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How to Kill a Country

Australia's Devastating Trade Deal With the United States

Allen & Unwin

The lopsided deal

How to kill a country with a Free Trade Agreement — Step 1

Propose a trade deal with the world's most powerful country, the one with the longest track record of negotiating favourable 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 won't 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 won't 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 interests. Forget about getting approval from your Parliament, or establishing a firm negotiating position with major stakeholders. And don't bother about a comprehensive process for approving the outcomes of negotiations. 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'll have an agreement just like ours: the Australia — US FTA.

'How to kill a country' is obviously a strong way to open a book. It runs the risk of being dismissed as an overstatement. It runs the risk of sounding extremist. Yet we are neither prone to overstatement, nor are we extremist. When the prospect of a Free Trade Agreement between Australia and the United States was announced by the Prime Minister on 14 November 2002, we were — like the rest of Australia — sceptical, but open-minded as to the outcome. We could see the benefits of being linked to the world's largest economy, as long as it didn't preclude us from being linked to our many other trading partners as well. When successive statements were issued as to the progress of the negotiations, we were dismayed to find so little being publicly released by the Australian side, in contrast with the very public and accountable approach taken by the Americans. Our confidence was not raised by the release of phoney econometric estimates of the 'benefits' of the deal that were likely to flow to Australia, all of which took a very narrow approach to estimating such costs and benefits, purely in terms of market access (what we sell to the US, and what they sell to us). We knew — again, like most Australians — that there would be more involved in the Agreement than such market access issues. But we were completely taken by surprise when we discovered just how 'comprehensive' was the deal announced on February 8 this year, and how comprehensively the Australian negotiators (or, more precisely, their political masters in government) had betrayed their own country.

When the text of the agreement — all 1000 pages of it — was finally released, it was immediately apparent that the 'trade' part of the deal is anything but free — in so far as large areas of Australia's most competitive exports, from sugar to fast ferries, continue to be banned or severely restricted in the US market. This is bad enough. But far worse is the fact that the agreement goes a very long way to dismantling some of Australia's most precious national institutions, especially Quarantine and our Pharmaceutical Benefits Scheme. It goes a long way to abandoning the means of protecting and consolidating our own assets and resources, through removing virtually all barriers to US investment (read: mergers and acquisitions of local assets). It also goes far towards destroying our system for enhancing innovation and industry development through our use of government procurement to favour local suppliers — a practice long embedded in the US approach to nation-building. In complete defiance of free trade principles, it goes a long way towards substituting Australia's institutions for protecting the rights of patent-holders with a US system designed to cement and embed protection of American monopoly rights, and to make life as difficult as possible for any competition with such monopoly-protected products.

The more we examined this agreement, the more we were convinced that it carried a death sentence for Australia as an independent country, able to hold its own in international forums. As we examined the fine print, we found that whole passages had been lifted from US legislation such as the Digital Millennium Copyright Act, mandating a huge increase in copyright terms (from 50 to 70 years), as well as clauses from the Act which impose criminal penalties on people who knowingly or unknowingly breach copyright-holders' technological gizmos used to protect their movies, music or software. Criminal sanctions! This would take us back to the days of debtor's prison. The US Digital Millennium Copyright Act has attracted enormous controversy in the United States, and in world forums linked to the World Trade Organization, and yet here we found Australia agreeing to detailed provisions seemingly cut and pasted from the Act, without the slightest public discussion being encouraged or even allowed. But worse is the implication of adopting such swathes of US legislation — for how can it be changed other than through the US Congress or the US courts? The Australian Parliament would become a mere spectator in such processes, unable to have any but the slightest impact on the law that regulates commerce in its own country. In this way, it was clear that we were well on the way to becoming an appendage state.

So this is how we came to our own conclusion that the Australia — United States FTA threatens to 'kill' a country: in the sense that it threatens the core institutions of our country, and begins a process where they will be relentlessly substituted with the institutions of a foreign power. In reaching this conclusion, we realised that we had to write this book. It is our task to convince you — the reader — that our title is not an overstatement, or alarmist. We want to take you on the same journey we ourselves have travelled, examining the devastating implications of this deal for the independence and integrity of our national institutions. We started the book hoping that it might be able to influence national debate in the lead-up to the federal election of late 2004, but that hope was crushed as the Senate Inquiry was rushed through (the Senate standing as the only power able to enforce some kind of national debate on the FTA), and as the Labor Opposition announced qualified support for the deal, in August of this year. So now we see this book as the first 'post-FTA' analysis of the state of the country's institutions, or as a kind of update to Donald Horne's memorable Lucky Country.

