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An Explanation of Some Key Elements of the Australia-US Free Trade Agreement, and Predicted Impacts on Australia

The Australia-US Free Trade Agreement (FTA) came into effect on January 1, 2005. Below is an explanation of how some elements of the agreement with affect Australian society and environments. Click on a topic to read details about it.

(GTW also keeps an archive of media coverage of the agreement.)

Pharmaceuticals

Agriculture

Quarantine

Manufacturing

Environment

Australian Culture / Audio-Visual Content

Intelllectual Property

Public Services

Economics

 

Pharmaceuticals

"Every single provision in the text of the agreement as it applies to drugs is to favour the US companies, to increase the prices, to ultimately reduce access to cheap, affordable drugs in Australia. There's no question about it."

- David Henry, Professor of Clinical Pharmacology at the University of Newcastle and a former Chairman of the Government's Pharmaceutical Benefits Advisory Committee.

Australia’s Pharmaceutical Benefits Scheme (PBS) guarantees Australians some of the cheapest medicines in the world. That’s why US pharmaceutical companies lobbied to undermine the PBS throughout negotiations for the Australia-US FTA. Among the biggest and richest corporations in the world, these companies argued that because consumers in Australia can buy medicines cheaper than in America, the PBS is an unfair subsidy which should be changed to allow them greater profits.

The outcome of this campaign was that the Australia-US FTA makes a number of changes to the PBS which are aimed to increase the influence which US drug companies have over the scheme. According to the Australian government, the changes will "enhance transparency and accountability in the operation of the PBS", by establishing a new process to review determinations of product listings. But in reality, this process will allow companies another chance to push for subsidisation of their more expensive, but not necessarily more effective medicines.  

By doing so, it will increase the cost of the system to Australian taxpayers. Studies in both Australia and America have confirmed that the FTA will increase the cost of providing medicines in Australia by up to $1.5 billion every year. This extra cost has never been factored into the government's economic modelling of the agreement.

More Information:

"US trade deal raises prescriptions", By Peter Mitchell, The Australian, May 20, 2004.

"Why is Howard so loyal to US businesses?", By Kenneth Davidson, The Age, May 20, 2004.

"Study predicts trade agreement will cost PBS $1.5-bil", Reporter: Catherine McGrath, ABC Radio National: The World Today, 19 May, 2004.

"Pharmaceutical benefits and free trade: trouble ahead for subsidised medicines in Australia?", By Ken Harvey, The Drawing Board: An Australian Review of Public Affairs, March 19, 2004.

"Australian drug costs will rise with FTA deal: US official", By John Garnaut, The Sydney Morning Herald, March 11, 2004.

 

Agriculture

"The bottom line is that there is no US commitment to free trade.   It is really a commitment to getting other countries to give access to American producers to their markets and the US reciprocates when it is convenient."

- Professor Joseph Stiglitz, Nobel Laureate in Economics

Agricultural trade liberalisation policies of the last decades have been a disater for Australian farmers. Since 1965, the number of Australian farms has dropped dramatically from over 200,000 to just 120,000. On average, that's a shocking 6 farms disappearing every day from Australia's rural areas. The 2001 National Land and Water Resource Audit notes that almost all the farms that disappeared over a decade of measurement (1986-96) were small farms - less than 500Ha.

The Audit notes that most farmers left the land because of declining commodity prices - since the early 1970s, real commodity prices have fallen by over 80%. Why are Australian commodity prices so low? Because for the last few decades, governments have pursued policies of deregulation and export-orientation which have advantaged large, corporate farmers, and disadvantaged smaller, family farms. They mirror the effects that neo-liberal policies have had in other, both rich and poor, countries.

The Australia-US FTA will continue these trends. Despite a promise to Australians by Prime Minister Howard on November 21, 2003 that "if we can't get something quite big on agriculture then we won't have a free trade agreement", the FTA delivers few new export markets to farmers.   At the same time, it threatens local markets by giving all US imports into Australia (many of them subsidised by the US government) "immediate duty-free access", and by making changes to quarantine standards to allow more US produce in.

Quotas for Australian beef exports to the US will remain for the next 18 years, until 2022, before free trade is instituted. Australian dairy exports will be allowed to increase to a tiny 2% of US imports. Sugar is excluded from the deal.

