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April 1998

Australia Pact a Win for U.S. Farm Interests

Los Angeles Times
February 9, 2004

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Los Angeles Times | By Evelyn Iritani | Feb. 9, 2004

Powerful U.S. agricultural interests won a big victory Sunday when the United States and Australia agreed to a watered-down trade accord that promises to boost U.S. exports but limits greater access for imports of Australian sugar, beef and dairy products.

The pact gives the Bush administration an important domestic political win in an election year by placating the influential farm lobby and saving agricultural jobs in such key electoral states as California, Florida and Pennsylvania. It also is a victory for Hollywood, whose movies and TV programs will gain expanded opportunities in the Australian market.

But critics say the deal -- which completely excluded greater access to the U.S. sugar market -- could hurt American efforts to promote free trade among developing nations that want to sell more farm products to the U.S.

The deal came together early Sunday, capping three weeks of tense negotiations in Washington that included a telephone conversation Saturday between President Bush and Australian Prime Minister John Howard.

By satisfying American farm sectors, whose objections had been the major stumbling block, the U.S. and Australia finalized a wide-ranging agreement that boosts the Bush administration's trade agenda and rewards a key ally in the U.S. war against Iraq. The deal would cut tariffs on 99% of U.S. exports of manufactured goods to Australia.

"This is the most significant immediate cut in industrial tariffs ever achieved in a U.S. free trade agreement, and manufacturers are the big winners," U.S. Trade Representative Robert Zoellick said when the deal was announced Sunday.

But the Bush administration's decision to buckle under to influential farm lobbies opens the U.S. to charges of hypocrisy just as Zoellick left Sunday on a two-week trip to persuade skeptical world leaders to restart free trade talks that collapsed last fall in Cancun, Mexico. Zoellick will be stopping in Tokyo, Beijing and Singapore as well as South Asia, Africa and Europe.

Before agreeing to further open their markets, developing countries want the U.S. and other industrialized countries to eliminate billions of dollars in farm supports.

"The majority of these countries depend on agriculture," said Sara Fitzgerald, a trade analyst at the conservative Heritage Foundation in Washington. "How can the U.S. say, 'Let's go back to the basics' when they're not willing to do that themselves?"

In the last few months, sugar, dairy and beef producers have waged a fierce battle in Washington, arguing that the agreement would put thousands of Americans out of work and cost the U.S. billions of dollars in farm revenues. California dairy producers -- which lead the U.S. in milk production, providing more than 20% of the nation's supply -- said they could lose up to 21,000 jobs and $4.9 billion in farm income.

Australian farmers can produce many farm commodities at lower cost than their American counterparts, thanks to cheaper land and deregulation of such areas as dairy production.

Rancor over the U.S.-Australia pact split the farm community. More than a dozen farm groups, including the California Farm Bureau and pork, grain and rice producers, sent a letter to President Bush opposing a deal that protected sugar while opening up other commodities to increased competition. Agriculture is one of California's leading industries.

The sugar lobby has long been an influential player in Washington, giving heavily to both parties. Two of the nation's leading producers -- Flo-Sun Inc. and U.S. Sugar Corp. -- have been major recipients of U.S. subsidies and are top supporters of President Bush, according to liberal political watchdog group Common Cause.

Carolyn Cheney, chairwoman of the U.S. Sugar Industry Group, applauded the administration's decision to leave sugar out of the trade deal, arguing that "sugar is a global problem" and should be addressed by the World Trade Organization. The group also called for sugar to be removed from a recently reached free trade agreement with Central America, yet to be approved by Congress.

The pact is expected to create headaches for Australian Prime Minister Howard, who had promised Australian farmers and labor leaders he would not approve a deal unless it included greater access for that country's agriculture exports.

Asked why his government had "blinked" on sugar, Australian Trade Minister Mark Vaile told reporters in Washington that the United States would not budge, and "you have to look at the overall balance." The deal removes tariffs imposed by the U.S. on more than 97% of Australian manufactured goods, including the elimination of a 25% tariff on light commercial vehicles. Australia also refused to significantly amend a government drug program that had been criticized by the U.S.

Among those disappointed by the deal were U.S. sugar users. American sugar policies cost domestic consumers an additional $2 billion a year, according to the U.S. General Accounting Office.

"This is political hypocrisy," said Jeff Nedelman, a spokesman for the Coalition for Sugar Reform, whose members include candy makers, food processors and consumer groups. "The U.S. cannot with a straight face sit down anywhere in the world and say we want greater access to your agricultural markets for our pork and our beef and our dairy, but sugar is a sensitive issue and we can't even talk about it."

However, U.S. manufacturers and providers of telecommunications and banking services cheered the pact, which will expand sales into the Australian market and loosen restrictions on investment. Trade negotiators said the deal also improved access for U.S. films and television programs in Australia's cable and satellite markets and the Internet, and provided tougher intellectual property protections.

The pact could mean big bucks for Caterpillar Inc., the Illinois-based heavy-equipment manufacturer. Among its leading exports to Australia -- already its second-largest export market -- are huge off-road mining trucks priced at more than $1 million apiece that incur $50,000 in tariff fees alone. That 5% tariff would disappear if the trade pact was enacted, said William Lane, the company's Washington representative.

"This gives us a competitive advantage over our European and Japanese competitors," he said.

The Bush administration is expected to send the U.S.-Australia agreement to Congress for a vote this year. Trade observers predicted the pact would face little opposition because it no longer is opposed by the most politically sensitive farm sectors.

The effects on the U.S. beef and dairy industries were minimized drastically by the phasing out of duties on Australian beef over an 18-year period and the inclusion of only a small increase in Australian beef and dairy quotas. Washington's inability to forge an agreement with Australia that includes its most heavily protected farm sectors could make it tougher for the Bush administration to persuade other governments to restart global trade talks in Geneva, according to trade analysts. The United States already faced charges of election-year protectionism for imposing tariffs on imported steel and apparel.

Zoellick's credibility is on the line. Last month, he sent out a letter assuring other WTO members that the United States was determined not to let 2004 be a "lost" year for trade negotiations. In the letter, the top U.S. trade official proposed that governments agree to set a date for the elimination of agricultural export subsidies and set a goal for reducing other forms of "trade-distorting" farm support.

Brazil was a leader of the so-called Group of 20 nations that led the revolt against the U.S. and the European Union in Cancun. Ruben Barbosa, Brazil's ambassador to the U.S., said Friday that Zoellick's letter reflected a welcome shift in the U.S. position and was a "step in the right direction."

John Weekes, the former Canadian ambassador to the WTO, said the breakdown of talks in Cancun has forced officials from the developed world to take concerns of the poor and anti-globalization critics more seriously.

Weekes, now a trade analyst in Geneva, said the Cancun meeting was the first time that a group of primarily developing countries had successfully opposed the United States and Europe in a multilateral negotiation, telling them, "I'm sorry, that's not good enough.... It's a different game."

Given that setback, Weekes said, it is "increasingly obvious" that the WTO won't meet its deadline of completing the current round of trade talks by the end of 2004. But he said even America's fiercest critics welcomed Zoellick's challenge to get back to the negotiating table, because they realized that the derailment of the talks would be harmful for the world economy.

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