Linda Weiss, Elizabeth Thurbon & John Mathews
Opening remarks by Linda Weiss
On behalf of my co-authors, I would like to thank the Evatt Foundation and its President for putting the trade deal on the programme and giving us the opportunity to discuss it with you tonight; and our thanks must go especially to Bruce and Yola for their generosity in hosting this wonderful event. Thanks too to our musical backup, we can at least start on an upbeat note, even if we don't end up there!*
Over the next forty minutes or so, we hope to shine a little light on the killer trade deal and what it means for Australia. I will start with a few introductory comments before handing over to my co-authors; they will cover quarantine, investment, and intellectual property, and I will round off with some points on the PBS.
A good place to start is with the two questions that we've been asked countless times since the book came out: Why did we write the book, and why the killer title? There were a number of reasons why we came out of scholar's closet to write this book. But the main one was that there were clearly two stories to the deal -- yet only one was getting any serious discussion. And it wasn't the one that would deliver a killer blow.
There was the story about poor market access for our top exports - about how badly we did in getting concessions on beef and dairy and virtually everything else. We gave the US immediate, open, and unfettered access to our agricultural markets from day one and, in return, we must wait 11-18 years for quotas to be lifted in our most competitive exports -- beef, wine, and so on. The list of puny market concessions we obtained from the deal is a lengthy one and the examples could be extended. But the point is that Australia did very badly on market access -- so badly that the Australian negotiators walked away from the deal only to be ordered back to the table by Howard - and this access story was very well covered in the media.
But there is another story -- a much more damaging side to the deal -- which is the real focus of our book. This is the less well-understood tale about the undoing of our institutional advantages -- the dismantling and destruction of some of the nation's most important institutional arrangements like:
• Our rigorous Quarantine procedures that safeguard Australian agriculture from devastating exotic pests and diseases and give us a competitive advantage in world markets;
• Our Pharmaceutical Benefits Scheme (PBS) that protects the health system against soaring prescription costs and makes medicines affordable for all Australians;
• Our Intellectual Property (IP) laws that encourage local innovators in IT and biotech, for example, without extravagant protection of incumbent firms;
• Our system of Government Purchasing programs that support Australian industry and return tax dollars to Australian residents.
We wanted to tell this story -- to put on record how our government has agreed to changes designed to unravel our institutional advantages and tilt the playing field dramatically in favour of a foreign power. We wanted to show that these rules and arrangements - which preserve our economic security and contribute to our competitiveness, not to mention our independence - are on countdown to destruction under this agreement.
Moreover, we wanted people to understand that the damage from the deal is not something we can safely relegate to some far distant future. Quite the contrary. As we show in the book, some of the changes have already taken place during the FTA negotiating period - in a kind of dress rehearsal for the new era about to begin. For example, we find inescapable evidence of changes like the overturning of our rigorous (scientifically based) Quarantine protocols that safeguard our plants and animals from alien pests and diseases. We've seen three very shocking, even scandalous, cases during the FTA negotiations -- where Biosecurity Australia has one by one 'inexplicably' overturned existing protocols to allow imports of bananas, apples, and pork, which would bring devastation to these industries.
We also wanted to make the point that the two sides went into the trade negotiations playing very different games, seeking very different goals, and producing very different outcomes. When the Australian side went into bat, they were negotiating simply for better market access. The US had a more complex agenda - a global strategy - and Australia played directly to that agenda:
• A basic US objective in such trade agreements is to neutralise or displace the institutional advantages of the trading partner and wherever possible replace them with their own rules and procedures. This is often euphemistically referred to as 'harmonisation' (a pattern that has been widely observed in other US-led agreements).
• So while the Americans have been very effective in getting us to agree to play by their rules (in Quarantine, in IP, in Government Procurement, and in how we manage our PBS), we have been preoccupied with trying to get decent market access. We failed in our simple goals and they succeeded in their complex ones.
To point out this strategy is not to be Anti-American. In fact, it is hard not to admire the way the American side went about achieving their goals, with steadfast purpose, not letting woolly notions of a 'special relationship' get in the way of a good deal when it was handed to them. The Americans clearly didn't do this to us. Our government did this to us - and full responsibility lies with them.
