Negotiations for a Free Trade Agreement (FTA) with the US are in early stages. Nonetheless, Australian farmers should not become complacent and leave voicing their concerns until an FTA is well under way. Australian political leaders have stated that they will not abandon Australian farmers; but their record to date with deregulation of domestic rural industries suggests that it could be foolish to depend upon politicians' promises.
We can be assured that US politicians are making the same noises over there. The problem is that US farmers are experienced in these matters and will have positions well prepared and argued. They already operate within NAFTA and are currently involved in free trade agreement discussions with the Americas (FTAA). NAFTA is the model Australian farmers should use to anticipate the direction negotiations could take. For example NAFTA, and most other bilateral FTAs, follow WTO rules on agriculture. Australian farmers need to become very familiar with the WTO Agreement on Agriculture.
A phased-in reduction and eventual elimination of tariffs on a range of agricultural products is the goal. Export subsidies are prohibited on products moving between signatories to NAFTA; but are legitimate in competition with NAFTA partners chasing third-market sales.
Non-tariff border mechanisms are not generally prohibited. This means that domestic supply management schemes based upon quotas remain. It is interesting to note that recently Mexico announced a 98.8 per cent safeguard tariff on US chicken legs and thigh meat. It will be in place for six months. Running concurrently is a 50,000 tonne duty free quota. Canada has insisted on exemption from tariff reduction programs for poultry, milk and eggs. That is not good news for Australian beef exporters who seem to expect removal of existing quotas and penalty tariffs as almost a certainty.
The interesting point to note is that FTAs carry few constraints on domestic support to agriculture. A fundamental reason for this could be that despite the posturing of politicians, international treaties and agreements are still subject to underlying Constitutional Law of participating countries. The broad power to formulate domestic policy should not be diminished by an international treaty.
There are recognised and accepted reason why nations are unwilling to embrace free trade with the same enthusiasm as Australia. Self-sufficiency and national security are the most important reasons. Nations are unwilling to abandon domestic agricultural industries on the altar of free trade ideology. The ability to feed themselves is valued by nations involved in past wartime food shortages. These troubled times no-doubt refresh memories.
Agricultural protection is often supported based upon the knowledge that agricultural price fluctuations are greater than in other areas of trade whilst domestic industry costs are fixed. Unless supply is managed to stabilise prices, one bad year can mean disaster for large numbers of farmers. International unfettered price instability and consequently rural dislocation is not an acceptable situation for many modern nations
As technology releases more and more workers from agriculture, an important role for agriculture as a social good has emerged. Agricultural support becomes important in an effort to hold people and land in agricultural production to avoid proliferation of ugly polluting industries in rural settings, or blighting of the countryside with unattractive industrial and commercial towns.
Some relevant important concerns of US Cattlemen over an FTAA
The US cattle industry has a powerful Ranchers-Cattlemen Action Legal Fund lobby group monitoring trade and legislative issues on behalf of its constituency. They have already posted a detailed submission on the internet outlining concerns over the proposed FTA with the Americas ( FTAA). Some important issues for Australian cattlemen can be found in their official prepared comment on the proposed FTAA. Some of the issues raised will be relevant to any FTA with Australia.
Strong views are held on continuance of domestic support measures for agriculture. They want to see eliminated support programs that encourage increased production of beef that will damage the fragile balance between international demand and supply. Australia's efficiency and productivity philosophy and relentless export mentality could be in for some overdue scrutiny.
Because of small margins in agricultural production, they seek continuance of tariff rate quotas and special safeguard provisions using WTO principles. They argue for a minimum price system through supply and quality management to stabilise price volatility. An important point is the retention of the Capper-Volstead Act that allows limited exemption under anti-trust legislation so farmers can form agricultural cooperatives. Furthermore they argue for the extension of the Capper-Volstead concept to all FTAA countries. How will this sit with Australian Competition Legislation and the ACCC stance on cooperatives?
Another point of interest is the US concern over domestic market power in the hands of the highly concentrated processing sector. In 1999, legislation was passed for mandatory reporting of prices paid by packers. This legislation was designed to promote a "fair market price" by making public traded prices. Producers can then compare price differentials among packers. How will Australia respond to this legislation designed to counter anti-competitive behavior and undue market power?
Ben Rees is both a farmer and a research economist. He has been a contributor to QUT research projects such as Rebuilding Rural Australia. Over the years he has been keynote and guest speaker at national and local rural meetings and conferences. Ben also participated in a 2004 Monash Farm Forum.