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U.S., Australia Agree on Free-Trade Pact

Bush Administration Maintains Protection Against Sugar, Beef, Dairy Imports

By Paul Blustein
Washington Post Staff Writer
Monday, February 9, 2004; Page A17

The United States and Australia announced yesterday that they concluded a free-trade agreement, one of the biggest in a series of two-way deals the Bush administration is pursuing with a number of countries aimed at tearing down barriers to international commerce.

But the accord, while scrapping tariffs on nearly all manufactured goods traded between the two countries, would maintain heavy U.S. protection against imports of Australian sugar, beef and dairy products. That is a sign of the enormous clout American agricultural producers wield over U.S. trade policy, especially in an election year, and it underlines the difficulties of securing broader trade agreements with developing countries whose farmers want to sell more of their goods abroad.

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The pact, which is subject to approval by Congress and passage of legislation by Australia's parliament, would help cement a long-standing alliance between the United States and Australia that has deepened with the support the Australian government provided for the U.S. invasion of Iraq. U.S. Trade Representative Robert B. Zoellick, who announced the deal at a joint news conference in Washington with Australian Trade Minister Mark Vaile, said the agreement "strengthens our close ties and offers new potential by expanding opportunities for the workers, businesses, consumers and farmers of both countries."

The announcement capped two weeks of tough bargaining between teams led by Zoellick and Vaile, with negotiating sessions often going well into the night. A phone call Saturday between President Bush and Prime Minister John Howard sealed the pact.

One of the major stumbling blocks was Washington's refusal to grant Australia's demands for greater access to America's long-protected sugar market. The U.S. sugar industry is one of the most powerful agricultural lobbies; individuals and political action committees affiliated with it have donated $20.2 million to both political parties since 1990, according to the Center for Responsive Politics. Sugar industry officials, who contend that protection was necessary to shield them from subsidized production overseas, welcomed the news that U.S. negotiators had held firm in keeping the ceiling for Australia's sugar shipments to the United States at the current level of 87,402 metric tons.

Asked why Australia had backed down on the sugar issue after previously insisting that the Bush administration must raise the limit on Australian sugar imports, Vaile replied that the agreement had to be assessed in terms of its "overall balance." The pact, he said, "moves Australia into a much closer level of integration with the biggest economy in the world."

The deal comes on the heels of the Dec. 18 announcement of a similar pact between the United States and five Central American countries, which is more controversial politically because of concerns that workers in such poor nations are ill-treated. The United States already has free-trade accords with Canada, Mexico, Israel, Jordan, Chile and Singapore. The Bush administration has launched talks with a host of other countries, including Thailand, Bahrain, Morocco, the Dominican Republic, Colombia and a group of southern African nations.

On an individual basis, bilateral free-trade agreements such as these add little to the growth of the U.S. economy because the markets involved are relatively modest in size. American exports to Australia, for example, were $13.1 billion in 2002, and the National Association of Manufacturers, which responded enthusiastically to yesterday's accord, estimates that it could increase U.S. shipments of manufactured goods by $2 billion. Although those are appreciable sums, they are a small fraction of the $693 billion in goods that U.S. producers shipped abroad in 2002.

But bilateral agreements can have a significant effect on efforts to open markets on a global scale, and that may be especially true of yesterday's announcement.

The administration is seeking to negotiate a Free Trade Area of the Americas (FTAA), which would include all the democracies of the Western Hemisphere, and it also played a key role two years ago in launching the World Trade Organization's Doha Round, talks launched in Qatar that are aimed at lowering trade barriers among the WTO's 146 member nations. Both initiatives have stalled; a meeting in Cancun, Mexico, to advance the WTO negotiations collapsed last September amid acrimony between rich and developing nations. Zoellick this week is to begin an extended visit to foreign capitals to revive the Doha Round.

By striking bilateral accords with countries like Australia, the administration hopes to spur other countries to cooperate in the broader talks for fear that they might be put at a disadvantage in the rich U.S. market. But the hard line that U.S. negotiators took against Australian demands on sugar, beef and dairy may cut the other way, trade experts warned. In beef and dairy, the allowed level of Australian imports would rise under the pact, but only slowly.

"This is really a harbinger of the difficulty of liberalizing trade more generally in the FTAA and the Doha Round and so forth," said Gary Hufbauer, a trade specialist at the Institute for International Economics, noting that developing countries are especially eager to obtain concessions on agricultural products, where they are most competitive. "The fact that you could only do this much liberalization with Australia, despite all the foreign policy considerations, really shows you the effective cap on agricultural liberalization for these bigger agreements, and that raises a question about whether agriculture is really negotiable for these other countries."

A U.S. trade official strongly disputed that criticism. "This is a highly comprehensive agreement," he said, adding that the United States has tabled an "ambitious" proposal to open agricultural markets in the Doha Round.

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