Dissertation - Free Trade Rhetoric or Reality v1.0

8/4/2019 Dissertation - Free Trade Rhetoric or Reality v1.0

1/48

FREE TRADE:RHETORIC OR REALITY?A cri ti cal revie w Aust ra lias trade policy during the Howard years 1996 -

2007

Masters Thesis Semester 1, 2011

Swinburne University of Technology

Author: Chris Rider

Student ID: 6998348


2/48

2

Acknowledgements

First, I would like to acknowledge my supervisor, Bruno Mascitelli. His advice and

support has been absolutely invaluable throughout the process of writing this thesis. I

know that I have been very lucky to have such a good supervisor.

Secondly, Id like to thank my girlfriend, Lauren. She has been willing to put up with

three months of my attention being focused on writing this thesis and has given me a lot

of support and encouragement while Ive studied for my Masters. I have also

appreciated her good eye for grammar and advice after reading drafts of almost all my

assignments.

Thanks to Mona Chung, who led the Australian Trade and Finance class that first got me

thinking about this subject, and the rest of my lecturers at Swinburne University. Thanks

also to Ben Soderlund for proving some valuable feedback on my draft. And to my

friends and flatmates who helped keep me sane during my studies.

Lastly, thanks to my Mum, who always believed in me.


3/48

3

Declaration

This dissertation contains no material that has been accepted for the award of any other

degree, diploma or award of any university or educational institution. To the best of my

knowledge and belief, it contains no material previously published or written by anyperson or persons, except where due reference has been made.

________________________

Chris Rider


4/48

4

Abstract

This study examines the years that John Howard was Prime Minister of Australia and

seeks to answer the question: during this period, was the governments outward

discussion of free trade a reflection of reality, or was it simply rhetoric?

It begins by reviewing the theory of free trade, including the law of comparative

advantage, infant industry protectionism and the links with poverty in the developing

world. This is done from a historic and a modern perspective. This provides a theoretical

background to the ideas that follow.

The next section provides a history of free trade within Australia, from federation in

1901 to 1996, when John Howard was elected as Prime Minister. During this time,

Australia went from one of the most highly protected economies in the world, to one

with some of the lowest levels of trade protectionism. This section is intended to give

the reader an understanding of the context in which John Howard came to power.

The study then analyses free trade policy during the Howard Years, from 1996 to 2007.

During these years, the government released a consistent message that Australia was

global leader in free trade, particularly in regards to agriculture. The Howard

Government did this via Australias leadership of the Cairns Group, Howards speeches

to foreign leaders and Trade Ministry press releases. The study examines the

governments policies and actions, along with the public conversation that was

happening at the time. Where possible, the voices of John Howard and his Trade

Ministers are captured to give an accurate reflection of the statements they were making

during this period.

The central thesis of this study is that during John Howards years as Prime Minister,

there was strong rhetoric in terms of Australias place in global free trade but that the

reality of the policies put in place did not meet with these messages. Australias

reputation was damaged by numerous accusations that it uses strict quarantine laws as

a form of non-financial protectionism. However, this report argues that the signing of

the Australia-U.S. Free Trade Agreement was the definitive moment that the Howard

Government lost any real credible case to claim leadership in the arena of Free Trade.


5/48

5

Abbreviations

ALP Australian Labor Party

APEC Asia-Pacific Economic Cooperation Forum

ASEAN Association of South East Asian Neighbours

CER Australia and New Zealand Closer Economic Relations

DFAT Department of Foreign Affairs and Trade (Australian)

EEC European Economic Community (the precursor to the European Union)

EFS Export Facilitation Scheme for Automotive Products

EU European Union

FTA Free Trade Agreement

GATT General Agreement on Tariffs and Trade

GDP Gross Domestic Product

ICS Australian Textiles, Clothing and Footwear Import Credit Scheme

ITO International Trade Organisation

MNC Multinational Corporation

U.S. United States of America

WTO World Trade Organisation


6/48

6

Table of Contents

Acknowledgements .............................................................................................. 2

Declaration ........................................................................................................... 3

Abstract ................................................................................................................ 4

Abbreviations ....................................................................................................... 5

Table of Contents .................................................................................................. 6

Chapter 1 - Introduction ........................................................................................ 7

Research Background ..................................................................................................................................... 7Research Value .................................................................................................................................................. 7Methodology ....................................................................................................................................................... 8Difficulties ............................................................................................................................................................ 9Conclusion ........................................................................................................................................................... 9

Chapter 2: Free Trade Theory .............................................................................. 10

Free Trade and the Law of Comparative Advantage ..................... ..................... ..................... ........ 10Infant Industry Protection ......................................................................................................................... 12Free Trade and the Developing World.................................................................................................. 13Conclusion ........................................................................................................................................................ 14

Chapter 3: A brief history of Australian trade ...................................................... 15

Federation and Protectionism.................................................................................................................. 15Australia Liberalises ..................................................................................................................................... 16Conclusion ........................................................................................................................................................ 18

Chapter 4: The Howard Years 1996 - 2007 ........................................................... 19

The First Term: 1996 1998 .................................................................................................................... 19A new government brings a shift in focus ............ ............. ............. ............. ............. ............ ............. ............. ........ 19The government warms to trade liberalisation .................................................................................................. 21Trade policy is debated in an election year .......................................................................................................... 22

The Second Term: 1998-2001 .................................................................................................................. 23Trade Disputes and the signs of trouble for the WTO ....................................................................................... 23

Australia seeks multilateral reform for agriculture .......... ............. ............. ............. ............. ............ ............. .. 24Australia does an about-face, September 11 changes the world and the Doha Round begins ........ 25

The Third Term: 2001-2004 ..................................................................................................................... 28Australia tries to get tough ........................ ............. ............. ............. ............ ............. ............. ............. ............. .......... 28

Regional trade deals are signed and Australia goes to war........................................................................... 29The Australia-US Free Trade Agreement .............................................................................................................. 31The Final Term: 2004-2007 ...................................................................................................................... 33

Discussion of an Australia-Japan Free Trade Agreement ............................................................................... 33A decade of the Howard Government.............. ............. ............ ............. ............. ............. ............. ............ ............. .. 34

Conclusion ........................................................................................................................................................ 34

Chapter 5 - Discussion and Conclusion ................................................................. 36

Conclusion ........................................................................................................................................................ 39

Reference List ..................................................................................................... 42


7/48

7

Chapter 1 - Introduction

Research Background

John Howard was Prime Minister of Australia from 1996 - 2007. During this time, the

Government implemented significant changes in Australias trade policy, moving from a

focus on multilateral trade negotiations to bilateral free trade agreements with the

United States, Singapore and Thailand (Thurton & Weiss 2006). Over the same period,

there was a large volume of press releases, statements and other announcements from

John Howard and his Trade Ministers on the subject of free trade. This study looks at the

Howard Governments public discourse on the topic of free trade and asks the question:

was it simply rhetoric or was this discourse an accurate reflection of reality?

In order to provide a background to this question, Chapter 2 examines the theory of free

trade from early literature to the modern context. This literature review considers the

ideas of early scholars such as Adam Smith and David Ricardo, as well as modern

academics such as Michael Porter, Martin Wolf and David Korten.

Chapter 3 reviews the history of trade in Australia. This section examines Australias

trade policy from Federation in 1901 to the 1996 federal election, providing a context

for the environment in which John Howard came to power.

Chapter 4 investigates the Howard Years. Starting from 1996, it reviews the major trade

announcements and actions from each year that John Howard was Prime Minister. This

shows the Howard Governments trade policy and dialogue in a linear manner, to give a

clear picture of how they developed over eleven years in power. Where possible, the

statements of John Howard or his Trade Ministers have been directly quoted, to provide

the most accurate representation of their message.

Chapter 5 contains a discussion and assessment of the research shown in the previous

chapters. It argues that the Howard Governments free trade discourse was

overwhelmingly rhetoric and that policies implemented over this period reflected a very

different reality.

