DISCUSSION STARTER vol 2 no 3:

An Australia-US Free Trade Agremeent?

This Discussion Starter on the Australia-US Free Trade Agreement is part of a broad, inclusive, nation-wide discussion about a better way for Australia than today's market-driven degrading of citizens' rights and the public good.

This discussion process continues as a part of the Now We The People project, which began in 2000 and held a major national conference in July 2001. We are building up to another conference in August 2003 (see conference page of this website).

This and other Discussion Starters aim to develop ideas for tackling current problems and deciding a future for the Now We The People project in dealing with such issues. The aim is to ensure the most informed and productive level of discussion possible.

USING THE DISCUSSION STARTER: click here for notes on usage

Introduction

On the day before Australia announced it would join the USA and Britain in the invasion of Iraq, Australian and US representatives began negotiating a "Free Trade Agreement" between the two governments. The idea of a preferential free trade agreement has been considered a number of times in recent years, but left "on the shelf" as it has not been clear how we could benefit from such an agreement. [1] Free Trade Agreements are an instrument to advance the neo-liberal agenda to make free markets superior to elected governments in regulating national and international relations. They involve the partners agreeing to reduce barriers to trade between companies based in the two countries.

The negotiations have been marked by secrecy and half-truths. Trade Minister Mark Vaile and Prime Minister John Howard have denied the link between an FTA and Australia's support for the US "war on terrorism", despite US Trade Representative Robert Zoellick admitting it to the word in his letter to Congress (above).

Terminology

Agreements between states to liberalise trade and investment rules are usually called Free Trade Agreements, but it would be more accurate to term them Preferential Trade Agreements. This title better reflects the true nature of such agreements, for a number of reasons:

1. "Free Trade Agreements" do not necessarily amount to declarations of free trade. They generally concern particular areas of a country's economy and society, and do not cover all trade between the parties to the agreement.

2. The trade which is the subject of the agreements is not necessarily free in the first place, and will not necessarily become so after an agreements is signed. Despite the best neoliberal efforts, there are still some areas of economic activity which are regulated by law. The main aim of a free trade agreement, which may impact on these areas, and add pressure to remove regulation, is to decree that companies and investors from the countries are subject to no more regulation than their local counterparts.

3. The agreements are a declaration of preferential treatment between (in this case) two nations. They are a very direct decision to prioritise trade and investment between the countries who are partners in the agreement, while doing nothing to improve or liberalise trade relations with other countries. This leaves other trading partners worse off, as they find that one trading partner has taken a huge leap forward and can now be treated the same as local investors.
So to describe such an agreement as "free trade" would be misleading, but the term serves a purpose: the word free is positive and usually associated with liberty. Using the terms "preferential trade" draws attention to the true nature of the arrangements - the last thing the agreement's advocates want us to see.


Section 1: Unequal Bargaining Power

If any bargainer's power is in part determined by how important the negotiated outcome is to them, then Australia is in a weak position indeed. In terms of the gains, as well as the costs, which would be enjoyed by each country, the stakes are much higher for Australia than for the USA. Trade Minister Mark Vaile has admitted that "we've never made a secret of the fact that we know this is going to be a tough negotiation." [2] A report by APEC, commissioned by the Department of Foreign Affairs and Trade (DFAT), shows the different economic significance of the preferential trade agreement for the negotiating partners: "A way of viewing the economic association from the US perspective is to see it as the addition of another medium sized state roughly equivalent in GDP to that of Pennsylvania." [3]

The unequal bargaining power existing between Australia and the US would make it unlikely that Australia could be a tough negotiator and able to secure commitments from the US on Australia's terms. As the report from ACIL Consulting makes plain: "Australia is a small player on the world scene and, despite its generally warm relations with the US, has limited access to US officials' time." [4]

ACIL concludes that Australia would be better served pursuing further rounds of multilateral trade liberalisation through the World Trade Organisation (WTO) process. This demonstrates that ACIL are no opponents of free trade, quite the opposite, they believe the WTO process is well able to serve Australia's interest. Their point is that a FTA with the USA would not be in Australia's rational economic interest. It is this economic interest which is the primary (if not only) reason the FTA's boosters have for supporting it.

Australia will also struggle to claim any exemptions in the light of recent comments by US Trade Representative Robert Zoellick:
[Zoellick] said that an FTA must consider "special product sensitivities" for U.S. products that must be considered when choosing potential trading partners, and nations must be willing to negotiate a comprehensive trade agreement, covering every sector. [5]
So the US will seek special sensitivities, but expects their partners to be willing to sign away all barriers to US investment.

Questions for discussion:
How could a preferential trade agreement with the USA affect
a) Australia's trading relationship with Asia and Europe?
b) Australia's broader foreign policy?
What are the strengths and weaknesses of Australia in the current FTA talks with the US?

 

Section 2: A brief history of trade liberalisation in Australia

Australian "trade barriers" in the form of import tariffs peaked during the Great Depression in the 1930s, when high import duties were imposed as an emergency measure to slow the decimation of Australian industry. Surprisingly to some, the liberalisation of the Australian economy has been led mainly by Labor governments, who have in recent decades been remarkably enthusiastic about steady or dramatic reductions in tariff levels.

