Interview: Cowboys and Indians
Industrial: Seven Deadly Sins
Unions: The IT Factor
Politics: Bargain Basement
Environment: An Inconvenient Hoax
Corporate: Two Sides
International: Unfair Dismissals
History: A Stitch in Time
Review: The Wind that Shakes the Barley
The Road to Bangalore
The first anniversary of the implementation of the Australia-US Free Trade Agreement on January 1, 2006 was marked by two events that encapsulated the clashes of interests expressed in debates about the economic impact of the agreement and its impacts on social policies like access to medicines that had raged during its negotiation.
The first event was the publication of trade figures that revealed that Australia's trade deficit with the US had increased by $1.3 billion in the twelve months to October 2005. Australia's exports to the US fell by 4.7%, while US exports to Australia rose by 5.7%). These figures were accompanied by media stories featuring interviews with Australian agricultural and manufacturing exporters experiencing continued practical difficulties in gaining access to US markets. Opinion pieces in relatively conservative newspapers like the West Australian and the Brisbane Courier Mail also questioned the benefits of the agreement.
The second event was the announcement by the US government that it intended to use the annual review of the agreement due in March 2006 to seek changes to Australian legislation regulating intellectual property rights and medicines. The US was demanding the removal of an amendment to the implementing legislation of the AUSTFTA, moved by the ALP and supported by the minor parties in the Senate in August 2004 when the government had lacked a majority in the Senate. The amendment seeks to prevent pharmaceutical companies from using spurious legal tactics to extend patents and thus continue to charge higher prices for their products. The US government also indicated that it wanted to raise other issues about the administration of Australia's Pharmaceutical Benefits Scheme (PBS) that it believed were inconsistent with the agreement and disadvantaged the interests of pharmaceutical companies by restricting prices and removing incentives for investment in innovative medicines. The flood of outraged letters to the editor urging the government not to agree to any changes to medicines policy at the lazy height of the summer holidays reflected opinion polls that showed the majority of Australians saw the agreement as a bad deal.
The Australian Minister for Trade, placed on the defensive, gave assurances that there would be no concessions that would affect the PBS. At the same time he responded positively to demands from farmers that the Australian government seek to have access to the US sugar market, which had been excluded from the agreement. Following the review on March 7, which took place behind closed doors, the US government ruled out any change in access to sugar markets, and the Australian Trade Minister denied that there would be any changes to the ALP amendment, although both said there could be continued discussion of these issues.
Successive US governments have pursued the neoliberal trade agenda through multilateral negotiations in the WTO. In addition, over the last decade the US has pursued preferential free trade agreements intended to remove all trade barriers at a faster pace than multilateral negotiations. The US has pursued such agreements despite the fact that conventional trade economists are critical of such agreements because they give preferential treatment to the partners but exclude others. Studies show that preferential agreements increase trade between the partners, but reduce trade with other countries
US governments have used their leverage as the world's most powerful economy and the host country for many of the largest transnational corporations to pursue bilateral and regional preferential trade negotiations aggressively.
These agreements seek to impose US-style legal frameworks that increase the legal rights of corporations and reduce the rights of governments to regulate corporate activity in the interests of more vulnerable groups. They are a very clear assertion of particular US corporate interests, and reflect their influence on US governments.
This US preferential trade strategy was intensified after September 2001, when US governments explicitly linked trade agreements and military alliances.
Social forces For and Against the FTA in Australia
The Australian government decision to pursue preferential agreements was a shift away from its previous commitment to multilateralism, and went against the advice of many trade economists in its own trade bureaucracy and in academia. This decision was made before September 2001, but was strengthened after September 11 by a substantial shift in Australian foreign policy to give greater weight to the US military alliance in the "War on Terror," and to join the US military alliance in the invasion of Iraq. In a series of discussion papers culminating in a White Paper, trade policy was linked more explicitly with this new foreign policy than in the past. The government argued that a free trade agreement with the US "would put our economic relationship on a parallel footing with our political relationship".
