U.S.-Australia Free Trade Agreement
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The US-Australia Free Trade Agreement (FTA) is a preferential trade agreement between the United States of America and Australia on the model of the North America Free Trade Agreement (NAFTA). The FTA has been signed by both parties, and ratified by the United States Congress by the passage of the United States-Australia Free Trade Agreement Implementation Act on August 3, 2004. The agreement's implementing legislation was reluctantly passed, with ammendments, by the Australian Senate, or upper house, on August 13, 2004.
Current status
A bill was passed by the Australian Parliament to implement the agreement, but only after a strong push by the opposition Labor Party leader, Mark Latham, forced amendments to be added to the FTA to protect Australia from the American pharmaceutical industry. These amendments are currently under review by American lawyers to assure that they do not conflict with the bill passed by the U.S. Congress. If a conflict is found, a new bill may need to be passed to authorize the new, amended FTA.
Provisions of the FTA
The text of the Free Trade Agreement is divided into twenty-three sections, listed and summarized as follows:
Establishment of the Free Trade Area and Definitions
This chapter lays the framework for the FTA. It states that the provisions are consistent with the relevant sections of the General Agreement on Tariffs and Trade (GATT) 1994 and the General Agreement on Trade in Services (GATS). Both GATT and GATS are documents created by World Trade Organization (WTO) agreements and they lay the boundaries for subsequent bilateral agreements such as the U.S.-Australia FTA.
The chapter also sets definitions to be used throughout the agreement in order to assure uniformity.
National Treatment and Market Access for Goods
Chapter three of the FTA lays out conditions for what types of goods are subject to non-discriminatory treatment. Certain types of goods are fully applicable to the agreement immediately and some are phased in over a period of years or temporarily applicable.
The chapter also reminds the two countries that they must abide by the WTO rules applying what is called national treatment. National treatment means that each country will provide the same treatment to imported goods from the other country as if they were domestically produced goods.
Finally, the chapter established a Committee on Trade in Goods with the purpose of providing arbitration for each country to "raise issues of concern in relation to tariffs, non-tariff measures, rules of origin and customs administration."
Agriculture
The agriculture section of the agreement outlines the system for eliminating most tariffs for agriculture products being traded between the two countries. It also agrees to eliminate export subsidies when the good in question is being exported to one of the two party countries.
Special tariff rate quotas are part of the agreement. These quotas allow Australian producers to export increasing amounts of these products free of duty to the United States during the tariff elimination period. The following agricultural products are designated:
- Beef
- Dairy
- Tobacco
- Cotton
- Peanuts
- Avocadoes
The quota systems vary for the different products and are outlined, in detail, in this section.
The section also sets up a Committee on Agriculture with the purpose of providing "a formal opportunity for Australia and the United States to discuss a wide range of agricultural issues relevant to the Agreement, including trade promotion activities; barriers to trade; and consultation on the range of export competition issues."
Finally, the two countries have committed to working with the WTO on a multilateral scale to eliminate export subsidies to other WTO member countries.
Textiles and Apparel
Chapter four deals with the trade of texiles and apparel between the two party countries. The bulk of this section outlines the rules of origin provisions with regard to textile goods and safeguarding the domestic markets of the two countries. The agreement provides a mechanism to institute emergency action should the sudden increase in imports due to the reduction of tariffs lead to detrimental effects on the domestic industry of the importing country.
In addition, this section details the cooperation of Customs authorities for ensuring that the rules of the agreement are carried out and outlines possible actions which can be taken if the exporting country appears to be acting in bad faith.
Rules of Origin
The rules of origin section outlines the rules for determining the origin of the goods being traded in order to establish elegibility and also the method to determine the value of the goods traded.
For the purposes of the FTA, this section defines an originating good as those that:
- are wholly obtained or produced entirely in the country, such as minerals extracted there, vegetable goods harvested there, and live animals born and raised there;
- are produced in the country wholly from originating materials; or
- are produced in the country partly from non-originating materials.
The section also outlines supporting documentation and verifications that the goods being traded are, indeed, originating in the exporting country, as defined by the agreement. The responsibility for verification of the applicable conditions is given to the importer. Denial of preferential treatment and penalties may apply if proper verification is not provided by the importer upon request made by the importing country.
