Views divided on effects of Australia-US deal

By BRIAN FALLOW, economics editor

The meagre results of Australia's free-trade agreement with the United States as far as agriculture is concerned have come as both a relief and a disappointment to New Zealand exporters.

The relief is that there would seem - details are sketchy - to be little risk of New Zealand being crowded out of US markets by Australian competitors.

The disappointment is that if this is the best Australia could do, New Zealand cannot expect to do much better should it ever get to negotiate an FTA with the United States.

Trade Liberalisation Network executive director Suse Reynolds said Australian agricultural producers got only crumbs from the Americans.

"This is disappointing because the prospects of New Zealand getting better access in the event of its negotiating an FTA with the US are slim. The total omission of one agricultural sector [sugar] and the low level of ambition on the others sends terrible signals to other Northern Hemisphere protectionists, effectively legitimising their stance. And it lowers the level of ambition for agriculture in the Doha Round," Reynolds said.

The Australians secured a gradual increase in their annual beef quota, starting at 15,000 tonnes (a 4 per cent increase on their current 378,000 tonnes) and increasing to 70,000 tonnes over 18 years.

The initial increase represents about 1.6 per cent of US imports and equates to only 0.17 per cent of US production, US Trade Representative Robert Zoellick said.

New Zealand's quota is 213,000 tonnes.

Australian exports within the quota will be relieved of the current tariff, 4.4USc a kilogram, saving about US$16.6 million ($23.9 million) a year, but reducing the prohibitive tariffs outside the quota would not begin for nine or 10 years.

After 18 years they would be gone completely, allowing unrestricted access to the US market.

Meat Industry Association chief executive Caryll Shailer said that in the absence of more detail it was hard to be sure how material these concessions were, but the interim conclusion was: not very.

Australia normally struggled to fill its existing quota and the reduction in the in-quota tariff might well be captured by US importers rather than Australian farmers, she said.

Australian exports of lamb and other sheepmeat to the US (some 30,00 tonnes a year) will be relieved of the low tariffs they currently attract - 0.7c a kilo for lamb and 2.8c for other sheepmeat, a saving of US$200,000.

Like Reynolds and Shailer, Fonterra's general manager (government and trade policy) Philip Turner welcomed the agreement on the grounds that it was a step towards freer trade and was therefore a good thing. But while the Australian Government is trumpeting an increase in access to US dairy markets, that increase is off a low base.

Australia's dairy exports are currently worth about A$40 million ($44 million) a year compared with New Zealand's $750 million.

Its quota will nearly treble in year one (boosting the trade by around $55 million) and by an average yearly rate of 5 per cent thereafter.

Turner said that until more details were forthcoming it was impossible to gauge the impact on New Zealand dairy farmers. But there should be some benefit via Fonterra's 50 per cent stake in Bonlac in Australia.

While there was no commitment to eventually remove trade barriers for dairy products, unlike beef, the dairy sector had at least fared better than the sugar industry, which got nothing, he said.

Professor Robert Scollay of Auckland University's Apec study centre said the Australians had done well to gain access to the jealously guarded US Federal Government's procurement market, worth around $300 billion a year.

It was disappointing insofar as Australia's gains in agricultural access were likely to cap any that New Zealand might expect in the event of a bilateral agreement.

But it was unrealistic to have expected the US to concede much on agricultural access when it faces negotiations with such major sugar exporters as Brazil and Thailand, and such major beef exporters as Brazil and Argentina, Scollay said.

Economists have struggled to put any meaningful figures around another potential impact of a bilateral deal between Australia and the United States - the diversion of investment from New Zealand to Australia to take advantage of tariff-free access for some 97 per cent of Australian manufactured exports to the US.

While some effect at the margins can be expected, trade barriers are already generally low, averaging 2.8 per cent, and other factors come into such investment decisions such as tax rates, labour costs, regulatory regimes and the size of the domestic Australian market.

The deal

AUSTRALIA GETS

* Open access to the US beef market - in 18 years.

* A small and slowly increasing lift in its beef quota in the meantime.

* Improved access for its modest dairy trade with the US.

* Duty-free access for sheepmeat, horticultural products and seafood.

* Duty-free access for almost all its manufactures.

* Nothing for the sensitive sugar industry.

THE UNITED STATES GETS

* No tariffs on 99 per cent of its manufactured exports to Australia.

* Most investments escape screening by the Foreign Investment Review Board.

* Duty-free access for all agricultural exports.