USTR - Don't Get Bitter About Sugar
Office of the United States Trade Representative


Don't Get Bitter About Sugar
The Wall Street Journal

By Robert B. Zoellick

In trade negotiations as in all walks of life, it is important to remember the Ninety-nine Percent Rule: Do not pass up an overwhelmingly positive result just because tough compromises had to be made on the last 1%. Such is the case with the recent landmark free trade agreement between the United States and Australia. This agreement will eliminate tariffs on more than 99% of U.S. manufactured goods exports to Australia on day one. Those exports account for 93% of total U.S. sales to Australia's large market, and support 150,000 good-paying American jobs. In creating new export opportunities for America's manufacturers, this deal will help a vitally important segment of our economy while also expanding markets for America's services firms, creative artists, and farmers.

Yet after this agreement was announced, some supporters of free trade chose to focus instead on a single agricultural commodity, accounting for less than 1% of two-way trade, that is not liberalized in the agreement. Standing on lofty principle, these critics seem to discount the agreement's overall significance, both for America's economy and for the cause of global trade liberalization. It is time to pause, take a deep breath, and reflect on what has been achieved.

* * *

Australia is America's ninth-largest export market, and a significant consumer of American-made products such as aircraft, construction equipment, trucks and SUVs, machinery, chemicals, and paper. Every year, Australia buys more than $13 billion in products from the United States. Every single U.S. state sells to Australia, and it is a particularly important market for companies in the heart of our Midwestern manufacturing belt. With virtually all of those exports going duty-free under this agreement, America's manufacturers estimate they could sell $2 billion more per year to Australia, and they predict that U.S. national income would grow by nearly that much as well.

Unlike other countries' narrow trade agreements, which typically leave out agriculture entirely and give scant attention to other issues, our accord with Australia contains important benefits for America's services firms, creative industries, and farmers. Markets for services such as life insurance and express delivery will be opened; intellectual property will be better protected; U.S. investments will be facilitated; and American firms will be allowed to compete for Australia's government purchases on a nondiscriminatory basis for the first time. All U.S. farm exports -- more than $400 million per year -- will go duty-free to Australia, benefiting many sectors such as processed foods, fruits and vegetables, corn, and soybeans.

Some in the United States might have hoped that Australia would simply acquiesce to every last U.S. demand on services, investment or intellectual property, just as some in Australia may have hoped for immediate free trade on every last farm commodity. But trade negotiators live in the real world, and in the real world objectives must be balanced by sensitivities. In a trade negotiation as in a business transaction, both sides start with maximum objectives, but both must settle for slightly less than 100% if they want to reach a win-win agreement. The challenge for trade negotiators is to craft a broadly balanced agreement that will expand trade and win political support at home. The U.S.-Australia FTA is just such an agreement.

Careful compromises do not set back the cause of free trade, but in fact are necessary for success. Those who fret greatly about "precedents" have forgotten that the history books of free trade are filled with agreements that successfully balanced ambition with sensitivities and exclusions. For example, dairy, poultry, eggs, and sugar were largely excluded from liberalization under the U.S.-Canada Free Trade Agreement. Israel retained protections for most of its agricultural commodities in the U.S.-Israel FTA. And the U.S. still has tariffs on some farm goods, footwear, corn brooms and ceramic tile under the North American Free Trade Agreement -- more than 10 years after it was enacted.

None of these compromises dampened enthusiasm for free trade among other countries or industry sectors. In fact, just the opposite: The success of the Canada agreement spurred interest in expanding free trade to all of North America, and the completion of Nafta gave a needed push to the Uruguay Round of global trade talks. No trade agreement is ever a cookie-cutter precedent for the future, because each negotiation presents unique economic and political circumstances. But the important common thread is that each of these past trade agreements -- like the recent Australia agreement -- struck careful balances that could win broad political support, thereby opening the door to new economic opportunities and vastly expanded trade and incomes.

By any standard, the free trade agreement with Australia is a major accomplishment. It will result in more significant immediate cuts in tariffs on industrial exports than any previous U.S. free trade agreement. It holds the promise of major benefits for broad segments of America's economy, it will strengthen bonds with a valued economic partner and strategic ally, and it will lend added momentum to the Doha negotiations in the World Trade Organization. It represents a special opportunity, and the administration will work closely with the Congress to pass the U.S.-Australia Free Trade Agreement so our private sectors can move quickly to seize it.

Mr. Zoellick is the U.S. trade representative.
(Copyright (c) 2004, Dow Jones & Company, Inc.)

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