July 1973 saw the newly elected Labor government of Gough Whitlam act swiftly to cut tariffs by 25%. The government set up a committee to examine tariff levels and report within three weeks. It recommended an across the board cut of 25%. The government accepted the idea the very next day. The largest adjustment to Australia's industry protection scheme "had been achieved without reference to the Tariff Board, without public inquiry and within a matter of weeks." [6]

The tariff reduction trend was stalled under Malcolm Fraser's Coalition government (1975-1983). Assistance to the automotive, and textiles, clothing and footwear (TCF) industries was increased, with import quotas introduced for cars and a complex web of tariffs, bounties and import quotas introduced for the TCF industry. [7]

Perhaps the most significant events in the deregulation of Australia as a trading nation took place under Labor governments in the late 1980s and early 1990s. Deregulation was accelerated in earnest from 1986, as the ALP government of Bob Hawke began copying a blueprint laid down by the radical neoliberal governments of Thatcher in the UK and Reagan in the USA. [8] The Hawke government introduced an across-the-board program to cut most tariffs to either 10% or 15% by 1992. [9] Hawke and Keating were on a crusade, as can be seen in the rhetoric surrounding the "Building a Competitive Australia" blueprint. Keating was unequivocal:
The package of measures announced today ends forever Australia's sorry association with the tariff as a device for industrial development. By turning its back on tariffs, Australia will be further propelled in its quest for international trade and efficiency, a search begun with the opening up of the economy in 1983 when we floated the dollar and abolished exchange controls. As in all nations before it, the pursuit of trade and competition has instilled in Australia a thirst for greater efficiency at home and a larger dominion abroad. [10]

The "Building a Competitive Australia" initiative announced in 1991 determined that tariffs were to be reduced to a single rate of 5% by 1996. Tariffs on automobiles and the TCF industry would also be reduced and import quotas abolished by 1993. [11] In our region, the Asia Pacific Economic Cooperation (APEC) meeting in Bogor, Indonesia in 1994 saw the leaders of nations in our region commit to the path of "free and open trade" - meaning industrial countries like Australia will strive to achieve zero tariffs by 2010, and developing countries by 2020. [12]


The Howard years
National Competition Policy has been the recent driver of Australian deregulation, and has seen the privatisation of public utilities such as electricity, gas, airports, railways, telecommunications, government banks, government insurance offices. It has also driven the privatisation or removal of functional marketing boards for dairy products, sugar and eggs. [13] The main achievements of Howard's trade policies are the reduction of almost all industry assistance tariffs to 5%, with the exceptions of the TCF and automotive industries.

Howard's approach to free trade was first focused on the WTO and, now, on bilateral treaties. If the US preferential agreement with Australia goes ahead, Howard will have taken greater and more significant steps in the name of free trade than any before him.

Questions
Why do you think the free trade push has been led by ALP governments?
What other trade policies are held by Australian political parties?


Section 3: Trade treaties

While rounds of trade agreements through the World Trade Organisation were difficult and achieved piecemeal tariff cuts, trade treaties could advance the free trade agenda in a single blow. However, the international trade free trade lobby overplayed their hand with the MAI. The Multilateral Agreement on Investment was an ill-fated attempt to conceive a worldwide treaty based on the radical idea of economic "non-discrimination". Signatory states would agree to remove any legal or policy barriers which treated foreign companies and investment any differently from local investment. Further, signatories would agree to "rollback" provisions by which they would endeavour to continually remove domestic barriers to global capital. [14] In short, the MAI was an attempt to remove any power of governments to regulate foreign investment in a manner different to local investment.

It was an attempt to strike the most decisive blow for the neoliberal trade agenda in one hit. Negotiations started in 1995 and were conducted in secret through the OECD (Organisation for Economic Cooperation and Development), the exclusive Paris-based club of the world's 29 richest nations. [15] Australia is a member of the OECD, and was represented in negotiations by officials from the Department of the Treasury. However, in 1998, word got out about the moves afoot and the public reaction was swift. Internationally networked groups of concerned citizens voiced their concerns strongly, and reacted savagely to the fact that such significant moves were being negotiated in secret. Negotiations on the MAI stalled as governments were forced to list more and more exemptions to the draft MAI. The talks collapsed in December 1998, and the plan was shelved, but not forgotten. [16]

Gaining a consensus among the 140 countries in the WT), with such diverse and unequal needs, was becoming increasingly difficult, particularly when every attempted meeting was being surrounded by streetfuls of angry protesters. [17] It was obvious that the WTO process was deeply unpopular with many people worldwide. As entire city centres had to be shut down and various forms of martial law imposed for a single meeting to take place, the pressure grew on those seeking to negotiate free trade outcomes. Anger also increased from representatives of third world nations, who were often seeing the benefits of the free trade agenda largely confined to the largest corporations from the richest countries.

Even Trade Minister Mark Vaile admits that the "consensus" for free markets and liberalised trade is now very fragile. [18] Doug Cameron, National Secretary of the Australian Manufacturing Workers Union, says that the fragility of this "consensus" (a highly debatable description) is due to "the secrecy, vested interests and predominance of corporate rights over social and community rights under the current free-trade regime." [19]

At the Doha round of WTO negotiations late in 2001, the rich countries were forced to compromise their push for more liberalisation after stiff opposition from poorer nations. Agreement was reached on a new agenda of tariff cuts but it would not be discussed until the next meeting in September 2003. [20]

Even DFAT executives admit that the WTO process is "floundering." [21] With the worldwide trade liberalisation agenda faltering, the transnationals needed a new strategy. Free trade zones had been created in some areas, most notably the European Union and the North American Free Trade Agreement, between the US, Canada and Mexico (NAFTA). This inter-governmental approach seemed an easier way to achieve deregulatory goals and ease the passage of global capital. It is always going to be easier for free trade agreements to be negotiated between two countries than to gain agreement between fifty. This is especially the case when one of the nations involved is the USA, the largest market in the world and one run by an Administration who seem happy to link trade with a type of tribal loyalty scheme which rewards support for US military activity (see section 7).

The fear is that the webs of free trade agreements will in substance, and due to their incidental effects, have the same consequence as a global round of trade liberalisation. This is because preferential trade agreements often have terms which demand the removal of all barriers to foreign investment, and dismantle the regulation of infrastructure, allowing the privatisation of state assets (see section 5). Again, this is particularly the case with the Australia-US FTA.