All Australians will be familiar with Horne's 1964 classic, but not all will realise the ironic twist to the title ('Australia is a lucky country run mainly by second-rate people who share its luck.'). Horne was of course appraising the state of the country at the end of the Menzies era. But the parallels with what is happening today seem stark. Four decades on, as our government steers relentlessly ahead with the FTA, Australia's luck would seem to have run out. In most major respects, we will no longer be in charge of our own destiny — at least to the extent that any self-governing country can be in an interdependent world. The FTA sounds the death knell for the lucky country. That is our sad conclusion. But now we have to convince you that our reasoning is sound.

The 'lucky country's' luck runs out

The starting point for this book is the extraordinarily lopsided nature of our free trade agreement with the USA (the AUSFTA, hereafter the FTA), and the unprecedented concessions made by Australia. Some of the more obvious aspects of this lopsided deal have received plentiful coverage in the media, while a number of the less obvious, but surely more damaging, features of the agreement have scarcely been noticed or else given only fleeting attention. Public debate has focused mainly on the sectors excluded from the deal — such as sugar and fast ferries — and on the paltry concessions in others, including beef, wine and dairy (which we will wait up to 18 years for all tariffs to be removed). So, by now, Australians are well aware that our negotiators did not get what they had hoped for in terms of 'market access' (what we can sell to the United States and when).

Deeply disappointing as these market access concessions are, however, we show that the real sacrifices will come from trading away our core national institutions under the deal. These institutions underpin our economic prosperity and social wellbeing, our ability to choose among alternative goals, and the values that distinguish us as Australians. In this book, we have chosen four of the most significant institutional arrangements that will be transformed as a result of the FTA, with devastating consequences for Australia.

As this shift of focus suggests, our primary purpose in this book is to go beyond the market access 'wins and losses' to expose the dramatic undoing of Australian institutions under the FTA, and the inevitable loss of prosperity and sense of 'who we are' that this will entail. At the same time, we aim to illustrate the almost casual manner in which the deal was done, and to explain how our government has brought the country to this parlous position.

Of course, listening to our federal government representatives talk about the deal, you could be forgiven for concluding that it is a momentous achievement. The deal has been variously described by our Prime Minister as:

'a once in a generation opportunity for Australia';

'an historic agreement [that] will add enormous long-term benefits to the Australian economy';

'a no-brainer for us to sign ... because it will bring benefit to Australia';and (most poetically)

'a coming together of the planets ... which we won't again have in a generation or more'.

Never mind that the US has sought to involve us in a bilateral FTA on two previous occasions (most recently in 1997), and that we declined on both occasions on the grounds that it would not serve the Australian interest. How quickly things change! Reading the government's summary of the deal's major outcomes, one is compelled to ask why we rejected this remarkable opportunity the last time it was offered (and the time before that ...). So before we shift gear to examine the institutiondestroying features of the deal — which will occupy us in the chapters to follow — let us pause for a moment to examine more closely the government's claims about our 'wins' under the deal, looking with two eyes rather than one.

The real deal

We focus our attention here on agriculture, manufacturing and investment, since these were areas where it was claimed we would make the biggest gains. Institution-destroying concessions governing other areas such as pharmaceuticals, quarantine concessions, government procurement and intellectual property rights are covered in the succeeding chapters.

Agriculture was the area where we had most to gain. Australia is one of the world's freest agricultural traders, with zero or low tariffs and subsidies across the board. The United States on the other hand is one of the world's most protected agricultural traders, employing massive tariffs, quotas and, above all, subsidies to keep foreign agricultural imports out and give its exports an unfair competitive advantage. So what did our negotiators manage in this area? What did we get, and what did we give away? How does the government spiel tally with the real deal? As Table 1 reveals, not very well.

