US-Australia Trade Deal Sealed

By Patrick Goodenough | July 7, 2008 | 8:14 PM EDT

Pacific Rim Bureau ( - After a fortnight of hard bargaining, the United States and Australia Sunday signed a multi-billion dollar free-trade agreement that promises overall benefits to both economies, but nonetheless could struggle to get past lawmakers in an election year.

At the last minute, Canberra decided to give way on the potentially deal-breaking issue of expanding Australian access to the U.S. market for sugar, a major Australian export.

Prime Minister John Howard said Monday it was a question of either scrapping a "once-in-a-generation opportunity" deal that will enormously benefit Australia's economy, or holding out because of the sugar question alone.

"I came to the conclusion that it would have been against the national interest to give up a deal that is going to be of enormous benefit for the rest of the economy because we couldn't get something on sugar," he said.

The American sugar industry has been wary of a deal that would open up the market beyond the current 87,000 tons of sugar Australia sells in the U.S. each year.

At the same time, dozens of farm-state members of the U.S. Congress have urged the administration not to negotiate a deal that would negatively affect American beef and dairy farmers.

The deal signed will retain current quotas on beef, while phasing out tariffs on beef above the quotas over an 18-year period, and there will be no change in U.S. tariffs for dairy imports above the quota for dairy products.

A statement issued by Trade Representative Robert Zoellick said the agreement negotiated with Australian Trade Minister Mark Vaile was "sensitive to concerns that have been raised" by farmers and lawmakers.

In a radio interview, Howard conceded that having the FTA approved by the U.S. Congress in an election year may be tough, but added that President Bush had assured him during a phone conversation "that he intends to fight very hard to get it through."

But the prime minister also faces an election campaign late this year, and Monday came under fire from opposition parties claiming the deal with the U.S. was not in the interests of Australian farmers.

The official opposition Labor Party, backed by smaller left-wing parties, called for a Senate inquiry.

"Based on what we know at this stage, this deal doesn't appear to be in Australia's national interest," said Labor leader Mark Latham, who added that his party would oppose the agreement if asked to vote on it this week.

'Political amity'

During the negotiations, both the U.S. Chamber of Commerce and National Association of Manufacturers came out strongly in support of an FTA, which is estimated will boost U.S. manufactured goods exports by nearly $2 billion a year

A highlight of the deal is that more than 99 percent of U.S. manufactured exports to Australia will become duty-free immediately upon its entry into force.

"This is the most significant immediate reduction of industrial tariffs ever achieved in a U.S. FTA, and will provide benefits for America's manufacturing workers and companies," the U.S. statement said.

U.S. sectors to benefit will include autos, auto parts, computer, appliances, machinery, furniture and wood and paper products, while Australia will export to the U.S. more pharmaceuticals, light commercial vehicles and auto parts.

Australia is the United States' 13th largest export market. Two-way trade in 2002 reached $28 billion, with the U.S. enjoying a $9 billion trade surplus.

Explaining his "once in a generation opportunity" characterization of the FTA, Howard at a press conference in Canberra cited the support from industry groups in both countries, but also the "political amity" between the two governments.

The agreement will deepen Australia's relationship with the U.S., which has a long history but has become increasingly close in recent years as Australia has moved further away from Britain and Europe, largely through defense and security cooperation in the war against terrorism.

Over the same period, Canberra's relations with some of its Asian neighbors have suffered, in part as a result of the perception in countries like Indonesia and Malaysia that Australia is Washington's lackey in the region.

The U.S.-Australia agreement is likely to renew accusations by some of Howard's domestic and regional critics that he is pulling Australia further away from Asia.

In fact, Australia's trade relations with Asia are good. Economic ties with South Korea, Taiwan and Japan - Australia's largest trading partner - are healthy, and those with China are improving.

More than half of Australia's exports head for East Asia, and 40 percent of its imports are from the region.

Nonetheless, critics like Malaysia's former Prime Minister Mahathir Mohamad made it clear in recent years that Australia was not part of Asia.

This is not necessarily a bad thing in the view of the government, which prefers to see the country as a Pacific neighbor with strong economic and diplomatic ties to Asia, and a close alliance with the U.S.

The deal concluded Sunday is only the third reached between developed countries, after the U.S. FTAs with Israel and Canada (together with Mexico, in NAFTA).

The U.S. also has FTAs with Jordan and Chile, recently concluded a deal with five Central American states that still faces congressional approval, and is in negotiations with Morocco and five Southern African nations.

FTAs with Thailand, Panama, Colombia, Peru, Bolivia and Ecuador are also planned, Zoellick's statement said.

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Patrick Goodenough
Patrick Goodenough
Spencer Journalism Fellow