IMPLICATIONS OF FREE TRADE AGREEMENTSThe U.S - Australia Case RevisitedBy Larissa Paschyn (ID: 2010280348),AbstractThis pa...
Generally, countries choose this kind of economic integration form if their economical structuresare complementary. If the...
7.      AUSFTA or Australia – United States Free Trade Agreement that came into force in 2005        is a preferential tra...
Still others argue that NAFTA have had negative impacts on U.S. workers as millions lost jobsfollowing the transfer of man...
The main reasons why pro-growth trade and investment policies and agreements are so essentialfor businesses in America, as...
10.     The relative importance of trade to the U.S. economy has also increased. Trade supports        38 million jobs in ...
After five rounds of negotiations on the economic impacts of the FTA model, the free tradeagreement was signed by the part...
5.    Australians anticipate that attraction of additional American investment to Australia      through AUSFTA to bring p...
The above statements were intents expressed by either high level government officials or theirprivate sector counterparts ...
negotiations with countries that rely heavily on agricultural exports. Similarly, Australia alsodepends on export of beef,...
Australians are allowed to sell is at the low end of the market, suitable for hamburgers and petfood .In addition, if the ...
6.6        Consider the situation in other service sectorsU.S. had demanded during the FTA negotiations for radical change...
barriers and a 25 percent removal of barriers, with the models yielding roughly proportionalresults in economic benefit to...
institutional arrangements addressed to resolving problems relating to business visas, technicalstandards, recognition of ...
2,123 admissions of Australian citizens as E-3 status foreign workers under the treaty. 9,294admissions were recorded in U...
There has been heated agreement in Australia between advocates of bilateral free tradeagreement with the U.S. and those th...
billion25. These figures and the models used to derive at are, however, strongly challenged byopponents of U.S. – Australi...
Western Hemisphere except Cuba, what is the North American Free Trade Agreement (NAFTA)has been created in January 1994 co...
At the time of the negotiations, the forecast made using different scenarios of tariff eliminationswere bright and gainful...
5. Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler -   Executive Director, Institute for In...
covered around 170 million prescriptions in the year to June 2005, which equates to about eightprescriptions per person in...
a means of injecting the US pharmaceutical industries viewpoint into the decision makingprocess of the PBS and of wearing ...
firms in both investment and in applying for government tenders. Ideally, the US would carry outmore wealth creating, prod...
for local content in our cinemas61. In response to the impending free trade agreement, thedirector of the Australian Scree...
intangible aspects like beliefs, ideas and values which form the content of culture as well astangible aspects like symbol...
ranked at number 32 in terms of films produced in 200571. In comparison, Austria produced 24films in 2005 while Australia ...
‗Australian film‘, while division 10BA gives investors a 100% deduction for capital expenditureused to produce a ‗qualifyi...
for maneuvering. In 2003, according to data from the Australian Film Commission, out of thetop 20 rating drama series on A...
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
Globalization term paper   ausfta paper
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Globalization term paper ausfta paper

  1. 1. IMPLICATIONS OF FREE TRADE AGREEMENTSThe U.S - Australia Case RevisitedBy Larissa Paschyn (ID: 2010280348),AbstractThis paper will ask and answer if the Australia – US Free Trade Agreement is a net benefit forAustralia, and could the Australia US Free Trade Agreement really pose a serious threat to localcontent and are the clauses in the agreement strong enough to protect the current arrangementor renegotiate? Subsequently, it will address the key flaws within the current agreement andoffer policy suggestions in order to ensure Australia‘s interests are not threatened by theinternational free trade agreement.Section1IntroductionIn an industrialized country, there are usually few if any significant barriers to the easyexchange of goods and services between parts of the country. For example, there are usually notrade tariffs or import quotas; there are usually no delays as goods pass from one part of thecountry to another (other than those that distance imposes); there are usually no differences oftaxation and regulation.Between countries, on the other hand, many of these barriers to the easy exchange of goods oftendo occur. It is commonplace for there to be import duties of one kind or another (as goods entera country) and the levels of sales tax and regulation often vary by country.In order for trade to grow as a result of specialization, division of labor, etc., many countriesconsider it imperative to eliminate tariffs, quotas and preferences on most (if not all) goods andservices traded between them. To this end, they establish what is known as ―free trade area‖ or"Free Trade Agreement" (FTA). It is like creating a sort of an economic block or making a steptowards rule based economic integration.The underlying principle behind FTA is that in an unrestricted marketplace (in equilibrium) eachsource of production will tend to specialize in that activity where it has comparative (rather thanabsolute) advantage. The theory argues that the net result of an FTA will be an increase inincome and ultimately wealth and well-being for everyone in the free trade area.The theory, however, refers only to aggregate wealth and says nothing about the distribution ofwealth; in fact there may be significant losers, in particular among the recently protectedindustries with a comparative disadvantage. In principle, the overall gains from trade could beused to compensate for the effects of reduced trade barriers by appropriate inter-party transfers. 1
  2. 2. Generally, countries choose this kind of economic integration form if their economical structuresare complementary. If they are competitive, they are more likely to choose ‗customs union‘.The United States, with the largest and richest consumer market, is the economic powerhouse ofthe world. That is where countries want to have easy access to their products. That beingcomprehensible, however, it has been the U.S. that has been trying to get a free trade agreementnot only with Central and South American countries but also in all other parts of the world.Some of the regional Free Trade Areas, which the U.S. initiated and to which it is also a memberare listed as follows:1. NAFTA or North American Free Trade Agreement that consists of U.S., Canada and Mexico1;2. FTAA or Free Trade Area of the America: Originally envisioned as an extended NAFTA for the entire western Hemisphere except Cuba, but is currently inactive for various reasons.3. CAFTA-DR or Central American-Dominican Republic Free Trade Agreement: Signed in 2004 encompasses, other than U.S., six Latin American countries including Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua and El Salvador;4. ASEAN or Association for South East Asia Nations consisting of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam, is a regional association initiated by the U.S. for the purpose of not only to establish bilateral trade agreements, but also to promote economic growth of the member countries thus providing a balance of power to China and Japan.5. APEC or Asia-Pacific Economic Cooperation includes those countries in Asia and the Americas who border the Pacific Ocean. Member countries to APEC are Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Taiwan, Thailand, and Vietnam.6. MEFTI - Middle Eastern Trade Initiative refers to a series of bilateral trade agreement entered by and between the U.S. and countries such as Israel, Jordan, Morocco, Bahrain, and Oman. The initiative endeavors to help other peaceful Middle Eastern countries (Algeria, Lebanon and Yemen) obtain membership in the World Trade Organization (WTO) and enter into Trade and Investment Action Plans (TIFA) that encourages investment2. 1 Canada – United States Free Trade Agreement (Wikipedia) 2 North American Free Trade Agreement (Wikipedia) 2
  3. 3. 7. AUSFTA or Australia – United States Free Trade Agreement that came into force in 2005 is a preferential trade agreement between the two countries modeled on the North American Free Trade Agreement (NAFTA).8. US - Chile Free Trade Agreement (FTA);9. US - Singapore Free Trade Agreement (FTA);10. US - Peru Free Trade Agreement (FTA);11. US - Oman Free Trade Agreement (FTA);12. U.S – Colombia Free Trade Agreements (FTA) – under negotiation;13. U.S – Panama Free Trade Agreements (FTA) – under negotiation;14. U.S – South Korea Free Trade Agreements (FTA) – under negotiation;15. U.S. -Trans-Pacific Partnership Agreement (TPPA) comprising Australia, Brunei, Chile, New Zealand, Peru, Singapore, Malaysia and Vietnam – under negotiation;1. Experience of the North America Free Trade Agreement (NAFTA)Of the number of trade blocks established to date, which U.S is almost always the central player,the North American Free Trade Agreement or NAFTA is the largest in terms of combinedpurchasing power parity GDP of its members (U.S., Canada and Mexico) and second largest bynominal GDP comparison in the world. Note: U.S. – Israel FTA is the oldest.NAFTAs effects, both positive and negative, have been quantified by several economists, whosefindings have been reported in publications such as the World Banks Lessons from NAFTA forLatin America and the Caribbean, NAFTAs Impact on North America, NAFTA Revisited by theInstitute for International Economics.According to available reports, as of January 2008, all tariffs between the three membercountries of NAFTA were eliminated and as a result, trade has tripled from $297 billion to $1trillion in the period between 1993 -2007. There is doubt, as the figures indicate that trade hasgrown significantly, but the question that strikes the mind is that whether NAFTA has been a win– win venture for all member countries or simply a mechanism to fulfill a broader economic andnon-economic agenda of the U.S3.Considering Mexico, some argue that NAFTA has been positive in that has seen its poverty ratesfall and real income rise (in the form of lower prices, especially food), even after accounting forthe 1994–1995 economic crisis. Others argue that NAFTA has been beneficial to businessowners and elites in all three countries, but has had negative impacts on farmers in Mexico whosaw food prices fall based on cheap imports from U.S. agribusiness. Some have suggested that inorder to fully benefit and minimize the negatives from the agreement, Mexico must invest more ineducation and promote innovation in infrastructure for agriculture.3 North American Free Trade Agreement (Wikipedia) 3
