ACTU Congress trade policy, the myth of protectionism and government purchasing policy.

11 June 2009

By Dr Patricia Ranald, AFTINET Co-convener

The ACTU Congress last week adopted a fair trade policy which contains many proposals supported by AFTINET. These include a call for a halt to further bilateral trade agreements, and full parliamentary oversight and assessment of social impacts for all trade agreements. 

The policy calls for trade policy to be consistent with infrastructure and industry policies designed to deal with the impacts of the economic crisis and support employment. It also condemns trade agreements that directly or indirectly encourage the accumulation of wealth from international trade on the basis of poverty wages, dangerous working conditions, the repression of collective organisation and labour rights, and environmental destruction, and calls for trade agreements that provide for the improved conditions of workers by requiring signatories to adopt international labour, human rights and environmental standards.

The policy argues that trade agreements should retain or enhance the autonomy of government in Australia to design and implement policies in the following areas: the regulation of financial institutions and international financial transactions; climate change; government procurement; import regulation; media content and the cultural industries; public ownership; the provision and regulation of essential services such as health, education, water, electricity, telecoms and postal services; the movement and employment of temporary migrant workers; and the preservation of Australia’s Pharmaceutical Benefits Scheme.

The policy is available on the ACTU website under Congress policies, at the end of the document entitled Infrastructure, Industry, Transport and Trade Policy, www.actu.asn.au

The ACTU policy will inform the position taken by unions at the trade policy debate at the ALP Conference at the end of July.

The ACTU policy was criticised by the Minister for Trade on the grounds that it is ‘protectionist.” The Minister also released a study on the benefits of trade liberalization (see the article in this bulletin ‘Fairytale modelling ignores real world experience”).

“Protectionism” is being used as a bogey word by governments in the current recession, with dire warnings of a retreat into the same protectionism that worsened the 1930s Depression.  The rationale for this is the memory of the extreme tariff rises initiated by the US in the 1930s, which did contribute to the global depression. But this is a false comparison with today’s conditions. In 1929 US tariffs on key traded goods were already very high by today’s standards, around 40%.  They were raised by an average of 8%, and provoked equally high tariffs in retaliation by US trading partners.  By contrast, the general level of tariffs in Australia is 3.5%, and no-one is proposing tariff increases.

There was a particular attack on the ACTU government purchasing or procurement policy.

The Government is currently spending some tens of billions of dollars on public infrastructure intended to address real economic and social needs and to create demand and employment in the local economy. But there is currently no clear government policy which ensures that, while tendering processes must be transparent and deliver value for money, there is some preference given to local suppliers in the process of tendering for these projects.  This means that contracts can go to overseas suppliers with no local employment benefits.  This is simply absurd.

The Trade Minister has claimed that the Australian government cannot give any preference to local suppliers because of Australia’s obligations to treat foreign suppliers as if they were local suppliers under World Trade Organization (WTO) agreements and  other trade agreements. He claims that local preference policies are “protectionist.”

This is misleading because Australia has not signed the WTO voluntary Plurilateral  Government Procurement Agreement, and therefore has no legal obligations under WTO rules not to give preference to local suppliers.

Most governments have not signed the WTO voluntary procurement agreement precisely because they want to reserve the right to have reasonable preference arrangements for local suppliers.  Developing countries in 2003 refused to agree to negotiate a legally binding WTO procurement agreement, and it is not part of the current WTO round of negotiations.

The US government, which is a signatory to the WTO voluntary procurement agreement, has a long list of exceptions to the agreement which means it can still give local preference in specific departments and levels of  government, and for specific products.

Apart from New Zealand, which has a unique relationship with Australia, the only trade agreement that Australia has signed which includes government procurement is the US-Australia Free Trade Agreement (AUSFTA).

The AUSFTA procurement chapter contains a very long list of exceptions. Half of US state governments are excluded, as are many US Federal departments and specific products like steel. The Australian list of exceptions, negotiated by the Howard government, is much shorter. However it includes small and medium enterprises with 200 employees or less, all Defence procurement, specific exceptions for particular state and federal departments, and for products like motor vehicles. The procurement chapter applies only to US companies, not to other foreign suppliers.

It is therefore simply not accurate to say that Australia’s trade agreements prevent any preference arrangements in government procurement, nor should they.

The Trade Minister has criticized the US government for “protectionism” because its government procurement stimulus package gave some preference to local firms.  As we have seen, US governments past and present, have been careful to leave themselves room to give local preference in key areas. At a time when government infrastructure spending is being expanded, the Australian government should exercise its rights to ensure that such spending generates local employment.