Advance Australia Fair - Building Sustainability, Justice and Peace
Workshop - The Global Corporate Grab
Saturday 30th July 2005

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Dr Pat Ranald

Principal Policy Officer, Public Interest Advocacy Centre and Convenor of the Australian Fair Trade and Investment Network

This morning I spoke about the ways in which trade agreements have been strengthened since the formation of the WTO. Firstly they have expanded in scope from dealing with reductions of tariffs on goods and now reach into many areas of social policy.

Secondly they have developed strong disputes processes that allow governments to challenge the laws and policy of other governments under the rules trade law tribunal, backed by trade sanctions. These tribunals judge social policies under the rules of trade law.

In this session I want to discuss the impacts of bilateral agreements. I will use the example of the US-Australia Free Trade Agreement, its impact on social policies, why it provoked such a strong community campaign and what the campaign achieved. I'll also consider proposals for a more democratic and just trade framework.

Bilateral Free trade Agreements are intended to remove all trade barriers at a faster pace than multilateral negotiations. Even many conventional trade economists are critical of bilateral agreements because they give preferential treatment, often increasing trade between the bilateral partners, but reducing trade with other countries. They also require complex ‘rules of origin’ to ensure that preferential treatment is only given to the products actually produced by the bilateral partners. These can themselves become so complex that they become barriers to trade. The WTO itself has criticised the development of a “spaghetti bowl” of bilateral agreements. Generally the poorest developing countries are excluded from bilateral agreements and disadvantaged by them .

Bilateral negotiations favour the powerful. For example, the US has used its bargaining strength in bilateral negotiations to assert greater protection of intellectual property rights and “claw back” some of the gains made by developing countries on access to medicines in the WTO. This issue was also pursued aggressively in the Australia-US Free Trade Agreement.

The Australia-US Free Trade Agreement (AUSFTA)

This agreement was negotiated in 2003-4 and came into force in January 2005. The main advantage for Australia was supposed to be significantly improved access to US agricultural markets. However, this did not prove to be the case. The sugar market was completely excluded and access to other key agricultural markets will take 12-18 years. The gains for Australia were so low on agriculture and merchandise trade that the government hired private consultants to produce figures showing huge gains from increased US investment in Australia. This claim was rejected by many prominent trade economists, who estimated that the economic gains from the agreement were marginal for Australia .

The agreement does mean significant changes to Australian law and policy on access to medicines, regulation of essential services and cultural policy. The community campaign on these issues changed public opinion, had some influence on the negotiations and prevented the US from getting all it wanted, so the changes could have been worse. There is also a disputes process that enables the US government to challenge Australian law and policy if they are inconsistent with the agreement. However the campaign did prevent an additional NAFTA-style investor complaints process that would have allowed US corporations to sue governments for damages. This was an important victory, the first time such a process has been excluded from a US bilateral agreement. The campaign and its impact on public opinion also influenced the minor parties and ALP Opposition to develop policies critical of the agreement. But in the end factional politics in the ALP prevailed, the left was defeated by the Right faction, and the implementing legislation was passed, with some amendments. I will now discuss the specific impacts of the agreement and the campaign in more detail.

USFTA changes to medicines policy

Pharmaceutical lobby groups and US negotiators clearly identified the price control mechanism of Australia’s Pharmaceutical Benefit Scheme (PBS) as a target in the negotiations. In the US, the wholesale prices of common prescription medicines are three to ten times the prices paid in Australia . The Australian government buys medicines at low wholesale prices by using a panel of experts on the Pharmaceutical Benefits Advisory Committee to compare the price and effectiveness of new medicines with the prices of comparable generic medicines whose patents have expired. This is known as reference pricing. The government then makes the listed medicines available at standard subsidised retail prices. These are $20-$30 for wage earners and $3-$5 for pensioners. The difference between the wholesale price and the subsidised price is the cost of the PBS to taxpayers. Pharmaceutical companies have argued consistently that Australia's price control system through the PBS prevents them from enjoying the full benefits of their intellectual property rights by comparing the price of new drugs with cheaper generic drugs. The inclusion of medicines policy in the agreement means that the US government can use the disputes process to challenge policy on the grounds that it is a barrier to trade. The dispute will be decided on the basis of trade law, not health policy.

The AUSFTA makes three changes to Australia's medicines regime. Firstly, it allows drug companies to seek reviews of decisions of the Pharmaceutical Benefits Advisory Committee. This will increase pressure for more highly priced drugs to be listed .

Secondly the Agreement sets up a joint medicines working group based on the commercial principles that contribute to the high cost of medicines in the US. These principles include the ‘need to recognise the value of innovative pharmaceutical products’ through strict intellectual property rights protection. The principles do not include the Australian public health goal of affordable access to medicines for all. The principles also ignore the key clause of the Doha Declaration adopted by the WTO Ministerial Conference in 2001 and implemented in 2003, that the TRIPS Agreement should be interpreted so as to enable governments to protect public health through affordable access to medicines . The inclusion of this committee in the AUSFTA ensures that the US government can influence future policy and challenge policy decisions on trade grounds.

