Trade Talks Enter Final Round

November 18, 2003, Australian Financial Review, By Rowan Callick

Asia-Pacific editor Rowan Callick reports on the dramatic countdown towards a free-trade agreement with the United States.

Agriculture is the biggest remaining sticking point between Australia and the United States as their negotiators are summoned from their corners by the bell for the last round in the struggle for a free-trade agreement by year's end.

Speaking at a recent Australian-American Association forum in Melbourne, Australia's chief negotiator, Stephen Deady, said his major aim was "an immediate, significant improvement in access for beef, dairy and sugar products" although he remained open to a transitional period for full access.

Australia, he said, was "looking for a bigger deal on agriculture than Canada got out of the US" in the North American Free Trade Agreement completed 10 years ago. "Canada's own agriculture was protected. Ours isn't, so we are negotiating from a position of strength."

Deady said the matters under negotiation with the US covered 80 per cent of the Australian economy. But unlike World Trade Organisation agreements, which listed the areas to be opened up, the USFTA would contain a negative list of matters not included.He said the American approach to the rules of origin for textiles were different from Australia's. "But we are pressing hard, and the final package will be tied up with the rules agreed."

The US tariff of 25 per cent on commercial vehicles is another issue being pressed hard by Australia in the talks.

Deady said Australia was seeking a transparent framework for greater mutual recognition of qualifications. And the proposals for freeing up
mutual investment would result in deepening capital markets.

The final of five formal rounds of talks is due to take place in Washington early in December, after the final Canberra round was concluded last week.

After that the two negotiating teams are expected to be in almost constant electronic touch, in an effort to conclude the deal by the deadline of year's end announced by President George Bush and Prime Minister John Howard in May.

Deady said there had been "huge gains" since the first round in March of talks towards a USFTA, which would comprise 23 or 24 principle issues, or "chapters". It helped, he said, that the two sides began from a common approach to many trade issues.

The US side, he said, was seeking a greater certainty for investment and a review of Australia's single desk for wheat sales, the AWB. Deady was also the chief negotiator of the free-trade agreement with Singapore, signed in February after two years of talks.

He said the multilateral trading system "remains the government's main priority". But "bilateral negotiations have the capacity to deal with issues in much greater depth, and more quickly" than multilaterally.

He denied that the USFTA negotiations were having a negative impact on Asian trade relations, pointing out that besides Singapore, an FTA had just been concluded with Thailand, and a scoping study for an FTA with China had been announced.

"If such bilateral agreements are done properly, and are fully consistent with multilateral rules, then they can be viewed as part of that system from day one, assisting and complementing it."

While the Asia Pacific Economic Cooperation forum was not a multilateral trading framework in itself, "it is a platform inside which bilateral deals can be done, adding to the pressure on reluctant multilateral participants".

Mike Delaney, the State Department officer at the US embassy in Canberra with special responsibility for the FTA talks, said this was the most important formal move between the countries since the ANZUS treaty 50 years ago.

He noted that Australia had requested talks with the US about free trade back in 1934, but Washington replied seven months later that "the press of business associated with agreements with other countries" precluded talks with Australia.

Since then "Australia has moved up the US trade priority queue", he said. He described a dinner in Canberra a couple of years ago during which Trade Minister Mark Vaile presented US Secretary of State Colin Powell with a petition from businesspeople urging an FTA. Defence Secretary Donald Rumsfeld, he said, suddenly put down his fork and said: "This is something we should have done a long time ago."

The logic, Delaney said, was very compelling. Rules of origin, intellectual property, customs and quarantine, government procurement, trade remedies, e-commerce, labour and the environment many issues outstanding between the countries could be tidily addressed within an FTA.

Canada and Mexico, he said, had both enjoyed better living standards, more employment, faster growth and more investment from other countries, not only the United States since NAFTA began. "And Australia is likely to remain a net capital importer for the foreseeable future." An FTA with the US would comprise "high profile advertising that Australia is a place to do business".
He said debate inside Canada over NAFTA had been "very divisive", with concern being raised of loss of identity, and elections focusing on the issue. "But polls today show overwhelming support."

He said that econometric modelling showed the effect of an Australian FTA would be relatively modest but positive for the US economy, "but still commercially significant and well worth pursuing".

Delaney said the biggest pressure on the negotiators was not so much bridging the remaining issues, but doing so within the compressed time remaining. "Time is not our friend in this exercise."

He said: "We don't apologise for being friends with Australia, and our friendship has yielded dividends. But this is mainly an economic, not a political deal."

Alan Oxley, managing director of International Trade Strategies, said free-trade agreements had an effect over 50 years. Since 85 per cent of world trade is now conducted between countries with average trade barriers of 0-5 per cent, "investment is becoming a more important vehicle for business than trade".

He said it would be better to call FTAs economic integration agreements. And with greater exposure to the world's most productive economy, the US, he said, "Australian companies will be more competitive than anyone else in the Asian region, in those areas where
the US is most competitive".

Australia would not be flooded by cheap agricultural products, he said, "because there aren't any coming out of the US, except orange juice". He said the relationship between vehicle makers and car component suppliers in the two countries was a key issue. But cultural issues were not. The US was not seeking to alter Australia's protection of film and TV content, nor its subsidies, but was seeking action on DVD piracy.

Oxley said: "We have to worry about Bush's popularity, because any political credit we have built up is only going to be usable sooner rather than later."

He said that concern now being expressed about the impact on multilateralism of a USFTA was not expressed earlier, as Australia negotiated FTAs with Singapore and Thailand. "That's strange."

He warned of the danger of last-minute spanners in the works, as happened when chewing gum maker Wrigley objected to the US-Singapore FTA because of the latter's ban on chewing gum, delaying congressional approval.