7 August 2004

Free Spin Agreement

Milking the free trade deal for all it's worth
Australia and the United States announced their intention to legislate a bilateral trade deal in February, and at that time Goldman Sachs JBWere asked its company analysts to consider who might be affected.

Like its investment banking competitors, Goldman Were concluded quickly that the economic consequences of the deal in the near and medium term would be muted. And it discovered few specific impacts on listed Australian companies.

Listed beef producer Australian Agricultural Co and Futuris, which owns Elders, would benefit over time from better access to US markets, Goldman Were said, adding that there was another "small positive" for Futuris's vehicle air-conditioning business because residual US tariffs on car parts would go.

It thought also that higher trade volumes and business activity between the two nations would also provide long-term support for transport groups including Qantas, Toll Holdings and Patrick Corporation. One possible casualty of the FTA deal was identified in CSL: the drug and plasma group's exclusive fractionation agreements in Australia will be reviewed between now and January 2007 as part of the FTA deal, and could be opened to competitive tender.

In most cases, however, the investment bank discovered that for listed companies, the FTA simply doesn't matter. Slightly lower barriers to entry to the US would, for example, have "minimal impact" on car-parts maker Ion, which already had secure contracts with US groups. The phasing out of 3 per cent tariffs on US imports of Australian wine would have "immaterial impact" on the short-term earnings of local wine groups, and any impact of the financial sector depended on the outcome of a two-year scoping study under the FTA umbrella.

Writing their own scripts
Ironically, the Government's major argument against accepting Labor's amendment to its free trade legislation to protect against evergreening is that it would inhibit research - an argument which is the reverse of the truth, Henry says.

'As a result [of evergreening], we've had a flattening off of the drug discovery process for many diseases. We're not getting many new drugs. If you look at what manufacturers are making, it's things like new versions of Viagra, which the world doesn't really need.'

An example: no new class of antibiotics has been produced since the 1970s - though some have been tweaked - despite the rapid increase in the number of germs resistant to the old drugs (due in part to the over-prescription of antibiotics and to the fact an estimated 70 per cent of antibiotics are given to farm animals, but that is another story).

'The drug companies don't make as much money from drugs that you only take for five or six days, like antibiotics, compared with antidepressants or Viagra, which people take for 10 years,' Henry says.

Australians pay less for drugs than almost anywhere else in the world - far less than Americans do - and the Pharmaceutical Benefits Scheme, which keeps prices down by subsidising only the most effective drugs and acting as a monopoly buyer and provider of them, is the major reason for that. The drug companies hate it, which is the reason they wanted it included in negotiations for the trade deal.

The Government, of course, insists there is nothing in the agreement with the US to worry about. In the words of Dr Ruth Lopert, the senior Health Department official advising on the trade agreement, it neither 'encourages nor prevents' evergreening.

But the deal includes measures placing new obligations on the makers of generic drugs and gives the drug makers greater involvement in the processes of the Pharmaceutical Benefits Scheme.

More and more the whole thing feels like an exercise in shadow politics where the real costs and benefits of the preferential trade deal disappear in favour of guesswork about what might please the electorate. The economic benefits are nowhere near as great as the thing's supporters say and evergreening is not a significant threat under the deal, although the PBS as a whole may come under US pressure.

There's also the interesting question about whether Labor's amendment on local content can override the text of the treaty itself and the much more interesting question of why a 21st century constitution allows the prime minister to sign and ratify a treaty without parliamentary approval.

6 August 2004

No, Prime Minister, you can't see into the future

Sir Humphrey: 'Alas, there are grave problems about circulating papers before they are written.'

John Howard's government, it appears, can do what Jim Hacker's could not. It can not only circulate materials not yet written, but have them legally analysed and rejected as well.

The only conclusion one can draw, following yesterday's parliamentary debate about the threat presented to the Pharmaceutical Benefits Scheme by the trade deal with the US, is that the departments of Prime Minister and Cabinet, Foreign Affairs, Health, Industry and Attorney-General employ large numbers of people who are both lawyers and clairvoyants.

I confess I was not aware of this elite corps of legal parapsychologists until question three in the House of Reps yesterday.

That was when, with considerable flourish, Howard produced what were purported to be legal opinions from all those departments, all concluding there was no way, none at all, absolutely for sure, that the Opposition's proposed amendment to protect the scheme from being rorted by big drug companies would work.

