US Offers Australia Free Trade Talks; Offer 'Not Linked To Iraq'

By Patrick Goodenough | July 7, 2008 | 8:12 PM EDT

Pacific Rim Bureau ( - Two years of lobbying and an increasingly warm relationship with Washington paid off for Australia Thursday as the U.S. announced it was ready to start negotiations on a free-trade deal between the two allies.

Trade representative Bob Zoellick broke the news in Canberra after meeting with Prime Minister John Howard, just hours before participating in a World Trade Organization trade ministers' meeting in Sydney.

Zoellick said talks would begin in 90 days' time - the notice period required by law for the White House to inform Congress - and he hoped a deal would be struck before the end of President Bush's first term.

Economists said Thursday the areas of hardest bargaining would likely relate to agricultural goods, where tariffs have been imposed to protect American producers.

U.S. sugar and cattle interests are understood to be the most reluctant to see a free trade agreement (FTA) with Australia, believing it would offer little benefit for their exports.

Australia's National Farmers' Federation said an FTA would be a "win-win" deal for both economies, while Howard hailed the news as a breakthrough.

He conceded negotiations would be difficult, but he said a successful result would benefit both countries and further bolster "an already very strong relationship."

Until now, U.S. farmers' groups have strongly resisted the idea of an FTA with Australia, arguing that U.S. agriculture would not benefit from the arrangement.

But on Tuesday the American Farm Bureau Federation, a powerful lobby representing five million farmers, joined 10 other agricultural bodies to write to Zoellick, giving qualified support for talks to begin.

The letter, a copy of which was made available by Federation spokesman Don Lipton Thursday, said Australia had been "a longstanding friend of the United States and a strong ally in previous agricultural trade negotiations."

Defense ties

According to one news report, the Federation's reversal came after heavy lobbying by the Bush administration, "due partly to its eagerness to build a coalition of allies preparing to invade Iraq."

This could not be independently confirmed, but Zoellick Thursday denied that the aim of the offer was to persuade Australia to join any attack on Iraq.

He pointed out that he had been keen on an FTA with Australia as early as 1992, when the situation regarding Iraq was "slightly different."

He acknowledged that Australia was a "good friend" of the U.S., something he said both Bush and he appreciated.

But, he added, "that's not why we're doing the free trade agreement - we're doing it because we consider it a mutual interest."

The U.S. and Australia have firm ties in other areas, including defense.

Australia has fought alongside the U.S. in every war of the last century, has been a strong backer of the war against terrorism, and gave in-principle support for U.S. military action against Iraq months ago.

Where there have been disputes between Canberra and Washington, they have invariably related to trade.

Last March, for instance, Bush's decision to impose tariffs of up to 30 percent on imported steel struck a jarring note in Australia. Unlike U.S. free-trade partners Canada and Mexico, Australia was not exempted from the tariffs.

Howard found himself in an awkward position, under attack by strident critics who said the much-vaunted special relationship with Washington was clearly not worth much when it came to trade.

Australian officials at the time criticized the U.S. move, but stressed that their government's support for the war against terror was not a ploy "to improve our trading circumstances."

Dr. Sean Turnell of the Economics Department at Sydney's Macquarie University on Thursday acknowledged the potential for differences over trade to harm important bilateral ties.

"We must be careful ... to ensure the inevitable wrangling which will take place during free trade negotiations do not in any way damage this extraordinarily strong strategic relationship," he said.

Contentious areas

Agriculture is seen as the area most likely to cause difficulties in the free trade negotiations.

"This is the area in which Australia can gain much - as can the American consumer from cheaper food prices," Turnell said.

"But it is an area for which the principles of free trade have been stoutly resisted in the past by U.S. farm lobbies."

On the Australian side, Turnell said he expected the auto industry and clothing sectors to provide the sticking points, but added that while opening these sectors would be tough, "we should bite the bullet and do it."

One of the most contentious issues for U.S. farmers seeking market access in Australia has been the country's strict quarantine rules, especially affecting produce such as chicken, pork, corn and fruit.

Australia argues that the measures are needed to ensure its reputation as a reliable exporter of agricultural goods - a key sector in its economy - isn't harmed by diseases or pests.

In their letter to Zoellick, the American farmers' groups said Australia's "failure ... to give serious consideration to U.S. concerns in this area has been a longstanding irritant."

But it added that it now understood Australian officials were "working cooperatively with respect to the treatment of U.S. exports."

Turnell said quarantine issues were regarded by some in the U.S. as "a veil for Australian protectionism."

"[They] should be objectively examined and removed or consolidated accordingly," he argued.

The U.S. is Australia's largest overall trading partner, with two-way trade between the two worth around $18.7 billion, according to figures released by Vaile last month.

Australia runs a $5.3 billion trade deficit with the U.S., exporting goods including automobiles and farm, energy and mineral products, and importing mostly manufactured items.

Australian experts estimate that an FTA with the U.S. could be worth an additional four billion Australian dollars ($2.2 billion) a year to its GDP.

See earlier story:
Steel Import Tariff Decision Angers U.S. Allies In Asia (Mar. 7, 2002)

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Patrick Goodenough
Patrick Goodenough
Spencer Journalism Fellow