Remarks to the Federation of Automotive Products Manufacturers' 46th Annual Convention

J. Thomas Schieffer
U.S. Ambassador to Australia

July 22, 2004

Last week the United States Congress ratified, by historic margins in both houses, the Australian-American Free-Trade Agreement. Speaker after speaker spoke of the deep affection Americans hold for Australia. In good times and bad, we have served together as soldiers of freedom around the world.

Now we stand at the threshold of a new economic relationship. One that will tie our two economies together as closely as our military and intelligence relationships have tied the defense of our homelands together. In fact, if this agreement is ratified by the Australian Senate, the United States will enjoy collectively a relationship with Australia in military, intelligence and economic matters that it has with no other country in the world.

This historic moment did not just happen. It came about because a lot of people with vision were prepared to make it happen. Foremost among them were the leaders of our two great democracies.

President Bush and Prime Minister Howard share a common belief that trade is liberating to an economy. Both believe that prosperity and jobs increase when market access increases. Both believe that friends who trade together are friends who grow together.

In November of 2002 the United States announced that it was prepared to negotiate a free-trade agreement with Australia. Experts on both sides of the Pacific hailed the announcement as a breakthrough and settled in for a long negotiating process. After all, deals like this usually take years not months. The agreement we concluded last year with Chile, for instance, was first talked about in the first Bush Administration. It was well over a decade before negotiations concluded and the deal was ratified. Both Americans and Australians were hopeful that it could be done quicker with Australia, but no one really knew how long it would take.

When President Bush met Prime Minister Howard at the Crawford Summit in May 2003, the two leaders decided there was no reason why negotiations could not be wrapped up by the end of the year. Our respective bureaucracies took a deep breath - some even expressed the view privately that it could not be done. It was just too hard and too complicated. But the President and Prime Minister asked, why not?

Later, when the two got together in Canberra in October, they reaffirmed their commitment to an end-of-year conclusion. Both realized that the moment was right and both moved to seize that moment. Their encouragement got both negotiating teams to put their bottom line offers on the table sooner than they might otherwise have done. The result was an announcement in early February that a deal had been made.

Pundits speculated on whether our Congress would act before the election calendar in the United States took over and all legislating ground to a halt. Happily, the leadership of our Congress was determined to send a positive message to the people of Australia. Members of both parties - some of whom have not been wildly enthusiastic about free-trade agreements in the past - were urged to vote for this one because it was for Australia. And vote they did - in the House of Representatives the vote was 314 to 109. In the Senate the vote was 80 to 16. Large majorities of both parties voted for the agreement to show their support for the unique relationship that has grown up between our two countries. Americans have a special affection for Australia and this huge vote of support is testament to it.

But some have argued that this big vote is a sign that America got everything it wanted in this agreement. Nothing could be further from the truth. In area after area the two sides negotiated hard with one another to reach compromise. Many times the United States had to accede to the Australian position. Let me give a few examples.

In the area of pharmaceuticals the United States is concerned that the American public winds up financing research and development for the entire world because our pharmaceutical industry is largely unregulated. We asked that some sort of mechanism be developed that would allow our pharmaceutical companies to recover their research and development costs from consumers in places like Australia.

Our efforts were rebuffed at every turn by the Australian negotiators. We were told repeatedly that Australia would not do a free-trade agreement if it meant drug costs would be forced to rise through the Pharmaceutical Benefits Scheme. As much as we hated to do it, we accepted that position. But we also asked that greater transparency be given to the process. Under current law, if a drug is refused listing on the PBS scheme, no explanation need be given. We think that is unfair and renders the process susceptible to political manipulation.

With this agreement we think science has a better chance of being the final determinate not politics. The PBS board will have to tell company and consumer alike why a drug is not listed. It is perplexing to think this provision has been so criticized by some in Australia. Why wouldn't Australian consumers want to know the reason their PBS approved or disapproved their drugs?

Another canard that has been raised by FTA critics is the notion that the United States is engaged in some sort of cultural imperialism - that somehow the FTA will extinguish the film and arts community in Australia. The facts just simply do not support that argument. Right now, 55% of programming on over-the-air television in Australia must by government edict be of Australian origin. The Australian market today, however, buys only around 40% of its programming from foreign sources - not the 45% that it could. Why? Because that is what Australians want to watch. Australians, like Americans, the British and other peoples around the world, like to watch stories about themselves, their culture and their history. That won't change with this agreement or any other. We recognized that fact in our negotiating position and accepted it. Even after the FTA is ratified, the Australian government can continue its mandate to have 55% of over-the-air programming made in Australia. They can also continue to subsidize the arts and artists as they do today. And as a result of requests made by Australian negotiators there is also a provision that if new media is introduced, the government may impose some sort of cultural mandate. Again, this was not something that we wanted, but it was something that we accepted to get a deal done.

In every free-trade agreement that the United States has done up to this time, and in the free-trade agreements with other countries that are pending in our Congress, we have always included a provision which we call the "state investor" clause. This establishes special arbitration courts where investors can litigate claims that a government has nullified or impaired the value of their investment through some sort of action.

Australia opposed this provision in our FTA because they argued Australia already has a robust and effective court system that can adequately deal with such disputes. In the end, we reluctantly conceded this point. Many Americans argued that this was a terrible precedent to set because State investor clauses had heretofore been a given if you wanted to have a Free Trade Agreement with the United States. Now it will be a matter of discussion for us in all of our future negotiations.

