TCS Daily

Against the Current

By Alan Oxley - July 22, 2004 12:00 AM

Election campaigns generate a political form of electrolysis. Instead of an electrical current separating anything it runs through into positive and negative ions, an electoral current separates attitudes to issues along partisan lines. Usually nothing escapes. But last week Congress found an issue not divisible by partisanship. It was the Free Trade Agreement with Australia, which both houses of Congress passed by a record vote. This was remarkable in a Presidential election year, particularly since trade is a traditional whipping boy in national politics in America.

America has prospered mightily from trade. But many members of Congress, in recent times almost half, vote with minority and sectional interests who claim to be hurt by trade, despite the broad gain to society at large of trade. This occurs on both sides of politics, although more Republicans support free trade than Democrats. And populists relish taking aim at trade. Ross Perot famously (and fatuously) pronounced that the North American Free Trade Agreement (NAFTA) created a great sucking sound as American jobs were drawn to Mexico. It was a great political illusion.

It's election time and the Democrats claim to hear the sucking sound again. This time the cause is outsourcing. Ever ready to paste his anti-globalization mantra -- free market economies can not create enough new jobs; government intervention is necessary -- to another political wall site, Nobel laureate Joseph Stiglitz promptly attested to the claims. And despite Department of Labor statistics showing the job losses from outsourcing were negligible and that the sucking sound was an aural mirage, the Kerry camp nonetheless lapsed back to the old contention that trade exported jobs.

There were plenty of interests to appease -- shrimp farmers in Georgia, cotton producers in North Carolina and furniture manufacturers across the States, all complaining about cheaper products from Asia. "China cheats" is today's anti-trade call, repeated by members of Congress and Senators from states producing cotton and manufacturing clothing. Wal-Mart and food processors who buy garments, shrimp and furniture do not agree. They know American consumers value quality and well-priced products, no matter the source.

The idea that people are better off buying of cheaper, imported products rather than more expensive equivalent products made at home is a hard sell, despite the reality that high income economies which utilize high technology do not produce equivalent products to those from low income economies.

So while members of Congress pander to local and regional interests, rather than the national interest (James Hoffa from the Teamsters ludicrously denounced the FTA with Australia because it did not legislate to entrench labor rights) now and again national interest carries the day. The FTA with Australia is a model win/win FTA. The National Association of Manufacturers in Washington declared the agreement will expand exports for US business by three billion dollars. An Australian economic research group in Canberra, the Centre for International Economics, estimates the gain to Australian GDP over 20 years to be over six billions US dollars. The numbers underestimate the gains. The dynamic effect of opening markets cannot be mapped. Once a business considers it has a future, it steams on. The key take out from the Australia-US Agreement is that both the US and Australia gain.

This is how it should be. The United States and Australia are two of the most modern and most open economies in the world. Economists describe Australia as a smaller version of the US. Make it as easy for business to operate in one country as the other, and everyone gains.

Undoubtedly the strong vote in Congress for the FTA reflected general political support for Australia as one of the staunchest allies of the US and a founding member of the "Coalition of the Willing" in the war against terror. Nevertheless, the FTA is the most important pact negotiated by the US since the conclusion of NAFTA. It expands the free trade area around the US economy as measured by trade and GDP by a greater amount than that added to the EU by the recent accession of 10 countries. While the WTO flounders about trying to incrementally reduce global trade barriers, Australia and the US have demonstrated how countries can act decisively in their common interest. The FTA was negotiated in just over 12 months.

A general election is expected soon in Australia and political electrolysis has occurred there as well. Despite the palpable advantages of the FTA to Australia, its Labor opposition party is threatening to hold the agreement up in the Australian Senate, bowing to unfounded complaints from sectional interests that the FTA will increase costs of healthcare, despite passage of the FTA in the representative lower house of parliament. Few believe it will block passage of enabling legislation. Polls show a strong majority of Australians favor the agreement and political analysts agree the Labor Party cannot afford to be seen to be cool towards the US.

This is one of those notable instances where the hubris of politics simply cannot overcome the reality of the common good. But politics has had its effect. The politics of trade today demand loud criticism of free trade agreements from sectional interests. It will be up to the historians to record the importance of this FTA.

Alan Oxley writes on trade for Techcentralstation and was formerly Australian Ambassador to the GATT (the predecessor of the WTO).


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