  4. 4. Still others argue that NAFTA have had negative impacts on U.S. workers as millions lost jobsfollowing the transfer of manufacturing and assembly industries from the U.S. to other parts ofNAFTA. Looking at the same scenario from another angle, since those same industrial plantsthat moved out of the United States to Mexico, for instance, have gained 15% plus increase intheir income, the benefit outweighs the cost of losing jobs in the U.S.According to the available reports, it appears that it is Canada that gained the most fromNAFTA with its GDP rate at 3.6%, growing faster than the United States at 3.3% and Mexico at2.7%. Canadian employment levels have also shown steady gains in recent years, with overallemployment rising from 14.9 million to 15.7 million in the early 2000s. Even Canadianmanufacturing employment held steady.One of NAFTAs biggest economic effects on U.S. - Canada trade has been to boost bilateralagricultural flows. In the year 2008 alone, Canada‘s export to the United States and Mexico wasat CAN$381.3 Billion Dollars and imports from NAFTA was at CAN$245.1 Billion Dollars.Even then, critics in Canada charge that since NAFTAs ratification more than 10,000 Canadiancompanies have been taken over by foreigners, and that 98% of all foreign direct investments inCanada were for foreign takeovers. Notwithstanding, the Canadian mainstream has beenunanimous in its recognition of NAFTAs advantages despite a few odd detractors.Overall, despite the benefit and losses here and there, critics argue that NAFTA has contributedto the rising levels of inequality in all member countries of NAFTA. Moreover, some economistsbelieve that NAFTA has not been enough, (or worked fast enough) neither to produce aneconomic convergence, nor to substantially reduce poverty rates.In light of the experiences from the effects of NAFTA, many countries in South America havereservations to join in any similar regional free trade block because of fear, in particular, thateliminating tariffs would allow U.S. - subsidized agribusiness to put their local farmers out ofbusiness and forcing their people to work for U.S. corporations. Many, except Chile, Colombia,Panama, Peru and Uruguay, prefer a regional multilateral South American Trade AreaAgreement within the context of the objectives, rules and regulations of the World TradeOrganization (WTO), Doha Round.42. Why is the U.S. interested in FTAs while others are distrustful?The answer to this question can be inferred from a letter sent jointly by more than 1,600 U.S.companies and associations through the U.S. Chamber of Commerce to the U.S. Congressduring its 112th opening in January 2011. The letter urges members of the Congress to pursuetrade and investment policies and agreements (FTAs) that will help American companies andworkers to remain the most competitive in world. In their letter, they have specifically advisedthe Congress to consider and approve pending trade initiatives, such as the free tradeagreements with Korea, Colombia and Panama.4 North American Free Trade Agreement (Wikipedia) 4
  5. 5. The main reasons why pro-growth trade and investment policies and agreements are so essentialfor businesses in America, as argued with figures by the letter are:1. The United States is the world‘s number one manufacturing nation in the world. America continues to lead the world in manufacturing, with 19 percent of the worldwide value- added manufacturing output. Approximately 22 percent of all U.S. manufactured products is exported, and the United States is the world‘s third largest exporter of goods.2. The United States is the world‘s number one services exporter and has been since services trade data have been tracked. Services account for 78 percent of U.S. GDP and about 80 percent of U.S. employment.3. U.S. agricultural exports support nearly a million jobs in the United States. USDA forecasts that agriculture exports will reach a record level of $126.5 billion in fiscal year 2011. Free Trade Agreements (FTAs) are critical to the continued success. Unless the United States continues to open new markets around the world, will lose its market share to competitor countries.4. 95 percent of the world‘s consumers live outside the United States. America‘s industries and jobs simply cannot grow if America does not do a better job of reaching the world‘s consumers through trade and investment.5. Over the past 25 years, the United States has implemented FTAs with 17 countries around the globe. While those countries represent just 7.5 percent of global GDP, these FTA countries purchased more than 40 percent of U.S. exports in 2009. Some of these countries are small, but FTAs make big markets even out of small economies.6. Since the creation of the WTO in 1994, U.S. exports of goods and services have doubled to more than $1.5 trillion, with manufacturing, agricultural, and high technology exports growing by 65, 40, and 67 percent, respectively, between 1995 and 2007.7. Academic research has confirmed that countries that have more open economies and that engage in international trade enjoy higher growth rates and faster reductions in poverty than more closed economies. In fact through this recent financial downturn, it is U.S. exports that have saved the economy from going into another recession. The World Bank has also determined that over the past two decades, those developing countries that engaged in trade enjoyed the fastest growth in wages. Since World War II, no nation has prospered without taking advantage of opportunities to trade. Meanwhile, American families benefit directly from imports because imports help to provide access to a wider variety of lower-priced consumer products. Imports also support millions of U.S. jobs in retail, research, design, sourcing, and transportation, warehousing, marketing and sales.8. U.S. exports to China have quadrupled over the past 15 years. Since China‘s accession to the World Trade Organization (WTO) in December 2001, trade between the United States and China has tripled, and U.S. exports to China have grown at five times the pace of U.S. exports to the rest of the world. China is now the 3rd largest market for U.S. exports. And though more work needs to be done to open China‘s market further; U.S. companies are making the most of the opportunities that currently exist5.9. U.S. companies with overseas investments account for 45 percent of all U.S. exports, according to data from the Bureau of Economic Analysis. U.S. investment overseas is a magnet for U.S. exports, helping U.S. companies to better access foreign markets.5 North American Free Trade Agreement (Wikipedia) 5
  6. 6. 10. The relative importance of trade to the U.S. economy has also increased. Trade supports 38 million jobs in the United States — more than one in five American jobs. Nearly 18 million of these U.S. jobs depend on trade with America‘s free trade agreement partners. Twenty years ago, the total value of U.S. exports and imports amounted to 17 percent of America‘s GDP. In recent years, trade has accounted for as much as a quarter of its economic output.The bottom line is that the United States remains an economic phenomenon, with annual outputexceeding $14 trillion–greater than the total output of the next five most productive economiescombined! This unprecedented economic success is not due to the size of the U.S. population orits natural resources (other countries have more of both), but to the free-market principles andpolicies around which its economy is organized.The business circle in U.S. very well understands the benefits of FTAs and the U.S.Administration since President Regan have endeavored to expand the number of FTAsthroughout the world simultaneous with negotiations pertaining to the WTO. It must bementioned that the Bush-FTAs were subject for heavy criticism from various corners.Currently, the Obama Administration has began talks with Asian and Latin American nations toenter into the Trans-Pacific FTA. The talks with Australia, Brunei, Chile, New Zealand, Peru,Singapore, Malaysia and Vietnam were originally initiated by the Bush Administration. Obamahas vowed to make the negotiations of FTAs more transparent and their implementationsenvironmentally sound. The Obama administration shall be tested with the Trans-Pacific FTA,whether or not it can come up with a new more transparent and inclusive U.S. trade agreementmodel to replace the old controversial types6.In this paper, the Australia – U.S. FTA (AUSFTA) is revisited to assess the pros and cons of theagreement from different stands. The lessons that should be learnt from the agreement aresingled out and the short and long term effects of an FTA on junior partners highlighted.3. History of AUSFTA or Australia – United States Free Trade AgreementThe U.S. interest to have a free trade agreement with Australia dates as far back as 1946, but inmore recent times, the prospect of an Australia-U.S. FTA was raised in the 1980s by the HawkeGovernment of Australia. The idea was entertained later in 1992 by the U.S. Administrationduring George H.W. Bush era but Australian Labor Party Prime Minister Paul Keating turneddown the proposal.It was not until early 2001, after the election of George W. Bush in the U.S. and with JohnHoward in power in Australia that an Australia-U.S. FTA finally began to take shape. A privateconsultancy – the Centre for International Economics (CIE) – was commissioned by the twoparties in 2004 to prepare the framework agreement in line with the NAFTA model.6 North American Free Trade Agreement (Wikipedia) 6
  7. 7. After five rounds of negotiations on the economic impacts of the FTA model, the free tradeagreement was signed by the parties in May 2004; and ratified both by the U.S. Congress andthe Senate the same year. However, nearly one-third of members of the Congress and one-fifth ofthe U.S. Senate have opposed the agreement.In Australia, the agreements implementing legislation was reluctantly passed, with amendments,by the Senate in August 2004. The U.S. Administration accepted the amended Australianlegislation as being consistent with implementation of the agreement; and President George W.Bush signed the United States-Australia Free Trade Agreement (AUSFTA) Implementation Actinto law in August 2004. The FTA came into force on 1 January 20057.4. Objectives of an Australia - USA FTAMore than two hundred U.S. companies have signed on to the US - based coalition in support ofthe FTA between U.S and Australia. Similarly on the side of Australia, the FTA had received astrong support from what is known as Australia United States Free Trade Agreement(―AUSTA‖) business group, which is seen as central to the Common wealth Government‘sobjective of strengthening Australia‘s alliance with the United States (DFAT 2003, 86-91).The straightforward objective of the free trade agreement between the two countries is of courseto increase trade and stimulate the growth of local industries by eliminating tariffs, quotas andother trade barriers. Beyond the straightforwardly related to trade liberalization, politicalleaders in the two governments and their private sector counterparts have commented upon theirrespective specific interests. Although most of the comments are sensible, they sound less globalbut more nationalist and protectionists. As some proponents speculate, the real objectives behindthe FTA might not be as simple as stated in the texts of the agreements. The need fortransparency is emphasized.4.1 Expressed Intents and Aspirations - Australian side1. The Australian Government considered AUSFTA as an effort to make the economic relationship between the U.S. and Australia commensurate to the security relationship.2. The Australian authorities, when going into an agreement, hoped to see clear trade and other economic benefits as flowing from the AUSFTA;3. On the industrial side, Australian firms have developed a well-deserved global reputation for producing high - speed catamaran ferries; and they see the AUSFTA as an opportunity to gain an exemption from U.S. ―Jones Act‖ limitations on their use in the American market;4. On the agricultural side, Australian firms want in particular access to the highly protected sugar and dairy markets, as well as the more - open, but still protected American market for beef.7 Benefits Of A Free Trade Area Between Australia And The Us in the Context of Developments in The ‘NewEconomy’;(By Dr Patrick Xavier - School of Business, Swinburne University of Technology, Melbourne; Paperpresented to the Australia - US Free Trade Area conference held at the Hyatt Hotel Canberra 21 June 2001) 7
