How Free is 'Free Trade'?

— A Case Study
Ghali Hassan—01/2005
The Australian government plays with fire as it enters into a 'free trade' agreement with the US that will undoubtedly damage its economy, undermine its healthcare system, and even jeopardize its sovereignty.

(This article first appeared in

IN AUGUST 2004, the Australian Senate passed the enabling legislation for the Free Trade Agreement (FTA) with the US that could have the effect of undermining Australia's health care system and Australia's national sovereignty. The agreement negotiated with the US by the Howard government will put pressure on the Australian government to increase the price of medicines and open Australia to new pest and diseases.

Australia's fear of being 'left behind' played heavily on the minds of Australian government officials, and has contributed to Australia's decision to seek a trade agreement with the US — only the second US free trade agreement with a developed country. Without any meaningful debate, the Australian people were misled into believing that the agreement will be good for Australia. The Australia-US Free Trade Agreement (AUSFTA), scheduled to go into effect from 1 January 2005.

Despite its participation in the slaughter of hundreds of thousands of innocent Iraqis as evidence of friendship with the US, the Howard government got nothing for its service to George Bush. "It is a political deal with George Bush", wrote Alan Ramsey of the Sydney Morning Herald. "It enables [Prime Minister], John Howard to spin an electoral illusion to seduce voters, as well as use as a cudgel should Labor challenge it. It is, Howard prays, the key piece in his election strategy to stay Prime Minister." The deal is not in Australia's best interests.

It is very naive to believe that 'access' to American markets will prove profitable for Australia. So far, free trade operates in such a way as to allow the US to reap the profits of markets of the countries they have an agreement with, while effectively blocking their own markets for non-American products. Mexico, which is included in the North American Free Trade Agreement (NAFTA), has not profited massively, or at all from being included in this agreement, which began on 1 January 1994. Opening the US markets to other countries would result in more competition and decreased profits for the US. They prefer to buy into nations in the form of investment. For instance, more than 10,000 companies have been taken over by US corporations since Canada signed its FTA with the US in 1988. The first US FTA with a developed country. Today, Canada owns fewer and fewer companies.

With the FTA and NAFTA Canada is trading less with the rest of the world. "Over 85 per cent of Canada's exports now go to the US, and about 70 per cent of Canada's international trade is handled by US corporations," said David Orchard of Campaign for Canada. These corporations trade with countries of their choosing which may or may not benefit Canada. Canada is now the most foreign-owned developed nation. According to David Orchard, Canada's standard of living has fallen since the signing of the NAFTA/FTA, and Canada has less access to US markets than when Canada traded with the US under the GATT/WTO rules.

Like Mexico and Canada, it is predicted that Australia will lose some of its manufacturing capacity and manufacturing labour force in the first few years of the AUSFTA. The AUSFTA will wipe out 99 per cent of US-Australia manufactured goods tariffs. US Trade Representative, Robert Zoellick, called it "the most significant immediate reduction of industrial tariffs ever achieved in a US free trade agreement".

The Australian government claimed that Australian industries and exporters would reap benefits from the AUSFTA after restrictions were lifted. However, the US price safeguards mechanism to restrict imports will remain. The price safeguards are there to thwart any competitive goods from Australia to the US.

Commenting on the Free Trade Area of the Americas (FTAA), US Secretary of State, Colin Powell, stated recently: "Our objective with FTAA is to guarantee North American companies the control of a territory that goes from the Arctic Pole all the way to Antarctica, free access to the whole hemisphere without difficulties or obstacles for our products, services, technology, and capital." And from January 2005, 'the control' will be extended to reach as far as the Indonesian Archipelago.

With the main markets where Australia could compete with the US — sugar, wine, dairy, beef, and fast boats — excluded from the US markets after the AUSFTA is signed, there is not much left for Australia to compete with the US in a 'free trade' deal. In addition, cheap US agricultural exports are expected to have negative effects on Australian farmers and agricultural producers. Furthermore, US agriculture is heavily subsidised and has had the effect of driving down prices for a key commodity to levels that threaten the livelihood of small-scale farmers in other countries.

Similarly, the Thai-Australia Free Trade Agreement (TAFTA) which came into effect on 1 January 2005, will leave about 40,000 families working in the dairy industry and a large number of small scale farmers in Thailand hopelessly competing with large scale and technology-driven Australian farmers. Like the AUSFTA, the TAFTA is an agreement between executive governments, not between the parliaments of the people. The agreement will reap benefits to Prime Minister Thaksin Shinawatra and his cronies at the expense of Thai farmers.

The truth about bilateral trade deals is simple. It is no longer how the rich and powerful (US or Australia) gain easy access to more and more exploitative measures in multilateral from, whether WTO or FTAA. There is strength in numbers, and a revolt by a handful of developing countries can make what Robert Zoellick thinks of as 'progress' difficult or impossible. It happened last year at Cancun and Miami.

