The Real Deal:
Reading between the lines of the Australia-US FTA
On the Department of Foreign Affairs and Trade Website, the Government has listed what it sees as the major ‘wins’ for Australia under the AUSFTA. But in the most crucial areas, the government is only telling half the story. Check out The Real Deal:
(Actual Government text is in bold, taken from the DFAT website. For their full report see: http://www.dfat.gov.au/trade/negotiations/us_fta/outcomes/02_key_outcomes.html
1. Agriculture
#1‘The AUSFTA will give Australian agriculture a significant boost in the US market.’
* The Real Deal:
Under the deal, we have agreed to completely open our market to all US agricultural exports, removing all tariffs, quotas, seasonal restrictions and subsidies from day one. But the US is allowed to keep many of its tariffs, quotas, seasonal restrictions and (enormous) subsidies in place. This isn’t free and it isn’t fair.
#2 ‘Two thirds of all agricultural tariffs – including in important commodities such as lamb, sheep meat and horticultural products, will be eliminated immediately a further 9 per cent of tariffs will be cut to zero within four years.’
* The Real Deal:
Some tariffs might come down – but not for our most competitive exports. Tariffs remain in place for key sectors like wool (10 years), wine (11 years), steel, as well as beef, dairy, horticulture and cotton (18 years!!)
Also, if our exports to the US rise ‘too quickly’, or our prices are too competitive against the exchange rate, the US can slap their tariffs back on, no questions asked.
And while Canberra chimes, ‘we’ve got new market access for x,y,z’, they don’t tell you about ‘seasonal restrictions’. Under the deal, our Avocado producers are allowed to sell to the US for the first time. But the catch is, during our peak production times, the amount we are allowed to sell to the US is strictly limited. No such barriers will remain at this end. Not free, not fair.
#3. ‘The AUSFTA provides greater access to the US market for two of Australia’s key agricultural export industries, beef and dairy.’
* The Real Deal:
Our beef and dairy producers have to wait almost a generation (18 years) for the elimination of US quotas and tariffs. This is longer than any DEVELOPING country has ever been given by the World Trade Organisation (WTO) to prepare for competition.
As for dairy, US farmers only agreed to let us in because we won’t be competing directly with US producers (i.e., we will be selling certain kinds of cheese that will displace European imports, not US products)
#4 Australia’s sugar access remains unchanged at 87,000 tonnes per annum.
* The Real Deal:
Our sugar producers got nothing from the deal, even though the government promised it would not sign a deal that locked sugar out. Now we will spend millions of dollars closing down many Australian sugar growers and mills. This is a loss for Australia, not a gain.
#5 ‘Australia’s quarantine and food safety regimes, which ensure our health and our environment are protected, are not affected by the Agreement.’
* The Real Deal:
Under the deal, we have agreed to let US trade representatives sit on the bodies that consider our quarantine standards. This will expose our quarantine regulators to even more pressure to compromise science-based risk assessment, placing animal, plant and human health at risk. We do not have a good track record of resisting the persistent US pressure to relax our stringent quarantine standards. Last year, we started importing Californian table grapes following 10 years of relentless pressure, even though the grapes are infested with diseases that could ruin not only our grape (and wine) industry, but also our mango and avocado orchards and eucalyptus forests. But don’t worry, we are ‘decontaminating’ the grapes with methyl bromide – a known carcinogen that is one of the most toxic chemicals known to humans, and which will be banned in the US from next year (except for fumigating trade produce….). In response to US pressure, we have also relaxed our quarantine protocols to allow in pest- and disease-affected pork, poultry, citrus and stonefruit and are proposing to relax protocols to allow in apples, pears and bananas.
2. Manufacturing
#1 ‘Duties on more than 97 per cent of US non-agricultural tariff lines (excluding textiles and clothing), worth $6.48 billion in 2003, will be duty free from day one of the Agreement.’
* The Real Deal:
Manufacturing tariffs between Australia and the US are already very low, except in a few key areas. And in the few areas where tariffs do exist in the US – many will remain. For example, we will still be prohibited from selling our world class, highly competitive fast ferries to the US. But again, the US gets 99% access to our market, no questions asked. (The US enjoys a huge trade surplus with Australia in manufactured goods and calculates a further US$2 billion in its favour as a result of the deal.)
#2 Tariffs on textiles, some footwear and a handful of other items will be phased out, with all trade in goods free of duty by 2015.’
* The Real Deal:
But in place of tariffs, we will have to comply with complex ‘Rules of Origin’. Rules of Origin mean that the goods you export have to contain a certain level of ‘Australian Made’ content to qualify for tariff reductions in foreign markets. That means that our textile producers who import their yarn will probably not qualify for any concessions at all. Singapore thought it was getting a bargain under its free trade deal with the USA. But it found the rule of origin conditions so hard to meet that it doesn’t even bother applying for tariff reductions now. It just pays the tariff.
3. Government procurement
#1 ‘The A$200 billion market in US federal and most state government purchases of goods and services will now be open to Australia.’
