Is he channelling George Reid? Nah! He’s still our Bill – and wants to know what’s on the table with this free trade agreement.

Free Trade Was Hardly Going to be A Fair Swap

Boilermaker Bill is a free trader by heart. But too many June long weekends in Sydney Town Hall tells you that when you make a deal you don’t get nothing for nothing. And it’s always struck me that bilateral free trade agreements tend to undermine the case for free trade, by enhancing access for one country to another at the expense of everyone else. After all, Australia’s long wanted a FTA to overcome the barriers created by the trade disincentives coming out of NAFTA and other bilateral trade agreements.

So it didn’t surprise me that our Free Trade Agreement with the US came under attack so quickly. What surprised me was the surprise. After all, this is an election year in the US, and Bush is just about jettisoning everything over the rail to boost the economic prospects. He isn’t about to forget the lessons of his father’s unsuccessful bid for re-election in 1992. For instance, don’t expect the US dollar to make any significant rise against any trading currency before the first Tuesday in November. The US manufacturing sector has never had it so good. At the weekend, the other G7 Finance Ministers tried to put pressure on the US to put a brake on the falling $US. What they agreed on was an exercise in the vacuousness of economic diplomacy:

“We affirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and co-operate as appropriate. In this context, we emphasise that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanisms.”

Gees, that’s really telling the Americans. Meanwhile the US Treasury is said to hope for a fall of another 15 percent against the Euro and the Yen. I tell you it’s only the hope of that sort of fall over the next few months that keeps me from maxing the credit card at right now.

Consequently, manufacturing in the US is experiencing the sort of growth unseen since Reagan’s “Morning in America” in 1984. The Treasury’s just announced five consecutive months of employment growth. And don’t expect any surprises from Greenspan in his meeting with the Senate Banking Committee today and tomorrow.

So you weren’t really expecting any sort of gain for Australia at the expense of the US in this FTA were you – especially not in an election year? The Washington Post went in hard in an editorial today (an editorial, no less!) saying:

“The US Trade Representative, Robert B. Zoellick, has set off on a world tour to revive global trade talks. This is a wise move, because it would be hard for Mr. Zoellick to face his friends at home after the Australian trade deal announced over the weekend. Even more than the Central American pact negotiated recently, the Australian accord is a triumph for the protectionist interests that went behind Mr. Zoellick’s back to the White House and Congress. The agricultural products in which Australia is competitive have been mostly cut out of the deal: Removing barriers in U.S. law that keep out Australian beef will take 18 years; the dairy liberalization is expected to increase Australian exports to the United States by a paltry 0.17 percent of U.S. production; and the U.S. sugar lobby managed to prevent any liberalization whatever.”

The Washington Post calculates, using the Centre for International Economic figures which have been under such scrutiny the past few days, by refusing to open the dairy and sugar markets, the US has wiped out half the value of the deal for Australia in one fell swoop.

In doing so, the Washington Post says:

“Mr. Zoellick calculated that flawed trade deals are better than none, so he went ahead with Australia. It is true that Australian tariff cuts will boost U.S. manufactured exports. But the Australian sugar sham sends a signal to protectionists: The Bush administration will cave if you say “boo” to it. After the Central American pact promised the region a tiny crack of access to the U.S. sugar market, the lobby went into high gear to prevent a repeat with Australia. Now the lobby has won. The world’s poor farmers who are waiting for a chance to export their way out of poverty will be the losers, as will shoppers in your local supermarket.”

So America instantly gets 99 percent tariff free access to Australia, and in 2022 we get to sell them some cattle (I prefer an 18 year old single malt with my steak, not a Scotch with my 18 year old steak), and the farmers of Wisconsin, Minnesota and Florida keep the milk and sugar out of the trade equations.

Two years of work to get to this stage, and for what? The US General Accounting Office today released a report on the cost effectiveness of all these bilateral free trade negotiations (there are five in place, four under negotiation and eight countries under active consideration for negotiations).

The GAO’s report notes that an FTA with Australia made good sense because:

“This FTA negotiation represents the greatest immediate commercial benefit of any single ongoing FTA, with 1.2 percent of total U.S. trade in 2002. A U.S.-Australia FTA would add to the regional distribution of FTAs for the United States and would strengthen U.S. ties to a valued ally. The increased U.S. access to Australia’s market would likely increase trade in goods and services, enhance employment opportunities, and encourage additional two-way investment.”

Naturally all the language is about mutual benefit – but say on something like investment, where do you seriously think the capital flows are going to be headed, especially when the FIRB limits are lifted from $50 million to $800 million.

The GAO asked the Trade Representative for the rationale behind the FTA for Australia. The first few stated reasons are really vacuous. First, we need an FTA because there’s been more trade recently. Second, increased access means increased trade means increased employment. Third, an FTA would encourage greater foreign investment (a win for the them because we were the ones with the perceived barriers there). Fourth, and another win for the US, it would improve business integration “especially in the information technology sector, increasing efficiency and the competitiveness of the U.S. industry”.

It’s the fifth reason that makes the most interesting rationale. Quoting the GAO’s report:

“Finally, an FTA would address barriers that U.S. exports to Australia face today, including Australia’s use of sanitary and phytosanitary measures as a means of restricting agricultural trade.”

The USTR told the GAO:

“Separately, the United States has also targeted specific Australian sanitary and phytosanitary measures because they are highly restrictive and have adversely affected U.S. exports of citrus, apples, pears, corn, stone fruit, chicken, and pork.”

And we’d be adding beef too if we were sensible!

So it was no surprise to see the principles contained in the FTA outline released Sunday had put our quarantine laws and procedures fair square on the negotiation table:

“The U.S. and Australia will work to resolve sanitary and phytosanitary barriers to agricultural trade, in particular for pork, citrus, apples and stone fruit

  • The agreement establishes a new mechanism for scientific cooperation between U.S. and Australian authorities to resolve specific bilateral animal and plant health matters.
  • USDA’s Animal and Plant Health Inspection Service and Biosecurity Australia will operate a standing technical working group, including trade agency representation, to engage at the earliest appropriate point in each country’s regulatory process to cooperate in the development of science-based measures that affect trade between the two countries.”

Talk about rolling over and having your tummy tickled.

There may be another winner out of the US-Australia FTA, and that’s South Africa. It’s presently negotiating an FTA with the US as part of a Southern African Customs Union. It’s seen all the mistakes we made, and if it’s prepared to sit out the election cycle by negotiating now and agreeing earlier next year, it may get a far better deal than Australia.

Jo’burg’s “Business Daily” yesterday reported South Africa’s Chief Trade Negotiator Xavier Carim insisting that agriculture had to be on the table:

“South Africa’s response would depend on the extent to which the US opened its markets, and would take into account the large agricultural subsidies in that country, he said.”

Good luck!

Send Boilermaker Bill book your suggestions for his shopping spree at [email protected]

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