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free trade? « Previous | |Next »
August 6, 2003

The image signifies a turning away from a liberal multilateral trading system in favour of a preferential trading agreement with the US whilst retaining barriers to other countries. It signifies that Australia sees that its interests lie outside the East Asian region and lie in being strongly orientated towards North America.

Is this in Australia's interests as the Howard Government assumes?

There was an article in yesterdays Australian Financial Review (subscription required, 5 8 03 p. 63) on Australia's free trade agreement (AUSFTA) with America that questions the Howard Government's position. It is entitled 'Farmers look to Mexican experience', and it is written by Robert Leeson & Simon Vito from Murdoch University. For the background to the free trade agreement, see here

The free trade agreement is being sold as a clever and sound way to bring about an export bonaza for Australian products through opening up access to new export markets. All the local entrepreneurs are going to get rich. It's a win win situation because of greater access to US markets, which are the engine room of the world. And sitting behind all the rhetoric about increasing economic growth and ever more and better jobs is the neo-liberal equation of free trade and democracy.

The article in reinforces my forebodings.

The article says that Australian farmers will not be on an equal footing with their US counterparts. The latter will be able to sell their goods at below cost for sustained periods. So Australian farmers will be forced to compete with heavily subsidised local produce.

And the implications? Well, if the US farmers can sell their products in Australia, their income and market share will decline as they struggle to compete with subsidised goods from the US.

Is this a possibility?

Yes, if Australia makes major concessions on reducing import restrictions and regulations in return for a marginal improvement in the ability of Australian producers to penetrate the closed world of US agricultural markets. The US, by all accounts, has no intention of radically changing the levels of protection and assistance to its farmers.

That is the scenario. One way of checking that scenario out is examine what happened to farmers in Mexico, Canada and the US, as a result of NFTA in the early 1990s. This report, Down on the Farm: NAFTA’s Seven Years War on Farmers and Ranchers in the U.S., Canada and Mexico, provides backing for the Leeson/Vito scenario.

The Report suggests that it is US agri-businesses that will benefit from free trade as AUSFTA's corporate-managed trade terms wil enable them to operate internationally. AUSFTA will also strip away many safeguards for Australian l farmers who produce raw agricultural products; reinforce the shift in the relative power and leverage going to large conglomerates; and enable these conglomerates to exert more pressure on both farmers and consumers.

And this report examines the impact of free trade on Mexico and Canada.

The response by the proponents of AUSFTA is construct this objection as saying that it is pointless because the US will not expand agricultural access,which is Australia's biggest trade interest in the US. Their response is simple. Australia can expect to secure additional access to US agricultural markets. Mexico secured such rights in NAFTA. The US has indicated agriculture is on the table.

However, the argument of this post is not one of don't sign, embrace isolationism and return to the protected past. It is highly like that the free trade agreement wowudl give a net benefit to Australia if the protective a wall around US agriculture was dismantled; and give a net benefit to the US if the protective wall around Australian services were dismantled. Is that likely to happen? The argument is no; the free trade agreement is going to contaminated by protection on the US side. For all its free trade rhetoric, US trade policy works within the constraints of the domestic politics of protection and subsidy for sugar, wool, meat, and grain that is defended in the US Congress. So there may well be negative impacts on Australia farmers from a free trade agreement. If it is the case that many family farm farmers are worse off, then the net economic benefits for Australia in a free trade agreement with the US may be rather small.

We can build on this point about the failure of bilateral negoitations to secure free access to US markets for agricultural products by bringing in wider considerations. We do need to factor in the consequences of any discrimination against East Asian countries from Australia buying less imports in favour of gains from its export trade to the US. What would the East Asian countries do about opening up access to Chinese, Koran and Japanese markets for Australian wool and meat? Is there not a danger of Australia's established policy in East Asia being put at risk?

| Posted by Gary Sauer-Thompson at 1:58 PM | | Comments (1)


Go for it this will be good for Australia.