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AFTINET Submission to the Senate Foreign Affairs, Defence
and Trade References Committee Inquiry
on the General Agreement on Trade in Services (GATS)
and a Free Trade Agreement with the United States
(Part 3)

Prepared by Dr Patricia Ranald and Louise Southalan
21 March 2003

Part 1
Part 2

The size of the US economy relative to the Australian economy places Australia in a very weak bargaining position in bilateral negotiations.

The government's background paper from the Australian APEC Study Centre based on econometric data from the Centre for International Economics notes that Australia's national output is only 4% of that of the United States (Australian APEC Study Centre 2001 p 48). The APEC Study Centre underlines just how weak is Australia's bargaining position by the following statement: "A way of viewing the economic association from the US perspective is to see it as the addition of another medium sized state roughly equivalent in GDP to that of Pennsylvania" (Australian APEC Study Centre 2001 p 48).

The US is thus in a position to maximise its demands on Australia without being under pressure to make concessions.

The economic gains from the FTA for Australia predicted in the study by the Centre for International Economics are extremely modest, and are hedged with the many qualifications shared by all such econometric modelling (see, for example, Quiggin 1996). The study asserts that there would be no substantial trade diversion effects as a result of such a bilateral agreement, an assertion not supported by many other economists (Gittens 2002 p 29). The estimated gains are based on a number of assumptions which are uncertain at best. The study predicts that, if all trade barriers were removed, there could be net benefits of $US 9 billion over a 20-year period, and that the GDP increase in 2010 could be 0.33% or US$2 billion (A$4 billion). However the study then concedes that gains would be proportionately less if not all trade barriers were removed (Centre for International Economics, summary p 1 and 2). This figure of $A4 billion gain in GDP has been widely quoted with much more certainty than it deserves. The APEC Study Centre does concede that there will be strong resistance by the US to removal of all trade barriers, particularly in agriculture (Australian APEC Study Centre 2001 p xi). However, it then rather misleadingly quotes the $A4 billion GDP gain without any qualification (p xii). Perhaps because of this omission, it then stresses the "dynamic benefits " of closer ties with the US economy, which are not measurable through economic modelling (Australian APEC Study Centre 2001 p xii).

The econometric results of the CIE and APEC Study Centre are convincingly challenged by the report prepared by ACIL Consulting for the Rural Industries Research and Development Corporation (ACIL Consulting, 2003). This study find that there would be losses, not gains from an FTA, resulting in a decrease in GDP in 2010 of 0.2% (ACIL Consultants, 2003, p 38).

The study notes that one of the major reasons for the different econometric results is that the government study assumed that free trade would result in a productivity increase in Australia's service sector through the adoption of US managerial methods. The ACIL study notes that there is no evidence for this assumption and that it appears to be " a matter of opinion" (ACIL Consultants, 2003, p 41). In any event, the pattern of recent US corporate fraud and collapse of prominent US companies raises questions about the uncritical acceptance of US corporate practice.

Another major factor in the ACIL study is the negative impact of trade diversion. Increased trade with the US would be offset by losses from other markets, especially in the Asia Pacific, which currently receives 55% of Australian exports. A third factor is the absence of many gains to Australia from reducing its own (already low) protection. The study concludes:

"Our analysis indicates that there is room for doubt that a free trade agreement (covering all protection and all products) with the US would be of any benefit to Australia at all. We find that an FTA with the US would have a small negative impact on the three most used Australian welfare indicators- GDP, GNP and consumption" (p 37).

This negative result assumes that free trade in agriculture could be achieved. The ACIL study, like the APEC study, concedes this outcome is highly unlikely, given current levels of US agricultural protections and subsidies, and the strength of the US farm lobby. If free trade in agriculture were not achieved, the results would be even more negative (ACIL Consulting, 2003, 48).

The claims about economic benefits made by the Centre for International Economics assume that access to US agricultural markets would be a major source of any economic gains for Australia, and bases its calculation of economic benefits on increased Australian exports, especially sugar and dairy (CIE 2001 pp 21-24). However the Australian APEC Study Centre concedes that "agriculture is likely to be the thorniest issue, with US barriers very high on particular products, such as sugar and dairy products" (Australian APEC Study Centre 2001 p xi). Apart from quotas and tariff barriers, the recent US legislation to maintain high levels of agricultural subsidies further undermines claims of economic gains for Australia.

The US is the world’s largest single agricultural exporting country, and has a strong interest in expanding its exports, as its domestic demand is unlikely to increase greatly (Roberts & Jotzo 2001 p 88). Its substantial agricultural support is concentrated in a few major commodities, those that receive most support representing about 28% of the value of US agricultural production. These same commodities constitute 37% of Australian agriculture, and Australian producers export a far larger proportion of their output of these products than do US producers (Roberts & Jotzo 2001 p 5). Australia’s agricultural exports are therefore bound up to a significant extent with the system of US agricultural subsidies.