* The Real Deal:
Our access to the US procurement market will be severely limited by a number of barriers and discriminatory policies. A major barrier, indicated below, is that the US government has retained the right to give preference to its ‘small’ firms — which are not small at all — employing up to 1,500 people. How many Australian companies applying for procurement contracts in the US will employ more than 1,500 people?
Also, we will be competing with hundreds of much larger US firms in our own market – firms that the US government supports with what it calls ‘aggressive advocacy’. That means the US government gives subsidies to US firms to help them win foreign procurement contracts.
Basically then, our government expects us to be able to compete in a huge US market alongside millions of protected ‘small’ US firms (employing up to 1,500 people), and in our own small market alongside many hundreds of US firms also subsidised by their own government. How can we possibly win?
We won’t win, and the government knows it — we didn’t sign the WTO Government Procurement Agreement (WTO GPA) because the government’s OWN REPORT on the matter concluded that access to the US market would remain limited by domestic regulations (see DFAT 1997). So why has the government suddenly changed its tune? If competition in government procurement is so good, why don’t we just sign the WTO GPA?
#2 ‘Australia will have a waiver from US programs favouring US firms and products.’
* The Real Deal:
While 28 other countries also have such a waiver, in practice, Buy American laws continue to influence the purchasing strategies of many US agencies. The vast purchasing budget of the Homeland Security agency is being used to acquire American produced goods without competitive bidding. And a law currently before the US congress will make it extremely difficult for waivers to be granted. The ‘Buy American Improvement Act of 2004’ is aimed at restricting waivers of the Buy American law to prevent foreign firms gaining procurement contracts, and thus protect US companies.
More worryingly, we have agreed to scrap our ‘industry development programs’. These allow us to set conditions in return for granting procurement contracts to foreign suppliers in our own market. Such offset programs produce net benefits for Australian industry and employment, for example, by stipulating that suppliers source local inputs, employ a certain percentage of Australians, transfer technology, or similar actions. All this is to disappear. In particular, our young information and communications technology industry, which has made important strides under the mandated component of the procurement program, can expect to lose out to the tactics of a well-subsidised Microsoft.
So while the US can keep and strengthen its ‘Buy American’ Act under the deal, and continue to subsidise its major exporters, we have agreed to abandon our development programs (the so-called ‘Microsoft clause’).
#3 ‘Australian preferences for small businesses and indigenous people will remain.’
* The Real Deal:
So will America’s. And the funny thing is, our government defines a ‘small business’ as a business employing up to 20 people. As we noted above, The US defines small business as a business employing up to 1500 people!! So it will be able to give preference to companies that are huge by Australian standards. How will we compete with that?
Intellectual property
#4 ‘Australia’s IP laws will be substantially harmonised with the largest intellectual property market, and a global leader in innovation and creative products.’
* The Real Deal:
And this is supposed to be a good thing? Intellectual Property protection under the WTO and WIPO treaties is more than enough to make sure that innovators are rewarded for their efforts. Extending patent protection in pharmaceuticals will delay the critical introduction of generic drugs for even longer, making us pay more and more for medicines. Patents extending copyright (well beyond the life of any author) – the so-called ‘Disney clause’ — will mean that libraries and educational institutions will have to pay royalties for even longer – a cost that many institutions will not be able to bear.
4. Investment
#1 ‘Australia has secured an agreement that should provide a strong framework for continuing to promote high levels of two-way investment between Australia and the US. ‘
* The Real Deal:
This would be fine, if it meant that the US would carry out more wealth creating, productive or technologically upgrading investment in Australia. Over the past 10 years, the vast majority of US investment in Australia has been for the purchase of Australian firms and assets – that is, the simple transfer of wealth from Australian to US hands. US ‘Greenfield’ investment in Australia – investment in new businesses which creates more jobs for Australians – is miniscule in comparison. And there is nothing in the deal to ensure that US investment in Australia will become more productive in the future.
#2 ‘The Agreement preserves Australia’s foreign investment policy, but with a range of changes that maintain our ability to screen all investment of major significance.’
* The Real Deal:
Fact or fiction? We have given up the right to screen all foreign investment beneath a threshold of $800 million! That means 90% of all Australian companies could now be purchased without screening. But the effective end of screening is less problematic than the removal of all conditions attached to foreign investment to ensure it is fruitful for the Australian economy.
5. Health
#1 ‘Access by Australians to affordable medicines under the PBS will be maintained under the AUSFTA.’
* The Real Deal:
Wishful thinking! Australia’s PBS is seen as the ‘gold standard’ of affordable public healthcare by the rest of the world. US state governments have been trying for the past 10 years to build their own PBS, but US Pharmaceutical companies keep taking them to court to prevent this as it would undermine their massive profits! US drug companies are now keen to destroy our PBS to ensure fatter profits.
Under the deal, we have given the drug companies what they least deserve: increased protection against generic producers, a new body to sell the virtues of over-priced US drugs to Australians (the Medicines Working Group), and an independent appeals process to challenge the listing decisions of the PBAC–all of which will increase the price of the existing pharma bill by $1.5 billion (without any added health benefits), and place more onerous burdens on the PBS.