It should be noted that the USA has not always been a big fan of free trade, and its commitment to "free trade" today is still patchy at best. James Fallow has made this point well:
While American industry was developing, the country had no time for laissez-faire. After it had grown strong, the United States began preaching laissez-faire to the rest of the world - and began to kid itself about its own history, believing its slogans about laissez-faire as the secret of its success. [22]

For instance, US sugar farmers enjoy the benefits of import quotas on sugar, which deter imports and keeps prices high. [23] There are also significant import restrictions which prop up the US steel industry. [24] In agriculture, the new US Farm Bill (and the old one) has further shown that the US is very willing to push free trade around - with force if necessary - but is unwilling to subject its own markets to the rigours of liberalised global competition.

US laws also allow for special pro-American rules for defence procurement. Section 2 of the Buy American Act provides that "when it is in the public interest", the Secretary of Defence can disregard the provisions of any free trade agreement in force at the time. [25] This buy-American policy is in effect as American corporations get to work on the business opportunities provided by their military friends who bombed Iraq.

The US is not alone in retaining tariffs and government subsidies as integral parts of industry policy - major "free trade" jurisdictions such as Japan and the EU have shown they still believe in the necessity of market regulation.

Some of the large economies of the world are calling for free trade and the reduction of trade barriers, while at the same time they are placing high tariffs in industries they regard as important to their own cultural and economic future. For example the average level of farm subsidies in OECD countries is 40%, with EU at 49%, Japan at 65% and USA at 24%. The last 7 years has seen these subsidies rising in EU, Japan and USA…On the other hand, Australia has steadily reduced its subsidies, in line with the rhetoric from the large nations, so the average is now 5%. [26]

Australia, however, has charged ahead with our "bold experiment", and some say we have "led the world in deregulation and tariff barrier reduction." [27]

The preference for bilateral trade treaties comes as negotiations for two other major trade pacts - the WTO General Agreement on Trade in Services (GATS) and the Free Trade Agreement of the Americas (FTAA) - gather steam. These are different pacts involving different countries but the issues are similar. Like an FTA, the GATS poses specific threats to Australia, such as the coerced sale of public assets such as essential infrastructure services: water, electricity, health. Extensive information is available on the GATS through AFTINET. The FTAA would expand NAFTA to cover all of North and South America. It is an attempt by the US to create an American economic zone on its own terms. [29]

Cedric Muhammad argues that there is not really any such thing as free trade, there is just US imperialism seeking to force economies worldwide into positions that can be best exploited by the US:
It is startling to watch American politicians, economists and business leaders boldly demand that Africa, Chile and many countries in the economic developing world grant them concessions on intellectual property rights, while they simultaneously deny these same countries access to their agricultural and textile markets. Both sides are attempting to protect nascent domestic markets, but only the economically developing world is branded as protectionist, or anti-free trade. [30]

Questions for discussion:
Why has the free trade push stalled and what public pressure brought this about?
Is the MAI the lurking model for all free trade agreements today?
Is there a contradiction between support for international human rights treaties, and opposition to the loss of national sovereignty in trade agreements?

Section 4: the Australia - USA Free Trade Agreement

The Howard government, of course, are committed neoliberals who support free because regulation of capital is anathema to their laissez-faire ideology of market fundamentalism. It appears that they would pursue free trade agreements on ideological grounds, regardless of whether the agreement would necessarily deliver economic benefits to Australia. The Trade Minister, Mark Vaile, even said "You know it's a bit hard to comprehend how liberalisation of an economy would actually end up with a negative benefit or a negative welfare gain to our economy." [31]

Power
Preferential trade agreements are negotiated by officers of the Department of Foreign Affairs and Trade (DFAT). Under the Australian constitution, if agreement is reached between Australia and the USA, the agreement would be signed into force when Federal Cabinet approves the deal. The Howard government has decided that the issue is not worthy of a proper parliamentary debate, and have taken responsibility for signing up to the commitments before revealing the exact nature of any agreement reached.

An argument that this is the case because the government thinks the public would be uneasy about the content of a FTA seems entirely justified. Governments worldwide know that people are anxious about the changes wrought by corporate globalisation, and that people are highly concerned about the transfer of power and public assets from governments to multinational corporations. The Australian government is trying to win political capital by boasting of their admission into the USA's free trade club, but are unwilling to let the public in on the content of the agreement. Their approach to the FTA with the US has been characterised by secrecy and misrepresentation at many turns. The US negotiations are being led by the US Trade Representative Robert Zoellick [32], whose letter informing the US Congress [33] of the intention to begin negotiations sets out US objectives.

Likely structure - negative list
The preferential trade agreement is being negotiated using the 'negative list' model. Rather than the parties nominating the areas to which the free trade agreement will apply, the reverse happens. Free trade arrangements will apply to all areas of industry, economy and society, unless an area is specifically exempted.

This is the method popular in free trade agreements these days. There is a real danger with such a model, however, in terms of the pressure it would place on government with regard to other laws. The negative list agreement could legally freeze regulation on foreign investment in exempted areas at present levels. It could be that no new trade regulation could be introduced. Also, attempts by future governments to regulate in areas not mentioned in the agreement could be prevented as they were not exempted. As Pat Ranald has said, this is "dangerous for government and their ability to pass legislation democratically." [34] We can see the US FTA as an attempt by the Howard government to set their social and economic policies in stone, in a way that would outlast the government's inevitable demise. A preferential trade agreement would probably last for the next 20 years.

Questions for discussion:
Should the Executive Council (Cabinet) have the power to enter into trade treaties without the approval of Parliament?
Does the fact that the US requires Congressional approval for free trade negotiations place our country in a weaker position?
If the Constitution is changed to require Parliamentary approval for trade treaties, should the same go for all treaties, such as those concerning human rights and the environment, and military treaties?
Section 5: What an FTA would cost Australia

The first part of a cost/benefit analysis is the cost. The USA has identified a number of areas which it wants to target in free trade negotiations; that is, it wants the Australian government to change laws relating to these areas.