These high levels of subsidies for US agriculture are unlikely to change because of the power of the US farm lobby. As Roberts and Jotzo have pointed out, US agricultural support is "self-perpetuating and locked in for political reasons". It has become capitalised into the value of land, as purchasers of land pay for expected streams of earnings from both the market and government support. The political power of farm group interests is significant, particularly in terms of campaign funding for political candidates. Perhaps more significantly, however, the support systems that have been constructed over time have become part of the environment of US policy development (Roberts & Jotzo 2001 pp 8-9).

Given the relative size of the Australian and US economies, and the history of Australia’s inability to influence US policy makers in trade matters, significant changes in US agricultural policy towards Australia are improbable. Professor Ann Capling asks pertinently: "We already know from our past record of bilateral dealings with the United States that Australia is unlikely to get much by way of improved access for our agricultural products. The only time we have secured significant improvements in access to the United States market have come in the context of multilateral negotiations. Are we likely to do any better now?" (Capling 2001b p 182).

This view was recently reinforced by Gary Haufbauer, senior fellow at Washington's Institute for International Economics. He told the Sydney Morning Herald on March 13 that the most important industries to Australian farmers-dairy and sugar- would remain in the too-hard basket for "decades rather than years" because Australia does not have the leverage to defeat powerful US farm lobbies (Wade and Garnaut, 2003, p6).

Given the lack of economic benefits for Australians there seems little reason for an FTA. However, both governments have stressed the link between trade and security policy as a key rationale.

The letter of US Trade Representative Robert Zoellick to the US Senate dated 13 November 2002 refers to "strengthening the foundation of our security alliance" and "promotion of common values so we can work together more effectively with third countries". This reflects the tendency of the US to seek bilateral and regional agreements in a way that ties access to US markets to accession to US demands in other areas (Hartcher, 2001).

The Government's White Paper on Foreign and Trade Policy says that the USFTA is "a powerful opportunity to put our economic relationship on a parallel footing with our political relationship" (p xv1).

The Australian APEC Study Centre report states that the US perceives Australia in economic terms as equivalent to "a medium sized state" of the US. Australia needs to ensure that its national interests are not compromised in relation to other countries by being perceived in such a way. Australia has built up positive trade and cultural relationships with many countries in our region. This is in part because we are not seen as an economic or cultural appendage of the US, but as an independent country with its own trade and foreign policy, which has in the past differed with the US on some key issues. Australia’s role within the Cairns Group could be compromised if an US-Australia FTA goes ahead. In addition, the preferential access such an agreement would offer US exporters and investors could have negative implications for Australia’s trade within the Asia Pacific region, as the ACIL study shows.

Professor Capling has noted "growing concern that Canberra’s overriding objective in a trade deal is to deepen its strategic ties with the United States…many Australians would question the need for this and whether it is in Australia’s regional interests" (Capling 2001b p 184).

The linking of security and trade issues in the context of this proposed agreement is a serious mistake and could be detrimental to Australia's independence in both foreign policy and trade policy.

3. Social and Cultural Policy Impacts:

Australia’s lack of negotiating leverage in a bilateral agreement with the US arises not only from the relative smallness of our economy but also from its openness, with relatively little to offer by way of bilateral market access in goods. The main US targets in the negotiations are issues of social policy which the US government defines as barriers to trade. It is seeking to challenge policies which regulate investment in strategic industries, access to essential services and medicines, and which foster Australian culture and health and safety. These have been identified by US Corporations and business lobby groups and by United States Trade Representative Robert Zoellick in his letter to the Senate in November 2002 (Zoellick 2002).

• The Pharmaceutical Benefits Scheme

The Pharmaceutical Benefits Scheme (PBS) makes medicines more affordable to most Australians, especially those on low incomes. The Australian government uses bulk purchasing and reference pricing of medicines to achieve this. US pharmaceutical companies object to it because it means that the price of medicine is much lower in Australia than in the United States.

The PBS is not specifically mentioned in the Zoellick letter. However, the PBS and the Pharmaceutical Industries Investment Program, which provides for pharmaceutical production in Australia, is identified as a barrier to trade for the US by the CIEL study (Centre for International Economics, 2001, p 74).

Joe Damond, Associate Vice President of the Pharmaceutical Research and Manufacturers of America (PhRMA) gave evidence to hearings of the Office of the US Trade Representative about the Australia-US Free Trade Agreement on January 16, 2003. He said that the PBS reference pricing system, which helps make medicines affordable in Australia, was regarded by his organisation as a barrier to trade. He quoted US trade legislation which seeks the elimination of "government measures such as price controls and reference pricing which deny full market access for United States products" (Pharmaceutical Research and Manufacturers of America, 2003, p3).

