Triumph of the Lobbyists

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Australian trade minister Mark Vaile is in chilly Washington this week, where local minds are fixated on the Superbowl and a Democratic contest in New Hampshire. Vaile is meeting U.S. Trade Representative Robert Zoellick in the final stage of talks to see if the countries can reach a deal on a free trade agreement. For a host of reasons, mainly political, it's unlikely that the two teams of negotiators will be doing high-fives by the weekend. After a year of serious negotiations over the complicated chapters that comprise a FTA, and longer still if you consider the soft diplomacy involved, the momentum seems destined to stall. The obvious goodwill between leaders President Bush and Prime Minister John Howard will not be enough to overcome either the heavy-duty handiwork of America's farm and pharmaceutical lobbies or the time constraints on Congress due to November's U.S. Presidential election.

In some ways it is fanciful to think Australia should be pursuing a FTA with the U.S. It's true that opening up access for Australia's exporters to the world's largest economy could bring, as Vaile is prone to remind voters, $A4 billion a year to the bottom line of the local economy. It's also true that allies Bush and Howard are free traders, and that the relationship between the two countries has rarely been better. Yet the enormous economic and political disparities between the two countries prompts questions about what kind of deal could benefit both - or indeed whether the two parties should even bother to meet at the table. America's population is 15 times the size of Australia's. Given their scale and reach, American companies - like Time Warner, parent of the company that publishes Time - enjoy relatively easy access to markets, particularly in open economies like Australia's. In general, and for a variety of reasons, Australia buys a lot more stuff and services from the U.S. than it can sell to it.

So why would Washington want to mess with these arrangements? Well, the U.S. is supposed to be committed to free trade around the world. Instead, because of the political power of some business lobbies and constituencies, there is an infrastructure of protection and pork-barreling that, ultimately, hurts U.S. consumers. It's why Americans get ripped off on pharmaceuticals and why they pay a lot more than they need to for their beef, sugar or dairy products. And it's why Americans get such poor value for their tax dollars on health and welfare services. Reforming this mess, even if there is a genuine will to do so, is hard to achieve in the U.S. because politics is decentralized, and the lobbyists are at work at every level of the system. The same thing happens in Australia, of course, although perhaps less furtively or effectively.

In the current negotiations, Canberra wants better market access for Australian agricultural products or the deal is off. Washington is seeking a removal of Australian restrictions on audiovisual products and foreign investment. As well, Australia's taxpayer-funded Pharmaceutical Benefits Scheme, under which the federal government buys prescription drugs in bulk to reduce their price for all residents, is being targeted by drug companies. The U.S. pharmaceutical industry is looking for ways of challenging price-control schemes around the world, and the FTA negotiations with Australia are a convenient vehicle for this. Any significant change to Australian pharmaceutical costs - to consumers or taxpayers - would be a big problem for the government. In an election year, Howard and Vaile, who is leader-in-waiting of the rural-based National Party, can't afford - and won't settle for - anything less than substantially greater access to the U.S. for Australian farmers. It's not yet clear whether walking away from an inferior deal would cause the government political harm.

The U.S. election campaign is starting to freeze out lesser considerations, as Vaile and Co. are finding out. Trade optimists are about to be mugged by Beltway reality. In Washington, FTAs are not the flavor of the month, nor is there a push to remove entrenched tariffs or subsidies. Some of Zoellick's earlier free-trade deals in the Americas are looking shaky. If the Australian business is not sorted out this week, the negotiations will lapse. Consequently, an FTA won't get through Congress by mid-year, and the election cycle will kill it. If Bush is re-elected, the next Congress could be even less accommodating; every Administration has a house cleaning, and key U.S. trade personnel could soon be looking to explore new opportunities - in lobbying, for instance, an industry that is always humming