The U.S.-Australia Free Trade Agreement.

In "How to Kill a Country: Australia's Devastating Trade Deal with the United States", (1) Professors Linda Weiss and John Mathews, with Elizabeth Thurbon, present matters of grave concern in regard to the recently-negotiated U.S.-Australia Free Trade Agreement. They commence with the following summary of U.S. intentions:

   "Propose a trade deal with the
   world's most powerful country, the
   one with the longest track record of
   negotiating Free Trade Agreements.
   This country must be equipped with
   a strong Congress that insists on debating
   and approving the country's
   initial negotiating position (i.e. what
   it wants from the deal, and what it
   will not give away). It must also
   have in place a well-developed system
   for comprehensively reviewing
   the agreement prior to Congressional
   approval. Your partner will
   thus have clear goals from the outset,
   and will not settle for anything
   less. You, on the other hand, should
   go into the negotiations with minimal
   preparation, armed only with
   the misguided belief that you have
   a 'special relationship' with your negotiating
   partner, and that your
   'best friend and ally' will look after
   your interest. Forget about getting
   approval from your Parliament, or
   establishing a firm negotiating
   process with major stakeholders.
   Simply allow the Prime Minister responsible
   for the deal to sign it, then
   rush it through Parliament without
   meaningful public debate. Then
   cross your fingers and hope for the
   best. In no time at all, you will have
   an agreement just like ours: the
   Australia-U.S. Free Trade Agreement."

The authors give many examples of bad outcomes of the negotiations. For instance, in regard to agriculture, they state that Australia will completely open its markets without tariffs, quotas, restrictions and safeguards, but the United States will be entitled to retain many of its tariffs, quotas and enormous subsidies. For example, U.S. beef, dairy and cotton tariffs will remain for eighteen years. Further, "If Australian prices become too competitive against the exchange rate, the United States can slap their tariffs back on, no questions asked."

Certainly this agricultural outcome is unjustifiably one-sided. Therefore it is appropriate to look to other parts of the Agreement, to see whether countervailing benefits are received by Australia.

But in relation to manufacturing the authors set out a similarly pessimistic analysis. They state that on the one hand the Australian market for manufacturers will immediately be ninety-nine per cent open to the U.S. manufacturers, that Australia will abolish all procurement-linked industry development and "buy national" programmes and that U.S. firms will have unfettered access to the Australian government procurement market. But on the other hand the United States will keep a number of its manufacturing trade barriers in place including a ban on the import of Australia's highly competitive fast ferries and complex rules of origin laws for Australian manufacturers, including textiles and automobiles. Also the United States will be able to set aside procurement-linked funds mandating that suppliers source products that have a specified minimum proportion of U.S. content. And Australian firms will have only restricted access to the U.S. government procurement market, limited by numerous U.S. discriminatory "buy national" arrangements, and an entrenched "buy U.S." culture.

In regard to investments, the authors note:

   "While the United States has managed
   to secure the free movement
   of its own business executives to
   Australia (the so-called 'essential
   personnel' necessary to make joint
   ventures and other forms of direct
   foreign investment work effectively),
   it has resolutely denied Australian
   investors the same rights in
   the United States."

The authors point out that over the past ten years "the vast majority of U.S. investment in Australia has been the take-over or purchase of Australian firms or assets--that is, for the simple transfer or wealth from Australian to U.S. firms. By comparison, U.S. 'greenfield' investment in this country--investment in new ventures which creates more jobs for Australians --is marginal." But under the Free Trade Agreement Australia will be removing all remaining conditions that require foreign investors to demonstrate some benefit to the Australian economy, and "we will give up screening any foreign investments under the value of A$800 million".

It appears that Australia's negotiators for the Free Trade Agreement were outclassed by their American opponents. In many instances the United States insisted on strict rules to protect its farmers, manufacturers and investors, but similar rules were not insisted upon by Australia.

