous changes, including with respect to areas that are not always strictly concerned with trade and investment (for example, the movement of natural persons, the treatment of intellectual property, the capacity to regulate in the public interest).
7.28
In its report into Australia’s trade agreement and treaty making process, the Committee recommended the Australian Government consider implementing a process through which independent modelling and analysis of a trade agreement, at both the macro and sectoral levels, was undertaken in the future by the Productivity Commission, or similarly independent and expert body, and provided to the Committee alongside the NIA to improve assessment of the agreement, increase public confidence in the benefits of trade agreements, and facilitate the longitudinal assessment of actual trade outcomes. The Australian Government at the time noted the recommendation. The Committee maintains its view and its recommendation.
Consultation and transparency
7.29
The extent of consultation during the negotiation process on trade agreements by the Australian Government has been a matter of contention for many years. In previous Committee inquiries, the Australian Government has contended that it consulted extensively, including with the business community, the farming sector, academics, the unions, and civil society groups.
7.30
However, there is a limit on how transparent the Australian Government has been prepared to be during these consultation processes. According to the Australian Government, confidentiality is essential to pursuing and protecting Australia’s national interest:
The government of the day is constrained in what it can disclose about current and ongoing treaty negotiations, partly because standard international practice is for the negotiating texts of bilateral and plurilateral treaties to be kept confidential between the parties prior to signature … In addition, disclosure of Australia’s negotiating positions could adversely affect the capacity for the government to pursue the national interest by negotiating the best attainable outcomes.
7.31
Yet the Australian approach is not the only approach adopted by parties negotiating trade agreements. Other quite different models have been adopted in the United States (US) and the European Union (EU). Since 1974, the US has maintained an Advisory Committee system to ensure that US trade negotiations reflect public and private sector interests. The system consists of 26 Advisory Committees, with a membership of approximately 700 advisors.
7.32
Under procedures in the European Parliament, the European Commission must keep the European Parliament ‘immediately and fully informed’ during treaty negotiations. This means the European Parliament has access to negotiating directives, and members have observation rights and often access to confidential negotiating information. The European Parliament can use this to influence negotiations because its consent is required to conclude a treaty.
7.33
In its report on Australia’s trade agreement and treaty making process, the Committee recommended the Australian Government consider the use of nondisclosure agreements with key stakeholders to allow for improved consultation in certain areas of trade agreement negotiation, having regard to the approaches and mechanisms used by the US and by the EU. The Australian Government at the time noted the recommendation. The Committee maintains its view and its recommendation.
7.34
At the time of writing, Australia and the EU are engaged in negotiating a trade agreement. The EU has published the following documents associated with the negotiations:
the EU’s negotiating position
the EU’s impact assessments
reports concerning each round of negotiations
a copy of the EU’s proposed text for the agreement.
7.35
In response, the Australian Government has in effect made a virtue of necessity:
The Government is committed to transparency and maintaining a highly consultative approach throughout these trade negotiations. This document [Summary of negotiating aims and approach] … has been prepared to make it easier for business, civil society and individuals to access information on our trade negotiations with the European Union.
Further information and resources can be found on the DFAT website including reports on the negotiating rounds that have taken place. The EU has shared its proposals for several chapters, which have also been released to the public.
7.36
During its inquiry into the AI-ECTA, the Committee heard support for more information being provided during the negotiation of trade agreements. The ACTU called for a negotiating mandate to be tabled in Parliament:
… which says, 'These are our objectives, these are our red lines, this is what we're going to look for and here's an impact assessment that has been done independently and which has consulted with stakeholders around the parameters of what will be negotiated and what sort of impact that might have.'
7.37
The Committee is aware, as was discussed in Chapter 2 of this report, of the differing views from business, unions and civil society organisations as to the nature and adequacy of consultations. It encourages DFAT to consult meaningfully with all stakeholders, as opposed to merely providing information or briefing sessions.
Impact of bilateral free trade agreements
7.38
Bilateral trade agreements, of which the AI-ECTA is one, have increased in number recently, particularly in the Indo-Pacific region. The Perth USAsia Centre previously described this as the:
…’turn to bilateralism’ in the trade system. Rather than pursuing multilateral agreements (at the global or regional levels), governments have preferred smaller bilateral FTAs. The primary appeal is their ease: with only two parties, deals can be negotiated far more quickly than in multilateral fora. For these reasons, bilateral FTAs are often viewed as a useful ‘second best’ trade strategy, to be used when multilateralism fails. According to WTO data, there are currently 286 bilateral FTAs in force globally.
7.39
However, the proliferation of bilateral FTAs has resulted in the fragmentation of international trade architecture, with a number of bilateral agreements criss-crossing the globe. The proliferation of bilateral trade agreements reduces the cost efficiency of international trade because it undermines the cohesiveness of trade rules. Each bilateral agreement introduces a different set of provisions that are specific to trade between two parties only. This unhelpful complexity is referred to as the ‘noodle bowl’ effect.
7.40
As a measure of how complicated the proliferation of agreements can be, during the Committee’s inquiry into the Regional Comprehensive Economic Partnership Agreement, the Australian Chamber of Commerce and Industry pointed out ‘there are five separate agreements that involve Malaysia’, but the ‘trade agreements themselves aren’t helping and business … gets very confused by trying to use the agreements’.
Committee view
7.41
Notwithstanding the concerns raised above with regard to an independent impact assessment, consultation and transparency, and the proliferation of bilateral trade agreements, the Committee notes the AI-ECTA is an interim agreement that achieves outcomes for Australia that are similar to those India has provided to other trading partners, and ensures that under most-favoured-nation commitments Australia would not be excluded from improved access that might be subsequently negotiated by India with other countries. It nevertheless omits sectors sensitive to India, which are potentially of interest to Australian exporters, and it under-achieves in some areas of immediate interest and frustration to sectors such as wine production.
7.42
The Committee also notes evidence from DFAT that India has a long list of countries with which to negotiate and if Australia waited for the ‘perfect’ trade outcome it would be shuffled to the end of the queue.
7.43
India is potentially an important growth market for Australian exporters and it is important opportunities for greater access to that market, such as the AI-ECTA, are not passed up.
7.44
It is nevertheless important that the comprehensive agreement to follow addresses the significant omissions in the interim AI-ECTA, including improvements in tariff reductions, greater access to services, and coverage of broader matters like intellectual property, cultural heritage, the environment, and labour rights.
7.45
India is without question an essential like-minded partner and longstanding friend with whom Australia will keep working to develop open markets, productive investments, and people-to-people links in our shared commitment to a stable, just, and prosperous Indo-Pacific.
7.46
The Committee recommends that the Australian Government strongly pursues greater market access for the Australian wine industry in future Comprehensive Economic Cooperation Agreement negotiations.
7.47
The Committee recommends the Australian Government implements the recommendations of Report 193: Strengthening the Trade Agreement and Treaty-Making Process in Australia, particularly in relation to greater consultation and transparency, and in providing independent modelling and analysis of trade agreements.
7.48
The Committee supports the Australia-India Economic Cooperation and Trade Agreement and recommends that binding treaty action be taken.
Mr Josh Wilson MP
Chair
14 November 2022