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Free trade comes at a painful price

By John Garnaut, Sydney Morning Herald 26/2/03

One of the Federal Government's main policy objectives, a free trade agreement with the United States, could damage the interests of farmers and hurt Australia's broader economic interests, says an independent report. The study says a free trade deal would cost the economy more than it delivered - in contrast to the $4 billion in gains claimed by the Government. "Whether anything can be gained from a bilateral deal with the US is questionable," the ACIL Consulting report says. "The US would have most of the bargaining power, as it needs the [agreement] less than Australia ... Worse still, the strains and disappointments of a negotiation with the US, in which it gradually became clear that much agriculture would be excluded, could harm overall Australia-US relations rather than improve them. "

In three weeks 60 US officials will arrive in Canberra to begin negotiations. The Trade Minister, Mark Vaile, has said "everything is on the negotiating table", including foreign ownership of Telstra and Qantas, reducing Australian quarantine restrictions and softening labelling requirements for genetically modified food. But Mr Vaile has refused to reveal Australia's requests of the US, or the latter's objectives as listed recently in a letter from the US Trade Representative, Bob Zoellick.

The report was commissioned by the Rural Industries Research and Development Corporation (RIRDC) and guided by a steering committee with representatives from the Department of Foreign Affairs and Trade, the Department of Agriculture and the National Farmers Federation. It remains a draft, as ACIL is said to be resisting requested changes. A source involved with the steering committee said the report was commissioned because of a "strong view in DFAT" that a free trade deal could be shown to be worth more than $4billion - but was "nobbled" when the results fell short of expectations. A DFAT official criticised the report's "overall quality" and "counter-intuitive results", but denied the Government buried it. The report was earmarked for release in April and then September last year. The managing director of RIRDC, Simon Hearn, denied that there had been any political intervention and said the report's release had been delayed by "process".

The report's conclusions are far less favourable than previous DFAT modelling partly because it does not assume total trade liberalisation is achievable. It has also rejected an assumption that services sector productivity would improve by 0.3 per cent due to the elimination of foreign ownership restrictions in telecommunications, banking and other areas. This assumption had accounted for the largest component of the department's claimed $4 billion in gains.

The report also says a US trade deal would invite Chinese and Japanese retaliation against Australian beef and wool exports as those countries could be "greatly irritated" by Australia giving preferential treatment to US clothing and car manufacturers. It warns that a free trade agreement with the US may encourage the development of an Asian free trade pact that excludes Australia, noting 10 per cent of Australian exports are directed to the US compared with 55 per cent to East Asian markets. ACIL and the National Farmers Federation declined to comment.