TRADE: by Colin TeeseNews Weekly
Where does new free trade pact leave us?
, February 28, 2004
It's hard to know where to start in commenting on the outcome of our free trade negotiations with the US, which were brought to a "successful" outcome a week or so ago.
Most interesting was the approach to the outcome by the mainstream daily press. Initially, it was one of euphoria. In a rush of blood to the head, one commentator was moved to predict that, as a result of having a Free Trade Agreement with the US we would become the envy of the world.
As events unfolded, later in the week, he was probably hoping not to be held to that opinion.
As to the question of gains and losses on the known "big issues", at the time of writing the precise terms of the agreement had not been released. On his first day back our trade Minister, Mark Vaille, announced that on all the major issues, Australia had given nothing away, and had received major benefits. Unfortunately, his US counterpart, Trade Representative Zoellick, put precisely the opposite view. He told his constituency that the US had gained much and had given very little. This, in itself, was an unusual approach to trade negotiations. Normally the negotiators issue a joint agreed statement on the outcome.
Back in Australia, in speaking to the Press Club, Mr Vaile was forced to concede that perhaps the government had oversold the benefits we had received. He also revealed that he had warned the US negotiator, Mr Zoellick, that the agreement, in its present form, might not pass through the Australian Parliament. (At the very least this suggests that the Minister believed that the agreement was heavily weighted in favour of the US. Presumably, this was also Mr Vaile's way of making it clear to his National Party constituency that he, personally, was dissatisfied with the outcome.)
To many this much had already been suspected. Quite obviously Mr Vaile's instructions on the Free Trade Agreement negotiations had been: "don't come home without one".
What precisely was behind such a Prime Ministerial directive is not really clear. Did Mr Howard, from the outset, have an agenda, connected with other purposes, which committed him, irrevocably, to an agreement - any agreement - with the US? Or did he - as suggested by the economics editor of The Age
- blink, at a crucial stage when the US were suggesting they were prepared walk away from an agreement, and did he cave in to that pressure?
We shall never know. But if the latter were the case, then the reality was, Australia, from the beginning, precluded itself from gaining anything of substance from the negotiation.
It is a fundamental position in any negotiation, that if one doesn't start with the idea that certain issues are breakpoints, then one cannot hope to achieve any of one's negotiating aims. If one side starts with the position that the agreement itself is more important than the content, then the other side is handed an unbeatable negotiating advantage.
It was after Mr Vaile's encounter with the Press Club that these kind of doubts began to surface. Whereas, earlier, all of the orthodox commentators were insisting that the benefits to Australia were real and substantial, there was, later, a decided shift in position. Perhaps, it was asserted, we did not get what we all wanted on agriculture, but there were other real, though perhaps unquantifiable, benefits which made the agreement worthwhile.
Predictably, the Australian Financial Review
) took this position to its extreme in an editorial a week or so back. Those who were trying to measure the benefits which came to Australia from the agreement had missed the entire point of the agreement. It wasn't so much about free trade, as such, but about the removal of our own barriers to imports. As a result of these, the AFR
insisted, we would be buying cheaper imports over more expensive Australian produced goods.
But the AFR
ignored a few critical points. Firstly, our tariffs on all imports are now so low that further reductions are unlikely to impact at all on consumer prices. But, in any case, if further tariff reductions were desirable, it was in our power to just do it, without talking to anyone. And we certainly would not have needed to undertake other obligations under the Free Trade Agreement, including, in particular, so it would seem, the commitment to pay more for imported pharmaceuticals from the US.
But now that the negotiating process is over, what comes next? Of course the US Congress will be required to accept the document. We in Australia cannot anticipate how the Congress will react, but if it is, as Mr Zoellick suggests, and Mr Vaile appears to agree, such a good deal for the US, then its passage through Congress could be assured.
What about Australia? The agreement, in its final form is to be put to a Parliamentary Committee for review. If that is a House of Representatives Committee we may assume that its outcome will be determined by weight of government majority. But it will also have to be approved by the Senate, most likely, first in Committee and then later by the whole Senate. And here the government is not in control. Labor and the various minor parties could club together to defeat the agreement.
Mr Howard is on record as saying he is prepared to die in a political ditch to get his agreement through. The reality is, whatever sacrifices he might be prepared to make, ultimately it is up to the Senate. And he can't even play the card of "double dissolution". There will be an election within 12 months.
What will the Senate be looking for in any agreement? Above all, some kind of balance in terms of gains and losses. What are they likely to find? We can't say definitively, because we don't have the text of the agreement. But we can make some educated guesses.Imbalance
We now know that the package on agriculture is hopelessly imbalanced against Australia. There is nothing on sugar, and the gains on beef and dairy are derisory. Against that, we have undertaken, apparently, from January 1, 2005, to remove all barriers to the import of US agricultural products into Australia.
We can't say too much about what's happened with tariffs - if only because, except for a few sensitive items, both countries have low tariffs. Both the US and Australia retain high tariffs on textiles. At least on the US side they will remain. We don't yet know whether any high US tariffs on sensitive items of interest to us have been reduced.
We don't know what , if anything, Australia has conceded on the question of better access for US television programs. We don't know the detail of what has been agreed on foreign investment. We don't know what has been agreed on pharmaceuticals, and what will be the effect on our pharmaceutical benefits scheme.
It is said that we will have better access to some aspects of US defence purchases, but so do many others. On our side, for our own defence purchases from the US, we will no longer insist on the need for some offsetting benefits for Australian industries.
Those are some of the aspects of the agreement we can identify. It has to be said that on the basis what we know so far, the balance of advantage runs heavily in favour of the US.
It is a big responsibility which, ultimately, our Senate will take upon itself. Certainly a big decision if, ultimately, it decides to reject the agreement. And it is a matter of saying "yes" or "no" to the package. There can be no question of amendment.
But there is one question which can be expected to weigh most heavily upon Senators, and it relates to agriculture. We have agreed, apparently, to leave US agricultural protection virtually untouched, both in principle and practice.
On the other hand, we have agreed to lift all barriers to US agricultural imports from next year. The full impact of this concession will require careful study. But one concern comes immediately to mind. It relates to sugar.
At the moment, as part of the assistance package for sugar, we are applying a levy of three cents per kilo on the consumption of domestically produced sugar in the local market. Much more is needed if the industry is to be assisted into long term viability with alternative products to sugar. The question arises: as a result of our new commitment to the US on agricultural access, are we able to retain or increase the size of this levy?
If we are not, then it becomes difficult to see how any proposal could be effected to help the sugar industry - or for that matter any other industry - into permanent viability should it become necessary. And, remember, no country in the world has yet been able to sustain viable agricultural production on the basis of relying totally on market returns, least of all returns from exports.
If, in this agreement, we have committed ourselves to condemning our farm industries to rely entirely on market returns, then, on this ground alone, our Senate had better think hard and long before it decides whether or not to accept this agreement. And, in its deliberations, it had better look for advice outside the government and orthodox economic opinion.