Thursday, November 20, 2014

Imported Chinese Labour in Historical Perspective


Introduction

The China Australia Free Trade Agreement (ChAFTA) provides a provision for the importation of Chinese labour. At the moment, there is some dispute about what this will mean for Australian workers. The government insists that the importation of Chinese labour for Chinese infrastructure projects will not come at the expense of Australian workers. The Labor Party and workers are not so sure.  In his press release Trade and Investment Minister Andrew Robb does not mention the labour provisions.[1] 

In a summary of key outcomes, under the heading of “Business and skilled worker mobility”, the government writes:
ChAFTA will support increased trade and investment between the two countries by reducing barriers to labour mobility and improving temporary entry access within the context of each country’s existing immigration and employment frameworks and safeguards. 
ChAFTA will provide improved access for a range of Australian and Chinese skilled service providers, investors and business visitors, supporting investment and providing business with greater certainty. Innovative new Investment Facilitation Arrangements (IFAs), which will operate within the framework of Australia’s existing visa system, will also provide greater flexibilities for companies to respond to unique economic and labour market challenges. IFAs will be available for large infrastructure projects above $150 million, strengthening investment in this key area and leading to the creation of jobs and increased economic prosperity for all Australians.[2]
The more detailed information provided in Fact Sheet: Movement of Natural Persons outlines that Australians will also benefit from an increased ability to work in China.[3]  
China will provide guaranteed access to Australian citizens and permanent residents for the following categories:
· Intra-corporate transferees for up to three years (including executives, managers and specialists);
· Contractual service suppliers, in certain sectors, for one year, or longer if stipulated under the relevant contract;
· Installers and maintainers for up to 180 days; and
· Business visitors for up to 180 days.
Australia will provide guaranteed access to Chinese citizens for the following categories: 
· Intra-corporate transferees and independent executives for up to four years (including executives, managers and specialists);
· Contractual service suppliers for up to four years; including guaranteed access for up to a combined total of 1,800 per year in four occupations: Chinese chefs, WuShu martial arts coaches, Traditional Chinese Medicine practitioners and Mandarin language tutors (subject to meeting standard immigration requirements);
· Installers and servicers for up to 3 months; and
· Business visitors for up to 90 days, or 6 months for business visitors who are service sellers.
The controversial section is listed under the heading “Investment Facilitation Arrangements”:
Through a Memorandum of Understanding allowing for Investment Facilitation Arrangements (IFA) Chinese owned companies registered in Australia undertaking large infrastructure development projects above $150 million will be able to negotiate, similarly to Australian business, increased labour flexibilities for specific projects. This will be done on a case-by-case basis under arrangements similar to the former Enterprise Migration Agreements.
IFAs will provide flexibility for companies to respond to the unique economic and labour market challenges related to large infrastructure development projects. They reflect the Government’s focus on strengthening infrastructure development and attracting investment, leading to the creation of jobs and increased economic prosperity for all Australians. 
IFAs will operate within the framework of Australia’s existing 457 visa system and will not allow Australian employment laws or wages and conditions to be undermined. The nationalities of eligible overseas workers under IFAs will be non-discriminatory, consistent with Australia’s 457 visa system.
It is the argument that IFAs “will not allow Australian employment laws or wages and conditions to be undermined” that is likely to be most disputed by opponents.

Such debates can be seen in historical context. Nineteenth and early twentieth century debates about Chinese workers in Australia were coloured by racist attitudes to non-White labour and immigration. The result of this earlier debate was the White Australia Policy. 

A major difference between the two periods is the level of economic interconnection: little interaction in the earlier period, dominance in the contemporary era. So the costs of the debate being couched in racist terms today would be profoundly more severe in economic terms. Just as in the immigration debate in general proponents of higher immigration need to counter views that immigration and worker importation do not come at the expense of Australians.

Australia should never move back to a discriminatory immigration program. This post argues that opposition to the importation of Chinese labour does not imply racism. It is possible to resist the importation of Chinese labour within the context of restricting the importation of workers from any country to cover employment opportunities that should be available to Australians. 

Some Historical Context

In the first half of the nineteenth century, some Australians believed that the importation of large numbers of Chinese ‘coolies’ could solve the colonies’ endemic labour shortages. Early plans for Australia’s settlement had canvassed the idea and Edward Gibbon Wakefield, important in the establishment of the colony of South Australia, believed that coolie-labour could turn “wilderness into gardens”.[4]  Pastoralists, finding it difficult to get workers to oversee their growing properties, also lobbied hard for cheap labour. In the late 1870s, the South Australian government proposed to open up the Northern Territory to comprehensive Japanese immigration after the failure of small-scale efforts to attract Chinese and Afghani settlers. Stewart outlines how Premier Blyth planned to transport “all classes of Japanese” –  labourers, farmers and aristocrats – “and it was declared again and again that their position was not to be that of the Chinese coolies … they were to have their own lands … and were to enjoy all the rights they had in their native land”.[5] Despite considerable planning and negotiation, nothing ever came of the scheme, and given the level of popular hostility to Asians, it is not surprising that the scheme failed to attract the support of the public.