Thirdly the agreement requires changes to intellectual property law that could delay access to cheaper generic medicines The amendments require generic producers to inform patent holders of their intention to produce cheaper drugs and to certify that such production would not infringe a patent. This makes it easier for drug companies to raise legal objections and delay the production of generic drugs. In the US, drug companies have used such legal tactics aggressively, as even a year's delay can result in billions of dollars of revenue. After pressure from the community campaign, the ALP Opposition sought to address this issue by moving an amendment to the AUSFTA implementing legislation when it passed through the Australian Senate in August 2004. In its final letter signing off on the agreement in November 2004, the US government stated its strong objection to this amendment and signaled that it reserved its right to challenge the amendment under the disputes process .

AUSFTA Restrictions on Regulation of Services

The AUSFTA has a ‘negative list’ agreement for services. All of Australia’s laws and policies on services can be affected by the agreement unless they are specifically listed as reservations. This has a far greater impact on regulation of services than the WTO services agreement, which is a "positive list" agreement covering only those services which each government agrees to list in the agreement. The negative list structure is favoured by trade negotiators who regard most forms of government regulation in the same way as tariffs, as potential barriers to trade. But it poses many dangers for legislators, not least of which is the unintentional omission of important areas from reservations. Moreover, services which may not exist now but may be developed in future cannot be reserved and are automatically covered by the terms of the agreement. This is especially important in fast-changing areas like information technology and media, but could be equally important for other services.

Although health, education and welfare services are listed as exceptions, aged care, water, energy and public transport services are not, despite the fact that they were excluded in other agreements like the Singapore FTA. This means that US corporations must be given full market access in these areas and government regulation of these services could be challenged under the disputes process of the agreement.

Audio-visual services and new media

Australia and many other countries have longstanding cultural policies for minimum levels of local content in commercial audio-visual media to ensure that local voices are heard and local stories are told. The US, as the world's largest exporter of audio-visual services, has consistently challenged these policies, and insisted on the full application of "national treatment" rules that forbid local content rules. The Media industry and community groups sought complete reservation of media content rules, as has been previous government policy in the WTO GATS and in the Singapore-Australia Free Trade agreement, but this was not acceptable to the US. The community campaign meant that AUSFTA allows existing local content levels for current media, but places strict limits on future governments' ability to ensure that Australian voices continue to be heard. There are restrictions on regulation of multichannel and pay TV, and interactive audio and video services. This is rather like saying in 1950 that you can keep existing local content rules for radio, but have much lower levels for television. The negative list structure means that there can be no Australian content rules for any new forms of media that develop in future but are not listed as reservations in the agreement.

Removal of government’s right to regulate foreign investment

The US presses for clauses in trade agreements that remove or restrict the rights of governments to regulate foreign investment. This restricts the right of governments to limit foreign investment in most industries, to have any industry policy that favours local development, or to place any obligations on US firms to contribute to local development through employing or training local people, using local products or transferring technology. In the Australian case, the threshold for review of an investment on national interest grounds by the Australian Foreign Investment Review Board has been lifted from $50 million to $800 million. There are some exceptions which will maintain existing limits on foreign investment for Qantas, Telstra and media ownership, but 90% of US investment will no longer be reviewed. This interference with the right of governments to regulate in the public interest mirrors the defeated MAI agenda.

Investor-state disputes process excluded

The US also wanted a separate investor-state disputes process. This allows corporations to challenge laws and sue governments for damages on the grounds that their investment could be harmed by government regulation. Community campaigning kept this out of the US-Australia FTA. This was a significant victory in the campaign, although there is a clause in the agreement that may leave the door open for an investor-state disputes process in the future.

No preferences for local firms in government purchasing

The US seeks to remove any preferences for local firms in government purchasing and equal access for US firms to all government purchasing contracts. In the US-Australia FTA, this covers the Australian Federal Government and all Australian states. For the US it covers the US Federal Government, but only half of the US states.

Changes to laws on food regulation and quarantine where they are seen to harm US interests

The US seeks direct input on the laws and policies of its bilateral partner on quarantine and technical standards. In the US-Australia FTA the US pushed for changes to the regulation of labelling of genetically-engineered food and the growing of genetically-engineered crops. Community campaigning meant there were no immediate changes to Australian regulations, but the agreement set up a joint US-Australia committee to review future policies and to ensure an ongoing US influence on Australian policies.

The achievements of the community campaign

The USFTA prompted the biggest critical community campaign and debate ever held in Australia about a trade agreement over 18 months during 2003-4, by AFTINET and other community organizations. There were hundreds of community meetings that took place around the country, public rallies in Canberra, Sydney, Melbourne, Perth and other cities; many articles in community, union and mainstream media; over 700 submissions made to two parliamentary inquiries and thousands of letters and emails sent to politicians. Public opinion polls conducted by Hawker Britton showed a steady decline in support for the USFTA, from 65% when negotiations started to 35% in February 2004 when the deal was concluded. Support still remains at minority levels. This opposition was confirmed by a Lowey Institute poll in February 2005 showing only 34% supported the agreement.

