A Trade Test for U.S.

U.S. milk, beef and sugar producers -- including hundreds of California dairy farmers -- are likely losers if the Bush administration finalizes a trade pact with Australia that is seen as a key test of America’s resolve in promoting global free trade.

Negotiators meeting this week in Washington are anxious to wrap up the agreement, aimed at giving Australian farmers greater access to U.S. consumers while opening up markets Down Under for U.S. pharmaceuticals, machinery and entertainment.

A deal would also allow the Bush administration to reward Australia for its support of the Iraq war.

But by backing the pact, the Bush team could face a political backlash at home.

American consumers would probably benefit through lower food prices, while Hollywood could gain a greater share of the attractive Australian entertainment market. The U.S. agriculture industry, however, fears the agreement will open the door to a flood of cheap imports, driving thousands of U.S. producers out of business.

“There’s a lot of trepidation among California farmers,” said Christopher Galen, a spokesman for the National Milk Producers Federation in Washington. “The guys with the boots in the Central Valley are real concerned that the guys with the suits in Hollywood are going to be the ones who benefit from this agreement, at their expense.”

California’s 2,144 dairy farmers, who provide more than 20% of the nation’s milk, claim they will lose up to 21,000 jobs and $4.9 billion in farm income if the U.S. agrees to Australia’s dairy proposal.

“This is going to either make or break the dairy industry in the United States,” said Cornell Kasbergen, 46, a third-generation dairy farmer in Tulare.

Farmers in Australia and the developing world, who accuse Washington of failing to match its free-trade rhetoric with action, say the U.S. must open up its most protected farm sectors or risk further alienating developing countries under pressure to purchase more American high-tech goods and services.

Anger over huge U.S. and European farm subsidies contributed to the breakdown in global trade talks last fall in Cancun, Mexico. Officials at the Geneva-based World Trade Organization are trying to restart those negotiations, which were supposed to develop a blueprint for a trade round launched two years ago in Doha, Qatar.

The clash over agriculture has turned the U.S.-Australia trade talks into a litmus test of America’s willingness to confront free-trade opponents within its own borders. Though the Bush administration has been a leading proponent of opening markets around the world, it triggered widespread resentment when it levied punitive restrictions on imports of steel and apparel and textiles.

With global trade talks in hiatus, the U.S. has turned its attention to finalizing bilateral free-trade agreements with Australia and more than a dozen other countries, including Morocco, five Central American nations, the Dominican Republic, Bahrain and Thailand.

The U.S. and Australia already boast a robust economic relationship. The U.S. shipped $12 billion in goods to Australia in 2003, making it the country’s top supplier, while purchasing $5.8 billion in Australian goods. U.S. companies are also the top foreign investors in Australia.

Grant Aldonas, U.S. Commerce department undersecretary, said recently that he was confident the two sides could wrap up a deal benefiting both countries and rewarding a “tremendous ally.” U.S. trade negotiators have said they are pursuing an accord that would include greater access for services, investment protections and “across the board” liberalization of agricultural trade. U.S. farmers have accused Australia of using health and safety regulations to unfairly keep citrus, apples and grapes out of their market.

The U.S. and Australia want to wrap up negotiations within the next two weeks to avoid getting bogged down in contentious national elections being held in both countries this fall. Farm groups, unions and other opponents have vowed to take their battle to Congress, where the deal will need to be approved.

Australian Foreign Minister Alexander Downer said Saturday that his government would not sign a deal unless it gave farmers greater access to U.S. consumers. Australia has agreed, however, to consider a “phase-in” period for the U.S. to remove quotas and reduce tariffs on sensitive commodities such as dairy products.

Downer, who spent a week in Los Angeles promoting Australian trade, urged the United States to demonstrate leadership in the trade arena by opposing “vested interest groups” and opening up its dairy, sugar and beef markets.

“You want a Free Trade Area of the Americas?” the outspoken Australian diplomat said, referring to the Bush team’s hopes for a continent-wide free-trade zone. “How are you going to persuade a country like Brazil, which has a lot of reservations about free trade

Analysts are skeptical the Bush team will make serious concessions on agriculture in the Australia deal, given the strength of farm lobbies in key electoral states such as California, Florida and Pennsylvania.

“This is a politically motivated, very focused administration,” said Mark Ritchie, president of the Institute for Agriculture and Trade Policy in Minneapolis. “They are not going to do something that’s going to cut off their legs politically. There’s going to be no concession that harms Bush’s chances of reelection in Florida. Period.”

Industries in California, one of the nation’s most trade-dependent economies, are divided over the trade pact, with agriculture and entertainment lined up on opposing sides.

The agriculture industry complains that Australians have far more to gain from access to U.S. consumers than Americans, because Australia’s market is so much smaller. In Australia, dairy farmers here point out, their counterparts are highly efficient, benefiting from low costs for land, feed and labor.

What’s more, American farmers fear a trade deal with Australia will open the door for a similar agreement with neighboring New Zealand, a much larger exporter of farm products.

Joaquin Contente, a second-generation dairy farmer in California, is organizing a letter campaign to remind Congress and the White House that this fall’s election is at stake. The president of the California Farmers Union, a coalition of family farms, said farmers already facing record-low milk prices couldn’t compete against Australians whose costs are as much as 50% lower.

“We’re going to give democracy a test,” vowed Contente, who produces a tanker load of milk a day from the 800 Holsteins on his farm in Hanford. “If the White House is going to go forward with this, we’re not going to support the president in the election.”

On the other side, Hollywood studios are pushing for the pact, hoping for greater access and stronger intellectual property protections. Australia, like many countries, has local content quotas for television programming. Entertainment companies want Australia to agree not to impose rules that would restrict future opportunities, particularly in new media. Australia is America’s eighth-largest market for filmed entertainment.

“We would like to see in the trade agreement a way to ensure that content can flow freely and consumers can access it in both markets without artificial barriers,” said Rick Lane, Washington-based vice president of government affairs for News Corp., controlled by Australian magnate Rupert Murdoch. News Corp.’s U.S. interests include 20th Century Fox , the Fox News cable channel and DirecTV, the nation’s leading satellite television provider.

The globalization of the entertainment industry makes it difficult to separate out interests along national boundaries. The proposed trade pact has attracted the ire of some Australian entertainers, including actor Geoffrey Rush, star of the award-winning movie “Shine.” He has accused the United States of cultural imperialism, contending that the agreement would threaten government programs intended to nurture and protect Australia’s homegrown talent.

But Jack Valenti, president of the Motion Picture Assn. of America, said the entertainment industry in both countries would benefit from a pact that was being touted as a template for similar pacts elsewhere in the world.

“Australia is one of the greatest talent-producing and movie-producing countries in the world,” he said. “Their views and our views ought to be consistent.”