The arrival of significant numbers of Chinese, as indentured labourers after 1848 and as prospectors on the goldfields after 1851, caused increasing friction with Anglo-Celtic miners. By the late 1850s, there were 42,000 Chinese in Victoria alone.[6] Their success in ‘tailing’ – the practice of sifting discarded and neglected diggings – led to riots and persecution. Despite all this, a small but growing China trade served Chinese immigrants and European settlers became keen buyers of Chinese goods. Melbourne became an important centre in the tea trade and tea and sugar accounted for a growing trade deficit with Asia.

Anti-Chinese sentiment flared again in the 1870s with new gold discoveries in Queensland. At this time, one in seven settlers in Queensland was Chinese.[7] Determined to put a halt to the influx of Chinese immigrants, by the late 1880s all Australian colonies had banned Chinese immigration. There was to be no Chinese influx into the Western Australian gold boom at the turn of the century. Concerns about Japanese immigration also rose as Japan opened up to the world in the late nineteenth century.[8] There was also significant opposition to the use of South Pacific labour in Queensland’s cane fields and the colony’s eventual decision to join the Federation was predicated on the acceptance of tariffs to protect the sugar industry in the absence of cheap Pacific and Asian labour.

White Australia’s increasingly hostile attitude to Asia and Asian immigration in the latter part of the nineteenth century restricted the growth of trade, as did the preference for British goods, such as British grown tea from India and Ceylon. By 1890, despite a period of considerable boom in the colonial economies, Asia’s share of exports was only 1.6 per cent of the total.[9] Some argued that buying from Asia was unpatriotic. Newspapers criticised housewives for buying cheap Chinese goods. As one mocked at the time, “the teapot will substitute the decanter … it will be green tea and there will be neither milk nor sugar but we shall drink it with a smile on our faces”.[10]

The Immigration Restriction Act 1901 – the White Australia Policy’s (WAP) official title – was the first major piece of legislation passed by the newly federated Australian Parliament.[11] Hostility to Asia pervaded all levels of Australian society. Australia’s first Prime Minister, Edmund Barton proclaimed in Parliament:
I do not think that the doctrine of the equality of man was really ever intended to include racial equality. There is no racial equality. There is that basic inequality. These races are, in comparison with white races … unequal and inferior.[12]
British concern about the WAP’s direct banning of non-white immigration and Japanese sensitivities to such overtly racist exclusion led the Australian Government to introduce a dictation test, which could be conducted in any European language: failure to pass the test led to exclusion.[13] Alongside official instructions was a secret provision on how officials should conduct the test:
All aboriginal inhabitants of Africa, Asia and Polynesia should be subjected to the test ... In the case of White Races, the test will be applied only under special circumstances … If in your opinion the immigrant would, for reasons which you would be prepared to state, be an undesirable immigrant, it may be better to substitute for the English test a passage from some other language.[14]
The WAP had widespread support and it was enshrined in the Federal Labor Party Programme of 1905. Workers saw cheap non-white labour as a threat to their level of wages and unions acted to restrict the supply of labour in particular trades and to use labour shortages to maintain wages and conditions.[15] Workers had established the principle of labour restriction in the interests of higher wages early on in Australia’s development. Blainey argues that nineteenth century colonial parliaments, influenced by newly enfranchised men, stopped the subsidisation of immigration passages to Australia through colonial land sales to keep wages high.[16] Even earlier, free settlers and ex-convicts had complained about the impact of convict labour on wages and conditions. The WAP, however, went beyond a concern for wages into a belief system encompassing both fear and racism. Asia-anxiety produced a contradiction in Australian society between workers’ aims to restrict the supply of labour and the perception that Australia needed a larger population to reduce its vulnerability.

