The high cost of free trade

When the free trade agreement with the United States kicked in a year ago, Bill Rush saw his big chance. His company, Australian Defence Apparel, makes ceramic plates to be worn over bulletproof vests to protect troops against armour-piercing fire. The Australian-owned company has beaten German and Israeli competition to supply the British Army and London Metropolitan Police with its plates. The prospect of a $40 million-plus sale to the US Army beckoned.

But Rush was soon to find that 'free' trade with the US isn't what it seems. While Australia has removed barriers to the US supplying the Australian Defence Force, the US Army used a legislative ban on foreigners supplying clothing or fabric to block purchase of the Australian product. This was despite Pentagon support for the deal and the company's claim that a ceramic plate is neither clothing nor fabric.

It is early days, but so far the much-hailed free trade agreement has proved another story for Australia at large. The pact that the Government forecast would give a $6 billion lift to the Australian economy over 10 years has produced a trade reversal for the junior partner. Figures for the first 10 months of last year reveal that Australia's exports to the world's economic giant have slipped while US sales to Australia have boomed, widening the trade gap by an estimated $1 billion to top $10 billion.

And pharmaceuticals and sugar, which threatened to stymie the pact initially, have resurfaced as issues of potential conflict.

The acting Prime Minister, Mark Vaile, who is also responsible for trade, this week left open the possibility of bowing to likely US demands to scrap the penalties for US drug companies using so-called 'evergreening' ploys. These are used to extend drug patents as a means of frustrating the entry of cheaper generic drugs into Australia. His caveat was that Australia would only consider backtracking on the amendments forced through by the former Labor leader Mark Latham if the US could produce evidence that they were detrimental. It would in no way be allowed to harm the Pharmaceutical Benefits Scheme.

PBS cost-cutting measures since the deal - particularly a mandatory price cut on new generic medicines which will slash pharmaceutical profits by $1.4 billion over the next four years - are expected to harden the Americans' stance.

Vaile's comments on drugs stirred the Australian sugar industry to demand a rethink of Washington's refusal to allow sugar onto the negotiating table.