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WebMemo #394 on Trade and Economic Freedom

January 21, 2004

G'day to a Good Deal

By

Despite the outcry over lost jobs, the Bush Administration is on the verge of losing more. This week the United States and Australia are set to finish negotiations for a free trade agreement (FTA). With the United States already running a trade surplus with Australia, this agreement could quiet critics of lost manufacturing jobs. Yet the deal could be significantly delayed or thwarted if the U.S. Trade Representative doesn't offer better access to Australian farmers. In order to get a good deal, the Bush Administration should:

 

  • Put everything (sugar, beef, etc.) on the table.
  • Seek to close the deal as soon as possible so that American workers and consumers can start as soon as possible to reap the benefits of free trade with Australia.

Protectionist Deal in the Making?

 

The U.S. agricultural proposal is rumored to be very protectionist. According to an American business source who wishes to remain anonymous, "The agricultural proposal is not commercially meaningful and is embarrassingly crappy." For one thing, rumors indicate that the Bush Administration refuses to open trade in sugar. The U.S. sugar industry, uncompetitive and heavily protected by a tariff rate quota, once again seems to have succeeded in obtaining an exclusion from trade negotiations.

 

Moreover, at a time when mad cow disease is a North American reality and U.S. consumers need as many choices from as many countries as possible, the U.S. offer on beef is likewise rumored to be protectionist. But while the National Cattlemen's Association complains about imports, Australia simply does not have the capacity to flood the U.S. market. In addition, U.S. producers all too often seem to forget that the benefits of trade do not flow only one way: The majority of Australian beef is flipped on the griddles of America's fast-food chains.

 

Australia's official objectives for the FTA include "the removal of tariff rate quota restrictions on Australian exports to the United States, including those affecting exports of beef, dairy products, sugar, peanuts and cotton." Australia, as one of the world's most efficient agricultural producing countries, is naturally seeking increased market access for its agricultural products. Assuming that Australia will be willing to take home half a loaf is a risky gamble for the Bush Administration. The Administration would do far better to offer significant access to Australian sugar and beef in order to secure the deal.

 

Not only would such an offer ensure the deal, but it would also allow American consumers access to cheaper sugar. Thanks to U.S. sugar policy, American consumers pay two to three times the world price for sugar. Intransigence is the same old politics-a needlessly expensive same old politics.

 

Benefits of Free Trade with Australia

 

With America's overall trade surplus with Australia having reached nearly $6 billion in 2002, a free trade agreement makes sense for both the U.S. and Australia. For example, "U.S producers of transportation equipment, non-electrical machinery, computer and electronic products and chemicals are the strongest exporters to Australia," according to a report prepared for the American-Australian Free Trade Agreement Coalition by The Trade Partnership. Additionally, the report notes, "more than half of U.S imports from Australia are inputs or capital goods used to manufacture products in the United States." Cheaper inputs or capital goods means lower overhead costs for U.S. manufacturing, which could open the door for companies to hire more workers.

 

In his State of the Union address, President George W. Bush emphasized, "My Administration is promoting free and fair trade, to open up new markets for America's entrepreneurs, and manufacturers, and farmers, and to create jobs for America's workers." To pursue this mission effectively, the Bush Administration must put everything on the table in this agreement with Australia. The President's speech also noted that "exports are growing." But if he is to continue this trend, the President must not allow presidential politics to trump good economics.

 

Sara J. Fitzgerald is a Trade Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.

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