What makes his gambit extraordinary is that no one outside the Labor Party has seen exactly what Labor is proposing.

To suggest that any lawyer could give a firm view on the basis of no document whatsoever is, you would have to say, to make a heroic assumption. All the more so because the lawyers were apparently working off a brief similar to that from which the various government members were, which misrepresented even the limited information the Opposition has provided.

The Foreign Minister, Alexander Downer, pushed the issue furthest, claiming that Labor's plan was that 'all patent claim applications [not just those on pharmaceuticals] that are rejected get fined'.

This week's been good fun all round for everyone except perhaps the prime minister. Sadly, ever-greening is not the main problem with the preferential trade agreement and Labor's amendment will not make it into a good deal. The agreement privileges the intellectual property sector where the US has an advantage and does nothing very much at all in the agricultural sector where Australia has the advantage. US agricultural subsidies are untouched. Even after Labor's local content amendment the PTA drives a truck through our efforts at cultural sovereignty.

Canada managed to escape cultural restrictions. Why did the Howard government sign such a bad deal?

President Signs Defense Bill

Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we.

I wish I could clarificate myself that well... But in the kingdom of the blind a gaffe is never a gaffe and a clanger is never a clanger.

White House spokesman Scott McClellan said Bush's misstatement 'just shows even the most straightforward and plain-spoken people misspeak'.

'But the American people know this president speaks with clarity and conviction, and the terrorists know by his actions he means it,' McClellan said. ">

If the president speaks with clarity and conviction, it follows he is thinking of new ways to harm his country and his people. On the other hand, if he doesn't want to harm his people and his country then he's not speaking with clarity and conviction. Even in the kingdom of the blind, logic still rules.

5 August 2004

Counter-Insurgency on the Cheap

Critically for Bashir, the central pillar of the Sudanese state - a cabal of security officers who have been running the wars in Sudan since 1983 - was still in place. Faced with a revolt that outran the capacity of the country's tired and overstretched army, this small group knew exactly what to do. Several times during the war in the South they had mounted counter-insurgency on the cheap - famine and scorched earth their weapons of choice. Each time, they sought out a local militia, provided it with supplies and armaments, and declared the area of operations an ethics-free zone. The Beni Halba fursan , or 'cavalry', which had been used against the SPLA in 1991, was an obvious instrument to employ in Darfur. The northern camel nomads, including former Islamic legionnaires, were also on hand. Some claim that their name - the Janjawiid - derives from 'G3' (a rifle) and jawad ('horse'), but it is also western Sudanese dialect for 'rabble' or 'outlaws'. Unleashing militias has the added advantage for the security cabal that it may derail the near complete peace process with the SPLA and allow them to retain their extra-budgetary security agencies; it also immunises them against being charged in the future with committing war crimes.

The atrocities carried out by the Janjawiid are aimed at speakers of Fur, Tunjur, Masalit and Zaghawa. They are systematic and sustained; the effect, if not the aim, is grossly disproportionate to the military threat of the rebellion. The mass rape and branding of victims speaks of the deliberate destruction of a community. In Darfur, cutting down fruit trees or destroying irrigation ditches is a way of eradicating farmers' claims to the land and ruining livelihoods. But this is not the genocidal campaign of a government at the height of its ideological hubris, as the 1992 jihad against the Nuba was, or coldly determined to secure natural resources, as when it sought to clear the oilfields of southern Sudan of their troublesome inhabitants. This is the routine cruelty of a security cabal, its humanity withered by years in power: it is genocide by force of habit.

Sheikh Hilal's world, with its stable cosmos and its relaxed reciprocity between farmer and nomad, has disappeared, as he feared it would. Unrelenting poverty has been transformed into violence by misgovernment and imported racisms. What to do now in the face of genocidal massacre and imminent famine? Legal action - trying Musa Hilal and his sponsors as war criminals - is essential to deter such crimes in future. But condemnation is not a solution. The Janjawiid's murderous campaigns must not obscure the fact that Darfur's indigenous bedouins are themselves historic victims.