Research Value

According to a 2009 report for the Department of Foreign Affairs and Trade (CIE 2009),

exports make up around 20% of Australias GDP and 13% of jobs are related to exp ort


8/48

8

activities. These are significant numbers and the impact of government trade policy on

these industries has the potential to be extremely large.

Additionally, Australia offers a unique glimpse in to the manner in which global free

trade works. Australias trading partners include both developing nations and majoreconomies and although it is itself a highly developed, it shares many characteristics

with the developing world. Like many developing economies, the majority of Australias

most valuable export commodities are primary resources and agricultural products.

Also, as with many developing nations, when Australia trades with large economies such

as the United States and China, there is a significant trade imbalance that favours the

larger economies and this impacts on its relative bargaining power (Australia Fact Sheet

2010).

Much analysis of Australian trade at this time has already been completed, particularly

regarding the Australia-US Free Trade Agreement (AUS-FTA). There is also extensive

discussion of John Howards political career. Despite this, very little has been specifically

written about John Howards free trade credentials and whether his outward discussion

on the topic was met with equal action. If we are to fully understand Australias place in

world trade following a decade of the Howard Government, this is an important area to

study.

Methodology

The literature reviews in Chapter 2 and 3 required a range of sources, from scholarly

texts to non-scholarly books and journalistic articles. For chapter 2, much effort was put

into fully understanding the full scope of the current discourse and to considering the

views of academics on both sides of the debate.

In order to complete the research in Chapter 4, a wide variety of sources were required.

The intention of this research was, where possible, to capture the voices of John Howard

and his Trade Ministers. For this reason, government press releases via the Department

of Foreign Affairs and Trade are a major source of data. To this end, the majority of

press releases from 1997 to 2007 were reviewed, with the most relevant referenced in

the chapter. Other sources included journalistic articles and speeches, particularly those

of John Howard. Because of the need to find a number of statements per year, across an

eleven-year period, many sources were required. This is reflected in the expansive

reference list.


9/48

9

The research for this report involved the analysis of the rhetoric of members of the

Australian Government and their actions within a certain time and context. Many

elements of this research project, including the analysis of the actions of individuals can

be considered highly subjective. It is therefore important to recognise that the research

paradigm used in this project fits broadly within the category of interpretivism. The

subjectivity of the researcher, and indeed the authors who have provided secondary

sources of data, are likely to have an influence on the output (Saunders et. al. 2009 p.

119).

Difficulties

In some areas of Howards trade policy, such as the AAUS-FTA, there was a wide range

of scholarly discussion. For the majority of the period, however, there is only a small

volume of scholarly pieces relating specifically to trade. This has resulted in the need to

find other sources, such as quotations within newspaper articles, which is reflected in

the reference list.

Due to time constraints, it was not possible to gather any primary data. Therefore, in

researching this topic, it has been necessary to rely on publicly available secondary data.

As it is primarily focused on the subject of public discourse, it was possible to work

around this constraint by using statements in the public record. For future research, it

may be possible to explore the actions of the government more fully through interviews

with involved parties.

Conclusion

During the years that John Howard was Prime Minister, the government released a

consistent message that Australia was global leader in free trade, particularly in regards

to agriculture. The Howard Government did this via Australias leadership of the Cairns

Group, Howards speeches to foreign leaders and Trade Ministry releases.

The central thesis of this study is that during John Howards years as Prime Minister,

there was strong rhetoric in terms of Australias place in global free trade but that the

policies implemented did not align with these messages. This report will argue that the

signing of the Australia-U.S. Free Trade Agreement was the definitive moment that the

Howard Government lost any real credible case to claim leadership in the arena of Free

Trade.


10/48

10

Chapter 2: Free Trade Theory

As this study investigates issues relating to free trade, it is important to provide a

background of free trade theory. This literature review provides a context for the overall

thesis of this study.

Free Trade and the Law of Comparative Advantage

Theories of free trade have been discussed extensively since 1776, when Scottish

scholar Adam Smith released his landmark thesis, An Inquiry into the Nature and Causes

of the Wealth of Nations. This work is best known for the analogy of the invisible hand

of the market, but it also dealt specifically with the subject of international trade. Smith

wrote that, if a foreign country can supply us with a commodity cheaper than we

ourselves can make it, better buy it of[f] them with some part of the produce of our own

industry employed in a way in which we have some advantage (Smith 1776, ch. 2). To

explain this idea, Smith used the example of winemaking in Scotland. He argued that

although it was possible to make very good wine in Scotland, it would cost thirty times

less to import it from abroad. For this reason, it would be more efficient to buy the wine

from abroad and focus local resources on goods that could be produced more

competitively.

English stockbroker David Ricardo (1817 ch. 7) expanded upon Smiths theories forty

years later by devising his theory of comparative advantage. According to this theory,

by focusing production on the goods that a country can produce most competitively, the

profits and prosperity of each country can be maximised. In fact, somewhat counter-

intuitively, Ricardos theory of comparative advantage states that in many cases a

country should import goods even when it can produce the same goods locally at a

lower cost. This is because specialising in the other product will often bring an overall

benefit that is greater than the negative impacts of paying more for the imported goods.

In order to understand this theory better, one can think of an athlete who has the talentto be the best in the world at either darts or football. Despite having an overall

advantage (known as an absolute advantage) at both, the smart person in that situation

would chose to focus on a career in football. That is because the potential rewards are

much higher in football and focusing resources in this area provides a comparative

advantage (Irwin 2009 p.33). When it comes to a nations trade, the theory is that similar

choices can be made. Thus, in its purist form, the theory of free trade states that each

country should only produce goods when they can do so competitively, and will

purchase goods when it is more effective. For example, Australia has mineral resources,


11/48

11

vast tracts of land, a highly educated workforce, natural beauty and good weather. Lewis

et. Al. (2010 pp. 22-23) argues that this gives Australia a comparative advantage in

industries such as mining, agriculture, education and tourism.

Although the theory of comparative advantage is still one of the foundations of todaysfree trade theory, Buckman (2005 p. 18) argues that it was a product of the time in

which it was written and is no longer valid. The theory assumes that factors of

production cannot cross national boundaries. Additionally, the theory assumes that once

a country has gained its comparative advantage in the production of a specific good, it

will not lose it. According to Buckman, these assumptions were entirely valid for the

time in which the theory was written but they hold limited relevance in todays highly

industrialised world.

Krugman (1987) also asserts that comparative advantage theory is limited because it

does not take into consideration the modern environment, which is made up of large

Multinational Corporations (MNCs) who operate in an environment of increasing

returns and imperfect competition. The growing size of MNCs distorts the ability for

non-established nations to compete in a free trade environment. Despite this, he warns

that interventionist measures are fraught with challenges and should not be taken

lightly. In choosing which firms or industries to support, a government risks retarding

the growth of other national industries. Therefore, the success of the company that is

protected via subsidies or other interventionist policies can mask a greater overall loss

to national wellbeing. The subsidisation of certain industries can also create a tit for

tat trade war with competing nations, which can lead to an overall net decrease in

wealth for the nations economy. For this reason, Krugman (1987) concludes that these

difficulties lead to a sadder but wiser argument for free trade as a rule of thumb in a

world whose politics are as imperfect as its markets. Despite this, he believes that in

cases where the potential benefits from protectionist policies are great, it is worthwhile

to consider them.

A further criticism levelled at the theory of comparative advantage is that it assumes

that workers can be reallocated at will, to the area in which they are most efficient (Jain

& Ohri 2010 p.345). This theory had some validity at a time when most people worked

in unskilled agricultural labour, but in modern times it is frequently not possible to

retrain and reallocate workers from one role to another. This is particularly the case

when low-skilled work is being replaced by high skilled work and vice versa.