#2 ‘The Agreement reinforces Australia’s existing framework for intellectual property protection of pharmaceuticals’.
* The Real Deal:
Nice sentiment, but who’s protecting whom? So we have a framework extending the life of pharmaceutical patents — but who is this protecting? Not the Australian pharmaceutical industry — mainly generics producers — who will now have to wait longer to introduce their more affordable versions of overpriced US drugs. And not the Australian public, who will have to fork out more money for ‘brand name’ medicines for longer periods. And not the PBS, which will have to extend their subsidisation of expensive brand-name medicines with Australian taxpayers money. So who is being protected?
Conclusion
So how did our government come to negotiate our country into this glaringly lopsided, nationally detrimental agreement?
Evidence presented in this section points to the fact that the Australian government’s deluded sense of the ‘special’ nature of its relationship with the US saw it enter into negotiations under a misguided assumption: that the US would modify its publicly proclaimed approach to international trade negotiations (i.e., its ‘aggressive advocacy’ of US business interests in overseas markets) in order to further the ‘special friendship’ that our countries are believed to enjoy.
It is a fact that the Australian negotiating team originally anticipated the attainment of a comprehensive and nationally advantageous free trade deal, including a comprehensive deal in Agriculture. This accords with DFAT’s understanding of what actually constitutes an FTA; according to DFAT’s web page entitled ‘Free Trade Agreements: What Are Free Trade Agreements’:
The crucial test of an FTA or Customs Union is that it must eliminate all tariffs and other restrictions on substantially all the trade in goods between its member countries … this means, at the very least, that a high proportion of trade between the parties – whether measured by trade volumes or tariff lines – should be covered by the elimination of tariffs and other restrictive trade regulations. Australia considers that this must be a very high percentage, and that no major sector should be excluded from tariff elimination.1
It is a fact that Australia’s negotiators, led by Mark Vaile, believed the attainment of such an agreement would be possible due to our ‘special relationship’ with the US (as indicated in the quote below).
It is a fact that the Australian negotiating team sold the idea of an AUSFTA to Australian industry constituents (both at home and in the US) on the grounds that the deal agreed to would be comprehensive.
1 http://www.dfat.gov.au/trade/ftas_what_are_they.html
It is a fact that Australian business people working in the US and familiar with the US political system believed such a deal was impossible, and that the US had no intention of granting substantive market access concessions to Australia in a range of areas in which we are highly competitive (including sugar, beef, dairy, and a range of horticultural industries such as stone-fruit).
It is a fact that US-based Australian business representatives expressed these concerns to Mark Vaile during a visit to the US in 2003 to muster support for the negotiations. It is also a fact that Vaile insisted that a comprehensive agreement would be possible due to our ‘special’ relationship with the US.
It is a fact that Australia’s US-based business people were right and Vaile was wrong. But Australian business people in the US never believed for a moment that the Australian government would actually push ahead with a deal that clearly fell so short of its original goals, and which, as this Submission makes clear, in many ways puts Australia’s economic future at risk. As one US-based Australian Senior Executive explained:
Mark Vaile, assisted by the Department of Foreign Affairs and Trade, organised a breakfast meeting of Australian business leaders in New York last year to enlist our support for the FTA and AAFTAC. I was highly sceptical that the government could achieve a comprehensive FTA, having experienced the US political system for six years. I actually asked Mark to stop calling the negotiations a “free-trade” agreement as it never would be “free”. The government needed to avoid overselling it to the Australian public, otherwise they would make Americans look disingenuous. The Americans had no intention of granting full “free trade”.
We were assured at this breakfast by Mark that given the “special” relationship the two governments had, there was a real chance to conclude a comprehensive agreement and we should do all we could to support it.
We concluded that if the government was right and it had this “special” relationship, a comprehensive agreement really would be a significant achievement. If the government was incorrect, as the business community suspected, they would find out and back away, opting for traditional multilateral approaches.
These were the two options. Mark found a third and signed an agreement that was not under consideration by the community and was outside the mandate as we understood it and betrayed many of us … That the government signed the agreement, knowing it is economically damaging to Australians, smacks of disrespect and desperation. One is left wondering if we need laws to prevent a government making agreements it knows are economically disadvantageous to Australians.2 (emphasis added)
The belief that the US would approach its negotiations with Australia any differently from the way in which it negotiates agreements with other countries (i.e. on the basis of ‘aggressive advocacy’), bears testimony to the naivety of Australia’s negotiators.
The fact that our government is seeking to paint meagre concessions (and horrendous potential damages) as overall ‘wins’ for Australia is at best naïve and at worst anti-Australian.
It is clear that the costs of this deal will dramatically outweigh the benefits and cause irreversible damage to our economy, to our major national institutions, and to our enviable status as a disease-free producer.
Visit www.australianinterest.com for more information about the deal
2 Oliver Yates, ‘Betrayed by our own Sycophantic Team’, Australian Financial Review. February 16, 2004. These are Yates’ personal views, not the official views of his employer or the American Australian Association of which he is a member.