The US has been zealously advancing the interests of its pharmaceutical companies in other international trade negotiations, notably on the WTO TRIPS Agreement, so it is likely that this issue will be pursued strongly in the negotiations

The Trade Minister Mark Vaile conceded that this issue will be negotiated in an interview on the ABC Business Breakfast program on 18/3/03 (ABC, 2003). When asked if he would categorically rule out price rises as result of negotiations he replied:

"We are prepared to argue that case in these negotiations to ensure that we maintain the ability of the Australian public to afford the drugs that we need to get to people at all socio-economic levels throughout our community".

The choice of words is interesting. There is no direct ruling out of price rises. Instead the government is prepared to "argue the case".

This is not good enough. The PBS is a vital health and social equity policy which should not be on the table in trade negotiations.

• Removal of all controls on Foreign Investment

While the proposed agreement is described as a free trade agreement, the investment provisions sought by the US mean that it could as accurately be described as an investment treaty. US Trade Representative Robert Zoellick has indicated that the US is seeking investment provisions "comparable to those that would be available under US legal principles and practice" (Zoellick, 2002, p 5). The model for this is the North American Free Trade Agreement (NAFTA). NAFTA itself has been characterised as more an investment treaty than a trade treaty because of the significance of its investor rights regime. Investor rights in NAFTA have been enforced against governments by powerful multinational corporations, particularly in the past seven years. If an Australia-US Free Trade Agreement is to include provisions similar to those of NAFTA, the almost inevitable outcome will be a reduction in the capacity of all levels of Australian government to regulate.

The US is seeking the abolition of the Foreign Investment Review Board, and the abolition of any requirements for minimum Australian ownership in any industries. Australia has such requirements through legislation in only a few strategic industries like the media, telecommunications, airlines and banking. The Foreign Investment Review Board has the power to review other foreign investment in the national interest. Its discretion is very seldom exercised, but it is a power which the Australian government should retain. If these few remaining restrictions were to be weakened, all of these industries would be vulnerable to US takeover.

• Investor-state complaints mechanism

The US is also seeking a complaints mechanism for investors which is likely to be modelled on the NAFTA disputes procedure. This would enable US corporations to take legal action to force changes in Australian law if they could argue that the law was not consistent with the agreement. They could also sue the Australian government for damages. US corporations have used NAFTA rules to sue Mexican and Canadian governments for hundreds of millions of dollars.

A number of lessons may be learned from the experience of the NAFTA investor rights regime. Chapter 11 of NAFTA defines ‘investors’ widely and grants them broad rights. Only the parties - that is, the governments - to NAFTA may be sued, but they may be sued by investors, that is, corporations. The government ‘measures’ which can be challenged as infringing on investors’ rights include ‘any law, regulation, procedure, requirement or practice’ at all levels of government. Disputes are decided in one of two international arbitration panels originally set up for the resolution of disputes between private, rather than public, bodies. These bodies – UNCITRAL and ICSID – do not provide the levels of openness of national courts. While investors sue governments seeking public money and seeking rulings on the appropriateness of public policy decisions, members of the public are not informed of the disputes or afforded the opportunity to be heard.

The most remarkable feature of NAFTA is this right of private enforcement granted to foreign corporations to enforce the constraints the agreements impose on government policy and regulation. This differs significantly from the WTO agreements, in which actions may only be brought be member states, which have reciprocal obligations. In investment treaties such as NAFTA, such reciprocity is absent - foreign investors have no obligations under the treaties that they may enforce (Shrybman 2002 p 10). Since NAFTA was signed numerous investor-to-state cases have been brought, challenging a variety of national, state and local laws and regulations. Several studies have been made of these cases, which include the following examples:

• Metalclad v Municipality of Guadalcazar. The US Metalclad Corporation was awarded US $16.7 million (later reduced to $15.6 million), because it was refused permission by a local municipality to build a 650,000-ton/annum hazardous waste facility on land already so contaminated by toxic wastes that local groundwater was compromised.

The site had previously been managed by a Mexican company which Metalclad had then bought. Metalclad applied for a permit to operate a toxic waste processing plant and landfill, which had previously been refused by the local municipality. After local protests, the Governor declared the site part of a special ecological zone. Metalclad sued the government of Mexico under NAFTA, claiming that the actions of the municipal government amounted to expropriation without compensation. The ICSID tribunal found that the creation of an ecological reserve amounted to ‘indirect’ expropriations in violation of NAFTA Chapter 11. Mexico appealed this finding, which was upheld (Shrybman 2002 p 56).

• Sun Belt v British Columbia. The U.S.-based Sun Belt Water Inc. is suing Canada for US$ 10.5 billion because the Canadian province of British Columbia interfered with its plans to export water to California. Even though Sun Belt has never actually exported water from Canada, it claims that the ban reduced its future profits. This case reinforces the concerns of many Canadians that NAFTA rules treat an essential service like water as a traded commodity (Shrybman 2002 p 57).

