Here’s the Thing: So, Chinese companies now have more rights than you do

Originally published at The Vine, 26 November 2014

Who’d have thought a deal rushed through in secret might have a few worrying conditions attached?


Trade has been enormously beneficial to the world –  at least, so long as you prefer it to war.

Throughout history the nations that traded the most became hubs of knowledge – Rome in the first century BC, Alexandria in the 6th century, Amsterdam in the 17th century, London in the 18th, Shanghai in the 19th, New York today – and there is a direct correlation between the amount of trade between nations and the global decline in armed conflict.

It’s not hard to see why. The Age of Empires was an expensive one; conquering new territory was a pricey process, and hanging onto it was even more costly.

Conversely, a trade partner offers plenty of material benefit and zero outlay on armed invasions or open-ended occupations.

Russia’s just learning that with regards its newly annexed resource-poor and people-that-expect-services-rich Crimea, and (as discussed before) ISIL are starting to face a similar challenge in Syria and Iraq.

And there’s a lot to be said for trade if, like me, you’d rather that people didn’t just straight up kill each other. It can be exploitative, sure, but it typically doesn’t end with quite so many corpses.

And the global marketplace has more countries talking and less countries bombing each other than ever before. Hell, we just had countries that have ongoing diplomatic hostilities – Japan and China, China and India, Russia and everyone else – sit down together in Brisbane the other week and have a civilised chat about trade. For all of the limitations of the G20 visit, this is actually significant progress.

Here’s the thing, though: there comes a point where free trade stops being liberating, and starts becoming dangerous and constrictive. And the newly-announced China-Australia Free Trade Agreement is a clear example of this.

As Trade Minister Andrew Robb admitted to SBS, the China-Australia Free Trade Agreement was rushed though at “five minutes to midnight” to make the photo-op that was the G20, and that there was no time to do actual modelling on how it would actually work.

Despite this, it was very swiftly hailed as a triumph of negotiation by the government, who then got very, very quiet about it.

The reasons for this were not hard to fathom as details of the deal emerged and it became clear that getting access to the massive Chinese market would require certain… shall we say, “flexibilities” on the part of Australia, and on the workings of our democracy.

But we’ll come to that. First up, let’s look at the economics.

The Nationals – the team sitting at the kids table of the Coalition dinner party – had the unfortunate job of admitting that local food prices would rise as a direct result of the deal.

Deputy PM and Nationals leader Barnaby Joyce conceded that “Another market means competition, and competition means that [Australian primary industries are] going to get a better price. And we’ve got to do that – we’ve been asking the supermarkets for so long… well now they’ve got somewhere else to go.”

Hear that, Middle Australia? The same rise in your household bills that was the apparent justification for killing the carbon tax is now being hailed as a triumph for the FTA. Huzzah!

Never mind the local price rises: there’s also very little evidence that Australia will actually make anything out of the deal at all.

The “$18 billion increase in by 2015” trade number that was bandied about at the time sounded impressive, but it transpires that it’s not quite as true as you might have assumed. Especially since, as Robb said, there was no actual modelling done.

More specifically, the $18 billion increase was based on modelling done in 2005, for a very different China-Australia deal that was assumed to have been signed that year. That number was the amount estimated for the subsequent ten year period – in other words, meaningless with regards the deal that was actually signed.

What are some of the differences? Well, this model assumed that tariffs would be immediately dropped (they weren’t: the majority of reductions are being phased out rather than eliminated) and that it would include sugar and rice (which it doesn’t) – and, more importantly, that prices for thermal coal and iron ore hadn’t plummeted dramatically since 2005, which they have.

Even if the modelling wasn’t worthless, going by its own conclusions the deal was pretty lousy, giving Australia’s GDP an annual increase per year of a pitiful 0.37%, according to an analysis by the Guardian’s Greg Jericho, which is approximately nothing. Hilariously, or distressingly, the same feasibility study also calculates growth at an even more pathetic 0.04%, or “a rounding error”.

And, as Jericho also points out, our 2005 FTA with the US – spruiked at the time as a deficit-killer by then-PM John Howard – increased our trade deficit by half, to its current level of $15.4 billion.

Adorably, Howard also predicted that the deal would open up the US market for Australian automotive manufacturing, with “a very big, potential, exciting market for Holden.” So, how’d that turn out?

However, the biggest problem is “a controversial clause in the deal that will allow Chinese corporations to sue the Australian government if the government introduces laws or regulations that damage the profits (or ‘future profits’) of Chinese companies,” as Fairfax’s Gareth Hutchens put it.

This clause will also be part of the upcoming Trans-Pacific Partnership Agreement and will retroactively be inserted into our current FTA with Japan.

And not that I wish to sound like a broken record on this subject, but… well, I bitched and moaned about the “investor-state dispute settlement provisions” as laid out in our FTA with South Korea in 10 Things back in December 2013.

You see, these clauses

… allow foreign corporations to sue our government if said government does something that the company deems threatening to its profits. For example, if you were a tobacco giant based in a country with which Australia had an ISDS, you could theoretically sue Australia for introducing plain packaging laws on cigarettes on the grounds that it was anti-competitive.

If that sounds like an alarmist stretch, be advised that this is exactly what has already happened.

See, the Hong Kong subsidiary of Philip Morris launched a High Court challenge against the Australian government over plain packaging, citing the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments. They lost the High Court case in August 2012, mainly on the grounds that they knew the laws were coming in when they bought out the Australian subsidiary’s operations, but immediately launched another case which is still before an international trade tribunal.

And if you’re wondering “hey, isn’t Philip Morris is a US company? Why is the Hong Kong arm suing us?” the answers are “yes” and “because the US and Australia don’t have a trade deal with an ISDS, but we and Hong Kong do”, respectively.

A similar case is currently before the courts in Canada where US energy company Lone Pine Resources is suing under the North American Free Trade Agreement after Quebec called a moratorium on fracking ahead of environmental studies about the likely impacts.

That’s what the China-Australia FTA already has in place, that’s what we’re about to get with the US and Japan. These clauses enshrine in law the principle that your health and wellbeing is secondary to the commercial interests of overseas companies.

Laws restricting emissions in Australia could be deemed anti-competitive and struck down. Ditto labelling on foods, or restrictions on harmful products. Want to ban a defective crib that puts babies at risk? You’d better hope it’s not from a country with whom we’ve signed an FTA.

And this isn’t crazed lefty fearmongering: as of the signing of this deal next year, Chinese mining companies will have more rights than you do when it comes to the level of pollution in your air and water.

Does this scare you? It should.

And there’s more to come.

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