The US target in an FTA would be the removal of any differential treatment of US investment interests as compared to Australian interests. It would be illegal for Australia to attach any conditions on US imports, be they for goods, services, or investment (purchases), unless Australian interests are also subject to such regulation. The US wants the Foreign Investment Review Board - the body which decides whether certain foreign investment (for example the foreign takeover of Australian banks) is in the national interest or should be prevented. So foreign investment could no longer be regulated in the few areas where it is regulated today: banks, media, telecommunications and airlines. [35]

The US also wants the removal of governmental preferences for buying Australian, or engaging Australian companies to fill government tenders. This is despite US government purchasing policies being replete with "buy-American" clauses (this extends to the contracts handed out to rebuild Iraq after the US invasion). Economically, this would effectively make Australia another state of the USA. Australian law and policy would no longer be able to differentiate between Australian and US interests. So in terms of the operations of US investment, it would be just like being at home - the same as expanding operations to a state, say, the size of Pennsylvania.

Removal of restrictions on foreign investment would also mean the end of Australian content rules for the television and film industries, and rules restricting foreign ownership of Australian media outlets would also have to go under a preferential trade arrangement.

The removal of local content regulations in film and television would be a huge change in Australian cultural policy, and one would think worthy of at least a national debate (rather than the signature of Cabinet). These local content rules protect the Australian television industry by ensuring networks don't simply buy all their programming from huge US production networks. This ensures a vibrant and growing Australian entertainment industry, and local content rules have long been recognised worldwide as essential for preserving a country's culture in the face of cheaper US mass entertainment.

Robert Zoellick has announced that he wants to see essential services defined as tradable goods, and hopes to negotiate Australia's surrender of the right of government to regulate access to essential services such as water, electricity, telecommunications, health and education. In all these areas of essential social service, a preferential trade agreement is likely to see them treated as strictly commercial activity, with no limits on foreign investment. The market - the US market - would be the determinant of access, prices, quality and the range of competition in areas such as the supply of water. This is not scaremongering, it is the neoliberal mission.

Another target of the US in any FTA is the Pharmaceutical Benefits Scheme, Australia's government subsidy which ensures that many medicines are affordable to all Australians. US drug companies - whom the US government is really representing in the free trade deal - want the PBS scrapped as it lowers the potential profits available to them. Mark Vaile initially said that the Pharmaceutical Benefits Scheme would not be among the targets allowed under the agreement, but in the face of pressure from the US pharmaceutical industry lobby group PhRMA, Vaile is now saying that the PBS is open for discussion. [37] Dr. Peter Sainsbury, President of the Public Health Association of Australia, has warned that the removal of the PBS could easily see Australians pay at least 25%, and up to 50%, more for drugs, and two or three times as much for prescriptions. This would represent a massive transfer of wealth from Australian patients to US CEOs and shareholders. [38] Australia's social policy mechanisms for ensuring at least some equity in health care is being offered as a sacrifice to the profit margins of some of the world's richest (and least scrupulous) companies.

US trade representatives also argue that the labeling of genetically engineered (GE) foods discriminates against US agricultural corporations, as the USA is the world's biggest producer of GE foods. Australians have demanded the right to know whether the food they are eating has been genetically engineered, but the US includes food labeling as an "unjustified" [39] discriminatory measure against biotechnology in the food sector and wants it done away with. Although GE food labeling is not exactly a barrier to foreign trade, the unpopularity of foods known to be GE is seen by US trade representatives as anti-American. This arrogant stretch of logic is like demanding Australians remove laws against possession of handguns, as America is main worldwide producer of guns. We should also wonder whether this argument would stop at food labeling, or whether US firms could demand the removal of laws restricting the cultivation of GE crops.

The US also wants a preferential trade agreement to include a compliance mechanism, likely to be based on dispute resolutions procedures under NAFTA. This would see US companies able to sue the Australian government for non-compliance with free trade, with the decision of the complaints body binding on Australian governments and local councils. Plaintiff companies could either win a monetary penalty - compensation for damaging their ability to profit - or enforcing the change of Australian laws if that law is not consistent with the preferential agreement. [40]

This aspect becomes particularly scary when considering the open-ended commitment to further liberalise investment that would form the structure of an FTA. We could see the Australian government being sued for not doing enough to reduce barriers to US trade. It is not outrageous to contemplate the government being sued for negligence in its pursuit of trade liberalisation. We could see a local council being sued for preferencing local companies over US multinationals in their contracting policies. US postal giant UPS is suing the government of Canada for US$160 million under anti-discrimination provisions of NAFTA. UPS claims that the public network of letter boxes and post offices gives Canada Post an unfair advantage over competing US firms. [41]

Metalclad is a US-based waste-disposal company that began building a dump in the Mexican state of San Luis Potosi without receiving approval from the local municipality. The State Governor ordered the site closed down after a geological audit showed the facility would contaminate the local water supply. Metalclad sued for damages under NAFTA's and the tribunal ordered Mexico to pay Metalclad US$17 million in compensation. Mexico had fallen foul of the NAFTA by failing its "obligations to create a clear and predictable environment for investors". [42] These are examples of the workings of dispute resolution mechanisms, the likes of which the US wants included in an FTA with Australia.

The Zoellick letter also targets Australia's support for the car industry and the textile, garment and footwear industry. The car industry employs almost 54,000 people, and the TCF industry employs 78,000, mainly in South Australia, Victoria and NSW. Since the US car and TCF industries are so much larger than Australia's, the jobs of many Australian workers and regional communities are at risk if the FTA goes ahead.

Impact beyond trade with the USA
The impact of an FTA with the USA would go far beyond just linking Australia to the USA. Some of the US targets in free trade negotiations would see Australia remove "barriers to trade" in a manner which would have a much greater impact than simply greasing the wheels of US investment. This can be seen from a number of the US targets listed above, including trade in essential services, the removal of the PBS and the FRB, quarantine, removal of GE laws, and the removal of media content regulations. While the agreement is posed as one between Australia and the USA, the consequences for the structure of Australian business and investment regulation would impact far beyond our relationship with the US.