Customs Administration
This section outlines the requirements of the customs authorities to:
- promptly publish law, regulations, guidelines and administrative rulings,
- administer customs laws in a uniform, impartial and reasonable manner,
- provide advance rulings on tariff classifications and rules of origin within a given period of time,
- provide some sort of administrative body to review customs determinations,
- cooperate with each other on all reasonable matters, especially those involving suspicion of illegal activity,
- protect the confidentiality of information provided in cooperation with other customs authorities,
- impose their respective penalties for violations of customs laws and regulations,
- promptly release goods consistent with ensuring compliance with customs laws,
- apply risk management systems to concentrate on high-risk areas and facilitate low-risk areas, and,
- maintain expedited procedures with respect to express shipments.
Sanitary and Phytosanitary Measures
In conjunction with the existing WTO Sanitary and Phytosanitary (SPS) Agreement, this section sets up two committees to ensure that the SPS agreement provisions are followed.
- Committee on Sanitary and Phytosanitary Matters- provided with a mandate for "increasing the mutual understanding of the SPS measures and regulatory processes of each Party as well as continuing the cooperative efforts of the Parties internationally."
- Standing Working Group on Animal and Plant Health- to help with the resolution of specific animal and plant health matters with the goal of resolving the problems with the least adverse affect on trade as possible.
Technical Barriers to Trade
This section acknowledges the rights and obligations or Australia and the United States to each other with respect to combating barriers to trade. These rights and obligations were laid out by the WTO Technical Barriers to Trade Agreement, which deals with standards, regulations, and conformity assessments, among other things.
Most of the section is language from both countries agreeing to share information on several levels of government regulation. They agree to attempt to accept each others regulations and publish such rules and regulations in a timely manner in order to ensure transparency.
Safeguards
The goal of the safeguards section of the agreement is to lay out an agreed upon structure to guard against severe adverse effects to each countries domestic industries during the transition period after lifting tariffs. The countries also agree to consider the exclusion from the application of global WTO safeguards imports from the other country where those imports are not a substantial cause of the injury to the domestic industry.
Cross-border Trade in Services
Section 10 of the FTA gives clear meaning to the phrase cross-border trade in services and provides suppliers with an open environment in which to conduct their business. It requires that each country give the other's service suppliers national treatment or most-favored-nation treatment and prohits many restrictions to market access and transfers.
Investment
The investment chapter of the FTA provides clear definitions as to what investments are covered and gives cross-border investors assurances in order to make it as safe as if they were investing in their own country. Among other things, the section prohibits each country from imposing or enforcing any of the following requirements in relation to an investment in its territory:
- to export a given level or percentage of goods or services;
- to achieve a given level or percentage of domestic content;
- to purchase, use, or accord a preference to goods produced in its territory, or to purchase goods from persons in its territory;
- to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with an investment;
- to restrict sales of goods or services in its territory that an investment produces or supplies by relating such sales in any way to the volume or value of its exports or foreign exchange earnings;
- to transfer a particular technology, a production process, or other proprietary knowledge to a person in its territory; or
- to supply exclusively from its territory the goods that an investment produces or the services it supplies to a specific regional market or to the world market.
Telecommunications
This section details agreed upon terms by both countries to assure fair trade between the telecommunications industries in each country. The rules specifically exclude measures relating to broadcast or cable distribution of radio or television programming.
Among other provisions, the agreement lays out rules for settling disputes among the members of the telecommunications industries in one country with the members in the other. It entitles enterprises to:
- seek timely review by a regulator or court to resolve disputes;
- seek review of disputes regarding appropriate terms, conditions, and rates for interconnection; and
- to obtain judicial review of a determination by a regulatory body.
Financial Services
This chapter is concerned with ensuring a non-discriminatory environment with regard to financial services. The section defines financial services as "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."
The section further lays out the scope of its application as it applies to measures by either country that affect:
- financial institutions located in the territory of that country that are controlled by persons of the other country;
- investors of the other country who have invested in financial institutions located in that country;
- the investments of investors of the other country in financial institutions located in that country; and
- cross-border trade in financial services by service suppliers of the other country.
Competition-related Matters
Government Procurement
Electronic Commerce
Intellectual Property Rights
Labour
Environment
Transparency
Institutional Arrangements and Dispute Settlement
General Provisions and Exceptions
Final Provisions
Amendments
Pharmaceutical Benefits Scheme
US Attitudes to the FTA
After the FTA was signed, there were initially concerns that the American agricultural sector would lobby against the agreement, due to a fear that it could interfere with the government's farm subsidies programme. However, the agreement, with time limits on importation of Australian agricultural products such as beef and sugar cane managed to allay the concerns of the American agricultural market (while greatly frustrating many Australian producers).