12/48

12

In response to the changing world, Harvard University academic Michael Porter (2008 p.

171) designed a theory known as the competitive advantage of nations. Unlike the

traditional theory of comparative advantage, Porters model is based less on natural

advantages than it is on a nations ability to innovate and remain competitive. He argues

that the best way for countries to progress is through strong domestic competition,

aggressive local suppliers and a demanding base of local customers. He condensed this

theory into a concept called the diamond model of national advantage (Porter 2008 p.

182).

Infant Industry Protection

At the same time as Smith and Ricardo were promoting the idea that free trade is the

most beneficial solution for all occasions, Scottish born American Alexander Hamilton

was promoting his ideas for greater protectionism in developing nations. Hamilton, the

first finance minister of the newly formed United States of America (U.S.), argued that

free trade was not the answer for a nation whose industries are yet to mature. In order

to build industry, he said, a country must first have a period of intense industrial

development and high levels of protectionism. This period would allow the industries

in infancy to develop to a competitive level before they are exposed to international

competition (Hamilton 1827 p. 63). German author, Frederich List, expanded upon the

ideas of Hamilton in his 1841 manuscript, National System of Political Economy (List

1856). List argued that although England was now promoting free trade to the world, it

had only become a great economic power by implementing strong protectionist policies.

He claimed that now they had reached the top, they were trying to cast down the

ladder that they had used to climb up there, so that no one else could follow (List 1856

p. 440). Although neither Hamilton nor List inherently disagreed with the benefits of

free trade for a developed nation, they believed that it was not appropriate for a country

or industry that is still in development.

Chang (2007 p.65), a Cambridge academic, is a vocal proponent of infant industry

protection in the modern era. He uses the analogy of putting his child to work to explain

Hamilton and Lists arguments regarding the protection of infant industries. If he sent

his son to the workplace at the age of six, his lack of training and education would likely

lead him to a life of menial labour and an inability to compete with people who had

received support from their parents up to the age of graduation. This, he believed, is

what happens when a young company in a developing nation is let out to compete with

major international players before it is ready. Thus, he believes that governments

should nurture their industries until they are ready to compete without support.


13/48

13

Of course, these views are not themselves without criticism. Jain & Ohri (2010 p. 345)

point to a number of these criticisms. For example, it is difficult to determine which

industries should be supported, given that all industries begin in infancy, and no criteria

is available to determine when support should be removed. This is particularly an issue

when established companies begin to lobby for continued protection and in

circumstances where protectionist measures have created a virtual monopoly within

the country, but the company is yet to spread its wings abroad.

Free Trade and the Developing World

One of the most significant criticisms of free trade, and particularly the World Trade

Organisation (WTO), is that it is helping to economically constrain the developing world

and that it is causing suffering in those poorer nations. This criticism has resulted in

widespread protests, such as those that took place in 1999 during a WTO meeting in

Seattle (Levi & Murphy 2006). Korten (2001 pp. 78-79) argues that modern free trade

policies do not create free markets that allow all nations to prosper; rather, they simply

allow large MNCs to control global economic affairs in a manner designed to increase

their own profits. Buckman (2005 pp. 154 - 155) agrees, arguing that modern trade

policies are not truly free and that rather than increasing overall wealth, they have

created an increasingly large division between wealthy nations such as the U.S. and the

developing world.

Wolf (2006 p. 142) argues that this is not the case and that although trade is allowing

the rich to get richer than previously possible, it is also having a net benefit for the rest

of society. He contends that in countries that removed protectionist measures, there has

been rapid economic development, whereas poverty levels have remained the highest in

countries that have a closed-door policy in terms of trade. Irwin (2009 pp. 68 69)

believes that rather than implementing protectionist measures, nations should consider

that many advantages exist for countries with strong free trade policies - particularly

those in the developing world. He argues that trade allows countries access to higher

incomes, improved technology, as well as better health care and education.

In his book, The Lexus and the Olive Tree, Friedman (2000 p. xxi) argues that the world

is globalising at an unstoppable rate and that this is a good thing. He believes that rather

than protecting their markets, countries should focus on gaining the benefits provided

by access to the global economy while minimising the risks. Friedmans thesis, like

Irwin, is that trade provides access to technology and development, which helps to bring

nations forward at a rapid rate. Indeed, this is one of the central contentions of the WTO,


14/48

14

which states that the opening of national markets to international trade will

encourage and contribute to sustainable development, raise people's welfare, reduce

poverty, and foster peace and stability (About the WTO 2010).

However, free trade without safeguards to protect the interests of powerful individualsand nations is elusive. Measures to protect local industries have remained in place for

most developed nations via tariffs on imports and the subsidisation of locally produced

goods. It is for this reason that proponents of free trade, such as Irwin (2009 pp. 68-69),

allow that protectionist measures in nations such as the U.S. and EU harm the

developing world and run counter to the values of free trade.

Conclusion

In the 18th

and 19th

centuries, Adam Smith (1776) and David Ricardo (1817) establishedthe first theories of trade between nations. Particularly influential, Ricardos theory of

comparative advantage is still used as a cornerstone of modern trade theory. Soon after

these theories were developed, economists such as Alexander Hamilton (1827) and

Frederich List (1856) countered that free trade is beneficial primarily for the developed

nations and instead put forward the theory of infant industry protection. The same

debates continue in the 21st century, as MNCs are collecting wealth in ways previously

not considered possible.

The spread of globalisation means that the gap in wealth between the least developed

and most developed countries in the world has become increasingly apparent. Modern

academics such as Douglas Irwin (2009), Martin Wolf (2006) and Thomas Friedman

(2000) argue that free trade is the best way to help the poorest people develop. In

contrast, economists such as Ha-Joon Chang (2007), David Korten (2001) and Greg

Buckman (2005) believe that the current movement towards free trade favours the

richest nations and MNCs at the expense of the developing world. Thus, they call for

varying degrees of protection for the developing world.

The following chapter looks at free trade in Australia, from the time of Federation in

1901 until the beginning of John Howards time as Prime Minister in 1996. It provides a

historical background and context for the central question of this study.


15/48

15

Chapter 3: A brief history of Australian trade

Federation and Protectionism

Prior to federation in 1901, Australian trade was primarily managed by the two most

populous states, New South Wales (NSW) and Victoria. Trade between the states was

not unified, considered equivalent to international trade and subject to the same levels

of control. At this time, the government of NSW derived its income from land sales and

pursued a liberal trade policy, while Victoria followed a significantly more protectionist

agenda, primarily through the use import tariffs (Pomfret 2000). Following federation,

trade between the states was unified and section 92 of the Commonwealth of Australia

Constitution stated:

trade, commerce, and intercourse among the States, whether by means of internal

carriage or ocean navigation, shall be absolutely free (AustLII 2010).

Trade dominated Australian politics at this time to the extent that the first election for

federal government was contested on trade grounds, by the Protectionist Party on one

side and the Free Trade Party on the other (Tinney 2009 pp. 45-48). The election was

won by the Protectionist Party, led by Edmond Barton, who quickly set up a wide range

of import tariffs and other protectionist measures.

Following World War I, the Australian Government needed to raise revenue to pay off

high levels of post-war debt. Income tax was managed by the states and the addition of

federal income taxes would have been unpopular. Rather than risking the expected

backlash to this measure, the government instead chose to raise the money via the

collection of indirect revenue. The government focused on increasing import tariffs

because they could be sold to the public as a method of advancing national development

(Meredith & Dyster 1999 p. 105). At the time, imports came largely from England to

which Australia offered preferential treatment. Trade with Canada and the US began toincrease in importance during the 1920s and because an equivalent industry did not yet

exist within Australia, many goods from these nations, such as automobiles, were tariff

free (Meredith & Dyster 1999 p. 105).

Following the end of World War II, a number of countries began to discuss the

implementation of a world trade body called the International Trade Organisation (ITO).

