A key economic policy adviser to the federal government has said the Trans-Pacific Partnership has provisions of “questionable benefit” – including an investor-state dispute settlement (ISDS) clause allowing foreign corporations to sue the Australian government if they think the government has introduced or changed laws that hurt their commercial interests.



The Productivity Commission made the comment in its annual trade and assistance review, released on Monday. The review quantifies the level of assistance governments give to Australian industry and this year criticises regional adjustment programs that have followed the exit of the carmakers, and also the Turnbull government’s big defence procurement spend rolled out in the countdown to the recent federal election.

On the TPP the commission says it is uncertain whether the US will sign the controversial pact before the presidential election in November 2016. While noting that, the commission says the TPP contains provisions of questionable benefit. “These include term of copyright and the investor state dispute settlement elements.”

The commissioner, Paul Lindwall, warned the success in defending a recent landmark ISDS case relating to tobacco plain packaging entailed reported legal costs of about $50m.

The tobacco giant Philip Morris used an ISDS provision in the Hong Kong-Australia bilateral investment treaty, signed in 1993, in an effort to sue the Australian government over the plain packaging laws implemented by the Gillard government in 2012. The case dragged on for years before an international tribunal ruled in Australia’s favour, saying Philip Morris Asia’s claim was an abuse of process.

“As it was resolved on a technicality, and costs are apparently yet to be recovered, this success should not be taken as an indication that ISDS is essentially harmless,” Lindwall said Monday.

The TPP is a US-led trade deal spearheaded by the Obama administration that includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam.

The Turnbull government remains a strong supporter of the TPP despite the political backlash to the agreement in many countries.

The trade minister, Steve Ciobo, has declared recently he remains cautiously optimistic about the fate of the TPP despite the apparent opposition to it from both Hillary Clinton and Donald Trump, who recently described the trade pact as a “rape of our country”.

In the event the TPP makes it through the political controversy that has been generated domestically in the US courtesy of the presidential primary season, the Turnbull government faces a similar trade liberalisation backlash in the 45th parliament.

Labor has firmed its opposition to ISDS clauses. The opposition recently promised to review three of the major free-trade agreements signed by the Abbott and Turnbull governments – the Korean FTA, the China FTA and the TPP – in the hope of removing their ISDS clauses.

Labor says it will not accept ISDS clauses in new trade pacts. If existing ISDS clauses can’t be removed, then Labor’s position is stronger safeguards should be imposed on existing agreements to make it harder for corporations to sue the government.

As well as having to deal with Labor’s reservations, two key Senate balance-of-power players in the new parliament – the Nick Xenophon Team and Pauline Hanson’s One Nation – are anti-free trade.

The Productivity Commission in its latest review of industry assistance also calls for the Turnbull government to review regional adjustment packages delivered in response to the closure of car manufacturing in Victoria and South Australia, and slow growth in Tasmania.

“These schemes appear to involve very high subsidy rates to some individual companies,” Lindwall said.

“Governments naturally want to help large groups of people who find themselves suddenly out of work due to the collapse of a major industry in the area. But it is difficult to find effective evaluation of whether this assistance is meeting its stated objectives, be that helping people transition to new careers or regional diversification.”

The commission also criticises the Turnbull government’s big defence spend, which was rolled out in the lead-up to the recent election to help shore up the Liberal party’s fortunes in South Australia against a political incursion by the NXT.

“Paying more for local builds, without sufficient strategic defence and spillover benefits to offset the additional cost, diverts productive resources (labour, capital and land) away from relatively more efficient (less assisted) uses,” the report says.

“It can also create a permanent expectation of more such high-cost work, as the recent heavily promoted ‘valley of death’ in naval ship building exemplifies. Such distortion detracts from Australia’s capacity to maximise economic and social wellbeing from the community’s resources.

“The recent decision to build the new submarines locally at a reported 30% cost premium, and a preference for using local steel, provides an illustrative example of how a local cost premium can deliver a very high rate of effective assistance for the defence contractor and the firms providing the major steel inputs.”

The commission says close attention to future evaluation of the effectiveness and efficiency of the revised defence industry support program is “paramount”.