Policy and regulation regarding GE foods, health care and the PBS, media content and access to essential services are all matters for social policy and democratic decision-making. These are vital issues which shape our society and can have a huge impact on Australian health, culture and employment. Surrendering control over such regulation to the will of US corporations, and to the sovereignty of a free trade disputes tribunal is a much more significant act of social policy than just the regulation of "investment." In listing its targets for removal under a preferential trade agreement, it seems the US representatives have been confusing social policy with barriers to trade. Even worse, it appears that our government has been believing them. Until our representatives are disabused of these ideas it will be to all our peril.

Questions for discussion:
What are the dangers you can see in the short term for Australia linking its economic policies to US foreign policy?
Is the need to be close to the USA as pressing as we are told?
How can Australia carve out a healthy relationship with the USA without resorting to the subservience of recent times?
What do you see as the greatest threats that could flow from a preferential trade agreement with the US?
What is the value of local content rules in the media industries?
Is there an inherent value in policies which protect local industries? Or are they unfair? Should protectionism be such a dirty word?


Section 6: Claimed benefits for Australia

The best case scenario in terms of Australian gains from a preferential trade agreement with the USA is presented by the Centre for International Economics. It is this best case scenario, laden with the words "could", "if" and "up to," to which the free trade zealots pushing the FTA refer. The claim we hear most is that if all barriers to free trade are removed, Australia could enjoy benefits of up to $9 billion over a 20 year period. Australian fair trade campaign group AFTINET point out that this is less than half a percent of Australian GDP a year. [43]

However, it is extremely unlikely that all barriers to free trade will be removed indeed the very purpose of negotiations is to decide which "barriers" will be removed and which will remain. So it is impossible to believe anyone's claim that there could be nine billion dollars' benefit for Australia. The figure should be revised downward to account for remaining barriers to trade, and the operative words "up to" should be taken into consideration. So the economic benefit to Australia would in fact be a portion of the already small half a per cent of GDP a year.

Much of the benefit trumpeted by the free trade zealots will supposedly come from increased Australian access to US agricultural markets. Trade Minister Vaile has conceded that without better access to US markets for Australian agricultural produce, the deal would not be worth doing.[44] However the recent Farm Bill passed by US legislators [45] increases subsidies to US farmers, which will allow them to sell commodities at lower prices, and further reduce the benefits it is claimed Australian farmers will be able to receive from increased US market penetration. AFTINET goes so far as to say that these subsidies will make economic gains for Australian farmers "extremely unlikely." [46] The free trade economist Ross Garnaut writes that "there has been no serious attempt by any supporter of a bilateral free trade agreement to argue against the proposition…that any free trade agreement with the US would be compromised in several important areas of agricultural trade. Such a compromise would remove the main sources of potential gains to Australia." [47] Garnaut is no opponent of free trade: he continues to say that the benefits that would remain if those from agriculture were reduced would be "those that derive from Australia removing its own barriers to imports." [48]

It is important to note, though, that preferential trade agreements do little to actually increase the net amount of trade enjoyed by a participating country. Such an agreement is likely to shift trade to the preferred country (the USA) and away from Australia's regular trading partners. So the FTA would have negative effects for many other countries in our region and worldwide, who have enjoyed successful trade relationships with Australia for years. Garnaut has stated his firm belief that signing an FTA with the US would significantly damage Australia's trading relationships in Asia.[49] ALP Federal Shadow Minister for Trade and Tourism Dr. Craig Emerson claims that "the government's flirtation with a preferential bilateral trade agreement with the United States threatens heavy damage on future access to the markets of East Asia." [50]This claim is supported by economist Ross Gittens, who argues that bilateral trade agreements "do more to shift our trade to the favoured country and away from our other trading partners than to increase our trade overall." [51]

Even the best case scenario from the Centre for International Economics has described the dangers of this effect on other trade relationships, predicting that imports of cars from Japan and Korea would be replaced significantly with US cars, and contracts with producers of textiles in China would be diverted to US companies. [52]
According to Garnaut, the main damage caused to Australian trading relationships would flow from the perception that Australia is more focused on North America than on our regional neighbours in Asia. This point has been made outside Australia as well, by former Indonesian Ambassador to Australia Wiryono, at the conference of the Centre for Strategic and International Studies in Jakarta in 2001. [53] It would be difficult to argue with such a perception, particularly while John Howard remains our Prime Minister.

The likelihood that Australian trade arrangements with other partners will be damaged by a preferential agreement with the USA is a very real one. But there is also the danger that preferential trade with the USA will harm Australian imports. Australia could be worse off if the deal with the USA saw us obliged to give preference to imports from the USA rather than other lower-cost trading partners. [54]

This fear is shared by the government's own pro-free trade Productivity Commission, whose recent report warns that "if a preferential trade agreement drives a country's imports from a low-cost third party to a higher-cost third party, it can be made worse off." The Productivity Commission report revealed that most preferential trade agreements signed since the 1960s have depressed rather than expanded trade: 12 out of 18 preferential trade deals they studied actually reduced exports, by diverting more trade from other markets than they created between the partners. [55] Furthermore, the report showed that FTAs divert more trade away from other trading partners than they create between the parties to the agreement. Some of the FTAs examined did not even succeed in generating more trade between the parties to the agreement. [56]

There is certainly no consensus among economists that a preferential trade agreement would be in Australia's interest. The economic Consultants ACIL, whose economic modeling has been used by the Howard Government before, have summed up the cost/benefit analysis as "at best, finely balanced." [57] The closest to a consensus that can be drawn from the various economic modeling available is that any economic benefits to Australia from an FTA with the USA are likely to be small. [58] We can assume that the Howard government is aware of the views of such economists at both a ministerial level and also within the Department of Foreign Affairs and Trade. We should wonder, then, why Howard's government is seems so keen to enter into such an agreement, and why Mark Vaile has described such an agreement as "the jewel in the crown" [59]. Just what is he talking about?

Questions for discussion:
Can you see any benefits to Australia that would come from an FTA with the USA?
If the benefits to Australia are limited, why do you think our government is pursuing an agreement?
What do you think is the deeper agenda behind the FTA push? Is the government's attachment to a US FTA more emotive than rational?