During negotiations for the formation of the ITO, Australia took a leading role in

implementing measures that ensured each member was committed to economic

development in developing nations. Although these measures were included in the final


16/48

16

agreement, the organisation failed to launch after the US government chose not to ratify

the ITO agreement (Pomfret 2000).

After the collapse of the ITO, a trade agreement called the General Agreement on Tariffs

and Trade (GATT) was ratified by most of the worlds major economies in 1948. The

GATT offered mechanisms for reducing trade barriers but, unlike the ITO, it did not

include the creation of a separate trade body. Although Australia was a signatory of the

GATT, it had little involvement for over 20 years following ratification. Pomfret (2000)

argues that this was due to Australias isolation, small variety of export products and

willingness to rely on the United Kingdoms partiality.

From 1950 to the early 1970s Australia underwent a period known as the great boom,

during which unemployment was low and the manufacturing industry was undergoingrapid growth (Meredith & Dyster 1999 p. 205). According to Anderson and Garnaut

(1987 p. 12), these factors meant that in 1960 manufacturing accounted for around 30%

of GDP and employment. Indeed, until the mid 1970s Australias trade policy was

arranged to protect local industry regardless of its global competitiveness. The primary

measure used to protect Australian industry continued to be tariffs on imports and in

1970, Australia along with New Zealand had the highest average manufacturing tariff

rates in the world (Anderson & Garnaut 1987 p.7).

Lewis et. al. (2010) argue that the period of growth from 1950 to the 1970s was

primarily due to external demand, rather than Australias protectionist policies. They

believe that the protectionist policies during this period were overwhelmingly harmful

and created high levels of inefficiency across the economy. For example, any producers

relying on equipment manufactured overseas were disadvantaged by import tariffs,

which increased their overheads and caused them to be less internationally competitive.

They argue that the relative lack of local competition in Australia had also created an

atmosphere in which companies had very little incentive to improve their outputs andcosts, and that it was consumers who shouldered the burden of higher priced goods

within Australia.

Australia Liberalises

In 1973, Britain joined the European Economic Community (EEC) and according to EEC

rulings, it was no longer able to provide preferential trade access to the countries of the

Commonwealth. According to Capling (2005 pp. 13-25), this had serious implications for

Australia. It had lost its benefactor and had little choice but to liberalise. The samefactors that had led to Australias isolation up to 1973 meant that it was henceforth best


17/48

17

able to have its interests met via multilateral trade programs and reductions in

protectionism. In the same year, following the end of the great boom period, the newly

appointed Whitlam government cut all tariffs by 25%. Although the Australian press

immediately lauded the cuts, it subsequently changed its tone. Over the following two

years, political commentators began to attack the policy. Leigh (2002) argues that the

cuts were so politically damaging that they were the catalyst for the Whitlam

Governments defeat in the 1975 general election. Despite dissatisfaction from

manufacturers and the public, tariffs and other forms of protectionism continued to be

reduced over the following decades.

Following Australias trade liberalisation in the 1970s and 1980s, the government began

to take a more active role in multilateral trade via GATT negotiations. In 1986, the Labor

government of Bob Hawke spearheaded the establishment of the Cairns Group. It was

intended to provide a joint body to represent the interests of the worlds agricultural

exporters and to push for agricultural liberalisation via the GATT negotiations. This

group included many developing economies such as Brazil, Chile, Hungary, and Thailand

and also a number of developed economies such as Canada and New Zealand (Meredith

& Dyster 2009 p. 274).

In 1991, in the midst of a recession, the Keating Labor government announced that the

majority of remaining protectionist measures would be reduced to negligible levels by

1996 (Leigh 2002). Despite Australias rapid trade liberalisation, its terms of trade

gradually reduced from the 1970s to the beginning of the new millennium. In other

words, a greater number of exports were required in order to maintain the same level of

imports. However, beginning early in the 2000s, Australias terms of trade improved

dramatically. This was predominantly due to an increase in demand for resources but

also lower import prices and a fall in the value of the Australian dollar (Lewis et. al. 2010

p. 22).

When looking at statistics like terms of trade, Lewis et. al. (2010 p. 22) suggest that it is

important to carefully consider the start and end dates for the data, because otherwise it

is possible to create a distorted picture of the underlying trends. For example, these

statistics do not use data prior to 1960, because Australia was in the midst of a

commodities export boom. Lewis et. al. believe that unsustainable events should not be

included. However, as the rise in terms of trade since the early 2000s have coincided

with Australias resource export boom, which may not be sustainable in the long term,


18/48

18

this logic dictates that these years may also end up distorting the overall trends. This is

something that will only become clear with hindsight.

Conclusion

From federation in 1901 until the 1970s, Australia maintained extremely high levels ofprotectionism. Once the United Kingdom joined the EEC , Australias isolation forced it to

open its borders to trade. From 1973 to the 1990s, a series of governments liberalised

Australias trade policy and via the Cairns Group, it held a disproportionately large

influence in multilateral negotiations such as the GATT. By 1996, when John Howard

took Prime Ministership, Australia was one of the most highly liberalised countries in

the world.

Contrary to expectation, it was the Australian Labor Party (rather than the conservativeLiberal and National parties) that was responsible for each major reduction in trade

protectionism. Although this runs somewhat counter to intuition, Leigh (2002) argues

that the reduction was due to the principles of strong Labor leaders, who believed that

trade liberalisation was necessary in order for Australia to move away from its origins

as a British settlement.

The following chapter analyses free trade policy and discussion in Australia during the

Howard years, from 1996 2007. In order to reflect the changes in policy over this

period, the chapter is structured in a sequential order.


19/48

19

Chapter 4: The Howard Years 1996 - 2007

The First Term: 19961998

A new government brings a shift in focusJohn Howard was voted to power on the 11th of March 1996 as the leader of a coalition

of the Australian Liberal Party and Australian National Party (NAA 2011). Following the

election, Friedman (1996) wrote a piece for the New York Times in which he discussed

elements of Howards campaign:

The conservative John Howard, who heads Australia's Liberal Party, claimed that Paul

Keating's ruling Labor Party, in its zeal to have Australia integrate with the global

economy and become more open to foreign investment, had created a situation in which

Australia's most cherished products were being bought up by global corporations based

abroad (Friedman 1996).

Howard used his apparent dismay that iconic Australian companies such as Arnotts and

Speedo had been sold to companies in the U.S. as a major element of his campaign. This

strategy, Friedman believed, helped Howard to win his first Australian federal election.

It played to the fears of Australians worried about losing their cultural identity and it

indicated that the Howard Government would be a protector of Australian industry.

Although this may have been political populism, real differences between Howard and

the previous government did immediately become apparent. Unlike the previous

government, who had courted the world, the Howard Government did not believe that

liberalisation and making Australia a global citizen were worthwhile ends unto

themselves. This was evidenced by Howards early warnings that any further trade

liberalisation would only be done on the basis of reciprocal concessions (Roberts 1997).

In June, Howards first trade minister Tim Fischer, chaired a meeting of the Cairns

Group, described by the government as an influential force in the agricultural trade

policy arena (DFAT 1996a). By August, however, the government was already

beginning to indicate its frustration with the slow progress of multilateral trade

mechanisms such as the newly formed WTO. In a press release, Fischer flagged his

intention to elevate the priority of bilateral trade relations (DFAT 1996b). In another

announcement, he echoed language previously used by the U.S. and called for

aggressive bilateralism. Capling (2005 p. 42-44) believes that this was somewhat

dangerous because Australia lacked the size and economic power of the U.S., which


20/48

20

meant that it did not have the required levels of influence to support such strong

language.

In November, prior to meeting with U.S. President Bill Clinton, John Howard described

his frustrations with multilateral trade negotiations:

The inefficient producers of primary products get help from their governments, such as

the Europeans and on occasions, the Americans and Japanese as well, and that

subsidised produce is then really dumped into our markets, we lose them [our domestic

producers]. If we were to turn around and do the same thing with some of our

manufacturing exports, we would be in trouble under world trade rules and that is the

unfair and unbalanced world trading scene (Manila Standard 1996).

