September 21st 2002

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Articles from this issue:

COVER STORY: Iraq: America's dilemma

EDITORIAL: Is there an answer to recurrent drought?

Singapore-style super scheme: interest stirs in ALP

AGRICULTURE: Cane farmers reject sugar package

Straws in the Wind: Boat opponents / The house that Don built

Indonesia: Who are the terrorists in West Papua?

COMMENT: Australia-US free trade: MAI through the back door?

Washington trade deal (letter)

Telstra sell off (letter)

Child abduction: parents beware (letter)

Community banks expand (letter)

Character in public life (letter)

REGIONAL AFFAIRS: East Timor: the challenge ahead

Media ownership and control: the next step

UNITED STATES: Greenspan hoists the white flag on economic policy

DOCUMENTATION: Can Professor Trounson's statements be trusted?

ASIA: The Philippines: no cause for optimism

BOOKS: Radical Students: The Old Left at Sydney University

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Australia-US free trade: MAI through the back door?

by Patrick J. Byrne

News Weekly, September 21, 2002
What can Australia offer the US in negotiations on a free trade agreement - foreign investment deregulation of the media, telecommunications (including a fully privatised Telstra), aviation and banking industries? That was the warning of Alan Kohler in the Australian Financial Review (September 5, 2002).

The fact is that Australia has little else to offer in exchange for US trade concessions, having unilaterally abandoned most of our tariffs in the head-long pursuit of free trade.

Yet, Australia rejected the Multilateral Agreement on Investment (MAI) several years ago precisely because doing away with our foreign investment rules was against the "national interest".

Certainly on the trade front, Australia would like to expand agricultural exports to the US, redressing the large trade imbalance that favours the US. In 2001-02 Australian imports from the US were $21.5 billion but exports amounted only to $12 billion.

Realistically, the US is unlikely to accept increased agricultural exports from Australia. Subsidies to US farmers are increasing not decreasing.

Further, the US has already said that high priority issues in any trade talks include lowering Australia's quarantine barriers and abolishing the single selling desk for wheat. Both suggestions are likely to be strongly resisted by the rural sector, including the bastion of free trade ideology, the National Farmers Federation.

To negotiate any US trade openings Australia would have to offer concessions to the US, but as Alan Kohler put it, "The trouble is that on a tariff-for-tariff basis, Australia has virtually nothing to offer in return for greater access to American food markets. In other words, in order even to get to first base with an American free trade agreement, Australia will have to offer the removal of foreign investment restrictions."

The US is likely to argue this for a second reason. As Kohler indicates, Australian investment in the US is now $141.2 billion, while US investment in Australia is $112 billion.

The gap is widening, largely due to the growth of Australian companies in the US like News Corporation, James Hardie, Westfield and Lend Lease.

The US is likely to argue that this investment imbalance is further reason to open up Australian media, telecommunications, aviation and banking to US investors. However, the argument is spurious.

Relative to the size of the US economy, Australian investment in the US is miniscule. In contrast, US investment in the smaller Australian economy is much more significant.

As part of any free trade agreement, Australia can decide to quarantine these industries using national interest "reservation" clauses. However, then the US is entitled to remove any guarantee or impose similar restrictions on Australian investment in particular US industries. (It also leaves Australia with little to offer the US in any agreement.)

As Kohler put it, "If, for example, Australia decided to retain its media ownership restrictions as a 'reservation' in any US [free trade agreement], that wouldn't necessarily mean that Rupert Murdoch had made his last American takeover, but it would definitely mean that he couldn't be guaranteed approval. The same goes for banking, telecommunications and aviation."

Ironically, such "reservations" by Australia and "counter reservations" by the US could curb Australia's growing investment in US equities. In other words, a trade agreement could in fact restrict Australian foreign investment access to the US!

Kohler goes on:

"Although it is true that the process has not even officially begun and that anything is possible, merely by making [a free trade agreement] with the US such a high priority, the government is putting all foreign ownership restrictions and guidelines in doubt.

"HSBC's chief economist, John Edwards, said in a note to clients [recently]: 'The arbitrary, erratic and secretive shambles which is Australia's foreign investment policy cannot survive a free trade negotiation with the US.'

"And not just with the US. Australia's overarching trade agreement with Japan - the Nara agreement - specifically requires each side to provide to the other any concessions given to third parties in bilateral agreements."

That would mean if Telstra is fully privatised, Australia would find it almost impossible to stop a US or Japanese takeover bid.

What then can Australia gain from a Australia-US free trade agreement? On the trade front, the US is unlikely to open up its market to Australian agricultural products. On the investment front, an agreement would serious risk Australia losing its major service industries to US and Japanese control.

Alternatively, if Australia decided to quarantine these industries, it has little else to offer the US in any agreement and would risk having its foreign investment access to the US restricted. In which case, ironically, the agreement could end up restricting trade.

  • Pat Byrne

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