The Free Trade Agreement – not!

On January 1, 2005, the ABC carried the headline Business welcomes trade deal, which officially came into force as the new year unfolded. The Australian-US free trade deal was touted by the current government as a major breakthrough. Well from where I sit it is neither a free trade agreement or one that we will look favourably on in the years to come. The fact that the ALP tried to convince us that they were capable of showing leadership (not!) by passing it with some irrelevant amendments is even more frightening.

The Government claims the FTA will deliver more than $6 billion in benefits to the Australian economy and the ABC reported (January 1, 2005) that the Australian Industry Group (AIG) predict the benefits will be even higher.

The AIG, which represents the manufacturing sector is reported by the ABC as saying:

Australia’s been really out of favour and really limited in its opportunities to get access to what Government buys from industry generally in the US, and that is $200 billion of purchases every year …

The ABC also quoted the Trade Minister Mark Vaile as claiming:

This is the most significant trade agreement in Australia’s history … As of today 97 per cent of Australia’s manufactured goods going into the United States go in tariff free … It has the potential to deliver 30,000 new jobs in the Australian economy.

The US Ambassador Tom Scheiffer was quoted in similar up-beat manner as saying:

What Australian entrepreneurs now have as a result of the Free Trade Agreement is free access not only to the 20 million people who live here but to the 320 million people who live in our two countries.

This is the nonsense that has been continually dished up by proponents of the FTA. The problem is that the main areas in which we can make gains from accessing the larger US market are blocked under the FTA. This is in the area of agriculture. But where the real gains will be made are in areas that the US corporations dominate the World markets and our firms hardly rank a mention.

Basically I conclude that:

(a) the FTA is an appalling example of the Australian Government and the opposition selling Australia’s economic and cultural interests out in return for short-term political gains;

(b) the Australian business sector has been sold a ‘rope-a-dope’ strategy by the Government;

(c) In pursuit of so-called ‘economic credibility’ the so-called party of the workers and unions, the ALP has shown a lack of courage that is breathtaking; and

(d) the US alliance is not functioning in Australia’s interests if the FTA is the exemplar of our co-operation.

I urge readers to venture back into the records of the – Senate Enquiry into the FTA which was completed in 2004.

It is hard to deduce from the evidence before that enquiry that a promised land is on our doors as a consequence of the introduction of the FTA. Indeed, the evidence exposed the FTA as a damaging agreement and definitely not in Australia’s long-term interests.

The type and scale of the gains from the FTA mentioned above will become swamped by the longer-term costs of the deal. The evidence clearly indicates that the negotiations were not between equals – the US government trade negotiators completely overran our own interests.

In the SMH article (November 22, 2004) – Labor, and we, will live to regret US trade deal – Ross Gittins claims that:

The Americans drove such an unfair bargain that John Howard should have walked away from it (as, it’s strongly rumoured, his negotiators wanted him to), but he pressed on.

The cheering by the AIG and the Government seems to be odd given that the tariff barriers to manufacturing have already been largely eliminated over the last 20 years.

The general tariff was only 5 per cent and many manufactures face only a 2 per cent tariff. Trifling indeed. Further, there is the hardly discussed but complex ‘rules of origin’ test on exports which will disadvantage Australia as a consequence of the high percentage of imported components that we have to use.

Ross Gittins also notes that there are additional costs arising from “‘trade diversion’: because of our preferential treatment of the Yanks, we’ll be importing more of their stuff at the expense of stuff from our Asian trading partners – even when the Asian stuff is better or cheaper.”

As background, I urge readers to research the consequences of NAFTA the agreement between the USA, Canada and Mexico.

A good place to start is by reading the prestigious Economic Policy Institute report (March 31, 2001) – NAFTA at Seven: Its Impact On Workers In All Three Nations – which demonstrates that the NAFTA agreement generated job losses in the US of around 766,030 jobs and around 276,000 in Canada.

The trade changes following NAFTA (increasing the US trade deficit), in turn, put downward pressure on the wages of poorly educated US workers (around 73 per cent of the workforce are non-college graduates) for three reasons: (a) displaced manufacturing workers have moved to the service sector where wages average 23 percent less; (b) the service sector labor supply has grown and is driving down wages; and (c) employers have used their new freedom to move across borders as a tool in collective bargaining by threatening to close plants.

The EPI also notes that Mexican workers have also incurred substantial losses under NAFTA despite the number of jobs increases. The so-called ‘maquiladora plants’ have expanded to manufacture products formally produced in the US and Canada. But the growth in employment has seen the deterioration of workers’ rights, wages and conditions.

