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TRADE: U.S.-Australia Deal Could Fuel Protectionism

Analysis - By Emad Mekay

WASHINGTON, Feb 12 2004 (IPS) - A "free" trade deal signed last weekend between the United States and Australia does not appear to live up to its name, and could set a negative precedent for countries that want a truly free deal, say analysts here.

The Bush administration’s selective application of free trade in the Australia deal reveals Washington might be applying different standards for different countries and be unable to match its trade rhetoric, as the agreement keeps some industries protected, both in the United States and in Australia.

The deal, reached Sunday after months of negotiations between the two rich nations, will eliminate duties from more than 99 percent of U.S. manufacturing exports to Australia and 97 percent of manufactured goods that Australia sells to the United States, a statement from the U.S. trade representative office said.

But until the very last minute, the deal was under threat over sugar – Australia opposed U.S. protection of its sugar producers while Washington refused to open its sugar market for Australian traders.

The U.S. government employs preferential loan agreements and tariff-rate quotas to keep foreign sugar out of its vast market, even to the point of keeping prices higher for U.S. consumers.

During the talks, Sydney contended that sugar exclusion would be a deal breaker, yet it finally caved in, agreeing to leave sugar out of the deal on the condition that Australia will not have to open up a number of its protected sectors.

U.S. sugar producers quickly praised the deal as a "template" for all future trade negotiations, but analysts that had supported the U.S. rhetoric on global free trade were disappointed, to say the least.

"This fight to ‘keep sugar off the table’ was a disappointing departure from the prior U.S. commitment to negotiate high-quality FTAs that open markets for all products across all sectors," said Aaron Lukas from the libertarian Cato Institute in Washington.

Other analysts agreed. "The just concluded U.S.-Australia FTA is so riddled with major exceptions to protect U.S. agriculture that it sends a gloomy signal about U.S. capacity to open our markets," said Sherman Katz, an international business expert at the Centre for Strategic and International Studies here.

Lukas argues that sugar’s absence from this FTA reveals a below par performance on three counts, one being that sugar will now stand as a "symbol of perceived American hypocrisy on trade".

The U.S. failure to attempt to break up what he called "self-defeating protectionism" in a relatively insignificant sector of the U.S. economy also calls into question the administration’s self-styled commitment to open markets, he adds.

Finally, the deal discredits what U.S. officials have been preaching to other countries, especially developing nations, which are beseeching rich nations to open their markets before they can completely open their own.

The flip side of the U.S. position, Lukas argues, is that in order to get a pass on sugar, U.S. negotiators were forced to overlook Australian protectionism on wheat, broadcasting, audio-visual services and other areas.

In return, besides sugar, the U.S. dairy market will also be safe from full competition under the U.S.-Australia FTA.

He warns that excluding sugar from the agreement sets a precedent that could embolden other import-competing producers to insist on similar treatment in future deals with Washington.

But why would the U.S. so completely renege on its word to embrace free trade?

Analysts say the reasons for Washington’s sub-par performance in achieving free trade can be traced back to political pressures at home.

"The Bush administration is worried about losing states, like Florida and Minnesota … which are key swing states in the upcoming elections," said Dennis Olson of the Institute for Agriculture and Trade Policy in Minnesota, a key sugar producing state.

"So, based purely on politics, they were unwilling to open the sugar market up. It’s a big issue here. That’s an example of the hypocrisy the U.S. trade and agriculture policy (follows). It’s ‘do what I say not what I do’," he added.

Other major trade deals involving the United States are also in tatters over similar problems. The multilateral Doha Round of the World Trade Organisation (WTO) and the U.S.-pushed Free Trade Area of the Americas (FTAA) are bogged down exactly because rich nations have failed to open their markets, especially agriculture.

The U.S.-Australia agreement, the most recent in a series of U.S. bilateral trade deals, will only exacerbate that situation. It reveals the strength of U.S. agriculture and dairy lobbies, even in the face of a strong ally of Washington, like Australia.

"This is a difficult time for U.S. trade policy, with both Doha and the Free Trade Area of the Americas barely moving, Congress is in no mood to take up regional and bilateral free trade agreements while lost jobs are a major concern," Olson said.

According to the Nelson Report, an insider’s newsletter distributed in Washington, another "bad message" that current and future FTA negotiators among U.S.’ trading partners will get from this deal is, "no matter what they offer, they are not likely to get much from the U.S. So where’s the incentive for them to compromise"?

Prime Minister John Howard of Australia is already facing anger at home over the pact. Opposition parties and farmers were quick to decry the deal for sacrificing Australian agriculture.

"What no one expected was that Howard would direct his negotiators to accept the U.S. hard line on sugar, and to swallow very tiny U.S. concessions on beef and dairy," said the Nelson Report.