Monday, February 9, 2004
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The Australia free trade pact
The United States and Australia have signed a free trade deal that virtually eliminates all tariffs on manufactured products between the two countries. And the bitching has just started --some justified, some not.
One of the more absurd objections comes from the Australian entertainment sector:
A more substantive objection is made by the Cato Institute's Aaron Lukas who points out that big sugar strikes again:
A sour aftertaste on what would otherwise be a sweet deal.
UPDATE: My brother blogs from Australia:
To be fair, he provides a link to the Australian government's official web page on the agreement.posted by Dan on 02.09.04 at 06:40 PM
It's not percieved hypocrisy on trade, it is genuine hypocrisy.
The tarriffs on sugar make prices on sugar products massively higher in the US than in most of teh rest of the world. Which is why a lot of sweet products have 'high-fructose corn syrup' on the list of ingredients instead of sugar. These tarrifs have cost American consumers billions of dollars when there are much cheaper sources available.
Unfortunately the small group of families that control the sugar industry in the US are well connected politically. This is a bi-partisan problem, neither party is free from blame.
So, overall it seems like a good idea has been screwed up by the influence of one of the more useless sectors of the American economy.
You like the deal. You've read the text, then? No?
Perhaps you have a URL? No?
Might that be because, AFAIK, the full text is not available to the citizens of either of these democracies. In which case maybe it is premature to opine? Although it is not too soon to worry, given the history of putting in all sorts of anti-competitive para-copyright rights into "free" trade agreements under this administration.
There is a summary of the IP parts floating around and I'm told it's not pretty (I can't confirm this because I couldn't get the URL I was given to work). It may be, though, that the "bitching" has merit?posted by: Michael Froomkin on 02.09.04 at 06:40 PM [permalink]
Dan: "One of the more absurd objections comes from the Australian entertainment sector:
Despite the Federal Government's assurances that it has retained the right to protect the Australian film and television industry from the onslaught of US product under the new trade deal, local screen producers and directors are not convinced."
While I'm generally a supporter of free trade (though with labor/environmental standards), so-called "cultural" industries are one area where I really don't mind a little protectionism. Small-market productions with a local flavor will inevitably be swamped by Hollywood and the big American networks, and I think that homogenization is unfortunate. Carving out a protected niche for the local stuff is really the only way it'll survive, and it's not at all credible to say that doing so will significantly harm the American entertainment industry, so I'm willing to sacrifice a little on the principle of perfectly free trade in order to preserve a little tangible diversity.
Dan, a technical point: the cornerstone of American sugar policy is not tariffs or direct payments to farmers, but import quotas. Basically, an overall sugar import quota is divided according to formula among countries exporting to the United States.
The point is that a bilateral trade negotiation are not the ideal forum to consider changing sugar policy; liberalizing quotas for Australia would require asking Congress to either reduce quotas for other sugar exporters or increase America's overall import quota. In other words, we'd be looking at doing the process backwards -- making a promise in a trade agreement that Congress would reopen a section of the farm bill (typically a piece of legislation enacted every five years, the farm bill authorizes the terms of all farm support programs), holding the trade agreement hostage until Congress does this and risking a decision from Congress that would improve our trade relations with Australia at the cost of poisoning relations with other sugar exporters.