A coalition of trade unions and other groups did speak out against the agreement on the basis that it would cause similar problems to those experienced by NAFTA.
More substantial lobbying was undertaken by American Pharmaceutical companies, who were concerned about the Australian Pharmaceutical Benefits Scheme. See below.
American manufacturing lobbies strongly supported the FTA [1] (http://www.nam.org/s_nam/doc1.asp?CID=201858&DID=231587).
On the 15th July American time, both houses of the United States Congress gave strong support to the FTA. The agreement was also supported by Democratic Party Presidential Nominee John Kerry.
Australian Attitudes to the FTA
The agreement has become a major political issue leading up to the 2004 Elections. After a protracted period of negotiation under Howard government Trade Minister Mark Vaile, the agreement was strongly supported by the Howard government as an enormous potential gain to the Australian economy and as essential to the continuation of the U.S.-Australia alliance.
Criticisms, however of the FTA appeared from three main areas:
Local Content Provisions
Many in the Australian film and television community expressed concern over the affect of the agreement on government regulations enforcing a mandatory minimum of locally-produced content on television. Due to the fact that high-quality content can be produced in America considerably more cheaply than it could be produced in Australia, fears were raised that the agreement would see an even larger portion of Australian media being composed of American imports. A number of prominent artists as well as the Media, Entertainment and Arts Alliance argued for rejection of the FTA on the grounds that it would erode Australian culture.
Manufacturing and Agricultural Sector
Australia as a whole is heavily reliant on primary industry and the main benefits of a FTA between the two countries were seen to be increased access to the large, but heavily subsidised and protected, American market by Australian producers. In particular, the rural and regional-based National Party lobbied hard to have the agreement extend to the export of sugar. The eventual provisions of the agreement did not go as far as had been hoped, and as a result, some lobbyists for the sugar industry, notably independent senator Bob Katter, urged rejection of the FTA. However, many, such as Premier of Queensland Peter Beattie, still felt that the agreement was a net gain for Australian agriculture and supported ratification on that basis.
The Australian manufacturing sector was another problematic area. Australian labour, wage and environmental protection standards are significantly higher than those of America. The Australian Manufacturing Workers Union ran a high-profile campaign against the FTA on the basis that it would lead to manufacturing jobs being outsourced overseas.
Pharmaceutical Benefits Scheme
The PBS, as it is known, is a central component of the Australian healthcare system. The scheme involves subsidy of the price of certain "listed drugs", with the result that consumer prices for many common medications are a great deal cheaper than elsewhere in the world.
Pharmaceutical corporations in both the US and Australia are wary of the operation of the scheme, since they argue that higher drug prices are necessary to fund the costs of research and development. The American lobbies claim that in enjoying low-cost medicines, Australians are essentially "freeloading" off the costs of research performed in the US[2] (http://www.abc.net.au/4corners/content/2004/s1167518.htm).
Companies in particular have criticised the process by which drugs are listed, claiming that it lacks transperancy. Some have claimed that calls for transparency are merely an effort by drug companies to gain greater control over the process of listing.
All the disquiet about the PBS led to speculation that the American side would lobby heavily for its abrogation as an integral component of a free trade agreement. The Government has been criticised, particularly by the Australian Democrats and Greens parties, for not doing enough to safeguard the PBS' operations, which it has strenuously denied.
Ratification of the FTA
The Australian government does not hold a majority in the Senate, and thus requires the support of the opposition Labor party, the Greens, Democrats, or independent senators in order to secure ratification. The government has put heavy pressure on Labor Party leader Mark Latham to secure his party's support of the agreement, knowing that Latham, as well as many members of his party, viewed the FTA as beneficial. The issue had divided the party, with some members, particularly of the Left faction, arguing that Labor should reject the agreement.
Latham responded unexpectedly by making Labor's support of the FTA conditional on the addition of an amendment in enabling that would allegedly safeguard the PBS [3] (http://www.alp.org.au/media/0804/20008138.html). This effectively turned the tables on Howard: if the government refuses the amendment as unnecessary, it opens itself to claims it is not safeguarding Australian interests; if it supports the amendment, it then tacitly admits that the original terms of the agreement were inadequate. The two parties are currently in negotiation to work out a compromise version of the amendment for passage.
Latham's amendment proposals were supported by the Australian Medical Association but dismissed as ineffective by the Greens and Democrats, who still argued for rejection of the agreement.