At around the same time, the Howard government became involved in a trade disputewith the Clinton administration over subsidies given to auto-manufacturing exporter

Howe Leather. Howe Leather is a maker of leather car seats that was beginning to create

inroads in to the US car market via contracts with auto-companies such as Ford.

Following complaints from two local incumbent manufacturers, the US government took

the issue to the WTO. They claimed that subsidies given to Howe Leather via the

Australian Textiles, Clothing and Footwear Import Credit Scheme (ICS) and the Export

Facilitation Scheme (EFS) for Automotive Products gave the company an unfair

competitive advantage that amounted to protectionism (Gionea 2005). At the time of the

complaint, Howe Leather had gained 3% of the US auto-leather market, which was a

significantly lower share than that held by the incumbent companies who made the

complaint (The Nation 1996).

The Howard government accepted these allegations and agreed to remove automotive

leather from the ICS and the EFS by April 1st 1997. This meant that although the

Government would still provide levels of export subsidies to other textiles exporters,

Howe Leather would be excluded. Fischer claimed thatthis was no back down. Its infact a very satisfactory outcome, which is all about maximising jobs in Australia (The

Nation 2006). As compensation to Howe Leather, the Australian Government offered

them a package of loans and grants with a combined value of $55 million. In 1997, the

US again took the issue to the WTO, claiming that the payments were a thinly disguised

attempt by the Australian Government to continue to support Howes export growth by

modifying the form, but not the substance of its export subsidies (WTO 1999 p. 65).

The complaint was partly upheld by the WTO and Howe Leather was advised it mustpay back $30 million in grants. Nonetheless, Howe Leather has continued to grow and


21/48

21

despite a challenging year in 2010, its parent company (Schaffer Corporation) made a

profit of $4.5 million (Business Spectator 2010). This case raises a number of questions

in regards to Australian trade policy in Australia, particularly in relation to the

protection of infant industries. In a little over 10 years, government assistance had

helped Howe Leather to transform from a small domestic player into a major

international competitor with exports worth over $200M (Gionea 2005). This indicates

that infant protectionism can assist companies to grow, but the complaints raised by the

U.S. and the continued growth of the company following the removal of subsidies raises

the question of whether subsidies should have been removed sooner. This case is also

significant in that it gave an early indication of the Howard Governments attitude to

trade policy. At the time of the original decision to remove automotive leather from the

ICS and EFS, Howard described it as a practical resolution of something that was ofconcern (The Nation 1996). Although this could have indicated a commitment to

phasing out protectionist measures, the fact that other textiles manufacturers were not

impacted and that the government subsequently offered Howe Leather $30 million in

new grants revealed early signs of political pragmatism.

In the same year, Australia faced disappointment at the Asia-Pacific Economic

Cooperation (APEC), an organisation spearheaded by former Prime Minister Bob Hawke

in 1989 (APEC 2011). During the Manila Summit, members presented their Individual

Action Plans (IAPs) for the reduction of protectionism. Despite lobbying by Howard,

there was very little movement from major economies such as China, Japan and the US

on the reduction of agricultural protection (Roberts 1997).

Following his first full year in government, Howard was criticised for his weakness in

the Howe Leather dispute and for the lack of progress in the APEC summit. In summing

up Howards first year in Government, the then opposition treasurer Gareth Evans - now

chancellor of the Australian National University claimed that the only outcome of the

Howard Governments attempts at trade and bilateralism was for Tim Fischer to fall flat

on the floor (Evans 1997).

The government warms to trade liberalisation

In 1998, the Howard Government released a report entitled Trade Liberalisation:

Opportunities for Australia, which extolled the benefits of trade liberalisation. It was

launched by Fischer, who said, "globalisation rolls on regardless of what Australia

does. We must press on with liberalisation if we are to take full advantage of the

opportunities globalisation offers (DFAT 1997a). The report argued that Australian

businesses and the population at large all gain from access to competition from


22/48

22

overseas. The report appears to have supported the previous governments position of

liberalisation for liberalisations sake; something that Howard had previously

campaigned against. It could be argued either that this was a change in tactics based

upon changing circumstances, or that Howards earlier language had been based upon

populism and had not provided an indication of his real policy positions.

Later that year, the government released its first major trade policy white paper called

In the National Interest: Australias foreign and trade policy. The report referred to

bilateral, multilateral and APEC strategies, stating: each has a contribution to make.

None offers the only way ahead and all three will be needed if Australia is to improve its

trade performance (DFAT 1997b). Government actions at the time appear to have

largely corresponded with this strategy. Australia held bilateral talks with Mexico and

chaired another meeting of the Cairns Group in June, where Fischer said:

For Australia's part, the major agricultural subsidisers and protectionists should be in

no doubt as to our seriousness in looking to substantial and significant outcomes in the

negotiations, taking us much further along the path established by the Uruguay Round"

(DFAT 1997c).

In the same year, the Clinton Government offered to commence bilateral talks with

Australia but the Howard Government rejected the offer. The reasons put forward

included a desire not to discriminate against other trade partners, particularly in South

East Asia, but also the belief that the US would never open their markets to competitive

Australian exports (Capling 2005 p.41). Fischer spoke of these issues:

'We are still concerned at a number of US market access restrictions, for example in

agricultural goods such as sugar and dairy products, and marine vessels These barriers

have a tangible effect on Australia's export opportunities in the US market" (DFAT

1997d).

Trade policy is debated in an election year

In 1998, Australia became involved in a trade dispute with New Zealand over the

importation of apples. Australia had disallowed the import of New Zealand apples for

fear of the disease fire blight (WTO 2011a). New Zealands Trade Minister, Dr.

Lockwood Smith, accused Australia of using its quarantine laws as a form of

protectionism and claimed that the Australia has a reputation for using its quarantine

laws to block trade access for developing nations (Bell 1998). This dispute continued

for over 10 years and was resolved in New Zealands favour by the WTO in 2010 (WTO

2011a).


23/48

23

In the lead-up to the 1998 elections there was a recession in South East Asia and the One

Nation Party, led by Pauline Hanson, came on to the political scene. Hanson had

originally been a member of the Liberal Party, but prior to the 1996 election was dis-

endorsed due to her controversial views on immigration and the treatment of

aboriginals. In 1998 her newly formed One Nation Party built up a degree of popular

support with a campaign based on anti-immigration and protectionism. John Howard

was criticised for giving Hanson too great a voice, particularly in terms of immigration.

He did, however, argue against her protectionist policies. In June, he said:

Trying to close off our economies from the outside world will cost us jobs and deny our

population improved living standards Exports bring jobs and exports need open

markets. Open markets are a two way street, we cant close ours and expect others to

keep theirs open (New Straits Times 1998).

In contrast to his 1996 campaign against the foreign ownership of brands such as

Speedo and Arnotts, Howard also said he welcomed foreign investment. During the

campaign he claimed that foreign investment is footloose. If its not welcome in one

part of the world, it will go somewhere else and it will take jobs with it (The Nation

1998). Although it could be argued that Howard had separated buy-outs of existing

companies and investment in new companies, it does seem that they are two sides of the

same coin and cannot exist independently.

In late 1998, the Howard Government won the election with a reduced majority, but

Pauline Hansons One Nation Party received very little support. Following the victory,

Fischer said, what is clear tonight is that the anti-trade, racist element of One Nation

has been rejected by the people of Australia (Lynch 1998).

The Second Term: 1998-2001

Trade Disputes and the signs of trouble for the WTO

The first year of Howards second term was marked by a number of major trade events.

These included the appointment of Mark Vaile as the new Trade Minister, a dispute with

the US and WTO negotiations in Seattle.

