The Chinese-Australian Free Trade Agreement is a big deal and Trickle down economics isn’t

Australia and China has just recently signed a new statement of intent for it’s Free Trade Agreement (FTA), the result of four Australian Prime Minister’s and two Chinese President’s negotiations over the last ten years. The FTA’s are negotiated in secret from the public and are between multinational Corporations and the governments involved. The full details of the Australian-China FTA are yet to be released and it is to be formally signed and recognised next year. What information has been released is the apparent ‘winners’ of the FTA which are the mining sector, dairy farmers and wine exporters. The removal of tariffs on all resources and energy products, including iron ore and gold greatly benefits the mining sector, as does the removal of the 3% coking coal tariff that China was going to re-apply, and the 6% tariff on thermal coal is to be phased out within two years. The tariff attempt after nearly ten years, was seen as an effort to prop up China’s flat domestic coal sector. Basically thermal coal is for energy supply and coked coal is the integral ingredient needed for steel manufacturing. The major suppliers and exporters of thermal coal are China, Australia, South Africa, Colombia, Russia, United States and Indonesia. With the major coked coal suppliers and exporters being Australia, Canada and the United States.

Andrew Forrest is the founder of Fortescue Metals Group Ltd which is an Australian iron ore company and is the world’s fourth iron ore supplier and it provides China with around half of it’s iron ore. Gina Rinehart is Australia‘s richest person with an estimated wealth of $22 billion, and is famous for her investments in coal and iron ore along with her father Lang Hancock, ‘discovering’ iron ore as a valuable export. Mrs Rinehart will most likely benefit from the dairy sector tariff’s being phased out in four to eleven years, and the 15% infant milk powder tariff being phased out within four years. Mrs Rinehart  plans to invest $500 million to supply infant formula to China through Hope Dairies, which is controlled by Mrs Rinehart’s Hancock Prospecting. Mrs Rinehart is seeking to acquire 5,000 hectares of farmland in Queensland and to build a processing facility in South East Queensland, and aiming for the first production to be in the second half of 2016. Mrs Rinehart’s co-investor and Director Dave Garcia said “There’s another 50 million mouths probably coming online,” and that “There’s room for everyone in this right now.” This is in response to China announcing the weakening of it’s “one-child policy” late last year. With beef tariffs to also be phased out within nine years, Mr Forrest also stands to benefit from his recent investments in agriculture after recently buying Harvey Beef, Western Australia’s largest beef processor and the state’s only accredited exporter to China. His private company Minderoo Foundation has also restored a West Australian Pilbara cattle station which runs 3,000 head of cattle on a 240,000 hectare pastoral lease.

The Business Council of Australia’s first ‘Australia-Sino Hundred Year Agricultural and Food Safety Partnership’ (ASA100) meeting was in July this year with Mr Forrest as the co-chair. The meeting, which included 50 business members from each country, aims to elevate Australia as a primary and premium food and agriculture exporter to China. The members include some of Australia’s biggest agricultural ­producers and processors including Baiada Poultry, Murray Goulburn Co-operative, CBH Group, Teys Australia and Casella Wines. Last Friday Casella Wines bought Peter Lehmann Wines, to build their premium wine range and to more than likely enjoy the 14-30% wine tariff phasing over the next four years. Over the weekend a Memorandum of ­Understanding (MOU) was struck where the ASA100 agreed to “building a relationship with Infrastructure Australia” and will request that agricultural investment approvals are brought “within its remit”. The ASA100 apparently don’t want to control decision making but want to encourage investment, in particular co-investments for big ticket infrastructure such as the many processing plants required, hoping for the ­government to consider public-private partnerships or direct ones from the private sector. And so on Monday this week, Mr Forrest and Liu Yonghao Chairman, one of China’s richest men of the New Hope Group, (A multinational Chinese Corp) signed the MOU in front of Mr Abbott and Chinese President, Xi Jinping.

On Tuesday this week, the New Hope Group signed an MOU with Freedom Foods to establish an investment fund of up to $500 million to invest in dairy farms and dairy processing infrastructure. The farms will be managed by the Perich Group, which holds a stake of around 60% cent in Freedom Foods which is short for Freedom Foods Group Limited (FNP) and runs one of the nation’s biggest dairies west of Sydney, the Leppington Pastoral Company. The Perich Group, New Hope and other investors will contribute most of the equity for farm investment, which will commence in 2015. FNP is an Australia-based multinational Corporation operating in the manufacture, distribution and marketing of cereals and nutritional snacks and other food products, under the FNP brand and dairy alternative beverages that fall under the Australia’s Own brand. The Pactum Dairy Group is the long-life milk arm of FNP and last month the Abbott Government invested $1 million to support the fast tracked $18 million Shepparton upgrade plant expansion. The upgrade includes the installation of new filling and processing lines and infrastructure, enabling it to process an extra 50 million litres of long-life or Ultra Heat Treatment (UHT) milk. UHT is a process of sterilising milk that enables shelf life, of around six months and no refrigeration until you open it, perfect for warmer countries in Asia. The expansion will create 14 full-time jobs and is meant to create many more in the supply chain.

