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Winter 1999 cover

National Observer Home > No. 41 - Winter 1999 > Article

Globalisation: Ideologies in the Treasury

The Multilateral Agreement on Investment

I.C.F. Spry

The term "globalisation" is ever more widely used, and in many senses. Sometimes it represents a platitude, by for example referring to widespread forms of communication. But sometimes it represents a radical politico-economic policy, whereby all trade and financial barriers are to be broken down.

It has long seemed that the Commonwealth Treasury follows extreme globalisation policies. The Treasury has followed a lead from the United States, the main beneficiary of the removal of barriers. In particular it has followed a low or nil-tariff policy, with the intention that Australia be fully opened up to foreign financial and manufacturing enterprises, to the detriment of local industry.

Unfortunately much of the literature on globalisation contains logical slides. A typical non-sequitur is, Because there is evident globalisation (for example, in communications), globalisation is inevitable and we therefore must reduce/eliminate tariffs, allow the free movement of capital, and so on.

The fact is that some globalisation is inevitable (and some has indeed taken place) but some is not inevitable and may (probably, in some cases, and possibly, in other cases) be quite harmful.

Effects on Labour and Manufacturing

It has recently been well pointed out that the providers of labour may not be well served by globalisation of capital. It has been noted, "Labour, on the other hand, is penalised for its relative immobility, its lack of control over investment decisions, and its oversupply. Workers are told by the State that they must work harder, smarter and longer and for less renumeration otherwise capital will go elsewhere (or there will be no investment)."1

It is sometimes put by way of counter-argument that labour nonetheless benefits through "efficiencies" in the market, that new employment will eventually arise and that employees will be better off. But is there any sound basis for this view? Unfortunately it has often been found to rest more on hope than on probability.

Likewise there is sometimes a counter-argument as to manufacturing that full global competition will see "inefficient" Australian businesses close, and "efficient" businesses open in their place. But how can one be sure that this is not mere propaganda? Thrown open to world competition, how will many Australian industries prosper or even survive, not having cheap wages as in Asia or vast economics of scale as in the United States?

Cui Bono?

It is always useful to test propositions by enquiring, cui bono? Who will be the beneficiary?

Historically extreme free-trade positions have been pressed most assiduously by the states which will benefit most from them. In the nineteenth century, England with its powerful manufactories often promoted free trade. Today England's place has been taken by the United States.

The United States possesses enormous economies of scale. It has acquired overwhelming technological advantages in many fields. Its employees are possessed by a significant work ethic, and its business managers are ambitious and driven for success. It is not surprising therefore that United States exports are able to prevail in many foreign and indeed Australian markets.

Conversely, it is very difficult for countries such as Australia to export successfully to the United States. Australia's wage structure is high (compared with many Asian countries, for example), its work ethic is not impressive, and it lacks economies of scale and, generally, special technological skills.

A matter for concern in these circumstances is the ideological position that is taken by the Australian Treasury. The Australian Treasury adopts uncritically but wholeheartedly the United States approach. It is opposed to tariffs and to trade and financial barriers. Initiatives that favour United States business interests are embraced by it warmly. And the most disturbing aspect of the Treasury position is that it appears not to be detached. In the name of free trade or globalisation a quasi-religious zeal prevails. Critics are dismissed, often with contempt. Persons who favour a more moderate or careful approach are attacked, often unfairly. A measure of arrogance is displayed the Treasury speaks, sileant omnes.

A consequence has been a growing lack of confidence in the Canberra Treasury.

The Draft Multilateral Agreement on Investment

In order to appreciate the significant rebuke that has recently been received by the Treasury it is necessary to understand the draft Multilateral Agreement on Investment.

At its Ministerial Council Meeting in May 1995 the Organisation for Economic Cooperation and Development (O.E.C.D.) decided to launch negotiations for a draft Multilateral Agreement on Investment. The draft became subject to negotiation by twenty-nine members of the O.E.C.D., eight non-members and the European Commission.

