Are trade agreements to blame for steelmaking crisis?

11 April 2016

News that steel mining company Arrium has been placed into administration has left almost 7,000 Australian workers worrying about their future, 2000 of them in the SA town of Whyalla.

Opposition Leader Bill Shorten has reacted to the news by calling for a nationwide plan to save the Australian steel industry, and some SA government MPs have also urged government action.

Under the Shorten plan, federal, state and local governments would use Australian steel for infrastructure projects and introduce a range of other measures like increasing quality control and enforcing anti-dumping laws to restrict unfair competition from low quality imports, mostly from China.

But the Coalition Government’s Trade Minister Steve Ciobo told The Australian a plan like that was “actually in direct breach of quite a number of our trade agreements that we have in place”.

This is partly true. There are government purchasing rules in some of our trade agreements against giving preference to local suppliers, because this discriminates against foreign suppliers. 

This is just one of the ways in which trade deals can limit the ability of Governments to regulate to ensure a diverse economy with a variety of jobs. The TPP, which is currently under review by a parliamentary committee, contains similar government purchasing rules.

But the China free trade agreement does not, because the Chinese government itself wanted to retain the flexibility in government purchasing. This means local content purchasing policies would not breach that agreement.

Even where trade agreements do have such rules, there are always exceptions. For example, in the 2004 negotiation of the US-Australia FTA, the US exempted its steel industry from government purchasing rules, but the Howard Coalition government did not. All the agreements allow local preference for defence contracts.

Trade agreements do, to some extent, restrict the way governments can respond to crises facing our industries. And certainly they have had a role in creating the problem in the first place, by opening up the Australian market to substandard, cheaper steel. But they also play a more complex role - they are often used by governments as an excuse not to act.

In the case of the steel industry crisis, the Australian Government could implement local purchasing policies and take the risk of facing some trade disputes, but not from the China FTA and not for defence contracts. It could also re-negotiate existing agreements to ensure that governments could act to support strategic industries, and not ratify future agreements with such rules. The review of the US FTA in May should be an opportunity for the government amend its government purchasing rules. The restrictive government purchasing policies in the TPP are one among many reasons why the Senate should not pass the TPP implementing legislation.