On return to Australia Hughes pronounced to the Australian population:
The White Australia is yours. You may do with it what you please, but at any rate, the soldiers have achieved the victory and my colleagues and I have brought that great principle back to you from the conference, as safe as it was on the day when it was first adopted.[17]
World War I enhanced the appeal of the WAP. In 1919, the Prime Minister, William Morris Hughes, hailed it as “the greatest thing we have achieved”. Hancock’s Australia, published in 1930, argued:
The policy of White Australia is the indispensable condition of every other Australian policy. Embodied in the Immigration Restriction Act, 1901-1925, its intention and significance are exceedingly easy to understand once they have been freed from the rhetoric and special pleading in which they have been enveloped. During the debates of 1901, the rhetoricians declared that it would be unfair for a ‘nation of yesterday’ (China) to interfere with the ‘noblest race upon this sphere’ (the Australians). They even doubted whether some European nations, such as the Italians, were ‘civilised in the ordinary Australian sense’. However, their immediate concern was with black men and yellow men.[18]
During World War II, Japanese aggression reinforced Australians’ anxieties about their location in the Asian region. After the war, the victory of the communists in China in 1949 combined an old fear – Asia – with a new one – communism. The most populous country in the world had joined forces with the Soviet Union and Eastern Europe in a burgeoning communist sphere of influence vehemently opposed to the capitalist West. Labor Immigration Minister Arthur Calwell utilised an earlier slogan, “populate or perish” and proclaimed that Australia had “twenty-five years at most to populate this country before the yellow races are down on us”.[19] This tied in with arguments about post-war economic development and, once again, policy-makers made connections between industry protection and population growth.

Yet despite the perceived desperate need for a larger population, Australia’s Anglo-Celtic policy-makers continued to discriminate against non-white immigrants. Post-war immigration, however, continued to take place under the rubric of White Australia, officially defined by the phrase: “In pursuance of the established policy, the general practice is not to permit Asiatics or other coloured persons to enter Australia for the purpose of settling permanently.”[20] Nevertheless, Anglo preferences were relaxed and large numbers of Southern and Eastern Europeans were amongst the million-plus migrants who came to Australia between 1945 and 1959. The most intense period of migration was between 1947 and 1951 when Australia received a net inflow of just fewer than half a million people.[21]

There had been some minor concessions to Asian immigration in 1949 when Australia allowed the entry of non-European refugees and Japanese war brides but the first major breakdown of the WAP occurred in 1957 when Australia allowed non-Europeans who had been living in Australia for 15 years to stay in Australia. The following year the government abolished the dictation test. In 1961, the new editor of the Bulletin – Donald Horne – removed the slogan “Australia for the White Man” from its masthead: the slogan had graced the front cover since 1905.

After replacing Menzies, Harold Holt removed discriminatory elements of Australian immigration law and between 1966 and 1971 non-European migration increased from 746 a year to 2696. Although the Whitlam Government reduced overall immigration as a response to the economic downturn, it legislated to enable all migrants to become citizens after three years and instructed all overseas immigration posts to disregard race as a criterion for settlement. The Fraser Government removed all vestiges of the policy from the statute books and allowed the entry of a large number of Vietnamese refugees.[22] This influx of Vietnamese was the first significant migration of Asians to Australia since the nineteenth century.

Contemporary Migration

Since the mid-1980s Asia has usurped Europe as the largest regional source of migrants. Asian immigration went from 3 per cent of the total in the early 1960s to 7 per cent in the late 1960s to an average of 33 per cent from 1975 to 1985. By 1997-98, migration from Asia was slightly over 40 per cent and, for 2007-08, it was 42.2 per cent of the total intake. South Asian migration, particularly from India, has also become increasingly important in recent years.[23] In 2012-13 India (40,051) was the largest source of migrants followed by China (27,334) and the United Kingdom (21,711).
According to the Department of Immigration and Border Protection:
In 2012–13, the Migration Programme delivered 190 000 places. Of these, 128 973 places went to Skill Stream migrants, and 60 185 places went to Family Stream applicants. The remaining 842 places were for Special Eligibility. The Skill Stream has been the main provider of new migrants to Australia since 1997–98, delivering 67.9 per cent of total Migration Programme places in 2012-13. [24]
The Humanitarian program accounted for 20,019 visas an increase on the 13 749 visas granted in 2011-12.

These are permanent migration statistics and the current issue is more about temporary entry. In other words, the concerns are not about the overall immigration intake, but about the short-term importation of labour through devices like 457 Visa. As the figures below make clear there are already substantial amounts of imported labour in Australia both directly through skilled visas and indirectly through holiday work schemes and students.