The purpose of the draft Agreement was to protect and benefit international investors, especially transnational corporations. Thus those countries bound by the Agreement would not be able to discriminate against foreign investors and moreover, would not be able to subject foreign investors (whether discriminatorily or not) to "unreasonable" constraints. Further, under the draft Agreement not only countries themselves, but also investing corporations, would be given rights of enforcement, and these rights would be able to be asserted against countries in courts or tribunals.

So it was proposed that it would not be permissible for a country to impair the operation, management, maintenance, use, enjoyment or disposal of investments in its territory "by unreasonable or discriminatory" measures.

Further, the draft provision directed against expropriation was expressed broadly and in such a way as to create doubts. Not only could a party "not expropriate or nationalise directly or indirectly" but it could not take "any measure or measures having equivalent effect". Clearly there would be considerable uncertainty as to what might or might not fall within the operation of this provision.

An intended effect of the draft Agreement was hence to create a situation in which transnational corporations would be able to require Australia to remove various areas of regulation and in which much litigation would be expected through which the Commonwealth government would be required to pay compensation to such corporations in regard to complaints made by them. Such complaints could be expected to be frequent. Further, in view of ambiguities in the terms of the draft Agreement, the constant threat of justified and unjustified complaints and litigation would inhibit a range of policies intended to secure Australian interests.

National Sovereingty

The draft Agreement clearly proposed reductions of Australian sovereignty, in accordance with the provisions that have been summarised here.

It is not surprising that objections to the Agreement built up in many countries. Eventually on 2 November 1998 the Assistant Treasurer announced that it was clear that the draft Agreement would not go ahead in the form in which it was being negotiated. In effect it was abandoned. A meeting of officials at the O.E.C.D. in October 1998 had agreed to continue work on developing an international framework of rules of investment, but the text of the draft Agreement would "now only be a reference point for any further work".

The Joint Standing Committee on Treaties

Criticisms and doubts in many of the O.E.C.D. member countries were responsible for dropping the draft Agreement.

However the draft Agreement was also the subject of particular controversy in Australia, and it received much consideration by the Joint Standing Committee on Treaties of the Commonwealth Parliament. The Committee held a number of hearings, and considered objections of substance against the terms of the draft Agreement. These objections are described at length in the Committee's Final Report, which was given in March 1999. The Committee comprised at that time the following members of the House of Representatives: Andrew Thompson (Chairman), Dick Adams, Bruce Baird, Kerry Bartlett, Janice Crosio, Kay Elson, Laurie Ferguson, Gary Hardgrave and De-Anne Kelly, and the following Senators: Barney Cooney (Deputy Chairman), Vicki Bourne, David Brownhill, Helen Coonan, Bill O'Chee, Margaret Reynolds and Chris Schacht.

In its Final Report the Committee stated that one of the two issues most frequently raised in the submissions received by it (the other issue being "the invasion of Australian sovereignty which the draft M.A.I. was seen by many to represent": paragraph 6.2) was "the secret and/or conspiratorial way in which, it was asserted, the draft M.A.I. had been negotiated by Australia": paragraph 6.2.

The Role of the Department of Treasury

The decision of the O.E.C.D. not to proceed with the draft Agreement should be welcomed, for reasons that are referred to at length in the Final Report of the Joint Committee.

However of particular importance were the criticisms which the Joint Committee made of the role of the Department of Treasury, which appears to have attempted to have the draft Agreement supported by Australia by minimising its disadvantages and preventing proper community and parliamentary understanding and discussion.

In view of the importance of this matter, and of the prevailing opinion that the Department of Treasury is ideologically committed to what may be referred to as a "new right", University of Chicago-influenced general philosophy and that the Department of Treasury seeks to have its views adopted through special pleading and the suppression of facts, the following conclusions by the Joint Committee should be noted:

"8.8 While Treasury and those it had consulted knew about the draft M.A.I. from as early as May 1995, little information about it seems to have reached the Australian community until late 1997 or early in 1998. Ms Ranald stated that it was not until 20 February 1998 that a defence of the Government's position was released. The February 1998 text of the draft Agreement was not tabled in Parliament until March 1998.