  8. 8. 5. Australians anticipate that attraction of additional American investment to Australia through AUSFTA to bring positive effects on employment and productivity;6. Greater integration of business in the U.S. and Australian markets, shall enable new synergies in areas such as research and development, materials sourcing, marketing and use of information technologies;7. Australians trust that AUSTFTA would foster ―competitive liberalization‖ through its demonstration effects in the WTO and other trade forums;8. Australians look forward to creating a broader bilateral alliance between U.S. and Australia to help stability and prosperity in East Asia and the Pacific;9. Australians wish to use the FTA to discipline the extent to which food aid might be used by the United States to undercut commercial Australian agricultural exports to post -war markets in Iraq and elsewhere;10. Australians consider that AUSFTA would enhance the global competitiveness of Australian companies and the economy;11. Australians anticipate to see all barriers to trade and investment removed within ten years;12. Australian side want to give legal right to national treatment of investment;13. Australians concur of the need for mutual recognition of professional qualifications affecting trade in services and in technical standards affecting goods trade; and14. Free movement of people and safeguards on security of access to markets.4.2 Expressed Intents and Aspirations – U.S. side1. Beyond the commercial considerations at stake in the agreement, U.S. wants to see the FTA as a tool to enhance cooperation in the WTO and help achieve jointly held objectives in a shared agenda;2. U.S. hopes to see AUSFTA strengthen the foundation of the security alliance and ―facilitate the building of new networks that enhance the Pacific democracies‘ mutual interests, shared experiences, and promotion of common values so that the FTA parties can work together more effectively with third countries‖;3. U.S. seek elimination of duties and other charges affecting imports of American goods, the suppression of Australian single desk export operations for wheat, barley, sugar and rice, and strengthened cooperation between U.S. and Australian authorities with responsibilities for sanitary and phytosanitary measures.4. U.S expects AUSFTA would enhance the level of Australia‘s protection of intellectual property rights 7 and, in certain areas, seek Australia apply levels of protection more in line with U.S. law and practices;5. U.S. would like to pursue a comprehensive approach to market access in Australia for services and explicitly referenced financial services and telecommunications services; and6. On the investment front, U.S. targets to eliminate ―trade-distorting barriers to U.S. investment in Australia, including piracy issues, a general low priority assigned to IPR enforcement, and the possibility that Australia may allow ―spring-boarding‖ by generic pharmaceutical makers8‖8 Benefits Of A Free Trade Area Between Australia And The Us in the Context of Developments in The ‘NewEconomy’;(By Dr Patrick Xavier - School of Business, Swinburne University of Technology, Melbourne; Paperpresented to the Australia - US Free Trade Area conference held at the Hyatt Hotel Canberra 21 June 2001) 8
  9. 9. The above statements were intents expressed by either high level government officials or theirprivate sector counterparts at different occasions during the FTA negotiations. Most of the issuesexpressed by the Australian side were upheld and incorporated in the final text of the FTA.5. The Content of the Free Trade AgreementThe text of AUSFTA was prepared with a spirit to repeat the acclaimed success of NAFTA. TheClauses of the FTA (25 in total) stipulate the framework of the bilateral free trade between theU.S. and Australia including but not limited to the following issues:1. On establishment of the free trade area and definitions;2. On conditions for what types of goods are subject to non-discriminatory treatment;3. On system for eliminating tariffs and export subsidies for agriculture products being traded between the two countries;4. On rules for determining the origin of the goods being traded in order to establish eligibility and also the method to determine the value of the goods traded;5. On requirements of the customs authorities to cooperate with each other on all reasonable matters;6. On the rights and obligations of Australia and the United States to each other with respect to combating barriers to trade in line with the obligations laid out by the WTO Agreement on Technical Barriers to Trade, which deals with standards, regulations, and conformity assessment;7. On the assurances that would be given to investors in order to make it as safe as if they were investing in their own country;8. On the assurances for fair trade between the telecommunications industries in each country and the exclusion of measures relating to broadcast or cable distribution of radio or television programming;9. On the assurances of giving a non-discriminatory environment with regard to financial services (all insurance and insurance-related services, and all banking and other financial services, as well as services incidental or auxiliary to a service of a financial nature);9 .6. Is the Australia – US Free Trade Agreement a net benefit for Australia?To the opinion in this paper, the deal is between unequal partners and that one cannot expectfair-trade to prevail when liberalizing trade at a time the parties to the agreement have similarinterest to export competing products. In this respect, agriculture is one area where objectives ofthe U.S.-Australian free trade seemed certain to come into conflict (at least in the near term).American agribusiness involves over a million jobs and is heavily subsidized and protected bythe government. U.S. has always been adamant in all bilateral and multi-lateral free trade 9 Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler -Executive Director, Institute for International Business, Economics & Law, The University of Adelaide; Conference on Free Trade Agreements and U.S. Trade Policy ; Institute for International Economics, Washington, DC; May 7-8, 2003) 9
  10. 10. negotiations with countries that rely heavily on agricultural exports. Similarly, Australia alsodepends on export of beef, sugar, wheat, wool and now minerals. Indeed, it is no surprise thatAustralian negotiators pushed hard during the FTA negotiations with the U.S10.Australian agricultural exports were purported to be the big winners in an FTA with the UnitedStates. The Australian government had also promised enormous gains for the sector through theFTA.6.1 Consider the situation in the dairy sector.Following Australia‘s FTA with New Zealand, the Australian dairy industry is reported to havesuccessfully undertaken a series of structural adjustments, the outcome of which has been thefocusing of producers and processors on responding solely to market demands. In the globalcontext, it is a ―fair trader‖. In addition, the Australian diary industry, while efficient, is smallcompared to other world producers and its likely focus in the U.S. market would be on shippingincreased quantities of value added dairy products (mainly cheese) not the bulk dairycommodities (milk powder and butter).Seen in context, the ability of the United States to accommodate Australia in dairy seems clear:Australian dairy exports to the USA in 2001 amounted to just US$ 84.3 million and a four - foldincrease in that trade (an amount Australia might reasonably be expected to achieve over themedium - term after trade were liberalized) would put total imports from Australia at just 1.4percent of the value of American farm-gate milk production in 2001. 106.2 Consider the situation in the Sugar sectorSugar, another important export item was left out of the deal altogether and Australia‘s accessremains unchanged at 87,402 tons per annum. In January 2004 then Deputy Prime Minister ofAustralia, John Anderson, stated that a FTA without sugar would be ―un-Australian‖. Allegedly,sugar was excluded from the FTA because of the powerful sugar lobby in the United States, towhich the Bush administration had ―caved‖. Actually, it is not at all clear that Australian sugarproducers would benefit from enhanced access to the American market – particularly in light ofthe United States having also liberalized trade in sugar in the FTAA. The reason being, if at allAustralia could be allowed to enlarged quotas at high USA prices, long term, the Australiansugar industry would probably not gain much from USA liberalization of the market as it wouldbe difficult for Australia to compete with Brazil (member of FTAA) which is now achieving canegrowing costs 30 to 40 percent below Australia‘s.6.3 Consider the situation in the Beef sectorBeef, one of Australia‘s most lucrative exports earned the immediate elimination of in-quotatariffs while over-quota tariffs will be phased out from years 9 to 18 of the agreement. While thismay sound promising, in practice it will take 18 years before quotas are dropped and the beef 10 The Australia-Us Free Trade Agreement: A Contest Of Interests (Patricia Ranald; Journal of Australian Political Economy, no. 57, June 2006, pp 30-56). 10
  11. 11. Australians are allowed to sell is at the low end of the market, suitable for hamburgers and petfood .In addition, if the price of beef fell 6.5% below its average price, which it did in one year out oftwo, quotas would be restored. Some have estimated that Australian beef exporters gainedA$600 million a year from the deal.The eventual result of the agricultural agreement means American farmers can export toAustralia without impediment while the overall agricultural tariff for Australian goods to the USis 34%11.6.4 Consider the situation in Investment and access to government tendersA point of interest in the FTA is the question of free flowing investment between Australia andthe US and access to tenders for Australian firms. In theory, the agreement allows equal accessfor Australian and US firms in both investment and in applying for government tenders.Implicitly, as the most advanced economy in the world is assumed to create more wealth andtechnologically upgrade productive investment in Australia. Unfortunately in practice, the vast majority of US investment in Australia in the last 10 yearshas been for the purchase of firms and assets, essentially the simple transfer of Australian wealthto US hands - a similar situation experience by Canadians as a result of NAFTA. According toAUSFTA, the Australian government maintains the right to screen all foreign investment toensure they are in the national interest and if they are above A $800 million. This means thataround 90% of Australian companies could be purchased without screening.America is known to have a highly sophisticated protectionist culture in the area of governmentprocurement. The final statistic is perhaps the most concerning; 30 countries that are legallyable to bid for government contracts, held only a 2% market share, indicating that it will be verydifficult for Australia to enter the US market in comparison to the ease in which US firms will beable to enter in Australia.126.5 Consider the situation in manufacturingAustralia is heavily reliant on primary industry. On the other hand, the American market thoughlarge is heavily subsidized and protected. As long as this is the case, many rural based partiesconsidered that Australian producers can neither access the U.S. market nor benefit from theFTA. Moreover, Australian labor, wage and environmental protection standards aresubstantially higher than those of the USA. Hence, many from the labor unions considered thatthe FTA would lead to manufacturing jobs being outsourced overseas. 111. Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler -Executive Director, Institute for International Business, Economics & Law, The University of Adelaide; Conference on Free Trade Agreements and U.S. Trade Policy ; Institute for International Economics, Washington, DC; May 7-8, 2003) 122. Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler -Executive Director, Institute for International Business, Economics & Law, The University of Adelaide; Conference on Free Trade Agreements and U.S. Trade Policy ; Institute for International Economics, Washington, DC; May 7-8, 2003) 11
