Crunch time on free trade with the US

October 27, 2003, The Australian, Editorial

With negotiators meeting in Canberra today for a third round of talks, crunch time has arrived for the free trade agreement between Australia and the US. While last week's open-ended trade "framework" with China was well and good, the US deal is here and now – tantalisingly within reach, but well capable of slipping from our grasp if negotiations stagger into the new year and both countries switch to election mode.

If we lose this opportunity to put our economy fully in sync with the world's largest, already our second-biggest export market, we'll be kicking ourselves for years. There is little argument about the main concession required from the US side if the FTA is going to fly. Our farmers want to be able to put their sugar in the coffee Americans drink at breakfast, their cheese in the sandwiches Americans eat for lunch, and their beef on the dinner tables Americans sit down to at night. If Australian farmers can produce these things to a higher quality, and at a lower cost, than their competitors in the US, then there is no plausible reason –electoral politics aside – why US consumers should be denied the benefits. We are not even challenging the $US20 billion ($28.5 billion) a year the US spends on subsidising agriculture – we are only asking for access.

But this is not a one-way street. What are we being asked to give up, and where should we be prepared to concede ground? According to Trade Minister Mark Vaille, the Pharmaceutical Benefits Scheme is not being targeted by the US side, despite the fact the PBS is a monopoly buyer and effectively decides which new drugs can have access to the Australian market. However, as reported in The Australian today, the US side wants "major changes" to the scheme.

By coincidence, the PBS costs Australian taxpayers almost exactly the same amount annually – $4.5 billion – that a fully implemented free trade deal with the US could inject into the economy each year. As The Australian has pointed out previously, the PBS needs major, and urgent, surgery: otherwise with the variety, efficacy and expense of new drugs increasing all the time, the scheme will eventually blow the federal budget. But while it is acceptable to offer the US a more transparent process for deeming drugs in or out of the scheme, the PBS itself should be preserved in all essentials. Like Medicare, the PBS is socially cohesive, and Australians will not stand by and watch their fellow Australians die because they cannot afford medicine.

Quarantine is a further area of contention, because it can be so easily manipulated into a quasi-trade barrier. Australia has recently been the victim of such manipulation – see below – but we are far from guiltless ourselves – endless risk-assessment procedures have functioned as baffles in the way of allowing fair access to products such as Canadian salmon. If our quarantine procedures get a shake-up as a result of the FTA, it will be a win for Australian consumers.

Likewise the US concern over the operation of Australia's Wheat Board and Foreign Investment Review Board: both would benefit from a long, hard look. The US side claims that as a single-desk export monopoly, the Wheat Board advantages our farmers against theirs in third markets. But as a Senate committee found in June, the board is also blocking innovative Australian exports. Privatisation in wheat marketing has simply replaced a government-owned monopoly with a private one, and is ripe for reform. The same can be said of the FIRB. The federal Government's rejection of the Royal Dutch/Shell bid for Woodside in the run-up to the 2001 election showed up a lack of transparency in the foreign investment review process, as well as its vulnerability to
political expedience. Inhibiting the flow of foreign investment, especially while being unwilling to save enough ourselves, is hardly in the national – as against the nationalist – interest.

Finally, copyright and local content remain at issue. Rather than develop new delivery systems to exploit the demand for digital music and images, the US music and film companies have developed punitive legal strategies against consumers who copy DVDs. We should hesitate before we agree to go down the same road, particularly if it prejudices "fair dealing" provisions in our own copyright laws that promote innovation. Our local content laws, on the other hand, have spawned an expensive regulatory regime, become increasingly ridiculous in the light of technological change, and only encourage film, music and television producers to focus on political lobbying rather than competing in the exciting global market for English-language content. A form of industry assistance, they are not worth scuppering the FTA for.

What is, and is not, conceded by each side will depend on the cut and thrust of negotiations as they reach their climax. All that the above proves is that if the US side can be brought to see reason on agriculture, the Australian Government has plenty of wiggle-room to make the FTA happen.