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THE
politics of the proposed free trade agreement with the United States get stranger and stranger. The US is demanding a wide range of politically sensitive concessions on non-trade issues, yet is offering little in return.
As the December 31 deadline for completing the FTA nears, the US still wants to force Australian taxpayers to compensate American investors who are hurt by policies to protect our environment or help regional Australia. Based on Canada's experience with a similar agreement, an American courier company could demand compensation for being unable to compete against Australia Post's standard letter rate. Despite the political difficulties in the inherent apparent undermining of Australian sovereignty, the compensation payments will often make it financially untenable to retain laws which fall foul of the FTA. This is one reason the Howard Government takes the position that it sees no need to include such compensation arrangements in a trade agreement with the US. In contrast, it believes Australian investors can gain from these sorts of provisions in agreements with Third World countries. At this late stage, however, the US still wants the compensation clauses in any agreement with Australia. Contrary to earlier impressions, the US also wants the FTA to make it easier to slug Australian taxpayers with higher prices for American drugs covered by the Pharmaceutical Benefits Scheme. According to the Productivity Commission, the PBS currently saves taxpayers about $2 billion a year by using its centralised buying power to keep prices down. US negotiators also want to weaken local content rules in new areas of the |
entertainment and media industries and
soften Australian quarantine rules. Not surprisingly, many farmers object to
any lowering of quarantine standards which already meet World Trade Organisation requirements to ensure they are used only for disease control purposes.
So what is Australia supposed to get in return? An FTA was never going to "set Australia up for the next 50 years" as claimed by John Howard. Apart from agriculture, the two economies already have so few trade barriers that an FTA can't make a big difference.
Talk about suddenly gaining access to an American market of 280 million people missed the point. As the Canberra-based Centre for International Economics notes, Australia enjoys good access to most areas of the US market. On the other hand, the US faces relatively small tariffs on selling cars and footwear, clothing and textiles to Australia -- not that it produces much of the latter anyway. The main benefit for Australian exporters would be if the US scrapped all barriers to agricultural imports. According to modelling by the Centre for International Economics, the biggest winners would be the sugar and dairy industries. (Other modelling by consultants ACIL concludes there would be a small net loss overall from an FTA.) Government insiders say Mr Howard hopes an FTA will please sugar growers in coastal electorates in Queensland. |
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But US negotiators have reportedly made only minor offers on sugar, mostly grown in Florida where George Bush's brother Jeb is Governor.
But even if the US allowed unlimited access to its sugar market, many Australian growers would still lose financially. The weekly newsletter "Chalmers in Canberra" recently revealed the grim news in the Treasury's comments on the package of sugar industry assistance which went to Canberra last September. The confidential submission says: "The fundamental problem with sugar is that it is unprofitable at the prevailing world price."
Given that US importers are not going to pay more than the world price, an FTA is not going to work wonders for sugar growers. Nor does it make much sense to expand the dairy industry after consumers have been hit with $1.5 billion in levies to help farmers leave the industry. Another unanswered question involves the environmental costs of the extra water, pesticides, and fertilisers needed to expand |
Australian agricultural production in the unlikely event that the US abolished all import barriers.
Once the final US position is known, the modelling should be re-done to compare the full costs of all its non-trade demands in areas such as the PBS and investor compensation against its offer on agriculture. But Mr Howard will be in no hurry to do this. The results would almost certainly show he has made a rare [sic!] political miscalculation. Although Mr Bush might be willing to reward Mr Howard for his initial support in the invasion of Iraq, any FTA has to be approved by the US Congress where the farm lobby remains powerful. The Australian Parliament does not have to ratify the FTA. The details will have to become public. The Senate could then reject unpopular elements such as changes to the PBS. If that looked like happening, however, the US Congress would be even less likely to ratify the FTA. |
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