THE CANADIAN EXAMPLE

In How to Kill a Country much attention is given to the experience of Canada, which entered into a free trade agreement with the United States in 1989. Canada accordingly abolished its Foreign Investment Review Agency, and there ensued a massive influx of U.S. investment--U.S. $487 billion from June 1985 to June 2002. Fully 96.6 per cent of this total was for U.S. takeovers of existing Canadian assets and companies, "while a miniscule 3.4 per cent was for investment into new businesses". The authors note:

   "By the mid 1980s about half of the
   major U.S. corporations in Canada
   were 100 per cent American-owned.
   Ten years later, some 85 per cent
   had no Canadian shareholders. And
   in the latest "Financial Post" list of
   the fifty largest foreign-controlled
   corporations in Canada, forty-six
   were 100 per cent foreign owned. As
   Canadian shareholders were eliminated,
   there was no longer a force
   to influence policy decisions which
   would be beneficial to Canada. Gone
   too was the ability to scrutinise the
   payment of dividends, management
   fees, and content costs paid to the
   parent company. Increasingly, local
   advertising, insurance, travel agencies,
   and many other companies are
   bypassed as head offices in the U.S
   make purchasing decisions ...
   These new arrangements increase
   the likelihood that ... corporate
   decisions will be made without particular
   regard for Canadian law,
   conventions of business behaviour
   or the sensibilities of local communities
   or governments."

In the 1990s, the unemployment rate in Canada rose to 9.5 per cent, and average increases in personal income fell from 9.7 per cent in the preceding decade to 3.2 per cent. Further, between 1995 and 2000, for example, U.S. productivity increased at three times the rate of Canada's productivity. The authors quote U.S. Trade Representative Yeutter, who on the day that the U.S.-Canada agreement was signed boasted:

   "We've signed a stunning new trade
   pact with Canada. The Canadians
   don't understand what they've
   signed. In twenty years, they will be
   sucked into the U.S. economy."

The Canadian experience must provide a basis for extreme concern on the part of informed Australians.

QUARANTINE RULES

Australia has enjoyed substantial trade advantages by maintaining strict quarantine procedures so as to protect Australian agriculture from such devastating diseases as foot-and-mouth disease, mad cow disease and bird flu. Australia's position is viewed jealously by other trading and importing nations. If, for example, foot-and-mouth disease became endemic in Australia, American suppliers would benefit: they would not be competed with by Australian meat sales in America, and American meat exports would obtain increased access to Australia.

Hence the authors' comment in regard to worrying reductions in the Australian quarantine regime:

   "Take one of your most valuable
   export sectors and undermine its
   key competitive advantage. Agriculture
   is an obvous choice in the Australian
   context. As a clean, green
   image is the jewel in the crown of
   this thriving export machine, destroying
   its viability is easy. Simply
   dismantle our stringent quarantine
   controls and invite in the world's
   most devastating pests and diseases.
   Then stand back as these
   pests and diseases infest and infect
   our clean, green export industries,
   from pork and chicken to apples
   and citrus. Countries still wary of
   pests and diseases will then reject
   our tainted exports to protect the
   health of their own plants, animals
   and people. As imports build up and
   our export industry dies away, thousands
   of jobs will be lost and the
   trade deficit will balloon. So this
   sure-fire way of eroding export
   earnings and putting thousands of
   people out of work will have the
   added impact of blowing out the
   trade deficit. Unfortunately this is
   an all-too-accurate picture of what
   the Australian government has
   done with quarantine issues in the
   Free Trade Agreement."

The authors note the role of Biosecurity Australia, which has had responsibility for quarantine decisions, and ask why Australia is now agreeing to create new committees and working groups "which give U.S. trade representatives the power to influence our nation's scientific assessments of risks, when it is well known that the United States adopts an aggressive stance on such matters, and has publicly queried--time and again--the 'objective' and 'science-based' character of Australia's quarantine assessments".

Allowing U.S.-representatives to participate in relevant committees will permit U.S. commercial interests to place ongoing pressure on Australian procedures. Here also it appears that Australia has been let down badly by its negotiators and by an undue haste to enter into an agreement at disproportionate cost.

THE PHARMACEUTICAL BENEFITS SCHEME

There is an assumption by some unthinking people that the large drug companies are concerned merely to set "fair" prices for their products. The reality is entirely different. The drug companies view their products in the same way as any other manufacturer: they wish to maximise their profits. And because their drugs are commonly monopoly products--protected by patents--the prices that they seek are often enormous.