However, the move to support a free trade agreement was initiated by key business interests before 2001. An account by Australian Financial Review journalist Mark Davis based on interviews with key government and business players has revealed how the government's change of policy began in 2000 and was influenced by industry interests and by the change of government in the US. Investors from the wine and other industries were disturbed when the US suddenly raised tariffs on lamb imports in 2000. They lobbied for an FTA in the belief that it would prevent the US from arbitrarily raising tariffs in the future.
The Australian Cabinet made the decision to pursue a bilateral agreement soon after the election of George W. Bush in November 2000, but the decision was not publicised. The government then "used 2001 and 2002 to develop an intellectual justification for the shift in Australian trade policy and to create pro-FTA business lobbies in both countries" and "the federal bureaucracy was swung into action to produce the policy advice and economic research to provide intellectual ammunition to support the government's decision"
This effort resulted in the creation in 2001 of AUSTA, a business coalition initiated by the Southcorp Wine Corporation and run by Alan Oxley, director of the APEC Studies Centre, who became the main public Australian business lobbyist for the AUSFTA. Members included the Australian Chamber of Commerce and Industry, the American Chamber of Commerce in Australia, the Australian Industry Group, the Minerals Council of Australia and the Business Council of Australia, all representing major corporations, many of which are US-based transnationals, as well as many individual major US corporations with subsidiaries in Australia. As the negotiations developed, Medicines Australia, with a significant membership of local subsidiaries of US pharmaceutical companies, played a separate role in lobbying for greater rights for pharmaceutical companies in the PBS and intellectual property law. The key missing business player was the National Farmers Federation (NFF). The NFF was reluctant to support an FTA because they were not confident that an FTA would achieve real agricultural market access for Australian farmers and were aware that it would leave US agricultural export subsidies untouched. The NFF leadership were concerned that "the preoccupation with an FTA should not detract from the bigger prize of global agricultural trade liberalisation and that Australia's farmers would not agree to an FTA that failed to win significant gains in market access.". The NFF only joined AUSTA after a change in NFF leadership in 2002. These initial concerns of the NFF proved to be accurate when the text of the FTA emerged two years later.
The government commissioned commercial consultants at the Centre for International Economics (CIE) to do econometric modelling of the impact of an FTA. This study found that the immediate removal of all trade barriers would result in an increase in Australia's GDP of $US2 billion ($A4 billion) or 0.3% after 10 years. This somewhat modest result was combined with a more polemical study by Oxley's APEC Study Centre. This boldly claimed that, since the Australian economy was only 4% of the US economy, (roughly the size of the state of Pennsylvania), a free trade agreement would deliver further dynamic but unmeasurable benefits by integrating Australia into the US economy and by adoption of US models of deregulation and business practice.
The CIE study's assumptions about removal of all trade barriers were questioned by other trade economists, and its results were contradicted by another study with less heroic assumptions done by ACIL consultants for the Rural Industries Research and Development Corporation. This study, also done in 2002, reflected the original scepticism among farmers about agricultural market access, assumed limited market access, and found that there would be net losses to the Australian economy from an FTA.
But the major public scepticism about the FTA arose from the US government identification of Australian health, social and cultural policies as barriers to trade and therefore targets in the negotiations. A letter from the US Trade Representative to the US Congress that identified major Australian trade barriers, and publications of the US pharmaceutical industry, alerted community organizations that price controls on medicines under the Pharmaceutical Benefits Scheme, Australian content laws for film and television, quarantine laws, labelling of genetically engineered food and the Foreign Investment Review Board were all seen by the US as targets. Community groups feared that the disparity of economic power between the US and Australian governments so graphically documented by the APEC Studies Centre would result in a weak bargaining position and the trading away of these policies.
In summary, Australian government support for a bilateral trade agreement was based heavily on specific lobbying from corporate groups, including US-based groups that perceived benefits from an FTA. But the government's own broader political support for the neoliberal economic model also played a role, overcoming traditional "national interest" concerns, including the concerns of farmers disappointed by the exclusion of sugar markets and the long lead times for access to other agricultural markets. Support for neoliberal ideology meant that the government believed that "integration" with the US economy and adoption of US regulatory frameworks was an opportunity to lock in neoliberal policies that would contribute to economic growth, with claimed benefits for all social groups. This ideology was strong enough to motivate suppression of conventional economic studies that showed no benefits to the Australian economy from such an agreement. After September 2001, this neoliberal ideology was reinforced by the perceived need to strengthen the US military alliance. After 14 months of high-profile negotiations, including an Australian visit by President Bush, the Prime Minister was not prepared to walk away from a poor deal, and overruled both the recommendations of the trade negotiators and the doubts of the Trade Minister.