Within months of his appointment, Vaile re-affirmed the Governments commitment to

multilateral trade but also indicated that bilateral negotiations were on his agenda,

stating:


24/48

24

"The Australian Government has always said we see the successful launch of a new WTO

round at Seattle as a top priority now. But we remain open to examining proposals for

bilateral or regional FTAs with the potential to deliver faster results" (DFAT 1999a).

In July, the U.S. Government imposed a combination of tariffs and quotas on the import

of Australian and New Zealand lamb. John Howard responded by saying, this decision

will damage the prospects of an early and successful WTO trade round. This is a

protectionist decision which sends precisely the wrong signal (ICTSD 1999). In

response, Australia and New Zealand submitted a complaint to the WTO, alleging that

the U.S. was engaging in anti-competitive behaviour that breached the terms of the

GATT. The dispute continued for two years but was upheld in favour of Australia and

New Zealand. Accordingly, the U.S. removed the measures in 2001 (WTO 2011). It was

Australias second major trade dispute with the U.S. in only three years.

In the build-up to the 1999 WTO meeting in Seattle, there was much discussion

concerning the increasing power of the developing nations. This was particularly due to

the work and organisation of the Cairns Group (Crampton 1999). The meeting, however,

was beset by problems. Outside the meeting, approximately 50,000 people massed to

protest against the WTO. The reasons for this were varied and included farmers who

sought a return to protectionism, socialists who wanted an end to capitalism and others

who were concerned about the impacts of trade on the developing world (Levi &Murphy 2006). Inside the meeting, the discussions fared equally badly. There was a lack

of consensus around the goals for the meeting, poor organisation and mediation from

the U.S., and continued disagreements amongst the high-income countries that all

wanted their own interests protected. Furthermore, as predicted, the low-income and

developing countries were much more organised and united. They pushed their agenda

of agricultural reform strongly, which was very different to the agenda of the high-

income nations such as the U.S. and EU (Buckman 2005 pp. 46-47).

Despite these problems, after the meeting Mark Vaile spoke again of Australias belief in

the value of multilateral negotiations: We and other members of the Cairns Group are

strongly committed to these negotiations which will be vital to opening markets for our

farm and services exports", he said (DFAT 1999b).

Australia seeks multilateral reform for agriculture

In 2000, Australia outwardly signalled a continued to focus on multilateral agricultural

reform. Discussing the subject, Mark Vaile said:


25/48

25

Access to markets is an essential element of establishing a fair and market-orientated

agricultural trading system... Average tariffs on agricultural products are more than eight

times higher than tariffs on industrial products and tariffs of more than 300 per cent are

not uncommon. These disparities and high rates must be redressed if there is to be

vastly improved market access opportunities for all agricultural and agri-food products"

(DFAT 2000a).

To this end, Australia increased the resources available for initiating WTO disputes

(DFAT 2000b) and held meetings with the Cairns Group and the EU agricultural

commissioner in Canada. During the meeting, Vaile said:

"Protection and subsidies in Europe and the U.S. pervert the entire basis of the global

sugar market. A global alliance of efficient producers is necessary if we are to achieve

significant reform of the damaging policies that have reduced world prices to crippling

lows and unfairly lowered returns to efficient sugar farmers" (BBC 2000).

At the same time, however, Australia was again being criticised for hypocrisy in terms of

its own agricultural trade policy. The Philippines accused Australia of using its clout to

gain access to agricultural markets around the world, while simultaneously using

unreasonable quarantine measures to block the imports of fruit from countries such as

the Philippines (BusinessWorld 2000).

Australias trade ambitions also suffered a major blow when the Malaysian Prime

Minister, Mahathir Mohamad, vetoed plans for the formation of a free trade agreement

that would unify the Closer Economic Relations (CER) zone of Australia and New

Zealand with the Association of South East Asian Nations (ASEAN). Mahathir Mohamads

reasons for this decision appeared to have been primarily political. In the same year,

Howard had described the jailing of former Malaysian Deputy Prime Minister Anwar

Ibrahim as a reversion to authoritarianism. Mahathir had responded by saying, if you

want to be part of Asia you dont go around giving advise to everyone on how to run

their country (Broinwoski 2003 p.161). It seems unlikely that the two events were

unrelated but the Howard Government had also been accused of putting too few

resources in to its relationships with South East Asian nations, which had led to a lack of

support from the other members of ASEAN (The Australian 2001). Had this not been the

case, Mahathir may have felt less empowered to use his veto powers.

Australia does an about-face, September 11 changes the world and the Doha Round begins

The Howard Government entered 2001, an election year, seemingly headed for a

landslide loss in the polls. Two events changed this decline. The first was the arrival of a


26/48

26

boat of asylum seekers off Christmas Island. Howards handling and canny politicisation

of the affair helped to increase his support amongst Australian voters. After September

11, when terrorists attacked New York City, Howard gained a groundswell of support

and his victory was all but assured (Solomon 2002 p.vii-x).

2001 was an extremely important year for Australia in terms of trade. The Howard

Government had flagged that bilateralism would be a priority since its first year in

office, but it was in 2001 that the focus truly shifted.

In February the Government announced plans to begin talks with Singapore for a

bilateral free trade agreement, the first since Howard came in to power. To sell the plans

to Australia, Vaile said:

"I assured our industries and State and Territory representatives that the Australian

negotiators will take a very hard-nosed approach to ensure that the FTA delivers in the

national interest" (DFAT 2001a).

In April, it was announced that Australia would also be initiating talks with Thailand for

a bilateral free trade agreement (Pearson 2001). Considering the failure of the planned

free trade agreement with ASEAN the year before, these plans were not unexpected.

The most significant change in Howards trade policy came in the form of a request from

John Howard to the United States, to discuss a bilateral free trade agreement. Mark Vaile

formally announced the plans in a press release prior to a planned visit to the United

States:

"My discussions will focus on a number of important trade issues including the

importance of an active US commitment if we are to secure the launch of a new World

Trade Organisation (WTO) round of global trade negotiations later this year I will also

discuss prospects for the negotiation of a bilateral Free Trade Agreement with the US

and address a number of important bilateral trade issues" (DFAT 2001b).

This announcement was surprising because less than four years earlier, the Howard

Government had rejected approaches from the US Government for a free trade

agreement. The majority of reasons that had existed at the time remained, including the

fact that the U.S. was not expected to open their markets to Australias most competitive

exports. So what had changed? According to Colebatch (2001), the main reason was

political. The U.S. had recently gained a new Republican government that aligned much

more closely with Howards conservative coalition. Indeed, statements made by Howard

support the contention that trade was only part of the purpose for his decision to


27/48

27

approach the U.S. He was hoping to ensure that Australias place as a special partner of

the U.S. was solidified and he considered that a free trade agreement would be the best

way to achieve it (Colebatch 2001). Howard also may have felt that Malaysias rejection

of the CER-ASEAN free trade agreement liberated the government from previously held

loyalties to regional partners.

At this time, Australia also appeared to moderate its criticisms of U.S. agricultural policy.

In July, Vaile endorsed findings that showed that the EU and U.S. had met their WTO

export subsidy commitments in a disingenuous way, by moving the support payments

into other exempt categories. He said:

"The Australian Government is fully alert to the loopholes in the existing rules. I am

committed to closing these off to help ensure future access to international markets by

Australian farmers cannot be white-anted by shuffling subsidies between programs

(DFAT 2001d).

By September, however, the government was praising the U.S. for their agricultural

performance, describing them as a natural partner for the Cairns Group. Vaile said:

Like the Cairns Group, the United States is calling for an ambitious negotiating outcome

which would result in fundamental agricultural reform. We had a positive and active

discussion with them on the ways to build on the congruence of our interests in the lead-

up to Doha (DFAT 2001d).