As they did twenty years ago, the people of Darfur face destitution, hunger and infectious disease. Apocalyptic predictions of mass starvation were made after the 1984 drought - up to a million dead, aid agencies said, if there wasn't food aid. The food didn't come, and many died - around 100,000 - but Darfur society didn't collapse because of the formidable survival skills of its people. They had reserves of food, they travelled huge distances in search of food, work or charity, and above all they gathered wild food from the bush. Today, food reserves and animals have been stolen, and what use is the ability to gather five different kinds of wild grasses, 11 varieties of berry, plus roots and leaves, if leaving a camp means risking rape, mutilation or death? Predictions of up to 300,000 famine deaths must be taken seriously.

A huge aid effort is grinding into gear. But the distances involved mean that food relief is expensive and unlikely to be sufficient. It's tempting to send in the British army to deliver food, but this would be merely symbolic: relief can be flown in more cheaply by civil contractors, and distributed more effectively by relief agencies. The areas controlled by the SLA and JEM contain hundreds of thousands of civilians who are not getting any help. As soon as an intrepid cameraman returns with pictures of this hidden famine, there will be an outcry, and pressure for aid to be delivered across the front lines. There's no reason to wait for the pictures before acting, although it's clear that cross-line aid convoys will need to carry armed guards.

The biggest help would be peace. In theory, there's a ceasefire; in practice, the government and Janjawiid are ignoring it, and the rebels are responding in kind. The government denies that it set up, armed and directed the Janjawiid. It did, but the monster that Khartoum helped create may not always do its bidding: distrust of the capital runs deep among Darfurians, and the Janjawiid leadership knows it cannot be disarmed by force. When President Bashir promised Kofi Annan and Colin Powell that he would disarm the militia, he was making a promise he couldn't keep. The best, and perhaps the only, means of disarmament is that employed by the British seventy-five years ago: establish a working local administration, regulate the ownership of arms, and gradually isolate the outlaws and brigands who refuse to conform. It took a decade then, and it won't be any faster today. Not only are there more weapons now, but the political polarities are much sharper.

In some ways this sounds like Ex-Yugoslavia where members of the national political elite used local ethnic identifications to build up their national power. Milosevic went from being an unknown central banker to the presidency by promising the Kosovo Serbs they would never be beaten again. The ecological fragility gives ethnic cleansing (even with ethic groups that essentially did not exist 20 years ago) a horrific scale. The African Union is considering military intervention with a force of 2000.

3 August 2004

BOB on Board

However: if we are to expect airplane captains and flight attendants to make important security decisions, they need to be properly trained. The flight attendant who discovered the airsickness bag didn't react from reason, but from fear. And that fear was transferred to the captain, who made a bad decision.

Fear won't make anyone more secure. It causes overreactions to false alarms. It entices us to spend ever-increasing amounts of money, and give away ever-increasing civil liberties, while receiving no security in return. It blinds us to the real threats.

Speaking about the person who wrote those three fateful letters on the airsickness bag, Transport Minister John Anderson called him 'irresponsible at the least and horrendously selfish and stupid at the worst.' Irresponsible for what? For writing his name? For perpetuating common flight-attendant slang? It wasn't the writer who did anything wrong; it was those who reacted to the writing.

We live in scary times, and it's easy to let fear overtake our powers of reason. But precisely because these are scary times, it's important that we not let them.

Prime Minister John Howard praised the crew for their quick reactions, diligence, and observation skills. I'm sorry, but I see no evidence of any of that. All I see are people who have been thrust into an important security role reacting from fear, because they have not been properly trained in how to sensibly evaluate security situations: the risks, the countermeasures, and the trade-offs. Were cooler and more sensible heads in the cockpit, this story would have had a different ending.

Unfortunately, fear begets more fear, and creates a climate where we terrorise ourselves. Now every wacko in the world knows that all he needs to do to ground an international flight is to write 'BOB' on an airsickness bag. Somehow, I don't think that's the outcome any of us wanted.

The response, especially by Anderson and Howard, is about avoiding blame for future events.

Back in 1973, Mossad, the Israeli security service, adopted The Concept, by which they persuaded themselves Egypt would never attack until it had gained parity in fighters and pilots. This was not expected until 1975. Safe in the Concept , Mossad ignored signs of the Egyptian/Syrian military buildup on its borders. They also ignored a last minute warning from King Hussein of Jordan. Mossad has since devoted considerable resources to not getting caught out again. Their intelligence assessments now always veer towards the red zone.

