The final round of the US-Australia free trade agreement negotiations restart tomorrow in Washington with the negotiating teams now lead by Cabinet members on both sides. The talks were stuck, last week, on the liberalization of agricultural trade: particularly beef, dairy, sugar, peanuts and some horticultural products. The hope on the Australian side is that President Bush will direct his Trade Representative to agree on elimination of barriers to these products—probably over a decade or more—to allow the conclusion of a comprehensive agreement. If there is not a comprehensive free trade plan then both sides might have to back away: neither wants to set a precedent for a plan that does not include free trade in agriculture. That would further weaken their common demands for global liberalization of farm trade in the WTO negotiations. The politics of import liberalization in the US farm sector is complicated by the variable tendency of Congress over many decades to provide US farmers with soft options when they should have been adjusting to competition. Farm subsidies and, to a lesser extent, import protection have kept many dairy, cotton, sugar, peanut and lamb farmers in business when global market prices told them they should have been moving on to more profitable crops or out of farming entirely. In a global round of trade negotiations the pain of adjustment to lower US import barriers will be reduced for many of these farmers because global farm trade liberalization will “lift world prices(link to results of Iowa State-INA model: PDF file about 60k)”: for dairy, sugar, oilseeds, wheat and cotton and probably for US beef and lamb, too. Imports will enter the US market at prices much closer to current US prices than to the current (lower) world price. None of these compensations accompany a US-Australia bilateral trade deal.

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