Why bother with a US FTA?

I've argued for years there was a real danger that a Free Trade Agreement (FTA) with the United States would simply turn into an agreement about trade that was not all that free and could actually damage our efforts to liberalise trade.

See more here in my September 2008 piece "Why an American Free Trade deal is a ludicrous and dangerous idea"

The risk always was that the powerful lobbyists for the pharmaceutical industry, the beef industry, the dairy industry and the movie/music industry would use FTA talks as an opportunity to block New Zealand exports to America and fiddle with our imports to advantage American firms.

I highlighted comments then from dairy lobbyists calling for the exclusion of Fonterra from exporting to America and the likelihood of an attack on Pharmac by US drug companies.

There's also a good chance that the music/movie studios will call for much stricter controls on movie and music downloads along the lines of the 'three strikes and you're out' rules for ISPs.

There would be many other industries where lobbyists got down and dirty to block our exports to America.

Many New Zealanders simply don't understand the brazenness and the power of the industry lobby groups in America to influence their government and get involved in foreign affairs.

Now they're flexing their muscles and it's not pretty. Here's a quick summary of the latest action on dairy out of America.

Last week a group of 30 US senators wrote to the US Trade Representative Ron Kirk, who is Barack Obama's right hand man on trade, to consider the threat to US interests from allowing in New Zealand dairy imports. Here's the letter.

and a few choice snippets:

As you prepare for these negotiations, we wanted to highlight the potential impact of such an agreement on dairy farmers and many processors in the US if U.S.-New Zealand dairy trade is not addressed properly.

We have been informed that losses to US dairy producers may total up to US$20 billion over the first decade of the agreement if US dairy restrictions on exports from New Zealand are fully phased out in the TPP.

Moreover, America's dairy exporters do not have the prospect of focusing on other significant new opportunities that the agreement would open up given that most other TPP participants are already US free trade agreement (FTA) partners or have relatively limited tariffs and offer only small additional market opportunities.

Despite New Zealand's small size, its dairy industry is a global power. New Zealand's dairy industry is dominated by one company that operates as a virtual monopoly in controlling more than 90 per cent of the country' milk production and approximately 40 per cent of trade in key internationally traded dairy commodities.

In light of this market power, the Administration should consider whether genuine competition is possible as it proceeds with the TPP.

The US senators appear to be quaking in their boots at the impending doom about to be wrought by Fonterra.

New Zealand has demonstrated its capacity to funnel product to the US market as evidenced by the sizable quantities of milk protein concentrates (MPCs) and casein imported each year into the US from New Zealand.

MPC and casein imports enter the US virtually tariff-free and with no volume quotas unlike imported nonfat dry milk, butterfat or most cheeses. The primacy that New Zealand assigns the US market and its ability to devote considerable amounts of its production to exports to the US are clear.

According to testimony submitted recently to the International Trade Commission, imports of New Zealand dairy products facing tariff-rate quota limitations generally account for a relatively small proportion of New Zealand's total exports of such products.

In contrast, New Zealand's sales of MPC and casein imports to the US market generally account for over fifty per cent of its exports of these products to all destinations.

Clearly, New Zealand has taken full advantage of all favorable opportunities to grow its dairy exports to the high-value United States market and would likely do so with respect to any additional such opportunities for the even higher-valued, currently tariff rate quota (TRQ)-restricted products if trade in them is expanded under the TPP.

Because of the anti-competitive practices in New Zealand's dairy industry and the extensive degree of control it wields over world dairy markets to the detriment of the US dairy industry, we are deeply concerned that an expansion of U.S.-New Zealand dairy trade would further open the US to these imports while providing little additional market for American farmers in New Zealand and the other Pacific countries.

If readers think the tone of these comments from these senators, including former Presidential candidate and Senate Foreign Relations committee chairman John Kerry, are strangely defensive, then have a look at these comments on December 17 from the US National Milk Producers Federation (NMPF) and the US Dairy Export Council (USDEC) that call for dairy to be excluded from the deal.

"The heightened prospect of greater exploitation by New Zealand of not only global markets, but also our domestic industry and policy would make an already uneven playing field in the global markets worse," noted Jerry Kozak, president and CEO of NMPF. "This heavy influence on our markets will drive down dairy farmer income in America, force farms out of business, and create a ripple effect on dairy plants and other rural businesses-all at a time when our economy is slowing and unemployment is rising."

There's only one way to deal with such a unique and monopolistic situation," Kozak said, "and that is through an equally unique response: full exclusion of all U.S.-New Zealand dairy trade."

Get the picture? These guys really want to use the Trans Pacific Partnership to shut out Fonterra from America.

They are serious players with heavy Congressional backing and are talking to a President who has never been a fan of unfettered free trade. Dairy lobbyists spent US$4.9 million talking to congressional leaders in 2008, the last election year, more than double that spent 10 years earlier, figures from OpenSecrets.org show.

These FTAs are never about free trade from an American point of view. They are about creating another opportunity to strong-arm smaller countries into granting trade concessions to large American businesses.

A much fairer, cleaner and freer option is proper reform of trade rules and tariffs through the World Trade Organisation. America and Europe have blocked reforms there because they would upset their apple carts of huge subsidies for farmers paid for by taxpayers and consumers through higher taxes and higher prices.

John Key is right to say a TPP without agriculture (and dairy in particular) is unacceptable. He should be prepared to walk away if the Americans try too hard to monster us in these talks.

Not so sweet

You only have to ask the Australian sugar farmers about the Australian FTA with America to find out how good that was. American sugar interests blocked sugar from the deal. American drug companies tried to shut down Australia's version of Pharmac.

Australia's exporters have hardly benefited from the deal.Australian Bureau of Statistics trade data shows that Australian exports to the United States rose 0.9 per cent in the first five years of its FTA with America.

That compares with export growth in the previous 10 years of 105 per cent and import growth from America of 8.5 per cent in the first 5 years of the deal.

Get the picture? The Australian FTA with America failed to significantly increase exports to America. In fact, export growth already happening was stunted to almost nothing. But on the other side of the ledger, American imports to Australia continued to grow.

Why would it be any different here? Remind us again why we want a FTA with America?


Bernard Hickey