I know this is dry stuff, and on the substance the sugar program may be the least defensible activity in the entire federal government. But the opporunities for the Bush administration to deal with it were when Congress considered the last farm bill, and secondly during the abortive WTO negotiations culminating in the abortive Cancun talks last year. I wouldn't blame the Australians, among the world's lowest-cost sugar producers, for feeling put out at American stonewalling on this issue, but USTR Zoellick had few alternatives.posted by: Zathras on 02.09.04 at 06:40 PM [permalink]
Raising the sugar quota in the context of the US/Australia FTA would have been a good start on the road to dismantling the sugar program altogether. Chipping away at the quota would have made it easier, not harder, to make progress at the WTO. And Congress wouldn't need to "reopen the farm bill" -- the implementing legislation for the FTA would include the necessary changes to the U.S. code and be subject to an up-or-down vote under the Trade Act of 2002. Now one could make the case that including sugar would have caused congress to reject the deal, but there's no evidence that's what the POTUS was concened about. He was doing a favor for the Fanjul brothers, plain and simple.posted by: Conor on 02.09.04 at 06:40 PM [permalink]
Small-market productions with a local flavor will inevitably be swamped by Hollywood and the big American networks, and I think that homogenization is unfortunate. Carving out a protected niche for the local stuff is really the only way it'll survive,
I highly doubt it. That's as unlikely as expecting local cuisines to go away, which isn't happening either. Instead there's more choice, whether in the US or elsewhere. (Look at, for example, the growing reaching of Japanese anime in the US.)
There will always be a desire for local versions and things which appeal to local taste. Part of Hollywood's power is precisely its ability to absorb things from other cultures, whether actors, directors, ideas, plots, or whatever.
Directing large amounts of money towards subsidizing local culture tends to lead to stultifying, boring films that aren't aimed at the general populace. Is it any wonder that Hollywood does so well in such countries?posted by: John Thacker on 02.09.04 at 06:40 PM [permalink]
"I highly doubt it. That's as unlikely as expecting local cuisines to go away, which isn't happening either. Instead there's more choice, whether in the US or elsewhere. (Look at, for example, the growing reaching of Japanese anime in the US.)"
I agree that may, in fact, be the case with substantially different cultures, such as Japan's, where the local offerings are identifiably unique. However, in a country like Australia, where the differences are much more nuanced, the local fare is less easily distinguished and just starts to look low-budget and boring in contrast to the Hollywood stuff. Heck, look at Canada. Do you think enough people would watch CBC to keep it going if it didn't have government support? ;)
"Directing large amounts of money towards subsidizing local culture tends to lead to stultifying, boring films that aren't aimed at the general populace. Is it any wonder that Hollywood does so well in such countries?"
I don't think they're stultifying (well, ok some of them are), but I agree that they really aren't aimed at the general populace. It's an elite thing for sure, but so what? The general Roman populace liked gladiators and public orgies, but it's the poetry, philosophy and epic sagas that have transmitted Roman culture down through the ages. I like Hollywood stuff as much as the next guy, but I don't think popularity is the only relevant measure of artistic/cultural worth.
posted by: Dave on 02.09.04 at 06:40 PM [permalink]
The Politics of Sugar by the Center for Responsive Politics.
Can a divided House muster bi-partisan support to reject this FTA? Not in an election year; unlikely in an off year too.posted by: axiom on 02.09.04 at 06:40 PM [permalink]
I can imagine the rage if the first sugar liberalization were to occur with a 1st world nation. All over the Caribbean we wreck economies with our import quota policies and try to (partially) make up for it in aid. And the first sign of liberalization is in a rich land like Australia? Give me a break.
Open up sugar to African and Caribbean producers first, I say, and open it up soon.posted by: TM Lutas on 02.09.04 at 06:40 PM [permalink]
I'm afraid Conor is missing the point. There is no way to "chip away" at the sugar import quota. Either you reduce quota for everyone else if you increase it for Australia, or you increase the overall quota (I'm not even sure that under existing rules you can increase overall sugar imports and allocate all of the increase to just one country). The first option is not something we ought to want to do. The second option means a modification in existing law going well beyond trade between the United States and Australia. Again, the point is not that ending the sugar program wouldn't be sound policy, only that this trade agreement can't be the vehicle to begin the process.posted by: Zathras on 02.09.04 at 06:40 PM [permalink]
All trade agreements are modifications of existing law. Raising the overall sugar quota is possible within the context of a trade agreement. The implementing legislation for an FTA, after all, is merely a new law -- albeit one that's passed under a prior commitment not to amend it. The package voted on by Congress would automatically supercede existing law, including the overall level of sugar quotas. Legally, it can be done. The only question is whether it's politically possible.posted by: Conor on 02.09.04 at 06:40 PM [permalink]
I know that LifeSavers moved to Mexico from its 75 year location in Holland, MI just because of sugar prices. The labor, they were able to absorb since it's a highly automated process to make LifeSavers but the inflated sugar costs did them in.