8.9 As a result of increasing public concern about this issue, the terms of reference for this inquiry were referred to this Committee on 5 and 9 March 1998. Treasury stated that it had accelerated its consultative and briefing process 'quite significantly in the last few months' leading up to May 1998.

8.10 The first source of information for many citizens who became concerned seems to have been from the Internet. It also seems to have spread as a result of personal contacts and later through small groups formed to oppose this draft Agreement. It is also clear that a number of people believe that there was a conspiracy against the Australian people, and that these negotiations were being carried out in secret.

8.11 While Treasury may have accelerated its consultative and briefing process 'quite significantly' in the last few months leading up to May 1998, by then it was reacting too late to a situation which was already out of control. Moreover, it advocated the draft Agreement in such a way that the underlying point of preserving the national interest was often lost.

8.12 Treasury was repeatedly accused of 'secrecy' in the way in which it conducted the negotiations for the draft M.A.I. Whether the information which was received and spread was correct is not relevant, nor does it matter that Treasury officials expressed themselves as willing and able to provide material on the draft Agreement. For many people, the workings of the bureaucracy in Canberra are quite baffling. In the absence of other material, many believed that what they were able to discover about this matter, or what they were told, was complete and accurate and did not seek further information.

8.13 Undoubtedly, there were difficulties to be faced in managing an effective consultation process, including particularly:

the confidentiality concerns which arise when negotiating a draft multilateral agreement with a large number of other nations;

practical problems in ascertaining which organisations and people should be consulted, and

how that consultation should occur.

8.14 Regardless of what efforts Treasury said that it made, many Australian citizens were outraged by what they saw as a secret process in which information was not made available to those who had concerns. Organisation after organisation told us that they had not been approached, and how they had found out about the draft Agreement by accident.

8.15 One example should be sufficient to make this point. As late as August 1998, Major-General Glenny (Rtd) of AUSTCARE made it clear that while the Treasury officials had listened to his concerns, he did not believe that there had been an exchange of information.

8.16 We support the view, taken by many of those who participated in this inquiry, that the consultation process was inadequate. Too little information was made available publicly until too late in the negotiation process.

8.17 Treasury's submission was of indifferent quality, given its crucial role in the negotiating process and to this inquiry. It made no attempt to spell out the detail in the text or, by using material in the Commentary, the likely implications of the draft Agreement for Australia. This submission simply set out the more important provisions in the text in brief, seeming to reveal either a lack of interest or a lack of knowledge of the needs of the enquiry process. It did point out that some national delegations had proposed quite different approaches to various articles.

8.18 It was particularly unfortunate that local government representatives were excluded from the consultation process. This oversight is especially puzzling in view of Treasury's own description, provided to the O.E.C.D. Negotiating Group, of the important role played by local government in Australia.

8.19 The case for the draft M.A.I. would have been far stronger if the likely implications for Australia had been modelled. Allowing for methodological difficulties, and even the possible lack of certainty of the results, we are at a loss to understand why this was not done.

8.20 Two final points need to be made.

8.21 Treasury stressed the benefits of the draft Agreement, but never presented the need for Australia to be involved. The two were taken to be the same issue and Treasury did not understand that, outside orthodox economic circles, they are not seen as one. Perhaps if there had been modelling of the likely impact on a number of areas of the Australian economy, it would have been easier to demonstrate that a need existed.

8.22 Treasury stressed that Australia's negotiations were on the basis that the draft M.A.I. would not impinge on this country's sovereign right to regulate and to discriminate against international investors in areas where country-specific exceptions would be taken out. It was also clear, however, that the intention behind the draft Agreement was progressively to remove all exceptions and, in fact, to use a peer review process within the O.E.C.D. to do this.

8.23 Treasury appeared to believe that this situation was appropriate, and it was taken for granted that exceptions would be allowed. There had been no consideration of the impact of a rejection of the approach to exceptions in the negotiating text. Thus, if Annex B had not been included, the draft exceptions Australia had proposed for inclusion would have been irrelevant and there would have been no protection for those matters."

