COMMENTARY
Australia weighing benefits of trade pact
By Richard W. Baker
President Bush and Australian Prime Minister John Howard share at least three things:
They are staunch allies and partners in the coalition in Iraq, they both face elections this year, and on Feb. 8 they announced the conclusion of a bilateral free trade agreement.
It is only the second such agreement that the United States has signed with another developed country — the first was with Canada — and thus is a substantial achievement for Australian diplomacy. But the balance of political cost and benefit for Howard remains to be seen.
Howard first proposed the agreement in 2000, just after Bush was elected and as an Australian election was coming up. Negotiations began in earnest early in 2003. Then, when Howard visited Bush's Texas ranch in April, propelled by the solidarity of the Iraq campaign, Bush personally embraced the agreement and announced the intention to complete the negotiations by the end of the year.
Despite this high-level political support, the negotiations were predictably difficult.
The East-West Center hosted two rounds of complex and contentious expert talks last May and August. As in many trade negotiations, the economic interest groups that stood to gain or lose on both sides were politically powerful — in this case, particularly sugar producers and the film and television industries.
Differences on these and other specifics effectively stalemated the expert-level talks and prevented agreement by year's end.
Inevitably, the fundamental choices and trade-offs had to be made by the political leaders, not the negotiators. After a final marathon negotiating session in Washington, Australia backed down on its demand for access to the U.S. sugar market and the United States eased its pressure for greater access to pharmaceuticals and the entertainment industry, making an agreement possible only five weeks behind a very ambitious deadline.
The deal provides significant benefits — both immediate and over time — to both nations. The United States gains the elimination of Australian duties on almost all manufactured goods, agricultural and food products, as well as greater transparency for investments in Australia.
Australian industry will have free access for most of its manufactured items, importantly including automobiles and automobile parts (the No. 3 Australian export to the U.S. market), and gradually will gain unrestricted access for beef, Australia's leading export to the United States, and increases in the quotas for dairy products.
Both sides will enjoy an essentially open market in services. The details are to be made public after several more weeks of legal and technical review, but the value of the agreement is estimated at $2 billion to $3 billion annually for each country.
However, in political terms, there are major differences in context and calculus.
The agreement attracted almost no attention in the U.S. news media, so Bush will get some credit from the U.S. "winner" sectors but is not likely to suffer politically from easing the pressure for concessions on film and TV exports or on access to Australia's government-financed pharmaceutical program.
By contrast, in Australia, trade with the United States is headline news, and criticism of the agreement by the Labor opposition will probably feature prominently in the coming election campaign. (A poll released immediately after the agreement was announced indicated that the Labor Party has just drawn even with Howard's Liberal-National coalition.)
Paradoxically, Howard, author and prime mover of the trade negotiations, may pay a heavier political cost than Bush. Howard and his trade minister, Mark Vaile, from the rural-based National Party, had loudly trumpeted the claim that no product — specifically sugar — would be excluded from the agreement, and both the Australian sugar industry and the Labor opposition cried foul over Howard's "sell-out" on sugar.
In fact, exemption for Australia from the convoluted and deeply entrenched U.S. price supports for sugar — or even a substantial increase in Australia's quota of U.S. sugar imports — was probably unachievable.
Australian rhetoric on this subject arguably was largely posturing, positioning Howard and Vaile to trade this demand for U.S. concessions in areas that are sensitive for Australia. Meanwhile, Australia's inefficient and highly subsidized sugar industry can be appeased by other kinds of buy-offs.
The trade agreement issue will be more useful to Howard's opponents because Iraq has little electoral salience in Australia, where there is general satisfaction at the removal of Saddam Hussein.
However, Australia's broader economic situation is uncertain. This might feed suspicions that the details of the trade deal will show Australia as the loser. Labor will make the most of this uncertainty.
The negotiations thus arguably put Howard in a political no-win situation. He could not get the Americans to agree to Australia's No. 1 demand but could not afford to let the negotiations fail, thus reducing his bargaining leverage in the final deal-making.
This leaves Howard with an agreement that is clearly beneficial for the country's economy over the long term but will not produce dramatic short-term payoffs. The agreement generally is seen as significantly less than he promised and in the minds of many may be damaging.
As the Australians say, Howard will have to wear the consequences.
Richard W. Baker, special assistant to the president of the East-West Center, is a former U.S. diplomat with service in Canberra, Australia.
