Date created:10/2/03
Last modified:10/2/03
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John Quiggin

A deal not in our interest

Australian Financial Review

30 January 2003

Advocates of agreements for freer trade have had an easy run in Australia in recent decades. In much of the world, such agreements are seen as a form of barter - we give up our trade barriers in return for you giving up yours. By contrast, standard trade theory tells us that, as a general rule, we benefit from reducing our trade barriers regardless of what other countries do.

There are exceptions to this general principle, particularly in situations of high unemployment, and there are debates about the relative benefits of bilateral and multilateral approaches. But the general presumption has been that such deals can scarcely fail to be mutually beneficial.

This presumption is evident in discussion of the proposed free-trade agreement between Australia and the United States. There is well-based skepticism about whether the Americans will give enough ground on agricultural subsidies to make a bilateral deal worthwhile. But at least in the policy circles that count, there has been little disagreement with the idea that, in principle, such a deal must be beneficial.

In reality, there is every reason for doubt. On the US side of the table, the traditional arguments apply. Both Americans and Australians would be better off if the absurd policies of the Farm Bill were replaced by some more equitable and less distorting form of assistance to rural Americans. Unfortunately, there is no sign that this argument commends itself to US policymakers.

On the Australian side, there are hardly any traditional barriers left to remove. We still have tariffs on textiles, clothing, footwear and motor vehicles, but these industries are just as beleaguered in the US as they are here, and any impact on trade will be small.

What, then, does the US want from us? One issue stressed by Trade Representative Robert Zoellick is 'intellectual property'. To see what this might mean in practice, we need to look at the case of Eldred vs Ashcroft, decided recently by the US Supreme Court.

This case was a constitutional challenge to a recent Act of Congress which extended the term of copyright protection from fifty years after the death of the author to seventy years (ninety-five for corporations). The 'Copyright Term Extension Act' is often referred to as the 'Mickey Mouse Act' because of the observation that the term of copyright is extended whenever the Disney copyright on Mickey is about to lapse.

The constitutional challenge failed, but the case did elicit an unusual degree of interest from American economists , seventeen of whom submitted a brief to the Supreme Court opposing the Act. The list is striking not only because of the eminence of the signatories (five Nobel Prizes and more to come) but because it represents all shades of economic opinion from free-market luminaries like Buchanan, Coase and Friedman to interventionists like Akerlof and Arrow.

Australia still has the term of copyright fixed at fifty years after the author's death and publishers interested in making public-domain works accessible to the general public are increasingly taking advantage of this. There can be little doubt that the negotiating demands of the US in any agreement will include an extension of our copyright terms.

This is not an isolated instance. In relation to genetically modified foods, for example, Australia reached a sensible compromise between the extremes represented by the US and Europe. Under the labelling laws adopted here, consumers are free to choose between traditional and GM foods. The US negotiating position proposes that we should be forced, like Americans, to consume GM foods without knowing it. The agenda extends to include such items as the privatisation of Telstra and, ultimately, the removal of any restrictions on foreign ownership.

Far from removing trade barriers that harm us anyway, the US wants us to replace economically and socially sound policies with those dictated by the lobbying power of American interest groups.

If the official negotiating stance of the US government contains some unappealing items, the demands that US lobby groups would like to push in subsequent rounds are even worse. Big Pharma wants to kill the Pharmaceutical Benefits Scheme. The Recording Industry Association of America would like to ban parallel importing.

These groups have promoted their interests, with much vigour and few scruples, through their Australian hired guns, but have so far had limited success. Under the kind of agreement that is being contemplated at present, the US lobby groups would have as many second chances as they need. Far from promoting free trade, they want to turn Australia into a monopolists' playground.

Professor John Quiggin is a Senior Research Fellow of the Australian Research Council, based at the University of Queensland and the Australian National University.

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