• United Parcel Service v Canadian Postal Service. The US company United Parcel Service (UPS) is the world’s largest express carrier and package delivery company. In 1981 the Canadian postal system was transformed from a government department to a publicly owned corporation called Canada Post, which has been delegated by the Canadian government as the universal provider of postal services. In 1993 Canada Post bought an overnight courier company. The joint entity makes the postal system the fifth largest employer in Canada. In April 1999 UPS filed a suit under NAFTA Chapter 11 for $160 million, claiming that Canada Post was in violation of NAFTA’s provisions on competition policy, monopolies and state-run enterprises. UPS is arguing, among other things, that Canada Post abuses its special monopoly status by utilising its infrastructure to cross-subsidise its parcel and courier services. The availability of affordable postal services is a public policy issue in Canada. Freedom of Information requests by the NGO Public Citizen to the US government for information about the case were refused on national security grounds. UPS "seems to be claiming that the very existence of Canada Post, a public sector competitor, violates its rights under NAFTA" (Public Citizen 2001 p 32).

• Ethyl Corporation v Canada. Ethyl Corporation is a US chemical company which produces a fuel additive called MMT containing manganese - a known human neurotoxin. In 1997 MMT was banned from use in unleaded fuel by the US Environmental Protection Agency and the state of California due to environmental and public health concerns. In April 1997 the Canadian Parliament imposed a ban on the import and inter-provincial of MMT in 1997, on grounds of public health as well as to reduce air pollution and greenhouse gas emissions. "Although the potential hazards to human health were not fully known, Canada acted in a precautionary manner until more information was available as had the state of California and the US E.P.A." (Public Citizen 2001 pp 8-9).

On September 10, 1996, while the prospective ban was being debated in the Canadian Parliament, Ethyl Corporation notified the government of Canada that it would sue for compensation under NAFTA’s investment chapter if restrictions were placed on MMT. The Parliament continued to debate and then pass the ban in April 1997, when in the same month Ethyl filed a NAFTA Chapter 11 investor-to-state claim against the Canadian government for $251 million in damages at the UN Commission for International Trade and Law (UNCITRAL). Ethyl argued that:

1. the Canadian ban amounted to a NAFTA-forbidden expropriation of its assets,
2. the ban was a violation of NAFTA rules requiring national treatment for foreign investors, because it banned imports, but not local production of MMT, and
3. the ban was a ‘performance requirement’ forbidden under NAFTA, because it would effectively require Ethyl to build a factory in every Canadian province to comply with the transport ban and make an MMT investment in Canada.

A NAFTA panel was constituted at UNCITRAL. Canada’s objections to the case - on the grounds that the MMT was not a ‘measure’ covered by NAFTA Chapter 11, and that Ethyl Corporation had not waited the requisite six months after the ban was implemented before filing a suit - were rejected. The case was set to move forward when Canada settled with Ethyl. It reversed its ban on MMT and paid $13 million in legal fees and damages to Ethyl and issued a statement for Ethyl’s use in advertising declaring that ‘current scientific information did not demonstrate MMT’s toxicity’.

The case is significant because of Ethyl’s claim that restrictions on MMT ‘expropriated’ the company’s investment. This effectively discourages environmental or public health regulation by forcing governments to pay a corporation that imports the substance which is being regulated. The fact that Ethyl threatened to initiate a NAFTA suit before a law was passed may be viewed as an intimidation of legislators, and allowed NAFTA to be used to undercut a public interest protection based on the precautionary principle. While the long-term studies needed to better understand the dangers posed by MMT are now being undertaken, Canadians are being exposed to the potentially dangerous compound (Public Citizen 2001 pp 8-10).

Several key lessons should be drawn from these and other NAFTA investor cases:

1. Serious environmental implications flow from the strong investor rights regime, particularly in the context of the permissive nature of the environmental protection clause in NAFTA (Public Citizen 2001 p 4)
2. There has been a tendency by corporations to seek government compensation in instances where their actual investment in the country being sued is not readily apparent (Public Citizen 2001 p viii), and
3. Corporations have used the NAFTA investment provisions to improve their market share.

A NAFTA-modelled FTA would grant broad powers to US corporations to challenge government regulation at local, state and commonwealth levels. This represents a threat to government’s capacity to regulate and should be opposed by the Australian government.

The range of these investment demands raise the spectre of the 1998 draft OECD Multilateral Agreement on Investment, which sought to remove the power of governments to regulate foreign investment, and which was defeated by overwhelming community opposition. The Australian government should oppose any such proposals, and should act to ensure that foreign investor regulation is the subject of informed community debate.

• Treating essential services as traded goods and reducing the right of governments to regulate to ensure equitable access to them

Mr Zoellick's letter seeks "enhanced access for US services firms to telecommunications and any other appropriate services sectors" (Zoellick 2002 p 5). US firms already have access to commercial services in Australia. The targets here are essential services like telecommunications, health, education and water. The aim is to treat services as traded commercial goods, ignoring the fact that societies have often made the democratic decision that public regulation and often public provision of these services is required to ensure that there is equitable access to high quality essential services. Decisions about these issues are a matter of social policy and should not be signed away in a trade agreement.

