On the surface, it would seem the Bush administration's decision to pursue a free trade agreement with Australia would be good news, given the U.S. farmer's dependence on exports.

But the pursuit of a new agreement — assuming the Australians are willing to deal — will not be without pitfalls, according to officials with the U.S. Wheat Associates, the export promotion arm of U.S. wheat growers.

U.S. Trade Representative Robert Zoellick notified Congress of the administration's intent to move forward on a free trade agreement with Australia (They may have to call it “FTAA — 2”since the administration already is working on a Free Trade Agreement with the Americas.)

“We believe the United States has much to gain in pursuing a negotiation with Australia,” Zoellick said. “The increased access to Australia's market that an FTA would provide would further boost trade in both goods and services. We plan to strengthen these commercial ties and address barriers that U.S. exports face today.”

U.S. Wheat Associates officials note they have long supported the development of favorable trade agreements, but say they have a serious problem with the Australian Wheat Board (AWB).

Australian farmers will tell you they are the last bastion of free enterprise, they receive no government subsidies and that they have a totally market-driven agricultural economy. What they neglect to mention is the quasi-governmental AWB, which would rival any state trading enterprise in the People's Republic of China.

According to U.S. Wheat Associates, the Australian government grants the AWB an exclusive monopoly on exports of Australian wheat. “While the AWB is no longer an official arm of the government, it still operates with government sanction, exercising sole control over international sales, shipping and promotion of Australian wheat,” says Alan Tracy, U.S. Wheat Associates president.

“They set prices by administrative fiat, often taking advantage of U.S. grain exchanges to undercut U.S. exporters in other markets. The Australians particularly compete against the U.S. in the Asian market, so the AWB's ability to work outside the norms of global competition directly and often egregiously undercuts U.S. wheat sales.

“Since monopoly power is antithetical to the operation of a free market, it should be removed in a ‘free trade’ agreement.”

U.S. Wheat's board of directors has consistently said such state trading enterprises are incompatible with free market operation.

“Now that the administration is undertaking negotiations, we reiterate our concerns about the Australian Wheat Board,” said Tracy. “Specifically, we insist that the monopoly be ended as part of any such bilateral agreement that the administration submits to Congress for ratification.

USW officials, on the other hand, are applauding the announcement of a new free trade agreement with Chile, which promises to end a variable import levee the Chilean government imposes above a 7 percent duty on wheat.

Tracy said it appears the tariff on durum wheat will go to zero when the agreement takes effect and that the “price band” variable import levee will be phased out over 12 years for other wheat classes. Further, if Chile later enters any agreements with Canada or the European Union that give them a lower tariff, the U.S. tariff goes down to match.

e-mail: flaws@primediabusiness.com