US, Australia FTA Hits the Wall
Australian Labor Party blocks final approval of trade pact
SYDNEY, Australia - 08/06/04 - President George Bush signed the US-Australia Free Trade Agreement at a Tuesday ceremony at the White House, but the ink had hardly dried before full implementation of the pact - which he called "a milestone in the history of our alliance" - hit a major roadblock erected by Australia's Labor Party.
The following day, Mark Latham, the Labor Party'../eWebPhotos/australiaus1a.gif" align=left vspace=15 border=0>he is demanding two amendments to the pact before it even makes it to the floor of the Australian Senate in Canberra.
The two amendments address the so-called "local content" of cultural property and tougher penalties to keep a lid on drug prices under Australia's subsidized Pharmaceutical Benefits Scheme (PBS).
"We're going to fight like Kilkenny cats to ensure those amendments go through," Latham told reporters after leaving a Wednesday meeting of the Labor Party Caucus.
And, he added, "I'm not in the mood for compromise."
Australia, like Canada, currently limits the amount of foreign programs on television and foreign music on radio with a goal of "preserving national accents, faces, and views" in the electronic media.
The issue is a sensitive one with deep roots. In fact, two of Australia's most successful actresses, Cate Blanchett and Toni Collette, recently flew to Australia from their homes in California to urge Australians to reject the free trade treaty.
Commenting on the attempt to revive Australian filmmaking through protectionism, reader David Tester wrote last week to The Sydney Morning Herald, saying, "Maybe all the Australian talent went to Hollywood. Now they only fly back first-class to warn us of the American peril."
Prime Minister John Howard - a liberal, who jumped at the opportunity to win a free trade agreement with the US last fall - has promised "to enshrine existing national content quotas" in the trade pacts enabling legislation.
But at the same time, Howard has balked over the Labor Party's demand for an amendment to penalize drug companies that file spurious patent claims in order to postpone the adoption of generic drugs, despite the fact that needs the party's support to get the FTA through the opposition-dominated upper house,
Howard has maintained that the pharmaceutical amendment is unnecessary and redundant and he says the pact will not result in higher prices for drugs sold through a government-controlled system.
Under Australia's PBS medicines scheme, the price of selected prescription medicines is kept down and subsidized so that Australians can buy them at a fraction of the price paid by Americans.
However, the Washington-based Pharmaceutical Research and Manufacturers Association said during FTA negotiations that Australia had "anti-competitive prices" under the PBS and it saw the FTA as a means to dismantle it.
With Australia's national parliamentary elections scheduled for as early as September 18, the country's Labor Party - now in opposition - is trying desperately to market itself as the best party to carry out the free trade pact, which is scheduled to go into effect next January 1.
The FTA - which will eliminate duties on 99% of all US-manufactured exports to Australia as soon as it takes effect - is the first between the US and an industrialized nation since the US-Canada FTA was struck 15 years ago with economists in the US calculating that the deal will increase American exports to Australia by at least $1.5 billion.
Annual two-way trade in goods and services between the US and Australia currently totals about $28 billion, with Australia ranked as the 10th largest export market for the US.
The FTA was concluded in February after more than a year of intense negotiations with
US Trade Representative Robert Zoellick and Australia's Trade Minister Mark Vaile signing the draft agreement in Washington, DC May 18.
In Australia, the pact has won the general support of most major business organizations, most major newspapers and the Labor premiers of the country's 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," according to Terry McCrann, a business columnist quoted in a recent edition of 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, recently 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 jumped almost sevenfold while other studies note that during the first 10 years of the North American Free Trade Agreement, trade doubled among Canada, Mexico, and the US.
Such indicators are useful as Australian economists have done a poor job forecasting benefits of the America-Australia pact, the Sydney Morning Herald recently said.
The two most widely cited studies came up with results that differ sharply.
An Australia National University study quoted by the paper projected an annual benefit to the country of about $43 million while another study by the Center for International Economics projected a $4 billion annual lift to Australia's economy.
Some benefits are clear: an end to a 25% 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 US business reference points, such as human resource management, information technology systems, and the lifting of red tape," said Alan Oxley, director of the Australian Business Coalition for the FTA, a Sydney-based lobbying group.
"It underlines Australia as a friendlier, easier destination. This tells American investors that this business environment is pretty close to your own," he said.
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% 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 eighteen."
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."
Duties on all US agricultural exports to Australia, which totaled nearly $700 million in 2003, will be eliminated immediately when the FTA becomes a reality.
Currently, Australia maintains duties of 5% on fresh and processed fruits and vegetables, soups, processed foods, some grains, oilseeds, and other products.
For some dairy products, Australia's tariffs reach 30%. Duties on most imports from Australia will be phased out over periods of between four and 18 years, while tariffs will be maintained on sugar and certain dairy products.
In addition, for certain products including beef, dairy, cotton, peanuts, and some specific horticultural products, the pact includes other mechanisms, such as preferential tariff rate quotas and safeguards.
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