Sugar really is one of those areas where idealistic Ricardian comparative advantage could simplistically take place. They sell us cheap sugar which they have a lower opportunity cost for, and we could produce and sell more sophisticated goods back. It would be a much better investment of our capital than the sugar industry. It's also one of the areas that wouldn't be prone to national security issues. Ditto pretty much for cotton. Why is the United States trying to stay a low margin agricultural commodity producer? We could use that money and invest in forward thinking industries instead.posted by: oldman on 02.09.04 at 06:40 PM [permalink]
Austrailian Wine! If you like tawney port try Seppelt D.P. 30, Trafford Barossa Valley, Australian Tawney Port.posted by: Robert Schwartz on 02.09.04 at 06:40 PM [permalink]
DFAT has posted a fact sheet at http://www.dfat.gov.au/trade/negotiations/us.html. It's aimed at the Aus public, so the focus is on gains for Australia. The sugar industry here in Aus, at least they recognised, albeit grudgingly, that they were sacrificed for the wider good (though I agree with oldman, it doesn't make economic sense). Hasn't prevented them scrambling for extra government support (http://www.theaustralian.news.com.au/common/story_page/0,5744,8648715%). But that at least in part is because the Coalition parties didn't do as well as they hoped (and should have) in last weekend's elections in Queensland, where most of the sugar industry is based. And come the Federal election later this year, there is but 7 seats between the Coalition and loss of power. Economics...it's all about politics. There's something wonderfully cynical about watching Labor Party urbanites, who would usually expect a less than friendly welcome from the traditionally National Party cane-growers, leaping to the their defence of their new found brethren.
Oh, and I agree with Robert Schwartz--get some Aus wine. The Margaret River reds and Rutherglen muscats are especially fine.posted by: lesley on 02.09.04 at 06:40 PM [permalink]
Why is the United States trying to stay a low margin agricultural commodity producer? We could use that money and invest in forward thinking industries instead.
But this, oldman, is precisely the argument for ALL free trade and outsourcing. Free trade and outsourcing ALWAYS moves a country away from industries with low comparative advantage, and towards forward thinking industries where the country has an advantage. Yet in other cases you make the mistake of opposing free trade.posted by: John Thacker on 02.09.04 at 06:40 PM [permalink]
Dear John Thacker,
Free trade and outsourcing ALWAYS moves a country away from industries with low comparative advantage, and towards forward thinking industries where the country has an advantage. Yet in other cases you make the mistake of opposing free trade.
No, I do not oppose free trade. I oppose mismanaged trade. One of the reasons why I oppose it is the mistakes made both in policy and the supporters of it such as you writing here.
"Free trade" does not always move production to the lowest comparative cost ... it moves it to the lowest absolute cost. There is a difference. It's widely misunderstood. When markets are opened up between two societies, a marketshare competition takes place. As classical economic theory would have it, the lowest marginal cost producer typically dominates the market.
However when two countries have unequal developmental levels, then the market does not necessarily promote comparative advantage. It promotes absolute advantage. This is true even if the absolute advantage is created artificially ... say oh by China's pegging its currency or India being "one of the most protected economies in the entire world".
Personally I think that trade pacts that agree to open up markets under such skewing terms hardly deserve to be called "free trade". But since people use that term so do I. What the oldman is for is truly free trade ... which if you support the current "free trade" policies you are against actually.
In addition the oldman believes in phased tandem liberalization both for domestic and foreign markets. For instance, to continue opening up our markets when other markets are not likewise liberalized and to do so at a rate faster than the structural growth in our export industries is a economic suicide pact. The market is not despite many claims to the otherwise perfectly efficient, and one is likely to create a deflationary price shock in this fashion!posted by: Oldman on 02.09.04 at 06:40 PM [permalink]
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