So, to come back to my opening remarks, the point we are endeavouring to convey with the dramatic title of our book -- How To Kill A Country -- is that by introducing changes that dismantle our key institutions and replacing them with American-designed rules and arrangements, the trade deal will slowly but effectively destroy the foundation of our economic security, independence, and ability to compete - the very things that are essential to our future prosperity. These are now on countdown to destruction. So let me hand over to my co-authors to flesh out some of these points.
Elizabeth Thurbon: investment & quarantine
With a deal as lopsided as this one, it's hard to know where to start in detailing its shortcomings. I will therefore limit myself to a few words on investment and quarantine changes under the deal, and what these changes mean for Australia's future social and economic prosperity.
Let's begin with investment. Under the deal, Australia has agreed to make significant changes to the way in which we manage large foreign investments from the US. Previously, our government reserved the right to screen any foreign investment exceeding $50 million to ensure it was in the national interest. Our Foreign Investment Review Board was responsible for this screening, and was able to place conditions on foreign investors - such as local content requirements, local job creation or technology transfer - to make sure that Australians would benefit from the presence of large foreign firms.
Under the trade deal however - we effectively give up our right to screen US investments in Australia; anything under $800 million is now exempt from screening - a huge jump from the aforementioned $50 million.
We're already seeing the damaging results. Just four days ago, the US firm Cleveland Cliffs' acquired Australia's largest independent Iron Ore producer Portman Ltd, for $650 million - as this investment fell under $800 million, it was exempt from any public scrutiny or debate. Why was this acquisition significant? Portman is one of one Australia's top export earners in one of our most profitable export industries. Iron ore export earnings in Australia are predicted to boom by up to 30 per cent this year - and China's imports of iron ore are predicted to more than double in the next five years. Portman is in the box seat to capitalize on this growth, holding key supply contracts for the China market. Ironically - Portman holds these contracts thanks largely to the efforts of Trade Minister Mark Vaile - who personally travelled to China in 2000 with Portman executives to help lobby for the Australian bid.
Clearly - in the eyes of the Australian government - these contracts were sufficiently important to the Australian interest to warrant (no doubt) expensive public efforts to help secure them. How ironic, then, that Mark Vaile should oversee a trade deal that effectively hands over these hard-won contracts to US hands - without any opportunity for public or even private debate as to whether such a deal is in the national interest.
The parallels with the Canadian experience in its FTA with the USA are alarming in this regard, and sound a warning as to how we might expect this deal to play out in the future. Like Australia, Canada agreed in 1989 to abandon its right to screen American investment to ensure that it was productive investment (i.e. created skilled Canadian jobs or contributed to the technological advancement of Canadian firms - foreign investment can be extremely valuable for such purposes). As a result, the overwhelming majority of US investment in Canada was for the purchase of Canadian firms with a view to transferring corporate decision-making back to the USA, and rendering these firms second-rate outposts of American head offices. Such developments have since earned Canada the unenviable title of 'the Vanishing Country'.
Who knows what unfortunate titles Australia might earn over the coming years if the Portman sell-off is any indication of life under the FTA.
So what of quarantine changes under the deal? Why does quarantine matter to Australia? Quarantine control is important to Australia because it underpins Australia's agricultural competitiveness - our clean and green image is what provides our exporters with a competitive edge in the international arena. As an island nation, we are mercifully free of many of the devastating pests and diseases that plague agricultural producers in other countries. But our relatively pest-free status is fragile - protected only by our stringent quarantine standards.
So how did our quarantine system end up on the negotiating table in the FTA? It would not surprise many to hear that United States farmers have long depicted our quarantine standards as an unfair barrier to trade, and lobbied for the weakening of our quarantine regime. The fact that the World Trade Organisation has recognised the legitimacy of our stringent approach to quarantine has not lessened American farmer's spurious criticisms of our system.
In fact, despite WTO endorsement of our system, the US government itself has been known to criticise our science-based standards as unjustifiably tough. Knowing that they would get no joy through the WTO in trying to dismantle our system, US farmers made the reduction and elimination of our quarantine standards a key goal of the bilateral Australia-US FTA. In fact, almost every recommendation in the quarantine chapter of the deal is in there at the behest of US farmers. This includes the creation of the Joint Australia-US technical working group on SPS (quarantine) issues - a body which includes not only scientific representatives from both parties, but trade representatives as well. In the eyes of US farmers, the aim of this joint working group is to pursue the reduction and elimination of Australian quarantine standards.
