National Interest Analysis
4.1
The government provides a National Interest Analysis (NIA) for each treaty action that is tabled in the Parliament and referred to the Joint Standing Committee on Treaties (JSCOT). The NIA provides an overall assessment of the proposed treaty action and sets out why it is in Australia’s national interest to enter into the treaty. The Department of Foreign Affairs and Trade (DFAT), which is responsible for each NIA, lists the following contents of the document:
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 will be implemented domestically;
what consultation has occurred in relation to the treaty; and
whether or not the treaty provides for withdrawal or denunciation.
4.2
The NIA has evolved over time. Since JSCOT was established in 1996, it has actively pursued improvements to the document. Since its first report in August 1996, the Committee has regularly requested more information be included in the NIA, particularly with regard to the consultation process, the individuals and organisations consulted, and an indication of the extent of consultation that has occurred. During that early period, individual inquiries elicited calls for specific information to assist the Committee’s deliberations. This practice has continued.
4.3
Notwithstanding continued improvements in the comprehensiveness and level of detail provided in NIAs, some stakeholders expressed concern that as the NIA is prepared by the Government, it lacks independence:
DFAT conducts a National Interest Analysis (NIA) for each agreement, however this is not independent and invariably reflects favourably on agreements without providing a genuine analysis of their potential costs and benefits.
Independent economic analysis
4.4
There have been repeated calls for independent analysis of treaty actions to address the issues raised by the lack of information and provide stakeholders and Parliament with the comprehensive, detailed analysis required to assess proposed treaties. Suggestions include:
external input to preparation of NIAs; and
use of feasibility studies to asses treaty agreements.
4.5
There have also been calls for a structured approach to reviewing trade treaties after implementation to ensure that the agreements are delivering what was promised.
External input to preparation of NIAs
4.6
It has been suggested that input from external experts could ensure that NIAs provide a more relevant, in-depth analysis of trade agreements. The Australian Chamber of Commerce and Industry (ACCI) identified a number of ‘omissions and incorrect statements’ in the NIA for the Korea-Australia Free Trade Agreement (KAFTA) during the 2015 Senate Foreign Affairs, Defence and Trade References Committee (SFADTRC) inquiry. ACCI advocated for a more independent process:
Australian stakeholders to trade agreements should be consulted in the development of National Interest Analysis (NIA) (including for KAFTA). The analysis in the NIA should be conducted by an independent body such as the Productivity Commission, rather than by DFAT. When consulted, Australian stakeholders should be also given a fair opportunity to examine substantive aspects of the treaty text affecting their role in the pending treaty, well before an NIA is published. In this way, future NIA on trade treaties will be independent from negotiations, well-researched and relevant to tangible business activities on the ground, and contain empirical information in the national interest, rather than being developed behind closed doors resulting in inaccuracies and omissions.
4.7
In its report, the SFADTRC recommended that the government examine reforming the NIA process to include stakeholder consultation and the viability of the NIA, or parts of it, being prepared by an independent body. The Government did not accept the recommendation, believing that it was not appropriate for an outside body to prepare the documents:
The National Interest Analysis (NIA) tabled in Parliament with its accompanying agreement is an official Government document advising the Parliament among other things of the essential elements of the agreement, any costs and impacts, and why the Government believes it is in Australia’s interests for binding treaty action to be taken. For trade agreements the NIA is drafted by DFAT on a whole-of-government basis in consultation with other agencies that have taken part in the negotiations. Given the in-depth detailed knowledge required of various negotiating positions and options, it would not be appropriate for the NIA to be drafted by entities outside Government.
4.8
The SFADTRC repeated its recommendation for its inquiry into the Commonwealth’s treaty-making process in 2015 and it was met with a similar response from the Government.
Independent analysis and modelling
4.9
Although the Government currently takes independent analysis into account for trade agreements on a case-by-case basis, it is reluctant to commit to such a process for all trade agreements. The Government has made its position clear in its response to recommendations from a range of parliamentary committees:
Economic modelling of trade agreements is only one tool to assess whether an agreement is in the national interest. The Department of Foreign Affairs and Trade (DFAT) commissions economic modelling of trade agreements on a case-by-case basis. Statistical and methodological limitations mean that current models are unable to estimate the total impact of an FTA on the economy. For example, it is difficult to model accurately the impact of changes to non-tariff barriers, trade facilitation, increased regulatory certainty and other aspects of an FTA such as rules. Moreover, statistics on international trade in services and investment flows are incomplete.
4.10
JSCOT has noted previously that, while modelling can be a useful guide, it is important to recognise its limitations as an economic tool. The outcomes from economic modelling are not facts; they are an extrapolation of observed current conditions into the future. These concerns have been exacerbated by the changing scope and nature of trade treaties examined in previous chapters. Trade agreements no longer deal only with tariffs but with an expanding range of broader areas including non-tariff barriers, intellectual property, investment, health and the environment. It can be inherently difficult to model the impact of trade agreements in these areas:
The question is really that as preferential trade agreements have broadened in their scope and taken in a broader range of subject matter, some of the tools that have been the traditional staples of economic analysis of trade deals become a little harder to apply. When trade deals are essentially about removal of quotas and reductions in tariffs, that’s a little easier to model quantitatively using computable general equilibrium models and the like, because part of what you’re trying to capture is the resource allocation effect, in other words the movement of resources in an economy from a less efficient to a more efficient use and the associated gains in average incomes.
4.11
However, the Productivity Commission stressed during this inquiry that the usefulness of economic modelling should not be discounted due to its limitations:
I would still maintain that it’s better to have something than nothing. The fact that the future is inherently uncertain does not of itself remove the case for robust analysis, as long as that analysis is humble in the face of the uncertainties that they inevitably face.
4.12
The Productivity Commission proposes a two-stage process to improve the assessment of the economic costs and benefits of trade agreements:
The first stage would be a pre-negotiation analysis that provides a scenario analysis of a range of possible outcomes, using assumptions that reflect a mix of potential agreement provisions. A second, final text analysis would then be completed after negotiations are concluded but before signing, and would aim to provide greater clarity about the costs and benefits of the actual agreement.
Conclusion
4.13
The Committee welcomes the improvement in the quality and comprehensiveness of NIAs prepared in recent years, and notes that the full text of the trade agreement is made publicly available alongside such analyses, allowing for interested stakeholders to explore areas of particular interest or concern in greater detail.
4.14
The Committee acknowledges the limitations inherent in economic analysis of trade agreements. Nonetheless, the Committee expects that independent economic analysis would reveal the basis of the economic gains expected from a trade agreement, which should form an important consideration. Such analysis may not prove entirely accurate, but it will nevertheless be indicative, and—as the Productivity Commission states—something is better than nothing. In the Committee’s opinion, the provision of credible and independent economic analysis of trade agreements would increase public confidence in the benefits of such trade agreements, and would address a vacuum that otherwise risks being filled by actors with less credibility who are pushing narrow agendas.
4.15
The Committee recommends the Government consider implementing a process through which independent modelling and analysis of a trade agreement, at both the macro and sectoral levels, is undertaken in the future by the Productivity Commission, or similarly independent and expert body, and provided to the Committee alongside the National Interest Analysis to improve assessment of the agreement, increase public confidence in the benefits of trade agreements, and facilitate the longitudinal assessment of actual trade outcomes.
Mr Dave Sharma MP
Chair
2 August 2021