Opponents of the FTA criticised the US economic model, and argued that changes to social policies like access to medicines and reduction of government's ability to regulate in other areas would diminish democratic rights and result in greater social and economic inequality. These opponents succeeded in reducing support for an FTA shown in opinion polls to minority levels, and in persuading opposition parties to adopt policies critical of the FTA. They also influenced the some aspects of the content of the agreement, which does not contain all the extremes of the NAFTA model. However, the ALP in the end supported the FTA implementing legislation, albeit with amendments, as the dominant faction responded to corporate lobbying.
The experience of the AUSTFTA is also having a broader influence on public debate about the wisdom of other proposed bilateral agreements, with some influential commentators arguing strongly that bilateral agreements with large economies are inherently unequal and should be rejected. For example, Professor Peter Drysdale of the Asia-Pacific School of Government at Australian National University was quoted as follows in an article entitled "Trade: Warning on FTA duds" in the Business Review Weekly:
'The nature of these free trade agreements makes it very unlikely, except in a few commodities, that they will have any significant impact on Australia's trade performance. But more than that, if we squib negotiations with China like we did with the US, Australia will be in the worst of worlds".
Michael Costello, a former advisor to the Labor Party, in an article in The Australian entitled "Done like a dinner on the Free Trade Deal," argued that the failure of the USFTA to deliver benefits for Australia has wider lessons for Australian trade policy than a failure of negotiating tactics." He added "Even if the government has learned nothing from this episode, let's hope that Labor will reject out of hand any future free trade agreements with large economies such as Japan and China. Labor should be able to argue convincingly that, having been done over by the Americans, we have no desire to let it be done to us again, ".
The ongoing public debate about the impact of the agreement and the wisdom of bilateral agreements provides space for ongoing contests of interests over the AUSFTA itself, especially if economic benefits continue to be elusive and the US government continues to press for further changes to the PBS, or uses the disputes process to challenge aspects of the PBS or other social policies. The AUSFTA has a provision for either government to give six months' notice to end the agreement (AUSFTA Text Article 23.4). This is a relatively simple process without penalties, which could be triggered by popular pressure if the disputes process were used to further challenge social policies like the PBS. This would be strongly resisted by corporate interests that see benefits in the agreement, and is not likely to occur under the Howard government, which has a major political investment in the agreement. However, the range of critical commentary indicates that it might conceivably find its way into Opposition policy, especially if there are ongoing threats to the PBS, including threats of the removal of the ALP amendments to the implementing legislation.
The AUSFTA clearly demonstrates the contest of social forces and interest that opposed and supported the AUSTFTA. The corporate interests included a range of US transnational corporations with interests in the US and Australia, organized through AUSTA, and US pharmaceutical companies and their Australian subsidiaries. However, Government and corporate advocacy for the agreement was publicly contested by a wide range of community-based interests, who debated both the secrecy of the process and the content of the agreement, and influenced public opinion against it. These community interests also influenced some aspects of the content of the agreement, most notably the lack of an investor-state disputes process. The inclusion of environment and labour chapters in the agreement create an embarrassing problem for the government, and provide the basis for unions and other community interests to argue for their inclusion in other trade agreements.
The continued community interest opposition to the AUSTFTA was demonstrated by the public reaction to the anniversary of the agreement, and widespread criticism by influential commentators about the outcomes of the AUSFTA and the dangers of bilateral agreements more generally. These assertions of community interests keep open the possibility that the AUSFTA will continue to be a site of contesting interests and a reference point that will influence future trade policy.
Patricia Ranald is Principal Policy officer at the Public Interest Advocacy Centre
This is an edited extract from a comprehensive paper in the Journal of Australian Political Economy no. 57, June 2006 http://jape.org
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