The Zoellick letter also refers to Australia's regulation of services. Again the agenda is to reduce the right of national, state and local governments to regulate to ensure that there is equitable access to high quality services.

These issues are also being debated in the WTO negotiations on the General Agreement on Trade in Services (GATS). There is strong community opposition to any proposals which seek to include essential public services in a trade agreement or which reduce the right of governments to regulate essential services and the Australian government should not agree to such proposals. The GATS section of this submission explores these issues in more detail.

• Removal or reduction of Australian regulation of media ownership and local content rules for audio- visual services

Australia has specific restrictions on foreign investment in newspapers and television which are intended to prevent total domination of a relatively small market by global corporations. This is a legitimate public policy goal which should not be negotiated in a trade agreement.

Australian content rules in film, television and music are a vital pillar of Australia’s cultural identity and diversity which ensures that Australian voices are heard and Australian stories are told, especially in relation to music, drama, documentaries, children's programs and pre-school programs. They foster a local skills base which enables quality films and television programs to be made here. The removal of these rules would be an attack on Australia's culture and would also destroy a vital and growing industry. This issue is discussed in more detail in Section Two of this submission.

The fact that Australia is an English-speaking country renders it particularly vulnerable to cultural and media domination by the US, which already has a large share of the Australian market. The size of the US market provides US production and media agencies with economies of scale that would overwhelm Australian content if not for the protection of local content rules. The recent comment by US Trade Representative Robert Zoellick that ‘there is no industry in the world that defines a world without borders like the American entertainment industry’ is telling (Japan Times 15 March 2003). The Australian government should oppose any proposals to change media ownership or audio visual content policy.

• Abolition of regulation and food labelling for food containing Genetically Modified Organisms (GMOs)

The US is the largest producer of food containing GMOs and lobbying by agribusiness companies has ensured that there is no US requirement for labelling to show GMO content in food. Australia and Europe have labelling requirements and a regulatory regime for GMO crops because there is an overwhelming desire by consumers to know whether food contains GMOs, and to ensure that non-GMO food remains available so that they can make an informed choice.

The US has threatened to take action in the World Trade Organisation against the European labelling and regulatory regime for GMOs on the grounds that it is a barrier to US products containing GMOs. Zoellick's letter specifically mentions the elimination of Australian "unjustified measures" relating to "food and agricultural products produced through biotechnology", meaning GMOs. This would challenge the regulatory regime which was the result of extensive public debate. This is an attempt to remove the democratic right of informed choice from consumers and should be rejected.

• Reduction in quarantine standards

The Zoellick letter mentions "serious concerns" that Australia's quarantine standards are used as a "means of restricting trade". Australia has relatively high quarantine standards because as an island country we are disease-free in some areas, and the impact of such diseases would be devastating. The government should not compromise these standards in trade negotiations

• Abolition of local preferences in government purchasing

The Zoellick letter demands increased access for US goods and services to government purchasing markets. There are some Federal and state government purchasing arrangements which ensure that smaller local firms have access to purchasing contracts, or require transnational companies with government purchasing contracts to develop relationships with local firms. These arrangements contribute to local jobs and economic development and should not be negotiated away in a trade agreement.

The government concluded negotiations on 17 February 2003 with Singapore for a Singapore/Australia Free Trade Agreement (SAFTA). The treaty was tabled in parliament on 24 March, and is being examined by the Joint Standing Committee on Treaties (JSCOT). SAFTA is relevant to this submission because it is being used as a model for the USFTA (Joint Standing Committee on Treaties Transcript 2003 p 4).

The SAFTA agreement contains a ‘negative list’ approach for both investment and services. This means that unless sectors, laws or policies are specifically excluded, they are included under the SAFTA obligations. The effect is that all foreign investors and all service providers must be treated as if they were local, and have market access in all areas (DFAT 2003d, SAFTA Chapters 7 and 8). This structure has potentially far more impact on domestic policy than the positive list used for the GATS agreement. The negative list is the model of the Multilateral Agreement on Investment that was so decisively rejected and defeated by community opinion in 1998.

One effect of the negative list for services and investment is that unintended omissions from the list, or sectors that develop in the future but are not currently listed, will be subject to SAFTA. SAFTA is described as a ‘GATS plus’ agreement by the negotiators (Joint Standing Committee on Treaties Transcript 2003 pp 4-6), which means that it goes further than the commitments countries have made under GATS. If a future government were elected with different policies, it would not be able to implement any policy contrary to the agreement without facing a complaint under the disputes procedure, and facing the payment of penalties or compensatory measures under that procedure. The negative list means that it is harder to know the limits of the agreement than would be the case if a positive list were used. It also underscores the need for extensive community consultation because of the potentially far-reaching effects of agreements which employ a negative list.

Investor-state dispute mechanism

We have discussed above the ways in which investor-state dispute mechanisms have operated under NAFTA to deliver excessive power to corporations to challenge government regulation and seek damages if such regulation affects their interests. SAFTA contains such an investor-state dispute mechanism in its chapter on investment. This gives additional legal powers to corporations which already exercise enormous market influence, and is an unacceptable limitation on democratic governance.