However, local produce which will be threatened with increased imports of subsidised US produce including processed foods, soups and bakery products, fruits and vegetables, dried onions, fruit and vegetable juices, dried plums, potatoes, almonds, tomatoes, cherries, raisins, olives, fresh grapes, sweet corn, frozen strawberries, and walnuts.

More Information:

Food producers reject US FTA, ABC News, March 5, 2004.

Globalisation's Winners & Losers: Small Farmers, By Global Trade Watch

Farmers sweet and sour on trade deal, AAP, February 9, 2004

Free trade deal spells disaster for our beef industry, ABC Rural News, July 24 2003

 

Quarantine

"These new bodies are intended as vehicles by US industry and government to pursue the complete elimination of quarantine standards as they impinge on agricultural produce from the United States."

- Professor Linda Weiss, School of Economics and Political Science, University of Sydney

The FTA will also give the US unprecedented influence over Australian quarantine laws by creating a new body to oversee quarantine, on which the US government will sit. The US Trade Representative has stated that using this new body, "food inspection procedures that have posed barriers in the past will be addressed, benefiting [US agricultural] sectors such as pork, citrus, apples and stone fruit."

Opening up Australian markets to these US imports will not only threaten Australian growers, but will bring in new pests and diseases against which current quarantine rules protect.

More information:

Scientists fear FTA boosts disease risk, ABC News, May 6, 2004.

 

Manufacturing

Under the FTA, more than 99 percent of U.S. manufactured exports to Australia will become duty-free immediately upon entry into force of the Agreement. U.S. manufacturers estimate that this elimination of tariffs could result in US$2 billion per year in increased U.S. exports of manufactured goods - that is, an increase of US$2 billion per year in Australian imports.

Trade unions have predicted that this change will result in tens of thousands of jobs lost as local production is displaced by imports from technologically superior American manufacturers.

"We are very concerned about the car components industry as it is an industry that is the backbone of Australian manufacturing," said Doug Cameron, national secretary of the Australian Manufacturing Workers Union, who predicted tens of thousands of jobs could be lost.

"All they have done is sacrifice manufacturing jobs and they have not delivered free trade in agriculture," Mr Cameron said.

Even Toyota Australia has warned that the FTA could destroy the Australian car industry, causing manufacturers to move to the US, where production would be cheaper. Whistleblower website Crikey.com.au has also published rumours that Ford is considering the closure of its Factory in Geelong, Victoria as a direct result of the FTA.

More Information:

"FTA 'suicide' For Local Car Industry", By Ben Schneiders, Australian Financial Review, December 1 2003

"Manufacturing Jobs Put At Risk By A Bad Trade Deal", Australian Manufacturing Workers Union, 12 February, 2004.

 

Environment

The FTA will undermine Australia's existing environmental laws and fetter Australian governments seeking to legislate to protect the environment. And while US law requires a formal environmental assessment of all trade agreements, the potential environmental impacts of this agreement for Australia have never been formally assessed by the government. Many serious questions about the environmental consequences of the AUSFTA therefore remain unanswered.

The Australian Conservation Foundation makes these points about the FTA's potential impact on Australia's environment:

1. The FTA Investment Chapter obliges the Commonwealth Government to compensate US investors if Australian laws on the environment, human rights or labour standards "significantly interfere" with their investments. This provides greater rights to US investors than are currently enjoyed by Australians under the Australian legal system. If this obligation is breached, the US Government will have the right to seek compensation.

2. The chapter on trade in services, commits Australia to ensuring that its environmental, human rights and labour laws do not act as a barrier to trade in services. If they do, Australia can be taken by the US Government to a specially convened dispute settlement panel, which will be able to rule that the law must be repealed or compensation paid. This chapter could increase pressure for the privatisation of our national parks or key park services, and make it more difficult for Australian governments to regulate water use and distribution services.

3. While the FTA has not resulted in any immediate changes to Australian quarantine laws, it puts in place procedures that may, in the future, weaken those quarantine laws and also laws governing the environmental release of GMOs.