In these circumstances Australia has been partly protected by the Pharmaceutical Benefits Scheme, under which lower prices for pharmaceuticals are paid in Australia. It is not surprising that immensely wealthy drug companies have long been attempting to undermine this Scheme.

Hence the analysis by the authors of U.S. purposes is a matter of political concern:

   "Take a world-renowned institution
   that delivers affordable medicines
   to those most in need and undermine
   it from within. Start by giving
   multinational pharmaceutical companies
   a voice in decisions about
   which drugs will be subsidised with
   taxpayers' money. Then increase external
   pressures on national health-policy
   decisions by creating a joint
   Medicines Working Group with a
   foreign power, forcing existing national
   bodies into subsidiary roles.
   Finish off the job by toughening intellectual
   property laws to strangle
   your country's own generics-based
   pharmaceuticals industry.

      Such steps will not only reduce a
   once-proud health care institution
   to a pawn of multinational pharmaceutical
   companies, but will also
   push up the price of drugs, placing
   them out of reach for many of your
   citizens, regardless of need. Eventually,
   your equitable and affordable
   drug delivery system will be replaced
   with a replica of the type of
   high-cost, high-price open-market
   system found in the United States.
   Unfortunately, this is an all too accurate
   picture of what the Australian
   government has agreed to deliver
   under the Australia-U.S. Free
   Trade Agreement."

The power of the U.S. drug companies is evidenced by the fact that in 2002 the profits of the top 10 U.S. drug companies exceeded the profits of all the other 490 members of the Fortune 500 list for that year. Their vast financial resources will be able to be used under the Free Trade Agreement to influence Australian committees from within.

There has been debate in Australia as to the extent to which the Free Trade Agreement enables U.S. drug companies to promote their agenda. But in How to Kill a Country the authors' analysis is convincing. The groundwork has been laid for a sustained and effective attack upon the protection that Australians have been accorded by the Pharmaceutical Benefits Scheme.

TRADING "BUY AUSTRALIAN" FOR "BUY AMERICAN"

U.S. commercial interests have long been concerned to increase their sales to foreign governments. One of the purposes of the U.S.-Australia Free Trade Agreement is to achieve this purpose for Australian government and semi-government purchases of materials and services. Thus the authors comment of the U.S. purpose:

   "Start by doing away with a tried
   and tested method of domestic industry
   promotion--public purchasing
   policy (where governments
   support local firms by purchasing
   their goods and services wherever
   possible).

      This will make it harder for local
   companies to gain a foothold in the
   domestic or international market.
   At the same time, replace your 'buy
   national' programmes with a 'buy
   foreign' preference, throwing open
   your government procurement
   market to the world's largest foreign
   suppliers--especially in the most
   wealth-creating, knowledge-intensive
   industries like those based on
   information and communications
   technology (I.C.T.). This will force
   many of your smaller I.C.T. companies,
   unable to compete with such
   massive players, into bankruptcy.
   Strike a final blow to local firms by
   removing all performance requirements
   on foreign contract-winners,
   such as the requirement to use local
   goods, services and skills, or to
   license technology to domestic companies.
   In short, discard the key
   measures that have linked public
   purchasing with economic improvement,
   industry development and
   support for local excellence in the
   past. And do all this in exchange for
   the promise of access to a very large
   foreign procurement market. But
   ignore the fact that the promised
   market is one which remains highly
   protected by its own 'buy national'
   laws, cultural norms and other
   discriminatory arrangments--the
   very things you have agreed to
   abandon. In no time at all, domestic
   I.C.T. firms (along with many
   others) will have fallen by the wayside,
   and your taxpayers' funds will
   be filling the coffers of prospering
   foreign suppliers."

The authors point out that the Agreement prevents Australian governments and local government from preferring local suppliers, but that in America a number of legal or nontransparent devices keep out foreign contractors. In the United States "government agencies restrict foreign access to procurement contracts through a variety of means, including longstanding 'buy American' laws that shape purchasing practices, discriminatory offset arrangements for 'small' businesses, local preference arrangements and other non-transparent barriers (including the elastic use of 'national security' exemptions)".