Given that SAFTA is considered a model for the USFTA by the government, the inclusion of this investor-state dispute mechanism in SAFTA is of great concern. As discussed above, US corporations have aggressively pursued their rights under this mechanism in NAFTA, and there is no reason to think that they would not do so under a USFTA.

Several elements of SAFTA raise concerns regarding the status of public services, and mean that it should not be used as a model for a USFTA. SAFTA uses the same language as GATS to restrict the right of governments to regulate services. The regulation of services must not be ‘more burdensome than necessary’ and must not be a ‘barrier to trade’. The two governments have agreed to include the outcome of the GATS negotiations on services regulation in the agreement (Chapter 7, article 11, p 50). This means that the Singapore government could use the general disputes process to challenge regulation of services which are not listed as exceptions on the grounds that such regulation is a barrier to trade. If the challenge were successful the government would be obliged to change the law, lose access to markets under the agreement or pay compensation (Chapter 16, Article 10, p 113).

SAFTA also restricts the ability of future governments to enact any new regulation which is not consistent with the agreement. The detail is set out in two Annexures – 4.I(a) and 4.II(a). The exceptions to the agreement are described as ‘non-conforming measures’. The exceptions listed in Annexure 4.1(a) are bound to the current levels. This means, for example, that future governments could not change those regulations to make them more restrictive.

Annexure 4.II(a) lists a range of service sectors as exceptions in Annexure 4.II(a). However, the extent to which listed public services are exempted from the agreement is ambiguous. The following services are claimed to be exempted, but only to the extent that they are ‘social services established for a public purpose’:

Public law enforcement and correctional services, income security or insurance, social welfare, public education, public training, health, child care, public utilities and public transport (Annexure 4.II(a) p 6).

A matter of concern regarding the definition of social services is that it implies that other public services could be subject to the agreement. It also reflects the ambiguity of the definition of public services, which does not regard as public services those which operate on a commercial basis or in competition with other service providers.

This ambiguity highlights a persistent problem in current international trade negotiations, where it is impossible to say with any precision whether agreements apply to a large number of public services. The ambiguity fuels public mistrust, which is compounded by government unwillingness to exempt public services in clear language.

If SAFTA is to be used as a model for the USFTA, there is justified cause for public concern about its impact on the regulatory capacity of gvoernemnts . Given the size of the US economy, such an agreement would have far more impact on essential services.

Regional Impacts

Regions reflect Australia's diversity and are characterised by association with particular industries which have developed under the influence of geography, climate, history and current industry policies. A US FTA could have a much greater impact on some regions than others. For example, particular agricultural crops, the vehicle industry and the clothing and textile industry are all concentrated in particular regional areas, so any negative impacts will also be concentrated in those areas.

Many of the social policies described above are especially relevant to Australians living in rural and regional areas and changes would also have different impacts in different regions. For example, access through the PBS to affordable medicines is especially relevant for people in rural areas who may already have greater expenses to travel long distances to get access both to medical treatment and to medicines.

Access to many essential services like health, education and water services is made possible in Australia through public regulation and often public provision of these services. If these services were opened up to private investment and provided on a purely commercial basis, prices in rural and regional areas would rise. Some services simply could not be provided in rural areas on a commercial basis.

Quarantine law is especially relevant to rural and regional communities which depend on forms of agriculture which could be severely affected by introduced pests or diseases.

The labelling of genetically engineered food and the regulatory regime for genetically engineered crops is also extremely important for many agricultural producers in rural and regional areas who do not grow such crops and want to be able to offer choice to consumers.

Government purchasing policy is also important for state governments and regional areas where such policy may ensure that local firms have access to purchasing contracts, or require transnational companies with government purchasing contracts to develop relationships with local firms

The process for the negotiations of the FTA has not been transparent. The government announced its intention to pursue the agreement in 2001, without any consultation or public debate, and published the CIE and APEC Study Centre papers. It confirmed in November 2002 that negotiations would commence, then asked for written submissions in December 2002, with a closing date of January 15 2003. Since this was the Christmas holiday period, this made it very difficult for community organisations and the general public to make submissions.

The slight economic gains of the FTA as predicted by CIE and the APEC Study Centre have been quoted and promoted by the government with much more certainty than they deserve. The publication of the ACIL study which predicted economic losses was delayed by the government and only released after it was leaked to the media in February 2003. This shows a lack of transparency, reluctance to publish critical evidence and unwillingness to debate the issues. In fact, the ACIL study undermines the whole economic case for an FTA.

This experience shows the need for independent studies of both the social and economic impacts of trade agreements and public debate of them well before the decision to start negotiations.

The government finally published objectives for the negotiations on March 3, only two weeks before negotiations were due to start. The objectives are couched in very general terms, which makes it difficult to determine their exact meaning. The document begins by stating that "Free trade leads to higher economic growth, better living standards and more and better job opportunities." (Vaile 2003, p1) These assertions have been undermined by the ACIL study.