  12. 12. 6.6 Consider the situation in other service sectorsU.S. had demanded during the FTA negotiations for radical changes in single desk exportoperations, restrictions in audio visual services and the pharmaceutical benefits scheme. But aswith the situation in the agriculture sector, it was not possible for Australia to meaningfullyaddress specific problem areas considered by the USA as lax and anti-competitive. These includethe following aspects: Intellectual property, Local content provisions, and the PharmaceuticalBenefits Scheme.7. Potential Trade and Investment Effects of AUSFTAFor the Unite d States, an Australia – USA FTA clearly does not have an economic significancein the same league as (NAFTA) or the current FTAA exercise in the Western Hemisphere. Theimpact of an agreement, as the figures would portray, will be proportionately much moreimportant for Australia. Considerably less than two percent of total American exports aredestined for Australia, compared to roughly 11 percent of total Australian exports destined forthe United States. Still, the numbers are large enough to make the AUSFTA interesting for bothsides.Two-way merchandise trade exceeded US$ 20.8 billion in 2002 (Australia recorded a deficit ingoods trade of US$ 7 billion for the year). Although not based on updated data, in 1999/00,bilateral services trade had reached nearly US$ 6.6 billion, with annual growth in Australia‘sservices exports to America rising much faster than imports of services from the USA.15Moreover, sales of services in Australia by majority U.S.-owned affiliates totaled US$15 .1billion in 2000, while sales of services in the United States by majority Australian-owned firmstotaled US$8 .7 billion. Total sales (goods, services and investment income) of U.S. affiliates inAustralia amounted to US$ 56 .6 billion in 2000, with Australian affiliates in the U.S. recordingtotal sales of US$31.9 billion. 16 The United States is the largest recipient of Australianinvestment at US$ 70.4 billion and Australia‘s largest source of investment at US$ 141.5billion.13Clearly, there was already a certain amount of economic integration of the two markets evenbefore the signing and implementation of AUSFTA. The possible economic effects of an FTAwith the United States have been projected by several researchers and more importantly by CIEConsult that was commissioned in 2004 to study the viability of the FTA by US and thegovernment of Australia. The original CIE study is the source for most of the positive economicclaims made for an FTA by both the supporters and proponents of an agreement with the UnitedStates.The CIE, in its study, assumed complete removal of all identified barriers to trade between theUnited States and Australia. Calculations were also done on the basis of a 50 percent removal of13 DFAT 2003, 89.. 12
  13. 13. barriers and a 25 percent removal of barriers, with the models yielding roughly proportionalresults in economic benefit to the participants14.In all of the scenarios studied by the CIE, both the United States and Australia gained throughthe implementation of an FTA. The CIE also concluded that the FTA would create more tradethan it would divert and that there would be a positive economic impact on third countries(particularly for New Zealand).Some of the figures regularly quoted by the Commonwealth Government and attributed to theCIE study are: • net economic welfare gains over 20 years of about US$ 20 .1 billion, shared evenly between the two countries; • a 4 percent (about US$ 2 billion) increase in Australian GDP by 2010, with a cumulative benefit over 20 years of about US$ 15 .5 billion; • a 0.8 percent overall rise in Australian exports by 2006 (with a potential 350%+ increase in dairy exports); and, • enhanced investment flows into key Australian economic sectors, such as mining and agriculture. As noted earlier, the CIE modeling was done on the basis of the total removal of all identified trade barriers. Under these assumptions, it is not surprising that the sectors shown by CIE as deriving the greatest benefits from the FTA are dairy and sugar. Other sectors forecast as likely to benefit from reasonably large increases in exports to the United States include ferrous metal products and motor vehicles and parts. For the United States, CIE sees the biggest potential gains in exports of motor vehicles and parts and metal products, with smaller gains for beverages and wood and paper products15Other studies have also indicated the benefits of FTA outweighing the loss to Australia over thelonger term as a result of its integration with the much larger American economy. The 2001Monash study, which is more qualitative than CIE‘s, for instance, expects that an FTA wouldfoster greater competitiveness in the Australian economy through its influence on businessadaptation to new information and communication technologies, business culture andencouragement of best practices in key aspects of economic activity16.The Monash study also predicts important positive inward investment effects for Australia as aresult of the FTA‘s contribution to improved conditions for investors and endorsement ofAustralia‘s long-term prospects as a place for American firms to do business. Among theimportant qualitative benefits to Australia identified by the Monash study are FTA inspired 14 Should Australia Continue Negotiating Bilateral Free Trade Agreements? A Practical Analysis (By Bryan Mercurio*; Lecturer, University of New South Wales; Director, International Trade and Development Project)15 CIE, 2001, Tables 4.5 and 4.6 16 Should Australia Continue Negotiating Bilateral Free Trade Agreements? A Practical Analysis (By Bryan Mercurio*; Lecturer, University of New South Wales; Director, International Trade and Development Project) 13
  14. 14. institutional arrangements addressed to resolving problems relating to business visas, technicalstandards, recognition of professional qualifications and other regulatory issues.17Other study reports like ACIL‘s, on the other hand, conclude that ―…bilateral free trade cannoton first principles be given a clean bill of health. The merits of a bilateral deal are difficult toestimate with confidence, but they will always hurt some trading partners and benefit others…‖(ACIL, 2003, 48) Advocates of the AUSFTA characterize such conclusions as coming from thosewho are naturally critical of the FTA for other reasons and who seek to bolster their claims withstudies of economic effects that support their own position.188. Outcome of the AUSFTA in PracticeIn the year following the agreement, Australian exports to the U.S. declined, while U.S. exportsto Australia increased. This followed the International Monetary Funds prediction that theAustralia-United States FTA would shrink the Australian economy marginally because of theloss of trade with other countries. The IMF estimated $US5.25 billion of extra U.S. importsentering into Australia per year under the FTA, but only $US2.97 billion of extra Australianexports to the U.S. per year. 19However, it remains unclear whether or not Australias worseningtrade deficit with the United States can be solely attributed to the FTA. It may have been alagged effect of an appreciation of the Australian dollar against the US dollar between 2000 and2003.For the U.S., the FTA improved the overall trade deficit situation, creating a trade surplus withAustralia which rose 31.7% in the first quarter of 2005, compared to the same timeframe in2004. U.S. exports to Australia increased 11.7% in the first quarter of 2005 to nearly $3.7 billionfor the quarter. Agriculture exports to Australia increased 20%.According to Australian Department of Foreign Affairs and Trade figures the imbalance in tradebetween the U.S. and Australia increased substantially during 2007. The United States becameAustralias largest import source, with goods and services imported to a value of over A$31billion. Australias exports to the U.S., however, amounted to only $15.8 billion AU.20 It remainsunclear what, if any, real benefits the agreement has produced.In U.S. Fiscal Year 2006 (October 2005 through September 2006), which was the first full yearduring which E-3 regulations were in effect, the U.S. Department of Homeland Security recorded17 Monash, 200 1,xii).18 (Andrew L. Stoler, 2003).19 The U.S.-Australia Free Trade Agreement: Provisions and Implications (William H. Cooper, Specialist inInternational Trade and Finance Foreign Affairs, Defense, and Trade Division; CRS Report for Congress, Jan 12,2005) 20 North American Free Trade Agreement (Wikipedia) 14
  15. 15. 2,123 admissions of Australian citizens as E-3 status foreign workers under the treaty. 9,294admissions were recorded in U.S. Fiscal Year 2007 (October 2006 through September 2007).219. Implications of AUSFTA for Trade Relations with Third CountriesThere are three questions that need to be answered under this Section. (1) Would the negotiation of an FTA undermine the prospects for a successful WTO ―Doha Round‖? (2) Should we expect the proposed FTA to produce important trade diversion effects?; and, (3) What could be the impact of the FTA on Australian (and to a lesser extent USA) political, security and trade interests with East Asian countries?9.1 FTAs versus WTOThe World Trade Organization (WTO) is an organization that intends to supervise and liberalizeinternational trade. The organization officially commenced on January 1, 1995 under theMarrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), whichcommenced in 1948.The organization deals with regulation of trade between participating countries; it provides aframework for negotiating and formalizing trade agreements, and a dispute resolution processaimed at enforcing participants adherence to WTO agreements, which are signed byrepresentatives of member governments and ratified by their parliaments22. The WTO has 153members, representing more than 97% of the worlds population, and 30 observers, most seekingmembership.The organization is currently endeavoring to persist with a trade negotiation called the DohaDevelopment Agenda (or Doha Round), which was launched in 2001 to enhance equitableparticipation of poorer countries which represent a majority of the worlds population. However,the negotiation has been dogged by "disagreement between exporters of agricultural bulkcommodities and countries with large numbers of subsistence farmers on the precise terms of aspecial safeguard measure to protect farmers from surges in imports. At this time, the future ofthe Doha Round is uncertain."21 Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler -Executive Director, Institutefor International Business, Economics & Law, The University of Adelaide; Conference on Free Trade Agreementsand U.S. Trade Policy ; Institute for International Economics, Washington, DC; May 7-8, 2003)22 Australia’s interests in the WTO* ( Gary Banks, Chairman, Productivity Commission; Address to theAustralian/Melbourne Institute Conference ‘Towards Opportunity and Prosperity’, Melbourne, 4 April 2002). 15