Stalin rejected ample warning of the German invasion, including warnings from his own spymaster in Tokyo, Richard Sorge.

Human intelligence on al-Qaida is nonexistent. Signal intelligence and measurement/signature intelligence really do not work well. A politico trying to avoid getting caught out may not stop an attack but they can adopt effective strategies to escape blame.

Staying hyperalert and hyperalarmed all the time is not going to achieve much in the way of repelling terrorists. The military experience is that the worst thing you can do to a force-in-being is trying to keep it action-ready at all times. But it does let the prime minister say: "I told you so.'

2 August 2004

Voting the AUSFTA up or down

A few people are floating the idea that the Senate can amend or qualify the preferential trade agreement with the US. The Senate committee disagrees. As the inquiry's chair wrote in the preface to their June interim report:

A vote which gives all the relevant bills passage without amendment triggers the Agreement. Any amendment to or rejection of a bill will have the effect of abrogating the whole Agreement.

If Labor decides to pass the beast with amendments that means only that they are trying to spin one past the electorate. If the thing needs changing then the changes must be renegotiated with the US.

The Senate Committee has recommended ratification and Labor will undoubtedly follow that advice. There's a growing mountain of parliamentary reports:

They are all mountainous PDFs and you can make your way through that lot I congratulate you. Voting on Trade is probably the most useful and it's mercifully brief. Recommendation 2 is the most important point in the report.

3.91 The Committee recommends that the government introduce legislation to implement the following process for parliamentary scrutiny and endorsement of proposed trade treaties:

a) Prior to making offers for further market liberalisation under any WTO Agreements, or commencing negotiations for bilateral or regional free trade agreements, the government shall table in both Houses of parliament a document setting out its priorities and objectives, including comprehensive information about the economic, regional, social, cultural, regulatory and environmental impacts which are expected to arise.

b) These documents shall be referred to the Joint Standing Committee on Foreign Affairs, Defence and Trade for examination by public hearing and report to the parliament within 90 days.

c) Both Houses of parliament will then consider the report of the Joint Standing Committee on Foreign Affairs, Defence and Trade, and then vote on whether to endorse the government's proposal or not.

d) Once parliament has endorsed the proposal, negotiations may begin.

e) Once the negotiation process is complete, the government shall then table in parliament a package including the proposed treaty together with any legislation required to implement the treaty domestically.

f) The treaty and the implementing legislation are then voted on as a package, in an ?up or down? vote, ie, on the basis that the package is either accepted or rejected in its entirety.

The legislation should specify the form in which the government should present its proposal to parliament and require the proposal to set out clearly the objectives of the treaty and the proposed timeline for negotiations.

Labor coudl take some of the sting out of this decision by undertaking to enact Recommendation 2 which mirrors what happens in the US.

Trade deal a free kick for US software racketeers

The outcome for Australia is clear. We are a net importer of software. So software patents, by allowing monopoly profits with monopoly pricing and monopoly standards of quality, can do us a great deal of damage.

A large quantity of the Australian software budget is spent overseas buying such monopoly products. So encouraging the already existing drift towards US-style software patent laws that favour the existing incumbents could result in this expenditure increasing indefinitely.

This is especially sad since there is one area in software where Australia punches well above its weight, and that is in collaborative open source software. In the open source model, when a number of people and companies find they have a need for a software product, they co-operate to create it.

This allows firms and individuals to gain access to the product for significantly less than it might otherwise cost them. Since the cost of replicating software is almost zero, a free licence to use the software is granted to all comers, who are then free to improve it themselves and feed those improvements back to the original users.

Software built on this principle is widely used. It runs most of the internet, most of the world wide web, and provides a vast number of free and open tools for software engineers. It is also used as part of many, many commercial products, such as Apple's OSX operating system, IBM's web products, Sun's java offerings and so on.

Australian software developers excel in this area, and are enthusiastic and frequent participants in world software.

Unfortunately, open source software, and open competition based on open engineering standards, represents a serious threat to those existing software producers who are too inefficient to compete on a level playing field, or who simply want to lock past successes into an indefinite tax on the future.

Like the canal owners of old faced with the threat of railways, some desperate (or greedy) businesses are attempting to use the courts as a substitute for talent.