The provisions in ChAFTA provide for a marked increase in the importation of labour. The most important question is whether importing Chinese labour will mean fewer benefits for Australians resulting from Chinese investment in this country. As Van Onselen points out:
What’s good for China is not necessarily good for Australia. And allowing the wholesale importation of Chinese workers to build construction projects would be a disaster for the local jobs market, which is already experiencing the highest unemployment in more than a decade, youth underutilisation at 30%, and is facing further serious retrenchment as the once-in-a-century mining investment boom unwinds and the local automotive assembly industry shutters. Seriously, without local labour force participation in construction projects, where is the benefit for Australians? Once completed, these projects will employ very few people. They will also be foreign owned, so the profits will largely flow offshore. And without an adequate capture of resource rents, Australia’s natural resource endowment will be diminished for little gain by the resident population.[25]
From a Chinese perspective, Li Ruogu, the chairman and president of the Export-Import Bank of China, argued:
We know it is very difficult, but if Australia can give permission for Chinese labourers to help with infrastructure construction, then the mines and other projects we both need will be completed ­quickly, and the workers will go back to China. They won’t remain in Australia. Then Australia will employ local people to work in those mines and other infrastructure. That will be good for employment, and therefore beneficial for Australia.[26]
Australians have a right to be sceptical about the potential benefits for them of the importation of Chinese labour. The Significant Investor Visa Program may also add to negative perceptions about Chinese immigration, especially when mixed with anecdotal evidence of legal and illegal Chinese investment in Australian property.[27] According to a recent report, the scheme “has reaped a total $1.7 billion”, awarding 343 residency visas as at the end July 31.[28] The Abbott government accelerated the scheme after concerns that the program begun in 2012 was not attracting investors. Accordingly “six hundred and two additional applications had been made at July 31, and $3.05 billion in investment pledged in return”.

Conclusion

The government will need to handle the issue of worker importation skilfully if it is to avoid echoes of Australia’s racist past. Opponents too will need to be careful that their criticisms are not racist, singling out Chinese workers. Critics need to treat the importation of Chinese labour no differently than the importation of labour from any other country. Opposition to the scheme should avoid demonising Chinese investment.

Nevertheless, Australian workers and their representatives will take umbrage if the importation of Chinese workers is seen to undermine the employment of Australians. Schemes like this are an easy solution for investors and governments to solve labour shortages, rather than undertake the hard work of developing skills and providing incentives for labour mobility.





[1]       Andrew Robb (2014) “Landmark Australia China Free Trade Agreement”, Media Release, 17 November <http://trademinister.gov.au/releases/Pages/2014/ar_mr_141117.aspx>.  
[2]       Department of Foreign Affairs and Trade (2014) ChAFTA: Key Outcomes <http://www.dfat.gov.au/fta/chafta/fact-sheets/key-outcomes.html>.  
[3]       Department of Foreign Affairs and Trade (2014) Fact Sheet: Movement of Natural Persons <http://www.dfat.gov.au/fta/chafta/fact-sheets/fact-sheet-movement-of-natural-persons.html>.
[4]       S. H. Roberts (1935) “History of the Contacts between the Orient and Australia” in I. Clunies Ross (ed.) Australia and the Far East: Diplomatic and Trade Relations, Sydney, Angus and Robertson and the Australian Institute of International Affairs, pp. 3-4.
[5]       Ibid., p. 18.
[6]       Ibid., p. 6.
[7]       Ibid., p. 7.
[8]       Ibid., pp. 22-3.
[9]       Sandra Tweedie (1994) Trading Partners: Australia and Asia 1790-1993, Sydney, UNSW Press.
[10]     Cited in Ibid., p. 25. 
[11]     For a copy of the Act see http://www.foundingdocs.gov.au/places/cth/cth4ii.htm. It is important to note that the term “White Australia Policy” was never officially used.
[12]     Edmund Barton (1901) Commonwealth Parliamentary Debates, 26 September, p.5233, cited in ABC Television (2001) “Episode 2 Transcript Rise And Fall Of White Australia”, 100 Years: The Australian Story. <http://www.abc.net.au/100years/EP2_1.htm>
[13]     An amending act in 1905 decreed that the Dictation test could be conducted in any language.
[14]     Cited in ABC Television (2001) “Episode 2 Transcript Rise And Fall Of White Australia”, 100 Years: The Australian Story. < http://www.abc.net.au/100years/EP2_2.htm>
[15]     Peter Ewer, Winton Higgins and Anne Stevens, Unions and the Future of Australian Manufacturing, Sydney, Allen & Unwin, 1987, p. 8.
[16]     Blainey, The Tyranny of Distance.
[17]     Hughes to parliament, reported in P.E. Deane (1919) “Australia’s Rights: The Fight at the Peace Table”, cited in ABC Television (2001) “Episode 2: Rise and Fall of White Australia”, 100 Years: The Australian Story.
[18]     W. K. Hancock (1930) Australia, London, Ernst Benn, pp. 77-78.
[19]     Broinowski, The Yellow Lady, p. 11. Calwell maintained that he was not a racist and that his statement “Two Wongs don’t make a White’ had been misconstrued.
[20]     Dyster and Meredith, Australia in the Global Economy, p. 210.
[21]     Ibid., pp. 193 & 210.
[22]     Department of Immigration and Citizenship, “Abolition of the ‘White Australia’ Policy”, Immigration Fact Sheet No. 8. <http://www.immi.gov.au/media/fact-sheets/08abolition.htm>
[23]     Department of Immigration and Citizenship Website <http://www.immi.gov.au/>
[24]     Department of Immigration and Citizenship Website <http://www.immi.gov.au/pub-res/Documents/statistics/migration-trends-2012-13-glance.pdf>
[25]     Leith Van Onselen (2014) “Elites Urge Chinese Economic Colonisation”, MacroBusiness, 19 November <http://www.macrobusiness.com.au/2014/11/elites-urge-chinese-economic-colonisation/>.
[26]     Rowan Callick (2104) “You Need More Chinese workers, Says Bank Boss”, The Australian, 19 November  <http://www.theaustralian.com.au/business/you-need-more-chinese-workers-says-bank-boss/story-e6frg8zx-1227127542629>.  
[27]     Department of Immigration and Border Protection (2014) What is the Significant Investor Visa? <http://www.immi.gov.au/faqs/Pages/What-is-the-significant-investor-visa.aspx>.  
[28]     Staff Reporter (2014) “Wealthy Investor Visa Applicants Pledge $4.75bn”, Business Spectator, 12 August <http://www.businessspectator.com.au/news/2014/8/12/wealthy-investor-visa-applicants-pledge-475bn>.  