Given the importance of rigorous scientifically based quarantine standards to our future competitiveness, who would have thought that the Australian government would have been amenable to allowing US trade negotiators into the heart of our quarantine decision making processes - especially given their hostility to our current system? But that's exactly what we've done under the FTA.
The working group met for the first time last week, and is proving to be as non-transparent as we predicted it would be. Having looked in vain on the Biosecurity Australia website for details of the meeting, I called BA direct to ask who had sat on this working group, the proportion of trade to scientific representatives on each side, and what was discussed. I was informed that I would have to put my request for this information in writing to the head of the relevant department. When I asked if I could simply get a sense of how many people were involved - even by looking at a press release or on their website, I was informed that this information had not been made public, and all requests for information would have to be put in writing.
We are now waiting for a response to that request. But we are not hopeful that our BA staff will be able to resist US pressure to relax our quarantine standards. Why Because (as Linda noted in her introduction) even before we signed the agreement, Australian quarantine officials were coming under huge pressures to compromise our scientifically based quarantine standard - and acquiescing to those pressures left, right and centre. During the period that we were negotiating the FTA with the USA, BA released three revised Import Risk Analyses for Pork, Apples and Bananas - all items of great interest to US exporters.
Incredibly, all three revised IRAs proposed relaxing existing quarantine protocols on the basis of no new scientific evidence! Had these IRAs been implemented, they would have paved the way for the introduction of devastating pests and diseases in three key Australian export industries. Thankfully, all three IRAs were referred to the Senate for inquiry, and suspended pending further investigation. So we can only imagine how our BA staff fared face-to-face with trade negotiators last week now that the deal has been done!
John Mathews: intellectual property rights
The overall goal of the FTA from the US perspective is to bring other countries' institutions (their framework for doing business) into line with US institutions. If successful, this tilts the playing field towards US firms - and eliminates any special competitive advantages that US trading partners might have.
Australia has allowed the US to further its strategy in this regard with Chapter 17 of the FTA on Intellectual Property Rights (IPRs). Indeed IPRs (copyrights, patents and trademarks) have been central to this US strategy. Every country that has negotiated an FTA with the US later testifies that IPRs were the single most important issue for the US. Not one word of the IPR clauses is to be changed - and a lot of it comes straight out of the notorious Digital Millennium Copyright Act. I wish to make seven brief points on the IPRs aspect of the FTA.
1. Why should Australia change its IPRs system? Australia already had a world-class IPR system - and there was no need to change it. Australia as a country signed up to become a party to the Trade-Related IPRs system (TRIPS) when it began in 1995. Maybe we could have been asked to sign up to more recent WIPO treaties (such as the WIPO 1996 Treaty on Copyright; and Performances and Phonograms). But that should have been all we conceded. Instead Australia is required to sign up for extensive changes, many of which seem to have been cut and pasted straight from the US Digital Millennium Copyright Act --extending IPR protection to the Internet, and criminalizing individuals who "trespass" on someone's IP. These issues are controversial in the US - where at least there is a Bill of Rights to protect individuals caught up in such draconian legislation. Here in Australia we have simply bought into the worst aspects of US legislation without any of the complementary benefits.
2. No free trade in IPR-protected goods. Australia is a net importer of IPRs - we pay out more than $1 billion in royalties more than we receive. This can only get worse. The IPRs clause makes it more difficult for Australian firms to trade in generic versions of IP-protected goods, by outlawing "parallel imports". Take the case of CDs. There are the brand-protected CDs - but an Australian firm might want to import generic versions, purchased legally in third countries - and the FTA makes that much more difficult. (The language of the FTA gives the patent or copyright holder exclusive right to arrange for the import - and to block another company from doing so.) Likewise with generic drugs - and many other generic forms of IP-protected goods. (Think how much more you have to pay for printing cartridges if they are protected by the HP brand than if they are generics.)
