COVER STORY: Don't torch the sugar industry!
by Peter Westmore
News Weekly, February 28, 2004
As a middle-sized trading nation which is dependent on its export industries to maintain Australians' standard of living, blind opposition to international trade agreements is clearly against Australia's national interests.
Equally, however, a policy which endorses the Australia-US Free Trade Agreement - or any other international agreement - without a careful cost-benefit analysis is foolish.
It was because of widespread concerns over previous agreements negotiated by Canberra bureaucrats, and signed by the Hawke and Keating Governments without Parliamentary approval, that John Howard seven years ago committed his Government to tabling the terms of every international treaty in Federal Parliament, before the Federal Government signed it.
In May 1996, the Howard government introduced a reformed treaty-making process to increase Parliamentary debate of international treaties, including trade agreements, before they were ratified by Australia.
There is to be a process of serious consideration of the detail of the treaty, in which Australian industries and citizens will be given an opportunity to express their views on the Agreement.
In the meantime, Australia's foremost financial journal, the Australian Financial Review, which strongly supports any trade agreement on principle, nevertheless concedes that its costs for Australia will be significant.
It editorialised that "no-one believes the FTA will deliver the $4 billion benefits the Government once claimed", because this forecast "was based on the removal of all bilateral trade barriers and ignored the high cost of compliance and other costs". (February 14-15, 2004)
The Review added, "The government emphasises the benefits of access to the giant US market. But most of the benefits will come from cutting our trade barriers, so we can replace high-cost local goods and services with cheaper imports" (emphasis added).
In other words, cheaper consumer goods and cars will be available from the US, at the cost of jobs in Australia, exacerbating Australia's existing adverse trade deficit with the US (currently $9 billion a year), increasing Australia's balance of payments deficit and the net foreign debt (now over $360 billion). This is truly a Faustian bargain.
Whatever the ultimate benefits (or costs) of the Australia-US Free Trade Agreement turn out to be, it leaves the Australian sugar and dairy industries facing imminent collapse, because Australian Governments have forced the abandonment of domestic market preference programs in the hope of gaining access to international markets.
This has not eventuated, because other countries such as the US and the EU continue to give huge subsidies to their domestic industries and simultaneously lock Australian exports out of them. This policy has failed to recognize that for most domestic rural industries, their most important market is the domestic market.
The solution to this problem is so simple that it is obvious to everyone - except politicians and their free market advisers.
The Australian Government should give industries excluded from access to the US and European markets preferred access to the Australian domestic market, in the form of domestic price enhancement, such as those which operated in both the sugar and dairy industries until the early 1990s.
The federal government has the perfect reason for doing this: it attempted to secure access to the US market, but was rebuffed by the Bush Administration, in the face of powerful domestic pressure groups.
It must now move to preserve and support these industries, which produce billions of dollars of export income for Australia, but face insuperable trade barriers to our largest potential markets.
While free market ideologues will condemn such an action, it will simply restore the position of these industries to that which existed up to the 1990s.
Mr Howard is becoming aware of the industry's problems, particularly as the sugar seats could determine the next Federal government. However, his suggestion that the "most generous and most reasonable thing that the federal government can do is give them a reasonable level of assistance to leave the industry as part of a restructuring package" would be bound to fail. If only a small percentage of farmers leave the industry, the sugar mills lose critical mass of cane supply, then the mill collapses and all the cane farmers in that mill area are forced out. The exit becomes a rout and the regional economy collapses.
For this reason, Mr Howard should listen to what the industry, and particularly bodies such as the Sugar Industry Reform Committee, is saying. They want viable domestic industries, which like all industries must have critical mass. They do not want a shut-down package.
If the Howard Government does not move immediately to address the concerns of dairy farmers and sugar cane growers, as well as the thousands of people in industries which depend on them and the towns and communities in which they live, it will face an electoral backlash.
In the business of politics, the threat of political extinction speaks more persuasively than misguided economic theories.
- Peter Westmore is President of the National Civic Council