The objectives also state that the FTA negotiations "would not impair the ability of both the US and Australia to achieve fundamental social policy objectives in health care, education, consumer protection, cultural policy, quarantine and environmental policy" (Vaile 2003, p 2). However the objectives confirm that all of these issues are still on the negotiating table, and that the government is prepared to discuss them. It is difficult to see how these policies can be the subject of a negotiation which defines them as trade barriers while preserving their fundamental objectives. For example, it is clear from the evidence given by the pharmaceutical companies to the office of the US Trade Representative that the companies are seeking higher prices for medicines in Australia. Since the fundamental policy objective of the PBS is to keep the price of medicines affordable for Australians, it is difficult to see how there is room to negotiate higher prices without contradicting this objective.

A similar point can be made about the labelling of genetically modified food, which the US regards as a trade barrier but here is seen as a matter of consumer choice. The labelling regime was the outcome of public debate and legislation, and any negotiation to reduce its effect or remove it would contradict the objectives of consumer information and choice. Australian content rules in film, television and music establish minimum content requirements in a media content market where US products are already very influential. Reduction or abolition of these rules would again contradict the fundamental objective.

It is unclear what, if any, consultation processes will be followed as negotiations proceed. Originally the government hinted at a timetable for outcomes by November 2004. However, in a media briefing given on 14/3/03 the Australian chief negotiator, Stephen Deady, said that much informal discussion about the framework of the agreement had already taken place. He added "I think the Minister has made it clear that we see the prospect of moving the negotiations ahead to conclusion some time next year, early in 2004" (DFAT 2003c). Since then the Prime Minister and President Bush have said the negotiations could be completed by the end of 2003. This shortening of the negotiating period is alarming, and would curtail meaningful community consultation.

Australia, like most other relatively small economies, has in the past not focussed on bilateral negotiations of this kind precisely because of the unequal bargaining position which inevitably results. Australia has relied rather on multilateral trade negotiations and on multilateral agreements through the United Nations which have some prospects of providing counterweights to the economic power of the strongest economies.

AFTINET supports the concept of international regulation of trade through multilateral trade negotiations. Such negotiations have in theory the potential to restrain the power of the largest economies and the influence of transnational corporations. However, such restraint requires a multilateral framework which guarantees the interests of less powerful nations and regulates corporate influence. The current WTO framework does not meet these goals, for the reasons outlined at the beginning of this submission. We support changes to the WTO framework to make it more transparent and accessible for smaller and developing countries. We also support a comprehensive review of existing WTO agreements to review their social and economic impacts before any new agreements are negotiated.

The negotiation of a bilateral trade agreement with the US carries the danger of undermining Australia's policy support for, and credibility in, multilateral negotiations.

Australia should not negotiate a Free Trade Agreement with the US. The overwhelming size and strength of the US economy places Australia in an extremely weak bargaining position, which is reflected in the admission by even the advocates of such an agreement that Australia is perceived in economic terms as another state of the US. The government's own study showed that economic gains from such an agreement were extremely low and unlikely to be realised as removal of all trade barriers was unlikely. An independent study has shown predicted economic losses, not gains, thus undermining the whole rationale for such an agreement. The linking of trade and security issues undermines our independence on both trade and security issues, and is likely to harm our relationships with other countries. The investment provisions sought by the US would deliver a degree of influence to US corporations that would undermine Australian governments' sovereignty and threaten democratic public policy making. Finally, the US is challenging a wide range of specific Australian social policies. This is unacceptable and would endanger Australia's economic independence, culture, access to essential services and health and safety. We urge the government to observe the following principles in all proposed trade negotiations:

• cease any negotiations which could endanger important social policies,
• commission comprehensive independent research into both social and economic impact of all proposed trade agreements, including regional impacts and publish it for public debate before negotiations begin,
• ensure that essential public services like health, education and water, and health and social policies like access to medicines, food labelling and quarantine are excluded from all trade negotiations,
• ensure that cultural and audio- visual services are excluded from all trade negotiations, and
• ensure that all trade agreements are debated and decided by parliament, not just by Cabinet.

References

ACIL Consulting (2003) A Bridge too Far? An Australian Agricultural Perspective on the Australia/United States Free Trade Area Idea, prepared for the Rural Industries Research and Development Corporation, ACIL, Canberra

AusAID (2001) ‘AusAID Strategic Plan: Improving effectiveness in a changing environment’, AusAID, Canberra

Australian APEC Study Centre (2001) An Australia-US Free Trade Agreement: Issues and implications, Commonwealth of Australia, Canberra

Australian Fair Trade and Investment Network (2001) "Submission to the Joint Standing Committee on Treaties Inquiry into Australia's relationship with the WTO", AFTINET, Sydney.