3. Mickey Mouse forever. Copyright terms are extended in Australia from 50 to 70 years. This was one matter on which there had been prior discussion in Australia, by the IP & Competition Review Committee - which recommended against making the extension. But its opinion was simply over-ridden by the Howard government. Why were copyright terms extended in the US? Because of Disney, and Mickey Mouse - the copyright protection was due to expire in 2003, and intensive lobbying of Congress by Disney led to Copyright Term Extension Act. NOT part of TRIPS but now part of Australian law - despite never having gone through Parliament. And any competitive advantage of Australian animation firms in being able to use Disney characters is thereby lost. (The Copyright Term Extension Act has been subjected to Supreme Court challenges, but upheld.)
4. Special provisions for drugs: the Evergreening clause. Generic drug producers in Australia prior to the FTA could bring a generic version of a drug to market when its patented protection expired, and to do so merely had to seek approval under the TGA (Therapeutic Goods Act). But under the FTA, this is made considerably more difficult. Now the generic producer has to provide a warrant that the generic drug is not in breach of any patent - and the pharma company can circumvent such action by bringing in "bodgie" patents on the drug with expiring protection - thereby prolonging its protected life. In the US this is a well-developed practice, under the Hatch-Waxman Act - and the FTA imports a dumbed-down version of it to Australia.
5. Strengthening copyrights - and reducing innovation in ICT industry. By strengthening existing copyright protection, Australian software firms (for example) are being restricted in their ability to bring out innovative products and challenge Microsoft. Open source software would be a good option for Australian firms to pursue - because it avoids the kinds of IP restrictions that apply with copyright and patent-protected software. But this is less likely to happen because the FTA locks software patents (the US approach) and anti-circumvention measures into Australian law. Open source developers in Australia have testified that Australian software firms will be impacted by the FTAS because it enhances control by US firms over standards and inter-operability. Also the capacity of Australian governments to boost an Open Source software industry is limited by the government procurement provisions of the FTA - where Australian governments agree NOT to buy Australian, but the US side gives no reciprocal undertaking not to buy American. Call this the Microsoft clause.
6. Strengthening patent rights - and reducing innovation in health industry. The FTA generally strengthens patent rights for US firms - and thereby helps to block innovation. If this sounds strange, consider the case of biotechnology. Australia has some fine biotech firms - but their capacity to bring new products to market is limited by the patent thickets that surround the biotech procedures. This is seen as a serious problem in the US itself - and it is a much worse problem in countries that sign FTAs with the US, where we give US all the IP rights and we have none of the counter-rights. This can be a life and death matter. Consider the case of bird flu - or Avian flu caused by the H5N1 virus, widely thought to become a pandemic within the decade (e.g. by WHO). Now there are only two lines of defence against avian flu - a vaccine, or an anti-viral drug. Both approaches would need to be based on innovation in the health sector - but in fact no Australian firms are stepping forward to innovate in this vital area - and the FTA is only making matters worse.
1) Vaccine. Of the world's 12 vaccine producers, only two - Chiron and Aventis-Pasteur, have stepped forward, and only under the protection of the US government, through NIH contracts. Both are using a technique called "reverse genetics" to produce a new vaccine - but the process of gene-swapping involved is protected by a patent thicket, and the two firms have to seek exemption through their NIH contracts. But once they move beyond government-purchased supplies, and to commercial production, nobody knows what the IP situation will be. This is why no other potential vaccine producers have stepped forward. This is a case where government-mandated compulsory licensing would make sense - but we are making this much harder to achieve under the FTA.
2) Antiviral. The only drug active against avian flu, Tamiflu, is made by one company in the world, namely Roche, at a single plant in Switzerland. Australia is reported to be stockpiling Tamiflu - but why not make it, under license? This is a case where compulsory licensing would make eminent sense. But this is precisely what is being restricted under the FTA.
So here we see the stifling effect of too-concentrated IP protection on innovation - and the Australian government doing nothing to stimulate Australian production of either a vaccine or an antiviral drug to combat avian flu. Yet this could be a huge benefit for ourselves, and for our Asian neighbours, if bird flu strikes.
7. The US grand strategy on IPRs. All this is part of a grand strategy on the part of the US to extend its own IP protection systems around the world, for the benefit of US IP-protected industries - records, CDs, films, games, software, newspapers and magazines, as well as patent-protected goods, particularly pharmaceuticals. The copyright-protected industries on their own account for 5.2 per cent of US GDO in 2001 - that's US$535 billion. In the same year, the sector achieved exports of US$89 billion - making it the largest exporter from the US. No wonder they want to boost the provisions protecting these goods from "free and fair" competition. All the provisions targeted against generics, like parallel importing, are instances of restricting free trade in IP-protected goods.
