Free speech vs free trade - why can't Australians be honest about the FTA?

As observers interested in the impact of the proposed AUSFTA from both an academic and an Australian perspective, we have recently attended a number of high-profile fora discussing the merits of such an agreement. Much to our surprise, however, the panels have been stacked with FTA advocates who focus exclusively on the opportunities that the FTA will deliver to Australian exporters.

When pressed to discuss also the likely risks that such an agreement might pose for Australia - and any bilateral agreement of this magnitude obviously entails both risks and opportunities - responses invariably imply that the only risk facing Australia is that we might not step up to the mark to grasp the amazing opportunities that greater market access will bring. When asked why many Australians on the street express concerns about the FTA, the general response is that Australians are somehow "afraid of change" - and that of course is why we have to focus on talking up the opportunities.

We are certainly not opponents of free trade, and acknowledge that free trade can potentially deliver enormous benefits for many nations. Indeed, if developed countries afforded the freedom of trade that they enjoy in manufactures to developing countries' agricultural products, instead of locking them out of the international trade regime via agricultural subsidies, we might see some real progress towards narrowing the international gap between the haves and have nots.

But the point is that developed countries like Australia and the US already enjoy relatively low tariffs in their bilateral trade relations. So what exactly will Australian companies gain from an agreement the United States? More export opportunities for our manufactures? With one or two exceptions, tariffs are already extremely low in manufactures between Australia and the United States; and unless the US repeals the legislation which excludes our fast ferries from plying its waterways, one must conclude that an FTA will not change much in this regard. This much is admitted by former US trade advisors like Paula Stern.

The principal area in which - all things being equal - we might stand to gain from freer trade with the US is agriculture. The Australian market is one of the world's freest, while the American market is protected by high tariffs, restrictive quotas, and large and rising subsidies. By all indications, not much is likely to be achieved in this area under the FTA. Only last year the US ratified its Farm Bill, which will increase - not reduce - agricultural subsidies for US farmers over the next 10 years. Indeed, over the next decade, the agricultural subsidies will cost US taxpayers and consumers more than the government will spend on education and the environment combined. Any significant reduction in agricultural subsidies is most unlikely to be ratified by Congress. The Australian government is fully aware that this is a battle it cannot win and has made it clear that it has no intention of seeking a level playing field in the current bilateral negotiations. So even if our trade negotiators succeed in obtaining either lower tariffs or higher quotas for Australian produce, Canberra will not seek to remove US subsidies through the FTA. The one obvious area in which we might gain from the proposed FTA is therefore not likely to come to fruition.

But let us suppose that some market access concessions are gained for Australian companies. The problem is that only 4 per cent of Australian companies presently export, and of the 96 per cent that do not, according to Austrade, only 2 per cent indicate some intention of doing so in the future. As such, there is little likelihood that any increase in market access, by itself, will ensure that more Australian firms will take advantage of the opportunity to export, or even that existing exporters will export more than at present. Such figures demonstrate not only that we lack an export culture but also, more to the point, that we are not about to create one merely by increasing market opportunities.

The question thus arises - what might we do to push more of our firms to export and to capitalise on market-access opportunities? Pro-active industrial policy? Many of the traditional types of policies for this purpose, such as export subsidies, are now outlawed under the WTO. The options that do remain require a clever government committed to devising innovative and subtle ways of export promotion that link closely with techno-industrial strategy - much like the United States has been doing systematically over the past decade under the rubric of "national security" and "public procurement", "technology policy", and "trade enhancement" measures.

But in the current ideological climate, it seems that one dare not raise the subject of a techno-industry strategy or national development goals in this country. Austrade - as one possible contender to undertake this type of strategy - is already being squeezed by the wider government on the export enhancement issue to such an extent that the employees to whom we have spoken feel they dare not canvass the option of strategic trade and industry policy in public fora.

Another issue, which seems to have been driven underground in the FTA discussions, arises from the acknowledgment that the agreement will impact more on investment than on trade, given the already low tariffs in each jurisdiction. Since the proportion of Australian companies that actively invest in the United States is miniscule compared with their American counterparts here, we must assume that the main change will be on the US side - more investment for Australia. Surely this can only be positive? To the extent that the great bulk of foreign direct investment in Australia over the 1990s has been for mergers or acquisitions of already existing companies rather than the creation of new ventures, the answer is not so clear-cut. Has the technology and management always improved as a result, as economic theory would predict? Has the steady loss and diminution of locally-created assets been offset by a net gain in skills, innovation, and commercial benefits for the Australian community? Since such questions are not even entertained in the current environment, an open discussion and cool appraisal of the evidence - using two eyes rather than one - has thus far proved elusive.

All of this of course raises the question of why we are so keen to go all the way with the USA on the FTA. Is the Australian government using the FTA for geopolitical purposes - to bolster national security rather than economic security? For FTA enthusiasts in Canberra, a bilateral agreement with the United States promises to forge another link in the security chain that binds the two countries in a military alliance. For American enthusiasts however, this is not the driving force. Indeed, in striking contrast to the string of FTAs currently being considered or conducted entirely for national security reasons with Jordan, Morocco, Pakistan, Bahrain and, more problematically, Egypt, the US administration emphasises and expects from the AUSFTA abundant economic benefits for Americans, not political ones.

The US government has made clear its objectives for these negotiations. It proposes to increase the export of US food and agricultural products to the Australian market and to dismantle Australia's producer-controlled Wheat Board (described by the US Western Farm Press in January this year as the "rival" of "any state trading enterprise in the People's Republic of China"). US officials are also pressing for the removal of "unjustified" sanitary and phytosanitary measures that restrict exports of perishable or cyclical agricultural products. Indeed, since last July, we now import Californian grapes, banned for a decade due to the risk of infestation and bacterial disease. Grapes bound for Australia undergo pre-shipment fumigation with Methyl bromide (MBr). So while Australians can consume grapes out of season, this comes with a cost since MBr is a known "toxic material" dangerous to human health. It is so toxic that its use in the US will be completely banned from 2005 - except for the purposes of fumigating export produce.

The US is also pressing for elimination of restrictions in the financial services, telecommunications, postal and other service sectors. Additionally, it is aiming to eliminate remaining barriers to US investment, including investment screening through the Foreign Investment Review Board, as well as obtaining greater access to Australian government procurement markets. It is surely worth some discussion that even without these measures for improved access to the Australian market, the United States maintains a huge trade surplus with Australia - amounting to almost US$7 billion in 2002, the second largest in the world after the Netherlands.

So there are certainly opportunities to be seized under the FTA. But the question that needs to be raised is whether - in the absence of a coordinated government-business strategy - they are likely to be seized overwhelmingly by US firms, not least by firms in financial services who are most anxious to break into the Australian market. And since for most people finance seems much more esoteric than trade, the impact of this massive change alone on the Australian community is likely to be more profoundly felt than widely understood. Isn't it time that we talked honestly about the FTA?