These important criticisms of the role of the Departmental of Treasury were taken further when the Joint Committee set out its conclusions, drawing attention to what it described as Treasury's "excessive zeal for a cause":

"8.30 We have had to concentrate a good deal of attention in this Report on Treasury's role and actions, not to accuse it of wrong doing but to draw attention to how excessive zeal for a cause in which it believes can sometimes blind an organisation.

8.31 Treasury seemed to believe that it owned this document to the point where it did not accept the validity of the concerns of those who opposed it. These people were simply seen as 'misinformed' and largely ignored. In turn, they felt that they were being treated with contempt. Hostility and suspicion was generated against the draft Agreement, and also towards the process of government in the minds of many citizens.

8.32 We were provided with a great deal of information about the consultation process, and Treasury seemed satisfied with both the quantity and the quality of its efforts. This is a very difficult area, because it is not possible to consult with every organisation, and reaching the community is also difficult, as this Committee knows. The need for consultation with the community has been one of the most frequent themes in our Reports.

8.33 Nevertheless, Treasury was selective in its early consultations and, while this may have been reasonable at that time, its process cannot have been effective if so many N.G.O.s and other organisations were not consulted. Treasury stated that it dealt with 'umbrella bodies' and that material was not passed on. This may well have been the case, but it was surprising that such organisations as the A.I.G., the A.V.C.C., Local Government associations and the A.S.X. were not contacted or had to approach Treasury for information about the draft M.A.I."

 Further Criticism of the Department of Treasury

It is highly unusual for a Parliamentary Committee to be as critical of a government department as was the Joint Standing Committee in this case.

In its conclusions the Committee recommended that, if there are further negotiations for an across-countries agreement for the regulation of international capital, Australia should continue to be involved in those negotiations. (It may be commented that this recommendation did not involve an implication that Australia should necessarily support or be a signatory to any agreement. Indeed, endorsement of any agreement to the effect of the draft Agreement might well be adverse to Australia's interests.)

But the Joint Committee also concluded in paragraph 8.42 of its Final Report that although the Department of Treasury must have a continuing role in any negotiations, "in the negotiation of the draft M.A.I. its approach was so flawed as to demand another approach". Indeed, the Committee felt impelled to adopt the extreme course of recommending the removal of the Department of Treasury from its lead role in negotiations, and its relacement by the Department of the Prime Minister and Cabinet.

Hence its final recommendation was in the following terms:

"8.47 The Joint Standing Committee on Treaties recommends that, if there are negotiations for an across countries agreement for the regulation of international capital:

the Department of the Prime Minister and Cabinet assume the lead role in coordinating the Australian Government's negotiations;

the Department of the Prime Minister and Cabinet actively and effectively involve all relevant Commonwealth agencies from the beginning of any negotiations;

the Department of the Prime Minister and Cabinet ensure that all Australians have the opportunity to put their views on all aspects of any negotiating text as part of an open and public process, and

from the beginning of any negotiations towards such an agreement, the Department of the Prime Minister and Cabinet forward written reports on a six monthly basis to the Committee about their content and progress."

Ideology and the Department of Treasury

The rebuke received by the Department of Treasury and the recommendation that it be removed from its lead role in across-countries agreements for the regulation of international capital represent an extraordinary lack of confidence in its actions. It is extremely rare for a government department to be criticised and dealt with in this way.

But what is no longer surprising is the Treasury's attitude of superiority and its desire to promote globalism, despite the fact that globalism (in the sense that all or virtually all trade and financial barriers are to be abrogated) appears to favour the United States and certain Asian countries more than Australia.

The essential difficulty is the perception that the Department of Treasury is untrustworthy. Some of its views may well be correct, but its strongly ideological bent and its preparedness to conceal what it is doing to accomplish its purposes are a matter for extreme concern.

The difficulties that are raised by globalisation are profound. They should be considered by careful and balanced officers, not by ideologues. Regrettably it is no longer possible to have confidence in the Treasury in these matters.

National Observer No. 41 - Winter 1999