Section 7: Linking trade and security

Australia was one of a small and isolated group of nations worldwide who supported the Bush Administration's war in Iraq. Negotiations for a preferential trade agreement between Australia and the USA actually started the day before open hostilities were declared in the latest war of aggression against Iraq. Both the Prime Minister, John Howard, and the Trade Minister, Mark Vaile, sincerely denied that there was a link between preferential trade and Australia's support for the US war [60]. For many months preceding the declaration of war John Howard had insisted that the final decision on whether to follow the US into Iraq with Australian troops had not yet been made. Howard, however, fooled no-one; Australians knew the commitment had been made long before. His comments were often lifted directly from the latest statements on Iraq by Bush and US National Security Advisor Condoleeza Rice. So the coincidence of the trade negotiations and the war was significant less for itself than for what had come before it: the US was agreeing to enter negotiations in the months that Australia was publicly supporting the plans for war. The start of talks was just a public reward for Howard's unwavering support for Bush's warmongering.

US Trade Representative Zoellick's letter to Congress makes the US position quite clear - there is no attempt to mask security ties through more slippery language:
In addition to complementing our partnership with Australia on global and Asia-Pacific trade issues, an FTA would also further deepen the ties between our societies and strengthen the foundation of our security alliance. We are already partners in the areas of intelligence, military inter-operability, command-and-control, and security planning. An FTA would facilitate the building of new networks that enhance our Pacific democracies' mutual interests, shared experiences, and promotion of common values so that we can work together more effectively with third countries. [61]

The implications of such an approach to a linked security-trade alliance are that Australian "values" will be linked to those of the US. The present governments of Howard and Bush seem closer together in terms of values than previous Australian/US governments. The difficulty, though, with such an approach is the extent to which Australian "values" as represented in our alliance with the USA could be limited to those the US Administration wishes us to share. The recent war on Iraq is a glaring example of the extent to which the "Australian values" were delivered to us from the USA, and from a small elite group within the Administration of the USA. We can be quite certain that "working together with third countries" would involve Australia following the choices made by the US Administration, and deny an independent Australian view.

We can also be pretty sure that these values which Australia and the US will share through an FTA will not include labour or environmental standards. "Our position is more similar to that of many in the developing world" Zoellick said at a meeting of Asia-Pacific Economic Co-operation Ministers. Including rules on environmental protection in a free-trade agreement "might be a problem in terms of protectionism."

As was pointed out in the AFTINET submission to the Senate Inquiry on the free trade agreement, this would render Australia "another state of the US in its relationships to third countries." The point was well made by AFTINET:
This would damage Australia's national interest in relation to many other countries. Australia has built up positive trade and cultural relationships with many countries in our region in part because we are not seen as an economic or cultural appendage of the US, but as an independent country with its own trade and foreign policy, which has in the past differed with the US on some key issues. [62]

Melbourne University trade expert, Ann Capling, commented in 2002 that "It's been a cornerstone of both Australian and US foreign policy since World War II that security and trade issues are kept in separate boxes. To see them linked now has major implications for the Australia-US security alliance." [63]

The US has been attempting to treat their economic goals as matters of "national security" since the Presidencies of George H Bush and Bill Clinton. "Prosperity" and "economic goals" have been increasingly mentioned in the USA's National Security Strategies - for example, the 1999 National Security Strategy for a New Century lists "economic wellbeing" in the list of "vital national interests", and threatens that "we will do what we must to defend these interests…using our military might unilaterally and decisively". [64] This shows the willingness of the US to use military force to achieve economic goals. Although such a goal can potentially extend far beyond the issue of oil and energy, we have seen this policy implemented quite starkly recently, in Iraq. When we consider the Bush Administration's contemporary attempt to follow their invasion of Iraq with the establishment of a Middle East free trade zone we can see the lengths to which the US is willing to go achieve their economic goals.

The link between military support and trade in the proposed preferential trade agreement is hard to ignore or deny. If Howard and Bush attempt to play it down we should look no further than US Trade Representative. Zoellick said recently that candidates for FTAs with the US must support US foreign policy:

The U.S. seeks "cooperation -- or better--on foreign policy and security issues," Zoellick said in a speech to the Institute for International Economics. Given that the U.S. has international interests beyond trade, "why not try to urge people to support our overall policies?" he asked. [65]

An example of this is free trade negotiations between the US and Chile. Chilean President Ricardo Lagos was set to visit Washington to sign a long-awaited free-trade agreement with the USA. But when Chile didn't support the US plans for war in Iraq on the UN Security Council, Zoellick announced that congressional approval of the preferential pact with Chile would be delayed indefinitely. [66] The Washington Post describes the world order dominated by US bullying:
In the wake of the latest battle in the US war on terrorism, Zoellick has articulated the most recent test of co-operation with the United States, one that clearly affects the quality of relations with some countries. It is a heavy-handed standard that threatens to supersede all other measurements of change that in the past have marked desirable progress and determined the closeness of ties to Washington. [67]

While Chile was getting the cold shoulder, however, the leaders of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua were being welcomed to the White House for discussions on the planned Free Trade Agreement of the Americas. These are countries who are assessed as being considerably behind Chile in their progress on the previous markers of US favour. For instance, Guatemala was recently criticised by Washington as a poor ally in the war on drugs and a country where human rights were deteriorating and corruption was increasing. Nicaragua, Honduras and El Salvador have also been assessed by human rights watchdog Transparency International as enjoying high levels of government corruption. [68] These countries, however, offered their support for the US war in Iraq.

We can see that US priorities have changed since they embarked on the war without boundaries, where the enemy can shift at any time and at every stage "you're either with us or against us." The standard for US favour now appears to be simply whether a country supports their new imperialism. Australia appears to be an eager volunteer, for little benefit.