Finally, some of our critics have opposed the FTA because not all agricultural sectors were treated in the same way. It is true that dairy and sugar were treated differently. The quota for dairy was doubled, but there is still a quota. Even this concession to Australia was not easy for the United States and met with considerable opposition from our domestic dairy industry. So much so that both Senators from Wisconsin - one of our leading dairy states - voted against the measure last week.

Still it is worth remembering that under this agreement Australians will be able to sell twice as much dairy product into the United States as they do today.

With regard to sugar, a hot topic here in Queensland, it should be pointed out that today Australia is already the fourth largest producer of sugar to the United States. Your quota of 87,000 tons is regularly filled in the American market at 3 to 4 times the price you get in the rest of the world.

It is no wonder that Australian producers want to sell more sugar in America, but it should also be no wonder that some Americans want to reserve for American producers a sugar market that is heavily subsidized by American taxpayers and American consumers. The fact that sugar was taken off the table made passage of the FTA in the Congress much easier.

When you look at the entire FTA at the end of the day, neither side - not American, not Australian - got all they wanted in the deal. What we did get was a compromise that was sensitive to both our needs. We have struck a good deal with each other and the essence of a good deal is when both sides leave the table realizing they are substantially better off than when they sat down.

We both have affection for each other, but affection alone will not define a successful economic relationship. The deal we have struck will have an enormous long-term benefit to both our economies. Both of us believe it can be a template for others in their search for greater trade liberalization around the world.

This FTA ranks with the worlds finest in scope. The World Trade Organization blesses bilateral trade agreements if they incorporate "substantially all of the trade" that exists between two countries. While the WTO has never adhered to a hard and fast rule on what constitutes "substantially all of ... trade" it is generally thought to occur at a 90% threshold. Our agreement will ultimately mean that in excess of 99% of our trade will be covered. In fact, it is important to realize that when the phase-in periods are over, all sectors in our two economies will be tariff free with two exceptions - sugar and dairy. You heard me right. All the critics who argue that we should have done this or that ignore the fact that, at the end of the phase-in periods, under this agreement only dairy and sugar will still face trade restrictions. Everything else will be tariff free.

Of particular interest to this audience is the effect the FTA will have on the automobile industry. No industry in the world is more globalized or more susceptible to global competition than is the automobile industry. In this agreement the Australian automotive industry, while comparatively small in size, can lock into the mass and efficiency of the United States industry and just as importantly, the United States market. The U.S. tariff on utility vehicles - which is currently a prohibitive 25% - will be eliminated on day one.

This will allow you not only to sell existing product into the American market, but it also allows you to plan new products for a market that on January 1st could be fifteen times larger than the domestic Australian market you now have.

Coming the other way, on day one, is an opportunity to receive American parts for your cars without the 15% tariff that you now have to pay. That will make the cars you make here cheaper and more competitive in markets around the world, not just in the United States.

What this means is that together we each increase our market size and our ability to compete wherever cars are made and sold. Increased markets with increased productivity spell increased prosperity for both of us.

Each of us now has the ability to plan on a long-term basis. We can figure out what we do best and then do it. Rear wheel drive cars, which are still preferred by many drivers, could be manufactured here while parts to go inside them could be manufactured in the United States. The combinations are endless as are the advantages. My guess is that ten, twenty or thirty years from now both our auto industries will be celebrating the day we did this agreement and wondering why anybody opposed it.

There are other big advantages to this FTA. Right now, about 20% of both our economies are tied up in government procurement. That is a huge number and was not taken into account in pre-negotiation estimates of the benefits of an FTA for Australia.

What that means is that the Buy America Act that currently prohibits Australian companies from bidding on American government contracts is waived. To put that into perspective, if you subtracted government procurement from the current American Gross Domestic Product and called that the country of Government Procurement it would rank third in the world behind the U.S. and Japan and ahead of Germany, the United Kingdom, France and China. We are talking big numbers here, but we are also talking common sense. Programs for minorities, women, the disabled and the disadvantaged are still allowed in both countries. Progress has not been made without a heart.

The investment flow between our two countries was already good, after this agreement it will be even better. The United States is already the biggest foreign investor in Australia and Australia is the 8th largest investor in the United States. With this agreement, the chance for greater investment is improved.

Foreign Investment Review Board thresholds are raised to $US800mm for most investments, which means that the good ideas generated by Australian entrepreneurs can be more easily financed and brought to the marketplace both here and in the United States. At the same time restrictions on the ownership of real estate, airports, media properties, Telstra and Qantas were left in place. Foreign investment pays dividends for both our countries because it allows us to do what we do best in more than one place.

A recent Australian business survey found that 50% of firms said overseas investments had increased their profitability while 35% reported they increased their exports as a result of direct foreign investment. Dollars abroad can bring jobs and prosperity to home.

I said at the beginning that last week was an historic moment in our relationship. It will be exceeded of course if the Australian Senate approves the Free Trade Agreement when it meets again in August. If it does, that means that January 1st, 2005 will be the beginning of not only a new year but also a new era in our relationship - an era when our economic cooperation will match the military and intelligence cooperation that we have experienced since the signing of the ANZUS Treaty 53 years ago this September.

For our generation this is a moment to seize for our common good. If we do, then we will be entitled to look back with the same pride of accomplishment that the ANZUS generation felt so many long years ago. America is ready for the journey. Now we wait only for our Australian friends to join us.