And this is what we managed to achieve in the area in which we had most to gain. To give further insight into just how little we walked away with in agriculture, let's take a closer look at our beef industry — one of the industries targeted by our negotiators as a 'priority' for major concessions.

Agricultural 'wins': Have (half) a cow, man

The puny nature of the concessions that the government has tried to sell as big 'wins' for Australia is well illustrated by the case of beef. By any objective criterion, beef 'gains' are minuscule, and clearly designed to have minimal impact on the US economy. A point overlooked in the debate is that we will be allowed to sell more at the bottom end of the market, i.e 'cheap cuts' — largely hamburger mince and pet food — not our higher quality, higher value-added produce. Because the increased exports will encourage producers at the cheaper end of the market, industry analysts believe this could actually make the industry worse off in the longer run, reversing a hard-won upgrading effort. In the Cattle Council's own judgement, the outcome of the deal was also deeply disappointing for three main reasons.

1 The maintenance of restrictive quotas for beef exports over an 18-year period

For years, Australian exports of beef to the United States have been limited by a quota system (which includes a tariff of US4.4 cents/kg). Once our farmers reach their export quota, a bigger tariff kicks in for any additional exports. In spite of government statements to the contrary, our beef exporters have met their quotas over the past two years and would easily have surpassed them if allowed. And under the deal, we will have an 18-year wait before quotas and some tariffs are removed. This means that the existing generation of producers will receive scarcely any benefits at all. (Although under the FTA's investment rules there is the strong possibility that our cattle farms will fall under US ownership anyway.) The comparison with Chile — which got access over a transitional period of only four years without a 'special relationship' with the US — makes the Australian deal all the more shocking. The industry rightly felt aggrieved:

Certainly for the foreseeable future we will be bumping up against that quota, in our view. I must say that that is our biggest disappointment. Our No. 1 objective in this agreement was to try to take that quota out of play. The quota just distorts the market tremendously when it comes into play. Even if it is not hit — if it just looks like the possibility of its being hit — traders start taking positions on whether that quota will be hit ... They tend to focus more on what is happening with quota and how they can make money out of quota rather than marketing and selling the product in the best possible manner.

2 The maintenance of US price safeguards in perpetuity

At the end of the 18-year period, quotas will be lifted, but price safeguards will remain to protect US beef. Safeguards are designed to restrict imports; they are basically tariffs that kick in if our exports become too competitive against US goods. In the beef case, a 6.5 per cent decline in Australian prices (hardly a huge fall) will be enough to trigger safeguard tariffs. Based on the last ten years of data, the industry has concluded that 'those safeguards would have triggered in six out of ten of those years'. Not surprisingly, the beef industry remains 'adamantly opposed' to safeguards of this kind because they tend to be 'arbitrary', 'distort trade enormously' and are 'enormously frustrating' for exporters. Asked to comment on the extent to which US safeguards undermine free trade in beef, the General Manager of Meat and Livestock Australia, Dr Peter Barnard, left little doubt that their effect would be damaging and dramatic:

We believe that they absolutely undermine the eventual transition to free trade. They are there for one reason: to thwart trade in beef between the two countries. They are very stringent safeguards. They have been deliberately designed by the United States to bite when they will hurt most. They are most stringent in the last quarter. Just as you want that increased access into the United States, they come in to bite really hard ... So clearly they will have a potentially significant impact on our objective, and the government's objective, of eventual free trade in beef from Australia into the United States.(emphasis added)

The possibility that our government has difficulty distinguishing the Australian interest from the American one may not be so far-fetched in view of the starkly different positions we adopted towards Japan on the matter of safeguards. During the Uruguay Round, the Australian government argued strenuously against Japanese safeguards, only to turn around and accept them in this deal with the USA. Ironically, even Japan — known also for its highly protected beef and dairy markets — committed to more extensive liberalisation under the Uruguay Round for beef and dairy than the US has done under this agreement.

But surely our remarkable generosity must have won us something out of this agreement? Surely our negotiators insisted on something substantial in return? Sadly, it seems, no.

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Excerpted from How to Kill a Country by Linda Weiss, Elizabeth Thurbon. Copyright © 2004 Linda Weiss, Elizabeth Thurbon, John Mathews. Excerpted by permission of Allen & Unwin.
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