  16. 16. There has been heated agreement in Australia between advocates of bilateral free tradeagreement with the U.S. and those that favor multi-lateral non-regional arrangement such as theWTO. The most vocal spokesman for the later viewpoint is Professor Ross Garnaut, who hasstated categorically that he is opposed to the free trade agreement with the United States―amongst other things, because it is not free trade, and because it would be antithetic tocontinued progress towards free trade‖. Garnaut also believes that the negotiation of an FTAwill distract Canberra and Washington from the important WTO work in Geneva and decreasethe prospects for a successful Doha Round.23In the opinion ofis t paper, looking at the increasing number of bilateral FTA‘s between U.S. andregional actors (e.g., US – Australia, Chile , Singapore, Peru , Oman Free Trade Agreements,and the U.S. Panama, Colombia, South Korea Free Trade Agreements under negotiations), andthe cascades of similar model agreements between these and other countries in their respectiveregions (e.g., The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA); TheAustralia - New Zealand Closer Economic Agreement (ANZCERTA);The Australia – SingaporeFree Trade Agreement (SAFTA); The Australia-Chile Free Trade Agreement; and etc.,) appearsto help WTO achieve its goal easily rather than distracting it.24.9.2 Trade diversion effectsThe CIE study found a number of cases where an FTA between the United States and Australiacould be expected to produce trade diversion, but also concluded that trade creation forAustralia, the United States and the world as a whole would outweigh the trade diversion.For example, according to the CIE study, there would be increased American automotive exportsto Australia displacing a considerable value of auto exports from Japan and Europe; andincreased Australian sugar and dairy exports to the USA displacing Latin American andEuropean product.But the modeling also shows the FTA leading to considerable increases in these regions‘ exportsof other goods to the United States. In terms of net trade creation, the CIE estimated an increasein net imports to Australia of US$675 million and an increase in net USA imports of US$ 1.123 Australia’s interests in the WTO* ( Gary Banks, Chairman, Productivity Commission; Address to theAustralian/Melbourne Institute Conference ‘Towards Opportunity and Prosperity’, Melbourne, 4 April 2002). 24 The Association of Southeast Asian Nations (ASEAN)–Australia–New Zealand Free Trade Area (AANZFTA), which will come into effect by 2010, The Australia-Chile Free Trade Agreement (ACl-FTA), which came into effect in March 2009, The Australia-United States Free Trade Agreement (AUSFTA), in place since January 2005, The Australia-Thailand Free Trade Agreement (TAFTA), in place since January 2005, Singapore-Australia Free Trade Agreement (SAFTA), in place since July 2003, The Australia New Zealand Closer Economic Agreement (ANZCERTA), in place since 1983. 16
  17. 17. billion25. These figures and the models used to derive at are, however, strongly challenged byopponents of U.S. – Australia Free Trade Agreement. They consider that the negative impact ofthe U.S. – Australia Free Trade Agreement on Australia is ―the predominance of tradediversion, especially from Asia, that such an agreement would create‖.To the opinion in this paper, the Trans-Pacific Partnership Agreement (TPPA) that is beingnegotiated by the Obama Administration in a new spirit with countries including Australia,Brunei, Chile, New Zealand, Peru, Singapore, Malaysia and Vietnam would help resolve thedilemma, which critics had in mind pertaining to trade diversion consequent to the signing andimplementation of AUSFTA9.3 The political, security and trade impacts of the FTAIs Australia likely to do irreparable harm to its important political and economic relations withEast Asia for having signed and implemented the AUSFTA? That seems very doubtful, becausesince the signing of AUSFTA, Australia itself has concluded FTA with several East Asiancountries.Moreover, there are only a very limited number of goods and services where U.S. and East Asianexporters are likely to be competing head-to-head in the Australian market, so the introductionby Australia of preferences favoring U.S. suppliers is unlikely to divert importers away fromAsian and toward American suppliers.Another reason to doubt the prediction by some that there would be East Asian backlash is theEast Asian history of choosing deals with clear economic benefits when faced with a choice ofconcluding either a politically or economically-motivated trade deal. China recently faced sucha choice in concluding a long - term gas & iron supply contracts. A political choice favoringregionalism would have given the gas contract to Indonesia, but China chose Australia as itspartner because the economics outweighed the politics26.10. Conclusive RemarksThe United States Administrations, both Republican and Democratic administrations, since theRegan Administration in particular, have relentlessly endeavored to expand ‗Free Trade Areas‘and ‗Free Trade Agreements‘ (FTAs) throughout the world to satisfy the export and importinterests of the large business communities of the U.S.Accordingly, the U.S has so far signed free trade agreements with 17 economically andpolitically strategic countries and trade blocks in the Americas and Austro – Asia. As a first steptowards the Free Trade Area of the Americas (FTAA), which was envisaged for the entire25 CIE, 2001, 42-44.26 The U.S.-Australia Free Trade Agreement: Provisions and Implications (William H. Cooper, Specialist inInternational Trade and Finance Foreign Affairs, Defense, and Trade Division; CRS Report for Congress, Jan 12,2005)/ 17
  18. 18. Western Hemisphere except Cuba, what is the North American Free Trade Agreement (NAFTA)has been created in January 1994 comprising U.S., Canada and Mexico27.This trilateral trade block (NAFTA) is the largest in terms of combined purchasing power parityGDP of its members and second largest by nominal GDP comparison in the world. Despite thestern criticisms, U.S views NAFTA as an ideal free-market liberalization model to expand toother regions of the world. Even the FTAA, which was being negotiated by 34 countries of theAmericas; the Trans-Pacific Partnership Agreement (TPPA) that incorporates eight countriesbordering both sides of the southern Pacific Ocean including Australia, Brunei, Chile, NewZealand, Peru, Singapore, Malaysia and Vietnam; the planned free trade agreements withColumbia, Panama and South Korea were intended to be based on the model of the NorthAmerican Free Trade Agreement (NAFTA). The object of the present paper, AUSFTA orAustralia – U.S. Free Trade Agreement, which came into force on 1 January 2005, was alsomodeled by NAFTA.Many argue, however, that NAFTA itself is a failure for various practical reasons let alone tobecome a model for others. As elaborated briefly in Section 2 of this paper above, NAFTA hashad negative impacts on farmers in Mexico who saw food prices fall based on cheap importsfrom U.S. agribusiness. While unrestricted transfer of manufacturing and assembly industriesfrom the U.S. to other member countries of NAFTA has benefited factory owners from cheaplabor and material resources, millions of U.S. workers, on the other hand, have been made tolose their job. Although Canada is said to have benefited from the overall trade and investmentwithin NAFTA, critics in Canada charge that since NAFTAs ratification more than 10,000Canadian companies have been taken over by foreigners, and that 98% of all foreign directinvestments in Canada were for foreign takeovers.Notwithstanding, trade figures show that since all tariffs between the three member countries ofNAFTA were eliminated, trade has increased from $297 billion to $1 trillion in the periodbetween 1993 - 2007. There is doubt of the increase in trade volume, but was it a win – winventure for all population strata in the member countries? Critics insinuate overall, NAFTA hasbeen beneficial to business owners and elites contributing to the rising levels of inequality in allmember countries.In the opinion of this paper the fate of AUSFTA or Australia – US Free Trade Agreement wouldnot be different from that of NAFTA. Indeed, it is precisely the reason why countries whoseeconomy is primarily based on subsistence agriculture are fearful of joining Free Trade AreaAgreements with US. Though the contribution of trade to national GDP may increase, it isworrying for many pro-poor governments that the fate of millions of poor Mexican farmerswould repeat as a result of open trade liberalization policies and free trade agreement with US.Many, including this paper, advocate free trade agreements to include precise terms of specialsafeguard measure to protect farmers from surges in imports; as was envisioned earlier on bythe now defunct Doha Round negotiation of World Trade Organization (WTO). 27 North American Free Trade Agreement (Wikipedia) 18
  19. 19. At the time of the negotiations, the forecast made using different scenarios of tariff eliminationswere bright and gainful both for United States and Australia (big businesses?) through theimplementation of an FTA. However, trade figures for the first quarter of 2005, the yearimmediately following the agreement, showed that while Australian exports to the U.S. declined,U.S. exports to Australia increased by 11.7% compared to the same timeframe in 2004, thusrising the trade surplus of U.S. with Australia by 31.7%. What must have been bothering toAustralia in the meantime is that U.S. had already increased its agricultural export to Australiaby 20% - a significant threat to the Australian farmers, of course28.According to Australian Department of Foreign Affairs and Trade figures the imbalance in tradebetween the U.S. and Australia increased substantially during 2007. The United States becameAustralias largest import source, with goods and services imported to a value of over A$31billion. Australias exports to the U.S., however, amounted to only $15.8 billion AU29.It appears that we may be cautioned to wait and see the long term effects of the AUSFTA on theeconomy of Australia. It remains unclear for now what, if any, real benefits the agreement hasproduced to Australia.United State‘s strategy to form a cascade of smaller Free Trade Areas (FTAs) throughout theworld could be viewed as a mechanism of facilitating globalization of trade. From theexperience gathered so far, however, that would only enrich the rich and make the poor poorerin all countries. A multilateral approach with all the disciplines of the proposed servicesagreement of the World Trade Organization (WTO) - the General Agreement on Trade inServices (GATS) - with the powers of the failed Multilateral Agreement on Investment (MAI)remains imperative.Bibliography1. Canada – United States Free Trade Agreement (Wikipedia)2. North American Free Trade Agreement (Wikipedia)3. Benefits Of A Free Trade Area Between Australia And The Us in the Context of Developments in The ‘New Economy’;(By Dr Patrick Xavier - School of Business, Swinburne University of Technology, Melbourne; Paper presented to the Australia - US Free Trade Area conference held at the Hyatt Hotel Canberra 21 June 2001)4. Australia’s interests in the WTO* ( Gary Banks, Chairman, Productivity Commission; Address to the Australian/Melbourne Institute Conference ‘Towards Opportunity and Prosperity’, Melbourne, 4 April 2002); 28 Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler -Executive Director, Institute for International Business, Economics & Law, The University of Adelaide; Conference on Free Trade Agreements and U.S. Trade Policy ; Institute for International Economics, Washington, DC; May 7-8, 2003). 293. Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler -Executive Director, Institute for International Business, Economics & Law, The University of Adelaide; Conference on Free Trade Agreements and U.S. Trade Policy ; Institute for International Economics, Washington, DC; May 7-8, 2003). 19