This grass roots debate was reflected in the media to a greater extent than debate about any previous trade agreement, including the notorious Multilateral Agreement on Investment. A well funded business lobby, including US-based firms (AUSTA) headed by Alan Oxley, campaigned for the agreement, especially in the Murdoch-owned media. But the claimed benefits of the agreement were contested fiercely even by mainstream economists, ranging from Professor Ross Garnaut and other prominent economists, to Ross Gittins of the Sydney Morning Herald, Tim Colebatch and Ken Davidson of The Age and Allan Wood of The Australian. There was widespread media coverage about the impact of the USFTA on the price of medicines under the Pharmaceutical Benefits Scheme, including an ABC Four Corners television program featuring health experts. There was also much coverage of the impact on Australian content rules for audio-visual media, with prominent actors and producers challenging the agreement.

The debate prompted the ALP, Democrats and Greens to adopt policies critical of the USFTA by the end of 2003. The ALP announced in February 2004 that it would refer the USFTA to a Senate Committee and would not support the USFTA implementing legislation if the USFTA did not meet Labor’s "Australia’s national interest criteria". This was the first time the ALP had ever conceded that it might oppose a particular trade agreement, and showed the influence of the community campaign. The criteria included that the USFTA should deliver significant benefits for Australian agriculture, including sugar, and for manufacturing and service industries. The USFTA should not undermine the sovereignty of Australian government laws and regulations, or the capacity of governments to provide and regulate essential services. The PBS should not be undermined, nor should the ability to regulate Australian content for future audio-visual products. The Senate inquiry provided further opportunities for public submissions, rallies, meetings and media debate.
The Senate inquiry report in fact showed that the USFTA did not meet most of these criteria. Why then did the ALP finally approve the USFTA implementing legislation? The ALP divided on factional lines. Key figures in the Right, lobbied by those sections of business who would benefit, argued that rejection of the USFTA would be seen as anti-business, anti-American and electorally damaging. Most Labor State Premiers supported the deal even before it was finalised. After the details became public, state and territory government submissions to the Joint standing Committee on Treaties made many criticisms, but all but the ACT still supported it.

After a fierce debate, the Left opponents were defeated by the Right majority in the Parliamentary Caucus, which decided to endorse the legislation with some amendments. Community concerns about the cost of medicines and Australian content rules in audio-visual media were reflected in the amendments, but they only addressed very specific issues. This campaign raised community awareness about the impact of trade agreements, and also influenced the content of the agreement, which would have been worse without the campaign.

The Australian government has now started negotiations for a Free Trade Agreement with China. Negotiations have started for an ASEAN-NZ FTA, and plans for Malaysia and UAE.

Briefly, the China FTA raises different issues from the USFTA. Transnational corporations are using the lack of effective labour and environmental standards in China to maximize their profits at the expense of workers and communities in China and other countries, including developing countries.

In China’s Special Economic Export Processing Zones, real wages have fallen as factories compete for contracts from transnational corporations. The price of Chinese exports is based on low wages, poor health and safety and other working conditions, lack of environmental protection and failure to comply with China’s own labour laws and international labour standards.

We should not negotiate a preferential trade agreement with China without these standards. The negotiations will take about two years, and we will need a strong community campaign to influence the outcome.

Alternative to the neoliberal agenda

There is a growing international campaign for trade justice. The Australian Fair Trade and Investment Network supports a more open, democratic and just multilateral system of trade negotiations that could mitigate the influence of the most powerful national economies and of transnational corporations, and give more voice to developing countries.

These include:

• Critical re-assessment of WTO formal and informal structures, and changes to global trade structures to ensure that countries can participate equally in decision-making processes
• Recognition of the specific situation of developing countries through trade rules that do not force rapid liberalisation but recognise principles like food sovereignty, and do not erode the right of national governments to regulate to ensure local industry development, and to protect human rights, labour rights and the environment
• More effective regulation through the United Nations and the International Labour Organisation of international conventions on human rights, labour rights and the environment, including mandatory standards of behaviour for TNCS
• Clear exclusion of public health, education, postal, water and other essential services from trade agreements
• No extension of trade rules restricting the ability of governments to regulate in the public interest
• No trade rules that could threaten funding and provision of public services

We also support a more democratic and accountable process for trade negotiations and ratification in Australia.

Such a process should include the following principles, endorsed by the 2003 report by the Senate Foreign Affairs, Defence and Trade Committee:

• Independent studies of the social and economic impacts of proposed trade agreements to be published, exposed to public comment and debated publicly and by Parliament before decisions to commence negotiations
• Parliament, not Cabinet, to debate publicly and set goals for particular trade negotiations
• Widespread consultation with community organisations during trade negotiations
• The full text of trade agreements to be debated and ratified by Parliament, not only by Cabinet as at present.

Australian Fair Trade and Investment Network

Global Trade Watch - Australia

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