March 4th 2006

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Articles from this issue:

COVER STORY: NATIONAL SECURITY: The sum of all our fears - betrayal

AUSTRALIAN EXPORTS: AWB Iraq wheat sales debacle - whose responsibility now?

CANBERRA OBSERVED: RU-486 vote highlights MPs' moral confusion

EDITORIAL: Drugs: can we prevent more 'Bali Nine' trials?

SOUTH AUSTRALIA: March 18 election - personalities not policies

PUBLIC ISSUES: Reflections on the abortion wars

SCHOOLS: Time to close teacher-training schools?

ECONOMICS: UK report calls for halt to supermarket takeovers

TAIWAN: From plastic keyboards to camera phones

STRAWS IN THE WIND: Sordid message of Leunig's cartoon / The RU-486 debate / Religious beliefs

POLITICAL IDEAS: Alasdair MacIntyre and the bugbear of liberalism

Kevin Rudd for PM? (letter)

Senator Joe McCarthy's 'shameful vendettas' (letter)

Health risks with imported food (letter)

Engineers unfairly stereotyped (letter)

CINEMA: Ignorant critics slam Spielberg's latest, 'Munich'


BOOKS: SADDAM'S SECRETS: How an Iraqi General Defied and Survived Saddam Hussein, by Georges Sada

Books promotion page

AWB Iraq wheat sales debacle - whose responsibility now?

by Colin Teese

News Weekly, March 4, 2006
It is the Government - not the AWB - which is responsible for the present debacle in the selling of wheat to Iraq, writes former secretary of the Department of Trade, Colin Teese.

What had become known as the "wheat scandal" is, in some respects, an unfolding saga. But the essential facts now seem clear - even if all the media and some other commentators are yet to understand them.

Like so many of us, the media have come to believe in the Government's capacity to weather any political storm. Certainly, they should not be blamed for blind faith in the infallible political instincts of the Prime Minister. John Howard is a masterful political performer, ably assisted, it should be said, by a dysfunctional Opposition leader.

Nevertheless, for those willing to look, there is some reality behind what seems to be. It is the Government - not the AWB - which is responsible for the present debacle in the selling of wheat to Iraq. That being understood, the question is, can Mr Howard's Government still dodge responsibility?

Backbreaking work

To understand all of this, it is necessary to go back in history to the days of the old Wheat Board, whose staff, back in the 1980s, did all the backbreaking work in establishing Australia's dominant position in the Iraq market - much to the discontent of the US who had believed that the Iraq market rightly belonged to them.

The privatised AWB inherited the Iraq market as a going concern a decade later. Indeed, under the new agency, things were going swimmingly, until our Foreign Minister and Prime Minister butted in. As part of the Government's role in efforts to destabilise Saddam Hussein, in the period leading up to the invasion of Iraq, it made no secret of its intention to help overthrow the Iraqi dictator.

Saddam's reaction to this interference - undoubtedly anticipated by the AWB - was to announce that Iraq would discontinue wheat purchases from Australia. Should the Government have anticipated such a response? Most certainly. But whether politics triumphed over economics, or whether the Government got bad advice, we will never know. Certainly, the politics were never going to fit the economics. Never give in to threats, the political advisers would have counselled. True enough - except that, in this case, there was another side to the coin. What about the good old commercial axiom: never offend a good customer?

Unhappily, Saddam delivered on the threat. Wheat purchases from Australia ceased.

Now the Government, not the AWB, had the problem. Cancellation of wheat purchases by Iraq, if not reversed, would represent bad business for our wheat-growers. The problem needed fixing, but the Government was in no position to go back to ask the dictator to change his mind. That job had to be left to the AWB.

We now know the AWB did whatever it took and worked out a deal to bring the Iraqis back into the fold.

Incidentally, this deal with Saddam was apparently great for wheat-growers as well as for the personal bank account of the dictator. According to reports, it amounted to a price increase for Iraqi purchases which put, on average, another $20,000 into each grower's pocket. (And we now know that the United Nations actually knew that such under-the-table deals were being done - not only by Australia - and was turning a blind eye to them).

The AWB rescued the Government from potential embarrassment and won for its growers a better price. Not bad from an agency which, because of its monopoly position is - if you believe the economic ideologues - supposed to be harming the interests of growers.

As for the Government, it is hardly surprising that nobody wanted to know how this minor miracle was achieved.

Now we all know. And the resultant scandal has ignited a media feeding frenzy. As usual, the first question our media and other self-serving interests ask, in mock outrage, is the silliest - did the Government know what was being done in contravention of our international commitments?

How could it not know - unless you believe the AWB acted on its own initiative in defiance of our international commitments? At the very least, we can assume its intentions were the subject of discussions with the regulatory agency set up by the Government to oversee AWB activities.

Surely, if there is to be any finger-pointing arising from what the AWB did, it should be directed - not at the AWB, a mere commercial agency - but at the watchdog.

Hung out to dry

It hasn't quite worked out like that, and, instead, AWB officials are being hung out to dry in the course of an enquiry set up by the Government. As with so many such enquiries, the discomforted AWB witnesses suffer from memory failures.