Australian Broadcasting Corporation (ABC) Transcript of ABC TV Business Breakfast Programme, 18th March 2003 www.abc.net.au/businessbreakfast/content/2003/s809167.htm

Becker, E (2003) ‘WTO fears Bush go-it-alone role’ The New York Times, March 15.

Braithwaite P and Drahos, P, (2000) Global Business Regulation Cambridge University Press, Cambridge.

Centre for International Economics (2001) Economic impacts of an Australia-United States Free Trade Area, Centre for International Economics, Canberra

Capling, A (2001a) Australia and the Global Trade System: From Havana to Seattle, Cambridge University Press, Cambridge

Capling, A. (2001b) ‘Trade, the USA and Down Under’s Tyranny of Size’, The Sydney Papers 13 (2) 2001 pp 177-185

DFAT (2001a) ‘Australian Intervention on Negotiating Proposal on Audio-visual Services’, CTS Special Session, July 2001

DFAT (2001b) Australian Negotiating Proposal for Environmental Services, presented to WTO Council for Trade in Services

DFAT (2001c) ‘International Trade in Services: Domestic Regulation – Necessity and Transparency’ sighted at www.dfat.gov.au 20 September 2001

DFAT (2003a) ‘Discussion paper on the General Agreement on Trade in Services (GATS)’, Office of Trade Negotiations, Canberra

DFAT (2003b) Advancing the national interest: Australia’s foreign and trade policy white paper, Commonwealth of Australia, Canberra

DFAT (2003c) Media briefing by Australia's chief negotiator for the AUSFTA, Canberra www.dfat.gov.au/media/transcripts/2003/030314_usfta.html

DFAT (2003d) Singapore Australia Free Trade Agreement, sighted at www.dfat.gov.au

DFAT (2003e) ‘Australia schedule of specific commitments relating to initial off’ http://www.dfat.gov.au/trade/negotiations/gats_schedule_initial_offer_0303.doc

Ellis-Jones, M and Hardstaff, P (2002) Serving (up) the nation: a guide to the UK’s commitments under the WTO General Agreement on Trade in Services, World Development Movement, London

European Commission (2003a) ‘WTO Services: Commission submits draft offer to Council and Parliament – public services fully defended’, media release 5 February 2003, http://europa.eu.int/comm/trade/services/pr050203_en.htm

European Commission (2003b) ‘Request from the EC and its member states (hereafter the EC) to Australia’, sighted at www.gatswatch.org/requests-offers.html

Gittens, R. (2002) ‘Free-trade agreement is Howard’s ticking bomb’ Sydney Morning Herald 9 December 2002

Hamburger, T, (2003) ‘Campaign Funds Help Steer U.S. Stance on Drug Patents’ Wall Street Journal, February 5.

Joint Standing Committee on Treaties (2003) ‘Transcript of Joint Standing Committee on Treaties’, 24 March, Commonwealth of Australia, Canberra, sighted at JSCOT website 8 April 2003:
http://www.aph.gov.au/house/committee/jsct/march2003/tor.htm

Kwa, A, (2002) Power and Politics in the WTO, Focus on the Global South, Bangkok.

Hartcher, P, (2001) ‘US offers Trade Deals for allegiance’ Australian Financial Review, 20 September,.

MEAA (2002) Submission by the Media Entertainment and Arts Alliance to the Department of Foreign Affairs and Trade, May 2002

Pharmaceutical Research and Manufacturers of America (PhRMA), (2003) Transcript of evidence to the Trade Policy Staff Committee of the Office of the US Trade Representative, January 16.

Public Citizen (2001) NAFTA Chapter 11 Investor-to-State Cases: Bankrupting Democracy: Lessons for Fast Track and the Free Trade Area of the Americas, Public Citizen, Washington

Quiggin, J. (1996) Great Expectations: Microeconomic reform and Australia, Allen & Unwin, Sydney

Roberts, I. and Jotzo F. (2001) 2002 US Farm Bill: Support and Agricultural Trade, ABARE Research Report 01.13, Canberra

Shrybman, S. (2002) Thirst For Control, Council of Canadians, Toronto

UNCTAD (2002) Trade in Services and Development Implications: Note by the Secretariat TD/B/COM.1/55, 20 December 2002

Vaile, M, (2003) Australia-US Free Trade Agreement: Australian Objectives, 3/3/03, www.trademinister.gov.au/releases/2003/mv1013_03.html

Wade M and Garnaut J (2003) ‘War may hurt exports despite free trade deal’, Sydney Morning Herald, 13/3/03, p. 6.

WTO (1998a) Report of meeting held on 14 October 1998, note by the Secretariat, Council for Trade in Services, WTO, 12 November 1998, S/C/M.30

WTO (1998b) Health and Social Services – Background Note by the Secretariat, Council for Trade in Services, WTO S/C/W/50

Zoellick, R, (2002) Letter to the US Senate dated 13 November 2002, sighted at http://www.ustr.gov/releases/2002/11/2002-11-13-australia-byrd.PDF

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