Trade deal sweet without sugar
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US Trade Representative Robert Zoellick announces the new free trade pact with Australia as Mark Vaile looks on.
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SYDNEY, Australia (CNN) -- The United States and Australia have concluded a free-trade agreement, eliminating duties from virtually all trade between the two countries but keeping some crucial sectors protected.
U.S. trade negotiators successfully rebuffed Australian demands to open up the America sugar market, while Australia was able to keep its pharmaceutical benefits scheme that has been criticized by U.S. drug companaies.
The deal sidesteps the long-running impasse on sugar created by American farmers lobbying against opening their domestic market to Australian competitors.
It came only after U.S. President George W. Bush and Prime Minister John Howard spoke at the weekend about the need to finalize an agreement.
On Monday, Howard told Australia's Nine Television Network that he knew Australian sugar farmers would be disappointed.
"It would have been against the national interest to give up a deal that is going to be of enormous benefit for the rest of the economy because we couldn't get something on sugar," he said.
Australian Trade Minister Mark Vaile was also forced to defend the exclusion of sugar, saying the overall deal was worthwhile without it.
"The agreement delivers real and tangible and bankable results for both countries," he said.
Only two weeks ago, Howard and Vaile were saying that excluding sugar from the agreement would be a deal-breaker.
Howard told reporters in Canberra on January 25 that a free trade agreement was "not worth signing" unless Australia got concessions on agriculture.
About 97 percent of Australian manufacturing exports, totaling nearly Aust. $6 billion ($4 billion) a year, would become duty-free once the agreement takes place, Vaile said Monday.
The agreement also phases out U.S. tariffs on Australia beef over 18 years, leading eventually to free trade in that sector.
With President Bush facing a potentially tough re-election this year, and sugar producers firmly opposed to any cuts in their import protection, U.S. negotiators rebuffed Australia's demand for more market access for one of its main farm exports.
U.S. sugar producers fear opening the U.S. market to more Australian sugar would send U.S. prices tumbling and set a bad precedent for other expected free trade agreements with sugar-exporting countries.
Vaile called the deal historic and said it would create "enormous opportunities to Australian companies interested in profiting in the world's largest and most dynamic economy."
He and other negotiators pushed as hard as they could on sugar but realized the U.S. would not budge. "You have to look at the overall balance," Vaile said.
The agreement should lead to small increase in exports of beef by both countries, a U.S. statement said. Quotas will remain unchanged but the agreement will phase out tariffs of beef above the quotas.
"All U.S. agricultural exports to Australia, totaling more than $400 million, will receive immediate duty-free access," the statement said. The deal "is sensitive to concerns that have been raised" by farmers, cattlemen and members of Congress from farm states.
There will be no change in U.S. tariffs for dairy imports above the quota. Initial increases in imports from Australia will amount to about 0.17 percent of annual U.S. dairy production. Australia exports about 2 percent of U.S. dairy imports.
The agreement allows Australia to maintain its state-subsidized prescription drug program that had been targeted by big U.S. drug companies as an unfair trade barrier.
The agreement also permits Australia to keep its "single-desk," or monopoly, export arrangements for wheat, sugar, rice, wheat and barley, despite U.S. desires to see those opened to competition.
U.S. Trade Representative Robert Zoellick described the deal, which requires congressional approval, as "the most significant immediate cut in industrial tariffs ever achieved in a U.S. free-trade agreement."
Australia, the United States' 13th largest export market, buys more goods from the United States than from any other country. The U.S. economy has a $9 billion surplus in two-way trade that totaled about $28 billion in 2002.
Zoellick said the negotiations were difficult, but the final agreement reflects the special relationship the United States has with Australia.
"We consider Australia an extremely strong ally. Clearly there's a security basis" to that, Zoellick said. "But we also want to strengthen the economic relationship. That's what this free-trade agreement is about."
A statement from Zoellick's office said the agreement could increase American manufacturing exports to Australia by $2 billion a year. Some of those are aircraft, autos and auto parts, machinery, computers, chemicals and wood and paper products.
Australian manufacturing exports to the United States also will grow, largely in pharmaceuticals, light commercial vehicles and auto parts, according to the statement.
The agreement gives Australia access to the U.S.Federal procurement market of $200 billion a year.