But that may not be the end of it. If, as is possible, criminal proceedings follow the present enquiry, it can be expected that the accused will be more forthcoming in their own defence. At that moment, who knew what and when may become embarrassingly clear.

Meanwhile, events outside the enquiry are taking the issue in a particularly worrying direction. The single selling-desk arrangement conferred on the AWB in the interests of growers is coming under attack. It is being suggested that the bribery issue somehow arises as a consequence of the AWB having a selling monopoly.

What rubbish! The AWB did no more than would any commercial agency in defence of its customers' interests.

Equally, enemies of the single-selling arrangement, here in Australia and overseas, are doing no more than what might be expected of them, in exploiting an opportunity to discredit the single selling-desk arrangement. Astonishingly, some of those enemies here in Australia include members of Mr Howard's Cabinet - though exactly why is not clear.

The best endorsement of the value of the arrangement for our wheat industry is that international grain-traders and their supportive governments are against it. And it is presumably those interests, and especially the United States, which have worked behind the scenes to influence the Iraqi Government's buying agency to announce that it will not deal with the AWB.

All this has taken place before our Trade Minister has been given an opportunity to put the case for the AWB. Note further, that the Iraqi agency which has decided to exclude the AWB is itself a single buying agency!

This issue is of crucial importance to our wheat industry, but it is also riddled with irony. Our Government's decision to join in efforts to destabilise and overthrow Saddam lost Australia wheat contracts which the AWB acted to re-establish. Now the successor Government to Saddam's (which our Government helped establish) is excluding our trading agency from the Iraqi market for doing no more than the United Nations' supervising agency knew was being done by other wheat-traders.


Why is only the AWB being punished? That's the first question Trade Minister Mark Vaile must ask and have answered.

At the moment of writing, this much is clear: Iraq won't deal with the AWB. And the enemies of the AWB's single-selling advantage believe they have the AWB - and the Government - on the run. Perhaps they have.

Among those enemies will be the Productivity Commission, along with those media and academic interests who oppose the single-selling advantage of the AWB.

The Productivity Commission holds the view, amazingly, that the Australia should concentrate on minerals and innovative technology industries and that, therefore, efforts to sustain or promote the advantage of other industries should be opposed. This Commission, and the sympathisers who stand behind it, have direct access to the highest reaches of Government and, as has been mentioned already, some in Cabinet will be supportive of its opinion.

Against that is ranged the wheat industry. Fully united, the wheat industry, with its capacity to influence votes in a number of seats across the nation, could be expected to win the argument - that is, if its growers are well organised and prepared to push hard enough. Mr Howard, as we are always being reminded, is a political pragmatist.

That's the good news. The bad news is that the industry will have to do it on its own. The National Party - which is itself, for other reasons, under siege - cannot be relied upon for much support. Mr Vaile says he will fight for the single desk, but the Nationals have a sad record of rolling over to support deregulation of rural industries.

But the growers should be prepared to organise. They know how important the single selling-desk is. Further, for many growers the AWB, because it has become a vehicle for the investment of their superannuation, is doubly important.

As a result of developments so far, the share price of the AWB has fallen significantly. If the AWB loses its single selling-desk advantage, the share price will fall further. If the AWB loses its Iraqi market, the impact on growers' personal investments will be further harmed. Wheat-growers with investments in the AWB will be heavy losers. The Government could face the possibility of serious political damage.

Trade Minister Mark Vaile has a tough job. Above all else, his aim must be to keep the single selling-desk and restore the credibility of the AWB.

Presumably, he understands that the survival of the single selling-desk is at stake. We are suppliers to niche markets and we depend, for our price advantage, on having an agency which can guarantee purchasers certainty of quality according to specification. Our overseas bulk wheat-trader competitors don't have that as their objective; their aim is to sell as much wheat as possible and to compete on price for volume.

That is the exact opposite of what our growers want. Knowing the facts, Mr Vaile has a responsibility to persuade the doubters in his Coalition.

As to the future, much rides on what ultimately happens in Iraq. Our Trade Minister will need to make the arguments needed to get the AWB back into the market as a single seller. If it cannot stay in Iraq on that basis, then the single selling-desk may be difficult to maintain anywhere else.

The arguments need to be both political and economic. Surely, we should be reminding the Iraqi Government of the role we played in getting rid of Saddam. But Mr Vaile will also have to be in a position to ensure the Iraqi buyer that safeguards will be in place to avoid the possibility of corrupt practices in future.

More direct supervision

That will involve more direct government supervision over the operation of the AWB. Almost certainly, it will not be possible to do this in the way the Government prefers - that is, with some arm's-length appointed agency taking responsibility for AWB contacts.

The supervision will have to be from the Government itself - up-close and personal - which, in effect, means the kind of supervision that existed under the old Wheat Board.

That the Government may not like; but the alternative, in terms of political fall-out, both here and overseas, could be much worse.

No less important, if some kind of deal can be struck with the Iraqis, that will probably be the moment for the Prime Minister to eyeball our foreign competitors' governments and tell them, once and for all, that the single selling-desk is here to stay and is not negotiable.

  • Colin Teese is a former deputy secretary of the Department of Trade.

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