New Zealand is another telling example. US Secretary of State Colin Powell once described New Zealand as "a very, very good friend" [69], but that was before New Zealand opposed the US warmongering against Iraq. NZ Prime Minister Helen Clark was a critic of Bush's war, and particularly offended the US Administration by saying there would unlikely have been a war if Al Gore was President. She apologised for the offence, but it seems it was not enough. US Trade Representative Zoellick told the House of Representatives Agriculture Committee that New Zealand had "done things" which would make a preferential trade deal between New Zealand and the USA "impossible." [70]

NZ Trade Minister Jim Sutton now admits that the world order is different: "previous US Administrations, including Republican Administrations, have made it clear that to them there was no linkage between security and trade issues; that is not so clear now." [71] More recently, it has been made clear by the US Office of the Trade Representative that the US has a "long memory" and will not be offering any trade deals to New Zealand due to a lack of support for the US military both recently, and in refusing to allow US nuclear warships into their ports years ago. [72]

So entering a preferential trade agreement with the USA would not only threaten Australia's independence in setting our domestic policies in a way that benefits Australians and empowers the democratic process. It would also threaten Australia's ability to set our own foreign policy and values, as we would find ourselves (particularly now, during negotiations) pressured by trade issues to support whatever international crusade the Bush Administration decides on next. At a time of such belligerence, bullying and warmongering by the USA, it could be highly dangerous if Australia were to link ourselves so inextricably to US government whims. When the bull is loose in the china shop, keep your distance.

Australia's closer alignment with a USA on the warpath should also be seen in the context of increasing unilateralism, on trade as well as other issues. Since Bush has come to power the US has signalled its intention to walk away from an international community formed out of the fragile peace that followed World War II. Bush's dumping of the Kyoto protocol on greenhouse gas emissions, its rejection of the International Criminal Court, its abandonment of the anti ballistic missile treaty with Russia and its rejection of the United Nations as the source of international law and authority for military action, all occur at the same time the USA forgoes negotiated trade liberalisation through the WTO in favour of preferential trade agreements to be signed with its new tribal allies. This paper in no way seeks to extol the virtues of the WTO processes, but it is important to note the similarities in the US approach. Unilateralism rules in this attempt to reposition international power relations, and the free trade agreement is a sign that the Howard government intends to follow the USA down their path of international belligerence.

Australia's weak bargaining position in relation to the might of the USA is again relevant here. The weak bargaining position is not confined to economic transactions. There is a massive inequality of political weight as well. Witness Australia's failure to interest the USA in participating in peacekeeping operations in East Timor in 1999.

If Australia compromises its independence to the extent that we link trade and values to the USA along with our security arrangements, we will rarely be in a position to make any demands that the USA approach matters on our terms. Such a relationship could better described not as a "bargaining position" but as a small dependent client making requests of an enormously powerful patron or master.

Questions:
What "values" are shared between Australia and the USA and how do we come to share them? To what extent do you think these values are constructive?
What kinds of values do we see represented in trade agreements, and how do the "shared values" differ from those values which are prominent in the relationship between Australia and the USA?
Is Australia getting in too deep with the USA? How dangerous is it to tie our trajectory so strongly to one other country?
What scope is there for an independent Australian trade and foreign policy?

 

P R

The rhetorical push for a FTA with the US has been joined by the usual right-wing think tanks, the Institute for Public Affairs [73] and the Centre for Independent Studies [74] in Australia, and the free trade Cato Institute [75] in the US. However it has also spawned new right-wing/business think tanks formed for this specific purpose. These include the American-Australia Free Trade Agreement Coalition (AAFTAC) [76]. The Australian-based vehicle is the Australia United States Free Trade Agreement Business Group (AUSTA) [77], a coalition of business groups established in 2001 to push the free trade agenda.

AUSTA is headed by Keith Lambert of Southcorp, and its members include corporations such as Telstra, BHP, Esso, Mobil, News Limited, Proctor and Gamble, Kelloggs, the Australian Industry Group, and the Business Council of Australia.

Perhaps most noticeable in the public relations effort has been Alan Oxley, whose company International Trade Strategies has been "engaged" to manage the public relations for this group. [78] Oxley has been quite prolific in his efforts to blur the lines between political rhetoric and commercial services, appearing in as many fora as will have him. He has been on radio talkback programs, featured in an online debate against AMWU secretary Doug Cameron [79], and written a number of articles in support of the preferential trade agreement. The supporters of neoliberalism and economic rationalism can even find themselves a way to make money while pushing for the further global ascendance of market fundamentalism.

 

References

note: it is best to open external links in a new window [right click on the link then select 'Open in new window']

