A Trade Row Down Under

Close allies though they are, the U.S. and Australia are having a tough time agreeing to lower barriers on both sides of the Pacific

By Bruce Einhorn

If any country should be able to secure a new free-trade agreement with the U.S., it's Australia. It has a developed economy and just 20 million people, most descendents of immigrants from Europe. Critics of free trade may have a field day playing up emotional issues about American workers losing out to underpaid and exploited Chinese factory workers or Indian software engineers. But that rhetoric doesn't work for Australia, which is hardly a threat to the U.S. in the manufacturing or information-technology sectors.

The two nations also have strong political ties. Australian Prime Minister John Howard is probably the best international friend that President George W. Bush has after British Prime Minister Tony Blair. Like Blair, Howard went along with Bush's Iraq policy, defying critics at home, and Australia was one of the few countries to send significant numbers of troops to fight in Iraq. Australia and the U.S. have been discussing plans to develop an American military presence on Australian soil.


  So how come the two countries are having such a tough time striking a free-trade pact? They've been at it for two years now and were supposed to hammer out a deal by January, 2003. Yet, the chances of getting an agreement satisfactory to both sides are looking pretty slim. Officials from Australia traveled to Washington in late January to try to hash out a final deal. If they fail, it's unlikely anything will happen until after the November Presidential election in the U.S.

Like most news related to Australia, the free-trade negotiations haven't been getting much attention worldwide. That's natural, especially with the headlines now dominated by the fears of bird flu flying around the region (see BW, 2/9/04, "This Disease May Zap A Whole Industry").

In Australia, however -- I visited Sydney in January over the Chinese New Year -- the negotiations are big news and being watched closely. The local media are filled with worries that failure to reach an agreement could damage America's relations with its strongest ally in the Pacific. What's more, collapse of the talks might lead many Australians to conclude that their future lies more with the emerging power to the north, China. Already, the Australian economy is enjoying a boom thanks, in large part, to the export of Australian metals and meat to the Chinese markets.


  Opposition to a U.S. deal Down Under has come from American farmers, who worry about cheap meat, dairy, and other agricultural imports from Australia. The National Milk Producers Federation frets that a free-trade deal with Australia that allows Aussie milk unfettered access to America's supermarkets could cripple the U.S. dairy industry, throwing 150,000 people out of work and closing almost a quarter of the country's dairy farms. Wisconsin's two senators, Democrats Russ Feingold and Herb Kohl, are among a group of lawmakers who have introduced a Senate resolution urging Bush to be cautious about any deal with Australia.

Dairy farmers and their supporters aren't alone in opposing a pact with the Aussies. U.S. cattlemen and sugar farmers are worried, too. Anybody doubting the importance of these groups to politicians need only remember the 2002 Senate race in Louisiana, where embattled incumbent Democrat Mary Landrieu was able to hold onto her seat in part with claims she would fight harder than her Republican opponent to support the state's sugar industry against cheap imports.

Not that the Australians are blameless. They're opposing American efforts to loosen local-content requirements for Australian TV programming. They also oppose American calls for more access to the local market for U.S. pharmaceutical companies.


  Still, the spectacle of election-year politics in the U.S. interfering with free trade is making some Australians angry. For instance, an editorial in the Sydney Morning Herald last week criticized the "Florida sugar mafia" and the "mid-western [sic] beef mafia" and the "lavish protection" that they now enjoy from Australian competition. And the Canberra government, which faces elections of its own this year, is talking tough. "Unless we get concessions on the agricultural front, then the free-trade agreement is not worth signing," said Howard on Jan. 26, Australia Day, a national holiday.

The U.S. and Australia may be best of friends. But when it comes to the contentious issue of free trade, friendship may not be enough to get a deal done.

Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online

Edited by Douglas Harbrecht

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