AFR op-ed: China FTA disputes are about migration and labour, not trade

The AFR published an op-ed of mine on the China-Australia FTA. Republished here:

“China FTA disputes are about migration and labour, not trade”

Political debate on the China-Australia Free Trade Agreement is not centred on trade but on labour and migration. For Australia, this is the first instance in what will become a staple of how regional and bilateral economic negotiations occur in the 21st century.

In a world where most trade barriers have either disappeared or are disappearing, labour mobility and intellectual property rights will be the fault lines where countries can either cooperate or shirk away from each other.

Recognition of this is critical. The economic forces shaping the movement of people are not the same as those for goods and services. Comparative advantage drives cooperation on trade, where even the poorest country can be incorporated into a global market and derive economic benefits.

Migration and labour mobility is different. There is no comparative advantage for countries in labour. Migrants are independent actors with their own economic, security and cultural incentives. Throw this into the relationship between origin and destination countries and you have a much more complex environment than for goods and services or capital.

Despite this complexity, getting the policy mix right has the potential to unlock unrivalled economic gain. Michael Clemens from the Centre for Global Development has shown even minor reductions in barriers to migration from developing countries are equal to the removal of all remaining barriers to goods, services and capital combined. This is good for migrants, origin and destination countries.

The obvious challenge is how labour markets compare to regular markets. Incomes and working conditions are disparate across countries and regions. This creates great tension in rich countries. A new migrant in Australia might be willing to work for $10 an hour, perhaps more than double the income available in her home country for the same job. A new migrant might not be aware of what a union is. At the same time, migration brings real benefits to Australians.

As is playing out in Donald Trump’s push for the Presidency and the far-right in Europe, nationalism on immigration creates the conditions for autarky. Closing the borders, capping migration numbers and squeezing the rights of migrants already in societies. In OECD countries, this will stymie economies and contribute to demographic nightmares.

There are green shoots of this debate on the China-Australia Free Trade Agreement. While the ALP has a strong tradition on trade policy, this isn’t traditional trade policy. For a political party with a labour base, these are not the same as questions from the 1980s. They are more difficult. On the other hand, the Prime Minister’s reference to Billy Hughes and the ‘ghosts of White Australia’ was a clear overreach given the Agreement is about mobility, not race. The union campaign is not characterised by xenophobia but self-interest.

Unlike recent history, no-one in Canberra is against Asian migration. China is firmly entrenched in the top three countries of new migrants arriving in Australia. This will not change anytime soon.

The debate is about how employers use labour in an increasingly regional and global labour market. As much as we may wish it, this cannot be divorced from how countries conduct bilateral and regional economic relationships in 2015.

For Australia, this means a policy debate about the 457 visa program. Opponents of the China-Australia Free Trade Agreement focus on labour market testing, assessing skills and contractual labour agreements. These are not new questions. What is new is having the debate through a proxy like a free trade agreement.

This campaign against the agreement risks a nasty aftertaste. The agreement will not lead to hundreds of thousands of Chinese citizens descending on Sydney – a complete falsehood but one easily imagined if you knew little about the Migration Act. It is particularly important to note that labour market testing is wholly ineffective at getting Australians into employment. There is bipartisan agreement on “Australians first”. Instead of arguing about Facebook job ads, a more effective policy solution is to increase the price of foreign labour through a fee. This creates an incentive to hire Australians and removes administrative paper work.

This is why the government would be unwise to rule out marginal changes within enabling legislation in search of a parliamentary majority to pass the China-Australia Free Trade Agreement. A small number of changes to the 457 visa program – a commitment to index the salary threshold, a higher fee levied on employers to boost the competitiveness of Australians and a commitment to more compliance officials – would quickly see a parliamentary majority emerge.

Australia’s relationship with China is too important to leave to bipartisan political brinkmanship. A shift towards policy considerations would see the agreement passed, along with enabling legislation to better support domestic policy goals.

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