[1] Ross Garnaut, "An Australia-United States Free Trade Agreement," Australian Journal of International Affairs, vol 56 no. 1, p 123
[2] Mark Vaile, AM, ABC Radio, 4/3/2003
[3] APEC Studies Centre, 2001, p 48
[4] ACIL Consulting, "A Bridge Too Far: A Report for the Rural Industries Research and Development Corporation", February 2003. Available at www.rirdc.gov.au/reports/GLC/ACIL-ABridgeTooFar.pdf
[5] Inside US Trade magazine, 16/5/2003
[6] Michael Emmery, "Australian Manufacturing: A Brief History of Industry Policy and Trade Liberalisation", Department of the Parliamentary Library research paper, 1999, p.20
[7] Emmery, Ibid, p.12
[8] News Weekly, Part B: A history of economic rationalism in Australia, at http://www.newsweekly.com.au/articles/2001jan13_partb.html
[9] Emmery, Ibid, p.12
[10] Commonwealth of Australia, Building a Competitive Australia, 12/3/1991, at 2.1
[11] Commonwealth of Australia, Building a Competitive Australia, 12/3/1991, at 1.5
[12] See http://www.dfat.gov.au/trade/opening_doors/tariff_review/tr_final_d.html The APEC leaders' declaration is available at http://www.dfait-maeci.gc.ca/canada-apec/indDec-en.asp
[13] News Weekly, Ibid
[14] see summary at http://www.globalissues.org/TradeRelated/MAI.asp
[15] see http://www.oecd.org
[16] For a more comprehensive history of the MAI, see the excellent Global Issues website at http://www.globalissues.org/TradeRelated/MAI.asp
[17] For a good overview of protests against corporate globalisation around this time, see http://www.globalissues.org/TradeRelated/FreeTrade/Protests.asp
[18] Alan Wood, The Australian, Tuesday May 27
[19] Doug Cameron, online debate with Alan Oxley at http://www.onlineopinion.com.au, 27/5/2003
[20] There is a good description of this at http://www.globalissues.org/TradeRelated/FreeTrade/Doha.asp
[21] Frances Perkins, Executive Director, DFAT Economic Analytical Unit, on AM, ABC radio, 26/5/2003
[22] James Fallows, How the World Works, Atlantic Monthly, at http://www.theatlantic.com/politics/foreign/fall1f.htm
[23] Andrew Reding, "US Free Trade Policy Not as Free as It Appears", Pacific News Service, 23/4/2001; also on alternet, http://www.alternet.org/story.html?StoryID=10760
[24] Cedric Muhammad, "Bush, Steel, and US Free Trade Lies," www.blackelectorate.com 19/6/2001, at http://www.alternet.org/story.html?StoryID=11069
[25] see US Congress proceedings at http://www.house.gov/rules/108rule1588_2.htm
[26] Hamer, Rodeck, Feil, Aldred and Byrne
[27] Hamer, Rodeck, Feil, Aldred and Byrne
[28]http://www.aftinet.org.au/campaigns/tradeinservices1.html
[29] Good information on the FTAA is available at http://www.citizen.org/trade/ftaa/index.cfm The official site is http://www.ftaa-alca.org
[30] Cedric Muhammad, "Bush, Steel, and US Free Trade Lies," www.blackelectorate.com 19/6/2001, at http://www.alternet.org/story.html?StoryID=11069
[31] Mark Vaile, AM, ABC Radio, 4/3/2003
[32] The US Trade representative site is http://www.ustr.gov/about-ustr/index.shtml For the official history of Zoellick see http://www.ustr.gov/about-ustr/ambassador/zoellick.html
[33] The full text of the letter is online at http://www.ustr.gov/releases/2002/11/2002-11-13-australia-hastert.PDF
[34] Dr. Pat Ranald, at launch of AFTINET leaflet Trading Australia Away, NSW Parliament House, 20/5/2003
[35] AFTINET submission to Senate inquiry
[36] see US Congress rules at http://www.house.gov/rules/108rule1588_2.htm
[37] Mark Vaile, AM, ABC Radio, 4/3/2003
[38] Dr Peter Sainsbury, Public Health Association of Australia President, at launch of AFTINET leaflet Trading Australia Away
[39] Robert Zoellick's letter to Congress
[40] AFTINET submission to Senate inquiry
[41] Canadian Union of Postal Workers website, http://www.cupw.ca/pages/document_eng.php?Doc_ID=258
[42] see http://www.citizen.org/documents/ACF186.pdf , or http://www.naftaclaims.com/Papers/JWI%20Article%20Final.pdf
[43] AFTINET submission, p 3
[44] Linda Mottram, interview with Trade Minister Mark Vaile, AM, ABC Radio, March 4 2003
[45] This is referred to in the AFTINET submission, p. 3. For a summary of the Farm Bill, see US Government site http://agriculture.house.gov/farmbill.htm
[46] AFTINET submission, p 3
[47] Ross Garnaut, "An Australia-United States Free Trade Agreement," Australian Journal of International Affairs, vol 56 no. 1
[48] Garnaut, p. 139
[49] Garnaut, p. 136-137
[50] Craig Emerson, "Continental Drift: whatever happened to Australia's trade policy?", Address to the Centre for Public Policy, University of Melbourme, 3/9/2002
[51] Ross Gittens, "Free-trade agreement is Howard's ticking bomb", Sydney Morning Herald 9/12/2002
[52] Centre for International Economics, "Economic Impacts of an Australia-United States Free Trade Area", 2001. This report was commissioned by the Department of Foreign Affairs and Trade.
[53] Garnaut, as before.
[54] Ian Henderson, report on AM, 26/5/2003
[55] Australian Financial Review, 27/5/2003
[56] Productivity Commission research, as reported in The Australian, 26/5/2003
[57] ACIL, quoted on AM, ABC Radio, 26/5/2003. The ACIL report is available at http://www.rirdc.gov.au/reports/GLC/ACIL-ABridgeTooFar.pdf
[58] Ian Henderson, AM, ABC Radio, 26/5/2003
[59] AM, ABC Radio, 26/5/2003
[60] Tim Colebatch, "US, Australia likely to talk on free-trade", The Age, 14/11/2002
[61] Full text of the letter is at http://www.ustr.gov/releases/2002/11/2002-11-13-australia-hastert.PDF
[62] AFTINET's submission is available at http://www.aftinet.org.au/campaigns/usftasubmission1.html
[63] Sydney Morning Herald, 15/11/02, as quoted in AFTINET's submission on the US-Australia free trade agreement
[64] White House, A National Security Strategy for a New Century, p. 1, as cited in Donald Losman, "Economic Security: A National Security Folly?", Policy Analysis, August 1, 2001, p.2
[65] Inside US Trade magazine, 16/5/2003
[66] Marcela Sanchez, "Chile Slapped By Heavy Hand from the North", Washington Post, 18/4/2003
[67] Ibid
[68] Ibid
[69] Gillian Bradford, PM, ABC Radio, 27/5/2003
[70] PM, ABC Radio, 27/5/2003
[71] Ibid
[72] Inside US Trade magazine, 16/5/2003
[73] http://www.ipa.org.au
[74] http://www.cis.org.au
[75] The Cato Institute resides at http://www.freetrade.org
[76] http://www.aaftac.com
[77] http://www.austa.net
[78] http://www.austa.net/whoAreWe.htm
[79] This is well worth a read: http://www.onlineopinion.com.au