Already in the US litigation and threats of (often unspecified) patent and copyright violation are used regularly by software giants to either suppress completely, or acquire on favourable terms, smaller and more innovative firms.

Importing this legal circus to Australia could only harm the smaller players in the local industry, both open source developers and independent software companies.

I don't think it is at all clear that either major political party knows what the FTA's impact on the country will be. The current farce of Labor planning to announce its policy as soon after the Senate inquiry reports as the government did after the JSCT reported suggests that it's about spinning the electorate rather than analysing the beast's impact. Tony Windsor told the House of Representatives during the FTA debate:

Independent Member for New England, Mr Tony Windsor has joined with other Independent Members of the House of Representatives Peter Andren (Calare), Bob Katter (Kennedy) and Michael Organ (Cunningham), to oppose the Federal Government�s attempt to push the Free Trade Agreement (FTA) with the United States of America through the House of Representatives before proper scrutiny has been applied to whether the FTA is in Australia�s best interest.

�This so called �Free� Trade Agreement should not be allowed passage into legislation before it has undergone strong scrutiny and the public should not be fooled by Government attempts at a pretence that proper scrutiny has been carried out.

�I am on record through a question to the Prime Minister in Parliament in February this year when this arrangement was first proposed, as requesting the Prime Minister to hand the agreement to the Productivity Commission for an Independent and thorough review.

�The Joint Standing Committee on Treaties (JSCoT) delivered the first attempt at a report on the FTA yesterday, yet within twenty minutes, the Government has attempted to drive the agreement through the Parliament in the next day,� Mr Windsor said.

The thing is being rushed by both sides and no-on is reading the footnotes.

The US just isn't paying attention

There are those who worry about the fate of society in a nation of wilful non-readers, but I worry about the fate of democracy. The consequences of not paying attention are wide-ranging. In corporate America, it's become a problem that workers do not fully read the key corporate documents employers issue for their benefit. Think 'Enron ethics code'. And in public life, details get missed, wrong impressions formed. Headlines substitute for reading past page one.

Total ignorance, one might argue, is in fact better for democracy than a partial ignorance that masquerades as knowledge. At least the totally ignorant sense their limitations. Skimmers, on the other hand, may well occupy the ranks of power and feel a mastery of the information around them. But in truth they have faulty intelligence. After listening to the 'executive summary' on their drive in to work or on the treadmill, they have a false confidence that they know what they need to know.

Little wonder that there is a call to declassify the one-page summary of Iraq intelligence prepared for President George Bush before the invasion. The sheet reportedly omits qualifiers and nuance, creating a much starker sense of the world situation. The Administration's refusal to release the brief document is based on the grounds that it's irrelevant because the full National Intelligence Estimate was released and, according to one official, 'we expect people to read beyond one page'. But most people at home know that they themselves might have read only the cover sheet. They wonder: did the President or his advisers flip past it, or did they stop after glancing at the Cliffs Notes?

Indeed, even the President's chief opponent, John Kerry, acknowledges that he did not read the admittedly lengthy NIE before voting on whether to grant authority to invade Iraq. Skimming, clearly, is a nonpartisan issue.

Sadly, sometimes it seems we are forced to wonder whether any of our leaders ever read their briefing materials at all. Before we blame them, though, let us look at our own habits, and ask whether we are really reading what is before us.

When Nick Greiner replaced Neville Wran as premier of New South Wales in 1988 he came in with a Harvard MBA and a passion for administrative tinkering. A friend worked in 6 different departments during the Greiner premiership without ever changing his actual job.

Greiner inherited a small equal opportunity unit in the Premier's Office. They drafted regulations, the premier approved them and the public service was bound by the premier's directives. Greiner out-posted EEO to agencies. Everyone suddenly had an EEO co-ordinator who drafted an EEO plan that the agency itself promulgated and theoretically followed. The focus shifted from carrying out the centralised EEo directive to having the best plan. Now 1988 was the techn dark ages so EEO plans only circulated among co-ordinators by sneakernet.

Yesterday I had a long talk with my favourite cousin. They've just been promoted from a Sydney job to policy stuff in Canberra. I muttered about the great sneakernet EEO plan binge of 1988. She muttered about the email driven action plan binge of 2004.

I really wonder if the flood of documentation moving through various public and private bureaucracies ever gets read or acted on.

