August 5, 2004

Free Trade Debate in Australia

By JAMES BROOKE

SYDNEY, Australia, Aug. 4 - In 1992, President Bush, the father, offered Australia a free trade pact. Prime Minister Paul Keating, a Labor Party leader, rejected the offer.

On Tuesday, President Bush, the son, signed a free trade pact with Australia, saying at a White House ceremony: "The United States and Australia have never been closer." On Wednesday, Mark Latham, the Labor Party's current leader, vowed to block Australian Senate approval of the pact, threatening: "I'm not interested in political compromise."

This may look like a free-trade version of the film "50 First Dates," but Australia and America are not acting out a rerun of a frustrated courtship.

With parliamentary elections expected this fall, Australia's Labor Party, now in opposition, is trying to sell itself as the best party to carry out the free trade pact, which is to go into effect Jan. 1. With an eye to the polls and to his left-wing base, Mr. Latham is demanding two amendments.

"Despite several flaws in the agreement, it has net economic benefits for Australia, and on this basis, should be supported," Mr. Latham said on Tuesday, giving his overall approval to the 1,100-page document.

In recent years, Australia has shifted from the provincial and inward-looking nation of "Crocodile Dundee" movies to the globally competitive nation of the Sydney 2000 Olympics.

Over the last two decades, Australia's exports have doubled. Today, one in five jobs and 20 percent of the economy depend on exports.

To expand overseas markets, Australia is the most aggressive negotiator of free trade agreements in the Asia Pacific region. Last year, Australia signed a free trade pact with Singapore. Last month, it signed one with Thailand. Last week, it started work on a pact with Malaysia. Next November, Australia is to start talks on a trade pact with the Association of South East Asian Nations. Next March, Chinese and Australian officials are to complete a preliminary study on a bilateral trade agreement. With Australia's trade with China jumping by about 50 percent in the first four months of the year, China is expected to become Australia's biggest export market in five years.

In this setting, a trade pact with the United States not only opens markets, but also provides balance to Australia's growing economic dependence on Asia. Last fall, Prime Minister John Howard, a liberal, jumped at the opportunity to win a free trade agreement with the United States.

With both countries seeing the agreement partly as a political payoff for Australia's military participation in Iraq, the accord won easy approval last month in the United States Congress. It is the first free trade agreement between the United States and an industrialized nation since the deal was struck with Canada, 15 years ago. With Australian tariffs on 99 percent of American manufactured goods to drop to zero on Jan. 1, American economists calculate that the deal will increase American exports to Australia by $1.5 billion.

In Australia, the pact has won the general support of most major business organizations, most major newspapers and the Labor premiers of the major states.

"We are being invited into the tent of the biggest, most dynamic leading-edge economy of the first half of the 21st century," Terry McCrann, a business columnist wrote last weekend in The Australian, a conservative newspaper. "We'd be nuts to invite ourselves out. There are about 115 countries behind us in the queue."

Stephen Loosely, a columnist in The Sunday Telegraph, noted that an Australia-Japan trade treaty signed almost half a century ago helped Japan become Australia's largest trading partner. In the two decades since a low tariff pact went into effect between Australia and New Zealand, bilateral trade had jumped almost sevenfold. Other studies note that during the first 10 years of the North American Free Trade Agreement, trade doubled among Canada, Mexico and the United States.

Such indicators are useful as Australian economists have done a poor job forecasting benefits of the America-Australia pact. The two most widely cited studies came up with results that differ sharply. An Australia National University study projected an annual benefit to Australia of about $43 million. Another study, by the Center for International Economics, projected a $4 billion annual lift to Australia's economy.

"The thing about a dynamic economy is you don't know where it is going to go," said Greg Lindsay, executive director of the Center for Independent Studies, a private, conservative research group.

Some benefits are clear: an end to a 25 percent duty on sport utility vehicles made in Australia, allowing Australian companies to compete for procurement contracts with the federal government and many state governments.

"The real benefit is a longer term, almost cultural change - intensifying a trend to U.S. business reference points, such as human resource management, I.T. systems, and the lifting of red tape," said Alan Oxley, director of the Australian Business Coalition for the F.T.A., a lobbying group. "It underlines Australia as a friendlier, easier destination. This tells American investors that this business environment is pretty close to your own."

Opponents say the pact does not live up to its fair trade billing. American farmers and ranchers blocked any opening of the American market to Australian sugar and limited increases in Australian beef exports to 18 percent over 18 years.

"Out of every 100 hamburgers, 3 come from Australia," Peter Corish, president of the National Farmers Federation, said. "Improvements in access will only add one hamburger, and that is in year 18."

But noting increased access for vegetables, fruits and dairy products, he said: "While we are disappointed with the outcome, and believe it could have been better, it does bring significant benefits to sectors of Australian agriculture."

To mollify Australia's 6,500 sugar cane growers, the government has agreed to spend $311 million to help growers shift to different crops or land uses.

The two amendments advocated by the Labor Party revolve around cultural property and generic drugs. Australia, like Canada, limits the amount of foreign programs on television and foreign music on radio. The goal is to preserve national accents, faces and views in the electronic media.

Cate Blanchett and Toni Collette, two of Australia's most successful actresses, flew here from California to urge Australians to reject the free trade treaty. In face of this onslaught, Prime Minister Howard promised Tuesday to enshrine existing national content quotas in the trade pacts enabling legislation.

Taking aim at the attempt to revive Australian filmmaking through protectionism, David Tester, a newspaper reader, wrote last week to The Sydney Morning Herald: "Maybe all the Australian talent went to Hollywood. Now they only fly back first-class to warn us of the American peril."

Mr. Howard has balked over Labor's demand for an amendment to penalize drug companies that file spurious patent claims in order to postpone the adoption of generic drugs. He maintains that the amendment is unnecessary and redundant and he says the pact will not result in higher prices for drugs sold through a government-controlled system.

Judging by readers' letters published in Australian newspapers, much opposition stems from suspicion of the United States, an economic giant that already enjoys a healthy trade surplus with Australia. With two-way trade last year at $28 billion, the United States sold to Australia about twice as much as it imported.

"Critics have been quiet on the F.T.A.'s with Singapore and Thailand because neither of those countries has an economy capable of swallowing Australia whole," James Mason, wrote The Australian from Redfern, a poor Sydney neighborhood. "Australia has an economy comparable to that of a medium-size U.S. state."

Jason Lyddieth, a Sydney resident wrote The Sydney Morning Herald: "I hope the politicians make sure the Americans put a new star on their flag. From now, Australia will be nothing more than a colony of the U.S."

On Tuesday, similar nationalist denunciations echoed through a Labor Party parliamentary caucus on the economic pact with the United States. Emerging from the meeting in Canberra, Mr. Latham vowed defiantly about the enabling legislation: "We're going to fight like Kilkenny cats to ensure those amendments go through."

But when asked by a reporter about what is officially called the Australia-United States Free Trade Agreement, he added, almost as a footnote: "There's a text of the F.T.A. That is not in dispute. We're supporting that."


Copyright 2004 The New York Times Company