Saturday, January 07, 2006

Free Trade Agreements binding on the weaker party

In a column in yesterday’s Oz, Michael Costello offers a withering assessment of the first year of the Australia-US Free Trade Agreement (AUSFTA).

According to US Census Bureau figures, the first 10 months of the FTA saw Australian merchandise exports to the US falling 4 per cent. The much-vaunted access increase for our farm sector yielded little, even in dairy, where great expectations were created. The results look grim...

The Government insisted all through the negotiations that improved access for our sugar producers was essential and vilified those who suggested it was considering an FTA that did not include sugar. Sure enough, the Government caved in totally... John Howard blinked and did the deal the Government had said Australia would not do...

Bilateral trade agreements of this kind are by definition not free trade agreements. They are properly described in World Trade Organisation parlance as “preferential trade agreements”. They are not, as their defenders argue, a second best alternative to multilateral free trade but are, by their very nature, hostile to genuine free trade.

Costello takes a bleak view of Prime Minister John Howard’s advancement of the AUSFTA, in which he says the PM was “ready to concede anything for the sake of a deal, even a bad deal – and this was – that makes us cosier with the US.”

That’s pretty much a given, but one could go further. As the March 2003 invasion of Iraq shifted into high gear, I wrote to Margo Kingston’s Webdiary:

The Prime Minister and his apologists ascribe his position on Iraq to “conviction politics”, and we are expected to swallow this without gagging as 40 US trade officials arrive in the country to negotiate a possible free trade agreement. Yes, the prospective FTA has been suddenly refloated, after last year foundering in the face of apparently insurmountable resistance from the US farm lobby.

It remains to be seen, after the war we had to have has run its course, whether the US agricultural sector will relent to the “slight squeeze” on its interests that US Ambassador Schieffer this weekend said they might. It also remains to be seen how “slight” a squeeze they will concede. As Australians, we might ponder whether the resurrected prospect of the FTA explains the Australian agricultural sector’s muted response to Howard’s warmongering, with millions of dollars in grain exports to Iraq in the balance.

Costello sums up what should be accepted as more or less a general law of international economy:

When a big economy negotiates deals of this kind with smaller economies, the smaller economy always loses.

A while ago I read a quote on my desk calendar which defined a contract as “an agreement that’s binding on the weaker party”. So too with free trade agreements.

I’d imagine that some Australian’s might prosper under the provisions of the present AUSFTA. It’s odds on that the winners will be those interests who are close to the Government... perhaps predominantly in the resources and services sectors...?

I’d like to propose an “AUSFTA Winners Watch” to keep tabs on this. Anyone else?