Free-trade agreements: not just a mechanism for more trade

This article was first published in May 2021 by Daily Cargo News.

Trade law expert Andrew Hudson argues that free-trade agreements are increasingly not just about trade, they also address societal issues, and this is a good thing.

The debate around the merits of free-trade agreements has not always been wholeheartedly in their favour. Notwithstanding the economic benefits that arise out of reductions in tariffs and other measures to facilitate trade, concerns have regularly been expressed that more could be done with free-trade agreements (FTAs) to advance societal interests.

While the traditional response to the concerns has been that FTAs are, in fact, about trade alone, there have always been exceptions to absolute free trade in FTAs such as reserving the right of nations to impose trade remedies (dumping and countervailing measures) and biosecurity protections on condition that they are consistent with associated World Trade Organization (WTO) provisions. Further, limits on the movement of people across borders have also been preserved, recognising the sovereign rights of nations.

However, the non-trade exceptions have expanded over time to include provisions relating to environmental and labour standards issues and that expansion now contemplates provisions to address perceived gender imbalances in FTAs, both in language and in substance.

The Biden administration shift

The recent appointment of Katherine Tai as the next United States (US) Trade Representative (the equivalent of our Trade Minister) further substantiates this shift. Ms Tai took a key role in securing support for the United States Mexico Canada Agreement (USMCA) to pass through the US Congress, which USMCA and its predecessor North American Free Trade Agreement included provisions to support organised labour and environmental protection. Other early signals from the Biden administration are that free trade on its own through additional FTAs will not be the priority and that the US will pursue “worker-centred” measures as well as seeking to enforce provisions in existing US FTAs and WTO agreements which the US believes have not been adequately pursued.

The US policies are not entirely surprising, as the new Biden administration focuses on domestic issues including the treatment of the effects of the pandemic on its population, local economic stimulus spending and investment in new infrastructure. The shift is so palpable that the US media has had cause to comment with the New York Times carrying an article headed “In Washington, ‘Free Trade’ is no longer Gospel”. The article states that the focus is on ensuring that trade deals protect the rights of American workers over the rights of exporters or consumers.

Based on these comments and past experiences it is hard to see that the US will move on its own towards new FTAs, although there is optimism that the US will properly re-engage with the WTO for a refreshed approach to multilateral trade enhancement, albeit an approach which will not solely focus on economic outcomes.

An Australian perspective

In these circumstances, it is worth considering some of the FTAs to which Australia is a party, whether they include such non-trade concepts and what may arise in the future.

Many of our existing FTAs, such as the Comprehensive Progressive Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership Agreement (RCEP) contain provisions seeking to advance the interests of small-medium enterprises (SMEs) recognising that their position is precarious and that they need additional specific support. The inclusion of specific chapters is important although, to date, the commitments are largely confined to making information available electronically, agreements and cooperation and establishing government committees.

Having been a director of the Export Council of Australia for many years (whose focus is on the interests of SMEs), I am of the view that additional work is urgently required in a post-pandemic, near-recession world such as the ongoing enhanced provision of affordable finance, measures to deal with technical barriers to trade and border disputes as well as a process to allow SMEs to address disputes with foreign regulators who are not observing the intent of the FTAs.

Environment

Issues around the environment are often contentious. Australia is perceived by many other nations as being reluctant to adopt comprehensive policies to reduce greenhouse gases or its reliance on coal and other non–renewable fuel sources. The CPTPP does include a chapter on the environment which expressly refers to commitments on the protection of the ozone layer, protection of the marine environment from ship pollution, voluntary adoption of policies to advance corporate social responsibility, voluntary mechanisms to enhance “environmental performance”, promotion of trade and biodiversity, the transition to low emissions and resilient economies, conservation and sustainability on the management of fisheries as well as the establishment of an “Environment Committee”.

It is too early to say whether these provisions will lead to enhanced outcomes. More immediately the debate is being played out as part of the negotiations for the Australian FTA with the EU as the EU seeks to impose carbon levies on countries with “weak emissions laws” where Australia would be included meaning that exports from Australia would face extra tariffs, not less as would be the case with most FTAs.

The US faces the same issues and has warned the EU against such measures. To date, the Australian response has been to propose a global plan to eliminate tariffs on wind turbines, solar panels and other “green industries”, but there is no sign that such an alternative approach would assist in removing those extra tariffs.

Labour standards, modern slavery and forced labour

The CPTPP (but not the RCEP) includes a provision requiring parties to maintain statutes and regulations in a form consistent with the International Labour Organization Declaration on Fundamental Principles and Rights at Work and its Follow–up (1998) as well as articles seeking to eliminate “forced or compulsory labour” and the trade of goods from such labour as well as an article on corporate social responsibility.

From our perspective, we do have federal and state modern slavery legislation and there is currently a bill before the Australian Parliament seeking to ban goods produced by Uyghur forced labour. This bill is before a Senate Committee for review by 12 May. There is one whole-of-government submission seeking to defer passage of the bill until the Modern Slavery Act is reviewed in 2022 which would put Australia in a different position to several trading partners such as the US which is banning the import of the products of forced labour and allows for the seizure of those products.

Gender

There is now a significant body of literature on FTAs that has found they do not address gender imbalance by the language used or by specific provisions seeking to redress the disadvantage. A series of articles by the Center for Strategic & International Studies on the intersection between trade and gender reviews provisions in US FTAs on labour issues but still finds them lacking on positive outcomes to remedy gender imbalance. The premise of the centre’s commentary is that gender issues need to be addressed in FTAs and other international agreements both for social equality and economic benefits.

Possible outcomes for Australia

As readers would be aware, Australia already has several FTAs which expressly address traditional trade measures such as tariff reductions, facilitation of trade, advancement of e-commerce and customs procedures. The CPTPP is an example of an FTA which moves beyond those measures to broader societal issues. However, it seems to me that in the context of our future FTAs, we will need to accept more explicit and enforceable provisions addressing these societal concerns as well as in future multi-lateral agreements at the WTO. Many in industry may object to this shift but any agreement on trade is a negotiation and the wider world will insist on these measures as part of any provisions to enhance trade.

For advice on all aspects of Australian and international trade and e-commerce, please contact our Customs & Trade team.