  20. 20. 5. Australia – USA Free Trade: Benefits & Costs of an Agreement (Andrew L. Stoler - Executive Director, Institute for International Business, Economics & Law, The University of Adelaide; Conference on Free Trade Agreements and U.S. Trade Policy ; Institute for International Economics, Washington, DC; May 7-8, 2003)6. Should Australia Continue Negotiating Bilateral Free Trade Agreements? A Practical Analysis (By Bryan Mercurio*; Lecturer, University of New South Wales; Director, International Trade and Development Project)7. The Australia-Us Free Trade Agreement: A Contest Of Interests (Patricia Ranald; Journal of Australian Political Economy, no. 57, June 2006, pp 30-56).8. The U.S.-Australia Free Trade Agreement: Provisions and Implications (William H. Cooper, Specialist in International Trade and Finance Foreign Affairs, Defense, and Trade Division; CRS Report for Congress, Jan 12, 2005);9. The Association of Southeast Asian Nations (ASEAN)–Australia–New Zealand Free Trade Area (AANZFTA), which will come into effect by 201010. The Australia-Chile Free Trade Agreement (ACl-FTA), which came into effect in March 200911. The Australia-United States Free Trade Agreement (AUSFTA), in place since January 200512. The Australia-Thailand Free Trade Agreement (TAFTA), in place since January 200513. Singapore-Australia Free Trade Agreement (SAFTA), in place since July 200314. The Australia New Zealand Closer Economic Agreement (ANZCERTA), in place since 1983Section 2 AUSFTA Implications for the Australian State, Market, and SocietyIs the Australia – US Free Trade Agreement a net benefit for Australia?It seems fitting to begin with the Pharmaceuticals Benefits Scheme when analyzing elements ofthe free trade agreement, because most Australians rely on the PBS to make essentialmedications affordable. The PBS has been operating for almost 60 years, administered by theAustralian Governments Department of Health and Ageing. Current provisions governing theoperations of the PBS are in part VII of the National Health Act 1953 together with the NationalHealth (Pharmaceuticals Benefits) Regulations 1960 made under the act 30. According to theGovernment the scheme has proven to be one of the best drug subsidy systems in the world andaround 80% of prescriptions dispensed in Australia are subsidized by the PBS 31. The PBS30 Australian Government, ‘About the PBS’, Department of Health and Ageing on the Web, 4th January 2007,<http://www.health.gov.au/internet/wcms/publishing.nsf/Content/health-pbs-general-aboutus.htm-copy2>, consulted20th May 2011.31 Australian Government, ‘About the PBS’, Department of Health and Ageing on the Web 20
  21. 21. covered around 170 million prescriptions in the year to June 2005, which equates to about eightprescriptions per person in Australia for the year and leads to an annual cost of approximately$6.0 billion per year32. Not surprisingly, opposition to the PBS is strong in the United States andtheir highly influential pharmaceuticals industry which actively lobbied to remove the scheme orat least water it down. Consider the point that for drugs in the US that may cost you hundreds, inAustralia from the 1st of January 2007, all drugs under the PBS will cost up to $30.70 forgeneral patients and $4.90 for people with concession cards33. Essentially, the AustralianGovernment is in the position of a monopoly purchaser, keeping our prices for drugs some of thelowest in the World34. On average, prices in the United Kingdom and Canada are 1.5 timesgreater and in the US 2 to 3 times greater35. Conversely, the pharmaceutical companies arguethat they are entitled to the profits generated from the sale of their products. This is certainly avalid point, as a large amount of that money is reinvested in research and development, a costlyventure in which there is no guarantee of a marketable product at the end. In 1980, UScompanies spent a total of $5.5 billion on research and development of pharmaceuticals andmedicines, according to the National Science Foundation, while by 2003 that figure had grownto more than $17 billion, an average increase of 5% per year36. The Pharmaceutical Researchand Manufacturers of America (the industry‘s trade association) reported even largerexpenditures and faster growth37. Spending by its member organizations rose more than six-foldbetween 1980 and 2004, from $6 billion to $39 billion which represents a real growth rate ofaround 8% a year on average38. By Comparison, drug firms‘ gross margins have beenincreasing more slowly at around 4% annually39. Looking at these figures we can certainlyunderstand why US drug manufacturers would want to secure higher prices for their goods.According to the Australian Government however, it would appear the PBS is relatively safe. Ina media release from Mark Vaile, he states that there is nothing in the FTA which wouldincrease drug prices in Australia or change the way the PBS operates in relation to drugavailability or pricing40. Pharmaceuticals is covered under Annex 2-C of the AUSFTA, whereAustralia‘s rights are reserved in relation to the PBS41. In light of this clause, one might wonderwhat warrants so much concern. It is the fact that provisions in the agreement allow forpharmaceutical giants to mount legal challenges to the decisions of Australia‘s PharmacyBenefits Advisory Group and the creation of a joint Medicines Working Group which will act as32 Australian Government, ‘About the PBS’, Department of Health and Ageing on the Web33 Australian Government, ‘About the PBS’, Department of Health and Ageing on the Web34 R. Lopert., ‘The Pharmaceuticals Benefits Scheme: Economic Evaluation Works…but it is not a panacea’, 2002,Australian Prescriber, <http://www.australianprescriber.com/magazine/25/6/126/7/>, consulted 8 th May 2011.35 R. Lopert., ‘The Pharmaceuticals Benefits Scheme: Economic Evaluation Works…but it is not a panacea’36 Austin, D., ‘Research and Development in the Pharmaceuticals Industry’, October 2006, Congress of the UnitedStates: Congressional Budget Office on the Web, <http://www.cbo.gov/ftpdocs/76xx/doc7615/10-02-DrugR-D.pdf>, consulted 8th May 2011.37 Austin, D., ‘Research and Development in the Pharmaceuticals Industry’38 D. Austin., ‘Research and Development in the Pharmaceuticals Industry’39 D. Austin., ‘Research and Development in the Pharmaceuticals Industry’40 M. Vaile., ‘The AUSFTA, PBS and access to medicines’, 21 May 2004, Trade Ministry on the Web, <http://www.trademinister.gov.au/releases/2004/mvt036_04.html>, consulted 10 th May 2011.41 Australian-United States Free Trade Agreement, ‘Guide to the Agreement’, 6 March 2004, Australian Departmentof Foreign Affairs and Trade on the Web, <http://www.dfat.gov.au/trade/negotiations/us_fta/guide/2.html>,consulted 10th May 2011. 21
  22. 22. a means of injecting the US pharmaceutical industries viewpoint into the decision makingprocess of the PBS and of wearing Australian resistance down42. A statement made by USSenator Kyle praising Robert Zoellick for ―having secured an agreement that would deliverhigher prices paid by the PBS for US-patented drugs‖ is certainly cause for concern. It wouldappear likely that the PBS will be unlikely to continue functioning as successfully as it has inlight of the AUSFTA as US companies will certainly lobby hard for higher prices.Australian agricultural exports were purported to be the big winners in an FTA with the UnitedStates. In a country which still relies heavily on agricultural exports like beef, sugar, wheat,wool and now minerals, it is no surprise that Australian negotiators pushed hard during talkswhile the government promised enormous gains for the sector. The results of the negotiationscould best be described as disappointing. The office of the Trade Minister seems far moreoptimistic about the deal than the Department of Foreign Affairs and Trade, whichacknowledges the shortcomings of the negotiations. Dairy producers have come away with quotaaccess immediately increasing nearly threefold in volume, with ongoing growth in the quota atan average 5%43. DFAT predicts the deal could be worth up to $41 million and grants access forsome dairy products which had previously been excluded44. Beef, one of Australia‘s mostlucrative exports earned the immediate elimination of in-quota tariffs while over-quota tariffswill be phased out from years 9 to 18 of the agreement45. While this may sound promising, inpractice it will take 18 years before quotas are dropped and the beef Australia is allowed to sellis at the low end of the market, suitable for hamburgers and pet food46. In addition, if the price ofbeef fell 6.5% below its average price, which it did in one year out of two, quotas would berestored47. Some have estimated that Australian beef exporters gained A$600 a year from thedeal48. Sugar, another important export item was left out of the deal altogether and our accessremains unchanged at 87,402 tons per annum49. In January 2004 then Deputy Prime MinisterJohn Anderson stated that a FTA without sugar would be ―un-Australian‖50. Essentially sugarwas excluded from the FTA because of the powerful sugar lobby in the United States, to whichthe Bush administration had ―caved‖51. The eventual result of the agricultural agreement meansAmerican farmers can export to Australia without impediment while the overall agriculturaltariff for Australian goods to the US is 34%52.Another point of interest is free flowing investment between Australia and the US and access totenders for Australian firms. In theory, the agreement allows equal access for Australian and US42 R. Manne., ‘Little America: How John Howard has Changed Australia’, The Monthly, March 2006 in AustralianForeign Policy Reader, Flinders University, 2007. p. 2943 Australian-United States Free Trade Agreement, ‘Frequently Asked Questions’, 5 October 2005, AustralianDepartment of Foreign Affairs and Trade on the Web, <http://www.dfat.gov.au/trade/negotiations/us_fta/faqs.html>,consulted 12th May 2011.44 Australian-United States Free Trade Agreement, ‘Frequently Asked Questions’45 Australian-United States Free Trade Agreement, ‘Frequently Asked Questions’46 R. Manne., ‘Little America: How John Howard has Changed Australia’ p. 2847 R. Manne., ‘Little America: How John Howard has Changed Australia’ p. 2848 R. Manne., ‘Little America: How John Howard has Changed Australia’ p. 2849 Australian-United States Free Trade Agreement, ‘Frequently Asked Questions’50 Australian-United States Free Trade Agreement, ‘Frequently Asked Questions’51 R. Manne., ‘Little America: How John Howard has Changed Australia’ p. 2852 R. Manne., ‘Little America: How John Howard has Changed Australia’ p. 28. 22