In a bilateral deal, on the other hand, the rich and powerful almost always retain sufficient leverage to push through much harsher measures. They are starting small — US bilateral deals with Jordan, Morocco, and Singapore won't exactly set global markets afire, and even Chile and Thailand are only middling players. But rack up enough highly restrictive bilateral deals and you increase the pressure in both bilateral and multilateral negotiations, even on bigger players. Bilateral free trade is the West's new tool for intervention into the affairs of other nations, and reaps benefits for Western corporations.

Under the AUSFTA, not only drug prices in Australia will rise as a result of the new Pharmaceutical Benefits Scheme (PBS), the Australian government will cooperate in backdoor deals of denying life-saving drugs (generic drugs) to millions of people in developing countries. Furthermore, this rise in prices for generic drugs will affect the budgets of public hospitals, and in effect will put severe pressure on the financing of the Australian health care system. Known for its efficiency, the Australian health care system relies on the practice of government purchasing power to negotiate prices, and 'evidence-based' procedures for marketing pharmaceuticals.

All these will be eliminated by the AUSFTA, and prices will rise markedly. Never before has the US directly tried to undermine and challenge how a foreign developed country, like Australia, operates its national health care system and provides inexpensive drugs to its citizens.

It should be borne in mind that the Bush Administration wants to strengthen the protection of expensive brand-name US drugs in wealthy countries, like Australia, where the highest profits can be made. That is why the US is not interested in having 'free trade' with Burundi.

Do Australians want to have the same health care as Americans? Health care in the US is worse than any of the industrialised countries, with appalling statistics. The US is one of the few countries in the world that do not provide universal health care for children and pregnant women. Infant mortality, low birth weight, and child deaths under five are ranked among the highest in the US as compared to Western industrial nations and Japan. More than forty five million Americans lack basic health care cover. Australians will suffer at the hands of unaccountable US corporations.

Although much of the debate over the AUSFTA has been about higher drug prices, one important issue is absent from the debate: its impact on Australia's national sovereignty. Australia has been lucky to escape all the pest and diseases prevalent in other parts of the world and Australia's quarantine regime is designed to ensure that we stay that way. The AUSFTA will intervene in policies of utmost national importance for economic security, and will influence the quarantine decisions in Australia. The inclusion of US trade representatives in Australia's quarantine decision-making processes will give American officials the power to intervene. Australia will be forced to compromise its scientifically based quarantine decisions to allow untested and harmful US chemical products in to Australia.

For example, in 1979, the Toxic Substances Control Act (TSCA) took effect in the US. The TSCA required chemicals to be tested before being registered for use. However, 80 per cent of the US chemicals on the market worldwide today were introduced before 1979, and are not required to be tested before being registered for use. These include highly toxic substances that were effectively allowed into the market by TSCA, such as industrial solvents like ethyl benzene, known to cause nerve damage; heavy metals like cadmium, an ingredient in many paints and industrial ceramics that can cause kidney failure; and a family of plastic by-products, called furans, that are potent carcinogens and endocrine disrupters. According to Mark Schapiro in The Nation magazine, many of these chemicals have been found in high concentration in the bloodstream of Americans and Europeans. With compromised quarantine and no regulatory policies to test chemicals for toxicity on human health and the environment, not only the Australian people are in danger of developing disease, but also Australian flora and fauna are left at the mercy of US officials and giant US chemical companies.

Furthermore, the US wants the technology of the future monopolised by large private corporations. The agreement includes product patents. For example, if Australia wants to design a new technique for producing an effective vaccine against bird flu virus, or avian flu, using genetic engineering techniques, Australia can't do it because the biotechnology patents impede such innovative activity. It will also place restrictions on compulsory licensing, according to experts in the area.

The most cunning of the changes introduced by the AUSFTA are certainly those to do with intellectual property rights (IPRs). The AUSFTA beefs up protections for copyrighted US and digital products such as music, movies and consumer software. For instance, the price of CDs and DVDs will increase after the AUSFTA comes into effect, and this will also lead to a rise in piracy. The US wants the local contents rules abolished to prevent them covering subscription TV, the Internet and other new media. The US also wants media ownership restrictions in Australia lifted. The Australian cultural sector should have been fully excluded from the AUSFTA. The impact of the AUSFTA is uncertain, but the drowning of Australian cultural identity by the US Big Mac of monoculture, and by what Edward Said rightly calls cultural imperialism is not difficult to predict.

In conclusion, the AUSFTA is not in Australia's national interests. Australia is not fully ready and cannot compete with the US; therefore the AUSFTA is not beneficial for Australia. Australia should conduct risk analysis before entering into a free trade with the US. There will be a better time for a fairer free trade.


Further Reading

Linda Weiss, Elizabeth Thurbon and John Mathews (2004). How to Kill a Country. (Allen & Unwin paperback).