4. Australia appears not to have made concessions allowing the removal of our laws governing the disclosure of genetically modified ingredients. However, it would still always be open for the US to challenge the validity of these laws through the WTO as they have European laws.

5. The FTA presented an opportunity to promote sustainable development and other positive environmental outcomes in Australia and the United States as well as the wider Asia Pacific Region. Instead, it remains limited in its environmental scope and relies merely on voluntary initiatives as the preferred instruments for promoting environmental protection.

6. The FTA includes an inadequate dispute settlement process that does not reflect the judicial traditions of Australia and the US.

7. Australia has not undertaken an environmental impact assessment of the FTA. Consequently, we lack assessment of the potentially significant environmental impacts arising from increased agricultural exports from Australia, and from the increased importation into Australia of a wide range of products.

8. Australians have no public process to review or recommend amendments to the FTA draft text. Unlike Congress, with its right of veto, our Parliament cannot vote on the FTA. Parliament cannot stop the agreement being signed by our Prime Minister if it determines the FTA is not in the national interest. The sole, weak course of action available to the Parliament is to block any enabling legislation required to implement the agreement - after it is signed - at the domestic level. This blatantly undemocratic situation requires immediate attention and reform.

More Information:

"Environment Pays Dearly For Free Trade", By Peter Garrett, May 20, 2004, Australian Financial Review.

"Environmental Analysis of the US-Australia Free Trade Agreement", By the Australian Conservation Foundation.

 

Australian Culture / Audio-Visual Content

Local Content Rules in Australian TV and radio ensure that Australian stories and Australian voices are heard over the deluge of American programming. But the US, not content with this, has used the FTA to limit Australia’s right to regulate its film, TV and radio.

The US has reported that "the FTA contains important and unprecedented provisions to improve market access for U.S. films and television programs over a variety of media including cable, satellite, and the Internet."  

The FTA significantly limits the government's right to regulate the Australian media, including:

* In the Multi-Channel environment for Free To Air TV, 80% of channels will be free of local content regulation.

* Pay TV will only have to spend 10% of their total production budget on local content, and this only applies to arts, children's, documentary, drama and educational shows - other subjects can have no local content quotas.

* In the area of Australian film, the ability to regulate has been lost.

More Information:

Film,TV industry reeling, By Gabriella Coslovich, The Age, March 5, 2004.

Free Trade Agreement: Australia's Cultural Industries Lose Out?, Media, Entertainment & Arts Alliance

Submission to the 2004 Senate Inquiry into the FTA, Media, Entertainment & Arts Alliance

Australian Writers' Guild, FTA Website

 

Intellectual Property

The FTA significantly increases the rights of intellectual property owners - mostly large corporations - over users - mostly ordinary people. Changes under the FTA include

* extension in the term for copyright material from life of the author plus 50 years years to life of the author plus 70 years. Such increased copyright protection will impose serious costs on the public who will have to pay to use large numbers of everything from music to film and books which would otherwise be in the public domain. Further, this restriction will stifle creativity, discriminating against new and small artists who are further restricted in their ability to use material which would otherwise be in the public domain.

* enormously increased powers for copyright-owning corporations, enabling them to disturb business, attack normal consumer practices, and suppress information;

* draconian requirements of Internet Services Providers which would be burdensome for those businesses, and intrusive into the activities of businesses and consumers;

* issue of patents for mere descriptions of business processes, which is completely at odds with the very notion of patents, and seriously constraining on the conduct of business.

Among other effects, these changes will limit the ability of Australian software developers, companies, and users to benefit from and contribute to the Open Source software industry. Again, this benefits large software corporations such as microsoft, and stifles the creativity of ordinary computer programmers.

More Information:

The Economic and Cultural Impacts of the Free Trade Agreement Provisions relating to Copyright and Patent Law, By Roger Clark, Visiting Fellow, Department of Computer Science, Australian National University

Copyright protection 70 years after death does not encourage creativity, By Emma Caine, Andrew Christie and Peter Eckersley, Online Opinion, November 25, 2003.

Linux Australia Testimony on Chapter 17 of the US Trade Agreement, By Rusty Russel.