Australia and its allies have just fought a war over weapons of mass destruction which do not exist and human rights abuses which have been grossly exaggerated in order to defeat an enemy who was not there and who was actually strengthened, not weakened, by the war.

Perhaps if we read things a little more slowly the combined intelligence agencies of the coalition of the willing might have been able to out-perform the blogosphere in deciding what was likely to be happening in Iraq. We are now arguing if the failure of intelligence was getting the state of the world wrong or just skimming the papers. The state of the world matters. Who read or failed to read which footnotes does not.

We need a movement for slow government.

1 August 2004

World trade talks reach agreement

"It's good news for the world economy, it's good news for developing countries and it is very good news for Europe because we have always prioritised WTO and multilateral rules- based trade openings as a major objective of EU trade policy," said the European Union's trade commissioner, Pascal Lamy, before the final vote.

Talks had been extended into Saturday after WTO negotiators failed to reach a previous deadline of midnight on Friday.

Developed countries have recognised that agricultural trade with a heavy subsidy component is not free trade.

But even with the latest agreement, the details will still have to be hammered out, and that could take at least another couple of years, says the BBC's John Moylan in Geneva.

"Developed countries have recognised that agricultural trade with a heavy subsidy component is not free trade," said Indian Trade Minister Kamal Nath.

A small group of African countries also claimed a major breakthrough on their key agricultural product of cotton, said our reporter.

After hours of talks, key WTO nations, including the US, the EU, Brazil and Japan, agreed to eliminate export subsidies at a date to be set, to limit other subsidies and lower tariff barriers.

In return, wealthier nations, among them the EU's members, are insisting on better access to markets in developing nations.

The US FTA could suddenly become a good deal less important. Australia's real trade needs are access for primary products and that's precisely what the FTA does not give. On the other hand, if the WTO process suddenly comes alive the FTA looks a lot less like a safe harbour and a lot more like a Free Tampa agreement.

Iron Mark will be making a terrible error if he ratifies the FTA. Rightly or wrongly it will be seen as another small target exercise, but one that permanently trades off cultural sovereignty and the PBS in return for SFA. The FTA is less generous on cultural matters than the Canada/US agreement. The FTa also ties us into a US economy that sooner or later has to start contracting.

From superpower to dinosaur: America's destiny
To stabilise its debt at this level by 2013, US imports from the rest of the world will have to decline by $US90 billion to $US375 billion in today's dollars, depending on various assumptions about future US exports and the value of the American dollar.

The report argues that "it is not possible to construct a plausible scenario in which the US can even sustain s its current levels of imports. Measured in real terms, the extraordinary growth in US imports over the past 12 years clearly will not be repeated".

What this means is that if Australia is banking on expanding its exports to make up for the concessions it has made in areas such as intellectual property rights, rules governing investment and government procurement, it will have to be at the expense of other exporters to the US, such as Canada, Japan and China.

While the Centre for Economic and Policy Research doesn't single out Australia, it states that "for most countries, the costs of such concessions can be expected to exceed any gain they might anticipate from increased access to a shrinking US market for their exports".

The contraction in US imports is unlikely to be smooth or without great cost to the world, especially those tied to the US through free trade agreements.

The Bush Administration has turned Bill Clinton's $US5.6 billion surplus into an unsustainable deficit - before counting the $150 billion a year cost of its unsuccessful occupation of Iraq. And there is a mulish determination to avoid developing an Iraq exit strategy, higher taxes and the other policies necessary to avoid another global recession that could see the US transformed from superpower to dinosaur.

Trade policy really needs to have a hard edge. It does not need to be built on the nebulous desire of the Man of Steel to make himself one with the Great Dubya.

Kick AAS has (as usual) done the hard work of ploughing through the WTO Draft General Council Decision of 31 July 2004, and says:

Great! But hang, on, there is no date set. Does that mean it could take 20, 30 or 50 years? Agreeing to end subsidies without a date is a bit like rich nations deploring subsidies in general (because they offend free trade) but doing nothing about it in practice (ie the situation before these talks started). It is the same problem with the end of cotton subsidies over which African nations claimed a late victory. The end has been agreed but with no date attached. It�s as bit like writing a will with the amount of the legacy left blank.

W are told Augustine of Hippo used to pray: 'Lord, make me chaste, but not yet.