INTELLECTUAL PROPERTY RIGHTS

An additional U.S. objective under the Agreement is to extend U.S.-favouring patent and copyright laws so as to increase payments to U.S. companies and prevent cheaper generic drugs, for example, from becoming available.

In How to Kill a Country the authors note the U.S. objective:

   "Take your own national system for
   recognising and protecting Intellectual
   Property Rights (I.P.Rs)--which
   is already fully compliant
   with international standards--and
   give it a major 'transfusion' from the
   system of a dominant foreign
   power.

      This will offer much stronger protection
   for the patents and copyrights
   held by this foreign power,
   and will dramatically increase your
   royalty payments to the foreign
   country, putting a major strain on
   your balance of payments (especially
   if--like Australia--you are
   already a net importer of I.P.-protected
   goods). Buttressing foreign
   patent and copyright claims will
   also help throttle your remaining
   innovative industries, forcing them
   to navigate around the patent
   claims of foreign corporations
   rather than staking fresh claims
   themselves. You can also suppress
   competition for I.P.-protected
   goods by making it impossibly hard
   for generic versions of these products
   to be introduced, for instance
   by allowing the 'evergreening' of existing
   patented pharmaceuticals.
   But why stop there when you can
   drastically ratchet up sanctions
   against I.P. 'violators'? You could
   even send your own citizens to jail
   for interfering--wittingly or not--with
   the technological gizmos of foreign
   I.P. holders (like the devices
   they use to stop you enjoying a digital
   video-disc you bought in the
   United States, or Europe, back
   home in Australia). This is an excellent
   way for an appendage country
   to appease its foreign master. The
   pity is, this is exactly what Australian
   negotiators have signed off on
   in the Free Trade Agreement."

Needless to say, this outcome of the Agreement was designed to benefit the United States to the detriment of Australia. Australians will pay more in regard to films, television programmes, home video, digital video-discs, business and entertainment software, games, books, music and sound recordings. Further, the availability of generic drugs will be reduced.

Was it appropriate to have these matters inserted in the Free Trade Agreement? Surely not. They involve pro-U.S. extensions of existing laws, and Australia has no need to agree to them. This is a yet further example of the way in which Australia has been let down by its negotiators--and by its Parliament, which favours an Agreement that few of its members understand.

THE FUTURE

In How to Kill a Country the authors pose the issue:

   "The question that remains at the
   end of this analysis is: why would a
   government and a country accede to
   a deal that is so flagrantly at odds
   with their interests?"

The answer is simple. The present position has arisen for two reasons. First, the very concept of a "Free Trade Agreement with the United States" is impressive. Indeed, a true free trade agreement would have much to commend it. As a primary producer Australia would gain substantially. Hence when the concept of a U.S.-Australia Free Trade Agreement was developed there was initial euphoria and self-congratulation. Those supporting the concept did not understand that what would emerge would be a one-sided and partial agreement: a coup for the United States, and a blow to the Australian economy.

The second reason why the present position has arisen has been found in the almost criminal incompetence of the Australian negotiators, who have been out-manoeuvred and outclassed. Further, unfortunately the Parliament is not a body that can be relied on to provide proper scrutiny. For a time it appeared that the Labor Party would oppose the Agreement in the Senate, but Mr. Mark Latham backed down in order to avoid being seen as anti-American. The Prime Minister, Mr. John Howard, appears to have let himself be swayed unduly by American pressure and by a naive and misguided belief that the United States means Australia well economically. The Nationals (who purport to represent farmers) let down their electorate yet again, but with incompetent senators like Mr. Julian McLauran they have ceased to be effective, and are now viewed generally as merely tagging along with the Liberal Party.

The Free Trade Agreement contains a provision by which either party may terminate it by giving the other party six months' notice in writing. It appears to be highly desirable that notice of termination be given, if the Agreement has meanwhile taken effect. The Agreement is not a genuine free trade agreement; it contains many provisions that are unduly damaging to Australia but beneficial to the United States. It is improper that Australia should be bound by an Agreement that will act greatly to its substantial net detriment.

(1.) Sydney, Allen & Unwin, 2004.