  23. 23. firms in both investment and in applying for government tenders. Ideally, the US would carry outmore wealth creating, productive or technologically upgrading investment in Australia,unfortunately in practice, the situation seems to be somewhat different. Purportedly the vastmajority of US investment in Australia in the last 10 years has been for the purchase firms andassets, essentially the simple transfer of Australian wealth to US hands53. While there is indeed alevel of ―Greenfield‖ investment, investment which creates more Australian jobs, it is minisculein comparison54. It is also accurate that the Australian government maintains the right to screenall foreign investment, and according to DFAT, significant foreign investment proposals will bescreened to ensure they are in the national interest in non sensitive areas if above A$800million55. This means that around 90% of Australian companies could be purchased withoutscreening56. Concessions to Australian small business were option but to the American onesobligatory, while America has also developed a highly sophisticated protectionist culture in thearea of government procurement, in which the 30 countries already legally able to bid forcontracts held a 2% market share57. The final statistic is perhaps the most concerning, indicatingit will be very difficult for Australia to enter the US market in comparison to the ease in whichUS firms will be able to enter here. This debate is also about losing sovereignty, for as Australiabecomes further entwined in the American system, it may begin to inherit its flaws as well. Thelobbyist chosen by Australian big business to lead the push for the FTA, Alan Oxley, describedmost concerns as ―dross‖, stating that what really excited him about the AUSFTA was that itwould bring about the total integration of the Australian economy into the more dynamic, moreinnovative and more productive American one58.Perhaps one of the most pressing concerns for the broader Australian community in relation tothe Australia US Free Trade Agreement and local content is the promotion and preservation ofAustralian culture. Movies and cinema are perhaps the most important cultural outlets, notbecause they have an inherently higher cultural value than, say, theater or dance, but becausethey have the potential to reach the largest audience. In order to illustrate this point, we can lookat figures from the Australian Bureau of Statistics which reveal interesting trends. For the year1995 the most popular cultural venue by far was the Cinema, with 58.8% of males attendingduring the year and 65.2% of females attending59. What can be considered as more traditionalcultural venues rated quite poorly in comparison with cinemas with only 14.7% of males and23.8% of females attending the opera or musical theatre60. Unlike in television broadcasting,which has the Broadcasting Services (Australian Content) Standard 1999, there is no provision53 E. Thurbon., ‘The Real Deal: Reading Between the Lines of the Australia-US FTA’, The Australian Interest onthe Web, <http://www.australianinterest.com/TheRealDeal.pdf >, consulted 12 th May 2011.54 E. Thurbon., ‘The Real Deal: Reading Between the Lines of the Australia-US FTA’55 Australian-United States Free Trade Agreement, ‘Frequently Asked Questions’56 E Thurbon., ‘The Real Deal: Reading Between the Lines of the Australia-US FTA’57 R. Manne., ‘Little America: How John Howard has Changed Australia’ p. 2858 R. Manne., ‘Little America: How John Howard has Changed Australia’ p. 2959 Australian Bureau of Statistics, ‘Australian Social Trends’, Australian Bureau of Statistics on the Web, 24 June1999,<http://www.abs.gov.au/AUSSTATS/abs@.nsf/2f762f95845417aeca25706c00834efa/804a32db984a99a8ca2570ec0011493a!OpenDocument >, consulted 3rd May 2011.60 Australian Bureau of Statistics, ‘Australian Social Trends’, Australian Bureau of Statistics on the Web 23
  24. 24. for local content in our cinemas61. In response to the impending free trade agreement, thedirector of the Australian Screen Directors Association stated that ―Australia has handed overits cultural policies to the US, which effectively means that our cultural policies will now bedetermined by the major US studios‖62. The basis for the concern is that US productions havefar larger budgets than Australian productions, allowing for more impressive sets and CGIeffects which appeals to many viewers. It is also important to note that content laws may not beapplicable to new types of media.The AUSFTA certainly delivers advantages for Australian firms and does allow for a largerdegree of access to the domestic US market. However, this may be one occasion where the costsof such an agreement outweigh the benefits. By allowing US firms greater and more unrestrictedaccess to Australian markets, Australia may be exposing itself to the risk of inheriting the US‘socio-economic problems, like low wages and less emphasis on social welfare. The Howardgovernment may well have put strategic interests ahead of economic and sold Australia‘ssovereignty by integrating Australia completely with the US market. However, it may also beprudent to wait before judging the agreement too harshly, as any dramatic changes as a result ofits adoption will take time. In any event, time will be the final arbiter in this dispute.Could the Australia US Free Trade Agreement really pose a serious threat to local content andare the clauses in the agreement strong enough to protect the current arrangement orrenegotiate?There are several aspects of the AUSFTA that impact on the production of Australian films andtelevision programs that raise concerns, such as the waiving of all customs duties in article 2.8and its relationship to the provisions set out in Annex II of the Australia US Free TradeAgreement. Prior to the commencement of negotiations for a free trade agreement between theUS and Australia, the Department of Foreign Affairs and Trade invited public submissions onissues relevant to the negotiations, and it is interesting to note that submissions were receivedfrom the Australia Council for the Arts, Australian Screen Directors Association and Road showFilms, indicating a high level of interest from Australians in the fields of film and television63.Perhaps one of the most pressing concerns for the broader Australian community in relation tothe Australia US Free Trade Agreement and local content is the promotion and preservation ofAustralian culture. Australians are acutely aware that they live in a young country, highlightedby the fact that we celebrated our centenary of federation in 2001, only six years ago. Because ofthis fact, there is much public discourse on what constitutes Australian culture and what we canclaim as uniquely Australian characteristics. When talking about culture one is referring to61 Australian-United States Free Trade Agreement, ‘Schedule of Australia: Annex II’, Australian Department ofForeign Affairs and Trade on the Web, <http://www.dfat.gov.au/trade/negotiations/us_fta/final-text/non-conforming_measures/Annex_II_combined.pdf >, consulted 5 May 2011.62 G. Henderson., ‘The trouble with our stories’, The Age on the Web, 25 May 2011,<http://www.theage.com.au/articles/2003/11/24/1069522534829.html>, consulted 13t May 2011.63 Australian-United States Free Trade Agreement, ‘Public Submissions’, Australian Department of Foreign Affairsand Trade on the Web, <http://www.dfat.gov.au/trade/negotiations/us_public_submissions.html>, consulted 20 thMay 2011. 24
  25. 25. intangible aspects like beliefs, ideas and values which form the content of culture as well astangible aspects like symbols or technology64. Culture also relates to the ways of life of a society,or of groups within a society and can include how they dress, their marriage customs and familylife, their patterns of work, religious ceremonies and leisure pursuits65. Culture is also importantbecause it gives a sense of belonging to something greater than just a family unit or town andcan be a source of great pride. Most governments place an important emphasis on culturaldevelopment and promotion to not only the local population but internationally as well. Theunderlying argument is that promoting cultural projects through funding and education will havea beneficial impact on society by building cohesion and a sense of unity. The United States has astrong commitment to the principles of liberty, justice, freedom and democracy. These are idealsthat Americans have fought a war of independence for and have enshrined in a bill of rights.Australian‘s are committed to the same principles, but we have never been forced to fight on ourown soil for our independence. As a result, Americans feel these ideals to be at the very core oftheir identity and this is reflected in their culture, especially their films. Movies and cinema areperhaps the most important cultural outlets, not because they have an inherently higher culturalvalue than, say, theater or dance, but because they have the potential to reach the largestaudience. In order to illustrate this point, we can look at figures from the Australian Bureau ofStatistics which reveal interesting trends. For the year 1995 the most popular cultural venue byfar was the Cinema, with 58.8% of males attending during the year and 65.2% of femalesattending66. After cinemas, the next most popular cultural venue was botanic parks, whichattracted 35.5% of males and 41.3% of females, illustrating a substantial lead in popularity bycinemas of almost 30%67. What one might consider as more traditional cultural venues ratedquite poorly in comparison with cinemas with only 14.7% of males and 23.8% of femalesattending the opera or musical theatre, while theatre attracted only 13.1% of men and 20.0% offemales, dance attracted 7.4% of males and 12.5% of females while classical musicperformances attracted only 6.3% of males and 9.0% of females68. Though perhaps not overlysurprising given the advancement of computer generated imagery and big budget blockbusters, itdoes illustrate the importance of movies as a cultural conduit. Unlike in television broadcasting,which has the Broadcasting Services (Australian Content) Standard 1999, there is no provisionfor local content in our cinemas69. In response to the impending free trade agreement, thedirector of the Australian Screen Directors Association stated that ―Australia has handed overits cultural policies to the US, which effectively means that our cultural policies will now bedetermined by the major US studios‖70. Comparative to the rest of the world, the Australianmotion picture industry is quite weak, and according to the Australian Film Commission was64 A. Giddens., Sociology, p. 22.65 A. Giddens., Sociology, p. 22.66 Australian Bureau of Statistics, ‘Australian Social Trends’, Australian Bureau of Statistics on the Web, 24 June1999,<http://www.abs.gov.au/AUSSTATS/abs@.nsf/2f762f95845417aeca25706c00834efa/804a32db984a99a8ca2570ec0011493a!OpenDocument >, consulted 3rd May 2011.67 Australian Bureau of Statistics, ‘Australian Social Trends’, Australian Bureau of Statistics on the Web68 Australian Bureau of Statistics, ‘Australian Social Trends’, Australian Bureau of Statistics on the Web69 Australian-United States Free Trade Agreement, ‘Schedule of Australia: Annex II’, Australian Department ofForeign Affairs and Trade on the Web, <http://www.dfat.gov.au/trade/negotiations/us_fta/final-text/non-conforming_measures/Annex_II_combined.pdf >, consulted 4 May 2011.70 G. Henderson., ‘The trouble with our stories’, The Age on the Web, 25 November 2003,<http://www.theage.com.au/articles/2003/11/24/1069522534829.html>, consulted 4 May 2011. 25
