Economist denounces Palaszczuk government’s move as ‘crackers’ after New Zealand hints at a highly unusual trade war

This article is more than 3 years old

This article is more than 3 years old

The Australian trade minister’s office will not reveal which foreign government followed New Zealand in objecting to Queensland’s parochial new buying policy but says more countries are certain to complain about violations of free trade pacts.

A leading trade economist has also denounced the Palaszczuk government’s “Buy Queensland” policy as “crackers” after New Zealand’s trade minister hinted that a highly unusual trade war targeting Australia’s third-largest state was possible.

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Annastacia Palaszczuk last month announced that her government would ignore restrictions in free trade pacts when evaluating bids on state contracts worth $18bn a year, favouring local suppliers with price subsidies of up to 30% on their tenders.

“We are going our own way,” she said in a media release trumpeting an “Australian first” move by a state government that “would no longer be constrained or bound by free trade agreements that have seen jobs go offshore or interstate”.

Palaszczuk said the move to favour businesses within 125km of a project was partly aimed at boosting jobs in struggling regional Queensland communities, one of her government’s lingering political challenges before an imminent election.

The premier singled out the treatment of New Zealand businesses as local suppliers in Queensland under a 1997 procurement agreement with Australia as “patently absurd”.

The move last week prompted New Zealand’s trade minister, Todd McClay, to meet his counterpart in Canberra, Steven Ciobo, to urge federal action to protect New Zealand companies’ access.

McClay, who said he worried about the “contagion” effect of Queensland’s policy, did not rule out retaliatory action against Queensland companies, which was “something we would have to think very deeply about”.

A spokesman for Ciobo told Guardian Australia on Tuesday that the government would not reveal which foreign government had also contacted Canberra with concerns about Buy Queensland, declining to explain why.

“As more countries become aware of this I’m sure we’re going to hear more from them, because [Queensland is] essentially increasing barriers to trade, which is going to violate a multitude of agreements that we have with other countries,” he said.

He said the Palaszczuk government’s move to “discriminate and essentially apply a 30% weighting on other businesses [according] to the advice we’ve had pretty much violates our trade agreements”.

If you force people to buy something and make people outside the border pay more then that is protectionism Tim Harcourt, economist

Tim Harcourt, a former Austrade chief economist and now academic and author, said Queensland’s policy “probably” did undermine Australia’s free trade pact with its neighbour across the Tasman – and potentially other free trade agreements.

“I think it’s not very smart,” Harcourt told Guardian Australia. “If we had Buy Queensland and Buy South Australia and Buy Tasmania, we wouldn’t have a very good federation, would we?

“And then to other countries what it does is antagonise them when Australia’s got a pretty open economy.”

Harcourt said it was fine for “statriot” governments to champion local businesses through marketing “but if you force people to buy something and make people outside the border pay more then that is protectionism”.

“I think it’s crackers,” he said.

Harcourt said state and regional governments had a role to play in trade policy – as protectionist pockets of the European Union showed – “but trade wars against the state or region [by another country] is unusual”.

Ciobo’s spokesman said Buy Queensland also threatened procurement agreements being negotiated alongside proposed free trade pacts with Hong Kong and Peru, which Palaszczuk had written to Ciobo in support of the day before announcing the policy.

The former Labor premier Peter Beattie, who championed Queensland industry in South America as a US-based state trade commissioner, declined to comment when contacted by the Guardian.

A spokesman for Palaszczuk said the procurement policy was separate to trade agreements, which many states in the US managed to abide by while similarly favouring local contractors.

Neither New Zealand nor any other foreign government had contacted the Queensland government to raise concerns, the spokesman said.

McClay had not taken up Palaszczuk’s offer for a briefing on the policy while in Australia, he said.

Ciobo also cancelled at short notice a state government briefing with Department of Foreign Affairs and Trade officials days after the policy was announced.

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His spokesman said there was “no point in the officials meeting” when Palaszczuk had not responded to Ciobo’s request to clarify which free trade agreements her government intended to break.

The north Queensland federal government MP Warren Entsch told the Cairns Post the scheme would be an “absolute disaster”, citing potential damage to $115m in New Zealand government contracts held by Queensland businesses.

His fellow Queensland federal MP Trevor Evans is set to put forward a motion in parliament condemning the policy as early as Tuesday.

Last week McClay said the Australia-New Zealand procurement agreement was separate to its closer economic relations trade pact, but Queensland was violating the pact’s spirit.

He said his trip to Australia had been booked using Flight Centre, a Queensland company that has a government-wide travel contract in New Zealand.