The EPI reports that manufacturing wages have dropped by 21 per cent and salaried workers have suffered a decline of 25 per cent in their wages.

The incomes of self-employed have dropped by 40 per cent and the purchasing power of the Mexican minimum wage has dropped by almost 50 per cent over the period of NAFTA to date.

In addition, the Mexican maquiladora plants have generated environmental havoc in local communities as a result of their uncontrolled toxic waste practices.

You might also like to read the Human Rights Watch report (April 2001) – Trading Away Rights: The Unfulfilled Promise of NAFTA’s Labor Side Agreement – which convincingly argues that despite a raft of complaints from workers concerning illegal sackings for organising or joining a union, denial of collective bargaining, poor occupational health and safety conditions and the like, not one sanction has been imposed on a Mexican employer under the agreement.

Conversely, HRW find that the signatories to NAFTA have all conspired to ‘minimise’ the impact of the labour provisions.

A real issue, which will be relevant to the Australian-US FTA is that these agreements give the corporate sector the right to challenge any law it believes is not within ‘its interests’, which means that democratic intention is lost.

Like NAFTA, the FTA places limits on the ability of our Government to make policy which we would consider to be in the public interest.

If a US corporation believes their interests are damaged by an act of Australian legislation then the FTA will give them the power to seek a court settlment outside the democratic arena under the ‘restraint of trade’ provisions.

These provisions have been effective under NAFTA in eroding public interest legislation.

This will undoubtedly impact in the future on the price of medicine, education and health services, the intellectual property bound up in the cultural and media areas, and, significantly, in terms of environmental protections.

Our traditional strengths are in agriculture. The FTA provides very little in that area, as a consequence of the lobbying power of the US farming community. For example, beef producers have to wait 18 years before the US US restrictions on Australian imports are lifted.

So the FTA effectively blocks access to the large US market for our dominant primary producers. The misnomer of ‘free trade’ is clearly obvious in the failure of Australia to walk away from an agreement that did not allow our farming sector to access the US markets.

On the other hand, the US have set up the FTA in such a way that the non-traditional trading areas, in which we have no strength, those relating to intellectual property will see huge gains for America and huge losses to Australia.

These will be important in areas that the US companies have significant patent, trademark and copyright protection.

Ross Gittins says:

… under the camouflage of Free Trade, the Yanks have extracted from us commitments to increase the protection our laws and courts give to the owners of American intellectual property embodied in the goods and services we import from them … [and] … we are, and always will be, huge net importers of US intellectual property. So there’s little reciprocity: we don’t export much intellectual property to the US (or anywhere else). In this aspect of the deal, it’s all downside.

Some critics argue that we will ultimately lose the highly subsidised Pharmaceutical Benefits Scheme (PBS), which effectively supplies medicines to Australians at wholesale prices.

Instead, pressure will mount for a US-style privatised pharmaceuticals system which works to ensure (guarantee) US corporate profits through patent monopolies, which might increase the final consumer cost of drugs by 10 times.

Also in danger are our tougher food safety and consumer safety rules. The FTA, like NAFTA, will drive everything down the lowest common denominator, which in these areas is the US standard.

For example, our ability to legislate in areas such as biotech crops and animals is endangered. US corporations could challenge our quarantine regulations as being a ‘restraint of trade’.

Similar challenges have been made under NAFTA by US corporations.

So the lowest common denominator ‘harmonisation’ is not in our interests where the US laws are inferior to Australian law.

But as Ross Gittins says that:

… the economically corrupt US Congress has allowed America’s IP law to be debauched by big corporations. So much so that the Yanks have quite lost sight of the public interest justification for protecting IP: within limits, it’s in the public’s interest to encourage innovation by giving inventors and creators first crack at the profits to be made from that innovation.

The Australian Government and opposition (in seeking the Amendments) seemed content to protect some current levels or standards. The local TV content is an example.

The FTA does not permit us to increase the local-content ratio from its current level. Further, we are unable to impose local-content rules on ‘new media’. This is at a time when the world is on the cusp of a optic-fibre driven media revolution.

Conclusion

The FTA is very poor policy and threatens our national sovereignty.

It places corporate profit above traditional issues like public health, food safety, environmental and labour standards.

It allows foreign corporations to challenge (and hence dictate) Australian legislation designed to protect our public interest.

The balance between non-economic interests and the profits of large corporations has been lost in the FTA.

Ross Gittins says “The further we get into the future – on local content and many other things – the more we’ll realise how much of our sovereignty we’ve given up and how much we’re being pushed around by greedy US corporations.”

That is enough for today!

(c) Copyright 2005 William Mitchell. All Rights Reserved.