And the Australian government has played right into US hands - willingly or not - in signing up to the US IPR agenda so easily.
Linda Weiss: the PBS
Let me briefly round off these comments with three points on how the trade deal damages the PBS. To grasp what is happening, it's helpful to start with a short description of how the PBS works.
• The PBS is a world-class system for delivering drugs at affordable prices to all Australians, regardless of ability to pay. The PBS lists more than 2500 different branded drugs and subsidies more than 80% of prescribed medicines sold through pharmacies, at a cost of some $6.2bn a year.
• The reason the PBS can deliver drugs at reasonable prices is because the Australian government acts as wholesale purchaser - buying on behalf of 20 million residents, at bulk rates.
• It's the role of the Pharmaceutical Benefits Advisory Committee (PBAC) to decide whether or not to list a new drug on the PBS; and its determinations are based on the drug's therapeutic benefits and cost-effectiveness.
• In order to do this effectively, the PBAC uses a technique called reference pricing. It's a very important part of the Scheme's success, and by the same token it is why the PBS has become a key target of the US pharmaceutical industry (a point I return to shortly).
Basically, reference pricing means that the PBAC uses the price of the cheaper generic version of an existing class of drugs, in order to establish the price of a new branded drug. So, for example, if Pfizer wants the PBS to buy ('list') its latest blood pressure drug, the PBAC will look to the existing generic drugs in that category as a benchmark for assessing the new drug's therapeutic benefits and its pricing. Reference pricing is one pillar of the Scheme's success. And it is precisely what US pharmaceutical companies have targeted for extinction - already with some success in recent months as I indicate later.
So our regulated system is very different from the unregulated drug market in the United States where drug prices are now the highest in the world. That's why dismantling the PBS is a key objective of the pharmaceutical giants (US pharma). So how does the trade deal give the pharmaceutical industry a means to achieve their PBS-dismantling objectives? It does this by introducing three main changes which put US trade concerns on the PBS agenda. Some of these changes are quite subtle, but all are designed to create maximum advantage for US pharma.
(1) First, the trade deal sets in place a new review procedure designed to challenge PBAC decisions. Drug companies unhappy with a PBAC decision can have the decision reviewed as a matter of course. This means that from now on, one person (an independent reviewer) will have the power to determine whether a recommendation made by a committee of experts (the PBAC) should be upheld or overturned.
(2) Secondly, the deal establishes a new body - the Medicines Working Group (which, tellingly, includes US pharma interests). What is the task of this group? The FTA document was careful to leave this vague and unspecified so as not to risk sinking the deal before it was signed, sealed, and delivered. But it doesn't take much effort to realise what this new body will do: it will have the task of overseeing the 'new priorities' that have been established under the FTA (and set pit in the Annex to the IP chapter on pharmaceuticals). It is important to note that these newly stated priorities are to reward 'innovation' and 'R&D' - not therapeutic efficacy. It is equally important to note that the text of the FTA makes no mention of the traditional social goals of the PBS - namely, the goals of providing cost-effective and therapeutically useful medicines to all. Instead, at the behest of US pharma, the PBS objectives and rationale have been completely replaced by alien goals: to reward the innovation activities (socalled 'R&D-based drugs') of foreign pharmaceutical companies. The Medicines Working Group has been set up to ensure that these new goals are the ones that are advanced and promoted. This implies that if either the PBAC or the Australian government are found to pursue policies or engage in actions that prioritise affordable and efficacious medicines for Australians, they can be found in breach of the agreement.
We note that one important case of US-pharma influence under the FTA has already occurred this year: the Howard government has recently caved in to US pharma, by savagely diluting its own crafty legislative proposal to reduce the cost of PBS-listed drugs, and embracing instead a pro-pharma compromise that looks set to unravel the entire reference-pricing system.
(3) Third, the trade deal greatly advances big pharma's generics-busting strategy by introducing a number of new regulations designed to eliminate or delay competition from cheaper generics. Two such changes include:(i) extending the life of patented drugs by an extra 5 years (as John mentioned in his talk); and (ii) banning generics manufacturers from using existing test data. Both changes are clearly designed to delay market entry of generics and thereby kill two birds with one stone: reduce competition and weaken the foundations of the PBS's reference-pricing system.