Other than Australias newfound political relationship with the U.S., it is unclear what

had changed between July and September to prompt this praise. But within days of

Vailes second statement,the events of September 11 caused Australias path to be tied

to that of the United States for many years to come. John Howard was in the United

States on the day of September 11th, and by coincidence he was due to address Congress

the following day. Howard immediately pledged Australias support to the U.S. in its

war on terror and committed to stand by it to fight for the two countries shared

values (Solomon 2002 p.110). In the final months of 2001 a new round of WTO

negotiations was announced in Doha and the Howard Government was re-elected to

Government.


28/48

28

The Third Term: 2001-2004

Australia tries to get tough

In 2002, Howard travelled to Europe for a series of meetings with government agencies

and business leaders. While in Germany, he discussed agricultural reform within the EU.

To make his point, he appealed to the Europeans sense of justice:

But might I gently remind you that by a factor of three or four the removal of trade

barriers would do far more to assist the developing countries than all of the foreign aid

that is now provided to them by the developed world, so the cause of trade reform is not

something that an Australian Prime Minister takes up only in the interests of his own

country (Howard 2002a).

In stark contrast to Howards calls for agricultural reform, in the same year the U.S.

Government announced that they would be implementing further agricultural

protection via legislation known as the Farm Bill. Officially titled the Farm Security and

Rural Investment Act(FSRIA), it provided approximately US$100 billion in subsidies to

American farmers (DFAT 2002a). The US House Agriculture Committee described this

bill as important to national security, ensuring safe, abundant and affordable domestic

food supply. It continued:

critics of US farm policy would cede our production to unstable places like the third

world, but in these times, does any American want to depend on the third world for safe

and abundant supply offood and fibre (Orden 2006 pp.80-81)?

This language spoke of flagrant protectionism. Mark Vaile said that the actsends bad

signals to the global economy about the U.S. willingness to reform their agricultural

trade policies (DFAT 2002a). Later, using stronger language he said:

U.S. farmers are simply producing too much of the wrong product at a price that the

market wont pay because production decisions are driven by subsidy programs rather

than what the market wants. On top of this, the sheer size of U.S. Farm expenditure at

more than $US180 billion over the next decade means that U.S. farm policy will hurt

farmers around the world particularly in developing countries. The U.S. action also

sends a negative signal about the U.S. ability to assume a leading role in the global trade

negotiations which were launched in Doha last November. Many countries must now be

questioning why they should open up and deregulate their economies when the U.S.

clearly has no appetite for reform (DFAT 2002b).

In an address to the U.S. Congress, John Howard himself broached the subject using less

forceful language:


29/48

29

As a true friend let me say candidly that Australia was disappointed with the passage of

the recent Farm Bill. It will damage Australias farmers. They are efficient producers

with very little government support. I know that the farm and export subsidies of, for

example, the European Union are much greater than those of the United States. Indeed,

OECD agricultural subsidies are two-thirds of Africas total GDP. The cost of these

subsidies is three times all the ODA to developing countries. This only serves to illustrate

the urgent need for global reform of agriculture within the World Trade Organisation

framework (Howard 2002b).

However, the impact of this message was weakened when immediately following the

rebuke Howard advocated the mutual benefits of an Australia-U.S. free trade agreement:

At the same time, we in America and Australia have an historic opportunity to give even

greater momentum to our bilateral economic relationship. That is why Australia hasproposed the negotiation of a free trade agreement between our two countries

(Howard 2002b).

Australia had been a vocal proponent of agricultural reform up until this time, and

earlier in the speech Howard had criticised Europe and the United States for

protectionism. It seems strange that immediately following these criticisms, Howard

raised the benefits of a free trade agreement with a country that had only just passed a

protectionist measure as significant as the Farm Bill. The then Opposition Leader, Simon

Crean, accused the government of forsaking any claims to regional leadership by

focusing its attentions purely on the U.S. He said, with bilateralism as its only policy

tool, the Howard Government has been excluded from the emerging dynamism of

regional integration (ABC 2002).

The Government also faced further accusations concerning its own agricultural trade

credentials. With a similar complaint to New Zealand and the Philippines in previous

years, East Timorese Foreign Minister Jose Ramos Horta accused Australia of using

quarantine as a form of protectionism (Stekette 2002). He claimed that quality control

and quarantine are major protectionist barriers that rich nations put in place to protect

their farmers against producers from the developing world (Steketee 2002).

Regional trade deals are signed and Australia goes to war

In April 2003, the Howard Government achieved its first bilateral success: the signing of

a free trade agreement with Singapore. The deal was announced in a joint press release

by the Australian and Singaporean Trade Ministers, but received little press attention

(DFAT 2003a). On economic grounds, the deal was fairly ineffectual. The removal of

trade barriers between the two countries did serve to increase economic welfare in both


30/48

30

countries, but by less than US$18m for each country (Siriwardana 2006). Politically,

however, it did signal that Australia could successfully negotiate a free trade agreement

with a South East Asian partner.

The deal was greatly overshadowed by the fact that one month earlier the U.S., and withthem Australia, had declared war on Iraq. Howard was forced to publicly deny that

Australias involvement was related to his hopes to achieve a free trade agreement with

the U.S. When questioned about it, he said:

The American economy in the long term will be tremendously important to Australia ...

and that's the reason I am going for a free trade agreement, but I am not trading support

over Iraq for a free trade agreement" (The Age 2003).

In an address to think tank, the Sydney Institute, Howard said:

In this 'age of terrorism', it is essential in our national interest that we further build and

strengthen Australia's links with all the major centres of global power and influence"

(Grattan 2003).

The focus of this policy was the U.S. and concerned all aspects of the Australia-U.S.

relationship. According to Grattan (2003), under Howard, Australia will follow the

U.S. wherever it takes us - and, in present circumstances, it seems likely to take us

wherever it goes. As a result of Howards willingness to support the U.S., Australia was

awarded a lead role in the redevelopment of Iraqs agricultural sector. Former

Australian Wheat Board executive Trevor Flugge, who was later ensconced in the Iraq

Food for Oil scandal (Volker 2005), was appointed to head the operation.

At the same time, Australia continued to avoid criticism of the agricultural trade policies

of the United States. For example, when calling for international trade reform, Mark

Vaile said:

"The lack of progress is a clear indication of the lack of ambition from the European

Union, Japan, Korea, Switzerland and their allies in these negotiations. Mr Harbinson's

efforts have been hampered at every turn by the opposition of these Members to

genuine reform of agriculture and their refusal to seriously engage in discussions

(DFAT 2003b).

The fact that the U.S. was not one of the countries named by Vaile, despite the recently

implemented Farm Bill, contrasts sharply with criticisms that were consistently levelled

by the Australian Government in previous years.


31/48

31

At the same time, the EU began its own criticisms of Australias trade policies, accusing

the government of hypocrisy. It complained to the WTO that Australias quarantine laws,

including a review process that took over five years to assess new agricultural imports,

were a form of protectionism. The EU Commissioner for Trade, Pascal Lamy, argued that

Australias quarantine system "flagrantly breaches WTO rules,

despite Australia's claims to be the only beacon of free agricultural trade" (Colebatch

2003).

In late 2003, Australia announced a bilateral trade agreement had been signed with

Thailand. John Howard described it as:

a demonstration of the spirit of co-operation in the region and the closeness of our

two societies We've got something here which is money in the bank, a trade agreement

signed after 18 months of very progressionally focused work . . . that is going to provide

jobs for Australians and exports for Australian industries" (Gordon 2003).

Like the free trade agreement with Singapore, this deal was considered a minor

achievement. The media continued to focus on the negotiations of a free trade

agreement with the U.S. and Kevin Rudd, then opposition spokesperson on Foreign

Affairs said:

John Howard happily boasts about the benefits to Australia from a free trade agreement

with a relatively small economy like Thailand, but what does John Howard have to say

about the discriminatory free trade agreements between China and all of South-East

Asia, which excludes Australia (Letts 2003)?