Submission on Chap 17 of the US-Australia FTA, By the Council of Australian University Librarians

 

Public Services

Most people wouldn't think that public services have anything to do with trade, but modern trade agreements now aim to limit governments' ability to provide public services.

Thanks to the use of a "negative list" in the Australia-US FTA, all services sectors not specifically excluded from the deal are now fully liberalised under the FTA.   The US says "Australia will accord substantial market access across its entire services regime, offering access in sectors such as telecommunications, express delivery, computer and related services, tourism, energy, construction and engineering, financial services, insurance, audio/visual and entertainment, professional, environmental, education and training, and other services sectors."

This means that in these areas, US companies can demand "market access" to bid for public services currently supplied by the government. The US government can challenge any regulation of any of these services as a "barrier to trade" under the FTA. For example, in the area of "environmental services", requirements that national parks be run by government agencies may be a "barrier to trade" which could be challenged, opening national parks to be run by US corporations.

It may also make it difficult for the government to restrict the operation of some corporations.   For instance, limits on the number or type of tourism service operators in environmentally sensitive areas could be a "barrier to trade", in breach of the FTA.

Not only this, but the FTA will make it almost impossible for any future Australian government to run public services currently supplied by private companies.

Finally, the Australian government has used the FTA to pledge to the US Government to privatise Telstra as part of the agreement. This is not only concerning, but undemocratic given the significant popular opposition to this measure.

More Information:

"Howard turns up rhetoric on trade deal", By Tim Colebatch, The Age, February 14, 2004

 

Economics

“On the conclusions of the CIE/DFAT modelling . . . I think that part of the calculation generating a majority of interests is simply not credible. . . . This is a protectionist FTA, the trade effects of which will diminish Australia’s economic welfare.”

- Prof Ross Garnaut, Professor of Economics, Australian National University

During 2003-4, Five different economic assessments were done on the US-Australia Free Trade Agreement. Of these five, four of them – by the International Monetary Fund (IMF), ACIL Tasman, the National Institute of Economic and Industry Research (NIEIR), and Philippa Dee of the Australian National University – have found that the FTA will either have little economic impact at all, or will be bad for Australia’s economy.

At worst, NIEIR found that the agreement could cost the Australian economy up to $50 billion, and 200,000 jobs.

The International Monetary Fund (IMF) showed that a FTA would shrink the Australian economy by 0.03% per year, with $5.25 billion of extra US imports flooding into Australia and only $2.97 billion extra exports to the US.

The report by ACIL Tasman - commissioned by the government's Rural Industries Research and Development Corporation in 2003 - found that the FTA would damage Australia's economy, and that "whether anything can be gained from a bilateral deal with the US is questionable."

The government has ignored all of these reports, favouring instead a report by the Centre for International Economics, which predicted an economic windfall from the FTA of somewhere between $1.1 and $7.4 billion a year. But what the CIE modelling actually says is that more trade will be diverted away from Australia by this agreement than will be created. To disguise this fact, the government's models have assumed a massive increase in US investment resulting from the agreements. Many economists, including the ANU's Professor Ross Garnaut have questioned this assumption, with Garnaut calling it "laughable".

Some costs not included by the government in its calculations include the exclusion of sugar from the deal has cost taxpayers over $400 million in compensation, changes to the Pharmaceutical benefits scheme could cost $1.5billion a year, increased costs to farmers as quarantine laws are relaxed, and increased costs to all consumers with the extension of copyright protections for books, music, films, art, and computer software by 20 years.

More Information:

Free trade deal will cost thousands of jobs: study, AAP, June 7, 2004.

Former diplomat says FTA benefits exaggerrated, ABC Radio National: PM, May 3, 2004.

"The downside of the FTA", By John Quiggin, Australian Financial Review, May 7, 2004.

"Productivity Commission concerned over trade deals", ABC Rural News, 13 March 2004.

"IMF Marks Down US Free-Trade Deal", By Mark Davis, Australian Financial Review, November 17 2003.

"Free trade comes at a painful price", By John Garnaut, Sydney Morning Herald, February 26 2003.

"A Bridge Too Far?: An Australian Agricultural Perspective on the Australia/United States Free Trade Area Idea", A report for the Rural Industries Research and Development Corporation By ACIL Consulting.


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