THE ECONOMY - Free trade with the US: the downside

Should Australia sign a free-trade agreement with the United States? No, says John Quiggin, because it will mean accepting US terms on sensitive matters such as copyright and pharmaceuticals. ON ONE point at least, supporters and opponents of the proposed free-trade agreement with the United States are agreed. The description of the proposed deal as a free-trade agreement is a misnomer. Critics focus on what is missing from the agreement, namely any action to offset the effects of the set of production subsidies and export subsidies generally referred to as the Farm Bill. Although some concessions may be made with respect to import quotas, there is no serious prospect that the Farm Bill will be repealed or modified in such a way as to eliminate its adverse impact on Australian farmers. Other critics point out that bilateral agreements tend to undermine the impetus for multilateral agreements that might lead to genuinely free trade. Modelling based on this assumption yields the conclusion that a bilateral FTA will reduce Australian economic welfare by as much as 1 per cent of GDP. For supporters, the term free-trade agreement is a misnomer because it understates what is being proposed. They prefer terms such as ‘economic integration agreement’ or ‘free market agreement’. In general, an integration agreement involves the adoption of common, or at least compatible, economic policies on a wide range of issues, including intellectual property, public ownership of infrastructure, and competition policy. However, ‘integration’ is a misleading term in the context of a bilateral agreement between Australia and the US. It is clear that any agreement will involve Australia adopting American institutions and not vice versa. Copyright laws provide one important example. A recent Act of Congress extended the term of copyright protection from 50 years after the death of the author to 70 years (95 for corporations). This act, the product of lobbying, was condemned by a wide range of economists for tipping the balance too far in favour of the monopoly rights associated with intellectual property. Australia still has the term of copyright fixed at 50 years after the author’s death and publishers interested in making public-domain works accessible to the general public are increasingly taking advantage of this. There can be little doubt that the negotiating demands of the US in any agreement will include an extension of our copyright terms. The agreement recently negotiated with Singapore required a minimum copyright term of 70 years, but set no maximum. Similar points apply to the pharmaceutical benefits scheme. The submission of Austa, the main business lobby for a US FTA, to the Senate inquiry into the FTA denies any intention to ‘dismantle’ the scheme, but notes, ominously, that ‘there are features of the scheme that discourage investment by drug companies in Australia. Austa supports measures in the FTA which encourage more investment and job growth in Australia’. It is safe to conclude that the features seen as discouraging investment and job growth are the same ones that provide Australians with access to affordable drugs. Ultimately, as Austa clearly recognises, the case for deep economic integration with the US rests on the assumption that the American ‘new economy’ and the associated economic and social institutions are superior to the ‘old economy’ and ‘old society’ of Australia. However plausible this claim may have seemed two or three years ago, it looks unconvincing today. Professor John Quiggin is an Australian Research Council Senior Fellow based at the Australian National University and Queensland University of Technology. His web site is at http://www.uq.edu.au/economics/johnquiggin and his weblog is at http://mentalspace.ranters.net/quiggin. This article originally appeared in the Australian Financial Revie