  26. 26. ranked at number 32 in terms of films produced in 200571. In comparison, Austria produced 24films in 2005 while Australia only managed 2272. This might not seem like a large disparity, butconsider the fact that Australia has a population of just over 20 million while Austria has apopulation of just fewer than 8,200,000 or less than half our total population73. In comparisonthe United States produced 699 films in 200574. In article 10.2 of the AUSFTA, it states that eachparty shall accord to service suppliers of the other party treatment no less favorable than that itaccords, in like circumstances, to its own suppliers75. Essentially Australia cannot institute anynew import restrictions on American motion pictures, and with the easing of import restrictionslike duties and tariffs, it will be not only easier to import films, but more importantly, cheaper aswell. Since 1986 there have only been three Australian films to come in at number 1 at the boxoffice, which were Crocodile Dundee in 1986, Crocodile Dundee in 1988 and Strictly Ballroomin 199276. It is also interesting to note that the Crocodile Dundee series were tied closely withthe US. Domestic films share of box office takings has also steadily decreased steadily since2000. 2000 and 2001 were the best years with Australian films taking 8% of total takings, butthis fell to 5% in 2002, 4% in 2003, 1% in 2004, but back up slightly to 4% in 200577. In aspeech to Parliament Premier Bob Carr stated that about 250 films are released into theAustralian market each year, 70 per cent of them are from the United States while only 10 percent of the films we see are Australian78. Premier Carr also added that last year (2002), 94 percent of movie tickets sold in Australia were for films made in the United States79. Of course thegovernment does provide incentives to invest in the production of local films, without suchincentives many iconic Australian films would never have been produced. Currently, if you investin an Australian film, you may be eligible for a special tax deduction for capital expenditureincurred in acquiring an interest in the copyright of an Australian film80. There are two divisionsto the deduction, division 10B and 10BA from the Australian Taxation Office81. Division 10B isin part III of the Tax Assessment Act 1936 and gives investors a deduction, normally spread overtwo years, for capital contributions used to acquire rights in or under copyrights relating to an71 Australian Film Commission., ‘International Comparisons’, Australian Film Commission on the Web,<http://www.afc.gov.au/gtp/acompfilms.html>, consulted 6 May 2011.72 Australian Film Commission., ‘International Comparisons’73 Central Intelligence Agency Factbook., ‘Austria’, Central Intelligence Agency on the Web, May 2011,<https://www.cia.gov/library/publications/the-world-factbook/geos/au.html>, consulted 12 May 2011.74 Australian Film Commission., ‘International Comparisons’75 Australian-United States Free Trade Agreement., ‘Chapter 10: Cross Border Trade in Services’, AustralianDepartment of Foreign Affairs and Trade on the Web, <http://www.dfat.gov.au/trade/negotiations/us_fta/final-text/chapter_10.html>, consulted 6th May 2011.76 Australian Film Commission., ‘No. 1 Film at the Australian Box Office since 1972’, Australian Film Commissionon the Web, <http://www.afc.gov.au/gtp/wctopeachyear.html>, consulted 13th May 2011.77 Australian Film Commission., ‘Domestic Films Share of Box Office’, Australian Film Commission on the Web, <http://www.afc.gov.au/gtp/acompboxofficeozshare.html>, consulted 13th May 2011.78 B. Carr., ‘Film and Television Industry Free Trade Agreement’, Parliament of New South Wales Hansard,Parliament of New South Wales on the Web, 2 December 2003,<http://www.parliament.nsw.gov.au/prod/PARLMENT/hansArt.nsf/V3Key/LA20031202025>, consulted 12 May2011.79 B. Carr., ‘Film and Television Industry Free Trade Agreement’80 Australian Taxation Office., ‘Australian Film Industry Incentives 2006’, 2006, Australian Taxation Office on theWeb, <http://www.ato.gov.au/content/downloads/NAT0954-06.pdf >, consulted 10 May 2011.81 Australian Taxation Office., ‘Australian Film Industry Incentives 2006’ 26
  27. 27. ‗Australian film‘, while division 10BA gives investors a 100% deduction for capital expenditureused to produce a ‗qualifying Australian film‘ where, as a consequence, they acquire an interestin the initial copyright of the film82. There is of course a lot more small print involved in thefinal deduction, but it still represents an attractive venture for investors. Many argue that suchdeductions and incentives do not go far enough, and that the government needs to inject morefunds into the Australian film industry and impose limitations on the import and screening offoreign movies. Unfortunately, import restrictions on foreign content in our cinemas,particularly from the US would be next to impossible with the AUSFTA, and it would most likelybe hugely unpopular with movie goers. There is nothing in the agreement that rejects continuedfunding for the film industry, which may prove to be the most productive option, and promotingfilmmaking as a career. Renowned actress Toni Collette stated at a recent AFI awards ceremonyin response to negotiations surrounding AUSFTA ―I just beg you, Mr. John Howard, to just seestraight and not jeopardize our cultural future‖83. While such comments may seem unnecessarilyalarmist, it is interesting to view how other countries have dealt with, and consider, theimportance of local content. Ukraine is an interesting example to consider, although sharingmany similarities with neighboring Russia, like linguistic and historical roots, the overwhelminginflux of Russian television, films, radio broadcasts and literature was causing concern incultural and political circles which before hadn‘t seen a need for concern. Since then new quotashave been introduced to alleviate the fact that 80 per cent on sale are from Russia, as well asmost television and radio broadcasts84. While the circumstances are different, the problem is thesame and while Ukraine was able to limit imports and impose new quotas which have lead togreater cultural awareness, Australia will be tied by a free trade agreement.Television, however, is in a slightly different situation. While the major commercial televisionnetworks are consistently criticized for not presenting enough locally produced content, there isa quota in place to protect current levels. The Australian government opted to maintain currentbroadcast quotas, which is guaranteed under Annex II of the AUSFTA. In Annex II, Australiareserves the right to maintain transmission quotas for local content in multi-channeled free-to-air television broadcasting services, quotas for local content where more than one channel ofprogramming is made available by a provider of free-to-air commercial television broadcastingservices85. Such quotas may not exceed 55 per cent of the programming on an individual channelof a service provider transmitted annually between 6am and midnight and may not be imposedon more than two channels or 20 per cent of the total number of channels (whichever is greater)made available by that provider86. It goes on to state that no such transmission quotas shall beapplied to more than 3 channels of an individual service provider87. There are of course thosewho believe these quotas aren‘t enough to protect locally produced television, a problem whichis compounded by the fact the free trade agreement locks us into current quotas with little room82 Australian Taxation Office., ‘Australian Film Industry Incentives 2006’83 G. Henderson., ‘The trouble with our stories’, The Age on the Web84 T. Kuzio., ‘Status of Russian Language again Threatens Ukrainian-Russian Relations’, January 10 2001, Analysis,Stasiuk Program on the Web, <http://www.ualberta.ca/~cius/stasiuk/st-articles/an-rus-lang.htm >, consulted 15thMay 2011.85 Australian-United States Free Trade Agreement, ‘Schedule of Australia: Annex II’86 Australian-United States Free Trade Agreement, ‘Schedule of Australia: Annex II’87 Australian-United States Free Trade Agreement, ‘Schedule of Australia: Annex II’ 27
  28. 28. for maneuvering. In 2003, according to data from the Australian Film Commission, out of thetop 20 rating drama series on Australian television, only 5 were produced locally while in 2004,only 4 were locally produced88. One of the big concerns that arises is that industry groups maylobby to remove local content regulations because of economic imperatives, and while theAUSFTA allows for current regulations to remain, if lowered, cannot be raised. The basis for theconcern is that US productions have far larger budgets than Australian productions, allowingfor more impressive sets and CGI effects which appeals to many viewers. EIDC, a non-profitorganization, conducted a study into the average production costs of a single pilot (the firstepisode) of a series for television. According to the EIDC an average pilot for a drama costsaround 4 million dollars (USD) for 1 hour while the average comedy costs around 2 million(USD) for half an hour89. For 2005/06 Australia produced 13 dramas at a combined budget of83 million dollars, this works out roughly to 290,000 dollars per episode90. Obviously there is ahuge disparity between budgets and while the US market can recoup the costs of productionlocally, while Australian productions rely heavily on government assistance. This meansscreening costs for Australian productions are also greater, while broadcasters can screen bigbudget American series for a fraction of their production cost. The end result is foreign contentwhich costs less and looks (at least aesthetically) better. Premier Bob Carr, in the same motionin Parliament, stated that 75 per cent of new television programs launched between September2003 and April 2003 were foreign, while in the US only 4% of programs were foreign 91. He wenton to quote George Miller, who stated that ―My kids know more about American culture thanour own, simply because of the onslaught of American culture‖92. A second concern is that viaglobalization and free trade, there is no protection for local content in emerging technologies.Nobody can predict what future technology will bring and what new methods of datatransmission will emerge, like high definition TV which will soon replace analogue. Criticsargue that Australia has left itself open to an onslaught from American producers in newlydeveloping areas because of the free trade agreement, and Australia‘s effective inability toregulate this new content because of its obligations. However, while production of localprograms may have fallen slightly since the 1980‘s, it has still remained fairly stable and wehave yet to see a dramatic impact from US productions. Whether or not new technologies willresult in a predicted deluge is also debatable. What requires less debate is Australia‘s desire tosee local productions on their screens, to promote their values and project their identity. This isnot because of a belief that American content is inherently flawed, inferior or morally corrupt,arguments that have been used by other countries, but simply because Australians have anobligation to provide Australians with viewing that they can relate to and feel proud of, as hasbeen voiced by the protests towards the trade agreement.88 Australian Film Commission., ‘Top 20 drama series and serials’, Australian Film Commission on the Web, <http://www.afc.gov.au/gtp/wftvtopseries03.html>, consulted 9th May 2011.89 EIDC., ‘Overview of Pilot Production Activity and Economic Impact’, 4 May 2005, Film L.A on the Web,<http://www.eidc.com/EIDC_Press_Release_050405.pdf#search=%22production%20cost%20of%20a%20television%20TV%20pilot%22>, consulted 15th May 2011.90 Australian Film Commission., ‘Total production budgets’, Australian Film Commission on the Web,<http://svc012.wic030p.server-web.com/GTP/mpserialssummary.html>, consulted 13th May 2011.91 B. Carr., ‘Film and Television Industry Free Trade Agreement’92 B. Carr., ‘Film and Television Industry Free Trade Agreement’ 28

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