Thursday, October 16, 2014

US Export and Import Figures and Why They May be Inaccurate

Two graphs from Westpac.

Canada is the US's most important export destination, followed by Mexico and the Eurozone. Who said that geography doesn't matter!

China (and Hong Kong) is the largest source of imports, followed by the Eurozone, Mexico and Canada.





The US is a big exporter of services and capital goods and a big importer of consumer goods (hence the dominance of Chinese imports). Interesting to note how important auto exports and imports still are. It will also be interesting to see what happens to petroleum and related over coming years. The US bans exports of oil and limits exports of gas. There is a good chance this will change in coming years. According to CFR: "Oil production has grown more in the United States over the past five years than anywhere else in the world, even as domestic oil consumption has declined."





The problem with these statistics is there failure to account for value-added. While the full value of exports is attributed to the final exporter of the product, lots of value added may have been created in other countries that export what are called intermediate inputs. The iPhone provides a good example of this. While the full cost of the iPhone is treated as a Chinese export only 3.6 per cent of the value-added is created in China.







Monday, October 6, 2014

Trade Surpluses are Not Morally Superior to Trade Deficits

The Economist has a new Special Report on the impact of technological change (you'll need to register to read) which contained the following graphic.



First, it shows that Australian real median wages have increased more than the rest of the set as would be expected in an economy that didn't suffer a recession. 

Secondly, and more importantly, it shows how German wages have been repressed. This has occurred through policy, rather than being reflective of some amazing German cultural propensity for thrift. German policies have led to an increase in saving (and as a corollary this means reduced German consumption). The excess saving (that is not invested) has to be exported, which means that consumption increases in Germany's export partners. This increases their trade deficits making it difficult for them to adjust to higher unemployment. In effect Germany is exporting unemployment. 

Given that the troubled Southern European economies all use the Euro, they can't adjust their economies through a lower exchange rate. While the Euro now burdens Southern Europe, it benefits Germany enormously. If Germany had its own currency, it would be much higher than the Euro, helping to reduce Germany's current account surplus. So Southern Europe needs a lower exchange rate and Germany should have a higher rate. 

They only way that Southern Europe can adjust is through higher unemployment or through a change in German policies that led to higher wages and  consumption and therefore provided the possibility to import demand rather than export it. 

In an interconnected global economy policy changes in one country can have unintended effects in other countries - in other words globalisation involves interdependence effects. 

For the European and world economies to function properly it is not just the deficit countries that need to adjust it is the surplus countries as well. 

At any one time point in time world trade is a zero sum game. Every surplus must be matched by a deficit elsewhere. So while we often moralise about countries that run deficits, the surplus countries couldn't run their surpluses without them.  

The export-focused model can't be a model for everyone unless we start trading with the moon or Mars (and expect them to run deficits!). 

Trade (current account) surpluses are not morally superior to deficits and indeed excessive surpluses contribute to the sort of imbalances in the world economy that were a major contributing factor to the global economic crisis