The Investor State Dispute Settlement (ISDS) mechanism is a controversial clause that allows multinational corporations to sue governments if their deemed not to be acting in their best ‘interests’. It’s in thousands of treaties, and ISDS claims have been launched against governments all over the world. The Abbott government has all but confirmed that it is included in the Chinese FTA, if true an unforgiving Chinese bureaucracy would be the least of it’s concerns if China is unhappy with something and decides to sue. Australia is still entrenched in it’s first investor-state dispute with Philip Morris Asia, due to the introduction of the ‘Tobacco Plain Packaging Act 2011’ (TPPA). The laws were introduced by the former Prime Minister Julia Gillard’s government, as a health measure but Philip Morris Asia amongst the many breaches, believes that it infringes their intellectual property. By the end of 2013, there were over 500 cases against 98 countries, for reasons such as taxes to land-zoning decisions and bans on dangerous chemicals and environmental measures taken by governments are proving to be of particular concern.

The former Gillard government also decided to ban the inclusion of ISDS in future trade agreements, they didn’t think that it harmed investment as did the Productivity Commission. The current Abbott government prefers to take it on a case by case by basis. It hasn’t agreed to it with Japan but there is a stipulation in their agreement that if an ISDS mechanism was to be included in an FTA with China then it would like one in its FTA. The Trans Pacific Partnership (TPP) is another controversial FTA proposal that twelve countries have participated in discussions with including Australia. France came out a few days ago and flatly refused to support the inclusion of the ISDS in the Trans Pacific Partnership negotiation mandate. “France did not want the ISDS to be included in the negotiation mandate,” Matthias Fekl told the French Senate. “We have to preserve the right of the state to set and apply its own standards, to maintain the impartiality of the justice system and to allow the people of France, and the world, to assert their values,” he added. Germany and Brussels have also expressed discontent at the clause.

A recent example of litigation against governments is in the United States in Vermont this year, it became the first state in the U.S. to make Genetically modified organisms (GMO) labeling mandatory, following failed attempts to pass similar laws in California and Washington. The Grocery Manufacturers Association (GMA) and three other groups, filed a lawsuit saying that the law violated free speech rights and conflicted with federal findings that GMOs are safe. The concern among many here is not only the heavy cost on tax payers but the loss of productivity and that cost borne on each country or governments economies.

In 2008 China had a contaminated milk disaster that saw children die and hundreds of thousands of children poisoned by melamine, an industrial chemical used in fertilisers and plastics, that was intentionally used to boost it’s ‘protein’ content. So understandably this coupled with the one child policy means that China does have a thirst for foreign milk, as New Zealand has successfully done since signing their FTA agreement in 2008. We could learn much from them despite their ‘growing pains’ you could say with their FTA agreement with China. The problem is that by the looks of things the spoils of using Australian resources will once again go to the elite, and it’s been proven that ‘trickle down’ economic theory that the Abbott’s government budget and policies appear to favour doesn’t work and only brings about greater inequality.

“Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world,” Pope Francis wrote in the papal statement. “This opinion, which has never been confirmed by the facts, expresses a crude and naive trust in the goodness of those wielding economic power and in the sacra­lized workings of the prevailing economic system.” The World Economic Forum’s 2014 Global Risks Report stated, “the chronic gap between the incomes of the richest and poorest citizens is seen as the risk that is most likely to cause serious damage globally in the coming decade”.

If we look at the annual growth of employment by industry, in the mining industry it has fallen to -7.96%, economically it is not prudent for the government to keep giving it tax breaks and what not if it’s not helping with job creation. You can not achieve the economic growth that Treasurer Joe Hockey espouses, especially with the likes of global multinational tax evasion hitting bottom lines. You also can not by letting the big four banks, the big two supermarkets etc have such a monopoly on the market and not use their profits to promote genuine job creation that actually benefits the economy, let alone the stifle hold on genuine ‘competition’. Greater corporate responsibility is needed and can only be implemented by the government, big business is not elected to run our country or control our purse strings. A cost benefit analysis made available to the public with guarantees in place that the tax payers money won’t be used if a multinational decides to sue us on a whim is surely reasonable? The government needs to engage in genuine bipartisan discussion at the very most in regards to ISDS to cover ourselves before we sign on that dotted line with China or any other country. The rest needs realistic and thoughtful discussion as to find solutions.

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