An important point to make in this context is that this attack on generics by America Inc. is part of a global strategy. Big pharmaceutical companies - the branded or patented rug sector - have identified generic medicines as the major threat to their global market share and profit base. To deal with that threat, big pharma is pursuing a two-stranded course of action:
• buying up generics companies in order to control pricing, and
• using bilateral trade agreements - like the one with Australia - in order to block or delay entry of cheaper generics - which it does by seeking to exend the life of patents, banning the use of test data by generics manufacturers, and so on;
And it is quite clear that Australia has delivered a gift to the US pharmaceutical companies in their generics-busting strategy. Overall, we can expect these changes to produce
• More (new) US drugs listed on the PBS • Ever higher prices for these drugs • Greater budgetary strain on the PBS
This can only be to the benefit of US drug companies - the fattest, most profitable companies in America, and the world. We now know from the findings of the Senate Inquiry into the FTA that the govt's repeated assurances to the Aust public that there was no way the PBS was part of the negotiations was a bald-faced lie. The Senate found that all the while the government was secretly laying down the terms of Australia's capitulation to the American drug companies: 'The fact remains that the PBS was being talked about with the US negotiators from the outset.' And that is why we are not at all reassured by the government's repeated assurances that the deal won't in any way affect the viability of the PBS. It already has.
But it would be remiss of me to end on such a dispiriting note. An exit strategy exists, so I will now hand over to Elizabeth to tell us what it is.
Elizabeth Thurbon: closing statement
All of what we've said this evening raises the question of how the government ended up in this mess. While unbelievable, we believe it's pretty simply to explain - we're in this mess because of the naiveté of the Howard government and their ideas about our 'special relationship' with the US. Evidence presented in our book points to the following facts:
(1) The government originally sought a comprehensive, far reaching deal with the US, including tariff reductions in key sectors in which Australia is most competitive (including beef, dairy, and horticulture).
(2) The government's negotiating team, led by Minister Mark Vaile, believed that such a deal would be possible due to our 'special' relationship with the US.
(3) The government urged Australian business leaders both at home and in the US to support the negotiations on that basis - in a breakfast meeting in New York last year ... Vaile rallied support on this basis.
(4) That this assumption was misguided and, as many Australian industry representatives predicted, our negotiators achieved negligible concessions for Australian exporters in areas in which we are most competitive.
(5) Most damaging however, they accepted far reaching changes that now threaten to erode and ultimately destroy the very institutions which underpin Australia's economic competitiveness and social wellbeing.
This is not to say that this is in anyway America's fault - their government is simply pushing the interests of its own firms. Nor is it to say that Australia should shy away from freer trade in the future. There is nothing wrong with freer trade - in fact freer trade (implemented mutually and sequenced correctly) can deliver massive opportunities for countries at all levels of development. But our point is that the Australia-US FTA is not a free trade agreement. It is a lopsided trade and investment deal that will deliver massive benefits to the US whilst undermining the foundations of Australia's social and economic security. That why this agreement - unless it is stopped - will Kill our Country.
So what is to be done? Australians could well heed that old backyard cricket saying in making their demands to the government: "Six and out". Australians want six and out. That is, we are perfectly within our rights under the deal to terminate the agreement by giving six months notice in writing. It's as simple as that. So - we'd urge you to take up the call of "six and out" - and to demand that we walk away from the deal in true Australian spirit!
Linda Weiss is Professor of government at the University of Sydney, Elizabeth Thurbon is Postgraduate Research Co-ordinator in the School of Politics and International Relations at the University of New south Wales, and John Mathews is Professor of strategic management at the Graduate School of Management, Macquarie University. This is the text of their presentation to the Evatt Foundation on 2 April 2005. By Linda Weiss, Elizabeth Thurbon, and John Mathews, How To Kill A Country: Australia's Devastating Trade Deal With the United States is published by Allen & Unwin, Sydney (2004). *The reference to 'musical back-up' is to the song "Shine A Light", a song about politics and trade, which the speakers commissioned for this event. It was written and performed by Kenneth Wallace and Dominic Thurbon. The lyrics can be found on the website: www.australianinterest.com and the recording will shortly be available for downloading.