ABC Online, Australia

US yet to act on FTA amendments

The World Today - 19 January 2005

Reporter: Karen Percy

KAREN PERCY: And still with foreign affairs, the United States has yet to follow through on threats to challenge amendments made to the US-Australia Free Trade Agreement.

Late last year, US officials said they might seek to overturn the amendments, which affect pharmaceutical drugs policies and television content rules, once the FTA came into effect on January the 1st.

That hasn’t happened yet.

But there could well be disputes in the years to come, especially if the Canadian experience is anything to go by.

Thirteen years ago the North American Free Trade agreement was signed between Canada, the US and Mexico.

But since then, the parties have faced off, especially the US and Canada, over lumber, beef and parcel delivery.

John McCallum is Canada’s Minister for National Revenue. He’s currently on a visit to Australia and joins me from our studio in Brisbane.

So, John McCallum, welcome. What is the Canadian experience been when it comes to disputes, these kinds of Free Trade disputes with the US?

JOHN MCCALLUM: Well, thank you and it’s a pleasure to be with you. I think I, you know, Canada and the United States trade is a $1.5-billion a day, by far the largest amount of trade between any two countries in the world. And well over 90 per cent of that trade is totally hassle free and when we entered into Free Trade Agreement with the United States, our trade doubled over the following decade, so really it’s been a great success story.

But of course, when you have $1.5-billion a day in trade you’re going to have some disputes, and yes, softwood lumber is one.

But I think the more important point to note for Australians as they enter into a Free Trade Agreement, is that when you’re a small country dealing with a huge country, what you really want is a system based on rules, and that’s what Free Trade Agreement gives you, because the alternative, which is a system based on power, is one that the larger country would win every time.

So, Canada’s experience suggests that Free Trade Agreement with the United States is really positive, and I think Australia will find the same thing.

KAREN PERCY: You mentioned softwood lumber. Now, that is a dispute that’s been going on between Canada the US for some time. Americans need a lot of Canadian wood to build their homes.

Yet, because of the difference between private lots in the US and publicly owned forests in Canada, softwood lumber has dealt a significant duty.

But there’s also UPS, the private American company, which challenged Canada Post on parcel deliveries. You know, how you do you deal with these disputes? Are the Americans open to dealing with them, to resolving them?

JOHN MCCALLUM: Well, we deal with them as they come up on a case-by-case basis and we have a dispute mechanism under NAFTA, and those are resolved on the merits of the case and many we win and some we lose and with well over 90 per cent of our trade subject to none of this, it’s good for us.

But in the cases you mentioned - softwood lumber is an ongoing dispute, which we and my colleague the Minister of International Trade is devoting a great deal of time to bring a resolution to that and the UPS matter is under my jurisdiction and that’s an ongoing issue as well.

So, these are things that we manage.

They are important, but the size of the overall trade, and the jobs that that brings and the success it brings to our economy are the really important points.

KAREN PERCY: Now, just continuing on the softwood lumber. If you lumber industry continues to be hit with such huge tariffs, despite a free trade agreement, does there come a point where you have to give into the big neighbour, the bigger trading partner here and perhaps change some of your policies?

JOHN MCCALLUM: Well, I can’t get into the details of it, that’s not my portfolio. I know that my colleague is working very hard on that.

I know that that is a challenging issue, but I also know that virtually everything else is going through hassle-free and that from the point of view of advising Australia, having just entered an agreement (and we’ve been in one for over a decade), I can say that the dispute settlement mechanism... there are going to be some hassles, but I think by and large you will find that it works and that cases tend to be solved on their merits and that overall it will be a plus for the Australian economy.

KAREN PERCY: How hardball do the Americans play in these dispute processes, for example, there has been a threat by the Americans to challenge some of the drugs policies here, especially in terms of generic drugs and how long American companies can hold onto their patents. How hardball might the Americans play on some of these issues?

JOHN MCCALLUM: Well, Americans, like others, generally play quite hardball when their interests are at stake, American industries, whether it’s pharmaceutical, or forestry or whatever.

And another lesson that we have learned that Australians might be interested in that when you’re dealing with the United States, you have to understand that power in the United States is quite dispersed, and it’s very important to have a positive relationship with the President, the executive branch, but many of the key decisions on trade matters, whether it’s softwood lumber or other sectors, are taken by the Congress.

So, it’s extremely important to have strong relationships with individual US Senators and Congressmen, and we’ve just set up a Secretariat alongside our Embassy in Washington to promote relations between Canadian politicians and US Congressmen and Senators.

And if you really want to get at those simmering trade disputes before they explode, I would strongly advise Australia to look into that relationship at the Congressional level.

KAREN PERCY: Well, that’s a lot easier, I guess, for Canada given your geography. I guess you’re proposing lots of trips for our politicians, but realistically, how would our politicians go about that? You’ve got the advantage of just crossing the border and being able to meet with some of these Congressmen and women.

JOHN MCCALLUM: Well, yes, I guess that’s always the case for Australia, that geography’s a bit of an issue.

But nowadays I think it’s perhaps less and I guess you’d be able to do it less often that we because of geography, but there’s always room for exchanges, parliamentary exchanges between Australia and the United States.

Those things are going on already and I think, I would just suggest that you reinforce that, that the money you invest in the travel for politicians to get to Washington, I think will be a very successful investment if you can build up the relationships in a long-lasting way, and that will repay Australia very well, because once the Senators and the Congressmen know their counterparts in Australia and Canada, then it’s a lot easier to deal with these issues and it’s a very worthwhile investment, even if you have to travel several thousand miles to get there.

KAREN PERCY: John McCallum, you were also Canada’s Defence Minister until December 2003, during that crucial time when the US was forming the so-called Coalition of the Willing, which Canada did not join. Were there any ramifications for Canada and the relationship with the United States as a result of that?

JOHN MCCALLUM: Well, I think that’s a really good illustration because we are shoulder-to-shoulder with the Americans in the war against terrorism. We led the NATO mission called ISAF in the security forces in Kabul in Afghanistan.

But, we disagreed with the United States at the time over Iraq and I think that one can have a very solid, enduring, long-term relationship with the United States without agreeing on everything, and there was a case where we disagreed.

Another case where we disagree, of course, would of course be softwood lumber, but the 90-something per cent of cases where we do agree, and the fact that we basically are friends and we have very similar values on freedom and justice and underlying institutions, that means that we can weather these disagreements.

And our relationship I think is just as good as it ever has been, notwithstanding those differences that we’ve had on specific sectors or events.

KAREN PERCY: John McCallum, thank you.

That’s John McCallum, Canada’s Minister for National Revenue, coming from our studio in Brisbane.