This was, however, the Howard governments biggest achievement in terms of economic

benefit from a bilateral free trade agreement. Due to the high levels of protectionism

imposed by Thailand prior to the agreement, Siriwardana (2006) estimates that the net

economic welfare gain for Australia from this deal was US$719 million. These benefits

were particularly felt amongst Australias agricultural sector. Despite this, Siriwardana

estimates that the deal had an impact on Australias GDP of only 0.2%.

The Australia-US Free Trade Agreement

In early 2004, negotiations for the Australia-U.S. Free Trade Agreement (AUS-FTA) were

completed. The final offer from the U.S. included significantly less than had been

expected by the Australian negotiating team. They recommended that the deal should be

rejected (Capling 2006 p. 177). In contrast, the US team of negotiators were in a jubilant

mood. The head negotiator for the United States, Robert Zoellick, told senators thatPresidentGeorge Bush had been unmoved by Howards appeals for greater access for


32/48

32

Australian agricultural producers and had boasted about the limited gains in

agricultural access won by Australia; particularly in relation to sugar and dairy

(Eccleston 2006 p. 177).

Howard, who believed that a flawed agreement was better than nothing at all, made thedecision that the agreement should go ahead (Capling 2005 p. 73). Vaile announced the

deal in May, describing it as:

"overwhelmingly in the Australian national interest This deal will further integrate

the Australian economy with the largest and most dynamic economy in the world,

delivering lasting benefits for generations of Australians" (DFAT 2004a).

Capling (2005) and Davis (2008), however, both argue that the deal did not represent

the interests of Australia. The primary reason for this criticism was that key Australian

industries were either excluded from the deal entirely or only gained limited

improvements in access to U.S. markets. These included the sugar industry, which was

excluded completely; the beef industry, which only received limited benefits; and

Australias fast ferry industry, which is one of the best in the world but was also

excluded.

At the time the deal was signed, Dusevic (2004a) described it as an almost free trade

agreement, but pointed to hundreds of minor concessions that he believed wouldpotentially create significant benefits for Australian industry. The head of the Sydney

Institute Gerard Henderson (2004) also defended the deal, claiming that it made

Australia the envy of the world. He argued that any industries that were excluded from

the deal would not be adversely affected by it, but that without the agreement, many

other industries would miss out on substantial market opportunities.

When Siriwardana (2006) analysed the deal two years later, he found that Australia

stood to gain a net increase in economic welfare of US$574 million and that the U.S.

stood to achieve gains of US$1082 million. This figure is significantly lower than the

A$4Bn annually that the Government predicted the AUS-FTA would bring (Dusevic

2004b). When University of Sydney academic Rodney Tiffen (2010) examined the AUS-

FTA five years after its implementation, he concluded that the deal had not offered any

significant economic benefits to Australia. In fact, the trade imbalance between Australia

and the U.S. nearly doubled in the five years following the agreement, while the volume

of exports increased by only 2.5%.


33/48

33

Despite disappointment with the terms of the offer, support for the deal gained bi-

partisan approval. Then leader of the Labor Party, Mark Latham, was unwilling to

terminate the agreement, but he did successfully enforce two changes. These included a

requirementto maintain Australian televisions local content rules and an amendment

to the rules around the Pharmaceutical Benefits Scheme (Capling 2003 p. 75).

In October 2004, Australia held a federal election. The Howard Government was elected

for the fourth time. Australia, said Howard, was heading towards "a new era of great

achievement" and could achieve "anything it wanted" (Walsh 2004).

The Final Term: 2004-2007

Discussion of an Australia-Japan Free Trade Agreement

In 2005, Australia and Japan began a feasibility study to investigate the merits of a free

trade agreement. Mark Vaile said that this feasibility study is great news for

Australia this is an excellent opportunity for us to elevate our bilateral relationship

and explore ways to deepen our economic linkages (DFAT 2005a). When the media

questioned Howard about the talks with Japan, he downplayed them, saying, I just

think we get too hung up with the free trade (agreements). They have a certain ring but

you've got to look at the substance of relationships" (Grattan & McDonald 2005). Japan

was Australias largest export destination in 2005, accounting for more than twice the

volume of exports than the U.S. (DFAT 2008). So why was Howard less bullish in his

discussion of this deal? It is possible that he had become more wary following the poor

outcome of the AUS-FTA, or that the plans for a free trade agreement with Japan offered

fewer political benefits.

Davis (2008 p.302) argues that Australias free trade negotiations with the United States

were only part of a greater shift in policy whereby the country reverted to relying upon

an imperialistic benefactor - something that had not been the case since Australia had

broken away from the UK in the 1970s. In this case, the motives behind the AUS-FTA

may have been political, with the goal of free trade relegated to a secondary

consideration. In contrast, Tinney (2009 p. 61 - 62) argues that Australia s shift in trade

policy towards bilateral agreements - and thus the U.S. - was simply a reaction to the

challenges facing the WTO and other multilateral agencies.

Indeed, by 2005 the Doha Round of WTO negotiations had seen little progress. Despite

this, Vaile continued to talk of Australias commitment to the process:


34/48

34

Agriculture remains at the centre of the Doha Round and Australia will continue to push

for an ambitious outcome that will see real reductions in domestic farm subsidies, cuts

to tariffs that keep efficient producers like Australia out of lucrative markets and an end

to export subsidies a soon as possible" (DFAT 2005a).

Vaile also called on the United States and the European Union to reduce protectionism

on agricultural trade. In a compelling statement, he said:

Rather than giving the worlds poor the money to buy wheat, it is time we gave them the

technology to grow it and the level playing field to sell it into. We must ensure that

developing countries have access into the wealthy markets of the world so they can sell

what they produce. A World Bank analysis estimates that a level playing field on trade

would lift 140 million people out of poverty. Australia is leading by example. We have

given 50 Least Developed Countries tariff free access to our own market and wecontinue to push, through the Cairns Group of agricultural exporting nations, for a

successful conclusion to world trade talks (DFAT 2005b).

Despite this strong language, developing nations have long complained of difficulty in

accessing the Australian market due to the tough quarantine laws. Indeed, of ten

complaints to the WTO against Australia, six have related to Australias quarantine laws

(WTO 2011c).

A decade of the Howard GovernmentIn 2006, the Howard government celebrated a decade of power. During that period,

Australia had transitioned from a country focused on multilateral trade agreements to

one focused primarily on bilateral deals with a select number of partners. Howards first

Trade Minister, Tim Fischer, described this as aggressive bilateralism but academics

such as Capling (2005 pp. 42-44) argue that this shift in policy was bound to be

unsuccessful. She believes that Australias small size and trade volume resulted in an

inability to negotiate with its larger trade partners at an equal level. Any bilateral

negotiations with these partners, she believed, would simply result in agreements that

were skewed in favour of the other partner.

Conclusion

In November 2007, after eleven years as Prime Minister, John Howard was voted out of

Government. The Labor Party, led by Kevin Rudd, won the election by a comfortable

margin and Howard became the first sitting Prime Minister to lose his own seat since

1929 (Qvortrup 2008).


35/48

35

Davis (2008 p. 307) argues that not only did focus on its relationship with the U.S. bring

little benefit to Australian producers but that the acceptance of a flawed free trade

agreement with the U.S. actually harmed Australias ability to negotiate on the world

stage. As evidence, he refers to the factthat the Group of Twenty, or G20, a bloc that

represents developing nations interests in agricultural trade, largely replaced the

Cairns Group. Where Australia had once spearheaded discussions surrounding the

liberalisation of agricultural trade, it was now essentially locked out.

Of the three bilateral free trade agreements negotiated by the Howard Government, only

the Australia-Thailand Agreement could be called a success. In 2007 when Howard was

voted out of office, Australia had begun neg

Documents

Dissertation - Free Trade Rhetoric or Reality v1.0